The Deloitte WA Index marginally fell during March 2018 as the market capitalisation of Western Australian listed companies decreased by 1.43% to close out the month at AU$173.08bn.
Deloitte Clients & Markets Partner – Western Australia, Tim Richards, said: “While the WA Index has fallen over the previous month, it’s decreased less than the broader Australian and global markets. Market uncertainty has resulted in a high demand for gold, which is great news for many of the gold miners in Western Australia. The top three performers in the Index for March 2018 are all associated with the sector. A primary factor in the poor performance of the global indices revolve around the Trump administration’s tariff policies and the declining trade relations between their major trading partners.”
Major index players in March 2018:
- Regis Resources Limited’s (RRL) strong half year earnings of AU$84.6m (up 39% from the prior comparable period), record gold production (up 18.96%) and declared dividend of AU$0.08 all helped enhance market capitalisation this month – increasing AU$126m (5.9%). Regis also announced its Rosemont Main site had a pleasing result with 7.2 grams of gold per tonne (g/t), which approaches the 8g/t benchmark for ‘high-quality’ mine sites as prescribed by the World Gold Council
- Saracen Mineral Holdings Limited (SAR) is another gold miner whose solid half year results facilitated a large increase in market capitalisation for the month. Saracen’s results showed net profit after tax increases of 209% from the previous half year to AU$46.0m at 31 December 2017. This was due to record gold production of 157,795 ounces (oz), up 24% from the previous year following large investment in exploration and development. The company’s market capitalisation increased by AU$135m, a rise of 10.2% from February 2018
- Resolute Mining Limited (RSG) produced robust half year results showing revenue growth of 20% to AU$203m. Resolute remains on target to reach its year end gold production of 300,000oz as well as maintaining its all-in sustaining cost of AU$1,280/oz. The company’s market capitalisation increased by 11.7% to AU$923.14m at 31 March 2018.
Key commodities surveyed during March 2018:
- Aluminium fell by 7.7% during the month to US$1,986.75/metric tonne due to the introduction of a 10% tariff on aluminium imports to the US and the end of cuts to Chinese smelting capacity resulting in a large increase in aluminium stockpiles
- Nickel prices decreased by 3.6% to US$13,253/metric tonne as a result of poor demand from Chinese stainless steel mills, with concern lessening profit margins may force mills to halt production
- Cobalt’s price jumped significantly, up 15.5% to US$93,550/tonne due to the increased demand in the metal from China, where there is the world’s fastest uptake of electric vehicles, alongside supply concerns from the Democratic Republic of Congo, where royalties have increased
- Iron ore fell 20% to US$64/tonne following the announcement of a 25% tariff on steel imports to the US
- Coal fell 11.5% to finish the month at US$92.3/metric tonne following fading demand from China as the heating season ends
- Crude oil was up 6.7% to US$70.1/barrel following expectations OPEC and other suppliers would continue to extend supply cuts for the rest of the year and potentially into 2019
- LNG prices fell to US$7.0/MMBTU, a decrease of 16.7% for the month. This follows a large inflow of supply of LNG from the US, creating the potential for a further period of LNG oversupply.
The equity markets surveyed saw poor results throughout March 2018:
- The US S&P 500 closed off a fickle month down 2.7% largely due to growing investor fears of a trade war between the US and China. Steel and aluminium tariffs affecting approximately US$60bn of imports to the US were announced on 2 March 2018 and were passed on 23 March 2018, both of which saw the market fall. China has since retaliated with US$3bn of tariffs on US pork, apples and steel pipes. The US banking sector was not immune to the fluctuations of the market, despite increasing interest rates and the bill to roll-back the 2010 Dodd-Frank banking legislation. Bank stocks however rallied late in March 2018 as tariff negotiations continued
- All of the gains made in 2017 on the FTSE 100 were erased near the end of March 2018 due to escalating trade tensions between the US and China. President Trump announced the EU, Argentina, Australia, Brazil and South Korea will be exempt from the steel and aluminium tariffs, however further clarification is necessary in order to ease concerns. The Bank of England kept rates on hold at 0.5%, but hinted at a May 2018 hike. The FTSE 100 ended March 2018 down 175 basis points (2.4%)
- The All Ordinaries too saw a drop early in the month due to uncertainty around the steel and aluminium tariffs. The relief from the tariff exemptions for Australian exporters were short lived as the Trump administration announced the exemptions were only temporary and all countries exempt will have quotas in place. The Australian dollar remained relatively steady through March 2018, closing AU$0.02 down at AU$0.76/USD. The RBA also decided to keep the cash rate unchanged at 1.5% as inflation rates remain low. The All Ordinaries closed the month down 4.1% (249 basis points) largely from global trade uncertainty
- Like the rest of the global indices, the Nikkei too was affected by the protectionist trade policies being implemented by the US. The erupting ‘trade war’ between the US and China saw the Nikkei drop by 3%, however increased discussion and negotiation between the two sides eased tension slightly, with the Nikkei ending the month down 614 basis points (2.8%). The Bank of Japan left its short-term interest rates on hold at -0.1% this month, although it does have an optimistic economic view ahead.
The top Deloitte WA Index Movers and Shakers in March 2018 included:
- Lynas Corporation Limited (LYC) saw a large increase in market capitalisation this month of AU$363m (28.9%) following strong half year results, and a large amount of convertible bonds being exercised resulting in 68.3 million newly issued shares. Lynas’ half year earnings before interest and taxes of AU$63.0m (Prior Comparable Period: loss of AU$19.3m) meant that note holders found conversion more attractive
- A new member to the WA top 100 index resulting from a 105% increase in market capitalisation over March 2018 is King River Copper Limited (KRC). An announcement about the high purity of its vanadium (99.48% purity) sparked high demand for King River’s stock and prices rise from AU$0.06 to AU$0.12 over the period, increasing market capitalisation by AU$75m. A core sample in late March 2018 found the company has one of the highest vanadium concentrates of all Australian deposits
- Avanco Resource Limited (AVB) received an off-market cash and scrip takeover offer from OZ Minerals Limited (OZL) to acquire all Avanco shares, in exchange for AU$0.085 cash and 0.009 Oz Minerals shares per share. This offer represents AU$0.168 per Avanco share, previously trading at $0.08. Avanco’s market capitalisation was up AU$189m (98.7%) during March 2018, largely as a result of the takeover bid.