Ladies and gentlemen, thank you for standing by. And welcome to the Second Quarter 2019 Earnings Conference Call. At this time all participants are in a listen only mode. Later we will conduct question-and-answer period instructions will be given at that time. [Operator instructions] Also, today's conference call is being recorded. I would now like to turn the conference over to your host, Shelly Harrison. Please go ahead.

Thank you, Anna. Good afternoon, everyone, and welcome to the conference call. I'm joined today by Mike Bless, Century's President and Chief Executive Officer and Craig Conti, Executive Vice President and Chief Financial Officer. Pete Trpkovski is enjoying some much deserved time off with his brand new baby boy, who was born last Friday, and we look forward to having him back with us later this month. As a reminder, today's presentation is available on our website, www.centuryaluminum.com. We use our website as a means of disclosing material information about the company and for complying with Regulation FD. Turning to Slide 1. Please take a moment to review the cautionary statement shown here with respect to forward-looking statements and non-GAAP financial measures is contained in today's discussion. With that, I'll hand the call over to Mike.

Thanks a lot, Shelly, and thanks, as usual, thank you to all of you for joining us this afternoon. If we could turn to Slide 3, please, I'll give you a quick rundown of the last couple of months. It -- I think it goes without saying that we continue to operate in a pretty complex and a dynamic environment in this sector and of course, more -- on a more macro level. In that respect, we find it difficult to say exactly where we are in the cycle with so many obvious cross currents at play. That said, we think it's worthwhile to reflect on where we are from a fundamental standpoint. Craig will give you some detail in just a couple of minutes, as usual. Let me just make a couple of points to put the rest of my comments into context. The primary aluminum market was in deficit in the second quarter, and this will continue into the second half of this year. That's forecast to produce a deficit for the entire year, both in China and in the rest of the world. Total global deficit is still expected to come in, in the range of one to one and a half million tons, that's globally for all of 2019. Stocks around the world continue to fall, both in warehouse and otherwise, and they currently sit at levels generally considered to indicate real tightness in supply. The balanced forecast are underpinned by only modest consumption growth expectations. The consensus of China, for example, growing at less than 2% for the full year with the rest of the world essentially flat. So our conclusion is the balance of risk to the deficit appears to be still for the upside if global growth is better than basically flat line…

Thanks, Mike. Let's turn to Slide 4, and I'll take you through the current state of the aluminum market. Globally, aluminum inventories have been steadily declining, as we can see in the upper left of the slide. On a year-to-date basis, inventories are approximately 60 days of consumption, which is the lowest level in over a decade. Looking forward, for the full-year 2019 on the lower left of the slide, we continue to expect a supply deficit of over one million tons globally. The structural aluminum supply deficit should result in the continued de-stocking of inventories and drive higher LME prices over the long term. Moving to the upper right, the cash LME price averaged $1,793 per ton in Q2, which reflects a 4% decrease from Q1. Aluminum prices have averaged $1,821 per ton so far in 2019 and are currently sitting around $1,757 per ton. Regional premiums averaged approximately $0.189 per pound in Q2 for the U.S., down 2% quarter over quarter and $146 per ton in Europe, an increase of about 11% from prior quarter. Spot premiums are around $0.175 per pound in the U.S. and $150, one-five-zero, per ton in Europe. Finally, as Mike mentioned earlier, alumina prices have been in decline, driven partially by the reset, by the restart of the Alunorte refinery in Brazil and also by the ramp up of new capacity in various other locations. The current spot price of $303 per ton is less than half of the peak pricing levels we experienced in 2018. With that, I'll hand it back to Mike.

