News Wrap

IN <i>News Wrap</i>: Resources underpin Australia’s economic resilience; uranium price rally unlikely to last; and Arrium's $754 million equity raising vital to ease debt burden as iron ore prices fall.

Kristie Batten

Resources underpin Australia’s economic resilience

Australia is undeniably better off because of the resource boom, and not only the companies doing the digging, reports The Australian.

More than any other factor, the boost to local confidence and economic activity stemming from the resource boom prevented the slumps in economic activity and confidence that resulted in massive increases in unemployment across the world.

Even as the price of iron ore – Australia’s biggest export – falls back to $US80, the boom continues to flood government coffers and household budgets with extra income. And the gas boom is only getting under way — of $A229 billion of committed resource projects as of April this year, $197 billion were LNG or gas.

Not only the workers in those industries benefit: the sustained surge in the Australian dollar against most other currencies has spread the benefit of the resource boom to every Australian, making imported goods and services much cheaper than they have been since the currency was floated in 1983.

A recent analysis by the Reserve Bank concluded Australians’ incomes were about 13% higher today than they would have otherwise been, and the unemployment rate – currently 6.4% – 1.25 percentage points lower than it would otherwise be, equivalent to around 150,000 jobs.

Uranium price rally unlikely to last

A multi-week rally in uranium prices fanned by the Ukraine conflict and labour unrest at a large mine in Canada looks unlikely to continue for long as the reality of oversupply and lacklustre demand sinks in among buyers of the nuclear fuel, according to Dow Jones Newswires.

Industry analysts and some uranium producers believe that even as supplies fall, a substantial increase in demand is needed to drive prices up to levels that would make new investments worthwhile, when many operations are running at a loss.

Uranium prices have surged 15% since the start of August, shaking off a multi-year glut-induced slump. A gauge of more than 20 commodities, meanwhile, dropped more than 4%. Uranium now trades at $US32.75 a pound, up from a nine-year low of $US28 in May.

Arrium’s $754m equity raising vital to ease debt burden as iron ore prices fall

According to The Age, the $A754 million equity raising by iron ore and steel group, Arrium is being hailed by some as prudent and by others as desperate. The truth lies somewhere in between. The reality is the company that has been carrying too much debt on its balance sheet really didn’t have a choice.

One need look no further than the price of the new stock being issued – a 40% discount to the company's value-weighted average price over the past three months to understand that it couldn't chance failure. It needs the money to fortify the company in the face of a steeply falling iron ore price.

Investors will be able to pick up these new shares at 48c. In March Arrium shares were trading at more than $1.50.


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