The ability of Alumina and its subsidiaries to generate cash internally is influenced by the following major factors:

These factors will continue to influence Alumina’s liquidity and capital resources in future years.

In addition, because Alumina is a holding company that does not conduct any material operating businesses, its ability to pay dividends and meet other obligations is dependent in large part on, and may be limited by, the level of dividends received from its subsidiaries and investments.

AWAC’s preference is to finance its activities from cash flow of the affiliated operating entities and from borrowings. The AWAC Agreements limit leveraging to a maximum ratio of debt (net of cash) to total capital of 30% (a super majority vote of the Strategic Council is required to exceed this limit). Alumina expects that AWAC would use its borrowing capacity or available cash flow to meet its financing needs, such as funds needed for expansion commitments. Should the aggregate annual capital budget of AWAC require an additional contribution from Alumina Limited and Alcoa, the parties contribute their proportionate share subject to the provisions set out in the AWAC Agreements.

The upgrade/expansions of Pinjarra and Suriname refineries will be funded from operating cashflows. The use of operating cashflows for the Pinjarra expansion may result in a lower payout of Alcoa of Australia dividends in the

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short term. Notwithstanding that, in 2004 Alumina Limited intends that the dividend payout ratio, as a percentage of profits, will be similar to that of last year, subject to the overall business performance of AWAC and the level of dividends paid to the AWAC partners.

The Company’s policy is to distribute to shareholders, to the extent practicable, all fully franked dividends received from AWAC. The Company’s intends utilising dividends received from AWAC entities other than Alcoa of Australia to fund its corporate and financing costs and capital requirements, with any surplus to be returned to shareholders.

Alumina’s gross debt at December 31, 2003 was A$467.0 million offset by cash assets of A$165.3 million. Subsequent to year end Alumina received proceeds from the sale of specialty chemicals and paid a final 2003 dividend of A$115.9 million. AWAC’s net debt at December 31 , 2003 was US$24.3 million. AWAC operating cashflow for 2003 was US$586 million.

In relation to the potential expansions of Wagerup, Sao Luis and Jamalco refineries, AWAC has yet to determine the manner in which they could be funded

Alumina’s capital structure is such that it was planned, as part of the demerger, to have $600 million of debt. $600 million of debt, which is currently in the form of short term bank debt (364 day facilities) that has been extended to December 2004.

Funds generated from continuing operating activities were A$268.5 million for the year ended December 31, 2003, compared with funds generated from discontinuing and continuing operating activities of A$602.6 million in 2002. This decrease was due to inclusion of 11 months of operations of the previously wholly owned WMC Resources Group.

Working capital was negative A$301.4 million at December 31, 2003, compared to negative working capital of A$512.8 million in 2002. The improved working capital is attributable to Alumina Limited borrowing in US dollars and the impact of the exchange rate movement which reduced debt in Australian dollar terms by $147.0 million and receipt of an Alcoa of Australia dividend in December 2003 of A$78.5 million

Gross debt was A$467.0 million at December 31, 2003 and A$534.8 million at December 31, 2002. During 2003, Alumina Limited increased its debt in April by drawing down a further US$48million (A$79.2 million) of debt. This increase was offset by the impact of the exchange rate movement which reduced debt in Australian dollar terms by $147.0 million. Alumina believes this amount of debt is appropriate for its current requirements.

The maturity of debt is outlined in Note 16 in the Consolidated Financial Statements. Alumina’s current debt facilities are short term US dollar borrowings, reflecting the modest debt level and low short term interest rates. The key funding principles inherent in Alumina’s Treasury policies are:

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Cash and current investments was A$165.3 million at December 31, 2003 compared with A$23.2 million at December 31, 2002.

Available sources of liquidity were represented by unused bank facilities at December 31, 2003 of A$233.0 million, as compared to A$165.2 million at December 31, 2002. The increase is due to Alumina Limited borrowing in US dollars. Alumina considers the level of unused bank facilities to be appropriate to meet the Company’s requirements.

Capital expenditure for continuing operations was A$0.3 million for the year ended December 31, 2003, and A$72.9 million for the year ended December 31, 2002. The capital expenditure in 2002 was Alumina’s contribution to AWAC for the acquisition of Halco and MRN shares.

The AWAC agreements provide that the cash flow of AWAC and borrowings by AWAC are the preferred source of funding for the needs of AWAC and have, since AWAC’s formation, been the source of funding it has used. There is the potential to expand production at several of AWAC’s operations and the source of funding for any such expansions is yet to be determined. AWAC may make an annual capital request of up to US$1 billion following a decision by a majority vote of the Strategic Council – of which Alcoa Inc. has the majority of votes.

