Q4 2020 Alcoa Corp Earnings Call
[music].
Good afternoon, and welcome to the Alcoa Corp, fourth quarter 2020 earnings presentation and conference call.
All participants will be on listen only mode.
Should you need assistance, please signal a conference specialist breakfast and the store key followed by zero.
After todays presentation, there will be and opportunity to ask questions to ask a question you May Press Star then one on your phone to withdraw your question. Please press Star then two please note. This event is being recorded and now.
Sure and the conference over to James Dwyer, Vice President of Investor Relations. Please go ahead.
Thank you and good day everyone.
I'm joined today by Roy Harvey Alcoa Corporation, and President and Chief Executive Officer, and William Oplinger, Executive Vice President and Chief Financial Officer.
To take your questions after comments by Roy and Bill.
As a reminder, today's discussion will contain forward looking statements relating to future events and expectations that are subject to various assumptions and caveats and factors that may cause the company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings.
In addition.
And have included some non-GAAP financial measures and this presentation.
Reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation.
Any references and our discussion today to EBITDA means adjusted EBITDA.
Finally, as previously announced the earnings release and slide presentation are available on our website.
With that here's Roy.
Thank you Jim and thanks to everyone for joining this call today, obviously 2020 was historic here with the world United and fighting through the challenges associated with the global pandemic throughout this turbulent time. However, we stayed true to our alcoa values and accomplished much and an unprecedented.
Yeah.
We focused on our people, making sure we took every possible steps to protect our employees and contractors and to support the communities, where we operate due to the teamwork across Alcoa, we not only kept our operations running efficiently, we improved our processes and made our company even stronger.
Bill will discuss the specific financial results shortly but it all culminated with a solid fourth quarter, we had a higher sequential quarterly adjusted EBITDA and we also recognized quarterly improvement and revenue.
Both prices and demand improved and the fourth quarter, including for value add aluminum products and for the full year, we made significant progress and improving our cost structure with our multi year strategy and we will highlight many of those achievements during this call today.
First however, I would like to address safety.
And so many accomplishments in 2020 and as reported last April we sadly did not achieve our most important objective on a contracted worker died on February 10th after sustaining on the job injuries at our passes to call. This facility in Brazil. This wasn't unacceptable tragedy and we've worked to make sure.
And not recur.
This tragic accident and demonstrates that we must be ever vigilant with our safety practices and must remain focused on each and every task at hand.
Safety is embedded in the three Alcoa core values you see on the left hand of this slide and those three simple values continued to guide us in fact, our response to the pandemic demonstrated how our relentless commitment to these values can deliver positive impact.
And not only did we sustain our operations. We also set annual production records in both our bauxite and alumina segment and <unk>.
Aluminum, we continue to improve our cost structure and successfully completed the full restart of the Abi smelter and back on core, Quebec, and the curtailment of the Intelco smelter and Washington State together. These two actions resulted in an $86 million improvement in EBITDA in 2020 over 2019.
Importantly, 2020 was a year with significant accomplishments across Alcoa we.
We started the year with the full implementation of our new operating model, which reduced overhead costs and improved overall efficiency.
Before we encountered the impact of the pandemic, we had already put in place aggressive targets for noncore asset sales over a 12 to 18 month period and year over year improvement from working capital and productivity and 2020.
With the economic uncertainty created by this pandemic, we also implemented additional actions to generate and protect cash.
We finished the year meeting those targets, we met our combined objective on working capital and productivity and our announced noncore asset sales put us at the top of our expected range those and other actions during the year helped us exceed our target of $900 million and cash actions.
In November 2020, we announced the divestiture of our single Rolling Mill located in Indiana at Warrick operations, and a $617 million transaction expected to close in March of this year.
And finally on this slide our strategic priority to advance sustainably provides many new opportunities and we will talk later today about how we're leveraging our industry leading performance to succeed in the marketplace expecting and demanding strong ESG performance. So what.
That bill will now detail the results.
Thanks, Alright.
On the 24th quarter saw revenues exceed third quarter levels on stronger aluminum prices revenues were up $27 million compared to the prior quarter and lag to the fourth quarter of 2019 by $44 million on lower alumina prices.
Fourth quarter earnings improved versus both the third quarter and year ago quarter, either including or excluding special items.
Special items and the fourth quarter were $53 million, primarily related to the U S pension lump sum settlements.
The net loss attributable to Alcoa Corporation improved $45 million to $4 million up 24 per share and was $1 61 per share better and the prior year.
Adjusted net income of $49 million or 26 per share was $1 43 per share better than the prior quarter and 57 per share higher than the prior year fourth quarter also and on an adjusted basis compared to the previous quarter EBITDA, excluding special items improved 7%.
$7 million to $361 million and improved $15 million compared to the fourth quarter of 2019.
For the full year revenues declined $1 1 billion to $9 $3 billion on lower alumina and aluminum prices, while the net loss attributable to Alcoa improved $955 million to $170 million, primarily due to lower restructuring charges and.
Adjusted net loss for full year, 2020 was $215 million down $31 million from 2019.
Let's look closer at factors driving adjusted EBITDA and the fourth quarter.
Adjusted EBITDA, excluding special items increased $77 million from the fourth quarter with $39 million higher earnings from the segments and $40 million from favorable intersegment eliminations.
Overall favorable market price impacts totaled $92 million were higher metal and alumina prices were partially offset by a weaker U S. Dollar.
And all other factors combined were unfavorable $15 million.
Energy costs were higher and smelters and Norway in Spain, and in Brazil, refineries and price mix lower CPG bauxite prices and unfavorable alumina segment contract mix outweighed improved product mix and the aluminum segment.
Volume was unfavorable primarily due to lower CPG and routine and third party bauxite shipments and.
Production costs were up sequentially and the aluminum segment, where labor costs increase after summer holidays increased spot re lining and timing of maintenance activities and work power plant outage and related costs.
Production costs were also up slightly and alumina on higher bauxite costs and and bauxite on maintenance timing.
Other impacts totaled $54 million sequentially and reflect the impact of many of our strategic key action, he and telco curtailment contributed $10 million EBITDA improvement and $12 million was related to section 232, tariff refunds and reversals trading activities and equity earnings and non operated mines and bauxite contribute.
And $21 million.
Moving to cash.
Fourth quarter liquidity remained exceptional with $1 6 billion and cash on the balance sheet.
Our year over year cash balance increased $728 million, primarily due to the net proceeds of $736 million from our July debt issuance sequentially.
Sequentially, our cash balance decreased to $129 million at the end of the fourth quarter, and we contributed $250 million to our U S pension plans.
Contribution made in late December and set up in early January saved a $6 million and pension related costs.
In 2020 sources of cash totaled $2 $2 billion and uses of cash totaled $1 5 billion.
Removing the debt proceeds of $736 million year to date sources of cash were one 5 billion with an $8 million of 2020 uses a reflection of solid operating performance and our successful $900 million cash actions program.
