Q4 2023 Alcoa Corp Earnings Call
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Good afternoon, and welcome to the Alcoa Corporation fourth quarter 2023 of our earnings presentation and conference call all participants will be in listen only mode.
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After todays presentation, there will be an opportunity to ask questions.
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Speaker Change: Please note today's event is being recorded.
Speaker Change: I'd now like to turn the conference over to James Dwyer, Vice President Investor Relations and pension investments. Please go ahead. Thank you and good day everyone.
I'm joined today by William Operator, Alcoa Corporation, President and Chief Executive Officer, and Molly Behrman, Executive Vice President and Chief Financial Officer.
Speaker Change: We will take your questions after comments by Bill and Molly.
Speaker Change: 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.
Speaker Change: There's 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.
Speaker Change: In addition, we have included some non-GAAP financial measures in this presentation.
Speaker Change: For historical non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation.
We have not presented quantitative reconciliations of certain forward looking non-GAAP financial measures for reasons noted on this slide.
Speaker Change: You referenced in our discussion today to EBITDA means adjusted EBITDA.
Speaker Change: Finally, as previously announced the earnings press release and slide presentation are available on our website.
With that here's bill.
Bill: Thanks, Jim and welcome everyone to our fourth quarter 2023 earnings call.
Bill: Today, we'll review the substantial progress we've made in the fourth quarter on key objectives.
Bill: Financial result, the market and our plan to continue to improve and strengthen our company.
Bill: I started last quarter's call by affirming the areas about cause near term focus and reinforcing our values to act with integrity operating with excellence care for people and leave with courage consistent with those values I'm proud that alcohol is safety performance showed the market improvement in 2023.
Bill: We experienced two fsrus last year, we improved year over year in all key safety metrics.
Bill: We intend to continue our progress toward our goal of an injury free workplace.
Bill: Safety performance is important for another reason to the key indicator of the stability and quality of our operations.
Bill: Excellent safety performance goes hand in hand, with operational excellence I'm not surprised then given our strong safety performance. We set production records at our three smelters in Canada, and one in Norway and.
Bill: And we are also successfully restarting one potline at work here in the states.
Bill: We made great progress on other focus areas too we achieve what I said was our most important objective gaining approvals for our bauxite mines in Western Australia.
Bill: With these approvals we now have a clear path forward for continued operation in Western Australia.
Bill: Also in <unk>, we recently announced the curtailment of the 60 year old banana refinery starting in the second quarter of this year.
Bill: The decision was based on a variety of factors, including put on ice age scale operating costs and current bauxite grades. In addition to current market conditions.
Bill: In December we began engagement with the national and regional authorities in Spain as well as the Labor works Council to discuss ongoing financial losses at the San separated refinery in smelter.
Bill: We are considering all forms of relief, while working collaboratively on a long term solution for the complex.
Bill: With that let me turn it over to Molly to go over the financials.
Thank you Bill.
Molly: Revenue was flat sequentially at $2 $6 billion as lower shipments for both alumina and aluminum more than offset higher aluminum realized price.
Molly: Net loss attributable to Alcoa improved $18 million to $150 million and a loss per share improved from 94 cents to 84 cents.
Molly: On an adjusted basis, the net loss attributable to Alcoa was $100 million 56.
Molly: The difference is primarily related to the recording of a valuation allowance on deferred tax assets in Brazil.
Molly: Non controlling interest.
Molly: Adjusted EBITDA increased $19 million to $89 million.
Molly: For the full year 2023.
Molly: Revenue decreased $1 $9 billion to $10 $6 million and net loss attributable to alcoa worse than $528 million to a loss of $651 million or $3 65 per share.
Molly: Adjusted net income change from $869 million in 2022 to a loss of $405 million in 2023 or $2.27 per share and adjusted EBITDA, excluding special items and it was kind of a $2 $2 billion to $536 million.
Molly: Let's look at the key drivers of EBITDA.
Fourth quarter 2023, adjusted EBITDA increased as improved raw material costs and shipment volumes.
Molly: That energy and price mix challenges. In addition, favorable production costs, including recognition of a full year benefit for section 45 ex I'd be inflation reduction act at work and let's see now more than offset higher other expenses.
Molly: The alumina segment EBITDA increased $31 million sequentially, primarily on lower raw material costs and lower production cost in Brazil and Australia.
Molly: We also saw substantial benefit from lower raw material costs in the aluminum segment mix combined with favorable production costs, primarily 45 acts to offset the impact of higher energy costs and lower value added product premiums.
The higher energy costs included in our second year of unfavorable legislative changes and Norway's T O two compensation arrangement.
Molly: Outside the.
Molly: Transformation demolition costs were lower on interest segment eliminations and other corporate costs were unfavorable.
Molly: I spoke at cash movements within the fourth quarter on the next fine.
Molly: The cash balance increased $18 million in the quarter to $944 million the largest source of cash with working capital reduction of $222 million, which more than offset the largest use of cash capital expenditures and $188 million higher EBITA at 89 million.
Molly: Various other items totaling $97 million and noncontrolling interests contributions of $18 million, mostly offset all other uses of cash.
Molly: Moving on to other key financial metrics.
Molly: Our key financial metrics are consistent with our earnings results full year 2023 return on equity was negative eight 9% our fourth quarter dividend at an $18 million to stockholder capital return, which totaled $72 million for the year.
Molly: Well free cash flow plus not noncontrolling interest contribution was negative for the year at $282 million. It was positive $28 million in the fourth quarter.
