CENTURY ALUMINUM : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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 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 primary aluminum with aluminum reduction facilities,
or "smelters," in the United States and Iceland. The key determinants of our
results of operations and cash flow 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 and labor, which in aggregate represent more
than 75% of our cost of goods sold; and
•our production volume.
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); plus (iii) any product premium. Each of these price components has its
own drivers and variability.
The aluminum price is influenced by a number of factors, including global
supply-demand balance, inventory levels, speculative activities by market
participants, production activities by competitors and political and economic
conditions, as well as production costs in major production regions. These
factors can be highly speculative and difficult to predict which can lead to
significant volatility in the aluminum price. Increases or decreases in primary
aluminum prices result in increases and decreases in our revenues (assuming all
other factors are unchanged). Information regarding financial contracts is
included in   Note 13. Derivatives   and risks affiliated with such financial
contracts are disclosed specifically in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2020.
We have seen increases in the pricing of aluminum throughout the first half of
2021. The average LME price for primary aluminum was $2,004 per tonne for
January 2021, increasing to an average LME price for primary aluminum of $2,324
in April 2021 and then to $2,439 in June 2021. The average MWP price was $330
per tonne in January 2021, increasing to $517 in April 2021 and then to $608 in
June 2021. The average European Duty Paid premium was $152 per tonne in January
2021, increasing to $231 in April 2021 and then to $251 in June 2021.
Results of Operations
The following discussion for the three and six months ended June 30, 2021
reflects no change in production capacities at our operating facilities.
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 and labor are the principal
components of our cost of goods sold. 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.
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                                    Three months ended June 30,                    Six months ended June
                                                                                            30,
                                     2021                   2020                                2021                 2020
                                          (in millions, except per share data)
NET SALES:
Related parties                $        306.4          $     285.6                         $     574.7          $     556.6
Other customers                         221.6                116.3                               397.3                266.5
Total net sales                         528.0                401.9                               972.0                823.1
Gross profit (loss)                      20.9                (13.0)                                0.2                 (8.2)
Net income (loss)                       (35.1)               (26.9)                             (175.1)               (29.6)
EARNINGS (LOSS) PER COMMON
SHARE:
Basic and Diluted              $        (0.39)         $     (0.30)                        $     (1.94)         $     (0.33)

SHIPMENTS - PRIMARY ALUMINUM(1)

                                United States                                     Iceland                                       Total
                                              Net Sales (in                                Net Sales (in                                Net Sales (in
                         Tonnes                 millions)               Tonnes               millions)               Tonnes               millions)
      2021

2nd Quarter                112,792           $      314.0                78,102           $      180.1               190,894           $      494.1
1st Quarter                116,437           $      275.6                79,260           $      164.2               195,697           $      439.8

      Total                229,229           $      589.6               157,362           $      344.3               386,591           $      933.9

      2020

2nd Quarter                130,645           $      246.6                79,664           $      145.9               210,309           $      392.5
1st Quarter                129,114           $      273.8                73,791           $      141.0               202,905           $      414.8
      Total                259,759                  520.4               153,455                  286.9               413,214                  807.3


  (1) Excludes scrap aluminum and alumina sales.
Net sales (in millions)         2021         2020
Three months ended June 30,   $ 528.0      $ 401.9
Six months ended June 30,     $ 972.0      $ 823.1

Net sales (excluding alumina sales) increased by $101.6 million for the three months ended June 30, 2021, compared to the same period in 2020, primarily driven by favorable LME and regional premium price realizations of $130.6 million, partially offset by unfavorable volume of $29.4 million.

Net sales (excluding alumina sales) increased by $126.6 million for the six months ended June 30, 2021, compared to the same period in 2020, primarily driven by favorable LME and regional premium price realizations of $171.2 million, partially offset by unfavorable volume of $47.2 million.

