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Alcoa (AA) Inks Bauxite Supply Contracts Worth Over $350M

Aluminum giant Alcoa AA has signed contracts worth more than $350 million to supply bauxite to external customers over the next two years. The company said that Alcoa World Alumina and Chemicals (“AWAC”) has secured multiple bauxite supply contracts, under which, it will supply the material from three of its global mines to customers in China, Europe and Brazil.

AWAC is owned 60% by Alcoa with Alumina Limited of Australia holding the remaining 40% interest. These contracts are expected to more than double Alcoa’s third-party bauxite sales this year.

Alcoa is the biggest bauxite miner in the world with 45.3 million bone dry metric tons of production last year. The company has ownership in seven active bauxite mines globally and operates four of them. These mines include the Huntly mine in Australia, the world’s second-biggest bauxite mine.

Alcoa swung to a loss in the fourth quarter of 2015, hurt by charges related to restructuring and lower metals pricing. Alcoa's primary metals business posted a loss in the quarter, hit by lower aluminum prices and a decline in regional premiums. Headwinds from lower prices more than offset gains from productivity actions in the quarter.

The aluminum price rout has triggered the company’s move to separate its smelting and refining business from those that cater to rapidly growing aerospace and automotive markets. The separation, which is expected to close in second-half 2016, will mark the completion of Alcoa’s multi-year transformation.

The separation will result in the creation of two standalone entities – “The Upstream Company” and “The Value-Add Company”. The Upstream Company will consist of bauxite, alumina, aluminum, casting and energy business units. The Value-Add Company will include global rolled products, engineered products and solutions, and transportation and construction solutions businesses.

Post separation, the Upstream Company will be a highly competitive leader in bauxite, alumina and aluminum production with a world-class asset base including the world’s biggest bauxite mining portfolio. On the other hand, the Value-Add Company will be a leading provider of high performance multi-material products and solutions in attractive markets including the fast-growing aerospace market.

Alcoa is a Zacks Rank #3 (Hold) stock.

Better-ranked companies in the mining space include NovaCopper Inc. NCQ, Golden Minerals Company AUMN and Coeur Mining, Inc. CDE. While NovaCopper holds a Zacks Rank #1 (Strong Buy), Golden Minerals and Coeur Mining carry a Zacks Rank #2 (Buy).

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