Alcoa Corp. Aktie

All right. Good. I guess, late morning, everybody. Thank you for attending here the Jefferies Industrial Conference. We have Alcoa Corporation CFO, Molly Beerman. Alcoa is a global producer of aluminum, aluminum bauxite. And I think Molly has some just opening prepared remarks, and then we'll get into some Q&A here.

So welcome, everyone. Thanks for your time and interest to those in the room and those joining online. An exciting time for Alcoa. We are approaching our 10-year anniversary as a stand-alone company and a lot going on. We're carrying great momentum from the second quarter into the third.

Second quarter we saw strong production, strong realization of prices dropping to the bottom line, stability throughout the portfolio. We hit production records in 5 of our operations and, again, continuing that into the third quarter. We also are making the most of strong market fundamentals.

We serve customers, primarily in North America and Europe, where the demand has remained strong. Customers are actively looking for our supply because they're looking for alternatives to the uncertainty with the Middle East supply.

And third, we announced an acquisition, the largest in our company's history of South32's alumina bauxite alumina and aluminum assets transaction we call ali Group. We are on track to close that transaction in the second half of '27. So lots going on and open to all your questions, Albert.

Great. Thank you for that, Molly. So I guess maybe we'll start higher level on maybe the more macro front with just the alumina and aluminum markets. A lot of moving parts. You mentioned the war in the Middle East, obviously, a good amount or maybe 10-ish percent of global supply has come from the Middle East in recent years. Maybe production impact and being impacted there has impacted some of the global alumina supply-demand dynamics. So just what you're kind of seeing high level in each of those markets on the global front and then maybe we'll get into regional premiums a little bit later.

So in alumina, we still see the market in surplus. You've seen some price rebound recently getting to about that 350 level. There was some disruption at Alunorte, which initially brought the price up. However, we're also seeing we're approaching the date with the [indiscernible] curtailment. So that will be taking 40% of that supply out that's announced for October '26. You're also seeing sentiment about the Middle East smelters increasingly consuming alumina.

So a little bit more supply control, demand pickup, but alumina as a whole is still in surplus and expected to remain so for the rest of this year and probably into next year until the Indonesian smelter start to come online and consume more of the alumina.

In aluminum, we are still in a global deficit again, with the Middle East out. For Alcoa, this is showing up as a very strong demand. As I mentioned in opening comments from our North American and European customers. They are preferring supply that's regionally located. You see that showing up in the Midwest premium as well as the Rotterdam premium competition 4 tons. Now units are still available. But from our value-add perspective, our order book is almost completely sold out for the rest of '26 and we're heading into the '27 contracting season on a good basis to secure good premiums into '27.

So I definitely want to go to maybe some of those regional premiums and how the tariffs have impacted that and maybe some of the headlines on recent tariff changes. But I guess, broader so in the aluminum industry, do you think we're -- and it looks like this is the case, but we're continuing to move to maybe a developed economy aluminum market in North America, maybe Europe, some of the regions you play in and then maybe kind of like rest of world where China and some of the growth in Southeast Asia like Indonesia would more so play?

I'm sorry, the question is?

I guess are you seeing continued trends into kind of like a divergence like between China, Southeast Asia other global aluminum supply and then North America and Europe. I assume as time goes on, you're seeing more divergence between those 2 markets, right?

Yes. We do see in aluminum a divergence in the market, because China is largely self-sufficient. They have been exporting a small amount yet, but that's not material to the global market. So ex-China, the markets are again, overall, in deficit with North America and Europe at the greatest levels of deficit.

Okay. And then I guess, moving to some of the recent tariff headlines. Obviously, you mentioned the Midwest premium. I think you guys have talked about how you're a net beneficiary of that. But maybe just speak on a lot of your production is in Canada or a good amount of it is and some of the recent headlines of maybe reducing Canadian tariffs to 25% into the U.S. on steel and aluminum. How would that impact your business? I mean I would assume maybe that would impact the Midwest premium, but maybe you could talk about how you would be maybe a net beneficiary or how that would overall impact the business?

Alcoa is in a fortunate and unique position and that we can benefit almost from any of the trade proposals that are currently open. Even in the current environment with a 50% tariff, we have CAD 900,000 tons. The majority of that is coming into the U.S. We're paying a tariff that's over $1 billion. However, the Midwest is fully compensating for us for that as well as returning a margin because of the tightness in the tons.

If we were to receive a favorable tariff rate on Canada, think of that $1 billion in tariff being cut in half. So there will be a major benefit to Alcoa. So a favorable rate for Canada works in our favor. Some of the proposals even had a quota rate that would also be favorable to us. We have a good history of supplying Canadian metal into the U.S. So we are well positioned for whatever the trade negotiations land on.

And we've kind of talked in our research where -- and I think most in the market would agree that maybe more so on the steel side, but the steel and aluminum, it seems like the administration is kind of treating them the same with respect to tariff policy that Canada and Mexico would eventually kind of get some type of exemption, whether that's a reduction to 25%, whether that's some type of quota system, just given how intertwined those kind of metal industries have become since Trump originally gave them free trade.

I guess what we've talked about is maybe the risk that this could expand to other trading partners, right, in Europe, and Southeast Asia. So how would your business be impacted if we start to see tariff reductions coming from Japan or South Korea or Europe, things of that nature?

So the U.S. needs to import 4 million metric tons of supply. Canada only has the possibility to supply about 3 million of that. If additional trade partners get tariff relief or waivers and the last 1 million metric tons is covered, then you can expect Midwest premium to reduce in response to essentially wipe out the tariff benefit.

But with the U.S. still needing to incent the import of 1 million tons, even if we were to have a favorable rate with Canada, we don't see Midwest dropping significantly. It might come off a little bit, but we wouldn't see it returning to pre-tariff levels.

Got it. So kind of a longer-term structural higher Midwest premium. And I think that's kind of the message we've heard from some other producers even in maybe the recycled aluminum space.

Moving on from maybe macro again, if there's any questions in the audience, feel free to just raise your hand, and we'll bring you over a mic. But I guess moving more specifically into some of the initiatives at Alcoa, you mentioned some of the drivers of Alcoa's Q2 EBITDA improvement. Just wondering if maybe you could expand on that a little bit, the operational enhancements you believe that are positioning the business to perform through the cycle.

We had a very strong second quarter, really took advantage of the high prices and getting those to the bottom line, EBITDA over $900 million. Included in that is not just a price story. We made operational improvements. We brought about 30,000 metric tons of smelting capacity back online. So we had ramp-ups at our San Ciprian smelter in Spain, Alumar in Brazil, Lista in Norway and Portland in Australia. So all of those sites bringing on any pots that have been idled trying to take advantage of the high pricing.

We also moved production out of prime metal and into our value-add products, about 25,000 tons additional VAP production in the second quarter. We get the higher margin on those, so we love selling that instead of the prime metal. So sustainable improvements that we expect to carry into the third quarter.

And that's kind of something that will help kind of reduce the earnings volatility going forward, right? I think most in the market maybe expect some downside to aluminum prices just with the resolution of the war, maybe not so us as we think kind of the longer-term base metal kind of demand growth with copper as well. But -- so those operational movements would obviously help improve through-cycle earnings, right?

Yes, absolutely. The production, the flexibility in our cast tows, we can adapt to the market movements and customer requirements.

So I guess on some of those operational improvements, obviously, you guys have recently announced kind of a transformative acquisition with the South32 aluminum and alumina assets. I guess maybe if you could walk us through your strategic thinking there and maybe how these assets would compete for capital with the rest of the business, right? Is there a certain amount of capital you expect to deploy to these assets to maybe get them up to the Alcoa operating standard.

And would that defer some of the CapEx across the rest of the profile that you had slated for maybe operational improvements?

So when you step back and look at the ali Group acquisition, we are acquiring assets of the type that we're already very familiar with. This is a great fit. We're purchasing a mine and refinery in Western Australia. They are located right next to our current operations. We're buying out the minority interest in our Alumar smelter and refinery in Brazil. Again, assets that we're very familiar with.

We're buying Hillside smelter in South Africa. That's running technology. That's the same as the technology that we're running in 2 of our smelters. So it's a very logical grouping of assets in terms of fit and ability to leverage our expertise in those assets. That's giving us scale. Will make us more resilient throughout all the market cycles.

The profile of the asset is high in cash generation that will give us additional financial flexibility. The acquisition is also moving us down on the cost curve. We're bringing in assets that are slightly better positioned than Alcoa assets, so we'll be more competitive from that perspective as well. We have synergies, also expectations. I talked about the like assets and deploying our expertise across the newly acquired assets, we expect to get notable synergies to create shareholder value as well.

Let me -- I didn't address your CapEx question, sorry about that. As we went through due diligence and looking at these assets, we were able to make a great assessment about the quality of the assets, love meeting the team's very strong operating teams look forward to welcoming them into the Alcoa family.

As we did the evaluation of CapEx needs, these are not assets that have been deprived of capital. They're well functioning, value accretive immediately. We anticipate increasing our CapEx spend about $350 million to $450 million per year with these assets. That's on top of Alcoa's outlook for CapEx, which this year is $750 million.

So we expect to fully support their operating plans and their CapEx needs, the projects that they have underway today as well as their future plans, but this is not a group of assets that needs any catch-up capital. They're well structured.

Okay. And I guess, at the Investor Day in December when you guys have maybe announced some of that elevated CapEx in the years ahead. The acquisition of the South32 assets wouldn't impact that at all, right? You'd be able to manage maybe the maintenance CapEx with the South32 assets to your point, they don't need incremental maybe growth CapEx, but while also deploying the additional CapEx you had previously guided to?

Yes, we had guided to $750 million for this year and then $800 million for the next 3 years. and then stepping back down to $750 million. And we go up in the next years because we're planning mine moves on the Alcoa assets. So our Western Australian mines will be moving over this time period. We also have residue storage area work to do, and we're making some investment in bake furnaces at the same time as well across our portfolio. But then we'll step back down to the $750 million level.

And I think you made a good point earlier where you highlighted the synergies. I think that's a response into maybe what some might have think, hey, is this an acquisition just to grow, right, growth for the sake of growth. But there's clear synergies here. Would you be able to outline maybe on some of those synergies and maybe reiterate or your expectation on some of the timing of the realization of those synergies?

Sure. So we've estimated and announced in announcing the transaction that we have $900 million of net present value synergies to realize. And we think of those in 3 groupings. The first is more near term, and that comes from the benefits from procurement, logistics and commercial synergies. So think of those as combining the best of both in terms of raw material supply contracts, indirect contracts Logistics, we both are operating rails, ports, warehouses, facilities. There's many opportunities there.

And then in commercial, we'll be able to absorb their sales right within our teams and start to use our practices for direct outreach to end customers. That near-term grouping of synergies, we put an initial value at $50 million per year for that, and we'll get that within the first 12 months of close.

If you think about that on an NPV basis, that's about 30% of the $900 million in synergies. And that will be, again, starting to realize that immediately. The second group of synergies are process technology, and these will start in 2 to 3 years. So this is taking our operating expertise into the South32 assets. At Worsley, they've held production fairly flat over the last period of time. If you look at our refineries, we continue to add production year-over-year over year, not necessarily with massive CapEx projects.

It's more about disciplined incremental growth using our best practice coming out of our COE. We will do the same at Hillside. It's kind of the same story. They haven't had the massive smelting experience. So Hillside has remained relatively flat, where our smelters using that same technology have been able to incrementally add each year. That's -- so that's the second piece of synergies. And then the last piece of synergies, and this is the biggest, is the life of asset planning for the mines in Western Australia.

So the mine leases sit right next to each other. And if you think about it, the refineries are running in a row, north-south down that mine lease. Today, we're trying to map all of the mines to get the ore to the refinery that makes the most economic sense. When we now have 3 refineries and 2 mines sitting next to each other, we'll rework the entire mine plan. We will be able to avoid or defer mine moves. Each mine move is hundreds of millions of dollars. So if you think about this over the 20 to 40 years life of the mine, it's massive amounts of savings. So we look at that, we've NPV-ed it back to today's dollars. That's 40% of the $900 million that we'll get through the rework of the mine plan.

I think that's maybe a good segue into updates maybe on the mining operations. So you mentioned maybe there's some opportunity there for enhancement of maybe original plans or current plans, but -- any update on some of the permitting processes with some of the bauxite operations in Australia?

We gave an update during our second quarter earnings call. Bill Oplinger had shared. He had been in Australia for 5 weeks right before earnings. He was able to meet with all of the ministers as well as the regulatory authority, officials and really came away feeling very confident that we will secure our mine approvals.

However, there is still a tremendous amount of work to do for the approvals, so we do see a bit of risk on timing. We are originally expecting to have the approvals by the end of the year. That could slip into '27. We have a good contingency period about 6 months. So as long as we get the approvals within that 6-month period by mid-2027, you will not see any impact either on our production or our financials related to that.

If they get delayed for some reason beyond that, then we'd start to look at production changes in the operations of the refineries. However, I want to leave you with very confident that we will get the approvals, but there is certainly more work to be done in terms of the ministerial and the regulators, processes they're moving through their review, and we're responding to any questions that are asked very promptly.

Okay. And then maybe last one on the transaction before maybe moving on to the balance sheet and some of the financial items. But I think lately in the industry, there's obviously been a lot of consolidation, not just in aluminum, just broadly in kind of the metals and mining space. And just this week, you saw EU maybe pushing back on the Anglo American MMG nickel sale. There's maybe concerns with the Chinese with the Anglo American Tech Resource transaction. So any kind of regulatory hurdles maybe you envision with the South32 transaction? And just, I guess, yes, maybe what you see as the biggest risks going into closing?

So we do have a number of regulatory approvals that are in process. So far, it's going very well. South Africa is a new region for us, so a lot of focus there. on the day that we made the announcement, our Chief Operating Officer and our Chief External Affairs Officer, we're already on the ground. They are waiting at the President's office. They were able to speak with his Chief of Staff, make sure that they were able to personally introduce Alcoa, our intentions for the asset, our commitment to run the asset.

Kind of behind the scenes, we were delighted with their response. They like the fact that it was a U.S. company coming in. They're trying to build their relationships with the U.S. government. The U.S. government has a very favorable view to South Africa. They're interested in critical minerals.

So there was kind of a natural building and momentum from both governments about the transaction, so very well received. So in addition to South Africa and the U.S. approvals we'll need Australia. That's going very well. We had good support from the Minister of Mines in Australia, and we need approvals in the EU and who am I forgetting? One more big one that's now escaped me. Brazil, so sorry. How can I forget my Brazil friends. But those are the big ones that we are pursuing now. There's a couple of other filings that will be made, but those are the ones receiving the most attention but on track.

And obviously, I think with the integration of these assets and just maybe the longer-term uplift of some of the regional premiums you spoke about earlier, I think Alcoa's free cash flow profile will be improving in the years ahead, right now. I think in the near term, you guys have maybe some seasonality in the business with respect to working capital with CapEx spend. So I think there was a bit of a working capital build in the first half. So maybe just how you're thinking about that in the second half and just maybe an overview on kind of the seasonality of cash flow in the business.

If you look at our working capital over time by quarter, you will see that we always build working capital in the first quarter and then through the rest of the year, we work it down. We are on that path. We generated solid cash in the second quarter, on track to do the same in the third. And typically, by the fourth quarter of the year, we're anxious to get all those shipments out, and we'll have our best numbers on working capital at year-end.

You can track this because on a day sales basis, it's pretty much tracks in history across the 4 quarters. Our working capital now is over $2 billion. So there is a large source of cash within that number.

And then over the longer term, right, how does -- how do you guys think about -- I would assume maybe the priority once the closing of the assets will be to deleverage down to that target range, but how, I guess, bigger picture eco-envisioning, deleveraging them maybe growth versus shareholder returns. And with that mix being dividend and buybacks and on the growth front, how you guys maybe think about further M&A in the aluminum or alumina space versus weighing that against organic growth.

So Alcoa will focus on delevering. We issued debt yesterday in connection with the acquisition, $2.6 billion. So that does take our adjusted net debt on a pro forma basis up to $4.7 billion, but that is in comparison to pro forma EBITDA of $3.2 billion.

As you mentioned, Albert, the acquired assets, along with the strong Alcoa portfolio have a great cash generation profile. We believe at the current levels of pricing, we'll be generating cash that will help us to accelerate delevering. Additionally, we have other levers available to us.

Recall, we have the modern investment that's worth $1.6 billion. We will be set to monetize those shares and 1/3 each year starting in 2028. We've also announced a program for the sale of our transformation assets. That's about 10 assets. We are expecting between $500 million and $1 billion in proceeds from those sales by 2030. And so we're well on the way. But as we look at the cash generation profile of the new portfolio, the Maaden shares and the transformation sites, we see a path to quick delevering.

That will put us back into our capital allocation framework. It remains the same before and after acquisition. We will continue to have a strong balance sheet as a priority. We'll continue to invest in our operations, both to maintain them and to improve them. And then we go across the other 3 priorities and no particular order that is shareholder returns, any more work that we need to do to transform the portfolio as well as additional growth opportunities.

As we close, we will introduce an updated adjusted net debt target. It's currently $1 billion to $1.5 billion. With the new profile of assets with the additional cash generation and even higher, lower cycle EBITDA, we will increase that level and that we'll announce as we get closer to closing.

So we will have competition between shareholder returns and growth again in the future. But as we've said even with this acquisition, Alcoa will only pursue M&A when we see possibilities for real synergies that can deliver value to shareholders. We're going to stay within our industry. We like aluminum. You will not see us branching off into other base metals.

We're going to stay focused on what we do best, but we will look at opportunities in our industry when we see rates of return that are above our threshold.

And then on the capital returns framework, of course, on the buyback, probably conscious of where you're trading in the market. We've talked in our research about even on a pro forma level at that spot prices, you guys are pretty undervalued versus aluminum peers and especially PurePlay copper peers, given a similar kind of end market demand trajectories. Any thinking there in terms of maybe a formal capital return process or you would be kind of based strategic more so when you guys think your shares are more undervalued, would pursue more so on the buybacks than the maybe extra dividend from.

The way we look at it is we're really focused on when we have excess cash to return and then looking at the best way to do that. We like having our targeted adjusted net debt because it allows for the commodity cycles versus a hard set threshold that's worked well for us across the 10 years of our existence as a stand-alone.

Makes sense. And so I guess maybe transitioning a bit. I want to talk about power costs, right? Obviously, we know aluminum is incredibly energy-intensive process, right? And especially in the U.S., tons of demand for power expected in the years coming with data centers, renewable energy, things of that nature. So -- just wanted to talk about what you guys are thinking both on securing your power and energy requirements to produce your aluminum in the years ahead, but then also maybe if there are any opportunities within the portfolio you could see to maybe outsource some power or leverage some of your infrastructure?

So Alcoa is very well positioned today. 99% of our power needs are covered by long-term contracts, fixed contracts or self-generation. Only 1% is exposed and that's in Norway. So very manageable there. We tend to go after long-term contracts. We recently renegotiated the contract for Massena smelter in New York.

We've got a favorable economic contract there for 10 years, plus 2, 5-year renewals. Those are the types of contracts we go after, fully renewable energy. Massena is a great location in that state-owned power source. They like our business. They like the fact that we employ in the community. And so it's a great situation for us. In fact, if you just even look at the smelters that we have, they generally have the same story, available hydropower, committed state-owned entities to the employment that we provide. So it makes a good situation for our power security.

And then any opportunities within the portfolio to maybe like monetize some existing infrastructure for external power requirements.

So we're not looking at that across our operating smelters except a couple of little unique cases. The majority of what we're trying to do there, Albert is on the closed transformation site. So these are close smelters that still have very interesting energy infrastructure. And those transactions are part of our program now to get the $500 million to $1 billion in proceeds.

The one that we've been talking about recently is Massena East, so a close smelter that sits next door to our operating Massena smelter very close there to announcing a deal with a data center developer. They're in the process of getting all of the approvals that has not been impacted by any of the New York changes in law, so that one continues to move forward, and we'll be expecting an announcement on that one shortly.

And proceeds there would be used to delever, right, especially with the closing of the South32 business, right?

Yes, that we will be focused on delevering there. And that will likely have an upfront payment as well as some contingent future payments depending on the final size of the data center and how that gets configured.

Okay. Well, we have a few minutes here. I want to give a chance if there's any in the room with a question, but I guess for me on the demand front, I think we started talk maybe high level. But just if you can maybe see some of the trends you're seeing, is there any particular points of strength, whether it's transportation, packaging, I know on maybe the steel side, a lot of them talk about construction seems to be a bright spot. So maybe what you're seeing in both the North American and European markets in terms of specific demand.

So packaging is very strong in both markets. You think about nobody wants these plastic bottles anymore, we should all be drinking our water out of cans. So really high demand there, lots of slab volumes going out in both regions to packaging customers. Very strong on rod and think about that as part of the electrical infrastructure build-out. So we're completely sold out on rod. We actually would like to have some more capacity there and foundry for auto also still a strong product for us. .

And even though maybe some of the decarbonization and the EVs are slightly back seat in today's political environment, we still want the lightweighting. Everyone still wants to save on the gas or the EV. So we still see the foundry products very popular across both regions. The only -- I'll just mention the only area of any weakness is [ billet ] in Europe. And there, the customers are being very mindful of the geopolitical environment and also just uncertainty on their end customers' demand in the long term. So some hesitancy there. But that's about the only sign of any weakness that we're seeing. It's really strong across our markets and our products.

And maybe just a question on a personal interest of my own. We're starting to see more recycled kind of aluminum growth, especially in the North American market. Just maybe how do you see the North American, I guess, aluminum market evolving with respect to recycled and maybe competing with some products for primary, definitely on maybe the beverage can side, but -- are there still kind of hurdles for them for the recycled aluminum to be used in some of the higher-grade applications?

So we've looked at recycling opportunities, but Alcoa also recognizes that we are not collectors or sorters, remelt is the area of recycling that we have the most expertise. So we have looked at recycling opportunities. We're primarily focused on our customer needs. There is within our European customer base, a need for more recycled content in our foundry products. So this is where we're investing and focusing for Alcoa in the recycling space.

Okay. Well, I think we're pretty much there on time. Thank you very much for attending, and thank you for your time, Molly.

Thank you.

Good afternoon, and welcome to the Alcoa Corporation Second Quarter 2026 Earnings Presentation and Conference Call. [Operator Instructions] Please note, this event is being recorded.

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. 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 the company's actual results to differ materially from these statements are included in today's presentation and our SEC filings.

In addition, we have included some non-GAAP financial measures in this presentation. For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation. We have not presented quantitative reconciliations of certain forward-looking non-GAAP financial measures for reasons noted on this slide. Any reference in our discussion today to EBITDA means adjusted EBITDA. Finally, as previously announced, the earnings press release and slide presentation are available on our website.

Now I'd like to turn over the call to Bill.

Thank you, Louis, and welcome to our Second Quarter 2026 Earnings Conference Call. Today, we'll review our second quarter performance, discuss our markets, and provide an update on strategic initiatives, including the previously announced acquisition of South32's upstream aluminum value chain assets.

Starting with safety, our top priority. Our performance remains stable, and we continue to see improving trends with key injury metrics declining on a 12-month rolling basis. We are maintaining a strong focus on operational discipline, leadership presence in the field and fatality risk management to sustain our progress. We have initiated an effort to eliminate fatality risks associated with Live Work from our operations and expanded our global fatality prevention team to further strengthen our safety culture and risk management capabilities.

Operationally, we delivered another quarter of stable and reliable performance across most of our system. Our focus on operational excellence resulted in year-to-date production records at 4 smelters in 1 refinery. Sequentially, we increased primary aluminum production by 30,000 metric tons including the completion of several restarts and achieved the highest year-to-date shipment volume at the Alumar smelter since its 2022 restart. This allowed us to fully benefit from higher metal prices during the quarter.

We also achieved significant labor relations milestones in the quarter, securing multiyear collective agreements through 2030 with the AWU Western Australia and with the United Steelworkers for our 2 U.S. smelters and the ABI smelter in Quebec. We also successfully concluded negotiations in Norway and at Alumar in Brazil, these agreements provide important workforce stability and support our long-term operating plans.

Strategically, we continue to advance initiatives that strengthen and grow our business. In May, we announced a $65 million investment to expand the [ Motion ] gas house in Norway. The project will increase annual production capacity by up to 75,000 metric tons while adding the capability to incorporate post-consumer recycled aluminum into the casting process, further enhancing our value-added product portfolio. Just a few days ago, we announced the final investment decision to construct a gallium production facility to be co-located at our Wagerup Alumina refinery in Western Australia, largely funded by the governments of Australia, Japan and the United States. This facility will create a new Western aligned source of a critical mineral, which supports semiconductor, advanced manufacturing and defense supply chains. It also reinforces the strategic importance of Alcoa's Australian refining assets beyond aluminum production alone.

Last and most importantly, we announced the largest transaction for Alcoa Corporation. The strategic acquisition of South32's interest in bauxite, Alumina and Aluminum assets, which we will refer to as AliGroup. This acquisition is about creating long-term shareholder value. First, the strategic fit is compelling. We're bringing together highly complementary assets that are mostly in close geographic proximity to our existing portfolio. This creates opportunities to improve performance by leveraging our combined expertise and scale.

Second, the acquisition unlocks significant value through synergies. We have identified approximately $900 million of net present value synergies, including roughly $50 million of run rate cost savings starting in the first year following closing. These synergies are backed by numerous initiatives identified during due diligence by our subject matter experts. The estimates are not high-level consultant projections. They are each highly actionable and based on areas where Alcoa has a demonstrated track record of execution.

Third, the acquisition delivers compelling financial results. These assets enhance our ability to generate stronger cash flow through the cycle and improve our position on the global alumina and aluminum cost curves. We expect the acquisition to be accretive to our earnings per share and cash flow metrics immediately after close with additional upside as synergies are captured over time.

Let me provide some additional context on the transaction based on questions we have received from investors. About our rationale for the mix of cash and equity considerations, $3.1 billion and $1 billion, respectively. In our view, the stock consideration as well as the contingent value right provides for risk sharing between the buyer and seller. Commodity prices can and will change, and we believe this structure adapts to that dynamic, mitigating Alcoa's exposure to those market-driven value changes. This results in a fair transaction, one that is appreciated by both sets of shareholders.

In addition, Alcoa shares not distributed to South32 shareholders must be liquidated in an orderly manner to mitigate volatility from South32's liquidation. The agreement prevents South32 from selling shares in excess of 20% of our average daily trading volume on any 1 trading day for 3 months following completion. Considering our leverage post close, we set the cash consideration to a level that allows us to limit debt and not exceed a leverage ratio of 2.0x based on recent pricing. Both Moody's and S&P recently affirmed Alcoa's current credit ratings and outlook based on the pro forma transaction.

Additionally, we want to clarify certain elements of the transaction structure, which includes 3 important components: the locked box, the ticking fee and the contingent value right or CVR. Starting with the locked box. This structure allows Alcoa to benefit from the cash flow generated by the acquired assets going back to April 1, 2026. As the assets generate cash, those amounts accrue to Alcoa and offset the cash consideration to be paid at closing. Based on publicly available information, we estimate the locked box to hold more than $200 million as of June 30, 2026. This value will fluctuate until closing but it gives a sense of the magnitude this mechanism could generate for Alcoa.

Second, there is a ticking fee. Beginning after South32 shareholder approval in October or November, we will pay a negotiated 5% annualized fee on the $3.1 billion cash consideration to compensate South32 for its cost of capital. We estimate approximately $80 million to $100 million in ticking fees to be paid at closing.

Third, there is a CVR that aligns revenue sharing with market performance. If Alumina or Aluminum prices exceed agreed thresholds, South32 can participate in a portion of that upside up to a maximum of $750 million over 4 years. Between July 1 and closing of the transaction, market prices will impact the calculation of both the locked box and the CVR. If markets remain strong, Alcoa benefits through higher earnings and cash flow from these assets in the locked box. And if markets are exceptionally strong, we will retain most of the value for our shareholders while a portion of that value will be shared with South32 through the CVR that is capped at $750 million.

The acquisition strengthens our leadership position in the upstream value chain. We expect to increase our annual production capacity by approximately 5.2 million metric tons of Alumina, a pro forma 53% increase and approximately 900,000 metric tons of primary aluminum, a pro forma 37% increase. The transaction represents a meaningful expansion of our portfolio in markets where we continue to see attractive long-term fundamentals.

