Century Aluminum Company

Hello and welcome to the Century Aluminium Company's second quarter 2021 earnings conference call. My name is Charlie and I will be coordinating your call today. If you would like to ask a question during the presentation, you may register to do so by pressing star followed by one on your telephone keypad. I will now hand you over to your host, Peter Trupkowski, to begin. Peter, please go ahead.

Thank you, Charlie. Good afternoon, everyone, and welcome to the conference call. I'm joined here today by Jesse Gary, Century's President and Chief Executive Officer, Craig Conte, Executive Vice President and Chief Financial Officer, and Shelly Harrison, Senior Vice President and Treasurer. After our prepared comments, we'll be happy to 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 compliance 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 with that, I'll hand the call to Jesse.

Thanks, Pete, and thanks to everyone for joining the call today. Let me just begin by saying how excited I am to have the chance to lead Sentry into the future. Sentry is an excellent company, and we'd be remiss not to pause for just a brief moment to thank Mike for his years of excellent leadership and for leaving such a strong foundation for us to work from. Okay, for today's call, I'd like to start by speaking about the current market environment and give some highlights from the second quarter before Pete and Craig take you through the details. I'll then finish the call with some key focus areas for the company going forward, both in the near term and long term. So, starting on page three, it goes without saying that we currently find ourselves in a robust market for aluminum, driven by high consumer spending paired with strong industrial expansion and GDP growth in most of the world's leading economies. While we are mindful that the speed of the recovery has been aided by significant global fiscal and monetary stimulus, We do believe that the long-term growth trend for aluminum remain intact, driven by energy transition into renewable generation, distribution, and electrical vehicles, among other areas. All in all, we continue to believe that demand will remain strong into the back half of the year, and we will see global year-over-year growth in the highest single digits. Demand growth has been especially strong in our U.S. market, with year-over-year growth expected to be in the mid-teens. a U.S. infrastructure package would provide further support. We've seen demand especially strong in extrusions, with billet demand and spot premiums nearing all-time highs this summer. While the U.S. billet market prices are set on an annual basis, which means the vast majority of our 2021 billet production was priced before the current run-up in prices, we do expect that billet demand should continue to remain strong into 2022. With our recent research project in Mount Holly and the Cask House optimization project in Seabury, we're well situated to take advantage of the strong U.S. bill of demand in 2022, and we should be able to give you an update on our contractual pricing for the next year on our third quarter call in November. This significant demand growth, paired with supply disruptions caused by inclement weather and energy shortages in China, Export tariffs in Russia and the recent announcement of production disruptions in Canada have led to an especially tight physical market in the U.S. and Europe and provided significant near-term support to LME prices as well as material increases in regional and spot product premiums. Given the global nature of these supply disruptions, we started to see the physical premiums move more in tandem in the U.S. and Europe. In fact, since the Russian export tax was first announced on June 24th, The European duty-paid premium price increases have actually outpaced Midwest premium price increases at 40% for ADPP to 20% for Midwest premium. Perhaps more significantly for the long term, the results resulted in substantial drawdowns in inventories in these markets, reversing increases from early in the pandemic and returning inventories towards long-term equilibrium levels last seen before the financial crisis. This physical tightness is just another example of why domestic supply chains for key raw materials are imperative, and why programs like Section 232 are so important to bring back domestic industries and jobs. On the input side, we are seeing some price inflation across our key commodities. Most significantly on the energy side, we're rising oil, gas, and carbon offset prices in Europe, paired with drier weather in the Nordic region, have raised Nord Pool and Micellar energy prices. Craig will provide the detail and financial impacts, but it's important to note that these markets are trading in significant backwardation, which should point to return to more normalized energy prices in 2022 and beyond. On the raw material side, the aluminum market continues to be constructive, but we have seen increases in coke and pitch prices in both the U.S. and Europe. More structurally, we continue to monitor increased regulatory focus on carbon intensity throughout the world and its impact on primary aluminum supply growth. This is manifesting itself most significantly in China, where production is approaching its announced limit of primary aluminum capacity of 45 million tons. The central government has begun implementation of an emissions trading scheme, and many provincial governments have started to restrict carbon-intensive supply growth through their replacement capacity programs. that China appears to be taking some action to rein in supply growth in the primary aluminum sector. Given past experience, however, we will stay tuned before counting on this. In Europe, the EU recently announced the