Q1 2024 Alcoa Corp Earnings Call
Good afternoon, and welcome to the Alcoa Corporation first quarter 'twenty 'twenty four earnings presentation and conference call.
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I would now let's turn the conference over to James Dwyer, Vice President Investor Relations and pension investments. Please go ahead. Thank.
Thank you and good day everyone.
I'm joined today by William Operator, Alcoa Corporation, President and Chief Executive Officer and <unk>.
Molly Behrman executive Vice President and Chief Financial Officer.
We will take your questions after comments by Bill and Bali.
As a reminder, today's discussion will contain forward looking statements relating to future events and expectations.
That are subject to various assumptions caveat.
Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings.
In addition, we have included some non-GAAP financial measures in this presentation.
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.
Any reference in our discussion today to EBITDA means adjusted EBITDA.
Finally, as previously announced.
The earnings press release, and slide presentation are available on our website.
With that here's bill.
Thanks, Jim and welcome everyone to our first quarter 2024 earnings call.
I hear you discuss our recent activities and performance for Keith today.
Let's start with a transaction that we announced in late February our proposed acquisition of alumina limited, which would give I'll call it 100% ownership and the Alcoa world alumina and chemicals or <unk> joint venture and.
In the all stock transaction alumina limited shareholders will receive 0.0 to eight five for Alcoa shares for each alumina limited share.
Based on our colors and alumina women, it's closing prices as of February 23rd 2024, the agreed ratio implied an equity value of approximately $2 2 billion.
Alumina limited and a premium of 13, 1% alumina limited share price.
Today through a complex web holdings at a subsegment level alumina limited shareholders have exposure to 40% of only be a whack bauxite alumina and aluminum assets. Upon completion of the transaction alumina limited shareholders will own 31, 5% and Alcoa shareholders would own 68.
875% of the combined company on a fully diluted basis.
We believe the acquisition will deliver immediate and significant value for both companies' shareholders and it's the right path forward for both Alcoa and alumina limited.
Alumina limited shareholders will participate in the upside potential of a stronger better capitalized company with a larger and more diversified upstream aluminum portfolio.
Our core offers a full suite of low carbon and recycled content products and has long term technology projects underdevelopment transformed the upstream aluminum value chain.
Additionally, our Cogs shares will be traded in Australia through our secondary listing on the Australian Securities exchange or ASX via chess depository interests or CVI.
And as stated earlier it elevates the ownership position of alumina limited shareholders and provides them with a premium over the recent share price for their noncontrolling interest.
Alcoa stockholders or transaction increases I'll call. It the economic interest in our core tier one bauxite and alumina assets and simplified governance, resulting in greater operational flexibility and strategic Optionality.
It advances our position as the global pure play upstream aluminum company and enhances alcohol is vertical integration along the value chain across bauxite mining alumina refining and aluminum smelting.
Our COO will significantly increase its ownership in five of the 20 largest bauxite mine and five of the 20 largest alumina refineries globally, excluding China.
Following this transaction alcohol will be better positioned to continue our long term plan of investing in Australia bauxite mining alumina refining.
Together Alcoa in alumina limited shareholders will benefit several ways.
There are tangible near term cost synergies and potential for further organizational optimization, replacing the complex JV arrangement with a simpler less expensive structure.
We will be more efficient in executing decisions with a view to maximizing our returns with fully aligned interest among alcoa and former alumina limited shareholders.
We remain fully committed to our capital allocation framework. The all stock transaction preserves our cost balance sheet strength and provides capital structure flexibility.
As one company, we will continue to have opportunities to pay distributions to shareholders. While also transforming the portfolio and positioning ourselves for growth deploying capital to maximize value creation.
So in sum we believe this is the right deal for alumina limited shareholders for Alcoa shareholders, and our broader stakeholders and communities. We're confident the transaction will build on our leading position as a global pure play aluminum company and improve our ability to execute our long term strategies and growth opportunities finally.
A quick note on transaction timing, we expect to close the transaction in the third quarter and the second quarter and we expect that all coal will be filing a proxy statement and alumina limited we will be filing a scheme booklet and connection with the transaction. There are also government approvals that are we are seeking in the second and third quarters, which.
<unk> in Australia, the foreign investment review Board and the Australian competition, and Consumer Commission and in Brazil, The Brazil administrative council for economic defense.
We expect to apply for our ASX listing in May and finally, but most importantly, the shareholder votes to approve the transaction and issue an exchange shares are expected to take place in the third quarter.
Now, let's talk about the first quarter it was a busy quarter.
First and foremost we had no fatal or serious injuries in the first quarter.
