Lithium the talk of the town
Deloitte WA Index
15 June 2016: The Deloitte WA Index fell by 2.8% during the month of May, with the market capitalisation of Western Australian listed companies closing the month at AU$132.4bn.
Deloitte Clients & Markets Partner Western Australia, Tim Richards, said the decline was largely attributed to a poor month for the state’s biggest listed company Wesfarmers.
“Wesfarmers announced write-downs and restructuring costs of approximately AU$2bn in May in relation to its Target department stores and a Queensland coal mine, which coupled with poorly performing commodities affecting some of WA’s major listed resources players, dampened what would have otherwise been a positive month for the Index.”
Among the major Index players:
- Pilbara Minerals Limited’s market capitalisation grew by AU$151m (25.4%) as a result of a number of events including continued positive exploration results at the Company’s flagship Pilgangoora project, increased investor interest in lithium, and the completion of equity raisings during the month.
- Galaxy Resources Limited’s market capitalisation increased by AU$99m (20.2%) during May, with the increase driven by strong market interest in lithium, and also the proposed merger with joint venture partner General Mining Corporation, which combined, would make the group one of the largest local lithium exploration and production companies.
- Northern Star Resources Limited’s market capitalisation rose by AU$264m (11.4%) during the month as the company continued on a stable path of growth, aided by a depreciating Australian dollar and strong operational performance. For the 2016 financial year, Northern Star budgeted to spend $74m on exploration and expansionary capital expenditure in order to expand production organically, with $18m spent in the March 2016 quarter.
While lithium was a recurring theme in May, key commodities surveyed during the month included:
- Gold was down 6.0% after the US Federal Reserve Chair advised that an interest rate hike was likely if positive economic data on the US economy occurs as expected. Potential interest rate increases shift demand away from non-interest bearing assets such as gold and toward the US dollar.
- Iron ore performed the worst of surveyed commodities, decreasing 20.9% to US$51 per tonne after reaching highs close to US$70 per tonne in April. Speculation by Chinese investors in light of the April increases contributed to the May fall as iron ore prices followed a decrease in the pricing of iron ore futures. Significant inventories at Chinese ports, totalling 100 million tonnes also curbed any chance of a further advance during the month.
- Palladium decreased a further 14.0% on the back of excess supply estimates, however only globally exchange traded palladium stocks can be accurately estimated, throwing doubt on stock estimates which vary significantly. Palladium has also been hit by decreases in jewellery demand from Chinese buyers.
- Crude oil bucked the trend, with a 3.7% increase. The supply glut that threatened to keep crude oil prices at historic lows continued to soften in May, caused by unplanned outages in Nigeria due to local unrest, and in Canada due to wild fires.
Most equity markets surveyed posted positive results in May:
- The All Ordinaries gained 2.5%, largely driven by improved global sentiment, oil prices rising above $US50 a barrel, weak inflation numbers and an interest rate cut early in the month.
- The Nikkei posted the most notable improvement, increasing by 3.4%. The performance of the Japanese market was largely due to a weaker Yen and the increasing probability that what was thought to be an imminent consumption tax rise would be delayed.
- The S&P 500 rose 1.5%, with investors encouraged by a potential hike in US interest rates in June and an increasing perception that the US economy can endure a steady rise in interest rates.
- The FTSE 100 remained stagnant, decreasing slightly by 0.2%. In a volatile month, it was hit by results of Brexit polling that revealed voters favoured the UK leaving the EU, resulting in widespread selling of Pound sterling.
Top Deloitte WA Index Movers and Shakers in May included:
- Atlas Iron Limited (AGO), which posted a 119.6% increase in market capitalisation from AU$61m to AU$135m. The positive performance was mainly attributable to recent debt restructuring, giving lenders a cumulative stake of approximately 70% in the company and an extended maturity date to 2021. The investor presentation released in May also resonated with investors, as Atlas Iron continued to cut costs and expand into the growing lithium market.
- Base Resources Limited (BSE) posted an 81.0% increase in market capitalisation, from AU$46m to AU$83m, on the back of positive announcements by its peers in relation to improving general market conditions for mineral sands.
- Lithium Australia NL (LIT), which posted a 73.1% increase in market capitalisation, from AU$55m to AU$95m. On 26 May, the company announced it had earned the first 25% in the Electra Project located along the Sonora lithium clay deposit in Mexico. This new and significant interest opens up exploration in a world-class area and allows the opportunity to advance a commercial processing technology applicable to lithium clay deposits.
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