Earnings Transcript for AWC.AX - Q4 Fiscal Year 2021

Operator: Thank you for standing by, and welcome to the Alumina Limited Full Year Results Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Mike Ferraro, CEO. Please go ahead.

Mike Ferraro: Good morning, everyone. Welcome to Alumina Limited's results presentation for the 2021 full year. Before I proceed any further, please note the disclaimer. I'm pleased to announce that Alumina Limited has recorded net profit after tax of $188 million for 2021 and declared a fully franked final dividend of US$0.038 per share. Net profit after tax, excluding significant items, was $226 million compared to $147 million in 2020. This was a strong result in a year of contrasting market conditions. Our strong financial performance reflects the resilience and quality of our asset base in the aluminum supply chain. Last year, we saw the aluminum prices reach decade highs and the alumina price climbed significantly higher in the second half. These record aluminum prices have been a positive factor for much of the supply chain. Alumina, being its own market segment, was supported by production disruptions and global cost escalation in the second half. AWAC's production costs increased in 2021, as a result of a stronger Australian dollar, higher global energy and raw material costs, as well as costs associated with higher than planned maintenance events. Notwithstanding this, AWAC margin increased year-on-year to $85 per tonne, demonstrating how AWAC’s low position on the cost curve and high exposure to API enables it to capitalize increased prices. The API is being supported by disruptions and higher costs, which may well continue into the near-term. The API is currently sitting above $420 per tonne. Sustainability continues to be a focus for alumina and AWAC. In October, the company held its an inaugural ASG presentation to the market. The presentation had four key themes, AWACs assets are highly competitive on key sustainability measures. In particular, AWAC's alumina refining carbon intensity of 0.51 tonnes of CO2 emissions is the lowest amongst major producers. Aluminium is core to a sustainable future, given that it is lightweight, recyclable and is a key metal in a decarbonized world. AWAC has a proven history of ESG management over 60 years. Finally, there is a focus on the future and innovation through technologies such as mechanical vapor recompression and electric calcination. Alumina limited has revised its climate change position statement and we will work with the AWAC joint venture to strive to reduce direct and indirect emissions to net zero by 2050. AWAC has a key challenge in decarbonization, which is to abate the fossil fuel used for calcination and steam for digestion. From the Portland smelter's perspective, it can benefit directly in a change in generation mix in Victoria's grid. Inert anode technology, which our JV partner Alcoa is developing, offers the potential for future reductions once commercialized. However, the coming decades, as a result of net zero targets, our industry will transition as part of the move to a low-carbon global economy. AWAC is well positioned to meet transitional challenges and capture opportunities such as greater demand for aluminium and by remaining low on the cost and emissions intensity curves. AWAC has spent the last decade closing and rehabilitating higher emission assets such as the Anglesea coal mine pictured on the slide and the Point Henry smelter and the attention is very much focused on completing rehabilitation and returning them to the community. Projects such as MVR also tick many boxes, including improving energy efficiency, facilitating the use of renewable energy and decreasing the use of freshwater in water scarce region, such as Western Australia. I'll now hand over to Galena, who will take you through the financial results in more detail.

