Q3 2024 Alcoa Corp Earnings Call
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Speaker Change: Good afternoon, and welcome to the Alcoa Corporation, 3rd quarter, 2024, Ernie's presentation and conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your phone. To withdraw your question, please press star then two. Thank you.
Speaker Change: Please note this event is being recorded. I would now like to turn the conference over to Louis Lenglua, Senior Vice President of Treasury and Capital Markets. Please go ahead. Thank you and good day everyone. I'm joined today by William Oplinger, Alcoa Corp. President and Chief Executive Officer and Molly Beerman, Executive Vice President and Chief Financial
Louie Linglua: We'll take your questions after comments by the L10 Molly.
Louie Linglua: As a reminder to this discussion, we'll come to an forward-looking statement relating to future events and expectations that are subject to various assumptions and caveats.
Louie Linglua: Factor that may cause a company's actual results to differ materially from these statements are included in today's presentation and in our SEC findings.
Louie Linglua: In addition, we have included some non-gapternational measures and discreditation. For historical non-gapternational measures, the confiliations to the most ever key comparable gap financial measures can be found in the appendix to today's presentation.
Louie Linglua: We have not presented quantitative reconciliation with certain forward-looking non-gas financial measures for reasons noted and disliked.
Louie Linglua: and he referenced an or discussion today to A bit down, means adjust this A bit down.
Louie Linglua: Finally, as previously announced, the earnings press release and snipe presentation are available on their website.
Speaker Change: Now let's turn over the call to Bill.
Bill: Thank you, Louis, and welcome everyone to our third quarter, 2024 earnings conference call. Apple had a strong third quarter. We maintained our fast pace of execution on our strategic priorities while progressing operational excellence with safety, stability, and continuous improvement.
Bill: Underlying the strength of our performance, our positive market trends in both the near and long term. Let's start with safety. First and foremost, we had no fatal or serious injuries in third quarter. I firmly believe that a strong safety culture supports operational excellence. We've continued our positive trend in both leading and lagging indicators by focusing on the behaviors that drive safety performance.
Bill: Operational stability is evidenced by our aluminum production increasing for the 8th straight quarter. Starting in the fourth quarter of 2022, with year-to-date production records for our Mugeon and Canadian Smelters.
Bill: In fact, the motion, smelter, and Norway achieved its fourth consecutive quarterly production record. We also steadily improved stability at the IMR smelter in Brazil, currently operating at nearly 80% capacity.
Bill: We are working through the approval process for the next major Australian mind regions, my or North Holyoke, with the Western Australia Environmental Protection Agency and the Australian Federal Bi-Lateral Assessment Process.
Bill: Additionally, we have continued to deliver on our strategic actions during the quarter.
Bill: We completed the acquisition of a limited limited on August 1st, and we are already realizing benefits from this transaction on several fronts.
Bill: The acquisition resulted in increased economic exposure to the aluminum market, which is currently experiencing the highest pricing since 2018.
Bill: The transaction was accretive to third quarter results with the elimination of net income attributable to non-controlling interest after the closing date. Alcoa also benefited from the absence of related cash distributions.
Bill: The consolidation of the tax structure of the two companies will result in cash tax saving from approximately $100 million over the next 12 day teen months.
Bill: The added flexibility in our financial decision-making enabled us to move quicker on the sale of our 25.1% stake in the modern joint ventures which we expect to close in the first half of 2025.
Bill: The modern transaction is consistent with our ongoing strategy to optimize and simplify our current portfolio and business.
Bill: It highlights significant value for a non-core asset.
Bill: Additionally, the sale of the J.V. interest allows our court to avoid any future caps of calls for their group.
Bill: The transaction also provides us with enhanced financial visibility and flexibility.
Bill: The Mods Public to Lead Trade and Sharers, our shareholders will be able to see the changing value this investment represents on our balance sheet.
Bill: If needed to avoid volatility, we may explore alternatives to hence the value of our investment within the parameters of our contractual lock-up periods.
Speaker Change: Now I'll turn it over to Molly to take us through with an answer.
Molly Beerman: Thank you, Bill. Revenue was flat sequentially at $2.9 billion. In the Illumina segment, third-party revenue increased 9% on higher average realized third-party price partially offset by lower shipments. In the
Speaker Change: Third quarter net income attributable to Alcoaums, $90 million versus a prior quarter of $20 million, with earnings per common share improving by 27 cents to 38 cents per share.
Speaker Change: On an adjusted basis, the net earnings attributable to Alcoa was $135 million, or $57 per share. Adjusted EBITDA increased $130 million to $455 million.
Speaker Change: Let's look at the key drivers of even though.
Speaker Change: The third quarter adjusted EBITDA increase was primarily due to higher average realized third-party prices for aluminum, improved energy and raw material costs, and lower other costs, only partially offset by lower metal prices.
Speaker Change: The Illumina segment increased $181 million, primarily as higher Illumina prices, more than than off that higher production costs, raw material, energy, and other costs.
Speaker Change: The Illuminant Segment decrees $53 million, primarily due to higher illumination across lower metal prices, decree shetments, and only partially offset by raw material, energy, and production cost improvements.
Speaker Change: Outside the segments, other corporate costs decreased.
