Business News - WA
Mark My Words October 4 2024
(upbeat music) - All the latest business news from WA. Mark my words, your weekly news briefing. - Welcome to Mark my words, I'm Mark Baier, joined by Mark Panel. This week we'll be discussing house prices, the energy market with a particular focus on frontier energy and strike energy, Kerry Stokes, private business, gold mining leader, Simon Lee, and the outlook for the sheet meat industry. - There's an eclectic mix today, little less thematic than sometimes it turns out to be, Mark. So in a mixed week, first up house prices up 1.6% in September in Perth, so there's plenty of steam in the market. - Look, there certainly is, and the divergence between the WA market and the rest of the country is becoming increasingly stark. So just month after month, house prices in Perth just keep on rising, typically between one and 2% a month. That's shown in the latest annual figures. Growth in Perth house values, this is measured by CoreLogic, up 24.1% compared to the national figure, 6.7. And in a similar variation in those monthly figures, 1.6% in Perth, 0.4 nationally. And of course, even-- - And negative in Melbourne from recollection. - That's right. Melbourne is down monthly, quarterly, annually. Take your pick down across all those metrics. Hobart has been going backwards. Other states, very soft, New South Wales, minimal growth. So also interesting to see where WA sits relative to other states in terms of median house values. CoreLogic says the median in Perth is $797,000. Now, that still puts us number five. So Sydney, Brisbane, Canberra and Adelaide still have a higher median price than Perth. Strangely, Melbourne is now less, but partly compositional. They've got a lot more apartments in their market than freestanding houses. So it's not really a like-for-like comparison. So on a national scale, Perth's still relatively affordable based on that. And in terms of what's driving it, Cath Hart from the real estate institute of WA, she points to strong demand for established homes, fueled primarily by population growth. And the big one, the ongoing constraints in the building industry. - Yes. - Yeah. I'm going through a small renovation at home at the moment. So I've become a little case study here, discovering the challenges of getting a regular supply of tradies to get building work done. - Yeah. - Yeah. Clearly, a big issue right across the industry. - So you can't build houses, you can't get a house built, so you've got to go and buy an established home, jobs up the price, supply and demand, simple as that. - Pretty much. Now, at a national level, people, you know, that housing shortage is still a factor. And the jobs market's still pretty solid nationally, but people are pointing to the high interest rates and the affordability challenges. Now, clearly, they also apply in Western Australia, and yet people are dealing with that. We're certainly got a bit more population growth here. So that's clearly a difference. You know, incomes in WA tend to be relatively high compared to other states. Maybe people are feeling more positive and relatively affordable compared to other states. - Yeah, well, that's the point, even though nearly 800,000 for a median house price sounds, you know, someone has been in that market for a while, it does sound extraordinary, but it's really quite low compared to, as you point out, all those other cities. - Yeah, one of the other indicators that people point to now is the flow of new listings coming onto the market. Now, this is a seasonal thing. We're coming into spring, so a lot of people like to put their house on the market now. - Yep. - Perth or WA, like other states, has seen growth in that measure. But in WA, it's still lower than it has been in recent years, whereas in the rest of the country, new listings, its core logic said it has not been this high since 2021. So a lot of people, I guess, looking to cash in on that growth in values and sell a property. - Or they're under pressure because of their mortgage and they need to sell up and get out whilst they see the opportunity. - That's true, true. That could be another driver as well. - And Mark, are the stats there on time on for sale? - Yep. Perth, houses sold in a median time of 10 days in September. - Pretty consistent. I mean, it was a little bit less, I think, earlier in the, yeah, not much. - I think it was nine days in August, but yeah, and by historical standards, still very low. - Yeah, right. - It's on the market and within two weeks, it's sold. - Yep. Another interesting stat from the national figures, this is from analysis from Comsek. A big shift towards cheaper housing, which is not surprising, really. So growth in the past year in lower quartile dwellings, up 12.4%, growth in top quartile dwellings, up only 3.8%. - So that affordability pressure, clearly a big factor there. - Yeah, well, whatever that, whatever that is, $2 million or whatever, there's just less buyers for that, isn't there? Yeah, okay, interesting. And look, you know, a bit of a segue here, Mark. Housing market to worker village housing. Albemarle has put its workers village at Ostrelend on the market. So what's the story there? So could there be an example of a downturn in the lithium market, helping the housing supply issue in Western Australia? So Albemarle, big US company, they're building a big lithium refinery at Kemerton, just outside of