Alumina Ltd
ASX:AWC
Earnings Call Analysis
Q2-2023 Analysis
Alumina Ltd
The company faced operational stability issues and reduced bauxite quality, particularly in Western Australia (WA) operations. This was evidenced by the decision to keep Kwinana's digester offline and higher maintenance and outages, notably at the Wagerup refinery. Further complications arose with a conveyance system failure at their Alumar refinery in Brazil and significant maintenance projects throughout the first half of 2023. San Ciprian refinery continued operating at half capacity, a cut made in 2022. These factors contributed to AWAC's average production cost climbing by $15 per tonne. The increase was attributed to various components, including lower bauxite grades leading to absorption of fixed costs, increased maintenance expenses, and the lag effect of higher caustic soda costs. Positively, energy costs were lower at San Ciprian and Alumar refineries.
The alumina market saw significant price fluctuations. Prices spiked in February, partially driven by optimism surrounding China's post-COVID recovery, peaking at $371 per tonne, and then settling at an average of $352 for the first half of 2023, marking a 7.5% hike from the previous half. Despite the initial rally, the introduction of new refining capacity and energy shortage-induced smelter curtailments in China led to a subsequent decline in prices. However, an upturn occurred again in July, with the Alumina Price Index (API) trading at $345 per tonne at that time. Globally, aluminum demand is predicted to grow modestly, primarily through the electrical and transportation sectors, while construction demand might see a contraction.
From a financial standpoint, Alumina Limited reported a net loss after tax of $43 million, or $39 million excluding significant items. They renegotiated their syndicated bank facility, increasing the limit from $350 million to $500 million, providing more financial breathing room with the first repayment due in October 2025. For the full year, the company predicts alumina production to be roughly 10.3 million tonnes and expects a $7 per tonne improvement in production costs in the latter half of the year, thanks to the anticipated benefit from caustic soda price drops. Aluminium production is forecasted at about 155,000 tonnes, a reduction following a curtailment of capacity. Total third-party bauxite shipments are expected to be around 7.6 million tonnes.
The company's timeline for mining approvals remains uncertain, halting some production advancements. Regulatory processes in Western Australia are experiencing delays, thus the outcome and timing of the mining approvals necessary to address production issues and costs are unclear. This ambiguity affects planning and potentially further production, but the executive team remains hopeful that improvements in refinery stability and lower cost inputs will improve the situation in the second half of 2023.
During the call, investors were concerned about various subjects including the large negative operating cash flow impact due to prior year taxes amounting to $110 million and the possibilities surrounding mine approvals. Executives outlined a few tactical plans in place. For instance, improving conditions and lower gas prices could lead to increased production at San Ciprian. However, specifics regarding contingency plans in the case of permit denials were not disclosed. The joint venture with Alcoa permits a certain level of debt, with each company individually responsible for contributions beyond that threshold. The executive leadership did not actively consider a takeover to be imminent despite financial challenges.
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Thank you for standing by, and welcome to the Alumina Limited Half Year Results Call. [Operator Instructions].
I would now like to hand the conference over to Mr. Mike Ferraro, Managing Director and CEO. Please go ahead.
Welcome, everyone. Thank you for joining Alumina Limited's presentation of the first half results for 2023. Before I proceed further, please note the disclaimer. Also, please note that all references to dollars refer to U.S. dollars, unless otherwise specified.
Alumina Limited had a difficult first half, recording a net loss after tax of $38.7 million. We have made a net contribution to AWAC of $100.7 million, which was funded by debt. As a result, no dividend will be paid for the first half.
During the first half of 2023, global alumina producers benefited from lower alumina production costs through softening energy prices. While AWAC did see lower costs in part of our portfolio, the impact of lower grade bauxite in WA meant our overall cash cost per tonne increased compared to the second half of 2022. This, combined with historically high levels of CapEx, made AWAC had a negative cash flow in the half.
We anticipate ongoing cost pressures in the second half, but with some benefits expected as the impact of lower caustic prices flow through inventory. Having said that, the uncertainty of the permitting process in WA will continue to have a significant impact on AWAC's performance.
Now I would like to provide an update on the situation with mining permits in WA. Alcoa's continuing to work with a range of government agencies on the approvals required for it to operate our WA mines. The result is that we are operating in an environment where there is no certainty as to time frames and outcomes and potential impacts are also uncertain.
