Century Aluminum Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 8 speakers on the call.

Operator

Afternoon, and thank you for attending today's Century Aluminum Third Quarter Earnings Call. My name is Jason, and I'll be the moderator for the call today. I I'd now like to pass the conference over to our host, Ryan.

Speaker 1

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 Jerry Bialik, Executive Vice President and Chief Financial Officer And Peter Trypkovski, 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.

Speaker 1

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.

Speaker 2

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 $9,000,000 While we were able to offset a significant portion of the fall in metal prices with lower input prices, higher than expected Mt. Olli power costs Resulted in our Q3 results falling a bit below expectations. We expect Mt.

Speaker 2

Holly Energy prices to return to normal in Q4. And as we recently announced, we entered into a new power contract for Mt. Holly that will become effective on January 1. I'll provide some additional detail on that new contract in a bit. In general, the macro environment for aluminum remains complex.

Speaker 2

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 Chinese solar demand alone up around 1,500,000 tonnes from last year, recent stimulus announcements in China should drive further recovery Building construction demand as the Chinese economy continues to recover from COVID lockdowns. Reports have also recently emerged The Chinese smelters in Yunnan will again have to curtail around 1,000,000 tons of capacity due to low reservoir levels in their hydroelectric schemes. Once confirmed, this 3rd 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 remain below 50 days.

Speaker 2

With inventories at these historically low levels, LMEs 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 yuan 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 renewed focus on working capital management that Jerry 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.

Speaker 2

IndiHub and Norbault 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 5 year averages, making 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.

Speaker 2

At Mt. Holly, we were very excited to announce late last month We reached a new 3 year power contract with Santee Cooper through 2026. The agreement represents extensive work between the Sentry and Santee teams to This agreement allows us to continue to invest in this excellent plant, Preserved 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.

Speaker 2

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 for it to full production when market conditions warrant. In Iceland, operational performance was strong, continuing to reflect the excellent team we have built there. The Gundotongue Cast House project is nearing completion We will provide you with additional details of the expected benefits of this value added production on our Q4 call. In Jamaica, the The first major project in our project resource CapEx program is nearing completion with the recommissioning of 1 of the plant's high efficiency boilers set to be completed by the end of Q4.

Speaker 2

This boiler will increase the efficiency of the refinery 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 Dimelco's cost of production beginning in Q1. Today, the cost of these programs are coming in on the low end of our expected CapEx spending at Jamalco for 2023. In September, Gemalco separated power disruption resulting from an equipment failure in the same power generation unit responsible for the disruption in Q2.

Speaker 2

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, Gemalco would have operated at roughly breakeven in the Q3 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'll adjust out both the impact of the outage and the future recovery of insurance proceeds from our results.

Speaker 2

Jerry will cover this more in his remarks. Jerry?

Speaker 3

Thank you, Jesse. Let's turn to Slide 7, and I'll walk you through the results for the Q3. Consolidated Q3 global shipments were 172,000 tonnes, down about 1% sequentially. Realized metal prices were down nearly 6% for the quarter with net sales at $545,000,000 down 5% sequentially. Looking at Q3 operating results, adjusted net loss was $14,000,000 or $0.13 per share.

Speaker 3

This was a decrease of $29,000,000 compared with prior quarter. The major adjusting items for the Q3 were add backs of $22,000,000 in unrealized losses on forward contracts, dollars 9,000,000 in costs associated with the Jamalco equipment failure And $1,000,000 for share based compensation. These partially offset by a $4,000,000 deduction for lower of cost For net realizable value on inventory. Adjusted EBITDA attributable to Centuri, which includes our 55% share of the Jamalco JV in Jamaica was $9,000,000 a decrease of $20,000,000 from the prior quarter. Liquidity improved by $75,000,000 compared with prior quarter to $306,000,000 consisting of $70,000,000 in cash, dollars 23,000,000 in restricted cash And $212,000,000 available on our credit facilities.

Speaker 3

Net debt on September 30th was $424,000,000 Down $83,000,000 from prior quarter. During my 1st year at Centuri, we've focused on optimizing working capital and improving liquidity are beginning to see significant progress. I'll talk more about this in a moment when I address cash flow. Turning to Slide 8 to explain the 3rd quarter sequential EBITDA bridge. Realized LME was $2,237 per tonne, down $134 versus the prior quarter.