Speaker Change: Intersegment eliminations were unfavorable in the quarter which was expected as the higher average aluminum price requires more inventory profit elimination.
Speaker Change: Let's look at cash movements within the third quarter on the next slide. You're the date through September, capital expenditures and working capital changes continue to be our largest uses of cash.
Speaker Change: Within the third quarter working capital changed, a counter-severable came down as lower aluminum sales prices outweighed the higher aluminum sales price impacts. However, inventorys and both segments rose, primarily due to timing of shipments in aluminum.
Speaker Change: A counts table was lowered due to timing of payments and impacts from the Quenana Cretailment.
Speaker Change: Overall, this result has been an increase in working capital compared to the second quarter.
Speaker Change: Third quarter cash flows included approximately $85 million in restructuring payments, primarily related to the Quenona Courtailment.
Speaker Change: We can continue to progress our profitability improvement programs.
Speaker Change: We have taken actions to deliver approximately $525 million of the $645 million savings target as of the end of the third corner. Overall, the improvements are apparent in the year to date year over year bridge by program or location.
Speaker Change: During the third quarter, we added 175 million dollars to the second quarter's year to date progress of $350 million.
Speaker Change: Bruce September 30, the company over achieved its $310 million target on raw materials with approximately $355 million in savings. And we expect to expand those savings in the fourth corner.
Speaker Change: With an our productivity and competitiveness program through September 30, we implemented actions contributing to approximately $45 million of savings and expected to deliver the $100 million run rate target by the end of the first quarter of 2025.
Speaker Change: We have also progressed our portfolio improvements.
Speaker Change: Today, war has achieved $45 million of its $60 million target. We are still awaiting further clarification from the U.S. Treasury on the inclusion of direct materials and section 45 acts of the IRA program, which we estimate could be worth approximately $30 million.
Speaker Change: The Aliyamar Smelter restart has achieved approximately $60 million of its $75 million target, and it's currently operating at nearly 80% capacity.
Speaker Change: The Quinnon Accurtailment has been slow to deliver savings due to high transition and holding costs, but we are still targeting 70 million dollars and improvements on a run rate basis by the end of 2025.
Speaker Change: Moving on to other key financial metrics.
Speaker Change: The year-to-date return on equity turns positive to 0.6%. Days working capital increased four days to 45 days sequentially, primarily due to an increase in inventory days on timing of shipment.
Speaker Change: Our third quarter dividend added $26 million to stockholder capital returns, including newly issued shares for the acquisition of a women-limited.
Speaker Change: Free cash flow, less debt, non-controlling interest distributions, was nearly neutral for the quarter, resulting in a cash balance of $1.3 billion.
Speaker Change: As we look ahead to 2025, do you love or angry positioning that to the jurisdictions where cash is needed will be a priority for us?
Speaker Change: Turning to the outlook for the fourth quarter, our full year outlook has several adjustments.
Speaker Change: We are increasing the outlook for aluminum shipments to 12.9 to 13.1 million tons. That is an increase of approximately 200,000 tons. The production outlook for aluminum remains the same, as most of the shipping increase is related to trading tons, where there is low margin.
Speaker Change: While we expect transformation expense to improve 10 million to 70 million dollars, we also expect other corporate expense to increase 20 million to 160 million dollars.
Speaker Change: The appreciation expense is changing from $675 million to approximately $655 million. Primarily due to changes in capital project completion dates.
Speaker Change: Returns seeking capital is changing from 110 million to approximately $135 million. As we continue to consider several return-seeking projects with attractive rates of return.
Speaker Change: Primary Related to Production Creek Projects and additional value ad product capability.
Speaker Change: Environmental and ARO payments are improving from $295 million to approximately $265 million.
Speaker Change: Regarding sequential changes for the fourth quarter, in the aluminum segment we expect favorable impact, so approximately $30 million from higher shipments and lower production costs.
Speaker Change: In the aluminum segment we expect performance to be flat, maintaining the strong performance from the third quarter. While the higher price of aluminum will increase overall alcoa adjust in EVOTA, aluminum cost in the aluminum segment is expected to be unfearled by $80 million.
Speaker Change: Beyond the standard sensitivity provided for intersegment profit elimination, we expect an additional $30 million of expense in the fourth quarter due to the higher profit retained inventory related to changes in production cost and volumes.
Speaker Change: Below Egypt, we expect other expenses to increase approximately 20 million dollars related to equity losses in modern and equity contributions to LSS.
Speaker Change: Based on last week's pricing, we expect fourth quarter operational tax expense to approximate 120 to 130 million dollars.
Speaker Change: As the first full quarter since completing the Illumina Limited Acquisition, NetIncome, a tribute role to non-controlling interest will be zero. Now I'll turn it back to Bill.
Bill: Thanks, Molly. Let's start with an update on the markets. The aluminum price increased further in the third quarter to the highest since 2018, and supply disruptions continued in the time market.
Bill: So far this year, aluminum buyers have faced force mature in Queen Blund, Australia, related to gas supply. Force mature in Jamaica after hurricane impacts, and the accretalment of our Quenanaurine in Australia.
Bill: Recent events in India have also raised questions of whether there could be even further disruptions this year, but no impacts have been confirmed there yet.
