Earnings Call Transcript - AA Q4 2023

Operator, Operator

Good afternoon, and welcome to the Alcoa Corporation Fourth Quarter 2023 Earnings Presentation and Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, today’s event is being recorded. I'd now like to turn the conference over to James Dwyer, Vice President, Investor Relations and Pension Investments. Please go ahead.

James Dwyer, Vice President, Investor Relations and Pension Investments

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

William Oplinger, President and CEO

Thanks, Jim, and welcome, everyone, to our fourth quarter 2023 earnings call. Today, we'll review the substantial progress we've made in the fourth quarter on key objectives, the financial results, the market and our plans to continue to improve and strengthen our company. I started last quarter's call by affirming the areas of Alcoa's near-term focus and reinforcing our values to act with integrity, operate with excellence, care for people and lead with courage. Consistent with those values, I'm proud that Alcoa's safety performance showed marked improvement in 2023. While we experienced two FSI-As last year, we improved year-over-year in all key safety metrics. We intend to continue our progress toward our goal of an injury-free workplace. Safety performance is important for another reason too. It's a key indicator of the stability and quality of our operations. Excellent safety performance goes hand-in-hand with operational excellence. I'm not surprised then, given our strong safety performance, we set production records at our three smelters in Canada and one in Norway, and we are also successfully restarting one potline at Warrick here in the States. We made great progress on other focus areas too. We achieved, what I said was our most important objective, gaining approvals for our bauxite mines in Western Australia. With these approvals, we now have a clear path forward for continued operation in Western Australia. Also in WA, we recently announced the curtailment of the 60-year-old Kwinana refinery, starting in the second quarter of this year. The decision was based on a variety of factors, including Kwinana's age, scale, operating costs and current bauxite grades, in addition to current market conditions. In December, we began engagement with the national and regional authorities in Spain, as well as the labor works council to discuss ongoing financial losses at the San Ciprian refinery and smelter. We are considering all forms of relief while working collaboratively on a long-term solution for the complex. With that, let me turn it over to Molly to go over the financials.

Molly Beerman, CFO

Thank you, Bill. Revenue was flat sequentially at $2.6 billion as lower shipments for both Alumina and Aluminum more than offset higher aluminum realized price. The net loss attributable to Alcoa improved by $18 million to $150 million, and the loss per share improved from $0.94 to $0.84. On an adjusted basis, the net loss attributable to Alcoa was $100 million or $0.56. The difference is primarily related to the recording of a valuation allowance on deferred tax assets in Brazil, net of non-controlling interest. Adjusted EBITDA increased $19 million to $89 million. For the full-year 2023, year-over-year revenues decreased by $1.9 billion to $10.6 billion and net loss attributable to Alcoa worsened by $528 million to a loss of $651 million, or $3.65 per share. Adjusted net income changed from $869 million in 2022 to a loss of $405 million in 2023, or $2.27 per share. And adjusted EBITDA, excluding special items, moved from $2.2 billion to $536 million. Let's look at the key drivers of EBITDA. Fourth quarter 2023 adjusted EBITDA increased as improved raw material costs and shipment volumes offset energy and price-mix challenges. In addition, favorable production costs, including recognition of the full-year benefit for Section 45X of the Inflation Reduction Act at Warrick and Massena more than offset higher other expenses. Alumina segment EBITDA increased by $31 million sequentially, primarily on lower raw material costs and lower production costs in Brazil and Australia. We also saw a substantial benefit from lower raw material costs in the Aluminum segment, which combined with favorable production costs, primarily 45X, to offset the impact of higher energy costs and lower value-add product premiums. The higher energy costs included a second year of unfavorable legislative changes in Norway's CO2 compensation arrangement. Outside the segments, transformation demolition costs were lower, but inter-segment eliminations and other corporate costs were unfavorable. Let's look at cash movements within the fourth quarter on the next slide. The cash balance increased by $18 million in the quarter to $944 million. The largest source of cash was working capital reduction of $222 million, which more than offset the largest use of cash, capital expenditures at $188 million, higher EBITDA of $89 million, various other items totaling $97 million and net non-controlling interest contributions of $18 million, mostly offset all other uses of cash. Moving on to other key financial metrics. Our key financial metrics are consistent with our earnings results. Full-year 2023 return-on-equity was negative 8.9%. Our fourth quarter dividend added $18 million to stockholder capital returns, which totaled $72 million for the year. While free cash flow plus net non-controlling interest contributions was negative for the year at $282 million, it was positive at $28 million in the fourth quarter. Proportional adjusted net debt increased by $0.1 billion due to fourth quarter pension and OPEB plan re-measurements. In both the fourth quarter and full-year 2023, capital expenditures and cash income taxes were our largest uses of cash. Days working capital improved by 11 days to 39 days year-over-year, primarily on decreases in inventories of $243 million. Sequential improvement, also 11 days, was driven primarily by the typical increase in year-end payables while reducing inventory values further. The improved working capital performance provided a significant source of cash in the fourth quarter resulting in a full-year working capital source of cash of $221 million. Let's turn to the outlook in the first quarter and the full-year 2024. For 2024, we have included an outlook for both production and shipments for the segments. We expect Alumina production to range between 9.8 million and 10.0 million tons and shipments to range between 12.7 million and 12.9 million tons. The difference reflects our normal trading volumes as well as externally sourced alumina to cover the customer contracts previously fulfilled by Kwinana production. The Aluminum segment is expected to produce between 2.2 million and 2.3 million tons, increasing on smelter restarts, while shipments hold steady between 2.5 million and 2.6 million tons due to lower projected trading volumes. In EBITDA items outside the segments, we expect transformation costs to remain at $80 million and other corporate expenses to improve to $120 million, reflecting a portion of our efforts in productivity and competitiveness programs.

