Good afternoon and welcome to the Alcoa Corporation Fourth Quarter 2021 Earnings Presentation and Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to James Dwyer, Vice President of Investor Relations. Please go ahead.

Thank you and good day everyone. I'm joined today by Roy Harvey, Alcoa Corporation's President and Chief Executive Officer; and William Oplinger, Executive Vice President and Chief Financial Officer. We will take your questions after comments by Roy and Bill. As a reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings. In addition, we have included some non-GAAP financial measures in this presentation. Reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA. Finally, as previously announced, the earnings release and slide presentation is available on our website. With that, here's Roy.

Thank you, Jim. And thanks to everyone for joining our call. 2021 was truly a transformative year for Alcoa. Due to the work and dedication of employees across the globe, we're now in our best financial shape ever. Our accomplishments which span across our business will help propel us forward with our vision to reinvent the aluminum industry for a sustainable future. Before Bill covers our results in detail, I want to quickly highlight a few items. First, our most important focus is always on safety, which is embedded in our Alcoa values, to act with integrity, operate with excellent, care for people and lead with courage. And every one of those values has an application that helps to support and improve our safety. Importantly, we will never put production or profit ahead of human life. Last year, we had no fatalities but we did experience some serious injuries. We recognize that our systems and processes must be consistently applied and regularly reviewed to prevent injuries. We never rest comfortably when it comes to safety; we must and will remain vigilant. Next, turning to some of our results. We had a quarterly net loss due to restructuring charges that Bill will detail. Meanwhile, our quarterly adjusted net income increased 21% from the prior quarter, setting a quarterly record for our company at $475 million. Adjusted EBITDA excluding special items was $896 million. In the fourth quarter, we also paid $19 million in cash dividends, our first as Alcoa Corporation. This action too made 2021 an important year as the initiation of our dividend program indicates the strength of our company and our view of future performance to the cycle. In the fourth quarter, we authorized an additional stock buyback program and repurchased 3.2 million shares. We generated nearly a $1…

Thanks, Roy. Our fourth quarter income statement reflects both solid underlying earnings in a very busy set of strategic actions. We recorded a net loss attributable to Alcoa Corporation of $392 million. But excluding special items we recorded quarterly adjusted net income attributable to Alcoa Corporation of $475 million, our highest since becoming a standalone company and an increase of $84 million from the prior quarter. Positive market fundamentals are reflected in our revenues and adjusted EBITDA excluding special items. At $3.3 billion, revenues were up $231 million or 7% sequentially on higher aluminum and alumina prices. Revenues were up $948 million or 40% from the same period last year. Adjusted EBITDA was up $168 million to $896 million sequentially and up $535 million, or 148% compared to last year. On a full year basis, revenues were up 31% to $12.15 billion; net income attributable to Alcoa change from a net loss of $170 million to net income of $429 million and adjusted EBITDA increased 140% from $1.15 billion to $2.76 billion. Provide a little more detail about the quarter at the bottom of the page shows a bridge from fourth quarter GAAP net loss to adjusted net income. Special items netted to negative $867 million and included non cash charges for pension annuitization, the Wenatchee smelter closure, the San Ciprián smelter curtailment as well as the positive impacts of non core asset sales, primarily the Rockdale site sale. Now, let's review adjusted EBITDA in more detail. Higher alumina and metal prices, as well as increased aluminum shipments drove the $168 million increase in adjusted EBITDA excluding special items, while partial offsets came from higher energy and raw material prices. In other impacts, increased costs in San Ciprián primarily energy related were partially offset by one time debt credits recognized…

