Q3 2022 Century Aluminum Co Earnings Call
[music].
Good afternoon. Thank you for attending today's century aluminum company third quarter 2022 earnings Conference call. My name is EMEA and I will be your moderator for today all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
I would like to ask a question. Please press star one on your telephone keypad. It is now my pleasure to pass the conference over to your host Theater Troop Koski. Please proceed.
Thank you Tamara.
Good afternoon, everyone and welcome to the conference call.
I'm joined here today by Jesse Gary Centurys, President and Chief Executive Officer, Jerry Violet Executive Vice President and Chief Financial Officer, and Shelly Harrison Senior Vice President Finance and our treasurer.
After our prepared comments, we'll take your questions.
As a reminder, today's presentation is available on our website at www dot century aluminum dot com.
We use 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.
With that I'll hand, the call to Jeff.
Thank you Pete and thanks to everyone for joining.
I will start off today by discussing the current macro environment and our operational performance and then Terry will take you through our Q3 results and Q4 outlook before I wrap up.
Market conditions remained quite complex in Q3 with the war in Ukraine, and Russia curtailment of natural gas, both to Europe , causing significant turmoil across commodity markets.
The resulting high energy prices and lower aluminum prices significantly impacted our results in Q3, driving a third quarter adjusted EBITDA loss of $36 million.
In this challenging environment. Our team continues to take prudent measures to guide century through these short term macro headwinds while remaining focused on the stability of our operations and our long term strategies.
We made substantial progress during the quarter to lower our cost structure reduce our exposure to spot energy prices and increase our sources of liquidity.
I'll provide additional details on each of these measures in a bit.
Despite current headwinds the long term demand fundamentals for aluminum remained excellent.
And we continue to execute on our existing projects to expand our value added product lines with our gruner Tulgey cast House project in U S cast house Debottlenecking programs, all progressing on plan and on budget.
As a reminder, we expect the first phase of our Debottlenecking program to be completed by year end, enabling an additional 10000 metric tons of billet to be sold into the 2023 market.
We will also enter the U S lab market for the first time next year and expect to sell around 10000 metric tons of slab.
This is an excellent area of long term growth for century as U S. Rolling mill demand continues to expand.
Our <unk> project also remains on schedule to be completed by year end 2023.
Turning to slide four you can see that despite near term turbulence global aluminum supply and demand remains roughly balanced.
While high energy costs have reduced European demand. This winter. This has been offset by the significant contraction of Europe's aluminum supply base.
High energy prices have now caused more than 50% of Europe's smelters to curtail with additional closures expected at year end.
In fact as you can see in the chart on the upper right hand quarter of this slide the loss of aluminum production caused by Russia's actions.
Have created the largest deficit for aluminum and the history of the European market.
Ironically this European deficit is now being increasingly filled by Russian produced aluminum, creating a situation where Russia is benefiting from the very problem that it's created.
Increased Russian imports will make it difficult for the European smelter base to ever fully recover.
For this reason we believe it's critical that Europe , the U S and their allies take urgent action, including sanctions to address these unfair Russian actions and protect this critical industry.
While LNG pricing will likely remain volatile in the short term.
Longer term macro trends towards electric vehicles, renewable energy and sustainable packaging continued to support strong value added premiums.
While we have seen some softness in the building and construction markets automotive demand has continued to improve and we anticipate continued strong renewable energy demand, especially as the effects of the recent inflation reduction Act.
Further incentivize renewable energy and electrical vehicle build out in the U S.
All told we expect to sell out our value added product portfolio in 2023, including the increased volumes from our debottlenecking projects with pricing levels roughly unchanged from 2022.
Turning to page five you can see that Russian curtailments natural gas flows to Europe have continued to drive record high energy prices in Germany, France, and other regions with winter forwards over 700 euros per megawatt hour.
Hi, mainland European energy prices have in turn put upward pressure on pricing and Nord pool.
