Cransberg Says

Opportunities for Growth as the World Economy Recovers

Alan Cransberg addressed an American Chamber of Commerce in Australia breakfast in Perth on 22 February 2011

[Holds up a lump of bauxite – big fist size]

This beautiful lump of bauxite contains enough aluminium to make 16 cans!  Of course we’ve got to get the metal out – that happens at our alumina refineries here in WA.

That got me thinking – our biggest refinery – down at Pinjarra – produces enough alumina everyday to make 411 million cans per day – or 100 jumbo jets per day.

If you think that Australia as a nation consumes three billion cans a year (just over 50% in soft drinks, 30% in beer, then your other bits and pieces) – we’re servicing that need in a week.  Aluminium of course, is one of the world’s most versatile and enduring materials used for much more than beverage cans, as you will see today.

As the world emerges from the recent economic downturn (more slowly in some parts than others), and as the threat of climate change is more in our faces than ever, we know we are facing a new reality, and we know we have to work harder to get it right for future generations – fiscally, environmentally.

Today I want to explain to you the critical role Alcoa, and our product - aluminium – will play in this new world....

No one knows aluminium like Alcoa.  We invented the aluminium-making process more than 120 years ago and have been creating new and innovative ways for people to tap into the power of aluminium ever since. 
Today, we are using that experience in every corner of the globe to develop solutions that are more efficient, more sustainable and more appealing than ever before. 

From greener buildings and lightweight buses to strong aeroplanes and the iconic aluminium can, Alcoa continues to lead the way.

What makes it all possible? Aluminium -- the most versatile, sustainable and infinitely recyclable material in the world -- and the people who perfected it.

Let me tell you what we do here in Australia:

Alcoa in Australia

• Investment in Australia for over 40 years -  >$12 billion.
• A major employer – >6000 employees predominantly in regional Australia.
• One of Australia’s leading exporters.
• Alcoa’s operations contributed around $4 billion in exports in 2010 – WA’s 5th biggest exporter. 
• World’s largest bauxite mine operation at Huntly and Willowdale – world recognised for our rehabilitation processes. 
• Three refineries in WA - Alumina produced by Alcoa in WA accounts for around 11% of world demand.
• Two smelters in Victoria, producing 513,000 tonnes a year of wonderful aluminium that goes all  over the world into planes, cars, ships… buildings, computers, furniture.. the list is endless.
• And in Yennora in NSW, western Sydney, we operate the country’s largest aluminium recycling facility…

Recycling
   
Here are some fast facts – did you know…..

• Nearly 75% of all aluminium ever created is still in use today.
• Using recycled material for new aluminium uses 95% less energy and produces 95% less greenhouse gas emissions than making metal from new materials.
• When you recycle an aluminium can, it is turned into a new can and can be back in your fridge within 60 days.
• Every beverage can made in Australia is made from Alcoa’s aluminium.  100% Australian made, 100% recyclable and our goal is to make it from 100% recycled content.
• Actually, the aluminium beverage can is the world’s most recycled container - more than 69% of all cans are recycled worldwide.
• In Australia we have around 67% recycle rate of cans – not bad if you think in 1973 this rate sat at just 9%!
• We still have some work to do in Australia to boost today’s rate – Alcoa’s recycling partnership with Sustainability Victoria goes part way to achieve that, and there’ll be more to come – stay tuned!

Sustainability
Alcoa has been recognised worldwide for its leadership in sustainability.  It has been named to the Dow Jones Sustainability Index for nine consecutive years and listed as Most Admired Company by Fortune magazine for 27 consecutive years.  We’ve achieved Employer of Choice for Women status nine times in a row, and there is plenty more.

Climate change  
Since 1990, here in Australia, Alcoa has achieved considerable direct GHG emissions reduction per tonne of production:

- Our aluminium smelters are down by 65%.

That’s like changing all your light bulbs from incandescent to energy-friendly, or every four-wheel drive having the economy of a Prius. 

- Our alumina refineries are down by 21% from 1990 levels – and we were in pretty good place to start with!

- And our aluminium rolling operations in Australia are down by 23% from 1990 levels.

Alcoa globally has achieved a total direct greenhouse gas emissions reduction of 44% over 1990 levels - despite growth in production, and a 61% reduction based on per tonne/aluminium produced. 

And our recycling activities in NSW avoid the generation of over 1m tonnes of greenhouse gases per annum.

Next year Alcoa of Australia will be celebrating 30 years partnership with Greening Australia – the longest corporate/not-for-profit partnership I believe – continuing to do truly great work in managing productive, profitable and sustainable environments.

We also contribute in all our Australian operating regions to Alcoa’s Ten Million Trees Program - a commitment by the company to plant 10 million new trees, which can absorb more than 250,000 metric tonnes of carbon dioxide per year during their lifetime, by 2020. (This has nothing to do with our minesite rehab by the way.)

So if we accept that Alcoa conducts its business in a responsible and sustainable manner … that will help preserve our precious natural resources for generations to come … what is our future??

The future for Alcoa is strong, and it’s all because of aluminium – our miracle metal - the most versatile, sustainable and infinitely recyclable material in the world.

Let’s take a look at the way the world is going…

Megatrends  
Demographic change; Urbanisation ; Climate Change; Resource Scarcity; Increasing mobility.

We live in a constantly changing world that requires us to react and adapt quickly.  As our world prepares to deal with a rapidly growing population, ever-expanding cities and an unprecedented demand for energy, Alcoa is finding ways to meet today’s challenges with innovative aluminium solutions. 

Our miracle metal   

• Aluminium is strong and lightweight, highly conductive, amazingly versatile, and endlessly recyclable. 
• It is an ideal material in a world that is experiencing population growth, urbanization and a growing demand for energy.
• Alcoa first used aluminium to produce teakettles in 1890!!  Since then, our metals have been used in everything from buildings and baseball bats to Ferraris and fighter jets.

(Of course, I can’t pretend everything has been a success….remember Dennis Lillee and his aluminium cricket bat…?) 

Buildings    
Aluminium makes cool buildings look cool!   A six-story office building using aluminium sustainable product can drive up to 20% energy savings over a similar building - saving 157 tonnes of CO2 per year over its 50 years of use.

The Value that Green Buildings Provide:

• Custom curtain wall options -  earthquake proof. 
• Recycled content billet; C2C certification. 
• 95% of aluminum in buildings is recycled.
• 13% lower maintenance costs.
• 27% higher occupant  satisfaction. 
• Consumes 26% less energy.

Consumer electronics
The hippest laptops and mobile phones are incorporating Alcoa aluminium for a sleek, modern look that appeals to consumers.  The use of aluminium improves durability and gives electronics an authentic, natural feel.  And it’s a conductive metal – important.

Automotive    
Replacing just two kilos of heavy steel with one kilo of aluminium saves 20 kilos of carbon emissions over the life of a car. 

Consumers can get a 5 to 7% vehicle gas mileage increase for every 10% weight reduction by substituting high-strength, low-weight auto aluminium for heavier steel.  And of course recycling aluminium conserves landfill space and significantly reduces greenhouse gas emissions.

Alcoa and Yutong Bus Co., China's largest bus manufacturer, developed an environmentally-friendly bus design to significantly reduce greenhouse gas emissions and improve fuel economy.

And Alcoa’s wheels are not only lightweight, but our Dura-Bright® technology resists corrosion and eliminates the need for polishing. Dura-Bright is not a coating or a finish, but a proprietary surface treatment that penetrates and reacts with the aluminium, thus becoming an integral part of the wheel. 

Air travel
Alcoa helped launched the aerospace age by developing more than 90% of the aluminium alloys used today in aircraft and space flight.

Of course it was Alcoa’s aluminium that helped the Wright Brothers take to the skies in the first flight in Kitty Hawk.  We helped space exploration using aluminium during the Lunar Landing and making the launch of the Space Shuttle possible. 

