Century Aluminum Company — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Century produces primary aluminum in the U.S. and Iceland, operates a Dutch anode facility, and acquired a 55% interest in Jamaica’s Jamalco alumina and bauxite operation on May 2, 2023. Unless noted, amounts are U.S. dollars in millions.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $575.5 | $856.6 | $1,127.9 | $1,610.2 |
| Gross profit | $15.9 | $15.9 | $64.0 | $109.1 |
| Gross margin | 2.8% | 1.9% | 5.7% | 6.8% |
| Operating income (loss) | $(0.7) | $(149.5) | $26.8 | $(68.2) |
| Net income (loss) attributable to Century stockholders | $7.5 | $37.4 | $(31.1) | $55.1 |
| Basic EPS | $0.08 | $0.38 | $(0.34) | $0.57 |
Six-month operating cash flow was $(1.9), versus $68.6 provided in the prior-year period. Investing cash outflow was $17.2, including $36.6 of property and equipment purchases, partly offset by $19.4 of net cash acquired in the Jamalco acquisition. Financing provided $25.1. Cash, cash equivalents and restricted cash ended the period at $61.5; unrestricted cash and equivalents were $50.6.
At June 30, total debt was $553.4, compared with $527.7 at December 31, 2022. Total equity was $404.8. The company reported liquidity of approximately $231.1, comprising $50.6 cash and $180.5 of net facility availability, including the undrawn $90.0 Vlissingen facility. The U.S. revolver had $63.5 availability after borrowings and letters of credit; the Iceland revolver had $27.0. Century said it was in compliance with applicable credit covenants.
Material changes versus comparable periods
- Six-month sales fell 30% year over year. Excluding scrap, purchased aluminum and alumina sales, management attributed the decline primarily to lower volume and mix, including the Hawesville curtailment, and lower LME and regional premium realizations.
- Six-month gross profit decreased $45.1. Lower metal realizations and volume/mix were partly offset by lower power and operating costs and favorable raw-material realizations.
- The prior-year period included a $159.4 Hawesville impairment charge; no impairment was recorded in 2023.
- Derivative results shifted from a $175.1 gain in the first half of 2022 to a $48.5 loss in the first half of 2023, primarily reflecting price movements in LME and Nord Pool contracts.
- Jamalco contributed $43.7 of revenue after acquisition. Its preliminary purchase accounting includes a $103.3 deferred credit for a bargain purchase gain; the allocation remains subject to change.
Outlook, management commentary and risks
- Hawesville remained fully curtailed. Century intends to maintain the plant and consider restart when energy prices normalize and aluminum prices support restart and operating costs. Q2 and first-half 2023 curtailment charges were $4.4 and $11.4, respectively.
- Management expects 2023 capital spending of approximately $20–$30, excluding the Grundartangi casthouse project and Jamalco acquisition, and anticipates further investment in Jamalco. The casthouse project was expected to ship its first billets in Q1 2024, subject to market conditions.
- Management reported U.S. and European energy prices had reverted to historical levels so far in 2023. It cited energy price and availability, aluminum and alumina prices, production volumes, foreign exchange, and supply chains as material uncertainties. A $1/MWh change in power prices corresponds to an estimated $15.8 annual cost impact at the stated full-production usage assumptions.
- Glencore owned 42.9% of common stock (46.1% on a fully diluted basis) and all outstanding Series A convertible preferred stock. It accounted for approximately 74% of Q2 consolidated net sales, creating significant customer and related-party concentration.
- On July 7, 2023, Vlissingen borrowed $10.0 under its Glencore facility. The facility carries an 8.75% fixed rate and matures in December 2024.
- Century described pending legal matters as not expected to have a material adverse effect, while noting outcomes are uncertain. A $30.2 contingent power-related obligation was fully offset by a derivative asset; payment depends on aluminum prices and Hawesville operations. The Mt. Holly land sale agreement was amended to approximately $25.8, with the buyer’s option extended into Q3 2023.
Important facts for investors to verify
- Jamalco’s final purchase-price allocation, deferred bargain-purchase credit, operating performance and future funding needs.
- Whether Hawesville remains curtailed or restarts, and the resulting impact on volume, costs, cash flow and borrowing-base availability.
- Realized aluminum and alumina prices, power costs, production volumes, and the cash and earnings effects of derivative positions.
- Liquidity and covenant headroom, including the availability and terms of the Vlissingen facility and the July borrowing.
- Progress, cost and timing of the Grundartangi casthouse project, and completion of the amended Mt. Holly land sale.