Alcoa has announced plans to fully curtail production at its Kwinana Alumina Refinery in Western Australia, beginning in the second quarter of 2024.
The Kwinana refinery has an annual nameplate production capacity of 2.2 million tonnes. The refinery has been operating at approximately 80 per cent of its nameplate capacity since January of 2023.
Alcoa’s Executive Vice President and Chief Operations Officer, Matt Reed, said that the determination to curtail the 60-year-old facility was based on a variety of factors including its age, scale, operating costs and current bauxite grades, in addition to current market conditions.
“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,” Mr Reed said.
“We deeply appreciate the commitment and support of our many loyal employees, contractors, and suppliers at our Kwinana refinery, which has made a major contribution to Western Australia’s economic development over the last 60 years of continual operation.”
The curtailment will include a phased reduction of the workforce from around 800 employees at the start of 2024 to approximately 250 in the third quarter, when all alumina production will cease. Certain processes, however, are expected to continue until about the third quarter of 2025, when employee numbers will be further reduced to approximately 50.
“We will work closely with our employees to provide support with transitioning to other opportunities,” Mr Reed said.
“This includes potential redeployment within our business or assistance to facilitate employment at other workplaces.”
Alcoa has said that its port facilities located alongside the refinery will continue to operate to import raw materials and export alumina produced at the company’s Pinjarra Alumina Refinery. Production at the Pinjarra and Wagerup refineries is not expected to be impacted by the curtailment at Kwinana.
“We remain committed to Western Australia 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 noncontrolling interest) of approximately USD$130 million in 2023. The company expects annual improvements of approximately USD$70 million beginning in the third quarter of 2024 as a result of the curtailment. The refinery will continue to incur approximately USD$40 million of non-cash depreciation, depletion and amortisation expenses while curtailed.
In the first quarter of 2024, Alcoa will record restructuring charges between USD$180 million and USD$200 million related to the curtailment of the refinery. Alcoa’s share (after-tax and noncontrolling interest) will be between USD$76 million and USD$84 million, or USD$0.42 to USD$0.47 per share.
The charges include approximately USD$81 million for water management costs, USD$55 million for employee-related costs, USD$26 million for asset retirement obligations, and USD$18 million of other costs.
Alcoa’s share of related cash outlays of approximately USD$115 million (which includes existing employee-related liabilities and asset retirement obligations) is expected to be spent in 2024 (USD$80 million) and 2025 (USD$35 million).
Industry response
Federal Minister for Resources and Northern Australia, Madeleine King, has expressed disappointment over the decision and said that it will undoubtedly have a ripple effect on the community.
“As the local member representing many of the workers at Alcoa Kwinana, I am extremely disappointed and my thoughts are with those workers and their families as they are the people most severely affected by this decision,” Ms King said.
“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.
“Kwinana has been home to the alumina refinery for 60 years and has been a significant part of the local community.
“I expect that Alcoa will do everything it can to ensure workers affected and their families receive all the support they need during this difficult time, and I will hold them to account on this.”
Ms King said that as the Federal Minister for Resources, it is very disappointing to see a minerals refinery cease production.
“It is important to note that this decision by Alcoa does not affect Australia’s or Western Australia’s sovereign capacity in alumina production, as Alcoa will continue operations at both the Wagerup and Pinjarra refineries.
“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.
“The Federal Government has classified High Purity Alumina as a critical mineral and aluminium as a strategic material.”
Western Australian Premier, Roger Cook, said that the curtailment is a very disappointing outcome and that Alcoa needs to do everything it can to support its workforce through this transition.
“The State Government will step up to provide support for local workers to retrain, reskill and look for new career opportunities in the local area,” Mr Cook said.
“Kwinana is the industrial heart of Perth, and has a bright future with new job-creating industrial projects emerging on the strip – keeping Kwinana strong for generations to come.
“We will continue to work with Alcoa to ensure its other operations in Western Australia – including its Pinjarra and Wagerup refineries – support local jobs into the future.”
