Next up is Century aluminum. Century is one of the largest primary aluminum producers in the U.S. and operates one smelter in Iceland. The company also has a 55% interest in Jamalco, which is an aluminum refinery in Jamaica. Joining us today is President and CEO Jesse Gary. Jesse, over to you.
Thanks, Katya. Thanks for having us. Great conference so far, and looks like lots of new faces in the crowd, so glad to be here. Yeah, Katya gave a good introduction, so we are Century aluminum. We're an integrated producer of bauxite, alumina, and aluminum, and we're the largest producer of aluminum in the United States. I thought I'd just give everyone a quick update. We just reported earnings last Thursday, so people heard the latest from us on the call. But just to hit a few of the highlights of where we are today and really the strong macro environment we find both in aluminum generally globally, but specifically in the U.S. with some of the tailwinds we have behind us as we look to bring aluminum production back to the United States, so metal price as a whole has been moving upwards for the past several years.
We continue to see global supply challenges. The Chinese have reached their 45 million ton cap and appear willing to stay there. You've seen some recent actions by the Chinese government to stop the export tax rebate, which we think is a very good sign that they intend to keep their aluminum domestically and use that into further downstream production before sending it offshore. That's very bullish, makes a lot of sense to us politically, and is really good for the West because all of the growth in the supply side of the aluminum value chain has really come in China for the past 20 years. On the aluminum side, we were lucky enough to purchase our stake in Jamalco before the recent uptick in the aluminum price. Just as a reminder for those new to the stock, we are largely agnostic to the aluminum price.
We buy about half of our production comes from our Jamalco operation that we use on our smelters, and we buy the rest of our aluminum under long-term LME percentage-based contracts, which are linked to the price of aluminum. So we're largely agnostic to what goes on in the aluminum price, but we're well set and physically set through 2028 with those contracts. So globally, we're pretty bullish on where the macro price goes. We averaged just short of 2,600 in Q4. The price today is 2,660. We've seen it above 2,700. All of that is very bullish for our earnings. Just to give you a sense, every $100 in the LME price is about just under $50 million in annualized EBITDA for us. On the cost side, we've found ourselves in a very nice environment over the past several years.
Our power price in Iceland is linked to the price of aluminum. In the U.S., we do buy spot market power, and we've seen very nice prices in the U.S., specifically in Q4. In Q1, we did have a little bit of upward pricing pressure as we had some cold weather roll through the U.S., but we should think that should get back to nice prices as we enter into Q2. On an overall basis, so we find ourselves just really in a strong environment. The recent change to the Section 232 tariffs in the U.S. is very good for us as the largest U.S. producer. Just as a reminder, the Section 232 tariffs went in under the first Trump administration. They were a 10% tariff on the aluminum side. Today, they're at 25%, and those become effective on March 12th.
The way that's reflected in the aluminum price for those new to the industry is it rolls through something called the Midwest Premium, and our final realized aluminum price is the LME price plus the Midwest Premium plus any value-added premium we have. The Midwest Premium averaged $0.20 in Q4, so you see in our Q4 results that's averaging a $0.20 Midwest Premium. Today, the spot price is right around $0.40, and we think fundamentally, once the tariffs become effective on March 12th, you should see the Midwest Premium somewhere between $0.45 and $0.50. So each penny of Midwest Premium, just to give you a sense, is about $9 million in annualized EBITDA for Century, so this is quite good for our US production, and we're quite excited for what that means. We do have some expansion projects in the US.
We have the ability to bring on the rest of our Mount Holly smelter. There's about 50,000-60,000 tons of production at Mount Holly that we'll be able to bring back online. We also have our idled Hawesville smelter, which provides us some optionality there, and I'm sure Katya will ask me some questions about that in a second, and we've also announced the potential new greenfield smelter project in the U.S., which we've said would roughly double the size of the U.S. industry if we were to build it, so we've continued to make good progress on that project. We finalized our award from the Department of Energy, which is a $500 million grant from DOE to build that smelter.
We've also finished the second phase of engineering work for that project, so we're starting to have a good sense of what that project looks like, and we've continued to make good progress on sourcing the energy for that project, so for a project that large, obviously the energy is quite significant, and we've done a nationwide search looking for the best place to locate that smelter and the most economic power source for that smelter. We think those negotiations will continue, and we hope to conclude those by the end of Q2, so really good progress on the new greenfield smelter, lots of excitement from a variety of parties about that project, and importantly, I think it gives us a future for the U.S. industry, a new, very efficient, modern smelter here in the U.S.
It would be among the largest single pot lines to be built in the world, if not the largest, and would be one of the most energy-efficient smelters in the world once completed. There are good opportunities for us as we move forward. Then I just wanted to conclude with a little look at the earnings power of the business at spot prices. Here you see our guidance, our Q1 guidance from our call on Thursday. A little bit of noise rolling through that, but if you just take that guidance and you mark it to where spot prices are today, you see that there's an incremental $45-$50 million of quarterly EBITDA that should start to roll through our results starting in Q2.
