Alcoa Corp: Form 10-Q for the period ended Sep 30, 2024

(dollars in millions, except per-share amounts, average realized prices, and average cost amounts; metric tons in thousands (kmt); dry metric tons in millions (mdmt))

Business Update

During the third quarter 2024, Alcoa continued to execute on its strategic priorities while progressing improvement in its operations as described below.

Alcoa completed the acquisition of Alumina Limited on August 1, 2024. The acquisition enhances Alcoa’s position as a leading pure play, upstream aluminum company globally, while simplifying the Company’s corporate structure and governance, resulting in greater financial flexibility and strategic optionality.

On September 15, 2024, Alcoa announced the sale of its 25.1% interest in the Saudi Arabia joint venture to Ma’aden. This decision aligns with the Company’s ongoing efforts to streamline its operations and is expected to provide Alcoa with enhanced financial flexibility.

On October 16, 2024, Alcoa announced that it is progressing toward entering into a strategic cooperation agreement with IGNIS EQT to support the continued operation of the San Ciprián complex. The proposed agreement is conditional upon delivery of key areas of cooperation with San Ciprián’s stakeholders.

During the third quarter of 2024, Alcoa continued to advance mine approvals for the next major Australian mine regions (Myara North and Holyoake) which were referred for accredited assessment by the Western Australia Environmental Protection Agency (WA EPA) under the bilateral assessment process (Accredited Assessment). Alcoa is focused on modernizing its approvals framework for bauxite mining in the region and securing certainty for ongoing and future operations.

The Company continued to execute initiatives to further enhance its operations and reduce controllable costs during the third quarter of 2024. The Mosjøen smelter (Norway) and the Company’s smelters in Canada set year-to-date production records, while the Alumar smelter steadily improved stability and increased operating capacity to approximately 76 percent at September 30, 2024.

Saudi Arabia Joint Venture

On September 15, 2024, Alcoa entered into a share purchase and subscription agreement with Ma’aden, pursuant to which Alcoa agreed to sell its full ownership interest of 25.1% in the Saudi Arabia joint venture, comprised of the Ma’aden Bauxite and Alumina Company and the Ma’aden Aluminium Company, to Ma’aden in exchange for issuance by Ma’aden of approximately 86 million shares and $150 in cash. The implied value of the shares was $950 as of September 12, 2024, based on the volume-weighted average share price of Ma’aden for the previous 30 calendar days. The shares of Ma’aden will be subject to transfer and sale restrictions. Alcoa will hold its Ma’aden shares for a minimum of three years, with one-third of the shares becoming transferable after each of the third, fourth, and fifth anniversaries of closing of the transaction (the holding period). During the holding period, Alcoa would be permitted to hedge and borrow against its Ma’aden shares. Under certain circumstances, such minimum holding period would be reduced. The transaction is subject to regulatory approvals, approval by Ma’aden’s shareholders, and other customary closing conditions and is expected to close in the first half of 2025. The carrying value of Alcoa’s investment was $538 as of September 30, 2024.

Alumina Limited Acquisition

On August 1, 2024, Alcoa completed the acquisition of all of the ordinary shares of Alumina Limited (Alumina Shares) through a wholly owned subsidiary, AAC Investments Australia 2 Pty Ltd. Alumina Limited holds a 40% ownership interest in the AWAC joint venture. Under the Scheme Implementation Deed (the Agreement) entered into in March 2024, as amended in May 2024, holders of Alumina Shares received 0.02854 Alcoa CHESS Depositary Interests (CDIs) for each Alumina Share (the Agreed Ratio), except that i) holders of Alumina Shares represented by American Depositary Shares, each of which represented 4 Alumina Shares, received 0.02854 shares of Alcoa common stock and ii) a certain shareholder received, for certain of their Alumina Shares, 0.02854 shares of Alcoa non-voting convertible preferred stock. The Alcoa CDIs are quoted on the Australian Stock Exchange under the trading symbol AAI.

At closing, Alumina Shares outstanding of 2,760,056,014 and 141,625,403 were exchanged for 78,772,422 and 4,041,989 shares of Alcoa common stock and Alcoa preferred stock, respectively. Based on Alcoa’s closing share price as of July 31, 2024, the Agreed Ratio implied a value of A$1.45 per Alumina Share and aggregate purchase consideration of approximately $2,700 for Alumina Limited.

For Alcoa shareholders, the transaction enhances Alcoa’s vertical integration along the value chain across bauxite mining, alumina refining, and aluminum smelting, increases Alcoa’s economic interest in its bauxite and alumina assets, simplifies governance, and reaffirms Alcoa’s commitment to Western Australia. In addition to the implied premium over prior share prices, Alumina Limited shareholders’ ownership is diversified to a large-scale, global upstream aluminum portfolio.

The transaction consisted in substance of the acquisition of Alumina Limited’s noncontrolling interest in AWAC ($1,472), the assumption of Alumina Limited’s indebtedness ($385), the recognition of deferred tax assets ($121) primarily related to Alumina Limited’s prior net operating losses, and the acquisition of cash ($9) and other current liabilities ($1). The transaction was accounted for as an equity transaction where net assets acquired ($1,216) and transaction costs ($32) were reflected as an increase to Additional capital.

Net income attributable to noncontrolling interest was recognized through July 31, 2024 and was $8 in the third quarter of 2024.

Australia Mine Plan Approvals

The Company continued to advance mine approvals for the next major Australian mine regions (Myara North and Holyoake), which were referred for accredited assessment by the WA EPA under the Accredited Assessment. Alcoa began the process in 2020, is focused on receiving approval by the first quarter of 2026, and anticipates mining in new regions will commence no earlier than 2027. Until then, the Company expects bauxite quality will remain similar to recent grades.

During the third quarter of 2024, the WA EPA set an indicative timeline for the next key step in the approval process, the public comment period, for early 2025.

The Company continues work to seek annual endorsement from the Western Australian State Government for its rolling five-year mine plan. Separately, a third-party referred the Company’s current five-year mine plan to the WA EPA in 2023 for assessment (Third-Party Referral). This Third-Party Referral remains under assessment, and it is expected that the public comment period will also be in early 2025 in accordance with the WA EPA streamlined process.

