Earnings Transcript for AWC.AX - Q4 Fiscal Year 2019

Operator: Ladies and gentlemen, thank you for standing by and welcome to the Alumina Full Year Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. And our presenters for today are Grant Dempsey, Chief Financial Officer; and Mike Ferraro, Chief Executive Officer. And I would now like to hand the conference over to your first speaker today, Mr. Mike Ferraro. Thank you. Please go ahead, sir.

Michael Ferraro: Good morning, everyone. Welcome to Alumina Limited’s results presentation for the 2019 full year. Before I proceed any further, please note the disclaimer. Alumina Limited had a strong year in 2019. Net profit after tax was $214 million. Excluding significant items, the net profit after tax was $327 million. The major impact on profit was lower API prices. The company declared a fully franked dividend of US$0.036 per share, bringing the full year dividend to $0.08 per share. This was on the back of record production at AWAC’s operated current refining portfolio. AWAC’s average cost of production fell 7% and remains in the bottom quartile of producers for both bauxite and alumina. And AWAC continues to focus on the most profitable part of the aluminum supply chain. We expect that aluminum demand will return to positive growth in 2020. This will contribute to the global aluminum market being balanced this year. The long-term market fundamentals for aluminum and alumina remain positive, and AWAC is poised to benefit from any growth in the market. Alumina Limited shareholders have received solid fully franked returns over several years. The company’s balance sheet is strong and we are well positioned in the current commodities cycle. Both our company and Alcoa are committed to ensuring the ongoing sustainability of our operations. Our 5 refineries emit significantly less CO2 per tonne of alumina produced than the industry average and are in fact in the lowest quartile of this measure. The chart on the appendix on Slide 25 shows our performance relative to other global refineries. In both Western Australia and Brazil, AWAC operates in environmentally sensitive areas and the rehabilitation works undertaken are world-class. Real focus is biodiversity and ensuring that land is returned to its original state post mining operations. This effort has been recognized by independent parties. All AWAC-operated mines and refineries in Western Australia and Brazil have received certification by the Aluminium Stewardship Initiative. The ASI Performance Standard defines environmental, social and governance principles with the aim to address sustainability in the aluminum value chain. In addition, AWAC has a goal to enhance water use efficiency, especially in water-scarce locations and are seeking to identify opportunities to become less dependent on water by examining technology, use of secondary water sources and increased recycling. At AWAC’s Kwinana refinery, freshwater usage has reduced by 1.2 gigaliters annually due to the implementation of press filtration. A further reduction of 2.5 gigaliters annually is expected at the Pinjarra refinery once the filtration system has become fully operational. AWAC’s freshwater intensity has reduced by 8% from 2015 to 2018. Also, Alcoa, who operates the AWAC assets has been recognized as the top aluminum industry performer in the S&P Global Sustainability Yearbook 2020. I’ll now hand over to Grant to provide a more detailed review of the full-year results.

