CENTURY ALUMINUM CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This Management’s Discussion and Analysis ("MD&A") provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Century Aluminum Company and its subsidiaries (collectively, "Century," the "Company," "our" and "we") and should be read in conjunction with the accompanying consolidated financial statements and related notes thereto. This MD&A contains "forward-looking statements" - see "Forward-Looking Statements" above. Overview We are a global producer of alumina and primary aluminum with production facilities in the United States, Iceland and Jamaica. Our primary aluminum smelters are concentrated in the U.S. and Iceland, while in Jamaica we maintain a 55% joint venture interest in the Jamalco alumina refinery, from which we off-take a proportionate amount of alumina production. The majority of our Jamalco off-take is consumed internally at our primary aluminum smelters in a vertical integration model. We also own a carbon anode production facility located in the Netherlands ("Vlissingen"). Carbon anodes are consumed in the production of primary aluminum. Vlissingen supplies carbon anodes to our aluminum smelter in Iceland. Each of our aluminum smelters in the United States produces anodes at on-site facilities. The key determinants of our results of operations and cash flows from operations are as follows: • the price of primary aluminum, which is based on the London Metal Exchange ("LME") and other exchanges, plus any regional premiums and value-added product premiums; • the cost of goods sold, the principal components of which are electrical power, alumina, carbon products, labor and other controllable costs, which in aggregate represent more than 91% of our cost of goods sold; and • our production volume and product mix. Recent Developments Section 232 Aluminum Tariffs In March 2018, the U.S. implemented a 10% tariff on imported primary aluminum products into the U.S. These tariffs are intended to protect U.S. national security and incentivize primary aluminum production in the U.S., reducing reliance on imports and ensuring that domestic producers, like Century, can supply all the aluminum necessary for critical industries and national defense. In addition to primary aluminum products, the tariffs also cover certain other semi-finished products. All imports that directly compete with our products are covered by the tariff. In February 2025, President Trump issued a new Presidential Proclamation directing the tariff rate on imported primary aluminum to be increased from 10% to 25% and for all existing country exemptions or product exclusion to be ended, in each case effective March 12, 2025. Since the implementation of these changes to the Section 232 tariff program, the Midwest Premium has increased, which we expect will have a material positive impact on our financial position and results of operations. U.S. Department of Energy Award On January 10, 2025, the Company entered into a Cooperative Agreement with the U.S. Department of Energy's ("DOE") Office of Clean Energy Demonstrations for up to $500.0 million in Bipartisan Infrastructure Law and Inflation Reduction Act funding to build a new aluminum smelter as part of the Industrial Demonstrations Program ("IDP"). With the help of this funding, we plan to build the first new U.S. primary aluminum smelter in 45 years at a site within the Ohio/Mississippi River Basins. Since that time, the issuance of certain Executive Orders, including the Unleashing American Energy Executive Order on January 20, 2025, has required an immediate pause in the disbursement of funds appropriated through the Inflation Reduction Act pending an ongoing review period. The Company is currently evaluating this Executive Order and other related memoranda to determine what, if any, impact they might have on or our previously announced DOE funding. Section 45X of the Inflation Reduction Act On October 24, 2024, the U.S. Treasury Department and the Internal Revenue Service issued final regulations implementing Section 45X of the Inflation Reduction Act, which provide guidance on rules taxpayers must satisfy to qualify for the tax credit. The government has incentivized the production of aluminum by offering a tax credit equal to 10% of eligible domestic production costs. Based on the final regulations, we have recognized a receivable and corresponding offset to cost of 27 Table of Contents goods sold and selling, general and administrative expenses. Any changes to the final regulations could result in a subsequent adjustment to the estimated credit as of March 31, 2025. Acquisition of 55% interest in Jamalco On May 2, 2023, our wholly-owned subsidiary, Century Aluminum Jamaica Holdings, Inc. ("CAJH"), completed the acquisition of all the outstanding share capital of General Alumina Holdings Limited ("GAHL"), the holder of a 55% interest in Jamalco, an unincorporated joint venture with the Government of Jamaica through its controlled entity Clarendon Alumina Production Limited ("CAP"). Jamalco is engaged in bauxite mining and alumina refining in Jamaica. The Company's wholly-owned subsidiary, General Alumina Jamaica Limited ("GAJL"), is the managing partner of the Jamalco joint venture. Jamalco has alumina production capacity of approximately 1.4 million tonnes. We recognized a bargain purchase gain of $245.9 million in connection to the acquisition within the Consolidated Statements of Operations for the three months ended March 31, 2024. Jamalco Equipment