Century Aluminum Co (CENX) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2002 earnings performance teleconference for Century Aluminum company. At this time, all participants are in a listen only mode. Later, we'll have a question and answer session and I'll give you instructions at that time. Should you require assistance while you're on this call, simply press 0 then star and an operator will come on to your line to assist you. As a reminder, this conference is being recorded for a digitized replay. If you wish the replay information, please stay on the line at the conclusion of the call. I would now like to turn the conference over to our first speaker, Mr. Al Posti, who is the Director of Communications. Please, go ahead.

Good morning, everyone. This is Al Posti. Welcome to our earnings conference call covering the fourth quarter of 2002. This conference may include forward-looking statement statements within the meaning of the private securities litigation reform act of 1995.

The company cautions that such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties. Actual results may vary materially from those expressed or implied in the forward-looking statement as a result of various factors. To continue the conference call, here is Century's Chairman, Craig Davis.

Thank you, Al. I would like to welcome everybody to our fourth quarter and year end 2002 conference call. I will turn the call over to Gerry Meyers in a moment but I have a few general comments I would like to make first. First, I would like to thank all of for you for your support and interest in the company in recent years. The industry has struggled to make decent returns over the past few years. And there there have been many challenges and changes both for the industry and for century.

I don't believe the challenges have diminished but I do believe that we can meet these challenges. While we're not satisfied with our results for 2002, we have remained cash flow positive and our performance is consistent with what we stated it would be under the circumstances of the weak economic conditions and the weak industry that we had faced last year. As our recent announcements indicate, we do remain dedicated to strengthening the company by adding lower cash costs assets. Our goal continues to be to reduce our overall cash cost position with assets and through the improvement of existing operations.

As you know, Gerry Meyers became CEO on January 1 of this year. I'm sure he will enjoy your continued support. I would now like to turn it over to Jerry and he'll conduct the conference. Thank you.

Ok. Thank you very much, Craig. I appreciate that. I would like to welcome everybody to the conference call. We have our whole team with us here in Monterey today. And David Beckley will be speaking in a few minutes.

Our results obviously for 2002 continue to be depressed by the pressed aluminum prices. Having said that, I would like to emphasize two points. For the year 2002, our price realization was approximately 3 cents a pound less than 2001. Which, in and of itself, would account for approximately a $30 million pretax deterioration in 2002's results. As you can see from the results, we managed to offset the vast majority of this price deterioration. This was accomplished by further significant improvements and how we've operated our business.

I would like to give you three kind of examples of these improvements. First of all, from quarter two of 2001, which is the first quarter that we owned Haasville, to quarter four of 2002, we increased century's annualized production by about 10,000 tons per year through a number of operating improvements and minor capital projects. That increase in tonnage is more important than just a 2% increase in output as the incremental pounds basically carry only variable costs so they're disproportionately profitable. Secondly, our new alumina contract which covers 50% of our requirements, took effect at the beginning of 2002. This contract had a better price than the contract it replaced. Plus, it was linked to the LME price for primary aluminum which helped us and will help us in downside situations. And thirdly, and probably most significantly, cost savings. We achieved pretty significant cost savings last year. Let me -- for those of you who have models and keep track of this thing, let me try to be as specific as possible here. For you.

The first thing we do in terms of tracking our cost savings is we exclude the LME impact on alumina prices. That would obviously tend to overestimate our cost savings in 2002. If we were to count that. Secondly, we include -- we exclude the noncash charges of LCM and LIFO appreciation from our cost of goods sold then having made those adjustments, we take the cost of goods sold and we compare 2002's average to the quarter two through quarter four period of 2001. We exclude the first quarter of 2001 in this comparison because we did not own Haasville during that time frame and including quarter one would overestimate our cost savings.