Galina Kraeva: Thank you, Mike, and good morning, all. I will start with review of the AWAC performance before addressing Alumina Limited results. AWAC 2021 financial results and operating performance reflects the solid earning capacity of our Tier 1 portfolio basis as well as its resilience during the time of market volatility. AWAC recorded an EBITDA of $1.1 billion and $440 million of net profit after tax. Excluding significant items, recorded EBITDA and the profit after tax were $1.2 billion and $600 million, respectively. Despite a slight decrease in alumina production and increased input cost, the higher average alumina price resulted in strong cash flow from operations of $780 million. Now let's go through AWAC operating performance in more detail. AWAC continued to perform strongly achieving a first half production record for the portfolio and an annual production record for the Kwinana refinery. In the second half, an outage of bauxite unloader at Alumar refinery, the strike at San Ciprian facility and some unplanned maintenance at Wagerup and Pinjarra reduced the production rate resulting in total annual production of 12.6 million tonnes, which is approximately 2% less than the prior year. AWAC average realized alumina price was $321 per tonne, $53 per tonne higher than in previous year. Early in 2021, we saw an overall increase in alumina prices as demand improved and the aluminium price continued to rise. However, at the end of the first quarter, freight costs began to climb significantly. This impacted the Chinese import parity price and in turn constrained an API. The alumina one month slot price remained under or around $300 for almost three quarters of the year. But during the third quarter, production disruptions reduced the rest of the world alumina supply and as a result, alumina prices surged, reaching a peak of $484 per tonne and averaged $411 per tonne for the fourth quarter of the year. Price currently remains above $420 per tonne. AWAC cash cost of production averaged $236 per tonne, an increase of $37 per tonne, compared to the previous year. Stronger Australian dollar contributed almost third of that increase. In Western Australia, the cash cost of production increased in the first half as a result of the higher bauxite costs during the Willowdale crusher move and higher energy costs, which included the full year impact of the new gas contract. Production costs in the second half increased due to the higher global gas fuel and power prices, unplanned maintenance, lower production rate and increased cost of production. Average cost of production reached $244 per tonne for the fourth quarter of the year. Looking forward to 2022, we anticipate that the cost pressure will continue driven by the large effect of the higher input prices. Despite the increased cost of production, the 2022 year to date cash margin is roughly in line with the long term average and as today, API price, the margin is above the long term average. Portland now had a positive year achieving an EBITDA of $73 million. This includes $20 million of revenue recognition relating to the government grant. The amount was predominantly non-cash. In March, new five years power supply agreements were successfully initiated. This enabled the continued operation of the smelter and improved its competitive position. In November, the restart of curtailed capacity was announced with the metal production expected to start in the third quarter of 2022. When the restart is completed, the AWAC share of production would be approximately 186,000 tonne per year. With the secure energy supply and the strong positive outlook for the future of alumina, Portland is well positioned to benefit. Turning our attention to the AWAC capital project. Total CapEx in 2021 was higher than 2020 by approximately $30 million totalling $241 million. Significant project included the completion of Willowdale crusher move as well as construction and upgrade of tailings and residue storage areas with the majority of work taking place in Brazil at [indiscernible] facilities. Looking forward to 2022, both sustaining and growth CapEx are expected to be higher taking the total combined CapEx to $340 million. The sustaining component increase will be largely driven by the Jurity [ph] mine move and continued development of tailings and residue storage areas. The increase in growth CapEx expenditure relates to debottlenecking work at Alima [ph] refinery. Now let's move to the year ahead. With the bauxite un-loader outage at Alima and the [indiscernible] strike resolved, we expect Alumina production of 12.8 million tonnes with all refineries producing near or above main plate capacity. Third party bauxite side shipments are focused to be 5.3 million tonne and aluminium production of 165,000 tonnes. Total CapEx is expected to increase by about $99 million. Forecast cash restructuring related items has increased by $90 million due to the delayed remediation activities carried over from 2021. An unfavorable input price impact of approximately $70 million is expected in the first quarter of 2022, compared to the fourth quarter of 2021, of which approximately half is due to the caustic price increases and the other half is due to a significant European gas and electricity price increases. Finally, a payment of approximately $120 million related to the prior year's income tax is expected as a result of higher 2021 taxable income in Australia. Now turning into Alumina Limited results, Alumina Limited recorded a net profit after tax of $188 million. Excluding significant items, net profit after tax was $226 million. This was a strong result and it's higher than previous year by 28% and 54% respectively Alumina Limited announced a fully franked final dividend of US$$0.028 per share to be paid on 17 of March representing an average dividend yield of 7.3% over the last five years fully franked. As previously announced, the benefits of the higher margins in the fourth quarter of 2021 has been reflected in the AWAC net distribution of approximately $115 million in January and February 2022. The board has taken these exceptional circumstances into account when declaring the 2021 final divisions. This has resulted in bringing forward part of the dividend that would otherwise be paid as a part of the interim division in September 2022. Alumina Limited maintained a strong balance sheet with a very low level of debt. We have a great confidence in AWAC tier one portfolio basis and its ability to deliver strong results through the cycle. Thank you. And I will now hand you back to Mike to provide you with an overview of the market.