As Bill noted, the aluminum segment has a significant role in our overall profitability. In 2021, the average elemi aluminum price surged to its highest level in more than a decade, and pricing today is higher than the average levels we experienced in 2021. On the supply side, important fundamentals have taken shape in China, which is the world's largest producer of aluminum. In 2021, the country curtailed more than 2 million tons of annualized capacity due to both power shortages, and the enforcement of policies related to energy and the environment. These supply dynamics are not only occurring in China, increases in market power prices in Europe have led to a series of smelter cuts there that I will discuss in more detail in the next slide. On the demand side, we expect annual global demand for primary aluminum to increase this year between 2% and 3% relative to 2021. Demand in 2021 had already eclipsed the pre pandemic levels of 2019. We continue to see positive GDP and industrial production across most of the world's leading economies, which supports continued annualized growth in aluminum demand across all major end use sectors. Aluminum prices have been supported by supply constraints, low inventory levels and high transportation costs. From a commercial perspective, the shortages of some specific alloying materials key to our value added products have also eased somewhat from the tightest points in the fourth quarter. On sales, much of our volume for value adds aluminum products are sold in annual contracts, and negotiations with customers resulted in favorable pricing. We expect higher premiums relative to 2021 and continued demand for any remaining open volume. We continue to benefit from our position as a domestic supplier to the deficit markets in North America and Europe, where regional premiums remain…

[Operator Instructions] Our first question today comes from Satish Kasinathan with Deutsche Bank.

Yes, hi, good morning. Thanks for -- good evening. Thanks for taking my questions. My first question is on the aluminum shipment guidance for 2022. The 2.5 to 2.6 million ton guidance appears to be a little bit light. Can you provide some more color given the various moving parts? Understand that there will be lower volumes from San Ciprián but they should be offset by the restart of Alumar smelter and the higher volumes from Portland. Warrick volumes should be lower. But it should just really one quarter impact given it was divested in April of last year. So any color you can provide, please, thank you.

Satish, I think you've hit on all the major moving parts we had work in the first quarter of last year, we will get the San Ciprián smelter curtailed after within the next week or so. So we will have 11 months of shipments there. And then we are ramping up some small amount of production at Portland. And that starts in the third quarter and goes into the fourth quarter. And then some production in Alumar but I think you've hit on all the major items.

So just to be clear, the 400, 000 to 500,000 decline in the annual volumes, does it include any lower third party purchases for the year. Is that the reason for the larger than expected decline?

Well, there may be some smaller amounts of buy resale, but that's not the major driver.

Okay. Thank you. And my second question is on the overall guidance for the first quarter of 2022. So, I just want to clarify if the guidance takes into consideration the potential reversal in intersegment eliminations, which was $120 million headwind in fourth quarter.

8 It does take into that -- that into account. So, it takes into two things related to alumina pricing, we have lower alumina pricing currently than what we had in the fourth quarter, but we will have a reversal of that intersegment loss in this case so we will have that reversal also.

Our next question comes from Timna Tanners with Wolf Research.

Yes, hey, Happy New Year and thanks for all the great detail. I want to task first off high level looking across your portfolio, as we just heard, and looking at what's remaining, I know you said you're still doing evaluation of the footprint. You still have a number of US assets that are set in. I was just wondering that you inclined to believe that after LMR in Portland, you're happy with your footprint or is it still possible to revisit work in Massena West? That's my first question.

I'll handle that one, Timna; we're always looking at what we choose to operate. And so it's -- you look at what's happening in the current environment, we project that out as well. And so both from a restart side, and we do have some curtailed capacity, but also from the capacity for potential curtailments or divestitures, et cetera, it's an active process. And it also connects over Timna and we've talked about this before it connects with trying to repower these facilities to look for ways in order to invest to strengthen them, to build up partnerships. So I think the straight answer to your question is that yes, we're always looking at our portfolio to try and decide how we can drive towards the first quartile number one, and then number two, make sure that we're meeting our decarbonization targets and driving towards net zero in 2050, which obviously is a good portion away. But we need to be actively working on that now.

