WA Index

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WA Index

Issue 192 | March 2020

Welcome to the 192nd edition of the Deloitte WA Index, a monthly review of Western Australian stocks and indices.

The market capitalisation of Western Australian listed companies decreased by 11.3% to close the month at $184.1bn for February.

It was a sobering end to the month for the WA Index, which was hit particularly hard by the spread of the Novel Coronavirus and global investor panic. The gains of previous months were eroded in one of the WA Index’s bleakest months since the May 2010 flash crash.

Gold companies again featured heavily in the top movers and shakers as investors bolstered exposure to safe haven metals amid the global economic uncertainty created by COVID-19.

Download the list of WA’s top 100 listed companies, as of 29 February 2020, explore the sections below and if you do not currently receive our WA Index, please register to be added to our distribution list.

If you have any questions in relation to the Deloitte WA Index please contact Dave Andrews.

Highlights:

As of 29 February 2020

Commodity review

  • Palladium closed 18% higher this month at US $2,719 per troy ounce. Stringent emissions legislation in China and Europe has spurred demand with carmakers for the pollution controlling metal used in petrol & hybrid vehicles. This has added to adding upwards pricing pressure. Furthermore, the increased demand has resulted in significant supply shortages, with a deficit of approximately 20 percent expected this year.
  • Coking Coal increased 11% to close at US$158 per tonne. Amid COVID-19 fears, decreased industrial activity and transport restrictions in China has reduced local supply, placing upwards pricing pressure on the commodity. On the other hand, India, the world’s second largest domestic steel producer, aims to boost steel exports to bridge the shortfall in demand for the alloy post-industrial shutdowns in China & Japan, garnering additional demand for Aussie metallurgical coal.
  • Crude Oil prices fell by 13% during the month closing at US$50.50 per barrel. The decrease stemmed predominantly from the COVID-19 epidemic, weakening global demand. Factory shutdowns in China and South Korea as a result of the virus have been a major contributor to this demand contraction. Ongoing production strains in Saudi Arabia and Russia added further uncertainty to the global oil market.
  • Iron Ore prices fell by 13% in February closing at US$84.50 per tonne in reaction to COVID-19 and China steel production weakness. This excess supply has placed negative pricing pressure on the commodity, however, a heavy monsoon season in Brazil and recent cyclones in WA have created supply disruptions at key export sites, with this supply tightness countering reduced Chinese demand.
  • LNG prices continued to plunge during February, closing at US$3.0/mmbtu. This is a result of bearish market sentiment following the global COVID-19 outbreak. Global shutdowns and decreased industrial activity throughout Japan, China and South Korea have stunted demand, resulting in excess stockpiles throughout these regions. China’s largest LNG importer, CNOOC, declared force majeure during February, suspending contracts with at least three suppliers. Uncharacteristically warm winters throughout Asia have further reduced demand.

Performance of WA Index and global indices

Performance of WA Index and global indices
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Global indices dramatically declined during February, with all indexes decreasing across the month due to investor apprehension surrounding the COVID-19 outbreak. The All Ordinaries and US S&P 500 were down 8.6% and 7.7% respectively during the month, with both indices seeing their single biggest weekly drop since the GFC in October 2008 during the last week of February 2020.

Britain’s FTSE 100 also suffered, with a 6.7% fall also due to the impact of COVID-19 fears. Airline and holiday stocks have been hard hit, as cases of the virus outside of China spiked leading to European airlines including EasyJet, British Airways and Lufthansa cancelling flights due to lack of demand.

The Nikkei saw a 5.4% decrease to February close. The spread of the virus outside of Asia has triggered risk adverse behaviour in the market as uncertainty around the viruses impact now becomes a global matter. As a result, Japanese investors fled to safe-haven choices such as gold stocks and government debt. Japanese drugstores however have seen an increase in the demand for health care products amidst fears of the virus, with products such as sanitary masks and toilet paper prices increasing by 10.2% and 2.09% as consumers prepare for the potential pandemic.

WA Index movement

Performance of Global Financial Markets over the past 12 months

WA Index movement
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Top performers of the month

Western Australian top performers over the past month by growth in market capitalisation

The index’s gains of preceding months were wiped out by the conclusion of February’s trade, with the WA Index experiencing its worst week since May 2010.

The composition of the top movers and shakers for the month of February comes as no surprise given an increasing investor shift to safe haven assets amid COVID-19 fears.

  • Northern Star Resources Limited increased its market capitalisation by 7.7% to close at $9,961m on the back of the release of its half year results, which most notably featured a $193m increase in revenue on HY19. The half year report presented a healthy 45% rise in EBITDA to $322m, with the gold producer also declaring a fully franked dividend of 7.5 cents per share, up 25% on the comparative period.
  • Gold Road Resources Limited saw a 2% rise in its market capitalisation to $1,274m following an impressive resource update. Results from its 2019 drilling campaign were released during the month, outlining a 1.2m ounce increase in Gruyere’s measured and indicated JORC resource. This 29% increase provides a basis for updated evaluation of open pit reserves with the goal of growing mine life whilst maintaining a low all-in sustaining cost.

Major index players in november 2019
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The top Deloitte WA Index Movers and Shakers in February were:

  • De Grey Mining Limited’s market capitalisation saw exponential growth in February, jumping 285% to $192.1m whilst its share price reached a 12-month high following the announcement of significant RC drilling results. The gold explorer reported that it had intersected sulphide-rich alteration at two high grade gold sections within its newly-discovered Hemi Prospect, with initial results demonstrating a strong correlation between gold mineralisation and sulphides observed in drilling samples.
  • The signing of another MoU with the Congolese Government saw AVZ Minerals Limited’s market capitalisation advance 58% to close February at $207.6m. The mineral explorer announced mid-month that it had teamed up with the Congolese Government to develop a Special Economic Zone in Manono, which is expected to facilitate significant economic benefits for the development and profitability of the company’s Manono Lithium and Tin project.
  • Spectrum Metals Limited’s market capitalisation grew 41% to $175.7m following Ramelius Resources’ off-market takeover bid, which was unanimously endorsed by the gold developer’s board. The implied offer of 15 cents per share represents a significant premium on Spectrum’s 30-day VWAP at the time of the offer, and came immediately after Venus Metals’ settlement of all claims against Spectrum and Zebra Minerals at the beginning of the month.

Top performers of the month
Select above image to enhance the Top performers of the month

If you don’t currently receive our WA Index, you can register to be added to our distribution list.

If you have any questions in relation to the Deloitte WA Index please contact Dave Andrews.

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