Alcoa Corp Q2 FY2025 Earnings Call

Good afternoon, and welcome to the Alcoa Corporation Second Quarter 2025 Earnings Presentation and Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Louis Langlois, Senior Vice President of Treasury and Capital Markets. Please go ahead, sir.

Thank you, and good day, everyone. I'm joined today by William Oplinger, Alcoa Corporation's President and Chief Executive Officer; and Molly Beerman, Executive Vice President and Chief Financial Officer. We will take your questions after comments by Bill and Molly. As a reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings. In addition, we have included some non-GAAP financial measures in this presentation. For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation. We have not presented quantitative reconciliations of certain forward-looking non-GAAP financial measures for reasons noted on this slide. Any reference in our discussion today to EBITDA means adjusted EBITDA. Finally, as previously announced, the earnings press release and slide presentation are available on our website. Now I'd like to turn over the call to Bill.

Thank you, Louis, and welcome to our second quarter 2025 earnings conference call. We delivered strong operational performance this quarter, both in terms of safety and stability. This is an important value driver for the company. We maintained a fast pace of execution on our priorities and continue to steer through changing market conditions. Let's begin with safety. Safety performance remained strong in the second quarter with no fatal or serious injuries reported. Injury rates continue to trend below our full year 2024 benchmarks, supported by a sustained emphasis on leader time in the field. This initiative enables leaders to engage directly with teams, conduct safety observations and deliver both positive reinforcement and constructive feedback. We continued executing on our strategic priorities. On July 1, we closed the sale of our 25.1% stake in the Ma'aden joint ventures for a total value of $1.35 billion, consisting of $1.2 billion of Ma'aden shares and $150 million of cash. In late April, we successfully concluded a 5-year tax dispute in Australia with a favorable ruling for Alcoa. The Australian Review Tribunal affirmed our long-standing position, determining that no additional tax was owed. This outcome reflects the substantial effort and dedication of our internal and external legal and tax teams whose strong defense was instrumental in achieving this result. Throughout the quarter, we steered through frequent tariff updates that demanded agile decision-making and rapid adjustments across both sales and supply operations. We redirected portions of our Canadian production to serve non-U.S. customers to mitigate Section 232 tariff impacts. In parallel, we sustained active advocacy and engagement with policymakers on both sides of the U.S.-Canada border. Finally, our recent customer engagements continue to signal encouraging demand trends. We extended our supply agreement with Prysmian, a global leader in energy and telecom cable systems and completed our first North American sale of EcoLum, a value-added low-carbon product, further reinforcing our position as a supplier of choice for sustainable aluminum solutions. In summary, we delivered strong performance across the areas within our control while continuing to advocate for trade policies that support both Alcoa and the broader U.S. aluminum industry. Now I'll turn it over to Molly to take us through the financial results.