Thanks, Craig. If we can turn now, please, to Page 5, I'll give you a couple of quick comments on the operations before I hand you back to Craig. He'll, obviously, take you through the financials for the quarter. As I said before, we had a generally very good quarter in the plants, and that includes in safety performance. As we said, for the last year and a half, we've been really pleased and proud of the safety environment that the folks have produced and maintained at Hawesville, especially that's true, given the complexity of the restart process. This quarter, we did have a couple incidents in Hawesville. None were very serious, but that really isn't the point. We're always looking at potential forward-looking indicators. And in that respect, we've redoubled our oversight at Hawesville and put some very experienced personnel in the potlines, and they're watching the situation there very closely. Safety environment at the other plants remains quite good. As you see, production moving on was essentially flat at Hawesville. There's a bunch of cross currents there. Let me just give them to you one more time. So again, you can have another view of the situation at Hawesville. So as you remember, the last of those three potlines that we've rebuilt thus far came online a couple of months ago toward the end of the first quarter. So obviously, that gives you a incremental production growth, pardon me, Q2 over Q1. As I said again, that fourth line, the, one of the two potlines that was continuously producing, we took that down around the same time. So that went the other way, of course, Q2 over Q1. You were missing those tons. And then again, lastly, that last line that's yet to be rebuilt last year continues…

Okay. Let's turn to Slide 6, and I'll take you through the high-level results for the second quarter. On a consolidated basis, global shipments were down 1% quarter over quarter, largely driven by timing of deliveries. Realized prices were down 3% as a result of lower lagged LME prices. Looking at operating results, adjusted EBITDA was $12 million this quarter, and we had an adjusted net loss of $16 million or $0.17 per share. In Q2, the primary adjusting items were $2.8 million related to the Sebree equipment failure and $4.3 million related to the sale of our stake in BHH. Adjusting items this quarter also include a $9 million charge for net realizable value of inventory adjustments and a $6.2 million unrealized gain on derivatives, both of which were primarily driven by lower LME prices versus prior quarter. Let me give you a little detail on the Sebree and BHH adjustments. As a reminder, we expect to fully recover all associated losses from the Q2 2018 Sebree line outage from our insurance policies net of our $7 million deductible. As we mentioned last quarter, we will continue to call out the associated P&L impacts and cash receipts as they occur. In Q2, we received $2.8 million worth of proceeds on our insurance claim, bringing our total recovery to date to $15.2 million. We expect to receive the balance of the claim proceeds in the coming months. As Mike mentioned earlier, we reached an agreement to sell our 40% stake in an anode manufacturing facility, BHH, located in Guangxi province in China. During Q2, we received the first installment payment of $10 million against our $20 million sales price. And we will receive a similar installment payment during the fourth quarter of this year for the balance. The $4.3 million…

[Operator Instructions] And there are no questions in queue, please continue. I'm sorry. Please, go ahead. I apologize. We do have a question from Lucas Pipes with B. Riley FBR. Please, go ahead.

Hey, good afternoon, everyone, and thank you so much for taking my question. It just took me a moment, I apologize. I wanted to follow up on that last point, where you kind of ran through the math with the changes in the alumina price. And I was curious kind of if you were to think about the business on a mark-to-market basis. Obviously, it's been pretty volatile. So if you could maybe walk us through on a mark-to-market where you would see EBITDA? And then also translate that into free cash flow, not just right now, but maybe also for 2020. I would very much appreciate your perspective on that.

Sure, Lucas, it's Mike. I mean, I assume when you mean mark to market, you simply mean to take the current results or the I'm going to use the results that we just reported and run through current LME and alumina pricing. Is that where you're kind of heading with that question?

Yes. That would be helpful.

Let me give you that math. And it's important to note, again, with apologies for all the caveats. What I'll do here is I'll give you what we just reported. You could run the same math. All you do is take the sensitivities that we've given you every quarter and update it. So they're in the back of the deck there, and just apply them to the quarter that we just reported and pick whatever pair of alumina and LME pricing you want. If you want to use around the current price, what you would get from that, again, we just reported $12 million or $48 million on an annualized basis, if you were to just take Q2 and annualize it. Pretty simple math, 12 times 4. If you would "mark that to the market" in around $17.60 metal and $303 alumina. I'm interpolating now. Again, you can run this math yourself. You'd get a little bit somewhere between $90 million and $100 million of EBITDA, annualized EBITDA.