In fact:  A study by the Institute for Energy and Environmental Research in Heidelberg, concludes that light-weighting passenger cars, trucks, rail vehicles, nautical vessels, etc. has the potential to avoid almost 700 million tonnes of CO2 emissions every year. (IFEU)

Summary
Alcoa’s solutions are evident in nearly every industry including packaging, ground transportation, building & construction, consumer electronics, and aerospace. Alcoa is ranked #1 or #2 in more than 90% of the businesses in which it operates.

Right here in WA, at Kwinana, we operate Alcoa’s global refining Research and Development group –  a big collection of PhDs and scientists that sit admirably alongside CSIRO and others. 

And Alcoa operates the USA’s largest non-ferrous research centre in Pittsburgh, PA with more than 575 materials researchers who work on a wide range of commercial applications – from Boeing to Pepsi, Ford to Coke. 

(One of these centres worries about how we make it – sustainably -  the other about how we use it cleverly!)

By the way - Alcoa opened its first research and development centre in 1918 and we have never stopped searching for new, innovative ways to use aluminium!    We invest approximately 1% of our revenues each year in R&D.

To conclude:

Our local challenges   
If you agree after seeing all this today that the world needs aluminium, and you think maybe Alcoa is the company to do it, you‘ll be please to know our future here in Australia is strong!  Not without enduring challenges however!

We need to continue to work with the Government of WA to achieve a competitive domestic gas market that works for us all, industry and householders alike.

We need to continue to work with the Federal Government to achieve certainty over carbon pricing.

We need to continue to work with all government and community stakeholders on forward thinking practices around water and environmental management.

We need to continue to play our part in local employment and helping to build stronger communities.

Thanks to the many of you here who will be involved in that journey – and thank YOU -  for all the great work you do - to make this a State we are proud to be a part of.

Securing Domestic Gas Supply in a Competitive Market

In the past few years, world leaders have acknowledged energy security as pivotal to national security and economic sustainability.

How we achieve long-term energy security, in conjunction with the climate change challenge, is one of Australia‘s greatest tests.

I want to share my thoughts on energy security, particulary as it impacts domestic gas supply in WA.  I don’t believe the critical nature of this issue has really reached home. 

Twenty five years ago, the South West of Western Australia was changed forever with the arrival of natural gas. From Dampier to Kwinana, and a year later to Bunbury - natural gas flowed, bringing with it new economic possibilities.  Alcoa’s contracts effectively underwrote this project –  working with the State for growth and development.  Nearly 1,600km of pipeline, just 66cm wide, snaking down from the Pilbara to Perth and all major regional centres to Bunbury - supplying  clean, natural gas to industrial, commercial and residential customers across the South West.  

Today Alcoa has a 20 per cent stake in the pipeline and our challenge is remarkably similar to twenty five years ago.  How do we secure energy to enable economic growth and prosperity?

The world today is an interesting one.  It is a fascinating time, and as a leader in one of the world’s greatest resource companies, and a family man with four of the next generation, I know we – as a country and as individuals - need to make the right decisions now. I want to share with you my concern for energy security and gas availability for the domestic market here in WA.

As I’ve said before, energy security underpins economic prosperity at every level – for the nation; the State; the region; for industry; for businesses; for the householder.  Our own Prime Minister acknowledged this when he linked the roles of government, business and the international community, last year, saying: 
 “energy security is now recognised as a key factor in geopolitics  and a major driver of long-term national security strategies.”

The Gorgon project stirred great debate around social, environmental and economic grounds.  This is a great project for WA and for Australia, and highlights a critical issue on the table – our own domestic energy security.  What is Australia’s  energy security strategy for the next 50 to 100 years?  

I think for too long we have been focused on expanding and maximising energy exports.  We must also ensure proper attention is paid to our own domestic needs and the needs of future generations.
Do we have the balance right?

Think of our great state.  Natural gas is one of our greatest assets but we understand, anecdotally, that many WA gas users (existing and new) are not able to secure affordable substantial long-term supplies, to meet their business requirements. 

And let’s not forget - energy is the lifeblood of Australia’s mining and manufacturing economy.  Mining and manufacturing comprise 80 per cent of our exports, and employ more than one million people.

On the issue of climate change and our capacity to meet the greenhouse gas challenge, energy security (and the energy mix), is absolutely critical.  We are starting to think about energy differently.  Is energy such a strategic resource that it needs to be carefully managed and planned for like water?  Or, should we be treating Australia’s energy reserves like any other commodity in our rush to export?  I think this is a really important question – one that we, as representatives of industry and as one of the custodians of economic wealth creation in Australia, need to actively address with policy makers.  (And of course, yes, this issue is firmly on the Government’s radar).

We now know Australia is going to be challenged in the area of growth.  The global economic downturn has belted us all. At Alcoa, the combined impact of the financial crisis and lack of certainty around long-term gas supply forced us to suspend the expansion of our Wagerup Refinery.  That impacts growth, jobs, the local economy, and the local community.

The interests of the people of Western Australia, and by extension the interests of the people of Australia, will be sorely affected if local industry cannot attain energy to enable them to grow and prosper.

Think of the aluminium industry.  We are Australia’s 4th biggest ‘exporter by value’ after coal, iron ore and petroleum generating $14 billion in exports.  Like the other major exporters, 80 per cent of that income is re-invested back in Australia.

The aluminium industry directly employs 20,000 Australians, and another 40,000 indirectly - many of them in regional areas such as the South West of WA.

There is the growing threat from international competition, and many of our foreign rivals are already advantaged by labour and other costs.  Here in WA, we have less than 2 per cent of the world’s natural gas reserves, but over the past 20 years we’ve become one of the world’s biggest exporters of liquid natural gas. (It’s similar with coal - we have about 8 per cent of world coal reserves, a relatively small amount yet for more than 20 years we have been the world’s biggest coal exporter!)

Does this fit with our long-term energy strategy? Again, what is our long-term energy strategy?

Here in Western Australia, we are the most energy and gas-dependent economy in Australia.  Natural gas supplies more than half of WA’s primary energy requirements.  Natural gas also fuels at least 60 per cent of the State’s electricity generation, and WA’s demand for gas continues to grow rapidly.  We know Western Australian households and industries currently use 0.3 tcf (that’s ‘trillion cubic feet’) of natural gas per annum.   At a modest growth projection of 3 per cent annum,  the State will require ~30 tcf of gas through to 2055. 

The DomGas Alliance commissioned an economic report that shows Western Australia will require additional production of around 1100 terrajoules per day of gas by 2014-15 to meet new and replacement demand.

This demand is equivalent to the total size of the existing market for gas.  So, if we have an immediate need to ensure a secure supply in a competitive domestic market - how do we achieve that? (And by the way – this is not about compromising the LNG industry – these two can and must co-exist).

I think three things need to occur to achieve a secure supply in a competitive market:
 
1. We need to bring new supplies of gas into the market. 
We need to find ways to reduce barriers to market entry, to facilitate new players.  We need to look at current regulations around exploration.  And let me say thank you to Minister Moore who recently approved royalty relief around tight gas exploration and production – this is exactly the sort of thing I am talking about.

2. We need to ensure independence of selling arrangements for future gas projects. 
There are multiple buyers in today’s mature market and they need more choice.  
On the issue of Gorgon – we’re on the record as saying that we do not support its application for joint marketing.  We think this is a great opportunity for some of the world’s largest oil and gas producers to compete for serious business - here in Western Australia – just as they do in countries all around the world. This type of competition is both an indicator and a driver of market maturation.

From an energy users perspective, the more competition in the marketplace - the better. 

3. My third criteria for creating a secure supply in a competitive domestic market is for the Government to implement policies to ensure we have sufficient available gas for domestic use.

This is complex and requires careful thought to enable competitive businesses to thrive and grow right here at home, to ensure households are well serviced, and to ensure WA gas is available for LNG.  There is no doubt that LNG exports have a wonderful benefit to the WA community, but let’s not forget the community also benefits from other industries that value-add to that gas.  And that local industry needs diversity of supply, and to operate in an environment of competitive selling.