Our key lagging indicators days away restricted time total recordable injuries and all injury rates all improved the improving safety performance is driven by a concerted focus on safety across the company and by using programs that include managing critical risks and increasing the positive impact of our leaders.
Lending time in the field no matter what safety is always our first priority.
Other items to note in the quarter. In addition to announcing the alumina limited acquisition. We continued efforts to find a long term solution for the <unk> brand complex and we've started a process to potentially sell the facility. We completed the restart of one potline at work and we set records for quarterly production rates.
At two smelters Abi and motion.
We fully deployed the $100 million productivity and competitiveness program.
And we announced the Kona full curtailment.
Finally in March we issued a $750 million green bond to support our cash position using alcohol is new green financing framework.
Now I'll turn it over to Molly to take us through the financials.
Thank you Bill revenue was flat sequentially at $2 $6 billion in the alumina segment third party revenue increased 6% due to higher average realized third party price for alumina and higher shipments.
In the aluminum segment third party revenues decreased 3% due to lower average realized price for alumina.
The net loss attributable to Alcoa change $102 million to $252 million and a loss per share changed from 84.
<unk> to $1 41.
On an adjusted basis, the net loss attributable to Alcoa was $145 million or <unk> 81.
The difference is primarily related to the restructuring costs and other charges for the economic curtailment.
Adjusted EBITDA increased $43 million to $132 million.
Let's look at the key drivers of EBITDA.
First quarter 2024, adjusted EBITDA increased $43 million.
Primarily due to improved energy costs.
Raw material and other cost benefits were offset by volume and production costs the.
The unfavorable production costs included the single quarter recognition of section 45 X at the inflation reduction Act credits for work in Massena.
While last quarter included impacts for the full year based on the timing of approval.
Alumina segment, EBITDA increased $55 million sequentially, primarily due to higher alumina prices and favorable currency impacts.
Lower raw material and energy costs, mostly offset higher production costs and lower shipment volumes in Brazil and Australia.
Aluminum segment declined $38 million sequentially.
While we also saw substantial benefit from lower energy and raw material costs, those benefits were more than offset by unfavorable currency and metal prices, primarily due to the end of the metal hedge program at <unk>.
Other factors are higher alumina costs, and unfavorable or taxane costs, including impacts from the just mentioned 45 X credits.
Outside the segments transformation demolition costs other corporate cost and inter segment eliminations all improved.
Let's look at cash movements within the first quarter on the next slide in the first quarter working capital changes capital expenditures and environmental and Aro payments, where the largest uses of cash.
Working capital as a significant use of cash in the first quarter is typical for US. However, the first quarter 2024 increase was significantly lower than the last two years levels.
Capital spend in environmental and Aro payments are both in line with our 2024 outlook, although the spend is not ratable for the year.
Sources of cash in the quarter include the debt issuance of $750 million.
The additional liquidity provides us with the flexibility needed to continue to execute the actions, which further strengthen our asset portfolio in.
In the longer term, our capital allocation framework remains unchanged and focused on maintaining a strong balance sheet.
In regard to our debt issuance. This is the first issue under our new Green Finance framework, which prioritizes expenditures and climate change mitigation through projects and circular our low carbon products and pollution prevention technologies, while supporting renewable energy and water management Prost.
Proceeds from Su cover both new and existing de Carbonization and water management projects, our research and development expenses related to our breakthrough technologies, LSF, Australia and refinery in future.
Purchases of renewable energy as well as certain costs related to the production of our low carbon alumina and aluminum products.
Under the Green Finance framework, the net proceeds of a green financing that can be allocated to qualifying expenditures on a two year look back and three year look forward.
We do not expect to allocate part of the net proceeds to significant capital investments in our breakthrough technologies as we do not expect those to occur in the remainder of this decade.
Moving onto other key financial metrics.
Our key financial metrics are consistent with our earnings results year to date return on equity was negative 14, 5%.
Days working capital increased eight days to 47 days sequentially, primarily due to higher accounts receivable.
Our fourth quarter dividend added $19 million to stockholder capital returns.
While free cash flow plus net noncontrolling interest contribution was negative for the quarter at $269 million impacted by the typical first quarter working capital build the cash balance increased $500 million.
To one $4 billion, including proceeds from the debt issuance.
Let's turn to the outlook for the second quarter.
We have one update to our full year outlook on the income statement interest expense is changing from $110 million to $145 million in light of our dashiell rigs.
Regarding the sequential changes from the second quarter in the alumina segment, we expect impacts of approximately $20 million related to higher seasonal maintenance and other mining costs for the Australian operations.