William Oplinger, President and CEO

Thanks, Molly. Now let's discuss our markets. In Alumina, prices rallied at the end of the fourth quarter, driven by announced Chinese refinery curtailments due to a domestic bauxite shortage and concerns about Guinea bauxite supply, and have continued to increase in January. We expect the market to be short in 2024 with steady demand from smelters and little inventory available. In Aluminum, for 2024, we expect the balance to be a slight surplus market, depending on the speed of demand recovery during the year. On the supply side, there are few announced restarts or new projects, and China has held to its 45 million ton capacity cap. In addition, hydro power shortages caused 1.2 million tons of capacity to be curtailed in Yunnan province last November. Demand has stabilized in North America and Europe, and we see the potential for a moderate recovery throughout the year. Regional premiums are increasing due to both the widening contango and higher transportation costs to import metal. In our order book, value add product orders are stabilizing and premiums appear to be firming up. While lower than their peaks, premiums remain above historical levels. In China, we expect government stimulus programs to prompt demand growth as those measures take effect. Globally, growth in aluminum-intensive EVs and renewable power infrastructure will continue to support this positive trend. We also see demand improving in packaging as inventory destocking has been largely accomplished. Finally, on a concerning note, we have seen the share of Russian metal stocks on the LME stocks increase by 90% in December. Because LME stocks are now predominantly Russian origin metal, which is unwanted by much of the world, subject to a 200% tariff in the U.S. and now legally prohibited in the U.K., it is difficult to have confidence that the LME exchange price matches the true physical price for non-Russian aluminum. In December, we joined others within European Aluminium to call on the EU to progress sanctions against Russia and specifically to include aluminum primary metal, which remains outside the scope of the measures currently agreed to by the EU. Now, let's turn our focus from the market to Alcoa and our actions to improve profitability. This slide describes factors that can improve our financial performance over 2023's results. As you can see from the chart, we have significant upside potential to adjusted EBITDA. We divide the improvement drivers into three categories: near-term actions; medium-term opportunities; and market improvement. Near-term actions are underway and have the most well-defined financial impacts. The largest area of impact is our $310 million estimate of raw material savings for 2024, including for key raw materials like caustic soda and lime for refining and anode carbon products for smelting. Thanks to our procurement team's actions as well as pricing and inventory lags, roughly one-third of that amount is already fully realizable, and the remainder is conservatively estimated using current market pricing. Next, we are targeting a $100 million benefit from our program to reduce controllable operating costs across our organization. Outside of raw materials, energy and transportation, which are already under active management, recently initiated full run-rate savings are expected to be achieved by the first quarter of 2025. This overarching program includes general belt tightening, as well as efforts such as our workforce blueprint, in which we benchmark our operations internally and externally and set aggressive best-in-class goals for each operation. Three additional components of our near-term actions are: the Warrick smelter optimization and potline restart, with the benefit of additional IRA funding at both Warrick and Massena; completing the Alumar smelter restart and realizing savings from the Kwinana curtailment. All of these locations are fully mobilized and working toward achieving the savings targets. As mentioned earlier, last month, we started discussions with union and government stakeholders on finding a long-term solution for the San Ciprian smelter and refinery. In late 2021, with the support of our employees, local communities, and government, we started down a path that aimed at positioning the San Ciprian complex for long-term economic viability. To accomplish that goal, Alcoa invested hundreds of millions of dollars in the operations and supporting employees, their families, and the local economy. While operations continue to be restricted to 50% at the refinery and are fully curtailed at the smelter, 2023 EBITDA losses were over $150 million across the San Ciprian complex. Despite our collective efforts, we've clearly fallen far short of our goal of achieving economic viability for San Ciprian. Looking ahead into 2024, the San Ciprian complex is expected to incur substantial losses, even with the recent improvements in energy markets and the aluminum price. If the situation does not change significantly in the months ahead, we anticipate that available funding will be exhausted in the second half of 2024. If that happens, we will have no choice but to make hard decisions that will adversely and potentially irrevocably impact employment and the economy in Galicia more broadly. Nobody wants that. But absent significant change, that is exactly what will happen. That is why we are urgently advancing our engagement efforts with employees and governments to begin defining options. For its part, Alcoa intends to continue to honor the spirit of the commitments it made in the viability agreement. However, we will need flexibility from our unions and significant support from the regional and national governments.

