Century Aluminum Company

Good afternoon. Thank you for attending today's Century Aluminum Company third quarter 2022 earnings conference call. My name is Tamiya and I will be your moderator for today. 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. It is now my pleasure to pass the conference over to your host, Peter Tripowski. Please proceed.

Thank you, Tamiya. Good afternoon, everyone, and welcome to the conference call. I'm joined here today by Jesse Gary, Century's President and Chief Executive Officer, Jerry Bialik, Executive Vice President and Chief Financial Officer, and Shelly Harrison, Senior Vice President of Finance and our 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. And with that, I'll hand the call to Jesse.

Thank you, Pete. Thanks to everyone for joining. I'll start off today by discussing the current macro environment and our operational performance, and then Jerry will take you through our Q3 results and Q4 outlook before I wrap up. Market conditions remain quite complex in Q3, with the war in Ukraine and Russia's curtailment of natural gas flows to Europe causing significant turmoil across commodity markets. The resulting high energy prices and lower aluminum prices significantly impacted our results in Q3, driving a third quarter adjusted EBITDA loss of $36 million. In this challenging environment, our team continues to take prudent measures to guide Century through these short-term macro headwinds while remaining focused on the stability of our operations and our long-term strategies. We made substantial progress during the quarter to lower our cost structure, reduce our exposure to spot energy prices, and increase our sources of liquidity. I'll provide additional details on each of these measures in a bit. Despite current headwinds, the long-term demand fundamentals for aluminum remain excellent, and we continue to execute on our existing projects to expand our value-added product lines with our Grunertage casthouse project and U.S. casthouse de-bottlenecking programs, all progressing on plan and on budget. As a reminder, we expect the first phase of our de-bottlenecking program to be completed by year-end, enabling an additional 10,000 metric tons of billet to be sold into the 2023 market. We will also enter the U.S. slab market for the first time next year and expect to sell around 10,000 metric tons of slab. This is an excellent area of long-term growth for Century as U.S. rolling mill demand continues to expand. Our Gundertongi Cast House project also remains on schedule to be completed by year end 2023. Turning to slide four, you can see that despite near-term turbulence, global aluminum supply and demand remains roughly balanced. While high energy costs have reduced European demand this winter, this has been offset by the significant contraction of Europe's aluminum supply base. High energy prices have now caused more than 50% of Europe's smelters to curtail. with additional closures expected at year end. In fact, as you can see in the chart on the upper right-hand quarter of this slide, the loss of aluminum production caused by Russia's actions have created the largest deficit for aluminum in the history of the European market. Ironically, this European deficit is now being increasingly filled by Russian-produced aluminum, creating a situation where Russia is benefiting from the very problem that it's created. Increased Russian imports will make it difficult for the European smelter base to ever fully recover. For this reason, we believe it's critical that Europe, the US, and their allies take urgent action, including sanctions, to address these unfair Russian actions and protect this critical industry. While LME pricing will likely remain volatile in the short term, longer term macro trends towards electric vehicles, renewable energy, and sustainable packaging continue to support strong value-added premiums. While we have seen some softness in the building and construction markets, automotive demand has continued to improve, and we anticipate continued strong renewable energy demands, especially as the effects of the recent Inflation Reduction Act further incentivize renewable energy and electrical vehicle build-out in the U.S. All told, we expect to sell out our value-added product portfolio in 2023. including the increased volumes from our deep bottlenecking projects, with pricing levels roughly unchanged from 2022. Turning to page five, you can see that Russian curtailments in natural gas flows to Europe have continued to drive record high energy prices in Germany, France, and other regions, with winter forwards over 700 euros per megawatt hour. High mainland European energy prices have in turn put upward pressure on pricing in Nordpool. In Q3, Nord Pool energy prices averaged about 175 euros per megawatt hour, up about 50 euros from Q2. Unfortunately, most market prognosticators now expect the European energy crisis to persist for several years. While Europe has successfully filled gas storage to near capacity this year, Russian energy flows to Europe have continued to decline, and the recent destruction