Good afternoon. My name is Samantha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Century Aluminum Company Second Quarter 2022 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions]. Thank you. I would now like to turn the call over to your host, Peter Trpkovski. Sir, you may begin your conference.

Thank you, Samantha. Good afternoon, everyone, and welcome to the conference call. I'm joined here today by Jesse Gary, Century's President and Chief Executive Officer; and Shelly Harrison, Senior Vice President of Finance and Treasurer. After our prepared comments, we'll gladly 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 1 of today's presentation. 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 I will now turn the call over to Jesse.

Thank you, Pete, and thanks to everyone for joining. I'd like to start today by following up on our announcement from last Monday and welcoming Jerry Bialek to Century as our new Chief Financial Officer. Jerry was most recently CFO at Cooper Tire, and before that, had an excellent career with Ford and Amcor. Jerry will officially join us later this month, and you can all expect to hear from him directly on our Q3 earnings call. He will be a great addition to the team. Okay. Turning to Page 3. I'll start by talking about the current macro environment and our operations, and then Shelly will take you through our Q2 results and Q3 outlook before I wrap up. The second quarter proved to be quite dynamic with market conditions changing significantly over the course of the quarter. Second quarter adjusted EBITDA was $87 million with net sales and shipments up 14% and 1%, respectively. LME pricing averaged $2,900 in Q2 versus spot prices of around $2,500. We took a number of actions in the quarter to solidify our balance sheet, including the extension and capacity increase of our revolving credit facility. The term of the facility is now extended through 2027 with a total borrowing capacity of $250 million. We think this is a good level for the business and allows us the flexibility to fully utilize our borrowing base to finance our liquidity needs as they arise. We also used cash from operations to repay $20 million in outstanding borrowings under the facility, giving us strong total liquidity as of quarter end of $226 million. Earlier this month, we entered into a binding sales agreement to sell the remaining portion of the real property located in the Mt. Holly Commerce Park for total consideration of $30 million.…

Thanks, Jesse. Let's turn to Slide 6, and I'll take you through the results for the quarter. On a consolidated basis, Q2 shipments dropped about 1% quarter-over-quarter primarily driven by additional volume at Mt. Holly. Realized prices were up 11% compared to prior quarter as a result of higher lagged LME rates and regional premiums. The combination of higher shipments and realized selling prices drove a 14% increase in sequential net sales. Looking at operating results. Adjusted EBITDA was $87 million in Q2 and adjusting items this quarter include a $53 million add-back for lower cost or net realizable value charges and removal of a $6 million credit for share-based compensations. During Q2, we also adjusted for 2 one-off charges related to the Hawesville curtailments which included a $159 million asset impairment charge and an $8 million accrual for estimated labor costs associated with the warn notice. Okay. So let me provide a little more color here on the impairment charge. Under U.S. GAAP, the curtailment of the Hawesville facility was a triggering event that required us to evaluate that asset group for recoverability. As a result of historically high forward power costs, it was determined that the carrying value of the Hawesville asset group was not recoverable, and we record this charge to write down the asset group to its estimated fair value. Okay. Moving on to liquidity. As of 6/30, we had liquidity from available cash and credit facilities of $226 million. This represents a $71 million increase from prior quarter, in part, driven by EBITDA generated during Q2 that allowed us to reduce our borrowings under our revolving credit facility. We also had lower collateral requirements under our hedging agreement as those volumes continue to roll off and based on lower aluminum prices at quarter end. Lastly,…

Thanks, Shelly. Across our assets, we remain focused on consistent and cost disciplined operations. While the market environment has turned more challenging in the short term, we remain convinced that Century is well positioned to benefit from the long-term macro trends that make aluminum a vital component of a sustainable future. To this end, we have begun implementing a number of second half cost savings actions to ensure that Century is in a good position to weather this high-priced energy environment. These include actions to cut or defer approximately $15 million in capital projects over the balance of the year. If necessary, we have identified further measures that may be taken in the future to reduce spending to market conditions we can compare. Combined with our strong liquidity position, these actions should leave us well placed to continue to execute on our long-term strategies. Finally, I'd like to take a moment to commend our operations across our assets for an excellent safety performance over the quarter. Safety is a core value for Century, and we work hard to improve each and every day. All of our employees feel proud of their efforts. And with that, we'll turn it over to questions.

[Operator Instructions]. Your first question comes from the line of David Gagliano with BMO Capital Markets.