At our Investor Day last year, we outlined our long-term view that the world will need more alumina and more aluminum, driven by electrification, grid investment, transportation, packaging and broader industrial growth. That thesis has not changed. Over the next decade, we expect primary aluminum demand outside of China to grow by approximately 7 million metric tons while alumina demand is expected to increase by approximately 18 million metric tons. These are significant growth opportunities, particularly in regions where customers increasingly value secure, reliable and sustainable supply. The challenge is that new supply will be difficult and expensive to bring online. While we expect additional capacity to be built through restarts and expansions, the capital required to develop new refining and smelting capacity today is substantially higher than historical costs, especially when you compare with past expansions in China.

That's where the acquisition of the AliGroup assets is particularly attractive. Rather than spending years developing new assets, we are acquiring high-quality, large-scale operations that are already producing and integrated into the value chain. Importantly, we are acquiring that capacity to a valuation that is well below replacement cost. Simply put, the acquisition allows Alcoa to participate more fully in the long-term growth of the aluminum industry, through acquiring assets that would be difficult, time-consuming and more costly to replicate today.

Now I'll turn it over to Molly to take us through the financial results.

Thank you, Bill. Revenue increased by 24% to $4 billion, which is the highest quarterly revenue in Alcoa Corporation's almost 10-year history. In the Alumina segment, third-party revenue decreased by 3% to $637 million on lower volumes and price from bauxite offtake and supply agreements. Alumina shipping volumes were flat sequentially as higher shipments from Wagerup were mostly offset by lower trading activity and operational stability issues at the Pinjarra refinery in the second quarter.

In the Aluminum segment, third-party revenue increased by 31% to $3.3 billion due to higher shipments and increase in average realized third-party price and higher value-add product premiums. Aluminum shipments increased 113,000 metric tons sequentially, reflecting higher production from capacity restarts at San Ciprian, [ Alamar ], Lista and Portland. Volumes repositioned in the first quarter and sold in the second quarter, improving shipment performance and typical seasonal uplift after the first quarter low point.

Second quarter net income attributable to Alcoa was $407 million versus the prior quarter of $425 million, with earnings per common share decreasing to $1.53 per share. On an adjusted basis, net income attributable to Alcoa was $562 million, up $189 million from the first quarter. This increase resulted primarily from higher aluminum prices and shipments, partially offset by unfavorable currency impacts due to the absence of gains recognized in the first quarter, unfavorable energy impacts and unfavorable production costs in the Alumina segment. These impacts exclude $155 million of special items, primarily related to mark-to-market changes on the modern shares.

Adjusted EBITDA was $901 million. We delivered a strong quarter operationally and financially. While our reported results were modestly below consensus, the variance was driven by lower-than-expected aluminum price realization late in the quarter as LME prices declined sharply in the final 2 weeks of June. Our annual pricing sensitivities which are based on a 15-day lag for simplicity, do not account for the steep changes near quarter end. Importantly, this does not change the underlying strength of the business or the quality of our operational execution. We remain focused on providing transparent insight, especially in periods of heightened price volatility.

Now let's look at the key drivers of EBITDA. Adjusted EBITDA increased $306 million sequentially to $901 million on record results in the Aluminum segment. The Alumina segment adjusted EBITDA decreased $56 million on higher production costs and unfavorable cost absorption, mainly at the Pinjarra refinery due to operational instability experienced during the quarter and higher fuel oil and diesel prices. The Aluminum segment adjusted EBITDA increased $379 million, primarily due to metal prices, including LME and regional premiums, higher aluminum shipping volumes and improved margins from higher value-add product mix and premiums. We delivered on opportunities as customers in North America and Europe sought alternate supply after disruptions to Middle East suppliers.

In the second quarter, the Aluminum segment delivered record segment adjusted EBITDA of $1.1 billion and EBITDA margin of 32.3%. This reflects not only the benefit of higher metal prices, but also our ability to convert strong market conditions into bottom line performance. Key contributors to the sequential performance were stable operations and disciplined cost management, effective production ramp-up, adding approximately 25,000 metric tons, flexible casting capacity, which converted approximately 30,000 metric tons of prime metal into value-add product shipments with the added product premium and overall strong shipping performance with 726,000 metric tons delivered.

Moving on to cash flow activities for the second quarter. We ended June with a strong cash balance of $1.4 billion, supported by $422 million of free cash flow generation. Cash from operations was $608 million, anchored by strong EBITDA, partially offset by an increase in working capital, mostly from higher metal prices and accounts receivable. This enabled the company to redeem the remaining $219 million of our 2028 notes on May 15 at par value. This is aligned with our previously stated goal to delever and further strengthen our balance sheet. Cash tax payments of $152 million primarily related to payment of prior period income taxes in Australia. Net payments on debt also included payments on short-term borrowings associated with inventory repositioning in the first quarter.

During the second quarter, the company contributed $24 million to the Gallium joint venture as a final investment decision was reached between the partners. This is Alcoa's only expected contribution to the joint venture.

Turning to our key financial metrics for the second quarter and the first half of 2026. Return on equity through the first half of the year was 26.4%, through the first half, we have returned $53 million in cash to shareholders through our regular quarterly dividend. Supported by strong free cash flow generation in the first half of '26 we ended June with a cash balance of $1.4 billion and adjusted net debt of $1.4 billion, within the top end of our adjusted net debt target range. This is the result of consistent, stable operational and commercial performance and disciplined capital allocation. It positions us well to optimize the financing mix for the AliGroup acquisition.

Turning to the outlook. We are lowering our full year Alumina production and shipment expectations to 9.5 million to 9.6 million metric tons and 11.5 million to 11.6 million metric tons, respectively, due primarily to challenges at the Pinjarra refinery during the second quarter. The operation was experienced instability in late March, which was further complicated when the supply of natural gas was disrupted by Cyclone Narelle forcing the site to reduce process flow. While the refinery has since returned to stable operations and is performing well, we do not expect to fully recover the production and shipment volumes that were lost during the second quarter.

We are increasing our full year outlook for other corporate expenses to approximately $180 million, primarily reflecting unfavorable currency impacts and costs related to certain strategic initiatives. We are also increasing our full year depreciation expense to approximately $660 million, primarily due to currency impacts and changes in asset lives at certain bauxite mining operations.

For the third quarter at the segment level, Alumina segment performance is expected to be net favorable by approximately $10 million due to recovered stability at the Pinjarra refinery, lower energy prices, primarily diesel and fuel oil, partially offset by planned maintenance at the Alumar refinery and Juruti mine. Aluminum segment performance is expected to be flat as improved productivity from the higher production levels and operating efficiencies fully offset higher carbon prices and seasonally lower third-party energy sales in Brazil.

Based on recent pricing and expected lower shipments, which exclude the 30,000 tons repositioned in the first quarter and sold in the second quarter, Section 232 tariff costs on U.S. imports of aluminum from Canada are expected to decrease by approximately $10 million. Alumina cost in the Aluminum segment are expected to be unfavorable by $10 million. Below EBITDA, other expenses in the second quarter included unfavorable currency impacts of approximately $5 million, which may not recur. Based on recent pricing, the company expects third quarter operational tax expense to approximate $80 million to $90 million.

Now I'll turn it back to Bill.

Thanks, Molly. During the quarter, alumina prices remained relatively stable despite ongoing geopolitical disruptions in the Middle East. We continue to see a divergence between China and ex China markets. In China, higher consumption and refinery disruptions kept the market relatively tight. Demand outpaced supply growth supporting domestic alumina prices and driving imports. At the same time, [indiscernible] prices remained elevated amid continued uncertainty around Guinea's bauxite exports. Outside China, conditions remain more challenging. Middle East disruptions have reduced demand and weighed on refinery margins, while supply adjustments have not yet fully rebalanced the market.

Looking ahead, new smelting capacity in Indonesia and anticipated smelter restarts in the Middle East should increase alumina demand and move the ex China market toward a better balance in the second half of the year. For Alcoa, our focus remains on what we can control, operating reliably, serving our customers and remaining well positioned to capture value when markets improve. During the quarter, the Pinjarra refinery returned to stable operating rates following the challenges experienced earlier this year, and Alumar continued to deliver strong operational performance. Importantly, the disruptions in the Middle East have not impacted our long-term alumina sales contracts as volumes continue to move, and we maintain our strong customer relationships.

Moving on to aluminum. While LME has returned to pre Middle East conflict levels following a macro-driven correction, aluminum fundamentals remain strong. The market remains tight, inventories are low, the global market is still expected to be in deficit this year and a meaningful amount of Middle East production remains off-line with uncertain restart time lines. Demand continues to be resilient, particularly in North America and Europe, where markets remain structurally short of metal. We are also seeing continued efforts by customers to localize supply chains and reduced reliance on imported metal, particularly in value-added products such as billet, foundry alloy and rod. As a result, regional and value-added product premiums continued to strengthen during the quarter, even as LME prices moved lower.

Our global footprint and strong regional presence position us well in markets where reliable supply is increasingly valued. As a result, our value-added product volumes increased 30,000 metric tons sequentially, and our 2026 order book is stronger than it was at this time last year across all major regions and product categories.

As we wrap up, I'd like to leave you with 3 key messages. First, Alcoa delivered a strong second quarter. We executed well across the business, and those efforts translate directly into stronger operational and financial results. Second, we executed on strategic initiatives. Third, we have momentum entering the second half of the year. We remain focused on the things we can control, safety, operational stability, cost discipline and execution. At the same time, we will progress the milestones related to the acquisition of AliGroup, advance our Australia mine approvals and unlock value from our transformation assets. We are proud of what we accomplished in the second quarter, excited about the opportunities ahead and confident in our ability to deliver value for our shareholders.

With that, let's open the floor for questions. Operator, please begin the Q&A session.

[Operator Instructions] And our first question will come from the line of Katja Jancic with BMO Capital Markets.

Maybe starting on 3Q outlook. You mentioned that you expect energy prices to be lower. Can you maybe talk about what diesel and fuel costs, are you assuming or prices you're assuming in that? Especially relative to current environment?

Pardon me it's the operator. We're unable to hear the main speaker location.

Can you hear us?

Now, we can. Yes.

Yes. Can you move to the next question? Did you hear the reply from Molly?

No, we did not, sir. Please go ahead.

Okay. Let's try it again. So thanks, Katja. If you think about how we guided for the second quarter on energy costs, we guided diesel down unfavorable $5 million and fuel oil unfavorable $15 million. As we turn to the third quarter, we see some improvement in diesel and fuel oil now are $5 million favorable in the third quarter. Our outlook is based on $90 per barrel fuel oil, so you could see some upside if prices moderate.

Okay. And maybe my second question is on the asset monetization. Can you provide an update what the status there is?

Sure. So we're still targeting $500 million to $1 billion over the next -- between now and 2030. We have substantially completed the negotiations on the Massena East transaction, and we continue to work through the papering that up at this point. So we feel that we are confident that we'll get that one done, and then there will be others to follow after that.

The next question will come from Bill Peterson with JPMorgan.

This is Bennett on for Bill. Considering the resiliency and the value-add premiums, what sort of additional opportunities are you seeing to flex further capacity on that front? On the casting side, that is.

So we still have some capacity in North America. It is fairly small. I would say an estimate would be that we're about 95% full on capacity between Europe and North America. If I step back and look at the order book, the order book for value-added products, as you said, has remained solid and demand trends are varying by region and segment. We've been able to increase our order books based in Europe and North America on the uncertainty of supply in the Middle East. Foundry and billet markets are experiencing an uptick in North America as spot demand customers look to backfill the Middle East supply. Slab continues to be strong in North America. In Europe, packaging is the most robust. Rod is solid, while automotive slab demand is still soft. Foundry and slab demand are rising in Europe, supported by the Middle East disruptions with foundry strength concentrated around the Mediterranean.

We are seeing some weakness in the B and C market due to the overall high billet prices and demand outlook for extruders is short. That's in largely in Europe. So that's the view of the order book at this point.

And then within aluminum, you guys restarted about 1/4 of your curtailed capacity quarter-over-quarter. So outside of Warrick, how should we think about the trajectory of further restarts moving forward there? Could we see these fully restarted by the end of this year even?

We'll continue to get benefit from restarting Alumar. Alumar sits at around as of today, around 95% restarted. So they still have some room for restart there. You'll also get the full quarter benefit associated from the ramp-up at Alumar. In addition to that, there's still some opportunity to ramp some small volume in Portland. Portland is running at about the highest level it's run. Well, it is the highest level it's run since becoming an independent company. So Portland is doing great. There's still some capacity there. Those are really the 2 areas that will get the benefit going into the third quarter.

The next question will come from Nick Giles with B. Riley Securities.

This is Henry Hearle on for Nick. I wanted to follow up on the Massena e-sale, so it New York's moratorium on data center is announced this past week. Will that have any impact on negotiations or closing going forward?

So we and the developer are assessing the executive order that was signed by the governor. At this point, we don't have a complete assessment but we're moving forward. And as we said, the transaction is largely negotiated at this point, it's just working through the final contracts.

Got you. And then on Pinjarra, just wondering if the lower bauxite grade had any impact? Or was the 2Q shortfall and then the full year revision purely based on the operational instability in March and then also the cyclone?

So there was really 2 things that occurred at Pinjarra. The first was that we had what's called an oxalate outbreak, and that's due to organic compounds in the bauxite Normally, we will be able to handle that pretty effectively. That was compounded by the curtailment related to the cyclone. And so the combination of those 2 had the negative impact. Pinjarra struggled significantly in April and May. It came back up in June, and as of today, is running very well. So it was a combination of those 2 factors.

Might just clarify that it was the natural gas supply that was interrupted that caused the curtailment.

The curtailment due to the natural gas interruption.

The next question will come from Timna Tanners with Wells Fargo.

I wanted to take a step back and ask a little bit about -- I know you referred to the aluminum price retreat, of course, of late and attribute to macro factors. But your last slide deck talked extensively about the disruptions in the Middle East. And if you talk about -- you alluded to them again this time, but yet the aluminum price, as you point out, is on to [ pre-rancomplic ] levels. So what do you attribute that to? And along those same lines, some people are worried about China contributing to that retreat and overproducing. What do you think is happening in China?

I'll address both, Timna. The first answer is sentiment. The fundamentals from when the around conflict started have not fundamentally changed. So we believe, at this point, there's between 3 million and 3.5 million metric tons of capacity off-line within the Strait of Hormuz. And that caused prices to run up subsequently when the conflict resolution was announced that caused prices to run down. The fundamentals haven't really changed at this point that capacity is still offline. As the straight stays closed for longer, it becomes more difficult for the existing capacity which is still another 3 million to 4 million metric tons in the region to continue to operate. So we believe it's sentiment driven.

Within China, we are now projecting that China will run between 45 million and 46 million metric tons of production during the course of the year. Yes, that is higher than the 45 million metric ton cap. We don't believe that's a signal of a change in philosophy within China. They have not okay capacity increases this is just creeping the assets that they have, given the high metal price.

Okay. Super helpful. And I guess if I could just one more on the comment on exporting less from China to the U.S. contributing to the lower tariff amount paid. Just curious how your envisioning that going forward? Is it still just about the right price? And are you counting on or contemplating any change in tariff policy anytime soon?

Can you restate that one, Timna, you said exporting, I thought, from China to the U.S.

I meant Canada, sorry, yes, Canada to the -- I was just talking about your Canadian exports to the U.S. and how you're mentioning a tariff change being a little smaller just because of lower volumes. So just curious why that was the case and how you're thinking about the tariff going forward?

Timna, that is all just volume related. And remember, we had repositioned those tons from the first quarter that then were sold in the second. So we had a higher tariff rate in the second than we expect into the third. So no change in the rate, simply volume.

The next question will come from Glyn Lawcock with Barrenjoey.

Firstly, Bill, one for you. Obviously, you spent the month of June here in Australia, obviously, negotiating with South32, but you obviously probably caught up with the EPA and other government agencies. Just any thoughts on how things are progressing here now with regard to the permitting side? Anything you want to call out? Or is it all still going well?

Yes. So Glyn, thanks for asking the question. And I spent 5 weeks in Australia, and I enjoyed it tremendously, I should say. It's a wonderful place, great coffee. And even in the winter, the weather was really, really nice. So as far as the approvals go, our approvals are continuing on the current path and are progressing well.

When I was in Australia I met with many of the key stakeholders of the process directly. My meetings reaffirmed my confidence in ultimately securing the mining approvals. That said, they also highlighted the number of important steps remaining in the process. As a result, while my confidence in the outcome remains unchanged, the timing could extend beyond our original expectations. You recall that we had said we would have our ministerial approval by the end of the year. If the approvals are delayed beyond that, we have contingency plans in place for various scenarios that would support the operations. We've built in contingency of 6 months delay, where there will be no impact or supply and no expected impact on quality or cost. And if it goes beyond that, we have secondary contingency plans where we would consider modifying mining operations and flow rate at the refineries to avoid an ore gap.

And so nothing has fundamentally changed regarding our confidence in securing the approvals through our recent engagement with the stakeholders in Australia. We did gain additional insight into the work that remains to be completed before approvals can be finalized. Importantly, this is a matter of timing rather than an outcome, and I am confident in ultimately securing the necessary approvals.

All right. Great. My second question is for Molly. Molly, you gave a response earlier just to what's happening on the Alumina business and its costs. Just on the [ AIi ] side, obviously, your Q3 guide says efficiencies, production growth will offset some of the cost pressure from, I think, it was carbon. If you think about where we are now, with those input costs [indiscernible], which are on a 1- to 2-month lag coke pitch, et cetera, are they now becoming a tailwind as we head into Q4 then? Or are they still elevated?

So we when we talked about the carbon costs, purchase prices being elevated during the second quarter, we indicated with the lag that, that would show up in the third quarter. So part of our outlook. In the third quarter, we mentioned those higher carbon costs, that's about $15 million unfavorable.

And so Molly then what does that look like now? Is that the carbon cost coming down such that you'll now gain that back as a tail when you think after Q3?

Carbon prices -- purchase prices are remaining high right now. So we're continuing to watch that and look into the fourth quarter, but I don't have any -- again, they're holding steady at the higher rate. I will just on caustic, I'm going to add this one since you opened the door Glyn. We had talked about caustic spiking as well during the second quarter. Now caustic did have a price correction. Now that's about a 6-month lag for us. So you'll see some impact in the fourth quarter on that, although, again, we're seeing a rapid price correction there. So whatever we pass through in the fourth quarter shouldn't hang around for long. We're already seeing caustic coming back down.

The next question will come from Chris LaFemina with Jefferies.

First, I wanted to ask, I think, Molly, you mentioned that the change in the depreciation guidance was due to shorter assumed mine lives. I was just wondering what's going on there? Which mines and why have you changed your mine life assumptions to lead to a higher depreciation charge?

It's lives of certain assets. Some of it is premining the accretion there and there was one more that is now escaping me. But it's not the mine life itself, that's shorter.

Okay. Understood. And then just secondly, the -- so in the first half of the year, you typically have cash outflow for working capital, but this was obviously a pretty unusual year with the conflict. And I think in the first half of the year, working capital was about $700 million of a cash drain. And I'm wondering how much of that we should expect to reverse in the second half of the year? Could that be a material reversal of that working capital build and lead to a significant increase in cash flow in the second half of the year?

So Chris, if you look at our historical pattern on working capital, we do consume a lot of working capital, cash in the first quarter, and then it comes down. We generated significant amount of cash in the second quarter over [ $600 ] from operations. Our free cash flow was $422 million. We did have a little bit of working capital build related to high metal prices and accounts receivable but when you look at it on a days basis, we're 2 days better than we were in the first quarter of '26 and 1 day better than we were a year ago quarter. And you can use those year ago quarters and watch it come down. We've been pretty closely tracking through '26 as we did to '25. And in history, you'll see that the days tracking holds up across the whole year.

So yes, you'll see working capital come down as prices move and you look at it versus sales.

The next question comes from Carlos De Alba with Morgan Stanley.

Wanted to -- on Alumina, in the second quarter, the sequential guidance for the second quarter was something the adjusted sequential guidance on the business consideration was something of around [ $6 million ] unfavorable. And the guidance for the third quarter is about $10 million net favorable. So those $50 million that were lost, is that -- how much of that is related to the Alumina the lower alumina shipments and how much maybe is perhaps because the Pinjarra costs have not fully normalized? And if it is the second part or that second component, when would you expect those to normalize maybe in the fourth quarter?

So Carlos, the -- when we increase the guidance during the second quarter to $55 million, that included $30 million for Pinjarra. And when we gave the update now in the third quarter, and we have a net favorable of $10 million, we do have within that the full 30 recovery on Pinjarra. We also have the lower energy prices of about $5 million, but that is offset by the planned maintenance at both the Alumar refinery and Juruti mine for the net of 10.

All right. Great. And maybe, Bill, can you discuss in the Alumina market update, the fact that Guinea is restricted in exports of bauxite. But they are also trying to attract investments in alumina refinery. And I remember this has been going on for 34 years. but now maybe the Chinese will build that capacity. How do you see that impacting the outlook for Alumina in the coming years?

I don't see it having a major impact on the Alumina outlook over the next few years, Carlos. You got to remember, as you all know, the Alumina market is around 150 million metric tons. There are a number of projects that are being discussed in Guinea, but they're not huge volumes at this point. Where we are seeing some volume increase, as you well know, is Indonesia but we believe that's also manageable to be absorbed into the market.

Next question will come from Lawson Winder with Bank of America Securities.

Thank you, operator, and thank you, Bill and Molly for taking my questions. Could you speak to U.S. demand? I mean it does seem there's been some modest softness in U.S. aluminum demand, but it also appears that it could just be destocking. Are you seeing that? And then do you have any sense of how long that might persist? And then similarly, I mean, do you see any contrary indicators that I mean there could actually be a true demand destruction at this point?

So I'll go back to what I had said on another -- on a prior question. In North America, foundry and billet markets we see are strong. And it's very hard to bifurcate whether that's good underlying strength in demand or whether it's more customers that are looking to backfill Middle Eastern supply but we have seen notably strong foundry demand into Mexico, where we've been able to book large volumes alongside smaller but steady billet requests across the customer base.

We think that end market conditions are largely consistent in slab and packaging is leading the way on slab demand. We had -- in the building and construction market, both in Europe and in North America, we are seeing a little bit softness in building and construction. And especially in the case of Europe, we are seeing a shortening up of the order books as far as being able to see how far out customers are looking on orders. So we're not seeing weakness in North America at this point. In fact, it's been a strong second quarter and projecting a strong third quarter.

Okay. That's extremely helpful. And if I could ask one follow-up on San Ciprian. Congratulations on the ramp in Q2. With respect to the ramp, would you describe it as being unscheduled for your plans, in particular, profitability by year-end 2027? And could you help guide us to where the EBITDA would have been in Q2 '26?

Let me take it qualitatively and Molly will give you some numbers. The ramp-up once we restarted the ramp-up after the power outage that occurred what last year. The ramp-up was first all safe, and that's most important. Second of all, on time and on budget. So we were very pleased with the ramp-up performance of the San Ciprian smelter. We're also seeing that in today's environment, that's a competitive smelter. Ultimately, we need to have a power supply that solves there. And as you know, we have power through 2027, but it was -- I was very pleased with the ramp-up in San Ciprian.

During the second quarter, the EBITDA of the smelter did fully cover the refinery losses. So that's on an EBITDA basis. However, when you look at the whole site, it continues to consume cash with the refinery cash losses as well as the CapEx needed there for the residue storage area and the smelter has consumed cash for working capital build in connection with the restart. So doing well on EBITDA, at least from the complex as a whole, but we still have work on cash.

The next question will come from John Tumazos with John Tumazos Very Independent Research.

Thank you. Looking ahead 5 or so years to the renewal of the power contract in South Africa, some of the literature concerning it discusses that power rates in South Africa for other customers average 6x with the smelter pays. Clearly, you're not going to want to pay 6x more. Do you expect to build a solar or wind capacity or provide some of your own power when the contract expires, at least in part?

John, 5 years out on a transaction that we haven't closed yet is difficult to speculate. What I can tell you is that South Africa's electricity market reforms have been supporting a more competitive and reliable power system. They do have growing renewable generation and increased participation from independent power producers, government and regulatory support for energy-intensive industries, combined with some internationally competitive power pricing are encouraging developments for industrial users like aluminum shelters.

As you probably know, South32 has already been -- has begun discussions with Eskom, and we would expect to continue advancing those conversations as soon as we get it closed as soon as we get the deal closed, I should say.

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. And that concludes the call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, and welcome to Alcoa Corporation's conference call. [Operator Instructions]

Please note, this event is being recorded. I would now like to turn the conference over to Louis Langlois, Senior Vice President of Treasury and Capital Markets.

Thank you for joining us on short notice to discuss Alcoa's announcement to acquire South32 Limited's interest in bauxite, alumina and aluminum assets.

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.

As a reminder, today's discussion and presentation will contain forward-looking statements relating to the transaction and future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings. Any reference in our discussion today to Alcoa's EBITDA means adjusted EBITDA. Please see the appendix of this presentation for disclaimers and additional information including related to the presentation of certain financial information.

Finally, a press release regarding today's announcement and the reference slide presentation are available on the Investor Relations section of our website. Now I'd like to turn over the call to Bill.

Thanks, Louis, and welcome. Today is an exciting day for Alcoa. We are announcing a transaction that is a defining moment for Alcoa and our shareholders as it strengthens our leadership as a pure-play upstream aluminum company. We have entered into a definitive agreement to acquire South32's interest in a portfolio of high-quality bauxite, alumina and aluminum assets in Australia, Brazil and South Africa for upfront consideration of $4.1 billion.

I'll start by taking you through an overview of the transaction and its strategic and financial benefits. Molly and I will take questions at the end of the discussion. This is exactly the type of opportunity we've been preparing for. One that strengthens our portfolio, enhances our competitiveness and creates long-term value for shareholders by unlocking synergies that are not available otherwise.

The transaction includes South32's interest in the Boddington bauxite mine, Worsley alumina refinery, Hillside aluminum smelter, the Alumar refinery and smelter, and MRN bauxite mine. Together, these are world-class operations that complement our existing footprint and enhance our ability to generate value through the cycle. They have strong operating histories, attractive cost positions and limited integration risk. This transaction does not include the Mozal smelter in Mozambique, which was previously placed under care and maintenance by South32.

The consideration consists of $3.1 billion of cash and 17 million newly issued Alcoa shares or approximately 6% of Alcoa's outstanding shares post-issuance. This represents total equity value of $4.1 billion, including assumed lease-related liabilities, the implied enterprise value is approximately $4.7 billion. The transaction also includes a contingent value right of up to $750 million tied to future market conditions. We agreed to structure the transaction on a lockbox basis to ensure price certainty, avoid post-close adjustments and enable a clean transition. While more frequently used in transactions outside the U.S., the lockbox structure allows Alcoa to benefit from the acquired assets cash generation from March 31, 2026.

We will have the risk of market price movements, but we also have the benefit of a streamlined path to integration and combined value realization. We expect this transaction to generate approximately $900 million of net present value synergies, supported by portfolio optimization, procurement savings and our proven operating capabilities. We also expect the transaction to be immediately accretive to earnings per share and free cash flow after closing.

Turning to financing. We are taking a disciplined approach that is consistent with how we've managed the balance sheet over the last several years. We have secured bridge financing commitments but fully expect to replace that bridge with a combination of balance sheet cash and permanent debt financing before closing.

Regarding the equity component, upon closing, South32 will distribute at least half of the Alcoa shares provided as consideration to its shareholders via an in-specie distribution. South32 is able to sell the remaining shares in an orderly manner without a lockup period. Maintaining a strong balance sheet remains a priority, and we will continue to apply the same capital allocation discipline that investors have come to expect from Alcoa.

Finally, on timing, the parties have signed transaction documentation and there are no financing conditions remaining. We will pursue required various regulatory approvals, including in Australia, Brazil, the European Union, South Africa and the United States. The transaction is subject to South32 shareholders' approval, which is expected later this year. The approvals process is anticipated to take up to 12 months from today's announcement, enabling the transaction to close during the first half of 2027.

Stepping back, the transaction brings together 3 elements that matter most to create shareholder value, strategic fit, actionable synergies and strong growth financial performance. First, we're bringing together highly complementary assets that are mostly in close geographic proximity to our existing portfolio. That combination creates opportunities to improve performance and enhance our cost competitiveness and strengthen the resilience of our supply chain. It also enables us to better serve customers by leveraging a larger and more integrated operating footprint.

