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Executives

Peter C. Wasow – Chief Executive Officer

Chris Thiris – Chief Financial Officer

Analysts

Lyndon Fagan – JPMorgan Securities Ltd.

Clarke Wilkins – Citigroup Global Markets Inc.

Paul D. Young – Deutsche Bank AG

Matthew Hope – Credit Suisse Ltd.

Glyn Lawcock – UBS Securities Australia Ltd.

Paul Phillips – Perennial Investment Partners Ltd.

Alumina Limited (AWC) Q4 2013 Earnings Conference Call February 19, 2014 6:00 PM ET

Operator

Thank you for standing by and welcome to the Alumina Limited Full Year Results Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today 20th of February 2014.

I would now like to hand the conference over to your first speaker today, Mr. Peter Wasow, CEO. Please go ahead, Mr. Wasow.

Peter C. Wasow

Thanks very much and good morning and welcome to the Alumina Limited full year results for 2013. I’ll cover the highlights. Chris Thiris will then cover the results in some detail before I return to cover the market conditions and outlook.

First, I would like you to note the disclaimer regarding forward-looking statements that maybe in the presentation. And I also remind you that we will be presenting our results in U.S. dollars, so all financial amounts refer to U.S. currency unless indicated otherwise.

Okay. So let me start with an overview of the key results. The 2013 year was sort of continuation of the difficult market conditions we experienced in the prior year. Alumina Limited reported a net profit after tax of $0.50 million in 2013. The net underlying loss after tax for the year was $2.7 million, both is included of charge in relation to the Alba matter, $34 million in 2012 and $16.5 million in 2013.

The reduced underlying loss was driven by AWAC's improved financial performance and Alumina Limited’s general overhead and finance cost. AWAC's EBITDA for the year was $269 million down from $336 million last year, further excluding the impact of the Alba legal matter, EBITDA was actually up $232 million with cost control and productivity improvements resulting in lower production costs per tonne.

The ongoing transition to spot base pricing for the third party smelter grade alumina sales further buoyed the result. Alumina Limited ended 2013 with a strong balance sheet. It was down significantly, due largely to the AUD452 million share placement in February, and also to the $107 million in dividends and distributions received from AWAC during the year and a very limited cash cost made by the joint venture.

The market conditions do remain tough and uncertain. And as a result the Alumina Limited Board has not to declared a formal dividend in 2013.

I’ll hand over to Chris now to take it you through the results in some details.

Chris Thiris

Thanks peter. I’ll start with AWAC. AWACs 2013 result included charges the significant item of $459 million of this $384 related to the Alba matter compared to the $85 last year. I will cover this in detail later. If we back out the significant items, then we will see a considerable improvement in AWACs EBITDA brining $728 million of EBITDA or $280 more than last year. So AWAC’s underlying performance is actually stronger than what the headline numbers would otherwise indicate.

Total revenue was up $69 million due to higher shipments, which more than offset lower averaged realizing prices for alumina and aluminum. Total expenses after backing up the significant items, the $238 million lower than last year and includes the benefit of currency gains, productivity initiatives and cost control. The decrease in depreciation and amortization reflects currency movements.

The AWAC performance reach separates out the significant items so that it’s easier to compare for last year, revenue was higher because they were extra alumina shipments, both aluminium shipments, and its slightly lower inline with the low production which was affected by the Anglesea power station maintenance.

The average realized Alumina price was marginally lower, almost flat to last years, although there was a 6% decline in the markets average 3 months aluminium price. This reflects the benefit of API and spot sales at LNA pricing. The average realized Aluminium price was also affected by the decline in the LNA but was partially offset by higher regional premiums. Improvements in COGS, general admin and selling experiences includes productivity initiatives and cost control in areas such as management, transport energy and LIBOR. And also significant currency gain against the Australia dollar as well as Brazilian reais.

This slide shows how AWAC’s average realized price for smelter grade alumina was impacted by the changing price methodology by setting the prior periods base to 100. The first two variances represent the impact of cost changes in alumina spot index and LME aluminum. Keeping the prior periods mix between the two constant.