Under Alcoa's state agreement and related ministerial statements, Alcoa submits rolling 5-year mine plans for assessment through the Mining and Management Planning Liaison Group, known as the MMPLG. Approval is granted by the Minister for State Development in consultation with other ministers. Normally, this and associated forest clearing approvals has been obtained on an annual basis.
However, recently, the process is taking much longer. The '21 to '25 mine plan was approved in December 21. In September 22, the minister approved with conditions a rollover of this plan, forming the '22 to '26 mine plan. The '23 to '27 mine plan was submitted earlier this year, but it has been since withdrawn. Alcoa is currently preparing an enhanced plan for resubmission.
The third-party referral to the EPA is separate from the MMPLG process. It is not unrelated though, as it has slowed our ability to progress with the MMPLG. A third party referred Alcoa's '22 to '26 and '23 to '27 mine plans to the EPA in February this year, and the EPA opened a public comment period on 7 August into which into whether to conduct an environmental impact assessment on the mine plans.
The next stage in the process involves a EPA deciding whether or not to assess all parts of the plan and if so, what level of assessment it should undertake. Slide 29 provides further details on the MMPLG and EPA processes. Alcoa has a strong history of environmental performance, which I'll talk about further in the following slides. It is though listening to the community and stakeholders and we recognize that it needs to do better to keep pace with evolving expectations.
While discussions with regulators are continuing, Alcoa has already made a number of commitments during this transition period. These include increased controls to protect drinking water, commitments to no mining zones, stepping up mine rehabilitation and implementing enhanced engineering solutions. In our view, the existing MMPLG process is robust. It includes representatives from a range of government departments, including the Department of Biodiversity, Conservation and Attractions, the Department of Mines, Industry Regulation and Safety, the Department of Water and Environmental Regulation and the Water Corp.
But the regulatory environment has evolved and EPA review is now industry standard. Alcoa is committed to modernizing its approvals approach in a reasonable transition period. Our concern is not with moving to full EPA assessment over time. Our concern is the extended uncertainty the delays are causing and the impact on our cost of operation. Alcoa is continuing to engage with government on our required approvals.
Aluminium is a metal for the future with a vital role in the transition to a low-carbon economy. While we need to evolve as we are doing, our industry is critical to decarbonization. It is worth remembering that Alcoa has been operating in the southwest of WA since 1963. It's a long-term mining lease that supports the significant investments that have been made in our 3 refineries at Kwinana, Pinjarra and Wagerup. The bauxite mines are strategically located near the 3 refineries, which provide additional value add to the resources.
Alcoa's next Huntly Mine regions, Mayara North and Holyoake were referred by Alcoa for EPA assessment in 2020 and are going through a full public environmental review process. These regions are the next stage in Alcoa's Australia's mining plans in WA and will support operations for approximately 10 years, creating 300 construction jobs and sustain approximately 3,000 jobs across the Huntly mine and the Pinjarra and Kwinana refineries.
The current assessment time line indicates a ministerial decision in mid-2025. Other mine locations exist post Myara North and Holyoake, within Alcoa's Australia's lease area.
The joint venture has a long-standing commitment to responsible and safe mining practices. This slide highlights our rehabilitation practices in the Darling ranges in WA. The photo reflects a rehabilitated area from the Jarrah Forest, which was planted about 30 years ago. The towers depicted are 15 to 20 meters high, and the tree follage now matches that height. Alcoa does not mine areas located in national parks, conservation reserves or old-growth forests. Our mine areas are in forest areas where timber harvesting has historically occurred.
Over the past 5 years, 2 million seedlings and 8 million native seeds were planted. Many of the collected seeds require heat, smoke treatment or propagation using techniques pioneered Alcoa. Since 1988, only native species, including Jarrah and Marri trees have been returned. And over the past 20 years, botanical species return has averaged 90% after an area is rehabilitated many reptiles, mammals and birds then returned to the area.
In 2022, 509 hectares were rehabilitated and over the life of the mines, 75% of all land cleared has been rehabilitated. A comprehensive discussion of AWAC's sustainability performance will be included in our 2022 sustainability update, which will be issued at the end of August.
We are pleased with key ESG metrics continue to improve. In 2022, all of AWAC's refineries remained in the first quartile on the refinery global emissions intensity curve with an average emissions intensity of 0.50 tonnes of CO2 equivalent per tonne of alumina produced. Portland smelter's emissions intensity decreased to 12.9 per tonne of production, primarily due to increased renewable and grid electricity.