I just wanted to ask about the current landscape. Obviously, the Hawesville idling was an aggressive action considering the environment. And the question comes of other assets, Sebree, et cetera. Can you speak a little bit to, if the environment stays the way it is, are there other actions to be taken? And alternatively, what type of environment roughly would we need to see before we see additional actions? That's similar to Hawesville, my first question.

Sure, David. Thanks. Yes, I think as I said at the end of my remarks, we think we've taken the actions necessary to permit us to continue to operate in this footprint for -- to continue to execute on our long-term strategies. We don't provide guidance on individual assets, of course. But when you look at the remaining assets, they continue to operate at or near 100% production. They've got excellent workforce, more efficient operating technology. We've got value-added casthouse or building value-added casthouses. They've got track record of consistent performance and profitability. And then as a company, we've got strong liquidity, and we continue to firmly believe in the macro -- the long-term macro backdrop for aluminum. So we think we're actually in quite a good position. But that said, we recognize this is a very dynamic environment. We started to implement some of these cost-saving measures today. I mentioned the capital deferral or decreases. And then we've got some additional items that we can take as necessary, some additional levers to pull if necessary. But right now, we feel pretty good with where we're at.

Okay. That's helpful. And then just 1 clarification. I know you mentioned and I see it in the slides here on Slide 16, I think it is, the shift in alumina to more percentage LME versus API for the second half of the year. Just so we have our models tightened up, is there any API-based alumina pricing left for 2022? Or is it all percentage LME?

No, there is. It's about 60% LME-linked, 25% API-linked and 15% fixed in the back half -- for the back half, yes. And just as I said, we made that decision looking at with a relatively good relationship at the time. So it's a relatively good relationship. But given the volatility on both sides, potential impacts, especially on the alumina production side, it made sense to just take a little risk off the table, lock in when it was a good relationship historically when compared to historical levels and sort of derisk the alumina supply chain a little bit for ourselves.

Okay. And is that a similar plan for 2023? Should we assume a similar type of dynamic, 60, 25 et cetera?

Yes. Some of those contracts are long-term contracts that you're always going to have some API built into there. Some of the LME contracts are also long-term contracts will go out there as well as the fixed price. So there's just a little bit on the margin that can move either way that we'll enter into as we sort of get into the beginning of Q4, price start to lock that down. So we'll have better guidance for you on the next call.

Your next question comes from the line of Lucas Pipes with B. Riley Securities.

I also want to ask about Sebree because it also, like Hawesville has Midwest Power. So I wondered if you could maybe hone in on what makes this asset different?

Sure, Lucas. Yes, there will be a little bit of a repeat from what I just mentioned today. But specifically, you've got one of the big aspects of the smelter technology is the amount of energy that they consume per aluminum produced. And Hawesville, unfortunately, was the highest of the assets from the amount of energy necessary to produce a aluminum. Sebree, on the other hand, is quite a bit better, which provides a big difference in high energy price environment like we find today. When you combine that with a value-added casthouse, especially in a period where we have record value-added premiums on the billet side, especially, you've got another income stream, additional source of margin for Sebree that you don't have at a Hawesville-type asset. And then I think just the third piece to touch on is when you look at Sebree's history, it's been a very well run smelter, very consistently run and very profitable over a lot of different conditions. And so as we look forward, we can be quite confident that it will return to profitability, and we'll continue to get returns on the investments that we make there. So high level, that's the difference.

Very helpful. In terms of the power intensity at Sebree, is there a way to quantify that vis-a-vis Hawesville?

No, we don't really disclose individual asset breakdowns in terms of -- in that level of detail. But you can just judge based on our actions that is fairly material.

No, I appreciate the 3 points you highlighted. Very helpful. And then staying on the power side, with Mt. Holly, could you remind us where power prices stand there today? And to what extent power prices at Mt. Holly might move with a higher-priced power environment?

Sure, sure, sure. Thanks, Lucas. Yes. So just as a reminder, the Mt. Holly power contract is different than the Kentucky Power contract in that it's a cost of service-based energy contract. So it's a 3-year contract through 2023. So a portion of the energy is fixed and a portion is subject to our energy providers' fuel costs. Due to the force majeure they experienced, their fill cost has been higher, and they've had to source mark to market energy to make up for the coal lost in the force majeure of their supplier. Overall, the blended rate is still lower than the prices we're seeing in Kentucky and really elsewhere today. So -- and then just to give you a little sense more, Lucas, it's about a $10 megawatt increase from Q2. We don't disclose the actual power price due to some confidentiality provisions, but you can look to about a $5 million to $10 million EBITDA impact in Q3 over Q2.

