Bullish View Expects New U.S. Greenfield Smelter To Transform Long Term Outlook

Catalysts

About Century Aluminum

Century Aluminum produces primary aluminum and related products for customers in the U.S. and Europe.

What are the underlying business or industry changes driving this perspective?

• The planned restart of more than 50,000 tonnes per year at Mt. Holly, supported by a new power agreement through 2031 and an estimated full run rate contribution of about US$25 million in EBITDA per quarter from Q3 2026, directly targets higher shipment volumes and earnings.
• Progress on the new U.S. greenfield smelter, which is expected to be one of the most modern and efficient in the world and could double current industry output while adding over 1,000 direct jobs, positions Century to capture rising domestic demand and potentially lift long run revenue and operating margins.
• Century’s position as the largest producer of primary aluminum in the U.S., combined with tight global inventories and strong billet demand into 2026, supports the company’s ability to sell more volume into high value U.S. and European markets and sustain higher realized premiums that feed directly into revenue and EBITDA.
• Section 232 tariffs and Section 45X production tax credits, including US$220 million of receivables as of September 30 and a recent US$75 million cash refund, support U.S. production economics and provide additional cash flow flexibility to invest in growth projects while targeting lower net debt and potentially higher future earnings power.
• Ongoing power contracting and hedging work, such as the cost of service Mt. Holly agreement and Sebree’s long experience with market based power combined with selective hedging, supports more predictable energy costs, which can help protect net margins even as aluminum prices and regional premiums move.

Assumptions

This narrative explores a more optimistic perspective on Century Aluminum compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Century Aluminum's revenue will grow by 13.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.2% today to 25.5% in 3 years time.
• The bullish analysts expect earnings to reach $930.0 million (and earnings per share of $6.8) by about January 2029, up from $80.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $398.6 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 8.1x on those 2029 earnings, down from 56.6x today. This future PE is lower than the current PE for the US Metals and Mining industry at 26.0x.
• The bullish analysts expect the number of shares outstanding to grow by 1.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.47%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Century Aluminum’s reliance on Section 232 tariffs and Section 45X production tax credits creates policy risk, because any future change to tariff protection or tax credit availability could reduce U.S. pricing power and cash inflows from the current US$220 million in receivables. This would put pressure on revenue, EBITDA and the pace of net debt reduction.
• The U.S. greenfield smelter, Hawesville options and the Mt. Holly expansion all require sizeable capital outlays and long development timelines. Any cost overruns, delays or weaker long term demand than currently assumed could limit the expected uplift from projects like the roughly US$50 million Mt. Holly restart spend, weighing on future returns, free cash flow and earnings.
• Operations remain exposed to unplanned outages and weather or equipment related events, as highlighted by the Grundartangi transformer failures and the Jamalco hurricane risk. Any repeat episodes that are not fully covered or are slow to be reimbursed by insurance could create periods of weaker shipments, higher maintenance spending and more volatile EBITDA and net income.
• Century’s power cost exposure at assets like Sebree, which are tied to market based power and hedged only partially, means sustained higher energy prices or currency moves such as pressure on the U.S. dollar against the Icelandic krona could raise operating costs over time and squeeze net margins even if aluminum prices and regional premiums are supportive.
• The capital allocation framework anticipates future share buybacks once the net debt target of US$300 million is met. If cash flows from operations, Section 45X refunds and expansion projects fall short of current expectations, management may prioritize balance sheet needs over capital returns, which would limit any support to earnings per share from potential repurchases.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Century Aluminum is $61.0, which represents up to two standard deviations above the consensus price target of $50.0. This valuation is based on what can be assumed as the expectations of Century Aluminum's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $61.0, and the most bearish reporting a price target of just $37.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $3.7 billion, earnings will come to $930.0 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $49.0, the analyst price target of $61.0 is 19.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.