Got you. And the second question is really broader about San Ciprián in particular, so first off, you had said it would be about $100 million hit in the fourth quarter, I was wondering if that materialized. There's some discussion of a wind power option for San Ciprián that I've seen in the media that you've tentatively agreed to, wondering if that's a viable option, if you can discuss that. And the local media also had some reports of about $100 million CapEx investment that's been committed to. So just trying to get a little more color on the ramifications of San Ciprián and how to think about it going forward.

So, Timna let me take the first and the third. And then Roy can address the wind power question. We had projected, I believe, around $85 million of sequential EBITDA impact from San Ciprián, we saw around $75 million of sequential negative impacts from San Ciprián that's around $65 million in the smelter, and approximately $12 million, I guess it's $77 million in the refinery from the strike there. So we did see essentially what we thought, as far as a cash situation goes, we had projected around $100 million of capital that would be held up in working capital. And given the fact that we had around 50,000 metric tons of shipments that didn't go, it was at least $100 million of working capital that's tied up at the end of the year. As far as the $100 million of CapEx, we have committed to $103 million of restricted cash. And that breaks down that we've committed to around $68 million of capital spend at the facility over the next couple of years, and $35 million of restart costs. So you'll see that on our balance sheet that's actually held as restricted cash. Because we've committed to spend that over the next couple of years as we prepare for a restart. Roy, do you want to take the wind power question?

Yes. And so just stepping back and looking at the deal that we have in San Ciprián, I think it's a good outcome because it gives us some clarity through what is a pretty incredible dislocation in energy prices in Europe and very specifically in Spain. And so our sort of the most important next step was to reach this curtailment because it cuts off those losses, which is what Bill described very well. So now, we're already starting to mobilize and look towards this capital spend that we've committed to. But more importantly, for that committed restart January 1, 2024. We're looking for energy contracts that can stretch out for longer, and can take away the energy price risk. And those, of course tend to be linked to potential renewables projects. And in this case that you had mentioned wind power, those are pre agreements or MOU. So they're the first step in this process. They are indicative of moving in the right direction. And so I think it's, we need to have policy in the regional government Assunta connected with the national government policy on how to build those renewable power opportunities, and then connect it to San Ciprián, which is what allows us to have this step change improvement in energy price that we could entertain in January 1, 2024. So the important thing is that we're reaching curtailment, which means we're no longer consuming what is incredibly high priced energy, and at the same time working to make San Ciprián as competitive as we possibly can, for that restart January 1, 2024.

Our next question comes from Carlos Alba with Morgan Stanley.

Yes, thank you very much. Happy New Year, guys. So the first question, just to remain in San Ciprián is for how long do you expect to use the stocks primary metal stores that you currently have there? And what is the -- how are you going to run the cast house? How you are going to feedstock it after you run down those inventories?

So we anticipate using that inventory over the next eight to nine months, Carlos. And then after that, we will bring in cold metal.

And if I may ask Bill, would you be buying this from third parties or would you bring it in from other European and metals, across European metals?

I think we'll do whatever logistically makes the most sense, Carlos, I don't necessarily have an answer for where we'll be getting that metal after the 10 months, but we will continue to run the cast sales.

Alright. And maybe Roy, if you could comment, is there any other comments that you can add to the VIP increase that you expect to benefit the profitability of the primary metal [Indiscernible] is melting or yes, is melting operations this year?

Yes, I can give you some qualitative comments. I think when we look at the markets and these markets tend to be driven in North America, particularly on an annual basis. So we've moved through that annual contracting period. In Europe, they tend to be redefined on a quarterly basis. And so you do see some changes as the year progresses, and then our -- the available capacity that we have or capacity that we can build and add to our portfolio over the course of the year, then we can take advantage of what are typically very good spot prices. And so for us it is, when we have sort of that annual contract period in North America, particularly we were seeing a lot of strength and continue to see a lot of strength. It is a deficit market in North America right now; there is a clear demand upsurge in across all of our different products. And so it was a very good time to be going out there for those annual contracts. And I would argue it's the same in Europe as well, and will likely become even tighter given all of different European curtailments that we're seeing. So just on a qualitative basis, I think it is; there is a haptic definite move upwards on value added premiums in general. And we're striving and driving to make sure that we can produce as much as much as we possibly can in these values added products.

