Hello. And welcome to the Century Aluminum Company Second Quarter 2021 Earnings Conference Call. My name is Charlie, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host, Peter Trpkovski to begin. Peter, please go ahead..

Thank you, Charlie. Good afternoon, everyone, and welcome to the conference call. I am joined here today by Jesse Gary, Century's President and Chief Executive Officer; Craig Conti, Executive Vice President and Chief Financial Officer; and Shelly Harrison, Senior Vice President and Treasurer. After our prepared comments, we will be happy to 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 will hand the call to Jesse.

Thanks, Pete, and thanks to everyone for joining the call today. Let me just begin by saying how excited I am to have the chance to lead Century into the future. Century is an excellent company and we would be remiss not to pause for just a brief moment to thank Mike for his years of excellent leadership and for leaving such a strong foundation for us to work from. Okay, for today's call, I'd like to start by speaking about the current market environment and get some highlights in the second quarter before Pete and Craig take you through the details. I will then finish the call with some key focus areas for the company going forward, both in the near-term and long-term. So starting on page three, it goes without saying that we currently find ourselves in a robust market for aluminum, driven by high consumer spending, have a strong industrial expansion and GDP growth in most of the world's leading economies. While we are mindful that the speed of the recovery has been aided by significant global fiscal and monetary stimulus, we do believe that the long-term growth trend for aluminum remained intact, driven by energy transition into renewable generation, distribution and electrical vehicles among other areas. All-in-all, we continue to believe that demand will remain strong into the back half of the year and we will see global year-over-year growth in the high-single digits. Demand growth has been especially strong in our U.S. market, with year-over-year growth expected to be in the mid-teens. Our U.S. infrastructure package would provide further support. We have seen demand especially strong in extrusion, with billet demand and spot premium nearing all time highs. While the U.S. billet market prices are set on an annual basis, which means the vast majority…

Thanks, Jesse. If we move to slide four please, I will give you a brief overview on our markets. In the second quarter global aluminum demand was up 12% from the prior year. This increase was mainly driven by the world ex-China, which saw demand up 32%, while China was mainly flat year-over-year. Global production was up 8% in second quarter from prior year, with 10% supply growth in China and 5% growth in the world ex-China, sequentially global supply growth was only 2%. Taking a closer look at our regions, we are well positioned in two of the shortest markets globally. Over the past five years, the U.S. has seen at least a 4 million annual tonne deficit and in the EU, specifically in Western Europe, the market has seen around a 3 million annual tonne deficit. As we saw last quarter, demand continues to outpace supply growth around the world and the global aluminum market is now projected to be in balance in total for 2021. Along with falling stock inventory levels to the pre-pandemic levels, the aluminum LME price looks to be structurally supported by strong fundamentals going forward. Turning over to slide five, please, we can continue to see strengthening on pricing for LME and premiums. The cash LME price average approximately $2,400 per tonne in the second quarter, which was about 15% or $300 per tonne sequentially. Currently, we are near 10-year high LME price of approximately $2,600 per tonne, which reflects the structural macro support we discussed. In the second quarter, regional premiums averaged $0.26 per pound or $570 per tonne in the U.S., which was up almost 60% sequentially and we average $240 per tonne in Europe, which is an increase of just over 40% sequentially. Current spot price for the U.S. Midwest premium is at a record high of $0.34 per pound or approximately $728 per tonne. Growing demand and tight supply in prices in Europe are $360 per tonne. Finally, pricing for value-added products have also continued to improve with other charges for spot billet prices also at record highs in the range of $600 per tonne to $700 per tonne. And with that, I will hand the call over to Craig.

Thanks, Pete. Let’s turn to slide six and I will take you through the results for the second quarter. On a consolidated basis, global shipments were down about 2% quarter-over-quarter as we advance our Mt. Holly and Hawesville rebuild project. As Jesse mentioned earlier, the continued progress on these rebuilds will deliver valuable incremental tonnes in the second half of 2021. Realized prices increase substantially versus prior quarter as a result of higher lagged LME prices and delivery premiums driving a 90% increase in sequential net sales. Looking at operating results, adjusted EBITDA was $34.4 million this quarter and we had an adjusted net loss of $27.3 million or $0.27 a share. In Q2, the adjusting items were $32.9 million for the unrealized impacts of forward contracts, $24.7 million for early extinguishment of debt related to our Q2 refinancing and $49.8 million for a tax recovery related to our historical investment in Hawesville project. We expect to realize a cash benefit of Hawesville adjustment over the coming years via reduced cash tax payments. Liquidity at the end of the quarter was $110 million via a mix of cash and credit facilities. This represents an approximate $20 million improvement versus prior quarter liquidity. Turning to slide seven, as we forecast on our last call, the Q2 realized LME of $2,155 per tonne was up $215 per tonne versus prior quarter, while realized U.S. Midwest premiums of $490 per tonne were up $160 per tonne over the same period. Realized alumina was $330 per tonne or about flat with prior quarter. Domestic power prices increased throughout a quarter particularly in July, however, the price was still about 20% lower in Q1 due to the polar vortex related price spike in February we discussed last quarter. Carbon prices continued their upward trend. Our…

