Century Aluminum Company

Ladies and gentlemen, thank you for standing by. Welcome to the Century Aluminum Company First Course Out 2024 earnings conference call. All lines have been placed on mute during a presentation portion of the call with an opportunity for question and answer at the end. If you'd like to ask a question, please press star followed by one on your telephone keypad. I would now like to hand the conference call over to our host, Ryan Cawthead. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the conference hall. I'm joined here today by Jesse Gary, Century's President and Chief Executive Officer, Jerry Bielak, Executive Vice President and Chief Financial Officer, and Peter Czapkowski, 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 .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 the 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. We made lots of progress this quarter with some exciting new initiatives, so we'll start today by quickly reviewing the improving market environment and the strong operating performance we need to our plants. Jerry will then take you through the details of our excellent first quarter results, and then I'll finish with an update on our new U.S. Greenfield Smelter project and our recently announced secondary joint venture with MX Holdings. Overall, strong operational performance and declining costs drove adjusted EBITDA of $25 million in the first quarter. Jerry will give you the full details here, but we are really proud of the job our team did across our locations to operate safely and efficiently through the quarter. We have seen a real improvement in the safety culture across our plants, which is reflective of strong plant leadership and the commitment that all of our employees have made to operate safely. Turning to slide three, market conditions remained broadly balanced in the first quarter before an improving demand picture in the U.S. and Europe paired with continued strong demand in China drove LME prices substantially higher in April. This pickup in demand was evident in regional premiums as well, with the European premium increasing most notably over the course of the quarter to be up nearly 50 percent from year-end levels. Aluminum prices up about 10 percent from Q4 levels, driven by supply curtailments in Australia. In April, spot aluminum prices have followed LME higher as production disruptions in India and elsewhere have made for a tight market. In rising aluminum markets like these, we can see that most clearly the strategic value of our Jumalco acquisition and the capital supply of high-quality alumina and bauxite that it now provides for our smelters. Combined with our long-term commercial contracts, the Jumalco acquisition makes us roughly net neutral to APII pricing as a company. Production at Jumalco also improved through Q1, and I'm pleased to say the refinery returned to profitability in March. Of course, the team is not resting on this achievement, and we plan to continue to drive additional efficiencies and operational improvement through the balance of the year. Turning to the global trading environment, as you can see on slide four, global inventories remain at post-financial crisis loads with the vast majority of available metal around the world being comprised of Russian stocks, including over 90 percent of all LME inventories. Long-term global trends towards near-shoring strategic mineral production, including aluminum, continue to accelerate this month with new government actions announced in the U.S., U.K., and Mexico that will impact global aluminum flows and supply into our key markets in the U.S. and Europe. Most broadly, the U.S. and U.K. announced earlier this month new sanctions on Russian aluminum and other metals, including a ban on physical import of Russian metal into the U.S. and U.K. produced after April 13th. The sanctions further restrict the ability of the London Metal Exchange and Chicago Mercantile Exchange to accept delivery of Russian metal into licensed warehouses. We'd like to thank the U.S. and U.K. administrations for taking this necessary action. We firmly believe that this was the right step, and we urge the EU to take action as well to ensure a consistent approach across Western markets. Out there in North America, Mexico announced last week the immediate imposition of new tariffs on a number of industrial goods, including primary aluminum and other aluminum products. The new tariffs, including a 35 percent duty on P-1020, a 20 percent duty on value-added products, and 25 to 35 percent duties on aluminum extrusions, will apply to all countries with whom Mexico did not have a free trade agreement, including countries that exported over 700,000 metric tons of P-1020 and value-added aluminum products