And then in terms of when do we see that hitting your P&L? Is this mostly in the first quarter? I mean, the contract reset on January, or is throughout the year or throughout the first half of the year.

Sorry, go ahead, Roy.

Yes, typically they're reset in January. And again, you see sort of a North American reset in January. And then you'll see the European that will have the quarterly driven changes in pricing that'll happen on for each quarter. So it's not as simple as one impact and it doesn't change. And it also can change depending on what the product mix looks like itself. I don't know, Bill, if you want to add to that.

The only thing I'd add, Carlos, is in the guidance that we've provided. We've included the fact that there is a pricing reset in the first quarter, and we will see two pricing benefits in the first quarter. The first is the higher value adds premiums across the aluminum segment. And the second is the non recurrence of the negative pricing that you see in the Alumina segment in the fourth quarter as alumina prices came down in the fourth quarter, we have some block pricing that gets repriced and that was a negative in the fourth quarter and so that won't recur in the first.

Our next question comes from Emily Chieng with Goldman Sachs.

Good evening, Roy and Bill, and congratulations on some further progress with your portfolio review strategy there. My first question is just around the CapEx outline but not yet sanctioned through HPA project in 2022 and 2023. I guess at what point during the year should we expect to see an update on when this conditional ban will be deployed? In other words, how close are we to reaching those different stage dates?

Yes, from an HPA perspective, Emily and I appreciate the question. This is an active research and development project and in fact, there's probably a lot more information that you're getting because of the joint venture partner because how important this is to their ongoing business. And so over the course of 2022, we'll see advancements in what is right now a relatively small scale application to make sure that it actually works. And then coming into the end of this year is when we'll be actually starting to design and consider whether we move forward with that larger project. And so I think there will be more information coming out as 2022 continues forward. And I would just reiterate the fact that for projects like this that aren't in the R&D phase, and it's no different for Australia, and in to a certain extent ELYSIS, although ELYSIS is further along. We go through these stage gates to make sure that when we choose to invest capital we're doing in a project that will be very, that will be successful, that we've been able to eliminate the technological risk, but at the same time, also have very good shareholder return. So we need both the market side, but more importantly, the cost side to come in where we want to.

Thanks Roy. That's really clear. My second question is just around the capital allocation space, net leverage is well below your prior targets, cash balances well above the previous $1 billion target you've talked about in the past. How should we think about what the right level of cash is on the balance sheet? And perhaps what that could mean for how capital returns could look throughout 2022?

Let me, I'll take that one, Roy. Emily, as you alluded to, you've seen over the last five years that our cash balances have fluctuated; there have been times where we've been below the $1 billion target. And as of today, we're clearly above the $1 billion target. With that in mind, we initiated the dividend in the fourth quarter; we bought back roughly $150 million of shares in the fourth quarter, we have a further $500 million authorization that we can execute in 2022. And so as we look at all of that information, we've developed the revised capital allocation framework. It'll be focused on three things, returning cash to shareholders, repositioning the portfolio and positioning for growth in the future. You've seen that the repositioning of the portfolio actually does cost us some money. So we, in the San Ciprián situation, we've committed $103 million of capital to restart that facility. But so we've had that we've got the Alumar restart that will cost us some. So that's what's going into the thinking behind the capital allocation program.

Our next question comes from Michael Glick with JP Morgan.

Yes, maybe just a follow up there on the buyback you did $150 million in 4Q. How should we think about the pace of buybacks moving through 2022? And then just generally your thoughts on dividend increases versus buybacks.