In 2012, we had approximately 35% of sales on a spot pricing basis. As you can see, the average realized price for spot index outperformed LME. The mixed variance is positive for two reasons. First of all, the 2013 AWAC’s spot based pricing represented approximately 54% of smelter grade third-party sales compared to the 35% for the prior year.

And then because we are comparing to contracted LME-linked rates, which was set prior to 2011 and a lower than current API spot price as a percentage of LME.

The top chart on this slide reflects the movements in spot compared to the more volatile LME aluminum price. They have moved in opposite directions, so alumina spot price sales as I said earlier has been more profitable than the historical LME-linked contracts.

This type of variance could hardly be explained by raising regional premiums which are supposed to reflect delivery costs to the customer. With the regional premiums recently achieving record highs as a $400 per tonne in the U.S. it is somewhat difficult to argue that this is due to raising delivery costs. More likely regional premiums now include the demand supply fundamentals of aluminum rather than only in LME.

So, spot pricing more fairly reflects aluminas demand supply fundamentals and input costs and hence that preference for it. In 2016, we expect AWAC’s shipments of smelter grade alumina to be at least 80% of total.

Moving on to average cash cost of alumina production. The benefits of productivity initiatives and improved operating stability and the 5.5% decline in cost return. But there is also significant currency benefit as I noted earlier. Higher natural gas prices were more than offset by lower prices for fuel oil and net productivity gains in energy. Caustic reflects lower prices in conversion, which includes labor, was assisted by increased production.

The increase in bauxite cost is due to the separation of the crushers in WA and higher costs in Suriname. Cash cost per tonne declined over the year and currently stays below the 2013 average. This is reflective of AWAC’s efforts, but also of the gains of the US dollar during 2013.

AWAC’s total alumina production was $15.8 million tonnes and approximately 92% of nameplate capacity. The Australian soloist in San Ciprian refineries were operating around capacity. I am quite comfort with the largest contributor to growth and production, thanks to improved stability in the plant.

Shipments were higher and this was due to a catch up on delayed shipments from December last year, increased production and the running down of inventory levels as part of tighter working capital management. Our production guidance for 2014 is $16 million tonnes all though this may adjust changes in the market conditions.

Looking at capital expenditure, AWAC’s sustained CapEx was $293 million with the majority spent in Australia and all of it funded out of AWAC own cash flows.

Spend was less than fuel cost due to the lower local expenditure and the stronger U.S. dollar. Growth CapEx of $26 million mainly related to works at Juruti, in Brazil also funded out of AWAC own cash flows. So during 2013 Alumina Limited made no contributions to the operating businesses of AWAC that we did contribute net $9 million of equity demand. We expect to make a further contribution of $29 million in 2014 of which $18 million has already been paid.

Our CapEx guidance for 2014 is $240 million for sustaining and $25 million for growth. Growth is mainly for the natural gas conversations for the San Ciprian refinery which is expected to be completed by January 2015. The improvement in AWACs free cash flow is mainly due to improvements in operations including working capital management, $310 million is after payments of the Anglesea maintenance and the second and final installment under the Alba civil settlement. 2012 includes the government grasps of the Victorian operations and the first Alba civil payment.

Turing to Alumina Limited, the company reported a net profit after-tax $0.5 million compared to $55.6 million loss for last year. Underlying loss was $2.7 million after adjusting for embedded derivatives. There were a number of significant expense items included in the underlying result. As discussed with AWAC the results would have been significantly improved if not for these items and would have been a truer reflection of operating performance.

Alumina Limited’s overheads was down primarily due to low expenditure rather than currency. During the year Alumina Limited received dividends and distributions from AWAC of $107 million, so far in 2014 we have received $34 million in cash. After corporate and financing costs and investments, the company had free cash of $58 million in 2013.