In Q3 normal energy prices averaged about 175 euros per megawatt hour up about 50 euros from Q2.
Unfortunately, most market per das indicators now expect the European energy prices to persist for several years.
While Europe has successfully filled gas storage to near capacity. This year Russian energy flows to Europe have continued to decline and the recent destruction of the Nordstream natural gas pipeline has created a situation that means Europe will likely remain significantly short energy for at least the next couple of years.
Considering the expected continuation of this crisis, we decided to take action in Q3 to eliminate the remaining unhedged vertical market exposure from our Icelandic energy contracts.
If you turn to slide six I'll walk you through the details.
Prior to taking this action about 30% of our Icelandic energy contracts were pegged to the normal price with.
With the remaining energy provided under long term element linked power contracts.
Due to the extreme volatility on the nautical market, we worked with our energy supplier to convert the majority of our remaining unhedged Nord pool exposure to a fixed price more in line with pre COVID-19 normal pricing levels.
Following this amendment to our power contracts, we entered into additional financial hedging transactions to balance the remainder of our Nord pool exposure, including unwinding excess 2023 financial Nord pool hedges at a net gain of approximately $16 million euros.
The benefit from the unwound hedges will settle in cash evenly over 2023.
Finally, as is our normal practice when we enter into fixed price energy contracts. We also sold forward a small amount of bellamy, creating an effective linked.
Linked price for the energy you.
You will see those hedges reflected on our hedging slide in the appendix.
All told we were pleased to be able to eliminate our remaining unhedged exposure to Nord pool and removed this volatility from gruner <unk> bottom line results.
Turning to the U S domestic energy markets remained elevated over the summer, resulting in average Indy hub energy prices of around $90 per megawatt hour in Q3.
As we enter Q4 strong domestic renewable energy and natural gas production paired with recovering coal production, let October Indy hub default and average about $60 per megawatt hour for the month.
We are cautiously hopeful that these trends will continue with four Indy hub prices now averaging around $65 for the remainder of Q4.
As expected tight energy markets also continued to impact the power provider to our Mount Holly facility, where a force majeure event from their largest coal supplier has left the utility to cover shortages and their coal generation with market power purchases.
We are starting to see Mount Holly energy prices decline in Q4 as U S energy market conditions have improved.
Okay.
Moving to our other cost inputs API alumina prices averaged $340 per ton in Q3 and have fallen to a spot price of $310 per ton today.
On the other hand carbon prices remain at historical highs as we entered Q4.
We did see the first signs of declining crude prices in Q3, the commodity remains stubbornly high and pitch prices have yet to abate.
Stepping back when you combine the effects of the global energy crisis, with historically high carbon prices and other inflationary pressures, we estimate that about half of global aluminum production, it's loss, making at current market pricing.
Judging from past cycles loss, making this deep into the cost curve has typically not been sustainable for an extended length of time.
Over the long run LNG prices have instant averaged around the 98 percentile of the global cost curve.
Which would require a significant improvement in current conditions either on the cost side, our price side in order to reach a stable equilibrium.
Turning to operations all of our sites are operating well and at full production.
I'd like to commend the teams at each site for achieving this result, while also executing on the capital and cost reduction programs, we discussed on our last call.
As a reminder, in response to market conditions, our teams have implemented programs to reduce planned capex and opex in 2022 by over $40 million, including head count reductions and other efficiencies.
We remain on track to achieve these savings which are reflected in our outlook on page 10 in the appendix.
Most importantly, we have remained focused on improving our health and safety and our ultimate goal to achieve an injury free workplace.
These efforts span a wide range of programs from leadership to behaviors to technology.
And I am pleased to say that we are seeing the benefits from these efforts with workplace injuries across century, decreasing by nearly 15% year to date.
As we remain focused on consistent and cost discipline operations. We finished the quarter with liquidity of $215 million and remain well situated to continue to operate our facilities at full production to this portion of the aluminum cycle.
