Deloitte has released a special edition of the Deloitte WA Index at the opening of the Diggers and Dealers conference in Kalgoorlie, highlighting the performance of WA listed companies over the past 12 months. Deloitte WA Managing Partner Keith Jones said the falling commodity prices and world growth concerns have had an impact on market sentiment which has carried over to the WA Index. “The market capitalisation of WA listed companies as at 30 June 2012 was A$140.7 billion – a decrease of 23.2% over the past 12 months. Over the last 12 years (since commencement of the Deloitte WA Index) there was only one year worse than this, the 12 months ended 30 June 2009, where the WA Index fell by 38.5%, following the impact of the GFC,” he said.

“Despite the 2012 outcome, we have seen a 343% cumulative increase in WA stocks over the past 12 years reflecting strong underlying growth. Australia’s mining industry has delivered massive economic growth over the past 20 years, and there is still a significant investment pipeline in Western Australia to underpin activity over the coming years. The size and substance of underlying business activity has seen the average size of a top 50 WA Index company grow from A$0.75 billion (30 June 2002) to A$2.3 billion (30 June 2012) which is indicative of the substance of the companies operating in the Western Australian environment,” he said.

The performance of WA listed companies which comprise the Deloitte WA Index continues to be heavily impacted by volatile commodity markets, the strong value of the Australian dollar and investor fears over global credit concerns.

“Commodity prices and precious metals have fallen from their 2011 high, with gold the only winner in this period. In the year to 30 June 2012 gold increased by 5.7% whilst other prices have fallen substantially – contributing directly to the decline in the WA Index,” Jones said.

The past 12 months have been a volatile period for all global indices with significant uncertainty surrounding the Eurozone sovereign debt crisis. The international uncertainty is reflected in the financial markets and in lower commodity prices and forecast prices, This in turn is reflected in lower valuation of resource companies.

The ASX fell by 11.3% over the year while the FTSE 100 decreased in value by 4.8% over the year to 30 June 2012.

The Nikkei which is still feeling the effects of the March 2011 tsunami, fell by 9.6%, while the S&P 500 went against the trend increasing by 1.7%.

The Diggers and Dealers special edition of the Index also highlights a number of emerging issues and areas of interest for the mining industry:

The rise of China – Where to next?

With Australia’s investment boom now in full swing, there are risks emerging that could impact the longevity of this boom. Jones said there are signs that commodity demand growth from China is entering a more mature phase, commodity prices have fallen from their 2011 highs, and the costs of development and operation in Western Australia (specifically the Pilbara) have risen relative to competing mining provinces.

“The end result is that some miners are signalling this surge in investment, which has been driving Western Australia’s growth outperformance, is not permanent,” he said.

Performance Improvement

The resources industry is facing a number of challenges which have resulted in production variances and diminishing margins for mining operators. There is an imperative for Australian mines to do more with what they’ve already got.

Jones said mines need to increase productivity – a function of both operational time and rate (throughput) – with an integrated organisation, process and technological approach. “Mining operations should think in terms of improving performance of each element of the value chain on a continuous basis, independent of market prices and rising costs. Long term sustainable results of lower production cost per unit are achievable when improvements are embedded through accepted practices and robust standardisation.”

People first

Safety is a problem involving people, beliefs and behaviours as much as processes, systems and compliance. Jones said to really understand where the issues are usually involves a mix of qualitative and quantitative data analysis – understanding what people are thinking and doing and cross-referencing this with insights gained from the organisational data that is already being collected. “The key is to use unconstrained safety analytics to identify emergent patterns and correlations specific to each organisation – understanding what the site- specific issues are through data so that targeted, initiatives can be developed,” he said.

Regulatory Olympics

1 July marked the start of the Government’s controversial Minerals Resource Rent Tax (MRRT).  As the MRRT is a complex new tax, Boards and senior management need to be satisfied their mining company has put in place the necessary arrangements for assessing the impact of the MRRT and meeting the various impending deadlines.

Jones said a survey of 200 tax managers from Australian mining companies conducted by Thomson Reuters in March this year found that more than two-thirds of Australian miners had not made any preparations for the MRRT, and that almost half of respondents conceded they were “struggling to fully comprehend” its impact.

“The survey also found that 92% of respondents rated compliance costs as their number one bugbear, 64% did not have the people or systems in place to comply with the tax and 62% felt they did not have adequate knowledge of their reporting obligations. Almost 70% of survey respondents said they were unlikely to meet their first quarterly instalment on time,” he said.

Deloitte WA Index High Growth Awards 2012

The top three growth companies, in terms of market capitalisation, for the year ending June 30 2012, were:

• Evolution Mining increased its market capitalisation from A$242 million to just over A$1.0 billion over the period. Evolution was created in late 2011 through the merger of Catalpa Resources and Conquest Mining and the concurrent acquisition of Newcrest Mining’s interest in the Cracow and Mt Rawdon mines, to become a mid-tier Australian gold producer.
• Northern Star Resources saw an increase in market capitalisation from A$140 million to A$314 million, ranking 55 on the Deloitte WA Index from 135 as at June 2011. Its key operational project, Paulsens gold mine, boasts a high grade gold resource, with a planned expansion expected to yield early results. Northern Star is one of the lowest cost and highest margin gold producers in Australia.
• Papillon Resources rose by A$126 million, from A$112 million to A$238 million, following its success in completing a large investment in gold assets in Mali, West Africa. This led to a 78.2% increase in share price and helped the company break into the Deloitte WA Index Top 100.

Deloitte WA Index Survival Awards 2012

The following three companies have been selected from the Deloitte WA Index Top 100 as at 30 June 2012 as the longest surviving mining companies which have been in operation for 20 years or more since their official listing date on the Australian Securities Exchange.

• Iluka Resources Limited – official listing date 30 June 1962
• Resolute Mining Limited – official listing date 11 January 1979
• Coal of Africa Limited – official listing date 24 April 1980

Deloitte at Diggers

Deloitte is hosting the Deloitte WA Index High Growth and Survival Awards 2012 in Kalgoorlie on 6 August 2012 to recognise the top three companies in each of the two categories.