Q1 2021 Century Aluminum Co Earnings Call
Yeah.
Ladies and gentlemen, and welcome to the century aluminum company first quarter 2021 earnings conference call. My name is Bethany and I'll be coordinating your coffee today, if you would like to register to ask a question during the Q&A session. Please press star followed by one on your telephone keypad if any.
Time.
I will now hand, the call over to a host of pizza Chick of state to begin pizza over to you.
Thank you very much Stephanie good afternoon, everyone and welcome to the conference call.
I'm joined here today by Mike Bless countries, President and Chief Executive Officer, Craig Conti, Executive Vice President and Chief Financial Officer, and Shelly Harrison Senior Vice President of Finance and Treasurer.
After our prepared comments, we'll take your questions.
As a reminder, today's presentation of available on our website.
Www dot century aluminum dot com.
Use of our website as a means of disclosing material information about the company and for complying with regulation FD.
Turning to slide one please take a moment to review the cautionary statement shown here with respect to forward looking statements and non-GAAP financial measures contained in today's discussion.
And the bad I'll hand, the call over to Mike Thanks, Pete and thanks to all of you for joining us this afternoon.
We can just flip the page three please.
And before we start on the review of the quarter I'd like to just provide a brief overview on our various efforts supporting advancing the sustainability of our business hopefully at this point most of the views of the chance to go through our sustainability report if not it's up on our website. So I encourage you to look when the when you have the couple of moments.
First of those of you who of lung followed the company are well familiar with our focus on safety.
And this will always remain our highest priority.
Our new corporate safety director has made great progress reinvigorating our systems and processes.
We're now engaged in delivering enhanced safety leadership training to all of the U S plants.
Some of the early returns are really encouraging with.
We'll have a lot more to report to you as we go forward.
In addition, we're making very good progress on our various de carbonization efforts.
As we reported the back in February we're in discussions with multiple potential customers regarding our low carbon natural product from.
And the dispose of the agreement that we recently signed with Tim or industries.
In addition, again as we've discussed we're looking very closely at adding testing capacity of <unk>.
On this development would allow us to provide the European market with much desired Greenville it.
As you also know we've made recent investments at sebree to enable us to buy scrap from the market and reprocess it.
We're seeing increased interest from customers looking for recycled content in their fill it.
Now looking at incremental scrap processing capacity at sebree as well as the on Holly is return on net plant closer to its full capacity, we'll talk about non Hollywood just a couple of moments.
We've also made good progress finalizing the terms for the solar volume to be constructed by of third party that will be adjacent of sebree.
As a reminder, we'd be the sole contractual off taker and with us enable this investments.
This is really exciting for us from multiple of vantage points from the.
Intend to pursue similar structures.
Bottom line, we've got a lot of exciting stuff going on and we look forward to updating you regularly.
And just a couple of minutes Pete will provide some detail on the industry environment, but let me make a couple of points just to put the rest of my comments into context.
Conditions in the sector remain favorable from multiple vantage points.
Global inventories are now following the including in China as you've seen with the data.
Stocks are now at pre COVID-19 levels, and our historically tight, especially when considering the pace of current demand.
Forecast for the next couple of quarters show of basically balanced global market.
And we see potential upside as the pandemic continues to abate, especially in developing economies.
We're obviously closely watching the supply side.
The current metal price provides an environment for consideration of potential capacity additions.
However in most of the Western World, We think its very unlikely that we'll see the greenfield projects. We believe the industry has learned the lessons of the past.
We could see some small restarts or more likely perhaps the deferral of the closures either ones that have been announced or debt that are being contemplated.
But we're competencies would likely be around the edges.
It goes without saying the swing factors remains China that market is currently just in balance if you look at the data they are importing some months and not others.
You've obviously seen the discussion of a major policy shift driven by the central governments climate goals.
And we do believe that illegally added capacity that puts provinces above their emissions targets and make the curtailed before of new capacity is added.
It's hard to know at this point exactly where all of this shakes out but we do think this development will put some governor on the rate of net capacity additions in China.
Again, Peter will give you some data in just a moment.
Just to move on and we've made good progress on the operations. During the last couple of months to give you a couple of examples.
As you remember we suffered two major equipment issues of hospital during the last December.
One of the freeze up caused by some very cold weather and the other was the failure of some key high voltage equipment.
These events resulted in the loss of some production and in addition, we took a number of sales offline in February and March to mitigate any further risk.
And importantly, the hasten the plants returned the stability.
That stability was achieved in early April and we're now on the process of bringing all of the sales back on line get.
I'll get back to the full four line operation.
We're also completing some maintenance projects aimed at providing further long term stability to the plant.
We also recently the agreement with the local Union in Huntsville, and it was the right.
<unk> by the membership on the 16th of April five.
<unk> five year labor contract provides good stability for the plant.
