Alcoa Corp (AA)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(dollars in millions, except per-share amounts, average realized prices, and average cost amounts; metric tons in thousands (kmt); dry metric tons in millions (mdmt))

Business Update

During the second quarter of 2026, Alcoa delivered strong operational and financial performance and continued to execute on its strategic priorities, including the announced agreement to acquire South32 Limited’s (South32) equity interests in its bauxite, alumina, and aluminum assets. The Company set year-to-date production records at four aluminum smelters and at one alumina refinery, progressed multiple smelter capacity restarts, and completed negotiations for new multi-year collective bargaining agreements in Australia, the U.S., and Canada.

Average alumina prices decreased 1 percent and average aluminum prices increased 15 percent in the second quarter of 2026 compared with the first quarter of 2026. In addition, the average Midwest premium increased 10 percent and the average Rotterdam premium increased 47 percent sequentially. Alumina prices continued to be impacted by refinery expansions, primarily in China and Indonesia, in addition to impacts from Middle East conflict disruptions. The aluminum price and regional premium increases were driven by low inventory levels and supply disruptions, which included impacts related to the Middle East conflict.

Since the Middle East conflict began, the region has experienced announced curtailments of more than 2,500 kmt of annual smelting capacity and nearly 2,000 kmt of refining capacity. Additionally, the disruption of transit through the Strait of Hormuz has restricted the inflow of raw materials and caused vessel constraints globally. During the second quarter of 2026, the Company continued to support its customers in managing the logistics for certain alumina shipments. The conflict in the Middle East also caused increases in energy costs; Alcoa has limited its exposure to volatility in spot energy through long-term natural gas and electricity contracts and financial hedges.

AliGroup Acquisition

On June 30, 2026, Alcoa entered into an Umbrella Implementation Deed (Deed) with South32 to acquire South32’s equity interests in its bauxite, alumina, and aluminum assets (referred to as AliGroup) for consideration consisting of $3,100 of cash and approximately 17 million shares of Alcoa common stock (which may, in part, be delivered in the form of Alcoa CHESS Depositary Interests (CDIs)) with an agreed value as of the execution of the Deed of approximately $1,000 (based on the volume weighted average price over the 10 trading days ended June 26, 2026 of $58.79 per share), subject to customary adjustments set forth in the Deed (the Transaction). In addition, Alcoa agreed to pay South32 a ticking fee equal to 5 percent per annum on the $3,100 cash consideration for the period from South32 shareholder approval through the closing date. Alcoa also agreed to pay South32 up to an aggregate $750 in cash contingent on average alumina and aluminum prices exceeding the respective agreed strike prices for each of four successive, annual periods, beginning July 1, 2026 for a specific portion of the related alumina and aluminum production volumes of the acquired assets. The Deed also contains customary representations and warranties, covenants, indemnification obligations, and termination fees for transactions of this nature.

The Transaction reinforces Alcoa’s position as a leading pure-play upstream aluminum company, while strengthening its global portfolio with complementary assets to the Company’s existing portfolio. The acquisition will add a high-quality, low-cost, and globally diversified set of mining, refining, and smelting assets, with greater scale and integration expected to reduce complexity, lower costs, and improve competitiveness while strengthening supply chain resilience across key jurisdictions. Alcoa’s proven operating model, technical expertise, and commercial capabilities are expected to unlock meaningful operational improvements and synergies across the combined portfolio. The Company expects these assets to enhance financial results across business cycles and sustainably improve Alcoa’s position on the global alumina and aluminum cost curves.

The Transaction includes South32’s 86% interests in the Boddington bauxite mine and the Worsley alumina refinery in Australia; 100% interests in the Hillside aluminum smelter and idled Bayside smelter property in South Africa; and interests of 33% in the Mineração Rio do Norte (MRN) bauxite mine, 36% in the Alumar refinery, and 40% interest in the Alumar smelter, each in Brazil.

The Transaction utilizes a locked box mechanism under which the purchase price is based on AliGroup’s financial position as of March 31, 2026 (the Locked Box Date), and Alcoa is entitled to the economic benefits and risks of ownership from the Locked Box Date through the closing date. Customary protections apply to prevent leakage of value from AliGroup between the Locked Box Date and the closing date, subject to customary exceptions for permitted leakage.

