Q4 2024 Alcoa Corp Earnings Call
No, that's not what I meant when I put it into the interview. No, that's not what I meant.
Speaker Change: Good afternoon and welcome to the Alcoa Corporation fourth quarter and full year 2024 earnings presentation and conference call.
Speaker Change: 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.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your phone. To withdraw your question, please press star, then 2.
Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Louis Langlois, 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 Corporation President and Chief Executive Officer, and Molly Beerman, Executive Vice President and Chief Financial Officer.
Speaker Change: We will take your questions after comments by Bill and Molly.
Speaker Change: As a reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats.
Speaker Change: Factors that may cause a company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings.
Speaker Change: In addition, we have included some non-GAAP financial measures in this presentation.
Speaker Change: For historical non-gap financial measures, reconciliations to the most directly comparable gap financial measures can be found in the appendix to today's presentation.
Speaker Change: We have not presented quantitative reconciliations of certain forward-looking non-GAAP financial measures for reasons noted on this slide.
Speaker Change: A new reference in our discussion today to EBITDA means Adjusted EBITDA.
Speaker Change: Finally, as previously announced, the earnings press release and slide presentation are available on our website.
Now I'd like to turn over the call to Bill.
Bill: Thank you, Louie, and welcome everyone to our fourth quarter 2024 earnings conference call.
Bill: Today we'll review the substantial progress we made during 2024 on key objectives, the financial results, the market, and our plans to continue to improve and strengthen our company in 2025.
Bill: Let's start with a recap of 2024. I'm very pleased that we had no fatalities or life-altering injuries and improved our key safety metrics.
Bill: We successfully operated under our new mine conditions in Western Australia, which included daily observation of our mining and rehabilitation practices by certain regulators.
Bill: Nine of our 11 smelters increased annual production, with five achieving annual production records.
Bill: On the people side, we onboarded and integrated new talent in several critical roles and promoted a culture that prioritizes high performance and continuous improvement.
Bill: Commercially, we expanded a number of important customer and supplier relationships, and invested in growth CapEx to enhance value-added products needed by our customers to meet their manufacturing and sales objectives.
Thank you for watching!
Bill: In our sustainable line of products, we announced our first sales of eco-sourced, non-metallurgical aluminum, and our low-carbon, equilibrium primary aluminum now makes up half of our sales of metal in Europe.
Bill: We delivered and exceeded our $645 million profitability improvement program ahead of schedule through initiatives which included savings on raw materials, actions to improve profitability and competitiveness, as well as changes to improve the financial performance of our operating portfolio.
Bill: In November, we started delevering the company with a repayment of $385 million of debt while maintaining our quarterly dividend. We completed the Illumina Limited acquisition and initiated the sale of our investment in the Modern Joint Ventures, valued today at about $1.3 billion.
Bill: Also in the fourth quarter of 2024, we progressed the cooperation with stakeholders to improve the long-term outlook of our Sansevierian operations.
Bill: To sum it up, 2024 was a successful year at Alcoa. Now I'll turn it over to Molly to take us through the strong financial results.
Molly Beerman: Thank you, Bill. Revenue was up 20% sequentially to $3.5 billion. In the Illumina segment, third-party revenue increased 45% on higher average realized third-party price and higher shipments.
Molly Beerman: In the aluminum segment, third-party revenue increased 5%, primarily due to the increase in average realized third-party price.
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Molly Beerman: Fourth quarter net income attributable to Alcoa was $202 million versus the prior quarter of $90 million, with earnings per common share doubling to $0.76 per share. These results include an additional $82 million restructuring charge for the Kwinana curtailment.
Molly Beerman: During the fourth quarter, we completed the technical evaluation of the water management requirements for the residue areas, and increased the duration of the transition and related equipment costs for ongoing water treatment.
Molly Beerman: On an adjusted basis, the net earnings attributable to Alcoa was $276 million, or $1.04 per share.
Adjusted EBITDA increased $222 million to $677 million.
Let's look at the key drivers of EBITDA.
Molly Beerman: Fourth quarter adjusted EBITDA reflects higher alumina and aluminum prices, higher shipments, and lower energy costs, partially offset by increased other costs primarily related to intersegment eliminations.
Molly Beerman: The alumina segment increased $349 million, primarily due to higher alumina prices, higher volume, while all other cost increases were mostly offset by currency gains.
Molly Beerman: The aluminum segment increased slightly with higher metal prices, production cost improvements, and lower energy costs being mostly offset by higher alumina costs.
Molly Beerman: Outside the segments, other corporate costs increased, and the inter-segment elimination expense increased as expected, with significantly higher average Illumina price requiring more inventory profit elimination.
Molly Beerman: Moving on to cash flow activities for the fourth quarter and full year 2024.
Molly Beerman: We used cash from improved earnings in the fourth quarter, along with cash on the balance sheet, to repay the debt acquired in the Illumina Limited transaction. This repayment was partially offset by increased borrowings under an inventory repurchase program.
Molly Beerman: Working capital improved slightly in the quarter, as lower inventories and higher year-end accounts payables offset increased accounts receivables related to higher API and metal prices.
Molly Beerman: For the year, capital expenditures, working capital changes, and environmental and ARO payments continue to be our largest uses of cash.
Molly Beerman: Additionally, in 2024, our restructuring payments included approximately $140 million related to the Quinona curtailment and approximately $35 million related to our employee commitments in Spain.
Next, we'll review the performance on our Profitability Improvement Program.
Molly Beerman: We have already exceeded the $645 million target set for our profitability program, which was generally a two-year program to improve our financial results from full year 2023's low EBITDA of $536 million.
Molly Beerman: Overall, the improvements are evident in our year-over-year bridge by program or location.
