CENX earnings call transcript, November 5, 2026

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.

Thanks, Chad.

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 of 33% sequentially, reflecting the Mount Holly return to full capacity and the restart of line to 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 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. in Iceland. Adjusted EBITDA was $332 million, supported by higher LME prices, regional premiums, and volumes following the Monthaly 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. The 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 SEBRI. Volume and sales mix contributed an additional $19 million sequentially, reflecting the Mount Holly expansion and shipment timing. Operating expenses increased following some initial instability at Mount Holly 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 a fiscal 2025 section 45x tax credit and continue to accrue credits quarterly. We also expect to receive the. Sending $80 million from our fiscal 2023 credit in 2027. Next, in Iceland, pot line to return the 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 total $38 million. About $18 million of this was investment spend related to the transformer replacements. But the overwhelming majority of this investment spent on restarts and new power turbine in Jamaica is now behind us. Cash interest in taxes totaled approximately $16 million. This prior reflects the semiannual interest payment on our senior notes. Hedge settlements totaled $24 million. Working capital also released nearly $4 million. $40 million in cash as inventory bill following the Mon Howie 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 45X 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 tonne, 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 tonne. 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 club 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. I'll 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 spend 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 year. 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 finance.

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-Tonghi 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. 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. No company is investing more to restore American primary aluminum production than 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 one to raise your hand. To withdraw your question, press star one 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.

Yeah, thank you operator. Good evening guys. Nice to see the progress. 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 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. Can everyone hear it 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. 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 proven. 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 the 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.

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 build, 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. Many 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. Again, 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 will. Get 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 at least. And then to your second part of your question. No, that's great. 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 so things are moving on that front.

OK, well, good to hear. Appreciate the update and. 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.

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 of months? Yeah, that'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. 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 consumer 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 exact mechanics of how that will work are ironed out. And 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've fully expect that we'll be able to take advantage of that program very quickly, if not coincident with FID.

That's awesome and appreciate the time and best of luck going forward.

Thanks, 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 the... The midterm election changed the opportunity set in any way.

On the first part of your question, Tatia, we continue, as I said in my remarks, to move... Move that financing along, and we're making very good progress. I think pretty much all of the material terms have been agreed there, and...

So I really don't see any issues on the financing side. I continue to believe it will be a very attractive financing package. 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, 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 Garcita-Rena 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 was some instability, I guess, to that impact 3Q volumes and also related to that. I think Gwenda Artongi 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.

Thank you for your question.

We talked about the instability at Monholy. That was resolved in the third quarter. So that's... And if you think about what we said in our remarks, how 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... 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 that. I do recall you asked about line two at Grandertonghi. For Grandertonghi, 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... And just to piggyback on that, Richard, you will see us, and I said this in my remarks, start to ramp that... ...back up in Q1, bring that back up, and then you'll also have in Q1...

...wrapping up over Q4. 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. Um, obviously. What we will, um, all of those work streams, we have all the information and all the parts of that final investment. Um, and to do that, you know, while we're working to address to the community concerns and working with the regulators on, on the permitting, um, we're also continuing to work. Work on, on the engineering, um, and we're fully allowed to do all those sort of pre-construction activities that we need to do for the site, uh, during this, this period. So we're really moving forward on, on all fronts and the. ideas will be to align those, uh, all at once.

Great. Thank you.

Your next question from the line of John Tumazos of.

Thank you for taking my question. So 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 six 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. And into 2027 and beyond.

If I can 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, but of course, when we reach FID there, we will make that decision. I would expect, given what we know about the financing today, both in terms of costs, rates, and structure, you'll see us look to fully utilize that.

There are no further questions at this time.

Thank you very much for 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.

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

Okay.

This concludes today's call.

Thank you for attending.

You may now disconnect.