As of 31st December Alumina Limited had net debt of $135 million as a result of the share placement and free cash flow. During the year, we terminated $664 million of facilities and replaced them with $300 million with improved pricing and terms and conditions. Company is gearing at 4.6% and we have significant liquidity in terms of underlying facilities beyond 2014.

This slide shows the financial impacts of the Alba matter on Alumina Limited on conclusion of the U.S. governments investigation. The left column of numbers shows the total cash cost of the matter and you can see a 40% equity share. This 25% adjustment is as per our agreement with Alcoa in that Alumina Limited’s exposure should reduce from 40% to 15%. The final column shows the net effect for 2013.

In October 15, AWAC LLC, borrowed and paid the second and final $42.5 million installment to Alba. And also repaid $17 million relating to the loan for the installment.

AWA LLC did funding in relation to these payments. It is limited to around $126 million. This figure is before the $17 million already repaid. Alcoa is responsible for the balance. Finally we do not expect that future debt repayments by AWA LLC will affect distributions from the other separate legal entities that comprised AWA.C.

The other significant announcement by Alcoa since year end is the closure of the Point Henry smelter due to the challenging market conditions. Plants closure will occur in the third quarter of 2014. We expect that AWAC will record post tax charges in inference of approximately $250 million with all better ramping in 2014. There were no charges recognized in 2015.

The associated cash flow should be approximately $120 million, $50 of which should be in 2014. Balance mainly relates to remediation costs incurred over a 3 year to 4 year period. These amounts are different to Alcoa’s announcement, for the Alcoa result to U.S. GAAP and included the closure of the rolling mills which are not AWAC assets.

The Anglesea power station will be marketed for sale, whilst the more efficient Portland smelter will stay in the AWAC’s portfolio.

When you look at the underlying performance of AWAC in 2013, you can see considerable improvement from 2012. For 2014 we see some risk for realized processes giving the long global position for Alumina and the impact of a lower LME on legacy contracts. That could be cancelled by factors such as higher input cost the Ma’aden produces, pressure of the gold refinery and global production such as in India falling short of expectations, if demand remains as expected.

We also expect to see further benefits from productivity and cost reduction within AWAC and lower CapEx. Apart from Ma’aden we anticipate there might be equity coals to San Ciprian with the energy switch and working capital at current market conditions to exist. During the year, AWAC will be recording equity losses relating to Ma’aden as the plant readies itself for production to start late in the year.

Lastly, there is an agreement for dividends as there was in 2013. Our expectations for 2014 are that total receipts by Alumina Limited will not be significantly different to 2013. But this is subject to market conditions. The settlement of the Alba matter and closure of Point Henry should not effect this expectation.

Thank you. And I will now hand it back to Peter.

Peter C. Wasow

Okay. Thanks Chris. I will start by taking you through some of the demand and supply dynamics which impacted the alumina market before commenting on bauxite and alumina pricing.

Aluminium demand remains strong. In China were approximately half of global production capacity exits. Aluminium is becoming the preferred material for use in a range of infrastructure and industry developments including high voltage energy cables. Rather than aluminium growth in the rest of the world have included the recent U.S housing recovery and lightweighting the vehicles. Due to this continue strong growth in aluminum demand and production, global alumina demand growth is forecast to remain robust over coming years at mid to high single digits.

Chinese demand growth is forecasted even stronger with high single-digit growth to low double-digit growth over the coming years. By 2017, we estimate that an additional 35 million tonnes of alumina will be made to meet this demand. This translates into an additional bauxite demand of 70 million tonnes to 105 million tonnes, with another four to six mines the size of MRN, Brazil. Demand in the third-party alumina segment is forecast to grow even faster and total demand is nearly 9% per annum through till 2017.

In recent years an increasing portion of AWAC sales had been in the third-party market as Alcoa has curtailed some of its smelting capacity. In 2013, fully 60% AWAC sales which were the third party market, it is important because AWAC receives higher price, new sales into the third party market, as new contracts are almost invariably into API, as well as increasing the average price of third party sales this also has the effect of increasing the average price on AWAC sales to Alcoa which is based on the portfolio average it excluding sales to Alcoa.