Molly: Proportional adjusted net debt increased by $1 billion due to fourth quarter pension and OPEC plan re measurement.
Molly: In both the fourth quarter and full year 2023 capital expenditures and cash income taxes are our largest uses of cash.
Molly: Days working capital improved 11 days to 39 days year over year, primarily on decreases in inventories of $243 million.
Molly: Sequential improvement also 11 days was driven primarily by the typical increase in year end payables, while reducing inventory values further the.
Molly: The improved working capital performance provided a significant source of cash in the fourth quarter, resulting in a full year working capital source of cash of $221 million.
Molly: Let's turn to the outlook in the first quarter and the full year 2024.
Molly: For 2024, we have included in our outlook for both production and shipments for the segments. We expect alumina production to range between $9, eight and 10.0 million tonnage and shipments to range between 12, seven and $12 9 million ton the difference reflects our normal trading.
Molly: As well as externally sourced alumina to cover the customer contract previously fulfilled by went on our production.
Molly: The aluminum segment is expected to produce between two two and $2 3 million tons, increasing on smelter restart while shipments held steady between two five and $2 6 million tons due to lower projected trading volumes.
Molly: And EBITA items outside the segments, we expect transformation costs to remain at $80 million and other corporate expense to improve to $120 million, reflecting a portion of our efforts and productivity and competitiveness program.
Molly: Hello, EBITDA, we expect depreciation to increase to $675 million, primarily due to additional assets placed in service as well as increases in the assets related to asset retirement obligations.
Molly: Mine reclamation and bauxite residue storage.
Molly: Nonoperating pension and <unk> expense is expected to be flat at $15 million and interest expense will be comparable to 2020 threes level at $110 million.
For cash flow impacts, we expect 2024 pension and OPEC required cash funding to be similar to 2023 at $70 million. The majority of that spend is U S. Open.
Molly: Our capital returns to stockholders, we will continue to be aligned with our capital allocation framework.
Molly: Our current capital expenditure estimate is $550 million with $90 million in return seeking and $460 million in sustaining capital approximately 65% of the total capex is within the alumina segment were 40% is funded by our JV partner.
Molly: Looking ahead to 2025 and 2026, we expect Capex to increase approximately $50 million to about $600 million primarily related to maintenance.
Molly: We expect approximately $130 million lower prior period income tax payments in 2024 down to $50 million.
Molly: Environmental and Aro spending is expected to increase to approximately $295 million approximately $20 million relate to accelerated mine rehabilitation in both Australia and Brazil. We also expect higher spending at quite honor and residue area closures and regulatory requirements in Brazil.
Molly: And more spend is projected for demolition and remediation at previously closed sites in 2024, as we prepare those properties for future redevelopment.
Molly: While we do not provide guidance on full year cash restructuring charges. We didn't provide the estimates for the quote on the curtailment in our January 8th announcement of Alcoa's share of related cash outlays of approximately $80 million are expected to be spent in 2024 and approximately $35 million in 2025.
Molly: Our JV partner Alumina limited will cover the remaining 40% of those costs or approximately $65 million.
Molly: To provide flexibility to implement our portfolio actions today, we executed an amendment to our revolving credit facility agreement, which includes adjusting covenant limits for the 2020 for fiscal year.
Molly: Looking at the first corner in the aluminum segment, we expect approximately $15 million unfavorable impact related to higher maintenance costs and lower volume in Australia. In addition, we expect benefits from lower raw materials and energy costs to be fully offset by other factors.
Molly: In aluminum, we expect multiple factors to fully offset including favorable energy impacts primarily due to lower prices in Brazil in Norway, lower product premiums and unfavorable net impact from the non recurrence of fourth quarter 2023, one time items.
Molly: Alumina cost in the aluminum segment are expected to be unfavorable by $5 million. Additionally, we expect a onetime unfavorable impact of approximately $20 million is the hedge programs for the smelter restart ended in December 2023.
Molly: Below EBITDA note that fourth quarter. Other expenses included one time positive impacts of $51 million, primarily foreign currency gains.
Molly: Based on recent pricing, we expect first quarter 2024 operational tax expense to be negligible.
Molly: Now I'll turn it back to bill.
Bill: Now, let's discuss our markets and alumina prices rallied at the end of the fourth quarter, driven by announced Chinese refinery curtailments due to a domestic bauxite shortage concerns about Guinea bauxite supply and have continued to increase in January.
Bill: We expect the market to be short in 2024 with steady demand from smelters and little inventory available.
Bill: Aluminum for 2024, we expect the balance to a slight surplus market depending on the speed of demand recovery during the year.
Bill: On the supply side, there are a few announced restarts or new projects in China has held towards 45 million ton capacity cap.
Bill: In addition, hydropower shortages costs $1 2 million tons of capacity to be curtailed in your non province.
Bill: November.
Bill: Demand has stabilized in North America, and Europe, and we see the potential for a moderate recovery throughout the year.
Bill: Regional premiums are increasing due to both the widening contango and higher transportation cost two important metal.
Bill: Our order book value add product orders are stabilizing and premiums appear to be firming up while lower than their peaks that premiums remain above historical levels.
Bill: In China, we expect government stimulus programs to prompt demand growth as those measures take effect.
Bill: Globally, gross and aluminum intensive evs and renewable power infrastructure will continue to support this positive trend.
Bill: We also see demand improving in packaging as inventory Destocking has been largely accomplished and.