Mike Ferraro: Thanks, Galina, The fundamentals of the alumina industry, being the supply-demand balance and production costs continue to determine alumina prices. Alumina production disruptions in the third quarter of 2020 in China, Brazil, Jamaica and the US led to regional shortages and the price spike to $484 per tonne in October. The alumina price retreated after some production was restored. Also smelting cuts in Europe due to higher electricity prices reduced alumina demand. However, higher energy, caustic and bauxite freight costs increased the cost of production of alumina in the second half and provided price support. These factors contributed to an average alumina price of $329 per tonne over 2021, a 21% increase over 2020. This month, the API has ticked up above $420 per tonne, largely due to Chinese production constraints leading up to the Chinese New Year and the winter Olympics, as well as regional COVID related disruptions. In 2022, we expect ongoing elevated industry costs to underpin the API. As we mentioned in our half year results, a number of factors, particularly COVID related disruptions in the shipping market have caused a sharp increase in ocean freight rates. This reduces the Chinese import parity price, which impacts negatively on the API higher freight rates have also increased the cost of raw materials, particularly bauxite. The shipping market is expected to continue to be unpredictable, but likely to remain heightened in 2022, attributed to a host of factors, such as COVID, energy market fluctuations, decarbonization efforts and Chinese policies. China's policies on energy consumption, aimed at achieving its long term climate target of carbon neutrality by 2060 disrupted both alumina and primary aluminium production in 2021. Production losses of approximately 1 million tonnes of primary aluminium and 1.1 million tonnes of alumina resulted from emission and energy related policies in China, we expect similar policies to remain in force in the long term, which could lead to more Chinese refineries and smelters built outside of China. This year, we expect around 2% growth in both global smelting grade alumina and primary aluminium supply resulting in a similar surplus of alumina outside China compared with 2021 of 3 million tonnes. Over 2021, we saw a surplus of 3.2 million tonnes of alumina exported to China broadly, similar to what we forecast in our half year results. However, as we saw in the second half of 2021, despite overall quarterly alumina surpluses, supply disruptions can lead to regional shortages with a prompt and sharp impact on price. The main wild cards outside China but with geopolitical issues of European and Asian energy prices lead to curtailments of alumina or primary dominium in 2022. In China, stringent controls on energy consumption may impact supply as well. China is expected to again import alumina to keep the global market close to balance. These two bar charts show the forecast net new smelter great alumina and primary aluminium production outside China in 2022. This shows slightly less new net alumina being added compared with the increased demand for alumina from new smelting production, which is why the alumina surplus outside China reduces by 200,000 tonnes as shown on the previous slide. Average Chinese alumina production costs increased by 18% in 2021. Almost 60% of this increase was driven by energy costs with surging coal prices in the second half of the year. Other raw material costs such as bauxite and caustic were higher. We're seeing some moderation in coal prices since the fourth quarter, but as China continues to enforce its energy policies and more inland refineries turn to using import on bauxite, we expect alumina production costs to be at elevated levels in 2022, As China imports the rest of the world alumina surplus, a higher Chinese cost base should help underpin the API. Decarbonization is expected to have a substantial impact on aluminum demand in the medium to long term. The adoption of renewable energy and electric vehicles, as well as the implementation of sustainable solutions in the packaging and construction sectors represent major opportunities for the aluminum industry. Total aluminium consumption is expected to grow by 33 million tonnes this decade going from 86 million tonnes in 2020 to 120 million tonnes in 2030. Around 22% of this demand growth is forecast to come from electric vehicles and 40% from electrical, construction and packaging sectors. So to summarize, realized alumina prices were higher in 2021, but the API was still constrained by significantly higher freight costs. Notwithstanding higher input costs, AWAC improved its margins and profitability. Cash costs in 2021 were again in the lowest quarter of the global cost curve and our refining portfolio has a lowest CO2 emissions intensity amongst major refiners. Last year saw a lower API driven by COVID impacts and lower alumina input costs until August. The API then bounced higher supported by regional shortages and higher costs. As noted, the freight market distorted the bauxite and alumina markets in 2021. This is likely to continue in 2022. On the upside, growing demand for aluminium and elevated cost basis for alumina producers should support the API. As the world transitions to cleaner energy, there will be periods of disruption. As we have seen AWAC performs well through the cycles and benefits from the upturns as demonstrated in the fourth quarter. Longer term, growth in aluminium demand will support growth in the supply chain. Thank you all for listening. I'll now hand back to the moderator for questions.

Operator: Thank you. [Operator instructions] Your first question comes from Rahul Anand with Morgan Stanley. Please go ahead.

Rahul Anand: Hi, Mike and Galina, thanks for the opportunity. Look, the first one was just a quick confirmation perhaps for Galina. Did I hear correctly that the annual run rate of Portland was going to be 186,000 tonnes per annual of production once it's ramped up in the third quarter, Galina, I just wanted to reconfirm that largely because it is a bit higher than recent year’s production at the AWAC level.