Thank you, Bill. Revenue was down 10% sequentially to $3 billion. In the Alumina segment, third-party revenue decreased 28% on lower average realized third-party price, partially offset by increased shipments. In the Aluminum segment, third-party revenue increased 3% due to increased shipments and favorable currency impacts, partially offset by a decrease in average realized third-party price. While the Midwest premium increased during the quarter in response to the increase in U.S. tariffs, the increase was more than fully offset by lower LME, resulting in a decrease in the realized price of aluminum. Second quarter net income attributable to Alcoa was $164 million versus the prior quarter of $548 million, with earnings per common share decreasing to $0.62 per share. On an adjusted basis, net income attributable to Alcoa was $103 million or $0.39 per share. Adjusted EBITDA was $313 million. Let's look at the key drivers of EBITDA. The sequential decrease in adjusted EBITDA of $542 million is primarily due to lower alumina and aluminum prices and increased U.S. Section 232 tariff costs on aluminum imported into the U.S. from our Canadian smelters. The Alumina segment adjusted EBITDA decreased $525 million, primarily due to lower alumina prices. In addition, higher production costs, energy costs, and raw material costs were only partially offset by higher volumes. The Aluminum segment adjusted EBITDA decreased $37 million. While lower metal prices and unfavorable currency were more than offset by lower alumina costs, the segment was impacted by $95 million in U.S. Section 232 tariffs, which includes the increase in the tariff rate from 25% to 50% effective June 4. These impacts were only partially offset by price/mix improvements and higher volumes. Outside the segments, other corporate costs increased, while intersegment eliminations changed favorably due to lower average alumina price requiring less inventory profit elimination. Moving on to cash flow activities for the second quarter. We ended the quarter with cash of $1.5 billion. Cash from operations was positive again this quarter, providing $488 million, along with a working capital release of $251 million. Working capital decreased from the first quarter as accounts receivable came down with the lower prices for alumina. Subsequent to the close of the second quarter, on July 1, we received approximately 86 million shares of Ma'aden and $150 million of cash for the sale of our interest in the Ma'aden joint ventures. The majority of the cash will be used to pay related taxes and transaction fees. Moving on to other key financial metrics. The year-to-date return on equity was positive at 22.5%. Days working capital was flat sequentially at 47 days. Our second quarter dividend added $27 million to stockholder capital returns. We had positive free cash flow for the quarter of $357 million. Turning to the outlook, we have four adjustments to our full year outlook. First, we are adjusting our annual outlook for aluminum shipments to 2.5 million to 2.6 million metric tons, down from our initial estimate of 2.6 million to 2.8 million metric tons. The change is due to reduced shipments from the San Ciprián smelter where the restart was disrupted by the nationwide power outage in April. As separately announced earlier this week, the joint venture has decided to resume the restart process in the third quarter. The reduction in aluminum shipments will primarily impact the third quarter due to the timing of the San Ciprián ramp-up. Second, we are lowering other corporate costs to $160 million from our initial estimate of $170 million due to reductions in corporate expenses and favorable currency impacts. Third, we are increasing our outlook for interest expense to $180 million from our prior estimate of $165 million due to unfavorable value-added tax assessments. And last, we have adjusted the return-seeking CapEx outlook for 2025 to $50 million, down from $75 million as the pace of spend has not matched the original forecast. For the third quarter of 2025, in the Alumina segment, we expect performance to improve by approximately $20 million with lower maintenance costs and higher production. In the Aluminum segment, we expect higher Midwest premium revenue in relation to the increased tariffs. Premium changes can be calculated from the sensitivities provided in the appendix. Those premium gains will be offset by approximately $90 million in sequential expense increases for tariff costs. With the increase in the U.S. Section 232 tariff rate from 25% to 50%, we expect quarterly tariff costs to approximate $215 million based on an LME of $2,600 and Midwest premium of $0.67 per pound. While costs related to the San Ciprián restart will be higher sequentially, they are not material, and we expect to cover them with improvements in other operations. Alumina costs in the Aluminum segment are expected to be favorable by $100 million. Our updates exclude impacts from the recently announced tariffs on U.S. imports from Brazil. Below EBITDA, other expenses in the third quarter are expected to remain consistent with the second quarter. Based on last week's pricing, we expect third quarter operational tax expense of $50 million to $60 million. Tax expense in the third quarter is notably higher than the second quarter, which included a catch-up benefit to reflect the annualized effective tax rate when applied to year-to-date earnings. In the appendix to the earnings materials, you will see that our Midwest paid and Midwest unpaid premium sensitivities have been updated to reflect the expected trade flows as a result of additional tariff impacts. We also revised our regional premium distribution to align with our efforts to redirect tons and optimize margins. Currently, approximately 30% of our Canadian aluminum production is available for spot sales and can be redirected to customers outside the U.S. when the premium shipping and tariff netback calculations favor another destination. Additional updates to our sensitivities may be needed as we continue to adjust our trade flows to the tariff structure. Now I'll turn it back to Bill.

