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Oil and gas, US news drag FTSE 100 into the red

Published: 06:52 01 Aug 2009 AEST

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The top tier index balanced around the opening level for most of the day expecting to get a lift from the US market, which instead produced mixed results.

US GDP posted a 1% decline, which is considerably less than the 5.5% decline seen in Q1 and high enough to beat the estimates, which put it at 1.5% before the data came out. However, the positive GDP update came out against a backdrop of declining consumer spending in the US, which fell 1.2% after making slight progress in the previous quarter.

 

The FTSE 100 leaned towards the red by the end of the day, finishing 20 points down.

 

The day began with the FTSE 100 falling into the red after an initial bounce, first bolstered by good news from British Airways (LSE: BAY), while publisher Reed Elsevier (LSE: REL) recovered some of yesterday’s meltdown.

 

Thursday saw a number of positive corporate reports come out, which, along with the news from the US markets lifted the FTSE 100 and helped it to a day of solid gains after seeing its record matching winning streak snapped earlier in the week.

 

Friday was also busy, opening with a plethora of news releases headed by the British Airways, which reported consistent passenger numbers, helping itself to 6.3% jump, despite record quarterly losses.

 

Miners were mixed after reporting widely expected revenue and profit losses in the wake of lower commodity prices, but at the same time released encouraging production updates and outlined measures to battle weaker demand. Anglo American (LSE: AAL) put up better than expected profits, owing to an efficient cost cutting campaign that involved massive layoffs and asset optimization, while Vedanta (LSE: VED) said production in all key businesses was up, still failing to offset the losses associated with lower metal prices.

 

Anglo was also motivated by Xstrata’s merger offer, leading it to reveal its copper resources were up 50% after two discoveries in Chile a month after rejecting Xstrata’s proposal. AAL finished roughly flat, posting gains below 1%, while rival Xstrata (LSE: XTA) was up 3.7%.

 

The leading fallers included hedge fund manager Man Group (LSE: EMG), which was a casualty of UBS’ decision to downgrade the stock to “sell” from “neutral,” sending it down 4%. Insurance firms Old Mutual (LSE: OML) and Standard Life (LSE: SL) also were in the losers pile, declining 3.6% and 4.6% respectively ahead of their upcoming earnings reports.

 

Notable risers included leisure travel group TUI Travel (LSE: TT), which was able to cut recruitment costs by some 50% by implementing an e-recruitment solution provided by software developer StepStone. TUI was 2.5% in the blue to become the FTSE 100’s second leading riser, trailing only BA. However, it later gave way to miners and Land Securities Group (LSE: LAND), which gained 3%.

 

Commodities

 

Both precious and base metals were off to a good start on Monday, starting what appears to be another day of gains and providing support for the mining sector amid the release of a number of corporate reports.

 

Gold rose again, moving up to USD 939/ounce. Other precious metals mostly followed with gains. Silver was flat at USD 13.47/ounce after advancing earlier in the day, while Platinum inched closer to the USD 1200 milestone, gaining USD 12 to improve to 1193/ounce.

 

Base metals also were in demand. Copper continued gains, improving to USD 2.57/pound, Zinc rallied to USD 0.77/pound, while Nickel reached the USD 8.00/pound mark.

 

Oil and gas sector down on negative Eni and Total reports

 

Oil supermajors BP (LSE: BP) and Shell (RDSB) weren’t among Friday’s newsmakers, but both travelled down along with the rest of the oil and gas sector on the heels of the net profit slumps reported by France’s Total and Italy’s ENI. The latter saw net profits fall 76% amid declining hydrocarbon production and lower oil prices, also cutting its interim dividend by 23%. Oil and gas player BG Group (LSE: BG) was also dragged down a couple of days after reporting a 30% profit decline and announcing it would miss production targets, shedding over 4%.

 

Oil prices were up yesterday amid a surge on key global markets, yet retreated slightly on Friday. London Brent slipped to USD 68 after hitting USD 70 yesterday, while September benchmark crude went south by USD 1.77, arriving at USD 68 per barrel.

 

Middle of the pack companies and juniors were mixed. Cairn Energy (LSE: CNE) slid 1.6%, Dragon Oil (LSE: DGO) moved up 1.2%, while Dana Petroleum (LSE: DNX) added 1%.

 

Victoria Oil & Gas (LSE: VOG) started with a 2.5% gain, but lost steam as the day went on, Ascent Resources (AIM: AST) and Max Petroleum (AIM: MXP) both climbed 3%.  Italian gas producer, Mediterranean Oil & Gas (AIM: MOG) rose 5%.

