CENX

Century Aluminum Company - 10-Q Summary (Period Ended June 30, 2007)

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2007, and the six-month period ended June 30, 2007. Century Aluminum Company is a producer of primary aluminum products with operations in the United States (Ravenswood, Hawesville, Mt. Holly) and Iceland (Grundartangi). The company is a large accelerated filer and is not a shell company. As of July 31, 2007, there were 40,958,071 shares of common stock outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 21.1% year-over-year, driven by higher LME aluminum prices (contributing $73.1 million) and increased shipment volume (contributing $85.7 million), particularly from tolling operations at Grundartangi.
• Profitability: The company reported a net income of $3.6 million compared to a net loss of $95.8 million in the prior year. This turnaround was primarily due to improved operating margins and a significant reduction in net losses on forward contracts.
• Forward Contract Losses: Net loss on forward contracts decreased significantly to $204.9 million (from $317.2 million in 2006), though it remains a substantial non-cash charge impacting net income.
• Debt Reduction: Total debt decreased by approximately $285 million from year-end 2006 levels. This was achieved through a $200 million prepayment of the Nordural senior term loan using proceeds from a June 2007 equity offering.
• Equity Offering: In June 2007, the company completed a public offering of 8.3 million shares at $52.50 per share, raising approximately $414 million net of costs.

Guidance, Outlook, and Risks

• Capital Projects: The company is proceeding with the Phase V expansion of the Grundartangi facility (targeting 260,000 mtpy completion in Q4 2007) and the Helguvik greenfield smelter project in Iceland. Capital commitments for Grundartangi were approximately $27.4 million as of June 30, 2007.
• Power Costs: A 10% increase in electrical power tariff rates for the Ravenswood facility became effective July 1, 2007. Additionally, the EU reduced the import duty on primary aluminum from 6% to 3%, negatively impacting Grundartangi's tolling revenues, though management does not expect a material effect on overall financial position.
• Liquidity: The company maintains a $100 million senior secured revolving credit facility with $97.7 million available as of June 30, 2007. Management believes cash flow from operations and available borrowings are sufficient for near-term needs.
• Risks: Key risks include the cyclical nature of aluminum prices, reliance on Glencore as the sole metal hedge counterparty, potential power supply disruptions, and the execution risks associated with the Helguvik project (regulatory approvals, power transmission agreements).

Investor Verification Checklist

• Forward Contract Exposure: Verify the impact of the $204.9 million net loss on forward contracts and the extent of remaining derivative positions (773,400 metric tonnes of financial sales contracts outstanding).
• Debt Covenants: Review the specific financial covenants (interest coverage, debt service coverage) for the Nordural senior term loan facility, given the recent debt prepayments and ongoing expansion costs.
• Helguvik Project Status: Confirm the status of regulatory approvals and power transmission agreements required for the Helguvik smelter, as delays could impact capital expenditure plans.
• Power Contract Renewals: Monitor the renewal status of the Alcan metal agreement (extended to August 31, 2007) and the Hawesville power contract (unpriced portion for 2008-2010).
• Tax Audit Resolution: Track the conclusion of the IRS examination of federal income tax returns for years 2000-2002, which is expected to conclude in 2007.