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Alcoa (AAI) and Xanadu (XAM)

Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.

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Alcoa (AAI) and Xanadu (XAM)

Dear MM, Firstly, thanks for your excellent, excellent service. You guys are doing a great job. How do you ensure you have diverse views and sufficient challenge in your decision making process? Alcoa: I was recently on the Q3 call, and the market for alumina and bauxite would seem to be very tight. I suspect Aluminum is not as widely regarded as Copper as an energy transition metal... though I think it is. Your thoughts on this and your thoughts on Alcoa (I know you are already long and bullish S32). Xanadu Mines XAM have just released their PFS on their monster resource at Kharmagtai with a post-tax NPV of US$930M (massive vs their current market cap of AUD$116M). Have you looked at XAM, is it on your radar, and your thoughts? Thanks, Young

Answer

Hi Young,

The market for bauxite is very tight at the moment primarily due to the suspension of exports of bauxite from Guinea – perhaps in an effort to bring the refining and upstream value add onshore. Guinea supplies approximately 70% of China’s bauxite consumption. This has coincided with the electrification thematic playing out on the demand side – aluminium is used in wind turbines batteries among other purposes.

  • Alcoa – we don’t follow the stock specifically and given the recent surge is a government/sovereign issue at the core, it’d be difficult for us to comment on whether the export suspension by Guinea, and therefore higher commodity price, remains intact. What we do know is alumina prices shot up to a record high $US645/t last week so most stocks with exposure to these materials should continue to benefit.
  • Xanadu Mines – We don’t follow the stock but can see they are a gold and copper exploration company with primary operations in Mongolia. We like both gold and copper at the moment with several tailwinds driving prices higher. However, we stick to established companies that are generating revenue and have a track record of doing so. Important to consider the geopolitical risk when investing in companies such as XAM, operating in foreign jurisdictions is often make or break for the investment thesis.
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Xanadu Mines (XAM)
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