Thanks, Molly. While tariffs continue to drive near-term volatility, the broader outlook for aluminum demand remains robust. This slide illustrates Alcoa's long-term demand forecast underpinned by powerful global megatrends across key sectors. Transportation leads as the largest and fastest-growing sector, driven by the shift to electric vehicles, lightweighting initiatives, and increased vehicle production. Construction shows more modest growth tempered by a slowdown in China, though emerging markets and favorable macroeconomic conditions like lower long-term interest rates and increased fiscal spending in Europe offer upside potential. Packaging is expanding rapidly, fueled by consumer preference for recyclable materials. Electrical demand is accelerating due to the global energy transition with aluminum playing a critical role in renewable power generation and grid modernization. Other sectors, including consumer durables and machinery and equipment, are also expected to grow steadily. Importantly, the geography of growth is shifting. Primary aluminum demand is projected to grow significantly faster in markets outside China at a 3% CAGR from 2025 to 2030, while China's growth slows to just 0.2% CAGR, largely met by recycled metal. Within Alcoa's core regions, North America is expected to lead with a 3.8% CAGR and Europe is projected to grow at 1.5%. Three structural drivers underpin the overall aluminum growth trajectory. The green and digital transition. Aluminum is essential to electrification, decarbonization, and digital infrastructure, supporting everything from electric vehicles to data centers. Second is the rise of developing economies, the China transition, and reshoring in North America and Europe. As China's growth moderates, developing economies are stepping up. Meanwhile, reshoring in North America and Europe, often driven by trade policy, continues to boost regional demand. Third, material substitution. Aluminum's recyclability and performance make it a preferred alternative to copper, plastics, and other materials, especially in closed-loop systems. Despite short-term uncertainty, these megatrends provide a resilient and compelling roadmap for long-term aluminum demand growth. Now turning to our markets, starting with alumina. After a sharp decline during the first quarter, alumina prices rebounded somewhat in recent months. As noted in our previous earnings update, over 80% of Chinese refineries were operating at a deficit due to high bauxite prices and low alumina prices. In response, approximately 10 million metric tons of refining capacity in China was curtailed or reduced for maintenance during April and May. These production cuts contributed to a more balanced market and supported the price recovery seen in the second quarter. Looking ahead, market dynamics will continue to be shaped by capacity expansions in Indonesia, India, and China. As new supply comes online, we anticipate further production cuts and plant maintenance in China may be necessary to maintain market balance in the second half of the year. On the bauxite front, prices have remained elevated due to supply uncertainty stemming from mining license withdrawals in Guinea. These disruptions could intensify with the onset of the rainy season, further tightening supply. In this dynamic environment, Alcoa's global refinery network continues to provide reliable aluminum supply to both our smelters and key customers. We're also capitalizing on high bauxite prices with our Juruti mine on track to achieve record sales volumes this year. Let's now move on to aluminum. LME prices dipped in April, coinciding with the reciprocal tariffs announced on April 2, but regained momentum over the course of the quarter. Despite this recovery, prices remained below first quarter levels, reflecting ongoing market volatility. U.S. Midwest premium initially surged in early June following the implementation of the 50% Section 232 tariffs, reaching $0.68 per pound and now stands at $0.67 as of late last week. This remains below analyst estimates of approximately $0.75 per pound to fully offset the tariff costs. The Midwest duty unpaid index, calculated by subtracting the tariff from the duty paid premium, has shown negative or near zero values at times. This theoretical index only holds when the market is priced on marginal imports, which hasn't consistently been the case. In response, we sold over 100,000 metric tons of Canadian metal normally destined for the U.S. to non-U.S. customers since March, and we'll continue this strategy until the Midwest premium fully reflects the new tariff structure. From a demand perspective, conditions remained steady in both Europe and North America, although sector performance is mixed. Electrical and packaging continue to perform well. Construction appears to be stabilizing and automotive remains the most affected by tariff-related uncertainty. In China, easing trade tensions with the U.S. are providing a modest boost to demand. On the supply side, growth was limited in the second quarter with only marginal increases from smelter restarts and expansions. Global production remains constrained, particularly outside of China. Specific to Alcoa, in North America, our value-added product order book remains stable with strong demand for slab, billet, and rod. In Europe, VAP volumes improved slightly in the second quarter with billet demand strengthening and rod and slabs demand holding firm. However, foundry orders softened in both regions, largely due to uncertainty in the automotive sector tied to tariff impacts. We are progressing the approvals for our next major mine regions in Western Australia, Myara North, and Holyoake as well as our current mine plan, which had been referred by a third party. The 12-week public comment period for both approvals, which began in late May, is a statutory part of the Environmental Impact Assessment process. It enables individuals, communities, and stakeholders to share input, raise concerns, and recommendations for consideration. Concurrently, we are supporting the public comment period through a comprehensive communication and engagement campaign. The focus of the campaign is to ensure that the public has access to accurate information and facts about our environmental performance in Australia and understands our commitment to responsible mining in the Northern jarrah forest. Some key highlights include over 55 years of rehabilitation experience. Only 2% of the Northern jarrah forest has been cleared for mining. No mining in old growth forests, operations are limited to areas previously cleared for timber and 75% of cleared forest has been rehabilitated. The campaign also showcases the expertise and dedication of our Alcoa professionals who apply a science-based approach to biodiversity and rehabilitation. Given the complexity of advancing two mine approvals at the same time, the volume of documentation submitted by Alcoa and independent experts and the anticipated effort to review and respond to public submissions, the original timeline for mine approvals is no longer feasible. While ministerial approval was initially targeted in the first quarter of 2026, it is now expected that the process will extend beyond that timeframe. Following the public consultation period, we expect the Western Australia EPA will publish a revised timeline. We remain committed to working collaboratively with the Western Australia EPA and other stakeholders to secure ministerial decisions as early as possible in 2026. In the meantime, we have developed multiple contingency plans and expect to continue accessing bauxite of similar grade until the new mine regions are operational. We will continue to engage with stakeholders to fulfill our responsibilities as a trusted miner and to sustain our right to mine for decades to come. To conclude, in the second quarter, Alcoa delivered strong safety results and operational performance in areas within our control. We also made meaningful progress on our strategic priorities. Looking ahead, we remain focused on executing at pace across our 2025 priorities, enhancing operational competitiveness, navigating market dynamics to deliver long-term value for our stockholders and advancing the approval process for our Western Australian mine plans. With that, let's open the floor for questions. Operator, please begin the Q&A session.

