Mike Bless - President, Chief Executive Officer Craig Conti - Executive Vice President, Chief Financial Officer Shelly Harrison - Senior Vice President of Finance, Treasurer Peter Trpkovski - Investor Relations

Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter, 2019 Earnings Call. [Operator Instructions] And as a reminder, this conference is being recorded. And I’ll now turn the conference over to our host Peter Trpkovski. Please go ahead sir.

Thank you, Laurie. Good afternoon everyone and welcome to the conference call. I'm joined today by Mike Bless, Century's President and Chief Executive Officer; Craig Conti, Executive Vice President and Chief Financial Officer; and Shelly Harrison, Senior Vice President of Finance and Treasurer. After our prepared comments, we'll take your questions. As a quick 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 1, 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. With that, I'll hand the call to Mike.

Thanks Pete, and thanks to all of you for joining us again late this afternoon. We always do appreciate it. If you’d turn to slide three please, I’ll just give you a quick overview of the last couple months. In just a couple of minutes Pete will give you some data as he normally does on the industry fundamentals, but let me just make a couple points here to set some context for the rest of my comments. It goes without saying, we've been operating in a reasonably uncertain environment over the last couple months since we talked to you. And consistent through with the recent data that we've all seen over the last couple weeks our actual trading environment in the U.S. and our markets continues to look good, both current and perspective. That having been said, we continue to believe the metal price is going to be somewhat range bound here until investors get better direction on the various obvious macro issues that are overhang us. Importantly the aluminum prices eased as we expected. As we've been saying, the market's been really well supplied since at least the latter part of 2018. Over the last month or two we’ve even seen an increasing number of available for sale cargoes looking for homes. You’ve all noticed the resent favorable developments regarding the Alunorte refinery in Brazil and we're confident we'll see a further price reaction once final approval was received and our restart planet is understood by the market. At that point the aluminum market, especially in the Atlantic basin will be meaningfully physically long, and as you know there is new production set to come online later this year around the world. Bottom line, we continue to see the aluminum price at or below historical norms in the…

Thanks Mike. If we can move to slide four pleases. I’ll take you through the current state of the global aluminum market. The cash LME price averaged $1,859 per tonne in the first quarter, which reflects a 6% decrease from the prior quarter. Aluminum prices have averaged just about $1,860 per tonne so far in 2019 and are currently sitting right around $1,810. In the first quarter regional premiums average approximately $0.192 per pound in the U.S., down 1% quarter-over-quarter and approximately $130 per tonne in Europe, roughly flat from the prior quarter. Spot premiums are around $0.19 per pound in the U.S. and $145 per tonne in Europe. In the first quarter of 2019, global aluminum demand was roughly flat as compared to the year ago quarter. We saw approximately 1% demand growth in the world ex-China, and 0.2% demand flowing in China. Global production growth was up a modest 1% in Q1 year-over-year. We saw no net production increases in the world ex-China, while China increased production by 2.3% year-over-year. As a result, for the first quarter of 2019 the global aluminum market reported a slight surplus of approximately 300,000 tonnes. As we usually see this time of year, this was drive entirely by the Chines New Year holiday. You’ve already seen this trend start to reverse in the second quarter, an indication of Chines demand picking up is evident in the current shifting price, which has breached 14,000 RMB for the first time since October of last year. Looking forward, for the full year 2019 we continue to expect to see a global supply deficit of at least 1.5 million tonnes. This structural aluminum supply deficit should result in the continued destocking of inventory and drive higher LME prices over the long term. With that, I’ll hand the call back to Mike.