In order to further solidify our position we have also added a new $90 million credit facility secured by <unk> assets.
This new facility will be incremental to our existing U S and Icelandic credit facilities and additive to our quarter end liquidity position.
Combined with our cost cutting measures and already strong liquidity. This new facility should leave us well placed to continue to execute on our long term strategies.
And with that I'll turn it over to Jerry to walk you through the financials.
Thanks Jesse.
Let's turn to slide seven and I'll walk you through the results for the quarter.
On a consolidated basis Q3 shipments were down about 19% sequentially, primarily driven by the curtailment of our hospital facility.
Realized prices were down 14% compared to prior quarter as a result of lower lagged <unk> prices and lower regional premiums to.
The combination of lower shipments and lower realized selling prices drove a 26% decrease in sequential net sales.
Looking at operating results adjusted EBITDA was $36 million loss for the quarter. Adjusting items include the removal of $5 million for hospital curtailment costs, and the removal of $6 million for lower cost.
<unk> impact on inventory.
Moving on to liquidity as of September 30, we have liquidity from available cash and credit facilities of just over $250 million we.
We took actions to strengthen liquidity during the quarter, including initiating a new $14 million Euro term facility secured by the Nord pool in the money hedge unwind.
This facility remains undrawn as of quarter end and is included in our total liquidity of $215 million.
Additionally in November we agreed to a new $90 million credit facility secured by our <unk> engine assets <unk>.
This credit facility will be available beginning in December 2022, and will further increase liquidity by $90 million beyond the $215 million, we had at end of quarter.
Turning to slide eight to discuss adjusted EBITDA again for the third quarter adjusted EBITDA was $36 million loss, a decrease of $123 million from the prior quarter.
This change was driven by lower <unk> and regional premiums as well as higher energy and other raw material costs, which were partially offset by the curtailment of our hartsville facility.
The quarter three realized <unk> of $2636 per ton was down $425 versus the prior quarter.
While realized Midwest premium up $643 per ton was down $201.
Lagged European delivery premiums were up $117 at $578 per ton.
Indy hub power prices in Q3 averaged $90 per megawatt hour, which is up 15% versus Q2, while Nord pool prices averaged a $177 per megawatt hour up more than 37% versus prior quarter.
As Jesse noted Indy hub energy prices have decreased significantly since the end of Q3, averaging around $55 per megawatt hour.
Quarter four to date.
Excuse me the realized price of alumina was up $57 per ton versus prior quarter.
While we saw signs of spot prices softening, our realized coke and pitch prices increased about 10% and 19% respectively.
Finally as discussed during our last call, we realized a combined $20 million incremental benefit from curtailing, our hartsville facility and our global cost reduction initiatives, along with more normalized maintenance and part remaining spend levels.
Okay, Let's turn to slide nine we'll take a quick look at cash flow.
Our cash position increased going from $30 million at June 30 to.
To $65 million at September 30, as we offset the negative impact from adjusted EBITDA and the use of cash for capital expenditures with borrowing on our revolving credit facilities working capital improvements and gains in hedge settlements.
Total capital expenditures were $18 million in quarter, three with about $12 million related to the growing better cast house and $6 million and other capital expenditures.
Cash gains for hedge settlements were $5 million for the quarter, primarily due to our in the money Nord pool hedges.
Now, let's turn to slide 10 for some insight into our expectations for the fourth quarter.
For Q4, the lagged <unk> is expected to be down to a realized price of $2275 per ton.
Q4, lagged Midwest premium is forecast to be $475 per ton and the lagged European delivery premium is expected to be $485 per ton.
Realized alumina is expected to be $400 per ton, which as discussed in the past reflects a three to four month lag in alumina prices running through our income statement.
Taken together the moves in lemme delivery premium and aluminum pricing are expected to decrease quarter four EBITDA by about $60 million compared to Q3 levels.