Speaker 3

While realized U. S. Midwest premium of $4.93 per ton was down $69 And realized European delivery premium of $3.23 per tonne was up $24 these reflecting our 1 to 3 month lags And realized metal prices. Together, these factors resulted in a $28,000,000 decrease in EBITDA in the quarter. Power costs were down slightly from prior quarter with that 51% reduction in Nord Pool market prices being partially offset By a 4% increase in MISOindi Hub exposure and higher cost of service rates at Mt.

Speaker 3

Holly, netting to a $3,000,000 benefit to EBITDA. Q3 realized alumina cost was $3.96 per tonne, dollars 4 lower on a sequential basis. Remember, there's a 3 to 4 month lag for alumina costs to work through our income statement. Realized coke prices decreased 17% and realized pitch Prices decreased 8%. Together, alumina and other raw material costs resulted in a $4,000,000 improvement in EBITDA.

Speaker 3

Volume OpEx improved EBITDA by $3,000,000 Unfavorable sales mix was a $3,000,000 headwind. Overall, adjusted EBITDA was $9,000,000 for the 3rd quarter. Note the impact of downtime and lost production And I'll put it to Michael that Jesse mentioned in his opening remarks, has been adjusted from the results presented here as Centuri 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.

Speaker 3

We started the quarter with $51,000,000 in cash. During the quarter, we completed the transaction to sell spurt in excess land at our Mt. Holly site, generating cash of $26,000,000 CapEx, primarily for the construction of our new cast house in Iceland used $26,000,000 As part of our working capital optimization efforts, we monetize excess European emissions allowances to generate an additional $34,000,000 In case you were 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 target. Each year, Centuri receives free emissions allowances, or EUAs, for our Grundotangi smelter in Iceland. These allowances must be surrendered in the following year to offset emissions from the smelter.

Speaker 3

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 Similar to other working capital optimization efforts, this program allows Centuri 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 driving optimization in the cash conversion cycle across all our During the quarter, we realized working capital savings totaling $76,000,000 with $7,000,000 coming from moving to favorable vendor payment terms at our Jamalco refinery and the balance from various actions at our smelters. We expect to retain $20,000,000 to $30,000,000 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.

Speaker 3

Finally, we used $68,000,000 to pay down our revolvers. These actions resulted in Q3 ending cash And restricted cash of $93,000,000 a $42,000,000 improvement compared to the 2nd quarter. Now let's move to Slide 10 for insight into our expectations for the Q4. For Q4, the lagged LME of $2,161 per tonne is

Speaker 1

forecast to be

Speaker 3

$4.25 per tonne, down $68 and the European delivery premium is expected to be $2.79 per tonne Are down about $44 compared with the 3rd quarter. Taken together, the LME and delivery premiums are expected to decrease Q4 EBITDA by approximately $20,000,000 to $25,000,000 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 $10,000,000 to $15,000,000 per quarter. Looking at our other key raw materials, lagged realized alumina cost is expected to be $3.85 per tonne, down slightly.

Speaker 3

We expect a favorable impact from lower coking pitch. Caustic soda prices are also down slightly, but as it takes 5 to 6 months for caustic spot prices to flow through our P and L, most of this benefit will be realized in Q1 2024. All in, we expect lower raw material costs to contribute between $10,000,000 to $15,000,000 to EBITDA compared with Q3. We expect volume gains and operating cost improvements to add about $5,000,000 to EBITDA in the 4th quarter. All factors considered, our Q4 outlook for adjusted EBITDA is expected to be in a range of between $10,000,000 And finally, we expect a realized gain of about $10,000,000 in the 4th quarter from hedging activity And tax expense of between $0,000,000 to $5,000,000 As a reminder, both of these items fall below EBITDA and impact adjusted net income.

Speaker 3

An update on the purchase accounting for our Gemalco 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 reported a deferred gain as a current liability on the balance sheet as of September 30. And now back over to you, Jesse.

Speaker 2

Thanks, Jerry. While we find ourselves in a challenging portion of the commodity cycle with LME and delivery premiums reaching 2.5 year lows in the 3rd 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 Chef's House early next year. We are also pleased with the continued optimization of our balance sheet, including completion of the Mt.

