Q3 2024 Century Aluminum Co Earnings Call
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Sierra: Hello everyone. Thank you for attending today's Century Alumni Company, 3rd Quarter 2021, for our new conference call. My name is Sierra and I'll be your moderator for today.
All lines will be muted during the presentation portion of the call, but for opportunity for questions and answers at the end. If you like that for question, press star one on your telephone keypad.
I would like to pass a conference over to Ryan Crawford.
Ryan Crawford: Thank you, operator. Good afternoon everyone and welcome to the conference call.
I'm joined here today by Jesse Gary, Centres President and Chief Executive Officer. Jerry Bialek, Executive Vice President and Chief Financial Officer, and Peter Chupkovsky, Senior Vice President at Finance and Treasurer.
After our prepared comments, we'll take your questions.
As a reminder, today's presentation is available on our website at www.sensoryilluminum.com
We use our website as a means of disclosing material information about the company and for complying with regulation FD.
Welcome to the next episode of the Coshner Statements. We're going to start with the next episode. Turning to slide-in, please take a moment to review the Coshner Statements shown here with respect to forward-looking statements. And non-gap financial measures contained in today's discussion.
Speaker Change: and with that, I'm Amber Call of the Jesse.
Speaker Change: Thanks Ryan and thanks to everyone for joining.
Speaker Change: Before we get started today, we are very sad to report a safety incident that resulted in the fatality at our mouth-hallies tumulture.
Speaker Change: The loss of a team member is devastating to all of us at Century and it is especially painful given our collective commitment and focus on safety.
Speaker Change: and our thoughts and prayers.
Speaker Change: This event reinforces the need for us to critically examine how we operate in conduct ourselves and commit to making needed improvements without condition.
Speaker Change: A will require dedication and leadership from every part of our organization and a personal commitment from each and every one of us.
Speaker Change: and the other one.
Speaker Change: OK, I'll start to call today by reviewing the strong current aluminum and aluminum market conditions before turning to our excellent third quarter performance.
Speaker Change: I'll also discuss the additional benefits we will receive under the new Section 45X guidance before Jerry takes you through the detailed financial results.
Speaker Change: Alden Raffa, and open the call of her questions.
Speaker Change: Central Referee is excellent results in the third quarter, generating a just to be the adopt of $104 million, which includes the impact of the updated 45X guidance.
Speaker Change: Overall, improving realized aluminum prices, both at the Allen, the and regional premium level, and following carbon prices, drove increased profitability in the quarter, and will continue to benefit our fourth quarter performance.
Speaker Change: As a reminder, LME prices are all through our results on a three-month lag debate. So the benefit from recent spot prices, about $2,600 per ton, will not positively impact our financial results until the Q1 of the next year.
Speaker Change: Turning to slide four, global aluminum prices were largely range boundary in the third quarter, for Western Central Bank Actions and Chinese stimulus drove both the LME and regional premiums higher.
Speaker Change: In Lates of Timber, China announced a number of monetary and fiscal stimulus programs that drove an immediate improvement in global aluminum prices, which rose to average $2,600 per ton in October.
Speaker Change: Learning the page 5, Global Women and Demand has already been a record level in 2024, driven by strong global trends towards electrification and light waiting.
Speaker Change: Overall, we estimated that 2024 global demand growth of 3% will accelerate further in 2025, as Western markets begin to improve on the back of central bank action, and Chinese demand growth continues to accelerate as stimulus programs and funds are dispersed.
Speaker Change: New Wilder, the Luminance Supply Remains Challenge with China approaching its 45-nillion-time production cap and limited announced new projects outside of China.
Speaker Change: We believe demand growth will continue to outpace supply in 2025 and for years to come. Moving the market is back into deficit.
Speaker Change: With inventory is already near multi-year lows, these supply deficits should continue to create a favorable aluminum price environment in the coming years.
Speaker Change: Turning to the box site in aluminum markets, the spot Atlantic aluminum price today stands $715 per ton, and all-time record.