Bunbury. They announced earlier this year, they were quite dramatically scaling back the expansion that they're doing there. They still got part of it operating, but the growth they were planning is not gonna happen. In anticipation of a much bigger operation there, they've built a workers village. They don't like to use the term camp anymore. They build villages. And the reality is, these workers' villages, this one is called the Paris Grove Village. - Right. - So it's already got a name that the marketing team for a retirement village could pick up and run with. - Yeah, it got it. - It was designed for, well originally, they're gonna build it for about 800 workers. Current capacity, just under 400. But that's now been put on the market. CBRE is marketing that. And it's really been pitched as, well, there's a shortage of housing. Here's something a little bit different. - And there's a whole bunch of what, one bedroom units effectively, is it? - It would be that kind of thing. Yeah, it might be some slightly bigger, but primarily it'd be one bedroom units. - And obviously, Mark, this was built, or that is, that was created for the construction phase of Elbeyl's refinery that isn't taking place. So when you would have a large workforce, which would then diminish in size to a smaller one, presumably that they would, that operational workforce, the future would be a residential workforce, you would assume. Yes, I'm guessing this workers' camp, village resort. Paris Grove was always intended to be shifted from being work orientated to going to the market at some point given its location in Australia. - Yeah, but I guess there's also a question of how long it gets used by Albemarle. 'Cause their original plan was to build four lithium production trains at the Kimmerton refinery. And that whole process could have taken several years. So they might have had construction workers there living there for a few years. And after that period of time, you'd say, "Well, how much value is left in that asset?" But as things are panned out, it's barely, if at all, been touched. - Yeah, and the point you're making is that potentially with that kind of high turnover trades, people, construction work, it could get a kind of a bit of a beating, and therefore it would have needed to be refurbbed after that period you would imagine. I mean, it's without being negative. It's more of a hotel ride, and those things people don't look after premises when they're in a hotel as they would their own home give or take, depending on the individual, of course. - Yeah, and look, for context around this, we've regularly been reporting on big developments, either planned or underway for places like Calgully, Port Hedland, Caratha. Again, design primarily for workers, going up there, working on the mines, working on construction projects. At the moment, they squeeze out people from traditional housing, and that's particularly the case in Calgully. So if they can get these new villages developed, some have happened, plans for more, that sort of frees up some of the more traditional housing stock for, if you like, other families that want to live and stay there. - Yeah, got it. - All right, Mark, now shifting on, the junior energy players in WA have kept it interesting this week, let's start with Frontier Energy, which has scrambled to find financing after some pretty bad news. - Look, Frontier Energy is a company that most people would not have heard of until a month or so ago. That's when they announced that former Premier Mark McGowan was coming on board as non-executive chairman of the company. Now, they've been working away for some years to build a solar farm down near Boruna in the Southwest, and then at the back of that, they were planning to build one of these big batteries to sort of secure energy supplies for the Southwest market. One of the key things that they were looking for was to get reserve capacity credits. Now, this is the very arcane world of managing the Southwest energy market, something managed by the Australian energy market operator. Essentially, they pay people to have a guaranteed supply of energy to ensure that there are no shortages. And often it includes getting paid money, even if your facility is not running. They plan ahead a number of years. Frontier was told earlier this year that they were in the running to get reserve capacity credits. So it's an assured source of income, and off the back of that, you can go out and borrow money, which you need to actually build the facility, which is exactly what Frontier did. And yet, Aino came out during the week and said, "Well, actually, there's lots of other people out there who are going to meet our needs and ensure there's sufficient energy in the Southwest. We don't need energy from your proposed facility." The market took it very badly. I mean, look, their share price had been trading back in July, they were up around 58 cents. They'd sort of come off very substantially since then they're around 24 cents at the start of the week, finished the week at about 11 cents. Off the back of that, not only have they scrapped their plans to borrow about $120 million, they'd also have done a capital raising. They got away the first trench of that, but they were going to raise another $23 million of capital. It was, had some lead managers lined up, but they said, "Look, share price has fallen too far." You know, so that was