Speaker 2

Holly land sale and progressing working capital optimization program, 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.

Speaker 2

Our plants are running well and at planned production levels, leaving us well positioned to benefit as the commodity cycle improves. We look forward to your questions today. Operator?

Operator

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

Speaker 4

Thank you very much, operator. Good afternoon, everyone. In Your final comments there in your prepared remarks, you mentioned I think you mentioned the IRA and the benefits For Demant, but then if I understand it correctly, there are also Provisions in the IR specifically for primary aluminum production, I think it's Section 45X and it relates to Credit of 10% of the production cost. And obviously, on the surface, this appears pretty material. So I wondered if you could maybe speak to that and where that currently stands.

Speaker 4

Thank you very much for your perspective on that.

Speaker 2

Hey Lucas, thanks. Very good question. So you're correct That aluminum is listed as a critical mineral under Section 45X for the Inflation Reduction Act. Maybe just to back up, Section 45X It's a provision that amongst other things is intended to incentivize U. S.

Speaker 2

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.

Speaker 2

Given that, it's a bit At this point to quantify what the potential benefits might be for Centuri. 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 Quantify what those benefits might be to Centuri. And until we have that guidance, so it's hard to provide too much more information for now.

Speaker 4

And but at this point, there haven't been any I guess, it would be an accrual Essentially, potentially given that I think this credit would start in January 1, 23, that would be a benefit for this year, right?

Speaker 2

Yes. Well, we await the guidance. The provision did become effective Obviously, the law has passed, but and the provision did become effective January 1, 2023. But until we have that guidance, it's tough to really say more than that. But you're correct that the law itself does mention that It would apply beginning in January 1, 2023.

Speaker 4

Really, really appreciate that. And in terms of The guidance or clarification needed, can you elaborate on what exactly You're waiting for us is and I know this can be technical, but Could you maybe comment on what guidance specifically you're waiting for? Thank you.

Speaker 2

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. But that said, your summary Well done, Section 45X does provide for production tax credit for critical minerals And production tax credit applies to what the law calls cost of production. What the law does not do is provide any guidance as to how that cost of production should be calculated. So you can imagine a bunch Of different provisions that may be included or not included in cost of production.

Speaker 2

For instance, one Example might be whether depreciation is included in cost of production. So without further guidance from the Treasury Department after talking with Our advisors, outside advisors, discussing it internally with our team, we thought it was too early to record anything on our financial statements and difficult to do again without any guidance on what the quantum of those benefits might be. So for now, that's where we stand. And what we intend to do is once that guidance comes out, which again, the Treasury Department says they expect to do before the end of the year, We'd hold a follow-up call where we can discuss that in more detail.

Speaker 4

I really appreciate this discussion. I'd have further questions, But for now, I'll move on to a different theme. I really appreciate that color. Thank you.

Speaker 5

When

Speaker 4

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 comment on what you would expect in terms of that billet premium in the current environment for 2024? Thank you very

Speaker 2

much. Sure, Lucas. Thanks. Another good question. So both for the U.

Speaker 2

S. And of course as we've discussed Our new Grundartangi cast house will also come online and begin producing billet early next year. We've really just started to discuss And the 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 2.5 year lows. But of course, until we really get very far in those discussions, it's hard to predict what 2024 premiums might be.

Speaker 2

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 of a quarterly market. So you'll see us start to reflect Bill premiums in Europe more on a quarterly basis because it can change from quarter to quarter, whereas the U.

Speaker 2

S. Is more of an annual market.

Speaker 4

Got it. That's helpful. Really quickly on Mont Holly, good to see That contract comes through. If I recall correctly, Mt. Holly is running at 75% utilization.

Speaker 4

Have there been discussions about increasing this cost of service power allocation to Mt. Holly So that the plant can run at 100%?

Speaker 2

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 on 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.

Speaker 2

Holly.

Speaker 4

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

Speaker 2

Yes. The option within the contract is linked to there's actually a few different tariff schedules that we will take Power on from Santee Cooper under that contract, but the option is linked to one of those rates that's in The rest of the Mount Holly power contract package.

