Reason for Report: 1Q07 Earnings Update Previous Edition: March 01, 2007

Century Aluminum Co. / (CENX-NASDAQ) / $55.10

Note: This report contains substantially new material. Subsequent reports will have new or revised material highlighted.

Reason for Report: 1Q07 Earnings Update Previous Edition: March 01, 2007

Recent Events

On May 30, 2007, CENX announced its plans to offer 7.3 million shares of its common stock. The Company plans to offer to sell some of the shares to institutional investors in Iceland in the form of global depositary receipts traded on the First North Iceland. The Company also expects to use the net proceeds as part of the financing for the proposed new aluminum smelter near Helguvik, Iceland.

On May 10, 2007, CENX filed its SEC Form 10 Q report.

On April 26, 2007, CENX reported 1Q07 results. Highlights are as follows:

Total revenue increased 29.1% y-o-y to $447.7 million in 1Q07 from $346.9 million in 1Q06.
Net income was $64.2 million, a 53.3% y-o-y increase from $41.9 million in 1Q06.
EPS was $1.87 in 1Q07 versus $1.30 in 1Q06, a 43.6% y-o-y growth.

On March 21, 2007, CENX announced the former mining executive, Peter Jones, has joined the Company's Board of Directors.

Further details will be provided below.

Overview

Monterey, California based Century Aluminum Company (CENX or Company), through its subsidiaries, produces various aluminum products in North America. It offers primary aluminum and molten aluminum, as well as ingot, extrusion billet, and other value-added primary aluminum products. Century Aluminum makes primary molten and ingot aluminum at facilities in Kentucky and West Virginia, as well asIceland, operated by subsidiary Nordural. Century Aluminum also owns a 49.7% stake in an aluminum production facility in South Carolina. Four customers, aluminum producer Alcan, diversified metal company BHP Billiton, comillionodities trader Glencore International, and wire and cable maker Southwire,account for 85% of Century Aluminum's sales. Glencore is Century Aluminum's former parent, and still has about a 30% stake in the Company.

Key investment considerations as identified by analysts, are as follows:

Key Positive Arguments / Key Negative Arguments

Global supply/demand remains in balance.
The Company is aggressively expanding capacity via internal and external expansion efforts.
Global demand for aluminum is expected to remain robust in the coming years.
CENX can benefit from industry consolidation.

A delay in the smelter expansion plans can reduce the strategic appeal of CENX.
Potential aluminum price weakness and a sharp increase in interest rate can adversely affect earnings.
Potential of increased global supply of aluminum from China producers, creates a long-term overhang for the stock
The Company can face higher power costs or power disruptions, which can negatively impact profitability.

Of the 8 firms covering the stock, 3 gave positive ratings, and 5 gave neutral ratings.No firm has provided negative rating.

Additional information is available at:

Note: Century Aluminum’s fiscal year coincides with the calendar year.

Revenue

In 1Q07, total revenue increased 29.1% to $447.7 millionfrom $346.9 million in 1Q06. Sequentially, it increased 5.5% from $424.4 million in 4Q06. Primary aluminum shipments in North America of 290.1 million pounds decreased by 0.6% from 1Q06, but increased by 0.4% sequentially. The Nordural smelter in Iceland reported toll shipments of 116.9 million pounds this quarter, an increase of 115.9% from 1Q06, and an increase of 4.8% sequentially, due to the expansion completed in December 2006.

In the opinion of one analyst (Davenport), the y-o-y as well as sequential increase in profitability is largely due to higher aluminum prices, as well as higher output from the Nordural expansion.

