Ladies and gentlemen, thank you for standing by and welcome to the Century Aluminum Company's Second Quarter 2020 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to our speaker today, Peter Trpkovski. Thank you. Please go ahead.

Thank you Brandy. Good afternoon, everyone, and welcome to the conference call. I'm joined here today by Mike Bless, Century's President and Chief Executive Officer; Craig Conti, Executive Vice President and Chief Financial Officer; and Shelly Harrison, Senior Vice President of Finance and our Treasurer. After our prepared comments, we'll take your questions. 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 contained in today's discussion. With that, I'll hand the call over to Mike.

Thanks Pete and as usual thanks for all of you for joining us this afternoon. We appreciate the time. If we could just flip over to page three please. Let me just give you a brief overview of the highlight for the last couple months. First a quick update on the status of our operations. Obviously still in the context of the continuing health crisis. As we discussed with you a couple months ago in early March we essentially ceased all activity in the plants not oriented towards safe and sustainable production and that in addition allowed us increased flexibility as we instituted a variety of measures both inside and outside the plants to keep our folks safe. These measures to-date have produced the intended results thus far we've recorded a small but very manageable number of confirmed infections. It won't surprise you that we don't expect these policies to change in the near term obviously given the situation in the U.S. generally. The public health environment in the Iceland and the Netherlands is a bit better but we're still airing towards caution at each of [indiscernible]. Consistent with this operating discipline we've maintained a strict management of our controllable costs. In essence all non-required spending remains on hold. That's a change of course we made in March. The exception since the beginning has been only for spending related to safety and/or the sustainability of operations. Recently though we have begun to okay a few modest projects with very quick paybacks in a matter of months type of paybacks. This operating discipline contributed to strong Q2 financial results that were consistent with our expectations. In a couple of minutes Craig will provide more detail on the quarter that just ended. When he does that you'll see that a drop in…

Thanks Mike. If we can move on to slide 4 please I'll take you through the current state of the global aluminum market. The actual cash LME price averaged just under $1500 per ton in the second quarter which was down approximately 12% or $200 per ton from the first quarter as COVID-19 weighed heavily on the global economy in the quarter. However industry conditions continue to improve and the LME prices average $1640 per ton for the month of July and the current price is just shy of 1750 per ton. In the second quarter, regional premiums average approximately $0.09 per pound in the U.S. down 35% quarter-over-quarter and approximately a $100 per ton in Europe a decrease of 30% from the prior quarter. Current spot prices are around $0.12 in the U.S. midwest and $120 per ton in Europe. In the second quarter of 2020 global aluminum demand was down about 9% as compared to the second quarter of 2019. China showed strong signs of recovery and many end markets during the quarter as evidenced in demand growth of 5% compared to the prior year quarter. In the world excluding China, we saw a demand contraction of nearly 30% from the prior year quarter. However, there has been a sharp recovery in manufacturing activity in the world excluding China particularly in the United States as well as Europe. Despite volatile price movements in the sector global production was flat in the second quarter year-over-year. We saw 2% production growth in China versus the same quarter last year which was offset by a 1% decline from the rest of the world in the same period. With this backdrop we've seen the LME price rally to its highest level in nearly six months on the heels of a rising ship aluminum price a weaker U.S. dollar and global manufacturing expansion led by the U.S., China and Europe. Just a quick comment on raw material prices before I hand you over to Craig. The aluminum price index has ticked back up a bit since the low of approximately $240 per ton we saw during the second quarter. Currently the aluminum price index is about $270 per ton or less than 16% of the LME price today. Okay. With that I'll hand you a call to Craig.

Thanks Pete. Let's turn to slide 5 and I'll take you through the results for the second quarter. On a consolidated basis global shipments were up 4% quarter-over-quarter while realized prices were down 8 % primarily as a result of lower lagged LME and [MWP] looking at operating results adjusted EBITDA was $4.7 million this quarter and we had an adjusted net loss of $18.4 million $0.19 a share. In Q2 the primary adjusting items were 6.4 million for the net realizable value of inventory and 2.7 million for unrealized impacts forward contracts. Our liquidity remains strong with $197 million of funds available via a mix of cash on hand and credit facilities. As Mike mentioned earlier we successfully refinanced our $250 million note on July 1st effectively extending its maturity out into mid 2025. Concurrent with our refinancing we also extended the maturity of our U.S. revolving credit facility into 2023. Let's turn to slide six and I can walk you through our quarter-to-quarter bridge of adjusted EBITDA. Decreases in realized LME prices in regional premiums comprise the majority of EBITDA reduction versus Q1 levels. The Q2 realized LME of $1630 per ton was down $120 per ton from Q1 levels while realized midwest premiums of $249 per ton were down $55 per ton over the same period. These actual realized values are slightly lower than those we discussed on our last call. Keep in mind that a proportion of our U.S. sales price on a one month lag and when we provide these estimates each quarter there are volumes still unpriced. We generally assume flat pricing for the remainder of the quarter. As you know the midwest premium in particular was extremely weak in May with an average level about 17% less than when we last spoke in…

