Alcoa, Alumina Kwinana refinery shutdown’s direct hit to 750 jobs, up to 1000 including contractors

The mining giant will stop production at its Kwinana refinery by September, with the state government expecting up to 1000 jobs to be impacted at the 60-year-old operation.

The Australian market has warmly welcomed Alcoa’s move to stem the cash bleed from its WA alumina operations, as the global metals giant mothballed its ageing Kwinana refinery in WA.

The announcement of the refinery’s shuttering sent shares in ASX-listed Alumina soaring, with the company — which owns 40 per cent of Alcoa World Alumina and Chemicals — closing up 7c to 98c on Tuesday.

The decision will cost up to 750 jobs over the next year, but analysts welcomed the move on Tuesday, saying it would reduce costs across the group and help lift alumina prices in the short term.

Barrenjoey analyst Glynn Lawcock said in a client note the move would help cut costs across the group by about $US20 a tonne, and help broader commodity pricing by removing about 2.5 per cent of non-Chinese supply of Alumina from the global market.

Alcoa is also considering the closure of its San Ciprian complex in Spain, which is also bleeding cash.

Site operator Alcoa’s phased plan at Kwinana, with joint venture partner Alumina, includes axing 550 jobs by September this year when all alumina production ceases.

Certain processes, however, will continue until about the third quarter of 2025, when employee numbers will be further reduced to just 50.

The long-expected decision has been blamed on a “variety of factors, including its (the refinery’s) age, scale, operating costs and current bauxite grades, in addition to current market conditions”.

The fate of Alcoa and Alumina’s bauxite mines had also been under a cloud after complaints about their impact on jarrah forests and the risks posed to Perth’s drinking water caught the attention of Western Australia’s Environmental Protection Authority, but approval from the government in December cleared that hurdle.

Alcoa chief operations officer and executive vice-president Matt Reed said: “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.”

The Kwinana refinery has an annual nameplate production capacity of 2.2 million metric tonnes but has been operating at approximately 80 per cent of its nameplate capacity since January last year.

The company had placed the “marginal asset” with 1200 workers under review in 2023 and a decision to end production has been expected by investors and the local community for years.

Alcoa said it would support to employees with transitioning to other opportunities, which includes potential redeployment within the business or assistance to facilitate employment at other workplaces.

The refinery and associated residue storage facilities will continue to be actively managed.

There is no impact to Alcoa’s port facilities located alongside the Kwinana refinery, which will continue to operate to import raw materials and export alumina produced at its Pinjarra refinery.

Production at its Wagerup refinery is also not expected to be impacted by the curtailment at Kwinana.

Alumina chief executive Mike Ferraro said the group fully supports the decision by asset partner Alcoa. Picture: Stuart McEvoy.

“We remain committed to WA in the long-term and will continue to assess options for the refinery, monitoring the factors that have led to the curtailment decision,” Mr Reed said.

The Kwinana refinery recorded a net loss (pre-tax and non-controlling interest) of about $US130m ($193.3m) in 2023.

Annual improvements of about $US70m, beginning in the third quarter, are linked to the stoppage. The refinery will continue to incur approximately $US40m of non-cash depreciation, depletion and amortisation expenses while curtailed.

In the first quarter of 2024, Alcoa will record restructuring charges between $US180m and $US200m. Its after-tax and non-controlling share will be between $US76m and $US84m.

The charges include approximately $US81m for water management costs, $US55m for employee-related costs and $US26m for asset retirement obligations.

ASX-listed Alumina Limited, which owns 40 per cent of Kwinana and other Alcoa assets across Australia, Brazil and Spain through its Alcoa World Alumina and Chemicals (AWAC), entered a trading halt before the announcement on Tuesday.

Following Alcoa’s update, Alumina chief executive Mike Ferraro said it “fully supports” the decision by Alcoa.

When excluding the high-cost Kwinana refinery of more than $410 per tonne in 2023, average cash costs of production for the remaining two refineries in WA, Pinjarra and Wagerup, were $250/tonne in the fourth quarter of last year, he said.

Alcoa employs about 4850 people in Australia; 4300 of them in WA.

“Both these refineries are first quartile on the global alumina refining cost curve and emissions curve, and they remain strongly cash flow generative at current API (alumina price index) prices,” he said.

“The alumina market is currently in tight supply, compounded by recent production cuts in China amid bauxite supply concerns and environmental audits.”

The alumina price index has rallied by about $30/tonne since mid-December to $360/tonne on January 8, he said.

“Given the strong cash flow generation of the Pinjarra and Wagerup refineries, at current alumina prices the Alcoa of Australia business is expected to fully fund the costs of Kwinana in 2024, including curtailment.”

He said the decision to close Kwinana followed approvals last month of mining permits in WA and Alcoa’s decision to take action at the San Ciprian refinery in Spain to cut losses there and work towards a long-term solution.

“The combination of these actions provides AWAC with a strong foundation to move forward to create a significantly higher quality refinery portfolio and benefit from the positive long-term outlook for the alumina market,” Mr Ferraro said.

The Kwinana alumina refinery was commissioned in 1963. Alumina is extracted from bauxite and is the main feedstock for aluminium, considered essential to everyday life and critical to a decarbonised future.

WA Premier Roger Cook expressed disappointment in Alcoa’s decision, which it said will impact up to 1000 workers, including 250 contractors.

“This is a very disappointing outcome, and Alcoa needs to do everything it can to support its workforce through this transition, he said.

“My government will step up to provide supports for local workers to retrain, re-skill and look for new career opportunities in the local area.”

Federal Resources Minister Madeleine King, the local federal member for Brand, which includes the City of Kwinana and the Kwinana refinery, warned of a “ripple effect” on the community.

“We understand that Alcoa is faced with difficult considerations, including the age of the facility, a constrained location and challenging market conditions, however, the closure of such a longstanding operation is disheartening for everyone involved.,” she said.

She said the decision does not affect Australia’s or WA’s sovereign capacity in alumina production. “I have been assured by Alcoa that the curtailment of production at the Kwinana refinery will not affect the broader supply chain of alumina, which is essential for our future transition towards net zero emissions.”