Galina Kraeva: Yes. So we expect the total of 165,000 tonnes for this year, but once the restart of the capacity completed, which is expected around third quarter, then the full annualized production will go up to 186.

Rahul Anand: Perfect. And that's very close to capacity. Okay, great. Perhaps one question on the Alumar restart. Could I get some visibility around how the alumina supply into that smelter is going to be priced? What are the pricing terms going to be?

Mike Ferraro: It's priced at API.

Rahul Anand: Okay, perfect. And then one Mike on your decarbonization efforts, you have flagged sort of the 2030 targets, so to speak. How should we think about the CapEx required for these targets? I mean, there's two things in there. There's obviously the technology drivers from a process perspective, but there's also the energy grid or the energy supply moving to renewables. If we talk about both of those, I mean, how much CapEx for the technology side? And then are you going to completely rely on third parties to supply renewable power or are you going to invest in that yourself as well through the 2030?

Mike Ferraro: Well, on the 2030 targets themselves, we are almost there. So it's not too far away. So the cost implications are actually quite low. And when it comes to Portland, for example, we will be relying on more renewables coming through the grid naturally. And so that'll take our use of renewable energy from the low 20s to, sorry from about 30% to 40%, if I'm not mistaken in renewable energy by the end of the decade. When you're talking longer-term, the cost of MVR technology, which is being explored at the moment is relatively low as it's been assessed over the next couple of years. But longer-term, if it works, it will be implemented across the refinery portfolio and that has not yet been costed.

Rahul Anand: Okay, perfect. Look, I have a few more, but I'll pass it on and queue up again. Thanks.

Mike Ferraro: Thank you.

Operator: Your next question comes from James Redfern with Bank of America. Please go ahead.

James Redfern: Hi, Mike and Galina. Hope you're well. I've just two questions, please. The first one, just maybe a little bit more detail around the increasing CapEx for this year if possible please. CapEx of $340 for this year. Just hoping if we get a bit more of a breakdown of the various drivers of the increase. And then the second question was just in relation to the higher power costs, which I assume relate to San Ciprian in Spain. Just wondering, does AWAC buy power, the grid on a spot basis? Or are there sort of term contracts that you can talk to? Thank you.

Galina Kraeva: Sure. I'll start with CapEx. So as I've mentioned, the biggest project on sustaining side, the biggest project that we're looking at this year is the Juruti mine move. The next largest expenditure item is the upgrade and maintaining all of our tailings and residue storage facilities and that will be done in Brazil and in Western Australia to some extent. So that's the majority of sustaining CapEx. The reason why it's coming up, it's a little bit of a timing as to when those things are getting built and when they need to be looking. And once again, the biggest bump up is the move in Juruti mine. So that's the sustaining CapEx. The growth CapEx is - the largest project there is a debottleneck making of Alumar refinery and it includes of many sort of little things, which improves the flow through the refinery. And once completed, which is about two years project, it will give us an extra 63,000 tonnes per year of alumina. So that's sustaining CapEx. On the energy front, you're absolutely right. The increases are coming from subsequent refinery at 25% of the energy needs contracted and 75% is on spot market.

James Redfern: Okay, great. Okay. Thanks, Galina.

Operator: Your next question comes from Matt Greene with Credit Suisse. Please go ahead.

Matt Greene: Hi, good morning, Mike and Galina. Just on, I guess MRN, Mike. The – I mean, [indiscernible] purchased Alcoa share. Are you able to give us any idea what the consideration was there? And just for clarity, are you completely out of that asset now?

Mike Ferraro: So on MRN, the consideration was not material. So we haven't disclosed it and it's been kept confidential. So unfortunately, I can't say any more than that. Are we completely out of it? Once the conditions are met, which include regulatory approval, then we will be completely out of it.

Matt Greene: Okay. Thanks. And then I guess the guidance for the third-party bauxite sales, just for clarity, that some of these sales were MRN and does that reflect the sale?

Galina Kraeva: Yes. Some of the third-party volume mix is from MRN and we will continue to have some of the uptake from MRN for a few years ahead. So the 5.3 is accurate forecast.

Matt Greene: Okay. That's great. Thanks. And then – and I guess just on the Willowdale move, you're now consuming small bauxite, are you able to give us any idea on what the cost of consumption has been versus what you've had previously, it's still around the sort of loads in mid 70s?

