BHP, Rio Tinto, Miners Led UK Stocks

123jump.com Staff
24 Sep, 2007
New York City

Stocks in London closed marginally higher. Mining stocks closed sharply higher on falling dollar and rising metals and oil prices. Rio Tinto, BHP Billiton, Antofagasta, and Vedanta Resources closed higher. BHP is reported to have found one of the largest gold deposits, discovered in the recent years. Tesco jumped on broker recommendation. Wolseley reported lower than expected earnings on the U.S. housing sector slow down.

[R]1:00PM New York, 6:00PM London – Miners led the stocks in UK trading. August budget deficit rose to a record 9.1 billion pounds. UK banks upbeat about plans to introduce changes in the banking system.[/R]

UK stocks advanced on the first day of the week trading to close firmer at 0.14% or 9.2 to 6,465.9 spurred by gains from mining shares Rio Tinto Antofagasta, BHP, Vedanta and Xstrata plc demand for yellow metal as an alternative investment.

Of the FTSE 100 shares, 39 gained, 62 declined while 1 stock remained unchanged. Northern Rock fell further. Antofagasta led the winners on the FTSE 100 stocks. BHP was the second on news that it has discovered what could be the world largest gold reserve in southern Australia.

Gold traded near its highest level since 1980 in London as the dollar weakened to record levels against the euro and twelve currencies in Asia. Northern Rock slid amid speculation that it may not pay its interim dividend. Northern Rock has not issued a statement on the interim dividend so far.

Chancellor of Exchequer Darling announced that he was considering a broader package of financial reforms in the light of the Northern Rock crisis.

Northern Rock culminated the UK worst banking crisis in more than three decades when it applied for emergency loan from the Bank of England to keep it operating. Depositors withdrew at least 4 billion pounds of their savings, which is equal to 8 percent of the bank''s total deposits. Northern Rock stock took a sharp decline, losing over 50% since the day it sought emergency funding.

Office of the National Statistics reported a budget deficit of 9.1 billion pounds in August higher than estimated by economists. There was an increase in the spending while profits from revenue slumped. Government on the other hand had to serve money as inflows from the financial services sectors sharply fell. The deficit was sharply higher than forecasted by most economists despite higher revenue from financial services and corporate tax collection.

Government income rose 3.6% while value-added tax declined 1.6%. Corporation tax payments declined by 50% as a result of the rebates. Spending was up 7.4 %, departmental outlays rose 8.7% while higher borrowing costs pushed up interest payments.

Of the FTSE 100 stocks, Antofagasta jumped 6.6% followed by a rise of 5.6% in BHP, 4.7% in Vedanta Resources, 4.6% in Xstrata, and 4.1% in Marks and Spencer. Other miners advanced as well, Anglo America and Rio Tinto which put up 4.13 and 3.83% respectively. Of the stocks in the index Northern Rock led the decliners with a loss of 11.5%, followed by losses of 5.8% in Taylor Wimpey, and 4.8% in Wolseley. Barrat Development declined 4.64% while 3i Group edged 3.57%.

Wolseley Plc reported its first decline in annual profit in six years after the U.S. housing market slowed and new residential construction level declined. Net income at the end of July dropped 12% to 474 million pounds or 73.17 pence a share, from 537 million pounds. Analysts estimated profit of 484 million pounds.

[R]11:00AM New York, 8:30PM Mumbai - Sensex advanced 1.7%. The rupee keeps on appreciating against major currencies. Government urged exporting companies to increase efficiency as a hedge against hardening on the Indian currency.[/R]

Sensex in Mumbai opened the week firmer as the market kept on rising in both session of trading on steady buying demand for index stocks. The 30-shares BSE Sensex closed firmer at 1.7% or 281.6 to 16, 845.83. For the second trading day in a row, Reliance companies pushed up the stocks. The CNX Nifty galloped 1.96% 94.65 to 4,932.20.Of the BSE stocks, 1,454 shares fell, 1,302 rose and 51 remained unchanged.

Of the Sensex 30-share index 25 socks were up and 5 declined. The BSE net turnover declined to 7,744 crore rupees from 8,279 crore rupees on Friday. The turnover on the National Stock Exchange jumped to 18,831 crore rupees from 16,687 crore rupees on Friday.

For the second day in a row Reliance group of companies led the rising stocks.

Reliance Energy led the gainers in the Sensex index and Infosys led the decliners. Reliance Industries closed to a record high of 2,357 rupees after the company said that it has discovered oil in one of the blocks in the Krishna Godavari basin. Reliance, the sole owner of the block, is still evaluating commercial viability of oil. Reliance Communications gained 3.3% to 598 rupees on heavy trading volume of 38 lakh (3.8 million) stocks. Reliance Petroleum surged 8%, Reliance Natural Resources soared 22%, Reliance Capital added 1.9%, and IPCL jumped 3.3%.

The record total turnover on two largest exchanges has crossed over 25,000 crore rupees ($6 billion) reflects growing participation from domestic and international investors in Indian stock markets. Five years ago total trading volume on two exchanges rarely crossed above 4,000 crore rupees or $1 billion.