Failure In June 2023, Jamalco experienced a power disruption caused by damage to its power generation unit. The equipment failure resulted in a loss of production at Jamalco of approximately 84,000 tonnes for the year ended December 31, 2023. The impact of the equipment failure on gross margin was approximately $30.4 million. Despite returning the equipment to full capacity as of the end of October 2023, we continued to see some inefficiencies into the first quarter of 2024. We are actively engaged with our insurance carriers in connection with the equipment failure to determine the specific amount of coverage available to us, including any applicable deductibles. Pricing of Aluminum The overall price of primary aluminum consists of three components: (i) the base commodity price, which is based on quoted prices on the LME and other exchanges; plus (ii) any regional premium (e.g., the Midwest premium for metal sold in the United States ("MWP") and the European Duty Paid premium for metal sold into Europe ("EDPP")); plus (iii) any value-added product premium. Each of these price components has its own drivers and variability. The price of aluminum is influenced by a number of factors, including global supply-demand balance, inventory levels, speculative activities by market participants, production activities by producers, geopolitical and economic conditions, including tariffs, as well as production costs in major production regions. These factors can be highly variable and difficult to predict, which can lead to significant volatility in the price of aluminum. Increases or decreases in primary aluminum prices result in variability in our revenues (assuming all other factors are unchanged). From time to time, we may seek to manage our exposure to fluctuations in the LME price of primary aluminum and/or associated regional premiums through financial instruments designed to limit our downside price risk. Information regarding financial contracts is included in Note 1 0 . Derivatives and risks associated with such financial contracts are disclosed specifically in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. We saw an increase in the pricing of aluminum through the first quarter of 2025. The significant MWP change was driven by an increase to the Section 232 tariff rate for imported primary aluminum from 10% to 25% effective March 12, 2025. The following table summarizes the average price for primary aluminum per tonne for the three months ended March 31, 2025 and 2024. Three months ended ($ per tonne) March 31, 2025 March 31, 2024 Average LME $ 2,631 $ 2,199 Average MWP 729 402 Average EDPP 289 246 28 Table of Contents Results of Operations The following discussion for the three months ended March 31, 2025 reflects no change in production capacities as compared to the three months ended December 31, 2024. Our net sales are impacted primarily by the LME price for aluminum, regional and value-added premiums, and the volume and product mix of aluminum we ship during the period. In general, our results reflect the LME and regional premium pricing on an approximately one to three month lag basis reflecting contractual terms with our customers. Electrical power, alumina, carbon products, labor, and other controllable costs are the principal components of our cost of goods sold. Power costs can be volatile as a result of a number of factors beyond our control. See "Item 1A. Risk Factors — Increases in energy costs may adversely affect our business, financial position, results of operations and liquidity" in our Annual Report on Form 10-K for the year ended December 31, 2024. Power costs at our Sebree plant is impacted by capacity demand charges, which are determined based on available power generating capacity in MISO, from which we purchase energy. The price of such capacity is set by auction annually in the spring. Our expected capacity demand costs for power were approximately $3.1 million for the twelve months ending May 31, 2025 , in addition to the market price of power used. We anticipate the capacity demand power costs resulting from the spring 2025 auction for the twelve months ending May 31, 2026 to be approximately $5.9 million . In 2025, energy prices in the US and Europe have been slightly elevated, primarily driven by cold temperatures and the resulting increase in heating demand. European energy markets impact our Vlissingen facility in the Netherlands, which utilizes natural gas to produce anodes used in our Grundartangi operations. The energy market in Europe has historically been dependent upon imported natural gas from Russia, and the significant reduction in Russian gas supply to Europe has resulted in increased uncertainty with respect to the price and availability of natural gas. Adverse changes to European natural gas prices or availability could adversely affect operations at Vlissingen, and in turn operations at Grundartangi, if we are not able to source an alternative supply of anodes. The pricing under our alumina supply contracts varies from contract to contract. A major portion of our alumina requirements is indexed to the price of primary aluminum, which provides a natural hedge to one of our largest production costs. We also purchase alumina based on a published alumina index and at fixed prices. The alumina price is influenced by a number of factors, including global supply-demand balance, natural disasters and weather events, and other factors outside of our control. Additionally, with our acquisition of a 55% interest in Jamalco, we secured a predictable, long-term supply of alumina and achieved increased transparency and control of our supply chain. In general, our results reflect the market cost of alumina on an approximately three-month lag reflecting the terms of our alumina contracts and inventory levels. 