Shares of Alumina Limited (ASX: AWC) rallied as much as 6% in early trade today before drifting slightly backwards to change hands at 4.5% higher following the release of its half-year profit result this morning.
In an announcement to the ASX, Alumina, which owns 40% of Alcoa World Alumina & Chemicals (AWAC), reported profit for the six months to 30 June 2015 of $US122 million – up from a net loss of $US47 million in the prior corresponding period.
Alumina's improved official result includes some significant items such as a $US74 million charge in the comparable period last year and a $US53 million charge this year.
Higher prices and a robust $341 million operating improvement from AWAC enabled Alumina to declare an interim distribution of 4.5 US cents per share, up from 1.6 US cents in the second half of last year.
"AWAC has capitalised on market conditions and portfolio reform to post its best result for several halves," Alumina CEO, Peter Wasow, said. "Despite the recent fall in commodity prices, we expect to see solid margins in the second half due to increased sales on an index basis and lower production costs resulting from favourable exchange rates."
Given the above, AWAC's EBITDA (earnings before interest, tax, depreciation and amortisation) margin was the widest it's been since the height of the Global Financial Crisis (2007), at $US104 per tonne.
Should you buy?
The outlook for alumina is positive, says the company. While short-term pricing pressures are likely thanks to a possible oversupply situation, demand growth for aluminium – which is made from alumina – is positive over a longer period. A weaker Australian Dollar and Brazilian Real will also help margins.
At today's prices, Alumina shares may be worthy of a spot on your watchlist. However, at least for the foreseeable future, it's one that I am personally not adding to my portfolio given the trend of many commodity prices of late.
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