Bill: The man remains strong from continued smelter production growth and relatively low aluminum inventory levels of smelters which is also contributing to the tightness in the market.
Bill: Meanwhile, on the Bob site market, we've seen tightness in China due to safety and environmental inspections in Northern China, along with continued depletion of war reserves.
Bill: As a result, seaborn box site imports there, continued to grow this year.
Bill: Looking ahead to the aluminum market for next year.
Bill: For the markets come back into balance both the resolution of the recent disruptions and the ramp up of scheduled projects in Indonesia and India will be needed.
Bill: In a aluminum, global demand is at record levels.
Bill: Specifically in North America and Europe, the packaging segment is recovering.
Bill: The Transportation Market overall has met steady with some slowing of growth within the automotive sector.
Bill: For building in construction, it has been a challenging year, but rate cuts in Europe. And in the U.S., are likely to provide some support for a recovery in the future.
Bill: Global Olimum Supply is growing, but with limited new projects in the pipeline.
Bill: China is approaching its 45 million metric ton production capacity cap, making any significant net supply growth from China unlikely.
Bill: and meaning supply growth instead will have to come from outside of time.
Bill: In addition, China announced that it is now including aluminum in its national omissions trading scheme.
Bill: which sets national carbon pricing.
Bill: While we don't expect to see immediate impacts from this development, it does send a message that is likely that the Chinese primary aluminum industry, which makes up over half of global primary aluminum production, will be subject carbon emissions pricing.
Bill: Increasing costs there in the future.
Bill: In summary, we believe the market environment remains positive for Aluminum and Aluminum. How caused well-positioned benefit from being one of the world's largest box site and Aluminum producers?
Bill: and from offering a diverse five portfolio of aluminum products that are used across several and markets that are experiencing growth.
Bill: The benefits of our significant aluminum-market exposure are starting to become more apparent. Not only in this pricing environment, but in relation to the additional economic exposure gained through the aluminum-limited acquisition.
Bill: Prior to the acquisition of the Luminat Limited, Oplinger had economic exposures through third-party sales to only 2 million metric tons of production.
Bill: We had 60% of the approximately 10 million metric tons produced in total, but used 4 million metric tons of that supply are aluminum shelters.
Bill: Post-acquisition, Alcoa has economic exposure to approximately 6 million metric tons of production available for third-party sales.
Bill: With our first quartile box site in Aluminoport, Folio, we're in a very strong position to take advantage of the near and long-term market fundamentals. As well as longer-term strategic opportunities like our recently announced extension of the Aluminum Supply Contract with Alba.
Bill: The 10-year agreement provides up to 16.5 million metric tons of smelture grade aluminum to all the. Our operations in Australia are well positioned to serve all the.
Bill: This contract also strengthens our position as the premier global aluminum supplier and enhances our ability to manage our long aluminum position.
Bill: Turning to our Spain operations.
Bill: Earlier this year, we announced a dual path approach to address the challenging economics of the complex. The launch of a sale process while also working to identify solutions for the long-term viability of the operations.
Bill: Owing a robust sale process that included 60 potential investors, no viable offer emerged.
Bill: However, through the sale process, one party emerged, the Agnes Group, which was known to alcoats through prior dealings and spains energy market.
Bill: Together, Oplinger and Agnes develops an alternative through which both organizations could leverage their individual expertise.
Bill: Our capabilities in managing global aluminum operations, and Agnes in leveraging their energy-market expertise to create value via market access and energy management services.
Bill: We're working toward entering into a strategic cooperation agreement. Under the terms of the agreement, Ignis would become a 25% owner in our Spanish operations.
Bill: The others would make initial investments of 100 million euros, 75 million euros from Alcoa, and 25 million euros from Agnes.
Bill: Additionally, if required, up to 100 million euros would be funded by Alcoa with a priority position in future cash returns. If additional funding is required, it must be agreed by both farmers and will be shared 75% by Alcoa and 25% by Higness.
Bill: However, this proposed partnership is conditional upon delivery of key items by national and local governments. Works Council and employees.
Bill: These include, which are at least higher CO2 compensation.
Bill: and permitting of power generation projects.
Bill: Support and approval for the Reds News Tour Jerry Capital Project.
Bill: and Flexibility within the Smelter Viability Agreement, such as the ability to use Restricted Cache to meet operating needs until competitive power is developed and provided under the time to pick the eggs.
Bill: We are now focusing on making the partnership a success with the critical support from keen stakeholders.
Bill: Our last strategic update is related to our Australian minor fruples.
Bill: We are currently progressing approvals along the timeline shown for the next major Western Australian mind regions by our North and Holyoke through the WA EPA and federal bilateral assessment process.
Bill: An extensive process that started in 2020 and we are focused on receiving ministerial approval by early 2020-6.
Bill: We anticipate, Molly, and the new regions will commence snow earlier than 2027.
Bill: and Till then, we expect box-side quality will remain similar to recent grades.
Bill: The WA EPA recently said it's indicative time-long for the next key step in the process.
Bill: The Public Comment Period for early 2025. We are committed to working with the WI EPA and other stakeholders to achieve the time one.
Speaker Change: How Paul has been and continues to engage with the range of stakeholders regarding our current and future operations.
