Archive

Posts Tagged ‘alumina’

Mining Week 15/’12: Coal in Mongolia, no coal in Australia.

April 9, 2012 Comments off

Top Stories of the Week:

  • Chalco bids for Mongolian coal miner
    • Chalco (holding company = Chinalco) made a tentative $930mln offer for 57.4% ownership of SouthGobi Resources, a Canadian listed company, currently owned by Ivanhoe resources.
    • Sources: Financial Times; Wall Street Journal
  • Coal production issues in Australia
    • BMA, the coal JV between Mitsubishi and BHP Billiton in Queensland, declared force majeure after a week long strike in some of its mines. The labor conflict has been going on for almost a year, with workers campaigning for better contract rights for contracted workers and to retain the union’s power in recruiting decisions.
    • Sources: Financial Times
  • Alcoa again cuts production
    • Alcoa, the largest aluminium producer in North America, announced it would cut alumina production by 2% to support prices.
    • At the start of the year Alcoa cut aluminum production, at that time by 12% and mainly in the USA. The 2% alumina cut is said to be aligned with this 12% ‘final product’ cut.
    • Sources: Wall Street Journal; Financial Times; Alcoa press release

Trends & Implications:

  • The potential Chalco – SouthGobi deal appears to be engineered by or via Rio Tinto. Chinalco owns a significant stake of Rio Tinto, which became the majority shareholder of Ivanhoe recently with the key objective of quickly developing the Oyu Tolgoi gold-copper mine (also in Mongolia).
  • Despite a general demand boom which has not passed aluminum many major aluminum producers are posting losses. Profit margins over the past 10 years average below 10%. The key reason for this situation is an overcapacity resulting in oversupply and high inventory levels. Aluminium is currently one of the very few mined natural resources that could be seen as a ‘demand-driven’ market rather than a ‘supply-driven’ market for price setting. However, as more and more producers cut investment, the demand growth fundamentals should invert this situation in the next couple of years.

Alcoa's long term demand outlook as presented end of 2011

©2012 | Wilfred Visser | thebusinessofmining.com

Rusal Net Profit More Than Triples

April 1, 2011 Comments off

“United Co. Rusal PLC said Thursday its net profit more than tripled last year on higher aluminum prices and a strong contribution from 25%-owned OAO Norilsk Nickel. The Russian aluminum giant plans to nearly double capital spending this year to boost capacity in the face of growing aluminum demand.

Rusal CEO Oleg Deripaska said in a statement the company’s strong net-profit growth was driven by significant increases in demand for aluminum and metal prices, and the company expects global demand for aluminium to grow 8% to 43.8 million metric tons this year. He also said aluminum prices will likely remain in a range of $2,500-$2,600 per ton until the end of the year, due to underlying demand and continuing weakness in the U.S. dollar. Prices were volatile last year, ranging from less than $2,000 per ton to as high as $2,500 per ton, he said.”

Source: Wall Street Journal, March 31 2011

Observations:

  • The largest part of annual profit ($2.44bln out of $2.87bln) comes from the share in Norilsk Nickel, a low-cost nickel producer.
  • Bauxite output of the company increased 4% to 11.8mln tons. Rusal operates 8 mines in Guinea and Guyana.

Implications:

  • Cost increase in both alumina and electricity has driven the industry’s break-even price to above $2,200/ton. Predicted demand increases faster than supply, potentially leading to further price increases. However, large trading stocks could supplement supply and keep the price relatively low for several years.
  • Increasing demand partly comes from copper substitution. Rusal benefits in the long term from the high copper price as manufacturers search for alternatives to copper wires.

©2011 | Wilfred Visser | thebusinessofmining.com

Alcoa bets on operating cost cuts

June 24, 2010 Comments off

“…the company is spending $1.5 billion to create a new, low-cost bauxite mine. The aluminum maker hopes that by spending now it will be able to become a lower-cost producer once the economy finally stabilizes.”

The issue of when, where and how much company cash to spend is a puzzle for top metal and mining executives during the best of economic times. But adopting either a save or spend strategy is critical for a company like Alcoa in this tough economic environment, because for years it has lost ground to more nimble and efficient competitors Rio Tinto, UC Rusal and to small upstarts.

Source: Wall Street Journal, June 22 2010

Observations:

  • Alcoa has developed a new high-grade bauxite mine in the middle of the Amazon rain forest. The development cost approx. $1.5 bln.
  • Due to a 60% decrease in aluminium prices, net income of Alcoa has been negative for the past 2 fiscal years. However, the company has managed relatively well to bring operating costs down.

Implications:

  • Vale recently sold its Brazilian aluminum operations to Norsk Hydro because of the high risk associated with energy price volatility. Alcoa will have to prevent being hit by high energy prices or black-outs by executing the energy-intensive aluminum production process in other parts of the world.
  • Alcoa’s CEO Kleinfeld chooses to invest anti-cyclical, contrary to what many competitors are doing. If the balance sheet allows so, this is generally seen as a good strategy to capture market share. However, Alcoa has only some $1.5 bln in cash, which will make it hard for the company to continue the high level of investment.

©2010 – thebusinessofmining.com