pitched at, I think, 24 cents a share. And they'd fallen real below that level. So the lead managers walked away from the deal, so frontier energy has now got a real challenge for themselves. And in that original funding mix, was Mike Cannonbrook's part of that? Yes, so there's an organisation that he runs. I don't have, here we go, Inforadet. So, which is, this is part of a growing trend in the Australian financial markets, these sort of private capital groups. So instead of going to a bank or a traditional lender, you get organisations, so Mike Cannonbrook's, one of Australia's wealthiest billionaires, you know, he's set up this sort of side business, where he'll lend people, you know, and typically is an alternative lender, is to expect them to charge a high rate of interest than a mainstream bank would. Yes. But there are a lot of people out there doing it now. And frontier had actually announced that they were in the running for this, for the reserve. Well, yes, because, I mean, AEMO had come out earlier in the year, and they had a, if you like, a draft list of people they might go to. That's pretty painful, isn't it? It's very painful for them. Yeah. And then, and what do we think, I mean, obviously, Mark McGowan, well, you know, just, I guess there's a bit of me that goes, well, you know, it just shows that there's less political interference than you think, because, you know, the former premier gets a gig like that. I know he hasn't started yet, but it doesn't mean that the company gets what it wants. That's an interesting, you know, comment that I, you know, I guess that shows that the market's very open and transparent. Well, just on that point. Yeah. There's still conjecture about if and when he will join their board. Really? So it was announced in August that he was joining the company's board as chairman. And it was expected that he would begin at the start of September, right? He's not yet joined. The website says, or sorry, announcements that have come out say, he's chairman, quote, "effective on a date to be agreed." Now, they had a investor conference call during the week. Jack McGinn listened in. And the chief executive said, "Well, we expect him to stay honest or to become chairman, but he still hasn't started and they still don't have a date." It's pretty unusual. That is very unusual. So whether he's reflecting on that, you know, it was a chance to help a small WA company break through and become part of the energy market. It's looking tougher. They don't appear to be a couple of months ago. Very much. And then strike energy. Yeah, look, this is the company chaired by John Pointen. Look, they've had some positive news. So, you know, not all bad there. Strike's focus is on the Perth Basin. So it's sort of the onshore gas fields, about three hours north of Perth. They've got about three different projects. One of them is called, they've got South Aragala and West Aragala. They've actually had a, look, they've had a pretty volatile year because it all depends, one key factor is their drilling results. That's right. They had some spectacular drilling results two or three years ago. Everyone thought lots of gas there, looking fantastic. More recent, not so great. That's right. So the share price has fallen very heavily. John Pointen sort of spoke about this during the week and he said that downgrade in their market value, he described it as brutal and in his view overdone. And I guess there's a few factors to point to. They've got their well-uring gas project. So that's currently in production. Just supplying gas into the Southwest network. That's actually the first new gas production facility to come online in WA in more than a decade. So I thought that was sort of interesting there. And then the South Aragala project, that's one that has in fact got an allocation of reserve capacity credits from AEMO. So that's sort of a second project where they're actually planning to build a power station off the back of the gas that they've got. And then thirdly, they've got the West Aragala project. That's a joint venture with Gina Reinhardt's company, Hancock Prospecting. They've got approval from the WA Planning Commission to build a $140 million gas plant. So they haven't yet reached a final investment decision on that one, but it's all looking like that will happen. So some encouraging news there. And certainly John Pointen was very full of praise for the shift in government policy around giving companies that have onshore gas deposits the right to export some of that as liquefied gas. Yeah, okay. Rather than having to supply it all to the domestic market. Yeah, that's a chance to make a bit more money and underpin the commerciality of what they're doing. Got it. All right, interesting. And I guess with debate over WA's energy mix, lots of batteries, but where's the new generation capacity? Yeah, look, this is a point that Frontier raised in discussions during the week. And they're feeling a bit aggrieved about the way things are panned out for them. And one of the issues is that AEMO has is paying people to build these big batteries. So one of them is... Or Synergy is building a couple of batteries. Alinta is building a couple of batteries and the global company Neon, they're building a very large battery down at Colley. Now, again, this is all a very opaque world when we're looking at this, but the developers of these batteries get assured payments