Alumina Limited (ASX: AWC), the 40% owner of Alcoa World Alumina & Chemicals (AWAC) – part of the world's third largest aluminium producer, Alcoa Inc – has seen its shares jump 2% following the release of a quarterly earnings report.
AWAC, which pays dividends to Alumina as part of its major shareholding, achieved a stronger profit result during the quarter, despite lower aluminium spot prices, on the back of a continued fall in the Australian dollar and Brazilian Real (versus the U.S. dollar).
During the period, AWAC produced 3.8 million tonnes of alumina, with Alcoa's profits from the aluminium ingredient jumping more than 100% year-over-year.
For local shareholders in ASX-listed Alumina, this resulted in $29 million in capital returns and income during the quarter, including a $5 million dividend from the sale of AWAC's Jamalco bauxite mine and alumina refinery.
Commenting on the result, Alumina CEO Peter Wasow said, "The improved performance reflects further weakness in the Australian Dollar and Brazilian Real which offset slightly lower alumina and LME aluminium prices."
"Lower energy and caustic soda costs and continued productivity gains also contributed to increased margins in the alumina segment compared to 4Q 2014," Mr Wasow said.
Capital flows from Alumina to AWAC amounted to just $10,000 during the period and after a final dividend of $45 million in 2014, Alumina's net debt dropped to $101 million at the end of March 2015.
A key gas deal secures cost competitiveness
In a separate announcement to the ASX, Alumina said Alcoa of Australia has secured a long-term energy supply agreement for its Australian alumina refineries. The agreement for 120 terojoules per day of natural gas, commencing in 2020, will cost $US500 million and be paid in two prepayments. However no cost will be incurred by Alumina.
Mr Wasow said the agreement will secure Alumina's cost competitiveness in the West Australian market. He also said the significant up-front costs will be paid by Alcoa of Australia and would not impact Alumina's ability to pay dividends to shareholders.
"The Board anticipates that if current market conditions prevail Alumina Limited will be in a position to continue to pay dividends to shareholders and the Board will review the options available to supplement dividends in light of the energy prepayment," Mr Wasow added.
