Issue 149 | October 2015

Analysis

WA Index

Issue 149 | October 2015

Welcome to the 149th edition of the Deloitte WA Index, a monthly review of Western Australian stocks and indices.

Download the list of WA’s top 100 listed companies, as of 30 September, explore the sections below and if you don’t currently receive our WA Index, please register to be added to our distribution list.

Highlights

If you have any questions in relation to the Deloitte WA Index please contact Angela McIlroy.

As of 30 September 2015

Commodity review

It has been a mixed bag on the commodities markets this month, with only five of the commodities surveyed registering price increases. Dominating the news during September was the US Federal Reserve’s (FED) decision to keep interest rates on hold despite the expectation that they would raise rates for the first time in nine years. Poor economic indicators from China and the stubbornly low US inflation rate appear to have given them cold feet, for now.

Volatility across global commodity and equity markets continues, with oil experiencing swings of up to 8.0% a day before ending the month down 2.9%. Oil prices are now 49.8% lower compared to this time last year, with supply expected to outpace demand in the coming months. Locally, Woodside Petroleum Limited’s (Woodside) $11.6bn offer for Papua New Guinea-based oil and gas producer Oil Search Limited (Oil Search) was unanimously rejected by the Oil Search board before the companies had even had a chance to meet.

Iron ore prices decreased 1.8% to finish at US$55.50 per tonne. Prices have been hovering around this price point since April 2015, excluding a brief drop in July 2015 to touch a 10 year low of US$44.10. Coal has declined by 7.8% to US$53.9 per tonne on weaker demand from China. In China, coal production has fallen during 2015 as domestic producers struggle for profitability as demand slows. Total production was approximately 2.1bn tonnes over the first seven months of the year, a drop of 5.1% over the same period in 2014.

Despite nervous equity markets and the FED’s decision to keep interest rates on hold, the gold price continued its downward trajectory finishing the month down 1.4% at US$1,114 per oz. The modest decline is primarily due to an upward revision of the second quarter US GDP figures, and the strengthening of the US dollar.

With commodities prices remaining low, mining companies have continued their search for consolidation opportunities. Newmont Mining Corporation’s (Newmont) CEO Gary Goldberg said that they would not “close the door” on a future deal, after the proposed $US35b merger talks with Barrick Gold Corporation held earlier this year halted over disagreements on how their Australian assets should be handled. Locally, Phoenix Gold Limited (Phoenix) rejected a takeover offer from Evolution at a price of $0.12 per Phoenix share, with the Board stating that the price did not reflect fair value. Discussions are continuing between the two companies.

The Volkswagen emissions scandal has had a large effect on both platinum and palladium prices, with the former having declined by 9.2% and the latter picking up by 15.4% to US$661 per ounce, after four months of falling prices. Volkswagen have been accused of installing software in its diesel-powered vehicles that enabled them to favourably manipulate emissions and performance output to fall in line with US emissions targets. Platinum is used primarily in autocatalytic converters in diesel cars, while palladium is used for the same purpose in petrol powered cars. The scandal is expected to impact the demand for diesel powered cars and hence has led to the two precious metals moving in opposing directions.

On base metals movements, Zinc led the negative trend, declining 7.5% to close at US$1,671 per tonne and hitting a five year low during the month as a result of excess supply of the metal despite recent closure of MMG’s Century mine. Furthermore, it is expected that prices will continue to decline as Glencore, a major global zinc producer, looks to liquidate some of its inventory to help combat debt levels.

Tin responded positively this month after the Indonesian government gave its support to a ban on tin exports from the country effective from 1 October 2015, increasing 9.0% to finish at US$15,710 per tonne.

Select above image to enhance the Commodity Prices
Select above image to enhance the Commodity Prices
Gold Prices
Select above image to enhance the Gold Prices
Platinum and Palladium Prices
Select above image to enhance the Platinum and Palladium Prices

Performance of WA Index and global indices

The Deloitte WA Index weakened during the month of September, with the market capitalisation of Western Australia (WA) listed companies which comprise the Deloitte WA Index decreasing by 6.4%, to close to the month at AU$118.5bn. This was the lowest level in the Deloitte WA Index since May 2009 at AU$112.0bn. Nationwide, the All Ordinaries’ performance continued its downward trend with a loss of 3.1% this month.

Select above image to enhance the Performance of WA Index and global indices
Select above image to enhance the Performance of WA Index and global indices
Select above image to enhance the WA Index movement
Select above image to enhance the WA Index movement

Top performers of the month

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

BrainChip Holdings Ltd posted a 529% increase in market capitalisation of AU$166m from AU$31m to AU$198m. The Company completed a backdoor listing through explorer Aziana Limited on the 22nd of September 2015. The Company aims to revolutionise the tech industry through computer chip technology that responds to stimuli in a similar manner to the brain.

Antares Energy Ltd posted a 456% increase in market capitalisation of AU$98m from AU$22m to AU$120m. On 7 September 2015, the Company announced it had executed agreements with a private equity purchaser for the sale of project assets, Northern Star and Big Star, for US$148.8m and US$105.1m respectively.

Lucapa Diamond Company Limited posted a 121% increase in market capitalisation of AU$53m from AU$43m to AU$96m. The diamond miner’s shares climbed after the release of an independent research report, Resource Speculator which recommended LOM as a “buy”.  This report followed a recent announcement revealing the quantity of large special diamonds (weighing more than 10.8 carats) being recovered from its Lulo diamond project in Angola.

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

Building the Lucky Country 2015

Our fifth report urges a reconsideration of the purpose of place, and the importance of creating flourishing and productive communities.

Many believe that technology has trumped the tyranny of distance – and that place no longer matters. We believe the opposite is occurring, with place becoming more important as economies are transformed by knowledge-intensive activities.

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If you have any questions in relation to the Deloitte WA Index please contact Angela McIlroy.

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