details of its carbon border adjustment mechanism, which will apply to primary aluminum. While we do not anticipate that CBAM will have significant near-term effects due to the initial phase being only reporting in nature, it does put in place a framework that could disincentivize carbon-intensive units into Europe in the future. While the ultimate effect of all these supply-side factors remains uncertain, it does create the potential for structurally slower supply growth over the coming years, which should be supportive for long-term aluminum prices. Turning to our own operations, we have solid results for the second quarter, in line with our expectations, and Craig will provide the financial details in a bit. In Iceland, we are very pleased to announce a new 182 megawatt power contract extension with Landsberg. The contract was a result of long-term constructive negotiations with our supplier and reflects the excellent business environment in which we operate in Iceland. Of course, the energy to be provided under that agreement will be 100% renewable energy, securing Grunertangi's place as one of the lowest carbon footprint smelters in the world. With this extension, all of Grunertangi's power requirements are now contracted through December of 2026. Importantly, the Grunertangi extension will also increase the power to be provided by Landsbergen over the term of the contract by 21 megawatts. The first tranche of 11 megawatts will be immediately available and will replace energy that we were previously buying in the spot power market in Iceland. This is very important in order to allow the smelter to continue to operate at peak amperage in line with our capacity creep program. The second tranche of 10 megawatts will become available to us in the back half of 2023 and would enable further expansion into value-added products at the smelter. To this end, we continue to work hard on our potential expansion into billet production at Kruender Tangi. We believe that record high billet premiums in Europe show that the market is calling for additional billet production. and we believe the market is particularly strong for low-carbon green billets, like the billet that could be produced at Grunertangi. This power contract extension secures the additional energy necessary to move forward with our planning, and we would expect to have further updates for you on our Q3 or Q4 call. Just before we leave Iceland, I'd like to note that we have continued to see growing demand for our low-carbon product, Naturao, especially in the European marketplace. We now expect that, for the first time, we will receive green premiums for all natural oil sales in 2022. We believe these premiums, while relatively modest compared to our other value-added products, are demonstrative of where the marketplace is going and is an exciting development, especially with additional carbon regulation like CVAM on the horizon. Moving to the U.S., we were very pleased to welcome South Carolina Governor Henry McMaster and U.S. House Majority Whip Jim Clyburn to the Mount Holly ribbon-cutting event. Both Governor McMaster and Whip Clyburn have been key allies with employees at Mount Holly, and we're grateful for their support. Just to remind everyone, once complete, the Restart Program will return the plant to 75% of its capacity, or about 170,000 metric tons of production on an annualized basis. In order to reach this point, we will ultimately reline all of the pots on Line 1, which has been operating continuously, and also reline and re-energize half of Line 2, which has been shuttered since 2015. As we've previously discussed, the majority of the reline activity will take place this year, with the remainder of the relines occurring in 2022 and 2023 as sales fail. I'm pleased to say that we energized the first cells on Line 2 earlier this week, and we continue to forecast that we will reach 75% of total production capacity by the end of the year. This is the result of tremendous effort by the Mount Holly team executing the expansion project during a very challenging and complex pandemic environment. Like many others in the pandemic, however, we have experienced some delays in the project due to supply chain and hiring issues. mainly from suppliers of materials necessary to complete the pot relining and difficulty in hiring the required amount of new employees to restart and run the additional pots. We've also seen moderate cost inflation in some of the project costs, including labor, copper, and steel. These delays have affected the project in a couple of ways. First, while we continue to expect that we will reach our 75% production goal by year end, due to these delays, we now forecast that the majority of incremental volume gains we originally expected in Q2 and Q3 will instead occur late in Q3 and Q4. This will negatively impact volume most acutely in Q3, but also have some impact on Q2 and will have some impact on Q4. Second, we also now expect that some of the reline activity that we had originally planned to occur in 22 and 23 will now instead be completed this year. To be clear, this will not be additional relining, but just to bring forward a relining CapEx from 22 and 23 that will then reduce relining CapEx in those same years in the future. At Oswald, we continue to bring cells back online following the instability suffered in Q1. This process remains on schedule and in line with our previously issued estimates. Like Mount Holly, we continue to expect Ozville to exit the year operating at its full 80% pot complement. It goes without saying that we are focused on putting pots back online in both Ozville and Mount Holly to bring additional production into this tight U.S. market and to enter 2022 with significant forward momentum. And with that, I'll turn it over to Pete.