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$1.45 alumina limited

Ann: Alcoa Corp 1st Quarter 2022 Earning Release, page-6

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SeeSpotRun

30 Posts.

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27/04/22

13:00

Post #: 61043799
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Originally posted by Red Dirt Dan: ↑

I was continually asked through email why I posted my thoughts by die hard AWC holders...so these are a more in depth reasoning as to why I said .30 lower from where I posted...

EBITDA of US$262m was down materially in the March quarter, versus US$503m in December.

Lower second-quarter EBITDA of US$10m, due to reduced volumes as a result of ceasing sales from the Juruti operations to Russian customers.

Alumina costs rose US$44per tonne(t) quarter-on-quarter(QoQ).

Alcoa flagged another US$85m (US$26/t) lift in the second quarter, with two thirds related to San Ciprian energy prices, taking unit costs above US$310/t versus our previous US$270/t estimate.

Overall, the significant step-up in costs, combined with a lower alumina price forecast for 2022 (to US$400/t versus US$461/t previously) has reduced our net profit forecast by 59% to US$255m.

Combined EBITDA for Alcoa’s bauxite and alumina divisions (representative of AWAC, Alumina 40% share) of US$300m were well below the pin th tail on the donkey forecasts.

My focus was on the US$44/t step-up in costs to US$288/t, US$30/t higher than I thought.

Revenue was also US$40/t lower than my estimate, with the one-month lagged alumina price of US$373/t materially lower than 4Q21 (US$412/t) and 1Q22 (US$421/t) than my numbers used to approximate it based on a one-third/two-thirds split.

Despite lower earnings, distributions of US$141m so far in 2022 I thought it was a good result.

I posted previously in the forum that if it was .30 lower then it is a buy...but that is as far as I am concerned with my money...not yours...!!!

Industry-wide cost inflation, and European power price increases (San Ciprian contribution was two thirds of this) have led Alcoa to point to another US$26/t increase in refining costs next quarter.

This implies around US$315/t.
This would be the highest on record by some margin, and is over US$100/t higher than levels 18 months ago.

So possibly US$400/t this year (down (S$60/t) following the sharp drop in prices over the past month.

AWAC’s cost increases are related largely to non-controllable factors, but nevertheless they will weigh on consensus and more importantly
sentiment...
However I think spot alumina at US$370/t is now at cost curve support, and the weak share price has appropriately factored in the negative news in this announcement.
Is it a buy around the 1.70...yes I think so and thats where I will be buying heavily if it ever gets to that point...possibly a little higher pricing but I will wait I out and see....

Hope this helps...
All the best to long term holders...
RDD

Expand

Good analysis.

Cost curve support is the key to long term profitability.

At US$315/t refining costs and US$370/t cost curve support, that's US$55/t margin. From 2021 annual report, margin of US$85/t gave EPS (after tax) of US$0.065 per share. So $55/t margin would mean around US$0.042 EPS = AUD $0.059 per share franked = AUD $0.085 gross. Share price at AUD $1.70 implies a gross yield of around 5%.

Given uncertainty around Russian alumina imports, current price is a "hold" for me, looking for $1.60 before increasing position again.

DYOR, GLTAH etc.

AWC Price at posting: $1.73 Sentiment: Hold Disclosure: Held
5 Upvote

0 Great analysis

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