Super. Really appreciate the detail. And then I'll try to squeeze in the last one. The Inflation Reduction Act, I believe, includes some measures to support domestic manufacturing, including aluminum. So have you had a chance to look at that? And what might be the benefits to Century?

Sure, Lucas. Great question. As a 750-page bill, I think -- so I haven't been through every detail, of course, and the bill is still not passed, as far as I'm aware. So still subject to changes. But based off our early understanding, we do think the bill will have a positive impact, both directly and indirectly. So as we understand, as the bill will continue renewable energy subsidies which should drive primary aluminum demand as wind and solar generation assets as well as the transmission lines that connect them are aluminum-intensive, renewable energy also tends to drive down energy prices as a whole. They tend to be the lowest cost source of generation in today's market. So that's another positive. Second, the bill provides for further electric vehicle subsidies, which, as we discussed, these 400 pounds more primary aluminum value-added products and internal combustion vehicle. So that's another measure that should help demand, which is already -- has been and continues to be strong on the growth potential, but we see this as a real positive to continue to drive that growth. And then finally, the bill provides dollars for further supply chain resilience and critical minerals, of which primary aluminum is defined as one. So there may be further opportunities there that we'll continue to look at and discuss once it goes past.

Your next question comes from the line of John Tumazos with Very Independent Research.

Thank you for filing the full 10-Q and a more detailed disclosure. That might be more than we can read in 45 minutes, but it's better. And thank you very much for Shelly for the explanation of the accounting for Hawesville, which I think was very clear. Now that the aluminum price has fallen and the Midwest premium has fallen and you've had this big hedge cost reversal or credit to income, is this a good time to close out hedges so that you don't have as many assets committed to collateral and maybe 6 months ago, the hedges felt like a big headache, maybe it's a good time to get rid of them.

Yes, it's a great question, John. So if you just look at the hedge books, it's on Page 16, you can see that the majority of the hedges -- the vast majority of the hedges are going to roll off at year-end in any event. So you'll see the Midwest position in its entirety will be gone at the end of the year. And you'll be down to sort of very low levels of LME hedging. So I think naturally, that hedge position is almost finished now, and we'll be back to a position where the only hedging sort of material size really is on the energy side and especially on that Nord Pool side. So if you look at...

[indiscernible] Be profitable.

Yes. Yes, sir.

Back in December, when Alcoa idled in Spain, they locked up some renewable energy to 2 years out to restart in 2024. And clearly, the Indiana Hub electricity price is very volatile as is natural gas. My clients that share their energy view with me would probably expect $25 or higher Henry Hub gas or much higher spot electricity prices. I don't think I know any investor who thinks we're going to go back to historical prices for gas supplies electricity, given that we're exporting 10%, 12% of gas output now. Some people believe that the shale gas fields are maturing and could decline, and our President promised so much gas to Europe because of their bind. So why not lock in a renewable power contract for one or both Kentucky smelters, I don't want to say regardless of price, but I can't imagine a bad price for renewable power.

Yes. We do think the renewable pricing is going to be very attractive over the long term here. And I think we've talked about in the past, that is something we're looking at and considering and continue to look at and consider and could very well see us do in the future. I would just say to some of the other commentary, I agree with you. I mean we've obviously seen very volatile energy prices over the past year coming out of a very long period of very stable both Indiana Hub and natural gas prices. I think we do see some signs of relief. If you look at gas generation in the U.S. over the past several weeks, they've been hitting sort of record production levels, which is great to see. And forward prices continue to backwardate pretty significantly into 2023. But back to your core point, I think we agree, we're very big fans of wind and solar. And as Lucas mentioned, I think the Inflation Reduction will help to continue to foster additional renewable resources in the U.S. which should provide us good opportunities to take advantage of that in the future, whether Kentucky, South Carolina, or -- [indiscernible].

Your next question comes from the line of Timna Tanners with Wolfe Research.

I wanted to ask a little bit more on power prices, but I had joined late, maybe I missed it, but from when you announced the closure of Hawesville, if anything, the MISO has been a lot less scary than we had seen in the forward curve at that time. And actually, the Nord Pool forward price, if we get into first quarters, actually December through February is above 300. So I guess I just wondered if we've talked enough about Nord Pool and about how you're thinking about managing through that? And how you make decisions to shut it? Is it just looking at an extended period of time? Or how much confidence do you have in these forward curves given the volatility?