Speaker 4

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

Speaker 2

Thanks Lucas.

Operator

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

Speaker 5

Yes. Hey, good afternoon. I hope everyone can hear me okay.

Speaker 2

You sound great, Timna. Thanks.

Speaker 5

Okay, super. Thanks. Just had to check. All right. So I had a couple of questions.

Speaker 5

I thought I would hone in on the situation in Jamalco. I thought it was interesting, it was material enough to file for insurance recovery, but I didn't I might have missed a press release or an announcement about it. And wanted to know a little bit more about the incident. You said it was the 2nd time this has happened. Do you feel like you've sufficiently addressed the situation so that it won't recur?

Speaker 2

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 a refinery in general, you'll have some steam generation 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 And we dug a little further.

Speaker 2

We 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 that issue is now behind us.

Speaker 5

Okay. Thank you. 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?

Speaker 2

Sure. We won't give specific guidance on the deductible, although it's just a small portion relatively small portion of the overall claim. So it 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 Centur to talk about timing for payment.

Speaker 2

You might look back to our 2018 claim for Sebree when we had an outage that stopped Some power deliveries to the plant resulted 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 it might maybe here, although it's hard to say at this point.

Speaker 5

Okay. That's helpful. And then I know there was a mention when we were going through the guidance that if the price stayed at the recent levels, there would be an additional EBITDA. I just want to make sure I understood those comments correctly. Is that just to say that, I think I have to go back to my notes if it was an extra $15,000,000 to $20,000,000 of EBITDA or And I assume that was to say that if today's LME price were sustained through the rest of the quarter, but I just want to clarify what was intended by those comments?

Speaker 2

Yes. You got it almost exactly correct, Timna. Basically, we're just saying the cash prices Today are about $100 higher than what our realized Q3 LME prices were. And so if that were to sort of Sustained going forward. If you go back to our sensitivities in our deck, you'll see it should have about a $10,000,000 to $15,000,000 quarterly impact on EBITDA going forward.

Speaker 2

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 EV demand in China, both of which are things that should extrapolate to the rest of the world As the macro situation rebounds and then we've also seen on the supply side additional outage in China. So A lot of those are what drove that LME prices start to improve. And so obviously, we're hopeful that those trends continue. And if they There's a lot of earnings power in this business as we've shown in previous quarters.

Speaker 5

Okay. And then just wrapping up if I could on the raw material side, I'm 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 to Coke and pitch? And then Remind us if you could on Jamalco what alumina price is breakeven for you?

Speaker 2

Sure. So yes, on the Coke and Pich side, given the course of the past couple of years, it's hard to really set what your expectations are because We've been stuck for almost 2 years now with coke and fixed prices that are just materially higher than what we ever saw in any previous period. So as they've come down, I mean, coke prices are down almost 50% from where their height was, but they're still well above where historical levels are. Obviously, a lot of this will have to do with the oil markets and energy markets globally and steel markets, frankly. But we continue to see them coming back down towards normalized level.

Speaker 2

There's really no reason why they shouldn't. So we'd expect that to continue over coming quarters, although We just wish it would happen faster than it has. Caustic, as we said, last About 6 months, it takes longer to come through, but caustic prices have really come off substantially and you really haven't started to see the benefit of that really flow through our results because that Down turn happened more recently. So we'll start to see that more significantly starting in Q1. And then On the refinery side, we're not giving cash breakevens for any of the assets.

Speaker 2

But what I did say in my prepared remarks Absent the power disruptions that we had at Jamalco in the quarter, it would have been about breakeven for the quarter. So that could be some sense.

Speaker 5

Got it. Okay. I'll leave it there. Thanks very much for the color.

Speaker 2

Thanks, Senna. And then maybe just to add on for Janalco. 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.

Operator

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

Speaker 6

Thank you. Could you shed some light on the Big dip in European power prices or the Nord Pool price. Is it more due to weaker demand Swelling European economy as opposed to any increase in electricity supply?

Speaker 2

Yes. So it's very good question, John. And thanks. When you're looking at European power prices, probably The easiest common factor to look at is natural gas prices. And then, Jarep, obviously, that's referencing TTF.