from AEMO, which ultimately flow through to consumers, businesses and retail customers. Now, big batteries are a critical part of the energy future because, you know, as the renewable energy supplies are inherently unreliable, you need a battery to ensure that everyone can turn the lights on and come 5pm or 6pm. But you still need the generation capacity. You know, the coal power stations are going to shut down, certainly the plan. And we're not seeing the new wind farms or the new solar farms. And frontiers grievances without actually going to build a solar farm in tandem with a battery development. - Yes. - A lot of other people like Neon. - We're just building a battery. - Just building a battery. And we can't just do that. - I think everyone acknowledges that. But at the moment, we're not seeing the investment or construction activity in the new generation capacity. - Yeah, no, interesting. I mean, you know, we all know it's fraud. And it's been a, this whole energy mix thing has been a discussion for 20 years at least. And we still don't know. But just, yeah, frustrating that policy doesn't put any certainty around this these days. - Now, big change here, Mark, you broke the story on Kerry Stokes' family office, Australian capital equity on its reported profit for the year. - So yeah, Australian capital equity lodged its annual financials with ASIC during the week, financials for the year to June 2024, annual net profit, $492 million. So that's the headline number, quite a spectacular number, up from about $130 million in the previous year. Now, I had a quite interesting and almost challenging time going through these accounts because they were a little different from-- - Well, they're not designed for you and I to read easily, are they? - Well, that's one. Nice way of putting it, yes. Certainly different from most listed companies which are more straightforward. And I guess, well, it's probably more interesting for the insight that it gives into the nature of his private business interests or business interests more generally rather than the trading performance. Total assets, about $2.6 billion, but the way in which you values those assets mean they could actually be a lot more. So the largest asset, they've got a 34% stake in the ASX company's seven group holdings, which of course has a very large and diversified range of business interests, mining, mining services, energy, and then in turn, that controls seven West media. - Yeah, it's gonna say, media as well. - Yeah, so now that's in the accounts with a very conservative equity-accounted value of $1.5 billion. - Right. - If that shareholding in seven group was in at the prevailing share price at June 30, it'd be about $5.2 billion. - Yeah, it's a big difference. - So there's a lot of, you know, when you're looking at accounting policies, there's a lot of judgment calls there, certainly more. So it's much art of science. - Gotcha. - Another big asset they've got, 36% stake in BCI minerals. That's the company building a big salt and potash project up north. They've had a few challenges, but you know, they finally, that's sort of starting to happen, that project, so some positives. But there have been some big impairments that they've had to make against that asset. The other one I found intriguing, there's a property portfolio, and I use the word property loosely of about $500 million. That includes a whole range of pastoral stations and cattle that carry stokes owns. It's a theme there, Gina Reinhart, Andrew Forrest, carry stokes. They're all like, they're big holdings of pastoral stations. - Once you've got any status, you should have a pastoral station. - Or a few of them. - Yes. - But the other thing that, which stands carry stokes apart from the others, is art collection. You know, he's been sort of, it's a famed collection. You know, one of the greatest collections, I believe, of Australian art in particular, and also military memorabilia. - Yes, memorabilia, that's right. - Value debt, $213 million. So, a very enthusiastic investor. Just last year spent $7.5 million adding to the art collection. - Well, I guess if you've got it, you should spend it. So he has, and that's a, yeah, quite interesting observation and interesting see a number on it. Speaking of Richlisters, Mark Simon Lee has announced his retirement as he exits his last ASX company board. - Yeah, look, some of the younger listeners might not be familiar with Simon Lee, but I just thought it was timely to reflect a bit on someone who's had a very big impact on the business scene in Perth over about 40 years. That looks, Simon, he was born in Malaysia, into a very poor family, but he always had an appetite for business and talked about, even as a school kid, he was doing deals, made a bit of money up in Hong Kong in his younger days, came to Perth on a holiday 45 years ago and liked it and still calls Perth home. It's currently residing in Singapore, but planning to retire to Perth. - Global Citizen was how someone described him last night. - Okay, fair term. So, look, the list of names is first company where he made an impact, great Victorian gold. That was back in the '80s and in a piece of good timing, sold that just before the market crash of '87. Then established Samantha Gold, very successful gold miner in the early 1990s. That's very teamed up with Nick Georgeetta. So, Nick is another sort of legend of the mining, gold mining