Grant Dempsey: Thank you, Mike, and good morning all. I’ll begin with a detailed look at the full-year performance of AWAC, before coming back to how this translated into Alumina Limited’s 2019 Financial Results. The decline in the Alumina price index throughout 2019 significantly impacted our average realized alumina price for the year. Despite this, AWAC continued its recent history of impressive results, recording an EBITDA of $1.26 billion and a net profit after tax of $565 million. Excluding significant items, which largely related to the announced closure of Point Comfort, EBITDA would have been $1.59 billion. I’ll now go through AWAC’s operating performance in more detail. Improved stability and process efficiencies in our refineries throughout the year generated reliable and consistent operating performance, resulting in significantly higher aluminum production. The 12.6 million tonnes of alumina produced by AWAC was the highest-ever annual total for the current portfolio of refineries. 2019 saw both the Pinjarra and Wagerup refinery have record production years. AWAC ended 2019 with fourth quarter production of 3.2 million tonnes, with each of our refineries heading close to or about full capacity. For 2020, AWAC is forecasting a further slight increase in production. With 94% of tonnes sold on an API linked or spot basis, AWAC’s realized price closely follows the performance of the API. The API was adversely impacted in 2019 by lower-than-expected smelter demand, the ramp-up of the Alunorte refinery and additional alumina supply from other refineries around the world. In line with the decline in API, AWAC’s average realized alumina price fell by 25% to $336 per tonne. Despite softer alumina prices, AWAC continued its proven track record of delivering strong margins and returns throughout the cycle, underpinned by its world-class low-cost refineries. AWAC’s cash cost to production declined steadily throughout the year with the average cash costs for 2019 improving by 7% to $210 per tonne. The average for the fourth quarter was down to $200 per tonne, a $23 improvement over the corresponding period in the prior year. Increased production and a favorable exchange rate positively impacted our conversion in bauxite costs, particularly in Western Australia where AWAC benefits from the close proximity of the refineries to its long-life low-cost bauxite mines. AWAC’s key input costs of caustic soda and energy were also lower throughout the year. However, we do expect an increase in energy costs from July 2020, as AWAC transitions to some new gas contracts. All other things being equal, this transition will increase AWAC’s cost in 2020 by approximately 2.5%. Turning to capital expenditure, CapEx is $56 million lower in 2019 at a $177 million. 2018 was elevated largely to the installation of press filters at the Pinjarra refinery. 2019 significant projects included the completion of the Pinjarra press filtration facility, new and upgraded residue storage areas, and detailed planning for the upcoming crusher move at the Willowdale bauxite mine. Growth CapEx in 2019 largely centered around the debottlenecking and boiler upgrades at the Alumar refinery and the evaluation of the West Australian brownfield expansion opportunities. These WA opportunities continue to be evaluated and the decision will be made during the course of the year. Sustaining CapEx in 2020 will be higher, largely due to $90 million that was budgeted for the crusher move at Willowdale, having already spent $14 million in 2019. We expect that the move will be completed before the end of 2021, with the total project cost estimated at about $135 million. I will now talk to AWAC’s outlook for 2020. We expect a strong operating performance to continue with a slight increase in alumina production forecast to 12.7 million tonnes. As usual, scheduled maintenance and overhauls will be skewed towards the first half of 2020 having a seasonal impact on production and costs. CapEx is budgeted to total approximately $265 million covering significant projects like the Willowdale crusher move, finalization of the WA expansion evaluation and planning for a potential plateau move at our Juruti bauxite mine. Restructuring items impacting cash are forecast to increase to $115 million as remediation begins on the recently closed Point Comfort refinery and has accelerated at Suralco following the handover of the Afobaka Dam to the Suriname government. It should be noted that there will not be a repeat of the large 2019 tax balloon payment, which related to the 2018 results. As noted in our 4E, the Australian Tax Office recently issued a statement of order position to Alcoa of Australia in relation to certain historic third-party alumina sales. AWAC disagrees with the ATO’s position, and the matter is now subject of an independent review process within the ATO, which may or may not result in tax assessment. AWAC intends to defend the matter through all available avenues of dispute resolution in the event that an assessment is ultimately issued. On raw material costs, we expect the recent decline in global cost prices to flow through into the first half of 2020. And as mentioned, gas prices will be elevated in the second half. Now let’s turn to Alumina Limited’s results. Despite the decline in API, Alumina Limited recorded a good result, return cash to shareholders and continue to maintain a strong balance sheet. The company recorded net profit after tax of $214 million, excluding significant items and net profit after tax would have been $327 million. Alumina Limited announced a fully franked final dividend of US$0.036 per share payable on the 17th of March 2020, bringing the total annual dividend to US$0.08 per share. The average dividend over the past 3 years equates to a strong 8.6% dividend yield for shareholders before franking. Alumina Limited has a $350 million facility with the earliest maturity date of any debt tranche not until October 2022. The company’s debt at year-end was $70 million, equating to a gearing level of just 3%. Our investment in AWAC’s portfolio of low cost world class assets together with a strong balance sheet, allows Alumina Limited to deliver consistent returns to shareholders throughout the cycle, while also supporting investment for the long-term. Thank you. And I’ll now hand back to Mike to provide you with an overview of the market.