Just as a reminder, we do have some contractual lags in our sales contracts, so LME rolls through on a mix of M-1 and M-3, one to three-month lags, and the Midwest Premium rolls through on a one-month lag. So that significant uptick, $0.20 uptick in the Midwest Premium from Q4, won't start to roll through our results until Q2. So this gives you a sense of what that could look like in Q2 if spot prices remain where they are today. Really significant earnings power for the business and opens up a lot of doors for us as we look to delever our balance sheet and move forward with some of these growth projects. And with that, I'll stop, and I think I'll sit down with Katya, and if anyone has questions, please speak up. Thank you.
Okay, so maybe staying on the tariffs, you obviously benefit from the Midwest Premium. Can you maybe talk about if we do have, let's say, more universal tariffs in the U.S., how exposed are you to the imports from raw material perspective?
Yeah, the answer is not very much. So most of our sourcing of our major raw materials in the U.S. are done domestically. So we are the sole purchaser of aluminum from the last aluminum refinery in the U.S., so we take all of that production, which, that's our largest input cost. Also, most of our coke that we purchase is produced in the U.S. That's our second largest input cost. Now, there are, of course, some things that we import. There's a little bit of pitch, some cathodes, things like that, but not too much exposure to those universal tariffs.
If you do decide to restart the remaining of Mount Holly, does that change that in any way?
No, it's basically the same there. Most of our coke would still come domestically. Because we take all of the aluminum production that's available today, that would mean some incremental aluminum coming in, but pretty small exposure on the grand scheme of things with our overall cost structure.
Given where the Midwest Premium currently is, is there any opportunity for you to hedge it?
Yes, we could do that. There is a financial market for the Midwest Premium that's offered. It is fairly liquid, mostly liquid through about one year out. So that is something that we could look at. In general, we're happy with where our hedging strategy has been, though. So what we've done for the past several years is we have, from time to time, looked to hedge our power cost that goes into our Kentucky smelters, which is a market-based power cost. And when we do hedge the power side, we'll also hedge a portion of the metal that that power will produce. But outside of that, we really have not done much hedging, and I wouldn't see us sort of change that strategy as we go forward.
We're happy to offer the metal price exposure to our shareholders, and as we improve the balance sheet, it just allows us to do that even more. We don't need to take the risk off.
The other topic that is currently being discussed is the potential end of the Russia-Ukraine war and how that would impact the aluminum market. What's your view on that?
Obviously, it's a very complex situation. I won't comment at all politically on what could happen, but there's some conjecture out there around where Russian units might go, and from our point of view, we do see the Russian units in the marketplace. We don't think that there are Russian units that are sort of stuck inside of Russia or anything like that. We think they are all finding a home, and they maybe aren't the traditional homes where those Russian units went, but they are all being placed in the market, so we think that's all really, frankly, all the Russian units are already in the global price, the LME price, and don't see a lot of change from that specifically. We do see some potential tailwinds for the industry.
I mean, when we look at the European market that we sell into from our Icelandic facility, there are challenges in the downstream today. There's no doubt about it. There's some demand challenges in Europe, sort of very different from what we're seeing in the U.S. And a lot of that is the downstream also is fairly energy intensive. And so if the energy price does fall because of the end of the war, we think that could be good from a demand perspective for our Grundartangi products.
Maybe staying on U.S. and potential impact on demand from tariffs, are you concerned from that perspective?
No, I mean, the nice thing about the Section 232 program, which is where the tariffs come from, is they've been in place for seven years now. So the market has had a long time to adapt to these tariffs. We know what impact they have on the marketplace. And one of the things that maybe hasn't been spoken about that much so far is that the new tariffs, the change to the tariffs actually cover more downstream products. So more of our customers' products are actually also included in the tariff, which is to say imports of their products into the United States are protected by the tariff, which should help them and their businesses and the demand from our direct customers because they will also benefit from the program.
So we don't actually see, well, we haven't seen any, and we haven't seen that concern from our customer base this time around, certainly.
Going back to Mount Holly and potentially restarting it, by when do you think you could make a final decision? What's going to drive that final decision?
Yeah, well, with all of our capital decisions, we'll always make a return calculation, and today, certainly under current market conditions, that would be a very nice return calculation. As I mentioned on the phone call, we did have a little operational instability in Q4, so before we launch a project, we always want to make sure the assets are running well. I said that would get cleaned up in Q1, and I still expect that. So everything's trending in the right direction there, and we'll just need to make those calculations. One thing we've said that's kind of had us holding off to this time has been we did face quite high aluminum prices in 2024, but those have really come off as we've entered 2025. I think the alloy price is back below $500 just over the past week for the first time.
