Q1 2022 Alcoa Corp Earnings Call
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Good afternoon, and welcome to the Alcoa Corporation first quarter 2022 earnings presentation and conference call.
All participants will be in a listen only mode.
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Please note. This event is being recorded I would now.
I'd like to turn 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, President and Chief Executive Officer, and William Oplinger, Executive Vice President and Chief Financial Officer.
We will 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.
<unk> 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 and.
In addition, we have included some non-GAAP financial measures in this presentation.
Reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation.
Any reference in 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 welcome to everyone, who is joining our first quarter earnings call.
As you saw in today's press release, we had record quarterly results for profitability across three key measures net income adjusted net income and adjusted EBITDA, excluding special items.
Bill will give more detail, but I'm pleased to report that it was a very solid quarter. We had net income of $469 million. Adjusted net income was $577 million. This is a 21% sequential improvement and more than three times, what we posted in the first.
Order of last year adjusted.
Adjusted EBITDA, excluding special items was $1.07 billion.
Is 20% higher than the prior quarter and more than double the same period in 2021.
And with a focus on our capital allocation framework. We have also repurchased 1 million shares of common stock in the quarter.
Looking back at our more than five year history as a Standalone company, it's great to see the effort of our Alcoa teams and the strengthening market mirrored in these record setting results.
In this period of global volatility, we remain strong and steady guided by our values and focusing on our strategic priorities, we're continuing to eliminate unnecessary complexity and focusing on being low cost driving returns with strong margins and operating sustainably across our global operations.
We also remain focused on maintaining a safe workplace for our employees contractors and anyone who visits an alcoa location.
In the quarter, we had no serious injuries and we remain resolute in the use of proactive tools to prevent incidents.
When accidents do occur we are investigating the root cause to continuously improve our safety systems and outcomes.
Again this quarter, we continued to make important progress on several fronts in.
In January we completed the curtailment of the <unk> smelter in Spain. According to the terms of an agreement reached previously with the workforce.
Even with improved metal prices, the smelter continued to lose money due to exorbitant energy prices.
Agreements to idle the pot lines, while continuing to operate the cast house will allow us to control our losses during a two year curtailment period, we'll use that time to find an energy solution and deliver on improvements to the plant for its future.
Meanwhile, we are continuing in our work to restart aluminum smelting capacity in Brazil and Australia.
This additional capacity once online we will continue to position us well to capture the benefit of stronger markets.
In our bauxite business in Brazil, we've signed a deal to divest our full interest in many of our songs he'll do north day or MRI in the transaction is expected to close in the second quarter of this year.
Following this divestiture, we believe we will remain well positioned in the bauxite business with high quality reserves across our global system and particularly in our <unk> mine in Brazil, the transaction avoids potential capital cost in the future and allows us to focus future bauxite investments into two Brazilian mines, we own it.
Operator.
Next we recorded $77 million in restructuring charges in the first quarter related to the 2019 divestiture of two Spanish smelters Rls and rocket one year, we offered to resolve various legal claims related to the sale of those assets and former employees unanimously agreed this week to occur.
Kept our proposal.
Upon satisfaction of all agreed upon conditions. This settlement is expected to avoid the potential for costly and lengthy litigation. We are continuing to pursue legal actions against the entity that purchased these assets and failed to meet its promises to our former employees.
Finally, the fundamentals of the aluminum business remained strong and the work we've done over these past several years has enabled us to operate efficiently and capture benefits from positive markets in the quarter. We saw the average realized price for aluminum increased sequentially, 14% to more than 3000.
$800 per metric ton.
That's a good pivot point for bill to detail the full results, including the positive impact that these strong metal prices had on our adjusted EBITDA Bill. Please go ahead.
Thanks Roy.
The first quarter of 2022 marked Alcoa Corporation's highest net income and adjusted net income in its history as well as the first time recording over $1 billion of adjusted EBITDA, Excluding special items.
Revenues of $3 3 billion were up $423 million or 15% year over year, but slightly lower sequentially on logistics related shipment delays.
All earnings measures increased both year over year and sequentially.
GAAP net income of $469 million was $294 million higher than the prior year quarters $175 million and was $861 million higher sequentially.
Special items in the quarter included $77 million related to a settlement offer made to the workhorse of the divested <unk> prunier smelters in Spain, which would be paid upon their collective acceptance and $58 million for asset impairment relating to the company's planned sale of its interest in the MRM bauxite mine.
Adjusted net income of $577 million was up $427 million year over year, and was up $102 million or 21% sequentially.
Adjusted EBITDA of $1 7 billion improved $551 million year over year and was $176 million better sequentially.
Let's look at the drivers for adjusted EBITDA.
In the first quarter the majority of the benefit of higher realized aluminum prices up $479 per ton sequentially translated into higher adjusted EBITDA.
Other positive contributors for stronger product premiums and customer mix in both the alumina and aluminum segments.
As well as the lower costs and other related to inter segment profit eliminations of approximately $64 million in improvements related to the sand separated smelter curtailment contributing $62 million.
As expected those improvements were partially offset by higher raw material costs in both the alumina and aluminum segment as well as higher energy cost at refineries, primarily in Spain, and lower hydropower sales prices in Brazil.
Volume was unfavorable in all three segments, partly because of fewer days in the quarter, but also due to lower production in Australia and shipment delays in Canada due to railcar availability.
Despite the challenges production costs were up very little sequentially and demonstrated overall strong cost focus.
For more perspective on our strong margins, let's look at the relationship of realized sales prices compared to cash costs in the alumina and aluminum segments.
These charts show a simplified view of our cash cost structure for the alumina and aluminum segments over the last year compared to third party realized prices the <unk>.
Focus is on raw materials and energy costs the areas, where we received the most questions from our investors.
Looking at Illumina over time, you see that both the energy and raw material costs have increased somewhat while the remainder of the costs, including bauxite have been mostly flat the relatively muted rise at these costs reflects the benefits of our integrated system and co located mines and refineries low caustic soda use.
Global procurement strategies and long term energy contracts.
Our main spot energy exposure is at our San <unk> refinery in Spain.
Reflecting broader market conditions and industry cost pressures the realized alumina price has increased substantially more than offsetting our cost increases and spot index prices are currently similar to the <unk> average.
And even more pronounced effect is seen in aluminum.