Yes, we really don't have any guidance, Michael, on how quickly will execute upon the future buyback; it will be based on as we see cash coming in and the market situation. As we consider the question around dividend versus buybacks. The dividend was set as an initial dividend. And I should, before we rush to talk about potentially increasing the dividend, we just paid our first dividend in the fourth quarter after five years of being an independent company. So we set that dividend at a level that we thought we could be comfortable through the cycle. So as we consider the future use of excess free cash flow, we'll be balancing the dividend versus additional buybacks.

Got it, that's helpful. And as it relates to the cost side, can you maybe go into some of the key items on the raw material side and how you see the trajectory of cost moving through the year.

I'll address the first quarter specifically the cost situation on raw materials is very fluid. So we haven't provided full year guidance of the raw material situation, two big cost drivers on raw materials. The first is caustic and the second is carbon products. Those are adding up to be about $50 million of sequential quarter negative impact. So that's what that's included in the guidance that we've provided, but $50 million combined to between caustic and carbon products.

Our next question comes from John Tumazos with John Tumazos Very Independent Research.

Thank you very much for the last 20 pages of the slides. They're very helpful, especially slide 31 and 34. It's very helpful. My question involves your 2% to 3% demand growth estimate for the year. World auto sales might grow two or three times or four times that depending on chip availability. EV sales typically are aluminum grew 50% to 100% in different markets. The Bevcan can is growing, with displacement of PET bottles and different capacity expanses by can makers like Ball, world GDP in most regions might grow by more than 2% 3%. Which markets do you expect aluminum to be cannibalized or priced out of building construction; electrical uses, internal combustion engines, and other markets; squarely there are many segments that are going to grow more than 2% to 3%.

Yes, John, let me try and provide a little extra information that might be helpful. And I'm not sure I would talk too much about cannibalization, simply because while we are enjoying positive aluminum prices, and certainly like when it's above $3,000, we're seeing a lot of that same type of commodity price inflation across some of the competing metals as well. And so I'm not sure if it's so much cannibalization as some weakness that we see in the markets as they're sitting today. And so let me take one quick example and transport or construction growth inside of China, as you watch some of the fiscal measures that they've taken in the tightening of some of the credit. That's something that tends to drive a flatter construction market. And that's how we were looking at this up until this point, now that fiscal policy can change, we can see more money going into construction, and so that could drive a much more vibrant market. So from the Chinese standpoint, it really is around the construction side. And its availability of credit. So if we see that turning around, I think you could start to argue which is I think where you're going with this, that demand could be stronger. From the rest of the world standpoint you had a very strong 2021, this very sharp rebound. I think we continue to see good strength going forward. And we're seeing strength across all the different markets. And again, I think transportation is the place where we have seen those positives, you've got the chip shortage, which sort of comes in and puts a little bit of uncertainty around how much that actually will be driven forward. But in the end, I think it's, we had a really strong 2021. We're going to continue to build on that strength. And we're going to continue to see that aluminum is used across the board pretty much in all these separate markets.

Our next question comes from Lucas Pipes with B. Riley Securities.

Hey, good evening. Congratulations on a great year. And thanks for taking my question. I wanted to circle back on your smelting footprint for my first question, maybe put a different twist on it. Looking at global power markets, you think the US smelters have become relatively more competitive, but that's also where outside of San Ciprián your idle capacity still located. How do you think about these assets and could it make sense to restart some of that capacity?

