Century Aluminum Company — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; the filing also reports fourth-quarter results. Century produces primary aluminum at smelters in the United States and Iceland and operates an anode facility in the Netherlands. Annual aluminum production was approximately 794,000 tonnes against estimated capacity of 1.016 million tonnes. The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $1,605.1 million | $1,836.6 million |
| Gross profit (loss) | $(36.5) million; approximately (2.3)% margin | $(23.9) million; approximately (1.3)% margin |
| Operating income (loss) | $(80.5) million | $(72.1) million |
| Net income (loss) | $(123.3) million; $(1.38) per share | $(80.8) million; $(0.91) per share |
| Cash from operating activities | $42.9 million | $17.7 million |
| Cash and cash equivalents at year-end | $81.6 million | $38.9 million |
| Total debt | $315.9 million | $301.0 million |
Cash used in investing activities was $11.8 million and cash provided by financing activities was $13.5 million. Year-end unused revolving-credit availability was $100.6 million, for stated total liquidity of approximately $182.2 million. Shareholders’ equity was $546.1 million, down from $675.0 million. No common-stock dividends were declared in 2020 or 2019, and the company said it did not plan cash dividends in the foreseeable future.
In the fourth quarter, sales were $389.1 million, gross loss was $1.2 million, and net loss was $35.5 million ($(0.40) per share). In fourth-quarter 2019, sales were $435.5 million, gross profit was $6.7 million, and net loss was $4.8 million ($(0.05) per share).
Changes versus the prior year
- Annual sales declined $231.5 million, about 12.6%. Excluding alumina sales, management attributed a $220.2 million decline mainly to $188.6 million of unfavorable LME and regional-premium realizations and $31.6 million of unfavorable volume and product mix.
- Gross loss widened by $12.6 million. Lower aluminum price realizations were partly offset by $178.6 million of favorable raw-material price realizations.
- Net loss increased by $42.5 million. Derivative contracts shifted from a $12.0 million gain in 2019 to a $17.3 million loss in 2020; interest expense also rose.
- Operating cash flow improved by $25.2 million, primarily due to working-capital changes. Investing outflows fell, reflecting lower Hawesville restart spending and deferred projects.
- Average LME aluminum price fell to $1,702 per tonne from $1,792; average Midwest premium declined to $267 from $396 per tonne.
Outlook, management commentary, and key risks
- Management said COVID-19 had not disrupted plant operations and that essentially all cast metal continued to be sold. Aluminum prices and value-added premiums recovered in the second half of 2020, but continued pandemic effects and market uncertainty remained difficult to estimate.
- Century expected a new three-year Santee Cooper power arrangement for Mt. Holly to begin April 1, 2021, subject to finalization and government approvals. It was expected to support production at 75% of full capacity. The company anticipated approximately $50 million of 2021 Mt. Holly restart spending and approximately $25 million of other 2021 capital spending.
- Hawesville was operating at approximately 80% capacity after completion of a potline rebuild in 2020. The final potline rebuild and technology upgrades were expected over several years, subject to market conditions; project costs to date were approximately $108.3 million.
- The 2025 senior secured notes have $250 million principal and a 12% stated rate: 10% payable in cash and 2% payable in cash or additional notes, at the company’s option. Century used the proceeds and cash on hand to retire its 2021 notes. The $20 million Glencore Hawesville term loan was due in December 2021.
- Results are highly exposed to aluminum prices, regional premiums, alumina and energy costs, production levels, and market-based power prices. The company also cited potential power interruptions, restart execution and funding risks, labor negotiations, environmental and legal contingencies, and debt-service and refinancing risks.
- Customer concentration is significant: Glencore generated approximately 64% of 2020 sales and Southwire approximately 12%. Glencore owned 42.9% of common stock and all outstanding Series A convertible preferred stock. Major power, alumina and other contractual commitments, including take-or-pay obligations, may limit flexibility.
Most important facts for investors to verify
- Whether the Mt. Holly power contract and required approvals were completed, and whether the planned restart reached its budget, schedule and production targets.
- Whether aluminum prices and regional premiums, alongside power and alumina costs, support improved margins and cash generation.
- Current liquidity, borrowing-base availability, covenant headroom and ability to service the 12% notes and repay or refinance near-term obligations.
- Progress, remaining cost and timing of the Hawesville rebuild and technology upgrades.
- Exposure to Glencore and other major customers, including the terms and continuation of sales, supply, derivative and financing arrangements.
- Developments in pension funding, environmental matters and litigation; the filing states some potential losses cannot be estimated clearly.