Newspaper article The Evening Standard (London, England)

Xstrata Hurt by Slide in Stainless Steel Demand

Newspaper article The Evening Standard (London, England)

Xstrata Hurt by Slide in Stainless Steel Demand

Article excerpt


MINING giant Xstrata was an early casualty falling 42'p to 888p.

The company and its joint venture partner Merafe Resources have between them been forced to shut down five furnaces producing ferrochrome a key ingredient in the manufacture of stainless steel because of falling demand.

Xstrata has blamed the downturn on the global economic slump.

Elsewhere in mining, Credit Suisse is pushing former takeover target Rio Tinto, down 83p at 1525p, as its top pick in the sector.

It has moved against the grain and resumed coverage of Rio Tinto with an outperform rating and price target of 2700p following BHP Billiton's decision last week to drop its proposed offer of 6000p a share.

"We think leveraged names will begin to outperform safely and also feel the market is underestimating the benefits of the weak Australian dollar and Rio's earnings power in iron ore," the broker says.

Even if the macro environment remains tough, the group has options that include a $6.8 billion undrawn debt facility, cuts in capital spending from $8 billion to $1.5 billion, $7 billion in asset disposals and a last resort of selling Escondida or Hamersley stakes.

In a worst case scenario where iron ore volumes have fallen 20%, prices dropped 40%, copper at $1.50 and aluminium at $0.85 per pound, the group would need to draw down $2.5 billion of its available facility next year and the $4.3 billion balance in 2010.

Credit Suisse claims Rio's shares have been "massively oversold" and this is arguably the best buying opportunity since October 1997 when they suffered during the Asian crisis. Meanwhile,

Credit Suisse has also resumed coverage of BHP Billiton, down 47p at 1142p, with an outperform rating and a 12- month target price of 1500p.

The broker says its target reflects a full-year priceearnings ration for 2009. …

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