Speaker 2

So if you take a look at TTF over time, It obviously hit very, 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 them. So European natural gas storage It's near capacity today and LNG availability is relatively strong. And so you've seen TTF Come back down significantly from the record levels 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 10x.

Speaker 2

So when you look at it from that standpoint, Maybe 10x isn't the right multiple, but if 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 while it's 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 Subdued European Economy.

Speaker 6

In your demand supply balance, you had almost 1,000,000 tons of excess demand in China And a 1,500,000 tons of demand less than output in ex China, Is that demand decline mostly in Europe or is it more broadly spread out U. S, Europe, developing world.

Speaker 2

Yes. I think you've got it about right, John, definitely most significantly in Europe, which I would say really of all regions globally Has been the most challenged over this period and much better in the U. S. To be honest, Although, obviously not at levels that we would like to see it and that we think it could return to. So we For both markets, frankly, are eager to see the cycle go ahead and turn over because both markets Remain very short on the aluminum side and frankly gotten much shorter given the economic situation over the last Several years.

Speaker 2

So as I said, we're trying to see some green shoots. Obviously, The end of the UAW strikes here in the U. S. Should help automotive demand going forward. That's sort of an interesting one to predict, but obviously people saw those UAW strikes coming.

Speaker 2

So We started to see a little bit of demand impact going in even before the strike started. But now that there's certainty there, we think that should help to pick up. Aerospace demand has also been very strong here in the U. S, which is a real nice tailwind for us. And then as interest rates come down, we should see some recovery in building construction as well.

Speaker 6

Thank you. If I could ask one more and I apologize, sometimes I try to ignore Washington because the government is so disgusting. Could you explain these strategic tax credits a little more Maybe again because I hadn't been studying them. With the benefit to Centuri on a full year basis When they're codified, would it be closer to $1,000,000 or $10,000,000 or $100,000,000 or more? Just give us a crude range or order of magnitude.

Speaker 2

Yes. Thanks, John. As I said before, until we have those regulations come out, it's very difficult To quantify exactly what will be included in cost of production, but you can go back to the law itself And see what it lays out is that tax credit production tax credit equal to 10% of cost per production of these critical Minerals. So you can take a look at that, but until we have the regulations, we're not going to estimate what that credit could be.

Speaker 6

So that could be 10% could be $0.15 a pound for your U. S. Output. I don't mean to put words in your mouth, Jesse. I'm sorry.

Speaker 2

No problem. Thanks, John.

Operator

Our next question is from Katya Janssik with BMO. Your line is now open.

Speaker 7

Hi. Thank you for taking my questions. Maybe starting with Jamal Kop, can you provide any preliminary views on how we should think about CapEx for next year?

Speaker 2

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

Speaker 7

Okay. And what would be can you just Say what the maintenance CapEx typically will be?

Speaker 2

Sorry, could you repeat that?

Speaker 7

If you could maybe what the maintenance CapEx for Jamalco would be, the typical maintenance?

Speaker 2

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 $10,000,000 to $20,000,000 range. What I said on my prepared remarks, we expect to be coming in on the low end of that range for the rest of the year. That includes both some maintenance CapEx and some investment CapEx Including the restoration of the high efficiency boiler that I mentioned.

Speaker 2

So if you're just looking for some general provisions that gives you a sense, Although, again, we'll wait to guide for 2024 until that Q4 call.

Speaker 7

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

Speaker 1

Okay. What we did is

Speaker 3

we monetize the excess credits that we had that have been allocated to us for free With the agreement to repurchase them before they're due in 2024. So we've monetized what are available to us for That works.

Speaker 2

But I think the best way to sort of think about that going forward is to relate it to our overall working capital optimization programs. So we do we will continue to have those ETFs credits granted on an annual basis as part of the regulatory scheme. And so what our intention would be to continue to optimize that working capital, namely the EUA credits continuously over time As an additional source of liquidity.

Speaker 7

Okay. And maybe just one more, if I may. On Mt. Holly, if you did decide to increase operations to Full capacity. What would the CapEx required be and how long would it take you to do that?

Speaker 2

Thanks, Katya. That's a very good question. In terms of the timing, obviously, just a couple of years ago now, we went through A restart of the continuously operating line and an additional 25% of those pots. And that took somewhere from 12 to So that will give you a sense of the timeframe if we were to restart the remaining pods at Mt. Holly as well.