Also of course, let’s not forget, gas is a great clean transitional fuel, an important piece in the greenhouse challenge while we pave our way to renewables.  We do need to consider Australia’s carbon footprint – and of course we are.
 
The development of an appropriate Carbon Pollution Reduction Scheme (CPRS) in Australia remains a key business issue (even though off the front burner right now) - for Australia and Alcoa.  We have long been deeply involved in the debate, and our position has not changed:  Alcoa continues to support the introduction of a CPRS that supports both global reductions in greenhouse emissions and the prosperity of Australian industry and Australian jobs.

Our State’s natural gas advantage, combined with the world class efficiency of our refining operation in WA, means that every tonne of alumina made in WA uses half the energy and produces half the greenhouse emissions than if it was made in China.  There are seven refineries in Australia – in China, more than fifty.  So, a consequence of potentially inhibiting the growth of our industry, as a result of a poorly designed scheme, could mean an increase in global greenhouse emissions, and a downgrading of Australian industry, Australian jobs and investment in our country.

Scheme or no scheme, Alcoa will continue reducing emissions - it’s something we take very seriously.  As a large energy user - it is critical to our business that we find efficiencies for the sake of the environment and for the health of our business.  But we are, as I have demonstrated, a major contributor to the economic success of the State (and the State of Victoria I might add).  Like other industries  -  we partner, we build, we innovate, we have our eye on the long-term, and we know we are all in this together.

To illustrate my point:  Alcoa has a well documented history in underpinning energy infrastructure, both here in WA and in Victoria.  It goes back twenty five years  to the pipeline (as I have mentioned).
And Alcoa is today investing heavily in several major frontier projects:
• We are spending $40 million supporting Buru Energy explore the canning basin.
• And up to $100 million in a joint-venture with Latent Petroleum, to evaluate ‘tight gas’ in the Perth basin.
• Plus, we continue to partner with Alinta as the biggest co-generator of electricity in this country, already operating two power stations at our Pinjarra refinery.

Australia’s gas and oil explorers and producers have set growth targets for both domestic and export gas markets in the coming decade.  They say they want to quadruple exports while at the same time, double the amount of gas used in resources processing.  My industry and I am sure industry as a collective, shares common ground with regard to that domestic objective, and LNG does facilitate domestic gas growth.  But let’s make sure the balance is right!

It is the same principle being applied to the management of climate change:  To balance global needs with domestic needs. To enhance our growth, our way of life and the environment.

Our aim must be – can only be:

• To ensure  a vibrant domestic gas industry coexists alongside a vibrant LNG industry; and

• To ensure a secure domestic supply in a competitive market place.

We all have a role to play in the climatic and economic future of this State and this nation.

Navigating key issues facing us today – July 2009

Alan Cransberg addressed an American Chamber of Commerce in Australia luncheon on 30 July 2009 in Perth.

These are unprecedented times we are currently travelling through. Alcoa felt an immediate impact when the global financial crisis hit, with a slowdown in demand for our product across key customer industries – construction and transport – and for us the storm is far from over…

And, there is another massive challenge that we all face – the reality of climate change, and how we must all come to understand more fully what our role in that needs to be. We all need to find our place in becoming part of the solution to climate change.

These are two of the biggest challenges facing Alcoa, Australia, us all.  At the moment, all businesses, across all industries, are employing different strategies and tactics to ensure your long-term sustainability.

I want to look at these key challenges and their associated issues, and discuss how Alcoa is addressing them - knowing that these are of course issues common to us all:

• the need for a secure gas supply and national energy strategy;
• the power of people to make a difference; and
• the importance of being a good corporate citizen - now more than ever.

Economic downturn
The economic climate presents us with extraordinary challenges requiring extraordinary action.
Our approach at Alcoa has, and continues to be, control what we can control and manage well within the confines of the things which are not in our control.  For Alcoa, the things we cannot control are the metal price and the exchange rate.  At the moment the metal price is down, and the strengthening Aussie dollar is working against us.

Alcoa of course has a plan to manage through the downturn, which includes wide ranging financial and operational initiatives, to reduce costs, increase cash and strengthen our balance sheet.  Globally we made a commitment to our investors that we would deliver on a tough cost sustainability plan to ensure our sustainability and our strength to flourish when we come through this thing. 

Alcoa Inc’s results in quarter two, released earlier this month, demonstrated that our plan is working. While we recorded a loss, it was a significant improvement on quarter one.  We’ve made no secret of the fact that we will aggressively manage our business, taking decisive action, and we’re not afraid to make the hard decisions to ensure our long-term sustainability.

I do believe that if anything good can come out of the downturn, it’s that these times will really set good companies and good leaders apart.  This is a positive and I love seeing how leaders in my organisation react.  Yes, life is tough at the moment, but victims won’t survive.  This is an opportunity for all of us to analyse our businesses, look at what we can do to change for the better and improve, so we can successfully emerge as stronger businesses when the economic climate improves.

And while the economy will recover, (it’s just that none of us have a crystal ball to be able to know exactly when that will be) recovery is a certainty.  These ups and downs are cyclical and of course our learnings now will help guide us through future fiscal challenges.  A new road map is being created.

Climate change
There is another road map being drawn up and it is complex in the extreme. When we come to the issue of climate change, we have an issue that isn’t going to resolve itself, and it’s here to stay.  Without wishing to sound arrogant, Alcoa recognised that fact almost two decades ago.

We took an early voluntary global leadership position on climate change.  We were instrumental in setting up a group of business leaders that talked to the Bush administration on behalf of industry, and we set ambitions targets to reduce greenhouse gases within our operations.

We set a target of reducing our global greenhouse emissions by 25%, based on 1990 outputs.  The due date for achieving that reduction was 2010 - but it we achieved it way ahead of schedule in 2003.   In the years since, we have gone further and reduced our greenhouse emissions by 36%.  These cuts were achieved by focussing on business efficiency and by taking responsibility for developing our own
technology to help us move forward in a carbon constrained world.

The gas challenge
We do have an innate advantage where efficiency is concerned.  Our WA operations, our alumina refineries, run on gas – a clean transitional fuel that carries environmental positives.  And we seek ways to maximise that environmental advantage.

Alcoa is the biggest co-generator of electricity in this country.  Our gas fired co-generation is the most thermal efficient and greenhouse friendly non-renewable energy source.

We have a well documented history in underpinning energy infrastructure both here in WA and in Victoria. It goes back 25 years when we underwrote the Dampier to Bunbury Gas Pipeline, bringing gas and, with it, enhanced economic prosperity to the South West region.

But the positives of being a gas user here in WA are weighed out by a significant challenge  -  and it’s quite simple …. we need to keep the gas flowing!!  Sounds obvious doesn’t it? But the fact is if we continue to offshore our gas as LNG, our domestic needs cannot be met in the long term. We need to run a vibrant domestic gas industry alongside a vibrant LNG industry, and I do believe that is very possible.

I’m not going to dwell on the detail today, (you’ll hear a lot about this in the coming months from me and others) but the issue of energy security revolves around domestic gas supply in WA and it impacts us all.

I’ve been on the record for some time now saying that Australia must develop a national energy security strategy to guarantee the country’s energy requirements for the next 50 to 100 years.  For too long we have been focused on expanding and maximising energy exports without proper strategies for our own country’s needs. Australia has an immediate need to promote diversity of domestic gas supply – an immediate need to ensure domestic and local industry have a secure supply of gas in a competitive market.

This issue has been highlighted recently with the media focus around the Gorgon LNG project in WA.
A strong domestic gas industry based on competitive selling and diversity of supply is critical to meet the State’s industry and domestic needs - it is critical to stimulate continued economic growth, jobs and investment. 

This issue impacts everyone - your business, your suppliers, your household.  I’ll be out there working with others, talking with government and industry groups, to address the challenge and help drive some acceptable solutions that balance the need of LNG with domestic users.

These are solutions for economic development and for greenhouse challenges.  Remember, many low-emission technologies, with the exception of natural gas, will not be substantial contributors until after 2020. 

Carbon Pollution Reduction Scheme
Let me turn now to our other massive component of the greenhouse challenge - the impending Carbon Pollution Reduction Scheme (CPRS).

