Century Aluminum Company

Good evening. Thank you for attending today's Century Aluminum Company fourth quarter 2021 earnings conference call. My name is Hannah and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Peter Tripkowski with Century Aluminum. Please go ahead.

Thank you, Hannah. Good afternoon, everyone, and welcome to the conference call. I'm joined here today by Jesse Gary, Sentry'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 be happy to take your questions. As a reminder, today's presentation is available on our website at www.sentryaluminum.com. We use our website as a means of disclosing material information about the company and for complying with Regulation SD. 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. I'll start today by updating you on the status and impact of the cyber attack we suffered last week before turning to some highlights from our 2021 performance and then reviewing the strong current market conditions. Craig will then take you through the details of the fourth quarter and 2021 results, and then I'll finish with some outlook for 2022 and beyond. Early in the morning of February 16th, we detected unusual server activity that was the beginning of a sophisticated encryption-based ransomware attack. We immediately began taking action throughout our global systems to minimize the impact, including disconnecting servers, PCs, and other information systems, and implementing our internal response procedures. Despite our best efforts, a significant amount of our information systems were affected. Since the 16th, we have been focusing on containment and reestablishing the security of our information system. As we have been able to do so, we are gradually implementing recovery or replacement of the affected information programs and systems with a focus on safety. While we're disappointed that we were not able to prevent the attack, our preparation procession event did allow us to largely shield our operations and financial systems from significant damage. On the financial side, we continue to expect that we will file our Form 10-K and audited financial statements on time. On the operations side, each of our locations have been able to continue production without significant disruption. Where necessary, we have been able to implement manual procedures or other workarounds to ensure that production continues and we are able to continue to ship and invoice our customers. I'd like to thank everyone throughout the Sentry organization who has stepped up and worked tirelessly to get us through this event. While it is still too early to give a detailed overview of the financial impact of the attack, we are pleased that we've been able to safely maintain production throughout the event and do not believe that this event will have a material impact on the 2022 production numbers or financial outlook we have provided you. Okay. Turning to page three, 2021 was a very busy year century, and we made significant progress repositioning the company to take advantage of the favorable market conditions that we are experiencing today. Across our operations, our employees did an excellent job working through the continued challenges of the pandemic and supply chain disruption to expand our production, increase the range of our value-added products, and improve our financial performance. Most importantly, in 2021, Our employees continue to prioritize safety, redefining our safety vision, and committing to continuously improve our safety culture, valuing the health and safety of our employees, communities, and environment as our first priority. On the operations side, our team did outstanding work executing two significant restart and reinvestment programs at Mount Holly and Hawesville, despite significant pandemic headwinds and supply chain disruptions. As a result, we expect that our 2022 shipments will exceed our 2021 levels by over 100,000 metric tons, expanding our position as the largest producer of aluminum in the United States. The Mount Holly expansion in particular allowed us to increase our U.S. billet production by over 15,000 metric tons, all of which has been contracted for 2022 at record billet premiums in line with our previous guidance. More generally in Mount Holly, our teams came close to finishing the restart program by year end. We did, however, continue to suffer supply chain disruptions and impact from the Delta and Omicron COVID waves in Q4 that resulted in the tail end of the restart at Mount Holly continuing into Q1. I'm pleased, though, to be able to say that the restarted line at Mount Holly is now fully operational and work on the continuously operating line is nearing completion and should be substantially complete by the end of Q1. We now expect full year 2022 volume of 160,000 metric tons at Mount Holly. In Iceland, we announced a new power contract extension in July, which enabled us to break ground on the bill of cast house project at Grundertangi. The cast house construction is proceeding on schedule. And in 2021, Grundertangi also secured its first significant sales of natural, highlighted by the multi-year deal to supply over 150,000 metric tons of natural to hammer industries in Europe at a green premium. Finally, on the financial side, We made significant progress extending and lowering the cost of our outstanding debts. We now have no long-term debt maturities until 2028, setting up our balance sheet exceptionally well heading into 2022. We began to see the results of this progress come together in the fourth quarter, where we generated adjusted EBITDA of $82 million, representing our best quarterly performance in nearly seven years. All in all, Century enters 2022 in a great position to take advantage of the current market conditions and deliver a strong performance for all of our stakeholders. Turning to page four, you can see that the LME price of aluminum has gained significant momentum this year, with LME prices averaging $3,100 quarter