Alumina share price jumps 6% on half year results

The Alumina share price is rising following a rosier outlook due to a supply disruption in Brazil helping offset a decline in earnings.

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The Alumina Limited (ASX: AWC) share price is currently trading higher following the company's release of its half year results. At the time of writing, the Alumina share price had jumped 6.25% in morning trade.

The company invests worldwide in bauxite mining, alumina refining and selected aluminium smelting operations through its 40% ownership of Alcoa World Alumina and Chemical (AWAC). Alcoa Corporation owns the remaining 60% and is the manager.

HY20 Results

Alumina reported a statutory net profit after tax of US$90.5 million for the half. However, excluding significant items, net profit after tax was US$87.5 million.

The company has announced a fully franked interim dividend of 2.8 US cents per share.

Alumina was able to achieve a daily production record for the half. Low production costs have resulted in a cash margin of US$73 per tonne for the first half. 

Earnings before interest, taxation, depreciation and amortisation (EBITDA) for AWAC was US$507.1 million. This represents a decrease of US$442.8 million compared to the prior corresponding period (pcp). 

Additionally, AWAC's net cash inflows decreased US$182.3 million or 48% to US$200.1 million in the half. As a result, Alumina Limited's free cash flow available for dividends has fallen 68% to US$81.1 million in HY20 from US$255.3 million in the pcp.

Furthermore, despite the coronavirus pandemic reducing demand for aluminium products, global primary aluminium production increased slightly over the first half of 2020 to 32.1 million tonnes.

The third party bauxite market remains in surplus with significant production continuing in Guinea. The main sources of imported bauxite in the first half of 2020 into China were 47% from Guinea, 32% from Australia and 18% from Indonesia.

Outlook

The company has advised due to a recent supply disruption in Brazil, the global alumina market is expected to be in deficit by around 1.1 million tonnes this year. Additionally, in the first half there was an increase in aluminium inventories and that is expected to continue in the second half. However, it's expected to be at a slower rate as economies recover. 

Currently, the alumina spot price has increased to US$288 per tonne following the supply disruption in Brazil.

Alumina's Chief Executive Officer, Mike Ferraro said "Consistent cash generation at AWAC, combined with Alumina's strong balance sheet, means that our enterprise is resilient to shocks and market disruptions and that is reflected in the half year financial performance…."

The coronavirus pandemic has hit the Alumina share price hard with it currently trading 32.27% lower than its 52 week high of $2.51. The Alumina share price is now trading at $1.70 which is 26.1% down since the start of the year. 

Motley Fool contributor Matthew Donald has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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