Alcoa supports the introduction of a CPRS that reduces greenhouse gases and does not compromise the international competitiveness of the alumina and aluminium industries.  Australia needs a sustainable solution that supports greenhouse reductions and Australian jobs.

Alcoa faces a number of key issues with the CPRS: we are emissions-intensive and trade-exposed and we can’t pass on the costs of the CPRS to our customers.  The price of our metal is set by the London Metals Exchange, so we’ll be absorbing a cost that our competitors overseas don’t face. 

There are ways to manage this, but if the government doesn’t get the scheme right companies like Alcoa would be at an international competitiveness disadvantage.  This quite simply can lead to jobs and carbon leakage –  which means aluminium is produced offshore in countries where there is no carbon cost and where industry practice is not as greenhouse efficient. We would therefore see greater global carbon emissions and loss of jobs in Australia.

Did you know our alumina refineries in Australia are amongst the most greenhouse and energy efficient in the world?  Every tonne of alumina made by Alcoa in Australia produces less than half the greenhouse emissions and uses just over half the energy than alumina made in China.  So, you can see why it’s important that mechanisms are put in place to support industry and jobs until the rest of the world comes online with carbon trading.

Scheme or no scheme - at Alcoa, we are continuing to work very hard to reduce emissions via cutting edge technology.  We invest about $25 million dollars each year on research and development.  In fact our global refining research and development group is based right here in WA at Kwinana and it services Alcoa globally.

A few years ago, our Technology Delivery Group developed a ‘carbon capture’ process which locks up large amounts of carbon dioxide in our bauxite residue that would otherwise be released into the atmosphere (bauxite is what we process to create alumina).  Our first ‘carbon capture’ plant in operation at Kwinana locks up 70 thousand tonnes of carbon dioxide each year. It’s revolutionary research that has impacts for the alumina refining industry around the globe – bringing enormous environmental benefits.

Make an Impact
We recognise that tackling climate change is about behavioural change at an individual level too.

I think any parent in this room will relate to the desire to teach your kids how to live sustainably – it’s perhaps one of the greatest gifts we can give them.

Alcoa is seeking long-term solutions to these global problems and that’s where our Make an Impact program comes in.  Make an Impact is something we devised with our climate change partner ‘Greening Australia’, back in 2006 and I love it.  It’s a program that encourages our people to become part of the solution to climate change by identifying simple, practical steps to lower their household water and energy use, and it’s a program that encourages thinking, conversation, and crosses the generations.

It can be shared across the workplace, the home, the school room - and we have just started to roll the program out to some of our communities.  This is something I feel proud of and I encourage everyone at Alcoa to get involved with.

So you can see that our direction around climate change extends from operational innovation to change at an individual level. 

Employee engagement & leadership
Our Make an Impact program is a demonstration of what people power can strive to achieve.  Our people  - your people - are surely our business’ greatest asset.  Without the talent, intellect and loyalty of our people - I know we can’t even hope to retain our position as one of Australia’s largest exporters and deliver value to our shareholders.

Talented, engaged people are quite simply vital ‘keys’ to some of the issues I’ve already talked about. And keeping people engaged and motivated is certainly a challenge in itself.

As we manage through turbulent, uncertain times – our people remain at the heart of everything we do. We need to maintain the focus on them, on how we engage them, on how we lead them.  As we continue to ask for more of them - even as we freeze pay rises and ask them everyday to reduce their costs - how do we keep them buoyant? Focused on the job? Loyal to Alcoa?

I want to make the point though that successful employee engagement is not about making everyone feel good all the time, and saying yes to everything.  Leaders still need to be able to make the tough decisions, which won’t always make everyone happy.

The challenge is this: people want to be motivated not manipulated, inspired not ordered, committed not obedient.  I want our people to challenge us and be involved in the business’ success.

Among our six thousand plus employees, we have an incredible talent bank with bright ideas.  A few years ago, we implemented an Employee Suggestion Scheme which captures all the great ideas from our people around the country.   Through the scheme, we reward employees who come up with smart ideas for the business, and in some cases employees are rewarded financially.

To give you an idea of the success we’ve had through this initiative, last year we received over 14,000 suggestions and over 10,000 were accepted by the business.  The real results are in the number of suggestions accepted and implemented - it’s what you do, rather than what you say. 

Current research by leading human capital management practitioners shows repeatedly that employee engagement and attracting and retaining top talent is more crucial than ever in this time of economic uncertainty.  It sounds almost too obvious to say ‘an engaged workforce is more productive …’ It’s not rocket science - businesses with an engaged workforce are more profitable. 

We can refer to the experts. A recent Watson Wyatt study found: “..when employees are highly engaged, their companies enjoy 26 per cent higher employee productivity, have lower turnover risk and are more likely to attract top talent.

“Their companies have also earned 13 per cent greater total returns to shareholders over the last five years.”

Leaving staff in the dark, as uncertainty or rumours mount, can undermine morale and motivation. 
I won’t preach on best practice HR, but I know the importance of connecting regularly with our people, keeping them informed, taking them on the journey and giving them a context so our decisions, however tough, make sense. 

At Alcoa, our engagement with employees includes them being a part of the communities in which we operate.   I believe that our people’s engagement with our communities is a vital part of our success.
We’ve certainly found that employee volunteering, while it is the right thing to do, also assists with building cohesive teams. And volunteering is big business at Alcoa.

Apart from our regular, ‘business as usual’ volunteer programs here in Australia, Alcoa worldwide holds an annual Month of Service each October to encourage and reward employee volunteering in our local communities.  I was impressed that last year 30% of our people lent a hand to community organisations. This figure rises each year, as we strive to make a difference. It’s a sustainability issue, for our business and for our communities.

Many of you will be continually assessing your own rating of corporate citizenship I am sure. 

The issues and challenges we are all facing today are many.

I have packaged it up into easy pieces - economic downturn… climate change… leadership of people - but they all interact and touch on many aspects of ourselves and our business.

The economic climate presents complications and further challenges for how Australia will deal with the costs and practices associated with climate change.  The climate change issue very much has a bearing on the need for energy security. And all these things can’t be managed without the best minds and intellect.

Leadership and Employee Engagement, March 2009

These are extraordinary times that we are currently living though.  The economic climate presents us, as leaders, with unprecedented challenges - requiring extraordinary action.  We must control what we can control and do our best to manage things which are not in our control.

If anything good can come out of the global financial crisis, it’s that these times will really set good companies and good leaders apart.   Leaders will emerge, who might not have been noticed otherwise.  You’ll start to make decisions about who cuts it, versus others who were great leaders during the up times but who are not so good during the hard times.

Life will be tough for the next period, but this is an opportunity for us to analyse our business, look at what we can do to change for the better and improve, so we can successfully emerge as a stronger business when the economic climate improves.

So - how is Alcoa doing that?  With, and through, our talented people.

Our Sustainability Framework
‘Sustainability’ is the word on everyone’s lips.  It’s not new for Alcoa and of course it goes way beyond environmental sustainability.   Running a sustainable business is about a whole swag of things – efficiency, innovation, and primarily – people.

Our established sustainability framework at Alcoa is focused around social, environmental and economic excellence – triple bottom line impact.   Our sustainability framework is used to map out the business challenges and goals for the year ahead.  Of course, none of the goals are achievable without dedicated employees.  Our people have to be at the heart of the framework and engaged in the process, or the whole thing simply falls apart.

The challenge is this:  people want to be motivated not manipulated, inspired not ordered, committed not obedient. 

Alcoa and Diversity
Alcoa’s workplace values are paramount in everything we do, every day.  Alcoa in Australia employs more than seven thousand people in WA, Victoria and NSW.  Our vision is to be the best company in the world, in the eyes of our customers, shareholders, communities and our people.   We work in an inclusive environment that embraces change, new ideas, respect for the individual, and equal opportunity to succeed.  We live that value every day. 