Given our substantial cash balance at year end and the expected influx of cash upon closing the Warrick Rolling Mill sale later this quarter, let's review the framework that guides our capital allocation decisions.
Our capital allocation framework has three major components first it starts with a target cash balance of $1 billion, which as our history has shown can be higher or lower than target based on market conditions in 2020 and has been prudent to carry more cash than our target.
Second our next use of cash is to sustain and improve our existing operations with capital expenditures. Our 2020 capital expenditures totaled $353 million believes expect and increased to roughly $425 million in 'twenty and 'twenty one as we increase return seeking capital spending on high return small.
<unk> and increased sustaining capital for major mine moves and residue management projects.
Third we expect to use excess cash to maximize value creation and for ways not listed and any priority order.
We target adjusted proportional net debt of two to $2 5 billion within the next three years at target includes our pension and <unk> net liability and we believe it generates our optimal wax Rick.
Turning cash to stockholders, we have a buyback authorization in place third transforming the portfolio to lower costs to improve earnings through the cycle, while improving its sustainability.
<unk> profile, and investing and medium sized value creating projects.
We will decide between these four options as we continue to review our cash balance and market conditions now, let's look at other financial metrics.
Full year 2020 free cash flow less non controlling interest distributions was negative $142 million and includes our recent $250 million U S pension funding.
Working capital management has been solid days working capital improved four days year over year on lower inventories and higher payable and increased one day sequentially to 23 days due to higher receivables our key balance sheet metric proportional adjusted net debt in 2020 increased by $105 million and three.
$5 billion, primarily a result of lower pension and OPEC discount rates, while our pension net liability remained at $1 5 billion are OPEC liability increased to $900 million.
Turning to our $900 million cash actions program.
Yeah.
Early in 2020, we announced a comprehensive cash program totaling $900 million.
It was a successful cornerstone of our response to conserve cash during 2020 volatile market conditions and had three components the.
The first component was the 2020 cash impacts arising from our three key strategic actions announced in October of 2019 and.
And new operating model say, its roughly $45 million and overhead costs and our entire business benefited from increased operational and commercial focus and we.
We sold the gum springs treatment facility for $250 million and received the first $200 million early this year with another $50 million to be received after certain conditions are met while we announced the sale of the Warrick Rolling mill for $670 million to cash and $587 million from the sale will be received at closing.
And it for the first quarter of this year.
And completed the entire flow curtailment last quarter and saved $21 million.
The second component was the 2020 programs announced last February comprised of lower production costs, and working capital reduction together targeting $175 million to $200 million of improvements.
Spite recent higher sales prices, increasing receivables, we achieved $184 million of the target.
Without the $82 million of higher working capital related to Union actions and transit brand, we would've achieved $266 million and working capital and production cost improvements.
Third component was COVID-19 specific responses, we exceeded our reduction targets for capital expenditures and arrow and environmental spending by a combined $35 million and we're within $5 million of the target for other spending while we had initially planned on taking advantage of the cares act by deferring pension.
<unk> is $220 million. It's early January of 2021, we made a $250 million contribution late in December which generated a $6 million refund does PBGC premiums.
Now, let's review the outlook for 2021.
This outlook reflects and expected continued progression to less volatile and improved markets. As we've noted in recent quarters, our outlook could be impacted by changes and market conditions, especially impacts related to the ongoing COVID-19 pandemic.
Also remember that the Warrick Rolling mill is triggered held for sale accounting. So on the first quarter. While the income statement treatment is unchanged. The warrick Rolling mill assets and liabilities are all classified as current assets and liabilities.
Currently for 'twenty and 'twenty, one, we expect increased shipments and the bauxite and alumina segments and lower shipments and the aluminum segment, primarily a result of the upcoming sale of the Warrick Rolling mill and the completed and telco curtailment.
For EBITDA impacts outside the segments, we expect transformation costs of $65 million higher than the cash and serving result in 2020.
We expect other corporate costs to increase slightly to $120 million, partially due to currency impacts.
Below the EBITDA line, we expect depreciation to increase to $675 million on capitalization of major projects and currency movements and the first quarter is expected to be roughly $15 million higher than the rest of the year.
Non operating pension and <unk> expense is expected to improve approximately $33 million and 2021% due to lower interest costs and the plans with the current capital structure, we expect interest expense to increase to approximately $165 million our operational tax rate was 130% last year with expense of <unk>.
$226 million.
Fence and rate will vary with market conditions and jurisdictional tax profitability reviewing some of the key cash items, we expect pension and <unk> funding to be approximately $315 million and assuming no use of the available $500 million pre funding balance.
Return seeking capital expenditures will increase slightly to roughly $50 million up from the $35 million and 2020 sustaining capital expenditures at approximately $375 million reflects the large but and frequent mind moves and residue storage area projects occurring in the near term.
Environmental and Aro spending is expected to rise to approximately $150 million, which represents a more normalized near term spend but higher than the COVID-19 constrained 2020 actual spending looking.
And looking just at the first quarter.
On metal and alumina prices are expected to drive EBITDA higher with some partial offsets sequentially adjusted EBITDA and the bauxite segment is expected to be $45 million lower due to lower internal bauxite pricing and an additional $25 million lower due to lower earnings from minority owned mines and non recurrence.
A favorable revenue true ups and the fourth quarter of 2020.
And the alumina segment will see the offsetting benefit of $45 million from lower bauxite internal prices, partially offset by $15 million of higher energy costs and seasonal maintenance costs and.
And the aluminum segment alumina costs are expected to be $20 million higher sequentially other items, excluding metal prices and currency are expected to be unfavorable $10 million sequentially.
As a result of our portfolio changes, we have reduced the intersegment elimination sensitivity for a $10 per ton change and API by $1 million to a range of 7 million to $9 million and the first quarter. We also expect related changes and intersegment inventory volumes and margins to add an additional 10.
Sequential benefit to the intersegment eliminations.
And our annual adjusted EBITDA sensitivity is found in the appendix have also been updated but assume full operations of San <unk> and smelter, which is currently not making sales due to the strike approximately 50000 tons of sand Cyprian metal did not ship and the fourth quarter. And addition, based on expectations of recent improved pricing drive.
And higher pre tax earnings the company expects first quarter 2021 operational tax expense to increase to approximately $65 million.
With that let me turn it back to Roy.
Thanks Bill.
As we turn to our markets in the fourth quarter, we saw strong improvement and prices for both alumina and aluminum each rebounding due to stronger demand and finishing near their 2020 peaks that were well above the lows and April abroad.
A broad recovery and the markets from COVID-19 impacts, particularly in China.
Wanted a resurgence in the fourth quarter and aluminum demand with the price rally, we enforced by a weakening U S. Dollar as prices ended 2020 higher than a year earlier.
In December of 2020, less than 5% and global smelting and refining capacity was cash negative.
The recovery and global aluminum demand has been driven by a few notable items.
First the re establishment of more normal operating conditions due to reductions and COVID-19 infections and certain jurisdictions, particularly in China.
Next the ability of global manufacturers to mitigate the risks from the pandemic and continue operations.