And finally on a concerning though we've seen the share of Russian metal stocks on the enemy sorts of 90% in December because that lemme stocks are now predominantly Russian origin metal, which is unwanted by much of the world subject to a 200% tariff in the U S and now legally prohibited in the U K is difficult to have confidence that.
Bill: The <unk> exchange price matches, the true physical price for non Russian aluminum.
Bill: In December we joined others within European aluminium to call on the EU to progress sanctions against Russia, and specifically to include aluminum primary metal, which remains outside of the scope of the measures currently agreed to by the EU now, let's turn our focus from the market to Alcoa and our actions to improve <unk>.
Bill: Stability.
Bill: This slide describes factors that can improve our financial performance over 2020 Three's results.
Bill: As you can see from the chart, we have significant upside potential to adjusted EBITDA we.
Bill: We decided the improvement drivers into three categories near term actions medium term opportunities and market improvement.
Bill: Near term actions are underway and have the most well defined financial impacts.
The largest area of impact is our $310 million estimate of raw material savings for 2024, including for key raw materials like caustic soda in line for refining and anode carbon products for smelting.
Bill: Thanks to our procurement team's actions as well as pricing and inventory lags roughly one third of that amount is already fully realizable and the remainder is conservatively estimated using current market pricing.
Bill: Next we are targeting $100 million benefit from our program to reduce controllable operating costs across our organization.
Bill: Outside of raw materials energy and transportation, which are already under active management recently initiated full run rate savings are expected to be achieved by the first quarter of 2025. This overarching program includes general belt tightening as well as efforts such as our workforce blueprint and which we benchmark.
Our operations internally and externally and set aggressive best in class goals for each operation.
Bill: Three additional components of our near term actions are the.
Bill: The Warrick smelter optimization at Potline restart with the benefit of additional IRA funding at both work and Massena.
Bill: Completing the al Jamar smelter restart and realizing savings from the <unk> curtailment.
All of these locations are fully mobilized and working toward achieving the savings targets.
Bill: As mentioned earlier last month, we started discussions with unions and government stakeholders or finding a long term solution for the sands different smelter in refinery.
Bill: Late 2021 with the support of our employees local communities and government, we started down a path that aimed at positioning the sand separation complex for a long term economic viability.
Bill: To accomplish that goal I'll call invested hundreds of millions of dollars and the operations and supporting employees their families and the local economy.
Bill: While operations continued to be restricted to 50% at the refinery and are fully curtailed at the smelter 2023, EBITDA losses were over $150 million across the sand separation complex. Despite our collective efforts, we have clearly fallen far short of our goal of achieving economic viability for sand.
Bill: Okay.
Bill: Looking forward into 2024 at the San separating complex is expected to incur substantial losses, even with the recent improvements in energy markets and the aluminum price is.
Bill: If the situation does not change significantly in the months ahead, we anticipate that available funding will be exhausted in the second half of 2024.
If that happens we will have no choice, but to make hard decisions that will adversely and potentially irrevocably impact employment and the economy in Galicia more broadly.
Bill: Nobody wants that but absent significant change that is exactly what will happen.
Bill: That is why we are urgently advancing our engagement efforts with employees and governments to begin defining options.
Bill: For its part I'll call. It intends to continue to honor the spirit of the commitments they've made and the viability of agreement. However, we will need flexibility from our unions at significant support from the regional and national governments.
Bill: Medium term opportunities and market improvements or the other two drivers of adjusted EBITDA improvement potential medium term opportunities are beyond 2024, and 2025, but achievable in the next several years and example is benefiting from better bauxite grades in Australia after upcoming mine moves when it.
Bill: Comes to market impacts were a commodity business a large part of adjusted EBITDA potential correlates to market improvement as an example, comparing more favorable 2022 metal and alumina prices to 2023 prices reveals massive potential for EBITDA improvement, especially in the metals segment should prices.
Bill: Increase we have demonstrated the ability to profit from favorable market conditions when they arise.
Bill: Finally, we have not included here the potential we see from breakthrough R&D technologies, including Alex's because they're longer term, we do not anticipate significant capital expenditures for <unk> before the end of the decade, although the continued ramp up of the R&D work will produce additional volume of Atlas This metal for the partners.
Bill: Including Alcoa to bring to market.
For the quarter I'm very proud that we've remained true to our values, including improving on both safety and operational performance.
Bill: While profit metrics improved slightly on a sequential basis, we are aiming to improve substantially from where we are today and on that front, we have made important and impactful progress on our key challenges.
Bill: Going forward, we are working to maintain positive momentum in western Australia and continue to build toward a long term solution for our sand separated complex in Spain.
Bill: Our entire organization is focused on delivering near term actions and company wide productivity and competitiveness programs.
Bill: We believe that not only is the medium and long term outlook for aluminum strong, but 2024 is starting to look like a positive turning point.
Bill: With that operator, what questions do we have in the queue.
Speaker Change: Thank you.
During the question and answer session.
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Speaker Change: One called upon please limit yourself to two questions.
Speaker Change: And our first question today comes from Michael Dudas with vertical research. Please go ahead.
Michael S. Dudas: Good evening Bill Maui Jim.
Michael S. Dudas: Hey, Mike.
Michael Dudas: Hum.
Michael Dudas: Let's say a cyprian so well.
Michael Dudas: As you've analyzed it from a different seat over the past few months and we had been dealing with this for several years.
Michael Dudas: Maybe you can assess how more comfortable or.
Michael Dudas: Our solutions are there changes or opportunities that are coming about or is it really getting down to the point of something needs to give here, which kind of sounds.
