Century Aluminium Company (NASDAQ: CENX) Third Quarter 2022 Results Conference Call November 7, 2022 5:00 PMm. ET
Participating companies
Peter Trpkovski – Vice President, Finance and IR
Jesse Gary – President and Chief Executive Officer
Jerry Bialek, Executive Vice President and Chief Financial Officer
Shelly Harrison – Senior Vice President of Finance and Treasurer
Conference Call Participants
David Gagliano – BMO Capital
Timna Tanners – Wolfe Research
John Tumazos – Highly Independent Research
Lucas Pipes – B. Riley Securities
Operator
Good afternoon. Thank you for calling Century Aluminium Company’s third quarter 2022 earnings convention. My call is Tamia and I will be your host today. [Operator Instructions]
I must now hand over the lecture to your host, Peter Trpkovski. Please continue.
Peter Trpkovski
Thank you Tamia. Hello everyone and welcome to the convention call. With me are Jesse Gary, president and CEO of Century; Jerry Bialek, executive vice president and chief financial officer; and Shelly Harrison, Senior Vice President of Finance and our Treasurer. After our comments are ready, we will answer your questions.
As a reminder, today’s presentation is available on our online page in www. centuryaluminium. com. We use our website as a means to disclose vital corporate data and comply with the FD Regulation.
Let’s move on to the first slide. Please take a moment to review the warning herein regarding the forward-looking statements and non-GAAP monetary measures contained in today’s discussion.
And with that, I pass the message to Jesse.
Jesse Gary
Thank you, Pete, and thank you all for participating. I’ll start by discussing the existing macroeconomic environment and our operating performance, and then Jerry will provide our third-quarter effects and fourth-quarter outlook before closing.
Market situations remained quite complex in the third quarter, with the war in Ukraine and Russia’s easing in herbal fuel flows to Europe causing significant turbulence in commodity markets. High energy costs and the resulting decrease in aluminum costs had a significant effect on our effects in the third quarter, resulting in an adjusted EBITDA loss of $36 million in the third quarter.
In this challenging environment, our team continues to take prudent steps to advise Century through near-term macroeconomic obstacles, while remaining focused on the stability of our operations and long-term strategies.
We made great progress in the quarter to reduce our charge structure, reduce our exposure to spot energy charges and increase our liquidity reserves. I will provide more important points on each of those measures in a moment.
Despite existing headwinds, long-term demand for aluminum basics is excellent, and we continue to execute our existing allocations to expand our value-added product lines with our Grundartangi Casthouse assignment and U. S. bottleneck elimination programs. U. S. Casthouse, all progressing according to plan and budget.
As a reminder, we expect the first phase of our bottleneck reduction program to be completed by the end of the year, enabling the sale of an additional 10,000 metric tons of billets in the 2023 market. We will also enter the U. S. slab market. for the first time next year and expect to sell approximately 10,000 metric tons of slabs. This is a wonderful domain of long-term expansion for Century, as demand for U. S. rolling generators is still in the U. S. The U. S. continues to grow, completed through the end of 2023.
Let’s move on to slide four. You can see that, despite the short-term turbulence, the global aluminium source and demand remain more or less balanced. While electricity prices have reduced European demand for this winter, this has been offset by the significant contraction of Europe’s aluminium source base. .
High energy costs have now led to the closure of more than 50% of European smelters, with more closures expected by the end of the year. In fact, as you can see from the chart on the most sensitive part on the right of this slide, the loss of aluminum production caused by Russia’s moves created the largest aluminum deficit in the history of the European market.
Ironically, this European deficit is now being filled with aluminum produced in Russia, creating a scenario in which Russia benefits from the same challenge that is being created.
The increase in Russian imports will make it difficult to fully re-establish the European smelting base. For this reason, it is imperative that Europe, the United States and their allies take urgent action, adding sanctions, to confront such unfair Russian moves and protect this important industry.