Commerce and Industry minister Kamal Nath said government will not intervene on rupee appreciation against major currencies. Kamal Nath advised companies to enhance efficiency and reduce costs to remain export competitive. Software companies with more than 50% of their revenue in dollar and with little room to increase price and rising wages in domestic market is likely to b affected the most. The Indian rupee strengthened to its highest level in nine years, spurred by expectations of strong inflows into the stock market.

The Indian currency has risen nearly 11% against the dollar this year and about 14% in the last twelve months. The Reserve Bank of India has not intervened in the currency market and let rupee appreciate to lower the cost of oil and other imports. Economic growth in India has led international trade deficit to expand in the last three years. The government target of $160 billion in exports may not be met if rupee keeps rising against the dollar. Various government and private sector economists have projected Indian economy to grow between 8.5% and 9%.

IT stocks traded weak in both trading sessions as rupee continue to strengthen against major currencies. Most IT companies generates 50% of their revenue from exports to the U.S. Infosys Technologies led the decliners in the Sensex index. It lost 3.30% to 1,761.9 rupees on 2.83 lakh shares Satyam Computers shed 2.8% to 407 rupees, and TCS dropped 1.08% to 1,004 rupees.

The government controlled aluminum giant NALCO reported that it losing around 120 crore rupees per month due to rapid appreciation of rupee.

Of the Sensex stocks, Reliance Energy gained 8.2% to 1,092.10 rupees on 21.52 lakh shares. The stock traded at intra-day record of 1,130.70. Recent media reports say the company is scouting for coalmines in Indonesia, Australia, Africa and Mozambique.

National Thermal Power Corp, surged 5.00% to Rs 196 rupees on 46.18 lakh shares. Today the stock was added to the CNX Nifty index replacing Dabur India.

Hindustan Construction jumped 2.3% to 146 rupees after the company joint venture received an order from Delhi Metro Rail to build two underground stations for a price of 774 crore rupees. The HCC share of the order is valued at 255 crore rupees.

Maruti Suzuki India galloped grew 7.47% to 999 rupees. The company was last week granted the green light by Foreign Investment Promotion Board to form a joint venture with Futaba Industrial Company of Japan to set up an exhaust parts manufacturing facility in Haryana.

Bharti Airtel, closed up 2.52% 941.50 rupees on news that the cellular company was given the license to start Direct-To-Home services. It has also announced its 150 crores rupees investment in the first phase to launch a nation-wide operation and will be in direct competition with a company controlled by Tata.

Bhel advanced 1.82% to 2,002 rupees. It is also targeting a turnover of 45,000 crore rupees during the next 5 years.

ING Vysya Bank surged 7% to 262 rupees on the news report that it is in preliminary talks to acquire Centurion Bank of Punjab. Syndicated Bank jumped 1.8% to 91 rupees after the reports that it is planning raise capital through public offering.

[R]10:00AM New York – Tech and mining stocks in New York advance. Emerging markets jump sharply.[/R]

In the early morning trading in New York Nasdaq led the advance with a gain of 0.4% or 11 points to 2,682.25, and Dow and S&P 500 gained 0.1%.

Tech stocks rallied in the morning led by Oracle and EMC. Citigroup and Bear Stearns revised the outlook for both companies. Citigroup was also lead underwriter for the recently spun off subsidiary VMware of EMC. EMC ((EMC)) in the early trading is up 3%.

General Motors ((GM)) and Ford ((F)) are trading higher in the early morning after the UAW set a deadline of 11:00AM EST today. GM and Ford are trading nearly 2% higher on the optimism that a deal between the union and GM may resolve long standing dispute on health care coverage and pave way to reduce costs for the GM.

Mining stocks were sharply higher on the heels of Australian $2.4 billion deal. Australia basd Sundance Group and Gindalbie have agreed to merge their operations and create one of the largest iron ore mining companies in the world. The news lifted stocks of Brazilian based CVRD ((RIO)), India based Sterlite ((SLT)), UK based Vedanta Resources, and other large steel companies stocks.

Asian markets closed higher led by higher metal prices and rising indexes across the region. Hong Kong led the region with a rise of 2.8% followed by gains of 1.7% in India, 1.4% in Australia and Taiwan. Indonesia increased 0.8%, Malaysia gained 0.8%, and Thailand added 0.6%. Hong Kong and Sydney, Australia indexes closed at a record high.

In Hong Kong China Mobile ((CHL)) added 6% and Petro China ((PTR)) surged 10%. Petro China soared on the news that a hearing for the company application for its dual listing in Shanghai will be held by the Chinese regulators. Hong Kong Exchanges and Clearing surged 9% and is now up more than 40% on the hopes that China will permit local investors to invest in Hong Kong.

Japan is closed for a holiday.