Molly Beerman: During the fourth quarter, we added $150 million to the third quarter's year-to-date progress for a total of $675 million.
Molly Beerman: Through December 31st, the company overachieved its $310 million target on raw materials with approximately $385 million in savings.
Molly Beerman: Within our Productivity and Competitiveness Program through December 31, we implemented actions contributing approximately $80 million of savings and expect to deliver the $100 million run rate target by the end of the first quarter of 2025.
We have also progressed our portfolio improvements.
Molly Beerman: To date, Warwick has achieved $45 million of its $60 million target.
Molly Beerman: We also received the final ruling from the U.S. Treasury on the inclusion of direct materials in Section 45X of the IRA program, which adds roughly $15 million in annual credits, or about half of the benefit we had expected.
Molly Beerman: The Alley-de-Mars Melter Restart achieved approximately $105 million on its $75 million target and is currently operating at nearly 85% capacity.
Molly Beerman: The QAnon curtailment has been slow to deliver savings due to high transition and holding costs, but we will continue to work toward the $70 million improvement target.
Moving on to other key financial metrics.
Molly Beerman: The year-to-date return on equity is positive, 6.5%. Days working capital decreased 11 days sequentially to 34 days, primarily due to a decrease in inventory days on increased sales.
Molly Beerman: Our fourth quarter dividend added $27 million to stockholder capital returns.
Molly Beerman: Free cash flow plus net non-controlling interest contributions was positive for the quarter, resulting in a cash balance of $1.1 billion.
Molly Beerman: As we look ahead to 2025, continuing to delever and reposition debt to the jurisdictions where cash is needed will be a priority for us.
Molly Beerman: Turning to the outlook for the full year and first quarter of 2025.
Molly Beerman: To be clear, our outlook does not include any estimates for the impacts of potential tariffs.
Molly Beerman: For the full year, we expect alumina production to range between 9.5 and 9.7 million tons and shipments to range between 13.1 and 13.3 million tons. The difference reflects our normal trading volumes as well as externally sourced alumina.
Molly Beerman: The aluminum segment is expected to produce 2.3 to 2.5 million tons, increasing on smelter restarts, while shipments are expected to range between 2.6 million and 2.8 million tons.
Molly Beerman: In EBITDA items outside the segments, we expect transformation costs to be $75 million, slightly increased from last year, and reflecting the work we are doing to accelerate remediation activity in order to take advantage of potential asset modernization opportunities.
Molly Beerman: Other corporate expense will improve to approximately $170 million, reflecting continued efforts to control our overhead costs.
Molly Beerman: Below EBITDA, we expect appreciation to remain at approximately $640 million.
Molly Beerman: Non-operating pension and OPEB expense is expected to be up slightly at $25 million, and interest expense will be $165 million.
Molly Beerman: For cash flow impacts, we expect 2025 pension and OPEB required cash funding to be similar to 2024 at $70 million. The majority of that spend is for the U.S. OPEB plan.
Molly Beerman: Our capital returns to stockholders will continue to be aligned with our capital allocation framework.
Molly Beerman: Our capital expenditure estimate is $700 million, with $625 million in sustaining and $75 million in return seeking.
Molly Beerman: primarily due to a $70 million increase related to upcoming mine moves in Australia.
as well as a number of major projects.
Molly Beerman: including energy transition projects in Djuruti, a new ship unloader in Canada, and upgrades to a bauxite reclaiming system in Australia.
Molly Beerman: We expect return-seeking investments to decrease following our investment in the Brazil bauxite vessels in 2024. However, we continue to identify capacity expansion projects and remain open to fund those requests if they meet return criteria and market conditions allow.
Molly Beerman: We expect approximately $50 million of prior period income tax payments in 2025. That amount is lower than you might expect based on our 2024 higher earnings.
Molly Beerman: primarily due to the utilization of the Illumina Limited carry-forward net operating loss, which saved approximately $70 million on 2024 cash taxes.
Molly Beerman: We have approximately $60 million of tax benefit related to that NOL remaining to use in future periods subject to annual percentage limitations.
Molly Beerman: Environmental and ARO spending is expected to be similar to 2024 at approximately $240 million.
Molly Beerman: We do not provide guidance on full-year cash restructuring charges, but can share the portion attributable to the QAnon curtailment.
Molly Beerman: Approximately 140 million dollars remain to be spent from the Quinana Restructuring Reserve with a large majority of that to be disbursed in 2025.
So the first quarter of 2025 at the segment level.
Molly Beerman: In Illumina, we expect performance to be favorable by approximately $30 million due to the non-recurring inventory adjustment recorded in the fourth quarter, partially offset by typical first quarter impacts from the beginning of maintenance cycles and lower shipping volumes.
Molly Beerman: In the aluminum segment, we expect performance to be unfavorable by approximately $60 million due to the non-recurring IRA Section 45 true-up benefit recorded in the fourth quarter.
Molly Beerman: lower seasonal pricing at the Brazil hydroelectric facilities and the absence of modern offtake shipping volumes in accordance with the terms of the announced transaction.
Molly Beerman: While the higher average price of alumina will increase overall ALCOA adjusted EBITDA, alumina cost and the aluminum segment is expected to be unfavorable by approximately $90 million.
Molly Beerman: Beyond the standard sensitivity provided for intersegment profit elimination, we anticipate an additional $20 million of income in the first quarter of 2025 due to the lower profit retained in inventory related to changes in production costs and volumes.
Molly Beerman: Below EBITDA, within other expenses, contributions to ELISIF in the first quarter of 2025 are expected to increase by $25 million, which triggers loss recognition.
Molly Beerman: The fourth quarter of 2024 included negative impacts of $50 million due to foreign currency losses, which may not recur.
