Century Aluminum Co Q1 FY2021 Earnings Call

Ladies and gentlemen, welcome to the Century Aluminum Company First Quarter 2021 Earnings Conference Call. My name is Bethany and I'll be coordinating your call today. I will now hand the call over to your host, Peter Trpkovski. To begin, Peter, over to you.

Thank you very much, Bethany. Good afternoon, everyone and welcome to the conference call. I am joined here today by Mike Bless, Century's President and Chief Executive Officer; Craig Conti, Executive Vice President and Chief Financial Officer; and Shelly Harrison, Senior Vice President of Finance and Treasurer. After our prepared comments, we will take your questions. As a reminder, today's presentation is available on our website at www.centuryaluminum.com. We use our website as a means of disclosing material information about the company and for complying with Regulation FD. Turning to Slide 1, please take a moment to review the cautionary statement shown here with respect to forward-looking statements and non-GAAP financial measures contained in today's discussion. With that, I will hand the call to Mike.

Thanks, Pete. And thanks to all of you for joining us this afternoon. If we could just flip to Page 3 please. Before we start on the review of the quarter, I'd like to provide a brief overview of our various efforts supporting the sustainability of our business. Hopefully at this point most of you have had a chance to go through our sustainability report. If not, it's up on our website, so I encourage you to have a look when you have a couple of moments. First, those of you who have long followed the company are well familiar with our focus on safety, and this will remain our highest priority. Our new Corporate Safety Director has made great progress reinvigorating our systems and processes. We're now engaged in delivering enhanced safety leadership training to all the US plants, and the early returns are really encouraging. We will have a lot more to report to you as we go forward. In addition, we're making good progress on our various decarbonization efforts. As we reported to you back in February, we're in discussions with multiple potential customers regarding our low-carbon Natur-Al product and following the agreement that we recently signed with Hammerer Industries. Again, as we discussed, we're looking very closely at adding billet casting capacity at Grundartangi, and this development would allow us to provide the European market with much desired green billet. As you also know, we made recent investments at Sebree to enable us to buy scrap from the market and process it. We're seeing increased interest from customers looking for recycled content in their billet. We're now looking at incremental scrap processing capacity at Sebree as well as on Mt. Holly as we turn that plant closer to its full capacity. I'll talk about Mt. Holly in just a couple of moments. We've also made good progress finalizing the terms for the solar field to be constructed by a third party that will be adjacent to Sebree. As a reminder, we'll be the sole contractual offtaker, enabling this investment. This is really exciting for us from multiple vantage points, and we intend to pursue similar structures. Bottom line, a lot of exciting stuff going on and we look forward to updating you regularly. In just a couple of minutes, Pete will provide some detail on the industry environment. But let me make a couple of points just to put the rest of my comments into context. Conditions in the sector remain favorable from multiple vantage points. Global inventories are now falling, including China as you've seen with the data. Stocks are now at their pre-COVID levels and are historically tight, especially when considering the pace of current demand. The forecast for the next couple of quarters points to a balanced global market with potential upside as the pandemic continues to abate, especially in developing economies. We're obviously keeping a close watch on the supply side. The current metal price provides an environment for consideration of potential capacity additions. However, in most of the western world, we think it's very unlikely that we'll see agreed projects. We believe the industry is learning lessons from the past. Inclusive to small research or more likely perhaps than closures, either ones that have been announced or that are being contemplated. But we're confident these would likely be around the edges. It goes without saying that swing factors remain China; that market is currently just in balance if you look at the data. They are reporting some months and not others. We've observed discussions of a major policy shift driven by the Central Government's climate goals, and we do believe that legally we have the capacity that puts provinces above their emission targets. We need to decipher sales before new capacity is added. It's hard to know at this point exactly where all this shakes out, but we do think this development will delay net capacity additions in China. Again, Pete will give some data in just a moment. Just to move on, we've made good progress on the operations during the last couple of months; just to give you a couple of examples. As you remember, we suffered two major equipment issues at Hawesville during the last days of December. One was a freeze-up caused by very cold weather and the other was the failure of some key high voltage equipment. These events resulted in the loss of some production and, in addition, we took a number of sales offline in February and March to mitigate further risk and importantly to hasten the plant's return to stability. That stability was achieved in early April, and we're now in the process of bringing all the sales back online to get back to full line operations. We're also completing some maintenance projects to provide further long-term stability to the plant. We also reached an agreement with the local union at Hawesville that was ratified by the membership on the 16th of April. The five-year labor contract provides good stability for the plant. We've got a great young workforce at Hawesville that requires some extra near-term effort and investment in training and skills development, but we're really encouraged by the potential of this group. At Mt. Holly, the new power contract was approved by the Santee Cooper board as well as by the appropriate state authorities, and the contract commenced as scheduled on the 1st of April. As a reminder, this three-year deal goes through the end of 2023 and gives us the opportunity to build back 75% of the plant's capacity, delivering much-needed high-quality billet back into the US market. It also gives us the chance to work with Santee Cooper on longer-term structural alternatives to power supply. As a reminder, we've been discussing this for quite some time; no sales at Mt. Holly have been rebuilt since 2015, meaning that sales constituting that entire 75% of production need to be rebuilt. This process is well underway, and Craig will remind you of the schedule for the forecasted spending as well as importantly the incremental production we see coming online later in the year. We're really excited to be bringing back this capacity at a time when market demand is so robust. Those of you who know Mt. Holly know its reputation as a high-quality billet producer, and we're convinced customers are anxious for the incremental supply. As we ramp up through the year, we have more billet casting capacity than we currently have in hot metal production. We're being opportunistic and buying some scrap and primary metal to melt and mix with Mt. Holly's owned prime in order to begin to deliver incremental production to the market as quickly as possible. Lastly, very quickly, Craig will take you through the specifics of the recently completed debt refinancing, so I won't go into detail here. The rationale was obvious: to lower the company's weighted average cost of capital, which also came with its increase in current cash interest expense linked to the maturity and increases in the company's near-term liquidity. Of course, the company's progress is put on paper due to the improved market we began in Q2. This has begun to realize recent metal prices, and Craig will give you details on this and our expectations for cash flow in the coming quarter in just a moment. And with that, I'll give it back to Pete for a quick look at the industry.

