Alcoa slump makes future of Point Henry smelter at Geelong uncertain

ALCOA'S miserable earnings from its global fleet of aluminium smelters in the September quarter has raised fresh concerns over the future of the loss-making Point Henry smelter at Geelong and its 500 local jobs.

In an earnings call in the US on the third-quarter result, Alcoa chairman and chief executive Klaus Kleinfeld told analysts that despite already having idled 16 per cent of its high-cost global smelting capacity, Alcoa would continue to look at ways to reduce its exposure to higher-cost operations.

Point Henry is one of the oldest smelters in the Alcoa network and was saved from closure in June last year only when the federal and state governments handed over a combined $44 million of taxpayers' money.

The $44m injection came with a promise from Alcoa to keep the smelter going for two years. That commitment expires in June next year, with Industry Minister Ian Macfarlane telling The Australian two weeks ago that he expected "Alcoa will come and ask for money at some stage".

"We will have to consider it on its merit," he said.

The likely call on the minister comes as Mr Macfarlane works at saving Holden from closure, as well as keeping open Rio Tinto's Gove alumina refinery in the Northern Territory.

Analysts are expecting a renewed and sharper focus on the future of Alcoa's high-cost operations such as Point Henry following the start-up of the Ma'aden joint venture in Saudi Arabia. The 740,000-tonne-a-year smelter is almost four times the size of Point Henry and is expected to be the lowest-cost producer in the world.

Analysts say its start-up could trigger a new wave of "optimisation" of the Alcoa fleet of smelters.

The prolonged slump in aluminium prices has had a telling impact on industry profitability, or lack of it. Alcoa reported net income of $US120m ($127m) (excluding special items) for the third quarter, which was well ahead of expectations. But the primary metal business was again a laggard, contributing after-tax operating income of only $US8m.

There was some good news in that figure in that in the preceding June quarter the contribution from the primary metal business was a loss of $US32m. Alcoa said that reflected productivity gains and foreign exchange effects offsetting lower metal prices.

The Alcoa result does not provide a direct see-through for the likely profit results of the ASX-listed Alumina, Alcoa's 40 per cent partner in the global alumina business AWAC, which also owns the Point Henry smelter and 55 per cent of the bigger and more modern Portland smelter in western Victoria. Local analysts nevertheless have had a stab at what Alcoa's result, particularly what it says about AWAC, might mean for Alumina. Credit Suisse estimated that Alumina's share of the earnings was $US20m, down from $US26m in the June quarter.

More important from a cashflow stance is dividends paid by AWAC. Alumina said it had received a third fully franked dividend of $US25m last month, which was on top of a similar-sized payment received on July 1.

Total dividends from AWAC for 2013 stands at $US79m, placing the company in a comfortable position given debt now stands at only $US153m.

Alumina was not required to contribute any new capital to AWAC, or provide any further equity contributions to the bauxite-alumina component of the Ma'aden project in the third quarter.