So, on that very complicated basis, I can tell you that we've managed to cut our cash cost by in excess of 1 cent per pound or which would be consistent with the annualized run rate of about $10 million pretax. I think further evidence of this improvement is apparent if you compare quarter four to the prior year's quarter four. And we expect it to continue to build on this kind of about performance in 2003 to achieve further gains. David will talk a little bit more specifically about what you can expect in that regard.

The second point I wanted to emphasize, Craig has mentioned as well and that is that we manage to remain cash flow positive to the tune of about $32 million in 2002 in what really was a relatively weak pricing environment. This is the net effect of our hedging program and our cost improvements. We expect cash break even point in 2003 to be lower than 2002. And again, David will be more specific.

Before I turn it over to David, let me make some brief comments about how we see the aluminum market at this point. Aluminum price increased toward the end of quarter four and on into quarter one. I think we actually achieved a three month price probably in excess of $14.20 per ton for a brief period of time a couple of weeks ago. Prices since backed off to the $13.80 range. Still higher than it was in going into quarter four. Also, still significantly less than the long-term average price for primary. This change in pricing really appeared to have nothing to do with supply demand fundamentals which really don't seem to have changed significantly. But was more related to technical factors and fund activity.

In terms of aluminum fundamentals, we have seen a gradual decline of approximately 10% in LME inventory since their highs in the summer of 2001. Premiums for physical metal are strong around the world and worldwide demand is reasonable. To be clear, it certainly is not robust but it certainly is not horrible either. It is fairly reasonable, fairly steady. There are some strong areas. Most notably, Asia and I think within that particularly China and there are some weaker areas and Europe would be a good example of that. Again, on the whole reasonable demand.

On the supply side, for the past year or so, there be have been sort of three dark clouds on the supply horizon. And I would like to talk a little bit about each of those. The first cloud is the Pacific Northwest. A couple of years ago, as I think most of you know, there was approximately 176 million tons of capacity in the U.S. Pacific northwest was shut down due to power short and and high power prices. Approximately 20% of that capacity has returned to production. Power prices both spot which is in excess of 40 mills per kilowatt hour and forward power prices are very high right now.

The snow pack in the area is significantly below what would normally be expected at this time of the year. And in this kind of environment, further restarts are extremely unlikely and in fact, as this situation continues, one has to begin to wonder about operating the problems that would be encountered by the capacity up there that's currently operating. The second cloud on the horizon is probably the one that gets the most publicity and this is the expectation by some people of significant rise in exports out of China. And there is a very complicated situation there. There are credible experts on both sides of this issue. Those that say that it won't be a problem. Those that say that it will be a problem.

The people in the not a big problem camp will take some comfort from the fact that the net change in exports of unlost primary from China from 2001 to 2002 was less than 300,000 tons. In fact, exports from the former east block, that is throwing in the CIS countries along with China increased in 2002 by only 160,000 tons over 2001. Relatively small number compared to some of the more pessimistic forecasts.

Further, we are starting to see tightness in the alumina markets that some were predicting would occur with Chinese production increases. Spot prices for alumina and I think most people know China imports a significant portion of its alum you in but prices for alumina were $150 per ton in early November. And are now in excess of $200 per ton as we speak. The third sort of cloud on the supply horizon has been new projects, excluding China. There have been a lot of projects that have been talked about, touted and discussed. And some of which are -- will happen and some of which won't happen.

In this context, I think one needs to bear in mind that if you take the worldwide demand, excluding China, which is around 22 million tons per year, and you grow that by what has been the historical growth rate for this demand, you need close to one million tons about per year to keep up with the increase in demand and that one million tons could come in the form of further increases in exports from China or further projects. I think the point here is that there is room for some of these projects to occur. So, having said all of that, where does that leave us? I think we're certainly still very optimistic about the long-it term outlook for aluminum. But candidly with the economy's uncertain and aluminum consumers very cautious, the near term outlook is certainly very unclear and hard to predict.

Let me turn it over to David and then I'll talk more about about where Century Aluminum is headed.

