Alumina Limited

Alumina prices to remain resilient: Alumina Limited (ASX: AWC) owns 40% of each of the AWAC entities, which form a part of the Alcoa bauxite & alumina business segments. Recently, the group has published the Q4 2018 results of Alcoa Limited. As per the report, Alcoa reported adjusted EBITDA for the Alumina Segment of $683 million. This performance was on the back of a $9/t drop in the cost of alumina production and higher alumina shipments during the quarter.
 
The company’s production from the AWAC Refining Business & AWAC Mining Business came in at 3.1 mt & 11.1 mbdt, respectively. This was a rise from the numbers reported in the Q3 2018. Also, the Cash Cost ($/t production) was clocked at $223 vis-s-vis $232 in the earlier quarter. This reduction in cash cost was driven by the increased production plus smaller benefits from energy, raw materials and labour.
 
What to Expect From AWAC: As regards the outlook, with the alumina market remaining tight, current alumina price levels of around $385/t continue to underpin robust positive cash flows for AWAC. For the 1H 2018, the company has registered a ROE of 13.30 % which is substantially higher than the Industry median of 5.90%. Moreover, the company has delivered a dividend yield of 9.02% via-a-vis the industry median of 2.7% (metals and mining).
 
 
 

AWC’s indicative alumina prices (Source: Company Reports)
 
Meanwhile, the stock price has risen 10.55% in the past 3 months as at 15 February 2019 and is trading slightly up from 52-week low levels. Hence, considering the robust alumina price outlook and an attractive dividend yield along with significantly higher ROE’s, we maintain our “Hold” rating on the stock at the current market price of $2.660 per share (up 1.527% on 18 February 2019).
 

Iluka Resources Limited

 
Improving Ore Grades: Iluka Resources Limited (ASX: ILU) has recently disclosed the details about the Pejebu inaugural mineral resource estimate. The Pejebu Deposit Mineral Resource consists of 23.4Mt material at 0.95% in situ rutile, containing 0.22Mt of rutile, estimated in accordance with the guidelines of the JORC Code (2012 edition).
 

 
ILU’s Zircon sales across geographical segments (Company Reports)
 
The company, in its quarterly review, for the period ended as on the 31 December 2018 stated that the for the full year 2018, the zircon production was up 12% & reached to 349 thousand tonnes. This rise in volumes was on the back of higher ore grades and improved recoveries at Jacinth-Ambrosia and additional release of zircon in concentrate.
 
For FY 18, the Zircon /Rutile /Synthetic Rutile revenue was up 22% to $1,244 million. This was on the back of 41% year on year increase in weighted average zircon price to US$1,351 per tonne and 21% year on year increase in rutile price to US$952 per tonne. However, this rise was partially offset by the contraction in sales volume of Zircon /Rutile /Synthetic Rutile by 7% to 827 thousand tonnes reflecting production constraints.
 
What to Expect From ILU: Going forth, the company expects that, as regards the Zircon market, the underlying demand across the various market sectors in China to remain solid. However, a further slowing in the Chinese construction sector or any escalation in the US-China trade war could have a negative impact on the timing of Chinese companies coming on-line and the operating rates targeted.
 
Also, the company’s pre-tax ROE was 21% at the end of June 2018, as compared to the -10.3% reported in the PCP, signifying an improvement in financial performance of the company.
Meanwhile, if we look at the past 3 months’ performance, the stock has surged by 9.56% and trading at higher PE multiple of 109.18x. Hence considering the improvement in ROE, improving ore grades and decent outlook, we, therefore, maintain our “Hold” recommendation on the stock at the current market price of $9.400 per share (up 1.293% on 18 February 2019).
 

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