Michael Dudas, Analyst

Good evening, Bill, Molly, Jim.

William Oplinger, President and CEO

Hey, Mike.

Molly Beerman, CFO

Hey, Mike.

Michael Dudas, Analyst

First, with San Ciprian, Bill, given your analysis over the past few months and your experience in this area, could you evaluate whether you feel more comfortable with the potential solutions or if there are any changes or opportunities emerging? Are we reaching a point where something needs to change, as you mentioned in your prepared remarks?

William Oplinger, President and CEO

Thank you, Mike. I want to provide some context regarding San Ciprian and the current situation. In February 2023, we agreed to a phased restart of the smelter, expected to begin in 2024 through the viability agreement. The refinery has been operating at about 50% capacity since the third quarter of 2022 to reduce losses. As of now, the financial outlook for both the smelter and the refinery remains unfavorable. We are committed to upholding the obligations of the viability agreement, but this commitment must lead to a viable operation. Unfortunately, market declines and delays in developing a competitive power solution have significantly pushed back the timeline for achieving viable operations. Under these circumstances, we need to explore all possible actions to extend the remaining available funds and ensure a viable business plan for the site. It is important to note that both the refinery and smelter have not been able to finance their operations for many years. Their operational losses and investments have been supported by loans from other Alcoa entities, and San Ciprian currently has no ability to repay those loans. The Alcoa entities will not provide additional funding to a non-viable operation, which is crucial to understand. As for the timing of a resolution, it remains uncertain. We are asking the unions for their understanding and flexibility as we seek a solution. Additionally, we are collaborating with regional and national governments to explore all potential relief options. We aim to work together with all stakeholders on a long-term solution. This summarizes the history and the current status at San Ciprian.

Michael Dudas, Analyst

That's very helpful. Thank you, Bill. And my follow-up is maybe more thoughts on your near-term actions on your EBITDA potential slide. And the $310 million of the raw materials and the views of the market, maybe in a sense that is those expectations relative to expectations of the current or future market for alumina-aluminum, how - you say a third is in the bag so far, but how confident to realize those others? And is that on an annualized basis, over the next two-year basis? And is that a level where you could maybe see better performance in a more improved pricing market? I mean, a better price market, rather.