The further point is that API becomes more accepted as a relevant benchmark as volumes increase and the potential for comparative advantage between smelters on different contract terms decreases. Many of the projects have been scheduled to be brought on in coming years outside of China, that has been subject to considerable ongoing delays.

Projects in India, Vietnam and Indonesia have their completion continually push back. Even the plan in infrastructure lead time involved in large scale refinery builds new projects typically take about five years to complete, at least outside China. In addition there are many challenges that reduce the incentive to invest in new capacity, but the least of which is the fact that the current low alumina price is below the incentive price required to add more capacity.

So while these industry challenges persist, new capacity of any style is much less likely to get build. As a result there is potentially for significant supply yet to emerge in future years. The risk demand for aluminum and as a consequence alumina probably those are industry challenges limiting new capacity remain, the demand supply dynamic in the industry to improve. And this demand pull is really only half of the story as we’ll see later there is also a cost push acting to increase alumina process in the medium term.

But before we go to that cost push story let’s take a look at metal pricing, the aluminum market is currently indeficit and regional premiums is tight as physical supply remains tight. This is supporting aluminum production and alumina demand despite the recent week LME aluminum price. Financing conditions continue to remain favorable due to lower interest rates and the existences of Contango. As a result metal is trying to type it up in warehouse stocks. In light of these market conditions, the LME has notified early proposals. And now its time to reduce the use of over 50 calendar days from the 1st of April.

Even if metal exits the LME warehouses as a result of this proposal it’s likely that finance inventory will remain tied up in non-LME warehouse stocks or other favorable financing conditions exist.

As the finance trade becomes less favorable, the inventory position will reduce. A key uncertainty of course is how that unwinding of the inventory position will occur and what the temporary impact will be on smelter demand.

In a medium term, we believe the lower levels of inventory are likely to lead the pricing which reflects the economics of the industry and so an inventory reduction will be positive. From our perspective, we would prefer lower premiums as we believe any reduction will be reflected in higher LME prices since we have the favorable impact on our remaining LME-linked contracts.

And I would like to discuss bauxite, where an increase in private prices, we have a cost push impact on refiners that are depended on third-party mines. China’s domestic bauxite process have been increasing over the past years and the recent imposition of the ban on Indonesian exports is likely to increase Bauxite prices to the extent that remains in place. A significant portion of new alumina supply is coming from Chinese refineries. This capacity utilizes both domestic bauxite and seaborne bauxite.

As you can see, Chinese domestic bauxite prices have been steadily increasing in recent years as the depletion of local sources continues and rates decline. The price increases have been appearing along side rising bauxite imports also at higher prices. We are expecting a considerable reduction of pure Bayer process treatable refineries for over the next 10 years.

While it is possible to treat bauxite with highest ratios below 5 using Bayer processor below 3.5 by sintering; this does increase the costs significantly and alternatives such as coal fly ash is just note economic at current technologies in bauxite prices. Refineries in China are also competing with the refectory industry for higher quality bauxite, which also tends to push out the cost.

China’s import prices have increased about 24% from May 2012, when the Indonesian export restrictions were first introduced. Through December 2013, imports have been coming from Guinea, Ghana, Brazil, Jamaica, Guyana and Beijing in addition to the traditional suppliers from India, Indonesia, and Australia. Cost of bauxite from the Atlantic basin remains higher than pacific.

Changes in Indonesian exports will be pivotal to the seaborne bauxite market during 2014. So I will go over some recent events. In 2012, Indonesia introduced new taxes and regulation of bauxite exports. An interim ban was imposed in May 2012, but was mixed at later in the year after a judicial review.

In 2013, China’s bauxite import spud [ph] $72 million tonnes including $23 million tonnes of non-Indonesian bauxite as the Indonesian minus fast track shipments and China’s refiners were stockpiles in advance of the anticipated ban.