Thanks Pete. If we could just move to slide five please, a couple of quick comments as normal on operations during the last couple months. As I said, we've had a really nice quarter in all the businesses. As you see we are really pleased with the safety performance. Sebree bounced back from a couple of incidents that they did have during the fourth quarter. Hawesville continued just a remarkable performance here. So even more gratifying when you consider the complex restart activity that's been going on in that plant in the last year – really, really proud of those folks. Mt. Holly again has continued a very good performance. Grundartangi uncharacteristically had a couple of incidents, two to be specific, albeit not serious in the first three days of the New Year, literally in the first three days of January. Since then the plant has bounced back to its normal excellent performance. Moving down the page, production growth you can see is strong, you can see the impact of the Hawesville restart and you should look again in Q2 for incremental growth over Q1. At Grundartangi this year, we have a generation of cells up for normal rewind activity, that's simply based on when the cells were put in service and that, the number that we need to be realigned this year is bigger, about 50% bigger than a normal year. That will impact at the margin production, production efficiencies and per metric tonne costs throughout the year, and that of course was all built into the production and cost estimates Craig gave you a couple of months ago. Production efficiency metrics again continue to be good, seeing continued consistent improvement from Sebree. We are starting to see some real efficiencies from the Hawesville restart. Conversion costs again, we had an exceptionally good quarter. Just to give you some details, they are really across the broad as you can see. Sebree, maintenance and pipelining expense down 20%. Hawesville, you are really starting to see the efficiencies of the additional volume that was part of the IRR in that project. So you are starting to see those efficiencies come through. I'll give you some examples: labor costs down 11% quarter over quarter, contact service reduced by half, maintenance and pipelining expense down 30%. Payment on Holly continues to do a really fantastic job with that plant; labor costs down 7%, maintenance costs down 20%. As you remember we caught up on some deferred maintenance at Mt. Holly during the fourth quarter and Grundartangi, a 100% all of that increase, again it's just the increase potlining expense due to the increased sales that are being realigned this year. And with that, I’ll give you to Craig.

Thanks Mike. Let’s turn to slide six and I'll take you through the high level results for the first quarter. On a consolidated basis, global shipments were up 4% quarter-over quarter driven by continued progress on the Hawesville restart as Mike detailed earlier. Realized prices were down 6% as a result of lower-lag LME prices. Looking at operating results, adjusted EBITDA was a loss of $44 million this quarter and we had an adjusted net loss of $7 million or $0.70 a share. In Q1 the primary adjusting items were $4.3 million related to the Sebree equipment failure and $35 million for net realizable value inventory adjustments. Let me give you a little detail on the Sebree adjustment. As a reminder, we expect to fully recover all associated losses from our Q2 2018 line outage from our insurance policies, net of our $7 million deductible. As we mentioned last quarter, we will continue to call out the associated P&L impacts and cash receipts as they occur. In Q1 we received $4.4 million worth of processed on our insurance claims, bringing our total recoveries to-date to $12.4 million. We expect to receive the balance of the clam proceeds in the coming month. Our liquidity remains strong with $174 million of funds available via a mix of cash on hand and revolving credit facilities. As expected during Q1, our cash balance decreased by $17 million, partly driven by the investment and the restart of the idle Hawesville production. As a reminder, our lower adjusted EBITDA reflects the lag of aluminum prices and was mostly offset by reductions in working capital as a result of fall aluminum prices. I will share more detail on the cash bridge shortly. Availability under our revolving credit facilities is $152 million, which is largely flat with Q4.…

[Operator Instructions]. Our first question is from the line of Jeremy Kliewer with Deutsche Bank. Please go ahead.

Hey, good evening.

Hey Jeremy.

You guys had some pretty good realized pricing on a per tonne basis, a little bit better than what we were anticipating. I was just wondering, could you touch on how much value added products did you guys put out this quarter? Is it a little bit more than you’re typical like 84,000 per quarter or was there additional high purity out of Hawesville or what's going on there?

No, thanks Jeremy. The only thing I can point to is that as we told you, sometime towards the latter parts of last year, we did make the small investment to create incremental value added capacity at Sebree ,and so you know going forward you're going to see a richer mix, that was the point of it and we are realizing that in the marketplace today. So that’s on the volume side. On the – you didn’t ask, but just to deconstruct it on the premium side, you know product premiums are holding up pretty well in the U.S. and so you know through that kind of mixture of decent premiums and an incremental VAS, pardon me Value Added Sales – volumes sorry, perhaps you are seeing, that what you are seeing in comparison to what you have expected.

Alright, and then to tag on to that, you know the CRU or the kind of industry demand that you guys pointed out, it's come down a little but so is supply. So I didn’t know, has there been any increase for whether bill it or slab or anything in particular that you guys are producing that you may be able to see a little bit of a price appreciation later this year.

I'm sorry, I didn't get the linkage in the question Jeremy from the CRU date to our mix.

