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Going steady

Deloitte WA Index

8 September 2016: The Deloitte WA Index rose for the third consecutive month in August, up 0.5% to AU$148.9bn. The Index outperformed the ASX All Ordinaries which fell 2.0% as investors digested the raft of reporting season results.

Deloitte Clients & Markets Partner Western Australia, Tim Richards, said the rising crude oil price and financial results announcements helped maintain and marginally strengthen the Index.

“The release of financial results for the period ended 30 June 2016 highlighted that although a number of major WA Index players were under general economic and commodity pricing pressure, overall positive results were achieved, helping to boost share prices and lift the WA Index for the third consecutive month.”

Among major Index players in August:

  • Galaxy Resources Limited’s market capitalisation rose by AU$112m (18.4%) during the month as a result of an off-market takeover of General Mining Corporation Limited (GMM), which saw the company issue 494 million Galaxy shares to GMM shareholders. The company successfully entered the ASX 200 as gold and lithium players reap the rewards of positive sentiment towards these commodities
  • Mineral Resources Limited’s market capitalisation rose by AU$284m (15.5%) following the release of its 2016 results exceeding analysts’ expectations, with strong profit growth during a year of challenging commodity prices
  • Fortescue Metal Group Limited’s market capitalisation rose by AU$1,462m (10.6%) with investors continuing to be impressed by Fortescue’s cost cutting, healthy operating cash flows and the deleveraging of its balance sheet. Interestingly, Fortescue has outperformed the iron ore price over the past three months with its share price swelling by 64.4% in comparison to a 17.6% increase in iron ore prices
  • Woodside Petroleum Limited’s market capitalisation rose by AU$1,769m (7.9%) as crude oil prices spiked during the month. Share prices were additionally boosted by the release of half-year results as costs were cut more than expected, plus its Pluto LNG plant upgraded its 2016 production guidance.

Key commodities surveyed during August included:

  • Crude oil increased by 14.4% to finish the month at US$48.56 per barrel as investor hopes rose again of an agreement to restrict production coming out of upcoming OPEC talks. Slight growth in the Chinese manufacturing sector additionally boosted prices
  • Tin rose by 5.4% to US$18,810.00 per tonne in August as demand from China increased whilst supply declined due to stunted production in Beijing as the Chinese administration undertook environmental inspections in major provinces, and declining production from Myanmar
  • Copper fell by 6.5% to US$4,595.00 per troy ounce in the month as China began to sell copper inventory to other markets in Asia, raising concerns demand is declining from the world’s largest consumer of copper
  • Nickel dropped by 7.7% to finish the month at a price of US$9,775.25 per tonne as the market corrected from a price surge in June and July caused by the shutdown of mines in the Philippines where environmental inspections cut production capacity by approximately 10%
  • Platinum declined by 6.5% to US$1,067.00 per troy ounce as South African production surged to make up for delays caused by safety stoppages and wage negotiations that occurred earlier in the year.

All equity markets surveyed posted relatively stable results for August:

  • The All Ordinaries fell by 2.0% with all sectors being affected by the slight decline, with gold miners suffering as global gold prices fell, and resource and energy stocks hindered by a strengthening US dollar
  • The S&P 500 fell by 0.1% as gains in the technology and financial sector were offset by sluggish factory activity data which coupled with traditionally low trading volumes in August, keeping the index relatively stable
  • The Nikkei posted the biggest improvement, with an increase of 1.9% as the Yen weakened against the US dollar, major export stocks were bolstered and confidence of a near-term US interest rate hike boosted financial stocks
  • The FTSE 100 rose by 0.9% as financial turmoil triggered with the Brexit vote subsided and a potential US interest rate rise towards the end of 2016 was flagged.

Top Deloitte WA Index Movers and Shakers in August included:

  • Imdex Limited (IMD), which posted a 67.0% increase in market capitalisation from AU$97m to AU$162m. The uplift in Imdex’s share price mostly occurred early in the month due to a general uplift in mining servicing companies, picking up traction with investors following a difficult period experienced in the past few years. Additionally, the company released their annual results with their mineral business performing well despite challenging conditions
  • 88 Energy Limited (88E), which posted a 65.2% increase in market capitalisation from AU$132m to AU$218m. The Company’s share price rose off the back of significant operational success during the half year ended 30 June 2016. Notably, the company expanded its footprint by 172,000 acres helping to secure its first mover advantage in the onshore Alaska oil-rich region
  • Ausdrill Limited (ASL), which posted a 61.2% increase in market capitalisation from AU$312m to AU$503m, following the release of their 30 June 2016 financial results which showed a $58m profit, a 133.1% increase on the previous year’s result. Ausdrill additionally forecast a positive outlook, with growth opportunities expected from Africa and Australia, further boosting the share price for the month of August.

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