Got a great young workforce at <unk>, which requires some extra of near term effort and investment in.
And training and skills development.
That said, we're really encouraged by the potential of this group.
At Mount Holly the new power contract was approved by the Santee Cooper Board.
As well as by the appropriate state authorities and the contract commenced its scheduled on the first of April.
As a reminder, three year deal goes through the end of 2023.
And it gives us the opportunity to build back the 75% of the plant's capacity.
And get some very much needed high quality bill it back into the U S market.
It also gives us the chance to work with Santee Cooper on longer term structural alternatives power supply.
As a reminder, we've been talking about this for quite some time no sales of non Holly has been rebuilt since 2015 and non sales constituting the entire 75% of production needs to be rebuilt.
This process is well underway and Craig will remind you of the schedule for the forecast spending as well as importantly, the incremental production that we see coming on later in the year.
We're really excited to be bringing back this capacity at a time when the market demand is so robust.
Those of you who know Mt. Holly now that it has it justly earned the reputation as the high quality billet producer.
And we're convinced customers are anxious for the incremental supply.
As we ramp up here through the year, we have more billet casting capacity than we currently have hot metal production obviously.
The industrial being opportunistic and buying some scrap in primary metal to metal and mixed with non highway zone Prime in order to begin to deliver incremental production to the market as quickly as possible.
Lastly, very quickly Craig will take you through the specifics of the recently completed debt refinancing so I won't go into any detail here the.
The rationale was obvious to the.
Well of the company's weighted average cost of capital.
And it also came with the decrease in current cash interest expense.
We lengthened the maturity and increased the company's near term liquidity.
Of course of the company's liquidity will otherwise improved markedly begin in Q2.
As we begin to realize the recent metal prices.
And Craig will the PV detail on net and our expectations for cash flow in the coming quarters.
Just a moment.
And with that I will give you back the piece for a quick look at the industry. Thanks, Mike If we can move on the slide four please could you give a couple of comments on the global aluminum market.
In the first quarter of 'twenty, one global aluminum demand was up 16% as compared to the first quarter of 2020, when the pandemic had begun to slow down the economy.
In the world, excluding China, we saw demand of 5% and in China, we saw demand growth of 27%.
Global production was up 6% on the first quarter of 'twenty, one as compared to the same quarter last share. However, global supply growth was flat sequentially.
We saw a 10% production growth in China versus the same period last year, but no additional supply growth sequentially.
In the world, excluding China, we saw 1% supply growth versus the same period last share and less than half a percent growth sequentially.
As demand continues to outpace supply growth of around the world The <unk>.
Global aluminum market is now projected to be on balance for 2021.
Along with falling stock inventory levels to pre pandemic levels, the aluminum price looks to be supported by strong fundamentals going forward.
Okay, turning to slide five please.
You can see the major improvement on pricing for <unk> and premium per.
The cash <unk> price average of approximately $2100 per ton in the first quarter, which was up 10% or $175 per ton sequentially.
Currently we are at the three year high <unk> price.
Of 2000 and $450 per ton.
In the first quarter regional premiums average 16 per pound or approximately $350 per ton in the U S up 25% sequentially and $165 per ton in Europe on increase of 23% sequentially.
Current spot price for the U S. Midwest premium is at a record high of.
Of just over 26 cents per pound or approximately 570 per $1 per ton of growing demand and tight supply.
Prices in Europe are approximately $240 per ton.
Finally pricing for value added products have also continued to improve.
An example here of the U S. Midwest spot billet prices are also at record highs of approximately $700 per ton.
And with that I'll hand, the call over to Craig.
Thanks, Pete, let's turn to slide six and I'll take you through the results from the first quarter.
On a consolidated basis global shipments were about flat quarter over quarter realized prices increased substantially versus prior quarter. As a result of higher lag LNG prices and delivering premium is driving 14% increase in sequential net sales.
Looking at operating results adjusted EBITDA was a loss of $19 $7 million this quarter and we had an adjusted net loss of $52 5 million or <unk> 54 per share and.
In Q1, the adjusted net I think the adjusting items were $92 7 million from the unrealized impact of foreign contracts $2 9 billion from the net realizable value of inventory and $1 4 million for the historical sebree equipment failure.
Liquidity at the end of the quarter with $90 million would be a mix of cash and credit facilities. This amount increased $50 million to $140 million by the end of April.
As we forecast on our last call. The Q1 realized <unk> of $1940 per ton was up $210 per ton versus prior quarter, while while realize the U S. Midwest premiums of $330 per ton were up $45 per ton over the same period.
Realized alumina was $325 per ton or $35 per tonne greater than prior quarter.
As we discussed previously the majority of our alumina contracts are price with an Ellen referenced and the realized prices will track largely in line of lagged and we will be the pricing trends.
As expected the negative impact on power prices, primarily driven by the domestic February polar vortex pricing spike was $33 million unfavorable versus Q4 globally.
