Resources companies dominate Deloitte WA index

The strength of Western Australia’s resources sector has led it through crises and is now set to usher in a new era of critical minerals.

Western Australia continues to be considered one of the world’s dominant mining jurisdictions, with this exclusive status gifted by the enormous resources sector in the state.

The state’s concentration has caused more and more mining corporations to gravitate towards the Western Australian market, and others such as banking and consumer goods to drift to the east coast.

Through all these ebbs and flows, energy and resources companies dominate the 20th Deloitte WA index and emerged as the state’s biggest.

“I went back and reflected on the past 20 years. And it’s fascinating to think back of what’s happened. We had Facebook, iPhone, the global financial crisis (GFC), Brexit, the Australian bushfires and now COVID-19,” Deloitte Western Australia audit & assurance partner, Dave Andrews says.

From the resources sector’s domination at 50 per cent in mid-2000, the industry has flourished to be the state’s biggest movers, shakers and winners through the decades.

The top 10 companies by market capitalisation at the start of WA Index tracking included Iluka Resources, Wesfarmers, Woodside, Homestake Mining, Bank of Western Australia, Foodland Associated, Franked Income Fund, Videlli Corporation, Seven West Media and Orbital Corporation.

Twenty years on, only Iluka Resources, Wesfarmers and Woodside have tightly held their seats on the WA Index board.

Wesfarmers becomes the only non-energy and resources focussed company holding a top 10 position in both the 2000 and 2020 charts.

The latest index has welcomed an influx of energy and resources companies, such as Fortescue Metals Group, Northern Star Resources, South32, Saracen Mineral Holdings, Mineral Resources, IGO and Regis Resources.

But the notable theme is the rise of Western Australian-based gold companies, according to Andrews.

“The top six and high growth awards are in the gold sector this year. The yellow metal has been absolutely critical in the WA Index and shielding us from the impact of COVID-19,” Andrews says.

The fact that we’re so exposed to gold has provided an element of shelter: people moved from a high-risk investment to safe haven investment such as gold.” 

As gold has acted as a counterbalance while other commodity prices fall, the latter may pick up the spotlight when the world returns to a “less dynamic and complex place”.

Andrews points to the potential of nickel, just as Tesla co-founder Elon Musk highlights its future necessity in the development of battery technology and electric vehicles.

The Deloitte partner counts Western Australia as fortunate to be a host of various future commodities such as nickel, graphite, lithium and rare earths.

“They’re becoming more and more important as we transition to tech-led lifestyles. And Western Australia is well placed to supply those commodities to the world,” he says.

Mining’s place in the GFC

Western Australia is cemented on the map as a resources powerhouse of Australia in terms of exports generation.

Resources companies have been able to outperform the market while others are trending in line with the broader market.

The resources sector is buoyed by favourable commodity prices. As prices remain high and deliver positive returns, resources companies grow in value against non-resource companies in Western Australia.

“That has given us reason to be proud that our recovery (from the COVID-19 pandemic) has been really quick,” Andrews says.

“We dropped $150 billion in a two-month period, but three months after that, we had a very sharp correction. Other broader markets haven’t achieved quite the same response.”

The price environment even set the period between 2006 and up to the GFC apart as an “unprecedented” moment.

“We had record iron ore prices and China going from strength to strength in industry production and growth,” Andrews says.

“Western Australia was fortunate to have its share of quality iron ore. We took advantage of the state’s geographic location and became the closest shipping counterparty to China.”

But if there was one period in the 20-year history that proved the resilience of the resources sector, that would be the GFC.

Although not completely immune to the crash, Andrews believes that Western Australia was still relatively well sheltered on its recovery as commodity strength remained.

On the flip side, the GFC demonstrates what over-reliance on the resources sector can do to the state economy.

“The GFC had a profound impact on world markets, and the shocks were exacerbated locally,” Andrews says.

“While the WA Index had enjoyed outperformance in the lead-up to the GFC, it took a much sharper fall as commodity prices tanked. We can’t ignore our over-reliance on resources. The data shows that.

“But it’s a pretty well-known goal of Western Australia to not be completely leveraged to one or two main sectors.”

This article will appear in the October issue of Australian Mining.

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.