Deloitte WA Index: Mining services industry growth surge
9 October 2018: The Deloitte WA Index reveals modest growth in September, as the market capitalisation of Western Australian listed companies increased marginally to close out the month at AU$193.2bn but mining services have marked extraordinary growth in the last year.
Deloitte Assurance & Advisory Partner Dave Andrews said the WA Index inched higher in September, up 1.7%, opposing the movement in the All Ordinaries, which was down by 1.6%.
“The WA Index increase was mainly influenced by the execution of acquisitions during the period, while the All Ordinaries was impacted by the downwards correction to banking stocks following the release of the Financial Services Royal Commission interim report,” Andrews said.
In a special report this month, Deloitte has revisited the performance of mining services companies included in the WA Index since commenting in June 2017 that mining services are a lead indicator to the overall health of the mining industry, and that a positive turning point had been identified.
“There has been a continued uptick in the market captialisation for many of the top 100 WA listed mining and mining services companies since June 2017, which confirms our thinking we are steering the right way to a healthy energy and resources sector,” Andrews said.
The average return across the 11 WA Index mining services companies we track reveals an average return of 100 per cent over the 15 months to 30 September 2018, with some participants returning in excess of 250 per cent for investors over this period.
“Not many sectors can demonstrate that level of performance, particularly considering the Deloitte WA Index 100 itself achieved 27 per cent growth in the same period,” Andrews said.
Major index players in September:
- Market capitalisation for Ausdrill Ltd increased by AU$357.1m (61.1%) in the month of September due to a significant movement in volumes of shares traded over the period and the flow-on effect from the acquisition of underground miner, Barminco Holdings. Ausdrill acquired Barminco Holdings in August in a deal worth AU$271m. The offer from Ausdrill created an increase in the supply of shares, as part of the buyout consisted of AU$150.7m worth of shares, which incurred a flow on effect from August. Barminco also secured a five-year contract extension at Sunrise Dam by AngloGold Ashanti, worth AU$700m
- Northern Star Resources saw a AU$1,038.5m (24.3%) increase in market capitalisation following the decision to acquire the Pogo underground goldmine in Alaska for a total of US$260m. The acquisition is a potential third Tier 1 asset for the miner, increasing market optimism in Northern Star’s ability to continue to grow into the future.
- South32 Limited market capitalisation increased AU$2,206.7m (12.4%) in the month to AU$20,019.3m. The mining company rolled out a share buyback during September, and performance backed by its strong annual financial results, which resulted in South32 announcing a US 6.2 cent dividend, raising the dividend total for the year to US13.8 cents on the back of a 16% profit increase for the year.
Key commodities surveyed during September:
- Copper prices rose 5% in September to US$6264/MT, influenced by increased global demand on the back of electric vehicle trade, which has pushed the copper price upwards throughout the month.
- The Zinc price climbed to US$2659/MT, representing an 8% increase across the month. Shanghai Futures Exchange inventory levels reached their lowest level since September 2017, plummeting to 29,204 tonnes.
- The price of Iron Ore increased to US$69.70 per tonne after Beijing decided it will not renew the blanket steel production and coal use cuts during the upcoming heating season.
- Coking coal rose US$25 (14.8%) in September to a price of US$194/MT. Coking coal prices have been experiencing elevation for the last two years with a shortage of new mine projects and continue demand for the commodity. Further, the commodity is feeling the sustaining impact of Chinese government measures aimed at controlling pollution.
- The conclusion of trade disputes between the U.S., Canada and Mexico saw Crude Oil rise 5% to US$81.59/Bbl. September saw the end to fears surrounding growth in turn affecting oil demand as the International Brent Crude price hit its highest level since November 2014.
The equity markets surveyed mostly strong results throughout September:
- The US S&P 500 remained relatively consistent with a 0.4% increase across the month. As has been the trend for most of 2018, the S&P was at the wrath of political figureheads as trade disputes began the period on the back foot. Following a downgrade of tensions over possible damage from these trade disputes, the S&P 500 began to rise. The market subsequently grew steadily to the end of the month on the back of interest rate hikes from the Reserve Bank, which influenced greater consumer sentiment and improved the investing outlook within the US.
- The All Ordinaries finished 1.6% down from the previous month. The index recovered from a steep decline in the early part of the month when the political agenda of China and US took centre stage, with the market wary as it awaited where these issues will lead. The decrease was mainly evidenced in financial stocks, which saw a downwards correction to banking share prices following the Financial Services Royal Commission interim report released during the month.
- Continuing the trend of the rest of the market, Britain’s FTSE 100 felt negative pressure following the heating up of US-China trade negotiations. The multiple Brexit negotiations held throughout September also depressed the market, as the date of Britain leaving the EU draws closer. The FTSE bounced back towards the end of the period as the trade wars began to soften and oil prices saw a four year high, finishing 1% up from August close.
- The Nikkei saw some impressive gains towards the end of the September month as they hit a 27-year high and closed 5.5% higher than last month. US dollar appreciation and increases in the interest rate by the Federal Reserve created heavy debts for emerging markets, making the Nikkei a more interesting destination for funds. The lowering of the Yen against the US dollar made the market more attractive for investors as corporate earnings growth is positively impacted, specifically for manufacturers and exporters in the Japanese market.
The top Deloitte WA Index Movers and Shakers in September included:
- Poseidon Nickel Limited’s market capitalisation rose by AU$78.7m (125.5%) following an entitlement issue during the September period which saw the raising of approximately AU$69.0m in capital, with the amount being fully underwritten. The company also entered into a memorandum of understanding with Estrella Resources Limited during the month to enable a binding final agreement for the toll treatment of Ore from its Estrella’s Carr Boyd Rock Nickel Project.
- Global Construction Services Limited (GCS) saw an increase in market capitalisation of AU$154.1m (99.9%), stemming from the merger of equals with SRG Limited, resulting in the creation of SRG Global. The details of the merger revealed GCS would give SRG shareholders 2.479 shares for every share they own.
- Sheffield Resources Limited market capitalisation increased by AU$51.2m (24.5%) in September. The Company signed a Co-existence agreement in relation to its Thunderbird Mineral Sands Project, following the clearing of an in-principle and non-binding term sheet with the Traditional Owner Negotiation Committee. The share price hit an all-time high on the back of an announcement that the government had approved a AU$95m loan for the construction of the Thunderbird project, allowing for Sheffield to have its own gas-fired power station, storage facilities and workers camp.