And also monetary and fiscal stimulus programs have accelerated stronger demand and aluminum end use market and that effect is expected to continue.
Now looking ahead to our outlook for global aluminum consumption in 2021 and.
And China, where 2020 consumption exceeded 2019 levels, we expect consumption to grow again this year by about 5% year on year and.
And the world ex China, where consumption and contracted in 2020, we expect 2021 consumption and to grow by about 10% year on year.
This would be only the second time, we have seen double digit growth and the past 20 years.
Globally 2021 consumption is expected to grow by about 7% the highest global growth rate since 2014.
The speed of recovery from COVID-19, and the impact of additional stimulus measures will be key drivers and achieving this growth.
At the same time, 2021, and smelting and supply growth led by China is projected to be lower than demand.
As a result, the global primary aluminum market should be closer to balance this year.
Now turning to Alcoa is one commercial performance.
And bauxite increased volume and the fourth quarter offset quarter on quarter price decreases and 2021, we expect third party bauxite shipments to increase as we continued to boost production and.
The alumina and the fourth quarter API pricing edged higher quarter on quarter, we expect our smelter grade alumina shipments to remain stable from 2021.
And finally in aluminum as we mentioned and both the second and third quarters sales of value add products were negatively impacted from the pandemic with the second quarter as the low point after the 11% sequential improvement and the third quarter, we saw an additional 13% volume growth in the fourth quarter, particularly due to.
And the automotive sector.
From 2021 with demand continuing to improve and considering the impact from portfolio changes, we expect our value add product volumes to represent almost half of our third party shipments and to grow approximately 5% year on year.
While uncertainty remains we see clear signs that give us confidence that demand in our markets is recovering.
As I mentioned earlier, we are making significant progress and strengthening our company. We are creating a cycle proof set of assets driving for continued improvement and our pre segment and leveraging our existing sustainability advantages.
And as Bill discussed in his remarks, we exceeded our target for cash actions and 2020 and that included the items highlighted on the graphic.
First and October of 2019, and launched a multi year strategy that included three key strategic actions we implemented.
Rented a new operating model that reduced overhead expenses and brought decision making closer to our location it.
It was fully implemented in 2020 and has brought cost savings.
And improved operational and commercial performance.
We announced our intention to generate between $500 million and $1 billion through the sale of non core assets. During the 12 to 18 month period.
With the sale of gum Springs completed in early 2020, and the announced sale of the Warrick Rolling Mill. We've met this objective and we will close this program near the top end of this range.
We will continue to evaluate additional opportunities for the sale of noncore assets.
Germany, and whether such decisions to bring value for our company and are in accordance with our strategy.
Yeah.
We continued to progress and our five year review of our production assets that includes a range of potential outcomes for these facility.
Significantly improved competitive positioning curtailment closure or divestiture. The review and includes 4 million metric tons of global refining capacity of which $2 3 million metric tons has been permanently closed since the announced review and smelting. The review includes one 5 million metric tons of capacity and the.
And telco curtailment reduced that goal by 230000 metric ton.
Second to that 2020 programs, we implemented improvements that resulted in leaner working capital and improved productivity gain.
The benefits from those process improvements will carry forward and help us and 2021 and beyond.
And third we implemented in 2020 specific actions to generate and protect cash during the volatile market conditions from COVID-19.
I'm very proud of the contribution of all Cohen and making these accomplishments possible.
Next as we move into 2021, we have some near term actions on our radar.
We expect to successfully close the sale of the work Rolling Mill, which includes separating the assets that will belong to Kaiser aluminum from the smelter and the power plant that we will continue to own.
We will continue to seek resolution to the ongoing situation with us on some pretty on aluminum smelter and Spain, we're continuing to examine alternatives, including a potential sale of the smelter to a state owned company.
Next we are working on options for the Portland aluminum smelter and the state of Victoria, and Eastern Australia, which faces challenges from a difficult energy environment.
On the long term workable solution. There are two key requirement and internationally competitive power price, including generation and transmission fees and flexibility to manage the continued risks of grid instability.
We are encouraged by positive engagement with stakeholders, and Australia, including the federal and Victorian government and energy generators.
All of this work positions each of our segments for an even brighter future driving improvements and our cost position and demonstrating our differentiated approach to sustainability across our entire value chain.
And our bauxite segment, we will defend our first quartile cost curve position, while we continue to leverage our sustainable mining practices.
And World class rehabilitation and working with our community.
And our aluminum segment, we will also defend our first quartile cost curve position and our rank among the lowest carbon intensity and producer globally.
Has the largest third party provider of aluminum and we will continue to lead on sustainability such as on the reduction of water and land use and and our marketing of the worlds first ever and.
Only low carbon aluminum brand echo source.
And in our aluminum segment, we will drive to a first quartile cost curve position and through our five year portfolio review, we expect it to have the lowest carbon emissions per tonne of global aluminum producers.
This requires an increase of renewable electricity from 73% currently to a projected 85% of our energy consumption.
As you can see the right financial decisions will also lead us to a best in class sustainability position.
Like to explore how we believe these changes can drive value for the long term.
As a pure play aluminum company active and all segments of upstream production, we have a unique opportunity to define what it means to be sustainable and the aluminum industry. We are positioned well to supply sustainably produced products and to differentiate ourselves from other producers.
We've always been a recognized leader in sustainability. For example, we have been named every year to the annual Dow Jones sustainability index.
And in 2020, we continued to certify additional operating asset to the aluminum stewardship initiative. The industry's most comprehensive third party validation of responsible production.
We have earned ASI certification and all three of our product segments bauxite alumina and aluminum.
As we move forward, we've identified three key value drivers and our sustainability strategy.
First on sustaining operations Alcoa.
Alcoa has a comprehensive set of mining practices, serving as a blueprint on how to operate responsibly and areas with important biodiversity such as the Jarrah Forest of southwest, Australia, and the Amazon Rain Forest and Brazil.
And the genre force, we identified species of conservation and significant avoiding critical habitat and adapt and mine plan to minimize disturbing.
At June and T. We use comprehensive forestry techniques to ensure that the rich and fragile ecosystem of the Amazon has returned as close as possible to its original status.
Our reputation and expertise and strong management systems, which includes proactive engagement with our communities is an advantage when renewing existing permits and expanding our mind, we're considering future growth opportunity.
And the Middle of this chart, we show how we actively work to mitigate risks to our business.
From a climate perspective, we have acknowledged the scientific evidence of climate change and we have clear targets to further reduce our corporate wide emission.
We are also working to minimize cost associated with mine rehabilitation, while continuing to demonstrate best in class technologies, including the full implementation of the global industry standard on tailings management, which was developed in 2020 by a multi disciplinary panel, including the international Council on metals and mining of which we are men.
<unk>.
While the global standard is now in place for Impoundments. We're also working to reduce the amount of material that needs to be stored through opportunities for reuse.
And late 2020 for example, we became a member of a four year project that will work to transform bauxite residue and to a reactive material suitable for new low carbon cement products.