Galina Kraeva: It's a little bit -- it's mid-70s. So it's a little bit higher than the year before. Not by much about like extra two, three kilograms because of the culture of bauxite, but it's now coming back to the normal low 70s.

Matt Greene: That's great. And sorry if I missed it earlier, but just on the timing of that 120 tax catch up, is that at the back end of year,

Galina Kraeva: That'll be around June,

Matt Greene: June. Okay. That's it for me. Thanks a lot.

Operator: Your next question comes from Lyndon Fagan with JPMorgan. Please go ahead.

Lyndon Fagan: Thanks very much. Look, my first question is on the cost guidance for the first quarter, the $70 million increase. Am I right to time that by four, which is 280 million annualized, and then if I divide that into production guidance on give or pay $20 a tonne cost impact, is that - should I be flowing that through the rest of the year?

Galina Kraeva: We've given the guidance for the first quarter only because as we just discussed, we're buying the energy market spot at San Ciprian. Therefore, it's quite difficult to sort of predict as to what's going to happen in the second quarter and then the rest of the year. But if everything stays as is, we'll then - yes, your assumption is not incorrect.

Lyndon Fagan: And Galina, is there anything to suggest that it won't stay that way?

Mike Ferraro: Well, Lyndon, certainly the plan is to try and contract that gas during the course of this year, hopefully on better terms than we're currently getting.

Lyndon Fagan: Okay. Great. And the next question I had it's been quite a while now, since EcoSource was put out there as a brand. I'm wondering in marketing that product, whether you are able to observe any green premiums in the marketplace or whether there's any, I guess, benefit at this stage to having that brand?

Mike Ferraro: Buyers still keen to get that and at times there might be a small premium paid for it but it's not significant. I think our assessment is, we'll need more consistency and higher premiums for the metal itself. Once that's coming through and in Europe, I think we're seeing premiums of between $25 and $35 a tonne for green aluminium which saw around $22 to $25 a tonne in the US. And once we see premiums being consistent and hopefully higher in the aluminum space, then we'll see can measure premium in increases in EcoSource.

Lyndon Fagan: Okay. Thanks. And just one final one, I guess with a pretty strong demand outlook, when is it time to revisit the on again, off again expansion at WA, I guess, it was looking fairly likely. Some study would be looked at not that long ago, is it time to revisit that?

Mike Ferraro: Yeah, as we noted in the presentation today, we think the surplus -- the global surplus of Alumina this year, sorry, rest of world surplus will be about 3 million tonne. So my own view is you probably would need to see that surplus come down somewhat. And then secondly, there's quite a lot of work going through at the AWAC level on mine planning and assessment to assess how best to use the reserves and how to maximize the margins over the longer term. And then that will drive when and how expansions would take place. So really the mine planning work, which will be completed probably around the middle until the second half of this year, and at the same time, an assessment that that surplus will be coming down, which would mean we would need new smelters greenfields and brownfields in construction mode.

Lyndon Fagan: Okay. Thanks very much.

Operator: Your next question comes from [indiscernible]. Please go ahead.

Unidentified Analyst: Good morning, Mike. First question's just on a little bit more detail around the $70 million increase for costs. You say it's split between raw materials and energy, and I understand what Galina said about the access to small exposure to spot energy, but how much of this seventies energy and how much is raw materials, can you maybe provide more color? And then the second question is just around you made a comment that you just, the beginning of February, you made a submission to the ATO and you want them to rule within 60 days. Could you maybe help me understand exactly what that is? Is that you want a ruling within 60 days to put this all to bed, or just on your submission, if you could maybe add some more color and how long this could drag on. Thanks.

Galina Kraeva: Well, let me take the cost question and then Mike will talk about ATO. So with regards to the 70s it's caustic soda and energy and it's half and half.

Unidentified Analyst: Sorry Galina, can I ask if you look at the caustic price today, has it all flowed through in the first quarter, given the lag or if caustic stays where it is, do you think there'd be it more, you'd feel even more caustic into the second quarter?

Galina Kraeva: It will you're absolutely right. It'll be more caustic in the second quarter and not as much as in the first, but it'll be some more in the second quarter.

Unidentified Analyst: Okay. Thanks very much.

