Business

Local companies in eye of sharemarket storm

THE stressed Sydney traders in their flash suits and ties might have been the face of a massive dip in the Australian share market this week, but the reverberations were certainly felt at home by some of Gladstone's biggest businesses.

Shares in Glencore, the part-owner of Gladstone's Wiggins Island Coal Export Terminal (WICET) , dropped almost 30%, causing panic.

One analyst argued the company's value could be wiped out if metal prices remained at current levels.

The next day, the Australian Stock Exchange fell to its lowest level in more than two years.

Glencore quickly released a statement to try to calm speculation the company was overburdened with $43 billion in debt.

"Our business remains operationally and financially robust - we have positive cash flow, good liquidity and absolutely no solvency issues," the statement read.

The statement must have had an effect with the share price finishing 17% up after the company committed to reducing debt levels by $14.5 billion.

A Glencore spokesperson would not say how much the Wiggins project, which has just started exporting coal, had stretched the company's budget, saying only: "We have contracted 10.9mtpa of WICET's 27mtpa capacity, which will come from our Rolleston mine."

WICET chief executive officer Marcus McAuliffe wouldn't comment on Glencore or its finances but highlighted the fact the terminal was now functional.

"This phase will include various engineering tasks to take the capacity ... the ramp up is progressing well, with progress ahead of schedule," he said.

Projects like that one, and the three plants over on Curtis Island, were finishing construction at a "horrible time", according to CQUni economist and deputy head of research Professor John Rolfe.

"There is no doubt the slowdown in China is crippling the mining and mineral processing sector in Gladstone and around the world," he said.

"Gladstone is affected doubly with the LNG plants and coal and they want the operational phase to kick-in because they're anxious to produce."

He said the price of LNG gas was down due to an oversupply of shale oil from the United States and a lack of demand due to the slowing world economy.

The price of oil is set to fall further according to the economist who is also editor-in-chief the Australia Journal of Agricultural and Resource Economics.

"There is about to be an agreement with Iran which will allow sanctions to be lifted and increase the supply of oil from their stockpiles," he said.

The impact on the continuing drop in resource prices had an effect on APLNG's 37.5% owner Origin Energy which launched a $2.5 billion share issue at a discounted rate in order to raise capital.

With APLNG expected to deliver a first cargo in November next year, Prof Rolfe

said they had to hold tight and their investments would be worthwhile.

"The three big plants have had cost increases and were expecting higher gas prices, but once they start producing - although they are adding to the over-supply - they will start getting returns," he said.

"The energy and resource markets will go back up but it just won't be for a while.

"This isn't just a temporary slow-down. It looks as though it would be 2-5 years for the world economy to pick up demand again."

Mr Rolfe said Gladstone was in a strong position to outlast the current downturn.

"Gladstone has done most of the adjustment already," he said.

"All of the industries in Gladstone, all of their new technology is better than most places around the world and they would expect to operate for a long time."

He said in the current climate he didn't expect any new projects to start up soon.

"At the moment the focus is on efficient production," he said.

"This is the new norm for Gladstone and the local construction phase has come to an end and will be like this for a few years."

Big business share prices

Origin Energy

Current - $6.10

52 week high - $15.02

 

Santos

Current - $4.17

52 week high - $13.64

 

Rio Tinto

Current - $49.58

52 week high - $65.73

Topics:  glencore, john rolfe, mining, sharemarket, stock exchange, wicet




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