Century Aluminum Company

Good afternoon, and thank you for attending today's Century Aluminum Company second quarter 2023 earnings conference call. My name is Jason, and I'll be the 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'd like to ask a question, please press star one on your telephone keypad. And now I'd like to pass the conference over to our host, Ryan Crawford.

Thank you, operator. Good afternoon, everyone, and welcome to the conference call. I'm joined here today by Jesse Geary, Century's President and Chief Executive Officer, Jerry Bialik, Executive Vice President and Chief Financial Officer, and Peter Trifkoski, Senior Vice President of Finance and Treasurer. After our prepared comments, we will 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 statements 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, Ryan. Thanks to everyone for joining. I'll start today by reviewing our second quarter financial and operational performance before discussing the current market conditions. Jerry will then take you through the financial results, and I'll wrap up before turning it over for questions. Turning to slide three, continued strong operational performance and falling input prices in our smelters drove a Q2 adjusted EBITDA of $30 million, which is an improvement of about $6 million over Q1. We made significant progress over the last several months, welcoming our new Jamalco colleagues and beginning to integrate the Jamalco operations into the century system. We are encouraged by the quality of the people at Jamalco and perhaps most especially by their excellent safety culture. Jamalco has a long history of prioritizing the safety of its workforce and the sustainability of its operations with excellent systems in place to ensure its people will return home safely each day. We have some nice opportunities to import some of the Jamalco safety systems and procedures into the rest of Sentry's operations. Jamalco did suffer an adverse weather event in early June when lightning strikes damaged the local grid. This caused a complete disruption of power to the refinery for several days and resulted in damage to several key pieces of equipment. The outage, resulting instability and a staged restart of the plant, resulted in lost production in June. The refinery returned to full and stable operations in July after gradually returning to targeted production levels over the course of June. Jerry will cover the financial impact on Q2 in a bit. As we discussed on our last call, we are in the process of implementing a series of operational improvements and investments at Jamalco to restore the refinery to its design capacity of 1.4 million tons over the course of the next several years. We expect to see some of those volume gains begin to appear in Q3 and Q4 of this year, which should allow the refinery to reach an annualized run rate of 1.2 million tons by the end of the year. We'll provide additional detail on 2024 and beyond on our Q4 call. On the smelter side, our teams have done an excellent job operating each of our plants through some very high temperature days over the past several months. Operational performance at each smelter was stable and at targeted levels across the quarter. We are pleased to see that operational improvement programs we began implementing two years ago really paying off with the excellent stability the smelters have seen over the past several quarters. We expect these programs will continue to pay dividends as we move into 2024. Turning to the market environment on page four, you can see the global supply and demand remains roughly balanced as we enter the third quarter. although Chinese supply gains and some short-term demand weakness have moved the market from a slight deficit last quarter to a slight surplus this quarter. In Q2, the three-month aluminum price averaged $2,286 per ton, down about $150 from Q1 levels. Regional delivery premiums declined in the quarter as well, but remain elevated from historical levels. In general, the aluminum market in the second quarter reflected the uncertainty in the broader economy. Persistent inflation and rising interest rates have cooled demand in the short term. This is most evident in our value-added product sales, where billet demand remained slow during Q2. This was most acute among our building and construction customers, while automotive and renewable energy markets remained a bright spot. In this environment, we remain focused on disciplined cost management and executing our improvement programs to best position ourselves for the eventual market rebound. Turning to the supply side, previously curtailed production in Yunnan began to restart in the quarter, as power availability in the province improved. These restarts more than offset curtailments in Sichuan and brought the overall Chinese markets closer to balance. While Yunnan hydropower production did benefit from recent rainfall, reservoir levels in the province remain below normal levels, leaving it at risk of a third straight season of production cuts once dry season returns this fall. Overall, while global supply and demand have returned to near balanced levels, global days of inventory remain near 50 days. Inventories have remained at these relatively low levels despite a growing number of global consumers no longer accepting Russian metal. following the Russian invasion of Ukraine. This means that while overall global inventories have remained low, they are increasingly made up of Russian origin metal. In fact, Russian metal now makes up around 80% of LME inventories, up from just 10% prior to the war in Ukraine. With inventories at these historically low levels, LME prices and regional premiums should respond swiftly once demand conditions improve. As you can see from our energy chart on page five, EU energy prices remain significantly elevated, leaving remaining European smelter margins challenged. With forward energy prices remaining above $150 per megawatt hour, we do not anticipate any significant European smelter restarts in the near term. Turning to page six, we can see that smelting costs have come down across the board, most significantly on the energy side. where Q2, IndyHub, and North Pole both reflect an over 50% reduction from year-ago levels. Energy supply and demand fundamentals remain constructive, with U.S. natural gas reserves sitting 22% above year-ago levels and 12% above the five-year average. Utility coal stockpiles are also full, nearly 60% above a year ago. These high level of U.S. gas and coal reserves should help to ensure power prices remain constructive over the next six months. Turning to raw materials, Coke and pitch prices have now finally begun to fall, with Coke prices averaging $582 in the quarter, down almost 25% from year-ago levels. Pitch prices also moderated. On the refining side of our business, Jamalco's primary outside raw material inputs are caustic soda, LNG, which is priced off of reference to Henry Hub, and HFO. Most of these input costs have declined over the first half, with U.S. natural gas prices averaging $2.15 per MMBTU in Q2, down over 70% from year-ago levels, and HFO averaging $63 a barrel, down about a third from Q2 2022. Caustic prices have also been falling precipitously, down over 50% from last year. With that, I'll turn it over to Jerry to walk you through the financial results in our Q3 outlook. Jerry? Thank you, Jesse.