Alumina Limited

AWC Details

Business Update: Alumina Limited (ASX: AWC) is present in the global bauxite, alumina, and aluminium industry, which it conducts principally through bauxite mining and alumina refining. The company holds 40% interest in Alcoa World Alumina & Chemicals (AWAC). The remaining 60% is owned and managed by Alcoa Corporation.

• Due to the damage to a bauxite ship unloader at the AWAC refinery at Alumar, Brazil, it reduced total daily production by one-third to ~7,000 tonnes each day.
• The reduction in production at the Alumar refinery represents around 4% of the daily AWAC alumina production.

An Update on Q2FY21 Performance:

• In Q2FY21, AWAC remained on track with a robust production performance for both bauxite and alumina.
• Despite higher Handysize freight costs, AWAC’s distributions to Alumina Limited stood at US$74.9 million in Q2FY21, up from US$62.0 million reported in the previous quarter.
• AWC noted Q2FY21 earnings of Alcoa Corp., wherein adjusted EBITDA of Alcoa Alumina stood at US$124 million against US$227 million reported in the previous quarter, owing to unfavourable currency movements and higher maintenance costs.
• Adjusted EBITDA of Alcoa Bauxite segment stood at US$41 million against US$59 million reported in the previous quarter.
• With respect to AWC, the company noted production of 2mt from refining business, flat on a quarter-over-quarter basis.

AWAC Net Distribution Highlight (Source: Analysis by Kalkine Group)

Key Risks: 

• Forex Headwinds: Any adverse movement in foreign exchange price may impact the financial performance of the company.
• Weather-Related Risk: The company is exposed to risks associated with weather-related events. Hence, any adverse climatic conditions may lead to financial losses for the company.

Outlook: In 2022 and 2025, the RoW surplus is likely to be under 1.5mt, whereas, in 2023 and 2024, the same is expected to be maximum 0.7mt. The company remains on track to export surplus material RoW alumina to China. Further, the company expects bauxite demand from third-party to continue to grow for the coming years.

Stock Recommendation: The stock of AWC gave a positive return of ~6.13% in the last one month. The stock is currently trading above the average 52-weeks’ price level range of ~$1.345-~$1.960. On the technical analysis front, the stock has a support level of ~$1.509 and a resistance of ~$2.077. On a TTM basis, the stock of AWC is trading at a P/B multiple of 2.1x, lower than the industry median of 2.8x (Basic Materials), thus seems undervalued. Considering decent production performance in Q2FY21, decent liquidity position, higher current ratio, current trading levels, and valuation on TTM basis, we recommend a “Hold” rating on the stock at the current market price of $1.715, up by ~1.179% as on 3 August 2021.

 AWC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Resolution Minerals Ltd.

RML Details

Key Business Update for June 2021: Resolution Minerals Ltd. (ASX: RML) is a mining company engaged in acquisitions and explorations to develop precious and battery metal products.

• VTEM Geophysics Survey: The survey from VTEM geophysical recognised the presence of copper in the form of 40 conductors, 37 untested by drilling at the Wollogorang Project, NT.
• Completion of RC drilling Project: During the quarter, the company announced completing the Drilling (RC) project at the East Pogo Prospect (Alaska). Also, the company completed a 1400m fence line of 27 shallow RAB drill holes across the Sunrise Prospect during the quarter.
• Fund Spend for Exploration Activities: RML has spent approximately $1,210k on exploration activity to earn a 42% interest in the 64 North Project, Alaska, and undertaking the VTEM survey at the Wollogorang Project, NT.
• Cash Position: As at 30 June 2021, the company had a cash balance of $1.75 million.

Cash Highlight (Source: Analysis by Kalkine Group)

Key Risks: 

• The mining operations take a longer time for evaluation and drilling, which involves the risks of unfavourable changes in climatic conditions, and government policies.
• The company is exposed to volatility in the prices of the minerals in the global markets, which could impact the profits at declining commodity prices.

Outlook: RML plans to finalise the historic desktop review and integrate the final VTEM geophysics survey results in August 2021. The higher fund spends on the exploration activities will aid the company to carry out the projects smoothly and get the desired positive results.

Stock Recommendation: The stock of RML gave a positive return of ~3.85% in the last one month and a negative return of ~18.18% in the last six months period. The stock is currently trading below the average 52-weeks’ price level range of ~$0.021-~$0.080. On a TTM basis, the stock of RML is trading at a P/B multiple of 0.7x, lower than the industry average of 3.4x (Metals & Mining), thus seems undervalued. Considering the completion of drilling projects, positives discoveries from the survey, current trading levels, valuation on TTM basis, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.027 as of 3 August 2021.

RML Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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