The Transaction is expected to close in the first half of 2027, subject to the satisfaction or waiver of closing conditions, including approval by South32’s shareholders, receipt of required regulatory approvals, and other customary conditions specified in the Deed.

In connection with the Transaction, on June 30, 2026, the Company obtained commitments for bridge financing of up to $3,100. The financing consists of commitments for a senior unsecured 364-day bridge term loan credit facility that would be available upon closing of the Transaction, subject to customary conditions, including the consummation of the Transaction in accordance with the terms of the Deed. The facility also contains customary representations, warranties, covenants, and indemnification provisions. The Company currently intends to replace the bridge financing with permanent financing prior to the closing date.

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The Company expects to incur transaction-related costs, including advisory, legal, accounting, valuation, and financing fees, which are expensed as incurred. During the six-month period of 2026, the Company recognized transaction-related costs of $13, which were included in Selling, general and administrative expenses on the accompanying Statement of Consolidated Operations.

Australia Mine Approvals

During the second quarter of 2026, the Company continued to work collaboratively with stakeholders to advance mine approvals for its next major mine regions (Myara North and Holyoake) and the rolling five-year mine plan (2023-2027) referred to the Western Australia Environmental Protection Authority (WA EPA) in 2023 by a third party. Recent engagement with government stakeholders provided insight into important steps remaining in the approvals process. The Company anticipates mining in new major mine regions will commence no earlier than 2029. Until then, the Company expects bauxite quality will remain similar to recent grades.

The Company has contingency plans to support operations if Ministerial decisions are delayed beyond 2026. Based on current plans, approval delays extending through the first half of 2027 are not expected to materially affect bauxite supply or quality, or operating costs. For longer delays, the Company could implement additional operational measures, including modifications to mining activities and refinery operating rates, to mitigate potential impacts.

Additionally, during the second quarter of 2026, the Company continued engagement with government stakeholders related to the 2025-2029 mine plan, which the Company aims to have in place in 2026. The WA government has indicated it intends to issue an updated Section 6 exemption order aligned with the 2025-2029 plan, to replace the exemption granted in 2023 that allows Alcoa’s mining operations to continue while the WA EPA assessment is undertaken.

Gallium Joint Venture

On July 14, 2026, Alcoa and government and industry partners of Australia, Japan, and the United States announced the final investment decision for a gallium production plant at the Wagerup refinery in Australia. The Company contributed $24 to the joint venture upon formation in June 2026, which reflects Alcoa’s total expected contribution. Alcoa’s participation in the joint venture, including its role as construction and operating manager, is not expected to have a material impact on the Company’s financial position or results of operations.

San Ciprián Operations

Subsequent to June 30, 2026, the Company converted the mandatory convertible note of $153 (€130), provided to the San Ciprián operations in December 2025, and acquired Trento EQT’s remaining ownership interest for $28 (€25). As a result, Alcoa will hold a 100% ownership interest in the San Ciprián operations as of August 1, 2026 and recognize earnings attributable to noncontrolling interest through July 31, 2026.

Other Matters

On May 15, 2026, Alcoa Nederland Holding B.V. (ANHBV), a wholly-owned subsidiary of Alcoa Corporation, redeemed the remaining $219 aggregate principal amount of its 6.125% notes due in 2028 (the 2028 Notes). The notes were redeemed at a price equal to 100 percent of the principal amount, plus accrued and unpaid interest, using cash on hand.

In July 2026, a new four-year collective bargaining agreement was ratified with the Australian Workers Union (AWU) representing approximately 1,400 employees across the mining and refining operations in Western Australia.

In June 2026, a new four-year collective bargaining agreement was ratified with the United Steelworkers (USW) at the Company’s U.S. smelters, representing approximately 1,000 employees at Warrick, Indiana and Massena, New York.

In May 2026, new five-year collective bargaining agreements were ratified with the United Steelworkers in Canada (Syndicat des Métallos) at the Aluminerie de Bécancour Inc. (ABI) smelter in Québec, Canada, representing approximately 1,000 employees.

See the below sections for additional details on the above-described actions.

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Results of Operations

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the quarterly and year-to-date periods outlined in the table below.