Second, this transaction unlocks significant value through synergies. We have so far identified approximately $900 million of net present value synergies, including roughly $50 million of run rate cost savings that we expect to realize within the first year following closing. These synergies are driven by real industrial logic with opportunities to leverage the collective strength of the Australian operations, improve the Brazilian assets through sourcing optimization and add the benefits of a large scale, stable smelter in South Africa with proven operating performance. Importantly, these synergies are highly actionable and are based on areas where Alcoa has a demonstrated track record of execution.

Third, the transaction delivers compelling financial results. We expect the acquisition to be accretive to our earnings per share and cash flow metrics immediately after close with additional upside as synergies are captured over time. These assets enhance our ability to generate stronger cash flow through the cycle and further improve our position on the global alumina and aluminum cost curves. As we've consistently said, our strategy is not simply to get bigger. It is to build a stronger, more competitive Alcoa. This transaction advances that objective by increasing our exposure to high-quality, low-cost assets, improving the quality of our earnings and cash flow and strengthening our ability to perform through the cycle.

When you bring together the strategic fit, the actionable synergy opportunity and the compelling financial benefits, the conclusion is clear. This acquisition strengthens Alcoa's position as the leading pure-play upstream aluminum company, enhances our ability to capture long-term demand growth and reinforces Alcoa's position as the aluminum investment of choice for investors seeking exposure to a high-quality globally competitive upstream aluminum portfolio.

Turning to the portfolio fit. We're acquiring high-quality assets in regions where we already have deep operating expertise, established relationships, proven track record of execution as well as expanding our footprint in Africa. In Australia, the Boddington mine and Worsley refinery sit alongside our existing mining and refining system, creating opportunities to further strengthen 1 of the world's premier alumina regions.

In Brazil, we're increasing our ownership in assets we already know well, which gives us a clear path to operational and commercial optimization. And in South Africa, Hillside complements our existing smelting portfolio and expands our participation in the aluminum value chain. By integrating world-class operations and talent with our operating model, technical and commercial capabilities, we see meaningful opportunities to leverage our combined expertise to improve performance and sustainably lower our cost base.

These competitive assets will strengthen Alcoa's portfolio. Starting with Worsley, a cornerstone of the transaction, it includes the Boddington bauxite mine in the Worsley refinery providing full integrated mining and refining. This was the largest EBITDA contributor in 2025 of the acquired assets and represents a significant source of long-term value in the portfolio. In Brazil, the acquisition includes additional interest in the Alumar refinery and smelter, which we already operate and will result now close to a 100% ownership in the Alumar smelter.

South32's interest in both assets generated approximately $1 billion of revenue and $100 million of EBITDA in 2025. The associated interest in MRN supplies bauxite into the Alumar refinery. This is largely a consolidation of ownership and optimization of an existing system with limited operating risk. The acquired interest in MRN is subject to a right of first refusal of other shareholders, which if exercised, will result in Alcoa not acquiring that interest in MRN. We have considered and planned management of bauxite supply and related operational matters under both the scenario where we acquired this interest in MRN and where we do not acquire this interest in MRN.

With the Hillside smelter, we are adding meaningful volume and cash flow generation. In 2025, Hillside generated approximately $2 billion of revenue and $200 million of EBITDA. And in the current pricing environment, it's delivering strong cash generation. This asset adds scale to our smelting portfolio in a way that is expected to be cash flow accretive immediately. Hillside does introduce a new geography for Alcoa. But from a technical standpoint, it uses the same AP30 smelting technology that we've operated for decades at 2 of our smelters.

Across the full portfolio, production at these assets has been stable and predictable over the past 5 years, which we view as an important indicator of operational reliability and downside resilience. Simply put, these are high-quality, well-understood assets with strong operating histories, and we see a clear path to integration, all of which support our confidence in the value creation potential of this transaction. This deal is attractive today and it becomes even more compelling as we capture the synergies. We expect to begin realizing benefits quickly, targeting approximately $50 million of annual run rate cost savings within the first 12 months after closing through procurement, logistics and commercial optimization.

In addition to the benefits of adding scale, we bring together the best of both organizations. By combining Alcoa's high-performance culture and commercial discipline with a deep asset knowledge, local expertise and strong operating cultures of the South32 teams, we have an opportunity to build a stronger, more capable company for the long term. There is also meaningful value to be realized from applying the best of both concept across the portfolio. By leveraging best practices and technology and adding South32's expertise to our centers of excellence, we expect to improve productivity, lower costs and enhance operational stability.

The largest long-term opportunity comes from optimizing the Western Australia asset base. Combining mine planning and development creates opportunities to access higher-quality ore, improve efficiency and optimize capital deployment over many years. These synergies are actionable, beginning shortly after closing and building over time, they reinforce our conviction that this transaction can deliver substantial shareholder value.

Over the coming months, we will work diligently and respectfully prepare for integration. We recognize the strength of the South32 workforce and believe that our combined capabilities, shared values and performance culture position us to build an even stronger Alcoa and create long-term value for employees, communities, customers and stockholders alike.

The acquired assets bring meaningful scale. On a calendar year 2025 pro forma basis, EBITDA would have been higher by approximately 45%, revenue by 28%, alumina production by more than 50% and aluminum production by nearly 40%. That scale strengthens our market position while improving the overall quality of our portfolio. Equally important, we're adding high-quality, low-cost assets that improve our position on both the alumina and aluminum cost curves, which translates into greater resilience and stronger free cash flow generation through the cycle. That cash generation gives us flexibility. It supports our commitment to maintaining a strong balance sheet, provides a clear path for deleveraging after completion of the acquisition, and ultimately enhances our ability to create value for shareholders over the long term.

At the agreed consideration, the transaction implies an enterprise value of approximately $4.7 billion including assumed liabilities but before the contingent value right, were up to $5.4 billion, assuming the maximum CVR payout. Against 2025 EBITDA of the acquired assets of roughly $900 million, that translates into an acquisition multiple of approximately 5.2x to 6.1x EBITDA, depending on the ultimate CVR outcome. Importantly, that's before giving credit for any of the synergy value we've identified.

When we compare that valuation to Alcoa's own trading history, the transaction is being executed at or below our average through-cycle valuation. As the chart shows, our average enterprise value to EBITDA multiple over the last 5 years has been approximately 6.3x, which is above the acquisition multiple we're paying today. We also structured the transaction so that a portion of the value is contingent on future commodity prices. The CVR aligns consideration with market outcomes and allows us to share upside with the seller while protecting value for Alcoa shareholders if commodity prices are lower than expected.

The way we look at it is simple. We are acquiring at a valuation that is attractive relative to both our own trading history and the quality of the assets we're buying.

To conclude, this is the right transaction for Alcoa and an important step forward in strengthening our position as the leading pure-play upstream aluminum company. It brings together high-quality assets, clear industrial logic, actionable synergies and compelling financial benefits. Most importantly, it improves the quality, scale and resilience of our portfolio and enhances our ability to create long-term value for Alcoa shareholders. We believe this transaction reinforces Alcoa's position as the investment of choice in aluminum for investors seeking exposure to a high-quality, globally competitive upstream portfolio.

With that, let's open the floor for questions. Operator, please begin the Q&A session.

[Operator Instructions] And the first question comes from Alex Hacking at Citi.

Congratulations on the transaction. You mentioned that you expect the transaction to be cash flow accretive. You mentioned that the Hillside smelter is generating positive free cash in the current environment. How about the other assets?

Thanks, Alex. Hillside is generating significant free cash flow currently. The Alumar refinery is our most EBITDA positive refinery that we have in the system currently. So Alumar is currently EBITDA positive. Alumar smelting is EBITDA -- significantly EBITDA positive under the current scenario.

And what am I missing? Worsley? Worsley, when we look at Worsley's numbers, they're around breakeven at a lower $300/ton, so let's say, a $310/ton to $315/ton, we believe they're around breakeven at a $330/ton, they would be EBITDA positive.

And Alex, as to be clear, and if I could add on to it. When we step back and look at this transaction, we think that we are acquiring fantastic long-term assets at a really reasonable price. So if you do the math, there's a variety of different ways to cut it. But we're acquiring smelting capacity at about $1,850 per ton. We're acquiring refining capacity at $600 per ton. I would tell you both of those numbers are below what the Chinese build in Indonesia at today.

Western world smelting capacity, new capacity, probably goes for $7,000 to $8,000 a ton, and we're acquiring at $1,850 a ton. Alumina refining around the world, Western world alumina refining always costing between $1,500 and $2,000 a ton. We're acquiring at $600 a ton. So while in the alumina space, near-term cash flows have been constricted. If you look at the history of this business, over the history of the business, there's been significant value created in the bauxite and alumina side of the business.

Super helpful. Could you maybe discuss the power contract in South Africa?

Power contract runs through, I believe, 2032 or early 2030s. So it's got a strong power contract today. You may have seen that some of the ferrochrome smelters have been able to negotiate really good power contracts in South Africa recently. We're confident that we'll be able to repower the Hillside smelter and clearly we'll start working on that towards the end of the decade.

The next question comes from Timna Tanners at Wells Fargo.

Bill, I want to take a step back and look at this deal as a bit more of an alumina transaction. It does require more alumina volumes even adjusted. And alumina has been a challenging market. You've been pointing that out in your last several decks that the cost curve is in the red for about 50% of production. So why is this the right time to add more alumina capacity? What are you seeing to support that decision?

Two things, Timna, you need to step back and take a long-term view of these assets. If you go back probably 2 years ago, I think most of our investors were saying to us, you need to invest more in the bauxite and alumina business because it's your best returning business. Over time, the value shifts in the value chain between mining, refining, smelting. You never quite know where the value will as you don't know where the constraint will be. Right now, the constraint is in smelting capacity. Hence, the value is accruing to smelting.

If you look back over history, 2018, 2024, significant value created and accruing to the bauxite and alumina business. So we don't look at this as necessarily as a near-term acquisition, even though it's going to be accretive, both on cash and earnings, it is a long-term acquisition. And on top of that, so all the numbers that I just quoted, $1,800 a ton for smelting, $600 a ton for refining, none of that includes the synergies that will be created.

We're unlocking synergies that if you're a South32 owner or an Alcoa owner, you can't unlock yourself. We're going to unlock $900 million of synergies. And those synergies are going to come in really 3 areas. The first is the near term. It's going to be procurement, logistics, commercial. The second is going to be applying our expertise to these assets. We have 130 people in centers of excellence that are largely based in Western Australia that all they do is work on improving [Technical Difficulty] of our assets. We'll be able to do that now with more assets.

But thirdly, the most compelling is when you look at mine planning, specifically in Western Australia, the Worsley and Boddington site is co-located with, I should say, joining our existing sites. So if you look at the map, their bauxite lease is right next to our bauxite lease. We think over the next decade, we're going to be able to unlock significant value, both at Worsley, but at Pinjarra and Wagerup as we optimize the mine plan. So that's the exciting thing about this transaction. I ran through the mine plan 2 weeks ago with the team in detail. We have a clear mine plan with or without these assets. Now that we're able to announce these assets, the mine plan is that much stronger.

So I appreciate that. And just a follow-up, though, on the alumina market, irrespective of those positives and the ability to capitalize on your -- those assets. There are some irrational behavior we've seen in alumina over the years. Is that something that you're expecting to continue? And do all the assets fit? Could you also mentioned optimizing portfolios and rationalizing perhaps? Or am I misunderstanding? Do all the assets fit? And how do you think about some of the irrational behavior outside of your footprint?

So when you say irrational behavior in alumina, I would suggest to you that the alumina market has -- alumina market has been very rational over the last 5 to 10 years. What you see in the alumina market when prices dip, you see curtailments. And to some extent, you've seen some of those curtailments in China already. The alumina pricing just recently has stabilized and recovered. So we're now looking at alumina prices that are $330 a ton, up from $305 a ton. Nice thing about the alumina market is that it's not storable. Unlike the aluminum business where you can have inventories that will overhang for quarters or years, alumina reacts quickly to supply and demand changes.

So where you saw real fly-ups in alumina in 2024, as there was significant supply deficits, recall at those times, we saw alumina prices $700, $800, $900 a ton, and that's where significant value was created. These assets combined with Pinjarra and Wagerup, which will be getting back to a first quartile style assets will generate significant value for the shareholders over the long term.

Pinjarra and Wagerup are in a little bit of an odd situation currently because of the bauxite to quality. But I've been in Australia for the last month, I'm convinced that we're going to get through our permitting process, and we will be back into strong bauxite quality toward the end of the decade.

The next question comes from Bill Peterson at JPMorgan.

Congrats on the deal. On the synergies, for the $50 million in annualized first year, is there a way to break it down between COGS and OpEx, I mean, I think you said procurement logistics and commercial. And then for the full $900 million in synergies, I guess, is there a way to break it out by region or said another way, is there a particular assets or regions that carry more weight or offer more synergies? Just trying to get a sense for kind of the crown jewels, if you will.

The $50 million we've already identified, we're going to be able to attain it very quickly, and it's going to flow through COGS. So you're going to get it in COGS. Over the long term, the biggest opportunities for the synergies are in Western Australia. To be clear, these are not job synergies. We're not looking at massive rationalization of jobs. What we're looking at is applying our expertise to running Worsley in a way that we can creep capacity and make it more efficient. In addition to that, the other big opportunity in the 6- to 10-year time frame is that mine planning being able to utilize the 3 mines that we have -- that we will have in Western Australia.

So remember, we have Huntly, Willowdale, and now we'll be able to have Boddington. If you simply look at the [Technical Difficulty] Australia at ML1SA and the bauxite lease of South32, they are adjoining each other. There are tremendous opportunities to optimize the mine plan with those. So that's where the lion's share of the synergies.

Not a lot of synergies in Brazil. We are -- so small synergies there. Maybe some opportunities to creep Hillside, but the big lion's share of the synergies is in Western Australia. And I should come back to -- just remember, Timna has specifically asked me about rationalization of assets. There's no rationalization [Technical Difficulty] the portfolio considered at this point.

Yes. And maybe to follow up directly on the point about Western Australia, this still would mean that you would be pursuing the new mine regions in Myara North and Holyoake. Is that right? Or would these -- are they part of that mine time you spoke of? Or would they be deprioritized...

No. In the short term, we will continue to pursue our Part IV permits and the new mine moves into Myara North and Holyoake. That's what gets us into the better bauxite. This transaction does not impact that. As we look forward, 6 to 10 years out in the future, we will be able to optimize the 3 mines, but this has no impact on our permitting and short-term bauxite opportunities.

Our next question comes from Chris LaFemina at Jefferies.

Bill, congrats. So the first 1 I have is, in the press release you note that you have the $3.1 billion bridge loan, which you intend to replace with cash from the balance sheet and permanent debt financing prior to the transaction close. So you're adding on 2025 numbers, $900 million of EBITDA and taking on $3.1 billion of debt, and that doesn't include the contingent payments that you might have to make later. And I'm just wondering first whether an equity issuance at some point might be part of the strategy to recapitalize the balance sheet? Or is that simply not the base case at the moment?

So Chris, it's Molly. The base case does include the $1 billion value of equity. As we think about the -- we'll have the bridge loan commitment in the near term, but when we replace that, we will look at the mix of cash from the balance sheet as well as long-term unsecured notes for the balance of the debt portion of the consideration.

Okay. So the $3.1 billion, we should just look at that as being -- it's going to be debt, not equity, basically.

Correct. With the mix of cash on the balance sheet -- we've got great projections for cash generation through the end of this year, even into '27. So we will optimize cash from the balance sheet as well in that mix.

And Chris, if I could jump in on that one also. So when you think about the $3.1 billion, we are going to be significantly cash flow generative in the second half of this year. You know that with the higher prices, we built up significant working capital. If prices remain where they are, we should see that working capital flow out in the second half of the year. In addition to that, if you then extend your time horizon and think about the future a little bit, we've talked about $500 million to $1 billion of cash from our asset sales in the data center area. On top of that, we're right around the corner in mid-2028 being able to monetize the Ma'aden shares.

So the first tranche of modern shares is worth about [Technical Difficulty], that is in mid-2028. So this $3.1 billion, which will be a mix of cash from the balance sheet and some borrowing is very manageable for the company.

I think that when we consider the earnings power -- and then on top of that, we didn't really talk about the lockbox. But depending on what metal prices look like, the lockbox could have significant cash in it. So very manageable at the $3.1 billion level. Molly and I are completely comfortable with that leverage level. We've also run through the RAS/RES process with the rating agencies, and we feel good there.

The next question comes from John Tumazos at John Tumazos Very Independent Research.

Could you explain the duration of the Hillside electricity contract and update us on the duration of the Alumar electricity contract, please?

I'll take Hillside first, Molly will take Alumar because I would be guessing. But Hillside through 2032 and John, as I said to a prior question, ferrochrome smelters in South Africa recently got some pretty strong power contracts with the strategic importance of Hillside to South Africa. I am confident that we will be able to repower Hillside very effectively. And then third, when you look at the valuations that we are paying for these assets, we have a very conservative estimate of what power pricing would be in Hillside post 2032, that I think we will be able to beat. Alumar, Molly, when does Alumar expire?

Yes, I'm going to correct you on Hillside, it's through '31. And then on Alumar, it's through 2038. We signed a 15-year contract there when we started the restart.

The South32 release mentions the assumption of $1.2 billion of reclamation liabilities. Would that be accurate on the Alcoa's books too?

So John, the $1.2 billion on South32's books is both asset retirement obligations as well as environmental reserves. Now they're on IFRS accounting, so they do have different estimation techniques. They have to include conditional AROs, which assumes that the closure date is known and their estimates have to include that. U.S. GAAP does not require that. So they will come on to our books at about $400 million.

[Operator Instructions] Our next question comes from Nick Giles at B. Riley Securities.

Congrats on the deal here. Just back to the synergies, the life of asset planning, the benefits are fairly long dated. So how do we set the baseline? Or what are the ways in which we can track progress on this front? Where does that sustaining CapEx and operating cost profile really stand today?

So on the long-term mine plans, we are looking at a 40-year life of mine plan. So if you look at the savings over that, obviously, the NPV on that comes back to today at a smaller number. But we have considerable spend expected in the early to mid-2030s for a mine move that we believe we'll be able to modify and have as much lower costs. So remember, mine moves are hundreds of millions of dollars at a time. And as we look at the plan, we believe that we'll be able to optimize those mine moves.

Got it. And then maybe just a follow-up. I think, though, you said that you're not ready for any rationalization of supply today, but I was curious if you are ready for optimization and specifically as it relates to San Ciprián, how this deal could kind of impact the outlook there?

There's no impact from this deal on San Ciprián. You've heard me talk pretty extensively and Molly on San Ciprián. We have the viability agreement on the smelter that we continue to live up to. At this point, the smelter is cash flow generating. The refinery is -- negatively impacts that. The refinery at these levels is [Technical Difficulty]. So the target is to have a cash neutralization program for 2027. And so this deal does not have an impact on San Ciprián.

The next question comes from Richard Bourke at Bloomberg Intelligence.

On the slides, you gave production of the assets that you're acquiring over the last 5 years. I was wondering if you had a range of EBITDA for those same assets that in 2025 that produced $900 million?

It is approximately $900 million, actually maybe rounding down to $800 million and South32 actually included that in their release, they have the average for 2021 to '25, they're using it to calculate their multiple.

And just remember, 2021 included a COVID year and [Technical Difficulty] world is not expecting a COVID year to repeat.

Also, is there a floor ceiling on the stock price that has to be maintained?

No.

And the synergy program, is there -- what's -- is there a cost of -- what's your cash cost to implement the synergy program?

There are minimal cash costs. We will, in the middle category on Slide 6, where we have the process technology, we have savings there, and that's about 30% of the total NPV. We will have some CapEx spend to get those process technology benefits, but it's not hugely significant.

And as far as onetime integration costs associated with the systems, we've netted the onetime integration costs of [Technical Difficulty] synergies. So that is baked into our synergies estimate.

That was -- Bill, there was a slight gap in the line. I just want to fill in that the integration costs are netted against the $900 million in synergies.

Thank you. And I'm joining you from Australia today. So if there are any breaks in the line, we've got Pittsburgh on the line and Australia on the line. So we apologize if there are any technical issues.

Your next question comes from Jacob Li at Barrenjoey.

Bill, Molly and team, thanks for the question. I think you talked to bigger synergy being in WA just now. Just trying to dig into that a bit more. Bauxite from Boddington, are they complementary to Alcoa's needs at Pinjarra and Wagerup, or sort of different quality of bauxite? Is there any benefits you could pick up from sort of early access to bauxite at Boddington? For example, I think you previously talked about the cost benefits from picking up better quality bauxite ore.

Yes. So to be clear, Worsley and Pinjarra use different types of bauxite. We use what's called a granitic bauxite in Pinjarra. Worsley uses what's called a greenstone bauxite. Our mining lease has greenstone bauxite in it. There, mining lease has granitic bauxite in it. We will be managing the blending of those bauxites to maximize and optimize the output of Worsley and Pinjarra. So there are tremendous opportunities to be able to blend the bauxite grades to achieve a very favorable outcome at both Pinjarra and Worsley.

Just a follow-up on that. So does this deal somewhat simplify your business in WA from other perspectives, such as permitting of new mining areas Myara North, if any?

What it does is, first and foremost, and I've already made some phone calls this morning with senior leaders in Australia, is it strengthens the Australian business significantly? Having these assets together in Australia will make them more competitive globally, and that's a positive for Australia. So the permitting process for our existing assets will continue to run. We have a Part IV permit that we're working on to be able to move our mines to Myara North on Holyoake.

The permitting process is largely completed for South32. That's 1 of the big positives that these assets have gone through their permitting process. So I think that the majority of our stakeholders really understand the rationale for this deal and are excited about the opportunity to make a stronger Western Australian alumina bauxite and alumina business.

The next question comes from Mitch Ryan at Jefferies.

Can you just -- I know that the deal is structured so that there is no Alcoa shareholder vote. Can you just talk me through that process and the rationale for that?

So the shares that we will be issuing is about 6% of Alcoa's outstanding shares, so that does not cause us to require a vote.

And in the case of South32, they will be going to a shareholder vote. We expect that in the October, November time frame. And their Board has recommended this transaction to their shareholders. So we -- that's 1 of the milestones that will occur between now and closing.

This concludes our question-and-answer session. I would like to turn the conference over to Mr. Oplinger for closing remarks.

Thanks to everybody for joining us so quickly to discuss this transaction. If you can hear in our voices, Molly and I are extremely excited about the opportunity that this brings. We think that this is the right transaction [Technical Difficulty] company. It is a great strategic fit. It provides compelling financial returns immediately. And on top of those financial returns, we've got $900 million of synergies that we've identified. We've spent a decade putting the company in a position to be able to execute upon this type of a transaction. And in our view, we're able to capture upside value for our shareholders that we wouldn't be able to capture on our own. That's why it's such a critical transaction.

I appreciate your time today, and we'll be talking to you over the next few days, I'm sure. Thank you. Bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Thanks for joining. I'm joined by Molly Beerman, the CFO of Alcoa. Today, we are being webcast, so game face on. Anyway, I'm Timna Tanners, metals and mining analyst and building materials analyst here at Wells Fargo. We are delighted to include Alcoa in our Industrials and Materials Conference this year.

And I'm going to kick off with a question about the quarter. So of course, we're entering into Alcoa's another quiet period, and we're finalizing the second quarter. So any updates on what you're seeing at this point would be great.

Thanks, Timna. Thanks, everyone, for joining us. So Alcoa is having a strong second quarter, really focused on operating safely and stability so that we can deliver the metal tons and realize the high prices that we're seeing. Obviously, the Middle East conflict is top of mind. You see those supply constraints showing up in the high LME, high premiums and the competition that's going on in the regional premiums as they're competing for those scarce tons.

We do have a couple of items to update on our second quarter performance specifically. I'd like to call out that in the Alumina segment, we are now expecting additional fuel costs of $15 million at our São Luís refinery related to higher pricing caused by the conflict, higher production costs of $30 million at our Pinjarra refinery as production instability was further complicated by LNG supply disruption from Cyclone Narelle.

We estimate that Pinjarra's third-party shipments will be reduced by about 120,000 metric tons in the second quarter versus the first. Alumina costs in the Aluminum segment are now expected to be favorable by $10 million. Additionally, in the presentation posted to our website this morning, we have updated business considerations covering the items just mentioned, and we've added a bullet in a footnote to our sensitivity slide related to the impacts of LME-linked power contracts and San Ciprián metal hedge volumes on our LME sensitivities for revenue.

Our EBITDA sensitivities already include the impacts of these LME-linked contracts. However, the linkage impacts our revenue recognition as those contracts are hedged against our sales for accounting purposes. So you'll see our annual revenue sensitivity is $40 million per $100 change in LME.

Okay. So trying to respond to any of that live. I wanted to say if alumina shipments, are they lost or deferred at Pinjarra on the alumina side?

I would say primarily, we will try to make up the volumes for the rest of the year, we'll have to update that at the end of the second quarter.

And in light of the not ideal alumina prices, the impact of those tons is probably more limited than people might fear I think.

It is limited now, but I wanted to give the guidance for revenue per business.

I completely appreciate that. I'm just trying to think about if that were aluminum, I would be a little more worried, but alumina is not doing that great here. So are you overall profitable in alumina? I mean, is that still going to be a hit, but a small one? Or how do you think about that?

Our Alumina segment is very pressured right now. So the Alumar refinery is still profitable. It's running extremely well, hitting record production, great cost absorption, cost control there. That refinery also has the benefit of the Atlantic premium, which is about $30 per metric ton. However, our refineries in Western Australia are really challenged. Remember, they're running the poor bauxite quality there. So under significant cost pressure at this low API. So the segment as a whole will be underwater.

Okay. So less production at losses, I guess, is something to factor in.

Yes.

Okay. Just wanted to call that out. All right. But then some of the other items are some cost pressures. The tariff cost you kind of already baked in, I think, so that's not necessarily incremental. And then some -- so net-net, unfavorable total versus prior guidance...

About $45 million.

$45 million. Okay perfect.

Okay. So think of that really as the $15 million at the fuel oil at São Luís and then the $30 million at Pinjarra.

Got you. Okay. These are really helpful updates. I think we were expecting some cost pressure because costs have been on the rise. It seems kind of strange to start out talking about high cost when the much bigger picture is the very high prices of aluminum. So just maybe taking a step back to put that in context.

But part of the reason for the higher price in aluminum and the higher cost is all related to the Strait of Hormuz. So maybe for people that are less familiar with the aluminum story and for Alcoa, there's what, 9% of supply, of course, comes from the Middle East and about 7% is vulnerable and maybe more than half of that is actually disrupted. And feel free to correct me at all on any of that.

Officially announced about 2.5 million metric tons, but we do believe it's probably higher than that. We serve customers in the region. We ship about 4 million metric tons of alumina into the region. We are assisting our customers now with redirecting some of those tons outside of the Middle East, primarily into China. All of those contracts are on API, so there's really no impact to us.

But our customers in the region, they have long-term supply agreements with us. They're interested in retaining those contracts. So they're continuing to accept the vessels. We obviously want to have a very strong relationship continuing with them. So we're helping them to adjust schedules, size of the vessels, destinations, but the alumina is still flowing from our perspective, even though it's not going into the Middle East right now.

Okay. So Alcoa is an aluminum producer, but is net long alumina and even longer bauxite. And so we're going to start bad news, good news maybe. But like on the alumina side, we've expressed concern and talked to you about this on the side that the alumina to the Middle East, which is -- remind us how much of that is your alumina?

4 million of our 12 million shipments is going into the Middle East.

But we've been kind of surprised to see that, that price of alumina has been fairly resilient, and it's been somewhat on the customers to figure out what to do with those shipments. Is that fair?

Yes, that's fair. And what you're seeing now is the alumina, I should say the smelters in the Middle East are being creative about how to get alumina in. So they're bringing -- some of them are bringing it in through the port in Oman. They're having it bagged and then on truck or rail up to the smelters. We understand that Ma'aden is providing some supply. So they are getting alumina. We think that is supporting the price not to go below the $300 per ton. But that seems to be the situation that we're in now. As we look at alumina, obviously, the market is oversupplied. We have not seen that much capacity come offline recently, maybe about 4 million metric tons, primarily in China. At this level of API, we expect that 45% to 50% of the global refiners outside of China are under water.

I think that's been the case now for a while. If I remember your charts on your slides, like half the alumina supply has been underwater, but the cost of production of alumina has gone up. So even though the price is up, there's still the same amount underwater. I think you've been clear that Alcoa doesn't intend to shut any of its alumina capacity. But are there other suppliers that you would expect that are higher cost that may need to shut?