Look, so it's a really good question. And it's also a pretty complex answer. Because energy is first and foremost; one of the most important decisions when you come to a restart or come into a brownfield or Greenfield someday down the road. And it's absolutely true that in the US you have access to power. The second question that naturally comes is when you have access to well price power. What is the power source? Is it renewable versus is it a fossil fuel? And while these are relatively recent developments, we are certainly and absolutely moving towards renewables simply because it takes away some of that carbon risk and with our commitments to go to net zero by 2050. We need to have a clear pathway for how to decarbonize our portfolio, so decarbonization and power sources sort of a second consideration. The other piece, though, and perhaps this is the one that affects the US more is the technology itself. And so when you look at some of the newer smelters that we happen to be operating in New Orleans, a great example of what is our most recent investment future dollar as well, when you compare it with some of the idled facilities that we have in the US and you can look at Intalco in the Pacific Northwest or Wenatchee, the fact is that technology is really don't compare, they tend to be significantly more less efficient, and much more requiring of hands on labor and difficult jobs to do. And very difficult jobs to actually find people that want to work there. And that can be there long enough to really become very good, very proficient operators. And so we look across all those different dimensions as we think about any kind of restart potential. Energy very important, but then we have to look at the technologies and how that would then fit against all of our environmental goals.

Thank you very much for that perspective. And I unfortunately want to take it to for my second question to geopolitics for a second. If tensions increase between Russia and Ukraine, what could be implications for the global aluminum and aluminum markets are? Thank you very much for your perspective on that.

My goodness, Lucas, that's a big question. I think how I would limit my comments is to say that those types of tensions can have very broad impacts; they can have broad impacts on supply. And this very much depends on if there were to be some kind of aggression. How are the different European countries? How are the different global countries going to react to that? And so you can, because of where some of the supply comes from aluminum that can very quickly impact the supply that's coming. It also has an impact on the supply side because of the energy prices inside of Europe and because so much of that power. And what happens in natural gas particularly is going to impact what's happening in Europe. We're already seeing this broad curtailment because where energy prices are today, imagine if the tensions increase. If you start to see less availability of natural gasoline prices could go up even further. And you could start to see even more of a supply impact happening in Europe and potentially elsewhere because of knock on impacts. And then just more generally, the potential for disruption for conflict could in the end impact the demand that you're seeing as well. And this is more of an indirect impact, but could be something that could be an outcome again, really projecting forward and just thinking through what some of the risks could be.

I very much appreciate your perspective. Best of luck and hope you have a great 2022.

Our final question today comes from David Gagliano with BMO Capital Markets.

Great, thanks for fitting me in here. I just have a couple of quick clarification questions at this point. I was wondering can you just quantify the year-over-year EBITDA benefit and that value added contract for 2022. And if those flow through basically on a quarterly basis prorated equally each quarter or to change as the year progresses, my first question.

You can't quantify, we haven't quantified the year-over-year yet, David. But I can give you an idea of the sequential quarter benefit, the sequential quarter benefit between the higher value add premiums and the block pricing in the alumina business that won't recur is around $75 million. And you can see that the pricing in alumina was around $30 million negatives in the fourth quarter. So that would put the value added piece at around $40 million - $45 million on a sequential quarter basis. So significant.

Okay, that's helpful. Thanks for that. And then just step back for a second and I think I missed this, but can you speak a little bit more about the details behind that $325 million catch up tax payments from prior years?

Yes, it's very simple. You've been following us long enough to know that in the case of Australia, you typically pay tax, cash taxes the following year based on earnings from the prior year. So out of that $320 million, approximately 35%, 40% of that is in Australia. The other piece of that is in Canada in that the earnings the Canadian smelters grew significantly towards the end of last year, specifically in the fourth quarter. So that falls over into the first quarter. And then there's a piece of that in Europe for the exact same reasons. So, cash taxes in the smelting system typically have a little bit of a lag from when you make the earnings to when you actually pay the cash out. And given the fact that we made very strong earnings in the fourth quarter in both Canada and in some of the European countries, we pay that out this year.

This concludes our question-and-answer session. I'd like to turn the call back over to Roy Harvey for any closing remarks.

Thank you, Wiley, and thank you to everyone who joined the call today. We always enjoy answering your questions and of course discussing Alcoa's performance in the road ahead for our company. I'd also like to thank all of our employees once again for their excellent performance in 2021. I look forward to talking to everyone again at our first quarter earnings call in April. In the meantime, please be safe, stay healthy, and have a good evening. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.