Market Report: Lonmin remains haunted by troublesome furnace

Lonmin was under pressure after yet another problem with its main furnace undermined sentiment last night.

The platinum producer said its Number One furnace, which went offline following problems at the end of March, had to be shut down after suffering a leak during the recommissioning process. The problem occurred as the furnace was being stabilised after being restarted earlier this month, and means that "commissioning will now take another 23 to 30 days", according to the company.

"One smelter failure is a misfortune ... but nine in eight years?" Charles Kernot, an Evolution Securities analyst, said in response, repeating his "sell" stance on the stock, which fell by 21p to 1,616p. "Last year, the company thought it understood the problems in the smelter and was able to run and manage it with a reduced chance of this happening – but this is clearly not the case," he added. "It will lead to additional costs both from outsourcing smelting to other producers and from running its old Pyromet furnaces."

the markets closed slightly higher, with the FTSE 100 adding 6.68 points to 5,069.61 and the FTSE 250 gaining 30.63 points to 9,477.57 amid hopes that the Chinese government would relax monetary tightening measures in response to the European debt crisis. News of the weekend bailout of one of Spain's largest regional lenders capped the gains, however, with concerns about southern Europe continuing to do the rounds.

"For the euro and Europe to regain any credibility and hopes for growth, Greece should be put into restructuring asap, maybe others too," Bob Janjuah, a Royal Bank of Scotland strategist, said in a note to clients. "The alternative is a black hole whereby wealth is destroyed in northern Europe as it is sent to bailout unviable countries in the south."

The worries led to an early sell-off around the banks, but the sector switched course as the session progressed, with the Royal Bank of Scotland adding 0.12p to 45.37p and HSBC rising to 630.7p, up 1.5p. Barclays also make some headway, gaining 1.95p to 300.85p, after Seymour Pierce upped the stock to "hold".

"We still believe that investors should be questioning the group's reliance on fixed income, currencies and commodities," the broker said, pinning the change of heart on the weakness in the shares since it first advised selling back in April. "We don't think Barclays is a 'buy-and-hold' style investment, but if the share price continues to head south, we might be tempted to advise buying for a trading bounce," he added, keeping his target price unchanged at 276p.

Elsewhere, Imperial Tobacco was 37p firmer at 1,799p after Nomura advised clients to "buy". "Although we see many of the concerns over low- to medium-term underlying profit growth, competition in the US, margins in the UK, plan packaging and [over] leaf cost inflation as justified, we believe these are more than reflected in the current stock price," the broker said, setting what it termed a "conservatively realistic" target of 2,000p.

Capita was lower, shedding 19p to 780p, as the government detailed the first round of public spending cuts. The outsourcer has long been pegged to do well out of the efficiency drive, but those hopes took a backseat last night as the market focused on news that £1.7bn will be saved by delaying or stopping government contracts – potentially limiting the gains for the likes of Capita. Serco also lost ground, easing by 2.5p to 603.5p, on the back of the announcement.

Further afield, Rightmove was broadly unchanged, edging lower by 0.5p to 620p, as Panmure Gordon said that, notwithstanding the potential for some minor disruptions to housing transactions owing to the government's decision to scrap Home Information Packs, the property website should be unaffected by the move. In the wider housing sector, the building group Barratt Developments was 2.9p firmer at 110.2p after JP Morgan Cazenove switched its view to "overweight" from "underweight".

The broker said the market was being too harsh on Barratt, which was trading on depressed multiples despite "the increasing body of evidence, on both a macro and micro scale, which supports our thesis of a recovery housing market". Sector peer Berkeley was less successful, easing by 2p to 784p, after JP Morgan lowered it to "neutral", once again citing valuation grounds. "Berkeley deserves its premium rating, although, from here there are more attractive investment opportunities in the sector," the broker said, abandoning its "overweight" view.

JP Morgan also weighed in on Taylor Wimpey, which rose by 3.4 per cent, or 1.1p, to 33.86p after the broker reiterated is positive stance, adopting a 58p target. "The current valuation [with the shares trading on a discount to book value] does not reflect the group's dual exposure to both the UK and US housing markets," JP Morgan said, adding that, having sorted out the debt issue with a cash call and restructuring, the company's finance director, Chris Rickard, was turning his mind to the pension deficit – something which could act as a catalyst for the shares.