Speaker Change: We have community engagement forms of place that provide an opportunity for two-way discussion between Alcoa and host community members.
Speaker Change: This includes the recent release that was formed for the dwelling-up community, which is near the future, Holy Oplinger region.
Speaker Change: As we plan for future operations, we are assessing what conditions may be applied through the approval process by examining our operations closely as well as by learning from the experience of our peers operating in the region.
Speaker Change: In 2023, we accepted and incorporated new conditions addressing key environmental factors that include enhanced protections for tracing water and increased mining distances from reservoirs, avoidance of key buyers of Earth's the areas, and accelerate in forest rehabilitation.
Speaker Change: By incorporating these conditions into our current operations, we believe they provide strong foundation for what may be recommended in the assessment.
Speaker Change: Throughout all of these engagements, a close goal is to be recognized as a responsible minor and maintain the right to mind for long-term operations.
Speaker Change: We're focused on modernizing the approval framework for Boxside Mining in WA and securing certainty for our operations in all stakeholders.
Speaker Change: As a company, we are proud of the progress we made in the third quarter on multiple fronts.
Speaker Change: Looking ahead, we will maintain a fast pace of execution on strategic initiatives, improved productivity and stability across our operations.
Speaker Change: and catalyzed on positive, market fundamentals to deliver a value to our stockholders.
Speaker Change: who's shaping up to be an action-packed year.
Speaker Change: Operator, let's start the question and answer session.
Speaker Change: We will now begin the question and answer session to ask a question you may press star then one on your phone. If you are using a speaker phone, please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question, please press star then too.
Speaker Change: When called upon, please limit yourself to two questions. We will pause momentarily to assemble our roster.
Speaker Change: And our first question comes from Tim Netaners with Wolf Research. Please go ahead.
Speaker Change: Yes, thank you, and congratulations on Alba's progress. Thank you. So many questions, thanks. I guess we'll just ask about Spain, so just trying to understand, have you got approvals or initial response from either the union or the government, and, assuming would you ramp up production to optimize profitability, what do they bring to the table, what's your level of profitability at spot? Thank you.
Speaker Change: Let me just address a few of those. What the partnership, first of all, we're trying to achieve a partnership. We haven't finalized the partnership yet, but our efforts on achieving the partnership are meant to bring Ignis' knowledge and expertise in the energy markets combined with our knowledge and expertise.
Speaker Change: and I'll round up our lumens.
Speaker Change: and so around your question specifically, have we talked to the stakeholders, the reason for the announcement today is to launch that discussion with the stakeholders and to make sure that they understand that we need cooperation to make the site viable. We specifically, in the announcement, talked about a number of things, CO2 compensation. Thank you very much.
Speaker Change: Permitting of Power Projects, the access to some of the restricted cash, that will allow us to chart a path forward that makes that plant viable. But it's conditional, the partnership is conditional on getting those that cooperation and that's what we'll be working on over the next couple of months.
Speaker Change: Okay, so I know I asked a lot of questions, but I guess it would be helpful to get a flavor on your confidence, maybe, or, you know, on their approval and what the plan be might be, I suppose, if you don't achieve those, and if you could comment on the plans to run it more full utilization, that would be great too, thanks.
Speaker Change: Yeah, and if I step back and just address how we got here, you know we were going down a dual-path process where we were trying to sell the asset and at the same time trying to make it a viable asset. We went out to 60 potential buyers for the asset and there was not a viable offer for the entirety of the asset. In that process, Ignis emerged as a potential partner for us to essentially combine their expertise and our expertise.
Speaker Change: In the partnership, they will be making a 25 million euro contribution to the site. They will end up owning 25% of the site and we would hope to be able to work with the stakeholders so that we can get the support that we need. As far as my confidence or confidence, we have made it this far. We've had very good interaction with Ignis and we're confident that we can get that. The partnership, now the question will be sitting down and making sure that the stakeholders understand the need for the support that we're looking for to ensure the solvency and the viability of the site.
Speaker Change: Episode 2
Speaker Change: i
Speaker Change: Thanks!
Speaker Change: Thank you, Tim.
Speaker Change: And our next question comes from Chris and LaFamina with Jeffree. Please go ahead. Hey, thanks operator. Just yeah, just a follow-up question on this, yeah, in Cyprian.
Chris Lafamina: Situation. So if my understanding is correct, you're committing up to 175 million euros of additional investment in the business. But is this sort of like it was before where that's the limit? As to how far you'll go or is it possible that you will fund significantly more than that? And I guess what I'm really getting at is what is the end game? I mean, obviously if it's a viable asset, well then it could have a place within Alcoa. But what if we go back to kind of lower price environment? You know, how does that play out for you? What are the options? And there. [inaudible]
Speaker Change: So the end game here is to try to make it a viable asset and the only way we get to that end game.
Speaker Change: is that we have support from the unions in the government.
Speaker Change: When you consider that 175 million euros that Alcoa would be putting in, we will be looking for a government support of the CO2 compensation of approximately $80 million US.
Speaker Change: In addition to that, there is restricted cash in the site.
Speaker Change: which is about 85 million dollars US and we'd be looking to access that to fund the operations.