I think it’s thanks to all these factors that Alcoa has, seven times, been named an Employer of Choice for Women - by the Federal Government’s Equal Opportunity for Women in the Workplace Agency.

I’m a father of four, under 13, and I’ve made it clear to our people that if their child has a special school assembly, and they’re at their desk - then there is something wrong with that picture. 
I’ve certainly found that leading by example has helped foster loyalty and commitment from employees and it’s enhanced our platform of mutual respect.

Current research by leading human capital management practitioners shows, repeatedly, that employee engagement and attracting and retaining top talent is more crucial than ever in this time of economic uncertainty.  An engaged workforce is more productive and businesses with an engaged workforce are more profitable - it’s not rocket science.  We can refer to the experts: 

“..when employees are highly engaged, their companies enjoy 26 percent higher employee productivity, have lower turnover risk and are more likely to attract top talent.

“their companies have also earned 13 percent greater total returns to shareholders over the last five years.” Watson Wyatt 2008/2009 

"the evidence of a significant relationship between employee engagement and financial performance is undeniable." Towers Perrin

"a large and impressive body of evidence...clearly demonstrates the strong statistical relationship between policies and practices that generate employee enthusiasm and business performance." Sirota Consulting

Leaving staff in the dark as uncertainty mounts will undermine morale and motivation.

Leadership from the Top
In our business, our leadership cascades from our parent company in the US, Alcoa Inc.

It is critical that leaders articulate a simple business strategy to align and engage our people with our business objectives.  Our people must understand where they fit in the puzzle, so their personal goals are clear and understood.

Our global leader, Alcoa Inc CEO Klaus Kleinfeld, has implemented many tools in which to open dialogue, encourage innovation and flexibility, and most importantly - capture creativity.  Which is not easy in an organisation the size of ours - we operate in 34 countries with 84 thousand employees globally.  His tools are providing employees with direct avenues to share ideas and receive vital information and feedback. 

Face-to-Face
Years of experience, and expert research, tells us that face-to-face communication remains the preferred method of people receiving information - important business information that is. 

When I returned to Australia to take on my current role, after seven years with Alcoa in the US, I took my first four months to travel to Alcoa’s different operational sites to get to know the players and connect with as many employees as possible.   The time I spent at our sites was absolutely critical for building up trust and respect within my management group, and positioning myself as accessible. 

Likewise in my previous roles as location manager, I did a similar thing where all I did was shake hands for the first few weeks.   I would turn up at site in the middle of the night to speak with the people on night shift.    The emotional credits and goodwill that you build up by doing this, can’t be underestimated. 

Employee Suggestion Scheme
Among our some seven thousand employees, we have an incredible talent bank with bright ideas.  A few years ago, Alcoa implemented an Employee Suggestion Scheme, which captures all the great ideas from our people around the country.   Through the scheme, we reward employees who come up with smart ideas for the business - in some cases employees are reward financially.  To give you an idea of the success we’ve had through this initiative, last year we received over 14 thousand suggestions and over 10 thousand were accepted by the business. 

We used to focus on the number of suggestions which we received, however that’s not where the real results are.  We quickly realised that it’s the number of suggestions accepted and implemented that counts. 

It’s what you do, rather than what you say. 

Safety Culture Change
Alcoa in Australia has one of the lowest lost workday injury rates in the country.   In fact, our performance is better than the mining, construction, agriculture, forestry and fishing, and even retail trade industries.  But, just because our record is good does not mean we take it for granted and become complacent.  Let me illustrate further why our people are so fundamental to our business being a success.

Two years ago we implemented a safety culture change initiative at our Wagerup Refinery in WA’s south west.   We knew our safety record would not improve further if people were allowed to continue going about things the way they always had.

There were a series of steps which the business undertook to get people to think and act differently in the workplace – but needless to say open communication was the key and the result has been an improvement in our safety record by 10 fold. 

Corporate Social Responsibility
Our engagement with employees includes them being a part of the communities in which we operate.  We believe that if our people are engaged in their communities, then they are also engaged with us.   We’ve certainly found that employee volunteering, while it is the right thing to do, also assists with building cohesive teams.

At Alcoa, we have long been accountable to and engaged with our communities.  You can’t run operations like ours without corporate social responsibility being embedded in the DNA of your organisation.   Let me give you a couple of small examples of our corporate social responsibility at work.

In partnership with Greening Australia, we devised Make an Impact which encourages our people to identify simple, practical steps to lower their home energy and water consumption.  Make an Impact has been up and running for a couple of years and this year we launched Breathe Easy with our partner Greening Australia.  Breathe Easy works alongside Make an Impact and allows our people to measure, reduce and offset their carbon emissions. 

Without going into great detail about these initiatives – the point is that our people are being taken on a journey of change.  Our leadership around climate change extends from operational innovation to change at an individual level.   This is work I am immensely proud of.

4Es and a P
Something new we are currently implementing at Alcoa is our 4Es and a P model.  The name comes from five primary competencies that all Alcoa employees should exhibit: edge, energy, energize, execute and passion.    It is all about our leaders offering direction on how each individual’s efforts support the business goals.  The results of 4Es and a P remain to be seen, but I’m confident this tool will assist us to successfully navigate our way through the next challenging period.

I’m of the view that our record in retention speaks volumes about our employee engagement - 60% of our people have been with us for more than 10 years.

I strongly believe that we simply would not have a business at all without engaged dedicated people and so engaging employees is not a nice to do, it’s a must do.

Ultimately, whether you have engaged employees all comes down to you.  What impression do you leave?   Do you give feedback?  Do you do what you say you are going to do?  Do people come out of meetings with you and feel energised and motivated?  Is your personal presence credible?

You can have all the systems and communication tools in the world,   but if you are not genuine in your dealings with people – all the systems are worthless.

Alcoa MD Pushes for CSR 'DNA' - February 2009

Today we have been exploring what we are all doing to create a society that we are all proud to be part of.

Individuals will make the difference but companies like Alcoa play an important role as leaders, influencers and catalysts for change. In other words, someone has to stand up to make a difference.  As we look at our challenges in a troubled world, no amount of blame or looking back is going to serve our interests, instead there is work to be done with new thinking and commitment.

To secure the here and now, and provide for a resilient tomorrow, the game has changed.

There are dark clouds over our ‘lucky country’, the GFC has spread much further and much deeper than anyone predicted. I believe what matters most for business and society, is that we take a closer look at the fundamentals on which our communities are built – and inevitably this means closer scrutiny of our priorities and our values.

For us at Alcoa, it is not so much a sea change in attitude, but rather a continuing journey about responsible leadership.  We have long been accountable to, and engaged with, the communities in which we operate.  We have held CSR policies for decades.

Let’s be absolutely clear, everyone who works for a publicly listed or private enterprise is working to create value for their shareholders.  Alcoa worked out long ago that the best way to create value was by doing the right thing.

That is what CSR means.

Managing a sustainable business

We run large industrial facilities in mostly rural and regional areas - you can’t run operations like ours without CSR being embedded in the DNA of your organisation. 

Let me use some of Alcoa’s examples of our corporate social responsibility (or the way we do business as we call it) and its benefits, to exemplify the vital connect between business and society.

Community engagement plays a critical role in our success.  While many things we do are quietly effective in other areas, our actions have global impact and with other businesses, the community and government support, we are shaping the new order of things.

Maybe, if anything constructive can come out of the carnage of the GFC, it is that ‘corporate social responsibility’ will become, for everyone, the way business is done.

As a business person, I have to focus on sustainability.

Our facilities cost billions of dollars. Our employees and the communities in which we operate depend on us and we depend on them.

How do I continue to grow a sustainable business under the threat of climate change, or a collapsing global economy?

How do I ensure I have the most talented people? That my workforce feels trusted and respected – and is productive?

How do I ensure that I am delivering on our responsibility to the environment? And our communities? And our shareholders?

Let’s take climate change as a concrete example of one of the most significant challenges for us all.  The aluminium industry creates jobs, exports and highly valuable products here in Australia.  We are also leaders in technology development from mine site rehabilitation to carbon capture and storage.