Mike Ferraro: On the second point about the ATO Glen, so decision was made to serve these formal notices on the ATO at the beginning of this calendar year, really driven by the fact that there wasn't any real progress in getting an outcome from the ATO during the informal objection period and we were concerned that the period continue to drag on. Now, there may be legitimate reasons for that. The ATO may be under resources, a lot of stuff going on, people working for home, so on, but anyway, the decision was made to serve the notice, which requires the ATO to respond formally within 60 days as to whether it accepts the objections and reverses the assessment or whether it based on its knowledge at the time that the assessment will stay in place. So if the decision is positive, then that's the end of it and we'll get our refund and we deal with the interest credit. If it's negative, then the formal processes would start in commencing legal proceedings.

Unidentified Analyst: So Mike, I'm no legal expert unfortunately, but can the ATO just simply say, yes, we want to proceed and drag it out. Is that the only thing is that the simple response they can make.

Mike Ferraro: Yeah. If the ATO is not fully prepared and hasn't fully assessed the position and all the submissions we've made, and then there's a likelihood that they would say we confirm the assessment that we made, and then it would be up to us to AWAC to institute core proceedings. So in that sense, it can't be extended any further. The formal, next step phase starts.

Unidentified Analyst: Okay. So they say, we want more time and you say, fine, we want you start core proceedings.

Mike Ferraro: Okay. Thank you.

Operator: Your next question comes from Paul McTaggart with Citigroup. Please go ahead.

Paul McTaggart: Obviously we've got some restructuring charges that are still going to run through this year. Can you give us an update around the profile of those cash components of those restructuring charges over the next couple of years? And obviously these things become a kind of almost permanent feature of the results.

Galina Kraeva: So as you know, we have three closed facilities, which we currently taken bulk remediation activities again. Against with Point Henry Anglesea is almost completed. So there is still cash to be fund there, which we provide the guidance on. But it's mostly done. And now in terms of how long it'll take, it may take a few years because you're supposed to do one step and then get it approved and down to a certain label. So it's quite a lengthy process, but as far as fund cash spend, those two are almost done. The two other facilities, which is Ralco and Point Comfort, Now I'll start with Point Comfort because that is the $90 million increase in the cash restructuring item and it's more Point Comfort because due to the COVID interruptions and everything there wasn't much of the work done at the facility. So that is still almost all the way to go ahead and throughout is about a half point of going through remediation.

Paul McTaggart: Okay. So effectively, we should still see another couple of years of these costs for those two. Thank you.

Operator: Your next question is a follow-up from Rahul Anand with Morgan Stanley. Please go ahead.

Rahul Anand: Oh, hi. Thanks for the opportunity again. Look two for me. One was related to the freight rates. Mike, you had a chart showing that the [indiscernible] freight rates seemed to have normalized the historical levels into China yet the handy size obviously remains elevated. Is it fair to say then that the Chinese cost base, at least from that perspective has bottomed and any sort of upside that you get from the freight rates coming up off from the Aussie side are going to be net benefit to the seaborne traded alumina price. That's the first one. And then the second one is on San Ciprian, I just wanted to basically ask more of a strategy question. If you look at the NPV, if this asset versus your potential expansions, admittedly, there's a surplus globally at the moment, however, you will move down the cost curve if you expand your production and perhaps, if you were to get rid of San Ciprian or sell it, wouldn't that be a better outcome for the group, both in cost perspective and NPV perspective? How do you think about this asset being core or non-core going forward? Thanks.

Mike Ferraro: So you're talking about San Ciprian were you?

Rahul Anand: Yes.

Mike Ferraro: Okay. On freight rates yes, there's been some reduction. I think on bauxite transportation from Guinea, but we're expecting them to, to con -- to increase again, due to a whole range of factors, including, these COVID uncertainty demurrages and hold-ups and so forth. So we're expecting those to add pressure to the cost base within China. On the handy freight rates, I've noticed today, they've jumped up again over $50. It does not help us for the handy size freight rates to be high because the Chinese, when they're importing in, in setting the, the import price of Alumina, they, they take into their transportation costs as they would. So to higher the freight rates means a lower API and the price of which they would be buying. So we actually want those handy size rates to come down. And San Ciprian, sorry, I mustn’t forget that question. That's important on San Ciprian. Right now, it is challenging. You're quite right. And I suspect a dozen or so refineries and also a number of smelters in Europe having the same problems with energy prices. And so it is a point in time and there is degree of uncertainty. But, and it's complicated obviously by the factors between the Ukraine and Russia and whether gas is going through the pipeline or not the new pipeline. So in the short term, you'd say, yes, Mike, might make some drastic decisions, but I think you've got to sit back, wait and see and understand it and, and see how it unfolds and then assess it going forward. in the past San Ciprian has had both good, good years and some bad years, honestly. But I think it would be premature to make that decision today based on a high level of volatility with energy costs. And also really, as I, as I mentioned in my speech, quite a lot of this transitional period with energy moving to green energy over the longer term, we will -- we will see these periods of volatility until it's all settled. And green energy tends to dominate particularly in Europe, which is really moving ahead, the rest of other nations. So I think it'd be too premature to make that decision now. Sorry, long, long way of saying, we sit back and see how it unfolds.