We expect that further improvements in AWAC's carbon footprint will happen in this decade, avenues through which these improvements may occur, include the refinery of the future initiative, mechanical vapor recompression and electric calcinations technologies, further grid electricity greening in Victoria and increased use of renewable energy and biofuels in our mines.
AWAC's total greenhouse gas emissions declined to 8.4 million tonnes in 2022 as a result of grid electricity greening and lower alumina production. This represents a 47% decrease compared to the 2010 baseline of 15.8 million tonnes and has exceeded the target of 45% reduction. A key factor in the decrease in AWAC's emissions is its increased use of renewable generated electricity. AWAC now derives 41% of its electricity from renewable sources.
All AWAC operating facilities are now certified to the Aluminium Stewardship initiatives performance standard, which defines ESG principles and criteria and address a broad range of sustainability issues in the aluminium value chain. Now I'll hand over to Galina to take you through the financial results.
Thank you, Mike, and good morning all. I will start with a review of AWAC's performance before addressing Alumina Limited's results. AWAC recorded an EBITDA of $102 million and the net loss of after tax of $67 million. Excluding significant items, EBITDA was $140 million and net loss after tax was $56 million. AWAC cash flow from operations was negative $155 million.
The main drivers for the decline in AWAC performance were lower luminary AWAC's prices, lower production volumes and higher alumina production costs. Let's go through AWAC's performance in more detail.
In the first half of 2023, alumina production of 5 million tonnes was approximately 1.1 million tonnes less than the first half of the previous year. In January, in response to a statewide shortage of natural gas in Western Australia, one of the 5 digesters at Kwinana refinery was taken offline.
In April 23, Alcoa Australia started to mine a lower bauxite grade from areas already permitted under existing approvals at Huntly Mine. This resulted in a lower alumina production output for Kwinana and Pinjarra refineries. Furthermore, to extend the ore supply and provide more time to work through the approval process, the decision was made to keep Kwinana's digester offline. Higher maintenance and outages at Wagerup refinery also contributed to lower production from WA refineries.
In the first quarter, a ship-to-shore conveyance system failed at Alumar refinery in Brazil. Then in June, a significant maintenance project was undertaken for alumina ship loader, both events have affected the production volume at refinery. San Ciprian Refinery continued to operate at approximately 50% of the capacity for the first half of 2023 after reducing production in the second half of 2022.
AWAC cash cost of production averaged $319 per tonne, an increase of $15 per tonne compared to the first half of the previous year. Key driver for the increase in production costs were unfavorable impact of lower bauxite grades at Kwinana and Pinjarra refineries, absorption of the fixed costs due to the lower production levels, particularly at San Ciprian and Kwinana refineries, higher maintenance costs and higher cost of costs due to the time lag in inventory flow. These cost increases were partially offset by lower energy costs at San Ciprian and Alumar refineries.
Let's take a closer look at the dynamic of the caustic soda market prices and performance of Western Australian operations. During the first half of 2023, we have observed a significant reduction in caustic soda market prices. It takes approximately 6 to 9 months for the price movement to flow through to the cost of production. Therefore, we expect to see approximately $7 per tonne improvement in our cost of production in the second half of 2023.
The performance of WA refineries has been affected by issues with the operational stability and bauxite quality. This started to affect the production levels and cost in 2022, with the average cost of alumina increasing by $36 per tonne compared to the previous 2021 with approximately 2/3 of the increase related to the cost of caustic. In 2023, planned reduction of bauxite grade at Huntly Mine and curtailment of one digester at Kwinana further reduced production levels.
The average cost of alumina production in the first half of this year was $41 per tonne higher than the average cost in 2022. Around 30% of the increase relates to higher caustic soda and energy costs, the majority of the remaining increase related to the maintenance costs and impact of low-grade bauxite quality, including fixed cost absorption.
Focus on the system stability, including people, processes and equipment showed some improvement in operating performance and therefore, maintenance cost, especially the unplanned component are expected to reduce in the second half of this year and the benefits of the low caustic soda prices will finally flow through to alumina production cost.