From a power perspective, we are assuming a base price of approximately $60 million $60 per megawatt hour for Indiana hub and approximately $105 per megawatt hour for Nord pool, which are in line with our current spot market forward prices.
The net impact of energy costs would equate to an improvement of about $50 million in EBITDA, which reflects the changes to our power contract with Jesse described earlier.
And so a reminder, hedges are reported below EBITDA. So you will continue to see the market price impact running through EBITDA, but the net hedged impact reflected in the bottom line.
Realized coke and pitch prices are expected to be down slightly in Q4 expected to yield a $5 million EBITDA improvement versus the third quarter.
Finally, we expect to see a net EBITDA benefit in the quarter of $5 million to $15 million related to volume and anticipated savings from our global cost reduction initiatives.
In total we expect these items taken together will equate to slightly improved EBITDA compared with Q3 levels for Q4 result in the range of negative 25 to negative $35 million.
From a hedge standpoint, using the assumptions on the slide we expect a realized gain of approximately $5 million in the fourth quarter, and we expect tax expense of approximately $5 million.
Again recall the impact of both of these will be below EBITDA geographically and will be reflected in adjusted net income.
With that I'll turn the call back over to Jesse.
Thanks, Jerry in closing, while the market environment has become more challenging in the short term we continue to make progress on both our short and long term initiatives.
During the quarter century lowered our cost structure through our opex and Capex reduction programs.
And de risked our energy supply by converting our remaining Nord pool exposure to a fixed price.
These actions helped us finish the quarter with strong liquidity, which we have further enhanced through our new $90 million credit facility.
Our operations remain at full production and our longer term projects to expand our value added product lines remain on budget and on schedule.
Ultimately, we remain confident that <unk> is well positioned to benefit from the long term macro trends that make aluminum vital to the world's future.
We look forward to taking your questions.
Okay.
We will now begin the question and answer session. If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason at all you would like to move that a question. Please press star followed by two again to ask a question press Star one.
As a reminder, if youre using a speakerphone please pick up your handset before asking a question.
Question comes from David Gagliano with BMO capital you May proceed.
Hi, Thanks for taking my questions.
Im sorry, Im trying to make sure I have the changes in the hedges.
<unk>.
Straight.
Im looking at the last quarter slide deck versus this quarter slide deck Stonewall side by side. So you've flagged one on the revenue side, you lock you hedge and incremental.
20000 tons at an average price of like 96 cents a pound.
The revenue.
<unk>.
So I just want to confirm that that's correct. That's my first question and then and then related to that is on a go forward basis are you going to continue to hedge <unk> prices.
Our <unk> volumes I should say.
Hey, David Thanks.
Yes, just turning if you look at slide 17, you can see the totality of our fiscal 'twenty, three and fiscal 'twenty four hedge books.
So you're right on the incremental volume and I don't have a calculator in front of me to do the.
Cents per pound, but you should be able to back into what you what you're looking for there.
Going forward as we've said, we intend to remain an offer our shareholders exposure to the aluminum price.
The one exception for that is when we are entering into large fixed price.
Commodity contracts cost inputs here talking about the change from the Nord pool.
Energy price to a fixed price and so <unk>.
<unk> that we sold forward was just to match that energy.
Energy price.
And to convert that to the familiar sort of <unk> linked power power price that youre used to seeing from us in Iceland.
Okay and Thats, okay. Thanks for clarifying that and then that's my other part.
Part of the question.
On the on the hedges for the for the North <unk>.
Last quarter for 2023.
There was roughly $1 1 million megawatt hours I guess as I've said on a $1 1 million megawatt hours of our heads that 30 euros.
On average.
And now its 990000 hedged at 30 euros, so I'm assuming that that decline.
Yes.
We went into.
Locking in now the fixed price component.
So my question. There is first of all can you confirm that that's correct.
