Alcoa says all options are on the table for ‘marginal’ Kwinana refinery south of Perth

Alcoa has started slashing jobs at its embattled Kwinana alumina refinery south of Perth and says all options are on the table, including a potential closure.

Alcoa’s Kwinana refinery south of Perth.

US industrial giant Alcoa has started slashing jobs at its embattled Kwinana alumina refinery south of Perth and says all options are on the table for the “marginal asset”, including a potential closure of the facility which currently employs 1200 workers.

As part of the company’s third quarter results announcement in the US this morning (Australian time), Alcoa said it had commenced a restructuring of operations at Kwinana, including job cuts which would save the company about $US10m a year.

The company incurred a $US6m charge in the third quarter for “employee severance costs to be paid through the first quarter of 2024”, with around 90 jobs affected by the first round of cuts.

Speaking to analysts after the results announcement, new chief executive Bill Oplinger said the company was considering a number of options for the facility, including a potential closure.

“At Kwinana we’re essentially looking at all options and in the near term we’ve announced a restructuring that takes some cost out,” he said.

“In addition to that we’re looking at a variety of different levers to be pulled to drive cost down and improve profitability there, but ultimately as with any marginal asset - and Kwinana is a marginal asset at this point - we’ll consider options on the table including curtailment and closure.”

The refinery, which makes alumina from bauxite, is operated by Alcoa World Alumina and Chemicals (AWAC), which is 40 per cent owned by ASX-listed Alumina.

It has been forced to process lower grades of bauxite due to delays in approvals from the WA government to mine in new areas.

Alcoa said on Thursday that mining lower-grade bauxite had cost it about $44m in the third quarter, due to increased costs and lower production.

AWAC is currently in talks with the WA government and the state’s Environmental Protection Authority on extending its bauxite mining approvals in the state in the face of criticism of the company’s impact on WA water sources and its rehabilitation efforts.

AWAC operates two bauxite mines and three alumina refineries in WA, producing about 50 per cent of Australia’s alumina each year. It faces delays in the approval of rolling five-year mine plans needed to extend operations at its Huntly and Willowdale bauxite mines.

The company’s failure to secure mining rights to higher grade bauxite sources at the mines, combined with falling commodity prices, has put pressure on both its costs and revenue.

On Thursday Alcoa said the mining of higher grade bauxite in new regions was not expected to commence until at least 2027.

“Until then, the company expects bauxite quality similar to recent grades,” the company said.

“During the third quarter, the company continued to pursue cost reduction measures and initiated productivity programs across its operations in Australia to mitigate the financial impacts of lower bauxite grade and to optimize current operating levels.”

AWAC’s approvals are normally conducted under a process set up in a 1961 state agreement with the WA government, which bypasses the state’s main environmental regulator.

But controversy over the company’s operations could mean its five-year plans are instead scrutinised by the EPA in a public process for the first time, potentially leading to significant delays and the possibility its current plans will be rejected.

Alcoa said on Thursday that it expected the EPA to make a decision about its involvement in the mining approvals process before the end of the year.

Alumina boss Mike Ferraro told shareholders in August that the WA refineries faced “significant uncertainties” over mine approvals, and would produce less alumina at a higher cost until it secured permission to mine areas with higher-grade ore.

Alumina slipped to a net loss of $US43m in the six months to June, down from a $US168m profit a year ago.

Alumina shares were trading 4.9 per cent lower on Thursday at 91 cents.