Michael Dudas: All the indicators here in your prepared remarks.
Speaker Change: Yeah. Thanks, Mike Let me, let me just give you some background and give you some thoughts around San Fran and the situation there.
Speaker Change: If you recall in February 2023, we agreed to a phase III start of the smelter, which was supposed to begin in 2024 via on what's called the viability agreement and the refinery has been operating at about 50% capacity since the third quarter of 2022 to try to mitigate the losses.
Speaker Change: The economics for both the smelter and the refinery.
Speaker Change: Today unfavorable.
We've committed we are committed to fully fulfilling the spirit of the obligations and the viability of agreement.
Speaker Change: However, the commitments need to result in a viable operation.
Speaker Change: And due to the decline in the markets, but not all.
Speaker Change: And the delay in the development of competitive power solution, the time to realize a viable operation has extended out considerably.
Speaker Change: And so as you get as you alluded to under under these circumstances, it's prudent to look at every action that we can take to stretch the remaining funds available to see if a viable business plan can be assured for the site.
Speaker Change: To be clear the reef.
Speaker Change: Refinery in the smelter have not been funding their operations they have not been able to fund their operations for many years and the operational losses and investments have been funded via loans from other <unk> entities.
And there is virtually no ability for sand separation to repay those loans.
The Alcoa entities will provide no further funding to an operation that is not viable and that's an important point for you and others to know.
Speaker Change: So at this point, you're probably wondering about timing of a resolution the timing is not clear at this point, but we're asking the unions for their understanding of the situation and necessary flexibility to reach a solution. Likewise, we're working with the regional and national governments to identify all potential forms of relief and we will work.
Speaker Change: Robert Lee with all stakeholders on a long term solution. So that basically sums up some of the history and why are we stand at the at the site of sensitive brands today.
Speaker Change: That's very helpful. Thank you Bill and Mike My follow up is.
Maybe more more thoughts on the near term actions on your on your EBITDA potential slide.
Speaker Change: The $310 million of the raw materials in some abuse of the market maybe in the sense of that.
Speaker Change: Is are those expectations relative to expectations of the current or future market for alumina and aluminum.
Speaker Change: How do you see a third is in the bag, so far but how you know how confident to realize those others is.
Speaker Change: On a annualized basis over the next two year basis and is that a level, where you could maybe see better.
<unk>.
Speaker Change: More improved.
Speaker Change: Pricing market I mean.
Speaker Change: Selling price market.
Speaker Change: Mike Thanks for the question the raw materials improvement that we are showing the $310 million is our outlook for 2024 now it based on.
Speaker Change: Prices that we've already achieved given our lags that we incurred in the second half of 'twenty three as well as what we're seeing now in current.
Speaker Change: Trent purchases as well as our procurement teams look forward. So yes, we have about a third of that already confirmed and good outlook and for achieving a 310 in 'twenty four and that has an annual run rate. So we would expect that to continue forward based on today's market Jim.
Speaker Change: Thank you Mike Thank you Bill.
Speaker Change: Thank you Mike.
Speaker Change: Question comes from Carlos de Alba with Morgan Stanley. Please go ahead.
Speaker Change: Yes, Thank you very much bill.
Speaker Change: So just so also on the business the other business considerations.
Speaker Change: Just to clarify the 36 million.
Speaker Change: A reversal of four force for a I R. A is that are you gonna give back that $36 million in total or only a part of that given that the.
Speaker Change: The benefit of the IR, a it should be recurring going forward.
Carlos what you're going to see there is a net of 27 in the first quarter. So that 37, we recognized the full year 'twenty three and then we'll have about 10 million in each quarter going through 'twenty four.
Speaker Change: Alright, great.
Speaker Change: And then.
Just on some CPM than this.
Speaker Change: At this point, the Bill Jordan I'll going to restart there's more there's more capacity that was supposed to go to Oh, let's.
Speaker Change: Come up in the first quarter of 'twenty 'twenty four is that a is that correct.
Well.
Speaker Change: We plan to.
Fulfill the viability agreement.
Speaker Change: And part of the viability agreement is that we restart 32 parts.
Speaker Change: In the first quarter. However, it does not make economic sense to restart those spots and the more that we if we were to restart those spot. They are negative cash flow and it will just simply consume cash out of the entities quicker.
Speaker Change: Then if we were not restarting those spots. So at this point, we will be having the discussions with all the parties involved and make sure they understand that.
Speaker Change: Starting those spots will consume cash and there is only a limited amount of cash available and the entities and once that cash has gone alcohol does not plan to put further cash into the entities.
Speaker Change: Fair enough if I may just squeeze one more the 70 million benefited from the closure of quinine and I started in the third quarter.
Those net of the purchases that you have to make in the market to fulfill customer contracts.
Speaker Change: So Carlos the 70 million is the coupon on our loss elimination, we will have some costs are to replace basically purchase the committed alumina for our customers. That's part of our overall trading activity and we do not see a material impact there.
Speaker Change: All right fair enough. Thank you very much money on bill.
Speaker Change: Thank you Carlos.
Speaker Change: And our next question today comes from constantly on sheets with BMO capital markets. Please go ahead.
Speaker Change: Hi, Thank you for taking my questions.
Constantly: Can you quickly provide an update on D. All Omar smelter restart.
Yes, so as we said in the fourth quarter, we're taking the <unk> smelter restart slowly and at a measured pace.
Constantly: We have increased the amount of thoughts operating two as of today until approximately 70% of the of the plant.
Constantly: And we're making slow but good progress on restarting the smelters so.
