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News & Tips: Lonmin, Faroe Petroleum, Berkeley Energia & more

Equities look set to end the week on a downbeat note
November 10, 2017

After a week of drifting, London shares look set to end the week with another down session. Click there to find out what the Trader Nicole Elliott thinks of the markets. 

IC TIP UPDATES:

Ideally, this is how you invest in resources stocks: wait for oversupply to flood a market, then pick a low-cost producer to emerge from the ashes. This dynamic has been in play with Berkeley Energia (BKY) shares since Wednesday, when Toronto-listed uranium miner Cameco moved to suspend production at two of its projects in 2018, thereby removing around 10 per cent of global production. With yellow cake prices still on the floor, the cuts were taken as the most significant step to rebalance the market so far this year, and pushed up shares in Berkeley – which owns the Salamanca project in Spain - by 10 per cent. As the project development trundles along, we are long-term buyers.

Throughout the various swings in the oil market in recent years, we’ve always admired Faroe Petroleum’s (FPM) cautious and often well-timed approach to capital management. But with expansion on the horizon, and capital expenditure stepping up accordingly, the North Sea driller’s net cash position is about to change. Though the company has an undrawn $250m reserves-based lending facility, and a separate exploration financing facility, more debt is needed: cue today’s plans to raise $100m in a bond placement. The shares are unmoved, but we place our buy recommendation under review to re-assess Faroe’s borrowing profile.

Lonmin (LMI) is down another 2 per cent this morning at 66p, following yesterday’s publication of an interview with chief executive Ben Magara, who said the platinum miner’s hand-to-mouth survival was “like pushing water up a hill”. The company’s stock is off nearly 40 per cent since last Thursday, but with banking agreements likely to be severely tested, we remain sellers.

KEY STORIES:

As we pointed out in last week’s sector focus, 2017 has been a good year for zinc miners. For proof, look no further than Vedanta Resources (VED), the resources group controlled by Indian metals tycoon Anil Agarwal. Interim cash profits jumped 37 per cent to $1.7bn, thanks to favourable commodity price movements and production growth, particularly in the zinc division. Complex dividend arrangements meant that net debt still managed to increase, and now stands at a whopping $9bn.

Support services giant Capita (CPI) has reached a final settlement with the Financial Conduct Authority  and investors of the Connaught Income Series One Fund. Capita Financial managers - a part of its now-exited asset services business - operated the fund until September 2009. Then in 2012 it went into administration and the liquidator brought a claim against Capita and the subsequent operator. Capita settled for £18.5m in 2016. CFM has now agreed to pay another £66m to the funds investors, with Capita funding the payment. The payment is expected to be made in early 2018 and no financial penalty will be imposed on CFM. Shares are down more than 2 per cent in early trading.

Ferguson (FERG) - formerly Woleseley - has agreed to sell its Nordics-based building materials distribution business for €1.03bn (£0.91bn) to an affiliate of private equity giant Lone Star Funds. The sale is on a debt-free, cash-free basis and Ferguson will hold on to around €150m of property assets to be sold in due course.