Concerns over China drove resource stocks lower on Tuesday, leaving Chile-based copper miner Antofagasta at the foot of the FTSE 100 after it came under criticism for its recent Zaldivar purchase.
Credit Suisse lowered its target price to 640p from 710p, maintaining a neutral rating on the stock, saying Antofagasta would struggle to justify the $1bn purchase price of a 50 per cent stake in the Andean copper project.
“The Zaldivar transaction is value dilutive on our numbers and highlights the challenges facing the company within its own organic project pipeline,” said analyst Liam Fitzpatrick.
Antofagasta fell 2.1 per cent to 561.5p. Much of the mining sector was subdued after concerns over slowing growth and lagging policy responses in China were underlined by a 6.1 per cent drop on the main Shanghai index.
Since market volatility in China started to become a major concern at the beginning of the summer, the metals and mining sub-index of the FTSE All Share is down 48 per cent.
While copper has fallen 21 per cent since May 1, Antofagasta has lost nearly a third of its market cap.
Over the same period, the benchmark FTSE 100 has lost 6.3 per cent and having erased its gains for the year on Monday, the index closed deeper in negative territory on Tuesday — down 0.4 per cent to 6,526.29 — and is now negative for the year in dollar terms also.
Anglo American fell 1.8 per cent to 742p as better than expected earnings from its partially owned subsidiary AngloGold Ashanti failed to tempt investors.
BHP Billiton, the diversified miner, fell 1.9 per cent to £11.13 ahead of its full-year results next week. Deutsche Bank cited doubts about how the company could address its declining oil and copper production as its reason for trimming its price target to £14.40 from £14.60.
“We are not optimistic that any growth projects will be approved, apart from the Escondida three-plant strategy, which is already in our forecasts,” said analyst Anna Mulholland.
Shares in rival diversified group Rio Tinto fell 1.4 per cent to £24.12, while Fresnillo, the Mexico-based silver miner fell 1.7 per cent to 659.5p as silver prices slid 3 per cent.
Glencore, however, enjoyed something of a recovery after losing 17.5 per cent during the previous five trading sessions. Its shares bounced 3.6 per cent to 176.1p after the commodity trader said it was considering possible mine closures — which may include the loss of 1,000 jobs at its Eland platinum mine in South Africa — because of poor market conditions.
On the mid-cap FTSE 250 index, platinum miner Lonmin was the worst-performing stock, down 7.6 per cent to 33.01p, after RBC Capital Markets maintained an underperform rating and cut its price target to 35p due to weakening platinum group metals prices.
“Overall we see balance sheet concerns persisting until Lonmin addresses its tight liquidity position or we see a material rally in PGM prices,” said analyst Richard Hatch.
