Portland aluminium smelter survives new Alcoa cuts

Victoria’s Portland aluminium smelter escapes a new round of closures, but global giant Alcoa speeds up review of operations.

Former smelter worker Carl Millard at the Alcoa smelter. Picture: David Geraghty

Victoria’s Portland aluminium smelter has survived the latest round of closure announcements by Alcoa, but the global aluminium and alumina giant warned shareholders on Wednesday night its business was being badly affected by the global economic downturn.

Alcoa launched an review of its assets last September, warning its loss-making aluminium smelters would be sold or closed if it could not cut costs and carbon emissions from a number of its higher cost operations, including Portland.

It has already committed to keeping the facility open until mid-2021, when Portland’s existing power supply agreement expires, but on Wednesday senior executives said Alcoa would hasten the pace of its internal review of loss-making operations as it prepares to deal with the global economic downturn.

Portland’s future under Alcoa’s ownership rests on the negotiation of a new and cheaper power contract from 2021, complicated by the fact it takes most of its power from Victoria’s brown coal generators and Alcoa also wants to reduce its global carbon footprint.

But any hopes that a white knight buyer can be found for the smelter if Alcoa decides it is too expensive or dirty to keep took a setback on Wednesday, with chief financial officer Bill Oplinger telling analysts the company’s plans to sell assets were effectively on hold until the coronavirus crisis recedes.

Alcoa reported its March quarter financial results to the US market on Wednesday night, withdrawing its cost and profit guidance on the back of the global economic uncertainty caused by the coronavirus crisis and plunging prices for aluminium.

Chief executive Roy Harvey told analysts on Alcoa’s quarterly earnings call the company faced an uncertain outlook as government-imposed shutdowns and the economic downturn affected demand for its products.

He said the company was trying to cut its operating costs in the face of the crisis, instituting a hiring freeze, rescheduling non-urgent maintenance work and sharpening the company’s focus on the future of some of its operations.

Mr Harvey also announced Alcoa would close the company’s Intalco smelter in the US in response to high costs and falling demand.

No mention was made of when Alcoa may make a decision on Portland’s future, but chief financial officer Bill Oplinger told analysts the company was accelerating its work on the review.

“Today we announced Intalco and we continue to move forward on the strategic review, and the current market conditions make that strategic review even more important and really push us to make decisions quicker,” he said.

But Mr Oplinger said the coronavirus crisis was making it far more difficult for Alcoa to sell its unwanted assets, throwing fresh uncertainty over whether a white knight could be found for Portland if Alcoa’s review is unfavourable.

“COVID-19 has made things go slower. And quite honestly with the volatility in the market that’s made the asset sales a little bit more difficult. That doesn’t mean we’ve let up at all, so we’re continuing to push forward,” he said.

“But I would admit to you that things are going slower because if you were to take an asset to market today you can’t even really have meetings, you can’t have you know can’t have reviews of the asset.”

Portland employs more than 500 Victorians and uses almost 10 per cent of the power generated in the state each year.

ASX-listed Alumina owns 40 per cent of Alcoa’s Australian assets through the Alcoa World Alumina and Chemicals joint venture.

It said on Thursday that AWAC assets had performed well in the March quarter, with alumina cash costs of production down $1 a tonne for the period and the realised price of $279 a tonne broadly in line with the December period, although it noted prices had fallen sharply as the coronavirus crisis accelerated.

“These factors contributed to the strong positive cash flows for AWAC and resulted in Alumina receiving a $33.8 million cash distribution this month, up from $27.6 million for the corresponding distribution for the previous quarter,” the company said.

“To preserve cash in the current market environment, AWAC will put on hold all growth capital expenditure for the remainder of 2020, reducing spend by approximately $30m and will also look to defer a similar amount of non-critical sustaining capex over the course of the year.”