Michael Ferraro: Thanks, Grant. World primary- and semi-fabricated aluminium consumption contracted in 2019. The transportation, machinery and equipment sectors led the decline. Otherwise, stagnant construction and electric industries as well as a poor macroeconomic environment, all contributed to an overall 1% contraction in global primary aluminium demand. However, more favorable monetary policy, easing of U.S. and Chinese trade tensions, stronger packaging demand and positive sentiment in global markets, particularly in emerging markets like China and India, are expected to drive the primary aluminium demand up in 2020, by around 2.3%. Some Chinese economic slowdown due to the coronavirus appears likely and demand for aluminium may be reduced, but lost production would likely be recovered after the situation is resolved. Hubei Province has only one small aluminium smelter, however, there are supply chain disruptions in China affecting bauxite, alumina, aluminium and other raw material flows. This has resulted in a spike in the API as China imports more alumina to satisfied smelter production needs. Due to the level of uncertainty in the potential impact of the coronavirus comments in this presentation on demand and supply, and the market this year assumes there is minimal net financial impact from the virus. Despite subdued prices, alumina production grew by 3.8% outside China in 2019. This was driven largely by the resumption at the partially curtailed Alunorte refinery in Brazil, and ramping up of the Al Taweelah refinery in the UAE, the Friguia refinery in Guinea and the Lanjigarh refinery in India. The Alpart refinery in Jamaica announced a large capacity curtailment in 2019. The alum refinery in Romania reportedly curtailed at least 20% of its production. 2019 saw a moderate smelter-grade alumina surplus of 1.5 million tonnes outside of China, most of which was exported to China. Non-China primary aluminium production is expected to increase by 3.8%. However, we are forecasting a 2 million plus – a 2 million tonne surplus of alumina outside of China in 2020. As alumina growth exceeds metal production growth. The surplus is expected to be exported to China to balance the global market. In China, smelter-grade alumina production contracted by 1.2% in 2019 tightening environmental policies, lower alumina prices and increase in net imports, all contributed to the contraction. In May, over 4 million annual tonnes of capacity were curtailed in Shanxi due to bauxite residue issues, of which 2.8 million tonnes remain curtailed. Difficulty in accessing domestic bauxite, plus narrowing margins forced more high cost refineries in Northern China to curtail during the second half of 2019. China returned to being a net importer of alumina in 2019 with net imports totaling 1.4 million tonnes after being a net exporter in 2018. Net alumina imports by China are forecast to increase of 2 million tonnes this year, below the 10-year average of 3 million tonnes. Over the medium to longer term, China is expected to be broadly balanced in alumina, while continuing with modest imports from time to time. Going into 2020, Chinese smelter-grade alumina production is forecast to grow by 1.8%. Chinese alumina capacity growth was slowed down significantly in recent years from its peak of around 45% in 2007 to around 3% in 2020. Any new capacity will mostly likely display existing high-cost capacity. It’s not expected that there will be Chinese over production of alumina in the medium to long term. New, more cost-effective refineries are likely to be built along the coast of China, or in bauxite-rich regions outside of China. However, in the outside of China, greenfields alumina refinery projects continue to be challenged by high construction costs and distances between energy sources and good quality bauxite. Starting in 2018, a range of environmental control measures have forced bauxite mines to close in Henan and Shanxi creating a bauxite shortage in Northern China and driving domestic bauxite prices up. China currently imports about 50% of its bauxite needs, up from around 30% 5 years ago. This is expected to increase to over 75% within the next 5 years. This would have led to an overall material increase in the average cost of alumina production in China in 2019, where not for lower caustic prices, which have dropped around 30% since the start of last year. This meant a slight drop in Chinese alumina cash cost, although the cost was high than the average of the previous full years. Forecast imported bauxite trajectory into China is expected to add cost to China is refining. In the next 5 years, non-Chinese smelter-grade alumina consumption is forecast to maintain a 3.5% compound annual growth or 10 million tonnes more alumina. Over the medium and longer term, aluminium demand is forecast to continue to growth through economic expansion and increasing intensity of use. In developed countries, this is expected through most stringent environmental requirements to reduce emissions and waste, and increase efficiency, leading for example to greater lightweighting for transport and electrical vehicles. In developing countries such as India and Southeast Asia, aluminum demand growth is expected through greater urbanization with more infrastructure and construction. To summarize, despite subdued markets, alumina limited had another strong year in 2019, thanks to our world-class low-cost global assets. The global alumina market is forecast to be balanced in 2020. As trade frictions subside, coupled with recovering construction and automobile industries, aluminum demand and production growth is forecasted in 2020. We remain positive on the long-term outlook for alumina and aluminum. Chinese demand for imported bauxite continues at a high rate, which is met by ample supply, but helps underpin generally higher production costs. The impact of coronavirus, if short-term, will have limited impact on industry fundamentals, given the likelihood of a strong rebound in economic activity after such a crisis. Thank you for listening and I’ll now hand you back to the operator for questions.