In the aluminum segment, we expect favorable raw material and production costs to fully offset unfavorable energy impact alumina cost in the aluminum segment are expected to be unfavorable by $15 million.
Hello, EBITDA note that first quarter. Other expenses included one time negative impact from foreign currency losses of approximately $20 million.
Based on last weeks pricing, we expect second quarter 2024 operational tax expense to approximate $40 million to $50 million.
Lastly, I'd like to provide a quick update on our near term actions for profitability improvement as we guided last quarter.
For the second quarter, we have locked in more of the $310 million year over year savings in raw material costs, although not as prominent from a sequential Neal.
Our productivity and competitiveness initiatives are identified and being implemented we are on track to deliver at a full run rate by the first quarter of 2025 as committed.
The work third line restart was completed at the end of March. However, additional actions have been identified and need to be deployed to achieve profitability. The smelter is not expected to have significant improvement in the second quarter that is projecting an improved second half of 2020 for the full improvement is not expected to be reached.
Until the end of 2025.
Quite honestly curtailment is going according to plan and we expect to start seeing some savings in the second half of 2024.
Although stability continues to be a challenge at the LMR smelter, we remain committed to delivering our near term targets by the end of 2025.
Now I'll turn it back to bill.
Thanks, Molly the near term markets are showing signs of improvement in the long term outlook remains very positive for both alumina and aluminum.
For alumina alumina prices recently reached a two year high while demand has remained steady near term supply concerns have continued.
These refineries are curtailed capacity due to bauxite shortages and environmental issues. The fuel depot explosion in Guinea raises concerns about the security of supply for China's and the world's largest seaborne bauxite source, the Queensland, Australia gas supply disruption as well as our announced curtailment of the Coronado refinery.
As made Australian alumina supply is less certain.
Long term alumina demand is expected to grow alongside aluminum, but limited low carbon energy sources, and increasing reliance on seaborne bauxite supply, particularly for Chinese refineries are expected to constrain the growth potential and cost competitiveness of future refineries.
For aluminum currently demand is looking up.
Demand in the automotive and electrical sectors have remained strong and we are seeing signs of recovery and packaging build.
Building and construction remains the most challenged end market, but it is showing signs of stabilization, especially in North America.
And our order book, we see sales of fab or value add products, increasing both year over year and quarter over quarter.
Even seeing opportunities for spot sales across our portfolio.
From a supply perspective, there are a few new projects coming online.
Even considering the announced G&A and restarts, China continues to hold towards 45 million metric ton production cap. So.
Inventory days remained low and unwanted Russian aluminum still makes up more than 90% of the <unk> inventory.
The Big News last week was that the U S and UK governments announced sanctions on Russia and aluminum the.
The impact was to establish an import ban into the U S and the U K and restrict activity at the London metal exchange and the Chicago Mercantile exchange.
This was the right decision as Alcoa has consistently advocated and we maintain that the EU should take action as well.
As you might expect from this news <unk> aluminum recently hit its highest level in a year and first quarter regional premiums in the U S Europe, and Japan all increased sequentially.
Long term, we remain bullish more aluminum both primary and secondary will be needed to drive the renewable energy transition and achieve global de carbonization goals today.
There are not enough announced projects to meet that expected demand and future projects faced challenges binding renewable energy supplies mid expected increases in carbon emission costs.
Even China is adding aluminum to a submission trading system or Etfs and.
In summary, alumina and aluminum markets are improving in the near term and our long term outlook remains very positive.
Now, let's review key activities with Alcoa.
We continue to make progress on key near term actions as well as keeping momentum on long term activities.
Focusing on the near term the overall outlook is positive.
We're seeing further improvement in purchase prices for key raw materials.
The current market outlook continues our expectation is to exceed our savings target.
We have deployed our productivity and competitiveness program and expect to realize savings in the coming quarters with full run rate improvement of $100 million by the first quarter of 2025.
The restart of one potline at work is complete and we remain optimistic that we will see additional IRS funding decided by the U S government sometime this year.
The <unk> on a full curtailment, which we announced in January is on track with all production to be stopped by the end of the second quarter, we expect to see resulting EBITDA improvement in the third quarter.
On a negative note the <unk> restart has regressed, while we have solved a number of issues, we continue to struggle with equipment reliability and personnel experience.
We have reinforced our leadership in expert teams in Brazil, and are taking actions to improve its overall performance.
<unk> brand is a focal point of our near term actions consistent with the viability agreement, we restarted 32 pods in the first quarter are.
Our work is in two areas of focus.
Take actions to make sense separate viable for the long term and alternatively to find a potential purchaser for the site.
We have completed the optimization study and delineated a modest set of potential short term and medium term improvement actions. We are working on implementing actions while preserving cash.
