In general, we see any pricing of carbon, as being a decent tailwind for Alumina (AWC) given it’s a bottom quartile cost-curve producer, and even better when you include (shove into the curve) a carbon price, given lower emissions/cleaner product.

Below is a story from last month about the border adjustment mechanism designed, ultimately, to penalise high emission production.

Overall, the market has not loved AWC, with BHP, RIO, FMG performing much, much better. We have really struggled with this, given we think that iron ore is over-earning, and will settle to a $75/tn or lower level, and as such see downside risks to the iron ore producers.

Roughly 40% of the alumina supply curve is underwater, at the moment, given high energy prices, but long run we think that’s the best time to buy a commodity producer.

Eventually, competitors go under, and ex-ante you make supersized profits. If you buy when the company is already making supersized profits, ex-ante you get the mean reversion, and the PE of 4x turns out to be a PE of 16x.

Again, this isn’t a trade that’s worked so far, but, it is how we view it.

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This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

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