Alumina costs in the aluminum segment are up and while energy and other raw materials are also higher their impact is outpaced by the significant increase in the realized aluminum price again, we see the benefits of our integrated system global procurement capabilities and minimal exposure to spot energy prices approximately 60.
Percent of our smelter energy costs are linked to aluminum prices roughly 30% as fixed price are self generated power and our spot exposure is less than 10% and eliminate to a portion of our Norway smelter load.
And remember too that given our long position in alumina higher alumina prices may impact aluminum segment earnings but are a net positive for the company.
The key message here is that most elements of our cost structure has seen only modest increases compared to our revenues.
Let's move to other financial metrics.
When looking at the quarter, the 50% return on equity was our strongest quarter, yet and reflects the excellent profitability levels discussed earlier.
Our cash balance declined however, increasing net debt.
Major cash uses for working capital income taxes, and dividends and capital return.
Working capital days expanded to 49 days and was our largest use of cash in the quarter at $680 million.
Cash income taxes were $220 million, including $162 million related to the prior year.
Net dividends to Noncontrolling interest and capital returns to stockholders totaled $209 million. So let's take a deeper look at what happened with working capital and what we expect in the future.
There were multiple factors increasing working capital this quarter. The 20 days change consisted of 14 more days of inventory five more days of receivables and one day less of payables and.
In inventory higher raw material prices, primarily for caustic and carbon products accounted for seven days.
And two days of the increase related to higher values of finished goods.
Logistics challenges added two days of inventory with Miss shipments in alumina in both Australia, and Brazil and limited availability of outbound transportation for finished goods primarily in North America.
Finally, we purchased metal in Brazil to serve annual customer contracts that will be met with al you more supply after the restart and that added two more days of inventory.
Receivables are up mostly due to higher sales prices, especially late in the quarter and account for five days.
To the extent prices remain elevated we will maintain higher levels of working capital. We do anticipate some reduction through the year, assuming shipping schedules improve the.
The <unk> restart progresses as expected and we realized lower inventories on hand.
Our full year shipments outlook is only one change we expect our 2022 bauxite shipments to be down approximately 2 million tons to a range of 46 to 47 million tonnes. The result of our decision to not sell to Russian customers as well as Russia, Ukraine related changes in the Atlantic.
Site market.
The 2022 shipments outlook for alumina remains 14, two to $14 4 million tonnes for aluminum we have paused the <unk> restart process for about one month due to unavailable city of suitable Matt that material, but we still expect the restart to be complete by year end and the aluminum shipments outlook is unchanged.
All other full year outlook estimates unchanged.
For the second quarter based on today's prices, we expect both alumina and aluminum realized third party prices to be higher than the first quarter with part of that benefit offset by approximately $115 million of higher energy and raw material costs.
Higher shipments are expected to more than offset additional maintenance costs and other factors.
Looking at the segments, excluding index sales prices or currency impacts for the second quarter.
In bauxite, we expect EBITDA to be approximately $10 million as one time benefits in the first quarter do not recur and we slow production rates as routine and response to ceasing supply to Russian businesses.
In alumina, we expect approximately $85 million and higher energy and raw material costs with two thirds being related to San <unk> refinery energy costs. We also expect higher shipments to fully offset higher maintenance and other costs.
In the aluminum segment, we expect alumina costs to increase approximately $35 million and expect improved shipment volumes to provide a $50 million benefit more than offsetting $30 million of high raw materials prices and energy impacts as well as maintenance costs of $10 million, Let me turn it back over to.
Right.
Thanks Bill.
Next I'd like to give an overview of what we're seeing in our markets last year, we saw a general price recovery after the impacts from the 2020 pandemic now.
Now today's markets are experiencing increased volatility most notably from Russia's invasion of Ukraine, but prices remain at higher levels than both the 2020 and 2021 averages.
In the alumina market demand is reduced due to global aluminum smelter cuts we saw some tightness in the market last month, when our competitors suspended shipments from the nickel lineup refinery in Ukraine. Since then we have seen supply outside of China re emerge Australia's decision to ban exports to Russia disrupted the market with.
Separation between suppliers willing to sell to Russia, and those who are not.
This has pressured western Australian aluminum pricing and it has prompted some atypical Chinese exports to Russia.
Turning now to metal the aluminum segment continues to play a large and positive role in our overall results on the demand side, we expect annual global demand for primary aluminum to increase this year approximately 2% relative to 2021.
Growth remains positive despite a somewhat slower pace due to interruptions to supply chain, particularly in automotive and lower growth expectations in Russia and eastern Europe .
With slightly lower but positive demand growth aluminum pricing remains supported globally by supply disruptions low inventory levels and high transportation costs high energy prices in Europe are driving some smelter cuts in this region in China. The Central government also continues to limit output growth in primary <unk>.
Due to the government's capacity permitting system.
From Alcoa's commercial perspective, much of our value add aluminum products are sold in annual contracts and negotiations with customers resulted in favorable pricing quarter on quarter, which we recognized in Q1 regional premiums also remained high in markets, where we produce reflecting underlying physical tightness.
And logistics costs.
Additionally, we are seeing year on year growth for our line of sustainable products and our sustain our family. We expect three fold increases this year and the total volume of sales for Ecolab, which is our low carbon aluminum brand and eco Dura, which is our aluminum product made with at least 50% recycled content.
Notwithstanding the current volatility in the markets. We continue to expect positive fundamentals in alumina and aluminum due to favorable structural changes, including a drive towards more sustainable solutions.
These shifts should provide advantages for our low carbon operator like Alcoa.
As I said at the top of this call Alcoa is strong and steady and outcome of the work that we've been doing over these last several years to build an even stronger foundation, including a healthy balance sheet. This work has been vital to ensure success through all market cycles importantly, we've worked to ensure.
That we have a lean and efficient operating structure, our our Collins as usual have been working with diligence as an example, the teamwork and our procurement group has been vital in helping us manage our raw material costs and work through various logistics challenges, especially important in this current.
Environment.
In our operations. We're also working to use our raw materials very efficiently our global refineries as an example are well positioned in this context. They use on average less caustic soda then most of our competitors. This is important as caustic soda is a key ingredient in the refining process, we use less caustic do.
To a variety of factors, primarily the high quality bauxite from our integrated mines and the fact that we keep our refineries fine tuned for our raw materials.
Regardless of the situation, we have the processes and procedures to react efficiently and when something new arises we quickly adjust while maintaining overall stability.
