Alumina prices drive performance

Listed companies South32 and Alumina have announced strong financial performances today predominantly due to alumina operations, in Western Australia.

Australia is the second largest producer of alumina globally, with WA-based operations exporting the majority of national production.

South32, with operations in Western Australia’s South West region, is one of the main alumina producers.

Higher commodity prices resulted in a US$349 million increase in the contribution of alumina refineries to underlying group EBITDA.

The group’s long alumina position also resulted in a combined operating margin increase by 10 per cent, up to 40 per cent, due to market price exposure.

South32’s Worsley Alumina subsidiary lifted underlying EBIT by 165 per cent to US$422 million, driven by a higher average realised price of alumina.

Capital expenditure investment increased by 20 per cent to US$52 million over the financial year at Worsley.

This level is expected to remain elevated over the next two years as the company continues to invest in additional bauxite residue disposal and water catchment capacity infrastructure.

South32 reported a net profit of US$1.33 billion for the year.

A fully franked end of year dividend of 6.2 US cents per share was declared.

Shares closed the day up by 4.9 per cent at $3.42, after the end of financial year report was released.

Chief executive Graham Kerr said “This significant increase in profitability was driven by stronger commodity prices… most notably in our aluminium supply chain.”

“Looking ahead, we are well positioned.”

The other major producer in Western Australia is consolidated entity AWAC, with ASX-listed Alumina owning 40 per cent and US company Alcoa Corp, the remaining 60 per cent.

Alumina has reported a 110 per cent increase in net profit to US$286.4 million for the year to July.

Since June 30 this year, Alumina received US$180.7 million of net distributions from AWAC.

An average alumina price of US$504 per tonne since the end of financial year reporting has provided a strong base for second half results.

While margin profits for alumina refineries have also driven performance, increasing by US$87 per tonne to US$200 per tonne.

“Structural and environment reforms in China produced significant price tailwinds for AWAC, with the average realised alumina price up 35 per cent” said chief executive Mike Ferraro.

“Current market conditions are broadly expected to continue into the second half.”

Following strong half-year performance the company has issued an interim dividend of 8.6 US cents per share, compared to last years’ 4.2 US cents.

Shares closed today up 4.4 per cent at $2.88, after announcement of the half year performance.