And then when you think about EBITDA to free cash flow conversion, could you give us an update on that, both as it relates to back half of this year and then also for 2020?

Sure. I think if you look back to what we covered, Lucas, in February, you're going to see pretty much the same thing. We're going to have our normalized interest payment in the back half of this year. Our sustaining CapEx looks to be on plan for what we said, I would put that at about $15 million for this year.

Full year.

$15 million for a full year and $15 million to $20 million on an adjusted go forward. The swing continues to be the Hawesville restart. And if we look at the back half of this year, this number does move, as you could appreciate with the complexity of the project. It looks to be about $40 million of spend in the back half of this year. And I wouldn't bring that yet forward to 2020, I'd probably want to do some more work. But those are the big items that will get you there. As Craig said, that's consistent with, a; Lucas, as you correctly pointed out, the estimates we gave you back in February, and then b; updated by what we told you in April, when we told you we had made a decision to rebuild the line that we're currently rebuilding, and the $40 million cost of that rebuild process plus the associated capital projects in the anode rodding shop.

And then my second question, kind of bigger picture on both LME aluminum and then alumina. Can you share with us your thoughts on the pricing outlook for those two very important factors for your business? I would be curious what you're seeing in the market, what you're hearing, any supply response? One of your peers earlier this earnings season commented on the decline in the cost curve. I would appreciate your thoughts on both the LME and alumina as you look out and as you speak to your customers and suppliers.

Sure. So alumina is the much easier one, as you would expect. It's a more tangible commodity at this point to count because you're really just accounting -- you're accounting cargoes, you're accounting availability. And so as we said, we think the current prices is in the current metal price environment, getting pretty close to fair value. It's been hovering around the $300 level. It was a little bit below. It picked up a couple of bucks. I think it was last week, we think that was just having to do with some freight rates. But nothing fundamental in alumina, partly supply. So we think that is -- as we said, it's kind of found its level, but has some risk to the downside as more actual physical supply is brought on -- new physical supply is brought online in the balance of the year. So that's alumina. On metal, Lucas, I'm going to largely take a pass on that. I understand that I think the comment as it relates to cost pull, if you will, where it goes without saying, decreasing alumina prices lowers the global cost curve. That goes without saying that's a big issue there, of course, and this is why I'm going to take a pass because we don't have a view on these kinds of real big global macro issues, it's just the global economic outlook on the one hand and moves in monetary policy by the U.S. It goes without saying, ECB and other monetary authorities. And that's one where our view, wishing to see itself deprecating here is no better than anyone else's on this telephone.

Our next question comes from Paretosh Misra from Berenberg. Please, go ahead.

So first one outside alumina and perhaps a couple of other variables, is your cost structure broadly in line with your expectations that you laid out in your February guidance for the second half of this year?

A real short answer to that one. The short answer is yes there.

And then second, on the alumina side, how exactly are you buying alumina? If I remember correctly, it's sort of a blend of LME linked API and maybe even from fixed-price contract for this year? So first of all, is that correct? And does it extend to -- is it a similar mix next year also?

This year is largely API, which you may be remembering as we did sign some contracts starting in '20 or in 2020. So we'll have more of -- we'll have more both LME referenced and some fixed prices in there as well. But it's largely API-related this year. Shelly, you want to?

Yes. So it's between 10% to 20% as far as LME and the rest API.

There you go. There you go. There you go. Thanks, Shelly.

And just lastly, maybe a big picture one, on Midwest Premium. Just curious how you're thinking about it for the second half of this year particularly on the -- like what Section 232 duties are baked into that number? So how that plays out over the next six, nine months?

