Q2 2025 Alcoa Corp Earnings Call
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I would now like to turn the conference over to Louis Langlois, Senior Vice President of Treasury and Capital Markets. Please go ahead, sir. Thank you and good day everyone.
please note that this event is being recorded.
Speaker Change: I would now like to turn the conference over to Louie langa senior vice president of Treasury and capital markets. Please go ahead sir.
I'm joined today by William Oplinger, Alcoa Corporation President and Chief Executive Officer, and Molly Beerman, Executive Vice President and Chief Financial Officer. We will take your questions after comments by Bill and Molly. 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. 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 filing. In addition, we have included some non-GAAP financial measures in this presentation. For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation.
Speaker Change: Thank you and good day, everyone. I'm joined today by William. Minger, our cooperation president and chief executive officer in Molly Berman, 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 make cause the company's actual resolve to defer materially from these statements or included in today's presentation and in our FEC filings,
Speaker Change: In addition, we have included some non-gaap Financial measures in this presentation for historical non-cap Financial measures, reconciliations to the malls, directly comparable. Gaap Financial measures can be found at the appendix to this presentation.
We have not presented quantitative reconciliations of certain forward-looking non-GAAP financial measures for reasons noted on this slide. Any reference in our discussion to date EBITDA means adjusted EBITDA.
Speaker Change: We have not presented quantitative, reconciliations of certain forward-looking non-gaap Financial measures for reasons noted on this slide.
Speaker Change: Any reference in our discussion today, to ibida means adjusted Aida.
Finally, as previously announced, the earnings press release and slide presentation are available on our website.
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. Thank you, Louis, and welcome to our second quarter 2025 earnings conference call. We delivered strong operational performance this quarter, both in terms of safety and stability. This is an important value driver for the company. We maintained a fast pace of execution on our priorities and continued to steer through changing market conditions.
Bill: Now, I'd like to turn over the call to Bill.
Bill: Thank you Louie and Welcome to our second quarter 2025 earnings conference call.
We delivered strong, operational performance. This quarter of both in terms of safety and stability,
Let's begin with safe. Safety performance remains strong in the second quarter, with no fatal or serious injuries reported. Injury rates continue to trend below our full year 2024 benchmarks, supported by a sustained emphasis on leader time and field. This initiative enables leaders to engage directly with teams, conduct safety observations, and deliver both positive reinforcement and constructive feedback.
Bill: This is an important value driver for the company. We maintained a fast-paced, of execution, on our priorities and continued to steer through changing market conditions.
Let's begin with safety.
Bill: Safety performance remains strong in the second quarter with no fatal or serious injuries. Reported injury rates continue to Trend below our full year 2024 benchmarks supported by a sustained emphasis on leader time and field.
We continue to execute on our strategic priorities. On July 1st, we closed the sale of our 25.1% stake in the MoD and Joint Ventures for a total value of $1.35 billion, consisting of $1.2 billion of MoD and shares and $150 million of cash. In late April, we successfully concluded a five-year tax dispute in Australia with a favorable ruling for Alcoa. The Australian Review Tribunal affirmed our long-standing position, determining that no additional tax was owed. This outcome reflects the substantial effort and dedication of our internal and external legal and tax teams, whose strong defense was instrumental in achieving this result.
Bill: This initiative enables leaders to engage directly with teams conduct safety observations and deliver both positive reinforcement and constructive feedback.
Bill: We continue to executing on our strategic priorities.
On July 1st. We closed the sale of our 25.1% stake in the modern joint ventures for a total value of 1.35 billion dollars. Consisting of 1.2 billion, dollars of modern chairs, and 150 million dollars of cash.
Bill: in late April, we successfully concluded a 5-year tax, dispute in Australia with a favorable ruling for Alcoa
Bill: y'all Australian review tribunal affirmed our long-standing position determining that no additional tax was owed.
Throughout the quarter, we steered through frequent tariff updates that demanded agile decision making and rapid adjustments across both sales and supply operations. We redirected portions of our Canadian production to serve non-U.S. customers to mitigate Section 232 tariff impact. In parallel, we sustained active advocacy and engagement with policymakers on both sides of the U.S.-Canada border.
This outcome reflects the substantial effort and dedication of our internal and external legal, and tax teams to strong defense was instrumental in achieving this result.
Throughout the quarter, we steered through frequent tariff, updates that demanded agile, decision-making and Rapid adjustments across both sales and Supply operations.
Bill: we redirected portions of our Canadian production to serve non-us, customers to mitigate section, 232 tariff impacts
Finally, our recent customer engagements continue to signal encouraging demand trends. We extended our supply agreement with Prismian, a global leader in energy and telecom cable systems. Completed our first North American sale of Ecolume, a value-added, low-carbon product, further reinforcing our position as a supplier of choice for sustainable aluminum solutions. In summary, we delivered strong performance across the areas within our control while continuing to advocate for trade policies that support both Alcoa and the broader U.S. aluminum industry.
Bill: In parallel, we sustained active advocacy and engagement with policy makers on both sides of the US Canada border.
Bill: Finally, our recent customer engagements continue to Signal encouraging demand trends.
Bill: We extended our supply agreement with Prisma, a global leader in energy and Telecom table systems.
Bill: Completed. Our first North American Sale of eccolo a value added low-carbon product, further, reinforcing our position as a supplier of choice for sustainable aluminum Solutions,
Now I'll turn it over to Molly to take us through the financial. Thank you, Bill. Revenue was down 10% sequentially to $3 billion. In the Illumina segment, third-party revenue decreased 28% on lower average realized third-party price, partially offset by increased shipments. In the aluminum segment, third-party revenue increased 3% due to increased shipments and favorable currency. partially offset by a decrease in average realized third-party price. While the Midwest premium increased during the quarter, in response to the increase in U.S. tariffs, the increase was more than fully offset by lower LME, resulting in a decrease in the realized price of aluminum.
Bill: In summary, we delivered strong performance across the areas within our control, while continuing to advocate for trade policies, that support both Alcoa and the broader us aluminum industry.
Now, I'll turn it over to Molly to take us through the financial results.
Molly: Thank you, Bill.
Molly: Revenue was down 10% sequentially to 3 billion dollars in the aluminum segment. Third-party Revenue decreased 28% on Lower average realized third-party price partially offset by increased shipments.
In the aluminum segment third-party Revenue increased 3%. Due to increased shipments and favorable currency impacts.
Molly: An average realized third party price.
While the Midwest premium increase during the quarter in response to the increase in US terrorists, the increase was more than fully offset by lower lme. Resulting in a decrease, in the realized price of aluminum,
Second quarter net income attributable to Alcoa was $164 million versus the prior quarter of $548 million with earnings per common share decreasing to $0.62 per share. On an adjusted basis, net income attributable to Alcoa was $103 million, or $0.39 per share. Adjusted EBITDA was $313 million. Let's look at the key drivers of EBIT. The sequential decrease in adjusted EBITDA of $542 million is primarily due to lower alumina and aluminum prices and increased U.S. Section 232 tariff costs on aluminum imported into the U.S. from our Canadian smelters. The alumina segment adjusted EBITDA decreased $525 million, primarily due to lower alumina prices.
Second quarter, net income attributable, to Alcoa was 164 million versus the prior quarter of 548 million with earnings per common, share decreasing to 62 cents per share.
On an adjusted basis met income attributable, to Alcoa was 103 million or 39 cents per share.
Molly: Adjusted IBA with 313 million.
Molly: Let's look at the key drivers of IBA.
Molly: The sequential decrease in adjusted ebita of 542 million is primarily due to lower aluminum, and aluminum prices, and increase Us section. 232 tariff costs on aluminum imported into the us, from our Canadian smelters.
In addition, higher production costs, energy costs, and raw material costs were only partially offset by higher volume. The Aluminum Segment Adjusted EBITDA decreased $37 million. While lower metal prices and unfavorable currency were more than offset by lower alumina costs, the segment was impacted by $95 million in U.S. Section 232 tariffs, which includes the increase in the tariff rate from 25 to 50 percent effective June 4th. These impacts were only partially offset by price mix improvements and higher volume. Outside the segments, other corporate costs increased, while intersegment eliminations changed favorably due to lower average Illumina price requiring less inventory profit elimination.
Molly: The aluminous segment adjusted ebita decreased 525 million primarily due to lower aluminum prices in addition, higher production costs energy costs and raw material costs were only partially offset by higher volumes.