The Company is committed to working collaboratively with the WA EPA and other stakeholders to achieve the indicative timelines set by the WA EPA.

Additionally, the Company is evaluating conditions recommended by the WA EPA in similar accredited assessment processes to address the majority of relevant published conditions in the Company’s Environmental Review Document, which Alcoa will submit as part of the Accredited Assessment prior to the upcoming public comment period.

Portfolio Actions

Portfolio Review

In October 2024, the Company completed its five-year strategic portfolio review to improve cost positioning, or curtail, close, or divest 1.5 million and 4 million metric tons of smelting and refining capacity, respectively. The Company reached approximately 93 percent of its target for smelting capacity with the decision to restart capacity at the Warrick smelter completed in the first quarter 2024, and exceeded its target for refining capacity with the decision to curtail the Kwinana refinery in January 2024. The Company continues to evaluate assets for opportunities for improvement to remain profitable throughout all cycles.

Kwinana Refinery

In June 2024, Alcoa completed the full curtailment of the Kwinana refinery, as planned, which was announced in January 2024. The Company’s decision to fully curtail the refinery was made based on a variety of factors, including the refinery’s age, scale, operating costs, and current bauxite grades, in addition to market conditions.

Prior to the curtailment, the refinery had been operating at approximately 80 percent of its annual nameplate capacity of 2.2 million metric tons since January 2023, when the Company reduced production in response to a domestic natural gas shortage in Western Australia due to production challenges experienced by key gas suppliers.

As of March 2024, the refinery had approximately 780 employees and this number was reduced to approximately 300 in the third quarter of 2024 to manage certain processes that are expected to continue into 2025. At that time, the employee number will be further reduced to approximately 50.

San Ciprián Operations

On October 16, 2024, Alcoa announced that it is progressing toward entering into a strategic cooperation agreement with IGNIS EQT, the majority shareholder in the IGNIS Group of Companies, a vertically integrated energy company based in Spain, to support the continued operation of the San Ciprián complex.

Under the proposed agreement, Alcoa would contribute approximately $82 (€75), and IGNIS EQT would make an initial investment of approximately $27 (€25) to fund the operations. Alcoa would continue as the managing operator of the San Ciprián complex, with IGNIS EQT holding 25 percent ownership. Additionally, up to approximately $109 (€100) would be funded by Alcoa as needed for operations with a priority position in future cash returns. Further funding would require agreement by both partners and would be shared 75 percent by Alcoa and 25 percent by IGNIS EQT.

Alcoa has operated the San Ciprián complex for a number of years in a challenging economic environment, primarily due to the high cost of energy. In the first quarter of 2024, Alcoa launched a sale process while also working to identify solutions for the long-term viability of the operations.

Despite sharing information with 60 potential investors, no viable bid was made for 100 percent of the San Ciprián complex. The potential partnership with IGNIS EQT emerged as an alternative for San Ciprián in which Alcoa can leverage its expertise in managing global aluminum operations, combined with IGNIS EQT’s strong knowledge of energy markets, to create value via market access and energy management services.

The proposed agreement is conditional upon delivery of key areas of cooperation with San Ciprián’s stakeholders, including the Spanish National Government, the Xunta de Galicia, and San Ciprián employees and workers’ representatives. Key areas include:

• Materially higher carbon dioxide compensation support;
• Permitting of power generation projects, especially those with existing agreements with San Ciprián;
• Support and approval for the bauxite residue area capital project; and,
• Flexibility within the February 2023 updated viability agreement, including access to restricted cash for operating needs and deferral or substitution of capital improvement commitments.

The refinery and smelter incurred substantial losses in the nine months of 2024 and in prior years, which have been funded with internal credit lines that are nearing their limits and for which the operations have no ability to repay. The operations have approximately $60 of available funding with cash on hand and availability under internal credit lines. Although aluminum and alumina prices have improved during 2024, the San Ciprián complex remains unviable based on current and forward market assumptions for delivered energy in Spain and sales prices. While the Company had restricted cash of $86 remaining at September 30, 2024 (see Aluminum below) to be made available for capital improvements at the site and smelter restart costs, the workers’ representatives have rejected the use of this cash to fund operating losses at the smelter. Based on economic conditions as of September 30, 2024, the San Ciprián operations are expected to incur losses in 2024 and barring finalizing a partnership agreement with IGNIS EQT, Alcoa anticipates that available funding will be exhausted by the end of 2024.

Warrick Operations

During the first quarter of 2024, the Company completed the restart of one potline (54,000 mtpy) at its Warrick Operations site in Indiana that began in October 2023, and incurred restart expenses of $3.

Other Matters

In March 2024, the Company completed an offering of $750 aggregate principal amount of 7.125 percent senior notes due in 2031. This was the Company’s first notes issuance under its Green Finance Framework, which prioritizes climate change mitigation expenditures related to circular or low carbon products, pollution prevention technologies, renewable energy, and water management. The Company is utilizing net proceeds from the issuance, which can be allocated to qualifying expenditures on a two-year look back and three-year look forward, to cover expenses associated with both new and existing decarbonization and water management projects, research and development, renewable energy, and the production of low carbon alumina and aluminum products. The net proceeds also support the Company’s cash position and ongoing cash needs, including with respect to its previously announced portfolio actions. The Company does not expect to allocate part of the net proceeds to significant capital investments in breakthrough technologies as those are not expected to occur within the applicable time period.

During the first quarter of 2024, the Company initiated and fully deployed a productivity and competitiveness program across its global operations and functions. The program is part of the Company’s objective to improve overall competitiveness and profitability and includes a target to save approximately 5 percent of operating costs, exclusive of raw materials, energy and transportation costs, which are already under active management and cost control programs. Total savings are expected to approximate $100 on a run rate basis and to be achieved by the first quarter of 2025.

The Company paid a quarterly cash dividend of $0.10 per share of the Company’s common stock (including common stock underlying CDIs) and Series A convertible preferred stock in August 2024, totaling $26.

See the below sections for additional details on the above-described actions.

Results of Operations

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the quarterly and year-to-date periods outlined in the table below.