A good example of this is when we decided last month to six buying raw materials from or selling products to Russian businesses.
We do not have operations in Russia, a multi disciplined team helped US act decisively and we've worked to mitigate the financial impact.
As I explained to our employees in a letter following our decision on Russian businesses, we acted in alignment with our values and we continue to hope for an end to this crisis.
Now, let me discuss some of the items on the right hand side of this slide.
As we continue to manage through what has been turbulent times first from a pandemic and now our needs from the situation in Ukraine. It's important to emphasize that we remain well positioned for the future. We closed 2021, and our best financial shape ever and we remain lean and cost focused we have.
Low debt well funded pension obligations and our cash balance stood at $1 6 billion at the ended the first quarter.
We have top tier assets that are strategically located to supply the world with the materials it needs now, including developing breakthrough technologies for Tomorrow. We are building an operating portfolio that is cost efficient restarting capacity, where it makes economic sense to do so such as <unk> and some modest capacity.
At Portland aluminum in Australia.
We have a clear vision to reinvent the aluminum industry for a sustainable future supported by our technology roadmap that has the potential to decarbonize production processes differentiator.
Create value for our stockholders.
Our work on the <unk> joint venture continues to progress last month, we were excited to see Apple announced that they will use metal that is being produced at R&D scale for the iPhone SC.
It's very exciting to see a technology that we first developed at the Alcoa Technical center outside of Pittsburgh come to fruition via the <unk> technology. This is truly revolutionary producing metal without any direct greenhouse gases and instead producing oxygen as a byproduct.
Once ellis's technology licenses are available from 2020 for the first full scale commercial application of this breakthrough process could be running within two years.
In addition to reinventing aluminum smelting. We're also working to unlock a new recycling technology that we'll use low value scrap removing impurities through a proprietary process that will produce high purity aluminum.
The output from this process will surpass the quality of what is produced out of conventional smelter.
In refining we were proud to announce last week that both the national and regional governments in Australia have agreed to provide funding for development of electric calcination process that would use renewable power to fuel the last stage of alumina refining when combined with another technology known as mechanical vapor Recompression, which.
<unk> also has funding in Australia, there is the potential to Decarbonize alumina refining.
These two technologies are built into what we're calling a refinery of the future initiative, which has the goal to lower the cost of constructing a refinery eliminate fossil fuels reduce freshwater usage and minimized and eventually eliminate deposits of new bauxite residue.
Finally, summing it all up I want to leave you with a few key points from the result, we issued today.
Despite volatile markets. We delivered we continued to execute on our strategies to deliver solid results, including providing a 50% return on equity in the quarter.
Second our strategies are working we have strengthened our company and our operating portfolio, including restarting capacity when it makes economic sense and when necessary executing on curtailments or divestitures. According to our portfolio review process.
Third we are rewarding our investors in the first quarter, we paid our second consecutive cash dividend also we executed another tranche of our share repurchase authorization in accordance with our capital allocation framework. These actions again reflect our strength.
And our positive view of the future.
And finally, we are excited about our future.
Looking back to our history. It is clear that we have delivered on our purpose to turn raw potential into real progress and as we look toward the future. We will continue to drive value and to redefine what aluminum consumers should expect when it comes to sustainable production and products across the aluminum value chain.
Now Bill and I are ready for your questions.
Operator, Please go ahead.
We will now begin the question and answer session to ask a question you May Press Star then one on your phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
When called upon please limit yourself.
Two questions.
And our first question will come from Alex hacking with Citi. Please go ahead.
Yeah, Thanks, Ryan Bell.
So just on the first question on the cost side.
Obviously.
You've done a pretty good job, so far keeping costs under control.
That said I think if we look back historically.
Caustic soda pet Coke all that stuff.
As prices increase it tends to be on several quarters lag.
Should we be expecting cost pressure to be building up through the year or you're comfortable with the position. Thanks.
Hi, Alex its Phil I'll take that one.
So we've got it in the second quarter to some higher raw materials and energy costs. The raw materials are about $45 million higher than the second quarter energy costs would be about $70 million higher with with the <unk>.
The vast majority of that coming out of Spain, and the refinery in Spain.
If I can take just a moment to step back and.
Make sure everyone understands the guidance that we've provided.
In the prepared remarks.
We're guiding to a strong second quarter and the reason why I say that is a couple of factors first.
At today's prices on a lagged basis today, the second quarter prices are actually higher than the first quarter prices for both alumina and aluminum and so if you look at the guidance that we provided we say that benefit will more than offset the higher raw materials and energy costs that I.
Just outlined Alex.
The second piece of the guidance that.
Signals a strong second quarter.
That we are anticipating better shipment volume significantly better shipment volume in the second quarter.
And that will more than offset some higher maintenance.
Costs in the second quarter and the non recurrence of a couple of small onetime items in the first quarter. So overall, it's important for you to understand that while we are seeing some higher raw material and energy costs, we're guiding to a strong second quarter.
Okay. Thanks, Bill and then just to follow up with I guess kind of a general question.
Regarding Russia Ukraine.
What have been the impacts on Alcoa from that and I guess, how are you seeing that you've stopped.
The small amount of transactions with Russia that you have metals prices have moved around.
But have you been getting a lot of inbounds from customers looking for additional offtake.
Any concerns of supply chains, like I guess whats changed directly for Alcoa.
So Alex let me, let me address the financial side, and then I'm going to turn it over to Roy for more broad answer.
The impact of our stopping shipments to Russia was minimal in the first quarter, we're projecting for the full year, it's about a $30 million impact.
And a piece of that is obviously built into the guidance that I. Just gave you for the second quarter, but overall not a massive impact from stopping shipments into India, Russia, ROI do you want to address from a broader perspective.
And I think the situation in Ukraine sort of exacerbates, what was already a complicated supply chain.
I think from an Alcoa perspective.
The fact is is that we have a team that's dedicated to working on supply changed working on procuring materials across the world and to really leveraging our ability to buy whether it's cost or coke or all of these different materials and different parts of the world. So that we can have the best cost structure that we possibly can.
Prior to prior to the war in Ukraine, I think we were seeing that it was it already took a lot of creativity to make sure we were getting what we needed when we needed it.
Think the the.
What we're seeing now is that it's becoming even more complex now that complexity doesn't mean that we can't find the materials that we need and I would argue that we have a very talented team that is getting very good at managing these issues and so when we made our decision.
Neither biopharm, where sell to Russia it.