Molly Beerman: Based on last week's pricing, we expect the first quarter of 2025 operational tax expense to approximate $120 to $130 million. Note that the fourth quarter 2024 tax provision included a $55 million catch-up expense.
Thank you for watching!
Molly Beerman: Our sensitivities have been updated for our view of 2025. Please note that we revised our regional premium distribution due to the increase in the LEMR smelter shipments.
Molly Beerman: Our pricing in Brazil is based on both index and fixed pricing.
Molly Beerman: As a proxy for the average result of that pricing scheme, we see a high correlation to the Midwest Duty Unpaid Index and suggest using that index for your model.
Molly Beerman: Lastly, we have a new disclosure in the appendix. At the request of our stockholders, particularly those in Australia where per-unit disclosures are widely available, we are now including cost per unit measures for the alumina and aluminum segments as a whole for your reference.
Molly Beerman: Now I'll turn it back to Bill. Thanks, Molly. We expect to maintain our fast pace in 2025. Let's cover some of our key areas of focus in 2025.
Speaker Change: We want a step change in safety. We've made great progress in the last two years, but we want more. We see a direct correlation between safety and operational stability.
Speaker Change: We're continuing our pursuit of operational excellence, supported by the modernization of the Alcoa business system, and with particular attention on improving the performance of our Brazilian operations.
Progressing our mining approvals in Australia remains of paramount importance.
Speaker Change: We expect to raise the bar on commercial excellence through customer-focused decisions. We want to be positioned as the supplier of choice for customers in terms of product quality, innovation, sustainability, and security of supply.
Speaker Change: We plan to pursue targeted areas for growth via organic and inorganic opportunities. We will do that where returns exceed the cost of capital and deliver value to our shareholders.
Speaker Change: We are progressing our work on San Cyprian and expect to execute the first steps in 2025.
Speaker Change: Lastly, on capital allocation, delevering and repositioning debt are a priority for us. Assuming prices retain their strength, we expect to generate sufficient cash to enable further debt reductions.
Speaker Change: We believe de-levering is another means to deliver value to our stockholders.
Now let's discuss our markets.
Speaker Change: In Illumina, prices reached an all-time high in the fourth quarter as a result of a tight market on lower-than-expected supply.
Speaker Change: In Guinea, a force majeure on bauxite exports to China from a major player and protests in the Bokeh region all impacted the flow of bauxite exports.
Speaker Change: This is particularly relevant to the Chinese market that was already facing tight bauxite supply due to lower local production related to safety and environmental inspections at mines in northern China.
Speaker Change: Meanwhile, demand remains strong from smelters, resulting in low stocks available in the alumina spot market, creating competition for alumina cargos and increasing the cost to smelters.
Speaker Change: Looking ahead to 2025, in order for the aluminum market to come back to balance, several ramp-up and new projects in China, Indonesia, and India must complete as planned. Also, box-rate availability is key to keeping refining projects in India and China on track.
Speaker Change: In aluminum, global demand remained resilient in the fourth quarter. European and North American demand continues to be supported by the packaging and electrical sectors, while building and construction and automotive remain challenged.
Speaker Change: For building and construction specifically, prior interest rate cuts in Europe and in the U.S. are likely to provide support for recovery. In China, growth in all end uses, with the exception of building and construction, led to strong primary aluminum demand growth in 2024.
Speaker Change: The increase in alumina price has outweighed the increase in aluminum price and resulted in tighter margins for smelters exposed to spot price.
Speaker Change: Announced smelter curtailments in Russia, front-loaded maintenance of smelters in China together with delayed ramp-ups in Indonesia have tightened global aluminum supply.
Speaker Change: For 2025, aluminum demand outside China is expected to rebound with North America and Europe supported by higher real incomes and lower average interest rates year over year. Limited supply growth is expected globally in 2025 following recent curtailments and delayed ramp-ups supported by China approaching the 45 million metric ton capacity cap.
Speaker Change: And, of course, there is uncertainty related to the impact of any new U.S. tariffs, which could have wide-ranging effects on supply, demand, and trade flows.
Speaker Change: When we speak of the possibility of changing trade flows, it is important to point out Alcoa's competitive advantage as a vertically integrated primary aluminum player, from mine to metal, with bauxite mines, aluminum refineries, and aluminum smelters in cast houses located across the world.
Speaker Change: This positioning gives Alcoa the ability to maneuver and respond to challenging and changing market and policy conditions.
Speaker Change: As I mentioned earlier, the tight supply in 2024 in bauxite and alumina caused alumina prices to rise to all-time highs and some smelters had to cut production or delay ramp-ups.
Speaker Change: Our global network of mines and refineries enabled us to navigate these market conditions without significant operational issues, while benefiting from the elevated aluminum price.
Speaker Change: In aluminum, Alcoa has close proximity to customers in North America and Europe, with smelters across the U.S., Canada, and Europe.
Speaker Change: For both alumina and aluminum products, our customers value the security that comes with Alcoa-sourced products. They appreciate our close proximity, reliable delivery performance, as well as a variety of mature and stable transportation choices.
[inaudible]
Speaker Change: Alcoa prides itself on offering high-quality products across the value chain and continuing to innovate our products to meet customer needs, including low-carbon solutions.
Speaker Change: When you transition from Alcoa's global footprint to look at the primary aluminum supply flows into the United States, you can see the U.S. currently has a significant inflow from Canada.
Speaker Change: The current discussions and proposals on tariffs by the U.S. government may have significant impacts on how metal is flowing from one country to another.
Speaker Change: Currently, the U.S. imports two-thirds of its primary aluminum from Canada. This was true both before and after the Section 332 tariffs on aluminum implemented by President Trump in his first term, who also granted an exemption to the tariffs for Canada and select other countries.
