Good afternoon, and welcome to the Alcoa Corporation First Quarter 2023 Earnings Presentation and Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to James Dwyer, Vice President of Investor Relations. Please go ahead.

Thank you, and good day, everyone. I'm joined today by Roy Harvey, 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 Roy 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. Reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA. Finally, as previously announced, the earnings release and slide presentation are available on our website. With that, here's Roy.

Thanks, Jim, and thank you to everyone for joining our call. We are joined today by our new Executive Vice President and Chief Financial Officer, Molly Beerman. As you recall, she was appointed as CFO in February of this year. And though this is her first formal presentation of our quarterly financial results, she's no stranger to the process. She had been Alcoa's Principal Accounting Officer and Controller since 2016, and I'm pleased to have her as a member of my executive leadership team. Also, our former CFO, Bill Oplinger, is now Executive Vice President and Chief Operations Officer, where he is working with our production leaders to reinforce a safe and stable operating environment and to drive continued improvement across all of our assets. Together, my executive leadership team is working with Alcoans around the globe to help advance our company's purpose and vision as outlined on the left of this slide. At Alcoa, we all work together to turn raw potential into real progress. The progress we make as a company matters. It matters for our investors, customers, employees, and communities. And it matters for society, as the world will need more responsibly produced aluminum in the future. We constantly remind ourselves of the importance of our actions, whether in operations, in our offices, or as we make corporate decisions. Faced with a volatile market environment as well as continued challenges at some of our operations, we continue to focus on 3 strategic priorities: First, we work to reduce complexity, which means operating with a lean cost-focused approach and actively managing our portfolio of assets to drive profitability through all phases of the commodities cycle. Second, we strive to drive returns through margin-focused growth by purposefully allocating capital and differentiated value-add products. That means consistently working to improve our commercial capabilities through quality, technical excellence, and delivery performance. And our third priority is to advance sustainably, which means more than just championing environmental, social, and governance processes. We also work to create value and maintain a strong balance sheet while developing breakthrough technologies that have the potential to decarbonize the aluminum value chain. In the first quarter, we saw sequential improvement across our key earnings metrics. Notably, we increased our adjusted EBITDA from the fourth quarter by more than $211 million, posting a result of $240 million. Molly will dive deeper into our financial results shortly. But first, I'd like to reiterate once again our continuing commitment to Alcoa's values and particularly, to safety. No matter where we operate, we strive to ensure that our employees, contractors, and visitors remain safe at our locations. In the first quarter, we did not have any fatal or serious injuries. However, we continue to have near misses or potential incidents, which we closely monitor and use as opportunities to accelerate our learning. So we must, and we will continue to work on identifying and eliminating operational risks that could result in injuries to our employees. We hold ourselves accountable to continuously improve the safety of our work environment and to ensure that everyone arrives home safely. Next, as you see on this slide, in the first quarter, we made adjustments to operating levels of some of our locations. We'll discuss more about that later in this call, including the agreement we successfully negotiated in Spain on the restart of our San Ciprián smelter and progressing the full restart of the Alumar smelter in Brazil. Finally, our commercial team recently introduced an expansion of our Sustana family of low-carbon products. Our EcoSource low-carbon alumina brand now includes non-metallurgical grades. This complements our existing smelter grade product also marketed under the EcoSource brand. So with those introductory remarks, let's go to the financials. Molly, please go ahead.