 

Precious Metal Companies mixed

 

Aquarius Platinum (LSE: AQP) fell 3% to 248p after releasing fourth quarter production results. Johnson Matthey (LSE: JMAT) was little changed, but Lonmin (LSE: LMI) outperformed the sector, rising 1%.

 

Gold producers did slightly better. Peter Hambro Mining (LSE: POG) climbed 1%, while Randgold Resources (LSE: RRS) retreated less than 1%.

 

Silver producer and FTSE 100 constituent Fresnillo (LSE: FRES) followed the silver price and lost slightly during the day, while FTSE 250 silver miner Hochschild Mining (LSE: HOC) recovered after posting losses in the morning and climbed 3.5%.

 

Junior Gold companies were largely unmoved, but Oxus Gold (AIM: OXS) added 4.4%, while Norseman Gold (LSE: NGL) added less than 1%.

 

Central China Goldfields (AIM: GGG) was up 6.7% after upping 7% yesterday, while Gold and Silver exploration junior Mariana Resources (AIM: MARL) lost 2.2% despite reporting 7 new identified gold-silver targets at one of its projects in Argentina.

 

Miner Noventa (LSE: NVTA) was the top riser in the miming sector with a gain of over 20%.

 

Cement operator Prosperity Minerals Holdings Limited (LSE: PMHL) also impressed with a 16% surge.

 

Big Miners in for correction

 

Just like Anglo American (LSE: AAL), BHP Billiton (LSE: BLT) slipped 1%, while Rio Tinto (LSE: RIO) finished with modest gains.

 

Copper miners were little moved. Vedanta Resources (LSE: VED) gained slightly, while Antofagasta (LSE: ANTO) dipped into the red by less than 1%. Kazakhmys (LSE: KAZ) advanced 3% and First Quantum Minerals (LSE & TSX: FQM) climbed 2.3%.

 

Insurance, banks, private equity rise

 

Financial stocks appeared little moved after the parliament’s treasury committee called for tighter regulations of the banking sector in a report published today.

 

RBS (LSE: RBS), Barclays (LSE: BARC) and Lloyds Group (LSE: LLOY) showed little progress, while HSBC (LSE: HSBA) gained 1%. Standard Chartered (LSE: STAN) climbed 1.6%.

 

Other than Old Mutual and Standard Life, insurers put up a mixed performance on Friday. Legal & General (LSE: LGEN) pulled back 1.8%, while Aviva (LSE: AV.) climbed 1.3%, Prudential (LSE: PRU) rose a little over 1%. RSA Insurance Group (LSE: RSA) tumbled 2%.

 

Private equity group 3i (LSE: III) was up 1%.

 

Large Cap News

 

Bingo hall and casino operator Rank Group Plc (LSE: RNK) has said it has made “significant earnings progression despite challenging operating environment”, as revenues and profits rose, helped by solid trading results from its casinos.

 

In its half yearly report (ending 30 June 2009) the group said the pretax profit increased to £24.7 million from £17.6 million for the equivalent period of the previous year, while group revenue was at £266 million, also an improvement from last year’s £257 million.

 

Anglo American plc (LSE: AAL), another FTSE 100 miner to release its interim financial report and updates on its key projects this morning, hardly surprised anyone by posting a fall in profit and revenues, hit by weaker commodity prices.

 

The group’s revenue in the first half of 2009 slipped to USD 11.1 billion, a year on year decline of 37.9% from the equivalent period of the previous year. EBITDA (earnings before interest, taxes, depreciation and amortisation) collapsed 57.6% to USD 2,985 million.

 

Services, maintenance and building group Interserve PLC (LSE: IRV) said it has been named preferred bidder by HSBC (LSE: HSBA) for a £200 million contract to provide facilities management (FM) services across the banking and financial services organisation's property portfolio in the UK.

 

Commercial property group Liberty International (LSE: LII) said it is seeing signs of at least a measure of stability, if not yet recovery, in property and economic market conditions as losses in the first half held steady and net rental income was only marginally lower than in the previous first half.
Net rental income in the six months to June 30 2009 dipped to £190 million from £194 million a year earlier, while pretax loss narrowed slightly to £452 million from £458 million.

 

Infrastructure software group Autonomy Corp PLC (LSE: AU) said it has entered into a significant  Original Equipment Manufacturing license agreement with Siemens AG of Germany.The value or duration of the deal were not disclosed.

 

FTSE 100 constituent miner Vedanta Resources (LSE: VED) reported a 32% slide in revenues, blaming the slumping commodity prices, yet said production increased in all of its businesses.