into Mexico last year. While the full details of the program are not yet clear, including the applicability of exemptions and products re-exported from Mexico, the actions are expected to be supported of U.S. delivery and value-added product premiums. In the U.S., we continue to expect that pending anti-dumping and countervailing duty trade case against extrusion imports will have a significant positive impact on domestic U.S. bill of demand beginning in the second half of this year. In March, the Department of Commerce granted U.S. extruders an early victory by imposing preliminary duties on the subsidy portion of the case, and in May, we continue to believe that commerce will also impose additional anti-dumping duties on 14 countries. If so, the duties would go immediately into effect and are expected to add strong support to the U.S. extrusion and billet markets. As a reminder, we did hold back some second half billet volumes for spot sales in anticipation of improving U.S. market conditions and a more constructive pricing environment. Finally, we continue to discuss with the U.S. Treasury Department the potential to add direct and indirect material costs as eligible costs under Section 45X of the Inflation Reduction Act. In late February, I testified at the Joint Treasury and IRS hearing regarding this issue, noting specifically the essential nature of these material costs to aluminum production. Our position is in line with testimony and comments submitted from a broad set of industry participants, ranging from critical mineral producers to our downstream customers, including automotive companies seeking to ensure stable domestic supply chains. If direct and indirect material costs are ultimately added as eligible costs, we expect to recognize an additional annual benefit of $50 million to $55 million for 2023 and similar amounts for 2024 and going forward. Any increases in future production at our existing or new U.S. smelting sites would also be eligible for the production tax credit and would be expected to increase our annual benefit on a roughly pro rata basis to the amount of increased production. During the operations, we saw strong and stable performance across our smelters in the first quarter and our Jemelko refinery returned to stable operations and reached profitability in March. In Iceland, the previously announced 20 megawatt energy curtailment did drive lower volumes from Gundertonggi and Q1 as expected. When the power curtailments were initially announced, they were expected to finish by the end of April, but we now expect that they will continue until the end of May as Iceland has continued to experience an abnormally cold spring, leading to lower snowpack melt loss and reservoir levels. This impact is included in our Q2 guidance. In better news of Gundertonggi, we did cast our first billet out of our new Greenville Cast House earlier this month. We are now producing trial orders for our European customer base and expect to qualify with our key customers over Q2 and Q3 before ramping production for normal commercial sales in the fourth quarter and beyond. We are very excited to begin supplying this much-needed natural low-carbon billet into the European marketplace. Finishing out the energy picture, energy prices in the U.S. continue to be constructive, driven by a moderate spring and natural gas prices below $2. Given the continued constructive energy markets and recent uptick in LME, we did make the decision to de-risk our Seabreeze energy exposure a bit and hedge forward a small portion of Seabreeze power price exposure as well as a corresponding amount of metal price exposure over the next 12 months. On the raw material side, we have finally begun to see many of our raw material imports reach pre-pandemic price levels, with Coke and Cossack soda prices both falling below $400 per metric ton. Due to our contractual and physical inventory lags, the benefits of these price decreases will take some time to roll through our results, which Sherry will give you a bit of more detail on in a bit. Finally, at Mount Holly, we made good progress during the quarter towards completing the necessary engineering and procurement plans to enable the potential restart of the remaining 25 percent of production that is not operating today. As we've discussed before, our experience with these restart projects is that it is best to be thorough in the planning stage rather than to rush the restart and potentially create operational and cost issues down the line. We are hopeful that we will have additional updates for you on our Q2 call later this summer, but we do not expect that we will have any significant capital or cash requirements for the restart over the course of 2024. Sherry, we will now walk you through the