[Operator Instructions] Your first question comes from the line of Lucas Pipes with B. Riley FBR.

Hey, good afternoon, everybody. Just a few questions here from my side and first I wanted to touch on a Mt. Holly, it's like things are moving in the right direction there slowly but steadily. Can you remind us what the procedural steps are from here on out and how quickly we may have a --

Yes, sure Lucsa. It's Mike. I'll take that one. Thanks for the question. Without getting into the specifics of the various court cases there are several here that are ongoing those will sort of wind their way through those processes over the coming couple months. The real the date that's in front of us of course is 31 December which is the expiry of the current power contract and so I guess, I'd say over the next month or two or three we need to develop some confidence as to how the legal posture will look as we look to replacement for that power contract. So I guess you throw away comment to say these processes take some time. Unclear. It's very difficult to predict and thus I won't try whether any of them will or all of them obviously would be at their fruition over the next couple months but we do have other alternatives on which we're working and we'll be making some of those decisions over the next couple months. Ultimately we think we've got a winning hand. It's just a timing issue.

Any additional color you – alternative --

Very difficult, no very difficult at this point. We want to continue running that plant and ultimately Lucas we want to run both pot lines because that's the way it was designed and that's the way it should run and the demand for the product, the billet itself is certain is there many many, many times over. So that's the pot at the end of the rainbow is running the planted two lines. It's running at one line today and we're going to as I said have to make some decisions here coming up as to how we get from where we are now to the end of the rainbow specifically on your question, there is a bunch of court cases. There is cases in federal court. There is case is in state court. It's pretty complex. It really I don't without being presumptuous it might sound that way it expounding on the details of any of those cases isn't going to do anybody any good.

I understand and I appreciate the color you are able to provide.

Sure.

My second question is I will try to touch on a couple of points in kind of one swoop but the first is just kind of understanding this price recovery and then as premiums specifically you mentioned demand has declined 30% North American production is up, you have the import search from Canada kind of how do all of these pieces fit together and then of course as it translates to your results we are looking forward to much stronger Q4 but you share kind of where we're we might be shaken out on an adjusted EBITDA basis for the fourth quarter. Thank you for your color.

Sure. You've got some I think in your question you've got some apples and oranges and maybe a kumquat and a grape. So let me try to dissect it or parse through it. The 30% down and I think that's a reference if I recall from my first quarter call was simply referencing not total primary aluminum demand decline but the decline in value-added products, the billet and other value-added productivity etc etc. So that wasn't referencing the total unrattled momentum of primary however people use those synonyms. As you correctly reference the significant increase, I think if I understood your question correctly over the last couple of months and frankly over the last 15 months has been from Canada as you look at the import data it's all up on commerce's website. So obviously all those data are there. That's really been the difference that U.S. demand has been bumping along but the significant proportion of imports that are coming down from Canada have significantly changed the market. I mean that 80% for example increase 12 months over 12 months has driven the market share of Canada's imports in the U.S. from around 50% which was an all-time high to just shy of 80% today. so it's just that it's simply a source of where the demand is being fed from as Canadian imports have sourced into the U.S. Does that address your question or should I miss it a bit?

Very helpful for now. I'll let you get to the second part of the question then I may have follow up.

Yes. Please jump back into the queue.

Yes. On the EBITDA would you be able to touch on that before?

EBITDA specifically in what respect? What is your question?

The question is so with the price recovery in LME with the price recovery in the midwest premium, obviously Q3 is going to be weaker but then kind of as we think about Q4 given to base prices what could look like?

Go ahead Craig.

Yes. That was still I'm sorry Lucas, we're having a little trouble hearing you that was still Lucas right.

Yes.