While the costs of the LME are likely to remain volatile in the near term, longer-term macro trends towards electric vehicles, renewables and sustainable packaging continue to generate strong value-added premiums.
While we have noticed some weakness in the structure and structure markets, automotive demand has continued and we expect continued strong demand for renewables, especially as the effects of the recent inflation reduction law inspire more renewable energy and electricity structure. vehicles. in the United States.
In total, we expect to sell our value-added product portfolio in 2023, adding higher volumes from our bottleneck removal projects, with value grades more or less unchanged from 2022.
Let’s move on to page five. You can see that Russian discounts on herbal fuel flows to Europe have continued to generate record power in Germany, France and other regions with winter expectations of over €700 consistent with megawatt hours.
High energy costs in continental Europe have put upward pressure on costs in Nord Pool. In the third quarter, North Pool’s energy costs averaged around €175 per megawatt hour, about €50 more than in the current quarter.
Unfortunately, major market insiders [ph] now expect the European energy crisis to persist for several years. While Europe has controlled filling the fuel garage to capacity this year, Russian energy flows to Europe have continued to decline and the recent destruction of the North Stream pipeline has created a scenario that means Europe is very likely to run out of power for at least the next few years.
Given the expected continuation of this crisis, we need to take steps in the third quarter to remove the remaining exposed exposure to the Nord Pool market from our Icelandic energy contracts.
If you move on to slide 6, I’ll show you the details. Prior to this step, approximately 30% of our Atlantic Energy contracts were indexed to Nord Pool’s value, with the remainder provided under long-term LME electric power contracts. Due to the volatility of the Nord Pool market, we have been collaborating with our energy supplier to convert most of our remaining exposed exposure to the Nord Pool into a constant value more in line with the Nord Pool’s pre-COVID value levels.
Following this modification of our electric power contract, we have made further currency hedging transactions to balance the rest of our Nord Pool, adding the cancellation of surplus currency hedges from the 2023 Nord Pool for a gain of approximately €60 million. Hedges will be settled in money evenly throughout 2023.
Finally, as is our same old practice when we enter into fixed-value energy contracts, we have also sold a small amount of EML upfront, creating value related to effective EML for energy. You’ll see those canopies reflected on our canopy slide as an appendix. Overall, we were pleased to be able to hedge our remaining unhedged exposure to Nord Pool and remove this volatility from the rear of Grundartangi.
As for the U. S. , domestic energy markets remained at a high over the summer, resulting in average Indy Hub energy costs of around $90 consistent with megawatt hours in the third quarter. with the recovery of coal production, it led October’s Indy Cinput to fall to an average of about $60 consistent with the month’s megawatt hour. We cautiously expect those trends to continue, with Indy Hub’s futures costs now averaging around $65 for the rest of the month. Fourth trimester
As expected, tight energy markets also continued to have an effect on the electric power supplier in our Mt. Holly, where a force majeure event from its largest coal supplier allowed the app to cover coal generation shortages with electricity purchases on the market. see Mt. Holly Energy’s cost decline in the fourth quarter as the U. S. energy market situation improved. U. S.
Let’s move on to our other cargo inputs. API alumina values averaged $340 per tonne in the third quarter and have fallen to a point value of $310 per tonne today. First symptoms of falling coke values in the third quarter, raw remains stubbornly high and pitch values have not yet decreased.
Taking a step back, when the effects of the global energy crisis are mixed with the traditionally high costs of carbon and other inflationary pressures, we estimate that about a portion of global aluminum production is in deficit at existing market costs.
Judging by the cycles beyond, this increase in the load curve has not been sustainable for a long time. In the long run, EML values have tended [ph] to average around the 90th percentile of the global load curve, which would require a significant improvement in existing conditions, either on the load aspect or on the value aspect, in order to achieve a solid equilibrium.