Constantly: Well I would wish it was faster we want to do it safely we want to do it economically and we want to do it in a way that positions the asset for the long term.
Constantly: So we continue to make progress.
Constantly: And it is the $75 million.
Constantly: Is that expected to also occur in 'twenty four.
Constantly: Benefit.
Speaker Change: No country, you'll see the 74 come in over time, so that would be a run rate by the time, we get to the end of 'twenty five.
Speaker Change: Okay, and just one more question if I may.
Speaker Change: Going back to the sensors.
Speaker Change: Are there specific reasons why you can't just shut it down now.
Speaker Change: The smelter as you know obviously is curtailed today. The refinery is at 50% capacity. If we chose to go to a full curtailment, we would have to go through the process of negotiating with the union on our curtailment and.
Speaker Change: Uh huh.
Speaker Change: It may be a consideration will be looking at all options at this point to conserve cash out of that entity.
Speaker Change: Okay. Thank you.
Speaker Change: And our next question today comes from Timna Tanners with Wolfe Research. Please go ahead.
Timna Beth Tanners: Yeah. Thanks for taking my question and happy New year I wanted to ask about the comment on Alex just somehow there wasn't any required spending through the end of the decade I didn't know if that was a change from the past I thought at your last Investor day, there's been a lot of talk Oh, let's just say a refinery to future investments.
Timna Beth Tanners: And I'm just wondering if you could provide us an update on that problem.
Timna Beth Tanners: So I'll I'll take a first cut at that and then Molly you can jump in if you want to add anything Timna, we continue to make progress with our partners and emphasis on.
Timna Beth Tanners: On the process and we have plans to start a commercial sized cell at.
Timna Beth Tanners: At the alma smelter in Quebec in 2024.
Timna Beth Tanners: So we are continuing to make progress. However, we are not continuing not planning on an implementation in the near term analysis, we're going to allow for <unk> to go through some of the testing process and ensure that we have the right package.
Timna Beth Tanners: Of engineering and so at this point, we're not planning on significant investments and Ellis's cutover. Our analysis plant. This part and in this decade. So it would be earlier next decade is not a change it's an R&D project and we're working through that R&D and ensuring.
Timna Beth Tanners: The process works, well and we will well implemented later in the decade early next next decade.
Speaker Change: Okay. Thanks, and then regarding and you know possible other portfolio changes I I know you've talked about listing in the past is at these aluminum prices any any thinking about its viability and similarly anything that you could tweak them beyond the warrick restart given.
Speaker Change: And 45 X benefit.
Well, you know turn to.
Speaker Change: To.
Speaker Change: Give you a little bit of a perspective of some of the things that we've had going on.
Mentioned, the Warrick restart and so we got half of that done in the fourth quarter or I plan on getting the other half of that done in the first quarter.
Speaker Change: We've made the announcement around kirana.
Speaker Change: That will be in 2024, we continue to make progress around our EMR and so we have that restart going on and we have engagement on all of the pertinent issues in Spain, and so we have that going on at this point Timna, that's a lot to get.
Speaker Change: Done and I think the team has done a great job of initiating all of that we will consider as we always do asset by asset does it make sense to start stop.
Speaker Change: All of those options and we make it on her on a fairly real time basis, and where we have spot power exposure, we make those decisions on a real time basis. So we're always considering some of those portfolio options specifically around high cost facilities like Lister.
Speaker Change: Okay I'll leave it there thanks and best of luck. Thanks.
Thanks.
Speaker Change: Our next question today comes from John Tumazos Tumazos very independent research. Please go ahead.
John C. Tumazos: Congratulations on getting through the trough year in cotton costs. So much. Thanks.
Speaker Change: Thanks, John.
Speaker Change: First question.
Speaker Change: Hi.
Speaker Change: I'm not sure if I'm supposed to ask this question, but I'll try.
Speaker Change: You're planning to buy almost 3 million tons of aluminum this year, which is a.
Speaker Change: A lot of boatloads.
Speaker Change: Oh.
Speaker Change: Where are you buying it China is 59% of world output you were around five.
Speaker Change: Right.
Speaker Change: There aren't that many choices are you buying it from China.
Speaker Change: Or some western country.
Speaker Change: Complying with the sanctions that has some capacity that would've gone to resolve in the old days.
Speaker Change: So John just to give you a little bit of background. It is not unusual for us to be in the market to buy alumina.
Speaker Change: In past years I think in 2023, we probably did about 2 million metric tons.
Speaker Change: As you see with the curtailment of Kona, that's increasing to about 3 million metric tons, we have in alumina trading arm and I don't want to make that sound as if we're doing any type of prop trading, but we have an alumina trading arm that is constantly sitting there trying to optimize logistics.
Speaker Change: After not optimized tons and quality across the system and.
Speaker Change: Where will we get that we have already agreed with certain suppliers.
Speaker Change: That we will have offtake in 2020 four.
Speaker Change: And those suppliers run the gamut of western world's Flyers, Indonesian traders and as we go through 2024, we'll do more of that.
Speaker Change: Hi can I ask another one.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: You've designated as your Chief operating officer to be in Australia.
Speaker Change: Yeah.
Speaker Change: Over most of my career, the raw materials have been a big cash cow.
Speaker Change: And the market's a little tougher now.
Speaker Change:
Speaker Change: Is the division of labor.
For Mr read to be primarily raw materials, and you're focusing on the smelters Bill and.
Speaker Change: Is this signals that we're gonna be.
Paying very close attention to.