Speaker Change: If there were to be tariffs on Canadian aluminum imports to the U.S., this would represent a threat to U.S. industrial competitiveness.
Speaker Change: A 25% tariff on current Canadian export volume to the U.S. could represent $1.5 to $2 billion of additional annual cost for U.S. customers.
Speaker Change: In addition, increasing costs on trade with Canada and Mexico would particularly hurt the U.S. transportation supply chain, the largest end market in North America, and specifically the automotive market.
Speaker Change: Trade flows would likely be impacted such that U.S. aluminum imports would increase from countries and regions that have a lower import duty level, like the Middle East and India, while Canadian metal could reroute to Europe and other countries.
Speaker Change: In Alcoa's case, we could re-route supply from our Canadian smelters to Europe. While it is an advantage to have this optionality, it certainly is not a benefit for our customers as supply chains lengthen.
Speaker Change: That said, Alcoa is a 135-year-old global company which operates in markets all over the world and has worked with governments on many topics throughout our history.
Speaker Change: If the U.S. government decides to implement new tariffs for strategic purposes, we will work with the administration to protect Alcoa's interests.
Let's move on to talk about our work at State.
Speaker Change: We just announced further progress with our Sansegrin stakeholders. Alcoa-Innisfal, Ignace-EQT, the Spanish National and Xunta Regional Governments have entered into a Memorandum of Understanding to work cooperatively toward improving the long-term outlook for the complex.
Speaker Change: There are four key elements of the MOU, which include cooperation from the parties.
Speaker Change: First, support by the governments for our dialogue with Sanseprian workers to prioritize restarting the smelter over capital investments that can be deferred to a later date.
Speaker Change: Second, streamline the authorization of renewable energy projects and deploy policies to achieve competitive energy costs.
Speaker Change: Third, provide materially higher CO2 compensation support. We've already seen the Spanish national government increase the CO2 compensation program budget, which will provide meaningful support when the San Sebastián smelter reaches full capacity.
Speaker Change: Last, support the approval by the regional government of the residue storage area capital projects which are needed to maintain production in the refinery.
Speaker Change: We expect to use the momentum created by the MOU to continue advancing these key areas of cooperation, as well as the remaining conditions, including energy supply contracts.
Speaker Change: Additionally, Alcoa Innisfal and Ignis EQT are working to finalize the partnership agreement.
Speaker Change: We are working to complete these steps as early as possible in the first quarter of 2025.
Speaker Change: As a company, we are proud of the progress we have made in the fourth quarter and in 2024 on multiple fronts.
Speaker Change: Looking ahead, we plan to maintain a fast pace of execution on our 2025 key areas of focus and strategic initiatives, improve the competitiveness of our operations, and capitalize on strong market fundamentals to deliver value to our stockholders.
Speaker Change: Operator, let's start the question and answer portion of the session.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your phone.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
To withdraw your question, please press star then 2.
When called upon, please limit yourself to two questions.
Speaker Change: The first question is from Katja Jancic with BMO Capital Markets. Please go ahead.
Speaker Change: Hi, thanks for taking my question. Maybe starting on tariffs, Bill, you mentioned if there are 25% tariffs on Canada, you would potentially divert that volume to European markets.
Speaker Change: Where do you think the Midwest premium could actually go if we do start seeing that volume being directed and U.S. would still have to attract the volume from somewhere else?
Speaker Change: The Midwest premium we think will go substantially higher. I don't have a number in front of me on what we think it will end up at, but it will go substantially higher in order to attract volumes into the U.S. Ultimately, if there is a differential between
Speaker Change: Canadian and non-Canadian metal, you're going to see trade flows disrupted in such a way that us and other suppliers most likely will ship from Canadian metal into Europe.
Speaker Change: literally you'd see ships passing in the Atlantic carrying the exact same product back and forth and it doesn't make a lot of sense and so that's why we've shown the chart that we chose.
Speaker Change: So remember the differential between the size of production in the U.S. versus the size of production in Canada.
Speaker Change: We have roughly 900,000 metric tons in Canada, and operating in the U.S., roughly 300,000 metric tons.
So the differential would not offset.
Speaker Change: Before we speculate too much, the tariff structure hasn't been set.
Speaker Change: have been appreciative of the U.S. government taking the time to think through these tariffs. And we'll wait and see what it brings and then give you a view of the outlook at that point.
Okay. Thank you. I'll hop back into the queue. Thanks.
Speaker Change: The next question is from Lawson Winder with Bank of America Securities. Please go ahead.
Lawson Winder: Thank you, Operator. Good evening, Bill and Molly. Very nice hearing from you both and nice work on a solid 24.
Lawson Winder: If I could, I'd like to ask about your net debt position. Nice to see it fall during the quarter.
Speaker Change: Bill, I know you haven't done this in the recent past, but would you feel that you might be able to, in a position today, provide some sort of clarity on that target?
Speaker Change: for Alcoa, and then how do you think about the MoDen equity position, and how does that factor into your thinking? And I'm coming from the point of view just to try to gauge the timing of when Alcoa might consider some sort of potential increase in capital return.
Speaker Change: Lawson, I'll take the first part on our net debt target.
Speaker Change: We no longer have a stated net debt target, however, we are currently higher than we've been in the last three years.
Speaker Change: We closed the year at $2.1 billion in adjusted net debt. If you recall back to 2021 and 2022, we were right around $1 billion in adjusted net debt and that was certainly a more comfortable level for us.
Speaker Change: We will have delevering as well as repositioning debt as a priority in 2025.
Speaker Change: If we find though that we have excess cash after maintaining our strong balance sheet and funding our operations to sustain them
Speaker Change: We will look at our capital allocation framework and we'll look at shareholder returns, positioning for growth, as well as any further portfolio actions that we need to take.
and when we consider the Motton transaction.