It took some effort to make sure that we could that the few materials that we do buy from Russia, we were able to replace which we did really without any kind of kind of issue.
But it also created drag on financials that bill talked about particularly because of bauxite sales that we were making into Russia and so those things I think the on the cost side, we're doing a very good job of making sure that it doesn't impact us on.
On the supply chain, just because of the uncertainty and the volatility we continue to need to manage this.
And again I think it's par for the course given the.
Some of the continued COVID-19 disruptions, we're seeing inside of China.
As well as some of the other macroeconomic issues macroeconomic issues that we're seeing.
We need to keep our team.
I need to go and ready to react as we see different things playing out.
I think our job is to make sure that we have the materials that we needed to drive a very stable stable set of operations and keep our people focused on safety keep our people focused on operations and maintenance et cetera.
Our our logistics chain team our procurement team really has been able to keep us keep us focused on the right things.
Okay.
Thanks, and good luck navigating everything.
Yes, Thanks, Alex.
Our next question will come from David Gagliano with BMO capital markets. Please go ahead.
Hi, Thanks for taking my questions. My first question I wanted to ask about the pace of the buybacks. So you repurchased 1 million shares I think that's about one half of 1% of the total shares outstanding in the first quarter, obviously, you've got a large cash balance still plenty of free cash flow generation potential once those working capital headwinds go away.
So should we expect the pace of these buybacks to accelerate in the coming quarters. That's my first question.
So.
Thanks for the question David to be clear, we as we said we bought back approximately $75 million worth of stock that was one 4 million shares at an average price of around $72. A share. We also paid the dividend in the quarter.
Given the capital the working capital increase that we saw in the quarter and the fact that cash balance to decline a little bit in the first quarter, we think that that $75 million was the right level of buybacks in the first quarter and as you know Dave.
Future capital returns are expected to be based on a variety of factors, including they expect to current and future market. So.
More to more to come in the future as we as we progress during the course of the year.
Okay, and just to clarify so understood that there's a huge working capital draw and the point I think you were making those prepared remarks are those are margins et cetera.
That large working capital draw did that.
Impact the magnitude of buybacks.
In your view of the magnitude of the buybacks in the first quarter.
Yes, so so.
We're being conservative on the buybacks in the first quarter as we saw the working capital build during the first quarter.
Just to be clear the working capital build was not a surprise to us we typically see a working capital build in the first quarter. In this particular case. It was accentuated by the fact that pricing is as high as it was so as we build working capital in the first quarter, we were tempering the returns to shareholders.
In the first quarter.
Okay I understood and then just my second question on the bauxite business.
I still got assets once or twice before as the guide for <unk> is $10 $38 million was the EBITDA in the first quarter, obviously, the press release called out.
One timer and also the elimination of sales to Russia for.
For the expected decline is that $10 million now the right new kind of run rate for quarterly bauxite EBITDA moving forward.
Yeah, you know, we don't provide a kind of a run rate for the.
The segment earnings let me tell you what was going on there in the first quarter and then whats expected to go on in the second quarter.
In the first quarter, we have a true up for some of the royalties of bauxite that we sell to a third party and so that was a little bit higher than it normally is and that occurred in the first quarter and thats one when I referred to a one time item that was the real one time item in the first quarter and I believe that was around $7 million.
And the bauxite business secondly, we're projecting that the MRM sale closes in the second quarter. So we won't have the MRM.
Earnings pickup.
And then thirdly with the decision to not sell to Russia.
We're seeing the decline in the bauxite business because of the lack of sales there and really because of the.
Long market of bauxite in the Atlantic region, and so that is negatively impacting the earnings out of Brazil.
Alright thats helpful. Thanks.
Thanks, Dave Thank you Dave.
Our next question will come from Michael Dudas with vertical research. Please go ahead.
Good evening, Jim Bill ROI.
Hey, Michael.
So.
Okay.
It will look a little bit forward in on this question on Russia.
How do you think you've done it sounds like you are getting to a more I'll say comfortable right word, but youre getting.
<unk> working through the issues because of the disruptions over the last six weeks from from the invasion.
How do you think the industry is viewing it from.
Premium scarcity standpoint, how does it look relative to.
Other procurement opportunities and.
Buyers.
Keep away from from Russian material, and then if things get settled we hope sooner rather than later is there going to be a period of time for the market to bet.
Get a sense of how it's going to fall through or is there some structural issues that could impact the market because of <unk>.
Issues in Russia as well.
Pressed on Ukraine.
Yeah, Michael I'll take that one so.
As you can imagine a situation like this there is always some unpredictability about when when the situation comes to an end and even if it were to end whether whether some of the some of the sanctions and other things would actually be lifted so I'll set that to the side and let other people predict those things.
From an aluminum standpoint.
Really we look at two very important things.
Because of the important presence of aluminum smelting inside of Russia or the question is whether they can get sufficient alumina to continue to operate and we really don't have a lot of visibility about whether they're maintaining their rates of operation. We do know that there are very significant logistical challenges of being able to get.
<unk> material from China, alumina from China, or alumina from elsewhere and get it into Russia, certainly on a on a cost competitive basis.
The other side is whether the metal.
That metal is they've been produced inside of Russia is able to actually leave Russia, and who would buy it.
To answer you one very specific question I think I think most players in the market are shying away from from purchasing any Russian material, even Russian material that had been that had been produced before it might be stored in <unk> warehouses et cetera, and so I think there is a very real expectation in this market that that material is not going to come to not going to come into the western.
In World markets.
However, it becomes more complicated when you when you asked the question whether some of that material can go into China.
<unk>.
How efficient and smart and innovative China can be about getting additional alumina tons up into Russia.
Which I would never I would never question the ingenuity of the Chinese to be able to find solutions for some of those problems and so I think the market is still is still trying to digest what the immediate impacts are and I think you saw that very specifically inside of the alumina aluminum market, where you saw.
You saw a nickel I have come down and almost immediately you saw a spike in prices because everybody was worried that there would not be sufficient alumina in the market.
And then with the Australian essentially the Australian band from selling into Russia. All of a sudden you Steve see prices start to come back down again, and I think that's to me indicative.
The uncertainty and the volatility that sits in the market today, because no one knows exactly what's going to happen.
I think the to me when I look at what's happening in Russia.
Of course, the terrible situation going on in Ukraine.
It sort of helps to drive forward the underlying fundamentals for the aluminum market.
