Shares of Alumina Up As Citic of China Takes 13% Stake, But Sale Premature

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By Esther Tanquintic-Misa | February 14, 2013 5:50 PM EST

Shares of Alumina Ltd jumped as much as nine per cent on Thursday as China's largest state-owned investment company, Citic Group Corp, announced it will buy off a 13 per cent stake into the Australian alumina refiner.

The deal has been pegged to be worth AU$452 million or US$468 million.

According to Melbourne-based Alumina, in a statement on Thursday, Citic Group Corp agreed to purchase some 366 million new shares at A$1.235 each, higher by 3 per cent over the close on Wednesday.

Alumina shares, as of 1428 AEDT, were trading 12 cents, which was 9.8 per cent higher at $1.32.

"The movement in the Alumina share price today probably suggests that the market is thinking there's the possibility of a takeover," Gavin Wendt, a director at Mine Life Pty., was quoted by Bloomberg. "More than anything else it tells us that maybe we're getting near the bottom of the market."

The marked improvement was set to become the highest close since March 2012.

Most analysts believed the stake sale was a little bit early.

The deal, according to Paul Young, head of mining research at Deutsche Bank, was ''mildly value dilutive.'' He likewise noted that ''existing shareholders were not given the opportunity to participate in the deal."

Although still welcoming the deal, Deutsche cut its valuation of the company by 3 cents per share to $1.39.

''Spot alumina prices are now only just starting to rise and debt covenants had been cleared out to 2015, so the placement may be slightly premature," he said.

Another analyst, Lawrence Grech from PhillipsCapital, believed Citic's deal with Alumina ''just goes to show you how much money they really needed."

"Alumina was in need of capital and they've got it. That's a positive. Does it change the underlying (profit) margins of its business? The answer is, not in the short term.''

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