Thank you, Jerry. I'm going to cover the fourth quarter and the full year in a little bit more detail. Century Aluminum reported a loss of 2.8 million or 16 cents a share after preferred dividends in the fourth quarter 2002. Included in this loss is an after tax credit of $1.8 million or 9 cents a share relating to lower cost of market inventory adjustments. Excluding this, our loss would have been 25 cents a share.

From an operating standpoint, as Jerry indicated, the fourth quarter 2002 was better than the third quarter of 2002 and quite a bit better than the fourth quarter of 2001. Although we had a loss for the entire year, our cash generated from operations was significantly better than last year. Even with price realizations being off by 3 cents a pound compared to 2001.

As Jerry indicated, our operational improvements, our cost reductions, our new alumina contract and our hedging program contributed to the increase in cash flow. Looking to 2003, about 55% of our capacity is hedged either by our alumina contracts or forward sales. As we have indicated in the past, our cash flow break even entering 2003 is at an equivalent price of about 57 cents per pound. About 2 cents better than 2002.

If we combine the effects of the impending acquisition of the remaining 20% of the Haasville plant plus our ongoing cost improvements, we expect our cash flow break even point to be reduced by another 1 cent per pound. To about 56 cents by year end 2003. My last remark is looking at the first quarter of 2003, our expectation is that our cost per pound will approximate will the average of the full year 2002 cost per pound. After adjusting for the LME effects on aluminum costs. At this point, I'll turn it back over to Jerry.

Thank you, David. Just a few brief comments about our -- where Century Aluminum heads from here. As Craig indicated, our strategy basically is the same. We will continue to improve the assets that we owned. When the markets allow us, we'll expand our primary aluminum base with lower costs assets and at some point in time, you can also expect us to see us move upstream into the box site and alumina sector.

In our expansion plans, we do not plan on adding any kind of significant leverage to our balance sheet. In January, we announced our intent to purchase 20% of Haasville. That had been owned by glen cor. For $105 million. This is our best asset as a long-term power contract. We expect to be able to continue to improve it. And this acquisition is very consistent with the strategy that we just outlined about. At this point, Kim, I would like to open this up for questions now.

Thank you. Ladies and gentlemen, if you wish to ask a question, press the 1 on your touch tone phone. You'll hear a tone indicating you have been placed in queue and may remove yourself by pressing the pound key. Again, to ask a question, press the 1 on your phone. Our first question comes from the line of Marko Pencheck from Credit Suisse First Boston. Please go ahead.

Hi, good afternoon. Two questions. First, can you give us an update on the cast house and secondly, can you give us in terms of health and pension cost expectations for 2003?

Ok, Marko. Hi. I'll take care of the cast house and I'll refer David to the question regarding the pensions. Cast house at Ravenswood is going to be a very simple operation which basically allows us to pour the proceeds of the facility -- should it be necessary, into SOW and that operation will be ready for production, we anticipate, it at the beginning of June of this coming year.

Any change in the cost associated with that project?

No. It is on budget, on time.

Great.

Ok, with respect to pensions. Our pension expense is -- really relatively modest. In 2002, it is a little over $4 million. We expect that to increase by about $1.5 million in 2003. The funding or cash contributions into the plans are going to go up by about $1.5 million also. So, it is not a major item for us and that's it.

There's no significant changes in any health costs or expenses you'll be incurring in 2003? For your employees?

I guess we're experiencing probably the same level of cost increases that a lot of industrial companies are. The 5% to 10% range, typically. I believe our budget -- our business plan has allowed for close to 10% increase in medical costs.

Great.

Unfortunately.

Yeah. All right. Thanks a lot, guys.

The next question comes from the line of Alex Lassiter at Merrill Lynch. Please go ahead.

Thanks. Good afternoon. Question. I noticed that the SG&A cost was down quite a bit in the fourth quarter. I was wondering if you could give us some idea what it might be going forward and why that may have been lower than we had seen in previous quarters.

