Alumina Limited (ASX: AWC) released its half-year results this morning for the period ended 30th June 2019. Here are some of the key points.
About Alumina
Alumina invests worldwide in bauxite mining, alumina refining and aluminium smelting through a joint venture with a company called Alcoa Corporation.The business they jointly own is called Alcoa World Alumina & Chemicals (AWAC) and it was formed in 1994.
AWAC is reportedly the largest alumina business in the Western world. Alumina owns 40% of AWAC and Alcoa the remaining 60%.
The Numbers
Alumina reported results that were mostly negative for 1H19. Net profit after tax (NPAT) was down 26% to US$210.9 million and excluding significant items it was down 28%. Free cash flow and net receipts from AWAC both declined by 4% to $256.9 million and $265.5 million respectively.
AWAC results were similar, with NPAT down 25% to $552.3 million and EBITDA down 21% to $949.9 million.
Dividends
The interim dividend was declared as 4.4 cents per share, down 49% from the 8.6 cps dividend in 2018. The dividend will be paid on 12th September 2019.
What Is Hurting Results?
Aluminium demand growth has been slower in 2019, with 1-2% growth over the year so far. In particular, demand from China has fallen sharply. The alumina market is in a small surplus which translates to lower prices received.
Alumina also reported that bauxite underpins the cost of production and the bauxite cost component has been increasing through 1H19.
2H19 Outlook
Further declines in the demand for alumina are expected with “uncertain global sentiment likely to continue while trade wars persist”.
The realised price for alumina in 1H19 averaged US$375 per tonne, but the current price in August is around $300 per tonne. Aluminium production is expected to increase in 2H19 which should drive demand for alumina.
For AWAC, a low-cost bauxite and alumina portfolio is expected to ensure positive returns during the cycle.
Summary
It seems that the ongoing US-China trade war is hurting Alumina, and with uncertainty still high I’d be hesitant to invest in this business. I think it would be safer to invest in one of the proven businesses in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
