Alumina Limited (AWC) Technical Update

Submitted by Jim Thesiger on 14 May, 2008 - 16:17

Alumina Limited (AWC) has a share price target of $6.70 from Australian stockmarket analyst Macquarie Research Equities.

Alumina Limited (AWC) announces US$300m convertible bond

Event: AWC announces US$300m convertible bond:

AWC announced that it has launched an offering to raise approximately US$300m of senior, unsecured, guaranteed convertible bonds, due 2013. The proceeds of the issue will be used to replace existing bank debt and to fund AWC's investment in AWAC's current growth projects. AWC has recently extended the maturity profile of a number of its core banking facilities, and the addition of further term debt through the convertible bonds is consistent with its conservative financial policies.

Impact: Not anticipating any impact to earnings:

At the time of its FY2007 result in January 2008, Alumina Ltd indicated that some of its bank debt facilities were maturing in H2 08 and that they would need to be rolled. We do not envisage any change to earnings as AWC previously guided to a $25-30m increase in its cost of funding in 2008 vs 2007, and the announcement is not anticipated to change this guidance. In our view, the new convertible bond and the extension of US$450m of bank facilities (announced in the documentation today) could see funding costs a little under what has been guided to.

Action: We remain positive on AWC due to its exposure to Aluminium:

Some in the market were concerned about AWC's need to roll debt facilities in the current environment. The convertible should alleviate those fears and with it some of the possible drag on the stock. We have a Buy rating on AWC on the basis that the fundamentals for aluminium are improving.

Valuation: $6.70 (DCF 10% d.r.)

Our price target is based on 1x NPV.

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