Alex, we anticipate our SG&A to be approximately $16 million for the -- going forward. We had some compensation of accrual adjustments in the fourth quarter that probably lowered the run rate slightly.

Ok. They lowered the run rate.

That's right.

And will continue to do so.

Well, on an annualized basis, we expect our SG&A to be around $16 million.

Ok. It was $20 million last year?

No. In 2002, our SG&A was $15.8 million. In 2001 it was $18.6 million. But that included $4 million of bad debt expense.

Right. Ok. Great, thanks. My other question was regarding your hedging, what will be the outlook of your hedge book beyond -- it appeared '05 to '09. I guess the reason I'm asking is implicit in your raising part of your purchase of the asset, the other 20% was monatizing the $35 million implicit above market sales. Will you be pretty much it -- what would be your hedge position and how will that change your hedge position by [INAUDIBLE].

Our hedge position in '05 through '09 will be approximately between 25% and 30% hedged. Probably about 26, 27% hedged by virtue of the linkage of alumina with LME prices. And consistent with our hedging practices, we're going to win the -- when the markets allow us, to back fill the rest it -- the remaining production. Again, as markets allow.

Uh-huh. Part of the -- I guess part of the borrowing on the mortgage, the 11 3/4 percent mortgage required you to have a certain amount of volume hedged. Would that be a requirement that you have a certain amount of your material hedged to meet the terms for that borrowing?

No. There's no such requirement.

Hmm, ok. Good. Thank you very much.

Ok.

And next we go to the line of John Tumazo at prudential financial. Please go ahead.

Thank you very much. How much will the goodwill account change for the purchase of the final 20% of Haasville?

Well, that's still in process, John. We are -- we've engaged the appropriate people to help us value the power contract and the fixed assets that is in process has not been completed. But again, the total purchase price is $105 million. That price will be allocated to the assets that we're acquiring.

Let me ask a second question. Could you describe your strategy for the April 2000 maturity of the 11 3/4 bond issue? Clearly, you generated $31.7 million of cash last year despite the tough aluminum market. Cash flow retention asset sales, stock offerings. New debt offerings are possibilities. And of course combinations of there -- thereof. In a sense, you could almost set aside the cash you generated last year to buy bonds on the open market if you wanted to. As opposed to growth or buying the other 20% of Haasville or the cast house and these are all good projects but clearly the debt -- a nice bullet to plan for. Please describe how he should expect you to meet the maturity.

Well, John, we're in the process of building the best, strongest aluminum company that we can and the addition of the 20% of Haasville is a good project that puts to use much better use some very underutilized assets for the company. For example, cash sitting in the bank earning a couple about percent interest right now. And you know, we will have a company that is strong enough to deal with the -- with the bond issue. Hopefully well before the bond issue. Comes to become right.

Well, the bond issue appears to be bigger than your annual cash flow retention at the source of aluminum prices we've seen. Over the last five years or possibly ten years. So, that it would imply that either there would be an asset sale or equity offering or bond refinancing to supplement the cash that you had retained. Given that we're only talking about five years and two months away.

I think two issues you mention there. First of all, aluminum prices. I don't think any person familiar with the industry is going to take the last four years of aluminum prices and project them forward very far. It has been a long-term average price of aluminum is very likely going to be based probably around 1500 LME still. Which will significantly change the earning potential and cash flow generation of the company. And secondly, I think as I indicated in discussing our strategy, you certainly at some point, about if you can see us doing an expansion, it is going to be almost certainly in an environment where we have an improvement in aluminum prices and improvement in our stock price and very likely an equity offering which would be doing an expansion, it is going to be almost certainly in an environment where we have an improvement in aluminum prices and improvement in our stock price and very likely an equity offering which would be presumably accretive.

Thank you.

Ok.

Next we go to the line of Brett Levy at Royal Bank of Canada. Please go ahead.