We like co prices of $300 per ton were up $50 per ton or 20% versus prior quarter.
We start related spending as forecast at Mount Holly and slightly lower production volumes drove about $12 million of reduced EBIT of sequentially, while a non cash mark to market on stock compensation drove $5 million of reduced EBITDA over the same period.
Our Q1 results came in a bit lower than expected. This was largely largely driven by market price and non cash accounting impacts occurring at the very end of the quarter.
During the last week of March our share price increased roughly 20% to about $18 per share, causing a sizeable negative non cash mark to market impact on our stock compensation plan.
Coke and LNG linked power began escalating as well.
On balance the totality of the late in Q1 market moves are favorable to century over the mid and long term. However, the immediate impact to the first quarter of the was the reduction of impact to EBITDA.
Looking ahead to Q2, specifically.
The lagged <unk> of $2150 per ton is expected to be up about $210 per ton versus Q1 realized prices.
The Q2 realized the west and Midwest premium is forecast to be $485 per ton are up $155 per tonne and the European delivery premium is expected at $175 per ton or up $35 per ton versus the first quarter.
Realized alumina is expected to be $330 per ton or up about $5 per ton versus prior quarter.
Taken together, the LNG alumina and delivery premium pricing moves are expected to increase Q2, EBITDA by about $55 million to $60 million versus Q1 level.
On power costs with the Q1 hole of vortex related spike behind US we are seeing of returned to more seasonally normal pricing levels. As a result, we expect a $15 million to $20 million increase in Q2, EBITDA from declining power prices quarter on quarter.
As I noted earlier in late Q1 on the experienced an increase in carbon cost, notably the petroleum pulp price.
We expect realized coal prices to be $370 per ton in Q2, or about 77 $0 per tonne greater than in Q1, driving a $5 million EBIT of decrease.
The prior quarter.
Finally, we continue to make significant progress on the non Holly restart and the fixes on the year end equipment issues and causal.
As we discussed previously Q2 will be our largest investment quarter for both of these projects. This investment will be partially offset versus prior quarter by incremental production in Q2.
The net impact of sequentially increased production of project spending will decrease EBITDA by about $10 billion.
In sum, we expect all of these items taken together will equate to an approximate EBITDA increase of $55 million to $65 million from Q1 levels.
As we have discussed in the past we from time to time and largely in support of long term investments manage our exposure to various commodities by entering into forward contracts.
Based on our current spot prices, we expect a 30% to $35 million realized loss for the quarter on our various hedges in Q2.
This result will be below the EBITDA geographically and will impact adjusted net income.
We will continue to call this impact out of quarterly basis as market.
Let's turn to slide eight and we'll take a quick look at cash flow.
We started the quarter with $82 million in cash and ended March with $26 million of.
Few notable outflows for the quarter of included 7 million per Capex the <unk>.
Majority of which was not how we reached our related and our normal semiannual interest payments.
Working capital was an outflow of about $12 million driven by increased receivables from higher sales prices on the rising LNG levels and a modest inventory build to support the ongoing the restart work.
Shifting gears to Q2 and beyond and early April as Mike mentioned and as you may have seen we effectively refinanced our $250 million five year of 12% note, which we do the mature in 2025 for a new $250 million seven year, seven 5% notes due to mature in.
2020.
In addition, we have further enhanced our liquidity by executing a seven year $86 million convertible note at 275% also grew the mature in 2028.
From a diluted EPS modeling standpoint, it will be important to include an additional 4 million outstanding shares for century from Q2 onwards, while we can settle the convert in either cash or shares at our option. Our accounting method will require reporting the new instruments on a fully diluted basis.
From an interest cost standpoint, adding both of the new $250 million note and the $86 million convertible together resulted in annual interest savings of $9 million versus the old mill.
From an operation standpoint, we continue to make solid progress from the ongoing might have the restart as.
As a reminder, we will invest about $75 million over the course of the next two to three years to bring the smelter to of one pipeline operation, which will allow us to produce at 75% of capacity or about 170000 tons per year. This project will be completed in two phases.
For phase, one which occurred throughout 2021, we will invest about $50 million of restart capital over half of which will be spent in the second quarter and expect total year production of about 140000 tons as we ramp up the facility. This output will be about 20% greater in 2020.
By the end of 2021, Mount Holly will be running the full one five line company.
The two begins in 2022 and the remaining $25 million of capital will be deployed to rebuild continuously operating legacy component, which will be beyond their useful lives. We expect 2022 and 2023 production to be around the 170000 ton per year level.
Finally today I'd like to provide some perspective on what the second half of 2021 were booked like for century at current spot prices.
As both Mike and Pete detailed earlier the conditions in our industry are favorable and century's ability to add capacity, particularly in the U. S is the key is a key differentiator for the company.
Using the revenue and cost items detailed on our last call adjusted only for the reduced interest cost from our refinancing provide.