Molly: The aluminum segment, adjusted Ibiza, decreased 37 million.
While lower metal prices and unfavorable currency were more than offset by lower aluminum costs, the segment was impacted by 95 million in US section. 232, Tara, which includes the increase in the Tariff rate from 25 to 50% effective June, 4th
These impacts were only partially offset by Price mix improvements and higher volumes.
Molly: Outside the segments, other corporate costs, increased while intersegment eliminations change favorably, due to lower average, aluminum price, requiring less inventory, profit elimination.
Moving on to cash flow activities for the second quarter. We ended the quarter with cash of $1.5 billion. Cash from operations was positive again this quarter, providing $488 million, along with a working capital release of $251 million. Working capital decreased from the first quarter as accounts receivable came down with the lower prices for aluminum. Subsequent to close of the second quarter on July 1st, we received approximately 86 million shares of MoDN and $150 million of cash for the sale of our interest in the MoDN joint The majority of the cash will be used to pay related taxes and transaction fees.
Moving on to cash flow activities, for the second quarter.
We entered the quarter with cash of 1.5 billion.
Cash from operations with positive. Again, this quarter providing 488 million along with a working capital release of 251 million.
Molly: Working capital decreased from the first quarter and accounts receivable came down with a lower prices for aluminum.
Moving on to other key financial The year-to-date return on equity was positive at 22.5%. Day's working capital was flat sequentially at 47 days. Our second quarter dividend added $27 million to stockholder capital. We had positive free cash flow for the quarter of $357 million.
Molly: Subsequent to close of the second quarter on July 1st. We received approximately 86 million shares of modern and 150 million dollars of cash for the sale of our interest in the modern joint ventures. The majority of the cash will be used to pay related taxes and transaction fees.
Molly: Moving on to other key financial metrics.
Molly: The year-to-date return on Equity was positive at 22.5%.
Molly: Days working capital was flat sequentially at 47 days.
Molly: Our second quarter dividend added 27 million to stockholder Capital returns.
We had positive free, cash flow for the quarter of 357 million.
Turning to the outlaw. We have four adjustments to our full year outlook. First, we are adjusting our annual outlook for aluminum shipments to 2.5 to 2.6 million metric tons, down from our initial estimate of 2.6 to 2.8 million metric tons. The change is due to reduced shipments from the San Cyprian smelter, where the restart was disrupted by the nationwide power outage in April. As separately announced earlier this week, the joint venture has decided to resume the restart process in the third quarter. The reduction in aluminum shipments will primarily impact the third quarter due to the timing of the San Cyprian ramp.
Turning to the Outlook.
Molly: We have 4 adjustments to our full year outlook.
Molly: First, we are adjusting our annual outlook for aluminum shipments to 2.5 to 2.6 million metric tons down from our initial estimate of 2.6 to 2.8 million metric. Tons,
Molly: The changes due to reduced shipments from the saint cyprian smelter, where the restart was disrupted by the Nationwide power outage in April.
And separately announced earlier this week, the joint venture has decided to resume the restart process in the third quarter.
Molly: The reduction in aluminum shipments, will primarily impact the third quarter due to the timing of the saint cyprian ramp up.
Second, we are lowering other corporate costs to $160 million from our initial estimate of $170 million due to reductions in corporate expenses and favorable currency. Third, we are increasing our outlook for interest expense to $180 million from our prior estimate of $165 million due to unfavorable value-added tax assessments. And last, we have adjusted the return seeking CapEx Outlook for 2025 to $50 million, down from $75 million as the pace of spend has not matched the original forecast. For the third quarter of 2025, in the Illumina segment, we expect performance to improve by approximately $20 million with lower maintenance costs and higher production.
Molly: Second, we are lowering other corporate costs to 160 million from our initial estimate of 170, million dollars due to reductions in corporate expenses and favorable currency impacts.
Molly: Third, we are increasing our outlook for interest expense to 180 million from our prior estimate of 165 million due to unfavorable value added tax assessments.
And last, we have adjusted the return-seeking capex outlook for 2025 to 50 million down from 75 million. As the pace of spend has not matched the original forecast.
In the aluminum segment, we expect higher Midwest premium revenue in relation to the increased tariffs. Premium changes can be calculated from the sensitivities provided in the appendix. Those premium gains will be offset by approximately $90 million in sequential expense increase for tariff costs. With the increase in the U.S. Section 232 tariff rate from 25 to 50 percent, we expect quarterly tariff costs to approximate $215 million based on an LME of $2,600 and Midwest premium of $0.67 per pound. While costs related to the Sanseprian restart will be higher sequentially, they are not material and we expect to cover with improvements in other operations.
Molly: To improve by approximately 20 million dollars with lower maintenance costs and higher production.
In the aluminum segment, we expect higher Midwest, premium Revenue in relation to the increased tariffs.
Premium changes can be calculated from the sensitivities provided in the appendix.
Those premium gains will be offset by approximately 90 million in sequential.
Molly: Increase for tariff costs.
Molly: With the increase in the US section. 232 tariff rate from 25 to 50%, we expect quarterly tariff costs to approximate 215 million based on an lme of 2600 and Midwest premium of 67 cents per pound.
Molly: The cost related to The Saint cbri.
Molly: Start will be high.
Alumina cost in the aluminum segment is expected to be favorable by $100 million. Our updates exclude impacts from the recently announced tariffs on U.S. imports from Brazil. Below EBITDA, other expenses in the third quarter are expected to remain consistent with the second quarter. Based on last week's pricing, we expect third-quarter operational tax expense of $50 to $60 million. Tax expense in the third quarter is notably higher than the second quarter, which included a catch-up benefit to reflect the annualized effective tax rate when applied to year-to-date earnings. In the appendix to the earnings materials, you will see that our Midwest paid and Midwest unpaid premium sensitivities have been updated to reflect the expected trade flows as a result of additional tariff impacts.
They are not material and we expect to cover with improvements in other operations.
Molly: Aluminum cost in the aluminum, segment is expected to be favorable by 100 million.
Molly: Our updates exclude impacts from the recently announced tariffs on us imports from Brazil.
Molly: Below ebita.
Molly: Other expenses in the third quarter are expected to remain consistent with the second quarter.
Based on last week's pricing, we expect third quarter operational, tax expense of 50 to 60 million tax expense. In the third quarter is notably higher than the second quarter, which included a catch-up benefit to reflect the annualized, effective tax rate when applied to year-to-date earnings.
We also revised our regional premium distribution to align with our efforts to redirect tons and optimize margins. Currently, approximately 30% of our Canadian aluminum production is available for spot sales and can be redirected to customers outside the U.S. when the premium, shipping, and tariff net VAT calculations favor another destination. Additional updates to our sensitivities may be needed as we continue to adjust our trade flows to the CARE structure.
Molly: In the appendix to the earnings materials, you will see that our Midwest paid and Midwest. Unpaid, premium sensitivities have been updated to reflect the expected trade flows, as a result of additional tariff impacts.
We also revised our regional premium distribution to align with our efforts to redirect tons and optimize margins.
Molly: currently approximately 30% of our Canadian aluminum production is available for spot sales and can be redirected to customers outside the US when the premium shipping and tariff, net back, calculations favor, another destination
Now I'll turn it back to Bill. Thanks, Molly. While tariffs continue to drive near-term volatility, the broader outlook for aluminum demand remains robust. This slide illustrates Alcoa's long-term demand forecast underpinned by powerful global megatrends across key sectors. Transportation leads as the largest and fastest growing sector, driven by the shift to electric vehicles, light-weighting initiatives, and increased vehicle production. Construction shows more modest growth tempered by a slowdown in China, though emerging markets and favorable macroeconomic conditions, like lower long-term interest rates and increased fiscal spending in Europe, offer upside potential. Packaging is expanding rapidly, fueled by consumer preference for recyclable materials.
Additional updates to our sensitivities may be needed as we continue to adjust our trade flows to the care structure.
Bill: Now, I'll turn it back to Bill.
Bill: Thanks Molly while tariffs continue to drive near-term. Volatility the broader outlook for aluminum's demand remains robust.
This slide illustrates alcoa's long-term demand forecast, underpinned by powerful Global. Mega Trends across key sectors.