Operator: Ladies and gentlemen, we’ll now begin the question-and-answer session. [Operator Instructions] The first question we have is from the line of Rahul Anand from Morgan Stanley. Your line is now open.

Rahul Anand: Hi, Mike and Grant. Thanks for the opportunity. I’ve got 2 questions. First one is around the refinery studies. Are we still expecting these back in the first half of this year or has there been any delay? And then, following on from that, what’s your view re these studies, especially in the current pricing environment, how you’re viewing the potential expansions? That’s the first one. The second one is, if you can help us, perhaps with some data-points around where you think the Chinese production costs might be sitting at this point in time? And in your opinion, do you think the cost deflation re the Guinean bauxite use, has that trend completely played out now or is there a bit more to go there? Thanks.

Grant Dempsey: It’s Grant Dempsey. I’ll answer the first question on the WA expansion and Mike will cover the other one. So I think we’re still expecting around sort of the end of the first half, early second half, for those decisions and for recommendations. The work is ongoing. I think as we said in the last half, we’re looking more closely at sequencing them and working through how that all might work to limit any sort of operational impact. Obviously, as always, and as we have always said, we will take into account the long-term market for alumina as we work through it. So, yes, the short-term is obviously a factor. But it is something we are working through. So I don’t have much more of an update now in terms of actually what the recommendation will be. But I would hope over the next 3 to 4 months we will get to the point where we make a decision not only on whether we proceed, but how we proceed with each of those opportunities.

Rahul Anand: Okay, understood. Thanks.

Michael Ferraro: On the Chinese production costs, they’re averaging at the moment just below $300. And so there has been a drop in the last year, as I mentioned earlier, driven by caustic – reduction in caustic prices of around 30%. We think the caustic prices have stabilized. We don’t see them dropping much further this year. In the context of Guinean bauxite, I suspect that will continue to add production cost in China because of the lower alumina content relative to historic domestic bauxite within China, which requires more processing, more red-mud residue disposal areas. So I think the longer-term trend, as more Guinean and foreign bauxite is imported into China, the costs will continue to increase.

Rahul Anand: All right, sorry, Mike, If I may come back with a follow-up. My understanding was that the Guinean product tends to use lower caustic and hence that was leading to some cost deflation out of China. Do you think the trend is…

Michael Ferraro: It does use lower caustic, but it’s offset by more organics and a greater amount of non-bauxite residue in it. So I’m not sure how much one offsets the other, but our general view is over time the costs will be higher using Guinean bauxite.

Rahul Anand: Understood, okay, thanks a lot for that.

Michael Ferraro: You’re welcome.

Operator: Thank you. The next question we have is from the line of Paul Young from Goldman Sachs. Please go ahead.

Paul Young: Yeah, morning, Mike and Grant. First question is on unit cost. Grant, just to clarify, your comment on the gas price increase or the impact, you said it was 2.5% increase in the second half of this year and that’s at the group level. So should we – should we be applying that to the $210 average for 2019?

Grant Dempsey: Yes.

Paul Young: Okay. Thanks. And the next one is just on cost trajectory out of the fourth quarter, which was $200 a tonne. Caustics fallen another $30, $40 a tonne into December quarter. Currency is down. If you run on a spot unit cost across your portfolio, where would your costs roughly be at the moment?

Grant Dempsey: Look, I think – again, not that – it was fourth quarter, obviously, at $200. It’s not that dissimilar. We don’t think for the first quarter. Mainly driven by, as I said, there is always some seasonal maintenance stuff that happens in the first half of the year, that sort of offsets some of the operational side of it. So there is a little way to go, as I said, in caustic. And the dollar, obviously, we don’t run a spot one on dollar on a daily basis, but that’s obviously lower again. So I think that will have given us some – so the tailwinds into the current first quarter. But that is offset a little bit by some increased maintenance.

Paul Young: Okay. Good to know. And then a question on the one-offs, one-off costs, just stepping through maybe focusing on Point Comfort and also Suralco, some pretty big cash outflows there, of which Point Comfort, we sort of knew that number. But just curious about will that extend into 2021 and I think, previously, Mike, you mentioned on Suralco that the 6 years of basically restructuring charges. So is that still the case, so we should be factoring in another 5 years of, call it, $40 million of cash outflows at Suralco.

