Century Aluminum Co Q3 FY2023 Earnings Call

Good afternoon, and thank you for joining today's Century Aluminum Third Quarter Earnings Call. I'm Jason, and I will be your moderator. I will now hand the conference over to your host, Ryan.

Thank you, operator. Good afternoon, everyone, and welcome to the conference call. I'm joined here today by Jesse Gary, Century's President and Chief Executive Officer; Gerry Bialek, Executive Vice President and Chief Financial Officer; and Peter Trpkovski, Senior Vice President of Finance and Treasurer. After our prepared comments, we'll 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 statements shown here with respect to forward-looking statements and non-GAAP financial measures contained in today's discussion. And with that, I'll hand the call to Jesse.

Thanks, Ryan, and thanks to everyone for joining. It was a busy quarter with lots to discuss, so I'll get right into it. Turning to Slide 3. Lower LME and regional premiums were the primary drivers of reduced Q3 adjusted EBITDA of $9 million. While we were able to offset a significant portion of the fall in metal prices with lower input prices, higher-than-expected Mt. Holly power costs resulted in our Q3 results falling a bit below expectations. We expect Mt. Holly energy prices to return to normal in Q4. And as we recently announced, we entered into a new power contract from Mt. Holly that will become effective on January 1. I'll provide some additional detail on the new contract in a bit. In general, the macro environment for aluminum remains complex. As you can see on Page 4, the global market remains roughly balanced, with Chinese deficits largely offsetting a small surplus in the rest of the world. Turning to China specifically, Chinese demand has benefited from strong solar and electric vehicle demand, with China Solar demand alone up around 1.5 million tonnes from last year. Recent stimulus announcements in China should drive further recovery in building and construction demand as the Chinese economy continues to recover from COVID lockdowns. Reports have also recently emerged that the Chinese smelters in Yunnan will again have to curtail around 1 million tonnes of capacity due to low reservoir levels in their hydroelectric schemes. Once confirmed, this third straight season of Chinese production cuts would add to the Chinese deficit shown on Slide 4. Overall, while realized LME prices fell to average $2,155 in Q3, global updates of inventory remained below 50 days. With inventories at these historically low levels, LME should be poised to recover quickly on any positive demand recovery or any further supply-side disruptions as we saw following the announcement of the Yunnan seasonal curtailments. While we wait for the macro cycle to improve, we have implemented programs across the company to lower costs, increase efficiency, and free up cash, where possible. One example of this is the renewed focus on working capital management that Gerry will discuss with you in a minute. These efforts will help us remain robust during this portion of the cycle without interrupting our long-term investments and strategies. Turning to Slide 6. We can see that falling input prices have also helped to offset the decline in metal prices. Indiana hub and Nord Pool have both remained constructive, while coke and caustic prices have continued to fall towards normalized levels. Natural gas inventories in both the U.S. and Europe remain well above five-year averages, making a repeat of the high energy prices from last winter less likely. Turning to operations. We made significant progress on a number of our longer-term initiatives during the quarter. At Mt. Holly, we were very excited to announce late last month that we reached a new three-year power contract with Sante Cooper through 2026. The agreement represents extensive work between the Century and Sante teams to structure a mutually beneficial arrangement. This agreement allows us to continue to invest in this excellent plant, preserve approximately 470 jobs for our employees, and continue to contribute to the economic success of the surrounding community. Under the new arrangement, Mt. Holly will be less exposed to changing fuel costs, including a fixed all-in 2024 energy rate that is below our 2023 realized rates. Mt. Holly also has the right under the agreement to increase the amount of energy provided under the contract, should we decide to return the smelter to full production when market conditions warrant. In Iceland, operational performance is strong, continuing to reflect the excellent team we have built there. The Grundartangi casthouse project is nearing completion and remains on track to deliver our first sales of low-carbon natural billet to European customers early next year. We will provide you with additional details of the expected benefits of this value-added production on our Q4 call. In Jamaica, the first major project in our project restart CapEx program has been nearing completion, with the recommissioning of one of the plant's high-efficiency boilers set to be completed by the end of Q4. This boiler will increase the efficiency of the refinery's steam generation systems while also driving improved stability in the plant's powerhouse. A second high-efficiency boiler is expected to be recommissioned in late March. These projects should begin lowering Jamalco's cost of production beginning in Q1. Today, the cost of these programs is coming in on the low end of our expected CapEx spending into Melco for 2023. In September, Jamalco experienced power disruption resulting from an equipment failure in the same power generation unit responsible for the disruption in Q2. This caused the refinery to operate at partial production levels for a portion of September and all of October. We believe the refinery has now returned to full and stable operations. Without these disruptions, Jamalco would have operated at roughly breakeven in the third quarter at spot aluminum prices. Given the magnitude of these disruptions, we have submitted these claims to our insurers and expect to recover those losses under our insurance policies. In line with our past practice, we will adjust out both the impact of the outage and the future recovery of insurance proceeds from our results. Gerry will cover this more in his remarks.

Thank you, Jesse. Let's turn to Slide 7, and I'll walk you through the results for the third quarter. Consolidated Q3 global shipments were 172,000 tonnes, down about 1% sequentially, and realized metal prices were down nearly 6% for the quarter, with net sales at $545 million, down 5% sequentially. Looking at Q3 operating results, adjusted net loss was $14 million or $0.13 per share. This was a decrease of $29 million compared with the prior quarter. The major adjusting items for the third quarter were add-backs of $22 million in unrealized losses on forward contracts, $9 million in costs associated with the Jamalco equipment failure, and $1 million for share-based compensation. These were partially offset by a $4 million deduction for lower of cost or net realizable value on inventory. Adjusted EBITDA attributable to Century, which includes our 55% share of the Jamalco JV in Jamaica, was $9 million, a decrease of $20 million from the prior quarter. Liquidity improved by $75 million compared with the prior quarter to $306 million, consisting of $70 million in cash, $23 million in restricted cash, and $212 million available on our credit facilities. Net debt on September 30 was $424 million, down $83 million from the prior quarter. During my first year at Century, we've focused on optimizing working capital and improving liquidity, and we are beginning to see significant progress. I'll talk more about this in a moment when I have cash flow. Turning to Slide 8 to explain the third quarter sequential adjusted EBITDA bridge. Realized LME was $2,237 per ton, down $134 versus the prior quarter, while realized U.S. Midwest premium of $493 per ton was down $69 and realized European delivery premium of $323 per ton was up $24. These reflect our one month to three-month lags in realized metal prices. Together, these factors resulted in a $28 million decrease in EBITDA in the quarter. Power costs were down slightly from the prior quarter, with that 51% reduction in Northern pool market prices being partially offset by a 4% increase in MISO Indy Hub exposure and higher cost of service rates at Mt. Holly netting to a $3 million benefit to EBITDA. Q3 realized alumina cost was $396 per ton, $4 lower on a sequential basis. Remember, there’s a three month to four-month lag for alumina cost to work through our income statement. Realized coke prices decreased 17% and realized pitch prices decreased 8%, and together, alumina and other raw material costs resulted in a $4 million improvement in EBITDA. Volume OpEx improved EBITDA by $3 million. Unfavorable sales mix was a $3 million headwind. Overall, adjusted EBITDA was $9 million for the third quarter. Note the impact of downtime and lost production at Jamalco that Jesse mentioned in his opening remarks has been adjusted from the results presented here as Century has filed an insurance claim and expects that losses less estimated deductibles will be covered under its insurance policies. You can see the full reconciliation to GAAP in the appendix on Slide 13. Now let's turn to Slide 9 for a look at cash flow. We started the quarter with $51 million in cash. During the quarter, we completed the transaction to sell certain excess land at our Mt. Holly site, generating cash of $26 million. CapEx, primarily for the construction of our new cast house in Iceland, used $26 million. As part of our working capital optimization efforts, we monetized excess European emissions allowances to generate an additional $34 million. In case you are not familiar with the European Union Emissions Trading System, the ETS is a cap-and-trade system aimed at decreasing emissions over time in line with the EU's climate targets. Each year, Century receives free emission allowances or EUAs for our Grundartangi smelter in Iceland. These allowances must be surrendered in the following year to offset emissions from the smelter. Historically, we have held these units until they become due. As an ongoing source of liquidity, this year, we implemented an EUA monetization program to sell the excess units and to repurchase EUAs at a future fixed price to settle the EUA obligation when due. Similar to other working capital optimization efforts, this program allows Century to utilize the interim value of the credits more effectively, improving liquidity and lowering leverage. I'm also excited about the progress we're making in driving optimization in the cash conversion cycle across all our sites. During the quarter, we realized working capital savings totaling $76 million, with $7 million coming from moving to more favorable vendor payment terms at our Jamalco refinery and the balance from various actions at our smelters. We expect to retain $20 million to $30 million of these working capital benefits going forward through aggressive inventory targets and other working capital optimizations. The remainder of these savings were related to the timing of material flows, which we expect to reverse in Q4. Finally, we used $68 million to pay down our revolvers. These actions resulted in Q3 ending cash and restricted cash of $93 million, a $42 million improvement compared to the second quarter. Now let's move to Slide 10 for insight into our expectations for the fourth quarter. For Q4, the lagged LME of $2,161 per ton is expected to be down $76 versus Q3 realized prices. The Q3 lagged U.S. Midwest premium is forecast to be $425 per ton, down $68. And the European delivery premium is expected to be $279 per ton, down about $44 compared with the third quarter. Taken together, the LME and delivery premiums are expected to decrease Q4 EBITDA by approximately $20 million to $25 million compared with Q3 levels. Note, LME prices closed yesterday about $100 higher than our expected realized prices for Q4. As you can see from our sensitivities on Slide 16, should these spot levels hold, we would expect this change alone to increase EBITDA by around $10 million to $15 million per quarter. Looking at our other key raw materials, lagged realized alumina cost is expected to be $385 per ton, down slightly. We expect a favorable impact from lower coking pitch. Caustic soda prices were also down slightly. But as it takes five months to six months for caustic spot prices to flow through our P&L, most of this benefit will be realized in Q1 2024. All in all, we expect lower raw material costs to contribute between $10 million to $15 million to EBITDA compared with the third quarter. We expect volume gains and operating cost improvements to add about $5 million to EBITDA in the fourth quarter. All factors considered, our Q4 outlook for adjusted EBITDA is expected to be in a range of between $0 million and $10 million. And finally, we expect a realized gain of about $10 million in the fourth quarter from hedging activity and tax expense of between $0 million to $5 million. As a reminder, both of these items fall below EBITDA and impact adjusted net income. An update on the purchase accounting for our Jamalco acquisition. As discussed in Note 2 of our current quarter 10-Q, we continue to work through the purchase accounting, which requires the acquired assets and liabilities to be reported at fair value as of the acquisition date. We have up to 12 months from the acquisition date to perform the necessary work to finalize the fair value. And based on our preliminary fair value estimates, we've recorded a deferred gain as a current liability on the balance sheet as of September 30.

Thanks, Gerry. While we find ourselves in a challenging portion of the commodity cycle with LME and delivery premiums reaching two and a half-year lows in the third quarter, we remain focused on operating the business as efficiently as possible. We are proud of the progress we made on our long-term initiatives during the quarter, including the extension of the Mt. Holly power contract, nearing completion of our first major capital investment at Jamalco, and completion of the Grundartangi cast house early next year. We are also pleased with the continued optimization of our balance sheet, including completion of the Mt. Holly land sale and progressing working capital optimization programs, leaving us well positioned with significant liquidity to continue our long-term investments during this portion of the cycle. All in all, despite a challenging macro environment, we are managing the business to continue to provide positive EBITDA and unlock additional liquidity and cash. Long-term macro trends towards decarbonization and electrification are beginning to play out and grow stronger as government stimulus funds in China and Inflation Reduction Act funds in the U.S. are beginning to be distributed. Our plants are running well at claim production levels, leaving us well positioned to benefit as the commodity cycle improves. We look forward to your questions today.

Our first question is from Lucas Pipes with B. Riley Securities. Your line is now open.

Thank you, Operator. Good afternoon everyone. In your closing remarks, you mentioned the IRA and its impact on demand. If I understand correctly, there are also specific provisions in the IRA regarding primary aluminum production. Specifically, Section 45X offers a credit of 10% on production costs. This seems quite significant, so could you elaborate on that and its current status?

Lucas, thanks. Very good question. So, you're correct that aluminum is listed as a critical mineral under Section 45X of the Inflation Reduction Act. Maybe just to back up, Section 45X is a provision that, amongst other things, is intended to incentivize U.S. production of critical minerals here domestically. We're obviously very excited about the potential benefits that we might receive under Section 45X, but the U.S. Treasury Department has not yet issued guidance for the provision, given that it's a bit difficult at this point to quantify what the potential benefits might be for Century. But the Treasury Department has come out publicly and said that they expect to issue that guidance before the end of the year. So, what we intend to do is once that guidance has been released, we plan to hold a follow-up call to further discuss and quantify what those benefits might be to Century. And until we have guidance so, it's hard to provide too much more information for now.

At this point, there haven't been any specifics, but it would essentially be an accrual, considering that this credit would start on January 1, 2023. You mentioned there would be a benefit for this year, correct?

Yes, while we await the guidance, the provision did become effective. The law has passed, and it became effective on January 1, 2023. However, until we have that guidance, it is difficult to provide more details. You are correct that the law states it would apply starting on January 1, 2023.

Yes. Really, really appreciate that. And in terms of the guidance or clarification needed. Can you elaborate on what exactly you're waiting for? And I know this can be technical, but could you maybe comment on what guidance, specifically, you're waiting for?

Sure. I'll try to keep it relatively high level since until we have the guidance, it's really hard to comment on what will be in the guidance. That said, your summary was well done. Section 45X does provide for a production tax credit for critical minerals. This production tax credit applies to what the law defines as the cost of production. However, the law does not provide any guidance on how to calculate that cost. You can imagine various provisions that may or may not be included in the cost of production. For example, one question might be whether depreciation is part of the cost of production. Without further guidance from the Treasury Department, and after consultation with our advisers and internal discussions with our team, we concluded it was too early to record anything on our financial statements. It would be difficult to do so without guidance on the extent of those benefits. For now, that's where we stand. Once that guidance is issued, which the Treasury Department expects to happen before the end of the year, we plan to hold a follow-up call to discuss it in more detail.

I really appreciate this discussion. I do have further questions, but now I'll move on to a different theme. I really appreciate that color. And when I look to kind of value-add products and the billet premium for 2024, have those negotiations started? Have they been completed? And could you maybe comment on what you would expect in terms of that billet premium in the current environment for 2024?

Sure, Lucas. Thanks. Another good question. So, both for the U.S. and, of course, as we discussed, our new Grundartangi cast house will also come online and begin producing billet early next year. We've really just started to discuss 2024 sales. The season has started a bit later this year than maybe it has in past years, which I think reflects probably a bit of the general market dynamic that we see. As I mentioned, there have obviously been a bunch of macro drivers that have resulted in both LME and regional delivery premiums reaching sort of two-and-a-half-year lows. But of course, until we really get very far in those discussions, it's hard to predict what 2024 premiums might be. But we'll definitely include those on our Q4 call when we give you the rest of our 2024 guidance. And I would definitely expect, definitely for the U.S., we would have those premiums set. Going forward for Europe, that market is more the quarterly market. So, you'll see us start to reflect prices in Europe more on a quarterly basis because it can change from quarter-to-quarter, whereas the U.S. is more of an annual market.

Got it. That's helpful. Really quickly on Mt. Holly. Good to see that contract come through. If I recall correctly, Mt. Holly is running at 75% utilization. Have there been discussions about increasing this cost of service power allocation to Mt. Holly so that the plant can run at 100%?

Yes. And actually, that's something that we negotiated as part of this contract is we do have the right to call the additional power that would be necessary in order to restart the remaining 25% of the Mt. Holly pots. So, as we monitor the market conditions, we have that option within a notice period that would work with a restart to call that power. So, securing the power won't be a roadblock to restarting those pots in Mt. Holly.

And the power, would it be at the same cost of service rate? Or would there be a different tariff of sorts?

Yes. The option was part of the contract and is associated with several different tariff schedules for power, but it specifically relates to one of the rates included in the overall Mt. Holly contract package.

All right. I really appreciate all the color and wish you and the team the best of luck.

Thanks, Lucas.

Our next question is from Timna Tanners with Wolfe Research. Your line is now open.

I hope everyone can you hear me okay.

You sound great, Timna. Thanks.

I have a couple of questions regarding the situation at Jamalco. It seemed significant enough to file for insurance recovery, but I may have missed it in the press release. I want to learn more about the incident. You mentioned it was the second occurrence. Do you believe you have adequately resolved the issue to prevent it from happening again?

Yes. So great question. Maybe I can provide a little more detail and just why we feel confident that we've now got it under control. So, within our refinery, in general, you'll have some steam generation, the steam-powered electrical generation units that supply energy to the plant and also regulate the steam pressure going into the refinery. And in this case, one of our steam generation units suffered a failure originally back in the May-June time period, and then we thought we had it addressed, but it recurred in the late September time period. And we dug a little further. We've brought in engineers from the manufacturer who went through the machine with us and have now helped us bring it back to its normal operating status. So, given those steps, again, with the engineers from the manufacturer as well, we feel confident that issue is now behind us.

Okay. And then when do you think you might be able to record a recovery from your insurance company? And like so what timing and also what might the deductible look like?

Sure. We won't give specific guidance on the deductible, although it's just a small, relatively small portion of the overall plan. So, one should not be material from a cash matching standpoint to the losses that we incurred. But that claim, we've just made it. So, we really need to engage with the insurer to talk about timing for payment. You might look back to our 2018 claim for Sebree when we had an outage that stopped some power deliveries to the plant resulting in some production being lost. That recovery, I think, took about a year to actually get the cash in the door. So that might give you some guidance as to what I may be here, although it's hard to say at this point.

Okay, that's helpful. I noticed a mention regarding the guidance that if the price remains at recent levels, there would be additional EBITDA. I want to ensure I understood those comments correctly. Are you indicating that there could be an extra $15 million to $20 million of EBITDA if today's LME price is maintained through the rest of the quarter? I just want to clarify what was meant by those comments.

Yes. You got it almost exactly correct, Timna. Basically, we're just saying that cash prices today are about $100 higher than what our realized Q3 LME prices were. And so, if that were to sort of sustain going forward, if you go back to our sensitivities in our deck, you'll see it should have about a $10 million to $15 million quarterly impact on EBITDA going forward. So, in other words, what we're hopeful of is we have started to see some green shoots on both the demand and the supply side globally. Some of the things I talked about, we've seen really strong renewable demand in China, strong demand in China, both of which are things that should extrapolate to the rest of the world as the micro picks, situation rebounds. And then we've also seen on the supply side, additional outages in China. So, a lot of those are what drove that LME prices to start to improve. And so obviously, we're hopeful that those trends continue. And if they do, there's a lot of earnings power in this business, as we've shown in previous quarters.

Okay. And then just wrapping up, if I could. On the raw material side, just looking at the guidance, I know caustic has yet to fully flow through in your numbers. But do you see a lot further downside on the coke and pitch? And then remind us, if you could, on Jamalco, what alumina price is breakeven for you?

Certainly. On the coking pitch side, it's challenging to establish clear expectations due to the significant price increases we've experienced over the past couple of years. Coking pitch prices have remained much higher than historical levels for almost two years. Although coke prices have fallen nearly 50% from their peak, they are still above the average historical prices. The dynamics of this situation will depend heavily on global oil, energy, and steel markets. We do expect prices to trend down toward more normalized levels, although we'd prefer this to occur at a quicker pace than we've seen. Regarding caustic soda, its effects typically lag by about six months; although we've seen significant reductions in caustic prices, the benefits have not yet reflected in our results due to the timing of these changes. We anticipate seeing a more substantial impact starting in Q1. As for the refinery side, we're not disclosing cash breakeven points for any assets, but I mentioned that without the power disruptions at our Canal facility during the quarter, we would have been close to breakeven.

Okay, I would expect to come back on that after the call.

Thanks, Timna. And then maybe just to add on for Jamalco. Obviously, we've got a lot of CapEx programs ongoing there. So, we would expect that to continue to improve over the course of 2024, but that's where we stand today.

Our next question is from John Tumazos with John Tumazos Very Independent Research. Your line is now open.

Thank you. Can you explain the significant drop in European power prices or the Nord Pool price? Is it primarily due to reduced demand as the European economy slows down rather than an increase in electricity supply?

Yes. So very good question, John. Thanks. When you're looking at European power prices, probably the easiest common factor to look at is natural gas prices. And in Europe, obviously, that's referencing TTF. So, if you take a look at TTF over time, they obviously had very historically high levels, multiples of where it had been over history in the energy crisis that really hit late last fall, early winter. And the situation has definitely improved from that. So, European natural gas storage is near capacity today. And availability is relatively strong. And so, you've seen TTF come back down significantly from the record levels that we saw last year. That said, it's still multiples above where it stood historically. And obviously, multiples above, say, where Henry Hub is here in the United States, more than 10 times. So, when you look at it from that standpoint, maybe 10 times isn't the right multiple, but it's multiples above where Henry Hub is today. So, when you look at it from that standpoint, European energy prices are going to stay high while that dynamic remains. And well, thankfully gotten better, I think there are still challenges. And you can then see that in industrial demand, where we've seen relatively subdued European economy.

In your demand supply balance, you had almost 1 million tons of excess demand in China and 1.5 million tons of demand less than output outside of China. Is that demand decline mostly in Europe or is it more broadly spread out across the U.S., Europe, and the developing world?

Yes, I think you summarized it well, John. Europe has certainly faced the most significant challenges, although all global regions have struggled during this period. The U.S. has performed somewhat better, but still not at the levels we would prefer to see and believe it could return to. We are keen to see a shift in both markets since they remain quite short on aluminum, and this situation has worsened due to the economic climate over the past few years. Nonetheless, we are noticing some positive signs. The conclusion of the UAW strike in the U.S. should boost automotive demand going forward, although predicting this can be tricky. We did notice some demand effects before the strike began, due to the anticipation of these issues. Now that there is more certainty, we expect a pickup in demand. Additionally, aerospace demand has been robust in the U.S., providing us with a favorable advantage. As interest rates decline, we should also see a rebound in building construction.

If I could ask one more and I apologize. Sometimes I try to ignore Washington as the government or discussing could you explain these strategic tax credits a little more or maybe again because I hadn't been studying them. with the benefit to Century on a full year basis when they're codified, would it be closer to $1 million or $10 million or $100 million or more just give us an accrued range or order of magnitude.

Thank you, John. As I mentioned earlier, it's challenging to specify what will be part of the cost of production until the regulations are released. However, the law outlines a production tax credit that equals 10% of the cost of production of these critical minerals. This gives you some insight, but without the regulations in place, we can't predict what that credit might be.

So that could be 10% could be $0.15 a pound for your U.S. output. No problem. Thanks, John.

Our next question is from Katja Jancic with BMO.

Maybe starting with Jamalco. Can you provide any preliminary views on how we should think about CapEx for next year?

Well, in line with our normal cadence, Petra, I think we'll wait to give any 2024 guidance until our Q4 call. So yes, we'll come back to you with that in February.

Okay. Can you tell me what the typical maintenance CapEx would be?

Yes. Again, we'll go ahead and give those numbers on our Q4 call. What we did talk about last time was that we expected basically second half 2023 CapEx for the refinery to be in the $10 million to $20 million range. What I said in my prepared remarks, we expect to be coming down on the low end of that range for the rest of the year. That includes both the maintenance CapEx and some investment CapEx, including the restoration of the high-efficiency boiler that I mentioned. So, if you're just looking for some general provisions that gives you a sense, although again we will wait to guide for 2024 until that Q4 call.

Okay. And maybe I missed this on the European credits. Is there further credits you can monetize? Or how should we think about that?

We monetized the excess credits that were allocated to us for free, with an agreement to repurchase them before they are due in 2024. We have monetized what is available to us for that period. The best way to think about this going forward is to relate it to our overall working capital optimization programs. We will continue to receive those ETS credits on an annual basis as part of the regulatory scheme. Our intention is to keep optimizing that working capital, specifically the EUA credit, continuously over time as an additional source of cash.

Okay. And maybe just one more question. If you were to increase operations at Mt. Holly to full capacity, what would the required capital expenditures be? And how long would it take to achieve that?

Thank you, Katja, that’s a very good question. Regarding the timing, as you know, a couple of years ago we restarted the continuously operating line and an additional 25% of those pots, which took about 12 to 18 months. This gives you an idea of the timeframe if we were to restart the remaining pots at Mt. Holly as well. On the cost side, we are currently working on that. It’s a bit challenging to predict based on past experiences due to the current cost environment we’ve seen in recent years. We are actively looking at the costs and expect to provide more accurate figures in Q4 or Q1.

Our next question is from Lucas Pipes with B. Riley Securities.

One of my goals for this evening is to get continuing education credits on U.S. tax law. And I really appreciate your taking all these questions. I have one more. It is a credit, right? So, it's not a deduction of U.S. federal income tax; it's a credit. So, whatever the amount is, this is a cash reduction of your operating costs, correct?

Well, Lucas, I think you know I used to be a lawyer. I wasn't a tax lawyer. So, plenty of disclaimers around that, and I can't give any continuing credits directly. That said, you might imagine I have read the law. And again, until we have that guidance, this is all very preliminary, and we can't say for sure. But what the law does provide is that for the first five years that a credit would be realized, that credit would be a direct pay for the cash credit or you're going to elect to have it via cash credit if you're not otherwise a U.S. taxpayer or you don't otherwise have U.S. taxable income during the period. After the first five years, that direct pay provision would phase out and the tax credits become tradable.

Our next question is from Timna Tanners.

I have two quick follow-ups. My team and I are somewhat confused about the impact of Jamalco being closed for most of October. Since part of September involved a $16.9 million equipment failure, will there be an increased amount in the fourth quarter? Additionally, I assume this won't be included in your adjusted EBITDA, but we need this information for our own calculations.

Thanks, Timna. Good question. It is in the guide what we expect for Q4 impact to be. So, it's included in that guide.

Wait, but you excluded the Jamalco equipment failure from third quarter EBITDA guidance. So, we didn't think that you would include it for the fourth quarter.

Yes, it is excluded, but we have calculated the impact as we analyze those results, and it has been adjusted out. That's correct. As you can imagine, we haven't finalized our records for October yet, so it's somewhat challenging to determine the exact amount at this time. However, we anticipate that it will fully cover any deductibles, well ahead of expected timelines. Therefore, all of that should be recoverable, which is why we decided to test it out. Does that make sense?

Okay. But the fourth quarter relative to the third quarter, would you expect it to be larger, similar, smaller? Just not clear on the dynamics given it was out for a longer period of time in October. Or do you not know?

I understand. Sorry, I understand your question. I'm sorry, I understand the question now. It's a bit hard to relate it back to the previous period because the Q3 number had some impact from the June outage running through it. And it's a bit hard to sort of compare those; there are a few different things going on there. So, I think it's probably easier just to wait until the Q4 call to leave you the exact total of what it turned out to be. But again, it should be fully covered under the insurance policy.

Got it. One last thing, if I could. The nonpolitical capacity discussion makes me wonder if Hawesville is becoming less likely to return. I just wanted to ask about any updated thoughts there. And doesn’t the longer Ravenswood stays out make it more difficult to restart?

Timna, you're showing how long you covered Century because you're referencing Ravenswood, which was in West Virginia and has been permanently curtailed since 2008.

Sorry. You know I meant. Hawesville, I'm sorry, not Ravenswood. Yes, I'm sorry, it's Hawesville.

Yes, I know what you mean. No, no real comment on Hawesville at all. Obviously, it's much easier to take action at an operating smelter like Mt. Holly than it is to restart a curtailed smelter like Hawesville. And so, when we look at options going forward, I think it will be pretty consistent that you'll see us talk about Mt. Holly as the first option to add production, but it's really not a comment on the future prospects at all.

There are no more questions. So, I'll pass the call back over to the management team for closing remarks.

Thanks, everyone. We really appreciate the questions, and we look forward to talking to you in February for our Q4 call. Thanks.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.