Roy Harvey: Thanks, Alex.
Operator: The next question is from Carlos De Alba with Morgan Stanley. Please go ahead.
Carlos De Alba: Yes. Thank you very much. Happy new year Roy and Bill. And Bill, congrats on your tenure as CFO and all the best in the new role. Just a question regarding the Kwinana run rate, just to continue the discussion on alumina, I guess. You mentioned in the press release, and I think there were some news articles that the gas supply has improved, but yet you’re keeping the reduced capacity utilization there. So what would need to change for you to take the capacity utilization higher in that refinery? That will be my first question. And then the second one maybe related to ELYSIS. What can you tell us there in terms of important milestones? When should we hear an update from you on how the developments are progressing? And when will you be making the decision of further investments? I think there was something around $100 million contingent CapEx depending on the success of the developments that you’re running right now.
Roy Harvey: Carlos, let me give you first couple of answers, then Bill can fill in, particularly on the ELYSIS numbers. Kwinana, just to get started there, so we’ve got about 30% curtailed, it was very much driven by the fact we just didn’t have enough gas in the state of Western Australia, asked large consumers of gas to look for ways to be able to reduce. And operating on diesel just doesn’t make a lot of sense just because of the price differential and for a number of other reasons. So as we looked at that, the right thing to do was to be able to take a series of maintenance activities and bring that down by 30%. At this point, we have seen improvements in how much gas is available essentially up to our normal contracts. We’ve seen an improvement but we’ve not yet got back to the stability that we normally have.
I would say we’ve made good progress in being able to fill in some of the gaps so that we’re now running what we have running fully on natural gas, and we’re not substituting diesel, which is very good and good from a cost standpoint but also good from a stability standpoint. But we need to see continued sort of the return of all the normal operating capacity back before we start making that next set of decisions about whether we bring it back up or not. All intentions or sort of what we had seen before is that by the end of January, we should see some of those maintenance and downtime events in our suppliers start to ease up, the ones that haven’t done so already. And so we will be analyzing as we go. And as always, we will keep you informed and let you know as soon as we’ve made a decision on that, Carlos.
On ELYSIS, just jumping into that second question as well, important milestones, I’ll hit it qualitatively, and then Bill can step in and talk a bit more about the numbers. For me, the next important milestones, the ones that obviously, we’d be talking more about, we’re in the midst of constructing and preparing to start up the first industrial-scale cells. And so that will be happening over the course of 2023. So as you can imagine, this year is very important to see those cells starting to operate and to start to see those initial results. And I would imagine that we will keep the market informed as much as we feel is appropriate over the course of 2023 and 2024 as those cells continue to operate. By the end of 2024, what we’ve said is that we want a commercial package available so that we can get started on the first installations of ELYSIS, which we’ve not defined where that will happen yet, with the idea that the first operating capacity really will be happening in 2026.
And so to me, 2023 is going to be absolutely critical because it’s going to show that we’re €“ that we’ve got the ability to operate, to generate the quality of metal at P1020 or better capacity and to start to work on making sure that we can deliver on the operating efficiencies and the capital efficiencies that we’ve got planned. So it’s going to be an exciting year.
William Oplinger: And on the numbers, Carlos, a couple of numbers to keep in mind. We guided in the €“ we are guiding in the first quarter that other income will be down sequentially by about $45 million. $35 million of that $45 million is associated with contributions to ELYSIS in the first quarter. So you know the way the accounting for the ELYSIS contributions are is that when we make that contribution, we immediately take the hit in income and that sits in other income. For a full year estimate, including the $35 million of contributions in the first quarter, we would anticipate about $60 million in full year contributions for ELYSIS at this point. Now that will flex based on timing of some of the key decisions, but that’s our best estimate at this point.
Carlos De Alba: Alright. Excellent. Thank you very much. Very exciting indeed. Good luck, guys.
Roy Harvey: Thanks, Carlos.
Operator: The next question comes from Timna Tanners with Wolfe Research. Please go ahead.
Timna Tanners: Hey, good evening. And happy new year everyone. Wanted to just touch on a little piggybacking on the discussion of kind of what it takes to restart some of your idle capacity but ask a little differently. Looking around the European markets, do you think that there is also the potential for some extensive restarts, given lower gas prices? Or what do you think it takes to see some of those facilities also restart?
Roy Harvey: Timna, I can €“ I’d take a first thing at that one and Bill can chime in as well if he wants to. The €“ operating in Europe is still pretty difficult. So you compare it to prior to the war in Ukraine or maybe even better, take it a year before that because we were seeing an inflation in energy prices even the year before. It’s still a very difficult place in order to operate a smelter or a refinery. And so those smelters that are operating tend to be ones that have long-term contracts that have been disconnected from the spot prices that we see today. We were able to find a solution on the relatively small €“ lease the smelter that we have, although it is third curtailed at this point, and that was through some incredible work that our strategy and commercial teams were able to do.
But it’s still just not a market where you can justify continuing to operate at spot power rates as you see. And I would extend that over to the Refining business as well when you’re buying spot gas. The current LME pricing for aluminum nor the API pricing for alumina giving you a return given where those rates are. As we see the winter continue and if it continues as mild as it is, I think perhaps you’ll start to see some opportunities that emerge but we’re just not seeing that yet. If anything, when I look across Europe, I’d say that there are still opportunities or potential and particularly where certain smelters might be coming up on end of shorter-term contracts and then are going into the spot market or looking for that next series of contracts.
I think there is still some curtailment potential that could happen both on the smelting side. And we’ve also heard some rumors about stuff that could be happening also on the refining side that sort of informed the difficulty that’s happening in the market. Again, we always €“ when we step back and we look at our facilities and we think about how we run them, San Ciprián is a good example. The San Ciprián refinery is a good example of a place where we have been able to make smart decisions and curtail it partially so that we are really only producing the tons that, in fact are creating value for us. It doesn’t necessarily fix the problems because we want to be operating that facility at full speed again down the road, but we need to see the more relief on gas before we get to that particular point or more relief coming in from the pricing, the API pricing, etcetera.
William Oplinger: Just to put some numbers around that, Roy, I was going to reiterate the point that you are making at the end there. We were €“ we have been consistently surprised that more capacity hasn’t come offline in Europe. And you have heard us, Timna, talk many times about 1 million to 1.2 million metric tons that was at risk because of high costs in Europe. We would still say that today, in the month of December, we think that 15% to 25% of the European smelting capacity is cash negative. So, as we look around the world, the majority of the cash negative smelting capacity is sitting in Europe today. To add on, on the refining side, a surprising number is that we would consider close to 85% of the refining capacity in Europe to be cash negative at the December average gas prices. Now, we know that gas prices have changed a little bit in January, but a lot of the capacity in Europe on the refining side is cash negative.