AWAC margin before CapEx for the first half was $41 per tonne of alumina, $3 per tonne higher than the second half of 2022. After CapEx, the first half margin was $20 per tonne of alumina, $10 per tonne higher than second half of 2022 due to the seasonally lower CapEx. In the second half of 2023, we expect CapEx to be higher. This will partially be offset by lower cost of production. However, if alumina price remains where it is today, portfolio margins will continue to be squeezed.
The first half total capital expenditure of $106 million was similar to the first half of 2022, with the major projects being residue storage at Alumar and Pinjarra refineries and tailing them expansion in Brazil. The Alumar Debottlenecking was the most significant growth project in the first half of the year. This project is ongoing with some CapEx being deferred into 2024.
Similar to the previous years, capital expenditure for the second half is expected to be higher, mostly due to the favorable weather conditions, particularly in Brazil. Work will continue on the main projects that were underway in the first half of 2023.
Moving to our full year outlook. In April 2023, following the decision to keep one of Kwinana digesters offline, we have revised full year alumina production guidance to approximately 10.3 million tonnes. This guidance remains unchanged.
As I mentioned earlier, we expect our second half cost of production to improve by approximately $7 per tonne as caustic soda price benefit flow through. Lower maintenance cost and improved fixed cost absorption due to increased production rate will deliver similar improvements in costs but will be partially offset by a full impact of the lower bauxite grade. We remain exposed to the gas market price movement in Spain.
Aluminium production is forecasted to be around 155,000 tonnes. Guidance was reduced following the partial curtailment to 75% of capacity at Portland in March 2023. We expect total third-party bauxite shipments to be approximately 7.6 million tonnes. AWAC's full year forecast for cash restructuring and related items has decreased slightly due to the timing of remediation actions at point comfort and Suriname sites.
Now turning to Alumina Limited's results. Alumina Limited recorded a net loss after tax of $43 million. Excluding significant items, net loss after tax was $39 million. In June 2023, Alumina Limited renegotiated the existing syndicated bank facility. The total facility limit was increased from $350 million to $500 million. The facility now has longer maturity profile with the first repayment due in October 2025. The current amount drawn on our facility is $268 million.
While securing approvals for bauxite mining in WA is a key priority. AWAC continues to focus on improvement of the operating performance across all assets. Supporting a proactive maintenance regime in order to prevent emergency breakdown and improve the resilience of our assets. This will ensure that AWAC remains well positioned in the future to benefit from the long-term aluminium and alumina trends. Thank you. And I will now hand back to Mike to provide an overview of the market.
Thanks, Galina. Combination of supply disruptions and optimism in China's post-COVID reopening saw the alumina price spike in February to $371 a tonne. In China, domestic alumina prices experienced a rally early in 2023 off the back of winter stockpiling and refinery cuts amidst environmental audits.
This price rally fizzled out as new refining capacity came online and smelters curtailed in the Southwest due to energy shortages. These factors contributed to a decline in the API since February. Despite the headwind, API averaged $352 a tonne for the first half of 2023. This is a 7.5% increase compared to the previous half.
Since June, Chinese domestic prices have improved off the back of worsening domestic bauxite availability and restart of [indiscernible] aluminium capacity. China's import arbitrage window opened for the first time in 6 months in July. This has resulted in an uptick in the API. The API is currently trading at $345 per tonne.
Global aluminium demand is forecast to grow by 0.4% in 2023. This will be driven primarily by the electrical and transportation sectors. In contrast, aluminium semi consumption in the construction sector is expected to contract by about 2%. In China, economic recovery is hindered by a weak property market. Aluminium demand growth is less than market expectations as well despite strong growth in auto and electrical sectors.
Now turning to industry costs. Rest of world average alumina production cost in the first half of 2023 was down 8% compared with the second half of 2022. The reduction was driven primarily by lower energy costs, down 27%. Caustic prices have also come off their peak, although the impact is not yet fully visible due to inventories as alumina refineries. Growing demand in China has supported bauxite prices. Shift prices from Guinea have increased from around $40 a tonne in 2021 to almost $70 at the end of '23.
Higher bauxite prices will elevate alumina refining costs, providing support to alumina prices. As Galina mentioned, in contrast to global trends, AWAC has experienced cost headwinds in the first half, particularly associated with the reduced bauxite quality and lower alumina production in Western Australia.
To summarize, average alumina prices increased by 7.5% in the first half, thanks to a price spike in the first quarter. However, macroeconomic headwinds cast a shadow on the broader global economy and aluminium demand. Combined with these in alumina production costs, API was under pressure during the second quarter. The SGA market outside China is expected to be in a slight deficit over 2023. Supply disruptions in Australia, Europe, India and Brazil more than offset the expansions in Indonesia and India.