Total Revenue $ in millions / 2005A / 2006A / 1Q07A / 2Q07E / 3Q07E / 4Q07E / 2007E / 2008E / 2009E
Total Revenue / $1,132.4 / $1,558.3 / $447.7 / $440.1↑ / $421.0↑ / $412.7↓ / $1,737.9↑ / $1,679.1↑ / $1,485.5↑
Digest High / $1,132.4 / $1,558.6 / $447.7 / $458.5↑ / $446.1↑ / $445.7↑ / $1,885.0↑ / $2,078.0↔ / $1,578.9↑
Digest Low / $1,132.4 / $1,556.1 / $447.7 / $410.3↑ / $396.7↓ / $385.3↓ / $1,640.0↑ / $1,459.0↑ / $1,378.0↑
Year over Year Growth / 37.6% / 29.1% / 8.4% / 10.4% / -2.8% / 11.5% / -3.4% / -11.5%
Qtrly. Sequential Growth / 5.5% / -1.7% / -4.3% / -2.0%

One analyst (MorganStanley) opines management continues to effectively execute on growth initiatives, and expects to see accelerating consumption growth in most regions outside North America.

One analyst (B. of America) expects higher aluminum costs in 2Q07 related to spot orders and new LME-linked contracts. However, another analyst (Davenport) is forecasting modest surpluses for primary aluminum in 2008 and 2009, which is likely to take the aluminum price lower.

Please refer to the Zacks Research Digest spreadsheet on CENX for more details.

Margins

1Q07 gross profit increased 57.3% to $120.3 millionfrom $76.5 million in 1Q06. Sequentially,gross profit increased19.4% from $100.7 million in 4Q06. Gross margin increased to 26.9% from 22.1% posted in 1Q06, and 23.7% in 4Q06. The growth was driven by higher realized aluminum prices and higher toll shipments.

SG&A reported in 1Q07 was $13 million versus $12.1 million in 1Q06. According to analysts, $2 million of un-capitalized costs from the Helguvik project and an additional $2 million of executive compensation costs are the major reasons for the high expense.

Operating income increased 51.9% to $97.7 millionfrom $64.3 million in 1Q06. Sequentially, operating income grew17.3% from $83.3 million in 4Q06. Operating margin was 21.8% versus 18.5% posted in 1Q06. Regionally, operating performance was strong in the US and Iceland.

Margins / 1Q07A / Q/Q % Change / Y/Y % Change / 2Q07E / 2005A / 2006A / 2007E / 2008E / 2009E
Gross Margin / 26.9% / 3.1% / 4.8% / 25.7%↓ / 14.3% / 25.0% / 24.3%↑ / 19.7%↑ / 17.3%↑
Operating Margin / 21.8% / 2.2% / 3.3% / 20.8%↓ / 11.2% / 19.9% / 19.2%↑ / 15.7%↓ / 13.3%↑
Pretax Margin / 19.9% / 67.9% / 85.9% / 18.8%↓ / -18.4% / -7.0% / 18.2%↓ / 16.8%↓ / 11.0%↑
Net Income Margin / 14.3% / 42.4% / 55.2% / 13.5%↓ / -10.3% / -2.6% / 13.2%↓ / 12.3%↓ / 8.3%↑

According to one analyst (MorganStanley), CENX continues to face input cost pressures, particularly alumina and power costs, as the Company enters into new contracts. Another analyst (Friedman, Billings) opines the new alumina contracts at Ravenswood and Mt.Holly along with two purchased spot cargoes of alumina, will result in higher operating costs going forward.

Please refer to the Zacks Research Digest spreadsheet on CENX for more details.

Earnings per Share

CENX reported 1Q07 EPS of $1.87 per share versus $1.30 in 1Q06 and $1.62 in 4Q06. It increased 43.6% y-o-y and 15.0% sequentially. On a GAAP basis, EPS was also $1.87 versus ($4.39) in 1Q06. According to one analyst (Merrill), earnings were higher as a result of higher aluminum price and an increase in tolling shipments, partially offset by increased costs.