Speaker Change: Aluminum prices continue their upward marching Q3 and Indic Q4. As a number of market disruptions paired with Lowa Aluminum inventory levels globally have created a very tight market.
Speaker Change: Good.
Speaker Change: We're going to number supply disruptions this year in Australia from the Quinnano refinery, pertainment, to force major events and regulatory issues in box-side permitting at a number of other Australian refineries.
Speaker Change: We've also seen the refinery disruptions in India, driven by both regulatory and operational challenges.
Speaker Change: On the box side side, China has become increasingly reliant on the seaborn box side market, given a 16% decrease in your today Chinese box side production, following continued declines in domestic or quality and increased safety and environmental inspections from regulators.
Speaker Change: Both the box site and aluminum markets have recently been impacted further by supply disruptions that of Guinea.
Speaker Change: We're one of the largest exporters announced a halt to box-eyed shipments earlier this month, following export permitting issues.
Speaker Change: To our knowledge, this issue remains unresolved, and highlights how sensitive the box site in aluminum markets remained a geopolitics.
Speaker Change: with Guinea alone accounting for roughly 30% of global box-eye production can around 70% of Chinese imports.
Speaker Change: Remember, century no longer has exposure to spot aluminum prices, fallen to acquisition of our controlling interest in Jamalco. With all of our smellsters, aluminum requirements source directly from Jamalco or under long-term LME linked supply contracts.
Speaker Change: Needless to say, we're very happy to have Jamal Go and our asset portfolio in markets like this.
Speaker Change: Turning the page 6, you can see that in the U.S. and Jamaica, our major raw material price inputs continue to be constructive.
Speaker Change: Natural gas storage levels remain well situated heading into the winter season, with inventories significantly above last year and near five year highs. Leaving the forward curve well below $3 throughout the coming winter months.
Speaker Change: Gas prices at these levels should be supported for continued low-end-behab energy prices well into next year.
Speaker Change: Turning the operations with a strong performant to cross their smelters in the third quarter.
Speaker Change: Operations at C-Bree and Malhale remains stable in Q3, which is a testament to our operating teams during these very hot into several months.
Speaker Change: with respect to our Hawthorne Fills facility. We have received a number of significant third-party inquiries regarding potential redevelopment of the site.
Speaker Change: The site is several unique attributes including its energy infrastructure that make it attractive for potential acquirers including among others its potential for AI data center development.
Speaker Change: What we still believe is that scientists are significant value in options for restarting higher aluminum pricing environments. We've engaged financial advisors and launch reformal process to evaluate strategic alternatives and potential value to help us in our overall evaluation of the site.
Speaker Change: We will keep you updated and I'm progress here.
Speaker Change: In Iceland, low rainfall and snowmills over the summer months, have left reservoirs below normal levels and lead power suppliers to announce chritailments, including Grinder Tongi through May of 2025.
Speaker Change: The currently expected years for Talman Ford, do our power consumption by about 30 megawatts and Q4.
Speaker Change: Bialek, Grindr Tongue, should be flat in the Q4 versus Q3 as these contaminants were implemented in the third quarter.
Speaker Change: The financial impact of the Great Gelment is included in our outlook on page 11 and are updated full year-bowing guidance within the appendix of this presentation.
Speaker Change: at Jamalco, the refinery is fully recovered from the impact of Hurricane Baryl and early July. The team did an excellent job, quickly restoring the plant and normal production levels and completing required repairs on the port facilities, which returned an almost service in mid-September.
Speaker Change: I'd like to congratulate the Jamal Patene for the exceptional management through the hurricane and its aftermath.
Speaker Change: Completing the portal fairly quickly, safely, and without injury is really quite in the treatment.
Speaker Change: Kering the page 7, late last month, the Department of Treasury published final regulations in reminding Section 45X of the inflation reduction act, which provided additional clarity on the eligibility of certain of our class for the 10% production tax credit.
Speaker Change: and the other one.
Speaker Change: We are released at the final rules at a direct and indirect materials as eligible costs for the production tax credit. As we and others have to request to in our comments.