Okay. Lucas. We're not going to talk specifically about Q4 today. we'll certainly save that for the next call but I think a good way to do that we did share a sensitivity based on Q2 actual today which would give you kind of call it a mark to market for two of the largest movers and then also in the appendix we've included our second half sensitivities on EBITDA. So if you were to take what your assumptions would be for LME and midwest premium and add those on to an actual quarter 2Q would be within a relevant range a good place to start that would give you a sense.

Yes. I mean this is exactly one of the reasons many reasons in my opinion why commodity companies find it difficult to provide guidance and probably should specific guidance but as Craig has pointed out in detail over the last couple of years given the lag you can impart your own estimates on commodity prices two to three months on average as we've said. We've given you the data as to how much of our sales are just one month lag and giving your own estimates for LME prices and delivery premiums principally midwest but also the European duty pay premium. You can work out your own math. I mean the math which Craig took you was pretty simple. It answers the question simply taking Q2 and changing nothing but the LME realized in the midwest realized to today's spot prices what would Q2 have looked like pro forma a bunch of finance works obviously and that was what was on that last chart there.

I appreciate the color. This is very helpful. Best of luck. I'll jump back in queue.

Thank you.

Thanks.

Your next question comes from the line of John Tumazos.

Thank you. Thank you for the explanation of the lag in your selling price. Is the lag on your alumina cost the same or is it even longer because the alumina has to be delivered and then work through your work in process?

Great question. Thank you for the FIFO quick. On inference on the back of that I'm going to let Craig answer the answer is it's kind of the same but you get there in a different way but go ahead Craig.

Sure. No that is a very good question. At the highest level from a book perspective, from a book reported perspective that's going to come through with about a three month lag and that depending on where inventory levels go that could be and on the, I'd call it the south end of that calling it two months could be as long as four months but on average about three months. From a cash perspective to your point it's on a one-month lag.

So that's the salient point John is that unlike the sales the vast majority of our pardon me alumina is priced we paid for it on a one-month lag. That's the cash that's actually flowing out the door but to your very good point via the logistics i.e. getting the stuff either ocean going cargo and or barges and then depending on how much stuff we have in the silos to Craig's point that average is a way to add the weighted average one to two months to that one month contractual pricing lag. Does that make sense?

Yes. Thank you. If I can ask a second question, you made reference to the rebound in demand. The aluminum association orders for the first six months are down 15.6% from last year. Clearly housing is recovering really well. Wood prices are at records 45% higher than March. Are the aluminum customers liquidating inventory or why is the rebound sort of not obvious from looking at orders?

Yes. There was some inventory de-stocking. It goes without saying not just customers John but throughout the supply chain. You had a lot of middle folks whether they're distributors or wholesalers or depending upon how the specific downstream sector is structured from a commercial standpoint. So clearly some of that went on. It's really hard to put your hand on how much of this is due to restocking to replace that de-stocking but look to the six months it's so hard generally in these markets as you well know and especially hard given six months like we've just seen to kind of cite that block of time and kind of infer anything from it. I think we should we need to all watch it. We need to watch as you said we need to watch auto builds you saw that printed last week. We need to start watch obviously housing starts or application for new housing permits, all the you guys know all the forward so-called forward-looking indicators that are mortgage applications, etc. etc. that are good indicators. It's kind of hard to tell us. Let's have this not trying to give you a non-answer but this will be a more I think interesting discussion a couple months from now.

Within the aluminum orders wiring cable was up 24%. Is there a particular reason why electrical transmission or wiring cable might be doing better? Is it more closely tied to housing?

It's housing but also trying to tire pardon me John to general infrastructure spending wire rod and wiring cable has been a reasonably, if I think of even the worst of times and I look at our specific customer base those customers orders were literally spot on upon dead on their contractual volumes for the year. In fact some of them exceeding. So at least in our small neck of the woods and then as you say referring to the broader industry data that sector never took a pause. I mean utility spending does and did continue through whatever including a pandemic.

94% of my town doesn't have electricity. There is got to be a demand for wiring cable out here.

I'm sorry about that. I hope you don't need John a roof or someone like that.

No, I just went to the firehouse to charge my devices to hear your call Mike. It's all good.

I'm glad. That makes us feel good John. Thanks. Good luck by the way.

Thank you.

Your next question comes from the line of David Gagliano with BMO Capital Markets.

