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Alumina goes into trading halt

Alumina (ASX:AWC) shares went into a trading halt on Tuesday as Alcoa plans to announce production cutbacks at its Kwinana alumina refiner in Western Australia. Overseas reports said Alcoa is looking to cut costs because of weak demand and prices for aluminium.

The cost cuts at the refinery will involve job losses. Alcoa had previously stated that it would set aside $US6 million for redundancies.

Alumina holds a 40% stake in Alcoa World Alumina and Chemicals, with Alcoa owning the remaining 60%. The trading halt is due to end on Wednesday (January 10).

The Kwinana cuts will not be a closure, and it is producing at about 80% capacity. The plant employs about 860 workers and 320 contractors and has the capacity to produce about 2.2 million tonnes of alumina a year from bauxite mined in the Darling Ranges east of Perth.

At 60 years old, the refinery is one of three the joint venture has in Western Australia. The West Australian newspaper claimed the refinery would be shut, but Bloomberg says it will continue operating but at a reduced rate.

However, for how long? Bloomberg pointed out that Alcoa’s newish CEO, William Oplinger, told an earnings call that company executives consider Kwinana a “marginal asset,” and that they would consider various options for its fate, “including curtailment or closure.”

Adding to Alcoa’s problems in WA are operational and permitting setbacks for bauxite. The company also said it now plans to mine lower-grade bauxite in Western Australia until it gets to its next mining phase in 2027.

In December, the WA government surprised by announcing that it was supporting Alcoa’s plans to mine lower grade bauxite from 2024 to 2027. A statement from Premier Roger Cook in December said the WA Environmental Protection Authority (EPA) “is currently determining whether to assess Alcoa’s current and proposed mining activities in the Darling Ranges, following third party referrals earlier this year. Under the EP Act, a decision to assess would require Alcoa’s mining activities to cease immediately – putting thousands of jobs at risk.”

“To protect local jobs while ensuring Alcoa complies with environmental standards, the State Government has issued a conditional exemption for Alcoa under section 6 of the EP Act. The exemption allows Alcoa to continue mining operations if the EPA determines an assessment is required, while imposing strict controls on Alcoa’s activities. The conditions of the exemption limit the physical areas in which Alcoa can explore, clear, and mine and require regular compliance reporting to the State Government. Any breach of conditions would see the exemption immediately canceled, and the State Government retains the right to withdraw or amend the exemption at any point. At the same time, the State Government will approve Alcoa’s 2023-2027 Mining and Management Program (MMP), under its State Agreement.”

The Premier made a big play of the jobs at Alcoa as part of the justification for supporting the new plan, saying in the statement that:

“Alcoa’s operations directly employ almost 4,300 Western Australians, as well as a further 1,700 contractors at its bauxite mines and alumina refineries in Perth, Peel and the South West. In 2022 Alcoa spent over $1.5 billion on contracts with local suppliers.” That agreement saw Alcoa shares rise 26% in December because the uncertainty about the immediate supply of bauxite has been removed.

But you have to wonder what the Premier and his government think about the mooted job losses at the refinery in Kwinana. Alumina shares were halted before trading started Tuesday at Monday’s close of 91 cents, down 42% in the past year.

Bloomberg says alumina prices have risen by around 10% in the early days of 2024 after dropping sharply in 2023.