And then the second part of that but I think the more relevant question is what did you lock in what's the price the average megawatt hour price now thats locked in for Nord pool.
Yeah. Thanks, David So maybe if you just turn to slide six that's a good slide for understanding exactly what we did on the Icelandic power contract.
So.
You are correct that the.
<unk>.
Maybe toggle between sits in slide six and slide 17, the amount of Nord pool hedges that we unwound and again as you referenced my comments, we unwound those for a gain of about 16 million euros, which will settle equally spread over 2023.
That matches.
The volume that we fixed.
Our energy supplier. So we converted contractually a portion of the northern full exposure with our energy supplier to a fixed price.
Which put us in an overhead position in fiscal year, 'twenty, three and so rather than sit over hedge we unwound those hedges for again does that makes sense.
Not really but I don't really profess to understand this head start anyway. So I'm, just I'm really trying to figure out the math for you.
What's the fix what's the average price.
The cost per megawatt hour.
Locked in for the Nord pool now for 2023.
You had you had 105 you had one point.
1 million megawatt hours locked in it.
30 euros per megawatt hour now at 990000 locked in at <unk> 30.
So I'm just trying to figure out what's the fixed price that you've locked in.
What is that price.
Cost per megawatt hour.
Yes, let me try on the volume compared to <unk>, one more time.
Yes, yes.
One more time.
No no.
So I followed you and let me try one more time on the volume and then we'll get around to the price at the end of that works. So if you go back to last quarter and you looked at our financial hedge book the equivalent of the Slide 17, you would've seen that we are about 80% hedged on our 2023 Nord pool exposure.
<unk>.
While we did this quarter was we worked with our energy supplier to convert a portion of the.
Our contract with them from a Nord pool exposure to a fixed price.
When you take those megawatts and you take the megawatt hours youre seeing on that hedge slide from last quarter that would have been more megawatts and will actually consume so that put us in a bit of an overhead to position.
And rather than sit with in overheads position, we unwound a portion of those for that $16 million Euro again, so thats what happened on the on the volume side same amount of megawatts, we are going to consume but because we fixed a portion of.
The megawatts contractually with our energy supplier, we needed less financial hedges and so we unwound a portion of that.
To your question on price so there'll be two.
Two sort of portions of this you need to think about going forward.
One portion that we'll run through EBITDA, which is just the raw Nord pool exposure that you see that will continue to fluctuate based on Nord pool prices.
Of that part of that will be totally exposed to Nord pool, and if you look at slide six thats about 20% of our energy that will consume it at <unk>.
In fiscal year 'twenty three.
And about 10% will be fixed.
Now because of our.
Confidentiality provisions in our energy contract, we can't disclose what that price is fixed.
But if you go back and you look at my prepared remarks, I think a good way to think about where we may have been able to fix that is to go back and look at where Nord pool prices were pre COVID-19 and so as we sought to eliminate the volatility that's been caused by Covid and the event subsequent to Covid and Nord pool, you might use that.
A good way to approximate where we would've been able to reach agreement with our power supplier.
So then if you use that for the fixed portion and then if you continue to use the fixed price of.
The hedge book.
For the rest of the exposure that will give you a good sense of where you need to be on the energy side.
Okay. Thanks, very much ill, let somebody else ask the question.
Okay.
Thank you. The next question comes from Timna Tanners with Wolfe Research. Your line is open.
Hey, good afternoon. Thanks for all the detail I'm not going to profess to have that all figured out either so maybe offline we can drill down a little further but it's good to see that exposure.
After.
Awesome.
If I understand correctly.
Just wanted to take a step back and.
Ask a little bit more about what further levers you can Paul I certainly appreciate that this all seems quite unsustainable, but in your Q you point out that you have cash and cash equivalents for the next 12 months if conditions continue and I'm just wondering.
If they do it at this terrible environment continues what other levers can you Paul how are you thinking about manta.
Managing the business.
Yes, it's a great question Timna, yes, so as we sit here today, but.