to date and spot LME currently trading around $3,400 following the overnight events in Ukraine. These price levels have fundamentally persisted as demand for aluminum has continued to well outpace supply. with global supply and demand balances expected to be short over 1.5 million metric tons this year. These balances are especially acute in centuries markets in the US and Europe, where the two markets were collectively short over 7 million tons in 2021 and are expected to grow to nearly 8 million tons short in 2022. The shortages in Europe have been exacerbated by curtailments of over 750,000 metric tons of production over the past six months, driven by extreme power prices throughout the continent. As you can see from the graph on the bottom right, mainland Europe power prices are up between three and four times of pre-pandemic levels, and many mainland countries are expected to remain at these elevated levels well into 2023. These markets also move sharply higher overnight following the events in Ukraine. The extended nature of these elevated energy prices in Europe can be expected to make any near-term restart of this curtailed capacity difficult. It may even cause further curtailment as hedged energy positions roll off and cannot be sustainably replaced at current forward price. Europe was, of course, not alone in curtailing production, as China shut more than 3 million tons of production in 2021 due to compliance with new Chinese dual control system for energy consumption, as well as flooding and other energy disruptions. This has been exacerbated recently by shutdowns in Guangxi, driven by the COVID lockdowns. All in all, Kurt Hamilton China in 2021 flipped China into a net importer and is expected to remain approximately 1.5 million tons short this year. All of these supply disruptions, including recent further disruptions announced in Brazil earlier this week, have resulted in increasing drawdowns in global aluminum inventories, where we now see inventories falling to near 40 days of consumption by the end of this year, a level not seen since the last commodity super cycle. On the demand side, we expect demand growth will continue to be strong, with most analysts predicting between 2.5 and 3.5 year-over-year aluminum consumption growth. Demand is expected to be especially strong in our US market, where most analysts see between a 5% and 6% increase. Demand continues to be driven by the long-term trends we've discussed previously, including energy transition into renewable generation and distribution, expanding electrical vehicle production, and increasing aluminum market share in packaging and building products. Of course, automotive and aviation demand has been impacted by supply chain and pandemic-related factors, both of which could provide tailwind to the demand expansion once these issues resolve. If you turn to page five, we've seen demand especially strong in extremes. In both Europe and the U.S., spot billet premiums have continued to rise so far this year, resulting from strong in-customer demand and supply chain disruptions from overseas suppliers. the continued strength in billet markets being driven by structural extrusion capacity expansion across our markets. Overall, the significant supply disruptions in Europe and China paired with continued demand growth and falling inventories led to an especially tight physical market in the U.S. and Europe and provided material increases in regional premiums, especially in our two markets where both the Midwest premium and European duty paid premium are near all-time highs. On the input side, we have continued to see price inflation across our key commodities, most significantly on the energy side, where low reservoir levels and high gas prices, driven by spillover from the European energy crisis, have resulted in significant increases in North Pole and MISO energy prices in Q4 that have spilled into Q1. Our North Pole exposure is significantly hedged, with around 60% of our 2022 and 80% of our 2023 exposure hedged at prices well below spot levels. As a reminder, our North Pole exposure ends altogether at the end of 2023, as the contracting question moves to fixed pricing in 2024. While our geographic locations have insulated us from the worst of the effects of the European energy crisis, Iceland has experienced near record low reservoir levels this winter. In January, Landsbergen, the state-owned power company, announced curtailments across its industrial customers, including our Kundertangi smelter. For Grundertangi, the curtailments began on January 20th and reduced the smelter's energy consumption by approximately 35 megawatts, about 7% of our total load for the curtailment period. We currently expect that curtailment will finish by the end of March, but this remains subject to weather patterns and reservoir levels in Iceland, as well as other factors. Based on the current expected curtailment end date, we expect that the curtailments will reduce Grundertangi's 2022 production by approximately 5,000 metric tons. This impact is included in our Q1 and full-year volume guidance. It's important to note, however, that the financial impact of the curtailment is mitigated because the power contracts that are being curtailed are primarily linked to the North Pole price, which, as Craig will discuss, has averaged nearly 90 euros per megawatt for Q1 to date. Put simply, the energy being curtailed is the most expensive energy consumed by Grunder-Tange, and so the ultimate financial impact of the lost volume is significantly mitigated. On the raw material side, we have continued to see increases in coke and pitch prices, as well as other key raw materials in both the US and Europe. While the aluminum market has remained constructive, Q1 will be impacted by relatively high-priced aluminum purchased in Q4, flowing through our Q1 results due to our contractual lags. Craig will now walk you through the quarter and our Q1 outlook. Thanks, Jesse.