<unk> provides the group look at the earnings power of our business at current spot price level.
At the spot <unk> of 2000, and $450 per ton and the spot Midwest premium of $570 per ton century will generate about $270 million of second half 2021, EBITDA and about $160 million of second half of 2021 cash flow.
This concludes our prepared remarks. Thank you for your time and attention I'd like to turn the call back over to Bethany to begin the question and answer session.
Thank you, ladies and gentlemen, as a reminder, please press star followed by one on your telephone keypad to ask a question.
The first question comes from David Gagliano from BMO capital markets. David Your line is open.
Okay, you covered a lot of things there that is very helpful. I think but some of them on pretty quickly so I'm going to try on.
Just the hone in a couple of them just I guess.
On the hedges.
There is some disclosure on the 10-K about the hedges and I know it was referenced.
Kind of in passing I would say on the.
On the last call and I was wondering if you could just give us a little more information on when the hedges were put in place how much you have hedged.
As of now on both on LMA in the Midwest premiums the duration of those hedges.
And.
In terms of the cash flow comment for the second half of $160 million.
Is that before or after hedge any of that of free cash flow number before after hedging what is the hedge impact associated with price number.
Okay, David So the business.
Craig I understand the question I'm going to start with the back half first and we'll go to the we'll go back of the beginning okay. So when you look at spot prices today again, just just so we're all on the same page Thats $24 50 of SME, that's $5 70 of the Midwest premium right. So to go back to what we said on the call. That's $2 70 of EBIT for the second half for the <unk>.
<unk> and $1 60 of total cash the answer your free cash flow free cash flow right. The answer your question really directly to have 160 <unk> does include the impact of hedges.
Okay now.
Now when we go back and you think about how to think about how to use that go forward. What we put in the appendix, our sensitivities, which will allow us to do what you've always done in terms of sensitizing the business for the moves in commodities for EBITDA also from cat for cash. So what you would do for the second half of the year of start with.
That contract that you just gave you and you could sensitize that impact for any hedge assumption for any market assumption that you want to make.
Now let me go back to the first part of your question you are correct. It is disclosed in our K and it will be there again in our Q.
Can you talk about what we're doing for the company, we have really between commodity that we're talking about the first is alchemy, while for I guess, if you include FX, which I will in this explanation so you've got <unk>.
<unk> got the less premium you've got Nord pool, and then we've got the euro right. So our <unk> hedges are primarily to support the linking of the Nord pool cost to an LNG linked contracts, we've talked about doing that and we've done that sporadically over the last year or.
So thats one part of the LNG. The second part of the <unk> is when we take a fixed alumina costs and link those synthetically to an LNG price and we would do that type of buying selling aluminum and also selling forward. The LMA was talked about back of the past as well that's the LNG portion on mid <unk>.
West premium the vast majority of that is in support of the Mt. Holly reach the that we've talked about on the last call and.
And then of course more full of the other side of what we talked about <unk> in debt to <unk> predominantly for 2021 for 2022.
David It's Mike I'll, let you, we'll let you redirect, but just let me add one other comment that may be helpful.
On Craig's walk from the.
From the second half EBITDA at spot price of $2 70 down to to your point.
A free cash flow be net of hedges.
Spot prices of course of the.
The Delta there the $2 70 down the 160 <unk> about half of it is the hedge impact and the rest is just normal stuff that comes between EBITDA and free cash flow Capex interest expense.
The amount of taxes, we pay on the U S normal taxes in Iceland that kind of sort of on how the restart by amount of capex.
Capex Mount Holly spending opex of the Gulf of those items statements of round out debt that was good at the consoles to round that out of those at the same items have been talked about.
In the last call at pretty much the same level.
That helped the okay.
Yes. It helps thank you very much of that's helpful. Then just so just to drill the Oliver for the IC the.
10-K. According as of December 31, 2020 out of 194000 tons sold forward of gas at fixed pricing on how on the contract on that 318000 tons on the Midwest premiums.
And those contracts extend on the army through December 2024, and the Midwest premiums I think extend through December 2022. So my question is so obviously to the extend into the out years, how much of hedged for this year versus the out years and are you continuing to hedge on and have those numbers the increased.
Now that the April one of our megawatt hours. So we get any of the disclosure for March of what are the hedge positions as of now and how do they flow through on the next few years.
Brian.
We get to the process of the first part and I'll turn it over maybe the second part on go forward to Mike So.
When you're looking at the difference between the <unk> and the Midwest premium hedges, but let's start with Midwest premiums of $3 18.
Was the correct number that came off that came off the can be a little bigger in the Q youll see it.
But again that Midwest premium the vast majority of that was for the non Holly restart right. When we sold four of that production now let's go back up to the <unk> and I think the crux of your question is one of those numbers more similar the reason for that is when we sold four were the.
