Fear weighs heavily on mining stocks

Mining stocks dragged down the London market as fear, worry and concern became the watchwords of a nervous opening to the week. Investors fretted that too much speculative money had entered the sector and there were long-term worries about commodity prices. Copper prices slid for the fourth day in a row amid concerns about over-supply. Aluminium, nickel and zinc all fell, too, driven down by the possibility of higher exports by China, the world’s biggest user of industrial metals. Eurasian Natural Resources Corporation (ENRC) was the biggest faller in the FTSE 100, losing 26?p to close at 843?p. The world’s largest ferrochrome producer was also affected by poor results from South Africa’s International Ferro Metals, which announced a full-year loss on the back of lower ferrochrome output and prices. There were also reports at the weekend that ENRC is in talks with CAMEC, the AIM-listed copper and cobalt miner, which would increase its exposure to the copper market. Rio Tinto and BHP Billiton were down slightly after speculation about a possible merger of their Canadian diamond mines, with reports in the Australian press suggesting that BHP had already sent employees to Canada to examine a merger. News that Rio is taking analysts to the Diavik mine, close to BHP Billiton’s interests in the North West Territories, for a site visit in a couple of weeks was interpreted by Damien Hackett, an analyst at Canaccord, as a sign that something is afoot at the mine. Rio fell 13?p to ?26.05 and BHP was down 16?p at ?16.68. After spending most of the day under the 5,000 mark, the FTSE 100 rallied before the close to finish the day up 7.38 points at 5,018.85 as the banking sector rebounded. Investors sought refuge in defence companies and pharmaceuticals. BAE Systems, up 7p to 337p, and Cobham, up 4.3p at 212p, led the risers. Consumer stocks performed well amid growing optimism about consumer spending, with Unilever rising 24p to ?16.35. Cadbury rose 10?p to 780.45p, despite an assertive letter from Roger Carr, its chairman, to Irene Rosenfeld, chief executive of Kraft, which has launched a bid for the company. Numis analysts described the letter as a “swan song” and added that the management would have difficulty convincing shareholders that an independent Cadbury is better for them. Bank of America Merrill Lynch analysts said in a note that Kraft could comfortably afford to pay between 860p and 880p a share for Cadbury without risking its own investment grade credit rating. The bank predicts that the most likely outcome of Kraft’s bid is a takeover of Cadbury at between 860p and 880p a share with a 50-50 cash-to- shares split, or a slightly lower 860p-a- share takeover with 70 per cent in cash. Cairn Energy closed down 81p at ?26.91, while BG Group, down 26p at ?11.09, and Tullow Oil, which fell 22p to ?10.74, slipped as crude oil dropped below $69 a barrel. IMI, the FTSE 250 engineering company, rose 18.3p to 473?p after a note from Citigroup doubled its target price to 550p. In New York, stocks moved little as the United States imposed duties on Chinese tyres, spurring concerns over trade friction between the countries. At midday the Dow Jones industrial average was up 24.48 at 9,580.93.