FY Ends Mar. / 1Q07A / Q/Q % Change / Y/Y % Change / 2Q07E / 2005A / 2006A / 2007E / 2008E / 2009E
Zacks Consensus / $1.80 / $6.74↑ / $6.38↑
Digest Average / $1.87 / 15.0% / 43.6% / $1.80↓ / $2.61 / $6.05 / $6.76↑ / $5.97↑ / $3.39↑
Digest High / $1.87 / 14.0% / 43.8% / $2.03↓ / $2.61 / $6.11 / $8.27↓ / $11.56↓ / $3.57↑
Digest Low / $1.86 / 24.0% / 43.1% / $1.48↑ / $2.61 / $5.92 / $5.41↑ / $3.50↑ / $3.20↑
Management GAAP Guidance
Company Guidance BEFORE FAS123 (ESOE)
Company Guidance AFTER FAS 123 (ESOE)

Highlights from the chartaboveare as follows:

2007 forecasts (total 8) range from $5.41 to $8.27; the average is $6.76.
2008 forecasts (total 8) range from $3.50 to $11.56; the average is $5.97.
2009 forecasts (total 2) range from $3.20 to $3.57; the average is $3.39.

One analyst (J.P. Morgan) lowered 2007 EPS forecast by 4% due to creeping costs––principally for the new alumina contracts at Mt.Holly and Ravenswood, but also for higher carbon anode costs that are impacting the entire aluminum industry.

Please refer to the Zacks Research Digest spreadsheet on CENX for more details.

Target Price/Valuation

Target prices range between $48.00 (Goldman)(12.8% downside from the current price) and $64.00 (Friedman, Billings)(16.1% upside from the current price). The average target price is $55.10(samethe current price). The firm (Goldman) with the lowest target price, applieda weighted average of P/E, EV/EBITDA, and DCF to compute thetarget price, whereas the firm (Friedman, Billings) with the highest target price, applied5.0x EV/EBITDA multiple 2008 aluminum price for the same.

Rating Distribution
Positive / 37.5%
Neutral / 62.5%
Negative / 0.0%
Avg. Target Price / $55.10↑
Max. / $64.00↑
Min. / $48.00↔
No. of Analysts with Target Price/Total / 5/8

Metrics detailing current management effectiveness are as follows:

Metric (ttm) / Value / Industry / S&P 500
Return on Assets (ROA) / 7.19% / 9.70% / 8.12%
Return on Investments (ROI) / 9.97% / 12.32% / 12.02%
Return on Equity (ROE) / 114.21% / 21.71% / 20.47%

Please refer to the Zacks Research Digest spreadsheet on CENX for more details.

Capital Structure/Solvency/Cash flow/Governance/Other

CENX announced plans to offer 7.25 million shares to help fund the proposed new 2010 aluminum smelter near Helguvik, Iceland. In the opinion of one analyst (Friedman, Billings), the size of the offering is unnecessarily large and the timing is premature, and CENX is issuing the offering to reduce futurevaluation risk and put the Company on a more solid balance sheet footing for future growth opportunities above and beyond Helguvik.

As per the Zacks Digest, 1Q07 free cash flow (FCF) amounted to $80.1 million. In the opinion of one analyst (J.P. Morgan), CENX is expected to generate more than $300 millionof FCF in 2007. During 1Q07, the Company’s total debt was $772.6 million, a 50% debt to capital ratio.

In the opinion of one analyst (J.P. Morgan), approximately $7 million related to project work for the Helguvik smelter is expected to be expensed through CENX’s income statement in 2007 as opposed to being capitalized on CENX's balance sheet. The analyst also believes CENX is focused on paying down debt,and does not expect any of this cash flow to be returned to shareholders.

Capital spending is expected to decline in 2007 from 2006. Management is forecasting 2007 capital expenditure (capex) of $125-$135 million, which includes base capex of $20 million, $10-$20 million for other potential projects, and $95 million for Grundartangi Phase V.

Nordural & Other Growth Projects

Nordural – The brownfield expansion reached its 220,000-tonne annual run-rate on budget during the quarter. The next phase remains on budget and on schedule to be completed by year-end. This expansion is expected to increase annual run-rate capacity to 260,000 tons and substantially reduce per-unit operating costs. Management believes the expansion could add up to 11-15 million lbs of production in 4Q07.

The Company has sold forward 240.7 million pounds in 2008, 231.5 million pounds in 2009, 231.5 million pounds in 2010 and 826.7 million pounds in the 2011–2015 period, which represents 14%, 13% and 13%, respectively, of sales in the first three years, and 9% thereafter, of the Company’s total estimated primary capacity.

