UBS Cuts Alumina Profit by 74% on Lower Metal Price

Nov. 13 (Bloomberg) -- Alumina Ltd., partner in the world's biggest producer of the material used to make aluminum, had its 2009 profit forecast cut 74 percent by UBS AG on lower prices. Alumina may report net income of A$66 million ($42 million) in the 12 months ending Dec. 31, 2009, down from an earlier forecast of A$251 million, UBS analysts led by Glyn Lawcock said in a report yesterday. The brokerage dropped its aluminum forecast by 35 percent for next year to $1.15 a pound. A 42 percent drop in prices from a July record prompted producers including Rio Tinto Group and Aluminum Corp. of China Ltd. to cut output and review investment. Alcoa Inc., Alumina's partner in the Alcoa World Alumina & Chemical venture, this week suspended a proposed expansion of a refinery in Australia. ``At current spot aluminum and foreign exchange prices, we believe Alumina are only generating sufficient cash to fund the existing business, leaving little room to expand the business and, in our view, no room for dividends,'' Lawcock said. He sees ``little incentive'' to buy Alumina shares and has a ``neutral'' rating on the stock. Alumina fell 9.4 percent to $1.545 at 10:22 on the Australian stock exchange. UBS cut its price target to A$1.80 from A$3.00. The company would not have enough capital to cover the cost of building a proposed new bauxite mine to supply ore to the Paranam refinery in Suriname and may have to raise cash by selling shares next year, Lawcock said. Alumina may make a A$23 million loss in 2010, down from a previous forecast of A$363 million in profit, UBS said. Half of the aluminum industry may be operating at a loss, Lawcock said. It's expected to make an underlying loss of A$76 million in 2009 and underlying profit of A$65 million in 2010, according to UBS forecasts.