Yes. It's really interesting to that because I think you're right. Actually, on both indiHub and North pool. When you look at the forwards and then you look with the spot prices that have actually occurred, in other words, if you look at our realized energy prices, again, on both Indi Hub and Nord Pool, you've actually seen levels significantly below the forward curve. So what that tells me is there's certainly a huge risk premium being bid into the forwards, and provide some hope that we'll continue to see that occur. With Nord Pool specifically, we've seen pretty strange pricing outcomes over the course of Q2 and into Q3, where you have some very high priced days and you have some days that are less than $10 per megawatt hour. And what we think that's going on there is you have a lot of wind generation in Nord Pool, which is on high wind generation days, is sort of creating a situation where you're not seeing sort of the contagion from the mainland entering into the Nord Pool market. And that's significantly lowered our realized Nord Pool prices. Just speaking about going forward and decisions and focusing on Nord Pool, just as a reminder, so we're 60% hedged for the balance of the year, and that's 60% hedged on only 1/3 of our energy that's exposed to Nord Pool. So it's really a very small portion of our overall energy mix for Grundartangi that's exposed to Nord Pool. And once you hit 2023, which is when you start to see those really high forward Nord Pool prices, the hedge actually goes up to 80% of the exposure. So now you're down to very few megawatts that are actually exposed to Nord Pool going forward. So yes, it's difficult to imagine a situation for Grundartangi where that type of exposure would be putting the smelter.

Okay. So if I'm reading between the lines, I'm trying to do -- sorry, I don't want to put words in your mouth, but if you have this -- if the situation prevails where the price does more than double from recent levels, then it would really just be the period of time until 2023 kicks off, at which point you're more hedged and you feel comfortable that you could manage through that given what we know today. Is that fair summary of what you were saying?

Yes, even for the balance of '22, we're 60% hedged for our exposure which is only, again, 1/3 of the total energy for the contract. So even for the balance of 2022, that's not a huge exposure. But I'll just say and finish with, we are looking at ways to sort of decrease that volatility if we can for the balance of the year and then the balance of 2023, if we get a chance to do that.

And then 2024 and beyond.

Yes. And then Shelly's going to just remind us that after 2020 -- beginning in 2024, we have no Nord Pool exposure. That goes to a fixed-price energy contract. That portion of the energy goes through a fixed-price energy contract for the next 3 years. So starting in '24, you'll have 2/3 of your energy at LME percentage, which is a long-term contract that have always been for Grundartangi, and the remainder will be fixed price.

Okay. Excellent. It seems like Europe is going to be heading into a challenging period for electricity prices, broadly speaking. I mean, have you any insights from your customers there on rationing of power and any impact or thoughts or impact into the back half of the year from that?

It's a great question. I think everyone obviously is paying attention, but we haven't seen the demand deteriorate in our actual orders yet. So yes, maybe just leave it at that. I think people recognize there's a risk. People are quite uncertain as to what that rationing may look like. It's actually interesting when you look at storage levels of natural gas in Europe today, they're actually above 5-year averages. But obviously, the concern is that, that remaining gas flow from Russia is shut off and LNG imports that are coming in is not enough to replace it. So right now, if nothing else is going on, you look at the storage levels and you'd say they're in a decent spot. But we all recognize there's further investment in the future.

Got it. Definitely challenging things for you to navigate, not trying to take it lightly, and I appreciate all your candor on the comments. So best of luck.

Thanks, Timna.

You have a follow-up question from David Gagliano with BMO Capital Markets.

All right. Great. I'm going to preface it with admitting that this is a bit of a nitpicky question. So take it for what it's worth. But I am curious about the answer. So when I look at the Slide 16, the financial hedge landscape, and I compare it to the prior quarter, there's a couple of things that I wanted to ask about. Number one is the percentage hedged, you take the volumes by a percentage hedge, and it implies volumes in '23 and '24, kind of like 700,000, 750,000 tonnes. That's down from prior quarter of 900,000 tonnes implied volumes. Is there any going on other than assuming Hawesville is out for that entire period? Or is that the reason for that decline? That's my first question.

Yes. That's the reason, David.

Okay. And then the second question, not a lot, obviously, but the volumes hedge did go up a little bit in '24 for the LME, went from 29,000 to 35,000 tonnes. And I just heard your commentary about not hedging. So I'm just curious, what is the reason for that admittedly small increase in hedges? And how should we expect that to change on a go-forward basis for the LME volumes hedged into 2024?