Speaker Change: So that's at least two of the things that we need to get in order to get this a viable operation. As we look for things to can change in Europe clearly, you've got C-BAM coming in, energy markets are changing fairly quickly. So what we would be looking to do is to try to get that support in order to make those investments.
Speaker Change: and have a site that's viable. Anything you want to add? Just to have on the $80 million of the CO2 compensation, that actually relates to the past. We did not receive our compensation for 2018 through 2021 when we were running the smelter. And so we've had flames against the government. We'd like to have those listed and have access to that $80 million, since we ran and paid all of the employees. And so we've had a lot of money. We've had a lot of money. We've had a lot of money.
Speaker Change: and just to make it clear to tie it all together, it's up to 175 million. We would be using the 80 and 85 million towards that contribution of 175 million.
Speaker Change: is helping. Thank you. And sorry, second, Molly, just on the profitability improvement program, did you say that you're tracking ahead of some of the class reductions there and does that imply that that $645 million target might ultimately be conservatives or are we kind of sticking with that as being the most likely outcome?
Molly Beerman: Chris, we are ahead on the raw materials, and that was a year over a year target. So we're going to try to close off each piece of the program as we accomplish it.
Molly Beerman: We are working very diligently now, I'm setting a really aggressive 20-25 plan. We recognize that any of these special programs take a lot of time and energy. Alcoons are used to working toward an aggressive plan where we have every bit of savings and productivity identified by person with delivery.
Molly Beerman: So we will work on this program and close it off as we accomplish each piece.
Molly Beerman: and then we're going to move forward into 2025 with a really aggressive budget. And if I can track on to that comment, Molly, we're turn to change the culture so that our company folks cross the entirety of the company. Both within the plants and in our resource units are focused very highly on competitiveness.
Molly Beerman: So, you've heard us talk about advancing competitiveness and some of the targets that we've had. We're trying to make sure that this is not a one-off program that this becomes part of the culture where each plant, each resource unit is focused on increasing the overall competitiveness of the plant in comparison to plants around the world.
Speaker Change: Great, thank you, good luck, thanks.
Speaker Change: Our next question comes from Lucas Pipes with B Riley's Accurities. Please go ahead.
Lucas Pipes: Thank you very much, operator, and I want to add my congratulations on the progress across many fronts.
Lucas Pipes: I have one more question on Centibrian. Bill, Bill, in the past, the power component was always a challenge there and I wondered if you could maybe elaborate to what extent the potential partnership would alleviate that previous choke point. Thank you very much.
Speaker Change: Thanks Lucas, it's a great question and the reason why it's a great question is because power and Spain is still a problem.
Speaker Change: When you compare power and stain versus Germany and France, Spain is fundamentally uncompetitive.
Speaker Change: and so that's where we need to ensure that we get the highest level of CO2 compensation available to us and any assistance we can get in areas like transmission costs.
Speaker Change: When you look at a smelter in France, for instance, they get the maximum CO2 credit, they get the maximum assistance in transmission costs, which allows a smelter in France of all places to be competitive. We need the same type of thing in Spain.
Speaker Change: and as far as what Ignits can help us with is really understanding underlying power markets. Trying to help us with some of those issues like CO2 compensation transmission costs, and try to get us a competitive power situation, at least in the near term, while Europe works through some of the things like CBAM and the energy situation there.
Speaker Change: Thank you very much for that color, very helpful. So I'd like to ask you a bit about the aluminum mark. It's obviously very strong pricing dynamics, lots of disruptions around the world. And I wondered if you could maybe go through some of the discrete...
Speaker Change: Pressure points on the supply side and share your opinion on how quickly they might be resolved. And maybe also a separate from that where else you might see constraints on Aluminah medium term. Thank you very much.
Speaker Change: Yes, Aluminize is a cutely tight currently.
Speaker Change: I think on our chart we showed something like $650, I think Aluminum Christ has reached close to $700 today and there is very little liquidity in the market for shipping Aluminum currently.
Speaker Change: I'm sure that if I go through the list of disruptions, I'll probably miss one.
Speaker Change: So let me do it off the top. I had a week or two other point on the facility. Earlier in the year there was a good strategic rationale for a curtailing it with high-floss, high-collect seeds.
Speaker Change: Ripconery, and we made that happen safely in the first half of the year. So I was going to bat one of our competitors in Northern Australia. I had a pipeline issue. If you look at their numbers year over year, they are recovering from that, but are still not back.
Speaker Change: at 100% capacity. One of our competitors in Jamaica had a storm roll through. They first said there was no impact, subsequently declared forced major, and so there was an impact there. I believe that's been largely remedied. And just this week, you probably heard some discussion, probably saw Bloomberg article about destruction around box site in Guinea. We don't know anything more about that than what you're reading in the press, but that puts further stress.
Speaker Change: on the market. As we look forward to 2025, our view would have been that 2025 would come into balance at some point on aluminum. However, in order to come into balance, a couple of things have to occur. Those disruptions need to be cleared up and not recur. And secondly, we're going to need to see growth in Indonesia and India. And I guess speaking of India, that was the one I missed. You probably all saw at one of the competitors, a runoff water storage on the clasp.