Bill: Transportation leads as the largest and fastest growing sector driven by the ship to electric vehicles lightweighting initiatives and increased vehicle production.
Construction Construction shows more modest growth tempered by a Slowdown in China though. Emerging markets and favorable, macroeconomic conditions like lower long-term, interest rates and increased fiscal spending in Europe, offer upside potential.
Electrical demand is accelerating due to the global energy transition, with aluminum playing a critical role in renewable power generation and grid modernization. Other sectors, including consumer durables and machinery and equipment, are also expected to grow steadily. Importantly, the geography of growth is shifting. Primary aluminum demand is projected to grow significantly faster in markets outside China at a 3% CAGR from 2025 to 2030, while China's growth slows to just 0.2% CAGR, largely met by recycled metals. Within Alcoa's core regions, North America is expected to lead with a 3.8% CAGR and Europe is projected to grow at 1.5%.
Bill: Packaging is expanding rapidly fueled by consumer preference for recyclable materials.
Bill: Electrical demand is accelerating due to the global energy transition with aluminum, playing a critical role in Renewable, Power Generation and grid modernization.
Other sectors, including consumer, durables and machinery and equipment are also expected to grow steadily.
Bill: Importantly, the geography of growth is shifted.
Bill: Primary aluminum demand is projected to grow significantly faster in markets outside China at a 3% kegger from 2025 to 2030.
While China's growth slows to just 0.2% kegger, largely met by recycled metal.
Within alcoa's core regions, North America is expected to lead with a 3.8% kegger and Europe is projected to grow at 1.5%.
Three structural drivers underpin the overall aluminum growth trajectory. The Green and Digital Transition. Aluminum is essential to electrification, decarbonization, and digital infrastructure, supporting everything from electric vehicles to data. Second is the rise of developing economies, the China transition and reshoring in North America and Europe. China's growth moderates. Developing economies are stepping up. Meanwhile, reshoring in North America and Europe, often driven by trade policy, continues to boost regional demand. Third, material substitution. Aluminum's recyclability and performance make it a preferred alternative to copper, plastics, and other materials, especially in closed-loop systems. Despite short-term uncertainty, these megatrends provide a resilient and compelling roadmap for long-term aluminum demand growth.
Bill: 3 structural drivers underpin, the overall aluminum growth trajectory.
The green and digital transition. Aluminum is essential to electrification, decarbonization and digital infrastructure supporting everything from electric vehicles to data centers.
Bill: Second is the rise of developing economies, the China transition and reshoring in North America and Europe.
Bill: China's growth moderates, developing economies are stepping up. Meanwhile, reassuring in North America and Europe. Often driven by trade policy continues to boost Regional demand,
Bill: Despite short-term uncertainty, these Mega Trends, provide a resilient and compelling roadmap for long-term aluminum demand growth.
Now turning to our markets, starting with the. After a sharp decline during the first quarter, alumina prices rebounded somewhat in recent months. As noted in our previous earnings update, over 80% of Chinese refineries were operating at a deficit due to high bauxite prices and low alumina prices. In response, approximately 10 million metric tons of refining capacity in China was curtailed or reduced for maintenance during April and May. These production cuts contributed to a more balanced market and supported the price recovery seen in the second quarter. Looking ahead, market dynamics will continue to be shaped by capacity expansions in Indonesia, India, and China.
Now, turning to our markets, starting with alumina.
Bill: after a sharp decline, during the first quarter, aluminum prices, rebounded, somewhat in recent months,
as noted in our previous earnings update over 80% of Chinese, refineries were operating at a deficit due to high blocksite prices and low aluminum prices in response approximately 10 million metric tons of refining capacity. In China was curtailed or reduced for maintenance during April and May these production Cuts contributed to a more balanced market and supported the price recovery seen in the second quarter.
As new supply comes online, we anticipate further production cuts and plant maintenance in China may be necessary to maintain market balance in the second half of the year. On the bauxite front, prices have remained elevated due to supply uncertainty stemming from mining license withdrawals in Guinea. These disruptions could intensify with the onset of the rainy season further tightening supply. In this dynamic environment, Alcoa's global refinery network continues to provide reliable aluminum supply to both our smelters and key customers. We're also capitalizing on high bauxite prices with our Girudi mine on track to achieve record sales volumes this year.
Bill: Looking ahead market dynamics will continue to be shaped by capacity expansions in Indonesia India and China.
Bill: As new Supply comes online. We anticipate further production cuts and plant maintenance in China, maybe necessary to maintain Market balance in the second half of the year.
Bill: On the box side, front prices have remained elevated. Due to supply uncertainty stemming from mining, license withdrawals and guinea.
These disruptions could intensify with the onset of the rainy season further. Tightening Supply.
Bill: In this Dynamic environment, I'll call it Global Refinery Network continues to provide reliable Aluminum Supply, to both our smelters and key customers.
Bill: We're also capitalizing on high block side prices with our durity. Mine on track to achieve record sales volumes this year.
Let's now move on to a LME prices dipped in April, coinciding with the reciprocal tariffs announced on April 2nd, but regained momentum over the course of the quarter. Despite this recovery, prices remain below first quarter levels, reflecting ongoing market volatility. U.S. Midwest Premium initially surged in early June following the implementation of the 50% Section 232 tariffs, reaching $0.68 per pound and now stands at $0.67 as of late last year. This remains below analyst estimates of approximately 75 cents per pound to fully offset the tariff. The Midwest Duty Unpaid Index, calculated by subtracting the tariff from the duty paid premium, has shown negative or near zero values at times.
Bill: So, let's now move on to aluminum.
Bill: Lme. Prices dip in April coinciding, with the reciprocal tariffs announced on April 2nd but regained momentum over the course of the quarter despite this recovery prices remained below. First quarter, levels reflecting ongoing Market volatility.
Bill: Us Midwest premium initially surged in early June following the implementation of the 50% section 232 tariffs, reaching 68 cents per pound and now stands at 67 cents as of late. Last week, this remains below analyst estimates of approximately 75 cents per pound to fully offset. The Tariff costs
This theoretical index only holds when the market is priced on marginal imports, which hasn't consistently been the case. In response, we've sold over 100,000 metric tons of Canadian metal, normally destined for the U.S., to non-U.S. customers since March, and we'll continue this strategy until the Midwest premium fully reflects the new tariff structure. From a demand perspective, conditions remain steady in both Europe and North America, although sector performance is mixed. Electrical and packaging continue to perform well, construction appears to be stabilizing, and automotive remains the most affected by tariff-related uncertainty. In China, easing trade tensions with the U.S.
Bill: The Midwest Duty unpaid index calculated by subtracting the Tariff from the duty paid premium has shown negative or near zero values. At times. This theoretical index only holds when the market is priced on marginal Imports, which hasn't consistently been the case.
Bill: In response, we've sold over 100,000 metric. Tons of Canadian metal, normally destined for the US to non us customers since March and will continue this strategy until the Midwest premium fully reflects the new tariff structure.
Bill: From a demand perspective, conditions remain steady in both Europe and North America. Although sector performance is mixed.
Bill: Electrical and packaging continue to perform well construction, appears to be stabilizing and Automotive Remains the most effective by tariff related uncertainty.
are providing a modest boost to demand. On the supply side, growth is limited in the second quarter, with only marginal increases from smelter restarts and expansions. Global production remains constrained, particularly outside of China. Specific to Alcoa, in North America, our value-added product order book remains stable, with strong demand for slab, billet, and rod. In Europe, VAP volumes improved slightly in the second quarter, with billet demand strengthening and rod and slab demand holding firm.
In China easing, trade tensions, with the US are providing a modest boost to demand.
Bill: on the supply side growth is limited in the second quarter with only marginal increases from smelter restarts and expansions
Global Production remains constrained, particularly outside of China.
Bill: Specific to Alcoa in North America, our value added product order book remains stable, with strong demand for slab, Billet and Rock.
However, foundry orders soften in both regions, largely due to uncertainty in the automotive sector tied to tariff and We are progressing the approvals for our next major mine regions in Western Australia, Myra North and Holyoke, as well as our current mine plan, which had been referred by a third party. The 12-week public comment period for both approvals, which began in late May, is a statutory part of the environmental impact assessment process. It enables individuals, communities, and stakeholders to share input, raise concerns, and recommendations for consideration. Concurrently, we are supporting the public comment period through a comprehensive communication and engagement campaign.
