Century Aluminum (CENX) Q2 FY26 earnings call: guidance and Q&A

How will the company source metal under the new executive order, and how should investors value the benefit in terms of EBITDA and cash flow?

Century will source metal from various places, including its own resources in Iceland, but will await final rules from Commerce. The benefit can be estimated by taking the reduced tariff rate (25% vs 50%) applied to the LME price, multiplied by Century's 300,000 tons share of new production. This benefit is expected to be material for both EBITDA and cash flow.

“you can just simply take that reduced tariff level. So if we're paying 25% versus the 50% kind of quick rule of thumb, if you just take that, chose your LME. So today, we're at $32.50, apply that, that will give you a sense of the benefit per ton. And then Century should be able to import our share of the new production, which is 300,000 tons and you just multiply those together, and you can see it would be quite material, the benefit, should be the same on both the EBITDA and cash flow side.”

asked by Nick Giles · answered by Jesse Gary

Update on the DOE grant, broader financing sources, and the role of the Hawesville stake.

The DOE grant is secured and pays out dollar-for-dollar for project investments. The company is working on various financing sources, including potential government funding. The Hawesville stake, with its signed 20-year lease and high-quality tenant, is seen as a further potential source of capital for the Oklahoma project, aligning with its monetization timeline.

“On the broader financing picture, we're working on a number of different potential sources. Once those are secured, we'll obviously come out to you with the details. But we're talking with a number of parties, and that includes some potential government sources of financing.”

asked by Nick Giles · answered by Jesse Gary

Given strong cash flow and balance sheet, how is the company thinking about shareholder returns?

The company's balance sheet is very strong, with cash exceeding debt and high liquidity. While capital allocation priorities remain liquidity, sustaining capital, and organic growth (like the Oklahoma smelter), management anticipates having plenty of cash to finance the smelter's equity piece and pursue other priorities, including capital returns, once final details for the smelter are proven out.

“But we do fully anticipate that we will find ourselves in a position where we have plenty of cash to finance the smelter, including our equity piece and also to pursue other priorities, whatever those may be, and of course, including capital returns.”

asked by Katja Jancic · answered by Jesse Gary

Is Mt. Holly eligible for the new executive order benefit? Can the instability at Mt. Holly be quantified for Q3?

Mt. Holly is not eligible for the executive order benefit as the program is for new production coming online, and Mt. Holly's expansion is complete. The instability is minor, related to operating at higher production levels, and is included in the Q2 guide and Q3 outlook. It is expected to be fully resolved in Q3, leading to slightly more volume in Q4.

“No. Because we are now complete with Mt. Holly and that new production is coming out, we don't anticipate now that being eligible. The program is designed to allow -- as we understand it, at least today can allow -- it's designed to allow imports during the pendency of investment while new production is coming online. But then once it's online, you can't bring in additional imports.”

asked by Timna Tanners · answered by Jesse Gary

What are the dynamics of local pushback against the new Oklahoma smelter, and what is the company's conviction on moving forward?

The company is working closely with the community in Inola, Oklahoma, to address concerns and provide facts about the technology and process. Management is confident the smelter will pose no harm and will bring substantial investment and jobs, benefiting the state and local community. They are focused on ensuring the community is comfortable with the project.

“And I think we're working very closely with the community in Inola and elsewhere in Oklahoma to better understand what their concerns are and to make sure that they have all the facts about our technology and process. And then we're very confident that the smelter will pose no harm to anyone and that everyone will be comfortable with what's going on and get to see the benefits to the state and to the local community of all of the investment and jobs that are created.”

asked by Timna Tanners · answered by Jesse Gary

Can the financial benefit of the Jamalco TG4 power capacity be quantified, and is it a sustainable long-term benefit?

The TG4 turbine provides twofold benefits: full self-sufficiency in energy generation, allowing the plant to operate as an island if the grid fails, and cost savings. The company will stop grid purchases from early August, with an estimated cost benefit of about $20 per ton. This benefit is reflected in the Q3 outlook.

“The other part of it is the cost savings. So energy is expensive in the Caribbean, of course, and we will be able to generate energy ourselves through TG4 that fully meets our energy needs. So we'll be able to stop those grid purchases going forward from the beginning of August. And you'll see savings. Of course, it depends on where market prices are in Jamalco, what those savings are. But if you kind of think of about a $20 per ton benefit there, that would get you close.”

asked by Matthew Key · answered by Jesse Gary

Details on working capital unwind and cash flow considerations for the second half, including insurance recoveries.

Q2 working capital build was due to Mt. Holly's expansion to 100% capacity (supplies, inventory, receivables) and increased finished goods inventory from shipment timing. The finished goods inventory is expected to convert to cash in Q3. Stronger cash flow conversion is anticipated in H2, with $94 million in 45X tax credits and $20 million in insurance recoveries received post-quarter. Growth CapEx is largely complete, leaving primarily sustaining CapEx.

“So I talked a little bit about the working capital build this quarter in the second quarter. I didn't quantify the breakdown, but you just think of it as two buckets. One, we brought back Mt. Holly and the expansion to 100% capacity. So you kind of got supplies and inventory growth there and receivables to sort of reflect that. And then you also had -- because of the production increase, we had the conversion of shipments and quarter end is a snapshot in time. So we had some cutoff timing of those shipments. So that was the working capital build in Q2.”

asked by Nick Giles · answered by Peter Trpkovski

Update on power contract negotiations for the Oklahoma project and any gating items before FID.

Negotiations with the utility counterparty and partners (EGA) are progressing well. These are complex contracts that take time, but things are moving forward. The contract will be finalized before FID, but no further specific details or timelines were provided.

“Yes, Nick, we continue to work really well with our counterparty there, both with our partners, EGA, but also with the utility counterparty in progressing that work. We are making progress. These are complex contracts. They do take some time to get fully negotiated through the lawyers and all of that. But I would just say things continue to move forward well and make good progress.”

asked by Nick Giles · answered by Jesse Gary