LONDON, UK / ACCESSWIRE / October 16, 2017 / Pro-Trader Daily takes a look at the latest corporate events and news making the headlines for Alcoa Corp. (NYSE: AA), following which we have published a free report that can be viewed by signing up at http://protraderdaily.com/optin/?symbol=AA. The Company announced on October 13, 2017, that it had terminated its contract with Luminant Generation Company LLC, an electricity supplier, well before the contract maturity date. The electricity contract was terminated effective October 01, 2017. The decision is a part of the Company's plans to simplify its operations and improve its financials. For immediate access to our complimentary reports, including today's coverage, register for free now at: http://protraderdaily.com/register/.

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Commenting on the premature termination of electricity supply contract with Luminant, William Oplinger, EVP and CFO of Alcoa, said:
"Reaching a resolution on the Rockdale power contract aligns with two of our strategic priorities - to reduce complexity and to drive returns. It eliminates a complex, long-term contract tied to the Rockdale location, and positions Alcoa for improved profitability and higher returns."

Details regarding Premature Contract termination

The Company had contracted Luminant for supply of power for its smelter operations located at Rockdale, Texas and the contract was valid till FY38. The Company's smelter at Rockdale has been defunct since end of FY08. In the meanwhile, the Company had been selling off the surplus electricity to reduce associated contractual costs. However, the Company found that the revenue from sale of surplus electricity was much lower than the cost of electricity contracted with Luminant. The electricity costs reduced due to the decrease in wholesale power prices in ERCOT (The Electric Reliability Council of Texas) market.

The Company has disclosed that the premature termination of the contract would result in annual savings of $60 million to $70 million effective immediately as from Q4 2017. As per terms of the contract, which had a termination clause, Alcoa had made a one-time payment of $237.5 million to Luminant on October 10, 2017. The Company has also transferred nearly 2,200 acres of land and other assets to Luminant as part of the termination fees. The total costs associated to the premature termination contract is approximately $250 million which will be reflected in the Company's Q4 2017 earnings results.

Additionally, Alcoa has also terminated other contracts with Luminant which are related to fuel and lease agreements. The effective date of termination of these contracts was October 01, 2017.

Way forward

The termination of contracts with Luminant has allowed the Company to explore strategic alternatives for the remaining buildings and equipment located at the Rockdale smelter facility including its cast-house and the Aluminium powder plant. The Company has indicated that it would reach a decision on these assets by end of FY17. On completion of the transfer of land and assets to Luminant, Alcoa continues to own over 30,000 acres of land at the Rockdale site.

Impact on Luminant

Luminant, a premier Texas-based energy Company and a subsidiary of Vistra Energy (NYSE: VST), announced the closure of two coal-fueled power plants in Central Texas which includes the two-unit Sandow Power Plant in Milam County and the two-unit Big Brown Power Plant in Freestone County. The power Company also announced that it would be closing its Three Oaks Mine, located in Bastrop County which had supported the operations at Sandow. The contract with Alcoa had helped the Company to sustain the decrease in wholesale power prices in ERCOT. However, the termination of contract would make the power plant unsustainable in the current conditions and hence the Company's decision to close the power plant. The closure will impact nearly 450 jobs at the Three Oaks Mine and the Sandow Power Plant. The power Company said that employees who are affected will be given severance pay and provided with outplacement assistance.

The power Company expects that the closure of its two power plants will result in one-time costs of approximately $70 million to 90 million which will be reflected in its Q4 2017 results.

Last Close Stock Review

On Friday, October 13, 2017, the stock closed the trading session at $47.71, slightly advancing 0.38% from its previous closing price of $47.53. A total volume of 3.28 million shares have exchanged hands. Alcoa's stock price soared 6.50% in the last one month, 31.07% in the past three months, and 52.38% in the previous six months. Furthermore, since the start of the year, shares of the Company have skyrocketed 69.91%. The stock is trading at a PE ratio of 57.69 and currently has a market cap of $8.76 billion.

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