Between the $215 million of liquidity at.
At quarter end.
<unk>, the new <unk> credit facility that we've put in place.
We feel quite comfortable with our liquidity levels as we look forward at the current environment, even if that environment were to continue.
That said I think <unk> seen some century in the past and certainly.
From this cycle.
There are a number level number of levers in the business of this size and capital intensive other sides that we can pull those lower.
<unk> costs.
Whether that's on the Capex side or the Opex side <unk>.
<unk> generate cash.
And we continue to have a number of those going forward.
Both cost savings, but also cash generation opportunities.
We can exercise not going to go into those at this point somewhat hypothetical.
Feel really good about the liquidity that we have today.
Being sufficient for as long as as long as the cycle continues.
Okay Fair and then if I look at slide 10.
Kind of trying to get a sense of it. If this is the bottom in terms of market conditions, and we have yet to see the full flow through of lower regional premiums it looks like for the fourth quarter and perhaps a little better alumina outlook start your consumption of it but anything you can share with us in terms of what youre seeing in coke and pitch them sorry.
Little more opaque for us and how to think about if this is the bottom and what the Delta is going forward given those lagging factors.
Sure.
Sure, Yes, I think on Coke and pitch.
Those are our much smaller markets and we see generally we.
<unk> started to see what we believe to be at the top and the Coke cycle, we saw a little bit of a decrease over the past quarter.
We expect that to continue.
And pension is a little bit maybe a little bit more sticky and there's a number of drivers and reasons behind that.
So probably less near term relief on that side.
And again, but kind of going back to my comments.
When do you start to add it all up in Coke pitch alumina.
And given the global nature of this.
The energy crisis that we're seeing.
One difference from this cycle versus previous cycles is the same cost drivers seem to be driving a lot of the world's supply.
So when you take that back to the cost curve and you look at how deep.
Into the cost curve the loss, making it's occurring.
It gives you some sense of an equilibrium that is probably not going to be stable for the long term.
And that change can come in one or two ways. It can come on the cost side again aluminum coke pitch.
Energy eventually we are seeing in the U S at least.
Energy prices come off quite a bit over the past few months.
But it can also come on the price side right and we know.
We've seen the curtailments in Europe .
We started to see some curtailments.
Certain provinces in China.
Whether it is a short medium or long term.
And so you're starting to see some relax some reaction on the price on the excuse me the supply side.
So one way or the other the market will balance and we don't see this continuing for the long term.
And feel pretty good about where we stand.
Yes.
Okay, and if I could slip in one more just wondering back to hospital.
Given that power costs have been a little less bad than it appeared at the time of that closure any updated thinking on how long that could be out are or how to think about that operation going forward.
No. So the curtailment and hustle went very orderly and the asset remains in good shape.
And so from here on out we will continue to look at it.
I think given where we are in the cycle today, I think you'll see us be quite disciplined and make sure that.
We have a good sense of where the market is going.
Before we start to undertake the cost for starting that facility.
But the asset is ready the options available for us and it's just a matter of watching.
The overall commodity cycle and both on the price and cost side.
You're out when it makes sense to restart that facility.
Okay understood thanks very much.
Thanks.
Thank you. Our next question comes from John Tumazos with today.
Timber research. Please proceed.
Yeah.
Thank you congratulations on three straight quarters, where the profit.
Thank you John I believe in miracles.
Is it reasonable for us.
Your shareholders to us.
The policy of the company.
Just to have long term.
Alright, Christy supply contracts for its smell owners.
Preferably renewable.
Hello, Paul.
Moving away from the past strategy of buying.
Spot power for Kentucky.
Because of the energy markets have changed and are tighter and it's harder to buy the spot power.
Yes, I think theres, a lot of things going on the energy side.
Maybe it's harder to buy the spot power, but we certainly have seen increased volatility in the spot power.
Over the past 18 months really since Covid.
