ASX 200 mining share Alumina Limited (ASX: AWC) hit a near-record historical low of 68.5 cents on 23 November. At that point, the stock had lost a whopping 55% of its value since the start of the year.
And then came the turnaround.
Since 23 November, the Alumina share price has risen by 34% to trade at 92 cents today.
So, what's causing the uplift?
Why is this ASX 200 mining share rocketing?
Alumina is a holding company that owns a 40% stake in the world's largest alumina and bauxite producer, Alcoa World Alumina and Chemicals (AWAC). AWAC is a division of Alcoa Corp (NYSE: AA).
Firstly, Alumina has ridden the wave of this year's 'Santa Rally', which refers to the run commonly seen in stocks in December each year. But its share price charge is much more impressive than the rest.
By comparison, the S&P/ASX 200 Index (ASX: XJO) has risen 7.2% and the S&P/ASX 300 Metal & Mining Index (ASX: XMM) has risen 6.8% over the same time period that Alumina shares have risen 34%.
Clearly, there are company-specific factors at play in this rebound. But before we get into that, let's provide some context as to what a shocker of a year it's been for this ASX 200 mining share until now.
2023: The year from hell for Alumina shares
Back in September, we reported that the Alumina share price had dropped below $1 for the first time in a decade. It had also lost more than a third of its value in the year to date.
This was due to a number of challenges, most notably soaring production costs at its San Ciprian refinery in Spain due to rising European gas prices, which prompted a 50% capacity cut, and inflationary increases in the price of many of its inputs, such as caustic soda.
Alumina also had regulatory issues in Western Australia. The WA Government had not approved AWAC's next five-year permits for its bauxite mines because an environmental group wanted a new impact assessment. If granted, that would have likely taken years, leading to ongoing production restrictions.
So, Alumina was dealing with rising costs, reduced production output, and a stagnant commodity price on top of all that. The alumina price hit a 2023-high of US$371 per tonne in February before declining to US$336 today due to lower global demand for aluminium. That's a big problem when major investor Allan Gray estimates AWAC's costs have blown out from the low US$200s p/t to more than US$300 p/t.
Not surprisingly, Alumina recorded a net loss after tax of US$43 million for 1H FY23, a dramatic fall compared to its 1H FY22 result of US$168 million net profit after tax (NPAT). Dividends are suspended, no doubt upsetting shareholders who have been used to a five-year average yield of 7.4%, fully franked.
But there is light on the horizon.
What's the good news lifting the Alumina share price?
There were two positive announcements in December that have helped lift the ASX 200 mining share.
The first related to meetings with Spanish national and regional authorities to discuss financial losses at San Ciprian and any relief that could be provided to help the company through.
The second was that the WA Government has granted AWAC its next five-year permits. Also, the company will be able to continue activities even if the WA Environmental Protection Authority (EPA) decides to undertake a new impact assessment. The EPA's decision was expected by the end of this month.
Alumina also reported that production costs across its operations were easing, with a 5% overall decline expected in 4Q FY23 compared to 3Q FY23.
The company promised a fuller update on its financial performance and outlook early in the new year.
Alumina CEO Mike Ferraro said:
The last 18 months have been difficult for Alumina shareholders. Following confirmation on mining permits in WA, together with profitability actions across operations, AWAC is well placed to
benefit from the positive long-term outlook for the alumina market, with the anticipated growth in aluminium metal consumption driven by de-carbonisation.
Should you buy Alumina shares?
A few brokers seem to think so and have upgraded their ratings on Alumina shares in recent weeks.
Barrenjoey raised its rating on the ASX 200 mining share to overweight with a $1.10 price target.
JPMorgan also raised its rating to overweight with a 12-month share price target of $1.
The consensus recommendation among analysts covering Alumina on CommSec was raised from Hold in October to Moderate Buy this month.
Among the eight analysts, three rate Alumina shares as a strong buy, two say moderate buy, two say hold, and one says they're a moderate sell.