Gross profit (loss) (in millions) 2021 2020 Three months ended June 30, $ 20.9 $ (13.0) Six months ended June 30,

$  0.2      $  (8.2)


Gross profit increased by $33.9 million for the three months ended June 30,
2021, compared to the same period in 2020, primarily driven by favorable LME and
regional premium price realizations of $130.6 million partially offset by
unfavorable power price realizations of $42.1 million, unfavorable alumina price
realizations of $18.2 million, unfavorable volume impacts of $8.1 million and
increased operating costs.
Gross profit increased by $8.4 million for the six months ended June 30, 2021,
compared to the same period in 2020, primarily driving by favorable LME and
regional premium price realizations of $171.2 million, partially offset by
unfavorable
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power price realizations of $81.5 million, unfavorable alumina price realizations of $26.4 million, unfavorable volume impacts of $23.2 million and increased operating costs.

Selling, general and administrative expenses (in millions) 2021

 2020
Three months ended June 30,                                    $  8.7      $ 11.8
Six months ended June 30,                                      $ 24.8      $ 20.7



Selling, general and administrative expenses decreased by $3.1 million for the
three months ended June 30, 2021 compared to the same period in 2020, primarily
driven by a decrease in share-based compensation costs due to differences in
fluctuations of the stock price period over period.

Selling, general and administrative expenses increased by $4.1 million for the
six months ended June 30, 2021 compared to the same period in 2020, primarily
driven by an increase in share-based compensation costs.

Net gain (loss) on forward and derivative contracts (in millions)       2021        2020
Three months ended June 30,                                          $  (64.4)     $ 3.7
Six months ended June 30,                                            $ (162.5)     $ 7.5



For the three months ended June 30, 2021, net loss on forward and derivative
contracts increased by $68.1 million compared to the same period in 2020
primarily due to increases in LME and MWP prices from March 31, 2021 to June 30,
2021.

For the six months ended June 30, 2021, net loss on forward and derivative contracts increased by $170.0 million compared to the same period in 2020 primarily due to increases in LME and MWP prices in the first six months of 2021. See Note 13. Derivatives to the consolidated financial statements included herein for additional information.

Income tax benefit (expense) (in millions) 2021 2020 Three months ended June 30,

$ 48.3      $ (0.9)
Six months ended June 30,                    $ 50.6      $  1.9


We have a valuation allowance against all of our U.S. and certain foreign
deferred tax assets. The period to period change is primarily due to a discrete
tax benefit of $49.8 million in the current quarter tax provision related to the
recognition of certain foreign deferred tax assets. See   Note 7. 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 flow from
operations. We also have access to our existing 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 June 30, 2021, we had cash and cash equivalents of approximately $9.0
million and unused availability under our revolving credit facilities of $99.6
million, resulting in a total liquidity position of approximately $108.6
million.
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On April 14, 2021, we issued $250.0 million in aggregate principal amount of our
senior secured notes that will mature in 2028 (the "2028 Notes") and used a
portion of the proceeds to purchase $195.9 million of our 12.0% senior secured
notes due 2025 (the "2025 Notes") pursuant to a cash tender offer for the 2025
Notes. On April 9, 2021, we issued $86.3 million in aggregate principal amount
of convertible senior notes due 2028 (the "Convertible Notes"). The remaining
proceeds from the issuance of the 2028 Notes and a portion of the proceeds from
the issuance of the Convertible Notes were used to redeem the remaining 2025
Notes on May 14, 2021. The remaining proceeds from the Convertible Notes
offering were used to repay borrowings under our revolving credit facilities and
to pay for the cost of the capped call transactions in connection with the
issuance of the Convertible Notes. With these transactions, we have effectively
extended the maturities of our principal debt obligations, reduced the interest
rate on these obligations, and raised additional liquidity through the issuance
of convertible senior notes.
Available Cash
Our available cash and cash equivalents balance at June 30, 2021, was $9.0
million compared to $81.6 million at December 31, 2020.
Sources and Uses of Cash
Our statements of cash flows are summarized below:
                                                                     Six months ended June 30,
                                                                     2021                  2020
                                                                           (in millions)
Net cash provided by (used in) operating activities            $       (87.9)         $      71.6
Net cash provided by (used in) investing activities                    (25.9)                (9.5)
Net cash provided by (used in) financing activities                     39.7                 76.0
Change in cash, cash equivalents and restricted cash           $       

