Key facts about Century Aluminum’s Mt. Holly acquisition

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Mt. Holly acquisition

As we discussed in the previous part of this series, Century Aluminum (CENX) acquired Alcoa’s stake in the Mt. Holly smelter. In 2000, Century Aluminum acquired a 26.67% stake in this plant, which it increased to 49.67% later. Now CENX has acquired Alcoa’s remaining stake in this plant.

This acquisition will give CENX 100% ownership of the Mt. Holly smelter. Please note that this plant is the most recent smelter in the United States, with annual production capacity of 224,000 tonnes. Let’s now analyze how this acquisition will impact the future earnings of Century Aluminum.

free cash flows

How Century’s Mt. Holly acquisition will add to its profits

Century Aluminum’s earnings before interest, taxes, depreciation, and amortization (or EBITDA) would have increased by $11 million in 3Q, if it had 100% ownership of the Mt. Holly plant. This is almost 15% of Century’s 3Q EBITDA. This transaction will be completed in the fourth quarter.

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If the current profitability of the Mt. Holly plant remains steady, this acquisition can add another $44 million to Century Aluminum’s 2015 EBITDA. This is a pro forma estimate, and is dependent on the prevailing market dynamics. Let’s now analyze how Century Aluminum plans to fund this transaction.

Century expects to fund Mt. Holly transaction with internal accruals

The previous chart shows the 4Q expected cash flow of Century Aluminum. The company intends to fund the Mt. Holly transaction through internal cash flows. Century Aluminum expects the final acquisition price to be around $65 million. This transaction has a dynamic pricing that will depend on the aluminum market conditions.

It’s important for investors in Century Aluminum to understand this mechanism, as it will impact the future cash flows of the company. Please see the next part of this series to learn more about the dynamics of this transaction.

Please note that you can also access the aluminum industry through Rio Tinto (RIO), Constellium N.V. (CSTM), and the SPDR S&P Metals and Mining ETF (XME).

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