London Stockpile 6-11-09 - Boost for London listings

By Blake Wilshaw

Positive economic news from the US, and India’s purchase of more than 7Moz of bullion helped boost London stocks in the past week.

Unemployment figures from the States showed fewer people filed for handouts than expected, indicating signs of an impending economic recovery.

US auto sales also increased in October, registering the highest rates this year, outside of the July and August “cash for clunkers” scheme.

A recent poll conducted by Bloomberg showed New York had withstood the worst of the financial crisis and remained the leading investment centre in the world, followed closely by Singapore and London.

Back in England, the nation’s central bank raised its bond-purchase plan by £25 billion (US$41 billion), as policy makers tried to gauge where the economy is headed.

The FTSE 100 made a turnaround from last week’s dire performance, when it marked its worst weekly decline since an eight-month rally started in March. On Friday, London’s blue chip index was up about 2% on the week.

Similarly, the FTSE AIM All-Share index had gained about half a percent by the end of the week.

Gold reached a new record in US-dollar nominal terms, brought about by the Indian central bank’s decision to purchase 200t from the International Monetary Fund.

The average price paid was a heady US$1,045/oz. The Royal Bank of Scotland said the precious metal had more upside, particularly with IMF preparing the sale of a further 203t. RBS said there was an increasing chance the gold would be sold off-market. “More enticingly still,” the bank said, “central banks may look to boost holdings through purchases in the market, shifting them from net sellers to net buyers for the first time in decades.”

As a result, the big movers on London’s main market were all gold stocks.

Central Rand, Randgold, Petropavlovsk and Hochschild fared well, increasing 10-15% in during the week.

Copper producers were also up, with Kazakhmys, Antofagasta and Vedanta firming about 10%.

Vedanta, India’s largest producer of the metal, reported a drop in first-half profits to US$188.2 million, as commodity prices fell and costs rose. Good news came from Fitch Ratings, with analysts saying the company wouldn’t be impacted by a legal investigation into its 55%-owned subsidiary Sesa Goa. The latter, which produces iron ore on India’s west coast, has come under scrutiny from the Serious Fraud Investigation Office for alleged “malpractices” and “financial irregularities”. Vedanta could be sheltered from any fallout, because it took its majority stake after the alleged infringements.

BHP Billiton and Rio Tinto’s UK shares jumped 4% and 8% respectively.

It was a mixed bag on the AIM market, with those capped at more than £100 million staying flat.

One exception was Greek gold-developer, European Goldfields, which soared 15%. The company, valued at more than £700 million, has had an eventful month, with the surprise ousting of both chairman and chief executive, and receipt of environmental approval for its flagship assets.

South African-platinum interest Sylvania lost about one-tenth of its value, with the market reacting negatively to the announcement it would enter into a JV with Jubilee Platinum. Sylvania had previously pinned its hopes on a merger with metals processor Ruukki Group, which broke down earlier this month.

Another promising sign for AIM was the debut of London Mining. The company brought some of its Oslo-listed shares over to London, and they quickly increased from their £1.92 listing price.