Thanks, Craig. Just before I turn it over for questions, I'd like to take a few minutes to discuss our key focus items for the second half and a few observations on our strengths and priorities for the business as we look to the medium- and long-term. We are very fortunate to have the opportunity to be bringing significant additional production online both Hawesville and MT. Holly into this favorable pricing environment. We intend to be laser focused over the back half of the year operational execution to ensure that we bring this production online as quickly and efficiently as possible metric 2022 with each plant operating at our target production levels. Looking back over the past few years, our operational execution in the U.S. has simply not been good enough and this will be a key focus item as we move forward and improve the performance the U.S. plan. To this end, as you know, we have recently changed leadership in the US operations and clearly mode that in and team are already implementing pages to improve our execution in the back half and going forward. As we move forward to medium- and long-term, we will prioritize leveraging what we believe are several structural strength the Century has in the markets in which we operate. The map on page nine well demonstrated one of the strengths. Our production footprint is located squarely in the two source markets for aluminum in the world, both of which continue to experience strong demand growth, but have seen a significant decline in supply over the past two decades. In the U.S. specifically, where Century is already the largest producer, we are also the only producer currently bringing additional production online to meet the growing demand. This puts us in an advantageous position going…

[Operators Instruction] Our first question comes from David Gagliano of BMO Capital Markets. Your line is open. Please go ahead.

Great. Thank you for taking my questions. I have actually got a lot of questions, but I will try to keep it somewhat concise here. I guess, no particular word, I am going to try and focus in on the guide for the third quarter and sort of go back to what was said last quarter, which was a brief kind of $250 million of second half EBITDA at the time, I think that was the number, with prices everything where they were. Now we are looking at, I think what's kind of an $80 million third quarter implied number, and I also heard a $150 million - in your timeline on the $150 million quarterly EBITDA. So I am wondering if you just kind of reconcile what's changed given, I know we talked about changes here, you quantified some cost changes on a quarter-over-quarter basis. But I am just curious, kind of what's changed since the $250 million commentary in May that - and if you can give me a sense as to what you are thinking about the fourth quarter, so I can kind of - where's $250 million now, basically, is what I am trying to say for the second half?

Yes, sure, sure. So first of all, thanks for the question. I know where you are coming from, and prepared to do that. So just to make it clear, you are right. Everything that we talked about on the call that was sequential Q2 to Q3. So, I will put that aside for now, and want to come back to that, obviously we can't. So let's talk about what we said on the last call, it was actually just for clarity, it was to $270 million, it was the back half. So look what I'd like to do for you is, I'd like to take Q3, break-up that $270 million, will say was 50-50, I mean that was a representative number with spot at the time and all kinds of things have moved, but I will take that, half of that $270 million, walk it to the $80 million for the third quarter, and then what I am going to do is, take that $80 million and build it to the $150 million for the fourth quarter. Okay? And I will do that in about fixed lines for you. So let's start with Q3, if we take that $135 million or half of the $270 million, lock that down to the $80 million that we are thinking in for Q3 now, the number one mover with energy costs, we lost about $25 million, the Indiana Hub is up about $9 a megawatt hour to up to of the $38 per megawatt hour, big move there, and even bigger move was on the Nord Pool side of $25 per megawatt hour to $61 versus what we had sitting in that $135 million. So we have reached $25 million. Then coal price, coal prices is up about 10%, up $45 to $425, when we are looking at the third quarter now, that was about $5 million. And then finally, the remainder of the $25 million was volume. So about 18,000 tonnes less of shipments, we are expecting in Q3, this is wholly driven by the Mt. Holly timing that Jesse and I talked about earlier. Again, we get that exit velocity as you may hear that here in the fourth quarter, but for the third quarter, those three items, $135 million, less $25 million for energy, less $5 million for coke, less $25 million volume, will project $80 million for the third quarter. Was that clear?