The purchase prices for energy and sales prices have improved the business remains unviable and we do not expect near term government support to be forthcoming.
We started a potential sale process for the entire location, but the smelter and the refinery and we expect to complete the bid process by the end of June.
Any long term solution requires government and union support.
Consistent with all of these actions and the current market environment and barring reaching an acceptable outcome on either of these two paths, we expect cash to run out in the second half of 2024 at.
At that point Alcoa Corporation will not provide further funds and hard decisions will need to be made.
As a company we are very excited about the progress we're making on multiple fronts.
Through the alumina limited deal, we're increasing the economic interest and assets, we already control and operate in an all stock transaction that benefits all parties.
We safely executed an impressive list of operational activities to improve the business and we have more actions to complete.
And both the alumina and aluminum markets are on the upswing.
This is an exciting time to be at Alcoa, operator, let's start the question and answer session.
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Our first question today is from Lucas pipes with B Riley. Please go ahead.
Thank you very much operator, good afternoon, everyone.
Bill first.
Maybe to start out on the macro side, a little bit higher level.
But some of the changes that are expected on the on the power side and then the Chinese production cap.
What's your view of kind of the relative market strength and aluminum versus illumina and how should we see that in the context of payback.
Acquisition and on a whack and any view that you could share in terms of kind of synergies from a tax perspective.
Thank you.
So let me take the first question the second question first.
The alumina limited deals a long term deal. It's a deal that we've been focused on for a while.
We think that it provides benefits to our shareholders and to their shareholders and the communities that we work in.
So.
Yes.
Any near term market dynamics really don't go into a significant decision, making around the alumina limited deal.
As far as the synergies go fairly fairly quickly, we can take out $12 million of overhead.
And then there's potential synergies down the road capital structure and being able to have that.
In Australia. So there is some potential synergies there. We then step back to your original part of your question the market dynamics for both alumina and aluminum are improving let's start with aluminum.
Seeing growth demand growth in all of our major markets with the exception of European building construction.
Also we are seeing.
<unk> growth on a on a year over year basis.
That that really is impacting the metal prices higher.
So driving regional premiums higher.
In the Midwest and in Europe, and in Japan, So good strong demand on the metal side.
In the case of alumina as we referenced in our prepared remarks, some of the uncertainty around the raw materials.
On alumina for instance, bauxite coming out of Guinea, and the gas situation in Northern Australia has driven alumina prices up at the same time also so our view for 2024 just to bring it back to a summary is that aluminum will be fairly imbalance, although we're seeing.
Stronger demand than what we had anticipated.
And alumina should be a deficit in 2024 with some of the curtailments that we've seen specifically also with the curtailment of banana in June of this year.
Yes.
Thank you. Thank you very much bill and Dan.
There's been a lot of government support recently.
To the U S. There's some funding flow.
Smelter.
Well see what the detailed spring.
In Europe.
There's been over $8 billion in public funding announced for the transition of the steel industry and you've invested a lot in new technologies, such as LC simply refinery of the future I would imagine your programs with the Prime candidate score.
All of these government initiatives so.
At this time.
Could could you programs benefit this is there anything in the pipeline how do you how do you think about all of that.
Lucas who will be looking at.
Different forms of governmental support for our programs. However, one of the things to consider is that the implementation of our three breakthrough technologies.
We'll really be out post 2030.
So any any support that we would be looking for today would be on the R&D side.
But but any implementation or significant capital spend is really going into the next decade, and therefore, it doesn't match up well with the near term governmental support.
Understood I appreciate that bill to you and the team.
Best of luck. Thank you thanks Lucas.
The next question is from Chris <unk> with Jefferies. Please go ahead. Thanks.
Thanks, Operator, Hi, Bill and Mike. Thanks for taking my question I just wanted to ask about I wanted to ask you about closure costs. So first on <unk> I think you said $80 million of cash outflow to close the refinery in 2024 and $35 million more in 2025, I assume that the $80 million of second half of the year, but I'm wondering.
First of all as.
In addition to that $115 million does anything else to close chronometer. That's my first question.
Chris Let's clarify that those are curtailment costs and not closure costs. So most of those are severance costs and other environmental.
Related to setting up the water treatment.
So thats, what youre seeing there a closure costs will be significantly more but we've not made a decision and that at.
A decision on that <unk> I will take some time, if we were to go there that we do need approvals actually to close permanently.
And then what about so it was kind of same question and Sam I'm not sure if I've seen.
Any kind of estimates of what the cost would be if you I mean, obviously.
So it might be a better outcome, but if you ultimately do.
Close the refinery and the smelter.