Hi, guys. The 57 cents number for 2003 is very useful. If you can and again, this is just cutting it a different way, talk about 2004 and 2005 in terms of the same break-even number?

Ok. 2004, we is about -- we have about 36% hedge going into that year. 25% of that 36% is alumina. The other 11% is the 110 million pound contract that we talked about. The hedge remains in place for 2004. Going forward beyond that, I think Jerry Myers already answered that question. We have no forward sales beyond 2004 and we're really just covered by the alumina contracts at this point. And obviously it is our anticipation that when the markets improve, we will begin selling forward in future years.

All righty. And then, in terms -- the additional debt you're putting on, does that change the availability under the bank agreement or were any covenants necessary to conform in order to allow for that interest transaction?

The availability is going to go up oh, between 0 and $15 million in the context of the acquisition of some other things we're doing with the bank group.

And where any covenants necessary to be changed to allow for the --

No. None whatsoever.

Ok. All right. Thanks, guys.

Ok.

Next we go to the line of Tom Abrams at Dreyfuss. Go ahead.

Thanks. My questions were answered.

Next we go to the line of Jim Clark at Brandywine. Please go ahead.

Can you hear me on the speaker?

Yeah, we can hear you.

Just looking at these numbers. Are there really just 27 million shares of the shares missing?

You've got it right.

Haasville, let's talk about that one. You're paying $105 million for 1/5 of the plant, correct?

Correct.

So, by my math, the other 4/5 that you already own are worth about $420 million, would that be correct?

I think that would be correct.

And that is the entire enterprise value of your company right now.

That's right.

Ok. Is Mount Holly worth anything?

Mount Holly is probably on a percentage basis, similar. Maybe just slightly less.

Let's go through this. You have 110,000 tons of capacity at Mount Holly and you're suggesting that could be at the same 2100 a ton that your value in Haasville at?

Maybe a little less. But not -- maybe 20% less, something like that.

That gets you to another $190 million. Which is $8 a share.

Yep. That's right.

Ok. We cut through all of the debt already in the valuation of Haasville so this is all upside. You got some power contracts that might be worth something?

I think to some degree, they're inherent in the value of the assets that you just assessed.

Fair enough. Which would leave Ravenwood.

Ravenswood, yes.

What would you suggest we do with that in an evaluation.

I think for the sake of the argument that you're making, not that I would agree that there think is the right number but you don't need to put any number on it to come to, I think, what is pretty straightforward conclusion.

That the stock is a screamer at 6.

Right. If you believe -- if you believe aluminum price is going to be $1350 forever, then maybe these assets aren't worth the prices that you described. If you take a look at history and you look at the fundamentals, sort of the economic dispatch cost of new capacity in the industry, and look at a aluminum price of $1500 a ton, $1550 a ton which is around 70 cents a pound, LME, then you come to a much higher stock price, obviously.

Ok. This equity offering you're talking about. We're talking about a five-year maturity. It is not an eminent crisis, correct?

Correct.

You said that you would consider an equity offering at a level that would be accretive. What is your understanding of what that level is?

Well, I don't think I want to go there. I don't think we're going to talk about a specific target on stock price but I think you can look for us -- what I was trying to say is you can look for you to put into the company acquisitions which are going to be additive and benefit the shareholders.

Given we just found $13 or so of asset value, we would be very disappointed if that number -- if that trigger number was below that level. And we would much rather see you buying back your own stock if you have the flexibility to acquire anything with the balance sheet.

Ok. We hear you.

Ok. Thank you very much.

Ok.

If there are any further questions, now is the time to press 1. Ok. We go to the line of Joe Lemnowitz at Prudential Investments.

Hi, guys. Couple of questions. Proforma for the acquisition and the coupon that's due in the spring, what are you expect liquidity it be at the company?

Maybe you can clarify your question.

Ok. You finished the year with what, $45 million in cash.

Right.

You got a coupon coming due in April.

That's right.