Speaker Change: It's important to remember that we've announced it, but we haven't closed it.
Speaker Change: We anticipate that it will be closed in the first half of this year. The value on the day that we announced the transaction was roughly $1.1 billion.
Speaker Change: Subsequent to that time, the modern shares have increased, so the value is more like
Speaker Change: 1.3 billion. We're very focused on getting that transaction closed. Recall that it has a lock-up period of roughly a third, a third, a third, three years, four years, and five years.
Speaker Change: And so over that time period, we'll consider what we do with those shares, but there is a lock-up period, so we'll have some time before we potentially recognize that value.
Speaker Change: Okay, very helpful. Thank you for those comments. If I could actually jump to the Bauxite market and just...
Speaker Change: you provided some commentary and it's helpful and it sounded kind of
Speaker Change: I guess there's a bit of a warning to some of these aluminum refineries that are ramping up. What are you hearing from your third-party customers in terms of oxide availability? Do you have a sense that there is sufficient oxide capacity?
Speaker Change: in 2025 to see some of these new refineries and particularly in India and China ramp up.
Speaker Change: The bauxite market currently is very tight. We see bauxite pricing in China at
$120, $130 per ton.
Speaker Change: probably the highest faux sites ever been when a coastal refinery in China is looking at
Speaker Change: restarting, if they're using imported bauxite, their bauxite cost alone is somewhere between $250 and $300.
per ton. So the market is tight.
Speaker Change: and it's time for the reasons that we discussed in the prepared remarks.
and that has a flow-on impact on the aluminum market.
Speaker Change: When we look at the aluminum market, we think that aluminum will remain tight, we believe, through the first half.
Speaker Change: We don't know what will happen after that. In order for the aluminum market to loosen up, we need to see production coming online in India, Indonesia.
Speaker Change: but with a tight bauxite market and an expensive bauxite market, that pressures the aluminum market further.
Okay, thanks for your comments, much appreciated.
Hi there, can you hear me okay? Yes we can.
Great, thanks.
Speaker Change: Two questions, the first one just on Sunset Prianna, I guess, good.
Speaker Change: progress with the memorandum, understanding a couple of components. Can you confirm what the cash balance is at the end of the year at
Speaker Change: San Cyprian and any updated projection based on kind of market prices as to when effectively that will run out of cash. It's the memorandum of understanding and I guess it's encouraging but it doesn't guarantee that a deal will be reached is that way of thinking about it.
Yeah, I'll take the first part on the cash balance.
Speaker Change: So with recently high API prices, it has reduced our net cash consumption, but cash is still depleting weekly. And so we do have a sense of urgency to complete our discussions and negotiations primarily with the unions on the release of the restricted cash and with the energy suppliers on viable contracts.
Speaker Change: The decision for us to proceed with the JV formation and the initial investments that would be made by Alcoa and our partner Ignis will be based on the certainty that we have on each of the remaining items.
Speaker Change: As far as the MOU goes, we think the MOU is a step forward.
for the long-term viability of the site.
The MOU provides essentially four things.
Speaker Change: As I outlined in my prepared remarks, both the national and the regional government are supportive of prioritizing the smelter restart over the capital investments. They're supportive of streamlining the authorization of renewable energy projects, specifically wind farms.
Speaker Change: They're providing their support for materially higher CO2 compensation support. That's a big deal.
Speaker Change: Back in December 13th, they talked about doubling compensation for CO2. That supports the long-term viability of the site. And then lastly, we need, not least important, but we need support on approval of the residue storage area uplift.
Speaker Change: With that said, Daniel, we continue to plan for the ramp-up of the smelter, but at this point it can't be guaranteed.
Speaker Change: As we mentioned earlier, we still have several key pieces that need to fall into place.
Speaker Change: Currently, the smelter is not viable, so ramping up production will accelerate the consumption of cash that Molly talked about from the proposed investment that must be preserved to support the long-term viability of the operation.
Speaker Change: We also need to hear from the Works Council on releasing the restricted cash. So, the MOU is a step forward, but it doesn't necessarily guarantee the restart of the smelter.
John Tumazos, Timna Tanners,
Speaker Change: Very good, thank you. And then the second part of the question, lots of excitement around monetizing excess energy offtake that you have to feed the AI data center dynamic. Can you provide us with any numbers around megawatts to potential excess capacity and any steer around the upside to that?
Speaker Change: You are breaking up on us, but I think the question that you are asking...
Speaker Change: was that, do we have excess energy that we can monetize around the world?
and you know we have four positions down in Brazil.
Speaker Change: that are part ownership in Hydros that we sell into the marketplace there.
Speaker Change: We saw the benefit of some higher pricing in the fourth quarter versus the third quarter.
Speaker Change: So that's a positive. That will fluctuate depending on what the rainfall essentially looks like and what the energy prices look like down in Brazil.
Speaker Change: The other place that we could potentially monetize energy is in OREC.
Speaker Change: but Warwick's coal-fired power plant, and currently we're using that energy to run the smelting. But those are really the two areas that we could monetize energy other than making it into aluminum.
Okay, thank you. I'll go back again. Thank you.
Speaker Change: The New York Times, the New York Times, and the New York Times.
Speaker Change: The next question is from Carlos de Alba with Morgan Stanley. Please go ahead.
Speaker Change: Thank you very much, Molly and Bill. Many similar vein of the last question, but maybe slightly different. What is the opportunity that Alcoa has to potentially monetize idle sites given the interest from data centers on that type of asset?
Thanks for the question, Carlos.
We actually have a history of monetizing legacy assets.