Rahul Anand: No, that's fair. Thank you very much.

Operator: Your next question comes from Peter O'Connor with Shaw & Partners. Please go ahead.

Peter O'Connor: Good morning, Mike. Good morning, Galina. My first question on growth, circling back to your comments you made about the growth portfolio and what you might do with it, just to understand the timing. Do you need to wait for the supply and demand balance appear to change or did I understand your comments as you just wait to see the smelters and refinery start to line-up to build, and that would be the trigger?

Mike Ferraro: I think it'd be a bit of chicken and egg, Peter. I think you certainly want a clear indication or directors that the supply balance will continue to reduce. And no, we're pretty good at forecasting as proven in the past. I'm sure we'll do that in the future, but just assuming we're still pretty good at it. We have a pretty good line of sight of what can happen over the next few years. So it really depends, as I said before on smelting production growing, and that's the big sixty-four-dollar question. If I was a smelter operator and I'm not, but if I was having gone through many years of tough times and, and losses, I'd be sitting back for a period of time take the benefit of higher prices and then making the decision to expand either green-fields or brown-fields in a significant way that time hasn't come yet. But I think it will come. You're seeing the push with electric vehicles. You're seeing the push to de-carbonization. You're seeing the push that aluminum recycling of the product can deliver. So, I think it, it will come and we can Read the Tea Leaves. I don't think we need to wait for the balance to reach zero, but we need to have a good indication that it will continue to fall.

Peter O’Connor: So based on these comments and CapEx that we've got, we keep sending to move out in our models. It would be years away before this apparent lining-up the firm, would be in place to give you that confidence. So it's not a '22, it's not a '23, it's probably not even a '24 spend. And second to that, China, your comments about China's capacity will increasingly be built outside, and at least because of MVR, bauxite issues and power issues? Do they shoehorn you out of the market? And do you lose that opportunity?

Mike Ferraro: No. On the latter, I don't think you lose that opportunity at all because it depends on what the Alumina slash aluminum construction mix is going to be outside of China by the Chinese. It's, they're building more smelting and they've invested in two refineries in Indonesia now investing in a smelter as well. Remember you need at least twice the Alumina to produce aluminum. Then if they're building more smelting capacity, then we, that will help us. And that will reduce the, the global balance. Sorry, can you remind me your first question, Peter?

Peter O’Connor: Just the timing it's we all have the, I think growth doesn't…

Mike Ferraro: As you've seen our CapEx is going up -- going up this year and there's quite a bit associated as Galina pointed out with the mine move in Brazil and also the spending on residue facilities and investment in their technology will come, hopefully if it works. We're also looking at an investment as you have seen before in high purity Alumina. So do I know when -- I don’t know when, but I would expect with the movement an increase in aluminum demand between now and 2030, I would've thought it's got to be during the course of this decade, where you make some serious decisions.

Peter O’Connor: Okay. Second, narrative dividends, dividend policy, the shift to a new policy was about a year ago when you went to the -- just the change from the way you were doing it before, and now you've gone off piece and gone semi back to that, just take us through the logic at the board why, when and how we see this year play out and how we adjust our mechanics for getting dividend right this year?

Galina Kraeva: What we've done this year with the final dividends, we're not going back to our policy. We're just acknowledging that the fourth quarter spike was so significant and the cash that came in, in January and February this year, we just felt that it would be more fair to give it back to shareholders rather than hold it within the company until September next year. So,…

Mike Ferraro: And the additional dividend that's coming through that would otherwise be paid in accordance with the normal policy in September is reflective of the cash we received in January only, which is about $81 million [ph]. February we hold onto.