And our first question comes from Katja Jancic with BMO Capital Markets.

Maybe starting on the tariff side, Molly, you mentioned that the current outlook doesn't include anything regarding potential 50% tariffs on Brazil. How would you be impacted if that does happen?

Katja, it depends on if alumina is indeed excluded. Our read of it now is that it's covered under the annex. But until we see the executive order that would be related to Brazil, we can't assure that. If that were the case, we are sourcing our U.S. smelters with Brazilian alumina. Now we could redirect supply and provide them from Western Australia, but obviously, that will take time and cost more in terms of shipping. But we have that option. And depending on how that executive order is written, we can adapt.

Okay. And maybe just another question, Bill, on the Western Australia contingency plans. Can you discuss what some of those plans could be? And how could that impact your cost?

So at this point, as far as an impact on cost, we don't anticipate any impact in 2025 or 2026. The expectation that we would be into the new mine areas in late 2027 has now slipped out into 2028. We have a series of contingency plans that cover different mining areas, potentially going deeper in the pits that we're in that allow us to be comfortable that we are working through the process, and we'll get the right approvals.

And your next question today will come from Alex Hacking with Citi.

Just following up on Katja's question there on WA. If the delays to the new mine areas are extended, can you keep mining the lower grade areas for a period of additional years? Or it would be more urgent than that?

We will continue to explore our current areas. As mentioned earlier, there will be no impact on our plans for 2025 and 2026. We anticipate starting operations in the new mines by late 2027, but this could be pushed back to 2028. However, we have contingency plans that could accommodate delays of up to 15 months if necessary.

Okay. What if it's longer than 15 months?

We'll work through that, and we'll look at what implications it has on operating rates in Pinjarra, but we'll work through that when we get there.

Okay. And then just following up on the tariff maths. I mean, Molly, you mentioned that I think it was $215 million a quarter in Section 232 cost. Is that being more than offset by what you're getting on the additional Midwest premium at the moment?

Yes, Alex, let me provide you with the numbers from the second quarter. In our discussion, we noted that the tariffs increased by $95 million in the second quarter, in addition to the $20 million we incurred in the first quarter. Therefore, the total cost for the second quarter was approximately $115 million. We observed an uptick of about $60 million in the Midwest premium. Consequently, we faced margin compression of about $55 million, which is related to our Canadian tons. While we are benefiting from our U.S. tons, I'm highlighting the compression we experienced with the Canadian tons.

Sorry, the $60 million additional, is that just on the Canadian tons or does that include the U.S. tons?