Bill: In Europe, zap volumes improved slightly in the second quarter with Billet demand, strengthening and Rod and slab demand holding firm.
Bill: However, Foundry order. Softened in both regions, largely due to uncertainty in the automotive sector, tied to tariff impacts.
We are progressing the approvals for our next major. Mine regions in Western Australia, myara, North and Holio.
Bill: As well as our current mine plan which had been referred by a third party.
Bill: The 12-week public comment period for both approvals, which began in late May is a statutory part of the environmental impact assessment process. It enables individuals to communities and stakeholders to share input raised concerns and recommendations for consideration.
The focus of the campaign is to ensure that the public has access to accurate information and facts about our environmental performance in Australia and understands our commitment to responsible mining in the Northern Jara Forest. Key highlights include over 55 years of rehabilitation experience. Only 2% of the northern Jara Forest has been cleared for mining. No mining in old-growth forests, operations are limited to areas previously cleared for timber, and 75% of cleared forests have been rehabilitated. The campaign also showcases the expertise and dedication of our alcohol professionals who apply a science-based approach to biodiversity and rehabilitation.
Bill: And currently we are supporting the public comment period through a comprehensive, communication and engagement campaign.
Bill: The folks of the campaign is to ensure that the public has access to accurate information, and facts about our environmental performance in Australia and understands our commitment to responsible mining in the Northern jarrah Forest.
Bill: Of Rehabilitation experience.
Bill: Only 2% of the Northern jarrah Forest has been cleared for mining.
Bill: No Mining and old growth. Forests operations are limited to areas, previously, cleared for Timber and 75% of cleared forests has been rehabilitated.
Given the complexity of advancing two mine approvals at the same time, the volume of documentation submitted by Alcoa and independent experts, and the anticipated effort to review and respond to public submissions, the original timeline for mine approvals is no longer feasible. While ministerial approval was initially targeted in the first quarter of 2026, it is now expected that the process will extend beyond that time frame. Following the public consultation period, we expect the Western Australia EPA will publish a revised timeline. We remain committed to working collaboratively with the Western Australia EPA and other stakeholders to secure ministerial decisions as early as possible in 2026.
Bill: the campaign also showcases, the expertise, and dedication of our alcohol professionals to apply a science-based approach to biodiversity and Rehabilitation
Bill: given the complexity of advancing 2, minor approvals. At the same time, the volume of documentation, submitted by Alcoa and independent experts and the anticipated effort to review and respond to public submissions. The original timeline for mine approvals is no longer feasible. While ministerial approval was initially targeted in the first quarter of 2026, it is now expected that the process will extend beyond that time frame.
Bill: Following the public consultation period. We expect the Western Australia. EPA will publish a revised timeline.
In the meantime, we have developed multiple contingency plans and expect to continue accessing bauxite of similar grades. until the new mine regions are operational. We will continue to engage with stakeholders to fulfill our responsibilities as a trusted miner and to sustain our right to mine for decades to come.
Bill: We remain committed to working collaboratively with the Western Australia, EPA and other stakeholders to secure ministerial decisions as early as possible in 2026.
In the meantime, we have developed multiple contingency plans and expect to continue accessing box site of similar grades until the new mine regions are operational.
Bill: We will continue to engage with stakeholders to fulfill our responsibilities as a trusted minor. And to sustain our right to mind for decades to come,
To conclude, in the second quarter, Alcoa delivered strong safety results and operational performance in areas within our control. We also made meaningful progress on our strategic priorities. Looking ahead, we remain focused on executing at pace across our 2025 priorities, enhancing operational competitiveness, navigating market dynamics to deliver long-term value for our stockholders, and advancing the approval process for our Western Australia mine plan.
Bill: To conclude in the second quarter, I'll call it delivered strong, safety results, and operational performance in areas within our control.
With that, let's open the floor for questions. Operator, please begin the Q&A session. We will now begin the question and answer session.
We also made meaningful progress on our strategic priorities looking ahead. We remained focused on executing a pace across our 2025 priorities. Enhancing operational competitiveness, navigating market dynamics to deliver long-term value for our stockholders and advancing the approval process for our Western Australia. Mine plans with that. Let's open the floor for questions. Operator, please begin the Q&A session.
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And our first question comes from Katja Jancic with BMO Capital Markets. Please go ahead. Hi, thank you for taking my questions. Maybe starting on the tariff side, Molly, I think you mentioned that the current outlook doesn't include anything for potential, I guess, 50% tariffs on Brazil. How would, if that does happen, is there any way you get impacted from that, potentially? Katja, it depends on if Illumina is indeed excluded. Our read of it now is that it's covered under the Annex, but until we see the executive order that would be related to Brazil, we can't assure that.
Speaker Change: and our first question comes from katcha. Yankee with BMO Capital markets, please go ahead.
Hi. Thank you for taking my questions. Maybe starting on the parasite. Molly, I think you mentioned that the current Outlook doesn't include anything for potential, I guess 50% tariffs on Brazil
How would if that does happen? Is there any way you get impacted from that? Potentially
Gotcha, it depends on if alumina is indeed excluded, I read of it. Now is that it's covered under the annex, but until we see the executive order that would be related to Brazil, we can't assure that
If that were the case, we are sourcing our U.S. smelters with Brazilian aluminum. Now, we could redirect supply and provide them from Western Australia, but obviously that'll take time and cost more in terms of shipping. But we have that option, and depending on how that executive order is written, we can adapt. Okay, thank you.
Speaker Change: That.
Speaker Change: Our us smelters with Brazilian aluminum. Now we could to redirect Supply and provide them from Western Australia, but obviously that'll take time and cost, uh, more in terms of shipping. But we have that option and uh, depending on how that executive order is written, we can adapt.
And maybe just another question, Bill, on the Western Australia contingency plans, can you discuss what some of those plans could be, and how could that impact your costs? So, at this point, as far as an impact on cost, we don't anticipate any impact in 2025 or 2026. The expectation that we would be into the new mine areas in late 2027 has now slipped out into 2028.
Okay, thank you. And maybe just
Another question, uh, bill on the Western Australia, contingency plans, can you discuss what some of those plans could be? And how could that impact your cost?
We have a series of contingency plans that cover different mining areas, potentially going deeper in the pits that we're in, that allow us to be comfortable that we are working through the process and we'll get the right approach. Okay, thank you.
Speaker Change: So, um, at this point, uh, as far as an impact on cost we don't impact, we don't anticipate any impact in 2025 or 2026. Um, the expectation that we would be into the new mine areas in late 2027. Has now slipped out uh into 2028. Um we have a series of contingency plans that cover uh different mining areas uh potentially going deeper in the pits that we're in uh that uh that allow us to uh
Be comfortable that we are working through the process and, uh, and we'll get the right approvals.
Okay, thank you.
And your next question today will come from Alex Hacking with Citi. Please go ahead. Yeah, thanks, Bill and Molly. Just following up on Katja's question there on WA, if the delays to the new mine areas are extended, can you keep mining the lower grade areas for a period of additional years, or it would be more urgent than that? Thank you. We'll continue to mine the areas that we're in today, and as I said to Katja, no impact on 25, 26. As we said, we expect it to be in the new mines in late 27. That slips out until 28 at this point.
Speaker Change: And your next question today, will come from Alex hacking with City. Please go ahead.
Yeah. Thanks. Uh, Bill and Molly just following up on catcher's questionnaire on wa
Speaker Change: Additional years or it would be more urgent than that. Thank you.
But we do have contingency plans in place that can go all the way up to a 15-month delay if needed. Okay, what is this longer than 15 months?
So, we'll continue to mine the the areas that we're in today, and as I said to Katya the, the, uh, no, no impact on 25 26. Um, as we, as we said, we expected to be in the new mines to, uh, in late 27 that slips out till 2028 at this point, uh, but we do have contingency plans in place that, uh, uh, can, uh, go up to all all the way up to 15 months delay. If uh, if needed.
Speaker Change: Okay. What if it's longer than 15 months?
We'll work through that and we'll look at what implications it has on operating rates in Panjara, but we'll work through that when we get there. Okay, thanks.
Speaker Change: But uh, you know, we'll work through that when we get there.