Yeah, yeah, the global demand right, it’s relatively flat. I mean the balance has come down a little bit. I didn’t know if you are seeing any additional demand for a bill-it or a slab, some of your customers versus other products that you know wasn't there three months or two months ago.

I see it. I’m sorry, I get it, I get it. No I guess, you know on bill-it side the choosing business continues to be strong and that's what we're seeing and again that's reflected in spot premiums. As you know there is a not lot of product that’s traded at spot, most of these trade at least one year contracts, but there is a decent sport market that is a reasonable gauge of you know, for what it's worth of the supply demand equation and things have stayed you know reasonably good and it's consistent with when you look at the data that's published on you know year-over-year growth in the downstream and all of sectors you are seeing evidence of it.

Right thanks. I’ll jump back in queue.

Okay.

Our next question is from the line of David Gagliano with BMO capital Markets. Please go ahead.

Hi, thanks for taking my questions. First of all, the commentary about locking in volumes, can you just give us the EBITDA that you locked in. what the volume is for the first potline again?

Sure, it’s pretty easy. So let’s just – we’ll deconstruct it for you. So as you know each potline, has as a rated capacity of 50,000 tonnes, so it’s just a little bit shy of 50,00 tonnes. As Craig told you the total project is $40 million of which just slightly over half is the cost of rebuilding and restarting the cells itself and the rest is the various capital projects, and then as we said the simple payback in two years, so it’s pretty simple math. It's about $20 million of incremental EBITDA. Again I’ll stress one more time, so first year only is what we’ve locked that in. We’ve let it, thus far let it flow for the second year, because again our view is and it has been and continues to be and has been proven correct thus far that you know not only will absolute alumina prices continue to fall, but as Craig correctly set that the relationship between LME and the alumina price will continue to improve from our basis. So I guess I'll stop there, and you can redirect it, but I think that answers the question.

Yeah, that is helpful. So it’s just 50,000 tonnes I mean for lack of a better term on my side, its actually sold forward I guess.

You got it already.

Starting when?

2020 is when this money will be back.

2020.

When this line will be back in production right.

Okay, all right great. Thanks for that. And then just switching gears, if we go back to the fourth quarter presentation and call, there’s just a couple of things I wanted to ask about just in terms of an update here. At the time there was an indication of annual EBITDA run-rate of slightly below $150 million during 2Q to 4Q. I think that was the comment. Are those still your expectations?

Number one, everything we had in there are still our expectations. Those cost estimates are still good, those production estimates are still good, everything we've done as I said is consistent with what we added in there, rebuild the line blah-blah-blah, restarted the lines, everything else is still consistent. That $150 million obviously I can’t place it because it was basis, a price deck at the time that we were obviously talking about. I can't – I don't know what you're using their, but I can tell you everything in there is still consistent with our expectations. So if you use whatever price that you wish for metal and for alumina you will get, you should get that number yes.

Alright, that’s helpful. So no change to the operating targets that you had laid out two months ago.

I could have stopped right there, no change.

Okay and then just the last question form me. When I look in the first quarter results just for a second, you know if I look at the table at in the press release, selected operating data that shows total net sales of $473 million and then on the income statements there is total net sales of $490 million. Historically those two numbers were much, much closer and I'm just wondering why this quarter the income statement was $70 million higher on the revenue line?

Sure, that’s a good [inaudible] David. So this is Craig, just quickly what those are very low margin approaching pass through alumina sales right. So given our unique relationships with alumina producers, it's a part a volume buying that we're doing. We’ll procure on others behalf, and then send that aluminum out into the market.

There’s always been David as you noted, a slight difference and that slight difference unit now has been scrap sales right as Craig correctly said. So you know we – the distinction is between “primarily aluminum and scrap sales.” We don’t process all of our own scrap or RSI. We do sell some of it in the merchant market. But then as Craig said with a new alumina contract we are doing some back to back here. Its complete pass through as you said, so there's no margin on those sales. It just accounts for the accounting for results and a little bit of revenue.

Alright, great. Thanks helpful. Thank you.

Sure

[Operator Instructions]. And we’ll go to Lucas Pipes with B. Riley FBR. Please go ahead.

Thank you and good afternoon everybody.

Hi Lucas.