The project includes 20 partners from across 12 European countries with support from the European Commission.
And parallel our teams are working with the international aluminum Institute to identify potential pathways for the adoption of bauxite residue and cement production and use.
For water, we have established targets to reduce its use and scarce regions. For example, we've now installed press filtration technology at the Qunar and <unk> refineries and Western Australia.
Together, they have the capability to reduce freshwater use by approximately $2 two giga leaders more and more than 500 million gallons annually.
Also we continue to focus on lowering cost and driving efficiency, including through digital solutions last.
Last year, we established and operations group focused on digital transformation as part of our continuous improvement program.
This group is working to make operations safer cleaner and less physically demanding and more productive with everything from drones remote sensing and machine vision.
Just one example includes our work on digital twins, which involves continuously copying data from a real world processes, and then using models to demonstrate recommended performance improvement and.
And the Western Australia refineries, the digital twin and work has already helped to optimize real time GAAP.
And 2020 alone and has generated $1 million and savings, while progressing us towards our sustainability goals.
All of this work of course helps drive our third point of improving profitability over the long term.
We believe we can leverage our existing sustainability platform to innovate and grow our family of products.
Put simply demand for sustainable products is increasing our existing sustain a family of products is the most comprehensive and our industry.
Cross our segments, we continue to partner with customers, who want to reduce their carbon footprint and work with companies like Alcoa that demonstrate our commitment to sustainability.
We are also innovators and aluminum we invented the technology behind <unk>, a revolutionary breakthrough smelting process redesign and the traditional profit for electrolysis.
It eliminates all direct greenhouse gas emissions and the midst pure oxygen as a byproduct plus.
Plus it shows the promise of improving both production cost and output when compared to a same size smelting film.
As part of this joint venture company, we're working to commercialize this technology over the next few years. So it can be licensed for either retrofit for.
And for existing smelters or the construction of new ones.
We're making progress in December and lets us announced the completion of construction on its new R&D Center in Quebec, and it will further advance the work first discovered at our Alcoa Technical center outside of Pittsburgh, which will continue to play an important development.
In closing I want to step back and reinforce a few important points.
I open today with our values and I am closing by highlighting three strategic priorities. They have provided a roadmap as we steer this company in accordance with our value.
And our commodity environment, we consistently work to be low cost and that entails reducing complexity our priority to drive returns includes plans to improve margins across our products.
And finally, we intend to advance sustainably and all aspects of our business economically environmentally and socially.
And final key point that align with our values and our priorities.
First during the COVID-19, pandemic, we kept our operations running and running well despite the challenges from a tumultuous year, we were able to achieve results beyond expectations and we will continue to focus on keeping our operations safe following all health based protocols.
Second I'm proud of the teamwork and 2020 that allowed Alcoa to not just stand up in the face of adversity, but to move this company forward during such a challenging time and in accordance with our strategy.
Many goals last year cash management noncore asset sales working capital and productivity all of this and more will improve this company for the long term.
Finally, as the world to begin to emerge from the current health crisis, we are well positioned to meet the demands of improving market.
Alcoa represents the element of possibility and I'm excited about the opportunities our company will capture ahead to serve our markets.
Customers and the world.
Thank you for your time today, Bill and I look forward to your questions.
And we will now begin the question and answer session to ask your question and you May Press Star then one on your phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Your question. Please press Star then two when called upon and please limit yourself to two questions.
Our first question today will come from David <unk>.
On it with BMO capital markets. Please go ahead.
Hi, Thanks for taking my questions on.
And they're really more along the lines and some clarification questions around some of the numbers and the presentation slide deck.
Kind of thing on.
In terms of the additional business consideration can you speak a little more and explain a little more about <unk>.
What's going on and within the bauxite segment and in the alumina segment with regards to the lower internal alumina and bauxite pricing.
$45 million lower and then also related to that.
The $25 million lower earnings from the bauxite mine does that is that reasonable.
On a run rate moving forward.
On that piece as well.
Hi, Dave It's still so let me let me take that one.
As far as the bauxite pricing the intercompany bauxite pricing goes.
We are.
Essentially just reflecting the changes that have occurred and the marketplace, where bauxite prices has become lower and we're reflecting that change between the two segments. It is really a less left pocket right pocket thing and.
So overall on a per ton basis bauxite prices between the segment well will be down about $4 a ton.
For the annual basis and that results in the first quarter versus the fourth quarter about $45 million.
But that just gets picked up and the alumina segment.
When when you look at the additional $25 million down and the first quarter.
Fourth quarter had some.
One timers that occurred on true up of pricing on annual pricing and that that's not that's not going to recur. So that leaves some higher costs and some lower equity earnings from the joint venture minds filling the additional let's say $16 million of lower lower earnings.
And.
Remains to be seen whether that is a new run rate clearly at a $45 million is the new run rate that that will apply for the entirety of the year, unless we see some change and and bauxite prices, but we typically.
Set bauxite prices and hold on toward the year. So.
That will be a shift between the two segments.
Okay, and so the true up that occurred in the fourth quarter. The one timer was obviously and adjusted EBITDA.
Is that the total is that does that account for all of the $25 million and no.
Let's turn on the 25 tenants.
And the fourth quarter, we had true up on on a couple of different areas on pricing on.
And Western Australia, one and CPG.
And that resulted in about $10 million of earnings and the fourth quarter, and which won't recur and the first quarter. So that leaves you out of that $25 million lower and that leaves you about $15 million of higher costs.
On some lower volumes and the first quarter.
Okay, and then just the other clarification and I had was during your remarks I thought I heard you mentioned and $12 million I thought you said $12 million tariff benefit that flowed through and the fourth quarter or did I misunderstand that and if so what was that related to.
No you didn't you didn't misunderstand, that's a fourth quarter versus third quarter variance.
The third quarter, we had roughly $7 million of expense in the fourth quarter, because we reversed part of the third quarter, we had a $4 million positive so that rounds to a $12 million variance between third quarter and fourth quarter.
Okay understood last question from me the $375 million on.
And sustaining Capex for 'twenty one is.
Is that a more reasonable run rate moving forward versus the 318 and that we saw on 2020 it.
It is and the near term, there's two things that are driving that.
First of all I should say and the 318 and 2020.
Given the market environment, we were driving real cash sustainability.
<unk> and deferrals and 2020 as much as possible just given the situation that we're in and the second and the third quarter was with the overall.
Pandemic and market environment as we were rolling into 2021, I think the $3 75 for the near years is is a more reasonable.
Number there's a couple of things that are going on and there. We still have continued spending on the mine moves that we saw some high mine move spending in 'twenty and 'twenty, we'll continue to have that in 2021 and.
And we are continuing to.
Spend money and I would say invest and the residue storage area.
Around the around the system, we're going to spend a little bit more money in 2021 and the.
And the residue storage area, so thats whats driving.
Increase from 'twenty, one over 'twenty and I think for the near years Thats, a reasonable amount of capital spend it will all be based on what the portfolio changes get made over the next few years.