Selected Financial Data:

(1) API (Alumina Price Index) is a pricing mechanism that is calculated by the Company based on the weighted average of a prior month’s daily spot prices published by the following three indices: CRU Metallurgical Grade Alumina Price; Platts Metals Daily Alumina PAX Price; and FastMarkets Metal Bulletin Non-Ferrous Metals Alumina Index.

(2) LME (London Metal Exchange) is a globally recognized exchange for commodity trading, including aluminum. The LME pricing component represents the underlying base metal component, based on quoted prices for aluminum on the exchange.

Overview

Sequential period comparison

Net income (loss) attributable to Alcoa Corporation was $90 in the third quarter of 2024 compared with $20 in the second quarter of 2024. The favorable change of $70 is primarily a result of:

• Increased alumina prices
• Favorable currency revaluation impacts
• Absence of Net income attributable to noncontrolling interest for the full quarter

Partially offset by:

• Unfavorable mark-to-market results on derivative instruments
• Unfavorable equity earnings
• Higher taxes on higher earnings

Year-to-date comparison

Net income (loss) attributable to Alcoa Corporation was $(142) in the nine-month period of 2024 compared with $(501) in the nine-month period of 2023. The favorable change of $359 is primarily a result of:

• Favorable raw material and energy costs
• Higher average realized price of alumina
• Lower equity losses
• Favorable mark-to-market results on derivative instruments

Partially offset by:

• Higher taxes on higher earnings
• Unfavorable currency revaluation impacts
• Lower average realized price of aluminum
• Higher restructuring charges
• Decrease in value add product sales
• Unfavorable selling, general administrative, and other expenses
• Higher interest expense

Sales

Sequential period comparison

Sales decreased $2 primarily as a result of:

• Lower shipments of aluminum and alumina
• Lower trading activities

Partially offset by:

• Higher average realized price of alumina

Year-to-date comparison

Sales increased $453 primarily as a result of:

• Higher average realized price of alumina
• Higher shipments of aluminum and alumina
• Increased offtake from an aluminum joint venture supply agreement

Partially offset by:

• Lower trading activities
• Lower volumes and price from bauxite offtake and supply agreements
• Decrease in value add product sales
• Lower average realized price of aluminum

Cost of goods sold

Sequential period comparison

Cost of goods sold as a percentage of sales decreased 5% primarily as a result of:

• Higher average realized price of alumina

Partially offset by:

• Higher average alumina input costs in the Aluminum segment

Year-to-date comparison

Cost of goods sold as a percentage of sales decreased 6% primarily as a result of:

• Favorable raw material costs
• Higher average realized price of alumina
• Lower energy costs across both segments

Partially offset by:

• Lower average realized price of aluminum
• Decrease in value add product sales
• Higher production costs primarily in the Alumina segment

Selling, general administrative, and other expenses

Selling, general administrative, and other expenses decreased $3 in comparison to the second quarter of 2024 primarily due to lower labor costs. Selling, general administrative, and other expenses increased $33 as compared to the nine-month period of 2023 primarily as a result of higher labor costs.

Provision for depreciation, depletion, and amortization

Sequential period comparison

Depreciation decreased $4 primarily as a result of:

• Lower depreciation due to the absence of write off of assets for projects no longer being pursued
• Favorable currency impacts

Year-to-date comparison

Depreciation increased $14 primarily as a result of:

• Higher depreciation in Brazil and Australia for mine reclamation and bauxite residue storage asset retirement obligations

Interest expense

Interest expense increased $4 in comparison to the second quarter of 2024 and increased $32 in comparison to the nine-month period of 2023. The sequential increase is primarily a result of the assumption of Alumina Limited’s revolving credit facility. The year-to-date increase is a result of the interest incurred on the $750 7.125% Senior Notes issued in March 2024 and the Alumina Limited revolving credit facility.

Other expenses (income), net

Sequential period comparison

Other expenses (income), net was $12 in the third quarter of 2024 compared with $(22) in the second quarter of 2024. The unfavorable change of $34 was primarily a result of:

• Unfavorable mark-to-market results on derivative instruments due to lower power prices in the current quarter
• Decrease in equity income from the Ma’aden aluminum joint venture primarily due to higher raw material and production costs
• Higher ELYSIS capital contributions, increasing loss recognition

Partially offset by:

• Favorable currency revaluation impacts primarily due to absence of losses recognized in the second quarter due to the U.S. dollar strengthening against the Brazilian real, partially offset by gains in the current quarter due to U.S dollar weakening against the Brazilian real
• Increase in equity income from the Ma’aden bauxite and alumina joint venture primarily due to higher shipments and higher alumina prices

Year-to-date comparison

Other expenses (income), net was $49 in the nine-month period of 2024 compared with $145 in the nine-month period of 2023. The favorable change of $96 was primarily a result of:

• Decrease in equity losses from the Ma’aden aluminum joint venture primarily due to the absence of a charge for a utility settlement and higher shipments
• Favorable mark-to-market results on derivative instruments primarily due to higher power prices in the current year
• Decrease in equity losses from the Ma’aden bauxite and alumina joint venture primarily due to higher alumina prices, higher shipments and lower production costs
• Lower ELYSIS capital contributions, reducing loss recognition

Partially offset by:

• Unfavorable currency revaluation impacts primarily due to the U.S. dollar strengthening against the Brazilian real in the current year, partially offset by the absence of gains recognized in the prior year due to the U.S. dollar weakening against the Brazilian real

Restructuring and other charges, net

Sequential period comparison

In the third quarter of 2024, Restructuring and other charges, net of $30 primarily related to:

• $14 to record net additional environmental and asset retirement obligation reserves at previously closed locations
• $12 for contract termination costs at a previously closed location
• $4 for the Wenatchee take-or-pay energy contract

In the second quarter of 2024, Restructuring and other charges, net of $18 primarily related to:

• $8 for the curtailment of the Kwinana refinery
• $8 for the Wenatchee take-or-pay energy contract

Year-to-date comparison

In the nine-month period of 2024, Restructuring and other charges, net of $250 primarily related to:

• $205 for the curtailment of the Kwinana refinery
• $16 for the Wenatchee take-or-pay energy contract
• $15 to record net additional environmental and asset retirement obligation reserves at previously closed locations
• $12 for contract termination costs at a previously closed location

In the nine-month period of 2023, Restructuring and other charges, net of $195 primarily related to:

• $101 for the permanent closure of the previously curtailed Intalco aluminum smelter
• $47 for the updated restart agreement for the San Ciprián aluminum smelter
• $21 for the settlement of certain pension benefits
• $15 to record additional environmental and asset retirement obligation reserves at previously closed locations
• $10 for employee termination and severance costs, primarily related to Kwinana refinery productivity program

Provision for income taxes

Sequential period comparison

The Provision for income taxes in the third quarter of 2024 was $86 on income before taxes of $184 or 46.7%. In comparison, the second quarter of 2024 Provision for income taxes was $61 on income before taxes of $92 or 66.3%.