quarter and our Q2 outlook. Thank you, Jesse. Let's turn to slide seven to review first quarter results. On a consolidated basis, first quarter global shipments were approximately 175,000 tons, up slightly from prior quarter despite the power curtailments in Iceland. Realized prices, however, decreased versus prior quarter due to lower value added and regional delivery premiums. Resulting in net sales of $490 million, a 4 percent decrease sequentially. Looking at Q1 operating results, adjusted EBITDA attributable to Century with $25 million. This was a sequential decrease of $32 million, primarily driven by the recognition of the full year of 2023 IRA Section 45X credit during the fourth quarter compared with one quarter of 2024 credit recorded in the current period. Normalizing for the timing of the recognition of the Section 45X benefit in the prior quarter, adjusted EBITDA improved due to lower energy and raw material costs which were partially offset by the anticipated lower value added product premiums. During the period, we finalized purchase accounting for the Jamaica acquisition and recorded a bargaining purchase gain of $246 million. Adjusted net loss was $3 million or $0.03 per share. The main adjusting item is the deduction of $246 million dollars related to the bargain purchase gain. As a result of finalizing purchase accounting, we have now updated our 2024 outlook for depreciation and amortization to between $100 and $110 million for the year, as you can see on slide 19. We maintained strong liquidity of $302 million at the end of the quarter, consisting of $93 million in cash and $209 million available on our credit facilities. Now turning to slide 8 to explain first quarter sequential improvement in adjusted EBITDA on a normalized basis. In total, adjusted EBITDA for the first quarter was $25 million. Realized LME of $2,190 per ton was up $8 versus prior quarter, while realized U.S. Midwest premium of $409 per ton was down $16, and European delivery premium of $223 per ton was down $57. Together, LME and delivery premiums amounted to a $4 million headwind in the quarter. Power cost decreased by $4 million. Realized quote prices decreased $71 per ton, and realized pitch prices decreased $163 per ton. Together, raw material cost resulted in a $13 million improvement in EBITDA. Lower value added premiums created a headwind of $9 million. OPEX was $9 million better than prior period, including the OPEX efficiencies we identified in last quarter's outlook, and in addition, some deferred pot relining expense related to the Iceland power curtailment that will now be incurred in the second quarter. With that, let's turn to slide nine for a look at cash flow. We began the quarter with $89 million in cash. Adjusted EBITDA contributed $25 million. Capital expenditures totaled $30 million, $17 million of which relates to the Grundertongie Cast House project. We increased short-term borrowings to fund normal working capital flows, as I pointed out last quarter. At the end of quarter one, we had $93 million in cash. Let's turn to slide 10, and I'll give you some insight into our expectations for the second quarter 2024. For Q2, the lagged LME of $2,265 per ton is expected to be up about $75 versus Q1 realized prices. The Q2 lagged U.S. Midwest premium is forecast to be $417 per ton, up $8. The European delivery premium is expected at $270 per ton, or up about $47 per ton versus the first quarter. Taken together, the LME and delivery premium changes are expected to increase Q2 EBITDA by approximately $15 million versus Q1 levels. We expect power prices to be in a range between flat to a $5 million benefit. Collectively, we expect our key raw materials to be about flat. We expect volume to be flat to a slight headwind, given normal summer seasonality at our U.S. smelters. Finally, we expect a headwind of about $10 million related to pot relining expense deferred from Q1 because of the power curtailment in Iceland. All factors considered, our outlook for Q2 adjusted EBITDA is expected to be in a range of between $25 to $35 million. I want to take a moment to demonstrate the earnings potential of the business at current market conditions. As we have discussed, historically, rising LME prices take time to roll through our results due to contractual lags with our customers. If we were simply to adjust the outlook range to current LME spot prices only, the business could generate $75 to $85 million of quarterly adjusted EBITDA, and improvements in regional and value-added premiums would add additional upside. The work that we've done to stabilize operations and drive efficiencies, along with favorable market conditions, provide exciting opportunities for the business. And now, I'll turn the call back over to Jesse.