Okay. That's helpful. Thank you.
Thanks, Dave.
Yeah.
And our next question will come from Timna Tanners with Bank of America. Please go ahead.
Yeah, Hey, good afternoon, and two questions. One is a broader question about the aluminum market and another one is just about your.
Capital structure, So I guess just to start with and if.
And I would call 2020 was a year, where aluminum didn't really stopped producing despite the dip in demand that you identified so into 'twenty 'twenty, one and if we think about the market or there are lots of sources of additional supply or do we expect that this demand will be met with kind of the same base of supply and if you could comment on both aluminum and alumina on that one and then on the other.
Thanks.
Sure Tim This I'll I'll take that one this is Roy so I think 2020 was certainly.
A rather remarkable year and a lot of ways and I think it's in.
And to start off in China, you saw a very significant.
Difficult drop in demand and in first quarter, and then you saw a pretty significant recovery across the year to a point, where you actually grew 2019 to 2000 Twenty's and so from a demand perspective, you actually saw some some progress in China going into 2021, we continue to believe that demand is going to be increasing we think it's going to be.
5% as I mentioned during the presentation. So demand is a very good story, there you're still seeing some supply growth inside of China and.
And so that's and particularly headed and the direction of the Yunnan Province, where they can get hydropower.
And is more constrained and we've seen before.
However, you are continuing to see some supply come out on.
And outside of China, and really looking towards the rest of the world and and again on aluminum starting on aluminum.
And you really you didn't see as big an impact on Q1, although that was certainly a lot of uncertainty then going into Q2 through Q4.
You saw some buildup of inventories and so those continue to exist and you really didn't see significant curtailments and telco is one of the few few places that we chose to curtail and Thats really about all you saw across the market. So you generated the inventories you certainly didn't see any supply growth, perhaps saw it come down.
And a little bit going into 2021.
Because you've had such a you've had a year where your your demand has dropped from 2019 to 2020, you'll actually see a pretty significant improvement 10% like I mentioned, it's one of the few times, we've seen double digit growth.
And a very long time, so we will see pretty significant recovery and certainly not expecting to see any kind of supply growth or much supply growth coming out and beyond some creep activities et cetera that you might see across the rest of the world and no announced restarts.
So when you take that altogether.
And what it means from an aluminum perspective is that you have.
Quickly recovering market and that is making certain assumptions about what happens with pandemic et cetera. So there is still uncertainty that sits inside of there you are.
Seeing some constraints and how much new capacity on it comes online and when it does it will very much be for the most part located in China, and so you should see operating and improving supply demand balance versus what you saw this year, but again, there's a lot of assumptions that are baked in there.
And from an aluminum perspective, and I don't I don't want to spend as much time and alumina.
But really.
It's not so different than what I was talking about and aluminum.
And you continued to see the smelters for the most part operate which meant you did not have as big and impact on demand from and alumina perspective in 2020.
You will see some growth and of course going into 2021, and that's linked exactly what I was talking about on the aluminum market you.
You will see some supply growth both inside of China, but then and again that is very much it's really going in two directions as number one as more imported bauxite for four greenfield or expansions, but you're also seeing more more more demand for bauxite because of depleting bauxite reserves, but and the and you'll have.
And more alumina supply coming into China, and you also have some additional supply coming on and the rest of the world and Abu Dhabi and.
And then.
And not truly starting to drive some some increases and supply there. So again alumina is not storable. So it tends to be tends to be very small numbers circulating around zero and but we do have we are seeing a very good demand story and a little bit of supply coming back as well.
Okay, great. So summarizing quickly recovering market year over year with limited ex China supply response.
And if I understood that with some of the Adobe alumina and so that's on.
Helpful overview.
And I wanted to just if I could just go to slide nine real quick and it's real.
Helpful. The sources and uses but if we didn't have these on the debt raise and in July and.
Keeping in mind share.
And on working capital on pension and being a little higher you would have been kind of balanced.
Sources and uses and you know.
Of course, there's this big amount that youre raising through on the Warrick sale and a top of the debt issuance and and I know we've talked about this before and you are fully aware of this but you know what what's the what's the hold up and taking some more aggressive actions to addressing the pension and <unk>.
Low interest rates, and keep that kind of expensive and and and.
No not not a lot of benefit to keeping the cash. So just wanted any more color on that you can provide on that please.
Thanks, Tim and I'll take that one.
You saw and just make sure that it's clear we did make a pension contribution and.
At the end of 2020, so we contributed $250 million debt that allowed us to keep our pension and <unk> total liability and relatively flat and a significantly declining discount rate environment. So we continue to take action EBIT in 2020.
And a year that was a pandemic year, we had thought we would defer that payment out of 2020, but when we saw that the cash.
Cash that we had on the balance sheet was pretty robust and.
The outlook is okay, we thought we would make that contribution.
As far as cap overall capital allocation goes I'll point, you and really two directions first of all we do have a net debt target and we still have that net debt target and that net debt target is two to two 5 billion.
And we ended the year I think around three and $5 billion on proportional net debt. So we still need to do further deleveraging either through the pension or through.
Payback buyback on the bonds to get to that debt targets, we think that we could get there simply by making mandatory contributions over the next three years.
But but that is the one.
Target that we have is on as far as the capital structure goes.
And then lastly, the point I'd make is we on purpose put the.
Slide in there that refreshes people about our capital allocation model and our capital allocation model as we went over and maintain $1 billion and cash on the balance sheet, we weren't always able to do that during 2019 and 2020.
But with the debt issuance that we that we did earlier and this year, we have greater than $1 billion and cash on the balance sheet, we want to sustain the operations, we're spending $3 75 and 50 on on.
On sustaining and return seeking capital projects beyond that we will balance those four items.
And one of those items, obviously is deleveraging with the with the debt target so more to come.
And I think we acknowledge the fact that we're sitting on at the end of the year a significant amount of cash.
Hopefully that the works transaction completely gets.
Done at the end of the first quarter and we'll have more cash so more to come over the next six months or so.
Thanks Bill.
And our next question will come from Lucas pipes with B Riley Securities. Please go ahead.
Hey, good afternoon everybody.
So you've really accomplished a lot on the portfolio optimization side over the past years.
Congratulations on all of your success there and.
Two questions on that.
What are the priorities from from here and then to a question that.
We get fairly frequently from investors.
Is this going to impact your cost position going forward and so when I.
Go back to prior quarters, you commented how this would move lower on the on the cost curve and include.
<unk> aluminum.
And you're not you haven't been at your target range, but.
How should we try to capture this in our model and what what.
And there's some moving pieces going forward. Thank you very much.
Yeah and Lucas. Thanks, Thanks for the question and let me, let me talk a little bit about portfolio and then I can have bill fill and a little bit on the on the cost curve side as well at the and so.
We had a we really broken down into two very specific programs that was 4 million metric tons in refining and <unk>.
And Youll remember we.
Did a permanent closure of point comfort, which was $2 3 million metric tons and.