Speaker Change: For aluminum production, the most significant costs that are now eligible are Coke, Kitch, and other operating supplies.
Speaker Change: From these newly eligible categories, we realize an additional benefit of $22 million in 2023 and $13 million year to date in 2024.
Speaker Change: will walk you through the details in a moment.
Speaker Change: The final regulations let to open the question as to whether a loom and app will be an eligible production cost. We're observing this question for further consideration with updated guidance to be published at a later time.
Speaker Change: We will continue to work with the Treasury Department regarding inclusion of Aluminat as an eligible cost for 45x. At their strong justification that Aluminat should ultimately be eligible for the tax credit.
Speaker Change: If a woman has included that an increase or 45x credit by about $30 million annually.
Speaker Change: will now walk you through the details on 45X, the quarter and our Q4 outlook.
Speaker Change: Let's turn to slide a toward view third quarter results.
Speaker Change: On a consolidated basis, third quarter global shipments were approximately 169,000 tons, slightly higher than last quarter. Net sales for the quarter were $539 million, a decrease of $22 million sequentially.
Speaker Change: This was driven by Lower Third Party Alluminous Sales due to the port repairs at Jamaica. Partially offset by fire-realized metal prices in regional delivery premiums.
Speaker Change: Looking at a few three operating results, and Justin E. Bikdah, attributable to century was 104 million dollars.
Speaker Change: The $70 million sequential increase in adjusted EBITDA, was driven by additional 45X tax credits, higher-realized prices, and lower raw material costs.
Speaker Change: and Justin Met in come with $60 million or 63 cents per share.
Speaker Change: The main adjusting items were addbacks of $7 million for Hurricane Beryl related costs at Jamalco that we told you about last call. $3 million for sheer-based compensation and $2 million for the unrealized impact of forward derivative contracts.
Speaker Change: McQuadedy was $279 million to end the third quarter.
Speaker Change: This consisted of $43 million in cash and $246 million available on our credit facilities.
Speaker Change: Our liquidity position remains within our target range, the D3-Slas Quarter primarily due to inventory billed at Jamalco and the timing of aluminum and asshutments while port repairs were being completed.
Speaker Change: We expect those to reverse in Q4 as a full quarter of normal shipments out of the Jemalco port, lower-returned-inventories to target levels, increasing liquidity.
Speaker Change: Train the flight 9 to explain third quarter sea clench-one proven in a Jeffity bit that.
Speaker Change: In total, adjusted EBITDAF at the third quarter was $104 million.
Speaker Change: Realized LMD of $2451 per ton was up $163 versus prior quarter.
Speaker Change: Well, realize US Midwest Premium of $421 per ton was up $5. And European delivery premium of $335 per ton was up $52.
Speaker Change: Together, higher metal prices and regional premiums contributed an incremental $31 million compared with the prior quarter.
Speaker Change: We also realized favorable raw material cost, adding $7 million will be a bit down.
Speaker Change: The favorable market prices and raw material costs will partially offset with slightly higher power prices ahead of one of three million dollars.
Speaker Change: The new 45-exerules from the Treasury Department addressing carbon and other operating supplies, result in an additional $22 million credit for the full year 2023, and an additional $13 million credit for the 2020-4 year today.
Speaker Change: The East Tax Credit amounts are added to the 45X tax credit that has already been recorded each quarter since the original guidance was released in December 2023.
Speaker Change: and Total. This brought our Q3age Ftb to 104 million dollars.
Speaker Change: with that let's turn this light turn for a look at cash flow.
Speaker Change: We began the quarter with $41 million in cash, adjusted to the deduct contributed $104 million.
Speaker Change: Capital Expendagers Trotled 23 million, which was largely driven by cash outlades for completed Jamaical pull repairs following Hurricane Beryl.
Speaker Change: Bialek, Oregon, and the American State Department, for a team there will also when detected working capital during the quarter, causing a delay in a luminous shipment for our Marginalpa refinery that will correct in the fourth quarter.