Hi, thanks for taking my questions. Hopefully you can hear me okay. Good. I wanted to focus in a little bit just on some of the funny math on slide 8 sort of thing. So 2Q adjusted the spot LME and regional premiums is 24 million of EBITDA and then the other adjustments I'm assuming are going to be power what you mentioned is, I'm assuming that's right which you mentioned for the third quarter was about $10 million likely drag and then I guess the only other one would be alumina which is if you use your sensitivities and use the 3Q bridge math sort of thing would imply maybe a $6 million or sorry $4 million benefit. So that's kind of, those are the other two main puts and takes or anything else that we should be thinking about?

Yes. Go ahead Craig.

A couple of things David. Just to split those topics. So the first one so we're crystal clear here, on page 8 that was just marking our current quarter. So we took our printed results and just marked at the spot to give an idea. So I just want to make sure for everybody else on the call too we don't complete that with looking at Q3 go forward. So if we go to Q3 go forward so the three pieces we talked about the first LME and regional premiums I think you got those. So down about 100 on LME, down 10 on midwest premium and down 40 on EDPP. Power you were right about down 10. Alumina per the sensitivity if we look at it at about 20 bucks is going to be quite a bit less than $4 million.

David I think, I'm sorry I think you were asking about other changes that broke to that Q2 pro forma right and so yes, I mean power printed in Q2 pretty consistent with a typical Q2 spring shoulder season in the power land etc. There is no reason if you look at the forwards and whatnot there's no reason that should be up or down. Obviously it's up as Craig correctly said in Q3 just given the hot summer, a hot summer the typical seasonal trend and then alloy, yes I mean as we've said before we've given you the sensitivity but as we I think we're pretty sure we talked about this last time we have very little exposure for the balance of by design for the balance of 2020 to the API. And so we're buying almost all on the percentage LME basis which adjusts itself if you will for those sensitivities.

Okay. Got it. Thanks for clarifying that. And then just on the you mentioned sort of marginal project approvals or not marginal sorry I don't that's not the right word but modest project approval I believe was a word, is there a plot line restart rebuild restart in that mix or?

No, but you're really hot on it. So the most, the biggest one is as we told you guys last time when we talked one of the things that we did more for sustainability of operations reasons than economic reasons because even at the dearth of commodity prices a salary building at Grundartangi and Sebree was still measured in a payback -- simple cash on cash payback way inside a year and so we've restarted for example Sebree where we had stopped it. We've restocked, we started normal cell relining activity now and so it's not a full plot line but it's just getting a couple cells that in normal times would have been relined and back in service within six or seven or eight days on normal turnaround times for when they were cut out or failed via the normal course. It's just getting those patched up and put that rebuilt and put back in.

Okay. And then just the last question for me the commentary obviously about obviously a lot of folks on midwest premiums and what's driving the run up and obviously you're clearly focused on Canada which makes logical sense from your perspective and my question is if you could provide us a little more insight into what you think is actually going on right now within the administration with regards to that issue and secondly fundamentally if there were to be tariffs or yes tariffs I guess re-implemented against Canada fundamentally what do you think the regional or sorry the midwest premium should go to where do you think it should go to?

Yes. Sure David. On the first the real answer is we don't know. We don't know any better than anyone else but all we can do and what we do it goes without saying is look at what they say and so the most recent tangible stuff that's come out is wait quite goes back now almost a month perhaps when ambassador lighthouse testified in front of Congress both house ways and means and senate finance and he talked at length at reasonable length about this specific issue. So they're obviously very aware of it that's in the U.S. and are focused on it and have identified a surge and he said a lot of things like that and so but other than that we don’t know -- we know that they agree it's a surge based on ambassador Lighthizer's comments and that they're focused on it and not much else. In terms of where the midwest goes it's hard to tell I mean where it was right before when the tariff was affected i.e. before the exemption before the surge started a month after the exemption and started to build and build and build and build and then of course, you saw where it was. It was in the sort of $0.16 to $0.18 plus category and then it came down to $0.12, $0.13 and then it came down further let's call that the pandemic effect where beginning in Feb it came down to $0.08, where it goes some of it is LME dependent of course given the circular reference in it but you can look back at where it was when it was effective and start to draw some inferences.

All right. Thanks. It's helpful. Appreciate it.

Thanks.

Your next question comes from the line of Paretosh Misra with Berenberg.

Thank you. Thanks for taking my questions. So first of all just wanted to talk about the coke and pitch market. Just curious what you're seeing there, I mean a lot of us think of coke and pitch just as a derivative of oil. So did those prices follow oil lower in Q2 and then could that be a sequential headwind as we look into Q3?