Thanks, Jerry. Turning to slide 11, I'm pleased to present our two new exciting growth projects that we announced this quarter. One of our core strategies at Century is to capitalize on our position as the largest producer of primary aluminum in the U.S. market, which is the shortest market for aluminum in the world. Our production footprint in the U.S. is close to our customer base, allowing us to offer unmatched flexibility and service to our customers, while benefiting from strong regional premiums and long-term trends towards nearshoring supply chains and critical mineral production. Both Seabury and Mount Holly are well known in the marketplace as tier one suppliers of billets and other value-added products. Demand for aluminum products in the U.S. has continued to grow as long-term trends towards renewable energy and electrification call for increasing amounts of advanced aluminum alloys and green aluminum products. And in order to capitalize on these trends, we have looked for ways to build on our leading position and meet this ever-increasing demand from our customer base. Turning to slide 12, the first of those opportunities is to make a more substantial foray into secondary aluminum production. This has long been a priority for us, and as we've discussed in the past, we've engaged in some small amounts of secondary production in our existing U.S. casthouses. Through this experience, we were able to engage with our customers and see the growing demand for green recycled billet production in the U.S. Given the differences in supply chain and operational expertise necessary to build and operate a secondary casthouse, we quickly realized finding a partner with experience in this space would be key to successfully entering this new line of business. And as we announced in March, we were thrilled to find the perfect partner in MX Holdings, a long-time operator of secondary casthouses, scrap procurement, and trading businesses in the U.S. MX Holdings strategy and expertise complement our own, and we have quickly found that the two organizations share a common set of values and people-centric culture. Together with MX, we are far advanced in our plans to construct a new 250 million-pound secondary billet casthouse in the Ohio Valley region. The casthouse is being designed with cutting-edge casting and post-consumer scrap processing equipment. When paired with our combined advanced technical expertise, billet produced by the joint venture will deliver exceptional quality and performance and enable our customers to achieve their sustainability objectives for next-generation extrusion products. Engineering work and supply chain planning is near completion, and we expect to be in a position to make the final investment decisions in the third quarter. Upon completion in 2026, the casthouse would be the largest American-owned secondary billet casthouse. The joint venture will be complementary to our smelters by offering our existing extrusion customers a complete suite of primary and secondary value added products, as well as the potential for a closed-loop supply chain solution through scrap tolling arrangements. We expect we will be able to provide you with more details on those projects on our Q2 call in August. Okay, turning to page 13, we were thrilled to announce late last month our plan to build a new -the-art green aluminum smelter here in the U.S. The green aluminum smelter project would nearly double the size of the existing U.S. industry and build on our leading market position to fulfill the ever-growing strategic need for secure domestic U.S. supplier of low-carbon primary aluminum alloys and value-added products. The new green aluminum smelter would provide our U.S. customer base with a secure domestic source of low-carbon and military-grade primary aluminum, as well as a full suite of value-added products produced with -in-class technology. We've been working on this project for quite some time and were extremely proud and grateful to be selected by the U.S. Department of Energy to receive up to $500 million in funding as part of the industrial demonstrations program. The selection process for the DOE grant was extremely competitive, and for our project to be selected for this historic investment is confirmation of both the strategic need for domestic primary aluminum production and the viability of the project. Combined with the Section 45X production tax credits, this generous grant from DOE shows the significant commitment that the Biden administration has made to ensuring that this critical industry and its workers will be producing the strategic metal in the U.S. long into the future. I'd also like to thank Dave McCall and our colleagues at the United Steelworkers for their help and shared commitment towards making this project a reality. The green aluminum smelter is expected to create more than 1,000 full-time direct jobs represented by the United Steelworkers and over 5,500 construction jobs. Of course, this new aluminum smelter is a tremendous undertaking and will take years to complete. As detailed on our announcement of the project, we've already begun engineering work, energy procurement, and site selection, focused on the Ohio and Mississippi River valleys, and have narrowed the potential location of the smelter to three states. Our next immediate steps on the project will be completion of the site selection and energy supply negotiations, finalization with the Department of Energy regarding the terms and timing of the $500 million grant, and completion of our second phase of engineering work. We expect to make significant progress on each of these initiatives over the next several months, and we'll provide updates on each on our next call. I can't tell you how proud we are to be announcing these two projects and helping to ensure the future of the U.S. aluminum industry. We look forward to your questions today and we'll turn the call over now to the operator.

