William Oplinger told Fastmarkets in an interview on Thursday July 18 that the acquisition of Alumina Ltd is on track to close on August 1, and that it will help to simplify the Alcoa equity story.
“This is our first major acquisition as a company, and it just made a tremendous amount of sense,” he said. “We will look at [further] opportunities that may become available, as we should.”
At the same time, the new structure could mark out Alcoa itself as a more attractive target, Oplinger said.
“Our job here is to achieve full value for the company and, as part of simplifying the structure of the company, I believe that increases the value of our company. So it makes it easier for an investor to buy us, but it would also make it easier for a strategic [entity] to buy us,” he said.
“However,” he added, “it would [have to] be at full value. And that’s what we strive for – to ensure that the value of the company is recognized.”
Alcoa Corp was created in 2016 when Alcoa Inc separated into two standalone companies, the other being lightweight metals engineering and manufacturing specialist Arconic.
The deal with Alumina Ltd – which owns 40% of Alcoa World Alumina & Chemicals (AWAC), a joint venture with Alcoa – was announced in February.
AWAC’s assets include bauxite mines and alumina refineries in Australia, Brazil, Spain, Saudi Arabia and Guinea. AWAC also has a 55% interest in the Portland aluminium smelter in Victoria, Australia.
The acquisition comes as alumina prices remain elevated amid a number of supply-side issues. These include Alcoa’s curtailment of its Kwinana alumina refinery in Western Australia; a gas pipeline leak in Queensland, Australia, resulting in Rio Tinto’s force majeure on third-party alumina cargoes; and refinery issues at India’s National Aluminium Co (Nalco).
Fastmarkets calculated its daily benchmark alumina index, fob Australia, at $480.39 per tonne on Thursday July 18, up from $478.52 per tonne a week earlier.
Oplinger acknowledged that current alumina prices make the deal look smart today, but said that Alcoa did not undertake it for short-term returns.
“We considered the long-term value of Alumina Ltd and the benefits of collapsing that structure into Alcoa that the deal brings,” he said.
The company expected to achieve an overheads reduction of approximately $12 million “nearly immediately,” Oplinger said. It would also see the capital structure benefits of being able to put debt closer to the assets that earn income, which Oplinger said would be achieved over time.
“But really, the key reason for the acquisition was complexity, and simplification of the Alcoa equity story,” he told Fastmarkets.
“When we would sit down with investors, they would have to thoroughly understand the Alumina Ltd joint venture. On the margin, that made it harder for investors to invest in us. So we are able to eliminate that complexity and make it much simpler for investors to understand,” he said.
Alcoa initiated a five-year portfolio review in 2019, which will come to an end in October this year. According to Oplinger, the process – which placed 1.5 million tonnes of smelting capacity and 4 million tonnes of alumina refining capacity under review – is now “largely complete.”
“We will always look at marginal assets and consider whether those marginal assets are best held by us or are best held by someone else,” he said. “But that’s part of the normal course of business.”
One of the final parts that the review must complete is the potential sale of the 228,000 tonnes per year San Ciprian smelter in Spain.
Oplinger told Fastmarkets that, after sending information on the asset to about 60 companies, it received six expressions of interest. It has since whittled that list to three, he said, and discussions were moving forward with that subset, which included financial, strategic and non-traditional market participants.
The company’s portfolio review has not changed Oplinger’s own fundamental hypothesis about the aluminium industry. He still holds the view that a lot of the sector’s value will be earned in bauxite mining and alumina refining.
But Oplinger said that he has somewhat moderated his view of aluminium smelting. Alcoa produced 2.1 million tonnes of aluminium in 2023.
“What I would have told you years ago is that the smelting part of the business had very tough industry dynamics. What is changing there is the energy transition, and that makes the smelting part of the business, in my view, probably more valuable than it was four or five years ago,” he said.
“With now having a green premium market in the US, Europe and Asia, the market is signaling that there could be value in low-carbon aluminium, and that rounds out my industry view that says there could be value created in the smelting part of the business also,” he added.
Alcoa is not suddenly in a rush to build new smelting capacity, however.
According to Oplinger, any new smelting investment on a large scale, either a greenfield or a large brownfield project, would be made using the company’s new Elysis technology.
But Alcoa has also said that it will not be implementing Elysis until after 2030, to allow development and engineering work to fully test the technology.
“We won’t be investing in Hall-Héroult smelting technology between now and 2030,” Oplinger said. “After 2030, we would be looking at our own implementation of Elysis. We would also be looking at places where we would be able to get sustainable, green energy to match up with the Elysis technology.”
For now, Alcoa will have 40% offtake of the metal produced at a demo plant located at the Arvida smelter by its Elysis partner, Rio Tinto.
After 2030, Alcoa will evaluate how initially to use Elysis, with options for greenfield, brownfield, or a retrofit of existing smelters all up for discussion.
Oplinger said that if he had to take a guess on which route would be taken, Alcoa would probably opt to first use Elysis as a brownfield expansion, such as the addition of a line at an existing plant, which would allow the company to take advantage of current infrastructure.
Elysis, a joint venture with Rio Tinto, was created in May 2018, with Vincent Christ as its chief executive officer.
It will produce oxygen while cutting out all direct greenhouse gas emissions from the traditional smelting process. At a time of increasingly stringent environmental regulations and a drive to slash emissions, there was an obvious appeal to aluminium producers as well as their customers around the world.
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