Let's turn to slide six, and I'll take you through the results for the fourth quarter. On a consolidated basis, Q4 global shipments were up about 3% quarter over quarter, primarily driven by Mount Holly as the rebuild starts to materialize in our financial results. Realized prices increased substantially versus prior quarter as a result of higher lagged LME prices and delivery premiums, driving a 13% increase in sequential net sales. Looking at operating results, adjusted EBITDA was $82.2 million this quarter, which represents the highest quarterly result we've achieved in nearly seven years. We had an adjusted net profit of $17.2 million, or 17 cents per share. In Q4, the major adjusting items were $53.8 million for the unrealized impacts of forward contracts and $9.9 million for share-based compensation. Liquidity at the end of the quarter was $100 million comprised of a mix of cash and credit facilities. Additionally, we have expanded our liquidity by increasing our borrowing capacities under each of our domestic and Icelandic credit facilities. A significant portion of this increased liquidity became available in January of this year. Turning to slide seven, we'll go through the $12 million fourth quarter sequential increase in adjusted EBITDA. As we forecast on our last call, the Q4 realized LME of $2,605 per ton was up $230 per ton versus prior quarter, while realized U.S. Midwest premiums of $720 per ton were up $50 per ton and European delivery premiums of $345 per ton were up $100 per ton over the same period. Both domestic IndyHub and European NordPool energy prices increased steadily throughout the quarter. IndyHub prices in Q4 averaged $55 per megawatt hour, or up about 30% versus Q3, while NordPool prices averaged $110 per megawatt hour, or up 35% versus prior quarter. Lagged Illumina was up $20 per ton versus prior quarter, and cold prices continued their upward trend as well, with realized levels increasing 12% versus Q3 for a landed total of $490 per ton on average. Let's turn to slide 8, and we'll take a quick look at cash flow. We started the quarter with $58 million in cash and ended December with $29 million. CAPEX spending was $38 million in Q4, with $25 million of that total supporting the restart at Mount Holly. Hedge settlements were $41 million for the quarter, and we made our normal semiannual bond interest payments. The $5 million term loan paydown we completed in the fourth quarter represents the last payment of this 2019 borrowing. The facility was completely repaid by the end of the quarter. Working capital with a cash usage in the quarter as raw material price escalation and rebuild activity drove increased inventory values versus Q3. Turning to slide nine, I'd like to give you some perspective on 2022. As Jesse mentioned earlier, we expect 2022 shipments to increase by about 100,000 tons, or 13%, versus 2021. The largest year-over-year volume increases will be driven by Hawesville and Mount Holly as the impact of those restarts are realized. From a cash standpoint, we expect about 30 to 35 million of sustaining capex in 2022. In addition, the spend for the final phase of the Mount Holly restart will be about $15 million. The vast majority of the spend will occur in the first quarter, and the totality of the cost should be incurred within the first half of 2022. The impact of the hedge book will vary with market conditions throughout the year, but to assist with anticipating these impacts on a go-forward basis, we have updated our previously reviewed financial hedge landscape, which can be found on page 18 in the appendix. As we discussed on our last several calls, The amount of Midwest premium financially hedged is significantly lower in 2022 than it was in 2021, with a total hedged volume reducing from 65% of total exposure down to 35% for 2022 and zero beyond that. Also, as Jesse detailed earlier, for Nord Pool, we are about 60% hedged in 2022 and 80% hedged in 2023. In addition to the volume detail, we have also added the hedge price by commodity for the forward quarters of 2022 and for total 2023 and 2024. Also in the appendix of today's presentation are the updated 2022 commodity price sensitivities and pricing details. Let's turn to slide 10 and I'll give you some insight on our expectations for the first quarter. For Q1, the lag LME of $2,770 per ton is expected to be up about $165 per ton versus Q4 realized prices. The Q1 lag US Midwest premium is forecast to be $705 per ton or down $15 per ton. And the European delivery premium is expected at $335 per ton or down $10 per ton versus the fourth quarter respectively. Taken together, the LME and delivery premium pricing moves are expected to increase Q1 EBITDA by 15 to 20 million versus Q4 levels. Lagged API-based Illumina is expected to be $415 per ton or up about $90 per ton versus Q4 generating an approximate $25 million decrease in Q1 EBITDA versus prior quarter. From a power perspective, factoring in recent forwards with our realized quarter-day costs We expect an overall reduction in total energy costs versus Q4 with domestic prices down about 10% and North Pole prices down about 15%. This reduction in energy costs would equate to a $10 billion increase in EBITDA versus Q4. Coke and pitch prices have been on the rise since mid-2021, and we expect that trend to continue into Q1 with an overall increase of about 20% versus the fourth quarter. We expect realized cold prices to be $590 per ton in Q1 or about $100 per ton greater than Q4, and realized pitch prices to be $1,020 per ton or about $170 per ton greater than Q4, driving a $15 billion EBITDA decrease versus prior quarter. As Jesse just highlighted, the market for our value-added products remains robust. We expect a Q1 EBITDA increase of about $15 million driven by increased value-added product premiums versus Q4 levels. Finally, we have continued to make solid progress on the Mount Holly restart, and while we do expect incremental production in Q1 versus prior quarter levels, timing of some of the planned Q4 restarts were negatively impacted by COVID and supply chain challenges, and consequently are anticipated to come on in the middle versus the beginning of the quarter. We have already completed the bulk of the hiring necessary to support the new level of production in advance of the pots being online. The net impact of the sequentially higher production volume will be an increase of 5 to 10 million in EBITDA versus prior quarter levels. In sum, we expect all of these items taken together will equate to an approximate EBITDA increase of 10 to 20 million from Q4 levels for a Q1 pro forma total of about 90 to 100 million dollars. From a hedge impact standpoint, we expect a realized loss of about $20 to $25 million in the first quarter, and we expect a tax expense of approximately $5 million. As a reminder, both of these impacts will be below EBITDA geographically and will impact adjusted net income. Before I turn the call back over to Jesse, I'd like to provide a little bit of perspective on the earnings power of our business in the current environment. If you were to simply mark the Q1 adjusted EBITDA I just walked you through to market using the spot prices shown on the page and the sensitivities provided in the appendix, the net result would be an increase of $110 million for a total EBITDA of $200 to $210 million. As you know, our business price is on a lag basis with respect to most of these inputs, so the full impact won't be seen immediately. But this gives you a good sense of the earnings potential of the company in the current pricing environment. With that, I'll turn the call back over to Jesse.