The increase in tax expense of $25 is primarily attributable to net higher income in the jurisdictions where taxes are paid.

Year-to-date comparison

The Provision for income taxes in the nine-month period of 2024 was $129 on a loss before taxes of $(49) or (263.3)%. In comparison, the nine-month period of 2023 Provision for income taxes was $39 on a loss before taxes of $(507) or (7.7)%.

The increase in tax expense of $90 is primarily attributable to net higher income in the jurisdictions where taxes are paid.

Noncontrolling interest

Sequential period comparison

Net income attributable to noncontrolling interest was $8 in the third quarter of 2024 compared with $11 in the second quarter of 2024. These amounts are entirely related to Alumina Limited’s 40% ownership interest in several affiliated operating entities prior to Alcoa’s acquisition of Alumina Limited on August 1, 2024.

Net income attributable to noncontrolling interest in the third quarter of 2024 reflects favorable average realized price of alumina, partially offset by elimination of intercompany profit in inventory. Net income attributable to noncontrolling interest in the second quarter of 2024 was driven by favorable average realized price of alumina and favorable mark-to-market results on derivative instruments.

Year-to-date comparison

Net loss attributable to noncontrolling interest was $(36) in the nine-month period of 2024 compared with $(45) in the nine-month period of 2023. These amounts are entirely related to Alumina Limited’s 40% ownership interest in several affiliated operating entities prior to Alcoa’s acquisition of Alumina Limited on August 1, 2024.

Net loss attributable to noncontrolling interest in the nine-month period of 2024 was driven by restructuring costs partially offset by favorable average realized price of alumina. Net loss attributable to noncontrolling interest in the nine-month period of 2023 reflects unfavorable production and raw material costs, and equity losses from the Ma’aden bauxite and alumina joint venture, partially offset by favorable mark-to-market results on derivative instruments.

Segment Information

Alcoa Corporation is a producer of bauxite, alumina, and aluminum products. The Company has two operating and reportable segments: (i) Alumina and (ii) Aluminum. Segment performance under Alcoa Corporation’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance reported to the CODM is the Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) for each segment. The Company calculates Segment Adjusted EBITDA as Total sales (third-party and intersegment) minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; and Research and development expenses. Alcoa Corporation’s Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies. The CODM function regularly reviews the financial information, including Adjusted EBITDA, of these two operating segments to assess performance and allocate resources.

Alumina

Business Update. The average API of $496 per metric ton trended favorably compared to the prior quarter reflecting a 27% sequential increase. Compared to the nine-month period of 2023, the average API trended favorably, reflecting a 20% increase year-over-year. The majority of third-party alumina sales are linked to the API and the favorable price trend has resulted in strong results for the segment.

Kwinana Refinery

In June 2024, Alcoa completed the full curtailment of the Kwinana refinery, as planned, which was announced in January 2024. As of March 2024, the refinery had approximately 780 employees and this number was reduced to approximately 300 in the third quarter of 2024 to manage certain processes that are expected to continue into 2025. At that time, the employee number will be further reduced to approximately 50. In addition to the employees separating as a result of the curtailment, approximately 250 employees have terminated through the productivity program announced in the third quarter of 2023 or redeployed to other Alcoa operations.

In the second quarter of 2024, Alcoa recorded restructuring charges of $8 related to the curtailment of the refinery including $6 for water management costs and $2 for contract terminations. In the first quarter of 2024, Alcoa recorded restructuring charges of $197 including $123 for water management costs, $41 for employee related costs, $15 for asset retirement obligations, $13 for take-or-pay contracts, and $5 for asset impairments. Related cash outlays of approximately $225 (which includes existing employee related liabilities and asset retirement obligations) are expected through 2025, with approximately $145 to be spent in 2024. The Company spent $72 and $96 against the reserve in the third quarter and nine-month period of 2024, respectively.

Capacity. The Alumina segment had a base capacity of 13,843 kmt with 3,204 kmt of curtailed refining capacity. There was no change in curtailed capacity during the quarter.

Total alumina shipments include metric tons that were not produced by the Alumina segment. Such alumina was purchased to satisfy certain customer commitments. The Alumina segment bears the risk of loss of the purchased alumina until control of the product has been transferred to this segment’s customers. Additionally, operating costs in the table below includes all production related costs: raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation and amortization; and plant administrative expenses.

Production

Sequential period comparison

Alumina production decreased 4% primarily as a result of:

• Full curtailment of the Kwinana refinery in June 2024

Year-to-date comparison

Alumina production decreased 6% primarily as a result of:

• Full curtailment of the Kwinana refinery in June 2024
• Reduced production at the Australia refineries due to lower bauxite grade

Partially offset by:

• Increased production at the Alumar refinery due to the absence of unplanned equipment maintenance
• Increased production at the San Ciprián refinery as the refinery was operating at 50 percent capacity in the nine-month period of 2024 and 30 to 50 percent capacity in the nine-month period of 2023

Third-party sales

Sequential period comparison

Third-party sales increased $86 primarily as a result of:

• Higher average realized price of $86/ton principally driven by a higher average API

Partially offset by:

• Lower shipments of alumina primarily due to the full curtailment of the Kwinana refinery and decreased trading activity, partially offset by increased sales of externally sourced alumina to satisfy certain customer contracts
• Unfavorable currency impacts

Year-to-date comparison

Third-party sales increased $359 primarily as a result of:

• Higher average realized price of $54/ton principally driven by a higher average API
• Higher shipments of alumina primarily due to increased sales of externally sourced alumina to satisfy certain customer commitments

Partially offset by:

• Lower volumes and price from bauxite offtake and supply agreements primarily caused by the shift to intrasegment sales due to higher production at the San Ciprián refinery

Intersegment sales

Sequential period comparison

Intersegment sales increased $108 primarily as a result of:

• Higher average API on sales to the Aluminum segment

Year-to-date comparison

Intersegment sales increased $218 primarily as a result of:

• Higher average API on sales to the Aluminum segment
• Higher alumina shipments primarily due to the Alumar smelter and Warrick smelter restarts

Segment Adjusted EBITDA

Sequential period comparison

Segment Adjusted EBITDA increased $181 primarily as a result of:

• Higher average realized price of $86/ton principally driven by a higher average API

Partially offset by:

• Unfavorable currency impacts

Year-to-date comparison

Segment Adjusted EBITDA increased $503 primarily as a result of:

• Higher average realized price of $54/ton principally driven by a higher average API
• Favorable raw material costs primarily on lower prices for caustic soda
• Favorable currency impacts
• Lower energy costs primarily due to favorable natural gas prices

Partially offset by:

• Higher production costs primarily related to operating certain of the Australia refineries with lower grade bauxite

Forward Look. For the fourth quarter of 2024 in comparison to the third quarter of 2024, the Alumina segment anticipates higher shipments and lower production costs.

Alcoa expects total 2024 Alumina segment production to remain unchanged from the prior projection, ranging between 9.8 and 10.0 million metric tons. The Company is increasing its projection for shipments to range between 12.9 and 13.1 million metric tons, an increase of 0.2 million metric tons from the prior projection primarily due to increased trading volumes. The difference between production and shipments reflects trading volumes and externally sourced alumina to fulfill customer contracts due to the curtailment of the Kwinana refinery.

Aluminum

Business Update. Aluminum prices decreased sequentially with LME prices on a 15-day lag averaging $2,372 per metric ton in the third quarter of 2024.

During the third quarter of 2024, the Company maintained the controlled pace for the restart of the Alumar smelter and continued actions to improve the smelter’s overall performance. The restart resumed in the prior quarter after the smelter experienced operational instability in the first quarter of 2024. The site was operating at approximately 76 percent of the site’s total annual capacity of 268 kmt (Alcoa share) as of September 30, 2024.

In April 2024, the U.S. Treasury, in coordination with the United Kingdom, announced sanctions on Russian aluminum. The sanctions ban imports into the U.S. and the United Kingdom of Russian Federation origin aluminum produced on or after April 13, 2024, and restrict activity at the London Metal Exchange and the Chicago Mercantile Exchange.

In March 2024, Alcoa completed the restart of approximately 54,000 mtpy of capacity at its Warrick Operations site in Indiana that began in October 2023. Alcoa incurred restart expenses of $3 during the first quarter of 2024.

San Ciprián Smelter

In March 2024, Alcoa completed the restart of approximately 6 percent of total pots at the San Ciprián smelter as required by the February 2023 updated viability agreement. The Company incurred restart expenses $4 during the nine-month period of 2024. In connection with the December 2021 agreement and the February 2023 updated viability agreement, the Company has restricted cash of $86 remaining at September 30, 2024 to be made available for capital improvements at the site and smelter restart costs. The workers’ representatives have rejected the use of this cash to fund operating losses at the smelter.

Total aluminum third-party shipments include metric tons that were not produced by the Aluminum segment. Such aluminum was purchased by this segment to satisfy certain customer commitments. The Aluminum segment bears the risk of loss of the purchased aluminum until control of the product has been transferred to this segment’s customer. Additionally, Total shipments includes offtake from a joint venture supply agreement.

The average realized third-party price per metric ton of aluminum includes three elements: a) the underlying base metal component, based on quoted prices from the LME; b) the regional premium, which represents the incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (e.g., the Midwest premium for metal sold in the United States); and c) the product premium, which represents the incremental price for receiving physical metal in a particular shape (e.g., billet, slab, rod, etc.) or alloy.

Operating costs includes all production related costs: raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation and amortization; and plant administrative expenses.

(1) Other includes third-party sales of energy, as well as realized gains and losses related to embedded derivative instruments designated as cash flow hedges of forward sales of aluminum.

Production

Sequential period comparison

Production increased 3% primarily as a result of:

• Alumar smelter restart

Year-to-date comparison

Production increased 5% primarily as a result of:

• Warrick smelter and Alumar smelter restarts

Third-party sales

Sequential period comparison

Third-party sales decreased $93 primarily as a result of:

• Lower shipments primarily due to the timing of shipments
• Lower trading activities

Partially offset by:

• Higher pricing at the Brazil hydro-electric facilities due to seasonal conditions
• Favorable currency impacts

Year-to-date comparison

Third-party sales increased $93 primarily as a result of:

• Higher shipments primarily due to the Alumar smelter and Warrick smelter restarts
• Increased offtake from a joint venture supply agreement

Partially offset by:

• Lower trading activities
• Decrease in value add product sales due to lower product premiums in Europe and North America
• Lower average realized price of $93/ton driven by lower regional premiums and the absence of gains from the Alumar smelter restart hedge program which ended in December 2023

Segment Adjusted EBITDA

Sequential period comparison

Segment Adjusted EBITDA decreased $53 primarily as a result of:

• Unfavorable raw material costs primarily on higher average alumina input costs, partially offset by lower market prices for carbon materials

Partially offset by:

• Higher pricing at the Brazil hydro-electric facilities due to seasonal conditions

Year-to-date comparison

Segment Adjusted EBITDA increased $90 primarily as a result of:

• Favorable raw material costs primarily on lower market prices for carbon materials, partially offset by higher average alumina input costs
• Lower energy costs, primarily in Brazil

Partially offset by:

• Lower average realized price
• Decrease in value add product sales

The following table provides consolidated capacity and curtailed capacity (each in kmt) for each smelter owned by Alcoa Corporation:

(1) These figures represent Alcoa Corporation’s share of the facility Nameplate Capacity based on its ownership interest in the respective smelter.

(2) In the fourth quarter of 2023, the Company began the restart of 16,000 mtpy of previously curtailed capacity at the Portland smelter in Australia. The smelter had previously been operating at approximately 75 percent of the site’s annual capacity of 197,000 mtpy (Alcoa share) since March 2023.