Let’s move on to operations. All our sites are working well and in full production. I need to commend the groups on site for achieving this outcome while running the capital and cargo relief systems we discussed on our last call. As a reminder, in reaction to market conditions, our groups have implemented systems to reduce CapEx and OpEx planned for 2022 through more than $40 million, adding staff discounts and other efficiencies. We remain on track to achieve these savings, which are reflected in our perspective on page 10 of the appendix.
Most importantly, we have remained focused on our fitness and protection and on our ultimate purpose of creating an injury-free office. These efforts span a wide diversity of systems, from leadership to behaviors to technology, and I’m pleased to say we’re seeing the benefits of those efforts, with office injuries across Century down nearly 15% so far this year.
While we remain focused on consistent and cost-disciplined operations, we ended the quarter with $215 million in cash and remain well placed to continue operating our services to the full production of this component of the aluminum cycle.
To enhance our position, we have also loaded a new $90 million credit facility secured through our assets in Vlissingen. This new line will complement our existing services in the U. S. It will be charged to our quarter-end liquidity position. With already strong liquidity, this new facility deserves to position us well to continue executing our long-term strategies.
And with that, I’m going to hand over the finances to Jerry.
Jerry Bialek
Thank you, Jesse. Let’s move on to slide seven and I’ll provide the effects for the quarter. On a consolidated basis, third quarter shipments were minimized by approximately 19% sequentially, primarily due to relief from our Hawesville plant. Realized costs were minimized by 14% in the last quarter due to minimizing lagging LME costs and minimizing regional premiums. The combination of minimizing shipments and minimizing learned promotion costs resulted in a 26% reduction in sequential net sales.
Looking at operating results. Adjusted EBITDA was a loss of $36 million for the quarter. The adjustment pieces come with the elimination of $5 million for Hawesville reduction costs and the elimination of $6 million for a reduction rate or impact on DRV in inventory.
Let’s move on to liquidity. As of September 30, we had money and credit facilities for just over $250 million. We took steps to strengthen liquidity in the quarter, and added the launch of a new €40 million advance credit facility secured through Nord Pool. as a component of the currency hedging reversal. This credit facility was unused at the end of the quarter and is included in our overall liquidity of $215 million.
Additionally, in November, we accepted a new $90 million line of credit secured through our assets in Vlissingen. This line of credit will be available from December 2022 and will increase liquidity through $90 million beyond the $215 million we had at the end. of the fourth.
Let’s move on to slide 8 to talk about adjusted EBITDA. Again, for the third quarter, adjusted EBITDA was a loss of $36 million, a low of $123 million compared to the previous quarter. partially offset by the closure of our Hawesville plant.
The third-quarter LME of $2,636 consistent with a reduction of $425 per tonne from the last quarter, while the Midwest premium of $643 consistent with a decrease of $201 per tonne. Delayed delivery premiums in Europe increased from $117 to $578 per ton.
Indy Hub’s electric power costs in the third quarter averaged $90 per megawatt hour, up 15% from the current quarter, while North Pool’s costs averaged $177 per megawatt hour, an increase of more than 37% over last quarter. Like Jessie Jesse, Indy’s concentrator energy costs have declined particularly since the end of the third quarter, averaging about $55 per megawatt hour in the fourth quarter to date.
The learned value of alumina increased to $57 per ton in the last quarter. While we have noticed symptoms of declining spot values, our learned values for coke and pitch have increased by about 10% and 19%, respectively.
Finally, as we discussed on our last call, we learned other combined benefits of $20 million through relief from our Hawesville facility and global load relief initiatives, as well as more standardized levels of maintenance and pot replenishment expenses.
It is ok. Let’s move on to slide nine and see the flow of money quickly. Our money position increased from $30 million as of June 30 to $65 million as of September 30 as we offset the negative impact on adjusted EBITDA and the use of capital expenditure money, borrowing on our revolving credit lines, executing equity innovations and hedge colony gains.
Total capital expenditures were $18 million [ph] in the third quarter, of which approximately $12 million similar to the Grundartangi smelter and $6 million in other capital expenditures. The North Pool.