Speaker Change: that may have had an impact on their production. So in order for the aluminum market to come back in the balance, we would need to seek growth in those two areas. And our view is that aluminum will stay tight through the first half of next year.
Speaker Change: So I really appreciate all the color to you and to team continue to best of luck.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Bill Peterson with JP Morgan. Please go ahead.
Bill Peterson: Yeah, thanks for taking the questions and a nice job on the court of the execution. I want to come back to Stan Sipprian and just maybe a little bit finer point. So I guess we're aluminum today. How does this inform your refinery restart? And I guess how does this tie in maybe potentially with the negotiations with the unions and local governments? I guess on the government side, what are you looking for? Is this about the commitments to the renewable projects, the competitive PPAs? Any sort of party can provide on those.
Speaker Change: So let me answer the second part first and I'll give me time to forget the first part.
Speaker Change: The second part.
Speaker Change: Essentially what we're looking for, we laid out in the press release and that is...
Speaker Change: CO2 compensation has Molly said for past production, that's about $80 million. And we are looking for a permit for the uplift of the RDA at San Cypheret. We need to uplift the RDA to 104 meters. And so we're looking to get that. On top of that, from the unions, we would like to be able to access the restricted gas that's there to fund the operating expenses as we go forward.
Speaker Change: Sorry that I'm missing. Just within the government discussions. We're also talking about the permits. We do not have all the development permits. I should say our suppliers under our PPA don't have all the permits to develop. Good point. And as far as our thinking around ramping up the refinery, we really need to get the permits to do that uplift to the 104 meters in San Cipran. And we'll be tracking those permits as they come in. And then once we have that, we'll make the determination then on whether we want to increase production at San Cipran.
Speaker Change: and maybe the next one for Molly. On the outline, I guess 120 million in remaining savings over the next.
Speaker Change: I guess, 12 to 15 months and something you're going to come up with a 20-25 plan, but can you elaborate on where the remaining savings are coming from as well as the cadence of the savings through the balance of mixture?
Molly Beerman: So, I mentioned that on the materials we're already over a cheap, we'll actually add a little bit more in the fourth quarter there. On our productivity and competitive test program, we are through 45 million of actions, and that's to get the 100 million run rate. And that's by the end of the first quarter or 25.
Molly Beerman: We're going after 60, we've achieved about 45 million through the third quarter. We have zero on the IRA, waiting that decision, and then on the Aliyah Marse Malta we're through 60 of 75.
Molly Beerman: and that will go into next year to get the rest of that and then Klanana is the one where we are. I think operating probably a bit behind Target. We've only captured 20 million of the 70. We're keeping the target. We will go after that and we'll come more toward the end of 2025.
Speaker Change: And our next question comes from Michael Dudes with the Vertical Research. Please go ahead.
Michael Dudes: Good afternoon, or evening to gentlemen, Molly.
Michael Dudes: Good morning.
Speaker Change: The Thomas.
Michael Dudes: and Bill back to the Illuminum Market.
Michael Dudes: How do you see a balance on the supply side you talk about for 25, but what about the man I would think it's near current prices and you know given where Luminum is? How do you see that for some of the you know higher cost smelters is. Will there be some decisions on that front that could certainly change things a little bit and maybe even on the converse side, take me a Luminum market further. Thank you.
Speaker Change: So, as we're seeing demand today, demand actually has on the aluminum side has been pretty strong. You've seen some research.
Speaker Change: and Europe that continued to...
Speaker Change: Drive to the man.
Speaker Change: As far as aluminum prices will drive demand cuts in aluminum, they can really only speak for us and we would be looking at all of our smelters and trying to determine whether they can continue to be profitable at these levels and how long those higher aluminum costs will stick around. So you know we have a pretty regular cadence of review of the profitability of our marginal smelters and we go through that on a regular basis and we'll take action if need be.
Bill Peterson: I'll just let appreciate that. Thanks, Bill. Thank you.
Speaker Change: At our next question comes from Kat Shajankik with BMO Capital Markets. Please go ahead.
Speaker Change: Hi. Thank you for taking my questions. Maybe starting on given the environment is very healthy right now. Can you remind us how you're thinking about your capsule allocation? Especially potentially returning more to shareholders?
Speaker Change: Patja, our primary goal for early 2025 is to de-lover as well as to reposition some of our deaths to the jurisdictions that need cash. Our adjusted death has gone a bit higher at 2.2 billion. We added about 385 million in this quarter with the completion of the Illumina Limited Acquisition, so that will be our priority as we approach early 25.
Speaker Change: It's Katja. If you look back over the last five years, I think one of the greatest ways for us to release equity value is to pay down debt. We're a bigger company today than we were a year ago. We're a more profitable company today than we were a year ago after the aluminum limited transaction, but I still believe that bringing down our debt levels is the best way in the near term to release equity value.
Speaker Change: And what would be the level you're looking to reach?
Speaker Change: or you would be comfortable at.
Speaker Change: We're looking at several options caught up, but we're not ready to guide on that yet.
And 625 popped up for EBIT for the alumina segment.
Speaker Change: And if something like that happen, maybe the aluminum metal segment was the transfer pricing would fall toward $100 million.
Speaker Change: So this is in the ballpark that we might see 175 million dollar gain.