(3) In 2021, the Company announced the restart of its 268,000 metric tons per year (mtpy) share of capacity at the Alumar smelter in São Luís, Brazil. Production began in the second quarter of 2022. Curtailed capacity decreased from September 30, 2023 as a result of the restart process.

(4) In December 2021, the Company announced a two-year curtailment of the San Ciprián smelter’s 228,000 mtpy of annual smelting capacity. In February 2023, the Company and the workers’ representatives reached an updated viability agreement for the phased restart of the smelter beginning in January 2024. In the first quarter of 2024, the Company completed the restart of approximately 6% of pots, in accordance with the updated viability agreement.

(5) In the first quarter of 2024, the Company completed the restart of one potline (54,000 mtpy) at its Warrick Operations site that began in October 2023. The line was curtailed in July 2022. In the fourth quarter of 2023, the Company also approved the permanent closure of 54,000 mtpy of previously curtailed capacity (which had not operated since 2016).

Forward Look. For the fourth quarter of 2024 in comparison to the third quarter of 2024, the Aluminum segment expects lower energy costs and increased shipments to be offset by higher production costs.

The Company expects total 2024 Aluminum segment production and shipments to remain unchanged from the prior projection, ranging between 2.2 and 2.3 million metric tons and between 2.5 and 2.6 million metric tons, respectively.

Reconciliations of Certain Segment Information

Reconciliation of Total Segment Third-Party Sales to Consolidated Sales

Reconciliation of Total Segment Operating Costs to Consolidated Cost of Goods Sold

(1) Other largely relates to the Aluminum segment’s energy product division and the Alumina segment’s purchases of bauxite from offtake or other supply agreements that is sold to third-parties.

(2) Represents the elimination of Cost of goods sold related to intersegment sales between Alumina and Aluminum.

(3) Provision for depreciation, depletion, and amortization is included in the operating costs used to calculate average cost for each of the alumina and aluminum product divisions (see Alumina and Aluminum above). However, for financial reporting purposes, Provision for depreciation, depletion, and amortization is presented as a separate line item on Alcoa Corporation’s Statement of Consolidated Operations.

(4) Other includes costs related to Transformation, and certain other items that are not included in the operating costs of segments (see footnotes 1 and 3 in the Reconciliation of Total Segment Adjusted EBITDA to Consolidated Net Income (Loss) Attributable to Alcoa Corporation below).

Reconciliation of Total Segment Adjusted EBITDA to Consolidated Net Income (Loss) Attributable to Alcoa Corporation

(1) Transformation includes, among other items, the Adjusted EBITDA of previously closed operations.

(2) Corporate expenses are composed of general administrative and other expenses of operating the corporate headquarters and other global administrative facilities, as well as research and development expenses of the corporate technical center.

(3) Other includes certain items that are not included in the Adjusted EBITDA of the reportable segments.

Environmental Matters

See the Environmental Matters section of Note O to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

Liquidity and Capital Resources

Management believes that the Company’s cash on hand, projected cash flows, and liquidity options, combined with its strategic actions, will be adequate to fund its short-term (at least 12 months) and long-term operating and investing needs. The Company plans to opportunistically access liquidity sources to support its cash position and ongoing cash needs. Further, the Company has flexibility related to its use of cash; other than the Alumina Limited debt assumed as of August 1, 2024, the Company has no significant debt maturities until 2027 and no significant cash contribution requirements related to its pension plan obligations. Alcoa is considering potential repayment or refinancing options for the Alumina Limited debt assumed.

Although management believes that Alcoa’s projected cash flows and other liquidity options will provide adequate resources to fund operating and investing needs, the Company’s access to, and the availability of, financing on acceptable terms in the future will be affected by many factors, including: (i) Alcoa Corporation’s credit rating; (ii) the liquidity of the overall capital markets; (iii) the current state of the economy and commodity markets, and (iv) short- and long-term debt ratings. There can be no assurances that the Company will continue to have access to capital markets on terms acceptable to Alcoa Corporation.

Changes in market conditions caused by global or macroeconomic events, such as ongoing regional conflicts, high inflation, and changing global monetary policies could have adverse effects on Alcoa’s ability to obtain additional financing and cost of borrowing. Inability to generate sufficient earnings could impact the Company’s ability to meet the financial covenants in our outstanding debt and revolving credit facility agreements and limit our ability to access these sources of liquidity or refinance or renegotiate our outstanding debt or credit agreements on terms acceptable to the Company. Additionally, the impact on market conditions from such events could adversely affect the liquidity of Alcoa’s customers, suppliers, and joint venture partners and equity method investments, which could negatively impact the collectability of outstanding receivables and our cash flows.

Cash from Operations

Cash provided from operations was $207 in the nine-month period of 2024 compared with cash used for operations of $107 in the same period of 2023. Notable changes to sources and (uses) of cash included:

• $423 favorable change in net loss, excluding the impacts from restructuring charges, primarily due to lower raw material and energy costs, higher alumina pricing, partially offset by lower aluminum pricing and a decrease in value add product sales;
• $133 less income taxes paid on prior year earnings, as well as on lower current year earnings in the jurisdictions where taxes are paid; partially offset by,
• ($271) in certain working capital accounts in the nine-month period of 2024, primarily an increase in receivables driven by less favorable payment terms and timing of shipments, and a decrease in accounts payable due to lower raw material volumes in the Alumina segment, partially offset by a decrease in inventories due to lower raw material volumes in the Aluminum segment.

During 2024, AofA will continue to record its tax provision and tax liability without effect of the ATO assessment, since it expects to prevail. The tax payable related to deductions of interest on the assessment will remain on AofA’s balance sheet as a noncurrent liability, increased by the tax effect of subsequent periods’ interest deductions, until dispute resolution. At September 30, 2024, the noncurrent liability resulting from the cumulative interest deductions was $222 (A$322). See description of the tax dispute in Note O to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

The Company utilizes a Receivables Purchase Agreement facility to sell up to $130 of certain receivables through an SPE to a financial institution on a revolving basis. Alcoa Corporation guarantees the performance obligations of the Company subsidiaries, and unsold customer receivables are pledged as collateral to the financial institution to secure the sold receivables. At September 30, 2024, the SPE held unsold customer receivables of $266 pledged as collateral against the sold receivables.

