Why the Alumina (ASX:AWC) share price is dropping today

The Alumina Limited (ASX:AWC) share price is dropping lower today after the aluminium producer reported its 2020 full-year results.

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The S&P/ASX 200 Index (ASX: XJO) is having a pretty flat day today. The ASX’s flagship index is currently (at the time of writing) sitting at 6,809 points, a 0.43% rise on yesterday’s close. Alumina Limited (ASX: AWC) shares aren’t so fortunate though. The Alumina share price is currently down 3.85% to $1.625.

It seems investors weren’t too impressed with the 2020 full-year earnings report the aluminium/alumina producer released to the markets this morning.

What did the company report?

The Alumina share price is sliding lower today after the company reported a mixed bag of metrics this morning.

Alumina operates a joint venture with the American company Alcoa Corp called Alcoa World Alumina and Chemicals (AWAC). For the full year, AWAC reported earnings before interest, tax, depreciation and amortisation (EBITDA) of US$896 million, down from the US$1.26 billion the company posted in 2019. Net profits after tax came in at US$402 million, down from 2019’s US$565 million. That dented cash flow from operations, which was US$673 million for the year, down from 2019’s US$906 million.

All of this was despite AWAC increasing alumina production in 2020 from 12.6 million tonnes in 2019 to 12.8 million tonnes in 2020. AWAC expects to produce a similar level of alumina in 2021, guiding for 12.8 million tonnes. The company managed to reduce costs too, which fell from US$210 per tonne in 2019 to US$199 per tonne in 2020.

That was not enough to offset a falling alumina price though. AWAC managed to achieve a realised price for alumina of US$336 per tonne in 2019, but only US$268 per tonne in 2020.

Meanwhile, AWAC’s aluminium production fell slightly in 2020 to 160,000 tonnes, down from 2019’s 161,000 tonnes.

Turning now to Alumina’s results outside AWAC, and the company’s net profits after tax came in at US$146.6 million, down 31% from 2019’s US$214 million.

Alumina has announced a final dividend of 2.9 US cents per share, fully franked. That’s up slightly from the company’s last interim dividend of 2.8 US cents per share, but down from the previous final dividend of 3.6 US cents per share. Based on the Alumina share price and current exchange rates, that would give the company’s shares an annualised yield of roughly 4.42%.

About the Alumina share price

The Alumina share price has trodden a bumpy road over the last few years. The company was asking more than $3 per share back in October 2018 when record-high commodity prices pushed its earnings (and dividends) through the roof. But on today’s prices, Alumina shares are down almost 50% from those highs. Even so, the Alumina share price is up more than 20% since October 2020. On the current share price, the company has a market capitalisation of around $4.76 billion.

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