Selected Financial Data:

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(dollars in millions, except per-share amounts, average realized prices, and average cost amounts;

metric tons in thousands (kmt); dry metric tons in millions (mdmt))

Cautionary Statement on Forward-Looking Statements

This report contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “aims,” “ambition,” “anticipates,” “believes,” “could,” “develop,” “endeavors,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “potential,” “plans,” “projects,” “reach,” “seeks,” “sees,” “should,” “strive,” “targets,” “will,” “working,” “would,” or other words of similar meaning. All statements by Alcoa Corporation that reflect expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, statements regarding forecasts concerning global demand growth for bauxite, alumina, and aluminum, and supply/demand balances; statements, projections or forecasts of future or targeted financial results, or operating performance (including our ability to execute on strategies related to environmental, social and governance matters); statements about strategies, outlook, and business and financial prospects (including related to production and shipments); and statements about capital allocation and return of capital. These statements reflect beliefs and assumptions that are based on Alcoa Corporation’s perception of historical trends, current conditions, and expected future developments, as well as other factors that management believes are appropriate in the circumstances.

Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and changes in circumstances that are difficult to predict. Although Alcoa Corporation believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Such risks and uncertainties include, but are not limited to: (a) the impact of global economic conditions on the aluminum industry and aluminum end-use markets; (b) volatility and declines in aluminum and alumina demand and pricing, including global, regional, and product-specific prices, or significant changes in production costs which are linked to the London Metal Exchange (LME) or other commodities; (c) the disruption of market-driven balancing of global aluminum supply and demand by non-market forces; (d) competitive and complex conditions in global markets; (e) our ability to obtain, maintain, or renew permits or approvals necessary for our mining operations; (f) rising energy costs and interruptions or uncertainty in energy supplies; (g) unfavorable changes in the cost, quality, or availability of raw materials or other key inputs, or by disruptions in the supply chain; (h) economic, political, and social conditions, including the impact of trade policies, tariffs, and adverse industry publicity; (i) legal proceedings, investigations, or changes in foreign and/or U.S. federal, state, or local laws, regulations, or policies; (j) changes in tax laws or exposure to additional tax liabilities; (k) climate change, climate change legislation or regulations, and efforts to reduce emissions and build operational resilience to extreme weather conditions; (l) disruptions in the global economy caused by ongoing regional conflicts; (m) fluctuations in foreign currency exchange rates and interest rates, inflation and other economic factors in the countries in which we operate; (n) global competition within and beyond the aluminum industry; (o) our ability to achieve our strategies or expectations relating to environmental, social, and governance considerations; (p) claims, costs, and liabilities related to health, safety and environmental laws, regulations, and other requirements in the jurisdictions in which we operate; (q) liabilities resulting from impoundment structures, which could impact the environment or cause exposure to hazardous substances or other damage; (r) dilution of the ownership position of the Company’s stockholders, price volatility, and other impacts on the price of Alcoa common stock by the secondary listing of the Alcoa common stock on the Australian Securities Exchange; (s) our ability to obtain or maintain adequate insurance coverage; (t) our ability to execute on our strategy to reduce complexity and optimize our asset portfolio and to realize the anticipated benefits from announced plans, programs, initiatives relating to our portfolio, capital investments, and developing technologies; (u) our ability to integrate and achieve intended results from joint ventures, other strategic alliances, and strategic business transactions; (v) significant declines in the market value of our marketable securities; (w) our ability to fund capital expenditures; (x) deterioration in our credit profile or increases in interest rates; (y) impacts on our current and future operations due to our indebtedness and our ability to reduce indebtedness; (z) our ability to continue to return capital to our stockholders through the payment of cash dividends and/or the repurchase of our common stock; (aa) cyber attacks, security breaches, system failures, software or application vulnerabilities, or other cyber incidents; (bb) labor market conditions, union disputes and other employee relations issues; and (cc) the other risk factors discussed in Part I Item 1A of this Form 10-K and other reports filed by Alcoa Corporation with the SEC, including those described in this report.

We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. Alcoa Corporation disclaims any obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable law. Neither Alcoa nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements.

