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Lonmin backs down, agrees to work alongside unions
MARKET BLOG: FTSE 100 closes up as miner says it is working with South African government and unions to calm strike tensions.
- Oil and euro rally as investors cling to ECB hopes
- Heritage Oil tops FTSE 250 as rights plan dropped
- Persimmon profits surge 65% but shares fall
- Glencore profits down 26% on weaker commodities
- Miners lead FTSE 100 higher
16.40: Lonmin (LMI.L), the platinum miner at the centre of the bloodiest labour dispute in South Africa since the end of apartheid, has promised to work with the national government and unions to restore normality at its Marikana mine.
The statement follows the massacre of 44 employees in industrial action at the site over the past week after workers called for better wages and living standards.
The latest move represents something of a turnaround from the company’s earlier hardline stance of insisting workers returned to work on Monday or face losing their jobs.
Thirty-three per cent of employees arrived for work at the plant on Tuesday, an increase on the 27% who showed up at the factory on Monday.
However, the mining company warned it now expects to breach its bank covenants owing to reduced production and loss of revenue in the past week, and may be forced to access the capital markets in a $1 billion (£633 million) rescue rights issue. Lonmin (LMI.L) shares added 2.5p, or 0.41%, to 613p in Tuesday trade.
European markets closed with stronger trade on hopes for European Central Bank (ECB) action to help the eurozone’s weaker economies. The FTSE 100 added 0.57%, or 34 points, to 5,858 and the Mid-250 index ticked up 0.66%, or 77 points, to 11,640.
Oil and euro rally as investors cling to ECB hopes
14.54: The euro and commodities are rallying this afternoon, while equity markets are holding on to decent gains, as investors continue to hope for central bank action to help the eurozone’s weaker economies.
The European Central Bank (ECB) yesterday denied reports that it was preparing to take action to cap peripheral nations’ elevated sovereign bond yields. But Mike van Dulken, head of research at Accendo Markets, said thinly traded markets were still being driven by speculation that the ECB would act, given that the Bank’s denial had been ‘coded’, and didn’t categorically deny that such a yield-capping plan could be enacted in the future.
A respectable result in a Spanish debt auction today, as well as anticipation that minutes from the US Federal Reserve’s latest meeting, published tomorrow, will show support for stimulus, were also boosting markets, van Dulken said.
The euro is up nearly 1% at 1.246 against the dollar. The FTSE 100 is 0.4% higher at 5,847, with similar gains seen across European and US markets. Peripheral countries’ borrowing costs remain lower, with Spanish 10-year government bond yields trading just above 6.2%.
Brent crude oil futures, up 1.2% at $115, were following the euro higher, according to Saxo Bank commodity strategist Ole Hansen. ‘The oil price is caught up in European debt optimism. Triggered by a stronger euro, the weaker dollar is the main driver,’ Hansen said.
But ‘the market could get ahead of itself’, he added. The oil price has been climbing since late June, with hopes of economic stimulus combining with concerns about supply from the Middle East and North Sea.
The broader CRB Index of 19 commodities is 0.7% higher.
Heritage Oil tops FTSE 250 as rights plan dropped
11.40: Jersey-based oil and gas company Heritage Oil (HOIL.L) added 22.4p, or 12.4%, to 191p following news that it plans to cancel a proposed $370 million rights issue to raise money to move into Nigeria.
Instead, the company will raise $450 million from a deal with Genel Energy (GENL.L), the investment vehicle launched by Nat Rothschild and former BP chief executive Tony Hayward.
Heritage is to sell a 26% interest in production at its Miran block in the Kurdistan region of Iraq to Genel for $156 million and receive a $294 million loan from the company, which it can redeem through the transfer of its remaining 49% interest in the field to Genel.
Last month the company reached an $850 million deal with Shell, Total and ENI to acquire a 45% stake Nigerian oil fields known as OML 30.
Tony Buckingham, former mercenary and founder of Heritage Oil, said: ‘The proceeds provide significant financial flexibility allowing us to fund the proposed acquisition of OML 30 without any rights issue or other additional capital requirement from, or potential dilution to, our existing shareholders.’