Regarding the Canadian tons, if we examine the current pricing, the LME is at $2,600 and the Midwest premium is at $0.67 a pound. Overall, we are either neutral or slightly positive when considering the volumes, since the increase in the Midwest premium for U.S. tons offsets the slight negative impact on our Canadian tons. If this pricing remains consistent throughout the year, we would likely end up neutral to slightly positive.

One point we continue to emphasize, which I believe other analysts in the industry also acknowledge, is that the current Midwest pricing does not adequately cover the overall tariff costs from Canada. Currently, the Midwest premium is around $0.67 to $0.68. We believe it needs to be in the range of $0.70 to $0.75, depending on the perspective, to fully account for total tariff expenses. This is why we have adjusted our metal shipments, which were intended for the U.S., to be redirected to other destinations outside the U.S., as the current calculations do not favor this approach. We will seize any opportunity to optimize shipments to other markets.

And your next question today will come from Daniel Major with UBS.

Just very quick first one. Just to clarify the maths on the tariff costs, you had $115 million cost in the second quarter, and you said it's going to be a negative $90 million delta. So it's $205 million the run rate of cost in the second quarter. Is that correct?

That will be the third quarter cost, yes, $205 million. And then we're saying again at latest pricing. So if you dialed forward, that would be the $215 million that we guided to in tariff cost.

Got it. Clear. That's very good. Yes. Then the second question just on San Ciprián. You updated the respective net income drag and cash burn this year. Can you give us any sense of expectations for 2026 at this point? My guess would be the refinery will continue to burn cash. But is there any guidance you can give on either the cash burn or not at the smelter and the refinery?

Yes, Daniel, we're not providing guidance on that just yet, but you are correct. Currently, the Spanish operations are facing challenges due to recent market prices. The delay in restarting the smelter after the power outage means that full ramp-up will now extend into 2026. We anticipate that once we reach full ramp-up, the smelter will become profitable. However, the refinery is expected to show income in the first quarter of 2025 but will likely enter a loss position for the remainder of the year, and it will continue to struggle at this API level into 2026.

Okay. But at spot, you can confirm that the smelter would be cash neutral?

The smelter at fully ramped up a level would be profitable.

But remember, it won't be fully ramped up in 2026. Our expectation is that it will meet the ramp-up schedule for 2026. However, for the entire year, it will still be in the process of ramping up.

And your next question today will come from Nick Giles with B. Riley.

This is Henry Hearle on for Nick Giles today. So on our estimates, you have about 50,000 metric tons of spare annual capacity at Warrick and the Midwest premium has increased sharply to reflect that tariffs may be stickier than originally thought. So my math, the spare capacity at Warrick could generate over $100 million of EBITDA annually. And so what prevents you guys from restarting this capacity today?

Thanks for the question, and it's a great question. We're currently running three lines at Warrick. We have a fourth line at Warrick that would produce approximately 50,000 tons. The issue in Warrick is that, that fourth line needs a lot of work and will take some time to get restarted. So our estimate is that it would be about a $100 million investment to restart that fourth line, and it would take us about a year to get it up and running. So we will certainly continue to run the numbers on Warrick. We would need to ensure that the tariffs will stick around for quite a while given that ramp-up curve in Warrick before we made the decision of investing another $100 million in a restart in Warrick.

And your next question today will come from Bill Peterson with JPMorgan.

On the mid-2026 restart of San Ciprián, it still implies 75% utilization. Can you remind us of, I guess, when the term of the agreement with the workforce comes to an end and whether the delayed restart has any impact on that?

Thank you for the question. After the power outage in Spain, we declared force majeure on that contract because it prevented us from meeting the deadlines specified. We had originally anticipated a full restart by October 1, 2025, and planned for some flexibility in operating the plant afterward. However, due to the power outage, we will not meet that October 1 deadline and have postponed it to the middle of 2026.

Okay. And then kind of a different angle on the tariffs. And last quarter, I asked you about conversations with the U.S. government. But I guess in light of the tariffs remaining where they are now, how should we think about the commercial strategy, things like tariff cost sharing? And maybe perhaps you can share additional color on your shifting flows to non-U.S. customers. How should we think about that in the coming months? And then finally, is there any opportunities from relief from the Canadian government in the meantime?