We think that we're very confident. The whole duty is baked into that number. Perhaps you might be referring to, with apologies, this wasn't where you were intending to head, the recent small decrease in it, which we believe is almost wholly due to simply the falling LME price. As you know, it's a circular reference, it's the duty is charged on the LME plus the Midwest. So it has to calculate on the LME price itself. And so you can explain -- and I mean, you don't have to explain, the fall of -- 90% plus of the fall is explained simply by the fall in the LME. And so we think it's well supported. There hasn't been a lot of transactional activity. If you look at the folks who actually publish that index, published the Midwest Premium, it's been pretty quiet recently. So it's kind of strange in certain respect, it came down a little bit, but it really is based on the LME.

Our next question comes from John Tumazos from John Tumazos Very. Please, go ahead.

Oh, thank you. Paretosh asked my question about the Midwest Premium. Are you pleased that the Midwest Premium did not contract at all with Canada being exempted from the 232?

Sure, John. Yes, of course, we're pleased. But I might say, answer, we're not surprised because as we said, we really do think and it's not just -- we really do think the remedy for the deal that was cut with the Canadians and Mexicans isn't effective on it. It maintains the regime. And it's not just as if you read what sort of trades experts and others have said, that's the consistent opinion. And so that -- we weren't expecting it to fall just because we think they did a good deal.

Our next question comes from David Gagliano from BMO. Please, go ahead.

Hi. Thanks for taking my question. One of the areas that we've -- yes, I don't think it's been touched on, is the value-add premium. I remember way back when that was something that was talked about quite a bit at one point. And I'm wondering if you can remind us again how much of your volumes are kind of exposed to higher-end premiums and what you're seeing there? We are hearing of weakness in value-add premiums. We are hearing of weakness in value-add premiums. I just want to hear what you're seeing.

Sure. So if you go back again, I'll send you back to the data that we put out in Feb, and that has total value-added tons. Now I'd caution you that some of those ton, not all of those ton are that as they would, sorry, value-added ton as they would garner, say, like a billet premium that you may be thinking of. Some of those are molten and some of those are high purity. So it's not all subject to where I think you may be heading, which is probably billet premiums. What, we haven't, obviously, you asked the question at an interesting time because the meetings, the commercial season is just sort of, it's kind of in the first or second inning here. And it'll be kind of in the sixth and seventh inning in the next 45 days or so. So we'll see what 2020 contracts look like. In answer to your question and to echo your comments, the spot business over the last, call it, three to four months. And there is, as you know, in billets, there aren't, there isn't a lot of spot business, certainly not in most of the vast majority of the markets in which we play, which are the high-premium 3,000, 2,000, 1,000 series markets. But in sort of the standard commodity grade, 6,000 series billets, it has been soft a little bit on the spot business, David, over the last couple of months. But, pardon me, you got to wait to see where the 2020 contracts shake out before you kind of have a real opinion on it. We'll answer the question in October. We'll have a much more informed view. These will have been through all those negotiations.

And then just as a sort of the benchmark, I guess, can you just tell us what the, is there a way to give us just what an average billet premium is flowing through your results right now?

No. That is, no, we haven't, David, we haven't gone on that level. Because that, again, most of our billet premium, we, and in fact, I was going to say we do very little. We do very, very little spot business. All of our, just because the U.S. is such short and so much of our product is bespoke, is high-value and proprietary alloys that customers contract for on an annual basis. We don't see a lot of the vagaries of the volatility of change of that spot premium. In terms of where the market is, I wouldn't even want to get in trouble with our license for quoting it, the attorneys, although, I guess, we don't have one in the room, right? Yes, as we do, Jesse is here, will frown. But you know, Plats and MB published them, right? So you can get a sense of where they are and where they've come on over the last couple of months. And you'll see those data will echo the qualitative comments I just made.

[Operator instructions] And there are no further questions in queue. Please continue.

Okay, very good. Again, thanks, everybody, for joining us. We look forward to talking to you after what I'm sure will be an interesting next couple of months. Take care.

And ladies and gentlemen that does conclude our conference for today. Thank you for your participation. And you may now disconnect.