Century Aluminum Company

Good afternoon. Thank you for attending today's Century Aluminum Company first quarter earnings call. My name is Tania, 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 1 on your telephone keypad. I would now like to pass the conference over to our host, Peter Trubowski with Century Aluminum. Please go ahead.

Thank you, Tania. Good afternoon, everyone, and welcome to the conference call. I'm joined here today by Jesse Gehry, Sentry's President and Chief Executive 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 at speed. 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 over to Jesse.

Thanks, Pete. Thanks to everyone for joining. I'll start today by reviewing the highlights from our record first quarter results and then discussing the constructive market conditions in which we are operating. Shelly will then take you through the details of the first quarter results and provide some insights on our expectations for Q2. I'll finish with a review of the status of the Grinder-Tongey Cash House project and our progress towards our capital allocation targets. Okay, starting on page three, we're very proud to announce that we achieved record quarterly adjusted EBITDA of over 105 million in the first quarter, a 30% increase over Q4. This was matched with a 14% increase in net sales for the quarter. This performance is a reflection of the hard work completed by our century team across locations over the past several years, bringing on additional production and increasing our proportion of value-added products. We are very pleased to be seeing the returns from these past investments come to fruition. To that end, our quarterly shipments increased by 5% from Q4, reflecting our highest level since 2015. The increase was mostly driven by our expansion projects at both Mount Holly and Hawesville, both of which are now substantially complete. We should expect additional volume gains of about 10,000 metric tons in Q2 as the newly restarted pots in Mount Holly produce over a full quarter and pots come back online in Grunertangi. We achieved these production levels despite power curtailments in Iceman, decreasing Grunertangi shipments by approximately 3,000 metric tons in the quarter. As discussed on our last call, these curtailments were driven by low reservoir levels in Iceman, which have now begun to refill and return to more normal levels. The power curtailment ended earlier this month, and we are currently in the process of putting 36 curtailed pots back into production. We expect the smelter to return to full production sometime in May. Please note that as these pots are returned to production, we will have a one-time increase in our relining costs reflected in Q2 OPEX, which should not continue in future quarters. Shelley will cover the details on this in a bit. Across our assets, we remain focused on consistent and cost-disciplined operations. Over the past year, we've made significant progress improving the stability and consistency of our smelters, which allows us to operate as efficiently as possible. Grunertangi's steady execution through the first quarter of power curtailment is a good example of this. In the U.S., the team's increased shipments over 13,000 metric tons, despite dealing with continuous stress supply chains that resulted in the deferral of several major maintenance projects previously scheduled for the quarter. along with the deferred hotlining from Dr. Tongi I discussed earlier, resulted in approximately 15 million in OpEx cost savings in Q1 that will now be pushed into Q2. Finally, I'd like to take a moment to commend our operators across our assets for the significantly improved safety performance over the quarter. Safety is the core value for Sentry, and we work hard to improve each and every day. All of our employees should feel proud of the progress they've made. Okay, turning to page four, You can see the market fundamentals for our business remain robust. We continue to forecast that the global aluminum market will remain in an over 1 million ton deficit in 2022, with a shortfall being increasingly centered in our markets in the U.S. and Europe, where we are forecasting 4.3 million ton deficit in the U.S. and a 3.7 million ton deficit in Europe for the year. Global deficits have shifted west as Chinese filters have begun to restart capacity in Yunnan and Guangxi that was curtailed over the winter. These restarts appear to be progressing in line with our expectations. In the West, however, production growth is nearly at a halt, as there have not been any further restart announcements, and previously announced restarts in Brazil and elsewhere have experienced delays due to supply chain disruptions and other events. We do not foresee any restarts in Europe over the next few years, which instead remains at risk of further curtailment as energy prices in remaining production countries continue to price above $250 per megawatt into 2024. Western inventories have continued to decline, with LME stocks reaching their lowest levels since 2005. Compared with continued high freight costs across the world, these dynamics continue to support strong regional premiums in the US and Europe, where the European duty-paid premium has reached record highs of $610 per metric ton, and the Midwest premium remains near record highs of $870 per metric ton. Our geographic footprint with the short supply chains into both of these markets continue to prove advantageous in capturing these premiums. During page five, you can see that the LME price of aluminum remained strong in Q1, with LME prices averaging $3,270 in the first quarter and averaging that same price so far in Q2. On the demand side, we have experienced strong demand for all of our products here today. We continue to expect world ex-China demand growth will land between 2.5% and 3.5% range that we discussed in March. Our U.S. market remains especially robust, which we expect will outpace Europe for the year. While the war in Ukraine remains a risk to European growth, we have not experienced any significant war-related demand destruction to date. Fillet demand remains another highlight, with premiums at all-time highs as we enter Q2. In addition, our billet customers continue to order and add new extrusion presses, which we believe will underpin continuous billet demand growth for the long term. Given the strength of the U.S. billet market, we have decided to move forward with several de-bottle mixing projects in the Seabree and Mount Holly cat houses. We expect the first phases of these projects should be complete by the end of 2022 and should increase billet capacity by over 10,000 metric tons in 2023 and beyond. With these projects, along with other smaller investment projects across our assets. We now expect 2022 investment capex to be about $10 million for the year. These are all very quick payback projects and fall within our return requirements. On the cost side, we saw continued upward pressure across key inputs, with a notable exception of recent weakness in the aluminum price. The most significant of these increases have been in energy prices. Although first quarter energy prices taken as a whole were relatively flat in Q4 levels, we have more recently seen significant price increases in MISO, driven by high global coal prices and spiking U.S. natural gas prices, which seem to be driven by lower than average U.S. storage levels and strong U.S. industrial demand. While these markets remain dynamic and continue to trade in significant backwardation, we now expect higher U.S. energy prices over Q2 by about $25 per megawatt. Shelley will walk you through the expected impact for Q2. Coke and pitch prices also continue to increase so far during the second quarter, each increasing about 17% over Q1. We are well supplied for both materials, but this is one area that has been impacted by the war in Ukraine, which is the supplier of feedstock for both commodities. On the other hand, alumina has been much more constructive this month after peaking at $530 per metric ton immediately following the curtailment, of the Ukrainian alumina refinery due to the war. The early concern, following the closure of the Nikolaev refinery, appears to have been misplaced, as the market seems to be well-supplied with spot alumina trading about $370 per metric ton today. As a reminder, alumina prices flow through our results on a three- to four-month lag, which means that Q2 realized alumina prices are expected to be flat quarter over quarter. We then will expect to benefit from current low pricing beginning in Q3. Shelley will now walk you through the financial results.