The importance of de carbonization.
Importance in the for the continued demand growth, we see even in these uncertain and volatile times.
And then additionally, the fact that there simply isn't a lot of new capacity, that's coming to market, whether it's an aluminum or alumina theres just not a lot of projects on the drawing board volume continued to see that demand growth and so I think to me sort of looking at the immediate situations say, yes, there's going to be volatility, but then you step back and you say.
But that volatility is not impacting what is a very strong story.
For aluminum in the medium to long term.
Boy that was very helpful. Thank you very much.
Thanks, Mike.
Our next question will come from Chris <unk> with Jefferies. Please go ahead.
Guys. Thanks for taking my questions.
I have a question about the working capital build and another question about margins or costs. So.
First on the working capital, but I think Bill you said that the two big factors, there, obviously prices going up a lot in the first quarter and there was a seasonal impact as well what you expected.
So the first question is that if we assume.
Prices across the board are flat going forward.
How much of that working capital build that we saw in the first quarter would reverse over the course of the year is that all I mean is it.
If it's just price driven and seasonally driven I would assume that it would all reverse is that a fair conclusion.
It will a large portion of that will reverse over the year Chris.
It really will depend on what what.
Pricing does both on finished goods products and on raw materials. So it's really difficult to give you a number of how much that will come down over time, but just to put it in perspective.
We are up around 20 days 14 days of that inventory five days Thats receivables and one day that is lower payables the.
Inventory levels were up nine days and.
I'm sorry out of the inventory of the 14 days nine of that is due to price two of its due to the <unk> restart and twos related to logistics issues. So it will depend on how the logistics issues get worked through but there is a piece of that will that will naturally come down as you have seen every year over the.
Last five years that were an independent company that we typically bring working capital down during the course of the year got it. So there's no reason to believe that working capital is structurally higher do there's something going on in Russia or anywhere else in the world.
Not at this point, it's structurally higher because prices are higher and if prices stay high.
That's a that's a good thing for US and then just sorry. The second question is related to kind of the cost that they flow through the income statement with a lag.
If we assume again prices are flat over the course of the year, we expect margins to contract in the back half of the year with some of the cost inflation that we're kind of starting to see now progressed through the second half of the year that will impact margins.
So yes, we are.
As you know you can take a look in the backup of the deck and it walks you through the cost timing for each of the major cost drivers the big one being caustic soda. So caustic that we're buying today will typically flow through.
Towards the end of the third quarter at this point so.
All of those lags are there I think the critical thing that I am hoping people understand is that given where we sit today with alumina and aluminum pricing, it's actually stronger than what we've seen on average again lagged it's actually stronger than what we saw in the first quarter. So even though we are seeing.
Higher raw materials and energy prices in the second quarter.
There should be margin expansion, assuming that pricing stays where it's at today.
That's very helpful. Thank you very much. Thank you thanks, Chris.
Our next question will come from loss in winter with Banc of America Securities. Please go ahead.
Thank you operator, good evening right Bill very nice to hear from you both and thank you for today's update maybe.
Just asking on.
Cash costs and <unk>.
Your goal to become first quartile.
What still remains to be done to achieve first quartile cash cost by 2024 and.
Does it involve any closures and then how does the energy cost linkage to LMR Ali <unk>.
Factor in there.
Yes, So let me let me start on that one and bill might want to chime in as well.
I think.
What we're working on are a number of different things as always there's always the ongoing improvements in creep projects, which is sort of the bread and butter of making sure that our plants are competitive stay competitive and can be even more competitive in the future and we tend to be pretty good at creeping those assets and.
And so there are and there are sort of what we call return seeking capital projects that we do put in place in order to lower our total capital or our total operating costs. So thats I think thats easy to understand.
We also have our ongoing ongoing operations review and that becomes a site by site focus on how can we get step change improvements in those facilities that are on the upper part of the cost curve.
So a good example of that is is the <unk> smelter that was just recently curtailed had an unsustainable spot based power price when we bring that back on again, our expectation is that we can get a set of power contracts, that's able to really significantly slide that down the cost curve.
That then helps to bring the overall energy energy costs down.
And aluminum is another great example of a place where we're bringing on some additional parts doing some creep.
That is.
That's an energy contract that we're going to need to examine as we get towards the end of that period that we have left and then can look for both renewable energy, but also at the same time more affordable energy and so those are just meant to illustrate the types of things that we're trying to do in order to drive down to the first quartile and it's a mix of sort of blocking and tackling and then to these pip.
Points, where you can actually change the underlying structure of energy costs et cetera.
When it comes to the when it comes to the linkage to to <unk> thats embedded in some of those contracts.
In the end that.
That is actually a pretty good problem to have it might increase our costs, but it means that we're getting a significantly improved margin because the aluminum price that we're getting means that we're going to have better margins. So I become a little bit less worried about getting the Q1. If the problem is that <unk> is so high that my my element linked contracts are also high.
<unk>.
But in the end I think.
There is that.
There is a lot of a lot of plants in the world on sitting on that cost curve that are in similar type of situation, where they have linkages over to <unk> as well.
So all that to say it gets a little bit complicated, but we're driving for margin and we're driving to have a very low cost portfolio that has various that has the highest margins that we possibly can.
The only thing I would add to that ROI is about 60% of our energy has an element and linkage to it.
And just to be clear as as the <unk> goes up that doesn't mean, we pass all of that benefit onto the power suppliers, we only pass a portion of that benefit onto the power suppliers. So as Roy said, while it may be may make that first quartile challenge a little bit more difficult that will be a great problem to have.
If that were to come through.
Okay.
Okay understood.
One perspective.
And then maybe could you provide a little bit more of an update on dialysis just at this point, how is performance versus your expectations and sort.
Over the next milestones over the next.
Year in nine months.
Yes, absolutely Lawson so.
We're we're careful to continue to talk about the fact that this is in active research and development probably more development now than research.
And so it's a project that we continue to and continue to work on.
That said I think you should read into the fact that we continue to say that we're not going to not going to do any brownfields or greenfields of conventional technology, because we have a very clear and solid belief that <unk> will succeed.
It will not only succeed but it'll be the technology for the future.
We're in the midst of scaling it up and so right now we have our sort of next size of industrial part, which is up 450 kilo impairs is under construction right now and Thats really that sort of next really big step that says hey, not only does this technology work, but this technology works at a very attractive operating cost point.