 

The company released its quarterly report for Q1(ended 30 June 2009) this morning, revealing a 32.8% year on year drop in revenues to USD 1.36 billion and a 52% decline of total EBITDA (earnings before tax, interest, depreciation and amortisation) to USD 354.7 million.

 

Engineering, construction and services group Balfour Beatty PLC (LSE: BBY) said its 50 percent controlled infrastructure contractor Gammon Construction has been awarded a HK$3.76 billion, or £300 million, contract by the Hong Kong government for the construction of a sewage conveyance system.

 

The contract is the largest single civil engineering contract ever won by Gammon.

 

British Airways PLC (LSE: BAY) said trading conditions continue to be very challenging with underlying revenue down 16.8 percent in the first quarter and no visible signs of improvement and reported a £148 million pretax loss compared with a 37 million profit a year earlier.

 

Revenue in the quarter to end-June fell 1.98 billion, a 12.2 fall from a year earlier when discounting exchange rates.

 

South African focused platinum miner and FTSE 250 constituent, Aquarius Platinum (LSE: AQP), reported a slight production increase in the past quarter (Q4), but failed to benefit from higher commodity prices owing to the stronger rand to US dollar exchange rate.

 

In its Q4 report released today the company said it was able to improve quarterly attributable production to 98,258 PGM (Platinum Group Metal) ounces, a 1% increase from the previous quarter.

 

Small Cap News

 

Adult epithelial stem cell specialist, Epistem plc (AIM: EHP) confirmed yesterday that it would post a maiden profit after tax for the full year ending 30 June 2009, thanks to “strong” trading and a tax credit from the prior year.

 

Shares in Epistem were little moved on the announcement, not entirely unsurprising when looking at the strong appreciation in its share price over the past few months.  Clearly the market was confident that the company would hit its numbers, and the market is not often wrong.

 

Shares in Probability plc (AIM: PBTY) were in demand this morning after the company announced an agreement with Orbis Technology and reported key performance indicators (‘KPI’s’) for the first quarter of its financial year.

 

For the period covering 1 April to 30 June 2009, Probability’s net gaming revenues rose to approximately £1.25 million (Q4 2008: £1.12 million) while the company added 67,650 new customers (Q4 2008: 49,506).  Net gaming revenues also climbed by approximately 11% quarter on quarter.  “The trend to increased volume in recruitment and yield from customers is expected to continue into the summer months, supported by planned major game launches, including 'Battleship' and 'The X Factor' slots games,” Probability noted.

 

South American focused mineral hunter, Mariana Resources (AIM: MARL) reported positive progress at the Dos Calandrias gold-silver project in Santa Cruz Province, Argentina.  The Dos Calandrias Project is located within Mariana Resources’ 100% owned Tongoril tenement in the central part of the Deseado Massif. Santa Cruz Province is a hot bed of activity for mineral exploration thanks to numerous gold-silver discoveries in recent years combined with supportive framework for mining companies.

 

Northern Petroleum (AIM: NOP) expanded its footprint in the waters off of Sicily this morning, confirming that it had been preliminarily awarded offshore permits d25G and d26G which are adjacent to six licences the company placed into a joint venture with Shell’s (LSE: RDSB) Italian subsidiary in December 2008.

 

The two licences cover 897 square kilometres in the Apennine-Maghreb Thrust Belt, bringing the company’s total offshore acreage in Italy to 5,267 square kilometres.

 

Regency Mines PLC (AIM: RGM) said it expects first results from drilling at the Botue-Mambare nickel exploration project in Papua New Guinea by early August 2009 with the rest to follow shortly thereafter.

 

Regent expects to be in a position shortly to issue a preliminary drilling report covering the holes where results have already been received. It hopes to produce a full report in the next few weeks following receipt and analysis of all remaining drill results.

 

Rusina Mining NL (ASX: RMA; AIM: RMLA) said the heap leach trial (HLT) at the Acoje nickel project in the Philippines is now mechanically complete, and 3,000 tonnes of laterite ore is in the process of being crushed for the pad.

 

Construction continues on a steel roof structure to house the downstream Resin in Pulp / Ion Exchange facility which is scheduled to be operational late this year, the group said in an activities update for the three months to end-June 2009.


Thor Mining PLC (AIM, ASX: THR) said an investigation of alternatives to reduce capital and operating costs for the Molyhil tungsten-molybdenum development project in Australia's Northern Territory continues and is expected to be finalised at the end of August 2009.

 

In its quarterly update for the period to end-June 2009, it said the price of Molybdenum Roasted Concentrates has increased by 87 percent to US$15.00 per pound since April Aprol. Molybdenum prices have steadily strengthened on tight European supply and strong Chinese demand.

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