What analysts are saying about Alumina’s (ASX: AWC) Kwinana refinery closure?

2 min read | January 09, 2024 09:56 PM PST | By Team Kalkine Media

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What analysts are saying about Alumina’s (ASX: AWC) Kwinana refinery closure? — Image source: © Awcnz62 | Megapixl.com

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Alumina Ltd (ASX: AWC), a key player in Australia's alumina industry, faced significant developments as news surfaced regarding the curtailing of production at its Kwinana Alumina Refinery in Western Australia. This article delves into the implications of this decision on the company's near-term financial outlook and market response.

Market Reaction and Share Price Surge

Following the news, AWC shares experienced a substantial surge, climbing by 17.04% to AU$1.15 apiece on 10jnauary 2024, marking the most significant intraday percentage gain since April 2020. This surge highlights the market's immediate response to the announced changes.

Macquarie's Analysis and Earnings Projections

Macquarie's analysis foresees near-term earnings downside for Alumina Ltd due to the costs associated with curtailing production. The brokerage predicts a 1-5% decrease in earnings per share for fiscal years 2024-2025, followed by a 3-5% increase in fiscal years 2026-2027.

Costs and Implications of Curtailment

Macquarie estimates curtailment costs for the Kwinana refinery under the Alcoa World Alumina and Chemicals joint venture to amount to AU$190 million over CY24/CY25. Additionally, the remaining WA refineries - Pinjarra and Wagerup - are expected to drive lower group unit costs in the mid- to long-term.

Long-Term Outlook and Financial Forecast

Despite near-term earnings challenges, Macquarie projects a positive trajectory for Alumina Ltd, envisioning a jump in mid- to long-term earnings, resulting in a price target revision of 6% to AU$0.85.

Price Target Revision and Stock Performance

Despite the near-term challenges, the brokerage has revised the price target for AWC, reflecting the anticipated mid- to long-term earnings growth. The stock has observed an 8.3% increase in 2024.

Conclusion

Alumina Ltd faces near-term financial headwinds due to the curtailment of production at its Kwinana Alumina Refinery, resulting in immediate market volatility. However, Macquarie's analysis offers a contrasting view, projecting a positive mid- to long-term outlook, indicative of a potential earnings surge.

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