Yes. Great question, David. Great catch. Yes, all that is, is that small. I think it's 6,000 metric tons that you're mentioning is the difference. That's just some LME that we hedge against the fixed-price power contract that's replacing the Nord Pool power contract. So when we saw some of those really high LME levels and we saw the opportunity to sell just a small portion of the metal against that fixed price power contract from '24, '25, and '26, which creates a synthetic LME percentage that looks like the remaining power contracts. So we'll give some more guidance as we get closer there, but you can start to think about that fixed price exposure even as low as it is being derisked further and creating a nice LME linkage similar to the other Grundartangi contracts for the period.

Okay. So then on a go-forward basis, will we see more of that falling into the hedge book in 2024? Or is that kind of a...

I mean it's pretty small amount that you need to hedge because it's not that much power. So we've done, I would say, the majority of what we've done there, if anything, it's going to be a few thousand tonnes here or there just to offset the remaining fixed price exposure.

[Operator Instructions]. We have a follow-up question from the line of John Tumazos with Very Independent Research.

Jesse, so I know you don't really want to talk about business by asset. But if someone is worried at $9 or $11 or $13 spot gas if it bounces that high that you could slow down at Sebree, is there any comfort that you could give us your guidance regarding how high a gas price or spot power price is too much for Sebree to swallow?

Yes, I'm not going to go to the individual asset guidance, John. But what I will say is I think you can tell by our approach to date and also sort of our track record over time, we've been very cost disciplined. And when it's been necessary to take action, we've taken that action. And we've also managed to keep our production running through some very difficult commodity price environments. And so what we've tried to do is to act early rather than late, so that we put in ourselves in a position where we don't have to curtail production. Obviously, this recent action at Hawesville, unfortunately, weren't able to do that. But when you look at our track record over time, I think we've done that, and then we've been cost disciplined where necessary. So maybe I'll just leave it at that, but hopefully, that gives you a sense of how we intend to continue to operate the business to ensure that we get to what we continue to believe is very positive future given the macro setup for aluminum.

Jesse, in terms of marketing, there are certain customers like Tesla with -- their cars have to be aluminum because their batteries are so heavy. And you've got customers like Ball that are building 2 different billion can plus can flats. And I'm sure Bush doesn't want to switch back to steel cans. Why not go to important customers with long-term cost plus contracts, like you've given the power utility in South Carolina? Because clearly, those customers need the aluminum and don't have anywhere else to go domestically. I hope scrap recovery increases, but that's awful slow.

Yes. I think you're right about the long-term trends, right? We see some key industries that are focuses for the U.S. both the government and industry itself that are going to increase aluminum penetration over the next year, 2 years, 5 years, 10 years. We know these trends are out there, whether it's EVs, lightweighting, sustainable packaging, renewable energy, all these things. So we think that continues to support the need for domestic industry here. And you can just see it when you look at the balances that are on our earlier slides in the deck that the U.S. remains the shortest market for aluminum in the world. And so as we see things like we see in the Inflation Reduction Act that recognize these critical minerals and speak to rebuilding domestic supply chains, it's clear that aluminum will be a part of this. And as we sort of start to build that out, I think that raises some of the commercial opportunities like the one you talked about. So without sort of commenting on any specific negotiations, I think we're always trying to be creative in the way that we sell our alumina. And certainly, we're committed to servicing the domestic industry and are well situated, too, with our value-added casthouse that we have to produce the extrusion sheet that are necessary for the very applications you're talking about. So we think that commercially should be a very valuable proposition and intend to pursue it.

Jesse, if I could ask one more, and thank you for your patience with me. I don't know anything about this Inflation Reduction Act, except it's got a goofy name. I try not to read a lot of the crap from Washington. What's in the fine print or any print is so good to give optimism?

Well, I think if you just look -- and again, I haven't been through the full thing. It still hasn't passed the full Congress and still hasn't been signed into law, and we're all still looking at it. But if you look at the broad strokes of the bill and the focus, there are some very positive things for aluminum, including renewable energy subsidies, which I think can help produce some of the renewable energy contracts and developments as we talked about earlier, including the EV subsidies, which again should produce additional demand for EV, which as I said in the past, are much more aluminum intensive than internal combustion engine vehicles, specifically, increases demand for sheet and extrusions, which demand the billet and slab that we produce in our U.S. value-added casthouses. And finally, may provide some direct support for critical mineral industries like aluminum, and aluminum is specifically defined as a critical mineral in the Act. So we'll have to see, but we think, as a whole, and obviously, focusing on the aluminum aspects of it, the bill should be a positive for us. Okay. With that, thanks, everybody, for joining the call, and we look forward to talking to you after Q3.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.