Galina Kraeva: So we're not…

Peter O’Connor: I acknowledge you're being flexible there, but so we take that sort of extra $1.04 out of our numbers, the way we work it out normally out of '22,

Galina Kraeva: Correct? Yes, that's right.

Peter O’Connor: Okay. Thanks Mike. Thanks, Galina.

Operator: Your next question comes from Paul Young with Goldman Sachs. Please go ahead.

Paul Young: Hi Mike. Hi Galina. Most questions have been asked on short term cash, but I've had a few questions on the medium to long run, particularly around the investment in the WI [ph] refinery. It does seem to me that, Alcoa it’s pivoted a little bit with their strategy and yeah at their last quarterly they did outline potential U.S $200 million of spends over '23, '24 on the MVR electric calculation, high purity, Alumina those three projects potentially, and pushing out the investment in the [indiscernible] projects that we've sort of been on and off talking about for three or four years. Has there been in your view with discuss a little color a change of pivoting strategy with now more of a focus on just decarbonizing these assets rather than increasing these assets?

Mike Ferraro: Well, certainly what you're seeing Paul is, there is a focus on, on de-carbonization and greening, and that's quite consistent with the rest of the industry. So we're not outliers there. And I think it's something that we have to do now, stakeholders expected to do it. And, and you would just quite negatively if we didn't do it when the rest of the industry is doing it. So that needs to be done. And it's a must have, but ultimately that should not dissuade us from making the right long term decisions. We don't want our portfolio to diminish in production over a long period of time. We don't want our minds to run out of -- run out of bauxite without identifying new resources and new opportunities, both in bauxite and refining growth. So yes, money is being spent in the next few years on greening. But over the long term, we're spending quite a bit of time thinking about and talking to them about the refinery of the future, for example, which is some way away and quite a lot of work needs to be done. So I can't really tell you much more than what I've just said. And as I said, the mind planning work assessing our bauxite reserves longer term and determining what we do and how we use them and where the growth is. So I, I don't think this takes us away from takes our eye off the ball Paul of longer term growing the portfolio, if makes sense.

Paul Young: Yeah. Okay. Thanks, Mike. And then lastly can I ask around just third party bauxite? So again going backwards or flip to backwards for three or four years now. And, the markets changed right with obviously with the export ought of Guinea by Chinese companies, but what is the strategy over the medium to long run and what are your discuss at [indiscernible] and what you do with third party bauxite exports?

Mike Ferraro: Certainly on the third party bauxite, as you see we're sort of maintaining or slightly reducing because the market is oversupplied and will continue to be oversupplied. So in the medium term we don't see that to be a significant market opportunity for us beyond what we're currently producing and selling, unless conditions change. If conditions change, or if some there's a major hiccup in Guinea or something else change is unexpected, then we can relatively with these ramp up production out of Brazil, for example. And potentially restart selling again at some of our WI bauxite, but from a longer term perspective, the fundamental foundation of this business is the bauxite reserves. So that's really important to us to ensure that they are there, they are there the long-term. And we continue to, to keep our foot on opportunities that that arise. That's probably the best way to sum it up. Paul.

Paul Young: Okay. Thanks, Mike. And I'll sneak another one. Last one in there. Is that, are you still looking around Weipa? Are you still looking at, adding resources in region?

Mike Ferraro: We've? We've always had tenements in Alumina aluminum places like that. And we're always looking to see whether there's opportunities to, to get bauxite reserves longer term, so that, that, that hasn't changed, but it's not a, an easy thing to do.

Paul Young: Okay. Thanks Mike. Thanks Galina.

Mike Ferraro: Okay,

Operator: Your next question comes from Lyndon Fagan with JP Morgan. Please go ahead.

Lyndon Fagan: Thanks. Just a really quick follow up in terms of the holding costs for the idle assets, is there any hope of actually restarting the refinery in the US or is it -- has it been demolished?

Galina Kraeva: No. It's in process of being demolished. No, there is no restart there.

Lyndon Fagan: Right? Yes. That was it. Thanks.

Operator: We're showing no further questions at this time. I'll now hand back to Mr. Ferraro for closing remarks.

Mike Ferraro: Thank you all for listening today. I, I know you're all got busy time tables and reporting season, so I appreciate your time and the questions, and I'm sure we'll be talking to a number of you over the next few days. Thanks very much. Thank you.

Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.