Century Aluminum looks to control costs
Century Aluminum (CENX) has announced several cost reduction initiatives during its 2Q15 earnings call. Several mining companies, including Freeport-McMoRan (FCX), have announced such initiatives. As commodity prices from aluminum to copper are testing their multi-year lows, cutting down on every possible cost has become imperative for companies operating in this space.
Cost reduction plan
The chart above shows Century Aluminum’s cost reduction action plan. The company is expecting annualized cost savings between $15 million and $20 million from a headcount reduction. A similar amount is expected from a reduction in operating expenses.
Century Aluminum is also expecting annualized savings of $5 million to $10 million each from lower raw material costs and closure of the Ravenswood plant. According to Century Aluminum, it has negotiated some price concessions with its power suppliers. As the new contracts come into force, its raw material cost should come down.
Century Aluminum is looking at annualized cost savings between $40 million and $65 million from these actions.
Lower capital expenditure
Century Aluminum has also slashed its capital expenditure (capex) budget for this year by $25 million. It’s also holding back on some of its investments to produce value-added aluminum products. In contrast, Alcoa (AA) is still working to expand its value-added offerings. Alcoa has made several acquisitions in the last year to grow its value-added portfolio.
As we’ve discussed, Century Aluminum crashed more than 35% after its 2Q15 earnings. In the next part of this series, we’ll explore how its valuations look after the recent correction.