The LNG to protect the Mt. Holly investment, we sold that forward on the physical basis, so thats going to transact outside of our hedge book. So thats why it appears there's a little bit of the mismatch. There. So that's the part that we've sold forward physically from Mount Holly is already captured in EBIT, the sensitivities and it's not going to be captured in the.
The hedge book.
I guess, David just maybe insurer part of your question.
On a.
Prospected basis, I think Craig hit it on a perspective basis, I mean, all of that stuff that the.
But he described the hedging to protect the Mt. Holly spend we also did sell on the Midwest last year, just as sort of COVID-19 within the uncertainty.
But prospectively is if we're going to be most likely selling.
Additional LNG, it's going to be for the purposes of Craig described that we've been talking about for some time and if we can when the Nord pool price in relation to the LNG price as such we can book of second quartile of a better power cost when we say power cut the remains.
Power price as a percentage of <unk> on me.
We will do it.
Slowly and gradually but we're going to continue to do that and then the same thing on the outside although as the credit towards the beach, where we're basically set per Ala and <unk>.
In 2000 accounts in 2021.
Okay, I'll turn it over to somebody else. The just if I could just really quickly.
Is there a way just to give a percentage of the framework of how much you plan to hedge relative to your total volumes as you go forward.
Moving.
The tough.
That's a tough question on the Nord pool.
The non accrual amounts don't aggregate to a whole lot youre not selling of a lot of metal to create that position.
But on the Nord pool side as we talked about last time that the 80% hedged for 2020 on.
On the served us really well so that set of numbers.
So there's not much to come the on Ala and <unk> two is kind of tough to answer that at this point in time it depends what the alloy market looks like during the meeting season in the fall on everybody's negotiating alumina contracts.
What kind of percentage of on the contracts are available if any and where the API is in all of that kind of stuff.
Yes.
Thanks.
Just one other one other comments here.
Yes.
And consistent with what I, just said on on Nord pool, and sorry to belabor it David.
And.
And of alumina the real <unk>.
The majority of what's on the books right now that Youre seeing in the Craig talked about relates to Mount Holly.
And frankly, just thinking about it debt kind of might.
It might help you get.
To your question on I don't know if we entered the fully enough.
Around when the hedges were put in because as you guys.
Now we didn't know whether we have any.
A lot of on new contracts or not from Mount Holly until sometime kind of mid ish December so it definitely definitely wouldn't have been before then and when we signed it up and we were in that transition period.
Before we finish.
Finish the documentation for the new contract that I talked about a couple of minutes ago. So that's kind of of your framework from and a lot of that LNG got late at laid in.
He might be gone okay.
You bet.
The next question comes from Lucas pipes of B Riley Securities Lucas Your line is open.
Well, thank you very much and good afternoon everybody.
You can find the loans.
Thank you.
Lots of lots of moving pieces.
Ed.
All of the by the preceding discussion with David.
Outside of.
Take another stab.
Kind of take a little high level view, but at this kind of low.
If you look out the 2022.
That should give us a sense for what the EBITDA and cash flow in the book like with both assumptions of.
I think of the 2000 volume 54, <unk> from 474, the Midwest premium.
Yes.
Yes, so I think the EBITDA would be relatively easy when you get the cash flow, especially when we're talking about the hedge book of its materially different 2022. The 2021, so I wouldn't attempt that but I think eight ish using our items today, if we have 270 of EBITDA and the.
The back half of this year and we're running at very near our capacity, especially with the restart work thats going very well on <unk> and Mount Holly If you could double that that will give you a 12 month running average floor for EBITDA.
On the other thing I would note low.
I agree with Craig's comment.
That would be the starting point of it should only get better.
Obviously subject to other items like the <unk> printing and other small potatoes in the in the Grand scheme of things the other.
The thing is is the the different.
The difference between EBITDA and cash flow were let's just say the plant English the impact of the hedges will be much less because of as Craig said the vast majority of the.
The biggest chunk of LNG and the vast majority of of Midwest as David Gagliano correctly decided to.
We are excited I should say from the.
From the disclosure in the K most of that is in 'twenty, one and started to come off from 22, and so sort of of.
That's the Delta there is been a lot of between EBITDA and cash flow of the Delta produced by the hedges is going to shrink up meaningfully.
That's helpful.
That's what I'm trying to get at the.
Okay.
Your line is to the correct Ed.
Both EBITDA and cash flow of our.
Reflecting the impact of the hedges.
And so.
But what I'm trying to get on it.
In the world with no hedges.
EBITDA and cash flow.
Right right so in.
The answer is the same debt the debt what we just said so so irrespective of what hedges reflect where the bottom line is the answer what we just gave you is the right answer but now of Craig talk about the the fixed price contracts, let's call them and where the some reflect.
Quote unquote in EBITDA right, meaning that goes through cost of sales or sales net sales.