I wanted to follow up a little bit on the second quarter comments that you made during the prepared remarks. It sounded like if I understood it correctly, that you expect to realize a $400 alumina price and that would be, again if I understood correctly, about a 30 million EBITDA benefit. First, could you kind of confirm those and then secondly, what other moving pieces should we be considering just in terms of kind of a quarterly bridge for the second quarter versus the first quarter. Thank you.

Yes sure. So I will confirm that $400 realized alumina and now remember we are at spot 350 today, but on a three month lag. We're coming off a quarter with realized price of 512, so that that is a large benefit. As we look at you know where we expect EBITDA to fall in that 35 to 45 range, you know alumina is definitely a large part of that. You know I would say you’re view on LNE is as good as mine. So using the sensitivities that we gave you on our annual call last quarter would probably be a good way for you to triangulate that number.

Got it, got it and then kind of circling back on the alumina price. I think you also mentioned it’s going to be down a $100 second quarter versus first quarter. So can we deduct that, the realized price of alumina in the first quarter was about $500 per tonne.

That’s correct.

Got it, okay. That's helpful, thank you. And then you know switching to your outlook, I appreciated all the detail as it relates to the ratio of alumina to aluminum. What I wanted to maybe hone in a little bit is in regards to aluminum prices, I think there's a concern in the market that as alumina drops, aluminum kind of will drop and lockstep. What’s your view on that and how do you see the aluminum price kind of evolve off the course of this year? Thank you.

Yeah, I mean, thanks Lucas. There's been a lot written on both sides obviously. Our view is that the LME price and Craig commented on the shifting. The LME prices, the aluminum prices is going to find its level of where it needs to be based on the supply demand balance and you know it – there I guess you really need to look – one need to looks to ones view of sort of the larger macro issues, the Chinese economy, trades, etc., etc. It was a very good article that – we don't usually like to cite publications, but there's a very timely article in the FT this morning actually, a print edition talking about the case for a much higher LME price, again given that developing, both support and demand with the emphasis as you would expect on China. So the LME is going to find – as a metal price is going to find where it believes it should be. Our view is that talking to market participants over the last month or so is that you know a bunch of technical factors, traders whatever, however one wish to say it have been a conspired year over the last couple of weeks to exert some pressure on it. But our view is, I think consistent with a lot of market participants, but it’s somewhat temporary. And then so put that aside, the metal price finds we're it’s going to be and then I’d go back to Craig’s comments which are we believe strongly long term, as that’s a 17% ALA price. This is not a particularly proprietary view. I think a lot of folks have this view. It is a pretty full ALA price and that given where we're heading on supply demand on ALA specifically in the Atlantic basin over the coming year, you know our view is even that it should trade reasonably well below that for a period of time, just because you are going to have a lot of alumina you know flooding the market, people are writing about tsunamis of alumina. We are not quite that boisterous in our commentary, but you are now seeing -- if you just following the daily trade. The data out there, if you subscribe to the services, you're seeing cargo is offered for sale that have no takers and the price is continuing to drop.

Very helpful. I’ll take a flood of alumina to start.

You and me both.

I appreciated it. Maybe if there's time, I’d quickly follow up on my first question. Did you guide to $540 for alumina for Q1 and what were the accounts for the defense if it came it at $500. Thank you.

No, I don't think we've guided up. I think we guided flat to where we were in Q4.

So Lucas, this is Pete. On the last call we said that alumina realized prices would be flat quarter-over-quarter Q3 to Q4, and then Craig commented they were slightly higher, less than $10 – about $10 per tonne due to timing of shipments.

Okay so, it’s flat and how about Q1 versus Q4 is that what you meant.

Yes Q1 for Q4 was flat; Q3 to Q4 flat as well. It’s been at that $500 level, it’s been within a $10 band on a realized basis for the last three quarters.

Got it.

With the exception going into Q2 where we see it’s getting down to $400 on a realized basis.

Perfect, excellent. Okay well, I appreciate all the details. Thank you.

Thank you.

We have no additional questions in the queue. So please continue.

We thank very much as always for your interest and participation. We look forward to developments over the coming couple of months and talking to you again in July, it’s not too far. Take care.

Thank you.

Thank you. Ladies and gentlemen, this will conclude our teleconference for today. Thank you for using AT&T Executive Teleconference Service and you may now disconnect.