Now let’s move on to slide 10 to get a review of our expectations for the fourth quarter. For the fourth quarter, the lagging LME is expected to decline to a learned value of $2,275 consistent with the tonne. It is expected to be $475 per tonne, and the European premium for delayed delivery is expected to be $485 per tonne.
Alumina realized is expected to be $400 consistent with the tonne, which, as noted in the past, reflects a three- to four-month delay in aluminum costs in our revenue source status. Together, movements in LME, delivery premium and aluminum costs are expected to reduce fourth-quarter EBITDA by approximately $60 million from third quarter levels.
From a power consistent with the outlook, we assume a base value of about $60 per megawatt hour for Indiana Hub and about $105 per megawatt hour for Nord Pool, which are consistent with our current spot and future values. energy prices would be equivalent to an approximately $50 million improvement in EBITDA, reflecting the adjustments to our electric power contracts described above by Jesse.
As a reminder, hedges are recorded in EBITDA, so you will continue to see the effect of market costs on EBITDA, but the net effect of hedging will be reflected in net income. Coke and pitch costs are expected to decrease slightly in the fourth quarter, resulting in a $5 million improvement in EBITDA compared to the third quarter.
Finally, we expect to see a net EBITDA revenue stream in the quarter of $5 million to $15 million similar to volume and expect savings from our global burden relief initiatives. In total, we expect those pieces taken in combination to equate to a slight improvement in third-quarter grade EBITDA for our fourth quarter result in a diversity of minus $25 million to minus $35 million.
From a hedging perspective, using the assumptions on the slide, we expect a learned profit of about $5 million in the fourth quarter, and we expect fiscal spending of about $5 million. an effect on those two pieces will be less than EBITDA geographically and will be reflected in adjusted net income.
By that, I mean Jesse.
Jesse Gary
In conclusion, even though the market environment has more challenges in the short term, we continue to make progress on our short- and long-term initiatives. During the quarter, Century reduced our charge design through our OpEx and CapEx relief systems and reduced the threat to our energy source by converting our remaining exposure to the Nord Pool at a constant price.
These moves helped us end the quarter with solid liquidity, which we further strengthened with our new $90 million Vlissingen credit facility. Our operations continue in full production and our long-term plans to expand our value-added product lines are on budget and on schedule. Ultimately, we remain confident that Century is well placed to take advantage of the long-term macroeconomic changes that make aluminum important to the future of the world.
We look forward to your questions.
Q&A session
Now we will begin the session of and response. [Operator Instructions] The first comes from David Gagliano of BMO Capital. You can continue.
Q-David Gagliano
Hello, thank you for answering my questions. I’m just hunting, I’m looking to make sure I’ve changed the hedges well. So I’m looking at last quarter’s sliding platform instead of this quarter’s sliding platform, just doing a little look. through appearance. Then you reported one. On the earnings side, it covered another 20,000 tons at an average value of about $0. 96[ph] consistent with the pound in terms of earnings. So I just need to check if it’s correct. That’s my first question. And then, relative to that, in the future, are they going to continue to cover LME values or LME volumes?
Jesse Gary
Hey, David, thank you. Yes, just rotating: If you take a look at slide 17, you can see all of our canopy books for FY23 and FY24. So he’s right about incremental volume. I don’t have a calculator in front of me to match pennies to the pound, however, you can move back to what you’re looking for there.
Going forward, as we have said, we intend to remain and offer our shareholders exposure to the value of aluminum. The exception to this is when we participate in giant constant-value commodity contracts, collect the tickets, and here we communicate about the movement. the value of the North Pool energy at a constant value.
So the LME we sold in advance just to fit that power, a constant power value, and to turn it into the familiar kind of electrical energy value related to the LME that you’re used to seeing in Iceland.
