Century Aluminum Company

Ladies and gentlemen, thank you for standing by, and welcome to the Century Aluminum Company fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Peter Trapkoski. Thank you. Please go ahead.

Thank you, David. Good afternoon, everyone, and welcome to the conference call. I'm joined here today by Mike Bless, Century's President and Chief Executive Officer, Craig Conte, 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 is available on our website at www.centuryaluminum.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 Mike.

Thanks, Pete. Thanks to all of you for joining us this afternoon. If we could just flip to page three, please. I'll give you, as usual, a quick summary of the last couple months. Before we get started, though, we were extraordinarily sad to report a fatality at Mount Holly that occurred in December. The incident happened outside the casthouse in the billet loading area. Those of you who are familiar with these facilities can picture that, where that location would be. The victim was a longtime employee and a cherished colleague and friend. She's sorely missed by her family, by her colleagues, and by the entire community. This tragedy reinforces our commitment to take an unbiased look at absolutely everything we do and commit to improve where needed without condition. It requires dedication and leadership from every part of our organization and personal commitment from each and every individual. We all know we must hold ourselves to the highest of standards and demonstrate our promise to keep ourselves and each other safe. Not just talk, but we need to demonstrate that each and every day. Okay, and with that, let's dive in. Pete, in a couple minutes, will give you a summary, as he normally does, of the industry fundamentals. Let me just make a couple points to put the rest of my comments into context before I get going on the rest. You all follow the macro data, so I'll keep it pretty quick. Obviously, world manufacturing indices are approaching levels that frankly we last saw in early 2018. At that time, the LME price, as you may remember, was over $2,500 a ton. Manufacturing activity in our key markets in the U.S. and in Europe remains especially robust. You've seen the most recent employment data this morning. Obviously, it's got a long, long way to go, but it is showing some hopeful signs. Other factors are coincident with strong base metal prices, a number of them amongst which obviously the dollar showed a little bit of strength in January, but obviously it remains on a weakening trend and crude prices are up. Thus far, headline inflation has shown resistance to upward pressure. That said, you've all looked inside the summary data and you've seen that there are some potential signs lurking. Obviously, you've seen the crawl upwards in treasury yields. Adding to this environment is further stimulus coming in the U.S., obviously, and almost certainly in other developed markets. The situation has led to extraordinarily tight supply conditions in our markets with real pressure for prompt units. And the cold weather in the southern portion of the U.S. over the last couple of days has only exacerbated this problem. Inventories measured in days of supply are at historically very supportive levels. Midwest premium and the duty-paid premium are on upward trends. We'll talk about the trade environment in just a couple minutes. And the spot premium for many value-added products is at an all-time high. All these conditions as well have pushed up the global commodity price. Moving on, our operations are generally stable and running at the expected levels of efficiency and cost. Grindertongue and Seabree each are at a full complement and running very well. Hawesville, on the other hand, has had a difficult last couple months. The plant experienced two unrelated but almost simultaneous equipment incidents in December. This resulted in the loss of a number of cells and generally poor operating efficiencies. And it drove some cost increases during Q4. These were offset by really good performance from the other plants, especially Mount Holly and Grindertongue. We've got a plan in place to get Haasville back to normal operations by the early part of the second quarter, and Craig will take you through a financial summary of Q4 in just a minute. Mount Holly is running very well and, as I said, had an excellent quarter in controllable costs. That said, we continue to lose sales at the predicted rate. Obviously, that's given the age of the pots since we last rebuilt them. This simply reinforces the importance of moving forward aggressively on the rebuild process, and I'll talk about that in just a minute. Let me just give you a couple of brief comments on the expected financial performance for the first quarter and for the full year, and Craig will give you lots more detail in a minute. The first quarter is going to be impacted by two items, which will result in lower EBITDA than you'd expect to see with a realized LME price in the low 1900s. That's where we're currently predicted it's going to come in. You all are familiar with our lag, as well as lag premiums. The first it goes without saying is the extreme weather, which you've been seeing. impacting the electrical grid in the southern part of the U.S. This will result in a meaningful increase in our power price for the Kentucky plants for the first quarter. Frankly, we haven't seen this kind of situation since the polar vortex in 2014. The power price has come nicely back down, and it's almost back to where it would normally be. So the impact for the quarter of this event looks to be about $15.5 million. Of course, that's an extraordinary occurrence, which only impacts the first quarter. A second much less significant factor is a good dose of restart expense in Mount Holly, which will hit in Q1. And Craig will take you through all that detail in just a couple minutes. Absent these items, the quarter would look as you would expect. And obviously, if you would adjust for the current LME price, which is well over $200 higher than the price that we forecast we'll realize in Q1, that would produce a significantly higher level of profitability. Obviously, today's prices won't be realized in our financials until the second quarter. Craig's also going to take you through our expectations for quarters two through four in terms of production volumes, plant operating costs, and other assumptions. When he does, when you have a time to look at the data and the appendix, you'll see that plant costs are estimated to be up about $150 a ton. versus the estimates at this time last year, it's