Monsters of Rock: Guinea military coup opens door for ASX aluminium and bauxite stocks
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The African nation of Guinea has just experienced its third Coup D’Etat in under 40 years, ending the 11 year reign of President Alpha Conde, who was captured in the maelstrom.
What happens in Guinea will be closely watched by the iron ore majors, given it is the home of the Simandou iron ore project, the proposed mega mine backed by Chinese interests that holds the moniker of the “Pilbara killer”.
Along with the logistical challenges of setting up a multi-billion dollar iron ore mine, port and rail project from scratch in harsh and inhospitable terrain, it was this very political instability that has led many experts to have their doubts that Simandou will be exporting tens of millions of tonnes of high-grade iron ore by the middle of the decade, as its proponents suggest.
More pressing for investors in the near-term however is the aluminium sector. Backed by China, Guinea has become the world’s leading supplier of bauxite in recent years, the feedstock refined into alumina for downstream industries.
Prices for aluminium briefly hit 10 year highs overnight as the coup unfolded.
The Shanghai Futures Exchange’s October contract moved up to 3.2% higher to $3,405.64/t, the highest since July 2008. And even before last night’s drama aluminium prices have been doing pretty well in 2021.
Commbank analyst Vivek Dhar said political instability in Guinea had the potential to both disrupt the global aluminium supply chain and the timeline of supply ructions for iron ore miners.
“In the 12 months to July 2021, China’s bauxite imports from Guinea surged by 34%/yr,” he wrote in a note. “That has helped Guinea account for just over half of China’s bauxite imports.
“If the political instability in Guinea disrupts its bauxite exports, we expect bauxite prices to lift. Australia stands to benefit the most given its position as the world’s second largest bauxite exporter. Australia accounts for 33% of China’s bauxite imports.”
Gold miners enjoyed a good start to the week after prices hit 4 week highs in US dollar terms late last week, but the big iron ore miners were down, with Fortescue (ASX:FMG) losing almost 11 per cent as it went ex-dividend to weigh down the materials sector.
Pilbara Minerals (ASX:PLS) took a 5% hit despite a big resource upgrade at the Pilgangoora mine as word emerged Mineral Resources (ASX:MIN) had cashed in its 5.4% stake in its neighbouring lithium miner for $328 million to redirect into its growing Pilbara iron ore business.
Alumina Ltd is the go-to stock on the ASX for pure play exposure to the aluminium market, and has a relatively cushy job as the 40% owner of the Alcoa World Alumina and Chemicals business managed by America’s Alcoa.
In trying conditions at the start of the year AWAC still delivered a net profit of US$201.7 million, down from US$246m in the first half of 2020. Alumina’s share of the profits came in at US$73.6 million, helping boost its interim dividend by 21% to 3.4c a share.
Boss Mike Ferraro said this even before the Guinea situation began to unfold.
“Primary aluminium demand has recovered in 2021 and prices are at multi-year highs,” he said in last month’s half year results. “We expect ex-China aluminium production to increase in the second half to meet demand and this will be positive for alumina prices.
“In addition, we expect to see the non-China alumina surplus to contract which should further positively impact alumina prices.”
South32, which owns the Worsley alumina business in WA was also up today, but no one enjoyed the terrible news as much as minnow Metro Mining (ASX:MMI). Metro exports bauxite, making Guinea’s miners a direct competitor in the seaborne trade.
Its shares were up almost 30%.
The ASX’s three biggest Australian gold miners enjoyed the spoils of a good week or so for the gold price.
All of them broke or circled around milestone price levels with Newcrest and Evolution punching above $25 and $4 respectively and Northern Star closing on the $10 mark.
Gold was trading at $2457/oz Australian and US$1827/oz this afternoon according to commodities trader Kitco.