Grant Dempsey: It doesn’t go evenly. So with Point Comfort, I think as we said, the majority of the $151 million cash that was announced is in the first 5 years. That’s just – that’s not including holding costs, which we have – which is included in that $55 million for next year. That does come down. It holds into 2021 a little bit, but then does sort of materially come down over the following 3 years. And in terms of Suralco, that spend is elevated for the next few years as well.

Paul Young: Yeah, thanks, Grant. I’ll pass it on. I appreciate it.

Operator: Thank you. The next question we have is from the line of Lyndon Fagan from JPMorgan. Please go ahead.

Lyndon Fagan: Thanks very much. The first question is just on the gas prepayments. I guess, you said previously it starts to amortize in the second half of this year. I’m wondering if that cost guidance of costs up 2% already includes the gas credit if you like or should we be thinking about a credit to the cash flow statement as that gas prepayment amortizes? And then, if so, how much is that? That’s the first one.

Grant Dempsey: Yeah, that does net it off. So that’s a cash – we’re trying to get as close as we can to a cash cost for alumina. So we’ve already – the 2.5% is net of the amortization of the prepayment for that portion.

Lyndon Fagan: Right. So just to be clear, there is no credit, if you like to that. It’s just – if it weren’t for the prepayment, the actual cash cost would be up significantly more than that?

Grant Dempsey: It would be up high, yes.

Lyndon Fagan: And what – how would it look without that gas prepayment. Would it be up 5%, the growth level? Or – I’m just wondering how much is amortizing this year just to get a clean number to model going forward?

Grant Dempsey: I haven’t got that number in front of me. But it is sort of half of the $500 million prepayment over sort of 5 years, and it’s relatively straight line amortize. So I haven’t done the calculation in terms of how it works out per tonne, but that’s sort of the broad numbers.

Lyndon Fagan: Okay, great. And then moving on to the expansion. What’s your position with the WA expansion, if Alcoa doesn’t want to do it? So I’m just wondering, can you go at alone. Or what – where does that leave things?

Michael Ferraro: Lyndon, I think, if Alcoa doesn’t want to proceed, I would expect it to be on the basis of fundamentals. And if that was the case, we would probably be aligned on that basis. If there are other reasons not to proceed, such as limitations on CapEx and where to allocate the money, then we don’t have the option to proceed on our own. We don’t have a sole risking right at this point in time. So that – both of us would have to agree to proceed with it.

Lyndon Fagan: Great. And I guess just the final one, in terms of the cash restructuring charges for the period, I can say, they’re obvious on the P&L statement. But what was the cash outflow this period from all the restructuring?

Grant Dempsey: I think in our Slide 24 is – about $80 million, which is – it’s on our outlook page, it’s going from that $80 million to $115 million in 2020.

Lyndon Fagan: Right. Okay. Thanks, guys.

Michael Ferraro: You’re welcome.

Operator: Thank you. The next question we have is from the line of Kaan Peker from Jefferies. Please go ahead.

Kaan Peker: Hi, Mike and team, thanks for taking my questions. Just 2 for me. Just with the energy cash cost increase, but it appears to be coming through in the second half, so that 2.5%. If we sort of look into 2021, should we be doubling that? And secondly, on the mine sustaining CapEx, we sort of talked about the WA operations, but should we expect Juruti to sort of start increase in CapEx spend in 2021 and sort of flow into 2022 and 2023? Thanks.

Grant Dempsey: Yeah, so Grant here, so on the energy cost, yes, that is the correct assumption. So for 2021, we’ll have a full year impact of those contracts going up, which would sort of be a 5% from where we are today, obviously, not on top of 2020. In terms of Juruti, look, part of the assessment, we’re doing for some of the sustaining CapEx this year is actually doing the work on what the right time for the potential plateau move that Juruti would be, so that decision hasn’t been made. If it is made, then there will be some elevated CapEx after that. But the timing hasn’t been worked through in terms of whether that’s 2021 or 2022 or later. We’ve still got lots of different options in terms of managing that CapEx versus OpEx. So I suspect, again, that’s a decision that will be made through the course of this year.

Kaan Peker: And I suppose, what’s driving that decision?