David Gagliano
It is ok. Thanks for the clarification. And then that’s my other component of the consultation. On the covers of the Nord Pool coin, in the last quarter of 2023, there were about 1. 1 million megawatt hours, I guess, as I said, of the 1. 1 million megawatt hours that were covered at €30 on average. And now there are 990,000 covers at € 30. So I guess this decline has been locked into the fixed price component now. So, my query is, first of all, can you check if this is correct?I guess so.
And then, the component of that at the moment, but I think the applicable maximum is what blocked?What is the value, the average value consistent with the megawatt hour now locked for Nord Pool?
Jesse Gary
yes. Thank you, David. – slide 6 and slide 17 how many North Pool hedges we have unrolled. And again, if you referred to my comments, we unrolled them for a profit of around 16 million euros, which will also be distributed during 2023.
This is pretty much the volume we have established with our energy supplier. We therefore contractually exchanged Nord Pool’s exposure component with our energy supplier at a constant price, which placed us in an over-hedging position at FY23. In a hedge, we unroll those hedges to make a profit. Does that make sense?
David Gagliano
Yes. NotArray, but I don’t pretend to be consistent with these coverage stuff anyway. So I’m fair: I’m trying to be consistent with the calculation of what’s constant: what’s the average value that the load consistent with megawatt hours has locked?in the Nord Pool now for 2023?
Had. . . You had 1. 1 million megawatt hours stuck at €30 consistent with megawatt hours. Now it’s 990,000 locked out of 30. So I’m just trying to figure out what is the constant value that you’ve locked, what’s that value consistent with the megawatt hour?
Jesse Gary
Let me check the volume once more with you. Let me check once again No, no. I adhere to you. And let me check the volume once again, and then we’ll see the price at the end if it works.
So if you go back to the last quarter and look at our monetary cover book, the equivalent of slide 17, you will have noticed that we are covered by about 80% in our Nord Pool 2023 exhibition. What we did this quarter we worked with our energy supplier to convert the contract component with them from a Nord Pool exhibition at a constant price.
When you take the megawatts and megawatt hours you see on this slide from last quarter, it would have been more megawatts than we consumed. That put us a little bit in a covert position. And instead of being left with an overcover position, we have undone some of them for this profit of 16 million euros. So that’s what happened on the volume side.
The same amount of megawatts that we will consume, but because we contract a part of the megawatts with our energy supplier, we have less monetary coverage, so we decouple a part.
So, for your query on pricing, there will be two types of parts of this that you’ll want to think about in the future. There is one part that will pass through EBITDA, which is just the Nord Pool’s gross exposure that you see going on. it will vary depending on the costs of the Nord Pool and some of which will be fully exposed to the Nord Pool. And if you look at slide six, about 20% of our energy will be powered into Grundartangi in FY 23 and about 10% will be repaired.
Now, due to confidentiality clauses in our energy contract, we cannot disclose what that value is set for. But if you step back and look at my comments, I think it’s a smart way to think about what we’ve been able to figure out is to go back and look at where Nord Pool’s values were before COVID. So while we were looking at the volatility caused by COVID and the events that followed COVID in Nord Pool, you can use that as a smart way to estimate where we may have reached an agreement with our electric power provider.
So if you use it for the constant part, then if you continue to use the constant value of – in the canopy book, for the rest of the exposure, it will give you a concept of where you want to be on the power side.
David Gagliano
It is ok. Thank you so much. I’ll let others ask the questions.
Jesse Gary
It’s ok.
Operator
Merci. La next one comes from Timna Tanners of Wolfe Research. Your line is open.
Timna Tanners
Hello, good afternoon. Thanks for all the details. Nor will I pretend that I understood everything. So offline we can dig a little deeper, however, it’s great to see the exhibition outside the books, if I perceive it correctly.
I just looked to take a step back and ask a little more about the other levers it can pull. In fact, I understand that all this is unsustainable. But in his Q, he says he has money and money equivalents for the next 12 months if situations persist. And I wonder if that’s the case, if this horrible environment continues, what other levers can it pull?How do you see the control of the company?