Operator Thank you. If you'd like to register a question, please press start followed by one on your telephone keypad, ensuring you are unmuted locally. If you'd like to withdraw your question at any time, you can do so by pressing start followed by two. The first question comes from the line of Lucas Pike of B Riley Securities. Your line is now open. Please go ahead.

Lucas Pike Thank you very much, operator. Good morning everyone and congratulations on your progress on many fronts. One of them is starting production in Iceland with the Cast House and it sounds like you'll be ramping up over the course of this year. In Q2, I would imagine you're probably still losing money as you ramp up and I wondered if you could maybe articulate that so I can fine tune my model and get a better sense for the impact,

especially as the facility ramps. Thank you. Operator Thanks for the question. You're right that over Q2

and Q3, the capsid volumes will be fairly limited, mainly consisting of trial loads for our customer base in Europe. Most of those volumes will come over the course of Q2, sent into Europe where they'll be trialed over Q2 and Q3 and then you'll actually start to see the volumes ramp in Q4 as we mentioned and should be going full out in Q1. In terms of the cost structure, that'll all be included in the guidance that we get over that period and then you'll start to see the additional upside for the business of those billet sales starting to hit in Q4 and then full out in Q1 at 25.

Got it. So the big step up would come not in Q3, it's really kind of in Q4 versus Q3 where we would see that kind of quarter over quarter step up in

EBITDA thanks to this asset. That's correct. There

will be some sales in Q2 and Q3, but those are really pretty small and really just trial loads into the customers.

Any way to quantify the potential impact in Q4

versus Q3? We'll of course give that guidance on

our Q3 call. What I would just say for now is there will still be a ramp up period in Q4 as you start to sell into that customer base. So it won't be the full out quarters worth of volume that will hit in Q1 at 25, but it will be substantially higher than what you'll see in Q2 and Q3.

Yeah. I appreciate that. Thank you. And then on your new, on the project you outlined in the US, first congratulations on that. Very exciting on many different levels. On the new cast house, it sounds like if I read it right, we'll start in 2026. And I wondered if you could maybe give us a sense for the economics around that project. What's the capital intensity? How would spending be paced over the next two years? And anything you could share on the return thresholds would be very helpful. Thank you.

Sure, Lucas. Yeah, you're right. We're really excited about this project. We've been talking for a long time about our aspirations to enter this portion of the business. And we're indeed seeing a lot of increased demand for secondary aluminum, both here in the US and also in Europe and elsewhere. So it's a really good opportunity for us to enter the space. We think it's going to be very well received by the market. And as I mentioned, it's actually very complimentary to our existing billet business in the US because we are able to offer closed loop supply chains to our existing billet customers. And we'll be able to offer that sort of that full suite of both primary and secondary products to the customer base. So we do expect that we'll be in a position to make an investment decision, hopefully in Q2 and Q3. And once we do make that decision, we will provide everyone with an update on exactly what the project looks like and what the expected returns are at that time. We are continuing to sort of finalize engineering work, as I mentioned on the project, working with our partner at MedEx on that. But we're really far advanced on this one and excited about it. I think it's going to be a good project. Just in terms of very high level on spending profile and return profiles, we do think this will be an asset that we're able to secure some pretty attractive financing on. And then, of course, it is a joint venture, $51.49 with us on the small minority side. And so that will decrease the cash requirements from our side. And we think with the financing structures we're looking at, we shouldn't have much cash requirements to the project over the balance of 2024. So that's to give you a little bit of sense on the timing. We'll, of course, give more detail there going forward. And then in terms of return perspectives, we talked a little bit without getting into specifics. We haven't finalized engineering work on the project, but we've talked a little bit about our return requirements in the past. When we were talking about the Eisencast House, and just remember there, we said we were looking for unlevered IRRs in the mid teens. And so that gives you some sense of how we look at these projects going forward. And then finally, just one other consideration that we really like about this business and complementary to the rest of our business is the secondary business is really LME independent because you're purchasing scrap at a discount to LME in the marketplace and then converting it and selling it at LME prices to your customer base. So it really becomes a processing and margin business, which will be independent from the rest of our business, which is LME exposed.

Very helpful. Thank you for that. And just to follow up on the financing,

should

I expect the vast majority of the capital, the project level

loan of either secured or unsecured? Yes, we do expect that this will be project level financing.

All right. I have more questions, but really appreciate all the colors so far, and I'll turn it over. Thank you and best of luck.

Thanks for this.

The next question comes from Katja Jancic of BMO Capital Markets. Your line is now open. Please go ahead.

Hi, thank you for taking my questions. On the green aluminum smelter, can you talk a bit about how much you think this smelter would cost in total?