However, Genel Energy shares fell 12p, or 1.7%, to 690p on the news.
Persimmon profits surge 65% but shares fall
10.20: Housebuilder Persimmon (PSN.L) shed 21.5p, or 3%, to 683.5p despite profits soaring 65% in the first six months of the year as a result of building more family-orientated homes in affluent areas.
Pre-tax profits rose to £98.7 million, compared with £60.3 million in the same period of 2011.
The company is on target to deliver its first dividend of 75p to shareholders next June, but warned of the impact of economic headwinds on sales.
Nicholas Wrigley, chairman of Persimmon, said: ‘We expect conditions in the UK housing market to remain challenging reflecting the wider issues within the economy. However, we anticipate continued firm underlying demand for new homes but this will remain constrained by the low level of mortgage availability.’
Analysts at Numis cut their outlook on the stock from ‘add’ to ‘hold’, with a target price of 731p.
Chris Millington, analyst at Numis, said: ‘Persimmon's interims are ahead of our expectations due to better than expected margin progression and a lower finance charge due to continued strong cash generation.
‘However, with the shares now trading at a 20% premium to 2012 tangible assets we feel superior value exists elsewhere and our preferred company in the sector for cash returns is Berkeley Group.’
Glencore profits down 26% on weaker commodities
08.55: Commodities trader Glencore (GLEN.L) took a 26% hit on its first half earnings as commodity prices slumped.
Its first half net income before significant items fell to $1.81 billion (£1.15 billion), down 26% from $2.44 billion (£1.55 billion) earned in the same period last year.
However shares rose 0.55p, or 0.2%, to 354p as earnings came in at the upper end of analysts’ estimates.
Glencore remained committed to its $30 billion (£19 billion) offer for miner Xstrata (XTA.L) and is the biggest shareholder in the company with a 34% stake.
The group has offered 2.8 new shares for every Xstrata share, but the deal is under pressure as Qatar Holding, the second largest investor in the company has called for a better offer, with a ratio of 3.25 new shares.
Ivan Glasenberg, chief executive of Glencore, said he ‘cannot understand’ the demands for a better offer from Glencore and believed the weakness in the commodity market has made the possible deal even more attractive.
Xstrata made the biggest losses on the FTSE 100, down 3.9p, or 0.43%, to 904p in early morning trade.
However Buxton and David Cumming, manager of the Standard Life Investments UK Equity Growth fund both vowed to vote against the merger earlier this year as they believe the offer undervalues the mining company.
Miners lead FTSE 100 higher
08.12: The FTSE 100 has opened higher, up 0.3% to 5844, with miners and resources companies amid the early risers.
With little economic news to go on – with UK public finance figures for July are among a thin data output due this morning – investors are instead looking to the latest comments from politicians and central bankers.
The European Central Bank yesterday denied plans that it was preparing to cap yields on peripheral countries’ bonds, so attention turns to meetings planned in coming days between Luxembourg’s prime minister Jean-Claude Juncker with Greek counterpart Antonis Samaras, and between French leader Francois Holland and German chancellor Angela Merkel.
Amid the conflicting reports about ECB action, the hard hit euro managed to edge higher, up 0.2% to $1.2368.
Russian steelmaker Evraz (EVRE.L) was the biggest gainer in early trading, up 1.7% at 263p. Precious metals miner Polymetal (POLYP.L) was also making gains, up 1.8% at 944p. Vedanta (VED.L), Rio Tinto (RIO.L) and Fresnillo (FRES.L) were also among risers in early trading, up around 1%.
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- Rio Tinto PLC (RIO.L)
- Fresnillo PLC (FRES.L)
- Glencore International PLC (GLEN.L)
- Xstrata PLC (XTA.L)
- Persimmon PLC (PSN.L)
- Heritage Oil Plc (HOIL.L)
- Genel Energy PLC (GENL.L)
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- Lonmin PLC (LMI.L)
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by Gavin Lumsden on Jul 22, 2016 at 16:24