We have engaged in extensive discussions on both sides of the border. I have been in frequent contact with the Carney administration and the U.S. administration. In response to the 50% tariff, we redirected 100,000 tons to customers outside of the U.S. As mentioned by Molly in her remarks, we can redirect about 30% of our Canadian volume to non-U.S. destinations. We will continue to do this as long as it makes more financial sense to ship to other markets than to the U.S. We have been very adaptable and have managed this situation quickly, and we will keep doing so moving forward. I feel like that covered multiple points. Did I miss anything?

Yes. Just anything on tariff cost sharing that you might add?

When we talk about tariff cost sharing, the Midwest premium is mainly used to transfer the increased tariffs to our customers. To clarify, we need the Midwest premium to be around $0.75 to completely offset the tariffs. We can pass on 90% of that increase to our customers through a higher Midwest premium. Although we aren't particularly pleased with the tariffs, our customers are facing much higher prices for aluminum in the United States compared to prices elsewhere in the world.

And your next question today will come from Chris LaFemina with Jefferies.

Isn't it the case that the tariffs are essentially neutral for you? If you're diverting a lot of product away from the U.S. to get better prices elsewhere, the Midwest premium increases. Unless the Midwest premium is high enough to make it worthwhile to sell to the U.S., you would prefer to sell in other markets. Ultimately, it seems like it should balance out, and U.S. customers will end up paying the premium. I'm not sure why the guidance indicates any net impact beyond considering the current Midwest premium and the LME price. Over time, shouldn't it all equal out? That's my first question.

Let me address this, and Molly can certainly add her thoughts. Based on the numbers Molly provided earlier, if the Midwest premium behaves as expected, it ultimately has no net effect on Alcoa. However, there is a key point to consider. Our U.S. customers are facing much higher prices than anywhere else globally. If they can pass those costs onto their customers, then it remains neutral for them, but someone has to absorb the tariff costs. We have dedicated supply chains from Canada to our customers, with trains delivering directly from our plants, and we believe it is most beneficial for the industry to allow metal to flow from Canada to the U.S. with lower or no tariffs. This approach would be the best outcome for our customers and the industry.

In that case, the impact of the tariffs primarily affects total demand, which would lead to a decrease in LME prices. However, aside from the overall effect on global LME prices, Alcoa's impact should remain neutral. This is because, ultimately, the Midwest premium should align with the tariffs over time.

Chris, you have to remember that we do have customer contracts. So we don't have full flexibility to move the metal dynamically. So 70% of our Canadian metal is on contract, so that needs to flow into the U.S. for customer commitment.

Okay. And then sorry, just a second question on the ATO, which I think you had $225 million in taxes now by the middle of next year. Is any of that provisioned on the balance sheet yet? How do we think about the kind of cash flow impact of that and the balance sheet impact of that?

Yes. That is fully reserved on the balance sheet now as a tax payable.

And Chris, I'm just going to add to that, and I can't help myself. That is a major win for Alcoa. That was a large overhang on the company and on the stock. We have been battling that for 5 years now. And to get that behind us is a really big deal. And I'll give some credit to our tax and legal team here that stuck with it and really presented a great case. So I'm pleased that we're able to put that behind us.

And your next question today will come from Carlos De Alba with Morgan Stanley.

Just on the last point you made, Molly, that 70% of your Canadian smelting output is contracted for sale to U.S. customers. When can you start renegotiating those contracts so that the percentage decreases?

So those are annual contracts, but also understand we have firm customer relationships that we're not going to jeopardize. So Carlos, you could see some flexibility, but it's going to be a careful balance of respecting our strong customer relations as well as moving the metal to get the best margin.

All right. Okay. And if I may, just on the progress on the Alumar smelter in Brazil. What is the capacity utilization at which you are running? And when do you expect to get sort of a steady state?

We are still facing challenges with the Alumar restart and currently operating at about 92% capacity. Overall, we have made some progress in the last quarter. The problem is that some of the patch pots we didn’t expect to need relining are failing more quickly than we anticipated. It's a continuous struggle, as we make progress, then face setbacks almost daily. We expect to have everything running smoothly this year, but I have mentioned similar timelines before, and I have not always met those targets. So please keep that in mind.

And your next question today will come from Lawson Winder with Bank of America.