(74.1) $ 138.1

The increase in net cash used in operating activities was primarily driven by an increase in net loss and changes in working capital. The changes in working capital are primarily attributable to timing of receivable collections and timing of raw material receipts.

The increase in net cash used in investing activities was primarily due to higher spending on capital projects during the six months ended June 30, 2021, driven by capital investments in the Mt. Holly restart project.

The decrease in net cash provided by financing activities was primarily due to
increased repayments of borrowings on the revolving credit facilities, offset by
the issuance of the convertible senior notes in April 2021.
Availability Under Our Credit Facilities
The U.S. revolving credit facility, dated May 2018, as amended, provides for
borrowings of up to $175.0 million in the aggregate including up to $110.0
million under a letter of credit sub-facility, and also includes an uncommitted
accordion feature whereby borrowers may increase the capacity of the U.S.
revolving credit facility by up to $50.0 million, subject to agreement with the
lenders. The U.S. revolving credit facility matures in May 2023. Any letters of
credit issued and outstanding under the U.S. revolving credit facility reduce
our borrowing availability on a dollar-for-dollar basis.
We have also entered into, through our wholly-owned subsidiary Nordural
Grundartangi ehf ("Grundartangi"), a $50.0 million revolving credit facility,
dated November 2013, as amended (the "Iceland revolving credit facility"). The
Iceland revolving credit facility matures in November 2022.
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. As of June 30, 2021, our U.S. revolving
credit facility had a borrowing base of $173.5 million, $39.6 million in
borrowings and $84.4 million in letters of credit outstanding. Of the
outstanding letters of credit, $12.1 million are related to our power
commitments, $54.2 million are related to hedging collateral, and the remainder
are primarily for the purpose of securing certain debt and workers'
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compensation commitments. As of June 30, 2021, our Iceland revolving credit
facility had a borrowing base of $50.0 million and no outstanding borrowings.
As of June 30, 2021, our credit facilities had $99.6 million of net availability
after consideration of our outstanding borrowings and letters of credit. We may
borrow and make repayments under our 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.
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 as of any date of determination availability under the U.S.
revolving credit facility is less than or equal to $17.5 million, or 10% of the
borrowing base but not less than $12.5 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 a covenant that requires Grundartangi to maintain a minimum equity
ratio. As of June 30, 2021, we were in compliance with all such covenants or
maintained availability above such covenant triggers.
Senior Notes and Convertible Senior Notes
On April 14, 2021, we issued $250.0 million principal of senior secured notes
that will mature on May 1, 2028, unless earlier refinanced in accordance with
their terms. Interest on the 2028 Notes is payable semi-annually on April 1 and
October 1 of each year, beginning on October 1, 2021, at a rate of 7.5% per
year. The indenture governing the 2028 Notes contains customary covenants which
may limit our ability, and the ability of certain of our subsidiaries, to:
(i) incur additional debt; (ii) incur additional liens; (iii) pay dividends or
make distributions in respect of capital stock; (iv) purchase or redeem capital
stock; (v) make investments or certain other restricted payments; (vi) sell
assets; (vii) issue or sell stock of certain subsidiaries; (viii) enter into
transactions with shareholders or affiliates; and (ix) effect a consolidation or
merger.
On April 9, 2021, we issued $86.3 million in aggregate principal amount of
convertible senior notes due 2028, unless earlier converted, repurchased or
redeemed. The principal included the full exercise of the option by the initial
purchasers of the Convertible Notes to purchase $11.3 million of additional
principal amount. The Notes bear interest semi-annually in arrears on May 1 and
November 1 of each year, beginning on November 1, 2021, at a rate of 2.75% per
annum in cash.
We applied the net proceeds from the offering of the 2028 Notes and a portion of
the net proceeds from the Convertible Notes described above toward payment of
the total consideration amount to holders whose 2025 Notes were accepted and
purchased in the tender offer and to fund the redemption of any remaining 2025
Notes.
Hawesville Term Loan
On April 29, 2019, we entered into a term loan agreement with Glencore Ltd.
pursuant to which the Company borrowed $40.0 million. Borrowings under the
Hawesville Term Loan were used to partially finance the second phase of the
Hawesville restart project. The Hawesville Term Loan matures on December 31,
2021, and is being repaid in 24 equal monthly installments of principal that
began on January 31, 2020. The Hawesville Term Loan bears interest, due monthly,
at a floating rate equal to LIBOR plus 5.375% per annum. The Hawesville Term
Loan is not secured by any collateral. As of June 30, 2021, the outstanding
balance of the Hawesville Term Loan was $10.0 million.
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
June 30, 2021, we have not issued any debt securities pursuant to the Universal
Shelf Registration Statement. However, the 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 and Century
Aluminum of West Virginia, 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 and Century Aluminum of West Virginia, 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
Guarantors Subsidiaries ("Guarantors") is presented on a combined basis.
Intercompany balances and transactions between the Company and the Guarantors
have been
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eliminated and the summarized financial information does not reflect investments
of the Company or the Guarantors in the Non-Guarantor Subsidiaries
("Non-Guarantors"). The Company's or Guarantors' amounts due from, amounts due
to, and transactions with the Non-Guarantors are disclosed below:
                           June 30, 2021       December 31, 2020
Current assets            $        304.9      $            252.4
Non-current assets                   977.7                   972.3
Current liabilities                  308.7                   169.2
Non-current liabilities              608.8                   483.7