29 Table of Contents Quarter ended Three months ended Sequential Year-to-date March 31, 2025 December 31, 2024 March 31, 2025 March 31, 2024 Net sales Related parties $ 378.7 $ 340.8 $ 378.7 $ 315.0 Other customers 255.2 290.1 255.2 174.5 Total net sales 633.9 630.9 633.9 489.5 Gross profit 60.6 66.3 60.6 16.5 Selling, general and administrative expenses 12.5 14.8 12.5 14.1 Net (loss) gain on forward and derivative contracts - nonaffiliates (5.4) 2.7 (5.4) 3.4 Net (loss) gain on forward and derivative contracts - affiliates — (0.1) — 4.0 Bargain purchase gain — — — 245.9 Income tax expense (1.6) (0.2) (1.6) (0.5) Net income 25.7 40.4 25.7 244.7 Net loss attributable to noncontrolling interests (4.0) (4.8) (4.0) (2.1) Net income attributable to Century stockholders 29.7 45.2 29.7 246.8 SHIPMENTS - PRIMARY ALUMINUM (1) United States Iceland Total Tonnes Sales $ (in millions) Tonnes Sales $ (in millions) Tonnes Sales $ (in millions) 2025 1 st Quarter 94,601 $ 306.6 74,071 $ 217.3 168,672 $ 523.9 2024 4 th Quarter 89,613 $ 267.4 77,064 $ 215.2 166,677 $ 482.6 1 st Quarter 97,602 258.1 77,025 189.5 174,627 447.6 (1) Excludes scrap aluminum sales, purchased aluminum and alumina sales. Net sales Net sales increased by $3.0 million for the three months ended March 31, 2025, compared to the three months ended December 31, 2024, primarily driven by realized LME and regional price premiums of $35.6 million and favorable volume and sales mix of $11.3 million, partially offset by a decrease in third-party alumina sales of $44.5 million. Net sales increased by $144.4 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily driven by favorable realized LME and regional price premiums of $91.1 million and an increase in third-party alumina sales of $58.0 million, partially offset by unfavorable volume and sales mix of $4.7 million. Gross profit Gross profit decreased by $5.7 million for the three months ended March 31, 2025, compared to the three months ended December 31, 2024, primarily attributable to unfavorable raw material price realization of $25.7 million, unfavorable power price realization of $22.2 million, partially offset by favorable realized LME and regional price premiums of $35.6 million. Gross profit increased by $44.1 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to favorable metal price realization of $63.5 million, favorable regional price realization of $27.6 30 Table of Contents million, partially offset by higher power price realization of $26.7 million and higher operating expenses of $20.3 million including labor costs associated with higher headcounts, increased maintenance costs, and ramp up expenses for the completed Grundartangi casthouse. Selling, general and administrative expenses Selling, general and administrative expenses decreased by $2.3 million for the three months ended March 31, 2025, compared to the three months ended December 31, 2024, primarily driven by decreased share-based compensation costs, partially offset by annual incentive compensation during the period. Selling, general and administrative expenses decreased by $1.6 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily driven by a decrease in share-based compensation costs. Net gain (loss) on forward and derivative contracts - nonaffiliates Net gain (loss) on forward and derivative contracts - nonaffiliates decreased by $8.1 million for the three months ended March 31, 2025, compared to the three months ended December 31, 2024. The difference was primarily driven by fluctuations in the forward prices and volume of contracts settled. Net gain (loss) on forward and derivative contracts - nonaffiliates decreased by $8.8 million for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024. The difference was primarily driven by fluctuations in the forward prices and volume of contracts settled. Net gain (loss) on forward and derivative contracts - affiliates Net gain on forward and derivative contracts - affiliates was zero for the three months ended March 31, 2025, as there were no affiliated party contracts executed during the quarter, as compared to a net loss of $0.1 million for the three months ended December 31, 2024. We realized a net gain of $4.0 million for the three months ended March 31, 2024, primarily driven by unrealized gains on LME hedges. Bargain purchase gain We finalized the purchase accounting as of March 31, 2024 related to the acquisition of General Alumina Holdings Limited and subsidiaries, which was acquired on May 2, 2023. We recognized a bargain purchase gain of $245.9 million for the three months ended March 31, 2024. Income tax expense Income tax expense increased to $1.6 million for the three months ended March 31, 2025, compared to $0.2 million for the three months ended December 31, 2024, primarily driven by changes in the jurisdictional mix of earnings on a quarter-over-quarter basis. Income tax expense increased to $1.6 million for the three months ended March 31, 2025, compared $0.5 million for the three months ended March 31, 2024, primarily driven by changes in the jurisdictional mix of earnings on a year-over-year basis. See Note 4 . Income Taxes to the consolidated financial statements included herein for additional information. Liquidity