Can you give us an estimate as to what that might cost.
In terms of our refinery closure without without factoring in severance because in Spain. That's very difficult to estimate you can think of the refinery closure is about a $200 million cost.
A smelter could be between 25 and 15.
And that would be on the environmental and Aero side.
Not not counting sub brands because they are very different situations on severance in Spain.
Chris if I could just.
Just jump in real quickly.
It's a little premature to be talking about curtailment or closure costs around <unk>.
We're focused on two things specifically around the site in Santa <unk>, one is viability and tried to make that site viable and we're working on a series of actions to take cost out, but ultimately viability of the smelter will be low cost sustainable green electricity.
And then secondly, we did announce in this quarter.
Launching a sale process and we will go through that sale process through the second quarter and see if there are viable buyers for that site now we will not repeat some of the problems that we had enough loads in la Runion.
And therefore, we're going to really focus on the viability of a potential buyer.
That site. So it's a little premature at this point to talk curtailment, our closure costs.
So I don't want to speculate there understood I'm, just trying to and trying to figure out the different scenarios that might ultimately materialize there, but thank you for that I appreciate it. Thanks.
Yes.
The next question is from Alex hacking with Citi. Please go ahead.
Yeah. Thanks, Thanks for the call and the question.
I guess, firstly on working capital any guidance for the rest of the year and then secondly, you mentioned that with raw material cost trending as they are you might be able to exceed your savings targets.
Is there any way of quantifying that and how would that tradeoff against potentially higher.
Energy costs that are linked to higher LNG prices. Thank you.
So Alex on the working cap at all for 2024, we are targeting a $1 billion level by the end of the year and we closed the quarter at $1 4 billion.
And we are working aggressively down towards that $1 billion mark by the end of the year.
In terms of raw materials.
Don't have another number above the 310 year over year.
We committed to but we are seeing favorable results coming in now and we do expect to exceed that.
If you look at caustic prices, we are definitely recognizing the benefits of the lower purchase prices from the second half of 'twenty three into the first half of 'twenty four and current purchase prices are just very slightly elevated but and very comparable to pre pandemic levels. We are.
Still seeing declines on coke and pitch and while we have that three month lag in inventory there we expect that.
To continue throughout 2024 with those coming down.
Okay. Thank you very much and then just quickly on an LMR.
It sounds like.
Kind of switching.
Switching over to EBITDA positive there is probably something that's more likely to happen now in 2025 and 2024.
That fair or am I being too pessimistic.
I think it will depend on what.
Metal prices and as metal prices gone up so that's benefited the site.
So it's going to depend there and.
In the case of value more.
That site had been curtailed for about eight years and I think we just fundamentally underestimated how hard it was going to be to get that site backup and running especially from a mechanical.
Perspective from the condition of some of the equipment. There. So continue to work it and it's it's delayed from where we thought it was going to be.
Okay. Thank you so much.
The next question is from Lawson Winder with Bank of America. Please go ahead.
Hey, Thank you very much operator, and thank you all for taking my question I might just follow up on LMR.
And just position it from the point of view of several years ago eight years ago. As you mentioned when you took the decision to close it I mean, it was among some of the higher cost smelters in the World. I mean is there any question now at this point.
Whether it might make sense to abandon the restarts and then looking at it from another way is there.
Any thought to that asset potentially being sold thank you.
So as far as consideration of abandoning the restart Lawson as you can imagine in the.
And our jobs both Molly.
We constantly need to be revisiting the decisions that we've made and make sure that on a go forward basis.
The actions that we take.
And so with that statement, we have looked at what our options in <unk>, we still believe given the power contracts that we have the fact that it is co located with the refinery. The fact that it's in a part of the world where it needs aluminum.
The business case still solved on a go forward basis to continue with the restart.
We are disappointed with the pace and the execution that we've seen on the restart and there's really a couple of different areas I mentioned the mechanical.
The condition of some of the equipment, we continue to work through that.
And then the other one is really around the.
Technical expertise of the people that we have there. It has taken some time to make sure that the folks that we have there are able to effectively work through the restart we've doubled down on some of the resources that we've provided out in centers of excellence and also some external resources.
So at this point, we continue to work through the restart.
Okay that answers my questions. Thank you very much thanks Paulson.
The next question is from Bill Peterson with Jpmorgan. Please go ahead.
Yes, hi, thanks for taking the questions. So I guess, maybe sticking on LMR, but maybe also related to work because it sounds like you are facing some challenges on both.
And then there are some IR akins are still trying to work out or the $75 million and $70 million for work in total.
Still the right way to think about it, albeit more later in 2025 or the challenge you spoke to more likely to take you take the savings level down.