Molly Beerman, CFO

Mike, thanks for the question. The raw materials improvement that we are showing, the $310 million is our outlook for 2024. Now it's based on prices that we've already achieved, given our lags that we incurred in the second half of 2023, as well as what we're seeing now in current purchases, as well as our procurement team's look forward. So yes, we have about a third of that already confirmed and a good outlook for achieving the $310 million in 2024, and that is an annual run rate. So we would expect that to continue forward based on today's market view.

Michael Dudas, Analyst

Thank you, Molly. Thank you, Bill.

William Oplinger, President and CEO

Thank you, Mike.

Operator, Operator

And our next question comes from Carlos De Alba with Morgan Stanley. Please go ahead.

Carlos De Alba, Analyst

Thank you very much, Bill and Molly. To clarify on other business considerations, regarding the $36 million reversal for IRA, will you be returning the entire $36 million or just a portion of it since the benefit of the IRA is expected to be recurring?

Molly Beerman, CFO

Yes, Carlos, what you're going to see there is a net of $27 million in the first quarter. So the $37 million we recognized for the full year 2023 and then we'll have about $10 million in each quarter going through 2024.

Carlos De Alba, Analyst

Great. And then just on San Ciprian then, at this point, Bill, you are not going to restart the small capacity that was supposed to come up in the first quarter of 2024. Is that correct?

William Oplinger, President and CEO

We intend to fulfill the viability agreement, which includes restarting 32 pots in the first quarter. However, restarting those pots does not make economic sense, as they would generate negative cash flow and deplete cash resources more quickly than if we chose not to restart them. Therefore, we will be discussing this with all parties involved to ensure they understand that starting those pots will use up cash, and since there is a limited amount of cash available, Alcoa does not plan to inject additional funds into the entities once that cash is exhausted.

Carlos De Alba, Analyst

Fair enough. If I may just squeeze one more. The $70 million benefit from the closure of Kwinana starting in the third quarter, are those net of the purchases that you have to make in the market to fulfill your customer contracts?

Molly Beerman, CFO

So, Carlos, the $70 million is the Kwinana loss elimination. We will have some costs to replace, basically purchase the committed alumina for customers. That's part of our overall trading activity, and we do not see a material impact there.

Carlos De Alba, Analyst

All right. Fair enough. Thank you very much, Molly and Bill.

William Oplinger, President and CEO

Thank you, Carlos.

Operator, Operator

And our next question today comes from Katja Jancic with BMO Capital Markets. Please go ahead.

Katja Jancic, Analyst

Hi. Thank you for taking my questions. Can you quickly provide an update on the Alumar smelter restart?

William Oplinger, President and CEO

Yes. So as we said in the fourth quarter, we're taking the Alumar smelter restart slowly and at a measured pace. We have increased the number of pots operating to approximately 70% of the plant and we're making slow, but good progress on restarting the smelter. So, while I would wish it was faster, we want to do it safely, economically and in a way that positions the asset for the long term, and so we continue to make progress.

Katja Jancic, Analyst

And is the $75 million, is that expected to also occur in 2024 benefits?

Molly Beerman, CFO

Yes, Katja, you will see the $74 million come in over time. So that would be a run rate by the time we get to the end of 2025.

Katja Jancic, Analyst

Okay. And just one more question, if I may. On going back to San Ciprian, are there specific reasons why you can’t just shut it down now?

William Oplinger, President and CEO

The smelter, as you know, obviously is curtailed today. The refinery is at 50% capacity. If we chose to go to a full curtailment, we would have to go through the process of negotiating with the unions on a curtailment. That may be a consideration. We'll be looking at all options at this point to conserve cash out of that entity.

Katja Jancic, Analyst

Okay. Thank you.

Operator, Operator

And our next question today comes from Timna Tanners with Wolf Research. Please go ahead.

Timna Tanners, Analyst

Yes, thanks for taking that question and a happy New Year. I wanted to ask about the comment on ELYSIS and how there wasn't any required spending to the end of the decade. I thought that was a change from the past, I believed. At your last Investor Day, there had been a lot of talk of ELYSIS regarding refinery of the future investments. I'm just wondering if you could provide us an update on that broadly.