To run our business we have to use energy - and quite a bit of it – and therefore we are responsible for substantial greenhouse gas emissions.

Almost two decades ago, Alcoa took a voluntary global leadership position, in addressing climate change and reducing greenhouse gas emissions.  We set a target of reducing our global greenhouse emissions by 25% based on 1990 outputs.

The due date for achieving that substantial emission reduction was 2010 but it was actually achieved in 2003. In the years since, we have gone further and reduced our greenhouse emissions by 33%.

These cuts were achieved by business efficiency and the development of our own technology.

Alcoa invests $25m a year on research and development to accelerate environmental improvements and we have developed carbon capture technology in Western Australia that has the potential to dramatically reduce the emissions of the global aluminium industry.

Reducing water consumption is also part of our environmental mindset, and it’s a major focus in our operations. Not long ago we began funding a three year Chair in Sustainable Water Management at Murdoch University, in WA.

We are the biggest co-generator of electricity in the country - gas-fired co-generation is the most thermal efficient and greenhouse-friendly non-renewable energy source. 

So we are seeking long term solutions to these global problems and we continue to move beyond the work gates and out into the community to do so.  Among our own staff, one in three has been an active participant in our climate change program to reduce household greenhouse emissions. This program -  ‘Make an Impact’ - was created with our long term sustainability partner Greening Australia and it enables individuals to measure and re-work their household energy use, to really think about how we are living in today’s carbon challenged world.     It’s fantastic and it works.  It has changed my behaviour and spread to every level of the organisation.  Now we have partnered Greening Australia’s new program ‘Breathe Easy’ to help people offset the emissions they can’t reduce.  It’s great stuff. 

Let’s not forget Alcoa is Australia’s largest recycler of aluminium. Recycling plays a critical role in reducing greenhouse emissions as it takes less than 5% of the power required to recycle aluminium than to smelt it in the first place.  Recycling is a critical part of our business and it’s another way we engage with community.

At the Pinjarra Refinery in WA, as part of our waste management program, we have a worm farm (we have ‘worm farm’ bins in all our offices).  Last year it saved about 140,000 kilograms of kitchen waste going to landfill.  Those wrigglers are not only turning rubbish into garden fertiliser, but we are engaging positively with young schoolchildren as we tour them through our worm farm and show them new possibilities. 

My point is that business does and must continue to work at multiple levels, engaging all of its capabilities, big and small.

At the big end, and a crucial aspect to industry’s ability to tackle climate change, is energy security.

I have been on the record for some time, saying it is critical that we have a national energy security strategy to guarantee Australia’s energy requirements for the next 50 to 100 years.

Just a couple of weeks ago, we heard the new American president announce his ‘new energy for America' plan.

As our own Prime Minister has also acknowledged, energy security is vital on two fronts.  First, as a weapon in the battle against climate change, and second as an integral element of national security at the level of individual nations. 

There is wide agreement that we must work together to develop a clean-fuel future.

Barack Obama calls for a seismic shift in thinking:

"It falls on us” he says, “to choose whether to risk the peril that comes with our current course or to seize the promise of energy independence." 

For Australia, too, energy independence looks to gas as a transitional fuel and to the timely adoption of renewable resources into the energy mix.

We have an opportunity to help carve Australia’s energy future, to see industry and individuals cut their emissions. Everything we do now will affect the generations to come.  My kids will know that I acted responsibly.

But I am not acting alone.

Our people - your people - are one of your business’ greatest assets.

Without the talent, intellect and loyalty of our people, we won’t retain our position as one of Australia’s largest exporters and deliver value to our shareholders.

At Alcoa we encourage and reward our people who volunteer in the community. I would argue that running strong volunteer programs is the crux of a strong connection between business and community - the best way to break barriers, share knowledge, and simply help each other.

Any employee of Alcoa who gives 50 hours of their time outside of work to a not for profit organisation earns US$250 for that organisation from the Alcoa Foundation.   Our 2008 volunteering figures are still being calculated but in 2007, our Australian employees clocked up almost 72,000 volunteer hours delivering over $325,000 for local community organisations. This is backed up by $6 million in funding from the company itself.

The Alcoa Foundation was established 57 years ago, and operates worldwide, supporting our volunteer effort, our conservation and sustainability programs, and many of our community programs.

Since its inception it has donated US$492 million to community partnerships.

I would like my time of leadership at Alcoa to be noted for its conviction to work with others in aligning business results with our life values.

Our lives, our thinking, our aspirations are continuous, not elements we can break into compartments and separate … one for work, one for home, one for out and about in the community.

I don’t think there has ever been a more pressing need for a true union of our economic, social and environmental goals. The global financial crisis will hopefully bring about change whereby government, business, the community, all of us, have to take a longer term view of what is right.

This partnership between business, society and government is hinged on the values that shape our leadership. Values that extend beyond the traditionally defined triple-bottom line of economic … environmental and social responsibility, achieving a state where corporate social responsibility runs through the veins of your business. It’s in the DNA.

Last month Alcoa was awarded the top ranking in the basic resource category of the 2008 Covalence Ethical Ranking and was also chosen as one of the top ten ethical companies across all industries and companies.

And Alcoa has just been named one of the most sustainable corporations in the world, in the fifth annual Global 100 ranking of the top role models in sustainable business practice during the World Economic Forum in Davos.

That makes me proud.

Energy Security Integral to Climate Change Challenge November 08

I believe that energy security is possibly the most vital issue that confronts our nation. 

Considering all the issues that now face us, that might sound like a big call.  But energy is the lifeblood of Australia’s mining and manufacturing economy which together accounts for 80 per cent of our exports.  At the same time, energy security is pivotal to the big issues of climate change, our capacity to meet the greenhouse challenge and the economic turmoil. 

And the south-west region of Western Australia is a piece in the global jigsaw.

Without doubt, energy security is much more than simply evaluating sources and reserves.  It must include an analysis of the needs of domestic users, detailed work on critical infrastructure and the security and maintenance of that infrastructure.  It also must look at contingency planning and supply vulnerabilities in the various energy sectors.

My belief is that we must develop a national security strategy to guarantee Australia’s energy requirements for the next 50 to 100 years.  For too long we have been focused on expanding and maximising energy exports without proper protection for our own and future generations.  We have not been as disciplined as we should have been in framing an energy security strategy.

To be blunt, competition and diversity of gas supply has to be a priority.   

The facts are that gas contracts are written for the long term, often 20 or 30 years into the future.  This means that the gas going to overseas competitors is not available for the current and future needs of the local economy.  As a result, foreign contract prices have been regularly spiraling upward with telling consequences for local users.  Indeed, recent local contracts for gas in WA are three times higher than historical prices and wholesale gas prices are three times eastern states prices on a delivered basis.

We have an immediate need to guarantee domestic and local industry security of gas supply at a competitive price.

And what about climate change - the issue which is the catalyst for the re-shaping of our world?  Apart from security of energy supply, the climate change challenge is the other major issue confronting industry and the global community going forward.

Alcoa’s stance on climate change is clear – any future emissions trading scheme must not only support global carbon reductions, but also secure Australian investment and jobs.  If Government disregards this fine balance and penalises Australian companies by regulation, the result would inevitably lead to the compounding of the economic downturn.  It would also be counter-productive to the objective of reducing global greenhouse gas emissions.

It is essential to construct the appropriate balance between the interests of climate and industry.  And we have to facilitate reduced greenhouse gas emissions, while maintaining the sustainability of Australian industry and its competitiveness.

Let us look at the big picture.  It is widely accepted that gas produces up to 70 per cent less greenhouse emissions compared to coal in electricity generation.  Supply shortages and escalating prices are forcing resource companies and power generators to switch to coal.  Admittedly this is cheaper, but there are implications for Australia’s carbon footprint.

The facts are that gas well and truly bridges the time required to develop significant alternative, renewable energy sources as part of the greenhouse solution.  Research undertaken by the Business Council of Australia reveals that many low-emission technologies, with the exception of natural gas, will not be substantial contributors until after 2020.

