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Analyzing Century Aluminum’s 2Q15 Earnings after All Adjustments



Mt. Holly acquisition

In the previous part of this series, we’ve noted that Century Aluminum (CENX) booked a contingent gain of $10.3 million in 2Q15. Century Aluminum recorded this gain on the acquisition of the Mt. Holly smelter, which it acquired from Alcoa (AA) last year.

Together, Alcoa and Reliance Steel & Aluminum (RS) form ~10.1% of the SPDR S&P Metals and Mining ETF (XME). Reliance Steel is the leading metal service center in the United States (IVV).

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The chart above shows the dynamics of the Mt. Holly transaction. The transaction price is not fixed. It depends on Midwest aluminum prices. The base price is fixed at $67 million. The final transaction price would be $55 million–$90 million. As aluminum transaction prices have come down significantly over the last couple of months, Century Aluminum would have to pay less for its Mt. Holly acquisition.

Century Aluminum’s 2Q15 earnings

In the previous part of this series, we looked at several special items in Century Aluminum’s 2Q15 earnings. Century Aluminum posted an adjusted net profit of $24 million in 2Q15 after adjusting for all the special items. Still, its adjusted net income fell ~65% compared to 1Q15. The adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) also halved over this period.

Higher costs in 2Q15

Century Aluminum is moving to the API (alumina price index) to purchase alumina for its plants. It used to pay for alumina as a percentage of aluminum prices. Higher aluminum prices last year prompted Century Aluminum to gradually move to API.

While aluminum prices have dropped significantly this year, API’s pricing has been quite steady. Century Aluminum was negatively affected by ~$10 million in 2Q15 as its raw material costs rose due to a higher API.

Moreover, operating the plants at lower utilization rates also pushed up unit production costs.

For its part, Century Aluminum has announced certain cost-cutting measures. We’ll discuss these initiatives in the next part of this series.


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