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Troubled times for WA listed companies with operations in Africa


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3 February 2014:  Western Australian companies operating in Africa, and particularly gold miners, are struggling with a range of production, cost and productivity issues Deloitte Australia said today.

A special edition of the Deloitte WA Index, released at the opening of the Investing in African Mining Indaba conference in Cape Town, South Africa, today highlights the performance of WA-listed companies with African operations over the past 12 months.

The market capitalisation of all WA-listed companies which comprise the Index rose 4.8 per cent over the 12 months to 31 December 2013, to close the year out at AU$155.6 billion. 

For WA-listed companies with operations in Africa that comprise the Deloitte WA (Africa) Index, their combined market capitalisation fell 44.5 per cent over the 12-month period, to close at A$7.60 billion. These companies represent just 4.8 per cent of the total Deloitte WA Index, compared to 9.2 per cent at 31 December 2012.

The Deloitte WA Index hit a four-year low during the year of AU$125.6 billion at 30 June 2013. However a recovering iron ore price and the falling Australian dollar kick-started the recovery during the second half of the year, with momentum building following the Federal election in September. 

For those operating in Africa, however, gold explorers and producers were the hardest hit, with companies such as Perseus Mining and Resolute Mining having more than 50 per cent of their value wiped out over the year.

Deloitte’s Clients and Markets Partner Western Australia Tim Richards said: “Supply issues are impacting production economics in a number of African countries, with the industry facing a rising cost curve and a declining productivity profile as a result.”

South Africa in particular is experiencing productivity issues and nowhere more keenly than in the gold sector where labour productivity has been steadily declining at a time when annual wage inflation has been growing at 12 per cent. In addition, electricity and transportation costs have also been increasing.

Between 2005 and 2012, South Africa’s gold production also declined by 47%, driven largely by maturing operations transitioning to deeper mines and marginal lower grade ore deposits, at the same time as the plummeting price of gold is weighing heavily on gold explorers and producers alike. 

“Mining companies operating throughout Africa will need to focus on new technology and its potential role in unlocking deposits and improving productivity in order to remain competitive,” Mr Richards said.

Only two WA listed companies with operations in Africa experienced increases in market capitalisation   for the 12 months ended 31 December 2013. These were Base Resources Limited and Tiger Resources Limited, with increased market capitalisation of 81.3 per cent and 39.4 per cent respectively.

Growth over the last year had been sporadic, in what has been a challenging year for Deloitte WA Index companies as a whole.

“Given these factors, and the general malaise experienced by resource dominated equity markets both domestically as well as internationally, the success of Base Resources, and Tiger Resources to overcome these factors and record growth in market capitalisation is certainly an achievement to be celebrated, and is a testament to the perceived quality of their projects,” Mr Richards said.

With one or two exceptions, the majority of commodity prices fell during the 2013 calendar year.

Gold prices continued to decline in the second half of the year, supporting speculation that the extended bull market for gold is at an end.

Silver prices also continued on a downwards trend, closing 34.9 per cent down year-on-year.

Persistent supply-side bottlenecks in South Africa, the world’s biggest producer of platinum, have failed to lift the price of platinum, which fell 11.1 per cent over the 2013 calendar year.

Palladium prices however bucked the trend, thanks to a sizable structural deficit and a recovering global automotive sector, up 1.7 per cent from last year.

Nickel and aluminium continue to be weighed down by excess supply inventories, with prices down by 18.6% and 14% respectively. Until global nickel and aluminium markets cut supply and rebalance, there is unlikely to be much improvement in pricing.

Copper and tin have also seen a marked decline in pricing over the past year.  

Deloitte’s Australia-Africa Services Group Leader Jacques van Rhyn said: “As far as operations in Africa are concerned, cash-strapped junior and mid-tier producers and explorers are increasingly becoming takeover targets, where quality resources are potentially available for bargain prices.”

“The South African gold sector, as an example of what is currently occurring across Africa in general, is undergoing restructuring and consolidation. With higher cost assets looking to being sold or closed, and low-cost assets being acquired or developed, a shortage of management and technical capability creates an ideal dynamic for consolidation,” he said.

“The South African gold sector, as an example of what is currently occurring across Africa in general, is undergoing restructuring and consolidation. With higher cost assets looking to being sold or closed, and low-cost assets being acquired or developed, a shortage of management and technical capability creates an ideal dynamic for consolidation.”

Copies of the full Deloitte WA Index report are available at the Deloitte team stand 125 and in the Australia Lounge at the Mining Indaba conference in Cape Town, this week.

Click here to download a copy.

WA's top 100 listed companies as on 31 December 2013. See the table in the downloadable version of the media release.

NB: See our media releases and research at www.deloitte.com.au

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Contacts

Name:
Tim Richards
Company:
Deloitte
Job Title:
National Mining Leader
Phone:
Tel: +61 (0) 8 9365 7248
Email
atrichards@deloitte.com.au
Name:
Casey Hockey
Company:
Cannings Purple
Job Title:
Phone:
M: +61 (0) 433 922 575
Email
chockey@canningspurple.com.au
Name:
Jacques van Rhyn
Company:
Deloitte Australia
Job Title:
Australia-Africa Services Group Leader
Phone:
Tel: +61 (0) 8 9365 7245
Email
jvanrhyn@deloitte.com.au

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