Jesse Gary
As we’re sitting here today, between $215 million in cash you saw at the end of the quarter, plus the new Vlissingen line of credit we implemented. We are comfortable with our liquidity levels as we anticipated the existing environment, even if those surroundings were to continue.
Having said that, I think you’ve noticed from Century in the afterlife and since this cycle, there are a number of levers in a company of this length and other capital-intensive aspects that we can use to reduce costs, whether it’s the CapEx aspect or the OpEx aspect and/or generating cash.
And we still have some of those who are making strides either in charge savings but also in money-making opportunities that we can take advantage of. I’m not going to pass on to those who are at the moment. They are hypothetical. We are very happy that the liquidity we have today is sufficient for a long time, as long as the cycle continues.
Timna Tanners
It is ok. So if I look at slide 10, to see if that’s the downside in terms of market conditions, we haven’t noticed the total reduction in regional premiums yet, it looks like for the fourth quarter. and maybe a little more alumina customers for consumption.
But everything you can share with us in terms of what you see in coca and pitch, that’s a little more opaque to us, and how do you think if it’s the bottom, what delta is it moving forward with given those lagging factors?
Jesse Gary
While sûr. Ouais. Je thought for coke and pitch, those are much smaller markets than we generally see. We have begun to see what we believe is the most sensitive thing about the coke cycle. We saw a slight decline in the last quarter. We hope that will continue. The pitch is a little, maybe a little stickier. There are a number of drivers and reasons for this. And so there’s probably less short-term relief on that side.
Again, going back to my comments, when you start adding it all up, you get coca, pitch, alumina. And given the global nature of this energy crisis we’re witnessing, one difference of this cycle compared to previous cycles is that the same load drivers appear to be a big part of the global supply.
And so, when you take that to the load curve and look at how deep in the load curve, the loss occurs. This provides you with a concept of a balance that is unlikely to be sound in the long run and that replacement can take place in one or two ways. It can come from the cargo side. Again, alumina [ph] co-releases, energy, finally, we see in the U. S. UU. al least, energy charges have dropped a lot in recent months.
But it can also come on the value side, right?We have to see discounts in some provinces of China, whether in the short, medium or long term. Starting to see some reaction about the value of. . . Excuse me, on the source side. Then, one way or another, the market will balance out. And we don’t see that continuing in the long term and we’re pretty satisfied with our position.
Timna Tanners
What if I can swipe one more?I wondered, back to Hawesville, since electric power prices were a little less bad than they seemed at the time of shutdown. An updated mirror picture of how long it can be or how to think about this operation in the future?
Jesse Gary
Therefore, the relief in Hawesville has been carried out in a very orderly manner and the asset remains in good condition. And so, from now on, we will continue to examine it. I think given where we’re in the cycle today, I think you’ll see us being disciplined and making sure we have a smart concept of where the market is headed before we start taking the prices of getting this facility back up and running.
But the asset is ready, the option is available to us, and you only have to take a look at the general commodity cycle and the price and charge aspect to know when it will make sense to restart this facility.
Timna Tanners
It is ok. Heard. Thank you so much.
Jesse Gary
Thanks.
Operator
The following is from John Tumazos of Very Independent Research. Continue.
Juan Tumazos
Congratulations on 3 consecutive quarters with accounting results.
Jesse Gary
Thank you, Jean.
Juan Tumazos
Is it moderate for its shareholders to assume that the company’s policy is to have long-term electric power source contracts for its smelters, preferably renewable if available, moving away from the strategy beyond buying electric power with money at least for Kentucky, because the energy markets have replaced and are stricter and it is more complicated to buy electric power in money?
Jesse Gary
Ouais. Je I think there’s a lot going on on the force side. It arguably wouldn’t be harder to buy cash, however, we’ve noticed increased volatility in spot strength over the past 18 months, from COVID, either up or down. And I think he’s touched on a couple of things that are definitely in our long-term plans.
