Mining Journal > Finance > Stockpile: Rebounding commodities lift London market after poor week

Finance

Mining stocks on the main market were down for much of the week in London after an eventful period that saw a revised Australian resources tax announced, raised Chinese growth fears and tumbling commodity prices.

The market received a welcome jolt on July 2 with the announcement of a new, scaled-down, mining tax proposal from the Australian government, and a bounce in commodity prices after three straight days of losses (blamed on concern that Chinese economic growth was slowing).

After two months of strong opposition, and a change of Australian Prime Minister last week, major miners BHP Billiton, Rio Tinto and Xstrata were finally granted their wish of a compromise on the proposed resources tax.

The news helped the companies make up some of the ground lost earlier in this week, although the share price of all three still finished down about 7%.
Despite the renewed optimism in Australia, Olivetree Securities warned the industry shouldn’t get too excited about the proposal, now known as the Mineral Resource Rent Tax (MRRT).

Olivetree said: “It’s a weak bluff really. The reality is that the Chinese government has been able to bring the miners under control, who in turn are not putting up with the Australian authorities either.”

Also lifting the sector was a surge in copper prices, and a further improvement from gold. Copper bounced back to US$6,476/t by Friday (a rise of 2.3% from a day earlier) on speculation that the earlier drop was excessive. Gold recovered slightly from its biggest drop in five months as investor interest again perked up.

However, this wasn’t enough to save the market from a forgettable week, with only Anglo Pacific Group plc having reason to be cheerful. The company was the sole gainer of the FTSE miners, with an advance of more than 4%.

Aquarius Platinum Ltd was the week’s biggest faller, plummeting almost 14% on news that production will be slowed at the Blue Ridge mine in South Africa. The company is reviewing the safety plan at the mine after two fatal accidents in the past month.

Ukrainian iron-ore producer Ferrexpo plc dropped by over 11% despite reporting total pellet output was up 18% for the past financial year. The company noted that it was continuing to buy third-part concentrate to meet demand.

Namakwa Diamonds Ltd and Eurasian Natural Resources Corp were amongst other companies to record significant losses, with falls of about 10% each.

On AIM, Palmaris Capital plc was the standout performer of the small caps after announcing that it would be selling some, or all, of its 16.1% investment in Scottish Resources Group plc (SRG) through the open-pit coal miners’ initial public offering (IPO). An equity value in excess of £220 million (US$334 million) will be sought by SRG.

In its latest results announcement to end-December, Palmaris valued its 6.44 million shares in SRG, its sole remaining investment, at £15.46 million, or £2.4/share. The proposed IPO-value, and an intention to sell £25 million of new shares, implies a share price of more than double the value in Palmaris’s books (at end-December).

Ovoca Gold plc added 9% in the week. The company recently reported a maiden inferred gold resource of 344,000oz at its Olcha gold project in the Magadan region of Russia.

Bellzone is trading back at the £0.33-0.34/share level after the trading above £0.50/share about a month ago. The shares jumped by 50% on May 24 when an memorandum of understanding was signed with the China Infrastructure Fund over the company’s iron-ore project in Guinea.

Caledon Resources plc was down about 17% after merger talks with Polo Resources plc (a significant shareholder) were terminated due to "unfavourable market conditions".