Speaker Change: Finally, the total 45X tax credit booked in the quarter increased the tax credit received a ball on our balance sheet until the direct cash payments are received.
Speaker Change: Truth September 30th, we have a 45X receivable of $133 million awaiting payment from the US government. At the end of quarter three, we have $33 million in cash.
Speaker Change: Let's start with slide 11 for insights into our expectations for the fourth quarter.
Speaker Change: For a few four, the lagged enemy of $2,430 per ton is expected to be down on about $20 versus Q3 realized prices.
Speaker Change: The Q4Lag US Midwest Premium is forecasted to be $425 per ton of $5.
Speaker Change: The European delivery premium is expected at 340 hours per ton or up about $5 per ton versus the third quarter.
Speaker Change: Take him together, the Langdale and the Andalabri Premium Changers are expected to have a zero to $5 million decrease to Q4E, but docked compared with Q3 levels.
Speaker Change: We expect our prices to remain constructive and to have a zero to five million dollar EBIT.increase in Q4.
Speaker Change: Collectively, we expect our other T-Romitaryls to be about flat.
Speaker Change: Bialiam Operating expenses and other administrative costs will be similar to last quarter.
Speaker Change: All factors considered are outwork for Q4, adjusted EBITDA, is expected to be in a range between 70 to 80 million dollars.
Speaker Change: mentioned before, current spot aluminum prices above $2,600 per ton will not begin to positively impact our financial results until Q1 2025.
Jesse Gary: and now I'll turn call back over to Jesse.
Jesse Gary: Thanks Jerry, before we turn the call over to questions, I wanted to spend a little bit more time on Section 45X in our Jamalacle Acquisition, which together with the operational improvements our team is driven over the past several years, serves increased the stability and centuries businesses and earnings power.
Jesse Gary: Wittling, including the carbon and other operating supplies is eligible for the production tax credit. We now expect our total full year, 2023, 45x benefit to be $79 million and estimate our total full year, 2024, 45x benefit to be around $73 million.
Jesse Gary: If Aluminize ultimately included as eligible, we expect each of those amounts to increase by another $30 million.
Jesse Gary: Hello, to total over $100 million in benefit on an annualized basis.
Jesse Gary: Please note these production tab credits for critical minerals do not fade out over time. It would be increased parada by any additional production that we've made bring online in the US.
Jesse Gary: The effect of these credits is to significantly increase the quality and competitiveness of centuries' businesses.
Jesse Gary: Wynne paired with our world-class workforce, our privileged positions in very under-supplies U.S. and U-Markets, as well as a globally competitive captive supply of aluminum from Dremalco. You can see the quality of the earnings power of the business that we have been working towards for quite some time now.
Jesse Gary: We are really proud of what the team has created here at Century and believe this is a business that can now perform very well through the cycles.
Jesse Gary: We look forward to your questions today and we'll turn the call over now to the operator.
Jesse Gary: Thank you.
Speaker Change: We'll be back again with the Q&A session.
Speaker Change: If you would like to ask a question, please press star, all of my one on your telephone keypad.
Speaker Change: Turn the video to the end of the video.
Jesse Gary: And if you are using a speaker phone, please pick up your handset before asking your question.
Jesse Gary: 1st question that a country look as pipes with B rally securities.
Jesse Gary: Good life, not open.
Speaker Change: Thank you very much operator and good afternoon everyone. I have a fairly long list of questions. I'll try to keep them short.
Jesse Gary: but um...
Jesse Gary: Could you speak a little bit to the process that you have started for hospital? When did you kick off that deprosis and when would you expect to complete?
Speaker Change: and I hope you enjoyed this video. Thank you very much.
Speaker Change: I'm sure it was a good question. Yeah, as I mentioned on the call, we've been looking at this for a while now. We did receive a number of inbound inquiries with Interest in the site.
Jesse Gary: and given the interest of all that we saw, we decided to make sense of sort of process.