                                     Six months ended June 30, 2021
Net sales                           $                         624.1
Gross profit (loss)                                            (7.8)
Income (loss) before income taxes                            (205.1)
Net income (loss)                                            (175.1)





As of June 30, 2021 and December 31, 2020, an intercompany receivable due to the
Company and Guarantors from the Non-Guarantors totaled $18.8 million and $14.6
million, respectively, and an intercompany non-current loan due to the Company
from the Non-Guarantors totaled $544.2 million and $554.9 million, respectively.
Contingent Commitments
We have a contingent obligation in connection with the "unwind" of a contractual
arrangement between Century Aluminum of Kentucky ("CAKY"), Big Rivers Electric
Corporation and a third party and the execution of a long-term cost-based power
contract with Kenergy, a member of a cooperative of Big Rivers in July 2009.
This contingent obligation consists of the aggregate payments made to Big Rivers
by the third party on CAKY's behalf in excess of the agreed upon base amount
under the long-term cost-based power contract with Kenergy. As of June 30, 2021,
the principal and accrued interest for the contingent obligation was $27.4
million, which was fully offset by a derivative asset. We may be required to
make installment payments for the contingent obligation in the future. These
payments are contingent based on the LME price of primary aluminum and the level
of Hawesville's operations. Based on the LME forward market at June 30, 2021, we
believe that we will not be required to make payments on the contingent
obligation during the term of the agreement, which expires in 2028. There can be
no assurance that circumstances will not change thus accelerating the timing of
such payments.
Employee Benefit Plan Contributions
In 2013, we entered into a settlement agreement with the Pension Benefit
Guarantee Corporation ("PBGC") regarding an alleged "cessation of operations" at
our Ravenswood facility. Pursuant to the terms of the agreement, we agreed to
make additional contributions (above any minimum required contributions) to our
defined benefit pension plans totaling approximately $17.4 million. Under
certain circumstances, in periods of lower primary aluminum prices relative to
our cost of operations, we are able to defer one or more of these payments, but
would then be required to provide the PBGC with acceptable security for deferred
payments. We did not make any contributions in the three month periods ended
June 30, 2021 and 2020. We have elected to defer certain payments under the PBGC
agreement and have provided the PBGC with the appropriate security. The
remaining contributions under this agreement are approximately $9.6 million.
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Section 232 Aluminum Tariff
On March 23, 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 by incentivizing the restart of 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, with the exception of imports from
Australia, Argentina, Canada and Mexico or imports that receive a product
exclusion from the Department of Commerce.
Other Items