Then you have -- you're going to close the acquisition which is going to use some of the cash that you build between the 45 plus the cash you build.

We don't anticipate using our revolver in 2003. At current price levels.

Ok. What's the low -- can you give me what you think the low point will be on the cash balances?

Oh, gosh. It is hard to say. I would say $2 to $5 million. Ok. What's the Cap Ex?

Cap Ex is for the core business is about $20 million this year and with the other 20% of Haasville, it will be another half million to a million dollars over and above that.

Is the cash in that 20?

The cash is in that number.

What was that number?

It is $5.5 million.

What's maintenance Cap Ex?

Basically you know --

$10, $12 million is maintenance Cap Ex.

Can you just give us an update on what's going on in Ravenswood?

Yeah. Person nay has signed a labor contract and I think that was before the end of the year or shortly after the year which extends their labor agreement for two years. They have restructured the operation and their product mix. I think they've taken out a public information they've ' -- taken out something like 20% of the Manning in the operation. They are continuing to -- we have a minimum and maximum on the -- on our molten metal aluminum supply agreement with them and they continue to take actually at the midpoint of that, slightly above the midpoint of that.

Ok. About if they want to cut their takes, don't they have to give you some kind of advance?

Well, they can reduce their take by 50% if they give us -- once they give us 12 months notice and we have had no indication from them of their plans to do that.

Ok. Last question I have. The incremental interest that you're requiring here at Haasville, is it going to be subject to the lien?

No. It will be collateral to Glencor.

Ok. So it won't be subject to the existing --

No, it won't be subject to the -- it will not be a collateral to the bond.

Ok. That's all I have. Thank you very much.

Ok.

Next we go to the line of Marty Pollick at NWQ Investment Management.

Just a quick -- couple of quick questions. One, on the premium of that -- you're getting out of first quarter, assuming we're going to see this kind of current price that we're seeing, your Midwest premium is one. What should we be thinking about as the first quarter type price per pound? Just based on the general relationship you have between the two?

I'm sorry, Marty, I don't quite understand your question. You're asking what is the Midwest premium right now?

Yeah. Essentially or what you would based on the current LME and based on what is your average price I think fourth quarter. 67 cents.

Ok. Our -- if you take a look at those average realized prices, it is more complicated than what the Midwest premium is because we sell a lot of products that sell at a premium. To the U.S. US Midwest premium rate right now as we speak today is probably close to 5 cents a pound which is quite strong. But I think probably the better way for you to look at what you might expect going forward is just to take a look at the realized price which was I think 67 cents in the fourth quarter. And is likely to be -- we would think probably a couple of cents a pound. In excess of that.

I would expect that based on the price right now, I would expect them to be approximately 2 cents higher than the fourth quarter.

I see. Just another one. I don't know iffy missed that but the pension contribution, the cash contribution you are expecting to make this year. Did I hear that?

What I indicated was it was going to be up about $1.a million over last year. In 2002, the required contribution was around $2.5 million.

So it will be about $4 million. Ok, with regard to the Pechenay take, in event they don't want to take whether it's next year or whenever, that is essentially training -- that's obviously not hedged so you can replace that you think just strictly an open market?

Yeah. I think you need to separate the pricing from physically selling the metal. Our hedges are fungible and we can -- they can be moved or applied to what -- to financial hedges to other metal. Now, the real issue I think with with Pechenay is can we sell the metal on the marketplace and that's the nature of our business. You sell -- we can sell everything we make. We would divert the molten metal from Pechenay. We would cash it and ship it to market. And we would incur casting and shipping cost but we would avoid a reduction, a deduction from U.S. Midwest that Pechenay nay gets because we have some cost avoidance with their product.

Just one last question. It seems that kind of when you stay away and you look at the company, you have half of the company after the Haasville purchase it is clearly a low cost producer. It is a keeper if you might say, even at a low price for the metal. That seems it to be implied clearly in that evaluation you have assigned to the additional purchase. Strategically as you look forward, I mean how do you feel about Mount Holly and even the person nay operation? Essentially it seems that you're kind of stuck with higher cost facilities. What is the flexibility to deal with that?