Thanks, Craig. Let's turn to page 11. The hard work by our employees and the investments the century has made over the past several years has placed the company in excellent position to perform in the strong market environment that we see today. Aluminum's key role in energy transition and other strong demand fundamentals paired with increasingly difficult global operating conditions that have significantly impacted supply have caused aluminum prices to reach record highs. In addition, the supply shortages in the US and EU, caused by years of overcapacity in China and elsewhere, have now led to record regional delivery premiums necessary to balance these short markets. Since 2015, our focus on internal growth and investment has resulted in century rebuilding, restarting, or adding nearly 400,000 metric tons of production in these regions, which now allows us to provide nearly 900,000 metric tons of this of this strategic metal into the two shortest markets in the world. Because our operating locations are inside of these deficit markets, we are able to provide nearly unrivaled short supply chains to our customers and directly benefit from the strong Midwest premium and European duty paid premium. We continue to believe that we have a number of attractive organic growth opportunities to capitalize on this position. Our geographic location is also an advantage in the value added marketplace. where our customers are increasingly focused on de-risking the length and reliability of their supply chain. As you can see in the appendix, each of our smelters sells an increasing proportion of their metal with product premium, whether that be billet at Seabree and Mount Holly, high purity and molten at Hawesville, or foundry alloy and natural at Krundertangi. We are working to expand these product lines, most recently with the groundbreaking of the billet cast house at Krundertangi that will provide 150,000 metric tons of much-needed billet into Europe. Okay, turning to page 12, given the strong footing and exceptional outlook on which the business enters 2022, we believe we will be generating strong free cash flows this year and thought it would be helpful to begin providing a framework under which we will be considering capital allocation going forward. As you might expect, given the pure commodity nature and pricing volatility of our business, we expect to continue to allocate capital in a manner that allows us to operate and invest in the business in a sustainable manner, drive growth, and preserve a strong balance sheet through the cycle. As we consider the appropriate target capital structure, we examine the business's performance through past cycles and a range of potential future cycles and determine the target that we believe will serve the business well through all cycles. Going forward, we will target net debt of $300 million, which is a level that we have been able to comfortably service through the past several cycles and have been able to refinance as it has come due without issue. In calculating net debt, we will include our long-term debt, as well as any amounts drawn under our revolving credit facilities. Note, we will exclude the Grunder-Tange cashed-out financing from this calculation, as we expect the incremental cash flows from that project will more than cover the debt repayment, and therefore, we'll continue to view this project outside of the capital allocation framework, as it is not expected to be a call on cash from the rest of the business. From a liquidity standpoint, we will target total liquidity of $250 to $300 million. which will be made up of a mix of cash and availability under our credit facilities. Liquidity at these levels should provide us with flexibility to weather market downturns without curtailing production, sacrificing operating stability, or taking other actions to generate cash. To give you a sense of where we stand today on these metrics, we closed Q4 with net debt of $429 million and liquidity of $100 million. As Craig mentioned, we are currently expecting sustaining capex in the range of $30 to $35 million this year, and this should be a good range for the business going forward. We are now starting to see the benefits of our restart and reinvestment programs, and as we begin to generate free cash flow above our sustaining CapEx requirements this year, we will begin to pay down the borrowings under our revolving credit facilities, which would both decrease our net debt and increase our liquidity towards the targeted levels. Given spot prices and our forward outlook, we would currently expect that we would begin to approach the targeted net debt and liquidity levels sometime in the second half of the year. Once we reach these levels, we will then add returning capital to our shareholders to our capital allocation framework. As additional cash is generated, we would look to allocate it amongst these various return-seeking activities, namely organic growth, opportunistic M&A, and returning capital to our shareholders. In allocating between these categories, we would generally look at the expected return of each action, among other factors. Hopefully this gives you a sense of how we'll approach things going forward, and of course, We would expect to continue to update you with additional details as we begin to approach the targeted levels. Finally, just before we turn it over to questions, I'd like to acknowledge Craig and the great work he has done in his time here at Century. He will be leaving us at the end of the month, and we wish him the best of luck out west.