No we are still working towards those stated target and how we do believe that they can be achieved by the end of 'twenty five.
For War Act, we did have a successful restart their now I don't expect to see considerable improvement in the second quarter. They have identified additional actions those will need to be implemented before we get to profitability.
We indicated on the last call we have about $30 million in IRI opportunity are waiting for a decision from the government on direct materials can be included there. So that was part of warrick that $60 million related to the operations and $30 million between work in massena on the IRI.
On <unk>, we're still we're still committed again as Bill mentioned, we still expect to get through the issues that we're facing we're knocking down.
<unk>.
Items, one by one in a very day to day focus there and Fortunately have enough expertise now in hand, and trying to make progress there.
And I am quite on.
<unk> debt.
We had guided to a $70 million improvement there and we will not see that.
It'll start to ramp in say in the second half of 'twenty four I believe should be in good shape from realization of Quant honor the $70 million and 25.
Okay. Thanks for that.
If you think about the U S market is benefiting from protectionism through section 232.
How do you see further protection solving given the election year and also the headlines out this morning regarding Chinese material based on our math it looks like around maybe 3% to 5% of total U S imports over the past few years.
So the headlines that came out this morning.
If we just back up the $2 32.
Don't see that necessarily the 232 tariffs changing.
And so we think those will stay in place.
The headlines that came out this morning around potential increase of tariffs on 301.
Is <unk>.
First of all it's a fairly small sub segment of the aluminum.
Thats used and second of all I guess.
In our view, it's probably positive for our North American customers.
If it's positive for our North American downstream customers were supportive of the <unk>.
Increase tariff the tariff level now it's very recent news.
And we haven't seen any of the final information.
So thats a preliminary view.
Okay.
Okay. Thanks for the insights and color.
The next question is from Timna Tanners with Wolfe Research. Please go ahead.
Hey, good afternoon.
Cross your.
Like remaining operations are still some curtailed.
It's nothing capacity and refining capacity and in light of your optimistic outlook and that strength briefly in aluminum and alumina.
Can you revisit like further restarts or risky for example, or do you think about opportunities to maybe capitalize on higher prices in the near term and going forward as well.
Yes.
Excuse me Jim.
Dealing with a little bit of a cold here, so sorry about that.
Sure.
You know that for instance in the case of Borg in La.
We always look at the economics of a potential restart in those situations, we would need to have real clarity.
<unk> around near term energy prices.
And so we would we would consider it.
However in the case of for instance, ward want to make sure that we have the three lines running well and capture the savings that we've that we've announced and gone out publicly with.
In the case of list it would have to be an energy solution that we would be able to get over the near term.
Okay helpful.
I understand span a little bit better so when you think about selling the asset.
In the same breath, you're telling us that you are not very optimistic about them. So with a potential buyer has to have I guess you mentioned the other Spanish sale and so then you have some deep pockets and maybe a different relationship with the union and government like how how do you sell an asset that you are telling people is struggling I just wanted to understand that better and what your prospects do you think there.
Well, we're running a really broad based sale process and we've gone out to just about every strategic and financial buyer in the industry.
And.
It will really be up to them to take a position around how they view as some of the things that they can achieve either with the union or through governmental support and.
Metal prices and alumina prices right. So if somebody has a view that.
Europe will be short metal for the long term.
Potentially they can justify buying.
Assets will go through that process at the same time as I said will be very focused around trying to ensure the viability of the site for ourselves and for our potential future buyer and if we get to the second half of this year and we don't have a buyer and we can't to assure the viability as we've said, we're not putting more money into that site.
And hard decisions will have to be made at that time.
Okay, and then just to clarify that the view of running out of cash in the second half does include the recent run rate of aluminum and alumina prices.
So I think we've said recently that we have about $200 million of internal lines of credit or cash of which some of that is restricted cash associated with capital expenditures.
And Thats largely includes the most recent view metal prices run up a little bit over the last few days, maybe that pushes it out a month or two.
But that's the that's the view timna that it'll be second half sometime.
Okay I appreciate I hope you feel better.
Thanks.
The next question is from Carlos de Alba with Morgan Stanley. Please go ahead.
Hello Hello.
Hello, Bill Emily.
Hope Youre doing fine and you get better soon bill.
Thanks Carlos.
Speaker Change: On <unk>, just how how potentially good day issue that you're facing now impact the $75 million incremental EBITDA that you expect to get from that operation by the end of 2025.
Bill: So Carlos I, only said that guidance for the $75 million improvement we were really looking at the losses that we had accumulated in 2023 and setting a goal for ourselves to at least feedback too.