Yes. I don't necessarily want to speak for the others. As look at ours, as I mentioned, Alumar is still profitable. Pinjarra and Wagerup our Western Australia, they had traditionally been first quartile assets. We are not looking at curtailing them now during the short term. You don't want to give up your staffing, you don't want to give up your routines. Obviously, if the market changes dramatically, we could revisit that, but we fully expect those refineries are going to return to first quartile when we get the mine approvals and we're returning to the high bauxite quality. So we're not going to plan to curtail at this point.

And then in Spain, you can't, but you could exit Spain hypothetically at the end of 2027. Is that?

So in Spain, we're honoring the viability agreement that we have with the workers, which required us to restart the smelter. We completed that in April. It's running extremely well. We've got a great team there. They really know how to operate the asset. On the refinery, we don't have the same commitment, but we do need the supply of alumina into the smelter. So we have to run through 2027. After '27, we expect to have more options.

On both sides of the facility there, we're really working on productivity and cost savings. We have a goal to reach what we call cash neutrality by the end of '27. That means that any cash generated by the smelter is fully covering the refinery's operating losses as well as the CapEx projects that we have going on there. We do have a residue storage area that needs CapEx, whether we run or close. So that work is underway. But again, beyond '27, we think we're going to have much more optionality, and we will -- no decisions are made at this point, but we'll be working on the cost until then.

These aluminum prices probably make the combined Spain package look a bit more attractive, I would imagine as well.

Yes. I mean the smelter is really doing well. And if you look at -- so in '26, the production that we're recording now, we'll also get a CO2 compensation payment at the end of '27 for that. And that looks to be about $75 million. So the smelter is going to generate some cash. But again, the refinery is really incurring significant loss.

So finishing up on the alumina discussion. Recently, Guinea has been kind of taking a different stance toward its bauxite reserves and trying to constrain them, I think, to the benefit of bauxite producers and potentially driving up the alumina price for those who don't have bauxite could maybe push them over the edge, I suppose. How do you see that dynamic? Or how could it impact Alcoa?

So the Guinea Minister of Mines has communicated that he would like to have export restrictions. What this actually means is they haven't formally introduced the mechanics to monitor that, but it's really reminding producers to operate within your approved quota. So we do -- if you look at the data, it appears that at least 2 of the miners there have exceeded their quotas probably by about 20 million to 30 million metric tons a year. Now we participate in Guinea through our joint venture, CBG. We are operating at quota. So we don't believe this will impact us. But clearly, the government wants to control the exports and try to keep the bauxite price at a healthy level.

Okay. I think we've talked about some of the challenges enough, and I want to talk about the aluminum price because this is a very unique situation, and we heard from Century yesterday in a very confident manner about tariffs. So we'd love to get your perspective. Last week in Chicago, Harbor Aluminum told us it's going to $4,500. I want to put you on the spot with a forecast, of course. But maybe how do you see the stickiness of some of these factors, like the perfect storm of the Iran not to celebrate the Iran war, of course, but the constrained supply and the higher cost of production and what you're well aware of in the market now?

Well, I won't make any predictions on the price. As you look at -- when we came into 2026, the aluminum market was already tight. I mean we saw that. We operate primarily in North America and Europe. And both of those deficit markets, we have a very strong order book for the year already. But then when the conflict struck and we saw the over 2.5 million metric tons of capacity come offline, you see the response in the LME. You see the regional premiums, not only the Midwest, but you see now the competition for tons and all of the regional premiums are up, reflecting that scarcity.

Inventories at record low levels globally, even though there seems to be some supply in China, that's not making its way out because of export tariffs and taxes there that are disincenting that.

So yes, we are in a tight market. As we're talking to our customers in North America, they're really trying to secure supply for the rest of the year and some of them even talking into '27 because they're worried about the Middle East supply coming back online. In Europe, the order book is also strong, although the European customers, they contract every quarter, so they don't have quite the same level of urgency, but strong, strong books. And for us, we've been able to convert more of our sales from P1020 commodity grade where you're not getting the product premium into value-add product. And so we're seeing an uplift there that gives us an extra premium helping earnings.

In my 15 years of covering you, I've never seen anything like this. I don't know if your history in aluminum gives us any context of what happens in a market where you have this level of shortage? Or how do you think about how this plays out?

I wish I had a crystal ball to see. Again, I still believe in the long-term dynamics of aluminum. And I think we're going to have strong markets into the future. I do hope that Middle East gets resolved, the conflict gets resolved for the sake of everyone there. But I don't think that really impacts the long-term view of aluminum. I think we're going to continue the stronger for longer and the tightness. You just don't see the smelting capacity coming online with any kind of mass. It's very controlled. And what we see coming online in Indonesia isn't going to be enough to fulfill the demand. So we're going to be probably in a deficit for a while.

It might be interesting to get your explanation of why aluminum smelters don't restart quickly. I don't know about how to think about the missile hit. But even before that, when it was like Qatalum was going to be down just because of the LNG supply when we talked last, it was helpful to get some context of why aluminum smelters don't restart with the switch. Maybe you can explain that a bit.

So if you are curtailed and then what we call an uncontrolled fashion like you lost your power, the pot line was struck, you didn't have a chance then to drain the pot. So to take all the molten metal out, remove your anodes, really prepare the pot for an efficient restart. So EGA Emal smelter went down. We don't know the exact circumstances of the hit there, but it wasn't uncontrolled. That's 1.6 million metric tons. That will take them at least a year to restart.

So all of those pots have to be dug out. They have to be relined. It's a really expensive and time-consuming process. Now Qatalum and Alba, they curtailed in a controlled way, which means they had the opportunity to slow production, drain the pots, remove the anodes. That will still take them 3 to 6 months. It's not a flip the switch. You've got to turn the pots on slowly. You can only add so many per day, per week until you get your full pot line running and stable. So that's why it takes so much longer and very expensive to restart a smelter, unlike a refinery, which is -- I don't want to minimize the effort there, but it is more like flip the switch than what you're going to get on a smelter.

Got it. And then I've heard also that the Iranian smelters, we don't have a lot of information on those could be offline, who knows controlled or uncontrolled to your point, and that there may not be enough workers in the region that have the expertise to do some of this work. So I've heard actually some -- at least 12 months on some of those projects.

So if we think about the new capacity, you pointed to Indonesia, I think Slovalco might restart now that's 175,000 tons. I've heard Mag 7, maybe we'll see 100-something thousand tons. But it is -- it's kind of a small number. So I think we could be in a shortage situation now for a bit of time. We haven't heard that much substitution. We heard a bit in the initial phases, but it does seem like Ford is sticking with aluminum. It seems like the switching is a little more modest. I don't know if you have any updates there.

No, we really don't. I mean the story previously was the copper to aluminum, and we think all that easy stuff has been done. There's probably not too much, maybe another 800,000 tons of substitution there. But when you look at aluminum now relative to steel, we saw a little bit of substitution, again, in the parts that weren't highly engineered and those that weren't part of the 5- to 7-year auto design, but not too much.

Okay. So any other areas where you could see volume come back or anything to kind of address this market tightness for the next 12 months that we might be missing? Is China able to do more volume? I've heard not that much, but certainly appreciate your thoughts?

So our view is that the Chinese smelters are running at full capacity now, and they may even overproducing. They're staying under their license in terms of they're not adding new capacity, but we can run over our nameplate capacity if we're pushing amperage. So we do think that they're running at full tilt there.

But again, there's difficulty in getting the prime metal out of China with the exports. You saw a little bit come out -- a little bit more come out, I should say, in April, but not huge, huge volumes. Maybe one insight on Indonesia, we had a team in Indonesia about 2 weeks ago visiting all of the smelters and refineries. And what they're seeing there is constrained.

So certainly, the builds are happening and most of the projects have what they call the Phase 1 and the Phase 2. So they're working through Phase 1. But what they're finding is the builds in Indonesia are more difficult. Even though they're using the Chinese technology, they don't have the same power access. They don't have the same infrastructure, even the rules of development in country are changing.

So I think there's more skepticism about Phase 2 or beyond happening. But certainly, the Phase 1, modest, maybe going to deliver 700,000 metric tons of capacity this year. But we think those will happen, but it will be slower probably than maybe we had been projecting.

Okay. Helpful. And then to take it down to an Alcoa level, you had talked on the last earnings call about ability to produce a bit more across your footprint. Can you remind us of those values and any upside there?

So if you look at the second quarter, we finished the restart in San Ciprián. Alumar in Brazil is actually running better now. We've added some additional pots there. We had small restarts at Lista in Norway as well as our Portland smelter in Australia. All of those combined is adding about 20,000 metric tons to the second quarter.

Yes. So that's all baked into our annual guidance that we've given you. We had planned to do those, but I just wanted to call that out. It's important progress and the fact that we got all of that capacity restarted now when we have the higher metal prices, bringing in additional earnings and cash.

So that gets us Alcoa effectively the full capacity at the lines that you're running? Or is there a bit more to do? I know Warrick isn't -- that fourth pot line we always talk about isn't running, but where you are running, you're effectively full out.

Except at Portland. We have a little bit more there. We could look at restarting a couple of other hurdles, but there'll be a little bit left at Portland that will still be curtailed.

Okay.

And then the 50,000 tons at Warrick.

All right. Let's talk about those. It seems like -- I think Bill had said 100 million tons over 2 years. Why -- I know that it's been cannibalized. I know that it's not that easy, but that seems like a lot. If you could rebuild a missile hit smelter in a year, why does it take 2 years at Warrick?

Yes. So when you look at Warrick, we have already guided it would be $100 million for that restart. It would take us about 2 years. There are long lead items that as we look at placing those orders now, I wouldn't even have them for a full year. And then you start the restart, which could take another 9 months-ish. That's why we're saying 2 years. If you look at Warrick and you just run the numbers in a spreadsheet, you'd say, absolutely, yes, go do it.

However, Warrick is a site. It's old technology, not much automation. We have problems staffing 3 lines. Think about it, Warrick in the summer, at 100 degrees, you're standing over a not automated pot that's 1,700 degrees. It is difficult to maintain full staffing. We're really conscious of safety there. So we're considering that. If we believe that Warrick -- if we wanted to make that investment, we'd also want to look to invest in Warrick for the long term. That would be additional investment, additional technology needs.

We need much more improvement to the cast lines there. And then lastly, we run a coal-fired power plant there for the smelter. If we were running all 4 lines, the power plant would be running at full tilt. So any time the power plant needs maintenance, then you've got to make sure you can get power access from the grid or attached to the grid because we sell excess power into it, but needing to get power to cover and it can't be interrupted power for us. So there's a lot of complexities to Warrick that make it not just a spreadsheet exercise.

So that is really helpful context because we all sit there behind our screens and do the math and think this makes perfect sense. So that's helpful. But I guess it does beg the question of, so how do you make these capital allocation decisions? Do you plug in like $3,500 aluminum or $4,500, if you will, and just say, like you should just upgrade and renovate -- I don't know if the right word, but retool all your smelters in the U.S. to produce more at lower cost at that level. I mean, it just seems like a challenging exercise. I'm curious about how the thought process is on those decisions.

Yes. It is both a science and an art. If you look at Massena, we were just able to -- so Massena is in upstate New York. We were just able to extend our power agreement there, great economical price. We've got a 10-year extension plus two 5-year renewals. So we're making investments there. We are upgrading certain of the equipment. We're looking at other projects not yet announced, but we think Massena, it has long-term power.

So for us in the U.S., it's really about power, Timna, where can we get power at rates and to be economical through all cycles for us, that's like $35 per megawatt hour. We're competing with data centers that are paying over $100 per megawatt hour. So that's the decision process on some of U.S. smelting investment.

Century says that it's worthwhile to build a $6 billion smelter in Oklahoma. So I can imagine it's challenging and they have a different set of assumptions and risk tolerance perhaps. But no, I do wonder, it's kind of refreshing to hear Alcoa talking about growth over the years. It's been shrinking to grow, we would say. So maybe that's a great pivot to capital allocation because although we've talked about a lot of challenges, every $100 move in LME is $200 million. And so these recent prices, even with a little pullback are enormous in terms of contribution. So a high-quality problem for you. I'd love to hear about how you're thinking about the options and, again, risk tolerance you have.

So at current pricing, we absolutely will be generating lots of cash for the rest of the year, both in the second quarter as well as through the end of the year. As we are looking at capital allocation, we're looking at growth projects. I'll give you one example. We recently announced just a $65 million investment, but it is one example in our Mosjøen smelter and casthouse. We're adding some foundry recycled content. That is in direct response to our auto customers in Europe. They have targets for higher recycled content in the autos by 2030. So we're helping them meet that need.

For us, it's the sweet spot of increasing our capabilities to meet a customer need and also get a great return for shareholders. So we have other projects like that we're looking at in growth. There's M&A opportunities that we would look at. I will tell you that we're going to stay in aluminum. We're not looking to get into copper or lithium or anything else. We're going to stay in the aluminum value chain, so bauxite through alumina and aluminum.

We also recognize that we're going to focus where we have the expertise. And we're looking for assets where we can deliver synergies that the shareholders can't get on their own. So we're being very disciplined about this. We were actually asked to look at 2 other transactions that just happened and -- we said, no, those don't meet our criteria. The returns aren't high enough. And so we walked away. We're being disciplined about the growth opportunities.

We're also looking at options for shareholder returns. So we've got a $500 million authorization on our share buyback program. Today, we have a very modest quarterly dividend that we believe is payable across all market cycles. We can look at that. And then we also have options for special dividends. I will add that when we think about share buybacks, we do not target a share price. We simply look at the excess cash on our balance sheet and return it to shareholders when we don't have a way to deploy it at a higher value.

Okay. That's helpful. It'd be refreshing. I think people are eager to see some of those returns definitely been a while coming. I guess before we delve into that a little bit more, I wanted to back up and talk about Canada because I'd be remiss to ignore you have a really strong Canadian presence. Senator Manchin yesterday said that he -- that the Canadians, of course, were offered to be the 51st state and did not like that. So it doesn't seem like these tariffs are coming off anytime soon. I don't know if you disagree, but the Canadian assets are still very attractive for you. Just curious about any insights you've heard on any progress, if I'm missing something.

Yes. On the U.S. and Canadian administration, last fall, when we were -- thought we were close to a deal, we were very engaged in those conversations. We are providing information and data to both sides as they were negotiating. That all fell through, they couldn't reach a good agreement. But this next time around, we're really not as engaged in the middle of it. So I don't have that many insights to offer. We are glad that they're speaking. They did have a U.S. trade-sponsored meeting of aluminum companies in Mexico City maybe 2 weeks ago, we participated in that, but more general discussions about how to protect the industry, how to facilitate trade within North America, not specific to tariff rates or lowering tariffs or any kinds of quotas. So that was not a part of the discussion.

And it's not a given that you're going to ship Canadian tons to the U.S. You follow the most attractive price reflected by whatever the regional premiums are?

Yes. So we run the netback calculations even now. Generally, that is favoring shipping from our Canadian smelters into the U.S. However, you've seen the increase in the Rotterdam premium. So our northernmost smelter, Baie-Comeau, does have good vessel transport over to Europe. So some tons could go there on occasion. But for the most part, they're coming into the U.S.

Okay. Helpful. That's [indiscernible]. All right. So I wanted to just circle back on the capital allocation side because I think -- I just want to clarify. I think Bill has been really clear. He's not a fan of the downstream side, would probably stay more upstream. In the past, you've talked about a variety of technological innovations that I think were on the back burner, but having this additional cash, does that make those more attractive? Or is it more a question of the technologies themselves, if you could address that.

So we continue to be involved in our breakthrough technologies, particularly ELYSIS. ELYSIS at the end of last year had a great achievement. The first commercial scale cell was started and run at Rio's Alma smelter. That was a successful test of the first commercial. We're also supporting a demonstration plant. So this is happening at Rio's Arvida site, and that's going to be multiple 100 kA cells.

So Rio is primarily the sponsor there. They've just recently gotten Canadian government support. Alcoa is producing the electrodes for both of the facilities, though, and we're participating in all the technical knowledge and know-how. So for us, we have a pragmatic investment into the ELYSIS partnership. It's about $50 million to $60 million a year. That is giving us access to all of the technology and the IP related to it, but we're not footing the big bill for that.

We will not do any ELYSIS deployments this decade. We'll look at that into next. But for right now, the technology is working but it's not yet economical. So there's still some work to do on getting the economics there to support it. But we're pleased with how ELYSIS is going. We're pleased with the partnership. It's working well, and we'll continue to fund into the partnership for now.

I want to check and make sure that we don't have any questions from the audience a few more minutes.

Go ahead.

I didn't understand why you're no longer involved in those discussions because it's not as sensitive because [indiscernible] is staying out of it or is there some other reason?

So the question is for the webcast. The question is why aren't we involved in the U.S. and Canada administration's negotiations now. Honestly, I don't think it has anything to do with us per se, we were asked to participate last fall. I don't know now if they've already settled on aluminum, maybe they're working on dairy and lumber and other topics. We honestly don't know. We just know we're not getting the same pull that we got last fall.

Just on the [indiscernible].

So the question is on our outlook for Pinjarra going into next quarter. Thank you for asking this because I should have said this.

So Pinjarra is already running better today. We have the instability. It is impacting the second quarter. But as of currently, they're back on track, and we would expect them to perform well during the third quarter.

So did the Pinjarra refinery issue result in fewer tons, but also higher cost as the combination then. And so reversing that would be more tons, but lower cost?

Yes, you can look at it that way. Yes. We absolutely had cost impact this quarter because of the low production, so very poor cost absorption.

I'll ask another one on scrap. I'm fascinated about the secondary market opportunity. I feel like if we really wanted to address national security of aluminum, we could recycle more and my pitch for cans next year when we have this conference.

Because I'm not drinking.

Yes, you're just boycotting it all together. I've been to your headquarters, I know. But anyway, no, just curious if secondary is something that you could look at as a growth opportunity.

As we think about secondary, I'm going to go back to that Mosjøen example. We had an opportunity to deliver recycled content specific to a customer need with good returns. I do not see us announcing any big shift into recycling. I think we recognize recycling is a completely different business. You need volume and mass. We're not collectors. We're not sorters. We remelt. So for us to go into recycling in a big way would be outside of our knowledge zone.

Now we'll continue to look at opportunities like Mosjøen where we can add recycled content, but I don't see us moving into recycling in a big way. And we don't honestly fear recycling either because when you recycle, you still need the prime content to get to the right quality levels. So we think a growth in recycling is still positive for primary aluminum.

And a lot of applications can't use recycled material as well.

Yes.

Okay. I think that wraps it up. Thanks, everyone, for joining, and thanks so much to Alcoa for participating today.

Thank you.

Well, let's get going on this session. So our next fireside chat here is with Alcoa. Representing Alcoa, we have President and CEO, Bill Oplinger, Bill has been here many times. So thanks for coming back, Bill.

Why do you have me instead of Lawson? Lawson's next door with Franco-Nevada. So you and I have known each other.

Use it that way?

I think we drew straws.

Lawson is on the bad list now.

Which is your favorite company. Anyway, so he's also given me a script here, and I warned Bill a little bit in advance. If I'm asking questions, if it don't make sense, he's going to correct me.

Sure. And if you don't mind, I'll just start with a couple of opening comments.

Absolutely.

Okay. Thanks for having me. I've lost track of how many of these conferences I've been to over the years, but it's always good to come back. When you're considering Alcoa Corp as an investment, we've got a lot going on. And a lot of favorable progress in the company over the last 5 years. Currently, very focused on safe operations and knock on wood, we've had safe operations so far this year. Strong stability and continuous improvement. So we had a good first quarter. We're anticipating a strong second quarter. And so those are really the day-to-day focus.

In addition to that, we've been executing on a number of strategic priorities. We're continuing to progress the Western Australia bauxite mining approvals. That's going well. In addition to that, we're in the process of monetizing some of our assets in the closed and curtailed area. So we've been looking -- as we've said, we've been looking at selling the data centers and monetizing about $500 million to $1 billion. We anticipate the first of those to be very -- to happen soon. So we're making progress.

We announced in the first quarter that we're making progress with NYDIG at the Massena East site. So we're anticipating that will happen quickly. And on top of that, we'll continue to focus on growth, and we introduced the conduct that we would consider growing really last year. And we just announced in the last couple of days an investment in Northern Norway where we're going to build out our recycling capability to meet customers' needs for reside content.

So that's a $65 million investment in our [ Mosjoen ] facility, great facility, low-cost energy, wonderful smelter attached to it. So adding recycling capability there to meet our customers' need. in Europe. So lots going on in the world, lots going on in the industry. We're focused on running the operations extremely well safely and executing on our strategic initiatives even while there's a lot of noise in the system.

Fantastic. Well, thanks for those opening comments, Bill. For our AV people, do you mind just setting that clock to the right time and starting it? So I've got some questions here. And I'm going to just scramble them up a little bit just your time.

I was only ready to have them in order.

Exactly. So let's start at really big picture here. So obviously, the war. How do we think about the war? How do we think about the potential impacts on the aluminum market? How do we think about the potential impacts on your business?

So clearly, the conflict has had a big impact on the aluminum industry. I'm sure many of you know the numbers roughly within the Strait of Hormuz, there's about 9% of the world's aluminum smelting capacity. When you look at it on a Western world basis, it's about 20% of the Western world capacity. And all of that capacity has been impacted to some extent. There's been around 2.5 million metric tons of capacity that's been publicly announced that has come offline. We believe it's probably a little bit larger than that, just hasn't been publicly announced.

I'll let each of the individual companies address how they've been impacted. But for instance, at EGA, obviously, EMAL is off-line. All has been negatively impacted. CataLums has been negatively impacted. So that has clearly inflated aluminum prices in the short-term inflated to premiums into both Europe and North America. In our case, we are a supplier of alumina into the region. At this point, our customers are continuing to take the product. They're just resourcing it, selling it on in other parts of the world. We think a lot of that is ultimately going into China.

And just to sort of touch on that. So if we think -- how is the alumina market balancing? We're hearing sort of chatter that some of the Chinese alumina refineries are actually curtailing?

So right now, the alumina market isn't balancing. And so we would say that the aluminum market is around 13 million metric tons long and we are seeing some of the Chinese capacity come offline. But with that excess capacity, we would anticipate that we'll see further actions from other companies.

Okay. So you talked a little bit about the premiums coming into the U.S., which is your home market. I think even before the Middle East kicked off, the market was pretty tight and we had quite elevated premium. So can you talk a little bit about the dynamic that you're seeing on those Midwest premiums and how you're thinking about your product mix?

So you referenced our home market is in North America. We would say our home markets really are in two markets, Europe and North America. We've got very good positions in those two net consuming those two net deficit markets. So strong asset positions. The Midwest premium, and if we just step back, the -- prior to the conflict going into the year, we had a couple of curtailments that occurred on the supply side, specifically Mozal and some centric capacity in Iceland. At the same time, we have seen that Chinese are limiting production to the 45 million metric ton cap.

We had anticipated going into 2026 that the alumina market would be in a slight deficit and would draw down inventories. So we were very constructive on the alumina market going into the year. Clearly, with an additional 2.5 million metric tons coming offline in the Middle East, that has put a lot of pressure on pricing and supply. We have not yet seen physical scarcity of metal either in Europe or in North America. We think we could see real physical scarcity of metal over the next 6 months in Europe or in North America.

What that means is that Midwest premium has elevated to last time I looked about $1.16 a pound. So put that in dollars per ton, that's what, about $2,400. I won't get my math right, $2,400, $2,500 a ton. So premiums have been very strong. We've seen Rotterdam premiums also go up. And just one side note on the Rotterdam premium, we were estimating that we thought there would be about $40 per ton built in related to CBAM. We think there is, but it's hard to say, given all the dynamics in the market, how much of that's being driven by the conflict versus how much is being driven by CBAM.

So if we just talk a little bit about demand. And again, so I cover Norsk Hydro, which is like a European aluminum company, and they saw a big pickup in some of their downstream activities. And we were trying to decide if that was people sort of pulling demand forward because they were worried about security of supply where it was actually really demand recovery. How are you seeing what signals are you looking at for demand?

So we look at all the traditional signals for demand. So when we're looking at the demand picture, we start with the big picture and look at industrial production and some indicators within each of the end markets. Probably for me the most important is looking at the order book and how strong the order book is.

We -- it's hard for me to answer because I get the question, are you seeing demand disruption at this pricing level probably very similar to the folks at Norsk Hydro. We're seeing a switch from customers who had supply chains that reached all the way back to the Middle East, and we're getting customers now coming and saying, "Hey, we need supply security", and that's both in Europe and in North America. So while people have talked about demand destruction, we're just not seeing it, right? Our order books are are improving every week.

And we still have some excess capacity in North America that we can fill, but really strength in demand. And it's hard to parse out is that related to underlying demand? Or is that related to the conflict?

And again, we've started to talk about this a bit. Is there a mix thing going on here as well? Is there a shift to more VAP?

There is. So we took the action in the first quarter to reposition some metal into the North American market, and that frees up some VAP production capability in North America. And so we're seeing our VAP order book being very strong and both in Europe and in North America.

So it's we talked about revenues a little bit. Let's talk about costs a little bit. So if you think about the pressures on the business today, maybe you can just walk through some of the key ones.

You start with with energy, right? Everything starts with energy in our industry. We are exposed to less than 1% of our total electricity buy is exposed to spot markets. So we're pretty well covered on the electricity side. Now clearly, we have contracts, specifically in places like Quebec and Iceland that vary with LME prices. So we share some of the positive upside with our power providers, but that's all built into the sensitivities that we provide on a quarterly basis.

If we then go to some of the direct consumers around natural gas, in Western Australia, we have long-term contracts on natural gas in Spain, where our refinery would be exposed to spot natural gas. We've hedged that gas price through 2027, so that will provide some security of pricing in Spain. And then if you keep going, we have some oil exposure in Brazil. but not significant and then come down to mining diesel. We've secured our mining diesel through the end of June. So we feel confident that we've got good security of supply on diesel.

So from an energy perspective, while the energy disruptions are driving a lot of the top line impacts, we're pretty well covered on the cost side. If we then go into some of the more aluminum-intensive raw materials, Caustic prices we've seen are ticking up a little bit. We've got a 6-month lag on costing prices. So we won't see those impacts until much later in the year. Coke and pitch prices have increased a little bit also, and those are typically on a 1-quarter lag.

Okay. So, so far, not that much, and we really would expect to see this come through with more of a lag?

More of a lag towards the end of the year in relation to the size of the revenue changes, these cost impacts are pretty minor.

Yes. Just in terms of the alumina business and I guess thinking about diesel as well. I mean we're seeing this with the iron ore as an example, some of the really more marginal guys are actually shutting down because even though the price has gone up a little bit, their costs have gone up so much that they just -- it's not worth producing and particularly once you take shipping into account, when do you get to that pressure point in your alumina operations, your bauxite operations?

So we have three large refineries currently in the world. We've got three large ones and two smaller ones. So if I just cover those quickly, we've got Pinjarra and Wagerup in Western Australia. Totally vertically integrated on the mining connected via conveyor, historically very low cost, strong energy contracts. So those are really, really good assets.

If we then go over to Brazil, the Alumar refinery has has really performed exceedingly well. So the Alumar refinery is running at a very high level. They've been able to drive cost out. So Alumar has been very successful. Pocos meets the needs of an NMA set of customers down in Brazil. And then we have Spain. And so right now, Spain is under pressure with the low alumina prices. And that offset some of the positive that we've seen out of the smelter in Spain. So with alumina prices at $3.05, $3.10 puts a lot of pressure on the Spain refinery.

I guess, especially with the -- you've also got the euro is a bit strong as well, which doesn't help.

Doesn't help. And in the case of Spain, we're running at around 2,000 tons per day. So what's at around 700,000. So the capacity isn't huge. A piece of that goes to the NMA market. taking that capacity off-line wouldn't have a big impact on the overall market conditions, but it is struggling at these lower alumina prices.

So I guess, since we're starting to talk about the assets, can you just walk us through the 2026 sort of production shipment story in the main operational regions?

Sure. As you can imagine, at these price levels, we are ramping up production just about everywhere we can in the world. Let me start with Spain since we talked about Spain on the refining side. We've ramped up the production in Spain. It's been a safe, successful, on-time, on-budget ramp-up of Spain. The workforce there has done a fantastic job of running that facility was never been any question around the strength of that workforce. The issue in Spain is always energy prices.