William Oplinger, President and CEO

So I'll take a first cut at that and then Molly can jump in if she wants to add anything. Timna, we continue to make progress with our partners and ELYSIS on the process. We have plans to start a commercial size cell at the Alma smelter in Quebec in 2024. So we are continuing to make progress. However, we are not planning on implementation in the near term of ELYSIS. We're going to allow for ELYSIS to go through some of the testing process and ensure that we have the right package of engineering. At this point, we're not planning on significant investments in an ELYSIS cutover or on ELYSIS plant this part in this decade; it would be earlier next decade. Is that a change? It's an R&D project, and we're working through that R&D and ensuring that the process works well. We'll implement it later in the decade, early next decade.

Timna Tanners, Analyst

Okay, thanks. And then regarding possible other portfolio changes, I know you've talked about Lista in the past. At these aluminum prices, any thoughts about its viability? Similarly, anything that you could tweak beyond the Warrick restart, given the 45X benefits?

William Oplinger, President and CEO

Well, to give you a little bit of perspective of some of the things that we've had going on, we mentioned the Warrick restart, and so we got half of that done in the fourth quarter. I plan on getting the other half done in the first quarter. We've made the announcement around Kwinana. So, that will be in 2024. We continue to make progress around Alumar. We have that restart going on. We have engagement on all the pertinent issues in Spain. That's a lot to get done, and I think the team has done a great job of initiating all of that. We will consider, as we always do, asset by asset, does it make sense to start, stop all those options. We make it on a fairly real-time basis. Where we have spot power exposure, we make those decisions on a real-time basis. We are always considering some of those portfolio options, specifically around high-cost facilities like Lista.

Timna Tanners, Analyst

Okay, I'll leave it there. Thanks, and best of luck.

William Oplinger, President and CEO

Thanks.

Operator, Operator

And our next question today comes from John Tumazos with Tumazos Very Independent Research. Please go ahead.

John Tumazos, Analyst

Congratulations on getting through the tough year and cutting costs so much.

William Oplinger, President and CEO

Thanks, John.

John Tumazos, Analyst

First question, and I'm not sure if I'm supposed to ask this, but I'll try. You're planning to buy almost 3 million tons of alumina this year, which is a lot of boatloads. Where are you buying it? China is 59% of world output, you're around 5%, so there aren't that many choices. Are you buying it from China or some Western country complying with sanctions that has some capacity that would have gone to Rusal in the old days?

William Oplinger, President and CEO

So John, to give you a little bit of background, it is not unusual for us to be in the market to buy alumina. In past years, I think in 2023, we probably did about 2 million metric tons. As you see with the curtailment of Kwinana, that's increasing to about 3 million metric tons. We have an alumina trading arm, and I don't want to make that sound as if we're doing any type of proprietary trading, but we have an alumina trading arm that is constantly trying to optimize logistics and tons and quality across the system. We have already agreed with certain suppliers that we will have offtake in 2024, and those suppliers range from Western World suppliers to Indonesian traders. As we go through 2024, we'll continue to do more of that.

John Tumazos, Analyst

I could ask another one. You've designated your Chief Operating Officer to be in Australia. Over most of my career, the raw materials have been a big cash count and the market is a little tougher now. Is the division of labor for Mr. Reid to be primarily raw materials and you're focusing on the smelters Bill? Is this a signal that we're going to be paying very close attention to the environmental permitting and regulatory issues, as well as operations in Australia?

William Oplinger, President and CEO

Thanks for the question, John. Let me clarify that Matt Reid was appointed COO because I believe he is the best fit for the role. His location in Western Australia is advantageous given our significant operations there. To answer your question about whether he will handle mining and refining while I focus on the smelters, that’s not the case. Matt has oversight for all global operations, which is a substantial responsibility, particularly from Western Australia. We’ve discussed this, and I am confident he is the right choice. Additionally, he has four regional vice presidents working under him. He used to fill one of those roles in Australia, so he will need to find a replacement. These leaders are highly capable and can make regional decisions that benefit their areas. Strong local leadership is crucial for effective decision-making on permitting, rehabilitation, and environmental, social, and governance factors. A global company can struggle to grasp local perspectives, making strong regional leadership essential, and Matt will ensure he has four effective leaders worldwide.