Neutral to breakeven.
We're still on that on that path to get into 2025, hopefully turning the quarter into positive.
Profitability, but that's why we are focused on the 75 as being achievable.
Alright, Thanks, and then on the breakthrough technologies.
Some of them I really exciting.
What what is going on that maybe is it feels at least to me that is delaying a little bit.
The implementation of the pace at which those are advancing and any color that you can provide there.
Let's see so the refinery of the future perhaps.
Yes.
As we continue to make progress on analysis.
We will have a commercial sized test cell running in 2024.
At the Rio Tinto.
The smelter, that's a 450 K a cell.
So from that so we will be able to get good.
Reading on how well it operates in.
Bill: To be able to get a good feel for how well it operates at a commercial sides.
So our view is that we will be implementing anything until post 2030 that gives us time for the technology to be completely developed and vetted out so that when we get to a point of large capital expenditures for.
Emphasis pipelines will have a good sense that the technology is completely solid.
And from what you see today Bill.
Would you implement dialysis fault lines in the <unk> smelter.
Or do you think it should be more than that in a green a greenfield its really early Carlos.
And what are some of the restrictions that we will be placing on it is that it only makes sense for us to implement emphasis where we have green sustainable power renewable power thats inexpensive. So we will be looking around the world both for brownfields and Greenfields in the.
In the 2030 timeframe.
To implement ellis's, but it'll have to be on the renewable low cost sustainable power.
Alright, great. Thank you very much good better soon.
Thanks.
The next question is from Carter Johnson with BMO capital markets. Please go ahead.
Hi, Thank you for taking my questions.
First.
Bill can you provide an update on the permitting process for the new bauxite mine areas.
Western Australia.
Yes.
So.
We're focused on continuing to be focused on the EPA assessment process.
Moving forward on the port for process for my our north in Holyoke.
There are a series of steps that are outlined on our website. So it actually makes it much easier for you to follow along and see how you're going to hold us accountable for moving forward. We will have we expect in.
And EPA public comment period on the environmental review document that could be as early as the second quarter of 2024, maybe that goes into the third quarter.
Bill: We will prepare responses to the submissions for that in the third quarter of 2020 for the EPA will publish a report on their assessment.
We say in the first quarter of 2025, that's all leading toward an amended a ministerial decision at the end of 2025% to fourth quarter of 2025. So that we can implement the mine moves so that we can get there.
No earlier than 2020, so those are the various steps and we are continuing to make progress on those steps.
Okay, and then maybe on the 45 ex credit.
Do you think alumina and other input costs are eventually going to be included in the calculation and if so what would the incremental benefits for you potentially be.
Okay.
If alumina and all of our raw materials are included and we should see about a $30 million to $40 million benefit from me.
Direct material inclusion we have made our case to the government and now we are waiting outward.
Is there any timeline on when the decision could be made.
Unfortunately now.
Okay. Thank you so much.
The next question is from Michael Dudas with vertical research. Please go ahead.
Yes, good evening, Bill Molly and Jim.
Hey, Mike.
Yes, so I guess encouraging news on the sanctions.
You can use it with the Russian aluminum situation.
Any read a thought about the EU there on following through and maybe on the dynamics of the marketplace I mean, certainly.
Mason question about prices have improved and certainly aluminum benefit, but could you give a sense of where you get the customer base really kicking in here on the demand side and as some of the dynamics on the maybe speculative or some of the dynamics with regards to some of the metals flow it could be more or less supportive in this recent run bill.
So a lot of lot of components to that question, Mike. So let me try to parse it out a little bit.
Sorry about that I know youre working on on the Dayquil there yeah.
But if we if we.
Start with the Russian sanctions.
First and foremost we're appreciative of the action that was taken by U S and the UK Gov.
Governments, we've been supporting this type of action for and really advocating for this type of action for a couple of years now prior to the announcement on Friday.
Just to be clear the index price and this has been our argument for two years the index price for all metal sales.
Had been set by Russian units, which we believe were discounted in the marketplace and so you had a global pricing mechanism that had lost its credibility because it was based on a product that wasn't widely accepted in the market. So this move.
Reestablishing the credibility of the benchmark price.
To go to the second part of the question.
We think it paves the way for the EU to take similar action and we would obviously advocate for similar action and then the third part of the question is I would not.
Tribute all of the price move recently to these disruptions sanctions move we are seeing strong demand across the board.
As I said in my prepared remarks, and just about every industry in every region that we serve with the exception of European building and construction, but if it's packaging automotive transportation electrical.