And so we have a viability agreement in Spain that said we would ramp up the production. We've done that. We're running it at 100% capacity. Very strong startup. We'll continue to do that through 2027. We have a viability agreement there with the union that ensures that we'll run that smelter through 2027.

If I then go to other parts of the world, we're ramping up capacity in small amounts in Australia. So we are adding additional pots in Australia, not new pots, but turning the pots on similar case in Southern Norway. So we've got a small plant in Southern Norway, fully ramped up, down in Brazil, the smelter in Brazil, which has the start-up has been very difficult over the years. We have very good strong stability today. We're running at about 90% capacity and we'll continue to ramp up that smelter over time. The real important part there is that we have stability because from time to time, we've had issues where we lose production there. So good stability today.

And then we come to Quebec. Quebec is running flat out. Quebec is one of the crown jewels of the company. It's running flat out. And then in the U.S., we've just resigned a long-term power deal in Massena. It's a 10-year deal with 2-, 5-year potential extensions. So that gives Massena a real line of sight to being successful over the next decade. And then in the case of Warrick, we still -- which is in Southern Indiana, we still have 50,000 metric tons of capacity there, actively looking at what scenarios it would take to restart Warrick. Warrick has been historically a difficult facility to run at 4 lines. And right now, we have good stability running 3 lines, and we'll consider what it would take to restart the fourth one.

And what's the limiting factor there, Bill, just out of interest?

It's -- would be about a 2-year start-up time period. It would be about $100 million of capital. And historically, the stability has been difficult running 4 lines because of lack of labor and being able to get labor to run that facility stability with stability.

All right. Let's switch gears a little bit. We'll come back to this -- the markets a little bit. in Q4, I guess you had Midwest premium strength offsetting the tariff costs. If you look at it now, you've got tariff costs, which are going to be rising, obviously with the higher LME price. How do we think about the net impact here of Section 232 sort of in a simple way for Caveman?

Yes. It's never simple. Gross tariff expense, bringing metal in from Canada into the U.S. is around $1.1 billion. So that's our gross tariff expense. Our U.S. facilities are getting the benefit of the higher tariff rate Midwest premium. So they're getting a fairly significant benefit today that puts them in a much better position. And so the Midwest premium is completely covering the tariff cost. So when we talk about $1.1 billion of gross tariff expense, obviously, the Midwest premium at $1.16 a pound is covering that and more at this point. more.

It's actually a net positive for the imported.

It is. And that's not necessarily related to the tariffs. It's related to the overall strength of the demand, especially with the conflict in the Middle East, where customers are looking to reposition long supply chains out of the Middle East into more regional supply chains like North America and Europe.

Okay. Let's talk a little bit about the European side of things. So you've got CBAM as well. And again, that's another confusing thing for analysts to sort of figure out.

I think it's confusing for most people. The -- I guess our view of CBAM is that we think it's a net positive in the near term for Alcoa. We will get a benefit of about $40 a ton on CBAM, which will be baked into the Rotterdam premium. Like I said earlier, it's hard to tell whether that's been baked in given how the strength of the Rotterdam premium in the face of the conflict.

There's a couple of loopholes on CBAM that the European Commission has been trying to close. Those loopholes are associated with scrap. They made an attempt to close that toward the end of last year. And then the second one is around downstream, and we're continuing to pursue the closure of those loopholes. But at this point, CBAM is not having a negative impact. In fact, it's having a positive impact on Alcoa.

Okay. I just want to offer anybody want to ask a question here? We can keep on trucking, but if someone's got a...

Any questions from the group?

Bernie? I can also cold call on somebody like Francisco in the back.

Do you want to ask -- there's a question.

So you mentioned energy, obviously, as one of the key issues that you're thinking about every day. And so I wanted to maybe kind of bring the 2 topics together, one of them protectionism and energy into the same question and kind of try to understand a little better as you look -- I mean you run a global operation, you have smelters everywhere. How is this protectionism like CBAM, 232 and energy interacting in your mind?

I mean are we -- because China has kind of topped out in terms of capacity. They're now I believe, 45 million tons a year. So there's not much more scope for them to keep producing aluminum, at least I understand it. So how does that feel look like in 5 years from your perspective? And where are you putting the next chips on the table where you think the main -- the biggest aluminum companies in the world are going to be investing in? Also considering the Middle East has just become hit by yet another problem, which is geopolitics and military. So how do you see that production growth evolving? We do need aluminum, I assume that, right, because we're not going to get the production at this space.

So I think you answered a lot of the question there. So I think you gave the components of a lot of the answer. if we step back and look at demand growth in aluminum, we think that demand growth in aluminum will be around 3% to 4% underlying demand growth. If you then bifurcate that between primary and secondary, secondary will clearly grow at a faster rate than primary.

Secondary is advantage to some extent. And therefore, we see the growth in secondary. If we then -- and just to be broadly honest, we are very bullish on aluminum. We're an aluminum company. So of course, we're very bullish on aluminum. We're bullish on the future of aluminum. We see the demand -- the issue, if -- I've been in this company for 26 years, I've been following the aluminum industry for 26 years. The issue has never really been demand growth. It's always been supply growth that matches that demand growth.

The Chinese seem to be firmly capping at the 45 million metric tons. They've not deviated from that over the last couple of years. We are not seeing them deviate from that today. They are going outside of China and growing in places like Indonesia and a success in Indonesia, but it's turning out not to be quite as easy in Indonesia as it is to grow in China. Historically, if you'd asked me a year ago, I could have told you that in the Middle East, we will see potential for supply growth in the Middle East, I think the conflict throws that into uncertainty.

And so then you match a market that has underlying demand growth that grows year in and year out. Everything you touch, everything you -- whether you fly, you drive, you work in a building, you drink out of a can, everything has aluminum in it, and that will continue to grow and the supply is now limited. So we're seeing what we view as a constructive market for aluminum over the next 5 years. And so we -- and just to talk about us a little while, and that is we're long in all three of our markets

So we're long in bauxite. We're long in alumina. We're long in aluminum. If you follow this industry long enough, you will realize that you never quite know where the value, where the value will accrue in that supply chain. Sometimes the value accrues to bauxite. We've seen it in times like 2018 where significant value accrues to the refining. Today, a lot of the value in the industry is accruing to smelting, we like to be long in all three of those to be able to capture that -- those market changes over time.

So just from real short to sum it up, -- we think that the dynamics are different. I hate to say they're different this time, but we actually see some limitation of supply specifically out of China that will allow that demand growth to really have a constructive picture for the aluminum industry. Now we prompted some questions. Maybe somebody is going to argue with me.

There's been some talk about as part of the USMCA developing a fortress North America with equal tariffs in Canada and Mexico, which would make moving material between Canada and U.S., much more if the tariffs will go away. Do you think that's likely? Is there much hope for that?

I'm not going to predict what's going to happen in USMCA. My crystal ball is not that good. What I can tell you is there are dedicated supply lines that go from our Quebec plants to our customers via rail that it makes a lot of sense for, in my view, for both Canada and the U.S. to ensure that the first metal that comes into the U.S. is always Canadian metal.

And as they work through USMCA, we'll let them work on that, but the -- our customers need Canadian metal. Now with today's pricing, the prices are high enough that it still incents our Canadian metal to come in to the U.S. But as they look at USMCA it does not make sense for Quebec metal to be going to Europe. Quebec metal should be coming into the United States.

How about the push by the administration for building new aluminum smelters in the U.S. centuries planning one. What are your thoughts on that?

So I'll tell you the exact same thing I tell the administration. If we can get globally competitive power in the United States, we will consider building a smelter in the United States. Globally competitive power looks like $30 to $35 a megawatt hour, right? If we can get $30 to $35 a megawatt hour anywhere around the world, we will consider building a smelter there.

But that has not been the case in the U.S. You look at the hulling out of the aluminum industry in the United States over the last 20 years, it's been solely due to the lack of inexpensive available long-term power in the U.S. If that reverses, which does not show any signs of reversing at this point with the data center demand in the United States.

Put it in perspective, and I think most of this is public information, the data centers are able to pay $110 to $120 a megawatt hour for a 20-year take-or-pay, right? Nobody builds a smelter in the world at half of that, right? And so that's the issue that the United States has. It's all around cheap electricity.

Since the door was opened on politics, let me ask a general question.

I've dodge those questions pretty well.

Do you see any improvement in the relationship between government agencies and the company as it relates to just general business repeal of regulations or the environmental look forward?

So Dan, thanks for the question. We have three types of businesses. We have mining, refining, it's melting. In regions where you have mining, it is so clear that license to operate is critically important. I've been pretty public around some of the approvals issues that we've had in Western Australia. Those approvals issues were really, in my view, self-inflicted, right? We need to have very strong regional leadership that can be attuned to stakeholder requirements and be able to act on the stakeholder requirements.

In Western Australia, we saw stakeholder needs really escalating quickly. We weren't in a position to be able to react to those stakeholder needs. So in the mining area, license to operate is critically important. I think you can say the same thing around refining and smelting. And so for our business, one of our key -- and probably, if you talk to any large aluminum business in the world, it's having successful relationships with all of our stakeholders in the regions in which we operate, and that includes governments. And so we have spent over the last couple of years, really a lot of effort trying to improve our stakeholder relationships to ensure that we have the license to operate in the regions we work in.

Well, look, I think we're out of time. So -- good to join...

You did a great job stepping in.

Thanks a lot. Could you join with me, please, in thanking Bill for his presentation. Thanks a lot.

Good.

Appreciate it.

Good afternoon and welcome to the Alcoa Corporation First Quarter 2026 Earnings Presentation and Conference Call. [Operator Instructions] Please note, this event is being recorded.

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. 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 the company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings.

In addition, we have included some non-GAAP financial measures in this presentation. For historical non-GAAP financial measures, Reconciliations to the most directly comparable GAAP financial measures can be found in the Appendix to today's presentation. We have not presented quantitative reconciliations of certain forward-looking non-GAAP financial measures for reasons noted on this slide. Any reference in our discussion today to EBITDA means adjusted EBITDA.

Finally, as previously announced, the earnings press release and slide presentation are available on our website.

Now I'd like to turn over the call to Bill.

Thank you, Louis, and welcome to our first quarter 2026 earnings conference call. Today, we'll review our strong first quarter performance, discuss our markets and highlight the progress we are making on our strategic priorities. Let me start with the headline, we had a strong start to 2026 driven by execution, and we are well positioned to deliver a strong second quarter and full year 2026 performance.

Starting with safety, we continued making progress with improved total injury rates in the first quarter. While we're never satisfied, both our leading and lagging indicators are moving in the right direction. Our focus remains clear, fatality and critical risk management, combined with leader time and field. Our leaders are expected to be on the production floor or mine site interacting, coaching and reinforcing standards. Safety is not an initiative. It's the foundation of everything we do.

Operationally, we delivered. We maintained stable performance across the system and captured higher metal prices. Despite significant disruption in the Middle East, our teams ensured continuity of supply for our operations. Our flexible casthouse network continues to unlock value-add opportunities, and the depth of our commercial, procurement and logistics capabilities was evident this quarter.

Strategically, we kept moving forward. In Western Australia, we advanced our mine approvals completing responses from the public comment period and continuing to work collaboratively with stakeholders. We continue to anticipate ministerial approvals by year-end 2026, consistent with the time line we've previously shared.

We are in advanced discussions on the monetization of our former Massena East smelter site for a data center project. The potential developer has applied for public review. We are still finalizing terms and won't comment on value today, but we will provide additional details later in the process. Additionally, we are making progress on 2 other sites in parallel.

Our momentum continues into the second quarter. On April 7, we successfully and safely completed the restart of the San Ciprián smelter. And on April 14, we issued notice to redeem the remaining $219 million outstanding of our 2028 Notes, another clear example of disciplined capital allocation supported by our strong cash balance of $1.4 billion at the end of the first quarter.

Looking ahead, we are focused on increasing profitability through higher shipments, continued operational performance and realizing the benefit of strong market conditions in the Aluminum segment. At the same time, we will maintain momentum on the company's strategic initiatives aimed at creating value.

Now I'll turn it over to Molly to take us through the financial results.

Thank you, Bill. Revenue decreased 7% sequentially to $3.2 billion. In the Alumina segment, third-party revenue decreased 33% due to typically lower first quarter shipments, lower purchased and resold alumina to satisfy third-party commitments as well as vessel constraints related to the Middle East conflict and vessel loading issues caused by Cyclone Narelle in Western Australia. Realized prices were also lower for both alumina and bauxite.

In the Aluminum segment, third-party revenue increased 3%, primarily due to an increase in average realized third-party price and increased shipments from the San Ciprián smelter. These impacts were partially offset by seasonally lower shipping volumes from other sites as well as timing impacts from proactively repositioning inventory within North America. The repositioning creates timing difference, deferring revenue recognition until the second quarter while providing casthouse flexibility for additional value-add product production and shipments, which yield higher margins.

Related to my comments on typically our seasonally lower first quarter shipments in both segments, it is important to note that our first quarter shipments are historically only 23% to 24% of the annual outlook, and our fourth quarter shipments are typically 26% to 27% depending on portfolio changes. Coming off the strong fourth quarter 2025 shipment levels, the first quarter of 2026 was mostly in line with our expectations even if consensus analysts projected higher.

First quarter net income attributable to Alcoa was $425 million versus the prior quarter of $213 million with a per common share increasing to $1.60 per share. The sequential improvement reflects realized aluminum prices and a favorable mark-to-market change on the Ma'aden shares. These impacts are partially offset by the net unfavorable sequential impact from nonrecurring items in the fourth quarter of '25, including 2 compensation recognition in Spain and Norway, the reversal of a valuation allowance on deferred tax assets in Brazil and a goodwill impairment charge.

On an adjusted basis, net income attributable to Alcoa was $373 million or $1.40 per share, excluding net special items of $52 million. Notable special items include a mark-to-market gain of $88 million on the Ma'aden shares due to an increase in share price during the period. Adjusted EBITDA was $595 million.

Let's get the key drivers of EBITDA. The sequential increase in adjusted EBITDA of $68 million is primarily due to higher metal prices, mainly driven by increases in LME and the Midwest premium, partially offset by lower sequential shipping volumes in both segments. The Alumina segment adjusted EBITDA decreased $52 million, primarily due to lower alumina prices and lower bauxite offtake margins, partially offset by the nonrecurrence of a fourth quarter charge related to the announced agreements with the Australian federal government to further modernize the mining approval framework.

The Aluminum segment adjusted EBITDA increased $174 million, primarily due to higher metal prices and lower alumina costs. These impacts were partially offset by the nonrecurrence of CO2 compensation in Spain and Norway recognized in the fourth quarter and lower shipping volumes, including the impact of inventory repositioning, which deferred EBITDA [ recognition ] on 30,000 metric tons to the second quarter and higher costs associated with the San Ciprián restart.

Other costs outside the segment were unfavorable $54 million sequentially primarily due to unfavorable intersegment eliminations.

Moving on to cash flow activities for the first quarter of 2026. We ended March with a strong cash balance of $1.4 billion despite consuming cash as we typically do in the first quarter. The $595 million of adjusted EBITDA generated in the first quarter was mostly offset by an increase in working capital. The seasonal working capital build resulted from lower accounts payable, inventory replenishment and higher alumina inventory due to shipping delays at the end of the quarter and an increase in accounts receivable primarily on higher metal prices. On a days basis, the working capital increase is consistent with prior years and is likewise expected to decrease as we move through the year.

Capital expenditures were $119 million, which reflect our typical trend of lower spending in the first quarter. We maintain our 2026 outlook for capital expenditures.

Environmental and ARO payments were $85 million, which include progress on the Kwinana site remediation.

Net additions to debt reflect short term borrowings related to inventory repositioning, which will be repaid when the sale of the inventory is recognized in the second quarter.

Now let's take a look at the key financial metrics for the first quarter. Return on equity through the first quarter was 21.9%, reflecting a strong start to the year. During the quarter, we returned $27 million in cash to stockholders through our regular quarterly dividend.

Free cash flow was negative $298 million for the quarter, primarily reflecting seasonal working capital build, capital expenditures and environmental and ARO payments, offsetting the quarter's strong EBITDA.

We finished the quarter with a cash balance of $1.4 billion and adjusted net debt of $1.8 billion. As announced on April 14, the company issued notice to redeem on May 15, the remaining $219 million outstanding on our 2028 notes. The notes will be redeemed at par value. This announcement is aligned with our goal to delever and further strengthen our balance sheet. We will continue with disciplined execution of our capital allocation framework where excess cash will be evaluated in competition between value-creating growth opportunities and additional returns to stockholders.

Now let's turn to the outlook. We have 2 updates to our 2026 full year outlook. Interest expense will decrease slightly to $135 million with the redemption of our 2028 notes in May. Additionally, our estimate for environmental and ARO payments has increased to approximately $360 million, up from $325 million to reflect the cash requirements from the announced agreements to modernize mining approvals framework in Australia.

For the second quarter of 2026 at the segment level, Alumina segment performance is expected to be unfavorable by approximately $15 million due to low price and volumes from bauxite offtake agreements and higher energy prices, primarily diesel associated with the Middle East conflict.

Aluminum segment performance is expected to be favorable by $55 million due to inventory repositioning actions taken in the first quarter, higher shipments and product premiums and lower production costs due to the completion of the San Ciprián smelter restart, partially offset by seasonally lower third-party energy sales.

Based on recent pricing, we expect second quarter benefits from high LME and Midwest premium pricing as well as higher shipments, but this results in higher Section 232 tariff costs on our Canadian metal imported to the U.S. We expect tariff costs to increase by approximately $35 million.

Alumina costs in the Aluminum segment are expected to be favorable by $20 million.

Regarding intersegment profit elimination. Any further decrease in API prices is estimated to result in no intersegment profit elimination. If API increases our prior guidance applies.

Below EBITDA, within other expenses, the first quarter of 2026 included favorable currency impacts of approximately $30 million, which may not recur. Based on last week's pricing, we expect the second quarter of 2026 operational tax expense to approximate $110 million to $120 million.

Now I'll turn it back to Bill.

Thanks, Molly. Let's begin with the Alumina segment dynamics. The current environment remains challenging with the Middle East conflict exacerbating margin pressure across global refineries. FOB Western Australia alumina prices stayed relatively weak through the quarter. At the same time, disruptions tied to the Middle East conflict including the closure of the Strait of Hormuz moves have pushed energy and freight costs higher while related demand losses are weighing on refinery margins outside of China.

Our alumina cost position provides resilience in a low price environment, and we have insulated ourselves from spot energy volatility through long-term contracts and financial hedges.

In China, pressure on margins has been more muted. Higher domestic alumina prices, lower bauxite costs and stable coal pricing, largely unaffected by the conflict have supported refinery margins. That said, we do expect costs to rise as the caustic market tightens and higher freight costs begin to flow through seaborne bauxite supply.

To date, in 2026, roughly 4 million metric tons annual refining capacity has been curtailed in China. With cargoes originally intended for Middle East smelters rerouting into China, we expect pressure on China prices in the near term. Forthcoming supply from new refinery projects in coastal China and Indonesia along with the weaker demand from the Middle East smelters will continue to weigh on the global alumina market through the first half of the year.

Finally, on bauxite. Prices remained weak through the first quarter on ample Guinea supply, Elevated freight rates related to the Middle East conflict lend some support to CIF China pricing despite soft FOB levels, and the market is now closely watching Guinea's export policy for the next directional signal.

Now let's look at the conflict in the Middle East and why it matters to the Alumina segment. The Middle East is the largest alumina importing region in the world with supply routes for raw materials heavily dependent on the Strait of Hormuz. Each year, roughly 8.8 million tonnes of alumina and 6 million tonnes of bauxite transit through the Strait. That changed on February 27. As a result of the conflict, more than 2.5 million tonnes of annual smelting capacity and nearly 2 million tonnes of refining capacity are offline year-to-date. That's a meaningful disruption to the global system.

Alumina refineries in the region are integrated with aluminum smelters. However, approximately half the region's bauxite requirements are imported from outside the Middle East. This structure leaves the regional [ aluminum ] system, particularly exposed to shipping disruptions and logistical constraints.

And it doesn't stop at bauxite and alumina, several smelters in the region also rely on imported anodes calcined coke and coal tar pitch. With transit through the Strait restricted, those materials are harder to move, raising costs and increasing uncertainty. Given the Middle East's important role in global green petroleum coke exports, these disruptions are already rippling through the global calcined coke market.

The takeaway is clear, structural dependencies in the Middle East means that disruption there doesn't stay local. It moves quickly through the aluminum value chain, tightening supply, increasing cost volatility and elevating risk well beyond the region itself.

Let's now move on to aluminum. LME prices rose approximately 10% sequentially and have continued to increase, recently exceeded balance and any further disruption in the Middle East has the potential to constrain supply even more. And that matters because the Middle East is the largest primary aluminum exporting region in the world. Disruptions to metal flows from the region are not only lifting LME prices, they are also driving higher regional premiums across [indiscernible], North America and Asia.

Higher oil prices and the resulting impact on raw materials are increasing production costs globally. But importantly, these cost pressures have been more than offset by higher aluminum prices. For Alcoa, our exposure to spot electricity prices is less than 1% of our electricity consumption, thanks to our long-term power contracts and financial hedges. That gives us real margin advantage in this environment.

These disruptions are occurring when the market was already tight, following the announced smelter curtailment in Mozambique and disruptions in Iceland. Aluminum inventories were already at historically low levels and have been further exacerbated by the disruptions in the Middle East. We expect global demand to grow sequentially this year, driven by ex China markets, albeit at a slower pace than previously anticipated as the conflict poses downside risks.

However, given the scale of supply disruptions, softer demand will be outweighed by supply impacts in the market. Underlying market conditions remain largely consistent with packaging and electrical markets leading demand growth, while automotive and construction remains soft. Most importantly, our core regions, North America and Europe, remain in substantial deficit and are particularly exposed to potential supply disruptions due to their strong reliance on imports from the Middle East.

Turning to our quarterly highlights. Value-add product volumes increased sequentially alongside of rise and customers reaching out to us across both North America and Europe as they look to domestic supply in the face of ongoing disruptions and heightened supply uncertainty.

North America and Europe regions are meaningfully exposed to Middle East supply, particularly for billet, slab and foundry products. In North America, roughly half of imports come from the Middle East. In Europe, reliance is even more pronounced in certain value-add products. Since the escalation of the conflict, regional premiums have moved materially higher. In North America, foundry and billet markets are experiencing an uptick in spot demand as customers look to backfill Middle East supply. Similarly, in Europe, demand for billet, slab and foundry is increasing, supported by the same driver.

The full impact of the supply reduction has not yet been felt by North America customers since most of the aluminum manufactured before the Middle East conflict is just reaching North America now. Overall, the current environment reinforces the value of secure, diversified supply and highlights the strategic advantage of Alcoa's regional footprint and ability to serve customers in our key regions with both primary metal and value-add products.

Let me step back and connect the dots. In volatile markets, it's easy to focus on the headlines. At Alcoa, value creation starts with disciplined execution, anchored in safety and operational strength, and that discipline is paying off.

First, safety. We're driving a step change in our safety culture across the company. By reinforcing critical risk management and increasing leaders' presence in the field, we are focusing on learnings and ultimately getting ahead of incidents. This is more than doing the right thing. It's also about operational excellence and reliability, resulting in long-term value.

Second, license to operate. In Australia, we've advanced our mine approvals with confidence. We've completed responses from the public comment, and we're working constructively with the WA EPA and the time line remains unchanged. Longer term, the strategic assessment will provide a clear pathway for operations through 2045.

And in Brazil, our partnership with government can use to support communities through social services and health care programs. This is how we build trust and keep it.

And finally, execution. ABS is delivering value every day. Disciplined execution, clear leadership, accountability are embedded in how we operate. That integrated performance framework is driving productivity, supporting full year financial targets, and helping us adapt quickly even in times of disruption. Here's the bottom line, a safer workplace, a stronger license to operate and disciplined execution. That's how we create long-term value.

Let me close with a simple summary, execution matters, and we're delivering.

In the first quarter, we got important things done. We strengthened safety, delivered strong operational performance and stayed agile in the face of disruption in the Middle East, all while continuing to support our customers.

We safely completed the San Ciprián smelter restart and we proactively managed the balance sheet by issuing notice to redeem our 2028 notes. This is disciplined execution in action.

As we look ahead, our direction is clear. We remain relentlessly focused on safety, stability and operational excellence. We will continue to be a trusted supplier of choice, supporting our customers even in times of disruption. The message is straightforward, consistent execution and steady progress on our strategic priorities. This is how we create long-term value at Alcoa.

With that, let's open the floor for questions. Operator, please begin the Q&A session.

[Operator Instructions] And our first question will come from Carlos De Alba with Morgan Stanley.

The first one is maybe can you comment on what is the impact of the Middle East smelters reducing operating rate for Alcoa's alumina shipments. I think around 30% of your annual shipments go to that region. So that will be great to get some color on how are you -- you kept your volumes unchanged for the year, but presumably, you are redirecting shipments to Asia or other regions. Any impact on profitability or margins as you do that?

Carlos, thanks for the question. We are working with our customers to redirect those shipments. As you said, we held our full year guidance consistent with where we were in January, and we're working with those Middle East customers who continue to take the product to redirect it. That's being redirected as you mentioned, mostly into Asia, largely into China.

Any comments on the potential impact on profitability?

Yes, Carlos. I mentioned that. So no direct impact from profitability. Obviously, our profitability in the alumina market is impacted by API pricing. And API pricing has declined. And so we -- our profitability in that segment follows the impact of API pricing, which you have sensitivity to in the back of the deck, but no impact other than that.

All right. Sorry. And just to confirm, as you redirect the shipments to China, the API pricing remains? Or would you be changing to a different pricing mechanism?

No. We still price based on.

All right. Good. And my second question, it would be on any problems at the progress that you have done on the gallium project in Western Australia?

We're making progress on the gallium project in Western Australia. We're continuing to work with the major stakeholders, which are the Japanese government, the Australian government and the U.S. government to finalize the documents, but I'm confident that we'll progress the gallium projects successfully.

The next question will come from Bill Peterson with JPMorgan.

Yes. Strong execution navigating and everything that's going on right now. Within the second quarter guidance of the Alumina segment, you mentioned that there's some unfavorable impacts of $15 million due to price as well as energy prices. I was hoping can you unpack us further how much is pricing, how much is energy. And maybe stepping back on the cost side, carbon products [indiscernible] were flag that's driving cost pressure, can you speak to where Alcoa most exposed on these fronts and how you're looking to mitigate?

Bill, I'll take your question. First, on the Alumina segment guidance, we are going down $15 million. Lower price and volumes from bauxite offtake agreements represent 10 of that $15 million. And then on the energy prices, that's primarily diesel within our mining operations.

On the raw materials in general, we do not have concerns at this point on supply. Our procurement and logistics teams have done a great job navigating the challenges of the conflict. We only have a small portion of caustic soda that we were sourcing from the Middle East, and that's already been redirected to alternate supply.

On the price side, in addition to that diesel price that we talked about, we do expect to have price increases in the second quarter. But because of the inventory lags, those purchase prices won't flow through to the P&L until beyond the second quarter. If you look at caustic, we do expect rising prices with the lower petrochemicals processing. That impacts chlorine production, which you know caustic is a by-product there. Caustic is on a 5- to 6-month lag. Carbon prices are also rising due to higher green petroleum coke availability and therefore, price. So we'll have some exposure there, but not within the second quarter.

We also have elevated oil prices that are impacting our freight. There's a portion of that, that will flow through, but it will be fairly small. A lot of the freight cost goes into inventory, again, the lag, so that will be experienced a bit later. And then we also have energy exposure within our [indiscernible] refinery. We have some indexed fuel oil there. But that, we have about under $5 million incorporated in the outlook even though we didn't call it out because it was too small.

Thanks, Molly. I would also -- and I'll reiterate a comment that Molly made. We have had tremendous teamwork with our procurement logistics and commercial team. When you consider the fact that we've had a conflict in the Middle East that has massive impacts on shipping schedules, and in addition to that, we had a cyclone that was nearly a direct hit in Western Australia, the teams have done a fantastic job of making sure that we don't stock out of anything across our entirety of our portfolio, have ships available for the shipping, which is a nontrivial task these days, and getting product to our customers. And in addition to that, as I alluded to on the CNBC call earlier, we are seeing a lot of spot order requests coming to us based on the fact that there is disruption in the Middle Eastern supply chain. And so both in Europe and North America, our commercial teams have been extremely busy trying to see whether we can match up our excess capacity with what our customers are needing currently.