On the January 12 this year, we saw the Indonesian export ban become effective. Exemptions to the ban maybe granted to companies who demonstrated genuine commitment to build refineries in Indonesia. However, no exemptions have been granted since the ban was introduced.

In the short-term, there is unlikely to be any disruption to Chinese alumina production that’s alumina production as merchant refineries have got significant stockpiles in advance of the anticipated ban. However, as refineries with smaller than average stockpiles broadly under reserves there was a potential for this cost push pressure from rising bauxite prices towards the end of the second quarter with significant exemptions to the ban and not granted.

Taxes in seaborne freight cost are also likely to increase adding to the landing costs of imports going forward. Those are not clear whether the parliamentary elections in April and the Presidential elections in July will change the position. There are limited opportunities for large scale new bauxite sources to replace Indonesian exports particularly for Chinese refineries that rely on low temperature Indonesian bauxite.

Large mines require significant infrastructure to move the bauxite to ports and there is of course a long lead time to build infrastructure of that style. Currently, about 31% of China’s refinery capacity uses imported bauxite. However that proportion of willing price as the domestic bauxite sources deplete or as the IRS ratio continues to decline.

So even if the Indonesian export ban is postulated over the longer term Chinese refineries are going to require new bauxite sources with a greater than the current Indonesian capacity supply. Likely the gap in bauxite supply is likely to emerge from 2015.

While bauxite is plentiful quality varies greatly. Development and financing of new bauxite mines is becoming harder due to the government approvals required by our capital costs and the lack of available infrastructure and of course national policies and taxes. Given these factors most of the world’s large untapped bauxite deposits a challenge in someway. The existing mines can be ramped up but this will be insufficient by itself to satisfy the supply gap this just forecast will emerge over the longer term.

Investment in new mines and infrastructure will require significantly higher incentive process. The lengthy lead times, renewable type project mean that periods of supply squeezes may emerge even if processing currently bauxite prices losses occur and increased cost for merchant refiners.

In low cost producers such as AWAC are well positioned to benefit from the cost push on the marginal refiners setting the alumina price. At the same time because most of AWACs production is based on an integrated refinery and mine, which will not be impacted by rising trade of bauxite prices, ventures cost position is insulated from these effects.

Now that I covered the demand and supply dynamics of the alumina and bauxite markets, let me turn to alumina pricing. You can see from the chart that alumina prices is higher between $305 and $355 per tonne over the past two years.

Chris mentioned earlier that alumina pricing has been relatively stable compared to aluminium prices. And while LME aluminium prices fall into new four year lows, alumina prices are currently above the average of the past two years. Clearly the move by AWAC to spot/index pricing has had a significant positive impact on our results.

China and the rest of the world alumina markets act as two distinct markets. However there is a need relationship for pricing through imports into China. In the short-term differences between China and the rest of the world prices can exist. When this difference becomes too great our price tends to close.

Historically of on the landed prices, global prices trade at less than $20 premium to China is alumina prices or below Chinese prices. And the Chinese tend to import alumina, directing rationally of course to reduce alumina cost and this is an important confirmation of the marginal profitability of many in the Chinese industry.

China import levels and thereby underpin global alumina market prices and Australia was the source of the bulk of alumina imported in the China. Import levels have increased in recent months. However, the price differential has recently risen above $20, so China imports are unlikely to increase in the near-term. This could change if Indonesian export ban remains in place and bauxite is unavailable or just too expensive.

Logistic limitations limit the potential for Chinese exports of alumina even if the global alumina prices appreciates above the China domestic price and you can say on the chart some of the factors that limit exports of alumina.

Shandong cash cost refineries remain the global marginal producer. Shandong refineries are depended on imported bauxite, so it further increases inland bauxite costs, who drive the highest cost marginal refineries in Shandong to curtail production further or at the least increase the price that which imports make sense. Either which would have the effect driving up alumina process. The cost drive for the Shandong producers sell to the Chinese third-party market determined a production volumes and have global process ultimately moved.

