bauxite versus alumina

Excluding Mitchell Plateau, which Bauxite Australia double pegged, UMC are confident they have 300Mt.

So let's run with that tonnage and see if can get a clearer picture of the bauxite/alumina JV.

Note: currency = AUD; return = gross

• Bauxite = $54 per ton
• Alumina = $550 per ton
• Aluminium = $3,010 per ton

• 2.5 tons of bauxite to produce 1 ton of alumina
• 2 tons of alumina to produce 1 ton of aluminium

The in-situ value of UMC's bauxite prior to the JV was:
300,000,000 x 54 = $16.2b (gross)

Under the JV, United will receive up to 25% interest in the alumina refinery i.e.
((300,000,000/2.5) x 550) / 4 = $16.5b (gross).

Just out of interest sake let's see what is motivating Norsk. I'm pretty sure they will smelt the alumina into aluminium. If so, this will be their gross return:
((300,000,000/2.5/2) x 3010) - $16.5b = $164.1b

Must also take into account other factors:

• It is unlikely we will ever see more than one alumina refinery in the North West.

• WA government policy - all mined bauxite in the far North West must be processed in the local alumina refinery.

• UMC's 25% cut will also include refined bauxite from other players in the area (less the cost of purchasing the bauxite) e.g. Bauxite Australia.

Now I've thrown my hat in the ring and I would appreciate your thoughts.