Speaker 2

From the cost side, we're undertaking that work now. Obviously, it's a bit hard to predict based on past Given the cost environment that we found ourselves in over the past couple of years. So we're actually undertaking that work, working through what the cost would be. And I think we should be in a better position to give you some better figures in Q4 or Q1.

Speaker 7

Okay. Thank you.

Operator

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

Speaker 4

Thank you very much, operator. Thank you for taking my follow-up question. My goal one of my goals for this evening is To get continuing education credits on U. S. Tax law and really appreciate you Taking all these questions, I have one more.

Speaker 4

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?

Speaker 2

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, as you might imagine, I have read the law. And again, until we have that guidance, I know this is all very preliminary and we can't say for sure. But what the law does provide is that for the first 5 years that a credit would be realized.

Speaker 2

That credit would be a direct Pay, so the cash credit or you can elect to have it via cash credit if you're not otherwise a U. S. Taxpayer You don't otherwise have enough U. S. Taxable income during the period.

Speaker 2

After the 1st 5 years that direct pay provision That's phased out and the tax credits become tradable.

Speaker 4

Very helpful. Very helpful. I'll take those credits over continuing education. I really appreciate that. Thanks.

Speaker 2

All right. Thanks Lucas.

Operator

Our next question is from Tinabeth Taners. Your line is open.

Speaker 5

Yes. Hey, thanks for taking two quick follow ups. One was that my team and I were kind of confused actually, we weren't 100% clear on how to think about the Impact from Jamalka being closed. It sounds like most of October, so if part of September was $16,900,000 equipment failure, Is it going to be an increased amount into the 4th quarter and then assuming that's not going to be in your adjusted EBITDA, but just for our own calculation?

Speaker 2

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

Speaker 5

Wait, but you excluded the Jamalco equipment failure from Q3 EBITDA guidance. So we didn't think that you would include it for the Q4?

Speaker 2

Yes, it is excluded, but the impact

Speaker 1

Sort of calculated as

Speaker 2

we run through those results, but it is adjusted out. That's correct. As you might imagine, I mean, we haven't closed the books for October yet even. So it's a bit difficult to say exactly what that will be. But And we do expect that at that point, you will have fully in through any deductibles, frankly, well before that.

Speaker 2

So all of that should be recoverable dollars, which is why we decided to adjust it out. That makes sense?

Speaker 5

Okay. But you aren't going to but for the Q4, you'll include it and not exclude it. Is that what you're saying?

Speaker 2

Sorry. No, no. We'll adjust it out. What I'm I guess what I'm saying is dollar for It should be included under the insurance policies because the deductibles already have been met well before that.

Speaker 5

Okay. But the Q4 relative to the Q3, would you expect it larger, similar, smaller, just not clear on that Dynamics given us out for a longer period of time in October or do you not know, I'm sorry, if that was

Speaker 2

I understand. Sorry, I understand your question. Sorry, I understand your 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. So it's a bit hard to sort of compare.

Speaker 2

There's a few different things going on there. So I think it's probably easier just to wait until the Q4 call. We'll give you the exact detail of what it turned out to be. But again, It should be fully covered under the insurance policy. So

Speaker 5

Got it. Okay. One last thing if I could. So the discussion of moving Mont Holly to full capacity makes me wonder if Ravenswood is becoming less likely to return. So I just wanted to ask about Any updated thoughts there?

Speaker 5

And the longer that Ravenswood out, doesn't that make it also more difficult to restart?

Speaker 2

Timna, you're showing how long you covered Century because you're referencing Ravenswood, which was in West Virginia and was permanently curtailed Back

Speaker 5

in 2008. I'm on a different

Speaker 7

I'm sorry. You know

Speaker 5

I meant Haswell. I'm sorry.

Speaker 2

But I

Speaker 5

know what you mean.

Speaker 2

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

Speaker 5

Hassell, I'll get that state next time. Thank you again.

Speaker 2

Thanks. Thanks, Jenna.

Operator

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

Speaker 2

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.

Operator

Thank you for your participation. You may now disconnect your line.

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Earnings Conference Call
Century Aluminum Q3 2023
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