So on the way there.
On the smelting side, we had a program of one 5 million metric tons and really the first action was to approximately 280000 tonne smelter and and telco.
280000 tons of operating capacity.
And then we also are starting to take action and sense of freon, although that curtailment itself has been put on hold because of a recent legal judgment and we.
Now and negotiations with the works council because of and ongoing strike and so I think those things are pretty clear we will continue to keep everybody informed about what happens and sensitive for you on but.
But we have a tentative agreement to restart our ability to sell incense separately on here shortly.
But of course, we have to wait for that to actually be ratified.
Looking forward Lucas.
I think I would just remind you that debt each of these reviews.
A number of different potential outcomes and first and foremost hopefully that we can find a solution. So that they can become more competitive and of course that also connects with the power source and so as you can imagine we're trying to solve not only for best financial outcomes, but also for low carbon because of the emerging ESG expectations and.
And our drive to also be the lowest lowest lowest producer of lowest carbon producer in aluminum and to continue to be the lowest carbon producer and refining as well.
So we look to try to make a real difference and the cost positions of each of our plants that are higher on the cost curve.
The second piece of course could be curtailment of closure and then finally, the other option is divestiture, which as markets improve as it becomes more and more possible or likely.
The other moving piece that I would put in front of me was Portland and that was an agreement that we have made with the government and the last power outage that occurred and we had brought that back up again, we're in the midst of discussions with federal and the National government, but then also with the state of Victoria.
A lot of good discussions, we certainly seem to be making progress, but that's going to be the next one that we'll need to make a decision on and it will very much depend on on how the market looks and then of course, what the what the final deal is and what we can do with the with power prices.
So outside of that we have not named any specific locations I would say that we are very determined to continue to move on both the refining and smelting program.
And the real purpose is to make sure again of two things on.
To secure in the case of refining to secure our first quartile cost curve performance.
And then to preserve that lowest carbon producer globally and.
From an aluminum perspective, it helps us to slide down from the second into the first quartile of the cost curve.
And then we will also make us the lowest carbon producer and from that standpoint, as well and that.
It doesn't even get into the emphasis potential that we have which is the zero carbon technology that we're developing.
And starting dialysis joint venture so lots of work still ahead of US. It was a five year program. We have made deliberate steps over the course of 2020 and order to move forward on the evening with all the craziness swirling around us from the pandemic, but more to come Lucas I guess I'll turn it over to Bill and if you wanted to comment a little bit more on the on the.
The financial side.
Thank you very much Roy I think I think you summarized it well so Lucas just to be clear bauxite and maintain our first quartile cost position.
Alumina and maintain our first quarter quartile cost position and maintain our first best Sidoti <unk> position and actually get better and then on the on the aluminum side, we balance between the top of the second the bottom of the third quartile cost curve and and we're targeting for the top of the first quartile so right around that too.
<unk> percentile.
And at the same time, William will have the lowest carbon emissions portfolio out there so.
Both on cost and on carbon we're targeting some of the best positioned from the world.
Okay. That's helpful. Thanks, Thank you for that.
A detailed and it gives me.
Okay. Thanks to think about as well so I appreciate that.
A quick quick follow up question.
And I on the earlier question on China, you mentioned the strength.
Could you elaborate a little bit.
To what end markets appear to be driving the demand recovery in China in particular would be from securities.
Thank you.
Sure and it's.
No.
Oddly enough, it's pretty broad based and so it's hard to pick one and one single piece of the Chinese recovery that is outstanding.
Construction and certainly because it's such a large proportion of of <unk>.
Aluminum consumption is growing and we think around 4% for 2020.
On the other piece that really was very much infrastructure, driven was machinery and a lot of that going into infrastructure builds and that's about 15% of the total Chinese aluminum demand and that is growing just a little bit shy of 5% and we think about four 7% and 2020.
And then I would also highlight the electrical systems, and particularly ultra high voltage.
That's growing about 6% and 2020 and Thats about 13% of the total market.
Looking towards 2021.
Sort of the same story, where it's you've got a lot of strength going across a number of different areas.
Continue to see similar construction growth and packaging and doing very well as well almost 6% growth we're expecting in 2021.
Machinery continues strong and again very much connected to infrastructure growth, and then transportation and particularly automotive passenger vehicles and with a shift and the new energy vehicles, continuing on ore really had a decent year and 2020, but roaring back and strengthening up even to about 9% for 2021, So again.
When you've had debt what was a challenging year.
It's it's a really strong recovery.
That's that's very helpful detail I appreciate it very much and continued best of luck. Thank you.
Thanks Lucas.
And our next question comes from Curt Woodworth with Credit Suisse. Please go ahead.
Yes, Hey, good evening Randall.
Okay.
So I don't have that.
Kurt.
So similar question Timna just on on capital structure when you.
You look at the balance sheet today, $1 6 billion cash and then pro forma work assuming that goes through your close to two two.
And then you still have additional noncore asset sales youre looking at and the business is generating.
Pretty good free cash at spot pricing. So it is not.
And foreseeable that cash balance is going to continue to grow and the next year.
And you've kind of talked about and on the pension side just the mandatory contributions gets you where you need to go to the leverage targets I'm just curious.
At that point would you.
Evaluate a more material buyback I know you have a $150 million left or.
Taking the dividend up.
Or is it the type of thing where depending on how successful the pilot program at Ellis Cisco's that that theoretically.
To make more of the footprint carbon free and would require more capital I'm just kind of curious to think about.
What youre kind of thinking beyond the short run and that's my first question.
And so.
Uh huh.
Again.
And for potential uses of excess free cash flow and if I could just give you some color on on each one of them and I think you touched on a little bit of this.
And in the near term.
The mid sized growth projects has always referenced our refining projects, both in Australia and in Brazil.
And we put those projects on hold in 2020 due to the due to the crisis and haven't had yet taken them awful. So.
Give you an indication of the near term spending around the mid sized growth projects.
We then look at return to shareholders, we do still have $150 million of and authorization of share buyback. So that that gives us the opportunity. There we do not have a dividend at this point.
If we saw ourselves and a position where we are generating consistent free cash flow through the cycle that would certainly be something that we would.
Analyze and consider.
The repositioning of the portfolio.
And depending on what happens with some of these key assets and Roy specifically talked about sand zipper and he talked about Portland.
Depending on what happens there that will cost us some money and we've not given transparency around how much that will cost just because we don't yet know what the outcome is on those particular.
Plants and then when it comes to the deleveraging we are committed to the $2 billion to $5 billion.
And as you and I have discussed in the past day.
And I think Timna I alluded to this the pension is is an opportunity for us to deleverage further and.
The pension is a large underfunded pension for the size of our company and that's why over the course of the last four years we've consistently.
Don and everything we possibly can to try to address that pension and <unk> liability. So as I said to Timna, we'll have more clarity during the course of the year and.
And we'll be balancing those four items.
Okay that makes sense and then on on the pension and the I think the total pension and <unk> funding of $3 20.
For this year, but then you also say that that does not include.
