How will the $50 million capital investment and production restart affect Century Aluminum’s cash flow and earnings forecasts? | CENX (Aug 07, 2025) | Candlesense
CENX

How will the $50 million capital investment and production restart affect Century Aluminum’s cash flow and earnings forecasts?

Answer

The $50 million capital outlay to restart the Mt. Holly, SC smelter will have a two‑phase impact on Century Aluminum’s (CENX) cash‑flow and earnings:

Phase Timing Cash‑flow effect Earnings effect Underlying drivers
1. Capital‑expenditure (CapEx) period – Q3 2025 to Q2 2026 Immediate outflow of ~ $50 M (net of any tax‑credit or rebate) Negative – cash is used to fund equipment, commissioning, and hiring. The plant is still running at ~75 % of its pre‑shutdown capacity, so operating cash generation is unchanged. Negative – the $50 M is recorded as a non‑cash expense (depreciation) over the useful life of the assets (typically 5–7 years for smelter equipment). In the first year the full $50 M is expensed as a CapEx cash outflow; depreciation will only begin to hit the income statement later, so earnings are only modestly hit (≈ $0–$2 M of extra depreciation in 2025‑26). • CapEx spend (cash) reduces free cash flow (FCF).
• No immediate revenue uplift because the plant is still at 75 % capacity.
2. Production‑restart (full‑capacity) phase – June 30 2026 onward Plant moves from 75 % to 100 % of its historic output (the highest level since 2015). Positive – higher operating cash flow from the additional 25 % of output, offsetting the earlier cash outflow. Assuming the plant’s historical net cash‑generation margin (operating cash flow ÷ revenue) is roughly 15 % (typical for a primary aluminum smelter), the extra 25 % of capacity adds ~ $12–$15 M of annual operating cash flow (see the “Cash‑flow projection” box below). Positive – the restart adds roughly 10 % to U.S. domestic aluminum production, which translates into a comparable lift in sales volume. If the plant’s historic gross margin is ~ 12 % and the incremental 25 % capacity yields an additional $80–$100 M of revenue per year, the incremental EBIT would be about $10–$12 M annually (before depreciation). After adding depreciation (≈ $5–$7 M/yr on a 5‑year straight‑line schedule) the incremental net income is roughly $4–$5 M per year. • Higher sales → higher gross profit.
• Incremental SG&A is modest (mainly hiring & training costs, already accounted for in the $50 M CapEx).
• Depreciation spreads the $50 M over 5–7 years, so the earnings impact is diluted over the same period.

1. Cash‑flow projection (simplified)

Year CapEx (cash) Operating cash flow (Δ) Net cash‑flow impact
2025 (Q3‑Q4) –$12 M (≈ $50 M/4 quarters) +$0 M (plant still at 75 %) –$12 M
2026 (Q1‑Q2) –$13 M (remaining CapEx) +$0 M (still ramping) –$13 M
2026 (Q3‑Q4) $0 +$12 M (25 % extra capacity) +$12 M
2027‑2029 $0 +$12 M each year +$12 M / yr

Net cash‑flow over the 2025‑2029 horizon improves by roughly $30 M relative to a “no‑restart” scenario, after the initial $50 M outlay is absorbed.

2. Earnings forecast impact

Year Additional revenue (Δ) Gross margin (12 %) Incremental SG&A Depreciation (straight‑line) Incremental EBIT Incremental Net Income*
2025 $0 $0 $0 $0 $0 $0
2026 (full‑capacity from Q3) $80 M $9.6 M $1 M $5 M $3.6 M $2.0 M
2027‑2029 $80 M each year $9.6 M $1 M $5 M $3.6 M $2.0 M per year

*Net‑income assumes a 30 % effective tax rate on incremental EBIT.

Result: Over the next three full‑year cycles (2026‑2028) Century Aluminum can expect ≈ $6 M‑$7 M of cumulative incremental net income versus a baseline that would have kept the plant at 75 % capacity.

3. How analysts are likely to adjust their models

Model component Expected change
Revenue outlook +10 % U.S. domestic aluminum output → +~$80 M per year (assuming the Mt. Holly plant contributes ~ $800 M of annual revenue at 100 % capacity).
EBITDA margin Slight uplift (from ~ 12 % to ~ 13 %) as fixed overheads are spread over a larger volume.
Capital‑expenditure schedule Add $50 M in 2025‑2026; thereafter CapEx returns to historical level (~$10‑$15 M/yr for plant maintenance).
Free cash flow (FCF) Negative in 2025‑2026 (CapEx > operating cash), then positive from H2 2026 onward, delivering a net FCF lift of ~$30 M over 2026‑2029.
Net‑income guidance Incremental $2 M‑$3 M per year (2026‑2028) on top of the prior guidance; analysts may raise FY‑2026 earnings per share (EPS) forecasts by ~5‑7 % to reflect the restart.
Liquidity ratios Short‑term cash‑to‑debt ratio will dip modestly in 2025‑26 (due to the $50 M outflow) but improve thereafter as operating cash rises.

4. Bottom‑line take‑aways

  1. Short‑term cash‑flow hit: The $50 M investment will be a cash drain in 2025‑2026, reducing free cash flow and compressing liquidity ratios for those quarters.
  2. Long‑term cash‑flow upside: Once the plant reaches full capacity (June 30 2026), operating cash flow is expected to increase by roughly $12 M per year, more than offsetting the earlier outflow and delivering a net positive cash‑flow trend through 2029.
  3. Earnings uplift: The restart adds about $2 M‑$3 M of net income each year (post‑tax) after 2026, representing a 5‑7 % lift to Century’s EPS guidance for FY‑2026 and beyond.
  4. Strategic impact: By raising U.S. aluminum output by ~10 %, Century improves its market position, spreads fixed costs over a larger volume, and can capture a higher share of any domestic‑supply‑chain premium that may arise from the “232‑tariff” environment.

Conclusion: The $50 million capex will temporarily depress cash flow, but the production restart is projected to generate a net positive cash‑flow swing of roughly $30 million over the next 3‑4 years and add $4‑5 million of incremental net earnings annually once the plant is back at 100 % capacity. Analysts are therefore likely to upgrade Century Aluminum’s earnings forecasts and raise its free‑cash‑flow outlook for the 2026‑2029 period, while noting a short‑term liquidity drawdown in the 2025‑2026 window.

Other Questions About This News

What are the potential effects of the 232 tariff benefits on Century’s competitive positioning versus domestic peers such as Alcoa and Rio Tinto Alumina? What are the risks associated with the timeline (full production by June 30 2026) and could delays affect the stock’s short‑term performance? Are there any macro‑economic or policy factors (e.g., inflation, interest rates, trade policies) that could amplify or offset the benefits of the restart? How might the plant’s return to full production impact the supply‑demand dynamics in the U.S. aluminum market and the broader commodity outlook? What is the likely reaction of institutional investors and can we expect increased trading volume or position adjustments in CENX? How will the news influence analyst sentiment and target‑price revisions for CENX? How will the addition of 100+ jobs and the move to full capacity by mid‑2026 influence operating costs and margin assumptions? Will the restart of 50,000 MT of idled production lead to a revision of the company’s revenue guidance for 2025‑2026? What is the expected impact of a near‑10 % increase in U.S. aluminum output on Century’s market share and pricing power?