No. I mean you have two things going on there. Yes, crude prices are down fair thanks for the question but on the other hand the production of those products specifically coke which of course as you know we use, a smelter uses multiple times more than pitch four to five times more is dependent on refinery runs, and so when demand for refined products go down that's a problem. Obviously this list demand. The answer is coke pitch, coke picked up a little bit but it's now, it's so where does it bid Craig high 200' [indiscernible] delivered.

We just closed quarter at 230. So.

Okay. So 230 so it's still way below that. Pitch has been pretty sticky. It's been again this is the delivery price 800 give or take.

790.

790 thank you. So you could see some movement there but they've both been, there's so many factors. You've got demand down for those products. You've got the price of the raw material down as you correctly cited but also the supply down due to the first factor i.e. less demand for refined products. It's a bit of a mishmash effectors that affect those markets. Not a big --but there are variances there.

Thanks for the color. That's very useful then I just wanted to check you provided cost guidance for the second half of this year in your last call, so just want to make sure that you still expect to run fairly close to that guidance? I mean of course after adjusting for all the sensitivities but otherwise are you on track?

We are, very much. So I would take that, you're right so the sensitivity is we're going to see a little bit of a reduction in operating costs to some of those costs go down and obviously you use the LME sensitivity on the revenue side but when you get to the SG&A interest or CapEx spend very much in line with what we shared last time.

Got it and I guess last one interest expense is there any change in that for given after this refinancing?

I'm sorry interest expense did you say Paretosh?

Yes. That's right.

Yes, just a new coupon that's it.

It will be nominally more.

It will be, I mean you can do the math now so 250 the coupon is all in including the paying kind of the two points of paying kind is 12%. So it will take up 2 million bucks a quarter just quick math it.

Got it. Okay. I think that's all I had. So thank you.

Thank you so much.

Thank you.

Your next question is a follow-up question from the line of Lucas Pipes with B. Riley FBR.

Yes. Good afternoon again and thank you for taking the follow-up. I wanted to get a little bit better sense for where you believe the Canadian imports are ultimately coming from. So Canadian kind of homemade production has picked up as well as is that the lion's share of increased imports into the U.S. or was there more going forward?

No. Sure. It's two fold. One is yes of course there's been production restarted in Canada just like there's been production curtailed in the U.S. at the same time as the production came on in Canada but the other is just is a redirection of exports from Canada to other markets into the U.S. in order to capture the tariff. Again this is exactly what was supposed to happen.

But it's, so it's a redirection of Canadian exports it's not that have we seen additional imports into Canada?

No. It's all Canadian production. I'm sorry. Are you getting at, are you asking perhaps I misunderstood is there product coming from elsewhere through Canada. This is all Canadian production absolutely. If I missed your question I'm sorry.

No. It was you addressed it. I wanted to get a better sense of where at the end of the day where it comes from, so.

Canada.

Great. Very helpful. I appreciate it and again best of luck.

Thank you Lucas for the questions.

[Operator Instructions] And you do have a follow-up question from the line of Paretosh Misra with Berenberg.

Hey guys thanks for taking another one. Just curious as we are entering August and typically order books slow down or new orders slow down at this time of the year, are you starting to see that this year or not so much and if you have any expectations as to how this summer might look like versus a typical seasonal slowdown?

Sure. I mean just to market back to a whatever a typical environment for us i.e. pre-COVID as you know the vast majority 90% plus of our production is sold on a long-term contract basis, long-term meeting one year plus and so we just don't have a lot of sales in the spot market and so the takeaway there is our order patterns are pretty in a normal environment are pretty stable month to month unless a customer has any specific seasonality but that's built into our production forecast anyway. Here as I said we're actually seeing a little bit of an encouraging uptick where customers when we were in the depth of it April, May even coming out through June sort of indicated where they thought they would be versus their contractual quantities for June/July/August thus far and we're seeing sort of better than that and so that's why I said I don't blame those manufacturers. They're exercising caution but business seems to be a bit better than they have planned because we are seeing more spot orders than we would normally see specifically of course for value-added products we're talking about billet.

Got it. Very clear now. Thanks guys.

Good. Thank you so much.

And there are no further questions at this time.

We thank you all as usual for the time and look forward to talking with you in a couple of months. Take care.

This concludes today's conference call. You may now disconnect.