Sales I should say in sum.
Our sales in that.
The gain or loss from foreign countries.
I think you did gave the most of it there, but the Lucas the double down on that range is all of that would go through EBITDA at this point that wouldn't hit that hedge impact line. If you will.
The total cash in my comments from earlier would be the Mt. Holly revenue piece sort of think about what that size as we talked about 140000 tons. This year getting to 170% of 170, and we sold forward. The the majority of that and I think Mike gave you a timeframe for 1000 vs.
Hold that flow right. So.
That will be coming through EBITDA everything else that we've talked about though the Midwest premium the law. The that's the other side of our <unk> link alumina contract element newer pool of Nord pool itself, and then of course of the euro on.
On those more pool of hedges because that's the currency that those contracts the settling all of that will be going through the hedge of debt.
The health.
That helps I appreciate that thank you very much the.
In terms of my second question on debt.
But the team.
Alumina.
Firstly on EMEA.
<unk> will help the falling a little bit of our price is more recently and just wanted to get your perspective on on kind of the medium long term strategy on the aluminum price and we'll see.
To keep the current format they think it.
Any any evolution of the thinking in regards to other input costs. Thank you. Thank you. Thank you Lucas, it's Mike Thats, a great question and the answer is it.
It doesn't sound like of non answer is it really.
Let me give you of certain short term answer first and then sort of of more.
Philosophically the sort of on worth of longer term structural perhaps an answer sort of short term its really going to depend upon market conditions call. It in September October it's the current.
The percentage of lemme contracts don't necessarily price with direct reference to the the.
<unk> current relationship between the API divided by our remaining but they certainly had some reference to it that influences the market.
So we will see the tier vary.
Appropriate the way of saying that weather Ala alumina continues to underperform LNG or whether it's the two sort of revert to more normal towards the more normal relationship.
On the longer term basis, we still believe that the right way to run this company given our balance of opportunities.
The growth opportunities that we have on other risks obviously that are evident in the business that we faced just like every other participant in the business the size of our company and all of the rest of capital structure, we still think that running the company not fully but mostly all else being equal on a percentage of on the basis.
On a percentage on the basis.
Is the.
Is the right way to run this company that it can be heavily influenced by market conditions each year when the big Alec.
Of the majority of the big of alumina contracts are struck in the fall.
Sure.
And.
Very helpful.
The title commentary for the back to my earlier question.
In the fall all of the has continued to outperform alumina.
On the right level of.
The $70 million EBITDA, but thats still be accurate on what we'd be looking at a much higher level.
On the operating aluminum price.
This is getting the DLR.
Yes, Josh that's a great question.
The.
One way to answer it is yes, it would be still applicable.
This is Kevin again sound like the non answer for which I apologize in advance.
Of our aluminum contracts were of a similar nature.
But if we were.
The fixed price, but if we were API price of course, then I think where youre heading is correct there could be upside.
It's all about the balance of risk and opportunity, it's like any hedging decision.
But we will have the flexibility to make the same once again, yes Oems for sure Oh, Yes, I'm, sorry, I missed your question absolutely 100% flexibility.
Very helpful. I appreciate all the color on.
Thank you.
Thank you for the questions Lucas.
The next question comes from John Tumazos from very independent Research John Your line is open.
Thank you Mike.
The Sunshine from debt reduction.
Could you give us an idea of the big picture priorities, there's lots of wonderful alternatives.
Trying to expand in Iceland.
Modernize and expand on your U S smelters raw materials or building of new smelter.
Our adding power, although people seem to be doing the solar for Ya.
Tell us about the England and priority of retailer.
Thank you very much John and the <unk> quickly.
That is the case and we believe from a capital structure and balance of risk we would prefer to let the folks who are expert in designing and building installing and maintaining of running those things too and that's not our expertise.
On building, a new smelter would be where appropriate.
Appropriately where you put it at the at the bottom of the list, we just without sounding overly.
Enthusiastic that we really are when we look at the opportunities we have.
On the markets.
We have hot metal today and have choices as to how into what kind of product we tested.
On the markets we serve.
There are a lot of the really interesting opportunities that day.
The income that come with a fraction of the price tag of the new smelter or even the new pot line.
The buildout of our value added products specifically on.
The use of the Jarden with apology of fully green or with.
Green content I E.
Scrap.
We processed for our customers or for the general market.
And so that's why you're hearing us talk about.
The opportunity that CBRE opportunities at Mount Holly and the very large opportunity at current attorney and we think the markets are customers were convinced.
Tristan and demand for that.
Kind of product is only going to grow.
And so this is the right. This is the right kind of I think to your point.
Maybe we've got the capital structure.
Sort of in the right place for the next 75 to seven years.
And.
And that.
And that sets us up pretty well in terms of the just coming looping back to your new smelter.
Maybe Scott said, it's just a little bit.
I'll stick with my first answer, but we do have as you know.