And in fact, that last point leading my second question. You're keeping your production and shipment guidance for aluminum fixed, do you see any opportunities within your footprint to increase production in light of the shortfalls from the Middle East? Alumar, San Ciprián, I mean, any other sites that you can maybe get some more production to meet the demand?

So I'll address it from two directions. We're increasing smelting production at Portland. We're adding [indiscernible] in Australia. We're steadily increasing production in São Luís in Brazil. We've completed the restart at San Ciprián, which will have a full second quarter benefit versus the first quarter. And it feels like I'm missing one.

Small bit at Lista.

Lista, Lista. Thank you. We, a similar situation as in Portland, we've quietly restarting pots at Lista and getting that back to full production capacity. That's on the smelting side. But probably more importantly, what we're seeing today is on the value-add side. We are matching up some excess capacity that we have in places like Quebec and to some extent, in Europe with the needs of customers that have struggled given the supply chain disruptions.

Best of luck for navigating everything that's going on.

Thanks, Bill.

The next question will come from Katja Jancic with BMO Capital Markets.

Maybe just as a follow-up to the commentary about increasing production. I assume that is already in the guide or how should we think about it?

It is embedded in the guide that we've provided.

Okay. And then...

Sorry, that the upside there will be probably less prime P1020 production and higher value-add production, so higher premiums will be expected.

Which just to tag on to that, it makes, the fact that we repositioned metal in the first quarter is looking smarter today than it did even when we did it, because of the demand from, for value-add products. What that does is it allows us to free up our casthouses a little bit to create incremental capacity for VAP for our customers.

And maybe my follow-up question or second question. On San Ciprián, given that it's now restarted and in the current environment, do the operations, so both refinery and smelter, are they profitable in this environment?

The smelter is doing very well now that it has completed the full restart. Unfortunately, though, we're continuing to have significant losses at the refinery. And within 2026, the smelter will not generate enough cash flow to cover the refineries free cash flow losses.

We remain on our plan. We are meeting our commitments under the viability agreement, and we're working toward our objective of achieving net neutralization of our cash flows there by the end of '27. But at current pricing, the refinery remains very challenged.

[Operator Instructions] The next question will come from Nick Giles with B. Riley Securities.

Obviously, a lot of volatility. But Alcoa has the opportunity to generate a lot of cash and price environments like this and your net debt reversed a bit in 1Q, but you're ultimately nearing your targets. So how has the impact of the conflict changed the way you're weighing M&A versus shareholder returns could buybacks appear less attractive and M&A across refining appear more compelling just as one example?

So the conflict hasn't changed our capital allocation framework. And just to reiterate, and I know many of you have heard us say this over time, first and foremost, of the -- of our capital allocation framework is to sustain the operations that we have. It's even more important today than it's ever been given the margins in the smelting business.

Secondly, it's to maintain a strong balance sheet, and we have a strong balance sheet, but we've put out a range of $1 billion to $1.5 billion of target net debt, so we still have room to get into that. And then beyond that, we will balance between shareholder returns and growth opportunities. So short answer, no, the conflict hasn't changed that, and we'll balance those items.

Understood, Bill. My second question was just an update on the monetization of idle sites. If I heard you correctly, I think Massena East is furthest along 2 [indiscernible] in the work. Are terms being -- still being worked through on Massena East? And then should we assume that the highest value opportunities would be monetized first just when we kind of use your $500 million to $1 billion range, spreading that across multiple sites.

I'll address the second one first, and that is no. You should not assume that the highest value will be monetized first. This is -- as we've discussed in the investor conference that we had back in October, each one of these sites has set of parameters that you have to work with buyers on. And so in the case of Massena East, it is a buyer who we've worked in the past at the site, and that has accelerated the opportunity to sell the Massena East.

The next question will come from Daniel Major with UBS.

Can you hear me, okay?

Yes.

Yes.

Great. First question, just a follow-up on how well you're covered with respect to fuel and other energy input costs. You mentioned financial years and supply contracts. What's the duration of your -- of those financial hedges is the first question? And secondly, how much inventory do you hold in Western Australia, in particular in the scenario that supply out of refineries is constrained?

So before Molly gives you a more quantitative answer, I wanted to step back and make sure that everyone listening understands our major exposures to energy around the world. You all know that smelting is electricity intensive. And if you start with electricity we have less than of our total electricity needs that are subject to spot purchases. So that is the first and foremost largest energy use, and we have a very small exposure to spot.

If you then go to natural gas, as you know, we have rolling natural gas contracts in Australia. In Spain, we have hedged our natural gas exposure for the production that's running in San Ciprián, and we hedged that out through 2027, which in hindsight, again, looks really, really bright, given some of the volatility that we're seeing in energy in Europe.

Thirdly, you get the fuel oil, and we have some exposure to fuel oil in Brazil, but it's not significant, and Molly can give you the numbers. And then lastly, I would say we have diesel exposure. And we've baked in our best knowledge around diesel into the second quarter. Right now, we've got commitments from our suppliers that we will have diesel through the end of May. I don't know that they just -- whether they have the foresight to be able to commit past that. But at this point, we're feeling pretty good about our supply of diesel.

On our energy contracts, 99% of them are on long-term commitments or financial hedges, and they do differ by date as disclosed in the 10-K. Just give you a couple of the nearer-term ones, we will have an upcoming price negotiation in Iceland, that's for '27. And then we have our Canadian contracts coming up for renewal in '29. So the others are beyond those dates. And of course, we just renewed Massena recently. So we're set there for 10 years plus another two 5-year increments.

Okay. Just to follow up specifically on the diesel in Western Australia, you've got certainty on supply through to the end of May. Is that just what you said?

Yes. And that -- just to put that in perspective, we're very focused on diesel in Australia. We would typically have that type of line of sight. I guess what I'm suggesting to you is that we feel pretty confident about our diesel position in Australia.

We're a preferred customer there. So we have a long relationship with the supplier. They know we will be first in the queue.

Okay. That's clear. And then second follow-up, I know there's already been a couple of questions on the value-added products, et cetera. Can you give us a breakdown of the $55 million positive benefit in the Aluminum segment. Firstly, Yes. And then just on the comments on shipments versus premiums. What proportion of sales are exposed to the billet premium? And what assumptions have you embedded in the $55 million for premiums during 2Q?

I have some of those details, but not all of them. So in the $55 million that we guided favorable for the Aluminum segment, we have about $30 million of benefit coming from the inventory repositioning. It was actions that we took in the first quarter but will result in sales in the second.

Generally, higher shipments and product premiums together are $35 million. We'll have a better production cost after completing the San Ciprián restart. That will be about $10 million of the improvement, and then that's partially offset by seasonally lower third-party energy sales of about $20 million and that's split between our Warrick power plant resale and our Brazil hydro resales.

Very, maybe just one follow-up. So that $30 million reposition in inventory that's simply moving, that was the lower sales reflected in 1Q slipping into Q2? That's the correct thinking about it.

Yes, correct.

The next question will come from Alex Hacking with Citi.

I apologize if I missed this, but did you quantify the cadence of aluminum shipments as we head into 2Q given the deferrals from 1Q? Like what should the delta be there?

So Alex, if we look, of course, we had lower seasonal sales in the first quarter. But if we look at what was actually missed related to the Middle East shuffling as well as Cyclone Narelle, it was only about 60,000 metric tons. So a revenue basis of about $20 million.

Okay. And then second question, any update on the Canada Section 232? It seemed like we were making some progress last year, but kind of radio silence. Any comments around that?

Alex, no comments on specific 232 progress. As we go into USMCA negotiations during the course of this summer, we'll have to keep an eye on that.

Clearly, when the administrations, both the Canadian and the U.S. administrations talk to us, our position is we would like to see an integrated market across all of North America. That's our position. And that's because of the dedicated supply lines that goes from Canada straight to our customers in the U.S. So no real updates on any 232 changes at this point.

The next question will come from Glyn Lawcock with Barrenjoey.

Bill, I just wanted to go back to the mine approvals. Obviously, in your comments, you said there's no change to time line and you've been in discussions with the EPA. Just any red flags coming up at all? And maybe just remind us of the time line? Is it still end of this year for approval?

The time line is still -- and targeting ministerial approval at the end of this year. We have done significant work to ensure that the comments from the public comment period have been replied to, we continue to provide information to the EPA and in support of their decision-making process. And at this point, we are continuing to hold to an expectation of end of year -- ministerial approval by end of year.

Okay. And just as a follow-up, I believe there is another mine move beyond Holyoake iron ore, for the other refinery. Is that true in sort of what time line does that come through, if I'm correct?

My recollection is that there's Larego mine move in the early 2030s that will occur, but I just don't have it off the top of my head.

Yes, it will commence in late 2031 in the Largo move.

That's the move. So when would you start to apply for that? Is that like 2 or 3 years in advance as well?

We'd have to get back to you on that one, Glyn.

The next question will come from Timna Tanners with Wells Fargo.

I wanted to circle back on some comments that Bill made last quarter about substitution of aluminum for copper. And just curious if you have any observations on that dynamic given the change in prices and anything you're seeing on substitution away from aluminum given the rising prices as well?

Timna, thanks for the question. I'll give you a very [indiscernible] answer, and that is with copper pricing where it's at. There are still real good reasons to substitute into aluminum. Obviously, in this conflict, aluminum prices have gone up sharply, but we believe there's still good reasons to substitute into aluminum.

On the other side, on the margin, we have seen some small substitution out of aluminum into steel for applications that can do that. But the larger automotive applications because of their multiyear platforms, we've not seen that substitution yet. And then when you consider things like packaging, the alternative is PET. And with oil prices at the level that, PET would not look attractive to substitute out from aluminum.

Okay. Helpful color. And then I thought I'd try again on the capital location question. Obviously, in the last couple once dynamic has changed and potentially a bigger amount of free cash flow. So just any updated thoughts or any time frame when you might have any updated thoughts on allocation of that additional cash or use going forward?

So I'm excited. I'll let Molly comment. I get very excited about getting into our target debt leverage, our leverage ratios, our target debt level, and I get excited about that, and many of you have heard me say this before because I believe it ends up translating to the lowest WACC. And once you have the lowest WACC, you've got the highest firm value. So I'm excited by the fact that we're paying down debt as of yesterday.

In cash in the first quarter, we did see a large working capital build. We typically see that large working capital build. And over time, the working capital should come back out of working capital and into cash. So we will continue to delever and we'll get into that range. And to me, that maximizes firm value.

You took everything I was going to say, but I will add that as we look at our outlook for the second quarter and the second half of the year, we do see great benefits in cash generation, and we do expect to have growth options that will compete with shareholder returns in the rest of the year.

The next question will come from John Tumazos with John Tumazos Very Independent Research.

It's great that the Mid Eastern customers honor the contracts in this period of war and don't lay a force majeure, Are you able to help them resell the alumina or redirect the cargoes? Or do they do that on their own? And how do they do it, where the war disrupts about 400,000 tonnes a month and the shutdown of Mozal disrupts about 100,000 tonnes a month of alumina, so it feels like it requires great skill.

John, up until now, our customers are all honoring their commitments, and we assist them with timing of loading and shipping. So if they need flexibility around when ships can be loaded, we provide that flexibility. We will also provide flexibility around size of shipments. So if they need larger or smaller shipments to the best of our ability, we will do that. So it's a pretty dynamic, pretty fluid situation.

Molly and I just reviewed today all of the forward bauxite and all of the forward alumina shipments out of Western Australia. And looking at the lay days and making sure that the ships are coming in correctly. And so up until now, we've been able to do that smoothly, and we're doing that with by supporting our customers.

Super. So Kwinana was idled brilliantly a year or so ago and everything you've got now runs full.

Everything you have now is ramping back up to full. And the reason I say back up to full is, remember, we had cyclone, we've -- I know the people in Australia have forgotten it, but the rest of the world seems to have forget that we had Cyclone Narelle that was nearly a direct hit in Western Australia, shut down the gas system to a large extent in Western Australia. We curtailed our sites in Western Australia to conserve natural gas to be used in other parts of the community there. And we are now in the process of ramping both Wagerup and Pinjarra back up to full volume.

Spain, as we all know, runs at half volume. Spain is there to just support -- largely support filter restart. And Alumar has had a fantastic first quarter, had a fantastic fourth quarter on the refinery and knock on wood, the smelters got very good stability.

The next question is a follow-up from Nick Giles with B. Riley Securities.

Sorry if I missed this, but, can you clarify just how you're thinking about work in terms of restart. What would it take from here to, for you to move forward? And do you have any rough estimate for the CapEx requirements?

Yes. And in Warrick, I'm glad you asked the question because we talked about restarting capacity in Australia. We talked about the ramp-up in Brazil we're ramping up capacity in Lista and we just completed the ramp-up at San Ciprián. So you should be asking the question, what about those 50,000 tonnes at Warrick? First of all, the condition of the line in Warrick is pretty poor. And so the line that's been curtailed. So it will require about $100 million of capital, and we think it will be 1 to 2 years for that restart. And the reason is there are some long lead time items specifically around the electrical equipment that would be required to restart Warrick.

Now on paper, the restart of Warrick looks pretty positive at this point. However, what we're trying to really weigh is availability of short-term electricity, availability of long-term electricity and our ability to successfully run that plant at a 4-unit operation. And when I say successfully, do it safely. If you followed us long enough, you know that we were running 5 lines, we went down to 3 lines. Ultimately, we went down to 2 lines. We've restarted back to 3 lines. We have good stability, good safety there today. And so we'll factor all that into an analysis of a potential restart of that fourth line.

Very helpful, Bill. I really appreciate that. And if I could sneak one more in. Just on Section 232. I know there's really no updates on the metal tariff side, But there were some significant revisions the other week on the downstream. So I was curious kind of what you're hearing from your customers. Has there been any sensitivity to those changes? I appreciate it.

My understanding of the changes on 232 associated with the downstream allow the downstream customers in the U.S. to have a level playing field with imports. So my understanding is that that's been favorably received.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Oplinger for closing remarks.

Thank you for joining our call. Molly and I look forward to sharing further progress when we speak again in July. And that concludes the call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to JPMorgan's Industrial Conference. Really pleased to have the team from Alcoa here, and Molly Beerman here for the fireside chat.

Maybe starting off for those less familiar, can you provide a brief overview of the company's business, including the company's global footprint and vertical integration? And then there's a couple of things going on in the world that we might get to after that.

So thanks, Bill. Good morning, and welcome, everyone. So Alcoa is an integrated aluminum company. In 2025, we recorded just under $13 billion in revenue. We are organized in 2 business segments, alumina and aluminum. Within alumina, we have 5 bauxite mines, 5 alumina refineries. We mine about 40 million metric tons of bauxite in a year and about 10 million metric tons of alumina.

In our aluminum business, we consume about 40% of the alumina that we produce. We have 11 smelters. They are primarily located in markets that are close to our customer end markets. We run on 86% renewable energy. We have very little exposure to energy. We're on long-term contracts for the most part. We have a strong start to 2026. We're operating stably. We're progressing our strategic initiatives, and we are really looking to capitalize on the high metal prices and dropping that profitability to the bottom line.

Within alumina, we're focused on cost. We are in the first quartile for cost curve based on CRU. We believe we're well positioned to navigate some of the uncertainty going on now in the Middle East.

Okay. Maybe -- let's just go right there. So -- go ahead.

Sorry, I'm going to make a couple of comments on our outlook update for the first quarter. So far in the quarter, our operations are really performing well and maintaining stability. A couple of updates though. In alumina, our recently announced agreements to modernize the mining approvals framework in Australia included a post earnings adjustment charge of $19 million in the fourth quarter of $25 million. The benefit of that is non-recurrence in the first quarter '26 and that reduces our outlook of $30 million unfavorable to $11 million unfavorable.

We have 2 items to share on revenue. First, aluminum shipments for the quarter are expected to be approximately 30,000 metric tons lower than anticipated as we are proactively repositioning inventory into the U.S. to optimize margins and minimize tariffs. This is a timing difference and will reduce revenue in the first quarter by approximately $150 million and delay EBITDA recognition by about $30 million until sold to end customers.

This is not a sign of low demand. In fact, we are getting more inquiries from customers for the second quarter as well as for the second half of '26 related to Middle East supply uncertainty. This is the most economical way for us to reposition metal to meet this demand, and it is by vessel that takes longer than by rail. So we will have this delay in recognition in the first quarter.

Additionally, aluminum revenue will be lower by approximately $60 million due to the impact of increases in LME and Midwest premium on our metal linked energy contracts. Those are accounted against revenue. Typically, any unfavorable impacts from those contracts is offset by other revenues such as our energy sales, but it is not this quarter due to the elevated metal price. The impact on EBITDA is already incorporated in our sensitivities. So no adjustment is needed for EBITDA. So revenue will be overall higher with the LME, but we do give a portion of it back linked to our energy contracts.

Below EBITDA, currency gains and other income are $50 million through the end of February. At current prices, we expect the first quarter operational tax expense to approximate $45 million to $55 million. That's lower than our previous outlook as more profits shift out of our Alumina segment where we have a higher tax rate in Australia and Brazil and into aluminum where we have lower tax rates in North America and Europe. So thanks for that.

Off to a strong start in 2026, solid operations and good ability to drop higher prices to the bottom line.

Yes. Thanks for all those updates. A lot to digest. And as kind of alluded to earlier, there's a lot of things going on in the world. So -- with the recent the Middle East conflict as well as the reported and noted impacts in the Middle East smelters, you have [ Cadalum ] curtailment, you have Alba force majeure. What are the impacts on the aluminum and alumina markets? And where do you see the global fundamentals on aluminum and alumina?

If you look at the Gulf smelters, they are producing just under 7 million metric tons of aluminum. That's about 9% of the global supply. And if you exclude China, it's over 20% of the global supply. As you mentioned, Alba is curtailing about 40% of their capacity. EGA has not yet made any changes -- sorry, I'm getting them confused. Cadalum curtailed 40%. Alba is declared force majeure on shipments and just yesterday announced 19% curtailment. So their lines 1, 2 and 3 are coming down in a controlled manner.

So impact on production. Also shipments. The shipments are not getting out. We're seeing an immediate impact on the price, LME high, regional premiums higher as well. And then think about raw materials going into the Gulf smelter. So 2/3 of those smelters rely on imported alumina that cannot get in. One of the refineries in the region is fully dependent on external bauxite. So navigating the straight is having an impact there as well. All of this is showing up in heightened LME and regional premiums.

How should we think about the potential impacts of this conflict for your business, specifically the Alcoa bauxite and alumina business?

So we've announced we have long-term alumina supply contracts to both EGA and Alba. If you look at our total commitment of alumina into -- on long-term contracts into the Gulf, about 4 million metric tons annually. That's about 1/3 of our -- all of our alumina shipments moving into the Gulf. So lots of impacts there on the supply of alumina. That is clearly impacting the price of alumina. We're already in an oversupply situation, and you see the price pressure on API now, all of that supply that would have normally moved into the Middle East is now finding a home elsewhere will be, and most of that probably will move into China, putting more cost pressure on the Chinese refineries.

Yes. So how should we think about your order book, especially considering the recent conflict and all these events, coupled with high LME and regional premiums?

If you look at our aluminum order book before the conflict, we were characterizing the demand is very stable. With the markets that were strong in '25 continuing into '26. So primarily packaging, electrical, construction, non-residential also strong when you look at the build-out for data centers as well as renewable energy infrastructure. All of that has continued.

We're actually seeing an uptick in orders from customers and inquiries related to second quarter and the second half of the year because these were customers that are taking a portion or a majority of supply from Middle East smelters, and they're now worried about getting supply for the second half. So we do have additional spot orders coming in, and that should help us in the -- later in the year.

I want to pivot here soon, but I want to see if anyone has any questions, I guess, as it relates to especially the Middle East conflict before moving on. Okay.

I guess I could mention also just on the raw materials side. So far, we're not seeing impact, but we are expecting some price pressure there on raw materials. If you think about what freight costs are doing now with the heightened fuel costs, we will see impacts there if the war is prolonged.

Yes. And I guess some other people have had questions on, for example, obviously, smelting, these are pretty intensive -- power-intensive businesses, but I believe you're primarily hedged or linked to LME. Is there any concerns on higher prices in terms of power?

On natural gas, we have long-term contracts in Western Australia, so we're secure there. For our Spanish refinery, we have hedged through 2027, so no exposure there. On energy, on electricity, we do have long-term contracts, very little exposure. Spain was exposed, but we did the hedge last year. There, we have protection through '27 as well. So very little exposure in our operations.

Okay. So one of the concerns that the industry had, call it, 2, 3 years back was whether or not China would adhere to its 45 million ton per annum production especially in light of maybe the whole globe losing some supply. What are the risks that they may -- supersede that or maybe move to even build faster outside of China, for example, in Indonesia or other places?

So far, we see China complying with the 45 million metric ton cap. We have seen reports of some of the smelters there producing above capacity but they're not adding additional nameplate. They're simply running strong and producing at above capacity. We believe China will continue to build outside the country as they are in Indonesia and India, those projects are progressing. However, the demand for aluminum is so strong that we need that aluminum. The global marketplace does. So that's not a negative in our view.

Maybe even if China were to try to exceed -- my understanding is that maybe some of these have been off-line. What would it take to even bring on type of this type of smelting capacity in terms of time? How long would it even take to even get to the market if people wanted to restart idle supply?

Well, I'll speak to our smelter in Warrick, Indiana, where we have one line curtailed about 50,000 metric tons. For us, that would be a really long restart. Some of the equipment we've been idled since 2016. So we have long lead times on equipment there. We estimate it would be $100 million to restart that line at Warrick. It's something that we continuously look at. But right now, we have to secure energy for any restarts or build as everyone else does, that's difficult. And then looking at how long the tariff structure will be in place, and will you finish it in time then to have your payback depending on what happens with the tariffs. So we are hesitant to make decisions just based on a tariff structure in the U.S.

Yes. Well, maybe sticking on this. So the 50% Section 232 tariffs have been in place since the summer of last year. And I guess it's anyone's guess on how the upcoming USMCA negotiations may impact this. But as of now, can you speak to the impact of tariffs are having on Alcoa's businesses as well as maybe the U.S. market fundamentals broadly?

So for Alcoa, the tariffs are not harmful any longer. With the rise in the Midwest premium, they are fully covering the tariff costs on our Canadian tons and now seeing a margin even on those tons, so that part is favorable. And of course, if you look at our U.S. production, that's pure benefit from the high Midwest premium related to the tariff. So for us, we've not seen demand destruction in our businesses and our customers' businesses. So the tariffs have been favorable to us at this point right now.

When you look at the broader market, the market fundamentals for aluminum are really strong. Inventories are at a very low level. So they're not harming the situation. The metal is needed, the premiums are responding. Market fundamentals strong in terms of both demand and constrained supply.

Any expectations around USMCA or what may happen? Or what you're hoping for?

I'm not going to take any guesses there. We've been on this roller coaster thinking we're going to have a deal, not have a deal. So who knows?

Okay. Understood. Maybe shifting gears. So at the Investor Day from last November, the team discussed plans to monetize $500 million to $1 billion of assets this decade, I think, in part because there is insatiable demand for power and infrastructure. But where does this stand today? What sort of arrangements are possible? And what have you found to be, I guess, the most attractive components at these sites for any interested parties?

So we call these our transformation sites, and we have 10 priority sites. These are former operations, so former smelters and refineries and mine sites that we're now looking to monetize. So the former smelter sites have very interesting energy infrastructure. So your data centers, your developers, lots of interest there in those sites. We have a lot of interest, a lot of activity in assessing value. We have -- one of our efforts is coming to fruition now. I expect we'll be able to announce that one in the next couple of months. We have two more closely following that. These are interesting constructs, though, working with the data center developers. Unlike the previous practice was to simply sell the land.

We now realize we get a lot more value if we work with the developers. And now we're looking at cash upfront, possibly a stream of payments and then even cash on the end of the project because the developers want to turn them over to the hyperscalers. So very interesting and complicated constructs, but we're continuing to progress these efforts pretty rapidly, noting that how much demand there is now from the data centers for the energy.

I want to make one note on our -- on the goal that we set the $500 million to $1 billion as our target by 2030. That does not include our Kwinana property. So last year, we closed the Kwinana refinery. That's a site that we're really going to focus on the next 5 years and remediating, that site is a really attractive piece of land. It's near Perth. It's right on the shore. It has a port. It has railway. It's part of a much broader industrial complex. We believe that will be a tremendous value on top of the $0.5 billion to $1 billion that we're guiding to, but that one will come in the early 2030, so outside the range for our initial target.

Great. Thanks for that. So looking at the -- coming to your operations. So looking at the operating footprint today, where do you see the biggest opportunities for improvement? And mind you, there's been a lot of improvements that have been occurring over the past several years?

When we look at our business valuation, we recognize that the stability and continuous improvement in our operations is the biggest value driver we have within our control. So we do focus on that. Last year, we had record production at 5 of our smelters in one of our refineries. As we look at this melting portfolio, we're giving a lot of attention to our Alumar smelter. We were running profitably there. We have been on that restart path for a while. We have been running profitably there in the second half of '25. But in December, we did have some instability. And then on top of that, we were hit with 2 power outages back to back. And so we did lose control. We're now down to about 80% of production where we had been -- in about the mid-90% prior to that time. So ready to declare, victory on the restart when we had a stumble. We will continue to focus on Alumar this year. It has already been restabilized, and now we're working on adding the pots back and maintaining that stability. And 2026 was to be the year that Alumar focused on getting cost out, and we will continue those efforts.

In alumina, if you look at the refineries with the low API, we really are focused on costs there. Couple -- we always have this continuous improvement culture. We have our Alcoa business systems. If you look inside the WA mines, we're focused on our haul operations, looking at activities that will improve the fleet productivity, how do we schedule, how do we minimize idle time. So those efforts are underway. In refining, really focused on product recovery, optimization of contractors as well as spend controls there. So those are some of the efforts that we have underway. Also in the refineries, Alumar really solid production at the end of '25. And just focused on continuing that progress at Alumar to get unit cost down there and production up.

Maybe on Alumar, just -- I guess, on the smelter, how should we think about the ramp for the balance of the year coming off these outages?

Yes. So when we went down late in December, if you look at it sequentially, so between the fourth quarter of '25 and the first quarter of '26, not too much difference, but we will continue throughout '26 to add some tons back. And I think we'll see improvement there through each forecast, and we'll continue to give you some guidance on that as we move forward.

Great. So it's been a focus for some time now. But how is the ramp progressing at San Ciprián? And can you remind us of what cash burn looks like today and when or how you expect to achieve the cash neutrality?

So the ramp-up of the San Ciprián smelter is going extremely well. We're already over 90%, and we had said that we would be at full capacity by the middle of 2026. So absolutely on schedule there. We've got a great workforce, a really knowledgeable team there. The assets have been well maintained during their curtailment. So that is progressing very well. All we need now for San Ciprián is a long-term power contract. So we're hedged through '27, but we'll be looking at power options for that facility for the longer term.

So you just kind of spoke to it, but anything else that's necessary for long-term viability of the complex? And I guess, what's the soonest -- if things -- if push comes to shove, what's as soon as Alcoa could look to exit the business if it really did come down to that?

So under the viability agreement that we signed several years ago with the workers, we have to run the smelter through 2027, and that's why we've hedged the smelter and the power contract there. We would hope that by 2027, the smelter is operating profitably so much so that it's generating sufficient cash to cover the losses from the refinery. The refinery is very challenged. It's only running at half capacity now. It is supplying alumina to the smelter. We need that supply to run the smelter under the viability agreement, but the refinery's life is limited. We have a residue storage area there that we're doing CapEx work. That CapEx work will either prepare to continue to run or to close, but we do expect that we'll hit capacity at the residue storage area by the early 2030s. So we're looking at options for the refinery because the life is limited there.

We have a goal in the near term for cash neutrality. We really want the San Ciprián operations to not be consuming cash that we want to put into our other capital allocation priorities. So that's our initial focus, getting the smelter's cash generation to cover the refinery's cash losses.

Yes. So pros and cons, higher aluminum prices helping, but maybe challenges more on the refining side for alumina, okay. Maybe turning to Western Australia. You recently agreed upon a framework for modernizing the federal permitting process. Can you unpack this for us and how this differs from the ongoing efforts around state permitting?

