Century Aluminum Company

Good afternoon and thank you for attending today's Century Aluminum Third Quarter Earnings Call. My name is Jason and I'll be the moderator for the call 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'd like to ask a question, please press star one on your telephone keypad. Now I'd like to pass the conference over to our host, Ryan.

Thank you, operator. 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 Peter Trypkowski, 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, and thanks to everyone for joining. It was a busy quarter with lots to discuss, so I'll get right into it. Turning to slide 3, lower LME and regional premiums were the primary drivers of reduced Q3 adjusted EBITDA of $9 million. While we were able to offset a significant portion of the falling metal prices with lower input prices, higher than expected Mount Holly power costs resulted in our Q3 results falling a bit below expectations. We expect Mount Holly energy prices to return to normal in Q4, and as we recently announced, we entered into a new power contract for Mount Holly that will become effective on January 1st. I'll provide some additional detail on that new contract in a bit. In general, the macro environment for aluminum remains complex. As you can see on page 4, the global market remains roughly balanced, with Chinese deficits largely offsetting a small surplus in the rest of the world. Turning to China specifically, Chinese demand has benefited from strong solar and electric vehicle demand, with Chinese solar demand alone up around 1.5 million tons from last year. Recent stimulus announcements in China should drive further recovery in building construction demand as the Chinese economy continues to recover from COVID lockdowns. Reports have also recently emerged that Chinese smelters in Yunnan will again have to curtail around 1 million tons of capacity due to low reservoir levels in their hydroelectric schemes. Once confirmed, this third straight season of Chinese production cuts would add to the Chinese deficit shown on slide 4. Overall, while realized LME prices fell to average $2,155 in Q3, global delays of inventory remain below 50 days. With inventories at these historically low levels, LMEs should be poised to recover quickly on any positive demand recovery or any further supply-side disruptions, as we saw following the announcement of the UN seasonal curtailments. While we wait for the macro cycle to improve, we have implemented programs across the company to lower costs, increase efficiency, and free up cash where possible. One example of this is the renewed focus on working capital management that Jerry will discuss with you in a minute. These efforts will help us remain robust during this portion of the cycle without interrupting our long-term investments and strategies. Turning to slide 6, we can see that falling input prices have also helped to offset the decline in metal prices. IndieHub and NordBold have both remained constructive, while Coke and Caustic prices have continued to fall towards normalized levels. Natural gas inventories in both the U.S. and Europe remain well above five-year averages, making a repeat of the high energy prices from last winter less likely. Turning to operations, we made significant progress on a number of our longer term initiatives during the quarter. At Mount Holly, we were very excited to announce late last month that we reached a new three-year power contract with Santee Cooper through 2026. The agreement represents extensive work between the Century and Santee teams to structure a mutually beneficial arrangement. Disagreement allows us to continue to invest in this excellent plant, preserve approximately 470 jobs for our employees, and continue to contribute to the economic success of the surrounding community. Under the new arrangement, Mount Holly will be less exposed to changing fuel costs, including a fixed all-in 2024 energy rate that is below our 2023 realized rates. And Holly also has the right under the agreement to increase the amount of energy provided under the contract. Should we decide to return the smelt for full production when market conditions warrant? In Iceland, operational performance is strong, continuing to reflect the excellent team we have built there. The Grunertangi Cast House project is nearing completion and remains on track to deliver our first sales low carbon natural billet to European customers early next year. We will provide you with additional details of the expected benefits of this value-added production on our Q4 call. In Jamaica, the first major project in our Project Restore CapEx program is nearing completion, with the recommissioning of one of the plant's high-efficiency boilers set to be completed by the end of Q4. This boiler will increase the efficiency of the refinery's steam generation systems, while also driving improved stability in the plant's powerhouse. A second high-efficiency boiler is expected to be recommissioned in late March. These projects should begin lowering Jamalco's cost of production beginning in Q1. Today, the cost of these programs are coming in on the low end of our expected cap expending at Jamalco for 2023. In September, Jamalco suffered a power disruption resulting from an equipment failure in the same power generation unit responsible for the disruption in Q2. This caused the refinery to operate at partial production levels for a portion of September and all of October. We believe the refinery has now returned to full and stable operations. Without these disruptions, Jamalco would have operated roughly breakeven in the third quarter at spot aluminum prices. Given the magnitude of these disruptions, we have submitted these claims to our insurers and expect to recover those losses under our insurance policies. In line with our past practice, we will adjust out both the impact of the outage and the future recovery of insurance proceeds from our results.