In March 2018, we announced our intention to return our Hawesville smelter,
which since 2015 had been operating at approximately 40% capacity, to full
production and upgrade its existing reduction technology. The first phase of the
project, which involved the restart of the three potlines and approximately
150,000 tonnes of production capacity that had been curtailed in 2015, was
successfully completed on budget and ahead of schedule in early 2019. The second
phase of the project involves the rebuilding of the pots from the two potlines
that had continued to operate past their expected life cycle and the
implementation of certain new technology across all production. These two
potlines were taken out of production in February and September 2019,
respectively. The rebuild of the first of these potlines was completed in the
second quarter of 2020 with total project costs to date of approximately $108.3
million. Our Hawesville facility experienced several equipment issues in late
December 2020 that partially reduced the plant's production level; however, the
process of returning to our planned operating level of 80% of capacity began in
the second quarter of 2021 and continues to progress. The rebuild of the fifth
and final potline and the completion of the technology upgrades is expected to
be completed over the next several years subject to market conditions.

Our new power contract with Santee Cooper for the Mt. Holly aluminum smelter
began on April 1, 2021 and runs through December 2023. It is expected to provide
sufficient energy to allow the Mt. Holly smelter to increase its production by
50% (resulting in total production of 75% of Mt. Holly's full capacity once the
restart project is completed) at cost of service based rates. Restart work at
the Mt. Holly smelter is progressing on schedule and is expected to be completed
in the fourth quarter of 2021.
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 years ended 2018,
2019, and 2020. As of June 30, 2021, 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.

In November 2009, Century Aluminum of West Virginia, Inc. ("CAWV") filed a class
action complaint for declaratory judgment against the United Steel, Paper and
Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers
International Union ("USW"), the USW's local and certain CAWV retirees,
individually and as class representatives ("CAWV Retirees"), seeking a
declaration of CAWV's rights to modify/terminate retiree medical benefits.
Later in November 2009, the USW and representatives of a retiree class filed a
separate suit against CAWV, Century Aluminum Company, Century Aluminum Master
Welfare Benefit Plan, and various John Does with respect to the foregoing. On
August 18, 2017, the District Court for the Southern District of West Virginia
approved a settlement agreement in respect of these actions, pursuant to which,
CAWV agreed to make payments into a trust for the benefit of the CAWV Retirees
in the aggregate amount of $23.0 million over the course of ten years. Upon
approval of the settlement, we paid $5.0 million to the aforementioned trust in
September 2017 and agreed to pay the remaining amounts under the settlement
agreement in annual increments of $2.0 million for nine years. At June 30, 2021,
we had $2.0 million in other current liabilities and $7.8 million in other
liabilities related to this agreement.
We are 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 10. Commitments and
Contingencies   to the consolidated financial statements included herein for
additional information.
Capital Resources
We intend to finance our future capital expenditures from available cash, cash
flow from operations and if necessary, borrowing under our existing revolving
credit facilities. For major investment projects we would likely seek financing
from
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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.
Capital expenditures incurred for the six months ended June 30, 2021 were $6.3
million, excluding expenditures of $22.4 million associated with the restart
project at Mt. Holly. We estimate our total capital spending in 2021, excluding
the Mt. Holly restart project, will be approximately $25.0 million related to
our ongoing investment and sustainability projects at our plants.
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