Global markets buoyed by positive data and commodity price strengthDOWNLOAD
3 October 2012: The market capitalisation of WA listed companies which comprise the Deloitte WA Index has continued its steady recovery for a second consecutive month, increasing 2.0% during September to close at AU$142.8bn, as a result of improved investor confidence driven largely by positive economic data from China and the United States.
The majority of commodity prices surveyed strengthened during the month, with base metals nickel and tin rising 15.9% and 13.0% respectively, reversing some of the losses made over the previous 18 months. Meanwhile, iron ore prices rebounded from the significant losses experienced last month, rising 17.5% in the month of September.
Deloitte’s National Mining Leader, Tim Richards stated, “The recovery of base metal and iron ore prices is welcome news to Australian exporters, given operating cost pressures and the strong Australian dollar. Additionally the recent interest rate cut should also reduce inflationary pressures on the Australian dollar.”
“Australian markets are particularly sensitive to movements in demand from China, with much of the recent slowdown attributed to slowing economic growth in China and increases in inventories at steel mills, curbing demand for iron ore in particular.” Mr. Richards said.
This is not surprising, given that iron ore accounted for approximately 20% of Australia’s export values in 2011, with 70% of those exports headed to China, and with Japan and Korea accounting for the majority of the remaining 30%. Deloitte Access Economics has reported that Asia’s urban population is expected to double to 3 billion by 2050, and is expected to have the majority of the world’s middle class by that time, reinforcing the probability that Asia will remain the key driver of global economic growth going forward.
Precious metals continued their upward trend, with demand for gold as a safe haven investment remaining strong. However, with limited physical demand, the inflated price of gold remains a factor of speculation which combined with near-zero interest rates in the United States, questions the long-term sustainability of these prices.
Commodity prices appear to be both a symptom and a cause of financial market strength, with the majority of global indices surveyed posting growth in September. A survey of consumer confidence in the United States reported that the Consumer Confidence Index has grown 14.7% to a seven month high. The US S&P 500 was boosted by positive housing and employment data released this month, closing 3.4% higher in September. The All Ordinaries also benefited from the improvement in consumer and investor sentiment, up 1.6% during the month.
Action from the Spanish government to target the debt crisis was not enough to quell European markets, with the FTSE 100 closing just 0.8% up on the previous month, as the Eurozone debt crisis continues to weigh on investor confidence. Similarly, concerns of falling revenues for Japanese companies based in China have outweighed other positive news in global markets, with the Nikkei down 0.4% in the month. A persistently strong yen has diminished the value of revenue from Japanese exporters, reducing their competitiveness in the global market.
The Deloitte WA Index movers and shakers for the month of September were Sirius Resources NL, Mincor Resources NL and Papillon Resources Limited, with increases in market capitalisation of 104.4%, 60.3% and 58.1% respectively.
The last three months have seen the market capitalisation of Sirius Resources NL (Sirius) increase by AU$480m to close the month of September at AU$488m, reflecting a 6,365.9% growth since 30 June 2012. This rise to success was aided in part by a remarkable increase in share price after the announcement of significant nickel and copper sulphide mineralisation at the company’s 70% owned Fraser Range project in WA (the Nova discovery), combined with share placements designed to raise capital to help fast track drilling at the Nova discovery. Sirius entered the WA Index Top 100 at a ranking of 66th in August and has already doubled its market capitalisation to cement its position as one of WA’s key players, ranked 38th at 30 September 2012.
Nickel miner Mincor Resources NL (Mincor) posted an increase in market capitalisation from AU$109m to AU$175m in the month to 30 September 2012. Currently operating in two mining centres in the Kambalda Nickel district of WA, the company has managed to return profits despite faltering nickel prices over the past 18 months, and is currently debt free with a strong balance sheet. The Kambalda project has a strong outlook, with new high-grade ore bodies entering production and with ongoing exploration success that will continue to grow ore reserves.
Papillion Resources Limited (Papillion) is a gold producer with operations in Mali, West Africa, with a focus on its 90% owned flagship project Fekola. Announcements in September of discovery of thick, high-grade intersections of gold have bolstered the company’s share price up 53.6% in September, resulting in an increase in market capitalisation from AU$275m to AU$475m.
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