Aluminium is an essential material in the decarbonized world due to its lightweight, recyclability, durability and strength. In the longer term, demand for aluminium, especially green aluminium products, including AWAC's low-carbon alumina is expected to grow substantially and AWAC should benefit from this transition. That concludes our formal remarks. I'll now hand back to the moderator for questions.
[Operator Instructions] Your first question comes from Rahul Anand with Morgan Stanley.
Galina, the first one is for you. I just wanted some clarity on the operating cash from activities. You reported a negative $155 million number today. I wanted to understand there's a one-off or other item in there to the tune of about $238 million. Of that, if I take out the working capital changes, we're still left with about $165 million that are unexplained in terms of the draw on your operating cash.
Could you help me understand what's driving that large negative number in the operating cash, please? Thanks.
Well, the biggest difference is obviously tax payments that are related to the previous years because they are going through the operating cash flow. And as you know, we reported on Slide 20 $110 million related to the prior year taxes. So that's your biggest item to reconcile.
Let me do a bit of background work and come back off-line then. Mike, one for you, sorry, I just wanted to get an understanding. Obviously, you've outlined some of the comments related to the EPA process, et cetera. How are you viewing the time lines now, I guess, previously, we were hoping to get the approvals come through by the end of this year.
If you had to revisit this area, how should we be thinking about the mine approvals now to solve some of the issues with production? That's my second question. I'll come back with the third one, if that's okay.
Sure. So the timing, as we've indicated, Rahul, is really uncertain. We are in the hands of the regulators. Now the EPA will go potentially through a 2-stage process. One is to determine whether it will actually conduct an assessment of certain areas within the mine plans. And if the answer is yes, what those areas would be and then we'll undertake an assessment. So we are largely in their hands and unable to really give you any definitive time line as to when that process is likely to be completed.
So if we do end up seeing perhaps an extended delay there in the approvals, I mean, is the current state of the business where it stays in terms of costs and production or we continue to deteriorate over the next 12 months as it is?
Well, certainly, for the time being, we are seeing the elevated cost of production, as Galina has outlined. And we certainly expect that this half with some improvement in costs associated with lower caustic soda production or costs. And also, there is improved stability at the refineries in WA, particularly Wagerup and Pinjarra. But it's difficult to speculate beyond that.
Look, the final one then, you have a few assets that are curtailed. You've got San Ciprian, Portland, also Kwinana. Just your thoughts on how we should be thinking about perhaps not calendar year '23, but '24 in terms of where these assets go in terms of the production. Obviously, Kwinana is impacted perhaps by some of the mine approvals, but perhaps a focus on the other two.
Well, on San Ciprian, if there is stability and lower gas prices going forward, then you would expect a ramp-up of production at that facility, particularly as Europe comes out of its economic downturn, but it is totally dependent on gas prices. And as we've seen over the last couple of weeks, the European gas price, including the MIB Spanish gas price has seesawed quite a bit between EUR 30 and EUR 40 a megawatt hour. So that's very hard to speculate.
If we get stability at a lower range and demand improves because of economic conditions improve, then you should expect higher production at San Ciprian. Portland, it's more a question of getting stability and operating performance at the right level before the other parts can come on stream. And we don't have a view yet as to how long that will take, but we're certainly seeing early indicators that, that's improving. So I would hope that there would be an increase in production during the course of 2024.
Okay. Perfect. I'll take other questions off-line.
Your next question comes from Chen Jiang with Bank of America.
So the first one, just a follow-up on the WA mine approval process. I'm wondering what's the worst scenario or best scenario from here if you don't get the permits? Do you have a backup plan?
Chen, there's a whole range of options being worked on and progressed and we're unable to set out in detail what those are because they're still being worked on. But certainly, the best case scenario would be the approvals would come through with conditions that we could easily work with over the next few months and then progress to improve the grade of bauxite that is being used in conjunction with the forest clearing permits that we need to get to that bauxite.
As I said, we really -- we'll be moving into speculation mode if we worked out, we tried to assess what will be the worst case. Alcoa is working as best it can with the regulators. There are delays across all regulatory processes in Western Australia, not just associated with our proposals. So we'll continue to work on those. And hopefully, we can get an outcome as soon as practicable.