and Capital Resources Liquidity Our principal sources of liquidity are available cash and cash flows from operations. We also have access to our existing U.S. and Iceland revolving credit facilities (collectively, the "revolving credit facilities") and have raised capital in the past through public equity and debt markets. We regularly explore various other financing alternatives. Our principal uses of cash include the funding of operating costs (including post-retirement benefits), debt service requirements, capital expenditures, investments in our growth activities and in related businesses, working capital and other general corporate requirements. We believe that cash provided from operations and financing activities will be adequate to cover our operations and business needs over the next twelve months. As of March 31, 2025, we had cash and cash equivalents of approximately $44.9 million and unused availability under our revolving credit facilities of $294.2 million, after consideration of our outstanding 31 Table of Contents borrowings and letters of credit. Our cash and cash equivalents and unused availability under our revolving credit facilities comprise our liquidity position, which was $339.1 million as of March 31, 2025. We may borrow and make repayments under our revolving credit facilities in the ordinary course based on a number of factors, including the timing of payments from our customers and payments to our suppliers. The availability of funds under our credit facilities is limited by a specified borrowing base consisting of certain accounts receivable, inventory and qualified cash deposits which meet the lenders' eligibility criteria. Increases in the price of aluminum and/or restarts of previously curtailed operations, for example, increase our borrowing base by increasing our accounts receivable and inventory balances; decreases in the price of aluminum and/or curtailments of production capacity would decrease our borrowing base by reducing our accounts receivable and inventory balances. Our credit facilities contain customary covenants, including restrictions on mergers and acquisitions, indebtedness, affiliate transactions, liens, dividends and distributions, dispositions of collateral, investments and prepayments of indebtedness, including in the U.S. revolving credit facility, a springing financial covenant that requires us to maintain a fixed charge coverage ratio of at least 1.0 to 1.0 any time availability under the U.S. revolving credit facility is less than or equal to $25.0 million, or 10% of the borrowing base but not less than $17.9 million. We intend to maintain availability to comply with these levels any time we would not meet the ratio, which could limit our ability to access the full amount of our availability under our U.S revolving credit facility. Our Iceland revolving credit facility contains covenants that require Grundartangi to maintain a minimum equity ratio. The dividend and distribution limitations are applicable to certain of our subsidiaries only in the case of an event of default or failure to comply with certain financial covenants. As of March 31, 2025, we and our subsidiaries were in compliance with all such covenants or maintained availability above such covenant triggers. See Note 11. Debt to the consolidated financial statements included herein for additional information on our debt. Available Cash Our available cash and cash equivalents balance at March 31, 2025 was $44.9 million compared to $32.9 million at December 31, 2024. Sources and Uses of Cash Our statements of cash flows are summarized below: Three months ended March 31, (in millions) 2025 2024 Net cash provided by (used in) operating activities $ 72.3 $ (14.8) Net cash used in investing activities (15.5) (29.7) Net cash (used in) provided by financing activities (44.8) 49.2 Change in cash, cash equivalents and restricted cash $ 12.0 $ 4.7 The increase in net cash provided by operating activities during the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to lower cash outflows from accounts payable associated with the timing of payments for alumina, partially offset by lower cash inflows from accounts receivable from sales of aluminum and alumina. The decrease in net cash used in investing activities during the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to higher prior year expenditures related to the Grundartangi casthouse project completed in the second quarter of 2024. The change in net cash used in financing activities during the three months ended March 31, 2025 compared to net cash provided by financing activities in the three months ended March 31, 2024 was primarily due to net repayments on our revolving credit facilities and repayments on our Grundartangi Casthouse Facility. Supplemental Guarantor Financial Information The Company has filed a Registration Statement on Form S-3 (the "Universal Shelf Registration Statement") with the SEC pursuant to which the Company may, from time to time, offer an indeterminate amount of securities, which may include securities that are guaranteed by certain of the Company's subsidiaries. As of March 31, 2025, we have not issued any debt 32 Table of Contents securities pursuant to the Universal Shelf Registration Statement. However, any securities that we may issue in the future may limit our ability, and the ability of certain of our subsidiaries, to pay dividends or make distributions in respect of capital stock. "Guarantor Subsidiaries" refers to all of our material