I got you. Thanks. Yes, as

I said on the call, we're really excited about the green smelter. This has been for someone who's worked in the US industry for over 15 years, it's really rewarding to be talking about growth. And when you look at the overall supply situation, the US is over a million tons short. It's very clear that something like this is needed. And I think the grant that we got from DOE is really recognition that that's recognized all the way up to the national and federal level. I know the importance of aluminum is a critical mineral to the supply chain. In terms of process going forward for the smelter, and to your question specifically, Katja, we are focused on the process ahead of us. As I mentioned on the call, a portion of that in the near term will be site selection and also securing the energy contract. We're pretty far advanced on that front. So we expect to make good progress there. And then as a part of that is really finishing the second phase of the engineering work for the project. And that will take several months to complete. Coming out of that engineering work, we'll have a much better sense and narrow down on what the total capital cost for the projects will be. And hopefully at that time, we'll be able to give you a little bit better sense. But at the moment, we're really just focused on the process of moving the project forward. We're really excited about the project. We think it's going to have very attractive returns. And obviously, we find ourselves in an environment with the DOE grant, with the 45X benefits, with the shortness of the U.S. market and the core song and premiums that we're able to recognize in the U.S. And this real opportunity to put a cutting edge facility here in the U.S. close to our customer bases with the flexibility that we offer them from our existing cast house of products close to them. We think it's a really attractive opportunity for us.

That's fair. But is it fair to say that it would be a multi-billion dollar project?

Yes, it will absolutely be in that range, Katya.

And maybe then on, and I know this is very early, but would you look to potentially even partner someone on building this project? Would that be a possibility?

Yeah, we're looking at a variety of different financing alternatives. As I said, we're pretty confident with all of those items that it will be an attractive opportunity. So we think if we did want to bring in a partner, we think that would definitely be something that would be attractive to them. But it's a little too early to talk about exactly what the financing structure would look like.

Okay, if I may, one more on Jamalco. What is the utilization rate of the facilities during the operating?

So we're right around that 1.2 million tons of annualized volume that we originally mentioned. What we've been focusing on and what sort of drove some of the improvements in the return to profitability in March was really the stability of the operations coming out of some of those disruptions that we had in Q4. Really proud of the guys and gals for pushing through and reaching that stability again and returning the plant to profitability. And we're excited about what it means going forward.

Okay, thank you. Thank you.

The next question comes from the line of Timnath Tanis of Wolfs Research. Your lines are open. Please go ahead.

Yeah, hey, good morning. I wanted to ask a bit more follow-up on those topics. So on Jamalco, I just wanted to be clear as far as I missed it. Is the outage resolved and you should be at a more normalized run rate in Q2? Are there lingering issues? Where does that stand?

Yeah, you're right on, Timnath. Equipment issue is resolved. We should be at that normalized run rate in Q2. And we do expect that the refinery will continue to be profitable over the second quarter.

Okay, great. Thank you. So you guys are busier than ever. I can't recall a time that I've covered you with quite so many projects in play. You've got the new smelter, the cast house, you know, Iceland cast house. I mean, it's quite a bit. And just trying to understand high level, you know, you're deciding to look into a new smelter and add a capacity also through the new cast house. But you also have capacity offline at Hossville and at Mount Holly. So first off, where do you see all the additional aluminum going? Is it taking share from imports, I assume? Is there a really, I mean, if you're doubling capacity through the new smelter and also adding capacity, like what's the vision there? And also, how do you balance the alternatives between restarting existing capacity and looking to add new capacity and then the primary versus secondary smelters? Just want some more of your thoughts there, please.

Yeah, sure. Really good question, Timna. And first, I would just like to say one of the, I agree with you, we're just about as busy as we've been. A lot of that is driven by our excitement and, you know, our views of aluminum demand going forward from here. You see global inventories at post-financial crisis lows and LME stocks themselves lower than we've seen since before the financial crisis. And we start to see improving demand both in the US and Europe and very strong demand out of China. So, you know, we are really excited about the future of the aluminum industry. We think we're the right metal to meet a lot of the macro trends we spend a lot of time talking about. And that's really what's driving all of this work from our part, because we think there are opportunities out there for us. And secondly, I'd like to also just give a little bit of recognition to our operations team. We are as busy as ever on the project front, but it's because one of the reasons we're able to do that is because the operations have been more stable for longer than we've seen in a long time. And real credit goes to our operating team for achieving that. And we're frankly, it's been volatile macro environments, but they've kept their nose to the ground and we've really done a good job there. Okay. So then to your question, Tim, we do have a lot of projects in front of us. We do think there's a lot of opportunities in the US to fill that 4.1 million ton short position with US production. And indeed, that would our design would be to replace imports and take that share. As I said, you will get growth on the demand side, but with volumes like we're talking about with the new smelter plus the secondary cast house plus potential for Mount Holly restart, for instance, there is a lot of ability to come in and start to fill some of that gap. And we think when you look at the global trends, as I talked about on the call, between 232, between Russian sanctions, between Mexican tariffs, a lot of the work that's going on in the EU, what's very clear globally is that people are focused on secure supply chains. And because of our operational footprint, we're better situated to offer that to our customers and really anybody else. And we want to execute on that and continue to offer that to our customers. So we think all these are viable. And we're looking at all these, we're continuing to progress Mount Holly restart. As I said, on the call, we're doing the work upfront to make sure that we can execute once we're ready to go. But all of the we're indeed looking at all those projects to know.