Speaker Change: And EBITA.
Speaker Change: In the fourth quarter attorneys would you answer that question.
Speaker Change: Hey, John and I'll I'll I'll take a swing at this in Mali is much better at this.
Speaker Change: But essentially starting to start with our third quarter take our sensitivities and apply our sensitivities.
Speaker Change: Putting it and put it in your estimate a price.
Speaker Change: That you think will last during the during the fourth quarter.
Speaker Change: And then we give guidance around the strength.
Speaker Change: The fourth quarter on some qualitative items. So what did we say qualitatively, we said aluminum will be better by about 30 $30 million.
In the fourth quarter, I'm really happy about that I would like to see alumina get even better in 2025, but.
Speaker Change: That's a very good start aluminum is relatively flat on a fourth quarter to third quarter basis, and then I think Molly got into a little bit of an impact of a change in their company profit elimination with with the rapid run up of prices that we're seeing sometimes our sensitivities don't always work perfectly.
Speaker Change: And then when we see that we try to make sure that you can build it into your model. So once you've done all of that it spits out on an EBITDA level and we'll let you make a determination whether you think it's realistic or not.
Speaker Change: Alright. Thanks.
Well that's good.
Speaker Change: Second one.
Speaker Change: Sure.
Speaker Change: And actually.
Speaker Change: A little bit tongue in cheek, a little bit serious.
I've sat in three our geology seminars about the Nubian shield.
Speaker Change: Or the Red Sea basin.
Speaker Change: Where the Saudi Arabian Peninsula is considered.
Speaker Change: Very hot area for gold and copper geology.
Speaker Change:
Speaker Change: Ivanhoe exploring for copper Barrick for gold there.
Speaker Change: Should we view the $950 million of modern equity.
Speaker Change: And the majority of their profits for phosphate a long term play on the phosphate market and gold and copper exploration in the Nubian shield.
Speaker Change: Or do you think it's something that you might sell.
Speaker Change: Soon as the holding period expires.
Speaker Change: So that's a great question, John and let me, let me just take the opportunity to give you a little bit of background, we announced the transaction that we were selling the 25, 1% or $1 $1 billion. The consideration was $150 million cash and $950 million of modern stock.
Speaker Change: That stock will be locked up on a lockup period, that's a three year or four year to five year staggered lock up period.
Speaker Change: Since the time of that announcement was the run up in the in the mountain stock that transaction goes from being worth $1 $1 billion to over $1 $3 billion.
Speaker Change: So so far we're pretty happy, but it's it's it's early days.
Speaker Change: We did that transaction for two reasons one.
Speaker Change: We wanted to simplify the organizational structure, we did not think that the street gave us much value for the ownership of the 25, 1% and probably rightfully. So and then secondly, we wanted to be able to crystallize and highlight that value on on something that you can see on your screen on a daily basis to see.
Speaker Change: How are we how much we own there as far as whether we will sell those shares in years three four and five we'll make that determination of that in the meantime, we have a great relationship with Martin I personally have a great relationship with many folks in the kingdom and and we're super supportive of them being successful on.
Speaker Change: Phosphate copper gold and aluminum.
Speaker Change: Whenever you're production for metal as reported going forward.
Speaker Change: Should we add 222000 tons for 2026 for the Spanish restart.
Speaker Change: And then deduct 175000 times, because you sold the Martin please.
Speaker Change: And John I would wait until we get our partnership structure in place then we'll be able to give more guidance on what the restart ramp up will look like.
Speaker Change: In terms of modern I have the off take moderate margin handy, but I don't have the volume at a time. So we have been taking off taken that will stop with the completion of the transaction that is not a huge margin to us it's about $6 million per quarter and again, when we give our guidance.
Speaker Change: In January 2025 shipments in production or will it just at that point during the event.
Speaker Change: Do you kind of his production or not.
Speaker Change: Just shipments I believe yeah shipments.
Speaker Change: Thank you.
Speaker Change: Yeah, we don't we don't count it as production, we counted as shipments because we have an off take with the with the joint venture that then get sold onwards. So it's in our shipments number but not a production number.
Speaker Change: Thank you for your patience with all my questions. Thanks, John Good to hear from you.
Speaker Change: And our next question comes from Carlos de Alba with Morgan Stanley. Please go ahead.
Speaker Change: Thank you very much bill.
Speaker Change: Molly.
Speaker Change: On <unk> is there new timetable or a timetable.
Speaker Change: For you to complete the discussions with the government and the Union in order for you to determine whether you go ahead with this.
Speaker Change: Agreement that you that you are trying to close I would like to get a little.
Speaker Change: Maybe you have some sense of time as to how much longer.
Speaker Change: Longer can these negotiations take them before you are ready to really turn the page you can see your brain.
Speaker Change: Yeah.
Speaker Change: Since you've been asset.
Speaker Change: No not a significant change to the timetable that we've lined out before.
Speaker Change: The entities will run out of cash we believe somewhere around the end of the year potentially that could go a little bit further into 2025, depending on what market conditions are so.
So we're essentially pushing as hard as we can as quickly as we can to ensure that we get the right level of cooperation from the various stakeholders and get the get the partnership are consummated.
Speaker Change: Okay and just.