The Company continues to service the customer receivables that were transferred to the financial institution. As Alcoa collects customer payments, the SPE transfers additional receivables to the financial institution rather than remitting cash. In the nine-month period of 2024, the Company sold gross customer receivables of $886 and reinvested collections of $870 from previously sold receivables, resulting in net cash proceeds from the financial institution of $16. In the nine-month period of 2023, the Company sold gross customer receivables of $320 and reinvested collections of $221 from previously sold receivables, resulting in net cash proceeds from the financial institution of $99. Cash collections from previously sold receivables yet to be reinvested of $90 were included in Accounts payable, trade on the accompanying Consolidated Balance Sheet as of September 30, 2024. Cash received from sold receivables under the agreement are presented within operating activities in the Statement of Consolidated Cash Flows. See Note I to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

Financing Activities

Cash provided from financing activities was $595 in the nine-month period of 2024 compared with $51 in the same period of 2023.

The source of cash in the nine-month period of 2024 was primarily $737 of net proceeds from the bond issuance (see below) and $16 of net contributions from Alumina Limited (see Noncontrolling interest above), partially offset by $63 of dividends paid on common stock, $44 of net payments on short-term borrowings (see below), and $23 net cash outflows from the acquisition of Alumina Limited (see Note C to the Consolidated Financial Statement in Part I Item 1 of this Form 10-Q) .

Short-term Borrowings

The Company has entered into inventory repurchase agreements whereby the Company sold aluminum to a third party and agreed to subsequently repurchase substantially similar inventory. The Company did not record sales upon each shipment of inventory and the net cash received of $12 related to these agreements was recorded in Short-term borrowings within Other current liabilities on the Consolidated Balance Sheet as of September 30, 2024.

During the nine-month period of 2024, the Company recorded borrowings of $45 and repurchased $89 of inventory related to these agreements. During the nine-month period of 2023, the Company recorded borrowings of $80 and repurchased $38 of inventory related to these agreements.

The cash received and subsequently paid under the inventory repurchase agreements is included in Cash provided from financing activities on the Statement of Consolidated Cash Flows.

144A Debt

In March 2024, ANHBV, a wholly-owned subsidiary of Alcoa Corporation, completed a Rule 144A (U.S. Securities Act of 1933, as amended) debt issuance for $750 aggregate principal amount of 7.125% Senior Notes due 2031 (the 2031 Notes), which carry a green bond designation. The net proceeds of this issuance were $737, reflecting a discount to the initial purchasers of the 2031 Notes as well as issuance costs. See Note K to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

Credit Facilities

Revolving Credit Facility

The Company has a $1,250 revolving credit and letter of credit facility in place for working capital and/or other general corporate purposes (the Revolving Credit Facility). The Revolving Credit Facility, established in September 2016, amended and restated in June 2022 and amended in January 2024, is scheduled to mature in June 2027. Subject to the terms and conditions under the Revolving Credit Facility, the Company or ANHBV, a wholly-owned subsidiary of Alcoa Corporation, may borrow funds or issue letters of credit. Under the terms of the January 2024 amendment, the Company agreed to provide collateral for its obligations under the Revolving Credit Facility. See Part II Item 8 of Alcoa Corporation’s Annual Report on Form 10-K in Note M to the Consolidated Financial Statements for the year ended December 31, 2023 for more information on the Revolving Credit Facility.

As of September 30, 2024, the Company was in compliance with all financial covenants. The Company may access the entire amount of commitments under the Revolving Credit Facility. There were no borrowings outstanding at September 30, 2024, and no amounts were borrowed during the nine-month periods of 2024 and 2023 under the Revolving Credit Facility.

Japanese Yen Revolving Credit Facility

The Company entered into a $250 revolving credit facility available to be drawn in Japanese yen (the Japanese Yen Revolving Credit Facility) in April 2023. The Japanese Revolving Credit Facility was amended in January 2024 and in April 2024 (see below) and is scheduled to mature in April 2025. Subject to the terms and conditions under the facility, the Company or ANHBV may borrow funds. The facility includes covenants that are substantially the same as those included in the Revolving Credit Facility. Under the current terms of the January 2024 amendment, the Company agreed to provide collateral for its obligations under the Japanese Yen Revolving Credit Facility. See Part II Item 8 of Alcoa Corporation’s Annual Report on Form 10-K in Note M to the Consolidated Financial Statements for the year ended December 31, 2023 for more information on the Japanese Yen Revolving Credit Facility.

As of September 30, 2024, the Company was in compliance with all financial covenants. The Company may access the entire amount of commitments under the Japanese Revolving Credit Facility. There were no borrowings outstanding at September 30, 2024. During the nine-month period of 2024, $201 (29,686 JPY) was borrowed and $196 (29,686 JPY) was repaid. No amounts were borrowed during the nine-month period of 2023 under the Japanese Yen Revolving Credit Facility.

On April 26, 2024, the Company entered into an amendment extending the maturity of the Japanese Yen Revolving Credit Facility to April 2025.

Alumina Limited Revolving Credit Facility

In connection with the acquisition of Alumina Limited, the Company assumed $385 of indebtedness as of August 1, 2024, representing the amount drawn on Alumina Limited’s revolving credit facility.

At acquisition, the Alumina Limited revolving credit facility had tranches maturing in October 2025 ($100), January 2026 ($150), July 2026 ($150), and June 2027 ($100). In August 2024, Alcoa cancelled the undrawn portions of the revolving credit facility maturing in July 2026 ($15) and June 2027 ($100). The Alumina Limited revolving credit facility contains a financial covenant limiting the incurrence of indebtedness. As of September 30, 2024, the Company was in compliance with such covenant.

The Alumina Limited revolving credit facility also contains a clause that allows a majority of lenders, upon a change of control, to issue a notice requiring repayment within 90 business days of issuing the notice (the 90-day Notice). The lenders have indicated their intention to delay issuing the 90-day Notice until at least December 1, 2024, providing additional time for Alcoa to consider potential repayment or refinancing options.

As of September 30, 2024, indebtedness under the Alumina Limited revolving credit facility is included in Long-term debt due within one year.