Thanks, Jesse. Hannah, if you could please kick off the Q&A session for us, please.

Certainly. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question is from the line of David Gagliano with BMO Capital Markets. You may proceed.

Hi. Good afternoon. Thanks for taking my questions. Just on slide 10, the first quarter outlook. So when I look at it versus kind of what we were coming up with, there's two differences. First of all, the lagged Illumina price, it's a pretty big impact, and it looks like the hedges have changed, which makes sense, obviously. But when we look at the details, it looks like hedging for Illumina now is significantly more weighted to spot-based API pricing. I think last year's flood, it was 80%, 10%, 10%. know eighty percent uh lme percent um you know ten percent spot and ten percent fix this year it looks like it's something like forty fifty ten so fifty percent is is spot alumina base i'm wondering what was the thought process behind going you know so so far towards uh you know spot exposure on the alumina price yeah thanks david and and just to be clear um that's the mix

the Illumina mix going forward for 2022. It wasn't necessarily the mix in Q4. But as I think I've talked about before, whenever we go to re-up our Illumina contracts or renegotiate pricing for the coming year, we'll always look at the mix of pricing available. And so we will be quoted prices both on a fixed price, an API price, and an LME percentage price. And those pricings will each, within each factor, will have a range. And when we look at those pricing, we'll sort of look and see what's on offer and make what we think is the most advantageous decision to us based on those metrics. So just for instance, you may see, you know, API is pretty easy to understand. It's just the market-based floating price. But in some quarters, you know, some years you may see LME price percentage pricing that looks attractive compared to your expectations of API. But in others, you may see LME percentage pricing that does not seem attractive. based on where that relationship of API to LME stands at the time. So that's just to give you a sense. There's no sort of broad-based call and where pricing is going, but we just look at what's on offer and compare it to the current relationship.