industry in Western Australia. - Yeah. - And in fact, Samantha Gold won the inaugural Outstanding Producer Award at the Diggers and Dealers Forum back in 1992. - Well, that kind of dates it all, doesn't it? - It certainly does. That company sort of morphed into Resolute, which is still out there as a substantial gold miner. It sort of changed a lot over the years. Then Simon Lee and Nick Georgeetta set up Equigold, another very successful business, sold for $1.1 billion in 2008, and then the whole team from there went on and set up Regis Resources. - Another huge success story. - Another great story, yep. And then the team that built Regis, they sort of moved on in two ways. One group, led by Mark Clarke, went and set up Capricorn Metals. The other group, led by Morgan Hart and with Simon Lee and others, went and set up Emerald Resources. They've proceeded to develop Cambodia's very first gold mine. And in fact, off the back of that, Emerald won the Digger of the Year. At this year's Diggers and Dealers Awards. - There you go. - So sort of bookends his career to look quite nicely with those awards. - So he's standing down, I think, at the company's AGM in November. - In November, that's right. So look, Simon's in his mid-80s. - Yep. - We had a chat to him on the phone. In fact, a number of times he's been reported as retiring, but he said he keeps on getting phone calls from people, saying, "Can you come on this board? "Can you come and help me with something?" And he can't say no. - And my recollection, and to be honest with you, I haven't dealt with Simon Lee for a good 30 years, set the minimum, but anyway, maybe a little bit, maybe say 25 years, I'm not quite sure, but he was very active in, if I remember rightly, the Australian, Chinese Chamber of Commerce. Hopefully I've got the exact name right there, or the Chinese Chamber of Commerce here. I can't quite remember. There's a couple of different versions of the same thing there. And he was a real early kind of starter in that. And I think he's still active, is that right? - Yeah, certainly less than he has been, but around that time, he was actually, I think you could say, a confidant and advisor to Paul Keating, when Keating was Prime Minister, and had a big push about sort of deepening ties with Asia. And Simon was one of the people that helped to make connections, particularly into Malaysia and Singapore. - Yeah, I was gonna say that that Chamber was less about China and more about Chinese communities, diaspora, outside of China, wasn't it? And well ahead of its time, given what we've seen in the 2000s and the emergence of China as a global superpower and huge economy. - Yeah, and look, Simon, he's also been a board member at Ostrade, now known as Export Finance Australia, I think. And also Chairman of the Western Australian Museum Foundation. And that was an example of his philanthropic activities. In fact, the Simon Lee Foundation, that's one of the philanthropic bodies that we track in our database, makes annual contributions of between $4,000 and $500,000 year in, year out. So that's a measure of A, Simon's made some very good money over the years, and B, gives back to the community in a significant way. - Yeah, no, good story. Okay. And Mark, finally, plenty of news in the meat industry this week, with strong views on the sheep trade and a reprieve for the paddock to plate producers. - So Matt Dalglish is an expert on agribusiness and one of our colonists in business news. And there was a lot of interest in a colon that he wrote about the future of the sheep meat industry. So obviously the Australian government is putting in place a ban on exports of live sheep. And that sort of caused a lot of angst and a lot of opposition in the agricultural community. Still hopes of overturning that ban, but subject, I guess, to the next election. But most people are working on the premise that live exports will be phased out by 2028. In response to that, a lot of farmers just seem to be exiting the industry altogether. But Matt's made the point that there's actually a very big opportunity here, opportunity here, if farmers focus on the opportunity in sheep meat. He's looked at some global studies about very strong growth in demand for sheep meat across Asia and Middle East and other markets. WA has proximity to those markets. It's got a good reputation as sort of a reliable supplier of clean, green agricultural produce. He acknowledges that that transition from live exports to box meat will require investment in processing facilities, cold storage, logistics, et cetera. But his view is the potential rewards there are very significant. So he just says, you know, I guess he's worried that we're just not looking closely enough at that big opportunity. - Well, Mark, I think it's a really good one and I'm no expert in this field, be honest about that. But let's just unpack it a bit because I think there's some, there is an opportunity, I'm sure, and that's what people are saying, but it's not as, it's so complicated and it's so historically complicated that I think it is worth talking about. I was at the Darren Field Day, so literally a month ago, just over and got to hear some of this stuff. I mean, there was a fair bit of discussion around it there. And I think the first place to start is there's huge distrust. Farmers don't trust processes and the live sheep trade gives them an opportunity, gives them a