Bank Guarantee

In December 2023, AofA committed to provide a bank guarantee in connection with the approval of the Company’s five-year mine plans that were referred to the Western Australia Environmental Protection Agency (WA EPA), which demonstrates Alcoa’s confidence that its operations will not impair drinking water supplies. On September 30, 2024 and October 1, 2024, AofA delivered bank guarantees totaling $69 (A$100). After March 27, 2025, Alcoa may, with the Western Australian government’s consent, replace the bank guarantee with a parent company guarantee or a surety bond. The requirement to provide financial assurance will expire upon the completion of the WA EPA’s assessment of the Company’s five-year mine plans.

Dividend

On October 16, 2024, the Board of Directors declared a quarterly cash dividend of $0.10 per share of the Company’s common stock (including common stock underlying CDIs) and Series A convertible preferred stock, to be paid on November 15, 2024 to stockholders of record as of the close of business on October 29, 2024.

On July 31, 2024, the Board of Directors declared a quarterly cash dividend of $0.10 per share of the Company’s common stock (including common stock underlying CDIs) and Series A convertible preferred stock, to stockholders of record as of the close of business on August 12, 2024. In August 2024, the Company paid cash dividends of $26.

Ratings

Alcoa Corporation’s cost of borrowing and ability to access the capital markets are affected not only by market conditions but also by the short- and long-term debt ratings assigned to Alcoa Corporation’s debt by the major credit rating agencies.

On March 6, 2024, Moody’s Investor Service downgraded the rating of ANHBV’s long-term debt from Baa3 to Ba1 and revised the outlook from negative to stable.

On March 4, 2024, Fitch Ratings downgraded the rating for Alcoa Corporation and ANHBV’s long-term debt from BBB- to BB+ and revised the outlook from negative to stable.

On March 4, 2024, Standard and Poor’s Global Ratings downgraded the rating of Alcoa Corporation’s long-term debt from BB+ to BB and revised the outlook from positive to stable.

Ratings are not a recommendation to buy or hold any of Alcoa’s securities and they may be revised or revoked at any time at the sole discretion of the rating organization.

Investing Activities

Cash used for investing activities was $434 in the nine-month period of 2024 compared with $388 for the same period of 2023.

In the nine-month period of 2024, the use of cash was primarily attributable to $411 related to capital expenditures and $30 of cash contributions to the ELYSIS partnership.

In the nine-month period of 2023, the use of cash was primarily attributable to $343 related to capital expenditures and $51 of cash contributions to the ELYSIS partnership.

Recently Adopted and Recently Issued Accounting Guidance

See Note B to the Consolidated Financial Statements in Part I Item 1 of this Form 10-Q.

Dissemination of Company Information

Alcoa Corporation intends to make future announcements regarding company developments and financial performance through its website, http://www.alcoa.com, as well as through press releases, filings with the Securities and Exchange Commission, conference calls, media broadcasts, and webcasts.

See Part II Item 7A Quantitative and Qualitative Disclosures About Market Risk of Alcoa Corporation’s Annual Report on Form 10-K for the year ended December 31, 2023. Our exposure to market risk has not changed materially since December 31, 2023. Refer to Part I Item 1 of this Form 10-Q in Note M to the Consolidated Financial Statements under caption Derivatives for additional information.

(a) Evaluation of Disclosure Controls and Procedures

Alcoa Corporation’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the U.S. Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report, and they have concluded that these controls and procedures were effective as of September 30, 2024.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the third quarter of 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

We face a number of risks that could materially and adversely affect our business, results of operations, cash flow, liquidity, or financial condition. A full discussion of our risk factors can be found in Part I Item 1A. Risk Factors of Alcoa Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The information below includes additional risks relating to the completion of the Alumina Limited acquisition.

The issuance of shares of Alcoa common stock dilutes the ownership position of the Company’s existing stockholders and the price of Alcoa common stock may be affected.

The Alumina Limited shareholders now beneficially own approximately 31.5% of the fully diluted shares of Alcoa common stock (including the shares of Alcoa common stock issuable upon conversion of the shares of non-voting convertible preferred stock). Consequently, the Company’s existing stockholders own a smaller proportion of Alcoa common stock and of the Company’s voting power than the proportion of Alcoa common stock and of the Company’s voting power owned before the completion of the Alumina Limited acquisition and, as a result, have less influence on the Company’s management and policies.

The issuance of the new shares of Alcoa common stock could have the effect of depressing the market price for Alcoa common stock. In addition, Alumina Limited shareholders may decide not to hold and instead to sell the new shares of Alcoa common stock or CDIs received, which could have the effect of depressing the market price for Alcoa common stock.

The secondary listing of the Alcoa common stock on the ASX via CDIs could lead to price variations and other impacts on the price of Alcoa common stock.

Alcoa common stock is listed as CDIs on the ASX in addition to its existing primary listing on the New York Stock Exchange (NYSE).

Dual listing may result in price variations between Alcoa’s securities listed on the different exchanges due to a number of factors, including that Alcoa common stock listed on the NYSE is traded in U.S. dollars and CDIs listed on the ASX are traded in Australian dollars, inherently introducing exchange rate volatility, and differences between the trading schedules and time zones of the two exchanges, among other factors. A decrease in the price of Alcoa’s securities in one market may result in a decrease in the price of Alcoa’s securities in the other market. Dual listing also presents the Company with the opportunity to raise additional funds through the issuance of CDIs, which could cause dilution to stockholders.

The integration of Alumina Limited will subject Alcoa to liabilities that exist or may exist at Alumina Limited.

The integration of Alumina Limited with Alcoa may pose special risks, including write-offs and unanticipated costs or charges, and will subject the Company to liabilities that exist or may exist at Alumina Limited, including liabilities relating to Alumina Limited’s revolving credit facility and potential tax liabilities. Although Alcoa and its advisers conducted due diligence on the operations of Alumina Limited, there can be no guarantee that Alcoa is aware of all liabilities of Alumina Limited. These liabilities, and any additional risks and uncertainties related to the transaction not currently known to Alcoa or that Alcoa may currently deem immaterial or unlikely to occur, could negatively impact Alcoa’s business, financial condition, and results of operations.