domestic subsidiaries except for Nordural US LLC, Century Aluminum Development LLC, Century Aluminum of West Virginia, Inc. and Century Aluminum Jamaica Holdings, Inc. The Guarantor Subsidiaries are 100% owned by Century. All guarantees will be full and unconditional; all guarantees will be joint and several. Our foreign subsidiaries, together with Nordural US LLC, Century Aluminum Development LLC, Century Aluminum of West Virginia, Inc. and Century Aluminum Jamaica Holdings, Inc. are collectively referred to as the "Non-Guarantor Subsidiaries." We allocate corporate expenses or income to our subsidiaries and charge interest on certain intercompany balances. The following summarized financial information of both the Company and the Guarantor Subsidiaries ("Guarantors") is presented on a combined basis. Intercompany balances and transactions between the Company and the Guarantors have been eliminated and the summarized financial information does not reflect investments of the Company or the Guarantors in the Non-Guarantor Subsidiaries. The Company’s or Guarantors’ amounts due from, amounts due to, and transactions with the Non-Guarantor Subsidiaries s are disclosed below: March 31, 2025 December 31, 2024 Current assets $ 430.0 $ 414.0 Non-current assets 713.1 698.4 Current liabilities 240.2 247.1 Non-current liabilities 503.4 490.4 Three months ended March 31, 2025 Net sales $ 538.4 Gross profit 40.5 Income before income taxes 22.7 Net income 29.7 As of March 31, 2025 and December 31, 2024, an intercompany receivable due to the Company and Guarantors from the Non-Guarantor Subsidiaries totaled $46.3 million and $40.4 million, respectively, and an intercompany non-current loan due to the Company from the Non-Guarantor Subsidiaries totaled $365.2 million and $358.1 million, respectively. Share Repurchase Program In 2011, our Board of Directors approved a $60.0 million common stock repurchase program and subsequently increased this program by $70.0 million in the first quarter of 2015. Under the program, Century is authorized to repurchase up to $130.0 million of our outstanding shares of common stock, from time to time, on the open market at prevailing market prices, in block trades or otherwise. The timing and amount of any shares repurchased will be determined by our management based on its evaluation of market conditions, the trading price of our common stock and other factors. We made no repurchases during the three months ended March 31, 2025 or during the years ended 2024, 2023, and 2022. As of March 31, 2025, we had $43.7 million remaining under the repurchase program authorization. The repurchase program may be expanded, suspended or discontinued by our Board, in its sole discretion, at any time. Capital Resources and Commitments We intend to finance our future capital expenditures from available cash, cash flows from operations and if necessary, borrowing under our existing revolving credit facilities. For major investment projects we would likely seek financing from various capital and loan markets and may potentially pursue the formation of strategic alliances. We may be unable, however, to issue additional debt or equity securities, or enter into other financing arrangements on attractive terms, or at all, due to a number of factors including a lack of demand, unfavorable pricing, poor economic conditions, unfavorable interest rates, or our financial condition or credit rating at the time. Future uncertainty in the U.S. and international markets and economies may adversely affect our liquidity, our ability to access the debt or capital markets and our financial condition. 33 Table of Contents On January 10, 2025, the Company entered into a Cooperative Agreement with the DOE’s Office of Clean Energy Demonstrations for up to $500 million in IRA funding. With the help of this funding, we plan to build the first new U.S. primary aluminum smelter in 50 years at a site within the Ohio/Mississippi River Basins. Capital expenditures paid for the three months ended March 31, 2025 were $21.2 million. We estimate our total capital spending in 2025 will be approximately $70 to $80 million, related to our ongoing investment and sustainability projects at our plants. This amount includes $40 million, representing investments in our Jamalco facility. We have certain legal commitments, including obligations related to retiree medical benefits, pension contributions, power supply contracts, and labor agreements. These include a settlement agreement for retiree medical benefits requiring annual payments, a pension contribution commitment through 2025, and power supply arrangements with terms extending through 2028. Additionally, we have contingent obligations based on the LME price of primary aluminum and the level of Hawesville's operations, which are currently offset by a derivative asset. We are also a defendant in several actions relating to various aspects of our business. While it is impossible to predict the ultimate disposition of any litigation, we do not believe that any of these lawsuits, either individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or liquidity. See Note 12. Commitments and Contingencies to the consolidated financial statements included herein for additional information. Item 3. Quantitative and Qualitative Disclosures about Market Risk See "Quantitative and Qualitative Disclosures of Market Risks" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. As of March 31, 2025, there have been no material changes in this information.