Alumina cautiously optimistic despite profit tumble

ALUMINA posted an 86 per cent drop in first-half profit after a brutal six months for the aluminum industry but the company said there are early signs of recovery in some of its key markets. Net profit for the half was $6 million, down from $43.8m last year as lower prices hit margins. The Melbourne-based company today posted an underlying loss of $15m, compared with underlying earnings of $152m last year, slightly ahead of average analyst expectations for a loss of about $19m. The company was one of the hardest hit of the mining stocks in the market rout last year, crashing from highs above $5 a share in May 2008 to lows under 80c in March this year. The stock has since staged a partial recovery and made more gains today, jumping 8.9 per cent to $1.78 in morning trading, partly on the lack of any bad news in the result but also on a 4 per cent jump in aluminium prices overnight. Chief executive John Bevan said the past six months had been an "extraordinarily difficult" period for the entire aluminium industry, and that the company and its joint venture partner Alcoa had acted decisively to cut output and reduce costs. "Although we remain cautious about the outlook for aluminium demand, there is evidence that customer destocking is slowing and early positive signs of economic recovery in some key markets," he said. Sepaking to reporters later, Mr Bevan said: "We firmly believe that the worst is behind us in terms of the impact of the global financial crisis and we are quietly confident that the market will continue to improve from here." Analysts said the profit was roughly in line with expectations and contained no nasty surprises. The average aluminium price in the half was below $US1400 a tonne, but the metal has since risen along with other commodities and passed the $US2000 mark overnight. The Alcoa Worldwide Alumina and Chemicals, or AWAC, joint venture cut its alumina output for the half by 12 per cent on year and Alumina said the partners would continue to manage production levels in response to demand and act to conserve cash. Alumina, which has a 40 per cent stake in AWAC, said the joint venture's average cash costs for the half were more than $US50 a tonne lower than they were during 2008, putting it on track to achieve its promised full year reduction of more than $US50 a tonne. The miner has tapped equity markets to strengthen its balance sheet and provide funds for its share of AWAC's projects in Brazil, and as a result its gearing at June 30 had fallen to 8.6 per cent from 29 per cent at the end of 2008. Net debt at June 30 was $280m, compared with $981m at the beginning of 2009, and cash on hand stood at $193m. Alumina said it wouldn't post an interim dividend in light of the tough operating conditions. Last year it paid 12c. source:www.theaustralian.news.com.au