Okay. And just to clarify, it was 10% in 2021 that was API exposed, and now it's 50%, correct? I think I have the number.

That's correct. Yeah, that's right. Okay.

And then Okay, and then on the other part of that slide, it's not a big deal, but the value-add premiums, it says it's a $15 million quarter-over-quarter uplift. I thought the full-year value-add premium uplift was somewhere around $70 to $75 million. Does that mean it's going to sort of tick up a little bit as we go through the course of the year in terms of that sensitivity? Yeah.

Yeah, simply put, yeah, there's some timing issues around, you know, turnover for the year, as well as some volume issues with Mount Holly Billet coming online that'll sort of impact that. But you're right, we still expect that level on a full year basis.

Okay, that's it for me. Thanks.

Thank you, Mr. Gagliano. The next question is from the line of Robert Kirk with Wolf Research. You may proceed.

Oh, hi. This is Timna with Wolf Research. Hope you're doing well. I wanted to dig in a little bit more on thinking about the free cash flow discussion. One of the things that catch my eyes is certainly the rising aluminum price even in the last couple of weeks. and the sustained high aluminum price, it seems to me like that could be absorbing a decent amount of working capital going forward. So I just wanted to ask for a little guidance on how you think about that in your equation.

Yeah, and you did see a little bit of a working capital build at quarter end, Timna, as some of those higher price aluminum rolled through. And so, yeah, I think that's right. You're right on. We will now sort of expect that to come down a little bit as we start to consume some of that. And then because of our lags, as it cycles back through, you'll start to see that rising price again roll through working capital as we move forward. But you're right to sort of match it to the LME price because, you know, that relationship between API and LME continues to be at very attractive levels compared to historical relationships.

Okay, helpful. Given the bullish commentary in terms of the shortages, I wanted to revisit the opportunity to ramp up Haasville that I know you've talked about in the past. Can you just remind us about the cost and timing and any latest thinking there? I know you talked about a balanced approach to using free cash flow, but just wanted to get a little more color on how you're thinking about that further. Yeah, sure.

Thanks. Yeah, and just to be clear, there's opportunities in both Mount Holly and Hawesville to bring volume online. At Mount Holly, we need to negotiate additional energy from our local supplier. At Hawesville, we have the ability to take the energy from the market, given our market-based power contracts there. And so the question will just come, you know, we just recently got back up to full production. You know, we want to make sure that we can sustainably stay there. And then we'll look and see, you know, at when it makes sense to restart that last line. As I said before, one thing to keep in mind is that the last line is usually actually a little bit more expensive than the previous line and usually will take a little bit longer to restart. The reason for that is as you're restarting the other lines, you tend to sort of borrow from the curtailed line. And so there's some items, sort of long lead time items that we'll need to order, which will slow down, you know, that restart once we were to make that decision to restart it. So I guess kind of just to wrap it up, I think you should expect it would take a little bit longer than the other lines and also be a little bit more expensive from a capital perspective than the other lines, which you saw us do over the past few years.

And again, I know you mentioned balanced approach, but if you think about priorities given where the market is in that opportunity versus return and cash shareholders and any M&A, is it a top priority? Is it something that you're looking closely at given the very strong market dynamics?

Yeah, we do think we have really attractive organic growth opportunities, and it can both be that volume, and it could also be – value-added product expansion. So there are some good abilities to expand in our cash house with some relatively low capital numbers that you get some really pretty good paybacks on. So we do think we've got a lot of opportunities. But again, you know, just looking at sort of the strength of the free cash flow that you would see at spot pricing, you know, we think we'll have a lot of opportunity to use that in different ways.

Okay. And then last one for me, in terms of the operational... situation you've highlighted in the past with some disruptions from COVID-related absenteeism, et cetera. Just wanted to see if that was fully behind or if there are any lingering impacts into the first quarter.

Yeah, so we saw that a little bit at year end, and we saw it continue a little bit into January, but we're now mostly through the COVID side of things, I guess presupposing there's not another wave. And like I said, so for instance, that restart line at Mount Holly is now fully up and running. So I think most of that is behind us. Supply chain, probably a little bit higher risk than COVID, but we're mostly there at this point in terms of bringing that volume up. And so you'll just see it sort of build up during the quarter, but as we enter into Q2, we should sort of be reaching those sort of annual run rate levels. unless there's some sort of significant new COVID disruption.