John Tumazos, Analyst

Thank you.

William Oplinger, President and CEO

Thanks, John.

Operator, Operator

Thank you. And our next question today comes from Bill Peterson with JPMorgan. Please go ahead.

William Peterson, Analyst

Yes, hi, Bill and Molly. Thanks for taking my questions. I wanted to revisit the near-term $245 million and how to understand its timing. It seems there is some clarity regarding raw materials, possibly around a third of that. But what other visibility do we have? Is most of this expected to be more concentrated in the latter half of 2025 based on the other components involved? I'm trying to get a sense of the rollout over the next 12 to 24 months.

Molly Beerman, CFO

Yes, Bill, I think it's fair to say that there is various timing on those items, but they are, again, designed to deliver a run rate savings by the end of 2025. On the raw materials, we did indicate that's a 2024 number. That's an annual number that will repeat on the productivity and competitive programs. We're trying to hit a run rate by the end of the first quarter of 2025. On Warrick optimization and the IRA funding, that one will bleed in over time as Warrick gains momentum from the restart, and we are working actively with treasury and other folks in the government on funding improvements. Alumar will come in over time as well, and then Kwinana will start to be realized in the second half of 2024.

William Oplinger, President and CEO

And Bill, I really want to acknowledge Molly and her team because many investors have been asking us for clarification on the various components involved and what the potential outcomes could be if we successfully manage these components. This is the purpose of this slide. It essentially states that we anticipate an overall improvement in materials of $300 million. We're implementing a competitiveness program aimed at reducing 5% of our cost structure, excluding raw materials and energy, across all our plants, mines, and refineries worldwide. This chart was designed to address investor concerns about the numerous factors at play and illustrate what the future could look like, which is why we created it.

William Peterson, Analyst

No, I can appreciate that. Just the cadence is particularly an important addition to that. Second question, kind of a follow-up on your lower carbon solution, and I appreciate that ELYSIS looks more like next decade. But what about, I guess, the sustainable line? You have some talk in the past that EcoLum, EcoSource and EcoDura. How should we think about those programs, the ability for you to drive premiums? And where does lower carbon aluminum just sit more broadly in your strategies for Alcoa as well as your customers?

William Oplinger, President and CEO

I made some comments at the Future Minerals Forum in Saudi Arabia last week, and I'll reiterate those here. Our customers are asking for low-carbon solutions. We and some of our competitors are developing those low carbon solutions. We have the broadest line of low-carbon solutions of anyone out there between EcoLum, EcoDura, EcoSource. We offer low-carbon solutions today that our customers can take advantage of. We've seen a sizable growth of EcoLum year-over-year, something like a 60% increase in sales in EcoLum. Are we getting premiums? Small ones, right? And I would like to get a whole lot more premium than what we get. But today, we are getting premiums for EcoLum across the system. Our customers want it. We need to be on the forefront, ELYSIS and Australia going into the next decade will provide us significant advantages, but we're starting to see some of the benefits of selling that broad product line today.

William Peterson, Analyst

Okay. Thanks for that.

William Oplinger, President and CEO

Thanks, Bill.

Lucas Pipes, Analyst

Thank you, operator. Good afternoon, everyone. Bill, I wanted to follow up on San Ciprian. You mentioned that internal funding sources and lines are close to being exhausted. I was curious about whether this is a matter of weeks, months, or quarters until those lines are fully exhausted. Thank you very much.

William Oplinger, President and CEO

I hate to give you a definitive time, but I can quantify it a little bit for you. There is roughly $240 million of a combination of restricted cash in the entities and credit lines available. The entities lost on a pretax basis about $150 million in 2023. We are essentially sitting down with the stakeholders, trying to determine how we can preserve the cash in the entity to give that facility long enough time to come up with a plan to be viable over time. There's no specific timeline that I'm willing to go out and say when that cash will run out, but it is a situation where there is limited cash available, and we need to figure out how to get that facility viable over time.

Lucas Pipes, Analyst

Very helpful. And understand if you were to restart those 32 pots, that would be exhausted very quickly.