Thank you, Roy. We saw a broad improvement from the fourth quarter of 2022 to the first quarter of 2023. Realized prices were higher for both aluminum and alumina with aluminum up 7% and alumina up 8% sequentially, while revenues remained flat at $2.7 billion on lower shipments. Stable revenues and lower costs were reflected in an improved bottom line. The net loss per share attributable to Alcoa improved by $0.94 to $1.30, and the adjusted loss per share improved $0.59, moving from $0.82 to $0.23. Adjusted EBITDA, excluding special items, also improved considerably, increasing from $29 million to $240 million. Let's look more closely at the key drivers of adjusted EBITDA. The $211 million increase in adjusted EBITDA was propelled by improvement across most of the bridge. While we saw unfavorable currency impacts due to a weaker dollar, higher metal and alumina prices provided $148 million or 70% of the sequential quarterly improvement. The remainder came from several items: lower energy costs in the first quarter '23 and the absence of CO2 costs realized in the fourth quarter of '22, primarily in Norway. Price mix was favorable due to improved value-add pricing in Europe, especially rod, as well as higher third-party bauxite prices. And the other category was favorable due to the non-recurrence of the Alumar ARO adjustment made last quarter and lower spending outside the segments especially in transformation. Other than foreign currency, the only unfavorable performance was higher production costs due to 2 locations, the Alumar refinery and the Portland smelter. This is the first quarter the Bauxite and Alumina segments have been combined into the Alumina segment. To help with comparisons, we have provided the previously reported 2022 quarterly segment adjusted EBITDA recast into the new alumina segment within the appendix. Looking from the fourth quarter '22 to the first quarter '23 on a comparable basis, the Alumina segment adjusted EBITDA more than doubled on stronger API pricing and product mix, partially offset by higher costs, both production and raw materials. Currency was unfavorable in both segments. For the aluminum segment, outside the currency impact, higher metal prices, lower alumina costs, and lower energy costs hit the bottom line, while stronger value-add pricing, combined with lower raw material costs completely offset other unfavorable costs. Now let's turn to other financial metrics and cash flow. While sequentially higher adjusted EBITDA increased cash flow potential, our typical first quarter working capital build offset those gains. $216 million of increased working capital was the largest use of funds in the quarter and a key driver of negative $166 million free cash flow, less net NCI distribution. We expect the 56 days of working capital to reduce as the year progresses. Cash ended the period at $1.1 billion and proportional adjusted net debt rose to $1.4 billion. We again paid our $0.10 per share dividend in the first quarter, totaling $18 million. For a little more granularity on working capital and cash flow, let's look at raw materials and inventory. Given the significance of raw materials and the value of our inventory, they are a key driver of both profitability and cash flows. Three materials are dominant in our business: caustic for our Alumina segment, petroleum coke, and coal tar pitch for our Aluminum segment. Looking at market index prices for the past year, all 3 commodities are coming off their peaks. We are seeing considerable recent improvement in caustic prices as well as more gradual improvements in quoted prices for coke and pitch. These price improvements flow into our inventory valuation and, as we previously shared, it can take 1 or 2 quarters before the purchase price improvement starts to flow through COGS and hit the income and cash flow statements. That said, should these raw material price trends continue, we expect to be rewarded with lower inventory valuations, lower COGS related to raw materials, and improved cash flow. Now let's turn to our expectations for the year and provide comments on the second quarter. At this point, we are not making updates to our full year outlook for either the income statement or cash flow items. Regarding sequential changes for the second quarter, in the Alumina segment, we expect an approximately $55 million unfavorable impact from lower bauxite grades in Australia. In addition, we expect a net unfavorable impact of $10 million as higher seasonal maintenance volume and impacts associated with the Alumar conveyor system recovery are partially offset by improvements in raw materials and energy. In the Aluminum segment, we expect a net improvement of $30 million as favorable raw materials, volume, and lower production costs are only partially offset by changes in value-add premiums. In addition, we expect $5 million to $10 million in unfavorable impacts associated with the Portland partial curtailment. Finally, we expect alumina costs in the Aluminum segment to be unfavorable by $15 million. Below the EBITDA line, other expenses are expected to be approximately $30 million favorable primarily due to the absence of a one-time charge taken in the first quarter. Based on recent pricing, the company expects the second quarter '23 operational tax expense to approximate $30 million to $40 million. Now I will turn it back to Roy.