So far, so good. Got it.

Good. All right. So now let's pick that $80 million, and I am going to take that and build it up to the $150 million for the fourth quarter. So LME, If we take a look at, - and we are doing this all at spot, so, obviously - in the fourth quarter were ex-spot. LME is going to be up $170 for our realized fourth quarter of 25/45 using today's price, that plus 20, starting from a base of 80. Delivery premiums are going to be up $25 million, Midwest premium, this is going back to Pete's comments will be up about $100 to $750 per ton, EDPP expecting up $110 to $360 per tonne within today's spot price, another 25. And then finally $25 million from incremental volume, that's an incremental 18,000 tonnes that we are bringing on, and mostly in Mt. Holly, but also in Mt. Holly and Hawesville in the fourth quarter. So from $80 million, we have $20 million for LME, plus - plus $25 million for delivery premiums, plus $25 million per for volume, gets you to $150 million.

And just to be clear, David, so in that guidance, - that illustration for Q4, we will be building volume in Q4. So once the spend move beyond Q4, there will be additional volume gains that will be running about full run rate going forward in Mt. Holly and Hawesville.

Okay, that's helpful. And then just, I guess, one question on that, as to the fourth quarter, what did you assume for power? You just obviously say, you feel better to say - obviously, so for the quarter right.

Yes, we did, we did. So, yes, and just to speak to energy a little bit, so we are - season in the forward - there will be an end price. When you do look at it, we have seen the gas price come up quite a bit, following oil up over the past quarter here, including forwards. But when you do look in those forward, we do see that it does - what does show a pretty significant backwardation, actually in the gas price, but also in Indiana Hub, and in the Nord Pool pricing. And so long term, we think that, those market should move back towards sort of the equilibrium level we have seen over the past few years here, but we are seeing that, that price spike in the forward months.

Okay, that's helpful. And then just as we continue into 2022 with the tailwind exiting 2021, the other one I think that springs to mind is the commentary regarding billets, and obviously contracts rolling off, and starting a higher pricing. Can you frame the EBITDA uplift potential in 2022, if, say for example, even though oil prices stay where they are?

Yes, so we are just entering pricing season now. Obviously, we are looking at just the U.S. billet production. We don't have any production - billet production Grundartangi yet, although, as we said, we are looking at that for the future. But if you just look at the U.S. market, prices are up significantly from when we entered into the annual contracts last fall. We are just starting to enter that season now. But just to give you a sense, we have got about 300,000 tonnes of billet production in the U.S., and you can look at where spot prices were trading in the fall, where spot prices are trading now, and you can allocate that across those tonnes to get a sense of how that might impact our EBITDA, - that is affecting those billet premium just to be clear, those are totally in hedge.

So, can you just help me out with that last part about the spot now versus back then. And I am sorry, I thought, - I apologize, but anyway - but it does, but can you help me with that, the comment about spot now versus spot where it was, because for two reasons, one, I don't really have a good sense, to tell you the truth, where spot is now versus where it was, and then two, how does the contract market differ from the spot market. If you can frame the - sort of the realistic price uplift and...

Yes, we will come back to you with the details. We are just touching our - touching based with our customers now and going into that selling season, but even look at spot pricing premiums around $0.25 today, multiply that out across the tonnage and you can see there is some - pricing is quite high right now. How that allocates down into the annual pricing, which can be a little bit different, obviously, than the spot cargoes on the spot market, we will see, and we will come back to you in Q3. But there is a significant potential for EBITDA growth there, for sure.

And you said the spot increase was $0.25 a pound, I thought you said? I didn't...

The spot is at $0.25 per pound, that's probably somewhere between $0.15 and $0.20 from where it was trading last fall.

Right, understood. Okay. All right, I will turn it over to someone else. Thanks.

Yes.

Our next question comes from Lucas Pipes of B. Riley Securities. Your line is open. Please go ahead.

Thank you so much, and good afternoon, everyone. Dave asked a lot of my questions. I just want to make sure I understood the bridge from Q3 to Q4. All right. It's hard to understand all that - everything that was said there. Could you just repeat the bridge from $80 million to $150 million, Q3 to Q4, the three items, I would appreciate that.

Yes, sure, no problem, no problem. So starting with $80 million, we would add $20 million to that for LME, and just to give you the totals on that, that's LME being up $170 per tonne to 25/45 realized Q3 to Q4. We had $25 million for delivery premiums, Midwest premium is up $100 per tonne, EDPP is up a $110 per tonne. And then finally, we would add $25 million for incremental production, so that would be about 18,000 tonnes shipment increase from Q3 to Q4 for $25 million. So $80 million, plus $20 million, plus $25 million, plus $25 million, it gives you $150 million.