We talk most about our state permits. So those are the permits that we're getting for Myara North and Holyoake and that will be our next major mine move into those regions. So from a state perspective, we're continuing to progress our approvals, and we do expect to have ministerial approvals by the end of '26. On the federal basis, what we announced recently was an agreement with the federal government under the Environment Protection and Conservation Act. I feel like I'm forgetting one of the acronym pieces, but the EPBC is what we call it. That framework really allows us to focus on how we will mine between now and 2045. So gaining great visibility to our long-term mining approvals and construct.

There are three pieces to that agreement. With the government, we are going to do a strategic assessment. That is where we review the mine plan with them through 2045. And we find out any constraints or limitations that gives us a lot more certainty then of how we move through the mine. We also received a national interest exemption that allows us the certainty of continuity of operations during the strategic assessment. And then last, we agreed to enforceable undertakings. This is basically a $36 million payment that recognizes our past mining and clearing practices. We had a view that we were -- our operations were in place well before the EPBC Act was enabled, and we were applying those previous provisions to our mining. Practices the federal government did not agree with us. So we agreed on the enforceable undertaking that cleans up the 7 years of past mining. And allows us really to move forward and pursue the strategic assessment. So for us, that was a good -- it was a good outcome. And if you think about the $36 million that applied over a 7-year period, a very reasonable amount. And those payments go to NGOs in Australia focused on research, forest conservation as well as the purchase of land offsets. So it really preserves the health and stability of the jar forest.

So I'm not sure what's remaining at this stage, but assuming you're able to move forward, what -- how should investors think about the potential volume as well as margin uplift. You talked about this maybe leading to a lower cost structure. So once you're able to access these new mining areas.

So when we move into the new mining areas for Myara North and Holyoake, we have a couple of improvements. With the low bauxite grade now, we're not producing even though we're putting the same amount of bauxite through the system, we get a reduced amount of alumina. So as we do the mine move, it take '27 and '28. But by 2029, we'll start to access the higher grade bauxite, and then we'll have the increased production. So we expect to pick up 1 million metric tons of alumina volume, so that's a nice uplift. And then also, we'll have savings of about $15 to $20 per ton when we start to process the higher-quality bauxite, we use less caustic soda, less energy consumption. So a lot of financial improvement when we're fully into the new mine region, and that will be the first full year would be 2030.

Great. So it was announce last year, but Alcoa has plans to build a gallium plant with the backing of the U.S. government as well as partners in Japan and Australia. Where does this stand? What are the key milestones? How much global supply will this account for? And I guess given the limited financial uplift, what's been -- and I think it may be obvious, but what is the strategic rationale for pursuing this project?

We are collaborating with the governments in the United States, Australia and Japan on the gallium plant. This will be an extension of our Wagerup refinery. So gallium is present in bauxite and it can be economically extracted during the alumina processing if you have the side facility for the gallium extracts. So that's what we're building. The Gallium plant will be co-located at our Wagerup facility.

We're working with the governments now to progress all of the agreements and to get production in place as soon as possible. While this is not a financial -- a material financial investment or exposure for Alcoa, we're really doing this at the request of the governments where we do business, particularly Australia and the United States. We recognize that they want to secure gallium supply for national security interests. And so we're honored to be providing that supply. The facility will produce about 100 tons of gallium. So really small, but that's almost 10% of the world's supply. So again, we're doing this because we want to honor the governments that host us and is strategic to the relationships with those.

And how should we think about timing for this project?

The timing, we're still working through. We're in heavy discussions with the partners and getting the formal legal agreements done, so we've not announced, but we are focused on getting it as soon as possible.

Great. I want to pause again and see if there's any questions before -- maybe over here. I can repeat it. It's a webcast. Go ahead. [indiscernible] The question is, can you give an update on the ELYSIS technology?

Yes. So ELYSIS had a great milestone at the end of 2025. So at Rio Tinto's Alma smelter, they brought up the first commercial scale cell and that ran well. They are going through kind of the debriefing now of all the learnings coming out of the cell. Alcoa is continuing to make pragmatic investments in the ELYSIS R&D. That work continues. It does take a long time on R&D. We don't have a view that we're going to do material investment in CapEx for ELYSIS at any point during this decade, but we remain committed to supporting the R&D efforts.

Great. Any further questions? Okay. Let's pivot to capital allocation and liquidity. So on capital allocation, the company has made major strides on improving the balance sheet to "position for growth." Where do we stand on this? Is this work complete?

So we've done a good job at the end of 2025. We reached the high end of our adjusted net debt target, which is $1 billion to $1.5 billion. We were able to repay some of our debt at the end of '25, about $140 million. We're doing -- looking at another delevering action. We've got about $220 million on other notes that are economically redeemable now. So a little bit more work to do on delevering. But as we think about our cash coming in and the position that we're in, in 2026, with the high prices, we do expect to generate cash. We will continue to look at opportunities for growth. We'll continue to look at the delevering that I mentioned. One caveat in the first quarter, we always consume a lot of cash for working capital build. We'll see that. But I would think for the rest of the year, we will be well positioned to have our growth opportunities competing with returns to shareholders for excess cash.

So I guess, how should investors think about the potential excess cash from asset sales as well as the Ma'aden shares over the next few years competing with between disciplined growth and maybe shareholder returns, which ultimately may be accelerated given where we are with pricing and your cash generation ahead?

Yes. So any of those proceeds either from the transformation asset sales or any modern monetization will come into our capital allocation framework. We talked about having the three prongs of capital allocation. So portfolio actions, returns to shareholders and growth projects. We're glad to announce that we don't have too much left to do on portfolio. So it really is the two returns to shareholders and growth projects competing. We would not look at growth projects that don't exceed our cost of capital. So that's a priority for us.

We look at both organic and inorganic opportunities. We're looking at -- when we look at the creep projects and the projects that we're doing internally, we're looking at where do we have expertise and capabilities that we want to further leverage? Where do we have a customer need because we simply don't want to build capacity if it's not to serve a customer. One example here is we're doing work to evaluate an expansion in Norway, directly tied to using more recycled content for our auto customers. But again, that is a project that would well exceed our cost of capital.

When we look at M&A, we're looking at items that are in our industry, where we're using our expertise. We're not going to go into base metals. We're not going to go downstream. We're looking for opportunities where we can derive the synergies and provide value for the shareholders that you can't get on your own. So that's where we would focus in the M&A space.

So you kind of touched on -- it just now with your comment around Norway, is there any opportunities in the low carbon front to invest in? You mentioned ELYSIS maybe more of a next decade thing, but your Eco line of products, where does that stand? And is that an area of investment as well?

Yes. We have many offerings of low-carbon products across both alumina and aluminum. They continue to be a focus for us, even though maybe some of the draw on the low-carbon projects, I think, is temporarily not as interested for us. It's still a long-term commitment. Our operations are well positioned, running on renewables, as I mentioned in the smelting discussion, 86% renewables, even in our refining, we're using natural gas. So we are naturally producing low-carbon products. It will continue to be an emphasis for us. And we look at opportunities to decarbonize our operations. We don't do that just to decarbonize. We're looking for -- to both decarbonize and to get a return on those efforts, though as well.

As we get closer, I just want to make sure if anyone has any questions. Okay. Maybe just as we wrap up, so obviously, a lot going on in the world, but companies made really great strides over the last few years, but is there any final thoughts you'd like to leave investors today, things that are maybe misunderstood or just other factors that investors should think about as part of the process?

Just we're performing well in 2026, really strong operations. It's going to be our focal point. We want to take advantage of the high metal price, drop that to the bottom line. And we'll continue on our strategic initiatives. So the transformation asset sales, progressing San Ciprián, our WA mine approvals. So we're continuing the momentum from 2025 and really look forward to a strong 2026.

Well, appreciate you sharing your insights, and good luck to the team with the operational performance as well as navigating these turbulent times. So Molly, thanks for supporting the conference and look forward to following the progress.

Thanks, Bill. Thanks to all of you.

Hi, everyone. Next up, we have Alcoa, which is one of the leading aluminum and alumina producers globally...

One of?

The leading. with us today is CEO, Bill Oplinger. We will do this as a fireside chat. But before we start, I'll turn it over to you, Bill.

Sure. Thanks, Katja. So hopefully, you know Alcoa. If you don't know Alcoa, we're, I believe, the leading aluminum company in the world, vertically integrated global company. We mine around 48 million metric tons of bauxite on three separate continents. We refined 10 million metric tons of alumina. And we smelt 2.5 million metric tons of metal. So we're all over the world, and really, as we go into 2026, there's a couple of things that I'd like to convey to you in today's presentation. We have a strong balance sheet going into 2026. Our balance sheet over the last number of years has been significantly improved. Pensions are under control. Net debt is at the target -- at our top end of our target range. Operations ran well in 2025.

So we're entering 2026 with strong operations. We're driving -- dropping metal price to the bottom line. And so aluminum prices are strong currently and you're seeing that in our financials. In alumina, we have a large alumina business. Alumina prices are very low currently. So we're working on driving costs lower and focused on overall costs picture for alumina business. Alumina prices are very low currently. So we're working on driving costs lower and focused on overall cost picture for alumina. Secondly, in 2026, we're planning on executing on our key strategic initiatives. We're in the midst of ramping up our Spain operations. That's at around 80%. We have a target of delivering $500 million to $1 billion of proceeds from select asset sales, especially in our curtailed assets. We will have that first sale, we believe, in the first half of 2026. That will be a curtailed site that we will repurpose for a data center installation, and we anticipate that to be in the first half. And thirdly, we continue to make progress on our permits in Australia. And so we anticipate that we will have our Part IV approvals in 2026. So we continue to make progress there. That's critically important that, that gets completed in 2026. So exciting times, exciting times for Alcoa, and it looks like 2026 will be a strong year.

[Operator Instructions]. But maybe starting with the Western Australia permitting. Last week, you announced that you agreed with the Australian government to further modernize the approval framework. Can you talk about why that is important?

So it's critically important. We -- you've probably heard often around the permitting process that we are going through for our two new mine locations, North Myara and Holyoake, that -- we've had the discussion publicly around the -- really the state permitting process in Western Australia, that's called a Part IV Permitting Process. That's what we anticipate should be result solved in 2026. What we announced last week is around the federal permitting process. So there's three components to the announcement last week.

The first is what's called a strategic assessment. That strategic assessment will be an assessment of the impacts of our mining operations on the mining locations that we anticipate entering through 2045. And that strategic assessment will be run with the federal EPA and that will be done over the course of 18 months. The second component is what's called a national interest exemption. That national interest exemption allows us to continue to mine at Huntley and Willowdale for the next 18 months.

And the third is what's called an enforced undertaking. Enforceable undertaking is an agreement between us and the federal government that reconciles our view with their view around past potential breaches. We assert that we've not breached the federal legislation. And as part of that, we have agreed to a $55 million Aussie payment in part to three NGOs, another part to buy land offsets. So that's the key of the three parts of the announcement from last week.

Perfect. And you mentioned the process continues on the new areas. Are there any -- does this agreement change that in any way?

No, this agreement doesn't have any impact on the Part IV approvals that we continue to seek. And many of you know, we went through a public comment period. And we -- as I said, we still anticipate having those approvals by the end of 2026.

And I think the EPA is supposed to put their side out by June, if I'm not mistaken?

I'll let the EPA speak for themselves. Our anticipation is that we'll support them with all the information we possibly can, as quickly as we can in order to achieve a 2026 approval.

And then kind of moving back to the bigger picture of the markets. You mentioned aluminum is healthy. The price, alumina not so much. How are you thinking when you look at the rest of the year? Do you think -- are there any moving pieces on the aluminum side that could impact the pricing and any potential catalyst on the alumina side that could help the pricing there?

So let me just really quickly run down supply demand globally, both on alumina and aluminum. And I'll start with aluminum. If you take a geographic perspective and then I'll drill down into submarkets. If you look at it from a geographic perspective, North America continues to remain strong. Europe continues to remain steady, which isn't bad.

And then on top of that, and that's really on the demand side. On the supply side, we continue to see that the Chinese are sticking to the 45 million metric ton GAAP. I know it's a question that many investors have of us. We see them sticking to that cap, and they've stuck to it over the last 4 or 5 years, which is really important for the aluminum industry. Then if we continue down the path of supply, we are seeing Indonesia ramp-up. So we're seeing an additional, we believe, 450,000 tons of Indonesian capacity come online on an annual basis in 2026.

However, a big piece of that will be offset on a year-over-year basis by the potential for Mozal to be curtailed, and you'll have to ask South 32, whether they still think that will be curtailed, but we have that baked into our numbers and the impact in Iceland from the centric curtailment. So a lot of that new capacity coming online is going to be absorbed through those two curtailments. We see demand being strong. And if I then drill down into the submarkets on demand, and I kind of sound like a broken record over the last couple of years. North America, we see strength in packaging, very good packaging market. Electrical conductor is very strong from a rod and bar perspective.

Construction is maintaining, right? So potentially, if we see lower interest rates towards the end of 2026, we could see an uptick in -- an uptick in construction. And then on the automotive side, it's the only place that we're seeing weakness in North America, is in automotive. Specifically in the foundry markets. And then Europe, to some extent, is a mirror of that. We continue to see good strong packaging demand. Building construction is steady. It's not falling. And automotive is weak. It's probably a little bit weaker in Europe than it is in North America.

So when you step back on the aluminum side, it shapes up to be in balance, if not in a slight deficit for 2026 again and global inventories are pretty low. Now let's transition to alumina. It's a little bit different story on the alumina side. We have seen Indonesian capacity ramp up on refining. The Indonesian smelters have not ramped up nearly as quickly. And therefore, we have an excess of alumina. We have a surplus of alumina in the world. Alumina is very price sensitive to inventory levels because it's hard to store a large quantity of alumina. So when you have a surplus, alumina prices fall.

However, globally, we think that around 50% of the global refineries are cash negative today, now it's a very flat cost curve. But at some point, when 50% of an industry is cash negative, you will see curtailments. I can't say when you'll see curtailments. They won't be coming from Alcoa, because we have fairly low cost assets. But we would envision that there are parts of the world that will curtail. I think roughly half of the refining capacity in China is cash negative at this point and we'll see whether they do something about that coming out of Chinese New Year.

And you mentioned the North American market, which is very healthy right now. Are you not seeing -- given how high the price of the aluminum in the U.S. market specifically. Are you hearing any pushback from customers? Or there could be demand destruction because of it?

We are not seeing it. And we haven't seen it. And so as I ran through the submarkets, we see strength. And at this point, we're not seeing demand destruction.

And then specifically to the Midwest premium, it's -- it more than covers the cost of tariffs right now. Can you talk a bit about what's driving that? And is there a risk that this is going to attract more imports into the U.S. market?

I think the answer is yes. Yes, it will attract more imports. We, along with other companies are always looking at the profit impact of either importing into the United States or importing into Europe. Today, the Midwest premium is high. It covers the tariffs. It's higher than just covering the tariffs, and we think that's representative of the strength of the demand that we're seeing in North America. That strength pulls the Midwest premium up. And as you arbitrage between where you're going to ship, that strength also pulls up the Rotterdam premium.

Now the Rotterdam premium, we also believe is being positively impacted by CBAM. It's hard to say how much of the Rotterdam premium increased has been driven by CBAM, but we estimated that we thought CBAM would drive around a $40 per ton increase in the Rotterdam premium and we've seen Rotterdam premiums increase since the beginning of the year.

And then maybe shifting gears to the asset monetization that you spoke about. You have a target of 500 million to 1 billion over the next 5 years. You're in ongoing discussions with -- about the sales. Has these discussions changed anything in how you view the longer-term opportunity?

They haven't changed since the last time we talked, Katja, but our view has changed slightly. Historically, for closed and curtailed assets, we were always looking at selling those assets to maximize value and minimize the liabilities. What has changed over the last couple of years, obviously, stating obvious, is the advent of AI and the data centers. What we're really trying to understand is the value in a data center world or an AI world of our individual sites.

We have 10 sites currently that we're focused on selling into that space. We think we'll have that first sale in the first half of this year. There are two that could quickly follow after that. And the difference, as I said, is really focused on where is the value in that chain and how do we make sure that we capture the right value for the asset that we're giving up. And each site has its own variables, right?

And so if you look at some of the closed and curtailed sites, what a developer is looking at is how close are they to major metropolitan markets? What's the temperature level, right, if it's a cold area? How much access to megawatts of power that they have and what infrastructure is in place currently? So those are all the things that get baked into a decision. And in each one of those, we're going to try to maximize the value.

Then moving to capital allocation. You mentioned a very healthy balance sheet, which gives you a lot of optionality and excess cash is going to compete between growth and shareholder returns. Can you talk about what potential growth opportunities you could have? Or what would you like to grow?

So on the organic side, we have very targeted growth opportunities on the organic side. So we will look at investments in our cast houses around the world where it supports a direct near-term customer need. So for instance, in Europe and in Norway, we are looking at opportunities to add scrap into the mix in Norway for our customers who demand recycled content. And so that is an example of a very targeted return-seeking investment that would have a customer contract backing it up.

So we'll be looking at those type of opportunities in all three parts of the value chain: bauxite, refining and smelting. On the inorganic side, we will look at opportunities from an inorganic perspective. But what we will do is on inorganic opportunities, we'll be very disciplined, and we will only make an investment in an inorganic opportunity where we can unlock synergies that shareholders can't unlock on their own. So there has to be direct cost synergies between us and someone else in order to do an inorganic opportunity.

And then this question comes a lot is, would you -- let's say, beyond that on the shareholder return side do you have preference for dividends or share buybacks?

It is such a difficult calculation to do. And clearly, the strength of our balance sheet, if you assume that metal prices stay where they're at, we should have very -- we had strong cash generation in 2025 that allowed us to pay down debt in 2026. Metal prices and the environment stays where it's at. We should have strong cash generation again. We are at the top of our debt target. We didn't give a single pinpoint on debt target. We gave a range. The reason why we gave that range is that we will come into that range.

So the first priority, again, this year is to continue to pay down debt into that range. And then as you mentioned, kind of the next two priorities, and we'll look at, not necessarily in these order is growth and returns. And then on the return side, we've had some robust discussion over the last 24 hours around whether that looks like share buyback versus a special dividend. We'll run the sums, make a recommendation to the Board and go from there.

And maybe kind of back on the organic growth side. Would you look at building on the smelting side?

We don't have any active projects currently for building on the smelting side. So we don't have any greenfields, any substantial brownfields.

Have there been any further challenges there?

So we had a great 11 months in Brazil in 2025. We had gotten that site up to 93%, 94% capacity. In December, we had a series of power outages that caused instability in the plant. And I'm not going to blame it exclusively on the power outages. We have some opportunities around building the knowledge that we have in Brazil and some equipment reliability. That has taken Brazil down to about 80% today. We're ramping back up. We're seeing that over the last couple of weeks. I follow it on a daily basis. We're seeing it on the last couple of weeks. We're ramping back up, getting better stability. And like I said, we're at about 80%. Keep in mind the smelter in Brazil did hit profit in the second half of last year. So it's still contributing to the bottom line.

And then San Ciprian restart continues by midyear. It still feels like it's going to be, this year, a drag on earnings. Are you still comfortable in saying that by '27, you're trying to neutralize, yes? Is there potential opportunity to speed up given the pricing environment?

So I'm comfortable saying that it is our plan, our target to be -- to have cash neutralization in 2027. We're not there yet. The smelter is ramping up very nicely and really kudos to our local labor force there that we're at about 80% ramp-up on the smelter. The refinery is running at around 50% capacity. The broader issue in San Ciprian, and I think everyone knows this, is the energy situation in Europe. Historically, that plant has been a very well-run plant. After the Ukraine war, energy prices spiked in Europe and energy prices haven't completely come back down yet. So we're focused on the cash neutrality position for 2027. We're doing everything we can to get to that spot.

And then can you talk about the longer-term plans there?

So the longer-term plans are to make that a competitive asset, a viable asset. And today, the refinery really struggles. And with alumina prices at $305, their cost structure is substantially higher than $305. Also keep in mind that there's a residue deposit area that will run out of capacity in the early 2030s. So there's more work to be done strategically to try to make that a viable asset for the long term. The smelter is all going to come down to, can we get an energy contract that will make it competitive globally? That's a tough spot right now. Energy in Europe is not global -- it is not competitive for global smelting.

Are there any signs that, that could change at all? Are there any plans from the government side?

I'll tell you, Katja, we're focused on what we can control, and that is run the plant safely, stably, improve on a day-over-day basis, continue to test the market around energy. I can't control energy prices in Europe, but we'll try to make it a viable site so that if we get the ability to get energy to make it successful, we will.

And then one question we get here and there is about potential end of Russia-Ukraine war.

Potential?

End of Russia, Ukraine war. How you think that could impact the aluminum market?

I don't think it impacts overall supply and demand. The Russian metal has found places to go around the world. just really high-level numbers before the war, Russia was making about 4 million metric tons. We believe Russia is still making about 4 million metric tons. Approximately 2 million of it is going into China. One is still going into Europe one way or another, and one is being consumed in Russia.

So let's say, in a very happy situation. We have Russia and Ukraine war resolved we see those trade flows probably changing, but the overall supply demand doesn't change. So what does that mean? Underlying LME price probably shouldn't be impacted by it but we do see that premiums, both value-add premiums and Rotterdam premiums could go down as some of that metal comes into Europe and doesn't go to China. So that's the view.

And then there's a lot of discussion about AI and data centers from a demand perspective. But can you maybe talk about, is Alcoa using AI within your own operations?

We are. We're probably like a lot of your industrial companies. Where we're using AI? First of all, is we've had a rollout of AI with our white-collar workforce. Anyone who wants to have access to Microsoft Copilot can have access to Microsoft Copilot.

Secondly, we're rolling out agents within Microsoft Copilot anyone who wants to develop an agent can develop agents that Agentic work is continuing to go at the headquarters level and at the sites. And then at the plants, we're boiling up use cases. We have around 80 use cases around the world where we're prioritizing those use cases to see where we can get the best bang for the buck.

Some of the very exciting opportunities that we have are around maintenance planning and actual maintenance work, an exciting opportunity around anticipating anodes effects. If you can anticipate anodes effect by a minute, you can stop that anode effect from happening in places like Norway. If you can do that, it actually has both greenhouse gas benefit, but a financial benefit. Because you're not emitting as much greenhouse gases. So we're not spending a huge amount of money. We're being very selective. But yes, we're using it.

It is going to be an eventful year. A good year. Is there any last thing you would want to say to investors?

I think it's an exciting time to be an aluminum company. I've said that for 26 years now. So take that for what it's worth. Supply/demand is in good shape on metal. I think alumina, some changes will happen in the market. We have a much better balance sheet than we've ever had. That gives us tremendous flexibility, whether that's for growth or returns to shareholders. So we're excited about what 2025 was and going into 2026.

Perfect. Bill, thank you so much for being with us.

Thank you.

Good afternoon. and welcome to the Alcoa Corporation Fourth Quarter and Full Year 2025 Earnings Presentation and Conference Call. [Operator Instructions]. Please note this event is being recorded.

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. 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 the company's actual results to differ materially from these statements are included in today's presentation and our SEC filings.

In addition, we have included some non-GAAP financial measures in this presentation. For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation. We have not presented quantitative reconciliations of certain forward-looking non-GAAP financial measures for reasons noted on this slide. Any reference in our discussion today to EBITDA means adjusted EBITDA.

Finally, as previously announced, the earnings press release and slide presentation are available on our website. Now I'd like to turn over the call to Bill.

Thank you, Louis, and welcome to our fourth quarter 2025 earnings conference call. Today, we'll review our strong fourth quarter results, discuss our markets and review the progress we've made on strategic initiatives.

Let me begin with safety. Across all operations, our teams mobilized to strengthen fatality risk management at the front line. Our safety incident rates remained stable in the fourth quarter with fewer significant incidents in the second half of 2025. For the full year 2025, both our DART and all injuries rates improved compared to 2024, evidence of our continued progress in building a safer workplace.

In the fourth quarter, we delivered strong operational performance and stability, achieving annual production records at 5 of our smelters and 1 refinery. This includes achieving a remarkable 16 consecutive years of increased production at our deschambault smelter in Canada, along with 8 consecutive years of record performance at our Mosjøen smelter in Norway. These additional tons contributed meaningfully to our bottom line as we delivered robust financial performance and cash generation in the quarter, which Molly will discuss in more detail.

We also improved our shipping performance in the fourth quarter across both segments with the higher aluminum shipments enabling us to deliver strong primary aluminum prices to the bottom line. The restart of the San Ciprián smelter is progressing well, with approximately 65% of the capacity in operation at the end of 2025. We continue to expect that the restart will be completed in the first half of 2026 as previously communicated.

We move forward on strategic initiatives in the fourth quarter. To name a few, we progressed negotiations on monetizing a transformation site in the U.S. and are expecting to reach an agreement in the first half of 2026. As we've discussed before, we are not simply monetizing former operating sites as land sales, we are working closely with developers to maximize value. We have multiple sites under discussion now.

In November, ELYSIS announced the successful start-up of its 450 kA inert anode cell. This represents a major milestone for the ELYSIS R&D program and a defining moment in the transition towards large-scale, low-carbon aluminum production. The design cell is part of a multiyear R&D program focused on developing inert anode technology at commercial scale.

We also advanced our Western Australia mine approvals by progressing our responses from the public comment period and continuing to work with stakeholders. We still anticipate ministerial approvals by year-end 2026 in line with the time line previously shared at Investor Day.

In summary, Alcoa closed the fourth quarter with strong operational and financial performance, supported by improved safety results and record production across multiple assets. Our momentum continues with progress on the company's strategic initiatives aimed at creating further value in 2026.

Now I'll turn it over to Molly to take us through the financial results.

Thank you, Bill. Revenue increased 15% sequentially to $3.4 billion. In the Alumina segment, third-party revenue increased 3% as higher shipments of both bauxite and alumina more than offset lower alumina prices. In the Aluminum segment, third-party revenue increased 21% on an increase in average realized third-party price and higher shipments across the segment. Fourth quarter net income attributable to Alcoa was $226 million, versus the prior quarter of $232 million, with earnings per share down slightly to $0.85 per share.

When you look at the GAAP income statement for the fourth quarter, there are several notable items. First, research and development expenses are negative $11 million in the fourth quarter. Beginning in 2025, Norway's CO2 compensation scheme included a requirement for recipients to spend 40% of the compensation received on emission reduction and energy efficiency measures. During the fourth quarter, Alcoa met the requirements and recognized $25 million as a reduction of the related R&D expenses. These impacts within EBITDA will not recur in the first quarter of 2026.

Second, below EBITDA, we recorded a noncash charge of $144 million to impair goodwill in the Alumina segment, primarily related to a 1994 acquisition. We perform an annual goodwill impairment assessment and current Alumina prices do not support this valuation. There is no goodwill remaining after this charge, and it is considered a special item.

Third, interest expense is lower in the fourth quarter. This reflects a benefit of $23 million related to recognition of capitalized interest on certain capital expenditures from prior periods. Last, we recorded a tax benefit of $133 million from the reversal of a valuation allowance on deferred tax assets in Brazil, mainly due to improved profitability at the Alumar refinery. Changes in our discrete tax items such as this are consistently reflected as special items.

On an adjusted basis, net income attributable to Alcoa was $335 million or $1.26 per share, excluding net special items of $109 million. Notable special items include the goodwill impairment charge of $144 million, a mark-to-market loss of $70 million on the Ma'aden shares partially offset by $133 million from the tax valuation allowance reversal. Adjusted EBITDA was $546 million.

Let's look at the key drivers of EBITDA. The sequential increase in adjusted EBITDA of $276 million is primarily due to higher metal prices, driven by increases in both the LME and the Midwest premium. The Alumina segment adjusted EBITDA decreased $36 million primarily due to lower alumina prices partially offset by higher shipping volume of both bauxite and alumina and the non-recurrence of adjustments to asset retirement obligations recorded in the third quarter.

The Aluminum segment adjusted EBITDA increased $213 million, primarily due to higher metal prices, lower alumina costs as well as the recognition of CO2 compensation in Spain and Norway. These impacts were partially offset by increased tariff costs based on higher LME and higher production costs. Outside the segments, other corporate costs decreased and intersegment eliminations changed favorably primarily due to a lower average alumina price requiring less inventory profit elimination.

