Century Aluminum Company — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts are in millions of dollars unless stated otherwise. Century produces primary aluminum in the U.S. and Iceland, and acquired a 55% interest in Jamaica’s Jamalco alumina operation on May 2, 2023. Hawesville remained fully curtailed.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $545.2 | $637.2 | $1,673.1 | $2,247.4 |
| Gross profit (loss) | $(11.5) | $(43.0) | $52.5 | $66.1 |
| Operating income (loss) | $(24.2) | $(51.5) | $2.6 | $(119.7) |
| Net income (loss) attributable to Century stockholders | $(42.0) | $44.3 | $(73.1) | $99.4 |
| Diluted EPS | $(0.45) | $0.43 | $(0.79) | $0.97 |
| Operating cash flow | Not presented separately by quarter | $39.6 | $57.2 |
Q3 gross margin was approximately negative 2.1%, compared with negative 6.7% a year earlier; nine-month gross margin was approximately 3.1%, versus 2.9%. Net losses included derivative-contract losses of $25.2 for Q3 and $73.7 for the nine-month period; the comparable 2022 periods recorded gains of $112.6 and $287.7, respectively.
At September 30, cash and cash equivalents were $70.3, restricted cash was $24.4, and total debt was $512.0, compared with $527.7 at December 31, 2022. Reported liquidity was $305.8, including $212.6 of net availability under credit facilities and $22.9 of restricted cash designated for capital expenditures. Shareholders’ equity was $386.7, including $53.3 of noncontrolling interest. Nine-month investing cash use was $17.6 and financing cash provided was $17.2.
Material changes and operating developments
- Sales fell year over year, reflecting lower aluminum prices and reduced shipments, including the effect of Hawesville’s curtailment. The company attributed the nine-month decrease in aluminum sales, excluding scrap, purchased aluminum and alumina, primarily to $344.5 of lower price realizations and $325.4 of unfavorable volume and mix. Jamalco contributed $107.1 of revenue after its acquisition.
- Average Q3 LME aluminum price was $2,155 per tonne, down from $2,834 for the first nine months of 2022; the nine-month 2023 average was $2,272. Regional premiums also declined year over year.
- Nine-month gross profit declined by $13.6. Lower prices and Hawesville-related volume effects were partly offset by lower operating costs and favorable power and raw-material price realizations.
- The 2022 comparison included a $159.4 Hawesville impairment charge; none was recorded in 2023. Hawesville restart remains dependent on market conditions, including energy and aluminum prices.
- Jamalco’s power-generation equipment failure affected Q3 results by approximately $16.9. Management estimated a further Q4 impact of about $5.0, said the equipment returned to full capacity by the end of October, and expected insurance coverage for losses, less $8.0 of deductibles.
Outlook, risks and unusual items
- Management stated that operating cash flow and financing activities should cover operations and business needs over the next 12 months. This is a forward-looking assessment, not a guarantee.
- For 2023, planned capital spending excluding the Grundartangi casthouse project was approximately $10–$15. The company reported $18.3 of capital expenditures for the first nine months excluding that project, and $44.4 associated with the project.
- The Grundartangi casthouse project was expected to ship its first billets in Q1 2024, subject to market conditions. Project funding is through its dedicated facility.
- A new Mt. Holly power agreement signed October 27, 2023 provides 295 MW at cost-of-service-based rates from January 2024 through December 2026, intended to support current operating capacity.
- Power, aluminum and alumina prices, production levels, foreign exchange, and derivative valuations can materially affect results. A $1/MWh power-price change was estimated to affect annual power costs by $15.8 at full capacity. European gas supply and price uncertainty and potential grid disruptions are additional operating risks.
- Jamalco’s acquisition accounting remains preliminary. The balance sheet includes a $161.6 deferred credit for a preliminary bargain-purchase gain; the purchase-price allocation remains subject to change.
- Century depends significantly on Glencore: 73.5% of Q3 consolidated sales were to Glencore, which beneficially owned 42.9% of common stock and all outstanding Series A preferred stock at quarter-end. The filing also reports related-party commodity, financing and carbon-credit transactions.
- The U.S. revolver had $32.6 of net availability after borrowings and letters of credit; a fixed-charge coverage covenant can apply if availability falls to specified thresholds. The company reported covenant compliance at quarter-end.
- Legal matters were not expected by management to have a material adverse effect, but the filing notes that unfavorable outcomes could materially affect the business. A $30.5 contingent power obligation was fully offset by a derivative asset; management did not expect payments under current assumptions.
Important facts for investors to verify
- Whether aluminum and regional-premium pricing, shipment volumes, and power and raw-material costs improve or further pressure margins.
- Jamalco’s recovery from the equipment failure, actual insurance recovery and deductibles, and the final purchase-price allocation.
- Hawesville restart conditions and the financial effect of continued curtailment; progress and costs for the Grundartangi casthouse project.
- Liquidity and revolver availability, covenant headroom, debt service, and the maturity and refinancing profile of facilities and notes.
- Derivative positions and their effect on reported earnings and cash flows, given the substantial year-over-year swing in contract gains and losses.
- Glencore-related sales concentration and transactions, plus the status of labor negotiations and power arrangements.