Jesse Gary: Now of course, we're progressing an industrial asset as a bit different than some of the other transactions you've seen in the market. There's a number of items that we'll need to be built and supply the buyers and valued.
Jesse Gary: and so we'll just have to watch and see how long that takes. But we can't go to the can say for now, is there a significant interest in the process for ultimately help us determine value and make the right decision?
Speaker Change: All right, well, we'll stay tuned for that. I want to touch on the LMELINK supply agreements for Aluminat really quickly. Jesse, could you remind us kind of what supply agreements you have in the market today, when they expire, and then from there it might have a few follow-up. Thank you very much.
Speaker Change: Sir, we generally source all of our supplies. I said it from Jamalco or from these long term supply agreements.
Jesse Gary: The supply agreements we don't disclose details of, but they are with very creditworthy counter parties, and I think there's over two years left on those contracts before we'll need to read and negotiate them.
Speaker Change: So this would include both Concord and Glenn Core or might meant that it would be a difference between the two.
Jesse Gary: and that should also hold true for 2025.
Jesse Gary: Yes, and 2026 as well.
Speaker Change: All right, very helpful. Thank you very much for that. In that context,
Speaker Change: Strong aluminum pricing, supply stability on the alumina side, price stability. Why not move forward with capacity restarts here and now?
Speaker Change: Thank you. Bye. Bye.
Speaker Change: Well that's a good question, Lucas. So as we've said for a while now, we want to look and make sure that when we do make the decision to bring capacity back online, the market is ready for it.
Speaker Change: So, for one, we do see strong LME, so that's a positive, and we've seen rising Midwest premium prices as well over this quarter.
Speaker Change: With respect to incremental volume, we would have to go out into the market and source alumina, so there we would be exposed to spot alumina for that new volume that we're bringing on.
Speaker Change: So just to be clear, no spot exposure for our existing operations at current levels, but if we were to bring on additional, we'd have to go out and find that aluminum in the marketplace and obviously at spot prices, that's a bit of a hurdle.
Speaker Change: I appreciate that, Carla. I'll turn it over for now. Thank you very much.
Speaker Change: Thanks, Lucas.
Speaker Change: Our next question comes from Katja Janik with BMO Capital. The line is now open.
Katja Janik: Hi, thank you for taking my questions.
Katja Janik: Maybe just going back to the alumina supply agreement, I think when I look at your filings, you have an agreement that is supposedly valid through the end of this year for 600,000 tons of alumina.
Katja Janik: Is that just, does that just roll over or what's the situation with that? Can you talk a little bit about that?
Speaker Change: Yeah, that contract has been extended now, Katya, so that extends out for a couple of years from now.
Speaker Change: and it's at the same terms as it was in the past or any changes there?
Speaker Change: Yeah, similar terms as what's been there in the past.
Speaker Change: and maybe moving to the value-added premiums I think now is the time when you're negotiating for next year any update on that side how it's looking for next year
Speaker Change: No, as we've seen for the past couple of years, what we call the mating season extends a bit longer into the fall than it used to maybe five years ago. So we're still out there in the market right now negotiating those contracts, and expect to have an update on the Q4 call.
Speaker Change: And one last one, if I may.
Speaker Change: You mentioned that repurposing an industrial asset comes with, it's a little different than some of the other assets. Can you talk a bit more about that? What are some of the potential challenges in repurposing these types of assets?
Speaker Change: Well, I think it's just as simple as I think some of the other transactions in the market you've seen has been one data center used for one type of data center application to maybe an AI hyperscale or something like that, where you can just imagine you're turning over a data center building with racks.
Speaker Change: the server racks, etc.
Speaker Change: Whereas if you have an industrial asset, obviously you used it for its industrial purpose, so we made aluminum.
Speaker Change: And so while there are assets that have significant value, like the electrical equipment and power infrastructure,
Speaker Change: There are other areas of the site that would need to be modified in order to work for such a purpose.
Speaker Change: as we move forward with the process. That's one area that the buyers are due diligencing and will need to be evaluated in terms of sort of timing to
Speaker Change: to transaction.