Grant Dempsey: It’s – what drives most of the mine sort of crusher move decisions or plateau moves is really just winding up when the optimal time for OpEx, which obviously increases as you get further and further alive from where the ore is. This is actually moving closer to it. So that’s just a lot of modeling and a lot of work through in terms of when the right time to do it is. And usually, crusher move is a sort of every 6 or 7 years, it happens depending on various factors.

Kaan Peker: Sure. Thank you very much.

Operator: Thank you. The next question we have is from the line of Glyn Lawcock from UBS. Please go ahead.

Glyn Lawcock: Good morning, Mike.

Michael Ferraro: Hi, Glyn.

Glyn Lawcock: Hi. Just a couple on the cost, if I could. And just firstly, I noted, Grant, that the 2.5% and then the 5% cost imposed in 2021 is net. But I would have thought, you take the full cost through the P&L, and then, you just unwind the prepayment on the balance sheet. So your unit cost guidance is, you said, net of the prepayment, but what actually goes through the P&L would be the full cost imposed, would it not? Just want to make sure, I understand that.

Grant Dempsey: Yes. So this – the guidance we give on cost is always a cash cap. So it’s not cost of goods sold pure accounting, it’s the actual cash cap that we work through. So they are 2 different measures. And yes, you’re right. The full cost goes through the P&L. But obviously, we start to reverse out the – we start to amortize the prepayment from July 2020 as well. So they do sort of make themselves out that as were even in the P&L. You’ve got the full amount coming through, but that prepayments sitting in the balance sheet starts to positively come through the P&L.

Glyn Lawcock: Yeah, but I mean the P&L will show a much larger cost imposed then the 2.5%. So I’m just trying to make sure I understand. Once the prepayment is done, what sort of cost imposed is it roughly double? So it’s more or like 2.5% becomes 5%, and 5% become 10%, once the prepayment unwinds? Or I just want to make sure I understand how much of the prepayment is covering?

Grant Dempsey: Well, I think…

Glyn Lawcock: What is the gross cost impact through the P&L, which [you’ll feel] [ph] after the prepayment?

Grant Dempsey: Sure. I think, we’ve got 5 years of the prepayment coming through, Glyn, so it’s still a while off. And as I said when we get to that point, we do have quite a lot of spare capacity in terms of looking to re-contract some gas at the lower price. So I think, looking 5 years out in terms of what the cost would be pretty difficult, because we actually think it’s – we are going to get some of lower cost options coming up in the next little while. As we’re looking to potentially fill that gap. So it’s – the cost for the next 5 years, is that net cost, just because that’s when the prepayment unwinds, and that’s where the contract largely impacts us.

Glyn Lawcock: Okay. But just to be clear. What would be the gross impact going through the P&L then, because I mean that, we’ve got to try and forecast that as well?

Grant Dempsey: Yeah. Well, I don’t have that number with me. But again, that’s just to be clear, the actual amortization does actually go through the P&L, so it does net off. So you’re right – costs will be high, but the amortization comes out as a benefit. So it does net. Our COGS will actually be the net figure.

Glyn Lawcock: Okay, I thought each unwind it off the balance sheet, all right, and just on costs, and you talked about caustic soda of plateauing now. But is there still some tailwind to come through? I mean, what sort of tailwinds on cost can we expect into 2020? I can see the FX is a bit lower today. But how much more caustic, do you think was yet to flow through given the lag on the inventory side?

Grant Dempsey: Yeah, I think a little bit still to come through, because it did step down, as you say, towards the back end of last year. So that will come through. And the Australian dollars about the any other thing that really, we can see as giving some tailwinds to cost. Those 2 things will help in the first quarter. As I said, probably offset a little bit by the seasonal maintenance we do in the first half.

Glyn Lawcock: Can you quantify the caustic benefit, that’s left to come through, you think, if it plateaus from here?

Grant Dempsey: No. Not really.

Glyn Lawcock: Okay. Thanks.

Grant Dempsey: Thank you.

Operator: Thank you. And the next question we have is from the line of Paul McTaggart from Citigroup. You may now ask your question.

Paul McTaggart: Good morning. I just wanted to ask a topical question around Scope 3 emissions because, obviously, there’s a lot of noise around some of the [alum] [ph] majors looking to start reporting Scope 3 emissions in the future. Have you thought about that will you be reporting Scope 3, I’m just sort of trying to get a sense of how you see this playing out?