Turning to Ma’aden. AWAC’s has a 25.1% interest in the mine and refinery. When the refinery is fully ranked up we expect it will be one of the lowest cash cost per ton refineries in the AWAC portfolios. Mine is now 52% complete while the refinery is 77% complete. Refineries expected to be commissioned in the fourth quarter of this year and reach full production in the latter parts of 2015. Alumina Limited expects to contribute the final $29 million of equity during 2014.

So in conclusion, AWAC had a sound operating performance in 2013, and remains low on the global alumina industry cost curve. The transition to spot or index pricing continues and alumina cost per tonne continue to fall, the Alba legal matters which have been significant overhang were settled.

Alumina Limited ended 2013 in a strong financial position although in the share placement and significant free cash flow from AWAC. Incorporating cost of pooling and their minimal contributions required to the major AWAC in the foreseeable future.

Looking forward around two-thirds of shipments are expected to be on spot or index prices in 2014, every tonne transition just spot pricing from legacy contracts which is based on LME-linked pricing obviously provides incremental revenue.

Cost and CapEx will be positively impacted in the Australian dollar and Brazilian Reais remained weak relative to the US dollar. Remember around two-thirds of our production is in Australia and Brazil, with the last proportionate cost in local currency, so this should have a significant impact is sustain.

Capital expenditure is also skewed to these locations. Ma’aden refinery will start to ramp up in the fourth quarter and will be one of the lowest cost refineries in the AWAC portfolio. We also expect to continue to realize the benefits of productivity improvements that have been consistently achieved over recent years.

And with that, thank you for listening to our presentation. We’re now happy to take questions.

Question-and-Answer Session

Operator

Thank you. We’ll now begin the question-and-answer session. (Operator Instructions) Your first question today comes from Lyndon Fagan from JPMorgan. Go ahead. Thank you.

Lyndon Fagan – JPMorgan Securities Ltd.

Hi, guys. Just wondering if you could perhaps provide us a bit more color on how your contract mix progresses over time. So I guess we’ve got explicit guidance of 2014, but how does it then roll off 2015, 2016 and 2017, and I’m guessing or if you can tell us roughly whether you will be on 100% basis on spot or whether they’re still at cost plus contract that continues on? Thanks.

Peter C. Wasow

Lyndon, we in the presentation gave you guidance that by 2016 we expect that we will have 88 [ph] basis, run at least 80%. That cost base contract is in place. We don’t provide any guidance as to how progresses over the years. So you can straight line up it for your modeling purposes, but we don’t give that guidance.

Operator

Thank you. Your next question comes from Clarke Wilkins from Citi. Go ahead. Thank you.

Clarke Wilkins – Citigroup Global Markets Inc.

Hi, guys. Just in terms of the cost reduction in terms of AWAC, is there a reasonable consideration that the cost that got pulled out last year, you expect to see a similar level of cost reduction this year or is there sort of a renewed focus on that that you can pull potentially more cost of the AWAC going forward?

Peter C. Wasow

Clarke, I think you’re referring cash cost for alumina. Is that correct?

Clarke Wilkins – Citigroup Global Markets Inc.

That’s where the real cost reductions sort of come through and the possibility that what’s in your controlled prices of Alcoa in terms of reducing the operating cost. So how much excited they’re to continue to take operating costs out to review the balance in the absence in our process?

Peter C. Wasow

Our expectation is that Alcoa will fund more cost savings. There are a number of initiatives underway and so we are expecting something to come through as to what the level is. Again, we don’t provide guidance on that. I just want to point out that through 2013 we did see net productivity gains, but a lot of the reduction cost was driven by currency gains, especially against the Australian dollar.

Operator

Thank you. Your next question comes from Paul Young from Deutsche Bank. Go ahead. Thank you.