And can work at the scale that we need in order to then start to engineer the large facility.
So the.
Set of programs ongoing are on track.
They are moving in the direction that we want them to move in we have a lot of focus on making them successful, but we also have a lot of faith in the technology, which is why we've made the statements that we already made before.
Thanks very much.
Thank you Lawson.
Our next question will come from Lucas pipes with B Riley Securities. Please go ahead.
Thank you very much and good afternoon, everyone.
Wanted to.
Touch on the demand side, and obviously prices are.
Very strong are you seeing signs of demand destruction. If so what end markets are you most concerned about thank you very much.
Yeah. So let me let me get started on that one.
And I would break it into a few different pieces, but then we can just make sure that I cover all of your concerns when we get to the end.
Start off we talked a little bit about supply chain disruptions they existed prior to the <unk>.
The warrant in Ukraine, but but that war has exacerbated them.
I think thats sort of made this chip shortage in automotive be a little bit more a little bit more difficult.
It's also it's also creating some knock on impacts that are happening around whether whether the economy continues to grow as it did and we just saw the IMF bring down their expectations for economic growth just over the course of these last hours or this last day and so I think that that tends to start to erode a little bit some of the demand that we see.
Aluminum is so tied to the general economic cycle.
And I would say that automotive is a place where we're really seeing some of those supply chain disruptions happened and where you have very very clear ties in Europe and elsewhere around the world.
You are also seeing an inflationary market.
So as we see some deflation happen as we see how the the U S. Fed for example react to that situation. It tends to put a bit of a break on on what we're seeing in demand as well.
Again, it's very much more at the very edges and so when we look at our change in expectations for demand from last quarter to this quarter, we were saying, 2% to 3% last quarter. We're now saying aluminum is going to grow by about 2%.
And so that tells you yes, you are starting to see some impacts.
However, its not deep and we continue to see an aluminum market that's growing.
I would caveat that and just make a very quick reminder, that.
Aluminum continues to grow and we're also seeing significant supply disruptions. When we look at the favorability of aluminum as a commodity and it gets down to the financials. The fact as youre, having trouble operating smelters inside of Europe , because of the price of energy and we've seen a pretty significant impact there.
We're uncertain how much metal is actually being produced in Russia, because whether they can actually get the alumina that they need or can actually export that metal and so from an aluminum perspective, you are seeing a little bit of erosion inside of demand, but you are actually seeing more erosion inside of the supply the ability to supply and produce aluminum at the same time for Alcoa spin.
Typically and this will round out my my answer and then we can sort of move onto the next one or two or you can ask asking the clarifying questions.
Alcoa, our order book is very strong and so when we look forward, we have not seen impacts outside of sort of one off items that can be very quickly replaced we simply haven't seen our order book suffer because of the current environment that we find so we're not seeing demand impacts on on on our orders and I would just remind you that we.
We're seeing certainly growth and in our regional premiums were seeing growth in our product premiums significant growth in our product premiums, which you saw come out in our Q1 results.
And we are maxed out we simply don't have more capacity because the customers are asking for everything that we can that we can put out there.
So I think there is a there is the potential for disturbance in demand, but it's certainly not being seen in the markets, where we have our significant sales, which is really North America and Europe .
That's very helpful. I really appreciate it.
Love to ask more questions, but I do want to touch on the R&D programs as well.
Okay.
The prior quarter, you showed kind of conditional spend on on various programs in 2023 2024.
Can you remind us when you will make a final decision on that spend and then specifically to Alex's.
What's the monetization path.
Where that technology. Thank you very much.
Yeah.
So look it's let me address the spend.
We had.
I guess, a number of different R&D projects that back in November we listed out the.
Projected spend for 'twenty three for 'twenty, two 'twenty three 'twenty four we've not deviate deviated off of that as public guidance at this point.
Each one of those individual projects as stage gates, along the way and we will make a decision around the spend based on whether the business case solved at each one of those stage gates as Roy said <unk> is moving along well.
We're constructing parts in AMA and Quebec, we expect those parts to be operational in 2023, we're continuing to make progress on Australia.
Australia is very early stage development and I would classify that more as research than actual actual development.
High purity Illumina will have a stage gate in the middle part of this year.
We will be evaluating whether we move forward to building a pilot plant for high purity alumina and we'll be reevaluating that that business case during the middle part of this year.
And then the longer term refinery of the future projects really are in the development stage you probably saw some news about getting funding from the Australian government's for electric counts calcination. That's a huge step forward that we're getting the support both from the federal and the local governments in Australia.
So pretty pleased with with where we are on the on the breakthrough technologies.
And Lucas on the monetization pathway for <unk> I think are all answer that was with very simple statement that we're keeping our options open.
We will have the ability to license that if we see that that's a lucrative venture or will also have the ability to keep that between the partners and grow grow our facilities. If we see that there is a green premium that it makes more sense for us to keep that in house in house for the two partners Alcoa and Rio Tinto in the short term and so that's that's a decision that.
We don't need to make yet and that we can allow the markets to develop for what is truly green aluminum and what will be the greenest aluminum.
When combined with when combined with low carbon alumina as well and so it's.
I step back and I look at the pipeline that we have in each one of those like Bill said very well is in a very different stage.
But we're coming at it looking at how we can create not only de carbonization solutions that our markets need but how we can also make successful financially successful good strong businesses for Alcoa long into the future.
Really appreciate it and.
Continued best of luck. Thank you. Thanks.
Thanks Lee.
Yeah.
Our next question will come from Carlos de Alba with Morgan Stanley . Please go ahead.
Yes, Thank you very much Hello, Ryan Bill.
Our first question.
First question has to do with.
With a return to cash to shareholders clearly.
Working capital was an issue this quarter are respected and for good reasons as you elaborated, but as we go forward and we see continuously high continued high prices you casual impression should improve.
Is there a possibility that U S. Bob EBIT.
Or would you be focusing more on share buybacks rather than yes.
Bumping up the dividend potentially doing a special dividend.
Carlos.
Just to just a reminder, on the on the capital allocation framework and I know, you've probably heard this a few times but.
Good to remind everyone. We typically want to maintain about a $1 billion of cash on the balance sheet. As you saw we were able to maintain more than that this quarter.
I would also say we are trying to maintain a strong balance sheet and.
While our balance sheet, a proportional net debt grew a little bit this quarter.