Essentially gas, as the cleanest transitional fuel, is an essential part of the jigsaw which is Australia’s evolving solution to climate change.

It is estimated that Australia has natural gas reserves equivalent to 100 years of production, the bulk of them in the Bonaparte, Browse and Carnarvon basins off WA’s north-west coastline.

Considering these immense gas reserves off our coast, it would be inexcusable for West Australian industry and energy generators in particular to be denied acceptable supplies.

Alcoa’s position is clear – we need to facilitate domestic gas growth to reduce greenhouse gas emissions, while maintaining the sustainability of Australian industry and its competitiveness.

Alan Cransberg made the luncheon address at the Australia’s South West Global Focus conference on Wednesday 26 November 2008, Perth.

Global financial crisis puts Wagerup 3 on hold – November

Alcoa has announced it has suspended work on the proposed expansion of the Wagerup Refinery, until market conditions improve.  Here, Alan Cransberg explains more.

Is the expansion permanently off the table or only temporarily?
We are still very much committed to the expansion of the Wagerup Refinery but in the current economic climate now is not the right time to move forward with the project.  When market conditions improve we will revisit the expansion.

We have to act responsibly and proactively in challenging times like these to ensure a continued bright future for Alcoa in Australia.  This decision is primarily due to the global financial crisis resulting in changing demands for our product in the marketplace.  The other factors, which contributed to this decision, were energy availability issues for the expansion and the need to understand the detail in the impending emissions trading scheme.

This year in Western Australia the energy security situation has really come to a head – particularly with the Varanus Island incident.  Alcoa has shown its commitment to securing a strong energy supply for WA with our announcement to partner with Latent Petroleum to explore for tight gas in the Perth basin. We have a long history of underpinning energy infrastructure in WA - but energy security and availability remain challenges.

 Of course the emissions trading scheme is a consideration because it will have significant impacts for our industry.  However, we continue to work with the government to ensure the challenges we face are well understood.

When are you going to revisit the expansion? Are we talking a few months, or a few years?
I cannot predict how the global financial crisis will play out. I wish I had a crystal ball, but these are unprecedented times.  What I can say is that we [Alcoa of Australia] are in a strong position to weather this storm. We have excellent businesses here in Australia with great people and when market conditions improve we will revisit the Wagerup expansion.

How do you respond to claims that this decision is a win for your opponents around Wagerup?
This decision is solely about the economic turmoil, reduced demand in the marketplace, energy availability for the expansion and the need to understand the detail in the emissions trading scheme.

Wagerup 3 continues to represent one of Alcoa’s best brown field opportunities, globally, to deliver value through an expansion.  We are committed to the project and we will revisit it when conditions improve.

Will this decision result in any job losses?
No Alcoa jobs have been lost due to the suspension of work on the expansion.  The Alcoans working on the Wagerup 3 project are being moved to different parts of the business and they are still very much part of the Alcoa team.

The fantastic work that has already been done on Wagerup 3 is not wasted.  That work is the foundation of this wonderful project and it will be resurrected when we revisit the expansion.  When that time comes, the hard work of the Wagerup 3 project team will be a springboard to take the expansion forward.

Alcoa launched the Wagerup Sustainability Fund which was an initiative linked to the expansion. Given this decision, where does this leave the Fund?
The Wagerup Sustainability Fund was an idea generated by the community during community consultation about the Wagerup expansion back in 2004.  Alcoa listened to the feedback from community and acted on it. We subsequently set up the Wagerup Sustainability Fund under the Western Australian Community Foundation (WACF).  While Alcoa established the Fund, it is now independent of us. The WACF is the Fund trustee and oversees the Fund, and it’s the local community who decide the Fund’s spend.

The Fund is already up and running and will continue.  Alcoa is committed to the Fund and we will make annual donations for the next 20 years.  Our annual donations are linked to production at the Wagerup Refinery.  On current production that equates to around $430,000 each year, but of course that figure will increase when the expansion goes ahead.

It is actually in challenging economic times that community funds, like the Wagerup Sustainability Fund, work best because it’s a guaranteed revenue stream for the community.

Some have described this decision as a blow to economy given it would have created new jobs for the South-West region and provided extra revenue for the government.
Our decision to suspend work on Wagerup 3 was not taken lightly, but it was necessary given the challenging economic climate. In times like these, hard decisions need to be made to ensure we continue to have a strong future in Australia.

We are absolutely committed to the expansion and when market conditions improve this expansion will be revisited. It is not off the table by any means.

Alcoa is an enormous contributor to the West Australian, and indeed Australian, economy and that won’t change. We account for around 5 per cent of WA’s exports and nationally contributed almost $5 billion in exports last year.  Alcoa will continue to make a significant contribution to the economy and in fact 80 cents in every export dollar earned stays in Australia.

Lastly, how bad is the financial crisis for Alcoa?
What the financial crisis has shown is the importance of running strong businesses. This is true not just for Alcoa but businesses in general.  Alcoa has been in good shape for many years now, so when crises such as these hit, we are in a strong position to weather the storm. 

We have fantastic operations here in Australia and while there are always challenges in business, it is how we manage them that matters - and here in Australia we are managing these challenges well.

Volunteering, fundamentally Alcoan - October 17

I believe volunteering is fundamental to all Australians.

We all know someone who’s a volunteer and we’re often inspired by the great work they do. Whether it’s for a local school, or sporting club or planting a tree to help our environment, volunteering is a critical part of our social fabric.

Around 5.4 million people volunteer in Australia each year – that’s around 713 million hours donated to a range of organisations. That’s nearly $70 billion injected into the Australian economy annually.*
These figures clearly display Australia’s commitment to volunteerism.

Volunteering at Alcoa is a core business practice. During October each year, we celebrate employees’ work in the community around the globe with our Worldwide Month of Service. Check it out on this website - Month of Service is our commitment to celebrating and promoting volunteering.  We have a responsibility to help build and strengthen our communities, and when I hear that 2,000 of my people are out there this month, getting their hands dirty to help others, that makes me proud.

Our Australian workforce will join an estimated 47,000 people in 36 countries as part of this initiative. We’ve been doing it since 2006 and is now an annual event around the globe.

Corporate volunteering programs play an important role in business. They create opportunities for employees to develop their skills and experiences and they provide invaluable opportunities to create meaningful connections and contributions to our communities.

They also play an important role in recruiting and retaining people, another of today’s challenges facing us all.

At Alcoa we invest heavily in a number of volunteer programs.

Our individual volunteering program, known as Bravo!, recognises individual Alcoa employees who spend a minimum of 50 hours per calendar year doing volunteer work for an approved non-profit/non-governmental organisation.

In recognition of the employee's effort, Alcoa makes a contribution of US$250 to the non-profit organisation.

In 2007, 592 Alcoa employees were given Bravo! grants, reflecting a volunteer contribution of close to 65,000 hours and totalling over $168,000 for their nominated community organisations.

At a team level, ACTION (Alcoans Coming Together In Our Neighbourhoods) recognises the collective efforts of at least five Alcoa employees who spend a minimum of four hours on a community service project for a local non-profit/non-governmental organisation.  In recognition of the team's effort, Alcoa matches their time with a financial contribution to the non-profit organisation.

In 2007, 47 community projects received ACTION grants totalling more than $156,000 and hands-on support from around 623 Alcoa volunteers across three states.

The Alcoa Foundation, based in the US, underpins and funds these important activities.  The focus of the Foundation is to help communities, build partnerships and change lives. Its mission is to actively invest in the quality of life in Alcoa communities’ worldwide, combining funding with hands-on support from our active employee volunteers.

The Foundation's grants address global and local needs in over 30 countries by partnering with Alcoa communities. Key areas of focus are conservation and sustainability; global education and workplace skills; business and community partnerships; and safe and healthy children and families.

I think our great volunteering effort is something that helps set us apart, it helps define our values as a company. 

We’ll let you know how we go this October, and of course all throughout the year.