Thanks, Molly. I'd like to start with what we're seeing in the global alumina and aluminum markets. Then I'll highlight some potential implications and a few commercial developments specific to Alcoa. At a macro level, the global alumina and aluminum markets both remain in balance. In China, however, there are slight deficits for both products. Meanwhile, the regional markets in the rest of the world are in slight surplus for both alumina and aluminum. For the long term, we continue to believe that aluminum demand will rise significantly, driven by global decarbonization strategies. The International Aluminum Institute for example, is forecasting global aluminum demand to increase up to 80% by 2050 from a baseline of 2018, and that will require both new primary and secondary capacity. This year, global inventories of aluminum are expected to be at historic lows. With such low inventories, if demand normalizes in China or the rest of the world, those supplies will be insufficient. Now moving to the right hand of this slide. You'll see some recent aluminum supply changes in the first quarter of this year. On the supply side, we saw more curtailments than restarts. While power costs have eased in some places outside of China, it was not enough to support significant restarts. Meanwhile, in China, the supply situation could potentially move the world market into a deficit. There have already been curtailments of approximately 1 million metric tons in 2 key regions, and the restart of curtailed capacity in Yunnan is heavily dependent on hydroelectricity, which is seeing supply shortages. The smelters operating in that province are producing below capacity, and analysts have noted that they may be asked to further reduce output and/or switch to coal-generated power. In key end markets for aluminum, we see automotive production continuing to strengthen, which is supportive of the demand for flat-rolled products. The market for construction products remains challenging given high-interest rates. Foundry, slab, and rod markets remained strong, while billet demand is soft in Europe and North America. Next, regarding the production and warehousing of Russian metal. In February, the U.S. government placed a 200% tariff on Russian metal imports. The U.S. has taken a strong first move with these tariffs that were implemented as a punitive measure for the country's invasion of Ukraine. The government is also tracing Russian origin metal in various imported products. However, we believe there is more that can be done. While many rest-of-world smelters remain curtailed, Russian smelters continue to produce at full capacity. Thus, we continue to advocate with our governments for full sanctions on Russian origin aluminum. As many aluminum customers self-sanction against Russian metal, unwanted Russian tons are being stockpiled in London Metal Exchange warehouses and are threatening to undermine the reliability of the LME as a global pricing reference for aluminum. As you may recall, Alcoa warned that the LME aluminum contract was at risk of becoming dislocated from the physical market as LME warehouses would eventually receive a disproportionate amount of unwanted Russian stocks. The data should prompt concern. As of the end of March, Russian stocks in LME warehouses increased to 53% of the total inventories, that compares to approximately 5% of the total prior to the invasion of Ukraine. We expect that further stockpiling of Russian material will occur throughout the year and into the future. If this trend continues, the LME's aluminum price reference will be relegated to a price for unwanted warehouse Russian aluminum, which much of the world refuses to purchase or consume. Given these developments, we continue to advocate with our host governments to apply full sanctions on Russian origin aluminum, and we are strongly urging the LME that Russian metal be delisted as a deliverable brand. Now let's turn to our own commercial developments. We have already seen some increased volumes and new contracts as customers continue to look for alternatives to Russian supply of material. Within Europe, several large customers require guarantees that no Russian aluminum exists within their suppliers' materials as it could result in substantial tariffs should their products be exported to the United States. Finally, I want to highlight the news about our Sustana family of low-carbon products comprised of EcoSource alumina, EcoLum aluminum, and EcoDura aluminum with recycled content. Last year, we saw nearly a fivefold increase in sales volumes for EcoLum, which is manufactured with an emissions intensity that is three times better than the industry average. We offer it in a range of products, including billets, foundry, slab, wire rod, an alloy high purity, and commodity-grade P1020. While these annual volumes are still a small portion of our overall sales volume, we're building on last year's good growth with an expected addition of 30% in increased sales this year, particularly in Europe. We expect this trend to continue with more customers committing to aggressive decarbonization targets. And as I mentioned at the top of our call, we also expanded our EcoSource product line to now include non-metallurgical alumina or NMA as well as the smelter-grade product we launched in 2020. These EcoSource products are unique across our industry and are unmatched by our competitors. The expansion of our EcoSource brand helps leverage our advantages as a producer of SGA and NMA with a low carbon dioxide intensity. Our EcoSource product has its greenhouse gas calculations verified by a third party, and we can deliver from a global refinery portfolio that has an average emissions intensity that is half the industry average. Now I'd like to turn our attention to our operations. We made several reductions of capacity in the quarter as we've ramped up production in others. Our Canadian facilities include 3 smelters that we operate in Quebec, Dechambault, Bécancour, and Baie Comeau; all are powered by hydroelectricity and together, they are currently operating at near peak levels. In the United States, we have improved operational stability at our Warrick smelter for the 2 operating pot lines. Also in the United States, we made the strategic decision in March to permanently close the Intalco smelter after evaluating various options for the asset, including a potential sale. It had been fully idle since 2020 and the land of that site has now transferred to a new owner, who is working on economic development opportunities. Our transformation group, which manages curtailed and closed sites, has done a good job to position this site for new productive uses. In Brazil, we are continuing with the restart of the Alumar smelter, which is now producing at approximately 60% of capacity and continues to accelerate production. Alumar also includes a co-located alumina refinery. On March 25th, a Ship to Shore conveyance system collapsed temporarily halting the flow of bauxite to the refinery. While investigating the failure to root cause, our teams safely executed critical repairs to restore the flow, thus enabling the refinery to continue to operate. These repairs were important in time-sensitive activities and the teams did a great job completing them safely and swiftly. Now that bauxite is again being delivered to the refinery, we are building back the on-site inventory and gradually ramping up production. Our expectation is to reach full production levels by the end of this month. We have continued to make all customer shipments of alumina from the refinery through this period. Now moving to Europe and our San Ciprián complex, which includes our refinery and the fully curtailed smelter. At the refinery, we reduced the production rate last year to help mitigate the high cost of natural gas in Spain. We are now operating at approximately 50% of the refinery's 1.6 million tons of annual capacity and continue to analyze the most advantageous run rate given market conditions. For the San Ciprián smelter, in February, we successfully reached an agreement with the workers' representatives to commence the restart process in phases beginning in January 2024. We currently have 2 long-term wind-sourced power purchase agreements that can support a portion of the smelter's needs, pending permitting, development, and construction of the wind farms. As part of our agreement with the workforce, we are also moving forward with capital projects that