Analyst doubts on Alumina deal
ALUMINA'S $452 million placement to China's CITIC Resources, which sent its shares soaring, might have been premature given a nascent recovery in alumina prices, analysts say.
On Thursday, Alumina unveiled the placement to CITIC of 13 per cent of the company, already approved by federal Treasurer Wayne Swan and China's National Development and Reform Commission. The placement was at $1.235 a share, an 11 per cent premium to Alumina's price over the past month. Proceeds will go to reducing debt, which will fall by almost two-thirds, from $US681 million to $US216 million.
CITIC has the right to increase its stake in Alumina to 15 per cent, by buying on the market, and could move to take up to 19.9 per cent if approved by the Foreign Investment Review Board. CITIC chief executive Chen Zeng will take a seat on Alumina's board at the annual meeting in May.
Alumina shares jumped as much as 20¢ to $1.405 but eased to close 9¢ higher at $1.29.
Alumina reported a loss of $US14.6 million in the half-year to June 30 and sank to a 10-year low of 64¢ last July, in line with a slump in the price of alumina to $US308 a tonne. Prices have since recovered to more than $US351 a tonne and Alumina's shares have climbed.
In a note to clients, Deutsche Bank's head of mining research, Paul Young, said the deal was "mildly value dilutive", reducing Deutsche's valuation of the company by about 3¢ a share to $1.39, but would add to earnings, cutting Alumina's interest expense by $US30 million a year.
While Deutsche welcomed the deal and reiterated its "buy" recommendation on Alumina, Mr Young said alumina fundamentals were improving "rapidly" and noted: "Existing shareholders were not given the opportunity to participate in the deal.
"Furthermore, spot alumina prices are now only just starting to rise and debt covenants had been cleared out to 2015, so the placement may be slightly premature."
He said both bauxite and alumina prices were likely to rise further as Chinese demand improved.
PhillipCapital analyst Lawrence Grech said the deal "just goes to show you how much money they really needed. Alumina was in need of capital and they've got it. That's a positive. Does it change the underlying [profit] margins of its business? The answer is, not in the short term."
Alumina chief executive John Bevan said CITIC's investment "demonstrates their confidence in the alumina industry".