Speaker Change: During mental permitting and regulatory issues as well as operations in Australia.
Speaker Change: Yeah.
Speaker Change: Thanks for the question John So let me, let me just back up a little bit not read was chosen to be cielo because he is the best person for the job in my view.
Speaker Change: And the fact that he sits in western Australia is a little bit of a benefit because we do have such a massive operations.
Speaker Change: In in Western Australia to specifically address your question of whether I'll be focused on the smelters and he'll be focused on mining and refining no Matt hazard arrangement for all operations globally, It's a big job it will be a hard job to do out of Western Australia and.
Speaker Change: I have had that discussion.
Speaker Change: But but I think he's the right person for the job and now with that said he has four regional vice presidents that sit underneath him.
Speaker Change: And.
Speaker Change: And they and he used to be one of them obviously in Australia. So it has to replace himself.
Speaker Change: They're very good people very capable people, who have the ability to make decisions in the regions to benefit the regions and thats important because as.
Speaker Change: As we saw in the permitting process. It is critically important to have really strong local leadership in the regions that can make decisions that are you know make sure that the permitting is done correctly that the rehab as Don correctly that the ESG factors are appropriately considered in the region.
Speaker Change: Sometimes it's hard for a global player to have that perspective. That's why you have to have strong leadership in the regions and Matt will ensure that he has four strong leaders around the world.
Speaker Change: Thank you.
Speaker Change: Thanks, John Thank you and our next question today comes from Bill Peterson with Jpmorgan. Please go ahead.
Bill Peterson: Yeah, Hi, Bill Molly and thanks for taking my questions I wanted to come back to the near term.
Bill Peterson: $245 million and how to think about the cadence it sounds like there's some visibility in raw materials, maybe a third of that Patterson chuckling.
Speaker Change: Pardon me I'm in an airport.
Speaker Change: But what else do you have visibility is this should we assume most of this has been back half weighted more in the 25 based off of the other buckets that are within that they still get a feel for the rollout of this overwatch 12 or 24 months.
Speaker Change: Bill I think it's fair to say that there is various timing on those items, but they are again designed to deliver a run rate savings by the end of 'twenty five on the raw materials. We did indicate that the 24 number thats an annual number that will repeat on the productivity and competitive programs, we're trying to hit a run rate.
Speaker Change: <unk> by the end of the first quarter of 'twenty five.
Speaker Change: On Warrick optimization in the IR, a funding that one will kind of bleed in overtime as war games momentum from the restart and we are working actively with treasury and other folks in the government on the funding improvements LMR will come in over time as well and then Quinton I will start to be real.
Speaker Change: <unk> in the second half of 'twenty four.
Speaker Change: And Bill I really have to give kudos to Molly Molly and her team because and Jim Dwyer. Many of the investors have been asking US Hey, you. There's lots of moving parts here can you help us understand what those moving parts look like and how good can things be if if you accomplish those moving parts.
Speaker Change: And so that's the point of this slide it basically says Hey, let's say you know our view of raw materials is going to be $300 million better we're actually instituting and we haven't talked much about it on this call but.
Speaker Change: Since instituting what we're calling our competitiveness program, where we're trying to get 5% of the cost structure aside from raw materials and energy out of the cost structure and it's at every single day every single plant mine refinery around the world. So this chart was meant to be a reaction to investors that said help us.
Speaker Change: Understand with all these moving pieces, what what can it look like and that's why we put it together.
Speaker Change: No I can appreciate that and just the cadence as it was particularly important addition to that second question kind of a follow up on your lower carbon solution and I appreciate it.
Speaker Change: It looks more like next decade, but what about I guess your sustained aligned against some tough into Boston Golan equal sourcing corridor our know.
Speaker Change: How should we think about those programs the ability for you to drive premiums where does I guess lower carbon aluminum.
Speaker Change: More broadly in your strategies for Alcoa as well as your customers.
Speaker Change: So I.
Speaker Change: I made some comments at a future minerals forum in Saudi Arabia last week, and I'll I'll reiterate those here our customers are asking for low carbon solutions, and we and some of our competitors are.
Speaker Change: Developing those low carbon solutions, we have the broadest line of low carbon solutions of anybody out there between equal them equal door eco source, we offer low carbon solutions today that our customers can take advantage of we've seen a fairly sizable growth vehicle them year over year, something like a 60% increase in <unk>.
<unk> and <unk>.
Speaker Change: Are we getting premiums small ones right and I would like to get a whole lot more premium than what we get but today we.
Speaker Change: We are getting premiums for <unk> across the system and so our customers want it we need to be on the forefront.
Alexis in Australia going into the next decade will provide us significant advantages, but ER, but we're starting to see some of the benefits of upselling that broad product line today.
Speaker Change: Okay. Thanks for that thanks.
Speaker Change: Thanks Bill.
Speaker Change: The next question today comes from Lucas pipes with B Riley Securities. Please go ahead.
Operator, good good afternoon, everyone.
Lucas N. Pipes: So I wanted to follow up on <unk>, you mentioned that internal funding sources and lines are close to being exhausted and I wondered.
Lucas N. Pipes: And the status quo is this a matter of weeks months quarters.
Lucas N. Pipes: When would those those lines be fully exhausted. Thank you very much.
Speaker Change: I hate to give you a different a definitive time, but I can't quantify it a little bit for you. There is roughly $240 million of combination of restricted cash in the entities.
Speaker Change: And and credit lines available.
