Century Aluminum Company — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are primarily with Q1 2023. Century produces primary aluminum in the U.S. and Iceland, holds a 55% interest in Jamaica’s Jamalco bauxite and alumina operation, and owns an anode facility in the Netherlands.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $489.5 million | $552.4 million |
| Gross profit | $16.5 million | $48.1 million |
| Operating income | $1.9 million | $27.5 million |
| Net income (loss) | $244.7 million | $(38.6) million |
| Net income (loss) attributable to Century stockholders | $246.8 million | $(38.6) million |
| Basic / diluted EPS | $2.52 / $2.26 | $(0.42) / $(0.42) |
| Cash used in operating activities | $(14.8) million | $(0.2) million |
| Cash used in investing activities | $(29.7) million | $(14.3) million |
| Cash provided by (used in) financing activities | $49.2 million | $(9.4) million |
Gross margin was approximately 3.4%, down from 8.7%; operating margin was approximately 0.4%, down from 5.0%. Q1 2024 net income includes a $245.9 million noncash bargain purchase gain from finalizing Jamalco acquisition accounting, so reported earnings substantially exceed operating performance. The gain was excluded in reconciling net income to operating cash flow.
Sales fell $62.9 million year over year. Lower aluminum volume and sales mix reduced sales by $53.4 million, and lower LME and regional price realizations reduced them by $49.4 million; these were partly offset by $40.1 million of Jamalco alumina sales absent from the prior-year period. Primary aluminum shipments declined to 174,627 tonnes from 181,165 tonnes. Average LME price was $2,199 per tonne versus $2,399; Midwest premium was $402 versus $618, and European Duty Paid premium was $246 versus $302.
Gross profit declined $31.6 million year over year, principally due to weaker metal pricing and lower volume/mix; favorable raw-material and power price realizations and the $11.9 million Section 45X credit partly offset the decline. Derivative contracts contributed a $7.4 million net gain versus a $57.6 million loss in Q1 2023, largely reflecting the absence of prior-year losses on Nord Pool contracts settled in December 2023.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $93.5 million, versus $88.8 million at year-end. Total assets were $1.85 billion and total equity was $587.1 million.
- Total debt was $528.0 million, up from $479.2 million at December 31, 2023. This included $65.9 million of current maturities and $452.1 million of long-term debt on the balance sheet. Major borrowings include $247.5 million of 7.5% senior secured notes and $84.8 million of 2.75% convertible notes, both due 2028, and $130.0 million under the Grundartangi casthouse facility.
- Management reported total liquidity of $302.0 million: $93.5 million cash plus $208.5 million net availability under revolving and Vlissingen facilities. Net availability included $66.2 million under the U.S. revolver and $62.3 million under the Iceland revolver. The company reported compliance with applicable debt covenants.
- Operating cash use reflected working-capital timing, including inventory and receivables, and payments to suppliers. Investing cash use increased with spending on the Grundartangi casthouse project and Jamalco.
Material developments, outlook and risks
- Jamalco: Century acquired a 55% interest in May 2023 for $1.00 and finalized purchase accounting in Q1 2024, recognizing the $245.9 million bargain purchase gain. Jamalco’s results are consolidated; the government of Jamaica’s 45% interest is noncontrolling. Equipment damage had caused power disruptions beginning in June 2023; the unit returned to full capacity by October, but inefficiencies continued into Q1 2024. The cumulative estimated cost impact through March 31 was $38.8 million. Insurance coverage remains under review.
- Section 45X tax credit: The company recorded $11.9 million as a reduction in cost of goods sold and $0.7 million as a reduction in SG&A in Q1. Manufacturing credit receivables were $57.9 million current and $14.0 million noncurrent at quarter-end. Eligibility depends on the rules and requirements for the credit.
- DOE project: On March 25, 2024, DOE selected Century to begin negotiations for up to $500 million toward a proposed new U.S. aluminum smelter in the Ohio/Mississippi River basins. The award is not final: terms and conditions remain under negotiation, and construction requires substantial additional financing that may not be available on acceptable terms.
- Capital spending and project outlook: Management estimated 2024 capital spending of approximately $20–$30 million excluding the Grundartangi casthouse project. The casthouse project was expected to continue through the first half of 2024, with first billet shipments anticipated in the second half, subject to market conditions. No broader earnings or revenue guidance was provided.
- Hawesville: Production has been fully curtailed since August 2022. Restart depends on more normalized energy prices and aluminum prices sufficient to support restart and operating costs. Q1 curtailment charges were approximately $0.6 million, versus $7.0 million a year earlier.
- Market and operating risks: Management cited Western demand challenges and declining aluminum prices in Q1. Results remain sensitive to LME prices, regional premiums, power, alumina and other input costs, and production volumes. A $1/MWh change in electricity prices would change estimated annual power costs by approximately $15.8 million at full production capacity. European gas supply and pricing, power availability, labor negotiations, and geopolitical and trade developments are additional risks.
- Concentration and related parties: Glencore owned 42.9% of common shares and all outstanding Series A convertible preferred stock; it accounted for 64.3% of Q1 consolidated net sales, versus 75.0% in Q1 2023. Century also has borrowing and commodity-contract relationships with Glencore.
- Other exposures: The filing describes litigation and benefit obligations, power-related commitments, and a $31.2 million contingent power obligation tied to aluminum prices and Hawesville operations, fully offset by a derivative asset at quarter-end. Management said it did not expect payments under that obligation based on current conditions, but circumstances could change.
- Controls: Management said disclosure controls were effective at March 31, 2024. It reported that a material weakness in Jamalco purchase-accounting controls, identified at year-end 2023, was remediated during Q1; Jamalco remained excluded from the company’s internal-control assessment during the first year after acquisition.
Investor verification priorities
- Separate recurring operating results and cash generation from the one-time, noncash $245.9 million Jamalco bargain purchase gain.
- Track aluminum prices, premiums, shipments, operating costs and cash flow, particularly the effects of weaker pricing and working-capital movements.
- Verify realization and timing of Section 45X credits and the $71.9 million combined current and noncurrent manufacturing credit receivable.
- Monitor final DOE award terms, conditions, and the financing plan for the proposed smelter; selection to negotiate is not a finalized grant.
- Assess debt maturities, borrowing-base availability, covenant headroom and the December 2024 maturity of the $10.0 million Vlissingen borrowing.
- Follow Jamalco operating recovery and insurance discussions, the Hawesville restart conditions, and the Grundartangi casthouse schedule and spending.
- Consider Glencore sales concentration and related-party financing and trading arrangements, as well as power-price, labor and contingent-liability exposures.