Got it. Very clear. So one of the other items that is kept steady here is alumina, and from what I recall yet, longer-term contracts that protect the on-price movements there for alumina that, - but as we look out to 2022, could you remind us how that there they may change? Would appreciate your thoughts on that. Thank you.

Sure. So you are right, over time, there's a couple of different ways that we have fixed our alumina over time, both on an API basis, which is the market-based rate, and also LME percentage basis, which was just a percentage of the aluminum price. Going forward, that's something we will continue to look at it. So we are just again entering into the season 10 to put those contracts in place for 2022. We do have some existing 2022 LME percentage contracts already in place, mainly Mt. Holly. But we will start entering into and looking to secure the rest of that alumina going forward into 2022 over the current quarter. And as we look to do that, I do view the cost side a little bit differently. So very clearly on the revenue side, we want to invest it to remain exposed to the market and to provide that pricing look through to our shareholders. On the cost side, from time to time, we will look at that, we will see what we view as most advantageous. Given the different market pricing, our markets for both those metrics, and we will make those decisions.

Got it. Now, that's helpful. Appreciate those good starts. Just Jesse, maybe taking a step back, congratulations on the role, kind of when you think about, kind of the - priority list here, could you share that with us, kind of what you think is, - the one, two, three and on your mind, as you - if you look out - as a company?

Yes, sure. Thanks, Lucas. I have a very clear Number one here, and you heard it, me speak about it a little bit in my prepared remarks, but just to reiterate, we do need to focus on operational execution in the U.S. We have these two rather significant projects ongoing in Mt. Holly and also bringing back production at Hawesville. And so we are going to be, that will be our Number one priority over the back half, is executing those, making sure we exit 2021, we have those target production levels and really - the going into 2022, which we continue to expect to be a very favorable market for us. So that's the clear Number one. Then as we look forward, and start to look at our other priorities, what we want to do is, look where our strengths are, so in the U.S. and in the EU, we plan to sell in both of these very short markets, and we want to look and see where we can bring to our customers additional value. So that may be an additional production, so you may see us look at bringing on that additional production at Hawesville and Mt. Holly, should market conditions continue to be favorable, that maybe bringing on additional value adding capacity. As David, I think was already starting to look forward into those EU billet prices, they are very high right now. And so that may be an area for growth for us in the future. And then in the U.S. and Europe, frankly, we think we are very well situated to benefit from the sustainability in green trends that we are seeing out there. The Europe is very clear, I think, Grundartangi, especially when you look at both Scope one, two and three emissions. We are really amongst the lowest in the world. So we feel like we have real value to bring to our European customers there. But then in the U.S., we also have started to see increasing amounts of our energy mix come in from renewables, which is lowering our carbon footprint on our existing units, and we also think we have got some good opportunities on the recycling side to continue to bring additional lower carbon units to our customers. So maybe, I think you got a sense of kind of how we are looking at it, very clearly though over the back half, very focused on operational execution, we need to get these projects done.

Very clear. Appreciate that, and all the best of luck. Thank you.

Thanks, Lucas.

Our next question comes from John Tumazos of Very Independent Research. Your line is open. Please go ahead.

Thank you for taking my question, and congratulations. Mike said you had a really great guy.

Thank you, John.

I have three thoughts or questions. Just on the surface, I guess Friday, the Midwest premium, CME Group future was $0.335, the LME was one $1.173, so it seemed like a $1.51 screen revenues, and the alumina future was $2.93 per metric tonnes, and it seems to just not go up, however much metal and Midwest premiums go up, so it's like 11% of LME, without counting premiums. And it would seem on the surface, that after you get these start pickups gone and you run off some of your hedging later next year 2023, $0.50 a pound on 2 billion pounds out to be, in the neighborhood or a $1 billion for your $1.2 billion to market cap. My first question is, is that in the neighborhood? My second question is, would you cover that to allocate capital initially in good years to repay all the debt and all the liabilities and build a cash - so you are never tempted to hedge again? And then thirdly, after you have cleaned up the balance sheet and you are in a good spot, do you think it's reasonable to send the majority of the cash flow, capital allocation to dividends or buybacks?

