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April 9, 2009 Dear Friend, Attached are reports on Alcoa, Century Aluminum and Alumina Ltd. summarizing the various efforts of each company to survive the worst aluminum market ever. Frankly, the opportunity for each to survive is a pleasant surprise. We rate Century Aluminum Overweight, as its ability to sell assets to cover its cash calls impresses us. We rate Alcoa and Alumina Ltd. both Neutral. We were very pleased to simulate Alcoa's ability to finance itself and be stable if LME prices stay near $0.60-$0.70 per pound, although sub-$0.60 would force serious further changes. Table 1 is our Aluminum Demand-Supply Model, Table 2 a derivation of Alcoa's 1Q EBITDA Margin, Table 3 a review of EBITDA margins since 1970, Table 4 a comparison of aluminum demand to other commoidities, Table 5 our Functional Net Income model, Table 6 our "10Q basis" Earnings Model, Table 7 underlying drivers, Table 8 cash flow and Table 9 a balance sheet simulation. Alumina Ltd's costs have fallen faster and more than we expected and its prices fell less. Its peak borrowings appear < $1.2 billion, and while it is not going to make much profits this year, the completion of the Juruti capital project in coming months reduces the stresses on it. Faithfully, John C. Tumazos |
Copyright © 2008 John Tumazos Very Independent Research,
LLC
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