And then just following up on the tariff map. I mean, Molly, you mentioned that I think it was $215 million a quarter in Section 232 cost. Is that being more than offset by what you're getting on the additional Midwest premium at the moment? Thanks. Yeah, Alex, let me give you the numbers of what we experienced for the second quarter. So if you look at in our bridge discussion, we talked about the tariffs being $95 million more in the second quarter. That's on top of the $20 million that we paid in the first quarter. So the cost in the second quarter was about $115 million.
Speaker Change: Okay. Thanks and then just following up on the the Tariff Maps. Um, I mean, Molly you mentioned that? I think it was 250 million a quarter in section 232 costs. Um is that being more than offset by what you're getting on the additional Midwest premium at the moment.
Speaker Change: Thanks, yeah, Alex, let me give you the numbers of what we experienced for the for the second quarter. So if you look at the in our Bridge discussion, we talked
Speaker Change: About tariffs being.
We only saw a Midwest premium uptick of about $60 million. So we had margin compression of about $55 million. And that's related to our Canadian tariff. Now obviously we're getting a benefit on our U.S. tons, but I'm giving you the compression that we felt on the Canadian. Sorry, the $60 million additional, is that just on the Canadian funds or does that include the U.S. funds? Just on the Canadian. Okay, thank you.
Speaker Change: 5 million more in the second quarter that's on top of the 20 that we paid in the first quarter. So the cost in the second quarter was about 115 million. We only saw a Midwest premium uptick of about 60 million. So we had margin compression of about 55 million and that's really related to our Canadian tons. Now, obviously, we're getting a benefit on our us tons, um, but I'm giving you the the compression that we felt on the on the Canadian.
All right. That's the 60 million. Add additional is that that's just on the Canadian time so that includes the US tax just on the Canadian tons.
So, Alex, let me just give you a little bit more color. If you look at the pricing today, so with LME at $2,600 and Midwest Premium at 67 cents a pound, we are near neutral or even slightly positive if you look at the volumes as a whole. Because the higher uptick in Midwest Premium on the U.S. tons would be more than the net negative on our Canadian tons. So that's at this current pricing. If this were to hold from a whole year perspective, we would be about neutral to slightly positive. Thank you. That's perfect. Thank you.
If you look at so Alex.
Speaker Change: Give you a little bit more.
Speaker Change: Look at the pricing.
Speaker Change: 2600 and Midwest premium at 67 uh cents a pound. We are near neutral or even slightly positive. If you look at the volumes as a whole
Speaker Change: Because the higher uptick in Midwest premium on the US tons would be more than the net negative on our Canadian time.
Current pricing. If This Were to hold from a whole year perspective, uh, we would be about neutral to slightly positive.
Very helpful. Thank you.
Speaker Change: Thank you. That's perfect.
And the one point that we continue to make is, and I think other analysts that follow the space, The current Midwest doesn't support the overall tariff costs coming out of Canada, so current Midwest is sitting at $0.67, $0.68. We think it needs to be between $0.70 and $0.75, depending on how you look at it, to cover total tariff costs. That's why we have moved, repositioned metal going that was expected to go into the U.S. that is now going into destinations outside of the U.S., just because that math doesn't work currently. Anywhere we can take advantage of that, we will, and move tons for other destinations.
Speaker Change: Thank you. Very helpful. Thank you.
Speaker Change: And and the uh the 1 point that we continue to make is and I think uh other other uh analysts that follow the, the space make it, the current Midwest doesn't support the overall, uh, tariff costs coming out of Canada. So current this Midwest is sitting at 6768 cents. We think it needs to be between 70 and 75 cents, depending on how you look at it to cover, cover cover total, tariff costs. And that's why we have moved repositioned metal going. That was expected to go into the US, that is now going into destinations outside of the US just because that mass doesn't work currently. And uh, anywhere we can take advantage of that we will and uh, and move uh, move tons for other destinations.
And your next question today will come from Daniel Major with UBS. Please go ahead. Hi. Thanks for the questions. Just a very quick first one. Just to clarify the maths on the tariff costs, you had $115 million cost in the second quarter, and you said it's going to be a negative $90 million delta. So it's $205 million, the run rate of cost in the second quarter. Is that correct? That'll be the third quarter cost. Yeah, $205. And then we're saying again, at latest pricing, so if you dialed forward, that would be the $215 that we guided to in tariff costs.
And your next question today will come from Daniel major with UBS. Please go ahead.
Hi, uh, thanks for the questions. Um, just very quick. First 1, um, just to clarify the maths on the uh, tariff costs. You had 115 million cost in the second quarter and you said it's going to be a negative 90 million Delta. So it's 205 million the Run rate of cost in the second quarter. Is that correct?
Speaker Change: That'll be the third quarter cost. Yeah so and then we're saying again it at latest pricing uh so if you dialed forward that would be
15, that we
Sorry, you said latest pricing, you mean spot pricing or like, yeah, sorry, the 205 is what we gave as the outlook for the third quarter. So that's the 90 sequential change. And then we were also saying that our quarterly tariff cost at today's pricing is 250. Got it clear, that's very good, thanks.
Speaker Change: Sorry. You said the latest pricing you mean spot pricing or like yeah. Sorry the 205.
Speaker Change: For the third quarter. So that's the 90 sequential change and then we were also saying that we are our quarterly tariff cost at today's pricing is 2.15.
Yeah, then second question, so it's on San Ciprian, you updated the respective net income drag and cash burn this year.
Speaker Change: Uh, got it. Clear. That's um,
um, sound cyprian, you updated the, um,
Can you give us any sense of expectations for 2026 at this point? My guess would be the refinery will continue to burn cash, but is there any guidance you can give on either the cash burn or not at the smelter in the refinery? Yeah, Daniel, we're not giving the guide there yet, but you're right.
Speaker Change: Respective, uh, net income drag and cash burn this year. Um can you give us any um sense of expectations for 2026 at this point? Um my guess would be the refinery will continue to burn cash. Um but is there any guidance you can give on either the the the cash burn or or not, at the smelter and the refinery?
At recent market prices, the Spanish operations are challenged. From the smelter, the delay to the restart after the power outage has driven the full ramp up into 26. We do expect after full ramp up that the smelter will be profitable, but the refinery, while having a first quarter 25 income, they will move into a lost position for the rest of the year, and they will struggle still at this API level into 2026. Okay, but but at spot you can confirm that the smelter would would be cash neutral. The Smelter at fully ramped up level would be profitable.
The smelter, the delay of the restart after the power outage, uh, has driven the full ramp up into 26. We do expect after full ramp up that the smelter will be profitable but the refinery um, that while having a first quarter 25 income, they will move into a lost position for the rest of the year and they will struggle still at this API level, uh, into 26.
Okay, but but at spot, you can confirm that the smelter would um would be cash neutral.
But remember, it won't be fully ramped up in 2026. I mean, it will hit. Our anticipation is that it will hit the ramp-up schedule for 2026. But for the full year, it will be going through the process of ramping up. We won't be fully ramped up till mid-year 2026.
Speaker Change: The, the smelter had fully ramped up a level would be profitable, but remember, it won't be fully ramped up uh, in 2026. I mean it it will hit the, you know, our anticipation is that it will hit the the ramp up schedule for 2026. But for the full year, it still will, you know, it will be going through the process of ramping up, we won't be we won't be fully ramped up till mid year 26.
Very helpful, thanks.
Speaker Change: Very helpful, thanks.
And your next question today will come from Nick Giles with B. Reilly. Please go ahead. Thank you, operator, and good afternoon, everyone. This is Henry Hurl on for Nick Giles today. Thank you for taking my question. So on our estimates, you have about 50,000 metric tons of spare annual capacity at work, and the Midwest premium has increased sharply to reflect that tariffs may be stickier than originally thought. So my math, the spare capacity at work could generate over 100 million of EBITDA annually.
And your next question today, will come from Nick Giles with B Riley, please go ahead.
And so what prevents you guys from restarting this capacity today? Thank you. Thanks for the question, and it's a great question. We're currently running three lines at Warwick. We have a fourth line at Warwick that would produce approximately 50,000 tons. The issue in Warwick is that that fourth line needs a lot of work and will take some time to get restarted. So our estimate is that it would be about $100 million investment to restart that fourth line, and it would take us about a year to get it up and running. So we will certainly continue to run the numbers on Warwick.