$197 million related to what was deferred to January 4th so.
I guess the question is what is the right number for this year.
And let me clarify that there's lots and lots of numbers on pension and <unk>.
And it's important to.
To understand.
And what the what the boundaries are on pension.
We began this year.
With.
Close to $700 million of pre funding balance.
And we.
We used part of that pre funding balance for the 2020 deferral and.
You May say, how did you get to 700 million and pre funding balance the funding that we made at the end of December added SAR pre funding balance.
And then January early January came and we had to use part of that pre funding balance for.
And to cover those deferrals.
So as we look forward the range of outcomes for the company and 2020 is if we use no pre funding balance we will contribute $320 million if we.
Use all of our and not all of it if we use all applicable pre funding balance than we could be contributing as low as about $150 million of cash and 2020.
So that's the range of outcomes, if we use pre funding balance it's $150 million, that's both pension and OPEC.
If we do use no pre funding balance is $320 million, both pension and <unk> for 2020.
Yes.
Okay perfect. Thank you very much.
Thanks Kurt.
And our next question comes from Alex Hacking with Citi. Please go ahead.
Yeah.
Thanks, Roy and Bill.
And congrats on all the sustainability efforts that youre, making.
Just following up on the assets I'm not sure how much color you can give here but.
I guess, what's the timeline for the legal process.
And Cyprian.
Is this something that could drag on a while like in terms of years or are we thinking more in terms of months.
And then at Portland.
You talk about the pilot contract they are obviously prices.
Is one aspect you also alluded to the instability of the grid.
And I guess like what are you specifically what are you looking for there in terms of ensuring that you'll get the kind of stability of supply that youll need going forward. Thanks.
Sure Alex Let me, let me hit on both of those so from a sensitive from perspective, there's really a couple of different routes and so the timing is going to depend on on where we find ourselves and how those couple of routes and move forward. So the the legal process and we've filed an appeal to the.
Negative judgment that we received that could last for a while it takes time and so no no. No question that that is something that just requires requires patients.
At the same time, we're also and discussions with with with the works Council in order to and the strike.
Try and see once again, if there is the potential for the state.
State owned company to take ownership, if Spain truly wants to continue to produce aluminum and so that one could move more quickly. It's not instant it takes time in order to try and understand and determine what is what is and acceptable deal, but it's something that we obviously are considering committing.
As we as we move forward with the discussions with the works Council. So it will certainly take some time and.
And it depends on which route we go on from Portland perspective, and really that's moving towards the middle of this year when the when the current deal with the with the government and.
And flexibility really what I'm trying to refer to there is that we found ourself and.
And we have a power price issue, which is structural for the state of Victoria, but we've also had significant issues, where the power is simply not been delivered to the plant and as you can imagine you only can spend a couple of two or three hours before a plant gets into serious trouble. So the flexibility we need number one is to make sure that we.
Have a consistent power supply and then number two that our contracts are sufficiently flexible and give us exit clauses that means that we're not forced to rebuild in order to restart and.
We have.
And the right path forward to.
The right path forward. So that we can not only have a good price, but also have the flexibility in case something were to go wrong because of the instability of that particular Brit.
Okay. Thanks, So I mean Simplistically are you looking for prioritization on power when they when they run into issues with the grid.
And I look at it more on what are the clauses in case, there is another power disruption, whether it's take or pay or whether you structure. It and some other way how do you recognize the instability of the grid and then on the other side. Also is is what is the what are the benefits that you can accrue from things like interrupt ability, where where you have a shorter term interruption.
And as well so it gets into a little bit of the arcane contractual language and and trying to build that not so much.
So much prioritization because it's the powers flowing typically there is there is enough and and where we're right on the direct direct path.
Okay I got it.
And then just like its one final one a quick one you mentioned that value added products should increase about 5% year over year. I guess my question is like how does that compare to 2019 and sort of take us back to way to where you were.
Yeah.
Maybe maybe bill has a more quantifiable answer but the issue that you have is that you've got some pretty significant portfolio changes and.
So in telco was very heavily weighted over towards value added production.
And since it Brian.
And it's also heavily weighted over towards value added production as well. So as you look into 2020, and currently with sense separate and not producing or selling products and then within talcott and the longer and that in the portfolio. It's that you're changing both the numerator and denominator and so the 5% really represents what's happening across.
The portfolio and so its probably underrepresented the fact that the markets are improving.
Bill if you have something that would be a bit more quantifiable to be able to answer that.
I don't Roy I think he hit on all the key points it really depends on the.
On some of the asset shifts that we've made and the fact that.
That and south though was curtailed.
It was a lot of value add products. So no comparison and the 19 that I have.
Perfect. Thanks for the color have a good evening.
Thanks, Alex Thank you.
And our next question comes from Chris Terry with Deutsche Bank. Please go ahead.
Hi, Roy and Bill.
Doing well.
Try to be quick just two quick ones.
With the pre funding balance just to help understanding that why why wouldn't you use that I guess to be direct and then the second question you talked around the energy costs and the aluminum Division I'm. Just wondering if you could talk about caustic and and then also cub and for the smelting. Thanks, just just what you're seeing for 'twenty, one and on the cost out.
And.
And as far as the pre funding balance guys Chris.
Well you know having the pre funding balance gives us flexibility to be able to defer payments and difficult years, and so on a year like last year and where.
We are sitting in April and metal prices have plummeted alumina prices have plummeted. It gives us the ability to manage through some of those cycles and so it will depend on how strong cash flow is during the course of the year.
Two whether we maintain that pre funding balance or not.
Your next question should probably be well when will you use that pre funding balance and we will use the pre funding balance it as we get closer to a fully funded pension.
So we will use it it's just a matter of whether we use part of it this year, we actually refresh to that and pre funding balance so as of today, we're sitting with about $500 million of pre funding balance gives us a lot of flexibility to manage cash flows over the next couple of years now.
With the U S pension system.
What was your I'm sorry, what was your second and.
And second question.
Just some comments on the outlook for costs, you mentioned and energy costs, specifically for <unk> 'twenty, one, but just on caustic and carbon and the trends in those.
Carlos.
Okay, Yeah, I can definitely address that.
We are on let me address carbon first on the carbon side, we are seeing.
Some higher cash.
<unk> and coke prices and Green Coke prices.
And so we saw that in the fourth quarter.
And in relation to where they were.
Of years ago, certainly not not big but we did see some increase and calcined Coke and green Coke prices were projecting those to continue into the early part of 'twenty 'twenty one.
You've probably heard me talk about coal tar pitch and the stubbornness of hi.
Prices on coal Tar pitch, we have finally started to see coal tar pitch and the fourth quarter took a fairly decent decline from the prior quarters, but may trend up a little bit again, and the first half of next year.
And then lastly, caustic prices have come down sharply over the course of the last.
Six or eight quarters.
And we believe that at least in the near term day will stay at those lower levels. So not a lot of upward pressure from caustic prices and the first half of next year.