Both up and down.
And I think you've hit on a couple of things that are that are for sure in our long term plans and one is to find a way to take some of that volatility.
Out of our primary cost input, which of course is energy and.
And you've seen that due to us you've seen us do a little bit of that this past quarter and Iceland.
But also more broadly is to move to increasing renewable energy mix.
And again, you've seen us do that both in Iceland and in the U S.
Over the past couple of years, So I would look for both those trends to continue over the <unk>.
Short medium and certainly long term.
Jesse if I could ask another question.
You might not be able to answer that.
Like to ask a question just.
The big shareholder Glencore.
Maybe some other advisors or Terry just because thats a question was asked.
Is it reasonable to assume.
42, 9% shareholder with land its balance sheet.
To support or guarantee a 20 plus year renewable power contract and a bridge.
Our contract for the one or two.
Or so years it takes to build wind farms solar farms.
Fair consideration for such a financial guarantee.
Glenn <unk> behalf might be first preserving the value of their 42, 9% equity stake.
And then continuing their aluminum metal sales contracts for a fee.
Continuing the alumina purchase contracts for a fee.
And continuing the hedged futures trading representation, which.
I would see if you had.
Less aluminum output.
<unk>.
Doing happen to rip up contracts so it can reorganization.
Big brother.
No.
Well of course any contracts with Glencore, we will continue to be done on market term market, an arm's length terms.
Maybe just start there, but more broadly to your point of getting done long term renewable energy contracts.
To your point, maybe about credit support for doing those there are a number of ways.
We've identified to get those done I don't think those will be limiting item to our ability to enter into long term renewable energy contracts, whether in Europe or the United States.
And in fact, I think some of the recent legislation we've seen on.
On the U S side and the inflation reduction Act has a lot of really great provisions that will help.
<unk> build out more renewable energy in the United States for facilities like our smelters in Kentucky, and South Carolina.
But also helps support other programs within the smelters, including increasing energy efficiency.
Other capital projects that will help the U S military base have a longer life. So I think theres a lot of really good opportunities there.
Both to Green, our energy supply, but also.
Extend the term and reduce the volatility of our energy suppliers I think you're hinting at.
So you are saying that the exploration reduction act so generous.
You might be able to get long term renewable power without.
Our credit support from the shareholder.
Well I think there's just a number of ways to get the types of energy contracts done that youre talking about.
And it's certainly something that we're working on on a lot of different pathways.
Okay.
Thank you. Our next question comes from Lucas pipes with B Riley Securities You May proceed.
Thank you very much operator, and good afternoon, everyone I wanted to circle back on the Icelandic power arrangement and I'm curious.
If we just look at the contract side I know you can tell us for you hedged.
<unk> locked in the fixed price component, but if we look at the Formula Lemme link North pool.
And fix.
At today's <unk> prices at today's north pulp prices, what would be roughly to weighted average cost of your power in Iceland. Thank you very much for your perspective.
Yes, Thanks, Lucas it's a good question and of course, we don't breakdown the individual cost structures of any of our assets, but just to give you a sense I mean, you've seen how maybe just makes good sense to start back on slide six and let's just look at the breakdown of that energy pricing going forward.
The element linked portion has not changed and so thats the same 70% that you've seen for <unk>.
Over the past several years and you should have a good sense of how that performs through various cycles no changes there.
On the <unk> side of course, you can continue the model that you can see at the north pole market prices run through that will be 20% of our exposure and of that 20% of the exposure substantially all of that is hedged at 30 euros.
So youll see it continue to run through on the EBITDA side, but on the cash side Thats all hedged at about 30 euros and then the remaining 10% is that 10% that we fixed contractually with our energy supplier.
And Thats, obviously subject to confidentiality, but a small piece of the overall puzzle there and I think you guys will have a good sense of where that may be or be able to approximate that.
That's that's helpful. Thank you and then as a follow up question B <unk> linked component.
