Almost 29% of South32 revenue after the presumptive BHP Billiton will consist of Australian aluminum mining assets. Along with company’s silver/zinc division, aluminum will be the largest singular driver of investor returns. If you have been reading me for a while, you may wonder why I would have any kind of interest in this type of business at all, given my sharp disdain for Alcoa’s business model that I have covered in years past.
The summary of my writings on Alcoa previously have been something like this: Alcoa tends to be a troublesome cyclical to attach a buy-and-hold attitude towards because the (1) prices of aluminum is highly volatile and (2) the costs of running the business are quite high. In other words, Alcoa investors are likely to see higher fluctuations in stock price and lower stock market gains than someone investing in an S&P 500 Index Fund, accepting higher fluctuations in profit for lower long-term returns because the good times of high prices in the American aluminum industry have not offset the high costs of ordinary and bad times when the price of aluminum is low.