Potentially Severe Problems

There are none other than those discussed in other sections of this report.

Long-Term Growth

Expected long-term growth ranges from 8.0% (Friedman, Billings) to 15.0% (B. of America), with an average of 11.0%.

CENX continues to move ahead with its robust pipeline of growth projects. The Grundartangi Phase V expansion is on schedule and budget, and will be completed by end of 2007. The Company expects 5-7kilo metric tons of additional production in 4Q07 from the expansion, and $95 million of capital spending in Iceland this year.

CENX is continuing to make progress with the proposed Helguvik greenfield smelter. Analysts estimate Helguvik will add approximately 150kilo metric tons of capacity by 2010, at a cost of about $750 million. A Phase II expansion will take production to roughly 250 kilo metric tons by 2015. The Company can have annual aluminum production capacity of 1 million metric tons, and by 2015, it could exceed 1 million metric tons. The Helguvik power agreement is expected to be finalized shortly, and technology selection appears close at hand.

According to one analyst (B. of America), other proposed projects in the pipeline include greenfield refineries in Jamaica and the Republic of the Congo. The Company also discussed the potential need for carbon anode capacity to serve its growing position in Iceland.

Upcoming Events

The Company is scheduled to make its 2Q07 earnings announcement on July 26, 2007.

Individual Analyst Opinions

POSITIVE RATINGS (37.5%)

BMO Capital (updated05/29/2007) – The firm maintained an Outperform rating, with a target price of $57.50. INVESTMENT SUMMARY: The firm has reiterated the rating due to the share’s attractive valuation and relatively high leverage to the rising aluminum price.

Friedman, Billings (updated 05/30/2007) –The firm has maintained Outperform rating, with an increased target price of $64.00 from $55.00. INVESTMENT SUMMARY: The analyst is impressed by the ongoing expectations of new, low cost volume additions, which will result in increased production, lower unit costs, and strong free cash flow generation.

J.P. Morgan (updated 04/27/2007) – The firm has maintained an Overweight rating. INVESTMENT SUMMARY: The firm believes CENXshares do not reflect the earnings and cash flow generation power of the Company in the current price environment for aluminum. The firm also believes given CENX's growth strategy, strong cash flow and growing strategic appeal, the stock presents a compelling opportunity for investors looking to play with the expected near-term strength of aluminum.

NEUTRAL RATINGS (62.5%)

B. of America(updated 04/26/2007) – The firm has maintained a Neutral rating, with an increased target price of $51.00 from $49.00. INVESTMENT SUMMARY: The analyst is comfortable with CENX’s prospects, considering the Company appears more likely to use conservative financing strategies for the Helguvik greenfield project.

Davenport (updated 04/27/2007) – The firm is rated Neutral with a target price of $55.00. INVESTMENT SUMMARY: The firm opines the fundamentals remain strong, which increases the probability of prices climbing higher. The potential of higher prices in the near term, is likely to drive the stock higher.

Goldman (updated04/27/2007) – The firm has maintained a Neutral rating, with a target price of $48.00. INVESTMENT SUMMARY: The analyst opines aluminum prices have been strong YTD, supported by strong Chinese demand, and expects the strength to continue in the near term. CENX’s continued progress in Iceland demonstrated management’s commitment to add value to shareholder. However, it remains concerned about the rapid supply additionsaround the world.

Merrill (updated 04/26/2007) – The firm has maintained aNeutral rating,with no specific target price. INVESTMENT SUMMARY: The firm believesthe shares were fairly valued with the current aluminum price forecast.

MorganStanley (updated 05/10/2007) – The firm has upgraded the rating to Equal-weight from Underweight, with no specific target price. INVESTMENT SUMMARY: The backdrop of industry consolidation along with a renewed aluminum prices showing strength across the forward curve, has given the analyst confidence in the stock.

NEGATIVE RATINGS (0.0%)

None

Research Associate: Moutushi Saha

Reviewed by:

Copy Editor: Oindrila Banerjee

Content Ed.: Madhurima Majumdar