Cheers, Alan

(ABS Voluntary Work, Australia Survey (2006). These figures were released in July 2007)

The Climate Change Challenge - September 9

There are significant implications for Alcoa under the proposed Carbon Pollution Reduction Scheme and, this month, Alcoa will be submitting its response to the Federal Government’s Green Paper.  Here, Alan Cransberg answers the tough questions around the climate change challenge.

Q: You have recently been attacked by the WWF for not responding to climate change, they called you a 'dinosaur'.  How do you respond to that?

Alan: I found those remarks truly surprising and, frankly, irresponsible. Alcoa has been a front runner in tackling climate change for well over a decade and I think we are well recognised for that.

We have made enormous improvements in emissions reductions, down by 33% from 1990 levels, and we have the industry's leading research and development outfit in WA. We've developed carbon capture technology, we implement new suggestions and technological developments continually to improve our greenhouse performance, and it’s all publicly documented.  Apart from the need to operate sustainably for the environment, we need to do it for our bottom line. It is just naïve to suggest that any player has twiddled their thumbs and is not responding to today's operating environment.

Q: You are a big emitter and a large energy user, so why should Alcoa be excused from an emissions trading scheme?

Alan:  Let me start off by saying that Alcoa is fully supportive of the introduction of an Emissions Trading Scheme that supports greenhouse solutions and Australian jobs. 

I acknowledge that we, at Alcoa, are asking for recognition under what the Government is now calling the Carbon Pollution Reduction Scheme.  We are not asking to be excused under the scheme, but we, like other trade exposed companies, are asking for some assistance and there are a few reasons for that. 

First, it’s important to realise that implementing a carbon price scheme in Australia represents an international competitiveness challenge for Alcoa, as well as other companies that are emissions intensive and trade exposed.  So for companies which can pass on their costs to customers, the scheme might be manageable and not provide any significant issues.  For us though, we cannot pass on our costs and that is because we don’t set our own alumina or aluminium price.  The price is set globally by the London Metals Exchange (LME) which is independent of Alcoa.  This means that under an Emissions Trading Scheme we [Alcoa] would have to absorb the cost increases.  And if we are absorbing a significant cost that our competitors don't have, that places us at a big competitiveness disadvantage.

Q: Aren’t increased costs just something the aluminium industry will have to live with if we are to reduce greenhouse emissions, which is what emissions trading is all about?

Alan: Obviously the purpose of an emissions trading scheme is to reduce greenhouse emissions.  But it would completely defeat the purpose of emissions trading if important industries in Australia were forced offshore.  If industry here was not internationally competitive anymore, because of emissions trading, they would then close and the gap in the market would be picked up by overseas operations - including those with lesser environmental standards. The emissions would simply move overseas [carbon leakage] and ultimately the result of this could mean increased greenhouse emissions and worse outcomes for the environment.

Q: Why would the environment be worse off if businesses like Alcoa leave Australia?

Alan: Carbon leakage is a problem if we don’t get the scheme right.  To give you an example, Alcoa’s alumina refineries in Australia are amongst the most greenhouse and energy efficient in the world.  In fact, every tonne of alumina made by Alcoa in Australia produces less than half the greenhouse emissions and uses just over half the energy than alumina made in China.  So, if emissions intensive trade exposed industries are not recognised under the Carbon Pollution Reduction Scheme, it won’t solve the greenhouse problem, it could actually make it worse.  The problem will just be shifted to another part of the world, and possibly with increased environmental impact.

Q: The Green Paper would suggest that the Government will recognise emissions intensive trade exposed industries in the final scheme – doesn’t that mean you are off the hook?

Alan: Under the Green Paper proposals, emissions intensive trade exposed industries are provided with partial recognition. Aluminium smelters would initially receive permits for up to 90% of direct CO2-equivalent emissions and alumina refineries would receive permits for up to 60% of direct CO2-equivalent emissions. 

This may be reasonable for us as a starting point, but it is no free ride and the challenge does not end there.  These permit allocations will decrease over time and industry needs certainty that any erosion of permit allocations under the Carbon Pollution Reduction Scheme, does not happen at an unsustainable rate.  Key Australian industries would be in jeopardy if allocations are eroded, while key competitors overseas do not face an equivalent carbon cost.

What companies like Alcoa need as the scheme comes into force and progresses over the years, is for the recognition to continue until developing countries, like China, come online with emissions trading. Then, when we have a level carbon playing field across the globe, those permits can be wound back because everyone is in the same boat.

Q. Alcoa has been vocal against a National Renewable Energy Target – aren’t you avoiding responsibility?

Alan: We acknowledge that renewable energy has a really important role to play in the solution to climate change and we support the renewable energy industry.   

The challenge with renewable energy is that it currently comes at a significant cost increase above other sources.   We make no secret of the fact that we are a big energy user and so for us a badly designed NRET would add significantly to our cost.  Like the costs associated with emissions trading, we won’t be able to pass that cost on, for the reasons I have already described, and if our competitors in other counties are not paying the same cost it puts us at a great disadvantage. 

There is a very real chance that under a badly designed NRET Alcoa could be out-competed by companies overseas which are not paying for renewable energy. That leads to all the same implications that I described earlier.

We are not saying to the Government ‘scrap the NRET’, but what we are saying is that care needs to be taken with finalising the policy around the NRET to ensure that it’s not implemented in a way which damages high energy using companies in this country. 

For more information …
To understand more about Climate Change, the Carbon Pollution Reduction Scheme, the National Renewable Energy Target and what it will all mean for Alcoa, visit www.alcoa.com.au/climatechange.

Watch Alan Cransberg and Alcoa’s Manager of Environment and Sustainable Development, Tim McAuliffe, explaining these challenges to Alcoa employees. Click here.

National Renewable Energy Target (NRET) - Perth – August 1

“Any emissions trading scheme must support energy and greenhouse improvements, while ensuring investment and jobs in Australia.  It is vital we get this right for the future of the Australian alumina and aluminium industries, and for the workers and communities who rely on our continuing presence.” Alan Cransberg, MD of Alcoa of Australia

The potential impacts to the aluminium industry of the Federal Government’s proposed National Renewable Energy Target, as well as the emissions trading scheme, were raised by Alcoa of Australia’s MD, Alan Cransberg, during his address to the CEDA (Committee for Economic Development of Australia) Resources Overview in Perth earlier this month.

Mr Cransberg indicated that the Australian aluminium industry cannot tolerate cost imposts from the National Renewable Energy Target (NRET) that competitor countries do not face.  This comes on top of increased costs for the sector from the emissions trading scheme.

“It’s vital that industry is not hit by further cost increases under a National Renewable Energy Target,” he told the packed audience.
Under the proposed scheme, large energy users must purchase Renewable Energy Certificates (REC).

“This exposes the Australian aluminium smelting industry to significant cost increases – none of which can be passed onto customers in the absence of a comparable impost on international competitors,” he said.

The National Renewable Energy Target must be applied in a way that recognises the emissions intensive trade exposed sector or it will become harder and harder for these industries to do business in Australia, he said.

Commenting on the proposed emissions trading scheme, he was also clear that the most critical issue for the Australian aluminium industry was regarding certainty in permit coverage and ensuring any erosion of permit allocation does not occur at an unsustainable rate.

“The greatest concern I have is that any shielding for emissions intensive trade exposed industries will fail if allocations are eroded too quickly,” he added.

Commenting on the permits afforded to the industry (aluminium smelting would initially receive permits for around 90% of baseline emissions, alumina refining would receive around 60% of baseline emissions), Mr Cransberg said that while these are important to the industry’s future in Australia, they are not a “free ride”.

“Our operations face significant financial imposts not faced by competitors in China, Russia, the Middle East and elsewhere.

“And like other commodity exporters, cost increases cannot simply be passed on to overseas customers,” he explained.

“The aluminium industry will continue to ensure governments understand what is at stake here, and we will also continue to improve energy efficiency and reduce emissions within our business.”

Alcoa continues to work to ensure that renewable energy is part of the Australian energy supply mix and works in partnership with the Portland Wind Farm which connects to the grid through the Portland Aluminium Smelter in Victoria.