Thanks Mike. If we can move onto Slide 4, I'll give a couple of comments on the global aluminum market. In the first quarter of 2021, global aluminum was up 16% compared to the first quarter of 2020 when the pandemic began to slow down the economy. In the world, excluding China, we saw demand up 5%, and in China, we saw demand growth of 27%. Global production was up 6% in the first quarter of 2021 compared to the same quarter last year. However, global supply growth was flat sequentially. We saw 10% production growth in China versus the same period last year, but no additional supply growth sequentially. In the world, excluding China, we saw 1% supply growth compared to the same period last year and less than 0.5% growth sequentially. As demand continues to outpace supply growth around the world, the global aluminum market is now projected to be in balance for 2021, along with volume stock inventory levels returning to pre-pandemic levels. The aluminum price looks to be reported by strong fundamentals going forward. Okay, turning to Slide 5 please. You can see major improvements in pricing for LME and premiums here. The cash LME price averaged approximately $2,100 per ton in the first quarter, which was up 10% or $175 per ton sequentially. Currently, we see a three-year high LME price of $2,450 per ton. In the first quarter, regional premiums averaged $0.16 per pound or approximately $350 per ton in the US, up 25% sequentially and $165 per ton in Europe, an increase of 23% sequentially. Current spot prices for the US Midwest premium are at a record high of just over $0.26 per pound or approximately $575 per ton on growing demand and tight supply. Prices in Europe are approximately $240 per ton. Finally, pricing for value-added products also continues to improve; an example here is the US Midwest spot billet prices are also at record highs of approximately $700 per ton. With that, I'll hand the call over to Craig.

Thanks Pete. Let's turn to Slide 6, and I'll take you through results for the first quarter. On a consolidated basis, global shipments were flat quarter-over-quarter. Realized prices increased substantially versus the prior quarter as a result of higher lag LME prices and delivery premiums, driving a 14% increase in sequential net sales. Looking at operating results, adjusted EBITDA was a loss of $19.7 million, and we had an adjusted net loss of $52.5 million or $0.54 a share. In Q1, the adjusting items were $92.7 million for the unrealized impacts of forward contracts, $3.9 million for the net realizable value of inventory, and $1.4 million for the historical Sebree equipment failure. Liquidity at the end of the quarter was $90 million via a mix of cash and credit facilities. This amount increased by $50 million to $140 million by the end of April. As we forecast on our last call, the Q1 realized LME of $1,940 per ton was up $210 per ton versus the prior quarter, while realized US Midwest premiums were up $330 per ton or up $45 per ton over the same period. Realized alumina was $325 per ton or $32 per ton higher than the prior quarter. As we discussed previously, the majority of our alumina contracts are priced with an LME reference and the realized prices will track largely in line with lagged aluminum pricing trends. As expected, the negative impact of power price, primarily driven by the domestic February polar vortex pricing spike, was $33 million unfavorable versus Q4 globally. Realized coal prices of $300 per ton were up $50 per ton or 20% versus the prior quarter. These sharp related spending as forecasted at Mt. Holly and slightly lower production volumes drove about $12 million of reduced EBITDA sequentially, while a non-cash mark-to-market and stock compensation drove $5 million of reduced EBITDA over the same period. Q1 results came in a bit lower than expected. This was largely driven by market price and non-cash accounting impacts occurring at the very end of the quarter. During the last week of March, our share price increased roughly 20% to about $18 per share, causing a sizable negative non-cash mark-to-market impact on our stock compensation plan. Coke and LME linked power began escalating as well. On balance, the linked Q1 market moves are favorable to Century over the mid-long term. However, the immediate impact to the first quarter was a reduction to EBITDA. Looking ahead to Q2 specifically, the lag LME of $2,150 per ton is expected to be up about $210 per ton compared to Q1 realized prices. The Q2 realized US Midwest premium is forecast to be $485 per ton or up $155 per ton, and European delivery premium is expected at $175 per ton or up $35 per ton compared to the first quarter. Realized alumina is expected to be $330 per ton or up to $5 per ton compared to the prior quarter. Overall, the LME, alumina, and delivery premium pricing books are expected to increase Q2 EBITDA by approximately $55 million to $60 million compared to Q1 levels. On power cost, with the Q1 polar vortex-related spike behind us, we're seeing a return to more seasonally normal pricing levels. As a result, we expect a $15 million to $20 million increase in Q2 EBITDA from declining power prices quarter-over-quarter. As I noted earlier, we experienced an increase in carbon costs in late Q1, particularly in petroleum coke prices. We expect realized coal prices to be $370 per ton in Q2, which is about $70 per ton greater than Q1, driving a $5 million EBITDA decrease compared to the prior quarter. Finally, we continue to make significant progress on the Mt. Holly restart and the fix on the year-end equipment issues in Hawesville. As discussed previously, Q2 will be our largest investment quarter for both of these projects. This investment will be partially offset versus the prior quarter by an incremental reduction in Q2. The net impact of sequentially increased production in project spending will decrease EBITDA by about $10 million. In sum, we expect all of these items together to yield an approximate EBITDA increase of $55 million to $65 million from Q1 levels. As we've discussed in the past, we, from time to time and largely in support of long-term investments, manage our exposure to various commodities by entering support contracts. Based on our current spot prices, we expect a $30 million to $35 million realized loss for the quarter on various hedges in Q2. This result will be below EBITDA and will impact adjusted net income. We continue to call this impact out on a quarterly basis as the market evolves. Let's turn to Slide 8 and we'll take a quick look at cash flow. We started the quarter with $82 million in cash and ended March with $26 million. A few notable outflows for the quarter included $7 million for CapEx, the vast majority of which was related to Mt. Holly, and our normal semi-annual no-interest payment. Working capital was an outflow of about $12 million driven by increased receivables from higher sales prices on rising LME levels and a modest inventory build to support the ongoing restart work. Shifting gears to Q2 and beyond, in early April, as Mike mentioned, we refinanced our $250 million five-year 12% note which was due to mature in 2025 for a new $250 million seven-year 7.5% note due to mature in 2028. Additionally, we further enhanced our liquidity by executing a seven-year $86 million convertible note at 2.75%, also due to mature in 2028. From a diluted EPS modeling standpoint, it will be important to include an additional $4 million outstanding shares for Century from Q2 onwards. While we can settle this convert and either capture shares at our option, our accounting method will require reporting the new notes on a fully diluted basis. From an interest cost standpoint, adding both the new $250 million note and the $86 million convertible together resulted in annual interest savings of $9 million compared to the old note. From an operations standpoint, we continue to make solid progress on the ongoing Mt. Holly restart. As a reminder, we will invest about $75 million over the course of the next two to three years to bring the smelter to a 1.5 line operation, which will allow us to produce at 75% of capacity or about 170,000 tons per year. This project will be completed in two phases. For phase one, which occurs throughout 2021, we'll invest about $50 million of restart capital, over half of which we'll be spending in the second quarter, and expect total year production of about 140,000 tons as we ramp up the facility. This outflow will be about 20% greater than in 2020. By the end of 2021, Mt. Holly will be running the full 1.5 line complement. Phase two begins in 2022, and the remaining $25 million of capital will be deployed to build continuously operating legacy components that will be beyond their useful lives. We expect 2022 and 2023 production to be around the 170,000 tons per year level. Finally today, I'd like to provide some perspective on what the second half of 2021 will look like for Century at current spot prices. As both Mike and Pete detailed earlier, the conditions in our industry are favorable, and Century's ability to add capacity, particularly in the US, is a key differentiator for the company. Using the revenue and cost detailed on our last call, adjusted only for the reduced interest cost from our refinancing, provides a good look at the earnings power of our business at current spot pricing levels. At the spot LME of $2,450 per ton and spot Midwest premium of $570 per ton, Century will generate about $270 million of second half 2021 EBITDA and above $160 million of second half 2021 cash flow. This concludes our prepared remarks, and I would like to turn the call back over to Bethany to begin the question-and-answer session.

The first question comes from David Gagliano from BMO Capital Markets. David, your line is open.

You're telling a lot of things there, that's very helpful, I think. But some of them, pretty quickly, so I'm going to try and just hone in a couple of - just I guess on the hedges. There's some disclosure in the 10-K about the hedges, and I know it was referenced kind of passing out I would say on the last call. I was only - if you could just give us a little more information on when hedges were put in place, how much you have hedged as of now, both on LME and Midwest premiums? Duration of those hedges? And in terms of the cash flow comment for the second half, the $160 million? Is that before or after hedge, and is that a free cash flow number before or after hedge, and what is the hedged impact associated with that number?

Okay, David. This is Craig. I understand the question. I'm going to start with the back half first and then we'll go to the beginning. So when we look at spot prices today, again just so overall we're on the same page, that's $2,450 of LME and $570 of Midwest premium. Right? So to go back to what we said on the call, that's $270 million of EBITDA for the second half for the company and $160 million of total cash.

Free cash flow?

Free cash flow, right. To answer your question, really to recommend that $160 does include the impact of hedges. Now when we go back and you think about how to use that going forward, we'll be putting in the appendix our sensitivities which will allow you to do, which we've only done in terms of sensitizing the business for losing commodities for EBITDA, also for cash. So what you would do for the second half of the year is start with the concept that I just gave you, and you could sensitize that impact for any market assumption that you want to make. Now let me go back to the first part of your question. You're correct, it is disclosed in our K and it will be there again in our Q. When we talk about what we're doing for the company, we have three commodities that we're talking about. The first is LME, well four I guess if you include FX, which I will in this explanation. So you've got LME, you've got Midwest premium, you've got Nord Pool, and then you've got the Euro, right? So our LME hedges are primarily to support the loosening of our Nord Pool cost to an LME linked contract. We've talked about doing that sporadically over the last year and a half. So that's one part of the LME. The second part of the LME is when we take a fixed aluminum cost and link those synthetically to an LME price. We would do that by buying, selling alumina’s, and then also selling forward, the LME we talked about in the past as well. That's the LME portion. Our Midwest premium, the majority of that is in support of the Mt. Holly restart that we talked about on the last call. And then, of course, the Nord Pool on the other side of what we talked about at LME, we view that to LME predominantly for 2021 and for 2022.

David, it's Mike. We'll let you redirect, but let me add one other comment that may be helpful on Craig's walk from the second half EBITDA. It's about $270 million down to your point A; free cash flow being net of hedges as spot prices of course that delta there. The $270 down to $160 about half of it is the hedge impact, and the rest is just normal stuff that comes between EBITDA and free cash flow. CapEx, interest expense, small amount of taxes we pay in the US, normal taxes in Iceland, that kind of stuff. Just one other comment here. Inconsistent with what I just said on Nord Pool and alumina, the real vast majority of what's on the books right now relates to Mt. Holly. I mean frankly just thinking about it, that kind might help you get to your question on. I don't know if we answered it full enough. Around when the hedges were put in because, as you guys, as you know we do know whether we have a new contract or not for Mt. Holly. So sometime around mid-ish December. So definitely wouldn't have been before then, and then we signed it up and we were in that transition period before we finished documentation for the new contract that I talked about a couple of minutes ago. So that's kind of your framework pulling a lot of that LME got laid in. He might be gone.

Okay, I’ll turn it over to somebody else. Just if I can just really quickly, is there a way just to give a percentage framework of how much you planned to hedge relative to your total volumes as you go forward?

That's a tough question. In the Nord Pool and the Nord Pool amounts don't aggregate to a whole - you're not selling a lot of metals create that position.

But on the Nord Pool obviously we talked about last time, that's 80% hedge for 2020.

Yes, that says not much pick on there. On alumina in 2022 it's kind of tough to answer that at this point in time. It depends what the alumina market looks like during the meeting season in the fall and everybody negotiating alumina contracts and what kind of percentage LME contracts are available, if any, and where the API is and all that kind of stuff. Just one other comment here. In consistent with what I just said on Nord Pool and sorry to pull it, David and alumina, the real vast majority of what's on the books right now as you're seeing and that Craig talked about relates to Mt. Holly. I mean, frankly just thinking about it that kind might help you get to your question on. I don't know if we answered it full enough. Around when the hedges were put in because as you guys, as you know we do know whether we have a new contract or not for Mt. Holly and so sometime, kind of mid-ish December so definitely wouldn't have been before then and then we signed it up and we were in that transition period before we finished documentation for a new contract that I talked about a couple minutes ago. So that's kind of your framework pulling a lot of that LME got laid in. He might be gone.

Okay, thanks.

The next question comes from Lucas Pipes of B. Riley Securities. Lucas, your line is open.

Lots of moving pieces there. I would in spite of proceeding discussions. I'll try to take another stab, kind of pick a real high-level view that, just kind of maybe if you look out to 2022. Could you give us a sense for what EBITDA and cash flow would look like with those assumptions? I think it was $2001 and 50 for LME and $470 for the Midwest premium.

Yes, so I think EBITDA would be relatively easy. When you get to cash flow especially when we were talking about the hedge book, it will be truly different from 2022 to 2021. So I wouldn't attempt that. But I think using your items today, if we have $270 million of EBITDA back half of this year, and we're running at very near our capacities, especially with the restart work that's going very well in Hawesville and Mt. Holly, you can double that, that will give you a 12-month running average for the next year, Lucas.

The other thing I would note Lucas, I agree with Craig's comment that it is in the starting point; it generally gets better. Obviously subject to other items like coke prices, that's small potatoes in the grand scheme of things. The other thing is the difference between EBITDA and cash flow. I'll just say it in plain English. The impact of the hedges will be much less because, as Craig said, the vast majority of the big chunk of LME and the vast majority of Midwest, as David Gagliano correctly cited, most of that is in 2021 and starts to come off in 2022. So that delta there is between EBITDA and cash flow shrinks meaningfully.

That's helpful. I guess what I'm trying to get at is, if I understood you correctly, both EBITDA and cash flow are reflecting the impact of the hedges, and so what I'm trying to get at is, in the world with no hedges, what would EBITDA and cash flow look like?

Right, the answer is the same. That what we just said, so irrespective of what hedges reflect where, the bottom line is the answer what we just gave you is the right answer. But now Craig talked about the fixed price contract. Let's call it a mirror, to which they sometimes reflect 'in EBITDA.'

Right.

Meaning they go through the cost of sales in some are sales in that, gain or loss in forward contract.

That's helpful. I appreciate that. Thank you very much. Now, I'll turn to my second question, and that's definitely regards to alumina. Obviously, LME has been outperforming alumina price recently and just wanted to get your perspective on medium and long-term strategy. Alumina pricing would it be to keep the current format, do you think it? Any evolution in your thinking regarding alumina impact cost?

Thank you, Lucas. It's Mike. That's a great question. Let me give you a short-term answer first and then sort of a more philosophical one on longer term structural perhaps answer. So short-term it's really going to depend upon market conditions caused in September, October. The current percentage LME contracts don't necessarily price direct reference to the current relationship between the API divided by LME, but it certainly had some reference to it that influences the market. So we'll see if, to your very appropriate way of saying, whether alumina continues to underperform LME or whether to sort of revert to a more normal relationship. On a longer-term basis, we still believe that the right way to run this company given our balance of opportunities, the growth opportunities that we have, all the risks that are evident in the business that we face just like every other participant in the business. The size of our company and all the rest capital structure; we still think that running the company not fully, but mostly all else being equal on a percentage LME basis is the right way to run this company. This can be heavily influenced by market conditions each year when the big alumina contracts are struck in the fall.

And they fallen into kind of this commentary maybe back to my area of question. If in the fall LME has continued to outperform alumina, what would this double as by $70 million? Would that still be accurate, or will you be looking at a much higher level? Maybe aluminum prices get lower.

Yes, that's a great question. I guess one way to answer it is, yes, it would be still applicable. Again, sound like a non-answer for which I apologize in advance. If our alumina contracts were of similar nature. But if we were not fixed prices, but if we were API price, of course then, I think where you're heading is correct. It could be upside. It's all about balance of risk and opportunity. It's like any hedging decision.

But you would have the flexibility to make that decision once again.

For sure, yes. I'm sorry that I missed your question. Absolutely, 100%.

Very helpful. I appreciate all the color and best of luck, thank you.

Your next question comes from John Tumazos from Very Independent Research. John, your line is open.

From debt reduction, could you give us an idea of the big picture priorities response wonderful alternatives, trying to expand in Iceland? Modernizing or expanding your US smelters, raw materials or building a new smelter or adding power although people seemed to be doing solar for you, just tell us what your priorities are?

Thank you very much, John. Yes, I'll quickly - that is the case and we believe from a capital structure imbalance of risk. We prefer to let the folks who are experts in designing, building, installing and maintaining, running those things do that. It's not our expertise. Building a new smelter would be very appropriately put at the bottom of the list. Without sounding overly enthusiastic, we really are, when we look at the opportunities we have in the markets where we have hot metal today and have choices as to how and to what kind of product we cast it. In the markets we serve, there are a lot of really interesting opportunities that come with a fraction of the price tag of a new smelter or even a new pot line to build out our value-added products specifically on the use of jargon with apology, fully green or with green content, i.e. scrap will be processed for our customers or for the general market. And so that's why you're hearing us talk about opportunities at Sebree, opportunities at Mt. Holly, and a very large opportunity at Grundartangi. We think that the markets and our customers will be convinced that interesting and demand for that kind of product is only going to grow, and so this is the right time. I think to your point, maybe we've got the capital structure sort of in the right place for the next five to seven years, and that serves up pretty well. In terms of just coming - looking back to your new smelter, I just little bit. I'll stick with my first answer. But we do have, as you know, some incremental hot metal capacity that we can bring back online recently alluded to our modest investments and right now, the easiest one meaning it would only add an additional power contracts is the fifth one at Hawesville; that's a 100% purity line, and then, if you know, we're hopeful bordering on pretty optimistic that we can find a way to get that last 100 megawatts of power at Mt. Holly to bring that back online.

So you want to run full and run green in your current assets.

I like it. We're writing that down now. Maybe we'll put that up on the left side. We'll give you the TM.

So Mike, if I can ask another and I'm thinking back long-term. I think when I was at DLG, we were co-managers on the IPO at 1995 or 1994.

That's pre-history.

There have been times in the past when significant spikes influenced the commodities markets. My example is Gillian Robertson, who bet against the internet in 2001. It was a tough position for him, and by March 2001, he decided to close his internet shorts and shut down his firm right around the time the Nasdaq was struggling. I also recall July 2007, when aluminum prices reached $149.7 on the LME, coinciding with crude oil hitting $150 and Century stock trading around $50 to manage metal shorts.

Yes, sir.

I don't know if it's fair to blame a little bit of the peak in that aluminum market to covering the shorts. And I don't care about the details of how many contracts you have this week or the 10-K. But could you give us some comfort that Century isn't going to make a top in the aluminum market by covering your shorts, and you're not going to have to issue equity?

That's the easiest question that you or anyone has answered. I think we can give you full comfort. Thank you and that history. But yes, that's a straightforward to which we can give a straightforward yes or no. Yes, we can give you comfort there.

So is it your tactic to not hedge anymore, or you're going to shell out a little bit of money to close out some contracts?

I would, on first, as we said; Mt. Holly was a tactical thing, fancy word. And hedge anymore to create a second or first quartile European power price absolutely, all day long. But we don't have to sell a lot of LME to do that structurally. I'm sure you got the math. We close out hedges; that's not something that we expect anytime you're talking about, and I think you should not sit around and wait for that eventuality, the long wait.

If you just delivered, when would your hedge book be erased right now? If you didn't put on new positions and you just delivered. When would it all go away?

This is Craig. The short answer is 2024; there is a small tail that goes out that far for LME.

Very small.

Very small tail.

With a mass majority of it and that stuff is just - it must be Nord Pool. Its small potatoes; the vast majority of it is gone in the next six quarters.

Yes, that's right.

So Mike, my concern is that politicians are oversimulating everywhere and but the biggest fraud in the history of markets, near-zero interest rates. But they have to keep them down because the debts are graded in GDP and if they paid 5%, they'd all go broke. I'm just worried about things being too strong in the near term and someday it's all going to blow up. But who knows when that's going to be?

Yes, that's - I mean John - I can't personally pick apart pieces and obviously.

We know you're going to be right by being conservative. But sometimes if you sell short, you'll do it a year early and you get wiped out before you're right.

The beauty of it is that that's not going to happen here because the vast majority of our production is exposed to market prices. So yes, we've got some downside protection. But the vast majority of that upside we're enjoying there. You see it in.

I was looking at the 2007 chart year stock a moment ago.

Thank you for that history. You've got more Century history than I do. I've got only back to 2006.

It's great to be your friend, thank you.

Thank you, John. As always.

We have another question from David Gagliano of BMO Capital Markets. David, please go ahead.

I remember those times too, by the way. I do have a follow-up on the hedges again. My first question really just near-term sell-based calibrate. I just want to clarify one thing. A lot of puts and takes obviously for the second quarter and sort of $55 million to $65 million net increase versus Q1. But there are also some one-off in Q1. So I'm really trying to play out what's the right starting point for 1Q, is it the minus $20 million or are you talking about excluding from these one-time that happened in 1Q?

That's a very good question.

Yes, that's a great question. The way I think about that is you know what we anticipate, what's going to happen in Q1 up until the last couple of days in Q1 and what actually happened. So there were a couple of things. Number one, the non-cash mark-to-market is going to go away. So that $5 million is in there. I think that's number one. But the other things that happened are going stay. I think we talked about those LME linked power costs are going to stay. So you're seeing in the second quarter the absence of the Q1 polar vortex. Where you're only getting another $5 million that accrued view on top of that for seasonal power prices. And then I think the third piece is something that was a trend that really emerged that days Q1 has continually, which are coal prices. Right so there was a $2 million that we saw in the very, very end of Q1 which has expanded to about $5 million this time.

Dave, you're right. There were some bad things that happened in Q1. Craig pointed out the Polar Vortex with cash of course, and share plan mark-to-market counts, and there’s no cash there up or down, and those aren't likely to repeat. So maybe there's some things going a way. But your point is well taken.

No, I'm sorry, I'm not trying to make a point. I'm just trying to figure out what the answer is; still I don't understand it. Is it the minus $20 million? I heard of minus $5 million.

We would absolutely start with the negative $20 million.

Yes.

Okay, got it. Perfect, thanks. And then just a hint. Sorry I come back to the hedge. But I guess philosophically whatever I mean. You talk about sort of hedging LME and first, second quartile and what that could mean for aluminum hedges, and frankly, I don't know what it means. So can you just tell me what kind of hedged volume you're thinking about on a forward-look basis? Again I asked the question earlier but just like a framework, how much do you think you'll be hedging on aluminum rolling forward, if any? Metal and LME?

Midwest is totally different. That's really good. I mean Midwest right now, I would say we're looking at the four years but very limited.

Limited.

On LME, the only time that you - so on alumina, it's only if you have fixed price alumina contracts achieved - converted since LME, our fixed price is very small. So those will be very small LME ton. Same thing on Nord Pool. I mean if you were to convert the Nord Pool price and so a percentage LME power contract. First and second quartile, which I'd suggest to tuck in small contracts into those in the tens and tens of thousands. I want to emphasize one more time, the vast majority of the stuff in the books right now was done for Mt. Holly.

Okay.

On alumina in 2022 it's kind of tough to answer that at this point in time. It depends on what the alumina market looks like during the meeting season in the fall and everybody negotiating alumina contracts and what kind of percentage LME contracts are available, if any, and where the API is and all that kind of stuff. Just one other comment here. Inconsistent with what I just said on Nord Pool and sorry to pull it, David and alumina, the real vast majority of what's on the books right now relates to Mt. Holly. I mean frankly just thinking about it that kind might help you get to your question on. I don't know if we answered it full enough. Around when the hedges were put in because as you guys, as you know we do know whether we have a new contract or not for Mt. Holly. So sometime around mid-ish December, so definitely wouldn't have been before then, and then we signed it up and we were in that transition period before we finished documentation for a new contract that I talked about a couple minutes ago. So that's your framework pulling a lot of that LME got laid in. He might be gone.