It's pretty pleased with where the balance sheet sits today that leaves three uses of cash for going for in the future. The first and these are not necessarily in rank order, but returns to shareholders.
Spending on repositioning the portfolio you probably did notice that we have.
Accrued for $77 million of spending in in Spain for the envelope and La Caronia plant and then the third is positioning for growth.
As to your question about how we balance between.
Buybacks and dividends.
We will look at both we initiated the first dividend in the fourth quarter, we paid the second dividend in the first quarter.
And as we get through the course of the year.
Valuate dividends versus buybacks.
And you've probably heard me say before it was a huge step forward for our company to launch a dividend. It says that we think that the balance sheet is in a position that's strong and that the portfolios in a much better position to weather the downturn. So that's the that's the forward view of capital allocation.
Alright, Thanks, Bill for the detail and maybe Roy.
This might be too early but.
Maybe you can shed some light about how youre thinking about LCC in terms of future investments.
As you're thinking of potentially.
Retrofitting.
Muscle milk is the technology works out or just build.
A couple or a few or one peak as master.
With allergies.
If that plays out as expected.
Yes Carlos.
Ill, probably answer with all of the above right. So when when Elemis is very successful and when we meet our all of our commitments as far as operating cost reductions and productivity with the sell side and then also can find a way to do it for less capital cost per ton than a similar sized plant.
So I will make the assumption that all of those things have worked out theres a lot of work that has to go in them, we have a lot of confidence.
Then it becomes a question of whether you go in and start retrofitting existing plants.
Based off the comparison of your financials for the existing plant versus the retrofit.
And of course weather, whether governments want to support that et cetera, and compare that with building that next greenfield.
When I look forward in this.
This gets up to 2050, where we have a net zero commitment already in place.
The answer it becomes a little more simple because we need to find a way essentially to have zero carbon production zero carbon emissions production of aluminum and alumina, which is why we're doing all these different projects and so the answer becomes yes, you either retrofitted or you're building Green smelter is green brand, new smelters that perhaps use those same types of <unk>.
<unk> power that we have at some of our facilities and so thats a pretty nice problem to have.
But over the course of these next five years to 10 years, we're going to need to prove out that technology show that it works, whether it's in a retrofit or on a sort of a brownfield next to one of our facilities or new Greenfield.
Then start to scale up those investments as as we gain more and more confidence.
Alright, well good luck with everything thank you guys. Thank.
Thank you Carlos.
Okay.
Our next question will come from Timna Tanners with Wolfe Research. Please go ahead.
Hey, guys. Thanks for squeezing me in.
Hey, there I don't think either of my questions are can be really quick response, I apologize, but I did want to ask a little bit about and I will talk a lot about Russia, and Ukraine, but China has been restarting some smelters I've seen in their concerns over demand. So I was just wondering if you had any updated thoughts on rescue of greater exports.
China or if they are indeed being disciplined and my second question is about your updated thoughts on your portfolio.
So so let me let me work on China first and then we can go and talk a little bit about portfolio.
Everything that we're seeing from China, I think we would agree with your with your first comments that there have been some restarts certainly coming in from what were some of the dual controls.
<unk> curtailments had occurred and we're starting to see some of those come back and we're also starting to see that theres, a little bit more friendliness to operations that use coal as an energy source here in the short term.
Because as you see some of those COVID-19 issues or supply chain issues and the start of a slowdown.
A bit slower growth in that economy that they want to make sure that the economy is moving faster and so you are seeing some growth happen here in the short term and you are seeing some of those supply chain disruptions.
Start to slow down a little bit the aluminum demand specifically with the Chinese economy in general so in the short term I think there is some pressures.
However, when you look at what the Chinese are saying and what they're doing in the medium to long term. It gives you a bit more confidence that while they might be a bit more pro growth in the short term. They continue to be on the track of de carbonization and continuing to maintain this very clear cap on new.
Passenger coming online for the long term and everything that they are saying in their five year plans and the way that they've been running their dual control system on.
All points towards the same thing, which that theyre going to continue to show more and more disciplined going in.
And so I don't think the increases that we've seen just just slightly on production have been surprising because I think we knew at some point these facilities would come back online again.
And the one real piece of evidence that I would submit is the fact that you continue to not see.
Plants that don't have operating permit they continued to be idle.
And number two there are limited operating permits available there's not new permits being issued and so that continues to reinforce the fact that they seem to be they seem to be maintaining this 45 million ton per year.
<unk> limit and so all that to say if they seem very serious about de carbonization. They seem very serious about limiting the total capacity on they also seem to it seemed very serious of trying to run towards more renewable sources of energy. So that they can also be part of this new Green Revolution.
The issue that they have is that 75% of their smelters are run off coal firepower. So they've got a pretty big pretty big deficit that they need to figure out.
But we're not seeing we're not seeing the sort of some of those short term policy blips turn into anything that seems to be longer term, but of course, we'll keep our eyes on that.
So that sort of answers China timna on.
On portfolio and I'll give a first a first answer and then I'll, let bill jump in since I've been talking now seems like for a while.
We continue to actively look across our portfolio and sort of like what I was talking about is our drive to.
The first quartile in the smelting business.
In the world that we live in today, it's incumbent on US to look at every single one of our operations and particularly those that have spot exposures and make a decision whether it's better to continue to operator to look for curtailment.
Or look for slowdowns or all the different types or look for step changes in the operating cost that we have and so theres still work to be done.
And even if we had gotten to the end of our portfolio review program, which we still have outstanding tons. As you probably well know we would continue to review each and every operation to make sure. It is as strong as it needs to be and that we can continue to have a portfolio that will be successful at all points in the cycle.
I know, it's a bit of a general answer but from my perspective, the work of being an aluminum company that we always need to be looking at the portfolio and analyzing and making sure that it fits very well know if you want to add anything Bill I think you hit on the key points for it just to summarize we still have an active portfolio review that's ongoing we announced that back in the 2018 in 2009.
17 timeframe.
I don't have the numbers in front of me, but we still probably have a half a million metric tons of smelting capacity that that we continue to review today those smelters look pretty good given the prices that we're at now we're at however, as you know timna, our higher cost smelters typically are higher carbon smelters too.
So as we look forward to a carbon constrained world, we will have to take action on some of those smelters and that doesn't always mean closed curtail as you know <unk> seen our track record over the last five years. It can mean closed curtail it can mean sell it can also mean repower and we've re powered smell.