much greater choice of markets in which to sell their product, right? And I think also, I think it's fair to say that the farmers that sell into the live sheep trade are not necessarily sheep meat farmers. They're often wool producers as well or whatever. They're not, like that's not their main game and the live trade offers them an opportunity to sell sheep that is not really something that is wanted in all parts of the world market. And I'll just roll that, walk that back a bit because there are some parts of the market where that older sheep, the mutton, is valued, right? It's some parts of China, I think, Middle East, which is why the live trade tends to go there. So straight away, we've got this very fragmented market at the bottom end, the suppliers, and then you've got a very, very concentrated market at the top if you take out the live sheep trade. And I think, to talk of the paddock to plate operation, which has become news in the last week or two, there's a good example, albeit niche, where the process of just announcing, shutting something down, which is very specialist kill for bespoke one-off beasts or whatever, which people raise on their own farms and then put the meat into their own restaurants, right? So it's very, very niche. But this is where this distrust comes from. And Mark, if you talk to farmers, possibly go back generations. There's reasons why the Australian Wool Corporation and the Australian Wheat Board came into place to control and manage and monopolize commodities, wheat and wool, and take it out of the hands of the private sector because farmers distrusted the companies that came and bought wool and came and bought wheat. But having said that, listening to all this, and I don't want to sound like I'm on some sort of diatribe here, but the listening to the processes, the farmers aren't much better. The farmers take a contract to deliver sheep to an abattoir and then just don't deliver it. I just can't believe that such a thing exists in this day and age. I mean, what is contracts for if you don't deliver on it? And it was extraordinary to hear that. And the farmers, when I was hearing that, and this was in a public forum, the farmers didn't say it didn't happen. It's not like they said that's not true. I've found that extraordinary. - And this has been a recurring issue? - Clearly, you know? So how can I, and so here in WA, the number of sheep processed per day is just too low to really get the scale required for the processes to invest. And that's where the opportunity lies, which is what Mr. Delglish is talking about, that if the people who have been selling into the live trade converted that into the box trade here, there probably is enough volume on a daily basis, annual basis to provide the local market, the local processes with the turnover they need to invest in their facilities. But it's just nearly impossible for anyone to do that. If each side doesn't trust each other, the farmers aren't going to invest in their sheep if they think that that process that could shut down tomorrow or give them lower prices whenever they feel like it, and that is the problem. There you go, how's that for summary? - Good wrap up there, Mark? - Yeah, well, I hope it, I mean, like I said, I'm not an expert, but that's my reading of it all. Anyway, Mark, just on that paddock to plate, there was a bit of a reprieve there for the paddock to plate producers because DBC, which has started up butchering company, now owned by Westport, has said they will at least, I think it's another four months before they shut it, so they're at least going to keep it, because they said they were going to shut it down sort of almost immediately. And now they're also talking about Westport, this is about finding some other solution, hoping for an industry solution, but they did, you know, dangle the carrot of maybe putting in a niche operation in picked and near Bunbury there, where they might provide that service to those niche producers. - But I guess the theme running through there is that you need the processes and the farmers to actually work together, help each other, support each other. - Two right, Mark, and, you know, find a word on this, it's unhelpful, the amount of activism that is on in this field. You know, you've got farmers are very active, you've got to keep the sheep movement, which I find odd, because it's sort of like at odds with the lock the gate movement, you know, one hand they're in league with the greenies and in their next stage, they're really not. They're, you know, the animal liberationists are trying to shut down the live sheep trade, the live animal trade, and they're going very successfully at that. They're hammering the abattoirs and making it very difficult for abattoirs to operate because of all the new transparency they need to put in there. And, you know, we're not saying any of that's wrong, but it's all causing a lot of angst out there. And so you're not seeing any natural change here, you're seeing organic change, you're seeing drastic change, which is what the problem is. All right, enough of that. Thanks for your time, Mark, and to our listeners, thanks for tuning in. Hope you enjoyed this podcast and have a great weekend. - The latest business news, deliver daily. Subscribe and rate the show, wherever you listen to your podcasts. For all the latest business news, visit businessnews.com.au. (upbeat music) [BLANK_AUDIO]