Deloitte WA Index: Lithium-powered growth

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Deloitte WA Index: Lithium-powered growth

13 December 2017: The Deloitte WA Index had another prosperous month in November as the market capitalisation of Western Australian listed companies increased by 3.3% to close at AU$173.1bn.

Deloitte Clients & Markets Partner - Western Australia, Tim Richards, said: “The WA Index has further strengthened this month. Much of this continues to be driven by greater interest in the battery technology space and progress of a number of lithium explorers towards production.”

“We have seen a number of potential customers come out of the woodwork showing an interest in Western Australian lithium, with several memoranda of understanding and agreements being announced to the market. This has been met with support from investors, who see the WA region contributing strongly to swelling global demand over the next few years.”

Among the major index players in November:

  • Pilbara Minerals Ltd experienced a fruitful month of growth, with market capitalisation increasing AU$321m (22.9%) by the end of the month. The company signed a preliminary Memorandum of Understanding (MoU) with Polaris Shipping and LG Chem, beginning discussions for a lithium chemical conversion joint venture. In addition, telecommunications and content solutions provider Swift Networks Group Limited announced new major contracts with three lithium producers, including Pilbara Minerals, as the mine upgrades entertainment and connectivity services on site, further reassuring investors of the expected production years ahead
  • Galaxy Resources Ltd also continued its upswing, finishing AU$251m (19.2%) higher. Despite a short drop in price mid-month as investors began to correct what was anticipated to be an overpricing, a series of binding long-term offtake agreements announced at the end of the month brought investors rushing back. A minimum of 200,000 tonnes per annum offtake of lithium concentrate was agreed upon, beginning in 2018
  • It was a variable month for Saracen Minerals Holdings Ltd, overall finishing with a market capitalisation of AU$1,074m, 13.1% higher than the beginning of the month. The company’s share price took a sharp dive at the start of November, as investors became concerned the company’s price had peaked. Market reaction to results of a drill program at the Pinnacles Gold Project was initially slow, but the price climbed throughout the remainder of the month, with a final boost following positive drill results from their Whirling Dervish Ore Reserve.

Key commodities surveyed during November:

  • Uranium prices saw the biggest commodity price increase, climbing 26.6% to US$25.50 per pound as Cameco, the world’s largest producer, announced a shutdowns at two key operations in 2018
  • The iron ore price also saw a significant gain this month, increasing 15.5% to US$69 per tonne following a shift in Chinese demand to higher grade steel as the country strives to control pollution
  • Coking coal has benefitted from disruptions to supply from Australia due to port congestion, resulting in a boost of 11.9% to US$178 per tonne
  • Cobalt prices increased 10% this month to a price of US$67,280 per tonne, trending alongside the battery technology boom. Further, cobalt production was halted late in the month at a key mine in the Congo as the mine navigates legal action brought on by its partners
  • Aluminium fell 5.1% in the month, down to US$2,034 per tonne. September had seen price increases based off a cut to supply due to crackdown on illegal operations in the Chinese provinces of Shandong and Xinjiang. November saw the US announce they were to begin a trade investigation on the Chinse aluminium industry to examine if alloy sheet is being sold at a price lower than cost, or with the assistance of government subsidies
  • Nickel prices fell US$581 (5%) from US$11,631 to US$11,050 per tonne. The drop was driven by current demand and supply concerns, with worries over weaker demand from Chinese steel mills as well as increasing supplies from major supplier Indonesia, stemming from their gradual lifting of the ban on raw material exports.

The equity markets surveyed saw mixed results throughout November:

  • The All Ordinaries gained 1.4% for the month, propelled by IT, real estate and energy firms all performing well. Values were bolstered as Chinese manufacturing activity picked up, with Purchasing Managers Index increasing to 51.8 points. The financial sectors dragged however, with the banks shedding 1.5% as investors begin to consider the impact of a Royal Commission on share prices
  • There have been further gains on the US S&P 500, closing 2.0% up for the month. Expectations of tax reform policies promised under Donald Trump’s regime passing have fuelled investor confidence, with the index reaching record highs during the month
  • November saw a backtrack on the FTSE 100, falling 2.2% to 7,327 points, after a very strong performance in October. As the pound sterling strengthened against the euro, reaching a two-month high, mainland Europe is becoming a more attractive marketplace to invest in equities than the UK
  • The Nikkei has maintained its momentum with a 3.2% increase, driven by a strong uptick in manufacturing activity, domestically and across the East Asian region more generally. November manufacturing activity grew at its fastest rate in nearly four years, demonstrating signs of a steady expansion of the Japanese economy.

The top Deloitte WA Index Movers and Shakers in November included:

  • Westoz Investment Company Ltd experienced a strong month of trading, with market capitalisation increasing by AU$22m (17.0%). The investment company holds shares in several entities sitting in the top 50 of the WA Index, bringing its net tangible assets up to 120.8 cents (pre-tax) from 118.0 cents for October 2017
  • Fleetwood Corp Ltd market capitalisation rose by AU$22m (16.3%) over the month following the award of an AU$100m Department of Finance panel contract for state-wide modular building relocation and refurbishment services, shared between four companies for an initial period of three years
  • Millennium Minerals Ltd’s share price skyrocketed this month, with its market capitalisation finishing at AU$149m, 14.8% higher than at the start of the month. The increase follows encouraging results from exploration at Millennium’s Nullagine site, with a new discovery of high-grade mineralisation at Yates and visible gold indicating development for Bartons Underground on target for March 2018. Further discoveries at the Gold Project supported the potential for expansion and increased mine life.

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