Alumina keeps dividend ‘under review’ in wake of coronavirus hit to prices and demand
Alumina is yet to find a path to lower energy prices that would keep its Portland smelter in operation.
Alumina boss Mike Ferraro says no “drop dead” date has been set for survival talks over Victoria’s Portland aluminium smelter, but says operator Alcoa is still yet to find a path to the lower energy prices that would keep the smelter operating.
As Alcoa’s 40 per cent joint venture partner in the Alcoa Worldwide Alumina and Chemicals business, Alumina has a key interest in the fate of Portland, under threat since Alcoa announced an asset review in late 2019.
The facility’s current energy deal, subsidised by the Victorian state government, expires in mid-2021 and the partners are yet to lock in a new power pricing structure -- with Alcoa and Alumina both having said winning lower energy prices will be a critical factor in any decision to keep the plant open.
Portland’s future is under further threat from tumbling aluminium prices, with the commodity hit hard by factory closures in the wake of the coronavirus crisis, recently hitting an all-time low of $US1441 a tonne.
Speaking after Alumina’s annual shareholder meeting on Wednesday, Mr Ferraro said negotiations with power providers and the state and federal governments were still ongoing, but he had no timeline on when a resolution would be reached.
“Those discussions are still ongoing, which means there’s still time. The drop dead date I suspect probably still keeps moving. The reality is you have to plan for certain scenarios, but you don’t actually act on those scenarios until the last possible time, which is the middle of next year,” he said.
The federal government’s coronavirus recovery commission, led by former Fortescue Metals Group chief executive Nev Power, has been keen to talk up cheaper energy prices as the solution to Australia’s economic recovery from the pandemic shutdowns, but Mr Ferraro said concerns about further job losses at a time of economic crisis had not yet flowed into talks about Portland’s future.
“I’m conscious that if you’re trying to kickstart an economy again you would want to minimise permanent job losses. But that hasn’t been part of the discussions yet,” he said.
At the company’s annual shareholder meeting, held via webcast on Wednesday, Alumina chairman Peter Day told shareholders the company’s board will need to “closely review” whether it can maintain dividend levels this year given the impact of the coronavirus on the global aluminium trade.
Mr Day told shareholders Alumina faced increased capital calls for its global business and an uncertain impact on demand for its products, and needed to take a cautious approach to manage its debt levels.
Alumina paid a US8c final dividend at its full-year financial results, and Mr Day said the company had maintained a “solid” 5 per cent dividend yield to shareholders. But he said the capital requirements for its business had increased in 2020.
“We cannot forget AWAC is a capital-intensive business. Its sustaining capital requirements have increased in 2020,” he said.
“The company’s financial performance in the first quarter of 2020 was positive. Alumina prices were only negatively affected by COVID-19 towards the end of the quarter. We have received net distributions during 2020 of 75 million dollars, excluding those 2020 distributions which have already been included in paying the final 2019 dividend.”
“However, with the impact from the outbreak of the COVID-19 pandemic, plus the uncertainty over the period and the extent of its impact on our markets, the Board will need to closely review these circumstances in determining dividends and debt levels for the 2020 year.”
Mr Day said alumina prices had held up well in the first three months of 2020, but had taken a hit as global coronavirus lockdowns had dealt a blow to industrialised economies.
“The current reality is that there has been a substantial decline in alumina prices since March this year,” he said.
Alumina shares closed down 2c at $1.455.
More Coverage
