Platinum producer suspends production for second time in two weeks, leaving just two mines open
Mining shares came under pressure following yet more weak Chinese manufacturing data, but Aquarius Platinum was on the slide for different reasons.
The company said it had suspended production at its Everest mine in South Africa, the second closure in as many weeks which means it now has just two out of seven mines operating. Aquarius and the rest of the platinum industry is suffering from labour troubles, low metal prices and rising power and equipment costs. Aquarius said:
The ramp-up at Everest has encountered challenges resulting from poor ground conditions and on-going disruptive industrial relations over an extended period and these issues, coupled with the present low[ platinum] price environment, have rendered the mine uneconomic.
It added that given the industry was generating nearly half a million ounces of unneeded platinum each year, it said the only defensible strategy was to cut all non-essential capital expenditure and suspend all non-producing mines. Its shares closed down 6.5p at 53.2p, and analysts at BMO cut their target price from 150p to 70p. But Dominic O’Kane at Liberum Capital was more positive:
With balance sheet concerns looking overdone and Aquarius vulnerable to approaches, we believe the shares should be underpinned around current levels.
Meanwhile rival producer Lonmin lost 34p to 756p.
Elsewhere, news that Chinese factory output had contracted for the eighth month in a row pushed copper lower, hitting mining shares. Anglo American fell 114p to £21.01, Vedanta Resources 48p to 930p and Kazakhmys 31.5p to 724p.
There were also more signs of economic weakness in Europe, while the Federal Reserve’s plan to extend its bond buying programme disappointed investors who had been hoping for more aggressive action to stimulate the lacklustre US economy.
Reports that Moody’s long awaited downgrade of UK banks was imminent also hurt sentiment. So the FTSE 100 finished 55.93p lower at 5566.36.
But Unilever recovered from recent falls following downbeat comments from peers Danone, the French food group, and Procter & Gamble. In a note entitled Why Unilever is not P&G or Danone, Investec analyst Martin Deboo said:
While P&G and Danone’s profit warnings serve to remind that this is not a time for complacency, we counsel against too much read-across. For us, Unilever is a company that is gaining momentum rather than losing it, whose input pressures are getting better rather than worse, who is relatively less exposed to slowing geographies and who is less of a hostage to guidance fortune. We stay holders, but warming ones.
Unilever added 18p to £20.80 while Reckitt Benckiser, also hit by the P&G and Danone comments, rose 52p to £34.19.
Dixons Retail, like Kesa Electricals a day earlier, reported a fall in profits as the consumer crunch hit sales. But the company said it was seeing signs of improvement, partly helped by the launch of Apple’s new iPad.
The Currys owner’s like-for-like sales fell 3% last year but in the final quarter they rose 8% in the UK and Ireland and 10% in its Nordic business. It said the trend was continuing in the first weeks of the current year. As well as the iPad, it has also benefitted from the UK digital television switchover, and the problems at rivals such as Kesa’s Comet (now sold to a buyout firm) and Home Retail’s Argos. Dixons closed 1.19p higher at 17.19p.
A positive update also lifted software group Micro Focus International 25.7p higher to 477.7p with shareholders hoping for further capital returns of up to 120p a share, while Ashtead added 4.4p to 254.8p after the equipment hire company said full year profits had more than quadrupled to £130.6m, above expectations.
But Invensys lost 37p to 220p as the engineering group admitted it had been in “highly preliminary” talks with Emerson Electric about a possible offer. It has also had talks with companies interested in parts of its business, but said all of these had now ended.
Tintin Stormont at Singer Capital Markets said:
The group’s execution has been disappointing in the last year (leading to the January profit warning) but there is no doubt that its products, market position, and opportunity, particularly in the emerging markets could be very attractive to a trade buyer for the right price.
We see strategic buyers for each of group’s divisions but also think a single buyer for the whole of the group is possible. A break-up is likely to generate the highest value for each division though the group’s large pension may prove a stumbling block than if the group were to be acquired in its entirety by a large conglomerate.
Finally Beowulf Mining dropped nearly 5% to 12.625p despite giving an encouraging update on its Kallak iron ore project in Sweden.