Gotcha. Okay, I'll hand off. Thank you.

Thanks.

Thank you, Ms. Tanner. The next question is from the line of Lucas Pipes with B. Riley. You may proceed.

Hey, good afternoon, everyone. I wanted to ask about your capital allocation slide, slide 12, and back of the envelope. would seem to me like you would achieve your targets on liquidity and net debt sometime in Q2. Would it be reasonable to expect capital returns then or, you know, given your prior comments on growth opportunities, would you say maybe later this year given those conflicting, potentially conflicting priorities? Thank you.

Yeah. Hey, Lucas. Thanks. Yeah, I mean, listen, obviously the prices have been moving around a little bit. And so, when exactly we'll meet those levels, you know, as I laid it out, you know, we're sort of looking in the back half rather than Q2. So, you know, overall, I think that that's a more realistic timeline for when we might get there. But we'll continue to keep everyone updated as we get closer.

Thank you for that. And in terms of the total size, you mentioned you have a couple of different project opportunities. Is there a way to frame up the size of those, either on a total capital basis, NPV, any metrics you could share on that that would be very much appreciated? Thank you.

Yeah, I mean, for the restarted lines, you can look back at what we've told you in the past about the previously restarted lines. And again, you know, this time around, it'll probably be a little bit higher capital number than that. For the other projects, they'd be smaller. The other organic projects, those would be smaller than the restarted line numbers. So, you know, we're talking about adding incremental billet capacity or adding incremental remelt secondary recycling capacity, those types of projects, which will be more incremental than, say, restarting a full line project. Just to give you a sense, maybe.

Understood. And I want to make clear, I understand the restart opportunity properly. Does that include Mount Holly, too? Or given the current power contract, that's not really on the table yet.

Yeah, it includes Mount Holly. But just to be clear, we would need to be able to negotiate for additional volume, energy volume from our energy supplier in South Carolina. So that's something that we're working on and interested in, but we're not there yet.

Is there a sense on the timing on those negotiations? Is this a multi-year process or could we see something over the next three months, six months?

Yeah, it's difficult to say because, you know, it's obviously a bilateral discussion. So it's difficult to really give you a clear timeline. Obviously, you know, this winter hasn't been the clearest winter from an energy perspective and sourcing perspective. So, you know, it's not something that I would see in the really near term, but something, you know, it's just difficult to say whether, you know, something you could see later this year or years following.

Okay. That's helpful. Thank you very much, and best of luck. Thanks, Lucas.

Thank you, Mr. Pipe. The next question is from the line of John Tumazos with John Tumazos Ferry Independent Research. You may proceed.

Congratulations on the profits.

Thanks, John.

Is the interpretation on the hedge gain that the electricity gains were larger than the little bit lost on the aluminum hedges?

Yeah, John, this is Craig. Pretty much, yes. I mean, the easiest way to think about it is, you know, the forward stack for Midwest premium and for LME didn't degrade any further quarter over quarter. So the gain that you're seeing is really from the North Pole hedge. And if you look at the appendix slide on page 18, you get a sense of those values. And I think that would probably make sense.

With regard to the 4 million ton deficit, For 2022, you estimate in North America and also 4 million tons in Europe. Monday's IAI output was down 4.5% globally. And February comparison is tougher. That was the record output in China. It might be down 5.5%. So it would appear as though output is going to be down this year. At the moment, it feels like the world economy hasn't completely stopped. It's still growing. So would your 8 million ton deficit, if we were to take the whole world, be bigger than 8 million tons? Is it something like a 4% demand gain and 4% supply decline sort of scenario?

I don't think it would be bigger, right? The US and Europe are the two shortest markets. So as you added other markets, you would see a smaller deficit. So again, we sort of spoke about one and a half to two million times deficit in total global. But I think you're right on and focusing on the US and Europe. And I agree with you that there are certainly supply side challenges throughout the globe. in terms of production coming on in 2022. And I think what you've seen on the energy side, especially overnight, you know, really starts to show that it's going to be very difficult for some of that curtailed European production to come back on this year. And certainly there's a risk of more European production going off this year when you look at forward German and French UK power prices, you know, north of $200 per megawatt. So, you know, it's a very difficult time on the supply side, and I think, you know, presents a lot of advantages for Century, given our position within these markets and our secure supply lines to our customers.

