In the performance report conference call of Alcoa Corporation in the second quarter of 2025, hosted by Senior Vice President Louis Lingua, the President and CEO as well as the Chief Financial Officer participated. The conference discussed the company's performance, future events and expected forward-looking statements, emphasizing that these statements may be influenced by various assumptions and uncertainties. Additionally, non-GAAP financial metrics were mentioned during the discussion, along with how to access relevant information on the company's website.

The company demonstrated strong safety and operational performance in the second quarter, with no reported fatal or serious injury accidents, and the injury rate remained below the benchmark for the entire year for 2024. They successfully sold a 25.1% stake in Mod and Joint Ventures for a total value of $1.35 billion, and obtained a favorable ruling in a five-year tax dispute in Australia. Additionally, they responded to frequent tariff updates by flexibly adjusting sales and supply operations, including shifting Canadian production to non-EU markets to mitigate the impact of tariffs under Section 232. Furthermore, they extended the supply agreement with Prism and completed the first sale of Ecolo low-carbon products in the North American region, further solidifying their leading position in sustainable aluminum solutions.

Alcoa's second quarter financial report shows that revenue in the aluminum segment decreased by 10% to $3 billion, mainly due to lower third-party average realized prices. Net income decreased from $548 million in the previous quarter to $164 million, with adjusted net income of $103 million. The decrease in aluminum and alumina prices, as well as increased costs from U.S. Section 232 tariffs, were the main factors affecting EBITDA. The company also adjusted its full-year aluminum shipment volumes and some financial expectations, and expects aluminum prices to increase in the third quarter, but this will be offset by the increased costs of tariffs. Additionally, the company also detailed financial outlook and strategic adjustments for the future quarters.

The long-term demand prospects for the aluminum industry remain strong, driven by major trends in key industries such as global transportation, construction, packaging, and electrical sectors. In particular, the transportation industry has become the largest and fastest-growing sector due to the transition to electric vehicles and lightweight initiatives. Additionally, with the global energy transition and consumer preference for recyclable materials strengthening, demand in the electrical and packaging industries is also rapidly increasing. It is worth noting that the geographical distribution of demand growth is changing, with demand for primary aluminum outside of China expected to far exceed that within China. The important role of aluminum in green and digital transformation, as well as material substitution trends, provide a solid foundation for the long-term growth of aluminum demand, despite potential short-term impacts from uncertain factors such as tariffs.

Recently, the price of bauxite has continued to rise due to the withdrawal of mining permits in Guinea and the impact of the rainy season, causing over 80% of Chinese smelters to operate at a loss due to high costs and falling aluminum prices. As a result, approximately 10 million metric tons of refining capacity in China were cut or maintained in April, leading to a more balanced market in May and supporting the rebound of aluminum prices in the second quarter. The future market balance will be affected by the addition of production capacity in Indonesia, India, and China, with China possibly needing to further reduce capacity in the second half of the year to maintain market balance. Meanwhile, Alcoa is using its global smelter network to stabilize aluminum supply and expects record sales volumes at its Drdy mine this year due to high bauxite prices.

The aluminum market has gradually recovered after the decline in LME aluminum prices in April, but overall prices are still lower than the first quarter level. Aluminum prices in the Midwest of North America have risen due to the impact of 50% Section 232 tariffs, but have not fully offset the cost of tariffs. Demand for aluminum in Europe and North America is stable, but performance varies by industry, especially the automotive industry is greatly affected by tariff uncertainties. In terms of supply, growth in the second quarter is limited, with global production constrained. The company has made strategic adjustments, including reselling Canadian aluminum metal originally intended for the United States to non-U.S. markets and pushing forward the approval work for the Western Australia mine project. Meanwhile, faced with complex approval processes and public consultation periods, the company has taken various measures to ensure continuous mining and responsible mining activities.

During the discussion, the company mentioned that the current outlook does not include the impact of a 50% tariff that Brazil may implement. They stated that although the company may be affected by this tariff policy, the specific impact will only be determined once the relevant administrative orders are issued. The company emphasized that if necessary, they can redirect their supply from Australia to cope with possible restrictions on the supply of bauxite from Brazil, even though this may increase time and transportation costs.

Discussed the situation of the Western Australia mine project being delayed until 2028, with no expected cost implications for 2025 and 2026. Series of contingency plans were proposed for different mining legacies and potentially deepening existing mine shafts to ensure the project can proceed smoothly and obtain proper approvals.

During the discussion, the company confirmed that even if the development of the new mining area is delayed, the current mining area will continue to be mined and is prepared to handle a delay of up to 15 months. For delays exceeding 15 months, the company will assess their impact on operations. The discussion also touched on the impact of tariff costs on profits, noting the increase in costs in the second quarter due to tariffs and the margin compression brought by Canadian tons. While the tons from the U.S. bring in some revenue, overall, the current premium in the Midwest is not sufficient to offset the tariff costs from Canada. The company is adjusting its strategy to address this situation.

