Alcoa announces plans to cease production at its Kwinana Alumina Refinery

Alcoa Corporation has announced its intention to cease production at the Kwinana Alumina Refinery in Western Australia in 2024, with the gradual shutdown commencing in the second quarter. The refinery, boasting an annual nameplate production capacity of 2.2 million tonnes, has been operating at around 80 per cent of its capacity since January 2023.

Alcoa's Executive Vice President and Chief Operations Officer Matt Reed cited several factors influencing the decision to curtail the 60-year-old facility. These factors encompass the refinery's age, size, operational expenses, the current quality of bauxite, and prevailing market conditions.

"Today's curtailment decision comes only after thorough and careful deliberation, and we acknowledge that this action will impact workers, business partners, and the community. We deeply appreciate the commitment and support of our many loyal employees, contractors, and suppliers at our Kwinana refinery, which has made a major contribution to Western Australia's economic development over the last 60 years of continual operation," said Matt Reed.

What does the curtailment plan include?

The curtailment plan involves a gradual workforce reduction, decreasing from approximately 800 employees at the beginning of 2024 to around 250 by the third quarter of this year, coinciding with the complete cessation of all alumina production. Specific processes will, however, persist until approximately the third quarter of 2025, at which point employee numbers will be further scaled down to about 50.

The refinery and its associated residue storage facilities will remain under active management. Alcoa's adjacent port facilities, in tandem with the refinery, will persist in operations for importing raw materials and exporting alumina produced at the Pinjarra Alumina Refinery. Notably, the curtailment at Kwinana is not anticipated to influence production at the Pinjarra and Wagerup refineries.

Kwinana refinery

In 2023, the Kwinana refinery reported a net loss of about $130 million (pre-tax and noncontrolling interest). Following the curtailment, Alcoa anticipates annual improvements of around $70 million starting in the third quarter of 2024. The refinery will still bear approximately $40 million in non-cash depreciation, depletion, and amortization expenses during the curtailment period.

During the first quarter of 2024, Alcoa will incur restructuring charges between $180 million and $200 million linked to the refinery curtailment. Alcoa's share (after-tax and noncontrolling interest) is expected to range from $76 million to $84 million, equivalent to $0.42 to $0.47 per share.

These charges encompass various elements, including approximately $81 million for water management costs, $55 million for employee-related expenses, $26 million for asset retirement obligations, and $18 million for other costs. Alcoa's share of associated cash outlays, totalling approximately $115 million (covering existing employee-related liabilities and asset retirement obligations), is projected to be expended in 2024 ($80 million) and 2025 ($35 million).