Speaker Change: that has generated significant value over time. And so while others may talk about it, we have actually done it. So for instance, in Texas, if you remember the Rockdale site, I believe we sold it for right around $270 million.
Speaker Change: a number of years ago, and that has subsequently been redeveloped into certain areas.
Speaker Change: Again, we were able to monetize it and make good money.
Speaker Change: In advance of that, or I should say, after that, we sold the Intalco site for $100 million. That ultimately went to a data center developer, and it was long before this craze around AI and data centers, and we were able to monetize.
Speaker Change: $100 million there. We have a number of sites around the country and around the world that are uniquely positioned
Speaker Change: to be able to take advantage of both the data center and the AI situation. Why do I say they're uniquely positioned? They have generally energy connections that are able to bring energy in. So when I look at it, there are places like Wenatchee.
Messiah East.
Speaker Change: The one that's probably the most valuable is Point Comfort because it has access to a port.
Speaker Change: Globally, we have Point Henry, which is a site in Australia.
Speaker Change: So, while I'm not willing to put a value on it, you see our track record before the real craze around AI data centers of multi-hundred million dollar sales generations from these sites.
Maybe just a follow-up on that one.
Speaker Change: Is there any timetable, and you were focused obviously last year on closing the Illumina Limited. You have been making progress in San Cipriano, and it's an ongoing effort, but do you have now this potential monetization of legacy assets in your agenda for the coming months, quarters? Any color as to exactly where the company is potentially in this process and where we could see some benefits?
Speaker Change: No, and the reason why I say no, Carlos, is because these things take time, and I want maximum value. We're not in a position where we need to do a fire sale on any of these assets.
Speaker Change: So, if you recall the saga of Rockdale from a number of years ago, we had offers in Rockdale that were as small as $40 million and we held out for maximum value that was, again, my recollection was greater than $250 million.
Speaker Change: So, I'm not going to lay out a timetable. We have assets that we can monetize. In the case of something like Point Comfort, we're going through the demolition, we're going to make sure that we get maximum value out of these sites. So we're not in a rush to sell.
Speaker Change: but it is actually a good market right now, so we'll let you know.
Speaker Change: I'm going to cheat a little bit since there was technically one question. If I may just ask a question, Cyprien.
Speaker Change: All these efforts that you are putting into restructuring the asset and reaching a viable agreement.
don't work, don't play out.
Speaker Change: What would be, like, sort of maybe a range of the worst case for a COA and a COA shareholders? You know, how much money you would potentially lose or cash that would be stranded in the country? If you can provide some color or framework around that, that would be useful. Thank you very much.
Lawson Winder: So, Carlos, before Molly gives you some numbers, I will caution you that I don't want to speculate.
Lawson Winder: on the potential outcome here. We are focused on making Sansevierian a viable site.
We just announced significant support that we're really pleased with.
from both the national and the regional governments.
Molly Beerman: So we are focused on making that a viable site for the long term. That's our priority outcome. However, Molly can give you some numbers around potential curtailment or closure costs.
Molly Beerman: So Carlos, these haven't updated from the last time, they remain the same. On the smelter without severance, we're looking at $40 to $50 million in cash closure costs.
Molly Beerman: on the refinery, again, without severance, for about $200 million. But that does include about $80 million in the CapEx for the residue storage area. We're actually going to go ahead and do that work now. That will be needed whether we're running or closing.
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Molly Beerman: And in a closure scenario, again, we're not, we're not there, but we would be paying out those funds that I just spoke about over five to seven years.
Thank you, thank you, Molly.
Thanks, Carlos.
[inaudible]
Moderator: The next question is from Nick Giles with V-Rally Securities. Please go ahead.
Nick Giles: Thank you very much, Operator, and good afternoon, everyone. Congrats on a really nice quarter here. I just wanted to follow up on some of your legacy power assets. What have conversations looked like to date? Have you been approached by any hyperscalers or similar data center developers? Or is due diligence really just on Alcoa's end at this stage?
Speaker Change: Nick, we are in constant contact with developers on all of these sites.
Uhm.
Speaker Change: It takes time and it takes a lot of work with various groups.
Speaker Change: These are generally not, you know, the landscape has changed a little bit with some of the hyperscalers.
Speaker Change: But historically, these are generally not well-capitalized firms, so you go through a lot of process.
Speaker Change: and ultimately find out that they don't have the money to be able to do it. But that's what we've done in places like Rockdale and in Talco. So we are in contact with folks and trying to move forward for the best value for our shareholders.
Thank you for watching. Bye.
Thank you. Thank you. Thank you.
Speaker Change: Well, Bill, I think it's safe to say everyone will be a little better capitalized after the Stargate announcement last night. My next question was...
First of all, congratulations on the execution of the...
Speaker Change: Profitability Improvement Program. I was wondering if you could provide an update on your productivity and competitiveness program. I think you had reached 45 million as of Q3. Should we still think about you exiting 1Q at the 100 million dollar run rate? Thanks very much.
Speaker Change: Yes, by that point we'll have executed all the actions to hit the 100 million run rate.
Speaker Change: We actually put all of the productivity initiatives into our 2025 plan.
Speaker Change: Well, I know externally that you guys like these profitability programs.
Internally, they're actually hard to measure and hold accountable.
Speaker Change: So, we took the step of building all of our improvements into our plan, that way we can track it by operation, by department, and know who's accountable. So, we're feeling good about going into 2025 with all of those actions locked down and accounted in the plan.
Speaker Change: So and Molly, thank you so much for all the color and continue best of luck.
Thank you.
Speaker Change: The next question is from Chris Lefemina with Jefferies. Please go ahead. Thanks, operator. Hi, Bill and Molly. Thanks for taking my question. I was going to ask you about CapEx, but first just on to that profitability improvement program. Molly, you mentioned that it's hard to...
