Century Aluminum Company — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; compared primarily with Q1 2022. Century produces primary aluminum at smelters in the United States and Iceland. Results are sensitive to aluminum prices and premiums, power and raw-material costs, production volumes, and product mix.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $552.4 million | $753.6 million |
| Gross profit | $48.1 million | $93.2 million |
| Operating income | $27.5 million | $81.3 million |
| Net income (loss) | $(38.6) million | $17.7 million |
| Diluted earnings (loss) per share | $(0.42) | $0.18 |
| Net cash from (used in) operating activities | $(0.2) million | $37.4 million |
Gross margin was approximately 8.7%, compared with 12.4% in Q1 2022. The $57.6 million net loss on forward and derivative contracts was a major contributor to the pretax loss; it was largely non-cash in the quarter, with $64.4 million of unrealized derivative losses added back in the cash-flow reconciliation.
Capital expenditures were $14.3 million in investing cash flows, including $10.8 million associated with the Grundartangi casthouse project. Cash, cash equivalents and restricted cash declined $23.9 million to $31.6 million; cash and cash equivalents alone were $30.4 million at quarter-end.
Total debt was $518.8 million, down from $527.7 million at December 31, 2022. Current debt included $63.1 million on the U.S. revolver, $45.0 million on the Iceland revolver, $12.3 million on the Iceland term facility, and $7.8 million of industrial revenue bonds. Management reported $210.6 million of net availability across credit facilities, including the undrawn $90 million Vlissingen facility, and total liquidity of approximately $241 million. The company said it complied with its debt covenants.
Material changes and drivers
- Sales fell 26.7% year over year. Aluminum shipments declined to 181,165 tonnes from 211,411 tonnes; management attributed the volume and mix decline primarily to the Hawesville curtailment. Lower LME and regional premium realizations also reduced sales.
- Gross profit declined $45.1 million year over year. Lower metal-price realizations and weaker volume and mix were partly offset by lower operating costs and more favorable power and raw-material price realizations.
- Average Q1 2023 LME aluminum price was $2,399 per tonne, versus $3,267 per tonne for 2022 as cited in the filing; Q1 2023 Midwest premium averaged $618 per tonne and European Duty Paid premium $302 per tonne. Management said results generally reflect market pricing with a one-to-three-month lag.
- Hawesville remained fully curtailed. Q1 curtailment charges were approximately $7.0 million, including $5.4 million of excess capacity charges, partly offset by $0.7 million of scrap and materials-sale income.
- Sales to Glencore represented approximately 75% of consolidated net sales, versus 57% in Q1 2022. Glencore beneficially owned 42.9% of common stock and held all Series A Convertible Preferred Stock.
Outlook, risks and unusual items
- Outlook: The filing provides no formal earnings guidance. Management expects 2023 capital spending of approximately $20–$30 million, excluding the Grundartangi casthouse project and Jamalco; it anticipates additional investment for Century’s share of Jamalco capital expenditures. The casthouse project was expected to continue through the second half of 2023, with first billet shipments targeted for Q1 2024, subject to market conditions.
- Hawesville and power: Century intends to maintain Hawesville and consider restarting when energy prices normalize and aluminum prices support restart and operating costs. Expected Kentucky capacity demand charges were approximately $11.5 million per quarter through May 31, 2023, notwithstanding Hawesville’s curtailment. EDF’s role as MISO market participant for Hawesville and Sebree was scheduled to end May 31, 2023; Century expected to assume that role through a subsidiary.
- Energy and input exposure: U.S. energy prices had reverted toward historical levels, while European energy remained elevated. European gas supply uncertainty could affect Vlissingen anode production and, in turn, Grundartangi. Power-price and aluminum-price volatility, supply availability, and currency movements remain material risks.
- Jamalco: On May 2, 2023, after quarter-end, Century acquired a 55% interest in the Jamaican bauxite-mining and alumina-producing joint venture for $1. The venture’s operations are to be consolidated, with the other 45% held by a Jamaican government-owned entity. The filing highlights integration, funding, joint-venture governance, operating and permitting risks; Jamalco’s financial contribution is not reflected in Q1 results.
- Other items: A January 2023 agreement provides for the sale of approximately 133 acres near Mt. Holly for about $28.5 million, subject to ordinary-course conditions. The filing reports ongoing legal and environmental contingencies, but management did not expect pending matters to have a material adverse effect; outcomes remain uncertain. Domestic and certain foreign deferred tax assets remained subject to valuation allowances.
Key facts for investors to verify
- Whether Hawesville’s restart conditions are met and how its continuing capacity and power costs evolve.
- Quarter-to-quarter movements in aluminum prices, premiums, shipments, power and raw-material costs, and derivative valuations.
- Glencore-related sales concentration, transactions and financial-contract exposures.
- Available borrowing capacity, borrowing-base and covenant headroom, and funding needs as cash and working capital change.
- Jamalco’s operating performance, required capital contributions, integration costs, and permitting status.
- Progress, remaining cost and timing of the Grundartangi casthouse project and the Mt. Holly land sale.