<unk> entities lost on a pretax basis about $150 million in 2023. So we are essentially sitting down with the stakeholders trying to determine how can we preserve the cash in the entity to give that facility long enough time.
Speaker Change: To come up with a plan to be viable over time, so there's not any specific at this point.
Speaker Change: Something as far as I'm willing to go out and say when that cash will run out but it is a situation where there is limited cash available and we need to figure out how to.
Speaker Change: Get get that facility are viable over overtime.
Speaker Change: Very helpful. At understand if you were to restart those $240 million of restricted cash and credit lines that would be exhaustive very quickly.
Speaker Change: So if we were to restart the 32 parts. It just adds to the drain and now we have a viability agreement that we plan on fulfilling but.
Speaker Change: But if we do that then it just accelerates the drain of cash and AR and that's a that's a situation where everybody loses.
Thank you Bill 222 quick follow up questions. The first is on 45 X does that change how you think about the U S assets more structurally.
Speaker Change: You say they fit within your smelter portfolio today, and where do you think they could.
Speaker Change: On the global cost curve. After after this credit and then on the environmental Arrow.
Speaker Change: Think kind of cash outflows went from $139 million in 2000 $22 million to $202 million last year than this year to $95 million.
Are those inflationary pressures is there something lumpy in.
Speaker Change: And where do you think that cash items will go over the coming years. Thank you Bert let me see let.
Let me take the U S question first.
Speaker Change: Just it's important to note how appreciative, we are to the U S government for providing the clarity around 45 X and the fact that.
Speaker Change: That those funds.
Speaker Change: Essentially support keeping aluminum, which in our view as a critical mineral for the United States economy, keeping those assets running.
Speaker Change:
Speaker Change: <unk> as we've said, we're investing in Warwick to restart the third line the 45 X clearly helps.
Speaker Change: And we have plans to make work even more profitable over over time now.
Speaker Change: And that work in the future needs to figure out what its energy source is going to be its energy sources still coal based and if we're going to meet our greenhouse gas targets, we will have to transition that to a sustainable energy, but that's a problem that we have some time to work on massena on the other hand.
As a it's renewable energy, it's got a great energy source.
Speaker Change: And now with a 45 X support it is a it's a better facility. So we're pretty pleased with the level of support that we've gotten we're trying to get further clarity around 45 X to include the raw material sources and that's included in that $90 million benefit that you see.
Speaker Change: But we will continue to work that.
Speaker Change: On the environmental and remediation cash increase so it's about 95 million and there are three main components. There. We are accelerating mine rehabilitation, primarily in Australia, but also a bit in Brazil.
Speaker Change: We've got residue areas coming to end of life as well as Quinn on a water treatment and then lastly, we are upping our spend on demolition because we have closed.
Speaker Change: <unk> that are getting ready for redevelopment.
Speaker Change: Thank you Molly.
Speaker Change: Uh huh.
Speaker Change: And I'm looking forward on a on a.
Speaker Change: Quote more normalized basis, where could that number settle out given those.
Development.
Speaker Change: This is a lumpy one because of the again the demolition and we have opportunities. So that's why we want to get that done and also on the mine rehab you can think of that as really a three three and a half year up because we are accelerating that Brazil as part of our commitment for the mine approval restaurants.
Speaker Change: Right.
Speaker Change: Yeah, so in Brazil.
Speaker Change: Tolerating, Brazil, too because of external stakeholders, but western Australia, there in Australia.
Speaker Change: Yeah.
Speaker Change: Really appreciate all the color best of luck. Thank you.
Okay.
Speaker Change: Our next question today comes from Lawson Winder with Bank of America. Please go ahead.
Lawson Winder: Thank you operator, and good evening Bill in Mali, very nice to hear from you. Thank you for the update today.
Lawson Winder: I just wanted to.
Speaker Change: Hey, though but just wanted to ask on just one other capital allocation question and then on the dividend.
Speaker Change: I don't know maybe your slide on taking actions now might might actually addressed my question, but just when.
Speaker Change: When you think about the dividend.
Speaker Change: Your recommendation to the board to change it in any way or are you comfortable with the current level.
Speaker Change: Our capital allocation program really is not changing loss then we're going to continue to maintain a strong balance sheet and capital expenditures to maintain and improve our portfolio and then when we have excess cash in no particular order, we'll use that for our portfolio actions preparing for growth and returning cash.
Speaker Change: To shareholders the dividend is something that we think.
Speaker Change: Carefully to the board about and they would guide us and any changes there.
Speaker Change: Remember when we set the dividend we set it at a level that we thought was very affordable through the cycle, it's not a huge dividend.
Speaker Change: But but we set it at a time when our indebtedness our overall proportional net debt had gone from $3 $8 billion down to $1 $1 billion, it's crept up a little bit this year.
Speaker Change: But we set the dividend at a level that we thought was affordable through the cycle and so that's the thinking.
Speaker Change: Okay Fantastic and then if I could just add.
Speaker Change: Maybe ask one more question on <unk>.
Speaker Change: Potentially get a little more clarity on what the path forward might be but I mean, if if those.
Speaker Change: <unk> run out I mean does that imply then that that subsidiary with them would have to.
Speaker Change: Enter some sort of bankruptcy protection proceeding.
Speaker Change: Lawson at this point I don't want to speculate what happens when when and if they were to run out of cash what the task for US currently is to work with the unions and the government to try to get that to be a viable operation.
Speaker Change: And that's what we're really focused on we have a dedicated group of people who are working with the various stakeholders and constituents to to make it to make it viable.
Speaker Change: Okay, that's very clear.
