As the market struggles for direction, mining groups Eurasian Natural Resources Corporation and Anglo American are leading the fallers after downgrades from UBS.
ENRC, 6.6p lower at 263.7p, has tried to shake off worries about its debt position after news it was taking full control of its operations in the Democratic Republic of Congo. But UBS said:
We downgrade ENRC to neutral (from Bbuy) despite recent share weakness, as we see an increasing risk of financial stress in 2013 with 3 times net debt to EBITDA covenant to be tested and equity potentially to be issued to raise freefloat from 18% to 25% by the end of 2013. We had been positive on the stock as we expected restructuring to crystallise value near-term; we still see potential for divestments, but the recent increase in net debt/ softness in chrome makes the risk/ reward less compelling.
UBS aslo downgraded Anglo, down 32.5p at 1824.5p, from buy to neutral:
While we like the quality of Anglo's assets and remain positive on the sector from a top-down perspective, in our opinion, the valuation, earnings momentum/growth, heightened South Africa risk (as evidenced in recent strikes), and ongoing concerns around Minas Rio makes the risk/reward less compelling than for other diversified miners.
Overall, after early gains following better than expected Chinese purchasing manager data, the FTSE 100 has slipped back and is now down 4.99 points at 5924.62. Investors are cautious about the prospects for a successful outcome to the discussions about the US fiscal cliff, the tax rises and spending cuts due to come into force next year.