Speaker Change: So if I'm understanding correctly, this would be in a way a sale of the whole asset potentially.
Speaker Change: We haven't settled on any structure nor have we settled on any transaction yet Katya, but that would certainly be one potential outcome of the process.
Speaker Change: Our next question today comes from John Tomazos with Very Independent Research.
John Tomazos: Thank you very much for taking my question.
John Tomazos: When does the LME-linked contract expire?
John Tomazos: Who, if you can say, is the supplier?
John Tomazos: And could you tell us if your Illumina costs in Jamaica.
John Tomazos: resemble world averages like what Alcoa or other companies publish.
Speaker Change: Sure, John, let me try to take those in order. If I miss one, just redirect me. So the LME contracts are long term. They're in place. There's a variety of them, but all of them are through at least 2026.
Speaker Change: With respect to the Jamalco cost structure, as we've said in the past, you know, we are very excited about this asset. We think it's.
Speaker Change: cost structure will ultimately be globally competitive. And what we've said as we implement some of our CapEx programs, we do think it can be a second quartile asset, which would put us right in the range of some of our competitors that you mentioned. And we're already underway. We've been at it a year now in getting that cost structure down.
Speaker Change: certainly looking good in today's market price environment.
Speaker Change: Congratulations, what you've done with Illumina is absolutely superb.
Speaker Change: Thank you.
Speaker Change: Thank you all for your questions.
Speaker Change: As a reminder, it is star 1 to ask a question and star 2 to remove.
Speaker Change: Our next question is a follow-up from Lucas Pipes with B Raleigh Securities. Your line is now open.
Lucas Pipes: Thank you very much for taking my follow-up question. Just one more on the Illumina side.
Lucas Pipes: What was it roughly this year, would it be stable next year or could there be any?
Lucas Pipes: any adjustment given the recent surge in aluminum prices. I want to echo John's comment. Congratulations on the acquisition of Jamalco and the structure of all the contracts you've done, but I wanted to follow up on this. Thank you.
Speaker Change: Sure, Lucas. Yeah. I think your question relates to the commercial contracts, whether those could change. And no, those are fixed percentages that were entered into before the current run up, and so they are quite attractive compared to current levels.
Speaker Change: Thank you very much.
Lucas Pipes: Very helpful. Thank you.
Lucas Pipes: Thank you very much. Bye-bye.
Speaker Change: Bye
Speaker Change: No, I was just going to say no readjustment in those contracts. They're fixed.
Speaker Change: Thank you for that.
Speaker Change: maybe trying to put it all together. Obviously you you've provided an outlook for Q4 that is still
Speaker Change: reflecting a somewhat weaker price environment.
Lucas Pipes: looking out to Q1 or 2025 EBITDA in the current price environment.
Speaker Change: Could you help kind of frame up the sensitivity and what the earnings power might look like? I would appreciate your call. Thank you.
Speaker Change: So, you all can just go to our sensitivities in the appendix.
Speaker Change: and Mark. Go ahead and mark whichever of the revenue side or top side items you want. But just to walk you through it Lucas, so as you see on page 11 that the outlook was based on an LME around $2,400.
Speaker Change: and then Midwest Premium as well has risen from these levels.
Speaker Change: In the outlook, it's about $425 per ton, up a couple pennies from there, so that's maybe another $20 million or so.
Speaker Change: So, at SPOTS, you've got an additional $100 million or so in annualized EBITDA from what's in the guide, so you can take that $25 million a quarter, you know, it puts you above $100 million quarterly run rate EBITDA.
Speaker Change: I appreciate all the additional color. Jesse, to you and the team, continue best of luck.
Jesse Gary: Thanks a lot, Lucas.
Speaker Change: Thank you for your questions.
Speaker Change: There are no longer questions in queue so I'll pass the conference back to the management team for any further or closing remarks.
Speaker Change: Thank you, Operator, and thanks to everyone for joining the call. We really appreciate all the questions, as always, and look forward to talking to you in the new year.
Speaker Change: Thanks.