The company detailed the increase in tariff costs from the second quarter to the third quarter, from 115 million to an estimated 205 million, and noted that under current pricing, quarterly tariff costs will reach 215 million. In addition, the company also discussed the operational status of San Cyprian, confirming that under current market prices, the business in Spain, especially the refining plant, is facing challenges. Although the smelting plant is expected to achieve profitability after full production is resumed, the refining plant may continue to incur losses for the remainder of this year and through 2026.

The smelting plant is expected to reach full production capacity in 2026, although it may not be fully achieved all year round, it is expected to reach full production capacity around mid-year, which will have a positive impact on profits.

In the dialogue, one party asks why not restart the idle annual production capacity of about 50,000 tons to take advantage of the rising premium in the Midwest and possible continued tariffs. The company responded that restarting the fourth production line would require an investment of about 100 million dollars and would take a year to operate. The decision to restart will depend on how long the tariffs continue.

The discussion covered adjustments to the San Cyprian factory restart plan and the force majeure factors caused by power failures. In addition, it delved into business strategies to deal with the current tariff policy, including cost sharing, transferring goods to non-U.S. customers, and communication with the government. The discussion emphasized the shift in costs by raising aluminum prices in the Midwest under high tariffs, and pointed out that 30% of Canadian production could be redirected to non-U.S. markets to address the current tariff environment.

The discussion focuses on the impact of tariff policies in the aluminum industry, especially on the pricing strategies and contract commitments of Alcoa and its customers in the US market. The analysis indicates that although tariffs may lead to price increases in some cases, in the long run, if the Midwest premium could be adjusted accordingly, the impact of tariffs on Alcoa may be net neutral. However, this dynamic could have implications for the overall industry demand and global LME prices, and considering the long-term contracts between Alcoa and its customers, the company does not have complete metal flow flexibility, further complicating the impact of tariff policies on the aluminum supply chain.

The company has already prepared $225 million on the balance sheet for tax liabilities, marking a major issue that has been plaguing the company and its stock price for a long time being resolved. This tax issue has been ongoing for five years, and resolving it is a significant positive for the company's financial condition and market performance. The company commends the efforts of its internal tax and legal teams, who have made outstanding contributions to resolving this issue.

Discussed the situation where 70% of Canada's melted metal sales are to American customers, mentioning that these contracts are annual contracts, while emphasizing the importance of maintaining strong relationships with customers. When considering renegotiating these contracts to lower the 70% ratio, flexibility will be sought, but a careful balance will be maintained to preserve customer relationships and strive for optimal profits.

The Alumar smelter in Brazil is facing challenges with restarting, with a current capacity utilization rate of about 92%. Despite an improvement from the previous quarter, unexpected equipment failures continue to impact production. It is expected that this situation will continue until the end of this year, and despite setting goals, the actual progress is filled with uncertainty.

In this discussion, questions from Winder will be answered by Bank of America, focusing on issues related to the banking industry.

The discussion focused on how to utilize the assets after the closure of Mod Den, including the possibility of using these assets to lower overall borrowing costs or as collateral for debt. It was mentioned that shares cannot be sold during the lock-up period, although there are options for complex transactions during the lock-up period to monetize assets, this would increase liabilities and may not be an effective source of liquidity. For future reporting of gains and losses on shares, market value marking will be conducted, and their impact on daily operations will be excluded through special projects.

In response to the increase in electricity demand due to the growth in tourism and air conditioning usage during the summer, the Spanish government has approved 65 actions in the energy sector aimed at enhancing the resilience of the power grid. These measures include voltage control and improving the stability of the grid when facing fluctuations, to ensure the stability and reliability of summer power supply. Although they do not provide absolute guarantees, these measures are considered to be moving in the right direction.

During the gradual startup process, a small number of pots will be started each week to achieve production restart, with the expectation of reaching the total production target by the middle of next year. Currently, there are 500 pots in Spain. By calculating the number of pots that need to be started each week, the goal is to ensure full production capacity by next year.

During the discussion, it was mentioned that negotiations with the government regarding aluminum tariffs highlighted the importance of supplying aluminum to the U.S. market and the complexity and cost of establishing aluminum factories in North America. The discussion also touched on reducing capital management and net debt, expressing thoughts on future capital management decisions.

The company made good progress in capital structure adjustment in the second quarter, with adjusted net debt decreasing from 21 billion in the first quarter to 17 billion, close to the target of 15 billion. However, the adjusted debt, including pensions, still exceeds the target range, reaching 32 billion. The company plans to deleverage by dealing with some maturing bonds, including the 2027 notes that can be redeemed at face value and the 2028 notes with a small premium, while maintaining a cash target of 1 to 1.5 billion.

After the Q&A session of the meeting ended, the host thanked the participants for their involvement and announced that further progress will be shared in October. The host then officially declared the meeting over, thanked all participants, and reminded everyone to disconnect.