Okay, so that was helpful with regard to how you're thinking about the aluminum market and obviously vast amount of capacity additions that you're looking at. But if you could talk a little bit about why build a new smelter, you know, you've you know, that there hasn't been one built primary smelter in over 40 years, there's probably a reason for that. Maybe this is a unique opportunity because of the barriers you mentioned, right, the sanctions and 232 tariffs, etc. But why not, you know, focus more on secondary as a green alternative? And why build versus restart existing?

It's a good point, Timna. So as you mentioned in your call, there has not been a new smelter built in the US since Mount Holly was built in 1980. And as you might imagine, there's been a lot of advancement on the efficiency side over that time period. So, you know, we're ready to build and produce for the long term here in the US, we think those existing sites are viable, but what with the new smelter, we'll be able to create a cost footprint that should be first quartile globally. And that's a really a game changer for us. And you're right, putting together some of the nearshoring trends, the DOE grant, the 45x tax credits, you know, we think there's a real opportunity right now to engage in that. And that's really why we're looking at that. Maybe secondarily versus secondary, looking at primary versus secondary growth, we think there will be growth in both. There are many applications that do require primary. And so we think that's a good driver here for the primary smelter. And then there's also demand growth and additional calls for secondary aluminum, and its recycled nature and green credentials. So we think being able to offer our customers both of those things at home here in the US is a really nice initiative and nice suite of products that will be helpful when we're making sales for our customers.

Okay, I'll leave it there. Thanks again.

Thanks, Timon.

Your final question comes from the line of John Thomas, Thomas of John Thomas independent research. Your line is so open, please go ahead.

Jesse, could you give us a little primer and pot linings 101? Does the $10 million do the whole thing in the second quarter? Or will it continue into the third and fourth quarters? When you realign the pots, do you realign them one month before you expect them to fail or one year before you expect them to fail? And was there a productivity loss in the first quarter delaying the pot line realign by the pots that failed or some output that you lost?

Sure, John, happy to do it and really

just to talk about this generally. So as we discussed, we did have a bit of an energy curtailment from one of our suppliers in Iceland in Q1 and falling into Q2. And what you do when you get an energy curtailment like that is you generally will take a small portion of your pots offline, basically to reduce your energy consumption. And so that's what happened in Q1. And you might imagine when we choose which pots to take offline, we take the ones that would be due for relining during that quarter anyway. So in Q1, you get a bit of a deferral because you're not relining pots, because you've taken them out to meet the energy curtailment. And then as we get ready in Q2 to put those pots back online, you will reline both the pots you would have relined in Q1 and the pots you are planning to reline in Q2, which is what really drives that $10 million headwind that you see there. So that'll be a one-time thing in Q2, but we will not repeat and we'll go back to our normal pot relining process going forward.

Are there any other expenses that might have been delayed where you'd have a little breathing room now with the metal price rising? For example, is Peter and Ryan or all the engineers working on these projects due for a 10% raise? Are there other costs catch-ups now that things are moving in the right direction?

Not really, John. As we go through the cycles, we do try to maintain and run our sustaining capex programs on a steady basis. One thing you learn being in this business over long periods of time is while the market is cyclical, you really want to keep these plants operating as stable as possible through the cycles. And so we try not to defer large amounts of that sustaining capex over time. So not a whole lot of items that I can think that would fall into that category should be pretty clean going forward in that perspective.

I want to compliment you on working so hard with the secondary aluminum expansions in the greenfield smelter. The market needs it and it's great that you guys burn the midnight oil and do all these things.