And one is to find a way to remove some of that volatility from our main cost, which of course is energy and you’ve noticed that it affects us, you’ve noticed that we do a little bit of that in the subsequent quarter in Iceland. But also more broadly, it’s about moving towards expanding the renewable energy mix. ensure that these two trends continue in the short, medium and long term.
Juan Tumazos
Jesse, if I can also make another query. I may not respond to that, but I would like to make the consultation just so that Glencore’s large shareholder, perhaps other advisors or lawyers, can hear that the consultation has taken place.
Is it moderate to assume that the 42. 9% shareholder would lend its balance sheet or secure a renewable energy contract of more than 20 years and a bridge electricity contract for one or two years mandatory to build wind or solar farms?And a fair attention for such monetary guarantee, Glencore’s call could be the first, maintaining the price of its participation of 42. 9%, then processing its contracts for the sale of metallic aluminum in exchange for a payment, proceeding to have the alumina acquire the contracts they have in exchange for a payment and proceeding to cover the advertising representations of others in the future, Who would avoid if it had less aluminum production or if something happened to break contracts like a reorganization?Big brother to be able to help.
Jesse Gary
Well, of course, all contracts with Glencore will continue to be concluded on market terms and at arm’s length, so maybe you can start there. , maybe in the credits for doing that.
We have known a number of tactics to achieve this. I don’t think it remembers our ability to participate in long-term renewable energy contracts, whether in Europe or the United States. And in fact, I think some of the recent laws that we’ve seen in the U. S. aspect are not a new one. The U. S. Inflation Reduction Act comprises some very smart provisions that will help expand more renewable energy in the U. S. We will use the U. S. for services like our foundries in Kentucky and South Carolina, but they will also help other systems in one aspect of the foundries. adding power power innovations and other capital projects that will help the U. S. smelter baseThe U. S. government has a longer shelf life. So, I think there are a lot of very smart opportunities out there and to make green: our energy supply, but also to make life bigger and decrease the volatility of our energy supply, as I think you’re alluding to.
Juan Tumazos
So are you saying that the Inflation Reduction Act is so beneficial that it could renew power in the long run without the support of shareholder credits?
Jesse Gary
Well, I think there are a number of tactics to get the types of energy contracts you’re talking about. And that’s all we’re doing in many other ways.
Operator
The following is from Lucas Pipes with B. Riley Securities. You can continue.
Lucas Pipas
Thank you very much, operator, good afternoon everyone. I need to return to the agreement of the Icelandic force. And I’m curious, if we just look at the contract side, I know you can’t tell us where it covered locked into the constant value component. But if we look at the formula of the LME North group and constant, in today’s LME values, in today’s Northern pool values, what would be more or less the weighted average load of your electrical energy in Iceland?Thank you very much, perspective.
Jesse Gary
Thank you, Lucas. Es a smart question. And, of course, we don’t break down the individual charge structures of any of our assets. To start with slide six, and let’s take a look at the distribution of energy loads in the future.
Therefore, the LME-like component has not been replaced. And that’s the same 70% he’s noticed for Grundartangi in recent years, and he has a clever concept of how it works through other cycles. There is no replacement there.
On the Nord Pool side, of course, you can continue to design this. You can view Nord Pool Market Pass costs. It will be 20% of our exposure. And of this 20% exposure, almost everything is covered at 30 €. So look it’s still felt on the EBITDA side, but on the money side, it’s all covered. It’s about 30 €. And then the remaining 10% is that 10% that we establish by contract with our energy supplier. And it’s obviously a matter of confidentiality, but it’s a small piece of the overall puzzle. And I think I have a clever concept of where it could be or that you can approach it.