I should say this year I keep saying next year on my mind is still thinking about the fourth quarter, So and referenced at the first half from 2021.
Thanks. Thank you that's helpful.
And Christmas.
And our next question comes from Emily Chang with Goldman Sachs. Please go ahead.
Hi, Thanks for taking the time today I wanted to come back to slide 12 outlines on maybe cash actions here and maybe this is picking up a little bit, but I think the target that you had from lower production cost and 2020 was $100 million bad debt.
I think mi achieved number with semi trained mill can you sort of talk through maybe what the variance was between.
The target and and what was achieved and is there a path to seeing some of that being.
And being pulled through and in 'twenty and 'twenty one.
I'll take a first crack at that first of all it was an aggressive target and.
And.
And we try to set aggressive targets and if you look at each one of those targets.
And we either exceeded or.
Our came awfully close Emily to each one of those targets and in aggregate, we delivered over $900 million and cash improvement. So for you to pick out the one where we are.
And we didn't achieve it by what $27 million when in fact, we over achieved on the working capital side by tens of millions if not over $100 million is an interesting question.
This is the first year that we've been able to turn the tide on some of the cost increases that we've seen the last couple of years.
You have a new operating model in place.
And that really flattened the organization.
And allows us to manage across the organization much better and.
While we didn't hit the target I can tell you I'm really really pleased with the overall results of the operations and the.
The stability that we saw and the fact that.
We drove lower cost, even though we didn't hit the overall target and.
And then when you look at the working capital side tremendous outperformance farm and our commercial team, which is now managing working capital from end to end.
So.
That's my view Roy do you have any comments.
Let me sort of a quick technical comment and then talk a little bit more about where we're going from here.
<unk> one of the challenges we face is that we had really three plants under under significant.
Significant change and first of all and telco and as you can imagine we have big and intention to see and tacos cost dropped significantly, but then reverse that and decided that we would head towards a curtailment not really comes through and the advantages and portfolio review that will really pick up in 2021.
<unk> also was.
This very special case because of the decision that we had made to curtail that plant the ongoing legal process and so that really is is a place where it's been sort of a mixed bag and so it's hard to compare one year to the next when you've got so much happening and principally on.
And the third is work and as you can imagine work was also complicated because of all the hold and need to start.
Start that sales process reached what I think is an excellent conclusion and that in a very fair price.
And then also prepare to make actually make that separation. So those three things are sort of.
Technically speaking, they're sort of strange things and the number itself on the other side and really looking forward and I think bill they'll hit this and hit it correctly.
I think we have put a lot of effort this year and to building stability I think our new operating model is very clear about who owns the responsibility for driving productivity on our plants are all of our plant managers.
Our department managers and our entire operating teams really have their eyes focused on driving productivity forward.
And so.
Say, it's always a challenge it's always a fight to make sure that youre doing that but I am I would echo Bill's words that we're seeing.
Being real improvements and we're really seeing good good smart thoughtful and measured ways to try and drive more productivity.
Losing stability without making changes that really are not.
And don't support continuing production and going forward and it's one of the advantages also of working our way through the portfolio review is that it really drives us to a portfolio of plants that are low on the cost curve.
And whether that's in bauxite alumina and aluminum and that we can truly invest and and and move through that cycle without having to take invasive and sort of difficult questions.
And because they are on the bubble and therefore need to drive either decide between curtailment or operating.
Yes.
Yeah.
And our next question will come from Carlos de Alba with Morgan Stanley. Please go ahead.
Thank you very much and Roy and Bill and just.
On the growth projects.
And Illumina Kent.
Can you elaborate a little bit as.
And as to what you.
How are you looking at DSO, what day, either milestone and so it seems that you need to do what is the process that we're following to decide as to when you go ahead or not and what it would dose would you pull the trigger and only after you complete the portfolio restructuring in this segment or it could be simultaneous.
You'll see tuition, where you continue to work on the restructuring and but you've had with the project.
Yeah, Carlos Let me, let me take a first swing at that and and Bill can chime in as well. So so I'll answer. Your second question first there is there is no need to finish the restructuring or finished the portfolio review before we decided to move forward on those projects are not there.
And there really two separate flow paths I think we have we have the actions and hand, and we have the cash that would be necessary in order to do both of those things at the same time of course, that's dependent on on market and that really gets me to the answer for your first question, which is.
We look at those projects really in two separate directions, what does it cost in order to bring that that that new capacity online and what is the risk associated of actually hitting that target and.
Not impacting what are some pretty fantastic plants that are currently operating so we wanted to make sure that we don't create.
Negative impacts on the broader on the broader production in order to try and capture a little bit more on and so it's really making sure that they are competitive.
Technically were technically capable of doing that and that will.
Driving the cost per ton of those brownfield expansions or really the debt.
And the creep or Debottlenecking projects drive them forward as as low cost as we can the other side of it of course is market and so we are constantly looking forward how the market looks on that impacts the cash that we have available of course, but it also impacts whether we can get a return on putting that excess capital and an order.
And do those debottlenecking projects, and so that's sort of and nuts and bolts of looking at the market not just for this year, but really out in the next five to 10 or even further.
And understanding and in the case of Western Australia understanding our bauxite reserves and how we're going to use them and then also evaluating all the different different different opportunities that we have but and the end and and circle back to your second question. Yet again, there is not a constraint outside of our belief that we can drive a real return for our shareholders.
And by doing those projects given the market that we see going forward I don't know bill if you'd want to you'd want to add to that and everything.
No further comments, sorry, if you covered it well.
And then just be on.
And this is probably a relatively small but on page 13 of the deck the transformation on the EBITDA.
<unk> 66.
Two 5 million negative and the hour.
Look.
Maybe you mentioned on these but.
If you did I missed it what is the driver on that yes.
And I actually didn't mentioned that Carlos so it's good that you asked it.
We were really and again and the <unk>.
Second and third quarter of 2020, we were and cash conservation mode.
Given where alumina and aluminum prices were so we were deferring delaying as much as we could on the transformation side and I think that's some extent just to reflect that debt that is being reflected in that outlook for 2021 about a $20 million increase and cost on projects that we didn't do.
And 2016.
Alright excellent. Thank you very much good luck to you.
Thanks, Carlos Carlos.
And this concludes our question and answer session I would like to turn the conference over to Roy Harvey for any closing remarks.
Thank you Cole and I appreciate the help on today's call and and for everybody I'd like to thank you for joining us as well I am very proud of what our employees have accomplished in 2020.
It simply hasnt been an extraordinary amount of work and what really unprecedented.
S identity and a bit uncertain times.
To put it simply we're trying to do what we said that we would do and that is really.
Really working towards a stronger alcoa and really from moving forward with the strategy that we presented over these last quarters.
Here at Alcoa, we are consistently driving for improvement we are.
Our focused on making progress and looking towards the future. So I look forward to updating you again next quarter and until then and I hope that you stay safe healthy and have a good evening. Thank you.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].
And then.
[music].
Greg.
And then.
[music].
Okay.
[music].
And then.
[music].