Michael Ferraro: We are in the process of working with Alcoa to work through what targets we’ll be working towards. And that will include a discussion, obviously, what Scope 1 is clearly some of that has already reported already. Scope 2 and 3, we do want to agree standards and targets with them, but that’s still a work in progress. Hopefully, we can sort most, if not all of that out this calendar year.

Paul McTaggart: Okay. Thanks, Mike.

Michael Ferraro: You’re welcome.

Operator: Thank you. Next question is from the line of Peter O’Connor from Shaw. Your line is now open.

Peter O’Connor: Good morning, Mike, Grant. I have 3 questions. Back to gas – again, sorry, Grant. These more clarification questions or not. So just to make sure, I’ve got this right. So the gas price on a full year basis has gone up 5%, but given it’s only for half year this year it’s 2.5% over the full year, but 5% for 2021. Is that the way I should read it?

Grant Dempsey: Yeah.

Peter O’Connor: Got it. Okay. And in terms of what Glyn was asking, I’ll take that a bit further. So I’m 5% increase in costs is, I don’t know, on a 2/10 base, what’s that, $11? And the amortization seems to be about $10 a tonne. So does that mean the underlying impact of the high gas cost is about $20?

Grant Dempsey: I don’t think the amortization’s quite that high. But again, we haven’t disclosed that, so I’m not sure I have those numbers in front of me. I’m happy to have a conversation about it. But I think, as I said, given that these things will go on for 5 years, that amortization is going to be pretty similar for 5 years. The net figure for the next 5 years is pretty much the focus. And by the time that finishes, we’ve got quite a lot of capacity open up to average down our energy costs is certainly the strategy at the moment.

Peter O’Connor: Okay. That’s fine. And Mike, Portland, any updates, any thoughts where that’s going? And secondly, [LE] [ph] demand. You made a comment, I don’t know I’m going to get it exactly right, but you talked about demand not being lost because of corona, but delayed or deferred. Is that optimistic?

Michael Ferraro: I’ll turn to Portland first. Portland positions are still very much as it was in prior discussions. So that – we are still looking to identify an energy solution that works financially going forward, and that is still not yet identified. So I don’t really have any more update on that at the moment. In the context of aluminium demand, what we’re seeing is that to start with China that smelters are still producing, because they can’t really afford at the moment to shut down and inventory is building. Downstream manufacturers with finished products may not be taking the aluminum, so inventories are building up, whereas alumina capacity in China is floating upwards and downwards and reducing, I think, 7 million or 8 million tonnes have been taken out of the system, in China, because of inability to get inputs and also associated – the cost of the alumina. So what’s happening is more alumina is being exported into China from the rest of the world. Now I see that as only a temporary phase, while smelting continues to build inventories, because they can afford to shut down. If the coronavirus continues then clearly some smelting capacity will shut down, because the demand won’t be there for the finished product. And that is a major impact – a significant issue. In the context of the rest of the world, and maybe some upside in the short-term in the context of far lesser Chinese exports of semi-finished products leaving China to compete in other parts of the world such as the U.S. and Europe, so domestic smelter manufacturers might be better off in that sense. But the downside for them is also that the end customer may not – the demand at the end customer level will fall. So all-in-all, I think the longer term impact of the coronavirus if it continues similar to just about every other industry out there is not positive.

Peter O’Connor: Thank you, Mike.

Michael Ferraro: You’re welcome.

Operator: Thank you. Next question is from the line of Hayden Bairstow from Macquarie. Your line is now open.

Hayden Bairstow: Hey, thanks, guys. Just a couple from me. Just back to that Alcoa sort of restructuring work they’re doing, I mean, is there any sort of update on timing on some of the other assets in the AWAC portfolio that might be part of that review [sand debris] [ph] and those sorts of things? And just on the EBA in WA, I mean, there is good result in November last year. Can you just remind me how long that EBA now goes for? Thanks.

Michael Ferraro: There is no further update on the AWAC assets and in the context of restructuring. I suspect I’m not sure that Alcoa is probably focusing on some of the non-AWAC assets at the moment. As you saw recently, they sold off a waste disposal facility in the U.S. In account – sorry, what was your second question?

Hayden Bairstow: Just the EBA in WA, which – pretty good result, but how long they go for until the next round of negotiations starting in?

Michael Ferraro: I’m not sure. Usually, they last for at least 3 years, occasionally 5. But I genuinely don’t know how long this one will last.