So that's also helpful for Mount Holly because while we are totally covered for the existing operations, we would have to go out into the market to source the aluminum needed for the restart. So I would say everything's trending in the right direction there. Once we make that decision, we'll let the market know and give you all the details on that transaction.
Maybe more longer term, one of the concerns in the U.S. market has been power.
Yeah.
As smelters use a lot of power and you are exposed to spot market, how are you thinking about it over time if we do have this issue with power and power prices moving higher?
Yeah, so it's interesting. We have definitely seen that in pockets in the U.S., but we publish our power prices that we take into our Sebree, Kentucky facility, which is market-based power prices. And if you look at where those power prices were in 2024, they're actually very constructive and really on the low side historically of where we've seen those power prices stay. So it's very hard to sort of take these large trends and apply them to the U.S. market, which is an extremely deep power market. It's by far and away the deepest power market in the world with lots of different energy sources, lots of different utilities. And so it's a complex situation, and so far we've only really seen that pricing pressure in very data center-heavy markets.
Like you see it more so in PJM, which is the Northeast power market, and certainly in pockets around DC than you see it in the Midwestern United States. So far, so good. We definitely see the data centers out there, but we haven't really seen it impact our spot power purchases to date.
Is there any possibility for longer term for you to go to a more fixed type of power structure?
Yeah, we always have that optionality. You always pay a price for that, and so far that trade-off of having that market exposure has made sense for us. And that's another aspect that we are able to hedge, and so we've sort of taken a balanced approach. We've hedged 10%-15% of that cost over time with the corresponding metal to go along with it, just protecting us against any surges. But it's made sense so far. But if that changes, we will have the ability to go and look for a longer-term fixed price or cost of service-based contract. That's how we operate at Mount Holly, for instance.
Moving to Hawesville
Yes.
Obviously, it's going through a review process.
Yep.
I know you said there's still a lot of interest in the asset, but do the tariffs change your view on that process in any way?
It doesn't change our view on the process. We're fairly far along in this process. As I've said, there has been a lot of interest, and we will definitely go ahead and finish that process. Of course, there's been a lot of speculation as to what exactly the value of that is. Frankly, I think not a lot of people know exactly. There's probably a handful of people in the world that know what that interconnection is worth. The nice thing is by running this formal process, we will know what it's worth in the end. To your question, obviously the tariffs help the returns of a restart for Hawesville. What we've always said is we'll measure the value of a transaction versus a restart, and we'll see what makes the most sense for the asset.
So nothing really changed there other than the tariffs are definitely very helpful for U.S. production, very helpful for a Mount Holly restart, very helpful eventually for a greenfield build, same way that they are for Hawesville.
Regarding the new smelter, it likely is a multi-billion-dollar project. We heard yesterday from a peer of yours saying that maybe they would be interested in building something in the U.S. market. Would you go with this project on your own ahead, or would you consider even maybe partnering, and how that will also change the whole DOE part of the?
I see, yeah, so for now, what we're concentrating on is building the best possible project with the best possible returns, and so what that means is finishing this engineering work, which has given us a better sense of where the CapEx would be, and then also working through these power negotiations, site selection, and also a state incentive package to build in whichever state we ultimately choose. That will ultimately give us a better sense of where the ultimate returns are, and once we see that and presuming that they're good enough, then we'll look to see how we finance it. If they're good, then we think we'll have a lot of options and a lot of different ways to finance a project like this, which could include partners for sure. It's a very big project, plenty of metal to be produced there, and so that's definitely a possibility.
We also think it'll be financeable by ourselves if that's the route that we go. And so we'll just wait and make that decision. Once we know the returns, we think they'll be attractive, and then we'll be able to go out and decide how we finance it and how we build it and all those sorts of things. So we'll keep everybody updated on that. But so far, so good. We keep making good progress. The option is definitely alive. We're excited about the project, and we'll see where it goes.
Jamalco refinery, it's operating not at full capacity. Our investment.
Yep.
Some more money. How are you thinking about production over time there? How much more investments that refinery would need?
Yeah, so just as a reminder, when we bought the refinery, it had come through a serious period of distress. They had a very large fire there in 2021 and shut down for a year of production, which is part of the reasons why we were able to purchase it for the price that we purchased it at. So going in, we knew we would have to put some CapEx in to return it to its nameplate capacity. It's operated at today, it's operating at 1.2 million tons. As I said, January was its best production month since we purchased the asset, actually. So everything is looking very good. Its nameplate capacity is 1.4 million tons, though, and so we do, and we have always had plans to return it to that 1.4 million tons.
