Alumina hit on account of AWAC

MELBOURNE'S Alumina has been savaged on the market after its partner in the AWAC global alumina alliance, Alcoa, reported a third-quarter profit that was sharply lower than expectations. The result of $US268 million ($A390 million), for the September quarter, was close to 40% below what the US market was expecting, and has prompted Alcoa to go into lockdown. Alcoa is halting all non-critical capital expenditure and will adjust its capacity in response to the sharp decline in metal prices and "increasingly soft demand in our key markets". Its share buyback has also been suspended. The news overnight from Alcoa spooked the local market in Alumina, its 40% partner in the AWAC joint venture. Fresh from its recent $910 million equity raising at $3 a share, Alumina shares tumbled 47?, or 15.82%, to a 10-year low of $2.50. The dive for Alumina came despite a breakdown of the Alcoa result suggesting that AWAC had done OK in the third quarter. Alcoa said its after-tax operating income from alumina operations was $US206 million, an increase of 8% on the previous quarter. Analysts at UBS said the "read through" from the Alcoa result pointed to a December-half contribution to Alumina from AWAC of $A180 million, in line with its expectations. But it was Alcoa's negative sentiment — it talked about increased margin pressure ahead — that rocked the market in the locally listed Alumina, long considered an obvious takeover target for Alcoa because of a lack of antitrust considerations. Alcoa's declared result did not reflect the near halving in the value of its stake in BHP Billiton's takeover target, Rio Tinto. Alcoa was the junior party in the sharemarket raid by China's Chinalco early this year that snared a 9% Rio stake. Alcoa is now down about half on its $US1.2 billion share of the $US14 billion raid. In a briefing on the profit results, Alcoa managing director Klaus Kleinfield said the group's long-term view on the investment was "positive". He noted that the Australian Government had given approval for Chinalco to increase its stake to 11% but would not comment on the intentions of Alcoa or Chinalco. Mr Kleinfield said Alcoa was in "dialogue with Chinalco all the time". The acquisition of the initial 9% stake forced BHP to drop the minimum acceptance condition in its Rio bid from 90% to 50%. Alcoa's profit was announced after US markets closed on Tuesday. Its shares were down 7.7% ahead of the result, reducing its market value to a miserable $US13.59 billion. In the early 2000s, Alcoa ranked ahead of BHP as the world's biggest resources group. Its fall down the ladder has also exposed it to takeover talk, in connection with which Brazil's cashed-up Vale is often mentioned. Alcoa's result will have been scrutinised by both BHP and Rio, with Rio having substantially increased its exposure to aluminium with last year's $US38 billion acquisition of Alcan. Alcoa's market value makes the Alcan acquisition look expensive. ---by theage.com.au