Alumina Limited Reported 87% Growth On Its NPAT For FY 2018

Alumina Limited (ASX:AWC) has announced its full-year result for FY 2018. Â For FY 2018, the company has reported a statutory net profit after tax of US$635.4 Mn, an 87% increase on the corresponding prior period ($340 Mn), $678 Mn net cash receipts from AWAC (40% owned by Alumina) and $447/t average AWAC realized alumina price.

The company has declared a final dividend (fully franked) of 14.1 US cents per share. This makes total dividends for 2018 of 22.7 US cents per share. This in comparison to a total dividend for 2017 of 13.5 US cents per share is 68% higher.

As per financial highlights for AWAC (Alcoa World Alumina and Chemical), EBITDA increased by US$1,013.2 Mn to US$2,630.1 Mn, the margin for alumina refineries increased by US$84 per tonne to US$221 per tonne, net cash inflows increased by US$766.6 Mn to US$1,804.4 Mn.

Chronologically, the primary drivers for Alumina market and prices in FY2018 in Jan – Feb month: China domestic metal stocks, China slowing for Lunar New Year, Quebec ABI smelter issues curtailment, in March: Alunorte halves output on environmental issues, in April: US imposes trade sanctions on Rusal, adds to supply uncertainties, Brazil Albras smelter halves output, in May: China starts alumina exports, in July: Alpart refinery technical issues, Chinese bauxite, refining cuts due to environmental audits, in August: Alcoa of Australia (AWAC) workers strike, on-going uncertainty over Alunorte resolution, in September: China restarts alumina exports, Rusal sanctions softened, Alcoa of Australia strike ends, in October: Indexes rise rapidly due to the threat of Alunorte shutting down entirely, prices decline rapidly when Alunorte threat to shutdown is reversed, in November – December: Prospect of Alunorte recovery was prime driver, arbitrage window closed for Chinese exports, on weak aluminum alumina remains costly as % of LME, consumers stocking increased which led to few desperate buyers in the immediate term, refining and smelting cuts in China (Beijing environmental protection drive), chinese environment audits diluted as Beijing focuses on driving economy.

The company has set its production guidance for FY2019 as alumina at 12.6m t, Portland (55% share) at 165k t. Its 3rd party sales as bauxite at 6.2m BDT. The cash flow guidance has been set at sustaining Capex of $155m, growth Capex: $110m, restructuring related items of $120m and tax payments related to prior year of circa $350m ($220m increase). Its sensitivities guidance of API +/-$10/t at around +/-$110m EBITDA, caustic +/-$100/dmt at approximately-/+$90m EBITDA, and USD/AUD +/-1¢ at approximately-/+$25m EBITDA.

Alumina’s small deficit in 2018 likely to be balanced in 2019 with Alunorte restart and some additional RoW supply along with robust pricing outlook for 2019(nearly 3 months of 2019 pricing complete, API average circa $393/t). China is likely to import significantly more bauxite because the quality of China’s bauxite deposits has declined, its environmental and safety audits concerns still prevails and, its alumina production has increased. China’s bauxite imports replacing domestic bauxite has increased Chinese alumina production costs overall, despite savings from lower use of caustic, and is expected to continue to do so, as the bauxite import curve steepens.

Alumina Limited last traded at $2.685 down -1.287% as on 21 February 2019 (3:15 PM) with the market capitalization of ~$7.83 Bn. Its current PE multiple is at 12.14x. Its 52 weeks high has been noted at $3.2 and 52 weeks low at $2.12. Its absolute return for the last 3 months, 1 year, and 5 years are 16.74%, 17.24%, and 107.63% respectively.

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