will help support this restart and the future competitiveness of this facility. In Norway, we continue to operate 2 of the 3 potlines at the Lista smelter. You will recall 1 line was curtailed last year due to exorbitant spot energy prices. We have now fixed our energy costs for Lista's 2 potlines through 2023, which provides short-term stability during highly volatile energy markets. Meanwhile, our other Norwegian smelter, Mosjøen, is operating stably and near full pot complement as is our Fjardaál facility in Iceland. Finally, on this slide, let's discuss Australia. In March, the Portland aluminum joint venture reduced its production to approximately 75% of its total annual capacity. Alcoa's share of the capacity is 197,000 metric tons per year. We have restored stability at this site, which had experienced challenges related to the production of roded anodes. At our Kwinana refinery, we made the decision to keep 1 of 5 digesters curtailed. It was first curtailed due to a statewide shortage of natural gas. Given an extended process for our mine approvals in Western Australia, we have decided to keep this digester curtailed. Delays in our bauxite mine approvals process in Western Australia have also prompted us to extend mining in previously approved areas by extracting lower-grade bauxite beginning in the second quarter of this year. As we commented during last quarter's earnings presentation, next, I'd like to talk a little more about our approach to responsible mining globally and particularly about our bauxite mining operations in Western Australia, a region where we have operated for 60 years. First, I want to stress that we appreciate and understand the increasing expectations that stakeholders have for mining operations. Sustainability has been core to our focus at Alcoa, and it's one overriding priority that helps differentiate our company. In fact, it's why we have the strategic priority to advance sustainably. We believe that delivering on our stakeholders' expectations is key to our success moving forward. We strive to maintain our commitment to safe and responsible operations, including proactive engagement with our communities before, during, and after bauxite mining. We also know the world is evolving, and we are committed to continually improving our practices and meeting modernized expectations. As we work to address evolving challenges facing the mining industry, we cannot lose sight of how important aluminum is now and will be in the future. It's a fact that aluminum is critical to a more sustainable future because it's used in electric vehicles, renewable energy, and numerous other aluminum-intensive products that can help the world meet ambitious decarbonization goals. Producing the aluminum that the world needs now and for the future will require bauxite mining, but mining must be done the right way. We intend to mine in a responsible way that protects the environment and creates value for our host communities, and we are focused on delivering on those expectations and implementing improvements whenever they are needed. Currently, we have 2 significant areas of attention for our Western Australian mines, Huntley and Willowdale. The first is the protection of public drinking water, and the second is the restoration of the forest and its biodiversity. In our long history of operations, we have never negatively impaired the supply of drinking water in Western Australia, and we do not intend to compromise that record. That's why we are currently working through a detailed environmental, technical, and economic assessment on additional protection measures that can be included in our mining plans. We also are committed to protecting the biodiversity of the Northern Jarrah forest. We have long taken pride in our rehabilitation efforts. Among our many successes was being the first mining company in Australia to officially hand back a significant area of rehabilitated land, and we are one of the few mining companies in Western Australia to have ever done this. Today, about 75% of all areas we have cleared for mining have been rehabilitated and are at different growth stages from early plantings to developed forest. But again, we intend to continue to evolve and improve, including accelerating rehabilitation in open areas. Protecting water supplies and restoration are focal points as we cooperatively work with government regulators on modernizing our approvals framework for our Huntley and Willowdale mines. We are also considering how we can reduce potential social impacts through this process. Now let me spend a few minutes explaining our current situation with mine permitting. The Huntley and Willowdale mines are currently subject to a bespoke approvals process that is conducted annually on a 5-year rolling basis. As we said last quarter, this process is taking longer than in prior iterations due to increased expectations towards a modernized approvals framework. In response to these delays, we are extending mining in areas already permitted under existing approvals. That means mining bauxite with a lower quality or grade using more caustic and producing less alumina. Also, during the first quarter of this year, a third party referred our current and future mine plans for Huntley and Willowdale to the Western Australian Environmental Protection Authority for assessment. The third-party referral will likely result in further delays with bauxite grade impacts expected to continue until at least the first quarter of 2024. Remember that it requires considerable planning and development to reach new bauxite areas, which we have included in this projection of future bauxite trades. It's important to note here that prior to these referrals, we had proactively initiated our own EPA assessment process for the extension of our operations to the future Mayara North and the Holyoake regions of the Huntley mine. This process is commonly known in the state of Western Australia as an EPA Part IV assessment. As we transition to this process for future regions, we believe the current statutory process for Huntley and Willowdale can be adapted to provide enhanced environmental protections and be successfully applied to our current mining operations. As noted, we continue to work with relevant government bodies to support these annual approvals processes. We are also responding to requests for information from the state EPA to support the authority's consideration of whether the third-party referrals are valid and require assessment. This is a complex and evolving situation, and we are fully committed to reaching a collaborative agreement with the Western Australian government to protect the environment, meet stakeholder expectations, and maintain the vital economic benefits that our operations provide. In closing, I want to quickly summarize 3 key elements from our presentation today. First, we saw improvement in our key earnings metrics during the first quarter. We grew our EBITDA to $240 million, and we also maintained a strong balance sheet with $1.1 billion in cash and low proportional adjusted net debt. We continue to drive for improvement in our financials and our operations. While we have challenges that we need to solve, we are laser-focused on operational stability and consistent improvement, and we are seeing progress. From a leadership perspective, we help set the priorities in the direction, but our teams on the ground turn it into reality. They make it work by what they do every minute, every shift, and every day. I'm proud of the more than 13,000 employees we have across the globe and their commitment to continuously improve. I look forward to continuing to report on these improvements as the year progresses. Finally, the long-term fundamentals of our industry remain strong. Demand for our metal is expected to grow in the future as customers seek lower carbon raw materials across the supply chain. Aluminum is lightweight, strong, highly conductive, and recyclable, making it ideally suited for a wide range of applications, including electric vehicles and renewable energy infrastructure. We are working to deliver more sustainable solutions through technologies we have under development to decarbonize aluminum production and advanced recycling technologies in support of our vision to reinvent the aluminum industry for a sustainable future. And with that, Molly and I are ready to accept your questions. Operator, who do we have in the line for our first question today.