Speaker Change: The company is run out of cash.
At that point in time, just to basically file for bankruptcy or stopped.
Speaker Change: She does shop.
Speaker Change: That won't happen.
Speaker Change: We're really focused on trying to make sure that that doesn't happen Carlos but essentially the the entity is technically insolvent at that point.
Speaker Change: And so as we've said before some hard decisions will have to be made what we're trying to do is avoid that.
Speaker Change: Okay, Alright, thanks, and just on Capex. It is the second quarter in a row that gap.
Speaker Change: <unk>.
Speaker Change: Goes up or restarting seeking capex increases any is not huge amounts, but anyway increases in any details or any color as to how much incremental either volumes or EBITDA can we expect from these from these projects. These additional projects.
Speaker Change: Yeah, Carlos we don't have those figures handy I don't think you'll find it to be negative although problem with current that these are a series of smaller projects that we're approving now.
Speaker Change: Alright, Okay. Thank you very much all the best.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Lachlan Shah with UBS. Please go ahead.
Speaker Change: Afternoon billing.
<unk> Thanks for your time.
Speaker Change: Just one question for me so just on Wi Ah and the monitoring process. There I'm just interested I suppose how you think about that whole process and the scenarios are potentially ahead of you given the experience of your P O.
Speaker Change: They're in the conditional approvals that that sort of came through.
Speaker Change: For them.
Speaker Change: I mean, how do you think about what that what that sort of what both scenarios might look like in the context of.
Speaker Change: The environmental authorities.
Speaker Change: Australia agenda.
Speaker Change: Generally pushing for more stringent conditions. Thank you.
Speaker Change: So lachlan thanks for the question, we're continuing to advance the mine approvals for both of them are in north in Holyoke that process started in 2020, and we're focused on receiving our approvals by early 2026.
Speaker Change: And we're anticipating that mining in the new regions will commence no earlier than 2027.
Speaker Change: Recently the W. E T. A set timeline for the next major step in the approval process and that's the public comment period that will occur in the first quarter of 2025. The same time, we continue to work on our annual approval from the state government for a rolling five year mine plan.
Speaker Change: So we continue to make good progress we're committed to a very committed to making sure that we work collaboratively with Coca Cola and I can't say that works collaboratively with the W. W. E T a and in the other stakeholders.
Speaker Change: So we think we're making really good progress there as far as your question around are our neighbors and W. A.
<unk> 32, we have looked at some.
Speaker Change: Some of their conditions.
Speaker Change: And we knowledge that there's some similarities between the activities the between the two companies, but we continue to work through their there.
Speaker Change: A review of their process and we think that our what we will learn a lot through that process and we.
Speaker Change: We think we're actually in pretty good shape. So I don't know if there's anything you want to add to that I'd just add that remember last year. When we were going through the approval process for our annual mine plan, we adopted a whole series of new mining requirement and so many of the.
Speaker Change: Conditions that you see being added to South 32, now we've already done that so we did go through that whole list, we looked at that and the majority. We haven't had any that are already built into our current mine plans are have been incorporated in our new mine plan.
Speaker Change: And some of those that were different or simply because we're mining in different areas.
Speaker Change: The other south starting to its important to recognize that some of their cost increases are related to that carbon management. If we are running natural gas. So we do not face the same kind of cost challenges the safeguard mechanism that'll be running in Australia is based on the industry an industry standard.
Speaker Change: And if you look at our <unk> refinery for example, we're already at the end or industry best So we have a different cost profile there as well.
Speaker Change: Thanks.
Speaker Change: That's great color. Thanks again.
Speaker Change: Thanks, a lot.
Speaker Change: And our next question is a follow up from Timna Tanners of Wolfe Research. Please go ahead.
Speaker Change: Hi, Timna.
Timna Tanners: Thanks, very much I just wanted to follow up on that capital allocation line of question, because I know that Molly in that prepared remarks noted on some ability to continue.
Timna Tanners: Continue to pursue perhaps some value add or additional project.
Timna Tanners: And you know just back of the envelope higher alumina prices continuing.
Timna Tanners: Commodity prices, obviously, you know paying down debts, great use of cash I get it but.
Timna Tanners: Anything else you can elaborate on regarding further opportunities. If indeed, you have greater cats and.
Timna Tanners: Cash generation into next year.
Speaker Change: Turns out we will certainly look at excess cash and we will put it through our capital allocation framework. So we will look at returns to shareholders will look at other growth opportunities that we'll also look at additional portfolio action.
Speaker Change: But we will wait and see how the cash is coming in through the rest of this year and into early next year, along with those Delevering plans that I mentioned and it's important to remember that at the beginning of the year, we issued $750 million of debt. We also took on an additional roughly $350 million debt in the alumina transaction as I as I said earlier, we are a big.
Speaker Change: Company, where we should be a better company, but in the near term, we think theres a lot of value equity value created by our by by Delevering.
Speaker Change: Okay fair enough. Thank you.
Speaker Change: Mike.
Speaker Change: Yeah.
Speaker Change: That concludes our question and answer session I would like to turn the conference back over to Mr. <unk> for closing remarks.
Speaker Change: Thank you for joining our call and I look forward to sharing further progress when we speak again in January that concludes our call.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].