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Overview

Our Business

Alcoa Corporation (Alcoa or the Company) is a vertically integrated aluminum company comprised of bauxite mining, alumina refining, aluminum production (smelting and casting), and energy generation. Aluminum is a commodity that is traded on the LME and priced daily. Additionally, alumina is subject to market pricing through the Alumina Price Index (API), which is calculated by the Company based on the weighted average of a prior month’s daily spot prices published by the following three indices: CRU Metallurgical Grade Alumina Price, Platts Metals Daily Alumina PAX Price, and FastMarkets Metal Bulletin Non-Ferrous Metals Alumina Index. As a result, the prices of both aluminum and alumina are subject to significant volatility and, therefore, influence the operating results of Alcoa.

Through direct and indirect ownership, Alcoa Corporation has 25 operating locations in eight countries around the world, situated primarily in Australia, Brazil, Canada, Iceland, Norway, Spain, and the United States. Governmental policies, laws and regulations, and other economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates, affect the results of operations in these countries.

Business Update

During 2025, average alumina prices decreased by 11 percent and average aluminum prices increased 9 percent compared with 2024. After reaching an all-time high in the fourth quarter of 2024 primarily due to supply disruptions, alumina prices decreased largely in response to refinery expansions primarily in China and Indonesia. Aluminum prices were supported by strong market fundamentals and macroeconomic trends, including historically low inventory levels and rising demand. In addition, the average Midwest premium increased 211 percent year over year, largely reflecting U.S. Section 232 tariffs on aluminum imports from Canada, which increased from 25 percent on March 12, 2025 to 50 percent on June 4, 2025. Prior to March 12, 2025, the Section 232 tariff was 10 percent and Canadian metal imported into the U.S. was exempt. At recent Midwest premium pricing, tariff costs on U.S. imports of aluminum from Canada are fully covered by the Midwest premium. Energy costs declined primarily due to higher pricing at the Brazil hydro-electric facilities and carbon dioxide compensation within the Aluminum segment, while raw material costs increased primarily due to higher caustic soda prices in the Alumina segment.

The Company delivered strong operational performance in 2025. Five aluminum smelters and one alumina refinery set annual production records. Notably, the Deschambault (Canada) smelter achieved its sixteenth consecutive year of increased production, while the Mosjøen (Norway) smelter achieved its eighth consecutive year of record performance.

Alcoa continued to advance its operational, strategic, and capital allocation priorities during 2025. In March 2025, Alcoa and Trento Equity Holdings, S.L.U. (Trento EQT), formerly known as IGNIS Equity Holdings, SL, entered into a joint venture agreement to support the continued operation of the San Ciprián (Spain) complex. Following the formation of the joint venture, Alcoa resumed the restart of the San Ciprián smelter which had been operating at approximately 6 percent of total pot capacity since March 2024. As of December 31, 2025, the smelter was operating at approximately 65 percent of its annual capacity of 228 kmt, with full restart expected by mid-2026.

In April 2025, the Administrative Review Tribunal of Australia (ART) issued its decision on disputed tax liabilities included within the Notices of Assessment issued by the Australian Taxation Office (ATO) in July 2020 and related to transfer pricing of certain historic third-party alumina sales. The ART decided that no additional tax is owed, consistent with Alcoa’s long-held position. This matter, with claims totaling more than $800 in tax, interest, and penalties, is now closed in Alcoa’s favor.

In July 2025, Alcoa completed the sale of its full ownership interest of 25.1% in the Saudi Arabia joint venture, to Saudi Arabian Mining Company (Ma’aden) in exchange for total consideration of $1,350, comprised of 85,977,547 shares of Ma’aden (valued at SAR 52.35 per share at closing, or $1,200) and $150 in cash (related to taxes and transaction costs). The sale generated significant value to Alcoa from a non-core asset and is expected to provide Alcoa with enhanced financial flexibility when monetized in the future.

In September 2025, Alcoa announced the permanent closure of the Kwinana (Australia) refinery, which had been fully curtailed since June 2024. The decision to permanently close the refinery allows the Company to progress site remediation efforts, enabling the sale or redevelopment of the land in the future. The projected future proceeds are expected to cover the majority of the remediation costs.

During 2025, the Company strengthened its balance sheet by reducing total debt by $147 and completing the realignment of debt toward Australian operating assets that require significant capital investment for mine relocations and residue storage projects in the coming years. As a result of this debt reduction and a strong cash position, the Company met the high end of its adjusted net debt target as of December 31, 2025.

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Australia Mine Approvals

In February 2026, Alcoa of Australia agr

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