We have a very set of capital projects that are needed to return it there. So to get there over the next two years, 2025 and 2026, you should see about $15-$20 million of investment CapEx there. And these are in very sort of straightforward capital projects that are necessary to drive that both production increase, but also to lower the cost structure. So the other thing we've said is that once we're done with this, so let's say in 2027, as we reach those production levels, we should be in the second quartile of the global cost curve on a cost basis at Jamaica. So the CapEx, the nice thing about the CapEx is it's very straightforward. Some of it is just restoring things that still weren't rebuilt after the fire.
So very clear returns there, one of which is a generation turbine that will enable us to stop purchasing from the Jamaican grid for some of our energy resources. So clear return profile there. And the other goes to debottlenecking some of the throughput, which gives us the additional volume. So pretty clear program. We're just working with the team to execute as we move forward over the next two years.
In U.S., you also benefit from the 45X tax credit. There have been some concerns with the new administration that that's one of the areas potentially could be removed. How are you thinking about it?
Yeah, the nice thing about the production tax credit is it's a critical mineral production tax credit. And I think that's largely a bipartisan viewpoint that critical mineral production in the U.S., I'm sure there have been lots of companies talking about that at this conference, is very important strategically to the U.S., and I think certainly to this administration. So we think we're in the right part of that law. And of course, we've seen the politics as well. There have been criticisms of that law, some of the cost structures of that law, but those really haven't been directed at the critical mineral provisions, which aluminum is defined as a critical mineral under U.S. law. So we feel pretty good about it.
Of course, we're paying attention to it, and we're talking with lawmakers and talking with our congresspeople, but we really don't think that's a portion of the law that they're looking at, and we feel pretty good about it continuing.
We're shifting gears to capital allocation. How are you thinking about it right now, especially with the tariffs put in place?
Yeah, so as I just sort of reviewed, at spot prices, we will generate a lot of cash flow in 2025 if those spot prices continue. We've been pretty consistent in saying our first use of those cash flows will be to delever the balance sheet. We think that's important for a commodity company like ourselves to make sure we're able to make the best decisions as we go through the cycles. And while we're in a very beneficial portion of that cycle today, we know the cycles will come. So we want to be prepared, and we want to do the responsible thing. So I think the first call on that cash flow will be to delever the balance sheet. We have a couple of these capital projects we just discussed. We'll see where those are advanced as this cash flow starts to come in.
We'll make those decisions, and then ultimately, with excess cash flows, we'll look at returns to shareholders.
When you think that's a longer term.
Yeah.
When you're looking at the shareholder returns, how are you looking at dividends versus share buybacks?
Yeah, so we unfortunately haven't had shareholder returns during my tenure at least. When Century has done shareholder returns in the past, they have been in the form of buybacks, but we're frankly open to both forms, and so we'll talk with our shareholder base, see where the people's preference is. We'll see where the balance sheet is overall at the time, and we'll make the best decision based on those factors, so no decision yet on that. One of the things I've learned in this industry is always to wait until the cash flow hits the bank account, and then we'll make those decisions as we go forward.
And maybe on the M&A side, Jamaica acquisition was great timing.
Yeah.
Especially with the spike in aluminum price. How are you thinking about M&A? Are you seeing any potential opportunities?
I think when people look at Century and the M&A that we've done, we've been fairly disciplined in the type of M&A. Jamaica obviously was a low purchase price asset. We purchased Sebree from one of our competitors at a very low purchase price, basically the value of the working capital. We purchased the half of Mount Holly that we didn't own at the time, also for a number that was somewhere near working capital. My view on commodity M&A is it needs to be cost disciplined. I think that's how you'll continue to see us look that way. There obviously aren't that many targets out there specifically on sort of asset level M&A, but we are aware of what is out there. We always look, and we'll continue to be disciplined in how we pursue that.
We're getting towards the end of our time, but maybe let us know what you're most excited about this year and what are some of the concerns?
Yeah, I think on the excitement side, all of our operations have operated very well for really the past three years, and the operating team that our leader, our operating leadership has built is as strong as it's ever been. I think we have a lot of technical talent in the organization. The smelters are running very smoothly. We've been pushing through some improvements at Jamaica, and we have a new plant manager there who's very strong technically. So from my point of view, that's our fundamental job always is to make aluminum and to produce aluminum and bauxite, and I think we're getting better at it. So that's what I'm most excited about. I think we'll continue to prove that out in 2025 and 2026 and beyond.
On the worry side, listen, we live and produce in a cyclical business, and so that tends to be where my worries always are. Right now, the macro environment seems to be setting up very well. We are true believers that the Chinese are at the cap. We do believe that there aren't a lot of supply coming online in the West anytime soon, and so really, if anything, we think the pricing environment should get better, but there's been a lot of aluminum executives who have been wrong on that over the years, so I won't have enough hubris to say that it's definitely what will happen, but that is certainly what I always worry about.
Perfect. Thank you so much .
Thanks, Katya. Thanks, everybody.