And our first question comes from Michael Dudas with Vertical Research.

First question is your observations on rest of the world capacity and the lack of restarts, even though energy power prices have corrected downwards somewhat, is the demand outlook and the energy outlook and uncertainty given geopolitics, even if prices stay low, will it still make it more difficult for capacity restarts in the marketing in your view?

Yes, Michael, let me handle that one. So first and foremost, what I'd say is that we have seen pricing come down and particularly in Europe. So it is significantly better, but still significantly higher priced than it was prior to the invasion in Ukraine. And so we're seeing relief, but it still isn't, in my perspective, enough relief really to drive a fundamental shift in the ability to smelt aluminum in Europe. The second side of it on the demand side, realistically speaking, I think the demand is still there. And particularly as you look at a number of companies essentially putting in their own set of sanctions against Russian metal, it means that we've got more interest in our volumes coming out of Europe. And so there's demand available. It's just that the margins are pretty tight. So when you take the fact that across the aluminum industry margins are tight because costs are still high. They are coming down. So when we look out these next quarters, we're going to continue to see raw materials relief. Margins are still thin. So when energy prices are high and the average margins are thin from around the world, it's just not justifying or incentivizing significant restarts.

That's an interesting observation. My follow-up would be regarding your prepared remarks about China, specifically the slight deficits of alumina and aluminum. Could you examine the dynamics in the alumina market to see if one market is moving closer to balance or facing oversupply, considering the power and demand challenges you're experiencing?

Yes, Michael, it's a really good question. The answer is that both markets are delicately balanced and could shift in either direction. For instance, in China, there's a strong increase in aluminum demand, but supply is constrained due to power shortages in the Southwestern provinces, leading to the likelihood of further production curtailments and a growing deficit globally. Similarly, on the alumina side in Europe, while natural gas prices have improved, they remain high, making refining challenging, as seen in our San Ciprián refinery, which is currently operating at 50% capacity due to thin margins or potential losses. So, both markets are finely balanced, and it's difficult to predict their short-term movements. However, I am optimistic about the long term as we anticipate new demand sources from electric vehicles and renewable energy, and currently, there isn't sufficient new capacity being developed to meet this aluminum and alumina demand. Overall, we are in a balanced market today, and eventually, this situation will lead to a more positive medium- to long-term outlook.

The next question comes from Lucas Pipes with B. Riley Securities.

Roy, I also have a higher-level question to kick things off. And there are a lot of commentators out there calling for $8, $9, $12, even $20-plus copper prices per pound. And in that sort of world, where in the market and what sort of applications would you see aluminum substitution? And is there enough discipline? I think you just kind of answered that question in the aluminum industry today that this would also pull up aluminum prices. Would really appreciate your perspective on that.

Yes, Lucas, I can provide an answer. While I can't guarantee it will address every aspect, it should give you a good starting point. History shows that there is a significant arbitrage that occurs between copper and aluminum, and the prices of these two metals are often closely linked over time, though there are some fluctuations. As copper prices rise, we also tend to see positive movements in aluminum prices. I monitored this trend today, and it has a substantial impact on us. The two metals are likely to remain connected, but as copper prices increase, we can expect to see more substitution back to aluminum due to its versatility and infinite recyclability. We have sufficient inventories and can ramp up production as needed. However, your other point is crucial for understanding future dynamics: there isn't a large amount of new production anticipated. We can restart certain smelters and there may be growth in regions like Southeast Asia and the Middle East, but overall, there aren't many new projects. With growing demand and increased substitution, we face uncertainty about where this new demand will emerge. Recycling will play a role in addressing this issue, and we are developing breakthrough technology to improve the management of post-consumer scrap, which will be beneficial. Still, primary metal is necessary, and we will need to source it. This is something we need to plan for and solve. This leads me to maintain a very positive outlook for the medium- to long-term prospects of our industry.

