Market Report: Miners in a hole after dollar soars

A better-than-expected US jobs report pushed the dollar up, which in turn melted metal prices yesterday and miners ended up buried at the bottom of the blue-chip index.

Commodities giant and metal miner Glencore Xstrata was the hardest hit after the company announced it had upped its stake in US copper and precious metals miner Polymet. Glencore now owns around 28.6 per cent of Polymet which is developing a mine in northern Minnesota.

Glencore, which took over miner Xstrata in May, lost 17.9p to 256.85p and was joined by other poor performers including Mexican metal miner Fresnillo, down 55p to 886.5p, and Chilean copper miner Antofagasta, which was 50.5p worse off at 784.5p.

Michael Hewson senior market analyst from CMC Markets, said: “Copper prices and gold prices have been absolutely crushed in the wake of the resurgent US dollar with gold prices being hurt by the speculation about imminent [quantitative easing] tapering.”

The miners on the mid-tier index were also suffering, but scribblers at Nomura argued in favour of African Barrick Gold, rating it a buy, up from reduce, because of its better balance sheet. They gave it a 155p price target for shares that slipped 0.3p to 105p.

After a a knock-out session the previous day of 3 per cent, the benchmark index yesterday declined on fears that the good US jobs figures would mean an end to monetary stimulus sooner rather than later. The FTSE 100 dipped 46.15 points to 6,375.52.

Despite the drop, Goldman Sachs issued a note predicting the benchmark index could rise to 7,100 on a better economic outlook for the UK.

Property company British Land was popular after it announced a £470m purchase of most of the buildings and development sites in Paddington Central in London – close to the Crossrail site. The group built up a 7p gain to 591.5p.

Quality and safety-testing group Intertek got a boost from analysts at Natixis who raised their rating to buy from neutral. The group, which tests everything from food and clothes to cars and teddy bears, was given a 3,300p price target for shares that rose 19p to 3,014p ahead of its half year results at the end of the month.

An analyst at Macquarie Bank laid out his recommendations of how to improve supermarket giant Tesco. Macquarie’s Sreedhar Mahamkali said Tesco should ditch most of its electronics department in its shops to make way for more food, clothing and health and beauty – things they say customers still want to buy in its shops. He ran the numbers and declared Tesco could add more than 5 per cent to its trading profit if it follows his advice.

Mr Mahamkali also suggested Tesco should “utilise bespoke options” such as its Emporium Bakery – which it has done in its Kensington store – which is “well executed”, while Tesco’s Harris + Hoole coffee store and Giraffe restaurant could also help, he added. Tesco has already been rumoured to be looking at ways of filling up some of the excess space in its largest hypermarket stores and Mr Mahamkali predicted that if the supermarket giant can achieve this then it is worth buying the shares. As a result, he gave them a 400p price target. The shares managed a 1.25p gain to 341.15p.

The latest housing boom caused analysts at Liberum Capital to start covering estate agent Winkworth. Liberum rates the group a buy with a 160p price target and thinks it is “undervalued against its peer group and stands to benefit from rising transactions and prices in the UK housing market.” Winkworth was 4.9p ahead at 115.5p.

Also on Aim, property group Northacre updated the market on its Lancaster Gate project near Hyde Park in London. It has sold all of the apartments and said it expected a total profit share (net of corporation tax) of £49.8m. It constructed a 31p lead to 112p.

Magnolia Petroleum trickled up 0.025p to 2.55p. The company said it had doubled output at its US projects when it revealed initial production from the Marathon Oil-operated Helgeson well, and announced it will be involved with seven new wells in Oklahoma.

Buy

Rio Tinto

Snap up shares in Rio Tinto, Investec insists. The broker thinks the miner is focused on maintaining dividend payments and reducing debt and will return surplus capital to shareholders. Investec rates it a buy with a 3,303p price target for shares that are currently 2,636p.

Sell

Ryanair

Flog shares in airline Ryanair, HSBC suggests. The broker is concerned about the tight European public finances that could threaten Ryanair’s “advantageous” airport support packages and employment structures. Its analysts think it trades at a premium to rival easyJet. They rate it underperform with a €6.50 price target for shares that are €7.23.

Hold

Afren

Hang on to shares in the African oil and gas specialist Afren, Liberum Capital advises. Afren has agreed a deal to invest further in First Hydrocarbon Nigeria which appears to be at a “good price”, the broker thinks. But until there is further detail on this and its recent Ogo discovery, Liberum says hold with a 136p price target for shares that are 136p.