Well, that's a good question, John. Thanks. I do agree that I do think the company is very well situated going forward. We do feel like there have been some structural changes in the aluminum markets, where we are starting to see some discipline on the supply side, driven by whatever metrics you want to look at. But certainly, I think carbon intensity as some of the producers and some of the nation states around the world start to try to bring down their footprints, and therefore but some caps on their supply side growth, does create the potential for the first time in quite a while, first in supply discipline and for the continued strong growth story and demand story, aluminum has started to carry today, which would give us and give Century, given our existing footprint, which we are - our plants are located, and real good opportunities to print some really good numbers and bringing some really good cash flows. So I'd agree fully there. As we look to capital allocation, and again I just want to reiterate, our focus today is going to be on operational execution and bringing these units online. But as we look to capital allocation, more across a variety of factors, as we might expect both between paying down debt or reducing our debt load, - also we will consider organic growth, which I will come back to you in a minute, because I think we have got some really good organic growth stories within the company. We will of course, always look at M&A out there and see what's out there. And then of course, we will look at returning capital to our shareholders. But it's a little ways out, and so we will come back to you with detail once we have started to print those numbers and bringing in those cash flows, but for now, we are just going to focus on bringing the units online, making sure we do so in a cost effective manner.

Thank you Jesse. I encourage you, and I am looking to - how good 2023 is going to be, and I don't care, if you miss this last quarter, that's in the past. I think if you put a press release in one-inch letters on your homepage tomorrow morning said, we are never going to hedge again, and we are going to not use leverage and return capital to the people that are on it, your stock would go $10 tomorrow.

Yeah. Thanks, John.

Good luck there. Congratulations.

Thanks.

[Operator Instructions] We have a follow-up question from David Gagliano of BMO Capital Markets. Your line is open. Please go ahead.

Okay, great, thanks. John took my capital allocation question, although he did it in a much more eloquent way. Now, the question I have is, it is just a couple of clarification questions. What is the production target as you exit on a quarterly basis, with the changes, as you exit 2021, as we think about 2022, what is the production target?

Yes, so with the announcement we made that taking Hawesville to 8% capacity and taking Mt. Holly to 75% capacity across all tonnes, across the four smelters. Just to give you a round number, it's about 900,000 tonnes of annual production capacity, and then you can obviously just divide that by four, and you got it.

Okay. Okay, good. And then on - and - it is kind of a new, so I don't disagree with John's comment earlier, but in terms of the near-term in the third quarter, I got all the negatives from $135 million down to $80 million, but I thought premiums went up since May, and other things went up, is it because everything was hedged? Is that why we didn't get any positives on the price offset to kind of help offset some of that movers or something else going on?

Well, just remember, when we gave that forward-looking guidance, we assumed that spot premiums at the time of the call. So just for instance, tell me, it was 24-50 spot at the time, and realized actually will come in a bit below that, given our lagged contracts.

So, I am sorry. So does the $80 million for the third quarter, I mean, obviously, that's based on two month lag, I think, right, if I am not mistaken.

Yeah. So they -, go ahead, Craig.

Yes, let me let me with the quantum. So you are right, LME, let me back up, I think we are just restarting, because that was definitely the right direction. So when we talked about this number on the last earnings call, we took spot - and said our spot existed from the first day in the third quarter out 12/31, this is what EBITDA would look like. In that number at the time, even for LME to 24-50, right. So when I look at Q3 right now, obviously, with spot beyond what I have priced, as you know - on us for quite some time, sitting in Q3, right now, the majority of Q3 is priced for me. I think that number is going to be about 23-75. So I lost actually $75 per tonne on LME from that $135 million down to the $80 million. Now, but to be fair, flip-side, it picked it up on Midwest premium, right. So I was down about, I was $75 better there. Those two offset to zero, hence why I left that on my bridge.

Okay, I understood, understood. That's it from me. Thanks.

And David, just one follow-up to your question on billet prices, so I bring exactly what I said, it's going to mean that 10 to 15 range where spot was last fall versus where spot is today, but again just to reiterate the annual pricing will not kind of match exactly the spot pricing. So we will see where it comes in, and we will give you additional sense of that, and - on the Q3 call.

Okay. And did you say 300,000 tonnes or 380,000 tonnes?

300,000 tonnes of billet capacity, it's maybe 5,000 tonnes under that, 295,000.

Okay, perfect. Thanks.

Yes.

There are no further questions on the lines at this time.

Okay. Well, we really appreciate everyone's time. We look forward to coming back and speaking with you again after Q3. And thanks very much.

This concludes today's call. Thank you for joining. You may now disconnect your line.