On some incremental hot metal capacity that we can bring back on the.
Reasonably limited or modest investments.
And right now the.
The easiest one, meaning we don't need it and the additional power contracts.
Is the fifth Potline at a little bit of pure at the purity line of 100% period of demand.
And and then we're hoping.
The bordering on pretty opportunities.
Optimistic pardon me that the.
We can find a way to get to that last one.
100 megawatts of power at non holiday.
To bring the eventually not.
Not terribly distant future net loss at the Port line back on.
So you want to run full in run Green and your current assets.
Hi.
Like it.
For a variety of it down now maybe we'll put that up on the website, but we'll give you the TM.
So Mike if I could ask another thinking back long term.
I think when I was a tale of Jay we worry of co manager on the IPO of 95 or 94.
Gosh its previous three various ancient.
Which will increase the spikes were made in commodity markets or different markets.
My Hero Julian Robertson was short the Internet and 22000 and other one it was killing them in March of one covered is the internet shorts showed has firmed out so that was sort of at the NASDAQ.
Yes.
Thinking of July of <unk> seven.
When aluminum peak of 149.7 on the LMA.
On the same day, the crude oil peaked at 150 and century issued stock around $50 to cover your metal shorts.
Yes, Sir.
No.
That's fair.
Plenty of a little bit of the peak in that of aluminum market to covering the shorts.
I don't care about details.
Of how many contracts you have this week of the 10-K, the could you give us some comfort.
The century isn't kind of make a top of the aluminum market by covering your shorts and youre on.
I can have the issue equity.
Because that's the easing of the chip.
That's the easiest question that you or anyone of the answer but I think we can give you full comfort.
Thank you John.
The the history, but yes.
The straightforward question to which we can give the straightforward answer yes or no.
Yes, we can give you comfort there.
So is it your tactic to non hedge anymore or are you got shoved out a little bit of money of the closeouts from contracts.
Now I would say on the first as we said we.
The amount Hollywood the tactical thing fancy word.
And.
Hedge anymore to create the <unk>.
The first quartile Ala or power European.
European power prices absolute all day long, but that's on the.
So a lot of them on me.
Two of can do that structurally I'm sure on the math.
We closeout hedges that's not any.
That's not something that we spend any time geared up for the best.
And I think you should not sit around waiting for the wait for that eventuality.
The long wait.
If you just delivered.
The win what's your hedge book PRA strength, if you didn't put on new physicians and you just delivered one one and ill go away.
You want on it is Craig go ahead John.
The short answer in 2024, there is a small tail that goes out that far for <unk> very small very small payout the vast majority of it that.
It is just the on Nord pool.
The the north fluid small potatoes, the vast majority of the.
The vast majority of it is gone in the next six quarters, Yes, Thats right.
My concern.
The politicians are over stimulating everywhere.
And.
The biggest fraud in the history of markets or other.
The near zero interest rates.
But they have to keep from down because the that's created the GDP now.
If they pay 5% did all co broke.
And maybe a bigger.
Sorry, I'm, just worried about things being too strong in the near term and someday, it's all kind of follow up.
Who knows when that's going on.
I mean, John you just.
I can personally pick the partnered basis obviously.
From.
Several of them.
The right by being conservative.
The issue, sometimes if you sell short.
Early and you get wiped out before you are right.
Yeah, that's not going to happen in the the beauty of it is that it's not going to happen here because the vast majority of our of.
Our production is exposed to the market prices.
Yes, we've got some downside protection, but the vast majority of that upside we're enjoying now you see it.
Looking at the $2 seven charge of your stock in the Wincing a moment ago.
Thank you for that thank you for that industry, you've got more of a century history. The hydro I've got only back of.
<unk>.
It's great to be your current thank.
Thank you.
Thank you John and thanks as always.
Thank you.
I would like to remind participants the press star one if you would like to ask a question.
We have another question from David Gagliano of BMO capital markets. David. Please go ahead.
Hello again.
Hey, David I remember those times through by the way.
So I do have follow up on the heads again, but for my first question really just from near term establish calibrate a low I just want to clarify one thing.
A lot of puts and takes obviously for the second quarter.
And sort of I think of it.
The $55 to $65 million net increase versus the <unk>, but theyre also from one off in <unk>. So I'm really trying to go out like what's the right starting point from <unk> is it the minus $20 million or are you talking about.
Excluding some of these one time of that happen on <unk>. Yeah. That's very good question, Yeah. That's a great question and in the.
I think about that as you know what we anticipated was going to happen in Q1 up until the last couple of days of Q1 of what actually happened. So there there were a couple of facing on number one that non cash mark to market is going to go away right. So that $5 million in there. Okay. I think that's number one but the other things that happened are going to stay I think we've talked about.
The <unk> power cost is going to stay so you are seeing in the second quarter the absence of the Q1.