Speaker Change: Thank you so much for your time today.
Speaker Change: Thank you.
Speaker Change: Thank you and our final question today comes from Curt Woodworth with UBS. Please go ahead.
Curt Woodworth: Yeah. Thanks, Good evening, Hi to Illinois.
Okay. Thanks.
Curt Woodworth: Thank you for initiating coverage, but you did it.
Curt Woodworth: Yes.
Curt Woodworth: Alright.
Let's dig into that all of it so good we can.
Curt Woodworth: We've got a while kind of we can dig in okay. So here's the question so.
Curt Woodworth: Alumina is at 370 <unk> bauxite.
Curt Woodworth: You're saying you've got a third of the way down on the 310 of raw materials.
Curt Woodworth: You're guiding to a tax expense in the first quarter of zero. So.
Curt Woodworth: Are you, saying based on spot pricing for the first quarter. Your earnings before tax is zero like I would've thought that at $3 70 of Illumina.
Curt Woodworth: You you you'd have some tax expense and a whack.
Curt Woodworth: And then.
Correct.
Curt Woodworth: How do I think about that and then again just kind of what's the cadence I guess as you see kind of the margin profile in the alumina segment I know that you've talked about trying to get costs down and mitigating some of the bauxite great issues, but is there.
Curt Woodworth: Is there a guy a glide path. The next several quarters, where you know there's more meaningful margin recovery for a given.
Curt Woodworth: Aluminum price point.
Speaker Change: Okay. Let me take the tax part first you've followed us for a while you know as as our income gets right around breakeven predicting taxes in an extremely difficult looking at the jurisdictions are paying taxes versus those where we're fully reserved so we are at that.
Speaker Change: Where if we have a meaningful departure on tax will have to give you an update.
Speaker Change:
Speaker Change: Okay.
Speaker Change: So let me let me address the second part of the question or maybe the theme of the question Lawson.
Speaker Change: Part of the reason why we put the chart together that that we've been very focused on here is that.
Speaker Change: We made $500 million in EBITDA in 2023, everybody can see that and at a at the prices and raw material level in 2023, that's where we ended up we have line of sight to near term actions that are going on that are going to double that over the next let's say two years.
Speaker Change: And that's not banking on any type of a middle market or alumina market improvement. If you then factor in where we were way back in 2022, which was not that long ago on on metal prices you can see the earnings just really excel.
All right very very quickly so we.
Speaker Change: We had alcoa arent sitting here, hoping for an earnings for for a market recovery. We're taking action, we're taking a hard actions quite honestly quite honest not an easy decision.
Speaker Change: Warrick is an easy decision, but hard to accomplish safely and to do it effectively all your more were improving we havent even talked much about bauxite permits here that is something that was a non trivial task to get accomplished in the fourth quarter and and it's good to have that beyond behind us.
Speaker Change: And then on top of that we're going after $100 million of cost savings and we're going to have that on a run rate basis by the first quarter of next year. So you can see that we're pulling every lever to take that $500 million too.
Speaker Change: To a much higher <unk>.
Speaker Change: Level and and essentially.
Speaker Change: Proof your initial thesis incorrect.
Speaker Change: Yeah.
Speaker Change: Okay, and what do you think cash restructuring.
Speaker Change: Could theoretically look like like in the event that you because I think you had a comment in November that.
Speaker Change: Under performing assets were 90 million negative EBITDA quarterly.
Speaker Change: Right. So the Sanford San Serbians, maybe 40% of that quantity 70, but you still have other buckets play.
The deal with so I guess do you expect more restructuring and can use.
Speaker Change: Can you size potential like cash restructuring needs for that business and then just lastly in terms of North my are on getting the permit for the next phase.
Speaker Change: You know what.
Speaker Change: When do you expect that to happen because I think there was a view that it could be concomitant with what you're trying to do with your existing Permian. Thank you.
Speaker Change: So on the permitting we are going through a park for permitting process in Western Australia.
Speaker Change: That takes time, and we are saying that we won't be into north mine until at least 2027.
Speaker Change: As far as any potential further restructuring and I'm going to let Molly answer it from a quantitative perspective.
Molly: We when we talk about a financially troubled operations there are still ones in there that are that we are.
Molly: Really challenging to be more.
Molly: Cost competitive Lister, we talked about earlier in this call work, we have a plan to get there Portland.
Molly: <unk> has been re powered and is currently starting some marginal small marginal capacity in a couple of parts at a time, but that adds a marginal EBITDA. So that's the actions that we're taking to address those remaining financially troubled operations.
Molly: Any comment from you on cash restructuring.
Molly: Too early to have a number firsthand set brand obviously, we're working toward a solution there, but there is potential.
Molly: No no number of shops.
Molly: Yep.
Speaker Change: Alright, thank you very much but curt thanks for coming back to following us I appreciate it.
Speaker Change: Alright.
Curt Woodworth: Thank you. This concludes our question and answer session I would like to turn the conference back over to Mr. Robinson for any closing remarks.
Robinson: Thanks, Rocco for hosting the call for us and thanks again to all who joined our call. We're excited about our initiatives as you can hear from our voices.
Robinson: Including the work to address key challenges and drive improvements I think we've made a lot of progress over the last 90 days there is an energy and enthusiasm within the company that's driving toward solving many of these near term and midterm problems and and we are really going after it Molly and I look forward to speaking with you next time and until that time be safe.
Speaker Change: Thank you. Thank you.
The conference has now concluded we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.
Speaker Change: Yeah.