Speaker Change: Thank you, operator and good afternoon everyone. This is Henry hurl on for Nick trials today. Um, thank you for taking my question. So on our estimates, you have about 50,000 metric tons of spare annual capacity at work. And the Midwest premium has increased sharply to reflect that tariffs may be stickier than originally thought so on. My math, the spare capacity at work could generate over 100 million of IBA annually. And so, what prevents you guys from restarting this capacity today. Thank you.
Thanks for the question. And it's a, it's a great question. Uh, we're currently running 3 lines at work. We have a fourth line of work that would produce approximately 50,000 tons. Uh, the, uh, the, the issue in work is that, that fourth line meets a lot of work and will take some time to get restarted. So our
We would need to ensure that the tariffs will stick around for quite a while, given that ramp-up curve in Warwick before we made the decision of investing another $100 million in a restart in Warwick. Thank you, that definitely makes sense. Thanks for the color there, and continue to best of luck. Thank you. Thanks.
Estimate. Is that it would be about a hundred million dollar investment to restart that fourth line, and it would take us about a year to get it up and running. So uh we will certainly continue to run the numbers on work. Uh, we would need to to ensure that the tariffs will stick around for quite a while given that ramp up curve uh in warrant before we made the decision of investing, another hundred million dollars in a restart in war.
Speaker Change: Thank you that. That definitely makes sense. Um, thanks for the the color there and continued best of luck.
And your next question today will come from Bill Peterson with J.P. Morgan. Please go ahead. Yeah, hi, good afternoon and thanks for taking the questions. On the on the mid 2026 restart of Sansepian, still implies 75% utilization. Can you remind us of, I guess, when the term of the agreement with the workforce comes in and whether the delayed restart has any impact on that? So, Bill, thanks for the question. After the power outage occurred in Spain, we declared force majeure on that contract because it limited our ability to be able to meet the deadlines that are included in the contract.
And your next question today will come from Bill Peterson with JP Morgan. Please go ahead.
Bill Peterson: Yeah. Hi, good afternoon, and thanks for taking the, the questions, um, on the on the mid 2026 restart of of Saint cyprian, uh, is still in place 75% utilization, can you remind us since
I guess when the term of the agreement went to work force, comes with an N. Whether the delayed restart has any impact on that.
Bill Peterson: So after that bill, thanks for the question after the
Recall that we had anticipated a full restart by October 1st of 2020, sorry, 2025, and then from there, we had some flexibility on how we run the plant after that full restart. Because of the power outage, we have said that we were not going to meet that October 1st deadline, and we've moved it back to the middle part of 2026. So we have had extensive conversations on both sides of the border. I've been talking to the Kearney administration often. I've been talking to the U.S. administration. often, and at a 50% tariff, you saw us take action to redirect 100,000 tons to non-U.S.
Bill Peterson: Um, power outage occurred in Spain. We declared force majour, uh, with, uh, on on that contract, uh, because it limited our ability to be able to meet the deadlines that are included in the contract. Recall that, uh, we had anticipated a full restart, uh, by October 1st of, uh,
2020. Uh, sorry 2025 and um, and then from there, uh, we had some flexibility on how we run the plant after that full restart um, because of the power outage we have said that we were not going to meet that October 1st deadline and we've moved it back to uh the middle part of 2026.
Speaker Change: Okay, thanks for that. Um, and then kind of a different angle on the tariffs. And last quarter, I asked you about conversations with the US government, but I guess in, in light of the tariffs remaining where they are now, how should we think about the commercial strategy?
Speaker Change: Customers, uh, how should we think about that in the coming months? And then finally, is there any opportunities from relief from the Canadian government in the meantime?
customers. As Molly said in her prepared remarks, we have the ability of about 30% of the Canadian volume to be able to redirect that to non-U.S. destination, and we will do so as long as the netbacks make more sense to ship it to other places than the U.S. We've been very dynamic and handled this situation very quickly, and we'll continue to do so in the future. I felt like that was a multi-part question. Did I miss any of that? Yeah, just anything on tariff cost sharing that you might add? Well, when you say tariff cost sharing, through the Midwest Premium, the Midwest Premium is largely passing on the higher tariffs to our customers, so just to be clear, we are saying the Midwest Premium needs to be at, let's say, 75 cents to fully cover the tariffs.
Speaker Change: So, we have had extensive conversations on both sides of the Border. Uh, I've been talking to uh, the uh, Kearney Administration often. Uh, I've been talking to the US Administration, uh, often. Um, and uh, at a 50% tariff. You saw us take action to redirect 100 thousand tons to non us customers. As Molly said, in her prepared remarks, we have the ability of about 30% of the Canadian, uh, volume to be able to redirect that to, uh, non-us destination and we will do. So as long as the net facts, make more sense to ship it to other places. Uh then then the US. Um so we we've been very Dynamic and handled this situation very quickly uh and we'll continue to do so in the future.
Um, I felt like that was a multi-part question. Did I did I miss any of that? Yeah. Just anything on tariff cost sharing that you might uh add
We're able to pass through 90% of that through a higher Midwest Premium to our customers, so while we're not particularly thrilled with the tariffs, our customers are paying significantly higher prices for aluminum in the United States than they would pay anywhere else in the world. Well understood. Thanks.
Speaker Change: Well, when you say tariff cost sharing um we through the Midwest premium, the Midwest premium is largely passing on the higher tariffs to to our customers. So, just to be clear. Uh, the you know, we we are saying the Midwest premium needs to be at, let's say 75 cents to fully cover the tariffs. We're able to pass through 90% of that through a higher Midwest premium to to our customers. So, um, while you know, we're not particularly thrilled with the the the uh, the tariffs, our customers are paying significantly higher prices for aluminum in the United States than they would pay anywhere else in the world.
Thanks, Bill.
Speaker Change: Yep, it's all understood. Thanks. Uh thanks Bill. Thanks.
And your next question today will come from Chris LaFemina with Jeffries. Please go ahead. Hey, thanks for taking my question. And it might be a dumb question, but isn't it the case that the tariffs are really just a net neutral for you? Because if you're diverting tons away from the U.S. because you can get better prices elsewhere, the Midwest premium goes up. And unless the Midwest premium is high enough for you to sell to the U.S., well, then you won't sell there. And at the end of the day, it's really, I mean, in equilibrium, it should be net neutral.
Crystal Femina: And your next question today will come from Crystal femina with Jeff, please. Go ahead.
And if the customers in the U.S. will pay the premium, but I'm not really sure why the guidance should be for any net impact other than if you only consider where Midwest premium is today and where the LME price is today. But over time, shouldn't it be a wash?
That's my first question.
Speaker Change: Hey, thanks for taking my question. Uh, and it might be a dumb question but isn't it? The case that the tariffs are really just a net neutral for you? Because if you're diverting tons away from the US because you can get better prices elsewhere, the Midwest premium goes up and unless the Midwest premium is high enough for you to sell to the US, well, then you won't sell there and at the end of the day it's really, I mean in equilibrium, it should be a net neutral and uh, it's the customers in the US will pay the premium, but I'm not really sure why the guidance should be for any net impact. Other than if you, if you only consider where Midwest premium is today and where the lme prices is today. But over time, shouldn't it be a war?
So let me address this, and Molly can certainly feel free to jump in. With all the numbers that Molly gave us earlier in the call, in the end, if the Midwest premium reacts accordingly, it's a net neutral to Alcoa. However, there's a big however there. Our customers in the U.S. are seeing significantly higher prices than anywhere else in the world. And if you assume that they can pass that on to their customers, then I guess the net neutral to them. But somebody ends up eating that tariff cost. And there are dedicated supply chains from Canada to our customers, literally trains that go from door to door, from our plants to our customers, that our belief is that it makes the most sense for the industry to have metal being able to flow from Canada to the U.S.
Crystal Femina: Rush, that's my first question.
with either a lower tariff or no tariff at all. And so that's the best thing we think for our customers and for our industry to be able to do that. Right. So in that case, the impact of the tariffs is really on total demand, in which case LME prices would go down. But the net impact, I mean, other than the overall kind of price, global LME price impact, the impact on Alcoa should still be a neutral rate because either way, the Midwest premiums got to equal the tariff over time. Chris, you have to remember that we do have customer contracts, so we don't have full flexibility to move the metal dynamically.
