Alumina boss Mike Ferraro warns of ‘significant uncertainty’ over WA mine future

Alumina’s shares have dropped after the company warned Alcoa’s WA mining operations face permit delays linked to environmental concerns.

Alumina has warned the future of Alcoa’s business in Western Australia faces “significant uncertainty” on the back of permit delays at the mining giant’s flagship operations, as Alumina slumped to a loss in the first half of the year.

Alumina owns 40 per cent of Alcoa World Alumina and Chemicals, which is in talks with the WA government and the state’s Environmental Protection Authority on extending its bauxite mining approvals in the state in the face of criticism of the company’s impact on WA water sources and its rehabilitation efforts.

AWAC operates two bauxite mines and three alumina refineries in WA, producing about 50 per cent of Australia’s alumina each year. It faces delays in the approval of rolling five-year mine plans needed to extend operations at its Huntly and Willowdale bauxite mines.

The company’s failure to secure mining rights to higher grade bauxite sources at the mines, combined with falling commodity prices, has put pressure on both its costs and revenue, pushing Alumina to a $US43m net loss after tax of $US43m for the six months to June, down from a net profit after tax of $US168m in the first half of 2022.

Alumina boss Mike Ferraro told shareholders on Tuesday that AWAC’s WA refineries faced “significant uncertainties” over mine approvals, and would produce less alumina at a higher cost until it secured permission to mine areas with higher-grade ore.

Alcoa’s approvals are normally conducted under a process set up in a 1961 state agreement with the WA government, which bypasses the state’s main environmental regulator.

But controversy over the company’s operations could mean its five-year plans are instead scrutinised by the EPA in a public process for the first time, potentially leading to significant delays and the possibility its current plans will be rejected.

“Alumina had a difficult first half and continues to face significant uncertainty due to ongoing delays with mining permits in WA,” Mr Ferraro said.

“While AWAC did see lower costs in parts of our portfolio during the first half through softening energy prices, the impact of lower grade bauxite in WA meant our overall cash cost per tonne increased compared to the second half of 2022.”

The Alumina boss told The Australian the State Agreements signed between the WA government and mining companies remained useful, but said many, including those to which Alcoa was a party, needed to be modernised in the face of changing community expectations.

“Being part of an EPA process, which previously we were exempted from, is part of that modernisation and catch up,” he said.

Mr Ferraro said the approval process for the mine extensions remained “unclear”.

“We are operating in a complex regulatory environment where there is no certainty as to time frames or outcomes and the potential impacts on the business are unclear,” he said.

But he told The Australian he was confident Alcoa would be able to work through a process to extend the life of its WA operations with both the state government and regulators, given the importance of the alumina industry to WA and the nation.

“Not only are we are a significant employer in the state, but we‘re one of the few value add businesses in Australia. We don’t just dig the dirt and export it. We take the bauxite and we process it,” he said.

“So if Australia‘s genuine about self sourcing, if Australia’s genuine about value added manufacturing, and genuine about ensuring that the industry survives, then we need to be able to carry on business - but we need to do it in a way which meets community expectations.”

For a second consecutive period, Alumina will not pay a dividend to shareholders. Its last dividend of US4.2c was paid in the first half of 2022.

Alumina shares were down 7.2 per cent, or 9.5c, to $1.22 at 1500 AEST.