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
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