of the Nord Stream natural gas pipeline has created a situation that means Europe will likely remain significantly short energy for at least the next couple of years. Considering the expected continuation of this crisis, we decided to take action in Q3 to eliminate the remaining unhedged North Pole market exposure from our Icelandic energy contracts. If you turn to slide six, I'll walk you through the details. Prior to taking this action, about 30% of our Icelandic energy contracts were pegged to the North Pole price, with the remaining energy provided under long-term LME-linked power contracts. Due to the extreme volatility on the North Pole market, we worked with our energy supplier to convert the majority of our remaining unhedged North Pole exposure to a fixed price more in line with pre-COVID North Pole pricing levels. Following this amendment to our power contract, We entered into additional financial hedging transactions to balance the remainder of our North Pole exposure, including unwinding excess 2023 financial North Pole hedges at a net gain of approximately 16 million euros. The benefit from the unwound hedges will settle in cash evenly over 2023. Finally, as is our normal practice when we enter into fixed price energy contracts, we also sold forward a small amount of LME, creating an effective L-linked price for the energy. You will see those hedges reflected on our hedging slide in the appendix. All told, we were pleased to be able to eliminate our remaining unhedged exposure to NordPool and remove this volatility from Grunertangi's bottom line results. Turning to the U.S., domestic energy markets remained elevated over the summer, resulting in average IndieHub energy prices of around $90 per megawatt hour in Q3. As we enter Q4, strong domestic renewable energy and natural gas production, paired with recovering coal production, led October IndieHub to fall and average about $60 per megawatt hour for the month. We are cautiously hopeful that these trends will continue, with forward IndieHub prices now averaging around $65 for the remainder of Q4. As expected, tight energy markets also continue to impact the power provider to our Mount Holly facility. where a force majeure event from their largest coal supplier has left the utility to cover shortages in their coal generation with market power purchases. We've started to see Mount Holly energy prices decline in Q4 as U.S. energy market conditions have improved. Moving to our other cost inputs, API alumina prices averaged $340 per ton in Q3 and have fallen to a spot price of $310 per ton today. On the other hand, carbon prices remain at historical highs as we enter Q4. While we did see the first signs of declining coke prices in Q3, the commodity remains stubbornly high and pitch prices have yet to abate. Stepping back, when you combine the effects of the global energy crisis with historically high carbon prices and other inflationary pressures, we estimate that about half of global aluminum production is loss-making at current market pricing. Judging from past cycles, loss making this deep into the cost curve has typically not been sustainable for an extended length of time. Over the long run, LME prices have instead averaged around the 90th percentile of the global cost curve, which would require a significant improvement in current conditions, either on the cost side or price side, in order to reach a stable equilibrium. Turning to operations, all of our sites are operating well and at full production. I'd like to commend the teams at each site for achieving this result while also executing on the capital and cost reduction programs we discussed on our last call. As a reminder, in response to market conditions, our teams have implemented programs to reduce planned CapEx and OpEx in 2022 by over $40 million, including headcount reductions and other efficiencies. We remain on track to achieve these savings, which are reflected in our outlook on page 10 and the appendix. Most importantly, we have remained focused on improving our health and safety and our ultimate goal to achieve an injury-free workplace. These efforts span a wide range of programs, from leadership to behaviors to technology, and I'm pleased to say that we are seeing the benefits from these efforts, with workplace injuries across entry decreasing by nearly 15% year to date. As we remain focused on consistent and cost-discipline operations, We finished the quarter with liquidity of $215 million and remain well situated to continue to operate our facilities at full production through this portion of the aluminum cycle. In order to further solidify our position, we have also added a new $90 million credit facility secured by our bus engine assets. This new facility will be incremental to our existing U.S. and Icelandic credit facilities and additive to our quarter end liquidity position. Combined with our cost-cutting measures and already strong liquidity, this new facility should leave us well-placed to continue to execute on our long-term strategies. And with that, I'll turn it over to Jerry to walk you through the financials.