Bauxite and aluminium investor Alumina Limited (ASX: AWC) has been rated by investment house Deutsche Bank as a 'Buy', following the release of better than expected fourth quarter results, according to a report in the Australian Financial Review.
Alumina owns a 40% share of Alcoa World Alumina & Chemicals (AWAC), which is the world's largest alumina business and was formed through a joint venture with Alcoa in 1994. The earnings release showed that for 2013 Alumina received US$107 million in dividends and distributions from AWAC. No capital outlay from Alumina was required for AWAC and Alumina's net debt at the end of 2013 stood at US$135 million.
The market certainly appears to be viewing Alumina favourably. Since the beginning of 2014, the share price has gained nearly 12%, in contrast the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has given up 1%, while major mining houses BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have fallen 0.7% and 2.2% respectively.
Alumina could be about to follow in the footsteps of BlueScope Steel Limited (ASX: BSL). In the past 12 months, Bluescope's share price has soared 61%, as the firm's fortunes have turned around through a series of cost-cutting measures aimed at returning the steel maker to profitability. In Alumina's case, its fortunes primarily hinge on a more favourable commodity pricing.
Foolish takeaway
Many analysts agree that demand from China for resources should remain robust in 2014. This coupled with the weakening Australian dollar, means the relative underperformance of BHP and Rio over the past 12 months could present a buying opportunity. In Alumina's case, its relative underperformance stretches back over the past five to 10 years, making the stock a deep value play. Time will tell if Alumina's profits will revert to the mean, but near-term market action suggests some investors are getting on board.