Thanks, John. We really appreciate that.

As there are no additional questions awaiting at this time, I'd like to hand the conference call back over to Jesse Gary for closing remarks.

Thanks, everyone, for joining the

call today. Just before I end the call, I would just like to take a little bit of time to talk about the recent run-up in L&E prices and as Jerry mentioned, how those will impact our outlook going forward. So as Jerry mentioned, if you just adjusted, well, maybe first to start, if people will remember, we do have lags with our customers as how L&E runs through our results and also how regional premiums run through our results. So when you look at that for our US volumes, we've got a one-month lag for 50 percent of the volumes and a three-month lag for 50 percent of the volumes and ISIN primarily runs on a three-month lag. So you do get a little bit of a delay of the benefit of rising L&E running through our results. Similar on the premiums, you have a one-month lag on Midwest premium and you've got a three-month lag on the European premium. And you can see all these lags on our financial information that's on slide 20 of the slides. And so as Jerry mentioned, if you did just assume for a second that those lags didn't exist and instead looked at the second quarter outlook with spot L&Es, you get a much higher estimated result of somewhere between $75 and $85 million. And that's before additional website opportunities that we have. So for instance, EDPP, if you look at where that is today versus where it is in our Q2 results, it's about $50 higher. And if you look at regional US Midwest premiums, if you look at the forwards, those are trading $0.04 to $0.05 higher from what they were in Q2. So both of those represent additional upside for our business. And we continue to see and expect that the value-added market will continue to improve over the course of 2024 as well and certainly into our 2025 contracting season for both the Grinder Tangibala Caps House but also the existing US X House. And then finally, we continue to wait on 45X for the updated guidance. But if we do get the broader interpretation of eligible costs there, that would be additional upside to the guide that you see in Q2. So we're really excited about the business. We think there's a lot of opportunities and we think the business will perform really well and help us produce great results. And also, as we look to execute on these expansion projects. I do see Lucas has one more question, so we're happy to take that.

Thank you. I'll open Lucas's line now. So this question comes from Lucas Pipes of B Riley.

Thank you so much for taking my follow-up question. Sorry, I was a little late there in getting back in the queue. And Jesse, your comments just now, they're actually answering some of my follow-up questions. So I really, really appreciate all those remarks. One of the ones I wanted to touch on was just how you think about the balance sheet. In the release, you flag it as a priority to reduce debt. Your shares have traded much better. How do you think about kind of your cost of equity, cost of debt, optimizing the balance sheet of this environment? Thank you very much.

Thanks, Lucas. Just

very simply there, that's really not something that we're considering at this time. We think there will be plenty of cash flow in order to allocate towards reducing that debt. And so that would be our plan on that. We're really prioritizing the cash flow we expect for this business, which as I just went through, we think there's huge opportunity for significant cash flows over the course of the next few quarters. And not really any need to go to the equity markets at this time.

Very, very helpful. Thank you. And then just at the very end of your remarks, you commented on the additional opportunity around 45X. And there was a lot of detail that you provided as to your earnings power in this environment. Very helpful, as I said. And just going back to 45X, if you were to get the full benefit today, what would be the additional contribution?

It would be great to have an update on that. Thank you. Sure. And we went through this on

the last call in some detail. And there's a slide on that on slide 26 in this investor deck. But you can see if direct and indirect raw materials are included, that would be about an additional 50 to 55 million dollar uptick in our 2023 credit and similar sort of uptick going forward for 2024.

And again, this is kind of backwards looking as to that 2023 utilization rate. So with a full Mount Holly restart and maybe hostile coming back, we could kind of scale that up proportionately.

Yeah,

absolutely.

And obviously, you know, the green field is some distance away, but that would also be eligible for the credit.

Very good. Thanks again for taking my follow up questions. Keep up all the good work.

Thanks, Lucas. Appreciate it.

There are no additional questions waiting. So, Gary, Jesse, I'll hand the call.

Thank you very much, everyone, for joining. We

look forward to talking to you later this summer. For our Q2 call.

Ladies and gentlemen, I'd like to thank you all for joining today's call. Have a great rest of your day. You may now disconnect.