Banks Steer Towards A Crest As Resource Sector Pitches Into A Trough

The Age

Thursday June 12, 2008

Vanessa Burrow

A RECOVERY of sorts among financial stocks was offset by a decline in consumer confidence and falling resource stocks, as the market pitched back and forth.

But the S&P/ASX 200 Index closed 29.8 points, or 0.6%, higher at 5467.3, assisted by a recovery in Rio Tinto's share price towards the end of the day.

Among the biggest stocks, 93 companies rose, 93 companies fell, and 14 were unchanged.

Rio said the Government of Guinea had questioned the validity of the decree issuing the company's Simandou mining concession. The project is considered one of Rio's key growth areas, with an estimated 2.25 billion tonnes of high-grade iron ore.

Rio shares fell as much as $3.65 but closed down $1.45 at $132.10. With gold having fallen almost 3% overnight, to close to $US870 an ounce, Lihir Gold fell 14? to $2.88 and Newcrest Mining lost 64? to $28.63.

Fortescue Metals also fell, losing 12? to $9.68, after reaching an intraday high of $12 a share not so long ago. In contrast, BHP Billiton rose 18? to $43.44, beaten to the top market mover position by the Big Four banks. National Australia Bank led the way, with an 85? gain to $28.80, while Commonwealth Bank rose 97? to $42.84, Westpac gained 65? to $22.25 and ANZ added 32? to $43.44.

Macquarie Group gained $1.90 to $53.70, but the picture was not so bright for Babcock & Brown, which lost a further 90?, or 8.6%, to $9.52.

That is the lowest Babcock & Brown's shares have been in about three years. The fall means the shares have lost more than 50% of their value in the past two years, in comparison with the broader market's 13% gain (see graph below).

At the same time, subsidiary Babcock & Brown Power remains in a trading halt, as it assesses the implications of an explosion at Western Australia's Varanus Island gas plant. Babcock & Brown Power has lost almost 63% of its value in the past year.

On the upside, the resignation of Foster's chief executive Trevor O'Hoy, the company's profit guidance downgrade and a review of the wine business, received a relatively positive reaction. Its shares rose 11?, or 2%, to $5.56, topping five days of gains during which the share price has climbed from $5.20.

ABN Amro analyst David Cooke and colleagues said the shake-up had increased the chance that Foster's would demerge into beer and wine companies. "Breaking up may have just got easier," they said.

Citi analyst Andy Bowley and colleagues raised their 12-month price target from $5.45 to $6.10, and slapped on a "buy" rating.

© 2008 The Age

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