Moving on to cash flow activities for the fourth quarter and the full year 2025. We ended December with a strong cash balance of $1.6 billion. In the fourth quarter, we used cash from improved earnings and the release of working capital to repay the remaining $141 million of the 2027 notes and to fund sequentially higher capital expenditures. This reflects the strength of our aluminum portfolio and our ability to deliver elevated metal prices to the bottom line. Recall that we received $150 million of cash when the Ma'aden transaction closed in mid-2025 to cover taxes and fees. We have not yet received the final capital gains tax invoice so we now expect that payment to occur in the first quarter of 2026. As typical, capital expenditures and environmental and ARO payments are our largest uses of cash in 2025.

Now let's cover the key financial metrics for the fourth quarter and full year. In 2025, the company delivered improved performance on key cash flow and return on equity metrics and close the year with a strengthened balance sheet. Return on equity for the year was 16.4%, the highest since 2022. During the year, we returned $105 million to stockholders through our $0.10 per share quarterly dividend.

Free cash flow, including net noncontrolling interest contributions was $594 million for the year, including fourth quarter free cash flow of $294 million. The reduction in working capital contributed significantly to free cash flow generation in the fourth quarter with days working capital decreasing sequentially by 15 days to a level similar to the fourth quarter of 2024.

We finished the year at $1.5 billion of adjusted net debt, reaching the high end of our target range of $1 billion to $1.5 billion. While this is an important achievement reflecting strong financial performance, it is important to reinforce that our goal is not only to reach this range but to remain within it through the cycles. We have historically consumed cash in the first quarter, mainly due to increases in working capital. We will be mindful of the cash position in the first quarter of 2026 as we continue with disciplined execution of our capital allocation framework, prioritizing debt repayment and evaluating opportunities to create additional value for our stockholders.

Now let's turn to the outlook. For the full year 2026 outlook, we expect alumina production to range between 9.7 million and 9.9 million tons and shipments to range between 11.8 million and 12.0 million tons. The decrease in shipments reflects lower sales of externally-sourced alumina to satisfy certain customer commitments and lower alumina trading volumes. The aluminum segment production is expected to range between 2.4 million and 2.6 million tons and shipments are expected to range between 2.6 million and 2.8 million tons, both increasing primarily from the San Ciprián smelter restart.

In EBITDA items outside the segment, we expect transformation costs to be $100 million increased from last year primarily due to the inclusion of Kwinana holding costs for the full year in 2026. Other corporate expense will increase to approximately $160 million.

Below EBITDA, we expect depreciation of approximately $630 million. Nonoperating pension and OPEB expense is expected to be up slightly to $35 million. Interest expense is expected to approximate $140 million. For cash flow impacts, we expect 2026 pension and OPEB required cash funding to be slightly lower compared to 2025, around $60 million. The majority of that spend is for the U.S. OPEB plan.

Our capital returns to stockholders will continue to be aligned with our capital allocation framework. Our capital expenditure estimate is $750 million, with $675 million in sustaining and $75 million in return seeking. The sustaining capital increases $97 million over 2025, primarily due to a $65 million increase related to upcoming mine moves in Australia as well as higher spend on impoundments and anode bake furnace rebuilds. At our Investor Day last October, we indicated the potential to pursue government support for some of our capital spending that would reduce our overall CapEx. That work is progressing well, but we do not yet have confirmations to share.

Net payments on prior year's income taxes are expected to be approximately $230 million including our estimate for the [ modern ] capital gains tax. Environmental and ARO spending is expected to increase in 2026 to approximately $325 million primarily due to progress on the Kwinana site remediation. We do not provide guidance on full year cash restructuring charges.

For the first quarter of 2026 at the segment level, in alumina, we expect performance to be unfavorable by approximately $30 million due to typical first quarter impacts from the beginning of maintenance cycles and lower shipping volumes along with lower price and volume from bauxite offtake and supply agreements. In the aluminum segment, we expect performance to be unfavorable by approximately $70 million due to the non-recurrence of Spain and Norway CO2 compensation credits recorded in the fourth quarter as well as additional operating costs associated with the restart of the San Ciprián smelter. Alumina cost in the Aluminum segment is expected to be favorable by approximately $40 million.

Below EBITDA, within other expenses, the fourth quarter of 2025 included unfavorable foreign currency impacts of $20 million that may not recur. Based on last week's pricing, we expect the first quarter of 2026 operational tax expense to approximate $65 million to $75 million. Our sensitivities have been updated for our view of 2026. Please see the appendix.

Now I'll turn it back to Bill.

Thanks, Molly. Let's begin with the alumina industry dynamics. FOB Western Australia alumina prices remained within a relatively narrow range and ended the year slightly lower than the third quarter average, continuing to pressure higher-cost refineries. On the supply side, we have not seen large scale curtailments announced to date. The Chinese government's continued emphasis on the orderly operation of the alumina industry as stated in the NDRC's December policy statement combined with refineries' efforts to maintain stable production through annual contract negotiations has extended steady supply conditions and discouraged large-scale curtailments. However, current pricing levels continue to put pressure on about 60% of China refineries. Looking ahead, incremental supply from expansion projects in China, Indonesia and India, combined with potential lower demand from the Mosjøen smelter may continue pressuring prices. However, anticipated smelting capacity growth, primarily in Indonesia could provide some demand support over the second half of 2026.

Turning to bauxite, prices remained relatively stable throughout the fourth quarter amid limited spot activity. However, despite strong demand, we have observed lower prices to start the year with supplies increasing in Guinea as restarted capacity from suspended licenses comes to market.

Despite near-term market pressures, we remain confident in the long-term fundamentals of the alumina industry. Alcoa is exceptionally well positioned to navigate market volatility and thanks to our low-cost mining and refining portfolio and our strong operational performance. And beyond our cost advantage, Alcoa's ability to provide value to customers through quality product and reliability enables us to secure long-term supply contracts with premiums above index pricing, highlighting Alcoa's position as the alumina supplier of choice for long-term partnerships.

Moving to aluminum, LME prices increased 8% sequentially in the fourth quarter and recently reached $3,200 per metric ton as strong underlying fundamentals including constrained supply and high demand projections continue in the market. This was further supported by the broader base metals rally, led by copper, geopolitical uncertainty and macroeconomic tailwinds. We also observed funds substantially increasing their long positions in aluminum over this period.

2025 ended with positive momentum for aluminum as inventories measured in days of consumption fell to their lowest year-end level in at least 15 years. On the demand side, we continue to see meaningful strength in the packaging and electrical sectors.

Going into 2026, Indonesia is emerging as a major aluminum producer with analysts forecasting approximately 700,000 metric tons of new production. However, recently announced disruptions in Iceland and Mozambique could remove over 550,000 metric tons from the market in 2026, almost offsetting the expected additions from Indonesia and limiting net global supply growth. China remains near its 45 million metric tons cap, which we continue to believe will be maintained. On 2026 demand, we anticipate continued growth globally, including in North America and Europe, which will remain in substantial deficits.

Alcoa's overall order book remains strong for value-added product sales the regional and segment-specific dynamics vary. In North America, raw demand for electrical sectors is exceptionally strong, while slab orders are steady and supported by robust packaging markets. Automotive slab demand has been temporarily affected by the Novelis' Oswego hot mill outage, but is showing signs of stability for 2026. Billet demand is currently flat, but showing early signs of improvement driven by reshoring. Foundry demand, however, remains challenged as tariffs pressure auto OEM profitability and supply chains.

In Europe, rod continues to outperform with demand consistently exceeding supply capacity. Packaging demand is strong, but faces growing competition from Chinese imports displaced by U.S. tariffs. Automotive-related slab demand remains weak with no recovery expected in 2026 due to low EV platform orders and uncertainty around new programs. Billet demand is soft across all segments, further impacted by slowdown in construction activity. Foundry demand is also low with extended customer shutdowns.

In aluminum, Alcoa is uniquely positioned to benefit from globally constrained supply and selling into high premium regions. In the fourth quarter, regional premiums strengthened across the board, supported by robust fundamentals, U.S. tariffs, supply disruptions and anticipation of Europe's carbon border adjustment mechanism scheme or CBAM.

In North America, the Midwest premium rose sharply, providing a significant benefit to Alcoa given our U.S. production. Importantly, the higher Midwest premium fully offset tariff costs on shipments from Canada to the U.S. and I'll remind everyone of the 4 smelters still operating in the U.S., Alcoa owns 2, giving us an advantage as the Midwest premium continues to increase.

In Europe, the Rotterdam regional premium increased in the fourth quarter, partially due to demand front loading ahead of CBAM's implementation in January 2026. CBAM implementation is expected to deliver a net benefit to Alcoa in 2026 because the anticipated increase in the Rotterdam premium should more than offset our incremental carbon emissions costs.

Under CBAM, foreign importers to Europe must purchase CBAM certificates to compensate for their carbon emissions. This increase in cost reflects the need for Europe in aluminum-deficit region to price imports high enough to attract marginal foreign producers that must now purchase CBAM certificates. Industry analysts estimate that CBAM could add roughly $40 per metric ton to the Rotterdam premium in 2026, and we believe some of this uplift was already included into the fourth quarter of 2025. While CBAM certificates affect foreign importers, domestic European producers do not purchase CBAM credits and instead experience cost changes through the emissions trading system framework or ETS which sets the carbon cost for all domestic producers. Current free allowances under that program will be fully phased out by 2034, pushing carbon costs of domestic producers higher. However, Alcoa's European smelters are advantaged when compared to higher emitting producers due to their lower Scope 1 direct emissions driven by modern pot technology and strong operational stability. This makes our cost increase comparatively lower than competitors.

Overall, based on our internal analysis, we expect CBAM to generate a net positive impact of approximately $10 per metric ton in 2026, with the uplift in the Rotterdam premium outweighing our carbon cost increases. We will reconfirm this estimate as actual CBAM dynamics materialize. Additionally, the European Commission's December update strengthens CBAM by closing key circumvention risks such as scrap loopholes and inclusion of downstream products. We continue engaging with the commission to ensure the mechanism functions as intended.

In summary, our strong operating footprint in both North America and Europe provides a benefit to Alcoa from both U.S. tariffs and CBAM implementation.

To conclude, in the fourth quarter, Alcoa delivered strong operational stability, highlighted by annual production records across 5 smelters and 1 refinery, robust financial results and net cash generation. We advanced key actions to improve the competitiveness of our operations and further strengthen the company for long-term success. Looking ahead, our focus remains on safety, stability and operational excellence while continuing to advance strategic initiatives. We are well positioned to continue creating value in 2026, capitalizing on robust market fundamentals. We will maintain a disciplined capital allocation as we evaluate opportunities.

With that, let's open the floor for questions. Operator, please begin with the Q&A session.

[Operator Instructions] Our first question today is from Nick Giles with B. Riley.

Thank you, operator, and good afternoon, everyone. My first question was really when compared to the initial guidance, 2025 aluminum production in shipments did come in below initial expectations. And obviously, you've made a lot of progress at certain assets here more recently. But if we take a step back, what ultimately gives you the confidence that 2026 is attainable and could this be a year of upward revisions rather than downward?

Thanks, Nick. We think the 2026 guidance is very much attainable. It's going to be based on how some of the restarts around the system go. We're in the process of restarting San Ciprián, we're still working on the restart of [indiscernible] and overall, as you mentioned, we had extremely strong production at 5 of the smelters around the world, and we're confident that we can continue that progress that we had in 2025.

That's great to hear, I appreciate that. My second question was Atlantic alumina received a fairly sizable investment from the DOW and other parties related to increasing alumina and gallium production. And so I was hoping to get your perspective on, one, domestic supply of alumina, is this something that Alcoa would ever be interested? And then the second part on the gallium side, I didn't -- I don't think I heard any updates on the potential project in WA. I didn't know if there was anything -- any color you could provide there.

So as far as the first part of the question, alumina is largely fungible, and therefore, our 2 sites in the U.S. would certainly consider a U.S.-based supply of alumina as long as it cut down on transportation costs. So if that excess capacity comes online, we will certainly look at opportunities to use it in the U.S.

As far as our gallium project is going, we're making progress. We're continuing to work with the 3 governments to ensure that we can build a really strong gallium plant at the end of Wagerup. And so we are making progress on the project and are moving forward.

The next question is from Carlos De Alba with Morgan Stanley.

My first question is regarding the alumina profitability. Clearly, prices are under pressure, maybe at the bottom, depending on how things play out. But the profitability for that business unit or that segment for you guys, has come down. Based on the guidance, probably it's going to be breakeven, give or take. So what -- can you talk about what the plans are to potentially come out with initiatives to reduce cost, if possible, improve productivity, efficiencies just to enhance the profitability of that segment?

So I'll address it. And if, Molly, if you want to add anything. Clearly, we understand where we are in the cycle in alumina. And we've shown in the past, Carlos, that we can get pretty aggressive around costs. Now what we won't do this time around is really put any of our plants in jeopardy for the future. And we have a low-cost position on the cost curve, and there are other plants around the world, specifically in China, who are much higher on the cost curve. So they will be under pressure. Their margins will be under significant pressure at these levels.

All right. And then maybe on the idle sites or monetization of idle sites, could you provide maybe a little bit more color? We're expecting something to be announced maybe by the end of last year or the first quarter, it seems now that progress has been made, but more to be -- or expected to be done concluded in the first half of the year. Any additional color that you can provide in addition to your comments, is it one side, two sides? Anything that you can help us with, obviously, it's a very important aspect of the company.

Yes. Thanks for the question, Carlos. The negotiations for the primary site that we're working on now, it's taking longer because it is not a simple land sale. This particular negotiation could involve a multiyear payment stream as well as some value sharing structures. And we're going to take our time and get this right, make sure we get the most value. So that's the slight extension on the timing there. We are continuing to progress several other sites. We have 10 priority sites in total to meet our target of $500 million to $1 billion over the next 5 years.

The next question is from Katja Jancic with BMO Capital Markets.

Can you provide the update on the current status of Alumar smelter?

Yes. The Alumar smelter had a setback again in the fourth quarter. We would anticipate that the production level in the first quarter will be very similar to what we had in the fourth quarter. The issue that we had in the fourth quarter that was really initiated by a series of power interruptions that occurred and the stability of that plant is not in a position where it was able to absorb those changes in power but we do anticipate that the first quarter should not be materially different than the fourth.

I'll just add that we did reach profitability at the smelter in the second half of the year. And again, the production change will not be significantly different sequentially. And in '26, we'll continue with the stabilization efforts there and work on our cost improvement programs.

And then maybe shifting to San Ciprián, given the current alumina and aluminum environment, if the operations would be at full capacity, would the operations generate -- would the EBITDA be positive?

For the smelter, we will reach profitability after we complete the restart, and that is still on track for the middle of 2026. The pricing is very favorable there. We're still working on our overall program for the complex, and I can give you an update on our EBITDA guidance for '26 for the combined smelter and refinery. So we have an EBITDA loss of approximately $75 million to $100 million. The majority of that is the refinery. Our free cash flow consumption will be approximately $100 million to $130 million and that includes refinery CapEx of about $50 million. We are making some working capital improvements across the sites. We have the benefit of that as well.

We are still progressing on our plan to reach cash neutrality in 2027. 2026, as we indicated during our Investor Day, commentary will be challenged, though with the numbers that I just gave you. In Spain, we do not record the CO2 compensation until it is earned. And recall there's a 3-year clawback so we will have cash receipt of about $85 million coming in, in the second half of '27 for our '26 production. So that's why we still have confidence that by the second half of '27, we will have reached our neutrality goal. We will have smelter profitability, we'll have the CO2 payment coming in, and that will completely cover refinery losses at that point.

The next question is from Daniel Major with UBS. Major your line is open on our end, perhaps it's muted on yours.

Moving on to the next question is from Glyn Lawcock with Barrenjoey.

You mentioned in today's release, a back-to-back mine move in WA, could you just sort of maybe talk a little bit to that, when does that start to -- when do you have to submit your permit request for that second mine move? And how should I think about that relative to the one that's currently underway?

Glyn, we'll probably have to recheck that. I don't believe we said back-to-back on the mine moves in today's release.

And if we were to give you an update, Glyn, on the current line move, we're progressing well. We are -- we've responded to the submissions that were made in the public comment period. We still anticipate the EPA making the recommendation by the end of the first half and we still anticipate having our permits by the end of 2026.

Okay. That's great. And then maybe just -- I don't know if you mentioned it, but just the Canada tariff exemption, I mean, obviously, how long is a piece of string, but just any updates on discussions there? Or is it still something too hard to call?

I think it's very hard to call with all the geopolitical changes that are going on around the world, Glyn, it's difficult to say whether there will be a Canadian exemption. Midwest premium obviously has risen to cover the total tariff expense. As a company, we're probably spending over $1 billion in gross tariff expense on an annual basis, but the Midwest premium is high enough to cover that. So the tariffs in their entirety are getting passed on to customers at this point.

The next question is from Lawson Winder with Bank of America.

Can I ask about the productivity improvements at alumina that you cited driving the higher production? Which kind of jumped out just because of [indiscernible] being down. Is that better utilization? Are you getting some higher third-party bauxite? or are there other factors that are driving that?

I would say most of that is just simply because the teams there are really applying every technical resource to continue to improve productivity with the low bauxite grade. So we're not seeing improvements in the grade. The teams just continue to do a great job of increasing production.

So if you go around the system and some of this relates to the end of 2025 going into 2026, the Alumar refinery is running extremely well, and we're seeing great production out of the Alumar refinery. The San Ciprián refinery is held at around 2,100 tonnes per day and there's a variety of different reasons for why we're holding it at 2,100 tonnes a day, it doesn't make -- in this price environment it doesn't make any sense to ramp it up any higher.

And then if you go to WA, both Pinjarra and Wagerup had good years. We think that they're going to have better years in 2026. And they are reacting well to the lower bauxite grade and we believe that they will outperform in 2026.

Okay. And can I also get your thoughts on capital return? So congratulations on achieving a net debt level below the $1.5 billion target, you suggested that, that might rise -- the net debt might rise back above the $1.5 billion target in Q1, I mean, TBD. But then thinking beyond Q1, how does that net debt level factor into your thinking around potential buybacks? I mean, is there a certain comfort level below the $1.5 billion that might put capital return back on the table or for 2026, should we maybe think about net continued debt repayment and then potential investment opportunities in growth for the business rather than capital return?

So we did just get under the target at $1.46 billion. So again, as we said in our comments, our goal is not only to stay with -- to get to the range, but to stay within it throughout our cycles. And as we mentioned, we're going to consume cash in the first quarter that will be related to both working capital and tax payments. We do expect to generate cash across 2026 and that will be used for additional debt repayments. Recall, we still have $219 million on our 2028 notes, and we will expect to have excess cash to compete between shareholder returns and value-creating growth opportunities.

If I would just add to that, it all starts with a rock solid balance sheet, and we are now within our target range but a fundamental belief on our part is that one of the strengths of our company is that we need to have a fortress balance sheet and we're within the range. Beyond that, we have the sustaining capital that we'll spend to sustain the cash flow that we get from the operations. And then as Molly said extremely well, it's going to be a mix between returns to shareholders and growth.

The next question is from Timna Tanners with Wells Fargo.

I wanted to ask, obviously, given the step change in aluminum prices, if you have any updated thoughts on volumes, especially in the U.S. and Europe? So the present temp's mandate was to increase production. That was the design, I believe, of the test, and it hasn't been much. So is there pressure from the Trump administration? Any new thoughts on Warrick? And then, of course, in Europe, the CBAM mention is for prices, but also could be encouraging of domestic volumes. So your thoughts on volumes would be great.

Yes. So there's 4 smelters in the U.S. We own 2 of them. Massena is running flat out. And as you saw, we just signed a long-term power contract at Massena that gets us 10 more years plus an option for another 10. So very exciting that we can have competitive green power in Massena, but they don't have any further capacity available to them.

In Warrick, we have a line that is idle currently. The issue with restarting that line in Warrick is, number one, it's expensive. It costs us about $100 million. And depending on the availability of key -- lead time on key production items, for instance, transformers and things like that, it could take up to a couple of years to restart that smelter -- that line at the smelter. So it's, at this point, unlikely that we would restart the fourth line. I can't speak for anybody else in the U.S., Timna in what they're doing.

If we then look at Europe, I think that the incremental $40 that we talk about in the Rotterdam premium is highly unlikely to incent anyone to restart capacity in Europe. In Europe, it all comes down to, as it does anywhere around the world is energy. And what are energy prices doing? And last time I looked, energy is not getting significantly cheaper in Europe anytime soon.

Okay. Helpful. If I could just -- one more on Spain circling back, if I recall from the Investor Day, you talked about a time frame where you'd be free to exit the country given your existing framework. Can you remind us when that is?

So we will have largely fulfilled the viability agreement by the end of 2027.

The next question is from [ Lachlan Shah ] with UBS.

Just a couple for me. So firstly, I just wanted to dig a little more into the Section 232 kind of tariff piece. Can I ask -- in a scenario where there is a preferential rate agreed at some point, what is your expectations for how the Midwest premium might react?

In theory, the Midwest premium, if there were a preferential tariff between Canada and the U.S., in theory, the Midwest premium should not fall and the reason why that is, is if all the metal from Canada were to continue to come into the U.S. or preferential tariff, you still need to incent metal to come from outside of North America. And so in theory, that should not fall. Now I keep reiterating in theory, it will -- it's hard to determine what the sentiment would look like. But we believe that the marginal ton still comes from outside of North America.

Got it. That's helpful. And my second question, so you just gave a bit of color there in terms of the existing portfolio and potential optionality to restart. But if I sort of step back, look at the aluminum market, roll forward a year or two, trade seems likely to be tightening. When you look at the options around restarting versus buying versus building, I mean how are you seeing those sorts of trends right now? What sort of seems relatively more or less attractive in terms of if you were to pursue a growth agenda?

It really depends on what product line that you're looking at. So remember that we have 3 different product lines: bauxite, alumina and aluminum. At this point, we do not have greenfield expansion plans for aluminum, and we've not found anywhere around the world that provides a sufficiently low energy price for sufficient returns on a greenfield plant at this point. In the case of refining and bauxite is very similar, refining capital costs are still fairly high. And certainly, at today's prices, it makes it difficult for a greenfield expansion.

Now with that said, we do have brownfield opportunities to potentially grow in both mining, refining and smelting. But at this point, we don't have significant greenfield plans going forward.

The next question is from Bill Peterson with JPMorgan.

I might have missed it, but can you quantify the impact -- the EBITDA impact from San Ciprián restart specifically in the first quarter?

It was part of the 70 guide down that we gave, 50 of that related to the CO2 compensation, not repeating and the other 20 is related to San Ciprián.

Yes. Okay. Yes, I thought it was about 15 million to 20 million. So that's helpful. And then the second question, I guess, on the Western Australia mine approvals. I guess is there any key milestones before the ministerial approvals by the end of 2026? Any particular deliverables from your side or actions to be taken? Anything notable to call out from the public comment period? Just trying to get a sense of what happens between now and the end of the year.

So the public comment period was extensive, and we received close to 60,000 comments. We've responded to all of those comments. The next major milestone in the process is that we should have a recommendation from the EPA at the end of the first half and then have ministerial approvals in the -- by the end of the year.

The next question is from John Tumazos with John Tumazos Very Independent Research.

Following up on the earlier question, what would be the earliest time table for a greenfield ELYSIS smelter? Assuming that the technology is progressing, and if you were to build a smelter, would the scale resemble some of the large Asian smelters such as [indiscernible] as a 1.6 million tonnes smaller?

So John, the earliest that we would implement at ELYSIS is not until after 2030. So we will not be implementing any ELYSIS technology between now and 2030. I can't speak for our partners. They may do something, but you'd have to talk to them.

As far as a competitive global greenfield smelter, there really are only a few technology providers around. One is the Chinese and the other is the Emirates. And they typically come in sizes of around 500,000 to 600,000 tons. So you can scale from that between 500,000 and 600,000 tons. But if a new greenfield were to come online, I would anticipate it to be in that size range.

So when you use the word implement, is that groundbreaking or completion?

That's groundbreaking. So we're not looking to do anything with ELYSIS this decade yet, and we would do groundbreaking. If we do an analysis smelter and I say if because there's still a lot of water to go under the bridge as far as research and development analysis. But if we were to do that, it would be groundbreaking post 2030.

The next question is from Daniel Major with UBS.

So yes, a couple of questions. Just first, following up specifically on the CO2 compensation accounting and the accrual in the fourth quarter. I think [indiscernible] accrues through the P&L during the year with their CO2 compensation and then has a cash adjustment in 4Q. Is this a recurring item? So next 4Q '26, you would also book through the P&L essentially one-off recognition of the CO2 compensation. And would it be around the same quantum this time next year?

Yes. Dan, the -- so in the past, we accrued full CO2 compensation. However, when the government applied the conditional portion, we had to go through and apply for our projects and spend that would qualify on those carbon and emission reduction measures. So we just received that feedback and it allowed us to take a position on some of the R&D that we had spent. So we took that credit. I expect going forward, we will make those decisions more regularly because we now have feedback on our group of projects that have qualified. That's why we indicated it will not recur to the same level in the first quarter of '26.

So it isn't -- it doesn't reflect an annual fourth quarter recognition. It's [indiscernible] this year and won't recur at any point in the future as far as you [ said ]?

It won't recur as kind of a callout item. It will be more regular coming into '26. We actually -- with the projects that we submitted, some of them are CapEx and then we had a piece of R&D. The CapEx was more forward-looking. So that will apply in the future. We can use those credits against CapEx. This year, we used it against R&D because we had qualifying expenditures in the current year. You can also carry over those conditional credits. So it may not be exactly the same amount every year. It really does depend on your qualifying spend in the year.

Okay. And sorry, just a follow-up on this topic. I don't believe you highlighted it in the Q3 outlook as a one-off. Does that mean it's kind of an incremental positive relative to what you guided?

We didn't call it out because we honestly thought it would be a bit less than what we ended up qualifying for. So we have, I would say, the majority of it, maybe half of it in the outlook, embedded and we didn't discuss it, but we ended up with more than -- more qualifying expenditures than we had expected.

Got it. Okay. Thanks for clarifying that. And then just a second one if I might follow up on the commentary you made around the legacy site you've got in negotiation and expect to close it in the first half of '26. Can you give us any sense of how much of the guided proceeds might be from that divestment in range?

We're going to hold around until we close the deal. Again, these arrangements are a bit more complicated than what we're used to working on in the past, and they come in installments. So we're going to hold that news until we get there.

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 April. And that concludes the call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, and welcome to the Citi Basic Materials Conference. Very happy to be joined right now by Molly Beerman, EVP and Chief Financial Officer of Alcoa. Thank you so much for coming and spending time with us.

I guess I will leave time at the end if there's any questions in the room. But just to start. So Molly, you guys just held your Investor Day a few weeks ago. I think one of the themes was how much progress the company has made since Bill Oplinger has moved into the CEO role. Could you maybe give us an overview there of what's -- because Alcoa has been very busy over the last couple of years, give us an overview of like what's gone on.

Thanks, Alex, and thanks, everyone, in the room and on the webcast for joining us. Yes, we highlighted at our Investor Day a lot of the accomplishments since Bill Oplinger took over as CEO. We started at the end of '23 when he took the helm and talked about the progress that we made on gaining IRA benefits under Section 45X that's worth about $60 million to our business. We also secured at the end of '23, most notably our transitional mine approvals for Western Australia.

Into '24, we had a big year. We announced and closed the Alumina Limited acquisition. We also ran a $645 million profitability program, which we delivered early and exceeded our target. Into 2025, we completed the sale of our Ma'aden joint venture and gained Ma'aden shares, which are now worth about $1.5 billion and available to monetize over a 5-year lockup period. We can start monetizing in the third, fourth and fifth anniversaries of the close. We also won our tax dispute with the Australian tax office, and that was a claim that was over $700 million. So a giant win there. If you look at Bill's focus on operational strength, the company is really operating well.

Matt Reed spoke at our Investor Day, highlighting the strength of our operations. That continues. Also, Bill has brought a renewed focus in commercial excellence, and that's benefiting not only Alcoa, but our customers. So our progress in 2025 continues. We are approaching the top end of our capital allocation. Our net -- adjusted net debt target of $1 billion to $1.5 billion. And when we closed the third quarter, we were just over that just at $1.6 billion. So making progress on the capital allocation priorities as well under Bill.

Okay. Thanks, Molly. I guess after that, maybe we'll start a little bit on the aluminum markets and then turn back to Alcoa's operations. So how is Alcoa viewing supply/demand for aluminum heading into 2026? Like price has been coming up quite a bit recently.