William Oplinger, President and CEO

So if we were to restart the 32 pots, it just adds to the drain. Now we have a viability agreement that we plan on fulfilling, but if we do that, then it accelerates the drain of cash. That's a situation where everybody loses.

Lucas Pipes, Analyst

Okay. Thank you. Two quick follow-up questions. The first is on 45X. Does that change how you think about the U.S. assets more structurally? Where do you think they fit within your smelter portfolio today? Where do you think they fit on the global cost curve after this credit? And then on the environmental ARO, I think cash outflows went from $139 million in 2022 to $202 million last year, and then this year, $295 million. Are those inflationary pressures? Is there something lumpy? Where do you think that cash items will go over the coming years? Thank you very much.

William Oplinger, President and CEO

Let me take the U.S. question first. Just it's important to note how appreciative we are to the U.S. government for providing clarity around 45X and the fact that those funds essentially support keeping aluminum, which we view as a critical mineral for the United States economy, keeping those assets running. Warrick, as we've said, we're investing in Warrick to restart the third line. The 45X clearly helps and we have plans to make Warrick even more profitable over time. Now Warrick in the future needs to figure out what its energy source is going to be. Its energy source is still coal-based. If we're going to meet our greenhouse gas targets, we will have to transition that to sustainable energy, but that's a problem that we have some time to work on. Massena on the other hand is renewable energy. It's got a great energy source, and now with the 45X support, it's a better facility. We're pretty pleased with the level of support that we've gotten. We're trying to get further clarity around 45X to include the raw material sources, and that's included in that $90 million benefit.

Molly Beerman, CFO

On the environmental and remediation cash increase, so it's about $95 million and there's three main components there. We are accelerating mine rehabilitation primarily in Australia, but also a bit in Brazil. We've got residue areas coming to end of life, as well as Kwinana water treatment. Lastly, we are upping our spend on demolition because we have closed properties that are getting ready for redevelopment.

Lucas Pipes, Analyst

Really appreciate all the color there. Best of luck. Thank you.

Molly Beerman, CFO

Thank you.

Operator, Operator

And our next question today comes from Lawson Winder with Bank of America. Please go ahead.

Lawson Winder, Analyst

Thank you, operator. And good evening, Bill and Molly. Very nice to hear from you. I just wanted to ask on just one other capital allocation question and then on the dividend. And I don't know, maybe your slide on taking actions now might actually address my question. But just when you think about the dividend, would your recommendation be to the Board to change it in any way? Are you comfortable with the current level?

William Oplinger, President and CEO

Our capital allocation program really is not changing, Lawson. We're going to continue to maintain a strong balance sheet. We're going to make capital expenditures to maintain and improve our portfolio. When we have excess cash, we will use it for portfolio actions, preparing for growth and returning cash to shareholders. The dividend is something that we speak carefully to the Board about, and they would guide us in any changes there. Remember, when we set the dividend, we set it at a level that we thought was very affordable through the cycle. It's not a huge dividend. But we said it at a time when our indebtedness, our overall proportional net debt had gone from $3.8 billion down to $1.1 billion. It's crept up a little bit this year, but we set the dividend at a level that we thought was affordable through the cycle. That's the thinking.

Lawson Winder, Analyst

Okay. Fantastic. And then if I could just add — maybe ask one more question on San Ciprian to potentially get a little more clarity on what the path forward might be. But I mean, if those facilities run out. I mean does that imply then that, that subsidiary then we'll have to enter some sort of bankruptcy protection proceeding?

William Oplinger, President and CEO

Lawson, at this point, I don't want to speculate on what happens when and if they were to run out of cash. Our task is to work with the unions and the government to try to get that to be a viable operation. That’s what we're really focused on. We have a dedicated group working with the various stakeholders and constituents to make it viable.

Operator, Operator

Thank you. And our final question today comes from Curt Woodworth with UBS. Please go ahead.

Curt Woodworth, Analyst

Hi. Thanks, good evening. Hi, Bill and Molly.

William Oplinger, President and CEO

Hi, Curt.

Molly Beerman, CFO

Hi, Curt.

Curt Woodworth, Analyst

Let's dig into that a little bit.