Intuitively makes sense you pay more for power when <unk> prices go up but now we've had an environment, where <unk> has gone up and so I have a.
Number of your input factors not just energy.
Does it makes sense to rethink that.
That that comp.
Construct and linked to <unk> pricing, given what happened to the global cost curve. Thank you very much for your color on that.
Yes, it's a.
Good question Lucas.
It's a structure that.
It's worked very well for us over a long periods of time.
Through many different cycles.
Obviously.
It creates a smelter like <unk>, which has made money through the depths of the financial crisis to the more recent.
Higher LNG prices and back down to where we are today. So it's a nice way to me.
The impact of <unk>.
Cost can can vary quite significantly so I think from our perspective of course will always be looking at what makes the most sense long term on the energy side, given the large proportion of our cost base of energy will always be.
But it's not something that we're willing to discard easily given how successful it's been over decades now at <unk>.
Of course for century as a whole.
<unk> per <unk>, which has that large <unk> linked price exposure with the U S smelters, which have either market based power prices and or some fixed price power.
For instance at Mount Holly.
You get a nice mix of all three different types of pricing mechanisms across country as a whole, which serves you well both in higher alami environments, but also lower LNG, a buyer environments and conservative balance each other a little bit. So we overall, we like that sort of mix of energy pricing.
I think we're well situated to sort of make it through various different pricing environments.
And.
When would be up for.
Renegotiation.
Remind me I would I would appreciate that as it may be possible to set the base hire for example oncology pricing.
Yes.
I always said automatic yes.
Yes, so there is.
The governor talking power contracts run through 2026.
To 2036, so there is a variety of contracts there that are spread over that time period.
<unk>.
And we will come up for renewal during that period.
Yes.
Thank you very much for that color and then switching topics to the alumina side could you remind us what percent of what percent of the alumina pricing fixture.
Fixture in the coming year would very much appreciate your color on that thank you.
Yes.
A mix of aluminum pricing and.
2023.
The mix is portion which is <unk>.
Linked portion, which has continued to linked to API and a portion that is fixed so we're about 60% <unk> linked for 2023, 25%.
API and about 15% fixed.
Okay.
And the <unk>.
Linked portion at what percent of <unk> would that be on average.
Yes, we don't break we don't break that out specifically as you might imagine that's pretty commercially sensitive information.
But that's and just to clarify that is our mix for 2022.
Sorry for 2023.
It's something approximating that a similar mix to that in 2023, but we don't disclose the specific percentage.
Given the commercial nature.
Alright, I appreciate it and best of luck.
And Lucas maybe just what we've what we have said before is that percentage tends to be between 15 and 17%.
The aluminum price with some periods outside of that range, depending on the general relationship between API and element whenever those contracts or stroke.
<unk>.
Thank you. It appears we have a follow up from David Gagliano with BMO capital.
Please proceed.
Hi, you've addressed a lot of the questions already I just wanted to come back to try and ask the same question again in a different way.
So for example, if you look at slide 10, the Q4 outlook slide.
Power prices Nord pool assumption of $105 per megawatt hour.
And the Indy hub power price $60 per megawatt hour and Thats, a $50 $50 million tailwind.
So when we go to Q1 2023, we see the same slide.
And we assume the same prices north of 105 Indy hub <unk>.
What will be the change in the power.
Quarter over quarter.
And now that the hedges flow through and everything like that in Q1 'twenty three.
The power pricing should be pretty much unchanged under that scenario, David other than obviously, there's <unk> dependency for 70% of the <unk>.
Power pricing.
Okay. Okay.
Great. That's helpful. Thanks very much.
Thank you there are no further questions at this time I will now pass it back to the management team for any closing remarks.
Thank you everybody for joining the call today, we look forward to speaking with you again in the new year.
This concludes the century aluminum company third quarter 2022 earnings conference call. Thank you for your participation you may now disconnect your line.