Speaker Change: monitor that stuff internally, well, it's also hard for us to monitor it externally. So, if we look at what you've delivered there, and we assume you get the full benefit from the Quinonec Retailment, we assume you get the full benefit of the Productivity and Competitiveness Program that you just spoke about.
Speaker Change: we assume you get the full benefit of the work optimization. That would imply like 750 million in total benefits.
Speaker Change: And I think it did about $530 million roughly of EBITDA in 2023 before this program was implemented. Does that mean, effectively, that if we go back to a 2023 commodity price environment, EBITDA, instead of being $530 million, would be $750 million more than that, so it's more like $1.3 billion in that sort of price environment? Is that the way we should think about that program in terms of modeling it going forward?
Speaker Change: I hear what you're saying, Chris, but I kind of focus on the performance side of it.
Speaker Change: So if you look at the numbers that we've listed in the chart on the progress that we've made, if you look at the year-over-year bridge, which is in the back of your appendix,
Speaker Change: You'll see that our initiatives have generated about 625 million of productivity that's showing up in the 23 to 24 bridge.
That's on top of the market improvements of $740 million.
Speaker Change: So when you look at the deltas we do have about 50 million of headwinds related to lower value-add product premiums
Speaker Change: and about $250 million other headwinds related to inflation and costs outside the program. So we have a net delivery that's very apparent in the bridge of over $300 million.
Speaker Change: and that's the beauty of that bridge, right? There's puts and takes. We have a massive effort in place to continuously improve the company, but the bridge spells out exactly what we ended up getting. And so it bridges the earnings to earnings and it's pretty clear there.
Speaker Change: That's helpful. Thank you. And then secondly, just on CapEx, so your 2025 CapEx guidance is probably a little bit higher than I think many in the market had expected. And Bill, you mentioned that there is
Speaker Change: some substantial projects that are contributing to the High Sustaining Cap X for 2025 and
Speaker Change: It's up nearly 200 million versus 2024. How do we think about where that trends after 2025? So is it going to be a big lump of CapEx in 2025 and then it reverts back to some more normalized level in 2026? And then...
Speaker Change: What is that more normalized level? How should we think about CapEx kind of through the cycle? Where should it be aside from your growth?
Speaker Change: So Chris, let me take this one. There's a couple moving components because of the changes between sustaining and return-seeking.
Speaker Change: However, we're thinking of it as going from $600 up to $700, and we have been guiding that we would add at least $50 million the next two years related to the mine moves.
Speaker Change: As it turns out, we're adding 70 in 25. I don't yet have the number for 26 on the mine moves, but you can expect that that will be significant. The mine moves will take...
Speaker Change: three-ish years to complete, so we would be elevated during that time.
Okay, so that's 70 of the
Speaker Change: I think you said 185 increase, right? Is the other 115 all kind of one-off 2025 items that we should expect to reverse in 2026 or are they just, I mean, I understand there's a lot of moving parts. Just trying to think about where that might go even with the mine capex that you're spending.
Speaker Change: Now we have some opportunities with sustaining CapEx now to really improve our business. If you look at the projects that we mentioned, Drury is going through an energy transition. We're connecting them to the grid there.
Speaker Change: We have a new ship unloader going in in Canada, that's significant expense.
Speaker Change: and then we also have a box site reclaimer in Western Australia. So, maybe it's timing, but we absolutely have an opportunity now to really improve the business. And so we are, while we have the cash available, we are going to put it into the business.
Great. Thank you for that. Good luck.
Thank you.
Speaker Change: The next question is from Michael Dudas with Vertical Research. Please go ahead.
Good evening, gentlemen. Molly. Hey, Michael.
Speaker Change: Bill, as you put forth your outlook for 2025 with regard to volumes and shipments, etc.,
Speaker Change: Maybe you could share, like, are you anticipating in the cycle of tariffs of science?
Speaker Change: recovery year a more normalized year like what's the sense from your from the client base what you're saying about on the demand front where the cycle might be here as we move forward just from the overall you know outlook for say the aluminum industry
Speaker Change: So let me start with aluminum and we'll just briefly hit on...
alumina, and bauxite. But as we look forward on aluminum...
Speaker Change: We are seeing global demand growth at roughly 2% growth on a year-over-year basis.
Speaker Change: That breaks down roughly of the rest of the world of 3% and China at approximately a percent. I'm rounding these numbers a little bit from the exact numbers, but it gives you an indication of what type of growth that we're seeing.
Speaker Change: The rest of the world growth is actually pretty strong. China growth at 1% is historically low, but we'll see whether China takes any action around stimulus, and to me, potentially, that's upside.
Speaker Change: Then if I look at the rest of the world demand picture, and we go kind of end market by end market, we continue to see demand strength in packaging.
Speaker Change: We continue to see demand strength in electrical conductor and electrical distribution. The automotive space is a little bit mixed.
Speaker Change: We are seeing strength in North America with a little bit of weakness in Europe. And then building construction, which is the largest demand driver globally for aluminum, is still fairly weak. And building construction will be based on what happens with interest rates.
Speaker Change: And, you know, I know a lot of people were anticipating that interest rates would be lower in 2025. Just from a mathematics perspective, it looks like it'll be, on average, a little bit lower unless rates go higher from here. And we think that potentially offers some upside on the demand.
So that's the markets.
Bill: I think that's very helpful, Bill. And then maybe just to follow up.
Do you think the market
Bill: So as you're seeing, as you're getting ready for it, do you think the market's expecting the tariffs that we're anticipating? Do you see sense of that from the client base, market indices, how you're thinking about this, and how quickly or how rapidly can the industry kind of adjust to?