William Oplinger, President and CEO

We can; we've got a while. So we can dig in.

Curt Woodworth, Analyst

Okay. So here's the question. So alumina is at $370 million, bauxite's up, you're saying you've got a third of the way down on the $310 million of raw materials. You're guiding to a tax expense in the first quarter of zero. So are you saying based on spot pricing for the first quarter, your earnings before tax is zero? Like I would have thought that at $370 million alumina, you'd have some tax expense in AWAC. And then correct. So how do I think about that? And then, again, just kind of what's the cadence, I guess, as you see kind of the margin profile in the alumina segment? I know that you talked about trying to get costs down and mitigating some of the bauxite grade issues. But is there a glide path in the next several quarters where there's more meaningful margin recovery for a given alumina price points?

Molly Beerman, CFO

So Curt, let me take the tax part first. You've followed us for a while. You know as our income gets right around breakeven, predicting taxes is extremely difficult. Looking at the jurisdictions where we're paying taxes versus those where we're fully reserved, we are at that point where if we have a meaningful departure on the tax, we'll have to give you an update.

William Oplinger, President and CEO

Let me address the second part of the question or maybe the theme of the question, Lawson, part of the reason we put the chart together that we've been very focused on here is that, we made $500 million in EBITDA in 2023. Everybody can see that. At those prices and raw material level in 2023, that's where we ended up. We have line of sight to near-term actions that are going to double that over the next, let's say, two years. That’s not banking on any type of metal market or alumina market improvement. If you factor in where we were way back in 2022, which was not that long ago on metal prices, you can see earnings accelerate quickly. So we at Alcoa aren't waiting for an earnings — for a market recovery. We're taking action and hard actions, quite honestly. Kwinana is not an easy decision. Warrick is an easy decision but hard to accomplish safely and effectively. Alumar we're improving. We haven't even talked much about WA bauxite permits here. It’s good to have that behind us. We’re going after $100 million of cost savings, and we'll have that on a run rate basis by the first quarter of next year. You can see we're pulling every lever to take that $500 million to a much higher level and essentially prove your initial thesis incorrect.

Curt Woodworth, Analyst

Okay. And what do you think cash restructuring could theoretically look like? Like in the event that you — because I think you had a comment in November that underperforming assets were $90 million negative EBITDA quarterly, right? So San Ciprian's maybe 40% of that, Kwinana is 70%, but you still have other buckets at play to deal with. So I guess, do you expect more restructuring? And can you size potential cash restructuring needs for the business? And then just lastly, in terms of North Mayara and getting the permit for the next phase, when do you expect that to happen? Because I think there was a view that it could be concurrent with what you're trying to do with your existing permit. Thank you.

William Oplinger, President and CEO

So on the permitting, we are going through a Part 4 permitting process in Western Australia. That takes time. We are saying that we won't be into North Mayara until at least 2027. As for any potential further restructuring, and I'm going to let Molly answer it from a quantitative perspective, when we talk about our financial operations, there are still ones in there that we are really challenging to be more cost competitive. Lista, we talked about earlier in this call. Warrick, we have a plan to get there. Portland has been repowered and is starting some marginal capacity in a couple parts at a time, but that adds marginal EBITDA. Those are the actions we are taking to address those remaining financially troubled operations. Any comment from you on cash restructuring?

Molly Beerman, CFO

It is too early to have a number for San Ciprian. Obviously, we're working toward a solution there, but there's potential — no numbers yet.

Curt Woodworth, Analyst

Yes. All right. Thank you very much.

William Oplinger, President and CEO

Curt, thanks for coming back to follow us. Appreciate it.

Operator, Operator

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

William Oplinger, President and CEO

Thanks, Rocco, for hosting the call for us. Thanks again to all who joined our call. We're excited about our initiatives, as you can hear from our voices, including the work to address key challenges and drive improvements. I think we made a lot of progress over the last 90 days. There's an energy and enthusiasm within the company that's driving toward solving many of these near-term and midterm problems, and we are really going after it. Molly and I look forward to speaking with you next time and until that time, be safe. Thank you.

Molly Beerman, CFO

Thank you.

Operator, Operator

Thank you. The conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful evening.