Maybe a follow-up. So in the scenario, if you don't have the permits, which means you need to curtail or shut down your refinery? Is my understanding correct?
No, I'm not really going to speculate on that because we're not contemplating that at this stage.
Maybe another question. Would you please remind us your agreement with Alcoa, any restrictions in the JV agreement to raise additional fundings either from the market or equity markets?
Within the joint venture, basically, we need agreement by both parties to increase the level of debt within the joint venture. That's been a standing position for quite a long time. The joint venture can carry a certain level of debt, I think it's about --
Up to 30.
Up to…
Up to 30%.
30%. But beyond that, it's really up to the individual companies to fund their contributions, if required.
How about from AWAC's perspective, do you have -- is there any restriction on AWAC in the agreement? Okay.
No, no.
And maybe last question, please. Do you see yourself as the takeover target for that 40% ownership in AWAC given your balance sheet is stretched and you need to contribute further working capital and CapEx to AWAC?
Well, we've increased our debt facilities to give us sufficient headroom to $500 million. So that is one factor. And I must admit I'm not actively thinking that we are on the takeover trade at the moment. Probably the best way I can answer that.
Your next question comes from Lyndon Fagan with JPMorgan.
Look, just wanted to hone in on Slide 17, which shows the gradual deterioration in production and increasing costs. I'm just wondering, if we fast-forward the clock and things do go your way and we've finally got some permits in place, what are the normalized cost base of WA look like now? Because I guess since '21, there's been some inflation.
So I mean, would you say that the 303 is $40 above where it should be or I'm just trying to get a sense of how things look in the longer term.
So it's really, the answer is really difficult to answer because it all depends what is the input cost doing, et cetera, et cetera. But without a doubt, 303 million is by far the highest cost. And as we guided to you earlier in the year, that's where the cost picked out for this year. And from here on, we're looking for some improvement. And there was a reason why we put 2021 on the chart because 2021 sort of was before the production started to reduce, so I'd probably direct you to 2021.
And since '21, though, would you say just general cost inflation is up in the alumina industry by how much, 10% or more?
It depends on the component because caustic soda, obviously, what happened with the caustic soda in the last sort of 18 to 24 months is very much unprecedented as well as energy costs. So it's difficult to say what standardized inflation and what is the reaction to the global events.
And then just to look at it the other way, in terms of the production decline that we're seeing there, I mean in terms of the areas that you're mining now, how much resource is available at a fairly consistent grade? Is it -- have you -- how many years ahead or does it kind of provide you with?
There's certainly enough resource for the time being, and we think that hopefully, once the permits will come through, then we'll be able to move to the new areas. And we should have sufficient margin building that in without actually knowing when exactly these permits will be resolved.
And look, the final one is just on San Ciprian. So I guess we now have seen the gas price come down again, albeit it's volatile. Can we maybe tackle the plan for San Ciprian, I mean it's obviously producing at half its nameplate, tough to ramp it up in this environment. But I mean, what are the trigger points to actually alleviate some of the cash flow stress from there?
Well, you said it yourself, the gas price is still quite volatile, and it's gone up and down and it's gone up again until yesterday and today. So I think it's now around EUR 35, EUR 40 per megawatt hour, which is still quite elevated for San Ciprian to be profitable. So at this stage, San Ciprian operationally is in a very good position. They slightly up the production, and they're very, very stable. So unless we can see a sustainable reduction in the gas prices and something where we can perhaps look at the contract in the gas, it's premature to make a decision to ramp up the production.
So this is basically the end of the war or something in, like, there's really no look ahead. It's just it is what it is at the moment?
So we're a very well-run facility. It's just unfortunate that it's exposed to high gas prices and imported bauxite. So we hope if the conflict comes to an end and gas prices stabilize, there would be a future for that facility to keep going. And we also have limits as to what we can do in Spain vis-Ã -vis that facility based on restrictive labor laws and related restrictions.
And if I could just tack one other subject, the balance sheet. So highest net debt level we've seen in a while. Obviously, you've got a bit of headroom there in terms of additional facilities. But I imagine you wouldn't want to use all of that. Can you maybe remind us with the working capital injections that the business is likely going to require over the near term?
