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Iron ore fights back

Deloitte WA Index

9 November 2016: After rising for four consecutive months, the Deloitte WA Index weakened by 1.9% during October as the market capitalisation of Western Australian listed companies closed the month at AU$152.2bn.

Deloitte Clients & Markets Partner -Western Australia, Tim Richards, said this month’s fall came following gold miners underperforming on gold price weakness and likely profit-taking as portfolio weightings get rebalanced.

“However, the strengthening in steel markets in China led to standout results in both iron ore and coking coal during October.”

The major Index players in October included:

  • Fortescue Metals Group Limited’s market capitalisation rose by AU$1.7bn (11.1%) during the month as iron ore prices reached a six-month high, and the company presented a strong quarterly production report for September 2016
  • Galaxy Resources Limited’s market capitalisation rose by AU$45.6m (7.7%). The lithium miner’s share price increased as construction on its Mt Cattlin project neared completion and it was announced that production was to begin ahead of schedule
  • South32 Limited’s market capitalisation rose by AU$851.4m (6.6%) during October as the release of its September quarterly figures showed strong operational results and an increase in its cash position of US$551m, which analysts are anticipating will trigger a share buyback, M&A or special dividend.

Key commodities surveyed during October included:

  • Iron ore increased by 14.0% to a closing price of US$65.0 per tonne as steel markets strengthened in China, and rallying iron ore futures showed positive investor speculation
  • Thermal coal rose sharply by 38.4% to US$108.6 per tonne, followed by a 16.2% increase in the price of coking coal to US$216.5 per tonne, as steel production in China strengthened, and coal supply disruptions continued due to production limits implemented by the Chinese government earlier in the year
  • Gold decreased by 3.6% closing at US$1,273.8 per ounce as investors remain cautious in anticipation of the upcoming Federal Reserve rate decision and the US presidential campaign result
  • Platinum declined by 5.6% to a price of US$978.0 per troy ounce as the currency of the largest platinum producers (South Africa) declined, and the threat of miner strikes receded bringing down supply concerns
  • Palladium fell by 15.2% down to US$612.0 per troy ounce following the platinum price fall, as well as the release of weak trade data from China
  • Uranium fell by 15.8% to a price of US$20.0 per pound due to a shift in consumer demand surrounding the negative sentiment of nuclear power and current oversupply in the market.

In the main, the global equity markets surveyed delivered mixed results during October:

  • The All Ordinaries fell by 2.2% as the energy sector declined following weakening crude oil and gas prices, and the banks waned after the RBA decided to hold interest rates again this quarter. Bad news brought down several large players in the index, with Woolworths, Coles, Telstra and Qantas all sliding following their quarterly results.
  • Similarly, the S&P 500 fell by 1.94% as investors wait on the Federal Reserve’s rate decision, as well as the uncertainty surrounding the US presidential election which is drawing closer and the margin is becoming even tighter
  • The FTSE 100 closed with a rise of 0.8% following significant volatility throughout the month, continuing its growth post Brexit which lowered the value of the pound, but was offset by a decline in oil shares as OPEC failed to implement the agreed supply reduction
  • The Nikkei increased by 5.9% boosted by global bond yields strengthening the share price of financial firms, Deutsche Bank’s recovery and the release of strong quarterly results from brokerage Nomura Holdings.

Top Deloitte WA Index Movers and Shakers in October included:

  • Homeloans Ltd (HOM) showed strong results in its annual report released last month, with a 21% increase in branded mortgage settlements delivered through third party channels, and total loan settlements of $1.8bn boosting investor interest. The company posted a 241% increase in market capitalisation from AU$50.9m at 30 September 2016 to AU$173.2m at the end of October
  • Emerald Resources (EMR) posted a 58.6% increase in market capitalisation from AU$64.0m to AU$101.6m after the company released the drilling results from its Cambodian Gold Project, showing ‘encouraging results’ and anticipated completion of a feasibility study in early 2017. Emerald Resources is currently in the process of completing a merger with Renaissance Minerals, the tenement’s owner, which will result in full ownership of the gold project
  • Agrimin Limited (AMN)’s share price increased over the month of October as the company signed a negotiation protocol with the Native Title representative body for the Kiwirrkurra people, with a view to entering a Mining Agreement, bringing the Mackay Sulphate of Potash project closer to development. The company’s market capitalisation rose by 31.7%, from AU$74.3m to AU$97.9m at 31 October 2016.

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