Lucas Pipas
It’s useful. Then, as a follow-up question, the LME-like component, intuitively logical, pays more for electrical power when the LME charges pass, but now I had an environment where the LME has passed and we still have a number of our input factors, not just energy. Does it make sense to reconsider this structure and link it to LME prices given what has happened to the global load curve?Thank you very much for your color in this.
Jesse Gary
Yes, that’s a smart question, Lucas. Es a design that has worked very well for us for long periods of time, through many other cycles. Obviously, you know, create a foundry like Grundartangi, which made money in the depths. from the currency crisis to the most recent higher rates of the LME and back to where we are today. Therefore, it is a great way to minimize the effect of a rate that can vary quite significantly.
So I think from our perspective, of course, we’re going to be looking at what makes the most long-term sense on the energy side, given the giant portion of our base prices that will be that energy. We are willing to give up without problems given the good fortune he has enjoyed for decades in Grundartangi.
Of course, for Century as a whole, when you associate Grundartangi, which has this huge exposure of value related to the LME with U. S. smelters, you have this lot of value exposure related to the U. S. smelters, you have this big exposure of value related to the LME. . Holly, you get a smart combination of the other 3 types of pricing mechanisms across the country, which serves you well, whether it’s higher LME environments, but also lower LME environments and conservatives balance out a bit. So, in general, we like this kind of energy price mix and think we’re well placed to go through other pricing environments.
Lucas Pipas
And when it can be renegotiated, if you remind me, I would appreciate it. Is it conceivable to set the highest base, for example, in the prices of the LME?Or is it automatic?
Jesse Gary
Ouais. Il are Grundartangi’s electric power contracts that run from 2026 to 2036. Therefore, there are a variety of contracts that span this era and will be renewed in this era.
luke pipes
Thank you very much for this color. And then replace the theme on the alumina side. Could you remind us what percentage, what percentage of SCI, the value of alumina is set in the next year?I would appreciate its color in that. Thank you.
Jesse Gary
So we have an aluminum combine in 2023. La combine is a component similar to the LME, a component that is still similar to the API and a component that is fixed. Therefore, we are around 60% of the LME destined for 2023, 25% IPY and around 15% fixed.
Lucas Pipas
And how similar to SCI in what percentage of SCI would it be on average?
Jesse Gary
We do not disclose this expressly, as you can imagine, it is sensitive information from the advertising point of view. But it is, and just to clarify, this is our combination for 2022: by 2023, costs will come in a similar mix to 2023. But we do not disclose the express percentage given its advertising nature.
Lucas Pipas
It is ok. I thank you and good luck.
Jesse Gary
Ouais. Et Lucas, perhaps alone: what we have already said is that this percentage tends to be between 15% and 17% of the value of aluminum with some outdoor periods varying according to the general dating between API and LME whenever such contracts have been concluded.
Operator
Merci. Il it turns out we have a follow-up of David Gagliano with BMO Capital. Continue.
David Gagliano
Hello. You already answered many queries. I just wanted to go back and check to make the same query in another way. So, for example, if you look at slide 10, the fourth quarter is lost sight of. slide, North Pool’s electric power values assume $105 per megawatt hour and Indy Hub’s electric power value assumes $60 per megawatt hour, and that’s a $50 million tailwind. So when we move to the first quarter of 2023, we see the same slide, and we assume the same values, Nord Pool 105, Indy Hub 60, what will be the current update from quarter to quarter in that, now that the hedges are flowing and so on in the first quarter. 23?
Jesse Gary
The value of electric power deserves to be practically the same in this situation, David, who evidently has a dependence on the SCI for 70% of the value of Grundartangi’s electrical energy.
David Gagliano
GOOD, GOOD. Well, that’s helpful. Thank you so much.
Operator
Merci. Il is out right now. I will now pass it on to the control team for any final comments.
Peter Trpkovski
Thank you all for joining today’s call. We look forward to talking to you in the new year. Thank you.
Operator
This concludes Century Aluminium Company’s third-quarter 2022 earnings convention call. Thank you for your participation. You can now disconnect your lines.