Paul D. Young – Deutsche Bank AG

Good morning, gentlemen. First question is on sustaining CapEx, just coming down pretty quickly now to say that sustaining CapEx is only $390 million. Last year that came in below guidance, guiding $340 million. How much of that is currency driven and how much of that is lumpy nature of customers and what I’m getting to is that next year could we see that trend up again or is it sustainable at that level?

And then also just wanted to touch on Point Henry, the closure there. On the slowing effect to the Alumina production, can you give a guidance on Alumina production in 2016? So that indicates to me that there won’t be any curtailments that – to match the Point Henry closure. Can you comment on that please?

Peter C. Wasow

Thiris will take the first question. I won’t take that. It’s his norm.

Chris Thiris

Okay. On the sustaining CapEx, yes, so the reduction in 2013 over the prior year is partly due to – or may actually predominantly due to local spend and a lot of that was in Australia. So there were some currency benefit that came through. In 2014, we guided sustain will be around about $240 million. We have said to you in the past that for your modeling purposes if you just assume long-term averages around the $300 million that will cover currency and effective year outs, some years were you spend more and some years were you spend less.

The crusher move, I think told you guys that as well. The crusher move in 2014, most of that is done and the crusher move should be coming to an end soon. So there is less spin on the crusher in 2014. I think $240 million reflects lot of currency as well. The average the last year, the Australian dollar was $0.97. We’re around $0.90 at the moment. So you can assume roughly we are expecting the currency to stay around $0.90.

Peter C. Wasow

On the level of alumina production and the Point Henry closure, we are guiding for 60 million tonnes of alumina production and the increase is largely due to the startup with Ma’aden and you also correctly point out they were losing about 400,000 tonnes of market in Point Henry. Our view is that what level we are, where we are on the cost curve and none of their refineries have planned to be making cash losses before switching at the moment.

Any curtailments that should happen in the industry should be happening higher up the cost curve rather than in our portfolio. So as we said, Ma’aden is coming in very low and the cost curve in our portfolio, which is in around the 26 percentile. So as we add that in our hope would be that the higher cost refineries operated by others will be one’s that shine in.

Operator

Thank you. Your next question comes from [indiscernible]. Go ahead. Thank you.

Unidentified Analyst

Hi, guys. Just a quick question on dividends. Obviously in 2013 we saw the dividend underpinned by Alcoa and AWAC into, I can see you guys. Is there any suggestion what might happen for 2014 and can you remind us what the trends of the JV suggest as well.

Peter C. Wasow

The terms of the JV are quite minimal, de minimus in that they require the joint venture to do then 30% of its profits to the partners. In the whole time that the joint venture has been operation that clause has never been in both because the dividends have always been at higher levels. And as Chris said, we expect the cash inflow in 2014 to be broadly similar to the $170 million inflow we got in 2013. What that means for dividends from AWC remains to be seen. As we said earlier, there is still a reasonable matter of uncertainty in the market and while our down share position has much improved, the Board has not decided to declare a dividend in 2013. We’ll just have to see some of these uncertainty is paying out before we can take a decision on dividends in the coming year.

Operator

Thank you. Your next question comes from Matthew Hope from Credit Suisse. Go ahead. Thank you.

Matthew Hope – Credit Suisse Ltd.

Hi. I just got a couple of questions, firstly just on the production going forward. Have you seen this goes, depending both price here, have you seen more inquiries from customers or guys that are looking at [indiscernible].

And then secondly just on – I’m trying to understand how these Alba matter and Point Henry really affix AWAC. How is the thing funded when the cash payments are going to be paid gain for the Alba settlement? Is that going to be funded with debt and also Point Henry, and the cash there surely these payments have to affect the dividends going through AWC, although you suggested that wouldn’t be the case. Could you put some comment around that?

Peter C. Wasow

I’ll let Chris take the one about the Alba, but as far as the impact on the aluminum market as a closure, Alcoa has said in their most recent quarterly release and we have agree, the aluminum market will be slightly long in 2014 and that did include the expectation of a closure. So what we have seen necessarily directing cores as a result of that closure, the market is going to be slightly long in 2014. Chris on the Alba?