I really appreciate that information. Switching topics, I valued the update and reminder about the San Ciprián restart plans for the smelter. I wanted to know if there is a minimum utilization we should consider for 2024.

We are aligning the restart progress with the new contracts we've signed and the upcoming energy capacity. Since it takes time to permit and build new wind farms, much of that capacity will be available more in 2025 than in 2024. We are committed to starting in 2024, specifically by January 1, with 5% of total output, which is a relatively small portion. This launch will allow us to ramp up as new wind capacity comes online since it represents low-cost energy, and we would be eager to smelt aluminum at that pricing. However, our goal is to be fully operational by October 2025, which we are firmly committed to achieving. This aligns with our energy developments, and we are dedicating significant effort to ensure that the San Ciprián smelter remains competitive for the long term.

The next question comes from Timna Tanners with Wolfe Research.

I wanted to start by discussing the unchanged guidance on shipments for aluminum and alumina. I found this a bit surprising considering recent disruptions. I want to ensure I fully understand the situation. It appears that perhaps the impact from Alumar is minor, and the other refinery may also have a small effect. I just want to confirm whether these issues are indeed smaller, or if you expect some improvements as the year goes on to maintain the same volume.

Hi, Timna, I'll take this one. So in regard to the alumina guidance, we had a good outlook on the WA bauxite situation. So that was built into the guidance for the year. The Alumar refinery, the interruption is like we do expect to catch up and be on target for the year. And in aluminum, we're still tracking well to the guidance.

Okay. Great. I have so many more questions...

I should have added that we haven't made decisions yet on the Portland restart. So again, not a huge volume there, we're 25% down, but that's one provision on the aluminum.

Got you. And that's somewhat small. So I can see how that might not move the needle. Okay. I guess I wanted to ask, if I could sneak in. On the bauxite situation, I just want to clarify, you're expecting the extended unfavorable mining circumstances to continue through the first quarter. But what's embedded in your assumptions is that you'll expect to be able to move to your expected mine plan beyond that? And what's baked in there? And then if I could sneak in another one on the energy exposure side, getting a lot of questions about benefits to lower prices, but I believe you're pretty well secured for the year. So just sneaking that one in as well, if you could comment on how much exposure you might have through the end of the year to power prices.

Let me address the situation in Western Australia first, and then I'll hand it over to Molly for the energy question. The main point regarding Western Australia is that we are still engaged in discussions with the state government, and we haven't reached a conclusion yet. I believe we are working together to find a solution. Our expectation for moving into the first quarter of 2024 includes the understanding that it generally takes between 9 to 12 months to devise and implement a plan for shifting to new mining areas. This timeframe helps clarify our progress through the permitting process and the duration required to adapt to new mining locations and timelines. It typically requires one quarter for detailed planning to transition from one grade of ore to another. Therefore, the sooner we finalize the discussions with the Western Australian government, the sooner we will have clarity on the additional steps needed and which bauxite areas we will be transitioning to next. As I mentioned, this is an ongoing discussion, and the quicker we complete it, the sooner we will have assurance about our location, the available ore quantity, and the infrastructure and effort required to access that ore. We can then start planning backwards regarding when we can switch to a different bauxite grade. I understand that there's a lot of information involved here, but as it stands, we believe the first quarter of 2024 is the best estimate for addressing these impacts, and we will keep you updated as we make progress. Now, I’ll let Molly take over for the energy aspect.

Timna, on your energy exposure question, you're right, we do have everything secured now, except one small piece in Norway. I do want to call out the list of smelter in Norway. We had highlighted a couple of quarters ago back in the third quarter of '22, that site actually lost $45 million for the quarter. And we're pleased to say that, that is now running at near breakeven. And with further premium improvements, we could get some more profitability out of that site. So a great turnaround for Lista where we've secured the power through the end of the year.

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

Trying to put together the different bits and pieces, should we expect something like a $10 a ton cost increase in the alumina segment in the June quarter? And something like a $0.03 or $0.05 fall in the aluminum metal segment, which I guess, benefit more from pitch and tar and energy?

John, we didn't work it out to the ton level. We can certainly do that. I don't have that handy for you right now.

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

The first question is regarding the bauxite situation in Western Australia. The guidance indicates a $55 million unfavorable impact due to lower-grade bauxite in the country. Since this issue is expected to extend until the first quarter of 2024, how should we anticipate costs moving forward? Is this $55 million the extent of the impact we should expect through the first quarter, or could there be a potentially greater negative effect on the Alumina segment? My second question is about the value-added premiums you are receiving. Can you provide more details on that and whether there are significant differences between Europe and the U.S. that we should consider?