Alumina Limited provided a guarantee in 1998 for foreign exchange transactions and in 2000 for gold derivative transactions undertaken by its wholly owned subsidiary at that time, WMC Finance Limited (“WMCF”). WMCF was sold to WMC Resources Ltd as part of the demerger and is no longer a subsidiary of Alumina Limited. On December 4, 2003, WMC Resources announced that it had closed–out its currency hedge book for the period 2005 to 2008 eliminating that portion of Alumina’s contingent liability. The guarantee remains applicable for foreign exchange transactions entered by WMCF and Union Bank of Switzerland with 2004 maturity dates and gold derivative transactions with maturity dates in 2005. The outstanding transactions have a negative mark to market value of $0.6 million at December 31, 2003. Alumina Limited has rights to obtain additional credit support if WMC Resources Ltd’s credit rating is lower than BBB (and it would not cause a breach of WMC Resources Ltd’s debt obligations). Alumina Limited is also indemnified by WMC Resources in relation to the guarantee.

Prior to the demerger, WMC Finance (USA) Limited (“Finance USA”) (a wholly-owned subsidiary of WMC Resources) had approximately US$800 million of long dated bonds issued in four separate tranches (having maturities in 2003, 2006, 2013 and 2026), on issue (“the US Bonds”)

The obligations of Finance (USA) under the US Bonds were guaranteed by Alumina. In connection with the demerger, Finance USA tendered to repurchase the US Bonds remaining outstanding. The aggregate amount of outstanding bonds not repurchased was comprised as follows of:

These outstanding US Bonds continue to be guaranteed by Alumina. The duration of the guarantee is unlimited, and continues as long as amounts are outstanding under the US Bonds.

Under the demerger deed, Alumina and WMC Resources indemnify each other in respect for certain liabilities. Alumina would be entitled to reimbursement from WMC Resources for amounts paid by Alumina under the guarantee in respect of the US Bonds.

Pursuant to a Power Purchase Agreement dated 27 November 1998 between WMC Resources, WMC Limited (as it then was) and Southern Cross Energy, Alumina has undertaken to provide Southern Cross Energy with a guarantee or letter of credit for WMCR’s payment for power in the event that WMCR’s gross assets fall below $250 million in any year.

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New Accounting Pronouncements

New accounting pronouncements discussed below may impact the financial statements of Alumina, including the equity accounted results of the AWAC investment.

Australian Accounting Standards Board

The Australian Accounting Standards Board (“AASB”) has issued or revised certain Accounting Standards which are not effective for the fiscal periods reported upon in the consolidated financial statements. The impact or potential impact for Alumina is discussed below.

AASB 1020, “Income Taxes” was issued in December 1999. It will be effective for Alumina in 2005. Alumina is currently assessing the impact of adopting this standard on its financial report.

AASB 1046 “Director and Executive Disclosures by Disclosing Entities” was issued in January 2004. It will be effective for Alumina in 2005. Adoption of this standard is not expected to have a significant impact on the Company’s financial position.

Financial Accounting Standards Board

The Financial Accounting Standards Board has issued certain Statements of Financial Accounting Standards which are not effective with respect to AWAC and therefore Alumina for the fiscal years presented in the consolidated financial statements. The impact or potential impact for both AWAC and Alumina is discussed below.

In December, 2003, the FASB issued FIN 46R, ‘Consolidation of Certain Variable Interest Entities—an interpretation of ARB No.51, which further clarifies FIN46 issued on January 17, 2003. FIN46R addresses consolidation and disclosure by business enterprises of variable interest entities. FIN46R is effective for newly created variable interest entities beginning December 31, 2003 and for existing variable interest entities as of the first annual period beginning after December 15, 2004. This standard has no impact on Alumina Limited.

In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 104 (SAB 104). Revenue Recognition, which supersedes SAB 101, Revenue Recognition in Financial Statements and SAB 101 FAQ. SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 and SAB 101 FAQ related to multiple element arrangements, which was superseded as a result of the issuance of EITF 00-21, “Accounting for Revenue Arrangements with Multiple deliverables.” EITF 00-21 was effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of SAB 104 and EITF 00-21 is not expected to have an impact on the Company financial statements as it receives no revenue from multiple element arrangements.

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Not applicable.

Relevant industry and market trends are discussed for Alumina and AWAC as a whole in Item 5A “Operating Results”.

Not applicable.

Operating lease commitments relate to the corporate office facilities in Australia.

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DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES