Century Aluminum Co (CENX) Q3 2026 Earnings Call Transcript

Hello, everyone. Thank you for joining us and welcome to the Century Aluminum Company third quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Chad Rigg, Vice President, Finance and Treasurer. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and welcome to the third quarter conference call. I'm joined here today by Jesse Gary, Century's President and Chief Executive Officer, and Peter Trypkovsky, Executive Vice President and Chief Financial Officer. 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 SD. Turning to slide two, please take a moment to review the cautionary statements with respect to forward-looking statements and non-GAAP financial measures in today's discussions.

And with that, I'll hand the call to Jesse. Thanks, Chad. Thanks to everyone for joining. I'll start today with our third quarter results, then walk through our operations and give you an update on the Oklahoma smelter project, before turning to the great market conditions we continue to operate in today. Pete will then take you through the quarter in detail and our fourth quarter outlook. To begin, I want to thank our teams across our locations for another strong quarter of safety performance. We had the hot summer temperatures and a lot of new employees across the assets due to restarts, and our team remained dedicated and focused. Turning to page four, our excellent third quarter performance was enabled by the return to full capacity across our assets for the first time in over a decade. Combined with strong demand and pricing in our U.S. and European markets, our assets generated net sales in the quarter of nearly $1 billion and adjusted EBITDA of $332 million. Staying with page four in operations, at Mount Holly, the production instability we flagged in August has been resolved. This instability was not unusual following a restart of that size, and the team did a good job taking action to resolve it despite record high summer temperatures in South Carolina. With the instability behind us, the plant should return to full volume and normalized production mix across the fourth quarter. At Grundertangi, the smelter had an excellent production quarter after returning to full pod complement in July. Three of our four replacement transformers have now arrived in Iceland, with the first new transformer already installed, another being placed in service this month, and the remaining two expected to be installed over the next several months. As the additional transformers come online, we can bring Line 2 amperage up from the reduced levels we've been running since the restart and return the plant to its full nameplate production. We anticipate the return to full amperage should take place over the course of the first quarter, and we will give you additional details on the Q4 call in February. The team has done a really good job returning the line to production over six months sooner than we originally expected. At Jamalco, the team continues to work through the bauxite quality issue we first discussed in May. The revised mine plan is being implemented, and we are making progress, but as I've said, the new plan will take a few quarters to implement. Separately, we brought our new power generation turbine, TG4, online in August, and it is producing well, allowing us to avoid buying energy from the expensive Jamaican grid. Finally, Seabree had another excellent quarter, operationally and financially. Seabree is setting the standard for the rest of the century portfolio and only continues to improve. Great work again by that team. Before we return to market conditions, let me give you a quick update on Oklahoma. Along with our partners at EGA, we made good progress on our new smelter project in the third quarter. Financing discussions have advanced with material terms largely agreed and on track to be ready by FID. We also made good progress on our power contract in the quarter, progressing towards final documentation with our supplier. At the same time, we continue to work with Bechtel and the EGA team on our detailed engineering plan, which will continue in earnest in the fourth quarter. We are working with state regulators in the community to advance the project and address concerns that have been raised. In September, we submitted a new environmental plan to the Oklahoma Department of Environmental Quality, under which the project committed to reduce its permitted fluoride emissions by 37%, placing the new smelter amongst the best in the world. We also published a new economic impact study, which found that the new smelter is expected to increase Oklahoma's GDP by almost $1.5 billion per year, representing nearly 1% of the state's total GDP. To the same end, we had begun working with Tulsa Innovation Labs on workforce development, as the smelter should ultimately create over 1,000 permanent direct jobs and 5,000 indirect and induced jobs. While this dialogue with regulators and the community is ongoing, we believe we have made progress in addressing remaining concerns. Finally, we were pleased to see Mike Mazze elected this past Tuesday to be the next governor of Oklahoma. Mike, along with the current governor, Kevin Stitt, have been great supporters of the project, and we look forward to working with them over the coming months to reach FID. Once built, the Oklahoma smelter will roughly double total U.S. primary aluminum production and restore domestic production of military-grade high-purity aluminum. When complete, it will be amongst the most efficient and advanced smelters in the world and a crown jewel of the U.S. industrial base. Okay, let's spend a few minutes on the market, starting on page five. Market conditions remain robust, with supply still constrained by Middle East disruptions and a slow return of curtailed production in the region. Demand in our U.S. and European markets remain strong, driven by data center and power system build-out and good automotive demand. Other bright spots include commercial aerospace, defense, and rearmament, and the reshoring of U.S. domestic manufacturing demand. Our position as a reliable supplier with short, flexible supply lines into both the U.S. and European markets has only been enhanced by the recent disruptions in production elsewhere in the world. All of this is reflected in historically low global inventory shown on page six, leaving a very constructive pricing environment with spot LME of approximately $3,175 per ton, Midwest premium of approximately $1.12 per pound, and the European duty paid premium of approximately $575 per ton. We also expect strong value-added product demand in 2027. We are in the middle of the contracting season now and will provide you guidance on 2027 value-added premiums on our Q4 call. On the cost side of things, shown on page 7, you can see the impact of the high summer temperatures on IndyHub power prices at Seabree, but we have seen those prices moderate nicely as we have returned to normal temperatures over the past couple of weeks. Coke and heavy fuel oil prices remain elevated, given continued high oil prices resulting from the conflict in the Middle East. Pete will now take you through our third-quarter results and fourth-quarter outlook.

Thank you, Jesse. I'll review our third-quarter results, cash flow, and financial position, then turn to our fourth-quarter outlook. Third-quarter shipments were approximately 173,500 tons, up 33% sequentially, reflecting the Mont-Holly return to full capacity and the restart of Line 2 at Grundertumge. Net sales increased $209 million sequentially to nearly $1 billion, driven primarily by higher realized LME prices and shipments. Net income was $303 million, or $2.89 per share. Adjusted net income was $272 million, or $2.58 per share, excluding exceptional items. Exceptional items primarily included unrealized gains on derivative contracts and business interruption losses in Iceland. Adjusted EBITDA was $332 million, supported by higher LME prices, regional premiums, and volumes following the Mount Holly expansion. During the quarter, we converted $332 million of adjusted EBITDA into $365 million of cash flow. Ending the quarter with $755 million in cash on the balance sheet. Turning to slide 9, adjusted EBITDA increased $5 million sequentially to $332 million. Realized LME increased approximately $150 to $3,400 per ton. The U.S. Midwest premium declined $30 to $2,450 per ton, or $1.11 per pound. While the European premium rose approximately $70 to $520 per ton. Together, pricing contributed an incremental $9 million versus the prior quarter. As expected, energy costs were a seasonal headwind, with MISO-Indiana hub prices averaging approximately $60 per megawatt hour for Seabree. Volume and sales mix contributed an additional $19 million sequentially, reflecting the Monhali expansion and shipment timing. Operating expenses increased following some initial instability at Monhali after the expansion. Turning to slide 10, we began the quarter with 390 million in cash and delivered strong operating cash flow. First, we received $94 million in cash for our fiscal 2025 Section 45X tax credit and continue to accrue credits quarterly. We also expect to receive the outstanding $80 million from our fiscal 2023 credit in 2027. Next, in Iceland, pot line 2 returned a near-full production. We received $19 million in insurance proceeds during the quarter and expect to continue to receive additional recoveries on a lag basis in Q4 and into 2027. CapEx totaled $38 million. About $18 million of this was investment spend related to the Iceland transformer replacements. But the overwhelming majority of this investment spent on restarts and new power turbine in Jamaica is now behind us. Cash, interest, and taxes totaled approximately $16 million. This primarily reflects the semi-annual interest payment on our senior notes. Hedge settlements total $24 million. Working capital also released nearly $40 million in cash as inventory built following the Mon Holly expansion shipped as expected. We closed the quarter with $755 million in cash, no revolving credit borrowings, more cash than total debt, and more than $1 billion in liquidity. We expect strong cash conversion to continue, supported by additional 45 tax credits and Grunertungi insurance recoveries. Let's turn to slide 11 and review our fourth quarter outlook. We expect lagged LME of $3,150 per ton, down approximately $250 from Q3 realized prices. The lagged U.S. Midwest premium is expected to be $1.10 per pound. Down a penny, while the European duty paid premium is expected to rise to $550 per ton. Together, these pricing changes are expected to reduce adjusted EBITDA by $35 million to $45 million sequentially. We expect energy costs to improve flat to $5 million sequentially, as MISO-Indiana hub prices are expected to improve by approximately $10 per megawatt hour versus the prior quarter. Higher raw material costs are expected to create a $5 to $10 million sequential headwind. We expect operating expenses to increase approximately $5 million sequentially. Volume and sales mix are expected to improve by $5 to $10 million, driven by higher production and shipments at Mount Holly. Some off-spec material from the earlier instability will weigh a bit on Q4 sales mix. Taken together, we expect Q4-adjusted EBITDA of $275 million to $300 million at expected realized prices. For modeling purposes, we expect realized hedge settlements of $20 to $25 million and tax expense of $10 to $15 million. Both will affect Q4-adjusted net income and adjusted earnings per share. With that, I'll hand the call back to Jesse.

Just before we turn the call over for questions, I'd like to take a quick minute to highlight the excellent cash flow performance of the business and the strength of our balance sheet. As Pete discussed, in the third quarter, we converted $332 million of adjusted EBITDA into $365 million of cash flow in the quarter, and ended September with $755 million of cash against only $486 million in debt. Century is converting its earnings into cash at a very high rate right now, and we see that continuing. Our major investment CapEx programs to restore production at Mount Holly and Grundertongi and install TG4 at Jamalco are now complete. Those projects represented about $125 million of investment capital spent this year that is now finished and will not repeat. From here, we expect to return to more normalized CapEx levels, leaving room for substantially higher cash flow conversion going forward. In addition, we still have additional cash payments relating to previous quarters that we expect to receive in 2027, namely the 45X tax credits from the 2023 and 2026 tax years and the remainder of our Grunetongi insurance recoveries. We also still retain our 6.8% interest in the TerraWolf data center being built at Hawesville, with the right to put that interest to TerraWolf for $300 million after the data center is operating, or to sell it to a third party if we can achieve a higher value. On that front, TerraWolf has announced very good progress on the project, hiring Floor to do the EPC build and securing investment-grade credit support from Google to back the financing. Please remember, our 6.8% interest is in the completed data center, and we do not have any obligation to contribute more capital. All told, we expect our already strong cash position to continue to improve in the coming quarters as we reap the benefits of our investments that return Grutter-Tongue and Mount Holly to full capacity and strong market conditions. We expect to use the strong cash position first to fund our share of the Oklahoma project once we reach FID. Once that decision is completed, we plan to provide you with further guidance on potential additional high-return investments and shareholder returns. Please remember that the Oklahoma project will benefit from the import incentive program that we discussed last quarter, which should allow us to import primary aluminum up to our share of the annual production in Oklahoma at a reduced tariff rate of 25% versus the 50% rate that otherwise applies. No company is investing more to restore American primary aluminum production in this century. We are the largest producer of aluminum in the United States. We employ more American primary aluminum workers than any other company, and we are planning to invest billions more into new production in Oklahoma. We remain laser-focused on execution and look forward to speaking to you about our 2027 plans on our February call. Thank you for your time, and we look forward to taking your questions.

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question from the line of Nick Giles of B. Reilly Securities. Your line is open. Please go ahead.

Yeah, thank you, operator. Good evening, guys. Nice to see the progress here. I guess just on your last point there, Jesse, you mentioned that you want to build enough cash to have the equity check for the Oklahoma project, but I have to imagine that a lot of the CapEx spend might occur more so in 2028 than 2027, so there's You know, potentially a bit of a timing mismatch where you could have excess cash on the balance sheet. What do you plan to do with that cash, and would you be willing to look into shareholder returns earlier than expected, you know, just given that the stock has been under pressure? Thank you.

Yeah, thanks, Nick. We've had a little technical difficulties on our end. And can everyone hear us fine?

Your line is open.

Great. Thanks, Nick. Good question. Obviously, we're very happy with the performance and the cash build we've seen this quarter, and we expect to see for quarters to come. And I'd largely agree with you that the stock definitely seems underpriced where we are here today. As we think about it, you know, given the significance and scale of the Oklahoma project to Century and really to the entire U.S. industry, We believe it's prudent to wait on shareholder returns until we reach FID. This allows us to finish the financing and structuring of the import incentive and see the quantum and shape of our equity requirements beyond just the total amount of the equity requirements, but just how that spend may play out over the period before making other capital allocation decisions. But in the meantime, as you say, we'll continue to be responsible stewards of the cash, and we'll move as quickly as possible to FID. Given the significant cash flow of the business, we will continue to assess the situation. So, and if we do continue to generate significant cash, As we expect we do. We'll just watch the timing of FID, watch that cash bill, and if we do see an opportunity, we'll come back and let everyone know.

Understood, Jesse. No, that's a very helpful color. I just wanted to ask about kind of the overall power strategy in Oklahoma. You know, would you expect that that power will be hedged? And then, you know, what are kind of the key gating items as it relates to the power agreement specifically?

Yeah, good question. Obviously, at Century, we do purchase power in many different ways across our assets. In Oklahoma, we will be buying from the utility directly rather than from the market like you see at Seabree or with an LME percentage type of arrangement like you see in Iceland. So, it'll look more like the structure you're seeing from us in South Carolina, although it will have its own structuring within that that we'll give to you once we reach that FID decision. But hopefully, that gives you a sense of the type of contract that we're talking about, And then to your second part of your question. We have. We have really made-continue to make good progress on that, Nick, with our counterparty, and as I said, we're sort of moving into the final documentation phase here, so things are moving on that front.

Okay, well, good to hear. Appreciate the update. And, yeah, again, nice work.

Thank you. Your next question from the line of Matthew Key of Texas Capital. Your line is open. Please go ahead.

Good afternoon, and thanks for taking my questions. I wanted to talk about just the progress being made on the ground in Oklahoma. Was the community debate around the project mostly tied to concerns around fluoride emissions? Were there any other, you know, potential areas of concern around the project? And just trying to get a sense if there's any risk kind of in your view that, you know, areas where this could be potentially dragged out from a permanent standpoint, or do you think you're, you know, essentially dealing with it effectively kind of over the last couple months?

Yeah, it's a good question. And obviously, when you're dealing with both regulators and community members both, you know, there are a variety of issues and concerns that are out there. And we've been trying to address those as responsibly as we can. So that involves everything from the voluntary cutback in our fluoride emissions, like I mentioned in my prepared remarks. To holding town halls and addressing questions one on one with community members who come. I will say that we continue to have very, very strong support from the state and federal levels and really good communications with the regulators in Oklahoma as we try to continue to push forward and address the concerns that have come up. So, um, I'd say we're making good progress. We're trying to address and answer questions as they come up and keep the project on track and moving forward.

Got it. That's very helpful. Thank you. And I wanted to ask about the import ARB opportunity. Once you make a final, like an FID in Oklahoma, how soon could you take advantage of that program, and how does the application process work there?

Yeah, so we're engaged, actively engaged with the Department of Commerce on all of those details with really good back and forth as we, as. Just the exact mechanics of how that will work are ironed out. I'd say we're making very good progress, very aligned with the Department of Commerce on that, and they've been very helpful in moving that forward. So I fully expect that we'll be able to take advantage of that program very quickly, if not coincident, with FID.

Got it. That's awesome, and I appreciate the time, and best of luck going forward.

Thank you, Matt.

Your next question from the line of Katja Jancic of BMO Capital Markets. Your line is open. Please go ahead.

Hi. Thank you for taking my questions. I think you previously talked about having or looking at several promising financing options for the Oklahoma smelter. What's the status of that? And then does the midterm election change the opportunity set in any way?

On the first part of your question, Katya, we continue, as I said in my remarks, to move that financing along, and we're making very good progress. I think pretty much all the material terms have been agreed there and should be fully, expectably ready to go once we make and reach FID. So I really don't see any issues on the financing side. I continue to believe it will be a very attractive financing package. We're really excited about it. On your second question on the midterms, I mean, we're a couple of days in here, so we'll have to see exactly what the new Congress looks to move from a legislative perspective. But what I would just say more generally is that, you know, broadly speaking, reindustrialization of U.S. manufacturing is really one of the few bipartisan issues out there, and we've received a lot of support both through Democratic Congress, Republican Congress. And with the current administration on this project. So we'd expect, no matter what happens, to continue to have that sort of broad-based support across the aisle.

Okay, thank you.

Your next question from the line of Richard Garcidorena of Barclays. Your line is open. Please go ahead. Thanks.

Thank you. Good evening, everybody. First question, I just want to ask on the guidance for 4QE, but just on the production side, I think you mentioned about how they should improve versus third quarter. There's some instability, I guess, to that impact 3Q volumes and... Also, related to that, I think Gwenda Artonghi in line two running near full production, is that going to be at 100% in the fourth quarter as well in your assumptions?

Yeah, hi, Richard. Thanks for your question. We talked about the instability at Mount Holly. That was resolved in the third quarter, so that's in the results. And if you think about what we said in our remarks... The instability was resolved in the third quarter, and we're going to spend the time in the fourth quarter to bring the volume back to full production. You'll see the impact of those units coming online throughout the fourth quarter. And that estimate of those units is in our Q4 outlook, so no further adjustments there. And I do recall you have to outline, too, at Grandertangi. For Grandertangi, what we've done is we have adjusted back the losses from the business interruption in the prior quarter. So really, from an outlook perspective, there's no further adjustments required as well for Iceland.

And just to piggyback on that, Richard, you will see us, and I said this in my remarks, start to ramp that amperage back up in Q1. So there are additional Grunertonga units to come starting in Q1 as we bring that back up, and then you'll also have in Q1 the full benefit of the Mount Holly Tongues being back on that we're ramping up over Q1.

Okay, great. Thank you. And then maybe if I could follow up on Oklahoma, you know, nearing completion, I think, is what you've characterized, the contract discussions on the power and also on the financing. In terms of, you know, the current environment there, is there anything that would potentially delay or slow down the process, or can you sort of move forward with? With the financing power contracts. So those are separate discussions from what you're doing with the community and that type of thing.

Yeah, that's a good question, Richard. Obviously, what we will seek to do is to line up all of those work streams really at once so that we have all the information and all the parts of the project ready to go when we make that final investment decision. Thank you. To do that, you know, while we're working to address the community concerns and working with the regulators on the permitting. We're also continuing to work on the engineering, and we're fully allowed to do all those sort of pre-construction activities that we need to do for the site during this period. So we're really moving forward on all fronts, and the idea is we'll be to align those all at once so we have all the information we need to make that final investment decision.

Great. Thank you.

Your next question from the line of John Tommazos of Very Independent Research. Your line is open. Please go ahead.

Thank you for taking my question. I calculated a 33 cent a pound cost improvement over the last two quarters after the cost had risen. 60 cents the three quarters prior to March 31. With the improvements continuing at three of the four locations, except for Seabree, should we expect all those costs to come back in the December and the March quarters?

