Century Aluminum Company — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Century produces primary aluminum at smelters in the United States and Iceland. Amounts below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $444.0 | $421.2 |
| Gross profit (loss) | $(20.7) | $4.8 |
| Operating income (loss) | $(36.9) | $(4.4) |
| Net income (loss) | $(140.0) | $(2.7) |
| Basic and diluted loss per share | $(1.55) | $(0.03) |
| Operating cash flow | $(49.8) | $34.6 |
| Capital expenditures, including Mt. Holly restart | $7.4 cash-flow purchases | $6.0 |
Sales increased 5.4%. Excluding alumina sales, management attributed the increase to $40.0 million of favorable LME and regional-premium price realizations, partly offset by $15.0 million from lower shipment volume. Primary-aluminum shipments fell to 195,697 tonnes from 202,905 tonnes.
Gross profit declined by $25.5 million. Key unfavorable items were power price realizations ($41.6 million), alumina price realizations ($10.7 million), and volume ($10.9 million), partly offset by favorable LME and regional-premium realizations ($40.0 million). SG&A rose $7.2 million to $16.1 million, primarily due to share-based compensation.
The $98.1 million net loss on forward and derivative contracts, versus a $3.8 million gain a year earlier, was the largest driver of the net loss; management attributed the year-over-year change primarily to rising LME and Midwest Premium prices. The cash flow statement added back $94.4 million of unrealized derivative losses. These accounting losses materially affected reported earnings, while operating performance also weakened.
Liquidity, cash flow, and debt
Cash and cash equivalents were $26.3 million at March 31, down from $81.6 million at year-end; cash, cash equivalents, and restricted cash decreased $56.8 million during the quarter. Working-capital movements and the net loss contributed to operating cash outflow. Cash interest paid was $16.1 million.
Total reported debt was $316.6 million, compared with $315.9 million at December 31, 2020. This included $243.4 million carrying value of 12% senior secured notes due 2025, $50.4 million drawn on the U.S. revolver, $15.0 million on the Hawesville term loan, and $7.8 million of industrial revenue bonds. The Iceland revolver had no borrowings. Net availability under revolving facilities was $63.8 million, giving reported cash plus net facility availability of approximately $90.1 million. The company reported compliance with debt covenants at quarter-end.
Material developments and outlook
- Refinancing after quarter-end: Century issued $86.3 million of 2.75% convertible notes due 2028 on April 9 and $250.0 million of 7.5% senior secured notes due 2028 on April 14. It used proceeds in part to tender for $195.9 million of its 2025 notes and planned to redeem the remaining $54.1 million on May 14. Management said the transactions extend principal maturities, reduce interest cost, and add liquidity. The company expected a second-quarter loss on extinguishment, including a $14.6 million tender premium and write-off of $6.6 million in deferred financing costs and debt discount.
- Mt. Holly: A new Santee Cooper power contract took effect April 1, 2021, through December 2023. It is expected to support a 50% production increase, to 75% of full capacity, with restart work expected to finish in Q4 2021. Q1 capital spending included $5.1 million for the restart; full-year 2021 capital spending excluding the project was estimated at approximately $25 million.
- Hawesville: Equipment problems in late December 2020 reduced production. Century said it began returning toward its planned 80% capacity level early in Q2 and expected $10–$12 million of one-time additional operating costs over the final three quarters of 2021. A new labor agreement was ratified April 16 and runs through April 1, 2026.
- Market and COVID-19 commentary: Management reported improving aluminum market conditions and product premiums returning to Q1 2020 levels; it said plants had not experienced COVID-related operational disruption and metal continued to sell essentially as cast. The average LME price was $2,192 per tonne in Q1 2021 versus $1,702 for full-year 2020. Sales pricing typically lags current market prices by one to three months.
- Outlook limitations: The filing provides no formal full-year earnings or revenue guidance and cautions that Q1 results are not necessarily indicative of the full year. Future results depend on aluminum prices and premiums, power and alumina costs, production, and market conditions.
Risks, contingencies, and other notable items
Power is a major cost and exposure: February 2021 extreme cold contributed to unfavorable U.S. power realizations. The filing warns that market power-price increases, supply interruptions, grid instability, or extreme weather could materially affect profitability or disrupt production. A $1/MWh power-price change was estimated to affect annual costs by $15.8 million at full capacity.
Glencore is a significant related party: it owned 42.9% of outstanding common stock (46.7% on a fully diluted basis), held all Series A convertible preferred stock, and accounted for approximately 60% of Q1 sales, versus 64% a year earlier. The company also had commodity-contract liabilities with Glencore. Century disclosed ongoing environmental and legal matters, including the Vernon case, for which it could not estimate a reasonably possible loss range; it stated it did not expect the matters to have a material adverse effect, while noting outcomes are uncertain. Approximately $9.6 million of PBGC-related pension contributions remained, with certain payments deferred and secured. U.S. and certain foreign deferred tax assets remained subject to a valuation allowance.
Other risks highlighted include the ability to generate cash for debt service, refinance or access financing, and potential dilution and accounting impacts from convertible notes. Litigation outcomes and environmental obligations may differ from estimates. The company stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of the Q1 derivative loss reflects noncash mark-to-market movements, and how future contract settlements may affect cash and earnings.
- Progress, timing, and costs of the Mt. Holly restart and Hawesville recovery, including whether Hawesville’s additional $10–$12 million cost estimate changes.
- Post-refinancing debt balances, interest burden, revolver availability, covenant headroom, and the actual Q2 debt-extinguishment charge.
- Exposure to power and alumina costs relative to aluminum prices, including the effects of pricing lags and weather-driven market volatility.
- Glencore-related sales and derivatives, and developments in the disclosed legal, environmental, pension, and other contingencies.