Okay. Carlos. First, on the $55 million guidance, that is applying to the second quarter, we do see opportunities to work on cost to reduce that. And we'll give you updates going forward. But for right now, the $55 million is applying for our future look and that includes about $10 million impact of volume and about $45 million for caustic, bauxite, and energy usage is unfavorable at this bauxite grade.

And Carlos, just to tie on to Molly's comments there, too. I mean as we look forward to the next quarters, we're essentially running the Western Australian refineries at lower grades than we have before. And so there's a certain amount of learning that we're going to be doing as we go. And so like Molly said, the expectation is that we can learn and we can improve upon the operating efficiencies every quarter. But we don't want to make promises and guarantees on that until we can be certain that we can show that. So we hope to report some good news for you coming into this next quarter as we look towards future quarters. On value-added premiums, when we look at it year-on-year, we continue to see strength. The fact is, we came into what was a pretty crazy year with the first half with nothing but blue skies and the second half a bit more cloudy. Coming into this year, we're continuing to see strength. We're seeing more strength, honestly, in Europe. Part of that is the self-sanctioning part of it is also because the energy situation is a lot better than it was expected. So coming into the year, I think we're seeing better strength in the volumes and in the end, the volumes that impact the premiums that we negotiate on a quarterly basis. In North America, I think there was a bunch of uncertainty because of the banking situation. I know there were a lot of questions about what that might do to demand. We seem to be successfully past that, at least for now. We're certainly seeing better premiums than we were last year. But we're also seeing a little bit of weakness on the billet side, particularly that's really coming in from building and construction, which just isn't moving as quickly as what we've seen in some other times. So it's sort of a mixed picture. I think we're seeing year-over-year improvements. We're seeing a continued amount of uncertainty when we look out at the next quarter and hope that with some of the improvements that we're seeing in demand in China, particularly some of the resolution around what energy prices are going to look like and some of the more surety about how much natural gas Europe is going to have going forward. I think that starts to build a little bit more resilience back into the market, which then has its long-term impacts on our value-added products.

Right. So should we interpret by your comments on construction that we still haven't seen any meaningful impact from the Infrastructure bill approved last year in the U.S.?

We've seen numerous announcements and expectations, but those have not yet translated into orders. However, it may still be a bit early for that funding to be disbursed and for people to start turning ideas into actual orders on the ground. We've had significant interaction with the government regarding the IRA, and we are looking for ways to leverage that to promote our breakthrough technologies. In meetings I've attended, there seems to be a strong enthusiasm among participants about investing in the U.S. and building up capacity. I feel very optimistic, but it's probably still too early to see that excitement turn into specific orders for us.

The next question comes from Emily Chieng with Goldman Sachs.

My first is just around the Alumar smelter. I thought that this was going to be a 9-month process in wrapping the smelter back to full capacity. So curious what's driving the delay there? Is it operational? Or is there some intentional throttling of volumes back given the pricing environment?

Yes, Emily, I'll address that. It's primarily logistical and operational. When we began restarting Alumar, it was challenging to obtain the quality of raw materials necessary for the restart we anticipated, which posed a disadvantage at the outset. However, we've resolved those issues, and we now have the required quality materials because a significant portion of the smelter is already operational. This means we have the raw materials available and can produce some of the necessary outputs to restart additional pots. Another challenge we've encountered is that while many of the pots have been relined, others have not, and as we began to operate them, we were unable to keep them running as long as expected, resulting in more failures during the restart than we anticipated. This is partly due to the fact that the facility was idle for several years. We are now back on track with the restart process, in line with our expectations communicated at the end of Q4. We have the right management, operators, and team in place, and I am very optimistic about their progress and the long-term potential of the facility, especially given our favorable power contract and strong operational capacity.

Understood. That makes a lot of sense. And maybe shifting gears to San Ciprián, and I wanted to talk about the refinery there. I believe the gas environment for San Ciprián or gas contracts or rather the price of the pot, at what point given where gas prices are today, is there any consideration to bring back some of the refining capacity there?

So I'll take that one and Molly can jump in if she has some quantitative comments as well. We're essentially running at 50% capacity. And I can promise you that running a refinery at 50% is never the ideal point. And really, what we've been targeting is to try and focus as much on non-metallurgical grade alumina because those tend to be higher-priced contracts and for more specialized operations. But we're also selling some smelter-grade alumina as well. We analyze almost continuously to see at what point have natural gas prices come down. And then when you look at the price of SG&A in the market, does that create a business case for restarting more of that capacity. I'll put in a short advertisement we have a great workforce in San Ciprián. They really run that refinery really well. They're running it at levels they've not for a very long time, and I'm very pleased with what they've done, and we're on top of things to see when we can make that natural gas price connect with the market environment so that we can bring that capacity back up online again.