Transmission, we are seeing growth in each of those markets and again, if it's China or Europe or North America, we see it in all markets. So the price movement that we've seen on the <unk> can be attributed in part to the Russian sanctions in part to some of the strength in demand price movement that we've seen.
And the premiums we think is related to stronger demand too. So you have seen in the Midwest premium move up.
The European premiums move up in the Japanese premium moved up also so we're really feeling as if we're in a spot where we're getting some tailwind from the marketplace.
Excellent. Thank you.
The next question is from John Tumazos with John Tumazos very independent research. Please go ahead.
Thank you.
Well Paul.
Our grant thank you.
Good.
Do you have.
Site infrastructure.
It's some of your.
Existing or prior facilities.
Would make it cheaper for you to build.
Large smelter in brownfield or existing site.
Yes.
Yeah.
Sean we have existing site.
Around.
The U S. For instance, Massena east, which is the old Reynolds facility.
Massena West point comfort in telco with ads.
Often top my head I don't know that any of those would have large enough electrical infrastructure to make a meaningful difference.
In putting a new site a new plant there. So on the margin. It may I think those sites are much better suited for redevelopment and Thats why we have our transformation group and you've seen some of the real successes over the last couple of years dating back to when we sold Rockdale for 250.
And we sold east Alto for $100 million, we get real value out of some of these sites through our redevelopment program and then sell them and we will continue to do that to answer your first question.
We would need to have very similar to the comment that I made Carlos we would need renewable energy at all at a low cost to make a large investment in U S and in order for us to make that large investment we would be going into the government also it's not in the works right now John that's not that's not on our agenda.
We've not talked about that in.
It's just not not on my agenda over the near term to have that done.
Sure.
Or why do you think the Goblin Matt.
Oh.
Sure.
April 13 cutoff date.
For forbidding the Russian metals.
As opposed to <unk>.
Bidding the preexisting metal wherever it might be a lag.
Along the learning of the Spike in Korea.
And warehouse.
John I don't have I don't have a good answer for you I can't speculate why the government.
Chose the date they chose.
I'm just pleased that they took the action that they did.
And really think that it is the first step towards reestablishing the credibility of the aluminum contract on the <unk> and I'm glad they did it and whether they have chosen the 12 through the 14th glad they did it.
Thanks, and good luck.
Thanks, Sean.
The next question is a follow up from Lucas pipes with B Riley. Please go ahead.
Thank you very much operator, thank you for taking my follow up question on the copper side. There is there is a lot of it.
Seidman about AI.
Electrification of everything and obviously aluminum benefits.
As a substitute and many of those ways, but.
<unk> also compete for electricity. So when you kind of think about the demand side, but then also kind of additional cost in the supply set when you netted out what do you think does it mean for the aluminum industry longer term and how would you position all color.
That trend thank you.
So Lucas thanks for the question I fundamentally believe that aluminum is an integral part of the energy transition that will occur in the world over the next 25 years copper is critically important but aluminum is right. There also.
Historical reference point of like $3500 I'm, sorry, three five times difference between copper price and aluminum price that when copper goes up.
As a substitution effect between copper and aluminum, we see that holding true today and as copper becomes more expensive, we think that that will benefit aluminum.
However, aluminum monotone.
And you know the story critically important to electrification critically important too.
Electric vehicles.
If you look at how much is used in applications around solar applications for the panels.
The frames of the panels the wind turbines.
Significant.
Driver of aluminum and we're looking at I think crew says 80% increase in aluminum demand between now and 2050. So I think the futures really bright for aluminum and copper aluminum specialty.
And on the power side, what do you think it means for <unk>.
How are you positioned.
Well I think on the power side renewable green power is getting harder and harder and it doesn't to find globally.
And so it doesn't matter if it's being used for something else associated with the transition of the.
Energy, but it is getting harder and harder to find which ultimately means that.
Supplied to some extent will be limited so supply growth over time will really be based on green energy and if if green energy sources are being used for other things like data centers I think it limits supply. So again, you can tell I'm pretty bullish on aluminum.
And I think both of those factors play into a stronger aluminum market in the future.
Thank you very much bill.
Couldnt tell you cold.
That excitement so.
But feel better. Thank you. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Mr off linger for his closing remarks.
Thanks, Gary and as we just said to Lucas as you can hear from our voice Molly.
Molly and I are really excited about the future of the company. We think we've made substantial progress in the quarter with the alumina limited deal being announced in the other operational actions that we took the markets are in our view a tailwind and the markets are improving we didn't really talk that much about the fact that our vast book is improving also so.
While metal prices and alumina prices and premiums are going up we're seeing that said that sales value add product sales go up also.
So with all that we'll sign off we're looking forward to talking to you in July Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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