Smelters that over the years, so continue to work on that on the refining side, we still have around 2 million metric tons of capacity under a few on refining and it shouldnt surprise anyone that the energy situation in Spain, and more broadly in Europe puts a lot of pressure on the refinery and in.
In Spain, so we need.
We need that Europe needs, an energy solution that that can make.
Industry, they're competitive.
Okay, Great I'll leave it there thanks guys.
Our next question will come from Emily Chang with Goldman Sachs. Please go ahead.
Good afternoon, Roy and Bill and Thanks for taking my question I've, just got one today and it's all around their LMR I can start but I think you mentioned that was progressing perhaps a little slower than what was previously.
Would be interested to hear from your perspective, what are some of the challenges with restarting assets in Hawaii haven't we seen more from you and your peers.
Yes.
And so let me let me take the first phase and you can take the second piece of it.
The first pieces, we announced that we are energizing the parts, probably what about a week ago, we could have ago.
We've run into some technical issues, there where the path that we had purchased.
Isn't isn't up to snuff and were not able to.
Restart as quickly as we want it to the important thing to know there Emily is that we're still projecting that that plant will be fully operational by the end of the year. So while we have about one month setback.
We will catch that up during the course of the year. So we're confident that we'll be able to get it started this is just a temporary pause on the on the restart you want to address the broader issue that one.
Quick comment on <unk> before we move off it specifically I know the team very well there because they work directly with them when I was down in Brazil, and they are one of the most innovative and ingenious teams that we have so I'm pretty sure that theyre going to be catching up very very quickly and we'll be able to overcome these issues and no time, which is which is why we reaffirmed the fact they'd be fully.
By the end of the year.
More generally Emily I think it does illustrate the difficulty that it is to restart the facility. So step away from the very specific issues, we're having in <unk>, which I think are representative of some of the supply chain issues that we're having which is you can't get good material and if you can get good material you can't necessarily get it where you wanted at the right times.
But more generally it takes a lot of time, we made the decision we've been talking about the <unk> restart now for probably a couple of years looking for that energy contract and then making sure that we can stack the facility in a place where there's probably lots of good knowledgeable operators that had work at that facility before.
But it's hard to get people to work, it's hard to find people that you need given how much. The the economy has been has been heating up lately.
You have to secure the energy you have to make sure that you have the workforce you need the technical know how.
Actually.
Storing and then restarting those parts.
There is a very real reason why youre not seeing a lot of a lot of announcements about restarts, because it's really really hard and it's also pretty difficult to find consistent energy that can be competitive not just at the very top of the cycle, but it but through the cycle and that really is a is an artifact of the fact that you have you have very significant re.
<unk> costs, it's going to cost us money in order to bring our <unk>. So you have to believe that it's not just going to work at the very top of the cycle, but that it can actually be successful through the cycle and so I think thats what creates some of these barriers to seeing more restarts occur not to mention the fact that we we put a lot of effort into making sure <unk> was restarted will and our.
Technical teams are really good and they maintain the plant because it was right next to the refinery they maintained at ready to restart I'm not sure. That's the case in a lot of other places around the world that might be considerate restart I don't I don't know if theyre going to be as good a shape as <unk> was and it took us a number of months.
Great. That's very helpful. Thank you. Thanks.
Thanks, Emily Thanks Emily.
Our next question will come from John Tumazos, with John Tumazos very independent research. Please go ahead.
Thank you for taking my question.
Hi, Jonathan.
Could you give us a flavor of.
How many weeks or months of inventory of alumina.
You can store your various smelters.
Yes.
I'm curious this morning.
<unk> reported a one 9% drop in first quarter world smelter output.
Or is there a number for Russia Eastern Europe was 1000 tons more in March than January .
Or the Russians at least had enough alumina.
<unk>.
Theres smelters made as much.
David is right.
Curious what are what's industry custom for alumina onsite it blows away in the wind pretty easy and washes away in the rain. So I know, we don't keep it outdoors.
We definitely don't keep it outdoors John .
Typically have the capacity to keep around two months of inventory.
In each of our smelters and Youll see that dip down based on ship schedules that can get lower than a month, but we typically have.
The capacity to keep a couple of months of inventory. The other place that alumina inventory can be had as in ships on the water.
So thats really the only two places that that inventory is stored that's why as you will know haven't been in the industry for as long as you have been the alumina market versus the aluminum market is fundamentally different than I think Roy alluded to the fact that when new.
Nicole I have went down aluminum prices spiked quickly because of the fact that $1 7 million metric tonnes was being taken out of the alumina market and there is simply not a lot of inventory in alumina, but then as the Australia ban went into place alumina prices fell back down because essentially that cutoff alumina.
Going into Russia, and put it back into the rest of the world.
I hope that helps.
<unk>.
Thanks, John .
And our last question will come from David Gagliano with BMO capital markets. Please go ahead.
Hi, Thanks for taking my follow up I just wanted to ask a question given the conversation about Elisa.
The future there and the potential there I wonder.
Theoretically all the.
Smelters and alcoa's portfolio were retrofitted.
With a license technology wherewith all costs at on the on the global cost curve today.
Well, we say that our operating costs would be 15% lower for the <unk> technology than what would be typical technology.
The fact is we run a portfolio of technologies. So it would it would likely be at least 15% savings that you'd be seeing so I think that would have a tendency to push you down the curve.
The other piece that I would mention is that because youre because youre you are now producing aluminum that has no carbon content and when that's matched over the renewable energy you should also be able to avoid any kind of carbon pricing or.
Carbon border adjustment.
That might be occurring so that should also be another source of potential leveraged from a cost standpoint, so I think if.
If I'm answering your question correctly I think the answer is it would be pushing it it would be pushing it down the curve because of the way that we've been developing the project.
And the fact that you no longer need an anode plant.
On your facility because you can youll be using these anode that really don't get changed over very very frequently.
Okay, and then that is apples to apples thats, a <unk> cash cost type of about 15% decline.
Yes, yes.
Okay. Thank you.
Thanks, Dave.
This concludes our question and answer session I would like to turn the conference back over to Roy Harvey for any closing remarks.
Thanks, Matt and thank you once again to everybody for joining our call today and for your questions and of course continued interest in Alcoa, We will continue to execute on our strategies as we progressed throughout the year, both bill and I look forward to talking to everyone again in July for our second quarter results in the meantime, please.
Be safe take care of yourselves and each other.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.