I'll just add that we did see about a $20 million sequential improvement there for that site this quarter. So great progress.

The next question comes from Alex Hacking with Citi.

I just have a quick follow-up on WA. When will the state EPA make a decision about whether or not to accept the third-party referral? And if they do decide to accept that referral what is the practical implication of that? Sort of what happens next, does that constrain your ability to operate in any way and develop new mine plans?

Yes, Alex, I'll address that. We are currently in the data collection phase where the EPA is evaluating two main aspects. First, they are determining whether the referral is valid, meaning it meets all the necessary requirements. If it is deemed valid, they will then decide if it should be assessed, which involves understanding the potential environmental impacts. This process will take some time, and we cannot provide a specific timeline because it gets reset with each new data request. We have structured our thoughts on the bauxite grade impact and its extension into the first quarter of 2024 to give you an idea of how this might influence the process, assuming it unfolds as expected. I can't speculate on hypothetical outcomes of the process. Currently, there is no clear standard for the subsequent steps. It's important to note that the state EPA and the referral process, along with discussions surrounding operating permits, are managed at the Western Australian level. Our efforts are focused on addressing these challenges by implementing measures to protect watersheds and maintaining high water quality in Western Australia, while also accelerating our biodiversity and rehabilitation initiatives. Moving forward, we need to reach an agreement with the Western Australian government about our protective measures, which will guide where we can proceed with mining the next phase of material.

The next question comes from Lawson Winder with Bank of America Securities.

Two quick questions for me. First would be in terms of your expectations for the CapEx ramp for 2023, which quarter do you expect would be the heaviest level? And where do you expect Q2 '23 to be directionally versus Q1?

Our fourth quarter typically has the highest capital expenditures, and we are projecting $485 million for sustaining capital and $115 million for growth initiatives. We currently do not have the figures for the previous quarters.

Would it be a gradual ramp up like it has been in the past. So...

Yes. Yes, I'll follow the past, gradual ramp up.

And I'm not sure I heard you mention it, but who is the third party that referred the case to the EPA and what are their key concerns?

We didn't specifically identify a third party, but it is a local NGO. Their main concerns are about protecting water quality since we are mining in areas located within the watershed for Perth. We need to ensure that we control erosion and implement all necessary mitigation measures to prioritize water safety, which has always been our approach. However, we should aim to enhance our risk reduction efforts to meet the expectations of our regulators. Additionally, they are interested in biodiversity and our rehabilitation efforts in the Jarrah Forest. The Jarrah Forest is one of the most stunning locations on Earth, and it is a significant privilege for us to conduct mining there. Reflecting on our 60 years of operations in Western Australia makes me proud of our achievements, both scientifically and in practical restoration, especially since it's been quite some time since I've observed our restored habitats.

And our last question is a follow-up from Lucas Pipes with B. Riley Securities.

The follow-up is on the LME situation, Roy, that you mentioned earlier. Do you have a kind of timeline in mind for potential breaking point given the inflows of Russian Metal in London?

Yes, it's always good to get these questions. It's difficult to predict exactly, and I prefer not to think in linear terms. When we began this process last year, around 5% of our inventories were Russian. Now, that figure has risen to 53%. I can't specify when the market will become increasingly distorted, but eventually, the only remaining metal in LME warehouses will be that which is only used by a limited number of non-Western producers. We are noticing more and more customers who are highly sensitive to any Russian content because if their products enter the U.S. market, they might face significant tariffs due to how these tariffs were structured. To stress my point, 53% already serves as a significant warning that we will soon reach a point where the aluminum metal price determined by LME will be reliant on metal that nobody wants. This situation is not where we want to be. It's illogical that other parts of the world are experiencing curtailments while Russia operates at full capacity. This doesn't make sense to me, which is why we believe sanctions are the best solution. We also think the LME should immediately delist Russian metal.

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

Thank you, Vaishnavi, and thanks once again for everyone who joined our call today. I've appreciated the questions and continued interest in Alcoa. And I also want to thank Molly for joining me for her first earnings call. I know she'll be relieved that it's over. But it's also just a privilege and a pleasure to have her here at my side. As we outlined in our presentation today, we're making progress every day in accordance with our purpose, vision, and values. We aim for continued improvement in everything we do, and I truly have confidence in our teams and their abilities. We know how to solve problems. That's been part of the aluminum industry for the 25 years that have been here. This includes the challenges that we face today while continuing to work on our long-term strategies on resolving Western Australia as a great example. We know the future will bring even more importance to our products across the aluminum value chain as the world works to decarbonize. That's why we've been so focused on building an even stronger company and not sacrificing the work that we're doing on our breakthrough technologies, and we intend to remain resilient and ready and running forward. I look forward to talking to you again in July when we'll share our second quarter results. In the meantime, please be safe. And once again, thanks for your time today. Good night, everyone.

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