WA miners flourish in Deloitte Index

The 2021 Deloitte WA Index paints a strong picture of the economic gains achieved by the state’s mining companies. Nickolas Zakharia writes.

Amid a clean energy technology boom and surging iron ore demand, Western Australia’s mining sector is staying ahead of the curb when it comes to economic viability. 

Despite the looming issues of labour shortages and interstate border closures, the state’s mining sector has continued to drive up profits and company value. 

The 2021 Deloitte WA Index reveals a promising situation for the state.

According to the index, market capitalisation of Western Australian-listed entities grew by 36 per cent to $239.9 billion in the 2020-21 financial year.

Companies listed on the index outperformed the broader ASX All Ordinaries, US S&P 500, FTSE 100 and the Nikkei 225. 

This was largely underpinned by an influx of investment in Western Australian-based resources companies. 

Bullish demand of metals such as copper and iron ore have driven up the value of junior and mid-tier mining companies. 

“What we’re seeing is a broad brushed return of commodity price strength,” Deloitte Western Australia assurance and advisory partner Dave Andrews tells Australian Resources & Investment. 

“We had a pretty sharp retraction globally as a result of initial COVID restrictions as people have moved forward and worked out how to be productive.

“People had to get on with it, which means resurgence in the need for energy. This has resulted in very positive price moves in thermal coal, LNG (liquid natural gas) and also a renewed focus on clean energy.”

According to the index, Venturex Resources grew its market capitalisation by 2722 per cent to $465.99 million in the year ended June 2021.

In July, former Northern Star chairman Bill Beament took the reins to recapitalise Venturex as executive director.

Beament played a role in the $16 billion merger between Northern Star Resources and Saracen Mineral Holdings, a deal completed at the start of this year that also marked his departure from the company. 

Venturex is ranked 49 on the index, climbing all the way from 334 in the previous year. 

The company is developing the Sulphur Springs copper-zinc project in Western Australia, with the Department of Mines, Industry Regulation and Safety (DMIRS) approving its project management plan for the site.

Copper has reached historic highs on the London Metal Exchange this year as demand for the red metal steadily rises alongside a ramp up of clean energy technologies. 

“Copper is one of several key ingredients that we need for our clean energy future,” Andrews says. 

“Anything to do with the creation of electric vehicle (EV) transmission lines, batteries and storage technology – copper a key commodity player in that clean energy dynamic.”

“Given the inability for that supply response to come on quick enough to meet that demand in the next couple of years, there’s positive news to come for copper.”

Iron ore demand has also continued its upwards trajectory, helping mining giant Fortescue Metals Group top the index with a market cap of $71.8 billion along the way, marking a 68.5 per cent increase.

Fortescue and Wesfarmers (ranked second) make up close to half of the WA Index’s total value at $140 billion. 

In Fortescue’s case, the world’s focus on Australia as iron ore’s top player has led to record production from some of the country’s largest producers.

This has been met with record prices as the iron ore price grew by 112 per cent to $US216 ($292) per tonne in this year’s index. 

Most demand comes from the Pilbara region of Western Australia, which is home to many of the country’s largest iron ore operations. 

Australia’s surging iron ore demand follows tailings dam-related issues in Brazil that have clipped the wings of Vale, the world’s leading iron ore producer outside of Australia, and its ability to reach production targets.

“Vale has had challenges to deal with in recent times and that has made Australian iron ore producers very well placed to fulfil that supply-side gap,” Andrews says. 

“Will that continue? Who knows. Vale is a big organisation and obviously working to get back into production. 

“Australia is certainly well-placed right now and very-well placed to supply iron ore globally.”

The Deloitte WA Index outperformed other global financial markets in the 2020-21 financial year.

China remains Australia’s largest iron ore customer despite ongoing tensions between the two nations. 

Political issues aside, Australian iron ore producers are in a crucial position for China.

“The risk of having all your eggs in one basket is on everyone’s mind and on everyone’s agenda,” Andrews says.

“China is still in a position of needing what we (Australia) have, so we can’t lose sight of that.

“We still have very high-quality iron ore and battery related minerals and china needs to source significant volumes from somewhere outside of their country. 

“Given our proximity in a shipping destination point of view, Australia will be continued to be well-placed to supply that market.”

Western Australia’s supply of critical minerals has also seen more attention towards lithium mining. 

Piedmont Lithium, which is based in Western Australia, has watched its market capitalisation explode by 1732 per cent. This marks the highest increase among the index’s top 20 companies

The lithium producer’s value rose from $88 million to $1.6 billion after the company signed a sales agreement with Tesla, the world’s largest EV maker.

The company raised $159 million in the 2020-21 financial year with its namesake spodumene project located in North Carolina.

According to Andrews, the critical minerals boom has also benefitted lithium explorers. 

The Australian Government’s Critical Minerals Strategy is an example of how juniors in Western Australia are being backed, through the promotion of investment, incentives and connecting critical minerals projects with infrastructure development. 

Critical minerals company Liontown Resources scored the second highest market capitalisation increase in the index’s top 20, growing by 761 per cent to $1.5 billion.

The company’s flagship Kathleen Valley lithium project in Western Australia led to the initial upswing in value, due to a pre-feasibility study increasing the mine life to 40 years with a two-million-tonne per year processing capacity. 

Liontown’s market capitalisation further increased through the demerger and initial public offering of the Moora and Koojan joint ventures in Western Australia.

“We’ve got quite a lot of critical minerals explorers and producers that are based in WA,” Andrews says. 

“We’re fortunate in WA that we’re a bit of an incubator of opportune exploration companies generally.

“What we’ve seen is the price rises in some of those critical minerals this year in particular have really seen a resurgence of some of these junior exploration companies that are seeing really good support from investors internationally and locally.”

Andrews expects the next index to show similar performance from WA-listed companies. 

For iron ore, a further ramp up of international construction activity is likely to maintain stable steel demand. 

“With that demand there, challenges coming out of other countries Australia is well placed to supply the global iron ore market we’re going to see a reasonably high iron ore price,” Andrews says. 

“What you’ll also see is a continued strong clean energy metals thematic. There’s more buyers of lithium and the market is opening up.

“Supply is there but it is not responding as the same rate as demand so I think that will continue to put upward pressure on prices.”

As Western Australia’s mining companies continue to ride the wave of higher prices and demand, Australia’s economy is put in good stead off the back of their success.  

This story also appears in the October issue of Australian Resources & Investment.

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