Ann: Diggers & Dealers Mining Forum Presentation, page-44

I believe your conclusion is correct @ozblue, although I've tried to quantify this a bit more. The relevant document is S&P/ASX Australian Indices Methodology, with reference to ASX 300 inclusion below.

There are a variety of prerequisites described there before inclusion is considered on the basis of market cap. You address the most important one, related to liquidity. The stock's median daily liquidity over the six month reference period must be greater than 30% of the market median daily liquidity. Daily liquidity here is expressed as a percentage of the free-float market capitalization traded on a given day. For WA1 it is ~.5%, vs. large caps such as BHP it is more like ~.15%. As the market median daily liquidity is cap-weighted, it's the large caps that matter. So, WA1 should easily satisfy this condition, and would have at the last rebalancing too.

(Actually it's a general principle that this "daily liquidity" measure is higher for small caps: a rough truth in market structure is that daily liquidity / volatility^2 is invariant; small caps are more volatile and therefore have higher "daily liquidity", the key being that this "daily liquidity" is defined as a percentage of the company's market cap; obviously in absolute dollar terms small caps are less liquid.)

The remaining eligibility conditions involve domicile, security type, GICS sector classification, and a weak lower bound on absolute daily dollar liquidity. I believe all of these are trivially satisfied in WA1's case.

As you rightly point out, the remaining determining ranking condition is the rolling (float-adjusted) market cap average over the six month period prior to the inclusion announcement date. Surveying the March 2024 inclusions and removals, the threshold seems to be somewhere between $400m-500m. I estimate WA1's rolling market cap on the March reference date (February 28th) to be approximately $550m, which begs the question, why wasn't it included in March? This, I believe, comes back to the free float adjustment. My hypothesis is that Tali's position is treated as a strategic long term holding, and therefore excluded in the free-float methodology. Per WA1's D&D presentation, this would put strategic long term holdings at 30% (Board and Management + Tali). Conservatively, a more typical value for a ASX listing seems to be around 10%, so this effectively penalizes WA1 relative to other listings by ~20%, and would explain why WA1 missed inclusion in March.

Returning to September inclusion, it does appear the die is cast. The average WA1 (unadjusted) market cap for the last five months is approximately $1.1b. Even if it trades at 0 for the remaining month, the average six month market cap, penalized by 20% for relative free float adjustments, would still easily exceed the threshold of March's rebalance.

On a related question, the ASX 200 threshold appears to be somewhere around $1.2-1.4b, before a relative free float adjustment, and so appears to be infeasible for WA1 in September.

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Lastly, I would wager that some of the price action and trading we're seeing at the moment is related to this dynamic. Index funds enter their positions by buying a large amount of shares via block trades with brokers on rebalance date at the closing price. If the brokers know with certitude that a ticker is scheduled for inclusion ahead of time, their optimal strategy is to accumulate as many shares as possible at the lowest possible price in the weeks or months before the inclusion date, and contrarily for the price on inclusion date to be the highest possible, when they have a forced buyer, the index fund, guaranteed to take all of the broker's shares at the closing price, with the broker pocketing the difference.