Bill and Molly, thank you for today's update. Just wanted to follow up on the Ma'aden closing. And whether there's any new thinking on the potential to monetize that amount or even just simply lower your overall borrowing cost using that as collateral?

Lawson, while we have the option to monetize those shares during the lockup period, recall the lockup period, we cannot sell shares until the third, fourth, and fifth anniversary, each year. But to monetize those would be complex transactions, and that would be classified as debt on our balance sheet, and that might not really be a cost-effective source of liquidity either. While we don't expect to hold the shares for an extended period of time after each lockup period expires, we don't have plans to monetize in advance. Right now, we don't have a specific use for the cash that would have us add that debt to our balance sheet. Yes. So it will be mark-to-market, and you'll see special items to remove that from our regular operations.

And your next question today will come from John Tumazos with John Tumazos Very Independent Research.

I'm curious as to the confidence you have in Spain restarting this week that the utility will deliver electricity. Presumably, the population grows something like 10% July, August with tourism. And then there's air conditioning, electricity demand in the heat of the summer. So are there any guarantees of power delivery or something that's different than August 28 when the wind didn't blow?

So John, we've been considering this issue since the wind didn't blow earlier in the year. We've been collaborating with national and regional representatives in the country, and they've established a list of 65 actions in the energy sector to enhance the resilience of the electricity grid. They are adding tools like voltage control and focusing on stability during fluctuations. They are making efforts to strengthen the electrical systems. While there are no guarantees, we believe they are taking the appropriate steps to ensure that the power remains uninterrupted.

As you start up Monday, the 14th, how many pots per week do you energize? Is the circumstance in late July and August where you're really not drawing very much electricity because of the gradual nature of the process?

Yes, it's a gradual ramp-up process, and we expect to reach our target by the middle of next year. I believe there are 500 pots in Spain. We'll begin scaling up by starting a few pots each week to achieve total production by then.

And your next question today will come from Glyn Lawcock with Barrenjoey.

Firstly, Bill, just wondering if you could share any thoughts on how discussions with the government are going regarding the tariff. I had heard that maybe Canada could be in line for a reduction relative to the rest of the world. And then secondly, I don't want to put the cart before the horse, but net debt came down, you're almost within sight of that $1 billion to $1.5 billion range. Just your thoughts on timing for when we may hear some words on capital management and what you're potentially thinking if it's not too early?

I want to stress how much we've been advocating and engaging over the past few months regarding tariffs. I've spent time in Ottawa and D.C., meeting with various officials, including Mr. Hassett, Mr. Lutnick, and Mr. Greer. I even had a brief conversation with President Trump in Saudi Arabia. We're focusing on two main points. First, we're educating officials about the short supply of aluminum in the U.S. and the lengthy process required to build new plants domestically to meet that demand. Constructing a smelter in the U.S. could take at least five years to replace the 4 million metric tons of aluminum imported. We would need 6 gigawatts of energy, translating to a cost of about $30 billion for that capacity. Second, we're informing them about the tight supply chains between the U.S. and Canada and the benefits of sourcing aluminum from Canada to support our downstream customers. Additionally, for every upstream job in Canadian primary production, approximately 12 or 13 jobs in the downstream processing sector are supported in the U.S. This highlights the significant role upstream jobs play in the existing downstream processing industry. Shall we discuss capital flows?

So Glyn, thanks for the question on the cap allocation. We made good progress this quarter on our adjusted net debt target. At the end of the second quarter, we were at $1.7 billion. That's an improvement from the $2.1 billion from the first quarter. We are about $200 million away from the high end of our target at $1.5 billion. While we reach the top end of the range, we will look across our capital allocation priorities, so returns to shareholders, portfolio actions as well as any growth opportunities. We do recognize that we have a bit more work to do inside the target. The adjusted debt, which we define as including the gross debt plus pension is at $3.2 billion and that's above the high end of that range that we've targeted at $2.1 billion. So we will work on some delevering. We do have our 2027 notes, a portion of those remain about $141 million, those are now callable at par. We also have a portion of our 2028 notes that are now callable with a small premium. That's about $219 million. So we'll look at keeping in mind that our cash target is $1 billion to $1.5 billion. We'll work on some delevering.

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

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

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