important to understand the vast majority of that increase is simply based on the fact that we're using a higher LME price estimate to estimate the costs of alumina and power in those contracts that are linked to the LME. We're also using slightly higher market power prices based on the current forward prices. Now, arguably those prices, obviously those forwards are at slightly higher levels than they would normally be just given the prompt prices. Most importantly, you'll see controllable costs such as labor and maintenance on a per ton basis are absolutely flat, 2021 to 2020, and we're really pleased with this, especially given the restart spending at Mount Holly. Okay, let me move on, talk for a couple minutes about Mount Holly specifically. You saw our announcement in mid-December that we had signed a three-month extension to the power contract. That contract, of course, was set to expire at the end of 2020. We and Sandy Cooper had made very good progress in November and December on terms for a new three-year contract. And we just needed to give the teams a bit more time to finalize an agreement and then provide for the necessary regulatory approvals. That full contract has now been agreed on terms consistent with what we had in December, what we were expecting. And Sandy Cooper has submitted the contract to the required state oversight committee and we're jointly awaiting approval. And that new contract is expected to commence on the 1st of April. It goes without saying we're so pleased to have reached this milestone. Our colleagues at Santee Cooper were really creative in helping us mutually reach this point, and we're quite appreciative of their substantial commitment of time and resources. All this further encourages us with regard to Mount Holly's long-term prospects. In fact, we're working with Santee Cooper now on some interesting demand response opportunities that would bring additional value to each party, to their system, and to our company. The real credit for getting us to this point goes to our people at Mount Holly. They managed the plant consistently through an extraordinarily difficult period. Obviously, they had the issues caused by the pandemic, and those were exacerbated by the uncertainty over whether we could find a sensible power contract to run the plant post December 2020. We're very grateful for their commitment, and we're now excited to give them the opportunity to rebuild and expand the plant. New contracts for just shy of 300 megawatts. This will enable us to grow the production from the current 50% to 75% of capacity. That's an annualized rate of about 170,000 tons. As you know, due to the lack of visibility on a long-term power contract, we've purposely not rebuilt cells as they have normally failed over the last four plus years. And thus, we need to fully rebuild all the cells in the pipeline that's been operating plus half of the other line to get to one and a half pot lines, 75%. You'll recall that's very similar to the process that we went through at Hawesville in 2018 and 2019. And also like Hawesville, there's some necessary capital projects in various parts of the plan. All these processes have already begun, and obviously we want those metal units as quickly as feasible. We just spend a moment on some financial structuring that we put in place to support the Mount Holly rebuild program. The new three-year contract, if you had a chance to read the press release, it comes with a fixed power price. That's obviously different from Kentucky, where we're exposed to floating power prices. And in Kentucky, those market prices tend to move generally with other commodities, like our revenue, i.e., LME, of course, other than in extreme environments like we've had in the last couple of days. Given this, we've taken a large portion of the risk off the table to guarantee an adequate financial return during the three-year contract and to protect against downside. So since the power price is fixed, we've fixed a good portion of the other commodity costs as well as the revenue related to Mount Holly's production. We think this approach represents good balance, guarantees reasonable cash flow from the three-year contract, despite the significant rebuild costs. So, over and above, of course, the significant rebuild costs. It preserves upside during the contract to extract further value in the power price via demand response opportunities and other alternatives. And it preserves our ability to work with Santee Cooper on longer-term concepts, and obviously the time to do so during the three-year term. A couple other comments before we move on on the trade environment. As you've seen, we think it's been generally well supported. Canadian imports have averaged around the levels that were established back during the third quarter. As you'll recall, these amounts were specifically set to backstop the effectiveness of the Section 232 program. And thus far, we believe it's generally working, although, of course, we're watching it very closely. It's clear to us that the Biden administration supports the purpose of the 232 program. The most immediate action you've seen was the rollback of the previous administration's last-minute exemption of a large importing country from the tariff. One of President Biden's principal platforms, as you know, is the urgent requirement to build back U.S. strength in manufacturing. One of the key points that his administration has made is that we must build back the employment base, the technical knowledge, and the experience in these key industries. The point has been emphasized that U.S. workers can't be good consumers unless they have good jobs, fair wages on which they can depend for the long term. And of course, we couldn't agree more. We're looking forward to doing our part. Hiring up an additional folks to support Mount Holly's expansion is the next step. One last item, just want to spend a minute summarizing some developments on our sustainability efforts we're really excited about. If you could just flip quickly to page four. You may have seen our recent announcement relating to a multi-year agreement we've signed to sell our low carbon natural product to Hammerer Aluminum Industries. It's a great high quality OEM and we're really proud and excited to be working with them. We're also in discussions with other potential customers and this represents a really exciting opportunity for Century. We also continue to work on an interesting renewable power opportunity for the Kentucky plant specifically and we hope to be able to report to you on some specifics over the coming months. And with that, I will hand you over to Pete.