Bill: to these dynamics since they seem to be happening at a pretty breakneck speed here as we start the new administration.
Speaker Change: and other contributors. Please visit our website at www.chessworld.com. Thanks for watching. Chess World. Chess World. Chess World. Chess World. Chess World.
Speaker Change: I'm going to give you a little bit of a non-answer, and it's just because there's not a lot of clarity.
Speaker Change: around what the market is expecting. You look at the Midwest premium in the U.S.
Speaker Change: It has gone from something like $0.18 in November-December time frame
The 24 Cents Today.
Speaker Change: So is it anticipating some type of tariff? It may be.
Speaker Change: Anticipating some type of tariff. What it's not anticipating is a 25% tariff. That would have a massive
step up in overall Midwest premium.
Molly Beerman: So our customers, and it's a question that Molly and I were just talking with our commercial team over the last couple of days, our customers are in the same spot we're in. They don't know what to do as far as tariffs. They're not necessarily doing significant repositioning of metal.
Molly Beerman: because they just simply don't know, so we'll wait to see what comes of it. As far as how quickly things will turn, once the tariffs go into place, you will, I believe, immediately see a bump up in the Midwest premium.
Molly Beerman: as soon as the tariffs take effect. And then over time, metal will flow, and we think it'll take, what did we say, one to two quarters, that it'll take time for metal to flow out of other regions if there is a tariff differential.
Molly Beerman: So we're speaking about a situation where Canada has a 25% tariff and the rest of the world has a 10% tariff. We will see trade flows over the course of, let's say, half of a year have significant impacts, but it'll start immediately.
Bill, that was a great non-answer. I appreciate it.
Speaker Change: Thanks. The next question is from Tim Natanis with Wolf Research. Please go ahead.
Tim Natanis: Hey team, thanks for taking my question. I wanted to expand a little bit. I know you talked about use of cash, debt paydowns a priority, but you did allude to some expansions.
Tim Natanis: And I know you've talked in the past about opportunity to revisit Warwick or Listie and others. Given this really high aluminum price, is it just a matter of...
Speaker Change: Illumina prices, their balance not being compelling, or what kind of decisions do you need to make to decide to restart in this environment?
Speaker Change: So, thanks for the question, Tim. I hope you're doing well.
Speaker Change: The first and foremost is we need some clarity around the tariff structures before we do anything with U.S. or Canadian assets or European assets. We need clarity around tariff. And then you hit upon one that is big, aluminum prices.
Speaker Change: So, as we look at, you know, potential, you know, the metal price may support additional capacity in a place like LHTSA.
Speaker Change: especially if we can get European energy prices at a reasonable level. But really factoring in today's alumina, there's an opportunity cost of consuming alumina in a place like LISTA that we can turn around and sell it at $570 a ton. So as we always do, once we get clarity around the tariffs, we'll factor in.
Speaker Change: exchange rates, aluminum prices, and most importantly, energy prices to make a determination specifically around LISTA and work. Those are the two places that we have excess capacity that could be restarted.
Speaker Change: Okay, helpful. Thank you. Also wanted to touch base on your technology initiatives as far as CapEx use. I know in the past those were a big focus and there wasn't much emphasis in this presentation on some of the initiatives you've detailed in the past. So any update can you provide for us? Would those be kind of in line for capital uses or are they pushed out of it? Thanks.
Speaker Change: So before Molly answers the numbers question, I do want to give you some insight into our thinking around our three key technology programs.
um
Speaker Change: Ellicis in 2024 was a little bit of a disappointment in that it did not deliver.
the start of 450 Ka cells.
Speaker Change: in 2024. We anticipate that in 2025, we will have a 450k ASL started, you know, in ELLISIS.
Speaker Change: So that's the anticipation there. When I look at Astraea, we're making progress in Astraea. We've gone from really a desktop size cell to a much larger cell, not commercially sized, not by any stretch.
Speaker Change: But we are stepping up the cell size in Australia. We're doing that at the Alcoa Technical Center.
Speaker Change: And then in the refinery side, we are making progress on key technologies, for instance, electric calcination.
Speaker Change: that are promising and so we're seeing that technology and looking at how we can apply it to our existing refineries to have a step change in both energy usage and carbon emissions.
Molly Beerman: So Molly, do you want to address the dollar question? Yeah, Tim, we do not have significant technology dollars. I don't have the Australia-specific right handy, but I recall it's around $15 million.
And Ellisis? No, Ellisis. CapEx.
Okay. Thank you. Helpful.
Moderator: The next question is from Bill Peterson with J.P. Morgan. Please go ahead.
Speaker Change: Good afternoon, this is Bennett on for Bill. If I could circle back to Sansepian real quick. Wondering what the feedback's been from the union and workforce regarding the MOU and Provost J.V. Is this at all a bottleneck moving forward?
Speaker Change: So, the MOU is really fresh, all right, and so we had meetings with our employees.
Speaker Change: and inform them of the MOU, but we are also being very balanced.
Speaker Change: but there are still certain things that need to come into place in order for us to guarantee the restart of the smelter.
Speaker Change: So, that's the communication that we've had with our employees and with the unions, and they've heard that directly from us at this point.
Speaker Change: Thanks for that. And then on permitting in Western Australia, has that a public comment period begun and what are the next milestones we should watch for after that?
Speaker Change: So the public comment period, well we expect to commence toward the end of the first quarter and go into the second quarter. At this point we're still on track for our approvals in 2026 and then the mine move and access to the upgraded box site no earlier than 27.
Thank you. Congrats on the great quarter.
Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mr. Oplinger for his closing remarks.
Speaker Change: Thanks Gary and thank you all for joining our call. Molly and I look forward to sharing further progress when we speak again in April. Thank you.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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