How do you decide whether to fund that from the AWAC balance sheet versus building some debt within the vehicle? Like, have discussions already started with Alcoa to eliminate the cash sweep perhaps over the next year or 2 to allow you to add a bit of gearing into some of the AWAC vehicles or is that just not something you're looking at exploring at the moment?
I had regular discussions with Alcoa around increasing the level of debt in AWAC, particularly [indiscernible]. But they're -- in light of what they've gone through, historically, having high levels of debt, which they now have under control, they're pretty reluctant to put more debt beyond what the joint venture agreements require into the structure largely because I believe they have to consolidate all the debt rather than just their share. So that's a sort of limitation that unless we both agree, we can't put any more debt into the JV.
And also, I believe on the Alcoa facility, there is a limit as to how much they can allocate to the subsidiaries. So it's also -- they also follow the rule of the revolver facility.
Your next question comes from Glyn Lawcock with Barrenjoey.
Maybe just taking Lyndon's question to a little bit more granular detail. I think Galina mentioned, you've drawn it now at $268 million. Is that correct, Galina? That you did --
Yes.
When was that at? Is that as of today or yesterday?
That was as of last night, close of business last night.
As of last night. So does that mean your net debt has increased by $44 million or is there some of that gone just being drawn to go to cash?
That's for the mainly, it's a $44 million that we guided in our quarterly.
Okay. So that's been the additional cash burn since in the last, what, 7 weeks, I guess?
Yes. That's not a new one. That's exactly the same $44 million that we've pre-reported in Alcoa second quarter earnings.
It's the planned contribution to one of the AWAC entities.
But I thought you said this was drawn as of last night, not way back then. How did you know the number?
No, no, no. What I meant, 268 level is as of close of business last night. But this 44% was drawn in early August as we re-reported.
And then -- so just on that then, are you actually cash flow positive today? I mean, I know you've got slightly better price lagging through. You've got caustic costs lagging through, but CapEx is now increasing. I mean, as we sit here today, are we cash flow positive?
We're better than we were in the last quarter, but we're not positive yet.
Okay. And then just finally, just you obviously sold a lot in the half, and obviously, that's third-party purchases. Your cost of 319, that excludes the purchases?
Yes. It's only cost of production. It doesn't include cost of purchase alumina, you're right.
So are you making a margin on those purchases in the first half?
The margin is insignificant because we pretty much buy and sell within the same time period.
So we can assume it washes its face?
Yes.
And what about the second half then. Are you expecting to do a similar amount of purchases? Is this something you need to do under your off take agreements?
It's all off take agreements. It's more -- we have a customer contract, some of which -- most of which are medium term. And given that we -- production in Western Australia reducing, we haven't to alumina of market.
So you would expect then a similar level in the back half to meet your contractual commitments?
It's very hard to say exactly how much, Glyn, because it varies based on customer orders. Now customers have an annual sort of take-up, but it varies month to month and sometimes it can be lower. It's really hard to speculate just how much additional alumina we'll need to source to meet customer commitments this half.
But you can essentially back to back them. So I shouldn't worry about additional cash burn as a result of these sales or is that still a risk as well?
That's largely correct. Occasionally, there's a timing difference between the 1-month lag pricing. But over a period, it should wash its face.
Your next question comes from Adam Baker with Macquarie.
Just wondering if you've got an update on the EPA public comment period. I believe it closed off last week. Just wondering if you had any early feedback from that with regards to submissions or any comment you could provide there?
No, Adam, we haven't had any feedback there. I'm sure people made submissions one of the NGOs Forest Alliance Group was fairly active on its website, but we certainly haven't had any feedback from the EPA or anyone else. And it's probably over a 7-day period, it's very hard for anybody to just make any comment, frankly.
Any idea when you'll kind of receive feedback to that?
No.
And maybe just on top of that, the EPA process for Mayara North and Holyoake, is there any update there, I believe that was submitted in 2020. Was it -- has there been a bit of back and forth between…?
There has been some fairly extensive backwards and forth in providing additional material and addressing questions and so forth. But we still don't have a time line as to what -- when the next phase will take place, there will be a public consultation period. We're hoping and expecting that clearances would be from Mayara North and Holyoake would occur by 2025 and with mining commencing in '27.
There are no further questions at this time. I'll now hand back to Mr. Ferraro for closing remarks.
Thank you, everyone, for making the time today. I know there's a number of other companies reporting. But I appreciate both the commitment and listening in and the questions, and we'll speak to some of you soon. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.