Your 40 days supply inventory is a great number. I guess that suggests 9 or 10 million tons of inventory if we include scrap as part of the market. I make up some inventory numbers too, but just between friends. I'm not sure all the inventory exists. Clearly, there's the exchange inventories that are a little over a million tons. When you do your day supply inventory number, how do you convince yourself that there's eight or nine million tons of inventory greater than what's visible on the exchanges. You guys are smarter than me. I do the same thing, but I don't really believe myself every minute.

It certainly gets tougher to count when we start to get shorter, doesn't it, John? And so, you know, we do our best, and we look at a variety of market sources, but I would agree with you. As we get shorter, it becomes, your margin of error becomes bigger, sort of law of small numbers here. When you're off a little bit with small numbers, it has a bigger effect. We do our best. That's where we see it right now, but I take your point that it does get harder to count as we get shorter.

I make some estimates that there's Chinese hidden stocks, and I make some estimates of what the SRB might hold separately. And then I used 2.5 million tons that was the last producer inventory number the IAI published 10 years ago before they discontinued the series. So that's how I make up my inventory. I'm not sure that's there. I'm just sharing with you for your entertainment. Thank you, sir. I was going to congratulate you on raising the dividends since aluminum is around $1.56 on the LMA end. I think spot alumina is like 11% or 12% or just bumping along 17-year lows as a ratio. It would seem like it's sort of the best business climate we all could dream for. And I know you're a little over $100 million too high on your debt target. Do you think you'd feel... good enough about life to institute a dividend even sooner, given how spectacular the business climate is?

Yeah, John, I think as we said, when we look at the cycles and having been through a pretty tough decade of cycles, we want to be sure that we're going to be able to make it through. without having to take actions that are maybe detrimental to our long-term interests, whether curtailing capacity or taking other actions to preserve cash flow or margins. We see it as prudent to get to those target levels. When we look forward, we're pretty bullish on the long-term future of aluminum here. As you and I just discussed, the supply side certainly looks challenged. And when you look to all the various demand side drivers, you know, these are pretty core drivers to energy transition and greening, you know, overall world CO2 output. So, you know, we're pretty confident in the long term, but we want to be sure that we're in a good spot to make it through a cycle if one were to pop up on us.

If I could just bother you with one last one. It's great that the LME hedges are down to 118,000 tons and the Midwest premium hedges to 150,000 tons. And I guess the LME hedges sort of average about 50 cents under today's spot, although their future price is with a different term. And the Midwest premium hedges Looks like it's around 20 cents under. I own 14,500 of your shares, and I wonder if your share price would go up 10%, 30%, or 50% if you came out with a press release saying we're not going to do any more hedging, and maybe we're even going to close out a fraction of the existing hedges. Maybe my bet would be you'd go up 30% if you did that press release. Why not just tell the market you're not going to hedge anymore because you're doing well and the finances are getting better?

Yeah, John, I think we've been pretty clear that going forward, we plan to give pricing exposure to our shareholders. And I think when you compare those hedge numbers quarter over quarter for the last several quarters, I think you'll see us sticking to that plan. You know, the one piece on the hedge side that you've seen us act has been on the North Pole side. When we saw an opportunity, you know, given the risks in Europe, we did put some more North Pole hedges on. But I think we've been pretty true to that. And I think we've been pretty clear that our sort of goal going forward is to provide that exposure to our shareholders.

And we love the electricity hedges because we think that In the green world, electricity is a very scarce thing, just like aluminum. It's what makes aluminum scarce.

Thank you. Yeah, I agree. And we've talked about the supply-side challenges, and certainly those are energy-driven throughout the world. So thanks, John.

Thanks for putting up with me.

Thank you, Mr. Tumazos. There are no additional questions waiting at this time, so I will pass the conference over to Jesse Geary, for closing remarks.

Yeah, I'd just like to thank everyone for sticking with us through the call and look forward to talking to you again after Q1. Thanks.

That concludes the Century Aluminum Company fourth quarter 2021 earnings conference call. Thank you for your participation. You may now disconnect your