Chris Thiris

So Matt, on Slide 15, covers how it’s going to be funded, there is debt. And Alcoa is responsible for the balance of the funding and I said that the total debt would be around $126 million. Now AWA LLC is the vehicle that will make the payments. It already has get in there which will act as a civil placing of course the first installment to the government which amounted to 80K. Out of that debt last year, it repaid $17 million. You’re right in that what you’re saying here is that might be that $17 million could have been a distribution backed to the partners, so therefore in a way it’s going to cost us. We are not having to put money upfront now. We don’t have to go and use that banking facilities, we don’t have to go to the shareholders. And Alcoa, will provide the debt into the AWA LLC up to around $126 million, and Alcoa will fund the balance.

On Point Henry, I think you raised that one as well. The after tax cash outflow in 2014 is $50 million and then you’ve got the balance been 17, that will be spent over I suggested a three to four year period. So it will be spread out over that period, so it’s not $70 million coming out in 2015. It is Alcoa of Australia, Alcoa Australia has strong cash flows. You can fund that. So again we don’t expect money in, but your point that it does cost us because it reduces about the whole cash. I accept that we also indicated that we believe we expect 2014 a total receipts out of AWAC should not be significantly different to what we see in 2013 and it takes new account Alba and Point Henry type cash cost.

Matthew Hope – Credit Suisse Ltd.

Thank you.

Operator

Thank you. Your next question comes from Glyn Lawcock from UBS. Go ahead, thank you.

Glyn Lawcock – UBS Securities Australia Ltd.

Good morning. You spent a lot of time talking about the bauxite market. I’m just curious, does they move the foot within AWAC to start to think about maybe exploiting some of the bauxite resources within the portfolio or was that still something that you’re not working on? Thanks

Peter C. Wasow

Thanks, Win. I think we have indicated previously that we have looked the potential to export bauxite, but it’s a complex question that impacts not on the operations, but also the balance in the market and it’s something we continue to study and something we continue to watch closely, but the important takeaway is that, we are positively impacted aligning pending shortages of bauxite.

First and foremost, as a producer of alumina, as a defect to the alumina process we discussed in the presentation. We’ve also potentially in the future bauxite exports become a reality that’s one highlight.

Operator

Thank you. Your next question comes from Paul Phillips from Perennial Investment Partners. Go ahead, thank you

Paul Phillips – Perennial Investment Partners Ltd.

Hi, thanks guys. Just a very quick question, this one is for Chris. If I understand it right, Alcoa was providing to AWAC LLC can you maybe just provide us with the terms of the debt, what’s the tenure, how long is it going to be idle and what’s the interest rate on that?

Chris Thiris

The terms and conditions will be confidential, but I will say not breaching confidentiality here, but its five years facility which amortizes 20% per annum. That is much as I can tell you about that.

Operator

Thank you. There is a follow-up question from Matthew Hope from Credit Suisse. Go ahead thank you.

Matthew Hope – Credit Suisse Ltd.

Yes, guys just from the Anglesea power station and the idea to select, what do you think that might be attractive, I mean understand the Victorian market is pretty either supplied in terms of power thus in all around Alcoa earning small power station, what would anyone wanted and if they don’t, what would be the cost impact on the group?

Peter C. Wasow

Well, I think that the first thing is that it makes no sense for AWAC to continue to and to operate and hence the decision to trying to sell it. Whether it makes sense in the portfolio of generation of a market participant is what we want to test out. I can’t commit on it how that will proceed, but it is our expectation that we will take this and try to market the asset.

As far as the cost impact, it is pretty much provided for all the cost involved on the balance sheet today, but in the event that there is a filed process, we will have to examine what other options are as far as closure and remediation of concern.

Operator

Thank you. There are no further questions at this time Mr. Wasow please continue.

Peter C. Wasow

Well, that’s it and thank you all for your time and we look forward to meeting over the coming weeks.

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