EGA's alumina refinery and bauxite mine to reduce costs as profit slides

The aluminium company plans to start operations of the two projects this year

The aluminium industry is going through a challenging period with higher prices for our raw materials and lower benchmark prices for finished metal,” Abdulla Kalban, EGA’s Managing Director and Chief Executive Officer, said. Courtesy: EGAShow less

Emirates Global Aluminium, the UAE’s biggest industrial company outside the oil and gas sector, expects the start of its alumina refinery in Abu Dhabi and a bauxite mine in Guinea to help reduce raw material costs, which led to lower profitability in 2018.

Profit slid 64 per cent to Dh1.2 billion in 2018 due to higher raw material costs despite record production and a 14 per cent uptick in revenue to Dh23.5bn, which was mostly driven by higher sales volumes and prices, EGA said on Monday. Bauxite is the raw material refined into alumina, which is then used to manufacture aluminium.

"This year once they are online, both the refinery and mine you will start to see some of the cost savings and implications coming into our bottom line," Danny Dweik, the chief financial officer told The National. "But you will see the full potential of them in 2020 once both these projects are ramping up production." He declined to say by how much raw material costs, which make up between 50 to 60 per cent of total costs, will come down.

EGA is building a $3.3bn alumina refinery in Abu Dhabi and has invested $1.4bn in a mining project in Guinea in line with a strategy to control all parts of the value chain, reduce costs and secure raw materials for its aluminium production.

The Al Taweelah refinery, which will meet 40 per cent of EGA’s alumina needs, is expected to start during the first half of this year, while the first exports from the mining project are anticipated to start in the second half of this year.

The mine will produce 12 million tonnes a year of bauxite and will also sell the ore to third-party customers globally, creating a new revenue stream for EGA and a hedge for the company's purchases of bauxite for Al Taweelah alumina refinery.

The price of alumina, the main raw material used to make aluminium, spiked last year amid disruption of alumina production in Brazil and US sanctions on Russian aluminium giant Rusal, which were lifted this year.

“The aluminium industry is going through a challenging period with higher prices for our raw materials and lower benchmark prices for finished metal,” said Abdulla Kalban, EGA’s managing director and chief executive in a statement on Monday. “This is reflected in our financial performance for 2018, although EGA achieved record production and value-added product sales and continued our strong focus on cost control and operational efficiency.”

EGA which accounts for 4 per cent of global aluminium output, has a record cast metal production of 2.64 million tonnes in 2018, up from 2.6 million tonnes in 2017. About 90 per cent of output exported and the rest used by local customers.

EGA, which exports about 20 per cent of its production to the US, said the company was not impacted by the US introduction of import tariffs on the metal last year, said Mr Dweik.

"The tariffs that were put last year were reflected directly into the premium paid by the end customer," he said. "It is really the end users and customers in the US that are paying for that tariff."

However, the ongoing trade war between the US and China as well as Brexit worries could impact global demand for the metal, particularly with Chinese exports tumbling the most in three years in February.

EGA's low-cost production could help it weather the economic doldrums that may emerge, the chief financial officer said.

Aluminium prices need to reach about $2,000 per ton for most producers to make a profit, Bloomberg cited Dweik as saying. Aluminium futures are currently trading at less than $1,900 on the London Metal Exchange.

With regards to EGA's delayed plans for an initial public offering, the company is still waiting for market conditions to improve to start the process.

"We remain ready and waiting for market as soon as we see a good opportunity to embark on this we will use it," Mr Dweik said.

The company, which secured a $6.5bn debt facility last year, does not plan any imminent fund raising, he added.