Crystal Femina: Let me let me address this and Molly can certainly feel free to jump in um, with all the numbers that Molly gave us earlier in the call in the end if the Midwest premium reacts accordingly. It's a net neutral to to Alcoa. Um, however there's a there's a big however there. Um our customers in the US are seeing significantly higher prices uh than anywhere else in the world. And uh if you assume that they can pass that on to their customers, then I guess the net neutral to them but somebody ends up eating that that tariff cost and uh there are dedicated Supply chains from Canada to our customers. Literally trains that go from door to door uh from our plants to our customers. That uh our belief is that uh it makes the most sense for the industry to have uh uh metal being able to flow from Canada, to the US with either,
Uh, a lower tariff or no tariff at all. And so, and that's the best thing we think for our customers and for our industry to, to be able to do that, right? So in that case, the impact of the tariffs is really on on total demand in which case Alan me prices would go down.
Uh, but the, but but the net impact, I mean, other than the, the overall kind of price Global element price impact, the impact on our Coast, should still be a neutral, right? Because either way the Midwest premiums got to equal the tariffs over time
So 70% of our Canadian metal is on contract. So that needs to flow into the US for customer.
Okay, thanks. And I'm sorry, just a second question on the ATO, which I think you're $225 million in taxes now by the middle of next year. Is any of that provisioned on the balance sheet yet? How do we think about the kind of cash flow impact of that and the balance sheet impact of that? Thank you. Yeah, that is fully reserved on the balance sheet now as a tax payable.
Crystal Femina: But you have to remember that we do have customer contracts so we don't have full flexibility to move the metal dynamically. So 70% of our Canadian metal is on contract, so that needs to flow into the US for customer commitment. Okay. Thanks and then sorry just a second question on the atto.
Which I think you 225 million in taxes. Now, by the middle of next year, is any of that provisioned on the balance sheet yet? How do we think about the kind of cash flow impact of that and the balance sheet impact of that. Thank you. Yeah, that is fully reserved on the balance sheet now as a tax payable
And Chris, I'm just going to add to that, and I can't help myself. That is a major win for Alcoa. That was a large overhang on the company and on the stock. We have been battling that for five years now, and to get that behind us is a really big deal. And I'll give some credit to our tax and legal team here that stuck with it and really presented a great case. So I'm pleased that we're able to put that behind us. Thank you.
Crystal Femina: Hey, Chris. I'm just going to add to that and I can't help myself. So, that is a, a, a major, uh,
Win for for Alcoa. Um, that was a large o-ring uh, on uh, on the company and on the stock. Um, we have been uh, you know, battling that for 5 years now. And uh, to get that behind us is a really big deal. And uh I'll I'll give some credit to our tax and legal team here uh that uh stuck with it and uh and really presented a great case. So I'm pleased that we're able to put that behind us.
And your next question today will come from Carlos de Alba with Morgan Stanley. Please go ahead. Yeah, thank you very much.
Crystal Femina: Thank you, thanks.
Speaker Change: And your next question today will come from Carlos de Alba with Morgan Stanley. Please go ahead.
Hello, Molly and Bill. Just on the last point you made, Molly, that 70% of your Canadian is melting output is on the contract to be sold to US customers. When can you start renegotiating potentially those contracts so that that 70% decreases? So those are annual contracts, but also understand we have firm customer relationships that we're not going to jeopardize. So Carlos, you could see some flexibility, but it's going to be a careful balance of respecting our strong customer relations as well as moving the metal to get the best market.
Speaker Change: Yeah, thank you very much. Uh, hello, I'm Bill. I just on, on the last point, you you made, uh, Molly that 70% of your Canadian, uh, is melting out. But is on the contract to to, uh, be sold to us customers when does when can you start renegotiating? Potentially those, those contracts. So that, that 70% decreases,
All right, okay, and if I may, just on the progress on the Alomar smelter in Brazil, what is the capacity utilization at which you are running and when do you expect to get sort of a steady state? So we continue to struggle with the Alumar restart, and we're sitting at about 92% capacity today. So net-net, we moved a little bit forward over the last quarter. The issue there, Carlos, is some of the patched pots that we had not anticipated having to reline are failing faster than what we had anticipated. So it's a battle. We take, I would say, a step and a half forward and a step backward just about every day in Alumar.
Speaker Change: You could see some flexibility, but it's it's going to be a careful balance of respecting, our strong customer relations. Uh, as well as moving the metal to get the best margin,
All right, okay, and if I may just on the, on the progress, on on the alumar is melting in Brazil. Um, what is the, the capacity utilization at which you are running and and when do you expect to get sort of a steady state?
And we're anticipating that we'll have that restarted completely this year. However, I've told you that before, and I think that's my target, but I've missed my target before, so take that with a grain of salt. All right. Good luck. Thank you very much.
Speaker Change: So we continue to struggle with the the IMR restart and uh we're sitting at about 92% capacity today, so net net, we moved a little bit forward uh over the last quarter, the issue there. Uh Carlos is some of the patched pots that we had not anticipated having to realign our, our failing faster than what we had anticipated. So it's a battle we take, uh, I would say a step and a half forward and a step backward just about every day and, and how you are. And, uh, we're anticipating, uh, that we'll have that restarted, uh, completely. Uh, this year, however, I told you that before, and, uh, I think you you, you know, we're, we're that's, that's my target. But, uh, but I've missed my target before. So take that with a grain of salt.
Speaker Change: All right, good luck. Thank you very much.
And your next question today will come from Lawson Winder with Bank of America. Please go ahead. Thank you, operator. Hello, Bill and Molly. Thank you for today's update.
And your next question today will come from loss and Winder with Bank of America. Please go ahead.
Just wanted to follow up on the Mod Den closing and whether there's any new thinking on the potential to monetize that amount or, you know, even just simply lower your overall scoring costs using that as collateral. Thank you. Lawson, while we have the option to monetize those shares during the lock-up period, recall the lock-up period, we cannot sell shares until the third, fourth, and fifth anniversaries, the third each year. But to monetize those would be complex transactions, and that would be classified as debt on our balance sheet, and it might not really be a cost-effective source of liquidity either.
Thank you, operator. Hello Bill and Molly, thank you. For today's update. Just wanted to uh, follow up on the mod and uh, closing. And uh, whether there's any, uh, new thinking on the potential to monetize that amount or, um, you know, even just simply lower your overall borrowing cost using that as a collateral, and thanks for that.
Speaker Change: Once in a while.
Monetize those shares during the lock up. Period recall, the lock up period. Uh, we cannot, um, sell shares until the third fourth and fifth anniversary the 30th year, um, but to monetize, those would be complex transactions. And that would be classified as debt, on our balance sheet, and that might not really be a cost effective source of liquidity either.
While we don't expect to hold the shares for an extended period of time after each lock-up period expires, we don't have plans to monetize in advance right now, we don't have a specific use for the cash that would be used to pay it off. have us add that debt to our balance. And then, as you report those gains and losses going forward, I assume you'll be adjusting those out. Yes, so it will be marked to market and you'll see special items to remove that from our regular operation.
While we don't expect to hold the shares for an extended period of time after each lock up period expires. Um, we don't have plans to to monetize and advanced. Uh, right now we don't have a specific use for the cash that would uh,
Speaker Change: have us add that debt to our balance sheet.
And then, as you report those uh, gains and losses going forward, I assume you'll be adjusting those up.
Great, thank you very much.
Speaker Change: Yeah. So so it will be marked to Market, and you'll see special items to remove that from our regular operations.
Speaker Change: Great, thank you very much.
And your next question today will come from John Tumazos with John Tumazos Very Independent Research. Please go ahead. Thank you for taking the question.
And your next question today will come from John tumiso with John tumiso, very independent research. Please go ahead.
Speaker Change: Thank you for taking the question.
I'm curious as to the confidence you have in Spain. Restarting this week that the utility will deliver electricity. Presumably the population grows something like 10% July-August with tourism. And then there's air conditioning, electricity, demand, and the heat of the summer. So, are there any guarantees of power delivery or something that's different than August 28th when the wind didn't blow? So John, it's a question that we've been wrestling with since the wind didn't blow on the date earlier in the year. We've been working with the national and regional representatives of the country and they have developed, and this is obviously not just to our prompting but prompting from other industry in Spain, they've approved a list of 65 actions in the energy sector that are designed to make the electricity grid more resilient.
John tumiso: Um, I'm curious as to the confidence, you have in Spain. Restarting this week to the utility will deliver electricity. Uh, presumably. The population grows something like 10% July, August with tourism.