The Q1 forward vortex, while the only getting another $5 million that we set our current view on top of that for seasonal power prices and then I think I think the third of the third piece is something that was of trim that really emerged that days of Q1 of the continuing with the coal prices right. So that was a couple of million dollars that we saw.
Very very end of Q1, which has expanded to about $5 million. This time, but David you are right. There were some bad things that happened in Q1 as Craig pointed out polar vortex with cash of course on and the share plan on Mark to market is just just accounting has no cash there up or down and those aren't likely to repeat.
So maybe there's some things going the other way.
Your point is well taken.
Now onto the unfilled.
Im sorry, I don't Im not trying to get plants kind of figure out what the answer is still I don't understand is it every day.
Is it the minus $20 million or I heard of minus five.
I'll start David that day.
The amount of what is the right target towards the.
Q1, total restaurant I apologize.
Now on.
We were entering something different okay, PSE would absolutely start with the negative yes, okay negative of <unk> build out everything that we went through I gave you all the pieces would be of Buckeye from plasma.
Slash increase from that.
Okay got it perfect day, and then just again sorry to come back of the head, but just.
I guess philosophically or whatever I mean.
You're talking about.
Sort of hedging our in the first second quartile on kind of what that could mean for aluminum hedges on.
Frankly, I don't know what it means so can you just tell me what kind of hedge volume youre thinking about on a forward look basis.
When I asked the question earlier, but just like a framework of how much do you think youll be hedging on aluminum rolling forward, if any metal and LMA.
It's on it.
On the.
The Midwest is totally different by business line.
On the Midwest right now I would say, we look at the forward years.
With very limited limited on LMA.
The only time that you so on on.
Alumina.
It's only if you have the fixed price alumina on track.
Can converted the percentage of on me and we have our fixed price of Atlanta or in this company is very small so those of the various module on the tonnes.
Same thing on on Nord pool, I mean, if you were to fix.
I really fixes the wrong, if you were to convert the Nord pool price into a percentage of on the power contract.
First of the second quarter as you say is tuck in small teams of each of those in the tens and tens of thousands on the emphasize one more time the van.
<unk> the majority of the stuff on the books right now was done in contemplation.
Contemplations of done for Mt. Holly.
Okay. Thanks, that's helpful. On the last question from me Capex in total point of 21, an early read on 2022.
At about $75 million in total that income not all.
Of which is of which 50 at Mount Holly right. So I would say you would take that 25 now since we haven't made a decision just to be really clear on how best to make sure of the answer by up the changes in a quarter or two day haven't made a decision on hospital by hospital as Mike said earlier on so let's take that 75 for this year 50 of that is non.
Holly will probably do another 25 of 20 to 25 next year between sustaining and investment returns of about another 25 coming from on high.
Okay perfect. Thank you.
Thanks, David.
We have another question from Lucas pipes of B by the Securities Lucas. Please go ahead.
Thank you and thank you for taking the follow up and safest debt.
Net debt.
First of all of my follow up is about the bridge from Q1 to Q2.
I wondered if we could maybe.
Expand on Walton and guidance.
Q2 Q3.
The way from here is while obviously provided.
Commentary.
The.
Net debt will be helpful to maybe get a level of debt share given given the thickness of pricing.
Yes, I would keep it at the second half level for now well could I understand the question I think moving out to do a little bit more work and feed the market of China. It's been moving really really quickly as you know, but a good a good place to sticking on the ground right is to say if we take the second half outlook I gave Jeff for EBITDA and cash into relatively.
Level loaded between the third at the fourth quarter, there is a little bit more incremental production coming on in the fourth quarter as we finish up not Holly and at Boswell comes fully back online, but I take it divided by two of the good place to start until they get a little more clarity.
Got it got it so we'd have the I think you said $55 million jump in Q2 weighted Q1.
The call it $35 million of cell and then it goes from there too.
180 at the right.
It would be.
Good day.
While.
I am doing the math on the slide here looks but yes, Dolby vision would give would be half of 270 and half of what <unk> by math is correct that would be $1 35 to <unk> 80 for the third quarter, given the assumption all else being constant that we talked about here and effects of the second quarter of the first part of your question Paul to actually do it in reverse on the range is 55 to <unk>.
55 that we see right now so 55 would be the low and again again back to David's question to make sure of all cleared that adding from a negative 20 business adjusted EBIT and other adding from a negative quite a negative <unk> 20 per kilo.
Yes.
Got it got it.
Very helpful. All right I appreciate it and again best of luck.
Thank you Lucas.
We have no further questions in the queue. So I'll hand, it back to you guys to compete.
<unk> expense any and thanks as usual everybody for tuning in great questions. We appreciate the.
The dialogue and we'll look forward to being in touch on a couple of months if not sooner. Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for joining you may now disconnect your lines.
Yes.
Okay.
Sure.
Okay.
Yes.