The share price of the ASX-listed mining company Alumina Limited (AU:AWC) gained around 7% today after Alcoa Corporation (NYSE:AA) announced the complete curtailment of production in 2024 at the Kwinana refinery in Western Australia. Investors cheered the company’s cost-cutting measures, given a tough macro backdrop. Trading in AWC shares was briefly halted on Alumina’s request, as the company was awaiting an announcement by Alcoa about the Kwinana refinery.
Alumina is a holding company with a 40% ownership stake in Alcoa World Alumina and Chemicals (AWAC), a joint venture with the U.S.-based Alcoa. AWAC is one of the world’s leading producers of alumina and bauxite.
Refinery Shutdown: A Blessing in Disguise?
The Kwinana refinery has an annual capacity to produce 2.2 million metric tons and has been running at around 80% capacity since January 2023. The shutdown process at the refinery will start in Q2 2024 and will lead to more than 700 job cuts in different phases. The employee count is expected to be reduced to just 50 by the end of the third quarter of 2025.
Alcoa’s decision to cease alumina production at the refinery was influenced by multiple factors, including higher operating costs, low-grade output, lower prices for aluminium, and the smaller size of the plant. Also, Alcoa reported a net loss of approximately $130 million for the Kwinana refinery in 2023.
Alumina expressed full support for Alcoa’s decision, emphasizing that the shutdown will not impact production at the Pinjarra and Wagerup refineries. The company disclosed a $130 million cost linked to the Kwinana curtailment in 2024, which is expected to decline to $60 million in 2025.
However, the company is optimistic that the high cash flow from Pinjarra and Wagerup refineries will offset the costs related to Kwinana in 2024.
Is Alumina a Good Stock to Buy?
In 2023, the Alumina share price lost over 35% of its value in trading, triggered by higher costs, regulatory delays, falling aluminium prices, and a dividend cut. Last month, the shares witnessed some relief after its joint venture with Alcoa received regulatory approval for its Western Australia operations.
As per the consensus among analysts on TipRanks, AWC stock has been assigned a Hold rating based on three Buy and two Sell recommendations. The average share price target is AU$0.99, which is around 1.5% above the current levels.
It is important to note here that these ratings were last updated in December and are subject to change after today’s announcement.