In European trading market indexes at mid-day trading are mixed. Mining stocks in London trading are higher led by a sharp rise in Kazakmy’s, Rio Tinto, and BHP Billiton. Volvo dropped after a decline in truck sales in August, retailer Metro in Frankfurt trading fell after UBS cut its rating to ‘neutral’ from ‘buy’, and banks in Paris trading fell 1.5%.

[R]7:00AM New York, 8:00PM Sydney - Australian stocks shots to a record as U.S. dollar continues to weaken. Gindalbie and Sundance agree to merge. Orica purchases Excel Systems based in the U.S.[/R]

In Sydney trading ASX 200 Index gained 1.5% or 93.6 to 6,451.50 on a trading volume of over 1.7 billion shares traded. The Aussie stocks set a new record riding on a weakening U.S. dollar that is reeling from interest rate cuts by the U.S. Federal Reserve to counter recession threats. The Aussie dollar was trading at $0.8672, down from $0.8682 at the close of trade last Friday.

Gindalbie Metals and Sundance Resources have agreed to merge and form A$2.4 billion iron ore giant. According to the proposed merger terms Gindalbie will offer for every two shares of Sundance one stock of Gindalbie. Based on the closing price of Gindalbie on Friday of A$1.70 the offer values the Sundance at A$1.6 billion and represents 14.9% to the closing price of Sundance on Friday of 74 cents. The newly formed entity will have a market cap of A$2.4 billion. After the merger Sundance shareholders will hold 65% of company.

Iron ore prices have remained at historic highs after CVRD of Brazil and BHP Billiton of Australia raised prices of more than 100% in the last two years. The price of the ore is likely to advance in the coming years but at a slower pace. The rising prices have not hurt hedemand for iron ore from China and economies in the West.

The combined Gindalbie/Sundance group will have a market capitalization estimated at A$2.4 billion, a strong balance sheet with cash reserves of approximately $126 million (net of transaction costs), no debt, and a substantial asset base comprising a magnetite Resource of 1.43 billion tons at 36.3% iron, a magnetite Reserve of 497 million tons at 36.3% iron, and a hematite Resource of 27.1 million tons at 61.7% iron. The Mbalam Project in Cameroon is expected to provide a better quality of iron ore grade.

George Jones, the chairman of both companies and Sundance largest shareholder Talbot Group Holdings have accepted the merger agreement. Sundance stock rose 14% on the news and traders expect higher deal from other bidders.

In another deal Orica has agreed to purchase Excel Mining Systems.

Orica, the world''s largest industrial explosives maker, gained 5% after it agreed to buy Excel Mining Systems LLC for about U.S. $670 million. The industrial explosives maker is riding the boom in mining activities led by a steady rise in demand from China. The company has been on an acquisition spree and recently bought for $A900 million Minova, maker of roof bolts and specialty chemical in mining infrastructure projects. Orica gained 5% to close at A$29.32.

Excel, the largest manufacturer of specialty bolts and accessories for strata support in underground mining in the USA. Excel’s annual sales are in excess of US$240 million (A$277 million) and it has approximately 325 employees.

According to company press release, Cost, revenue and other benefits are expected to reach approximately US$50 million (A$58 million) per annum by year three. These include plant optimization, elimination of duplicate administration, improved supply chain, tax benefits and leveraging the respective customer bases of Minova and Excel. Excel provides the technology and expertise to introduce metal based strata products into existing geographic regions currently serviced by Minova. Orica estimates total implementation costs to achieve these synergy benefits of US$55 million (A$64 million) including US$25m (A$29 million) of capital expenditure. Excel manufactures and distributes of specialty bolts and accessories for strata support in underground mining in the U.S. and holds more than 45 percent of the market share.

The Aussie dollar traded better in the morning before a diversion of attention to other currencies saw it tumbling. Trade in the Aussie dollar was restricted to between a high of $0.8689 and a low of $0.8658. The Australian economy on the back sharp rise in metals and energy price and steady exports to China is enjoying a decade long expansion. Expectations were for the Australian dollar to remain within the $0.8650 and $0.8700.

Elsewhere materials and resources stocks rallied 3.7% over the day''s trading. BHP which rose 5.22%, while Rio Tinto added 3.4% as a result of a rise in copper prices that shot to an eight-week high.

The rise in copper prices was influenced by the doubling of imports of refined copper by the World''s biggest importer of copper, China within the first eight months of the year. Imports of the metal rose to 1.1 million tons representing a 99 percent jump from last year.

BHP traded higher on rumors that it discovered the world''s biggest gold resource at Olympic Dam mine in South Australia.

Of the ASX 200 index shares, Aquarius Platinum came tops rising 9.85% after platinum hit a new high since the early May followed by Lynas Corporation at 9.35% higher, Tower Australia rose 8.13% with Fortescue Metals and Transpacific Industries up 7.89% and 7.45% respectively. Of the ASX 200 index stocks, Hills Industries fell 2.83% followed by Australia Worldwide down 2.92%, Cochlear Limited sank 3.10 % followed by Emeco Holdings down 3.13% and Gunns Limited lost 3.73%.