Hayden Bairstow: Okay. And just back to the Juruti potential mine move. I mean, Alcoa and the [all of the other weight] [ph] was sort of saying that it basically starts towards the end of this year and rolls sort of 2021. Are you saying that there is potential to delay that?

Grant Dempsey: There is just going to assessment now. I think, yeah, the plans, if you go back 12 months, I think that was always the plan to follow up the crusher movement Willowdale with Juruti, but it is part of the assessment to be done. That decision hasn’t been made yet. So it is an option to delay that and really just comes down to a whole lot of assessment as to the trade-off between CapEx and OpEx, and the right time to do it is.

Hayden Bairstow: Okay, great. Thanks, guys.

Operator: The next question we have is from the line of Kaan Peker from Jefferies. Please go ahead.

Kaan Peker: Just 2 quick follow-ups for me, please, if that’s okay. Just I think there was a mention on the tax dispute. Just want to get an understanding, just roughly around the quantum and, I suppose, the timing around that. And secondly, with the Point Comfort restructuring, with the holding charges, so that seems to be around sort of $10 million to $15 million. Should we sort of model that for the next 5-odd-years as well? Thanks.

Grant Dempsey: I can answer the second question first. So, yeah, it’s probably slightly higher than that. We’ve disclosed $55 million overall and I think about $38 million for the restructuring and the rest of it is holding costs. And that will hold itself out for the next few years. But then does decline over time. So it probably starts declining actually a couple of million bucks a year from here on, until it hits to a low point in 5 or 6 years.

Kaan Peker: So for around $15 million or $20 million for the next couple of years will be…

Grant Dempsey: It’s probably at the lower end of that and then will decline. It’s less than 2021 and 2022. It’s just keeps going down as the asset gets hold.

Kaan Peker: Thanks.

Michael Ferraro: On the ATO tax despite, the quantum as mentioned in our 4E is the ATO claims that there is a tax adjustment to be made of A$212 million. At the moment, it’s going through an independent review process, which will start shortly within the ATO. We’re not sure exactly when that will be finalized, but we would expect in the next few months. And then that will determine whether or not a tax assessment will be issued.

Kaan Peker: Okay. Thank you very much.

Michael Ferraro: Welcome.

Operator: Thank you. There are no further questions on the line. [Operator Instructions] There are currently no question – I’m sorry, we have one more question on the line, from Lyndon Fagan. You may now proceed with your question.

Lyndon Fagan: Sorry, just a quick follow-up on all of the restructuring charges. You’ve obviously given us one-year-out guidance. But when we had Point Comfort, Suriname, Point Henry, how much is it each year for the next phase 3? Are you able to give us some color on just what the total cash out flow is over the coming years?

Michael Ferraro: We haven’t really provided that information. I mean, it does decline. So next year – I think the view that we announced is that in the next 5 years, the majority of the restructuring cost for Point Comfort is going to be done and that is the significant majority. That is probably heavy in the next 2 years and then starts to tail off.

Lyndon Fagan: Okay, thanks.

Operator: Thank you. And a follow-up question from the line of Peter O’Connor from Shaw. Your line is now open.

Peter O’Connor: Grant, just on funding and the facility that you got in place, which is, I guess, handy to have the [224] [ph] as you mentioned. It seems a loss for what you got your plate and the delay in the WA growth plans and potentially Juruti as well. Given the facility charges et cetera with that is – are you comfortable holding that for the next 4/5 years, is that rate, or at that level, to cover any potential growth?

Grant Dempsey: Yeah, it’s pretty efficient facility to be honest. So, the costs are very low and it always gives us good comfort that we have a nice insurance policy if ever needed, but for some long-term opportunities really. It’s probably is more focused on the opportunity side in case it’s needed. But, having said that, there are lots of different ways of funding those opportunities too, so it’s not necessarily using our facility. We do use it throughout the year too. Obviously, there are dividends paid twice a year, which need to be funded. That often come in different times in our distributions we have from AWAC. So it does go up and down throughout the year. But you’re right; it’s a decent insurance policy in that facility.

Peter O’Connor: Thank you.

Operator: Thank you. [Operator Instructions] There are currently no questions on the line. I would now like to hand the conference back to today’s presenters. Please continue.

Michael Ferraro: Thank you, everyone, for participating and taking the time. We’ll see you soon.

Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you all for participating. You may now disconnect.