ASX 200 mining share Alumina Limited (ASX: AWC) appears to have begun a rebound after hitting a six-year low of $1.21 on 17 October. The last time it traded at that price was in February 2016.
The Alumina share price is up 3.75% today to $1.39 at the time of writing. Since Monday of this week, it has gained back 9%.
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Alumina share price 'far below fair value'
One fundie that has noticed Alumina's decline and taken advantage of it is Allan Gray.
In their September quarter report, Allan Gray investment specialist Julian Morrison said Alumina had a "depressed" share price that is "far below our assessment of fair value".
Back in February of this year, Alumina was trading at its 52-week high of $2.15. Of course, that was before the S&P/ASX 200 Index (ASX: AWC) took a tumble on fears of rising inflation and interest rates.
Allan Gray said it had added to its Alumina position on "weakness during the last quarter". For the record, the Alumina share price fell by 14.3% over the September quarter.
Allan Gray holds $168.8 million in Alumina shares. It's the third-biggest holding in Allan Gray's flagship Australia Equity Fund with an 8% weighting.
Why buy this ASX 200 mining share?
First, a quick lesson in metals. Alumina is a white crystalline form of aluminum oxide. It looks like sand and is used in smelting to create aluminium.
Alumina owns 40% of the global business, Alcoa World Alumina and Chemicals (AWAC). The 60% owner is Alcoa Corp (NYSE: AA).
According to Alcoa, the joint venture three-refinery operation in Western Australia is the world's biggest single source of alumina. It supplies 8% of the global market.
Morrison explains why they like Alumina shares:
[Alumina has] competitive advantages in terms of long reserve life, and lower cost of production relative to competitors.
Alumina faces some negative market sentiment with regard to surplus industry production currently, but their competitors have much higher cost of production and so face significant short-term losses, while Alumina is better placed in this regard.
Rational curtailment of production by competitors would seem a likely outcome, and in due course Alumina could be a beneficiary of this.
Fun fact: Alcoa has produced the world's first and only low-carbon alumina brand, EcoSource.
The company showcased its low-carbon products at the 2022 Aluminium Fair in Germany last month.