No. A lot of what you're seeing, John, is the benefit of returning the smelters to full production level. You're seeing fixed cost absorption, more efficient power usage, more efficient labor usage. And so this cost structure you're seeing now, and really probably a little bit more improvement to come, should continue into 2027 and beyond.

If I could ask one more? Sure. Business is good. Maybe the cash goes up almost as much in the December quarter. Maybe you don't need all of the financing. You only need half of it. Why pay the fees and borrow the money when you're doing so good and you have the money?

That's a good question, John. We always want to have the most efficient capital structure that we have. We do think the financing arrangements we're looking at are very, very attractive rates and structure. And so, but of course, when we reach FID there, we will make that decision. But I would expect, given what we know about the financing today, both in terms of cost, rates, and structure, you'll see us look to fully utilize that.

Thank you.

There are no further questions at this time.

Thank you very much, everyone, for joining the call. We may have one late-breaking question here from Timna. I'd like to give her a chance, if we can.

Your next question comes from the line of Timna Tanners of Wells Fargo. Your line is open. Please go ahead.

Thank you, guys. It's pretty remarkable after all these years to see net cash. So I have to follow up on some of the earlier questions. I heard you mention that you would update us in the future about potential additional shareholder returns and projects. I thought in the past you talked about pretty modest projects like at Jamalco, but is there anything that could be more material? And along the cast uses, again, at this pace, I mean, could you not have your hand forced to think about some other use in the next couple quarters because it is piling up so nicely?

Yeah, Timmy, you're right. It's a very good problem to have. We're excited to have it. I mean, we're proud of where the business has come and proud of what the team has accomplished. So, I do think, and as I said, we will continue to look at what the best use of that cash is. You're right that we have previously said that there are not a lot of projects that look like Mount Holly Restart available to us. There are some projects at Jamalco on the cost side. But, as you might imagine, we continue to try to generate new ideas and new projects and new ways to improve the business as we move forward. So, we're really just allowing room for that to happen. The teams are always working hard on that, and they'll continue to. Absent that, should conditions continue like this, we do think we'll be in a very good spot, both. To be able to fund our share of the Oklahoma project and to fund either additional good projects or shareholder returns.

Okay, thank you for that. And I wanted to follow up on since the last time that we had this opportunity to catch up on a conference call, you know, we have seen the progress on potential trade agreements with Canada and Mexico. In this case, Canada, there was some chatter of a potential carve out on the aluminum and steel tariffs. And that kind of flew in the face of what we had thought could happen. And I'm curious with your connections to the administration, if you have any further insights on how they're thinking about aluminum tariffs in particular with Canada.

Good question. I can't speak directly to the negotiations, of course, as I've not been involved, but what I can say is the government clearly understands that the Section 230 program is working as it was designed. I mean, just since the program and during the President's term, we've seen Mount Holly restart, which increased U.S. production by 10 percent. The restart of the New Madrid smelter in Missouri should be restarting imminently, which should increase U.S. production by another 10 percent. And then, of course, we continue to get closer to FID for our Oklahoma smelter project that will double U.S. capacity. So I think the administration is very clear that the government is working as it stands and as it's designed and delivering the desired outcome, which is re-industrialization and becoming self-sufficient in terms of U.S. aluminum production. And they've been very consistent. I mean, there's been a lot of chatter, as you say, but there really have been no changes. The program continues to be in place with no exemptions and no exceptions. So that's sort of where we think things go, Timna. And of course, we listen and watch, but we're quite confident the government understands and is pleased with the progress that industry is making.

Okay. Thank you so much for the call. Best of luck.

Thanks, Timna. There are no further questions at this time. I will now turn the call back to Jesse Gary for closing remarks.

Okay. Thanks, everyone, for joining, and we'll look forward to talking to you in February.

This concludes today's call. Thank you for attending. You may now disconnect.