Issue 159 | October 2016

Analysis

WA Index

Issue 159 | October 2016

Welcome to the 159th 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 30th October, 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 2016

Commodity review

The commodity complex overall had a reasonable month, led largely by precious and base metal movements. Interestingly, outside of the metals arena, it was coking coal leading the pack, sporting a 45.1% price increase for the month.

Coking coal rallied to a price of AU$186.30/tonne at the end of September, while Newcastle coal also performed well, increasing by 15.4% to a price of US$78.45/tonne. This surge has continued as supply tightened following a drop in operating days for Chinese coal mines, with the government reducing operations to just 276 days a year. Subsequent to this, the Chinese transport authority has introduced more stringent land transport regulations late in the month, impacting supply. Demand appears steady, as mills seek high quality seabourne coking coal for steel production, placing further pressure on prices.

Nickel rose by 7.7% during September to finish at US$10,528.00/tonne following the Filipino government’s increasing environmental concerns which threatened to halt production at 20 additional mines this month unless deficiencies are corrected within a week. The Philippines continued its nationwide audit of the mining sector, bringing three quarters of its nickel producers under suspension for falling short of regulations.

The copper price increased by 5.5% to US$4,848.00/tonne, as the recent state-wide power outage in South Australia brought production to a standstill at BHP’s Olympic Dam and Oz Minerals’ Prominent Hill mines, lowering global production capacity. Additionally, the release of economic data from China showed improvement in production and real estate trends having a positive impact on the metal’s demand and overall price.

Lead rose by 13.5% in September to its highest price in 16 months at US$2,120.75/tonne, supported by stabilising copper prices and supply concerns. The past year has seen mines shutdown and output restricted by producers as a result of low prices, with contracting supply now pushing prices back up.

The price of tin has climbed by 7.2% during the month to finish at US$20,164.00/tonne, with a 50% decrease in LME (London Metal Exchange) reported tin inventories over the past four months, signalling growing demand. Indonesia, one of the leading exporters of tin, has slowed its supply, whilst investors have become worried over the sustainability of the recent growth in Myanmar mining, further boosting prices of the metal.

Palladium increased by 7.1% over the month to a price of US$722.00/troy oz as industrial demand rose throughout September, against the palladium jewellery market’s demand decline. While palladium and platinum prices usually follow one another quite closely, the price of platinum fell in September, dropping 2.9% to US$1,036.40/troy oz by month end. This follows the news of a breakdown in wage negotiations between unions and mines in South Africa, the world’s largest producer of platinum. Increased wages and improved housing and benefits are being sought from the National Union of Mineworkers (NUM , however a strike may not lead to further price impact, as investors wait to see whether existing stockpiles will compensate for the loss in production, as was the case with a previous halt. Platinum recycling also continues to supplement the market.

The price of crude oil has declined by 4.7% finishing at a price of US$46.30/bbl, following a volatile month. The price initially dropped amid speculation surrounding OPEC’s ability to reach a consensus around limiting production however on the news of the agreed restrictions - the first deal of its kind since 2008 - the commodity partially recovered from these earlier losses. Specific commodity output levels are expected to be finalised in November this year.

Commodity and Precious Metal Prices

Select above image to enhance the Commodity and Precious Metal Prices
Select above image to enhance the Commodity and Precious Metal Prices

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 Performance of WA Index and global indices

WA Index movement

Select above image to enhance the WA Index movement
Select above image to enhance the WA Index movement

The Deloitte WA Index strengthened during September as the market capitalisation of Western Australian listed companies increased by 4.3% to close the month at AU$155.3bn.

Deloitte Clients & Markets Partner -Western Australia, Tim Richards, said the heavy weighting of the WA Index towards commodity based stocks ensured the Index succeeded under rising commodity prices even in the face of a strained financial sector.

“Despite a month of financial stock turmoil stemming from Deutsche Bank’s financial uncertainty, the WA Index has achieved its fourth consecutive month of gains. The Index was bolstered by rising commodity prices such as the extraordinary growth in coking coal which saw companies with exposure to coal assets, including South32 Limited locally, enjoying share price gains.”

Among the major Index players in September:

  • South32 Limited’s market capitalisation rose by AU$2.6bn (25.5%) largely as a result of a sharp turnaround in coking coal prices which shot up by 45.1% during September. Corresponding to the rising coal price, South32’s share price climbed off the back of forecasts for the company’s 2017 EBITDA reaching a potential $US2.3bn, up from initial expectations of $US1.4bn should current spot prices be sustained
  • Western Areas Limited’s market capitalisation rose by AU$112m (16.6%). The nickel miner’s shares rose off the back of a 7.7% increase in nickel prices, following the announcement of 20 mines in the Philippines being recommended for closure in the aftermath of in-country environmental audits
  • Northern Star Resources Limited’s market capitalisation rose by AU$364m (15.0%) following recent progressions in the sale of its Plutonic gold mine to Billabong Gold Pty Ltd. Through the sale, Northern Star achieved an attractive sales price which included the potential to become a significant shareholder in Billabong Gold, enabling continued exposure to Plutonic’s future success.

In the main, the equity market surveyed posted stable results during September:

  • The All Ordinaries remained steady, falling by 0.1%. The market was strengthened by surging energy stocks off the back of rising prices, however this growth was more than offset by declining financial stocks amid concerns about Deutsche Bank’s financial future
  • Similarly, the S&P 500 fell by 0.1% during the month. The index suffered under tumbling Deutsche Bank shares with the company facing a $14bn fine from the US Department of Justice for miss-selling mortgage backed securities
  • The FTSE 100 rose by 1.7% largely attributable to recovering metals prices which lifted mining and energy related stocks
  • The Nikkei posted the biggest loss with a drop of 2.6% after fears concerning the stability of Deutsche Bank adversely affected financial shares. Weakening oil prices and the steadfast strength of the Yen also contributed to the decline.
LED board

Top performers of the month

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

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

Top Deloitte WA Index Movers and Shakers in September included:

  • Syntonic Limited (SYT)’s share price surged following the signing of an agreement with Verizon to enable Syntonic’s ‘Freeway’ (a platform which provides free mobile internet access through advertisers sponsoring the data) on Verizon’s FreeBee Perks platform. The deal provides almost 100m US Android subscriber’s access to ‘Freeway’, and has enabled Syntonic to boast a 100.0% increase in market capitalisation from AU$56.5m to AU$112.9m
  • Brainchip Holdings Ltd (BRN), which completed its acquisition of Spikenet Technology SAS, an artificial intelligence company. Investor interest soared and Brainchip posted a 90.2% increase in market capitalisation from AU$88.0m to AU$167.4m following an announcement of a strategic alliance with Advisian (global advisory firm) to explore the development of products that use Brainchip’s Spiking Neuron Adaptive Processor (SNAP) technology
  • Alkane Resources Limited (ALK), which posted a 67.6% increase in market capitalisation from AU$146.5m to AU$245.6m. With gold prices only marginally increasing by 1.0% during September, Alkane’s growth stemmed largely from its Dubbo Zirconia project with a recent announcement of a deal on zirconium marketing with Minchem in the UK sparking investor enthusiasm.
Elevator Reflection

Innovation in Mining

Australia 2016

The Innovation in mining Australia 2016 report highlights results on the state of innovation at work in Australia, presenting the innovation landscape as it stands and identifying key innovation drivers and focus areas from which to bring to life the mine of tomorrow.

 

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 Angela McIlroy.

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