Alumina outlook encouraging
January 18, 2008
This Mandi Zonneveldt story appeared in The Herald Sun on April 28, 2006, after Alumina's AGM.
Former WMC stablemate Alumina expects to report "significantly higher'' earnings in the first half as shortages of alumina and aluminium push prices higher.
The company suffered as a result of rising costs and production hiccups last year, but chairman Don Morley reassured investors at its annual meeting yesterday that the outlook for the business was encouraging.
Mr Morley said aluminium prices were currently about 30 per cent higher than the average price in 2005.
And he expected the good times to continue, with global demand again expected to outstrip supply of alumina and aluminium this year.
Alumina earns all of its revenue from its 40 per cent stake in the Alcoa-managed Alcoa World Alumina Chemicals (AWAC) business – the world's biggest alumina producer.
Mr Morley said AWAC was still feeling industry-wide cost pressures, but would target increased alumina production in a bid to take advantage of the strong conditions.
Alumina chief executive John Marlay said global aluminium inventories were close to historic lows and those market conditions would underpin AWAC's negotiations of new contracts this year.
Alumina is the feedstock used to make aluminium, which is used in packaging, vehicles and construction.
Analysts expect Alumina to report a profit of almost $600 million this year, after a flat result of $317 million last year.
The company has guaranteed its shareholders fully-franked dividends until the end of 2007, but said financing growth projects would take precedence over increased distributions.
Alumina recently beefed up the pay packets of its board and executives.
Ron McNeilly, the chairman of the company's compensation committee, told investors yesterday that it had become apparent that existing remuneration levels were out of line with competitive practice.
But the board faced criticism of the review at its meeting.
Corporate agitator Stephen Mayne said it was "completely unacceptable'' that the pay packets of Alumina executives were compared to other top-ranking miners given that the company's operations were managed by Alcoa.
He also criticised the high number of board meetings the company held in 2005.
"It sounds to me like it's a fortnightly lunch club for a bunch of old mates in the resources game,'' he said to applause.
Mr Morley said the company was aware of the fine balance between rewarding its executives and treating shareholders fairly, but he said Alumina – with only three senior executives – felt the loss of key staff members more keenly than other companies.
Mr Morley also defended his board, saying they played an important role as consultants to the company's executives. "Because it's a small staff we operate very differently to other large companies,'' he said.
The company's remuneration report was passed by a vote of more than 90 per cent. Alumina shares were unchanged at $7.45.
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