John tumiso: And then there's air conditioning, electricity demand, and the Heat of the summer.
Speaker Change: So are there any guarantees of power delivery or something? That's different than August 28th when the wind didn't blow?
They are incorporating additional tools in the networks like voltage control, working on stability in the face of oscillations. So they are working to strengthen the electrical system.
There's no guarantees in life but they are taking, we believe, the right measures to ensure that the power stays on.
Speaker Change: It's a, it's a question that we've been wrestling with since the wind didn't blow uh, on the date earlier in the year. Um, we've been working with the, the national and Regional Representatives uh, of the country and uh, they have developed. And this is obviously not just to our prompting but, uh, prompting from other industry, uh, in in Spain. They've, they've, uh, approved a list of 65 actions in the energy sector that are designed to make the electricity grid, more resilient. Um, they, uh, are incorporating additional tools in the networks like voltage control um uh working on stability in the face of oscillations. So they are working to strengthen the the electrical system. There's no guarantees in life and, uh, uh, but they are taking, we believe the right measures to, uh, ensure that the power stays on.
As you start up Monday the 14th, How many pots per week do you energize? Is the circumstance in late July and August where you're really not drawing very much electricity because of the gradual nature of the process? Yes, so it's a gradual ramp up process and we should hit the target by the middle part of next year. My recollection is there's 500 pots in Spain, so we'll be starting, you can do the math on how many pots we have to start to hit total production by the middle part of next year. But yeah, we'll be starting a few pots a week to get to that restart.
Speaker Change: As you start up Monday, the 14th.
How many pots per week, do you energized?
Speaker Change: is the circumstance in Late July and August, where you're really not drawing very much electricity because of the gradual nature of the process,
Speaker Change: Yes. So it's it's a gradual ramp up process and we should hit uh the Target by um uh the middle part of next year. My recollection is there's 500 Potts uh, in in Spain. So we'll be uh, starting you can do the math on uh how many pots? We have to start to hit total, uh, total production by the by the middle part of next year. But yeah, we'll be starting a few pots.
Speaker Change: A week, uh, to get to that restart done.
Thank you.
Speaker Change: Thank you.
Thanks.
And your next question today will come from Gwynne Luckluck with Bear and Joey. Please go ahead. Afternoon, Bill and Molly. Firstly, Bill, just wondering if you could share any thoughts on how discussions with the government are going regarding the tariff. I had heard that maybe Canada could be in line for a reduction relative to the rest of the world. And then secondly, I don't want to put the cart before the horse, but you know, net debt came down, you're almost within sight of that $1 to $1.5 billion range.
Speaker Change: And your next question today will come from Glenn luck with Baron Joey. Please go ahead.
Speaker Change: Uh afternoon, Dylan Molly. Um firstly bill just wondering if you could share any thoughts on how discussions with the government are going regarding the tariffs. I had heard that maybe Canada could be in line for a reduction relative to the rest of the world.
Just your thoughts on timing for when we may hear some words on capital management and what you're potentially thinking if it's not too early. Thanks. Glenn, on the tariff discussion, I want to emphasize exactly how much advocacy and engagement we've been doing over the last three or four months. I've spent time in Ottawa. I've spent a lot of time in D.C. I have met with Mr. Hassett, Mr. Lutnick, Mr. Greer.
And then secondly, I don't want to put the cart before the horse, but you know, net debt, came down. You're almost within side of that 1 to 1 and a half billion range.
Speaker Change: Just your thoughts on timing for when we may hear some words on Capital Management and what you potentially thinking, if it's not too early, thanks,
I even had a very brief, very, very brief discussion with President Trump while I was in Saudi Arabia, and we're talking like a 15-second discussion with President Trump while I was in Saudi Arabia. We're doing really two things. One is an underlying education of how short the U.S. market is for aluminum and how long it would take to replenish that via building plants in the U.S. Recall, and I know you know this, but building a smelter in the U.S. would probably take us at least five years in order to replace the four million metric tons of aluminum that comes from outside of the U.S.
Glenn, um, on on the Tariff discussion. Um, I want to emphasize exactly how much advocacy and engagement. We've been doing over the last 3 or 4 months. I've spent time in Ottawa. I've spent a lot of time in DC. Uh, I have met with Mr. Hasset. Mr. Lutton Mr. Career. Uh, I even had a very brief, uh, very very brief discussion with President Trump while I was in Saudi Arabia and we're talking like a 15-second discussion with President Trump while I was in Saudi Arabia. Um, and we're doing really 2 things. 1 is an underlying education of of uh, how short uh, the US market is for aluminum. And how long it would take to replenish that uh, via building plants in the US and recall. And I know, you know this but uh, a building a smelter in the US would probably take.
We need six gigawatts of energy. That's not gigawatt hours. That's six gigawatts of energy, and it would probably cost $30 billion to put four million metric tons here. We're educating the government on those facts, and then secondly, we're educating them on how tight the supply chains are between the U.S. and Canada and the fact that we think it makes a lot of sense to have metal coming out of Canada to support our downstream customers. Then there's one last data point. There's something like 12 or 13 jobs in the downstream that are supported by every Canadian primary upstream job.
Speaker Change: At least 5 years uh in order to replace the 4 million metric, tons of aluminum that comes out of uh from outside of the us, we need um 6 gigawatts of of energy that's not gigawatt hours, that's 6, gigawatts of energy. Um, and uh, and it would probably cost uh 30 billion dollars uh to put 4 million metric tons here. So we're educating uh, the government on those facts. And then, secondly, we're educating them on how tight the supply chain.
The relationship between how much jobs can be created in the upstream is really outweighed by how many jobs there already are in the downstream processing business in the U.S.
You want to address the capital flows? So, Glenn, thanks for the question on cap allocation. We made good progress this quarter on our adjusted net debt target. At the end of the second quarter, we were at $1.7 billion, that's an improvement from the $2.1 billion from the first quarter. We are about $200 million away from the high end of our target at $1.5 billion. When we reach the top end of the range, we will look across our capital allocation priorities, so returns to shareholders, portfolio actions, as well as any growth opportunities. We do recognize that we have a bit more work to do inside the target.
Into our between the US and Canada. And the fact that we think it makes a lot of sense to have metal coming out of Canada, to, to support our Downstream customers. And then there's 1 last data point. There's something like 12 or 13 jobs in the downstream that are supported by every Canadian, primary Upstream jobs. So the, the relationship between how much, uh, jobs can be created. In the in the Upstream is, is really outweighed by how many jobs there are already, are in the downstream processing business in, uh, in in the US.
The adjusted debt, which we define as including the gross debt plus the pension, is at $3.2 billion, and that's above the high end of that range that we've targeted at $2.1. So we will work on some delevering. We do have our 2027 notes. A portion of those remain, about $141 million. Those are now callable at par. We also have a portion of our 2028 notes that are now callable with a small premium. That's about $219 million. So we'll look at keeping in mind that our cash target is $1 to $1.5 billion. We'll work on some delevering.
Speaker Change: We are about 200 million away from the high end of our Target at 1.5 billion. Well, we reached the top end of the range. We will look across our Capital allocation priorities. So returns to shareholders portfolio actions, as well as any growth opportunities. We do recognize that we have a bit more work to do inside the target, uh, the adjusted debt which we Define as including, uh, the gross debt. Plus, the pension is at 3.2 billion, uh, and that's above the high end of that range that we've targeted at 2.1. So we will work on some de-levering. Uh, we do have our 2027 notes, a portion of those remain about 141 million. Those are now callable at par, we also have a portion of our 2028 notes that are now callable with a small premium, that's about, 2119 million. So we'll look at, uh, keeping in mind that our cash Target is 1 to 1.5 billion. Uh, we'll work on some de-levering.
Thank you.
Thank you.
This concludes our question and answer session.
I would like to turn the conference back over to Mr. Oplinger for any closing remarks. Thank you for joining our call. Molly and I look forward to sharing further progress when we speak again in October.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Olinger for any closing remarks
And that concludes the call. Thank you.
Speaker Change: Thank you for joining our call, Molly and I look forward to sharing further progress when we speak again in October and that concludes the call. Thank you.
The conference has now concluded. Thank you for attending today's presentation.
You may now disconnect.
The conference has now concluded, thank you for attending today's presentation. You may now disconnect