Alcoa-Linked Alumina to Close 60-Year-Old Kwinana Refinery, Cutting 500+ Jobs

Highlights:

• Alumina Limited, linked to NYSE-listed Alcoa, will close its 60-year-old Kwinana refinery in Q2 CY24, citing financial losses, aging infrastructure, and operational challenges.
• Job Cuts and Phased Shutdown: Over 500 jobs will be cut as the 2.2 million tonnes per annum facility is phased out, reducing the workforce from 800 to around 250 by Q3 2024 and eventually to 50 jobs by Q3 2025.
• Financial Implications: Alcoa expects to save US$70 million in Q3 with the closure, incurring restructuring charges between US$180 and $200 million. The decision aligns with Alcoa's strategy to optimize its refinery portfolio amid industry challenges.

Aging Infrastructure and Financial Losses Drive Closure Decision

In a significant move, Alumina Limited (ASX:AWC), the Australian entity associated with NYSE-listed Alcoa, is set to shutter its 60-year-old Kwinana refinery starting from Q2 of CY24. The refinery, with a capacity of 2.2 million tonnes per annum, will be phased out, leading to the termination of more than 500 staff positions.

Financial Challenges and Aging Infrastructure

The decision to close the facility is attributed to several factors, including the refinery's aging infrastructure, lower-than-desired bauxite grades from Western Australia mining operations, and related operating cost considerations. Alcoa reported a pre-tax net loss of US$130 million for the Kwinana facility in 2023, making the decision to close economically rational.

Job Cuts and Future Plans

The current workforce at Kwinana stands at around 800, and by Q3 of this year, it is expected to be reduced to approximately 250. Further job cuts are anticipated, with only about 50 positions remaining by Q3 2025. The closure aligns with Alcoa's strategy to enhance its refinery portfolio and capitalize on the positive long-term outlook for the alumina market.

Financial Implications and Monitoring

Alcoa Executive Vice President and COO Matt Reed affirmed the company's commitment to Western Australia in the long term. The curtailment, expected to save Alcoa about US$70 million in Q3 alone, will incur restructuring charges between US$180 and $200 million. The company will continue to monitor factors influencing the decision, including the facility's aging infrastructure and other operational challenges.

Industry Impact

The closure of the Kwinana refinery adds to recent industry announcements, including closures by Panoramic and Core. The move highlights the challenges faced by the resources sector, emphasizing the need for strategic adjustments in response to evolving market dynamics.

Alcoa is scheduled to report further details on January 18, coinciding with the Q1 American earnings season, providing more insights into the decision and its future plans.

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