Well, I think we had managed to improve the cost fairly significantly in the operations over the past couple of years. Although there is only so much room. To do that. I think the issue at mount holly -- basically [indiscernible] is going to relate to the power contracts that we can put in place. At Mount Holly. There are currently negotiations in place for power contracts. Longer it term power contracts that would go beyond the current contract's expiration date which is 2005 would be at least five or possibly ten years. And you know, so I think that there are some things that can be done with the assets we have. But I think the thrust of your point is accurate and that is to make a real significant change in century's cost structure is going to require century to acquire or build or otherwise bring in some assets into the company that have significantly lower cost than those that we have on average now. And it would be -- that's basically where we're headed with our strategy to attempt to do that.

Thank you.

Next we go to the line of Daniel Rolling at Merrill Lynch.

Thank you. Couple of things as it relates to Ravenswood. The cast house is to be operational this June, is that correct?

Yeah, hi, Dan, that's right.

Thank you, Jerry. It will be casting SOWS. Do they sell equivalent to LME price?

They sell basically -- they're one of the two most common forms of P 1020 which is the garden variety aluminum that sells in the U.S. at the U.S. Midwest price which is about a cents a pound right now over LME.

Ok. I think that and what had you said earlier answers my next question. I just wanted to walk through and that is that the Midwest premium should offset with the discount that you were giving to Pechenay that if we used an LME based price plus premium, we should be close to estimated realization for that product?

I think that -- let me just see. You are -- are you talking about the -- in a situation where Pechenay reduces their take. Are you trying to get at what that will cost us?

What we should build into the revenue side of our model you're putting it on the open market.

First of all, we don't expect Pechenay nay to reduce their take. We're currently selling about 60, 70 million pounds a year out of Ravenswood. As SOW. Pechenay, that's in our numbers already. Pechenay is already casting that for us at a casting charge. And if we choose to use our cast house to do that, to replace Pechenay service, we would anticipate a very similar cost to do that. So, I don't anticipate first of all, I don't anticipate Pechenay reducing their take although I could be wrong there. And secondly, if they don't reduce their take, I don't think you can look to any significant change in our cost or realizations.

Ok. Then the simple question is why build the cast house?

Well, we built the cast house because largely of the potential last year for it -- there was a considerable concern about the labor situation at Pechenay. They were going into a very difficult contract situation. There would be -- there was concern regarding our ability to use their casthouse it if we -- if the worst happened in that regard. And if you don't have a casthouse, you will lose your smelter.

Gotcha. Thank you very much.

Ok.

And there are no further questions at this time. Just as I said that, we did have Alex from Merrill Lynch queue up. Go ahead.

Do you have any indication of what interest payments -- what the interest rate might be on the $35 million you that might be offering to take up with Glencor?

I don't believe that is public information, is, it David?

Absolutely. It is 10%.

10%, ok. And David, can you -- ok. So obviously that's a small piece but the rate of 10%, what do you foresee your interest expense? Making sure I have the general figure in line here, David for 2003.

Well, you know, the basic bond is $38 million and 10% of let's say $40 million is roughly $4 million a year on top of that. On an annualized base.

Right. Beginning for the second half of '03.

Beginning -- we expect to close the transaction approximately April 1st.

April 1st. Ok. Ok. All right. Good. Thank you very much.

Ok.

We'll pause a moment to make certain there's no one else that needs to ask a question. And no one is in queue it appears there are no further questions. Please continue.

Ok. Thank you. That then is the end of our presentation. I hope we've managed to answer most of your questions. In some [INAUDIBLE]. The economic environment does remain difficult. We have made significant progress in enhancing our ability to maintain positive cash flow in difficult times. And I think these improvements will position us well to take advantage of better pricing environments when they do occur. Again, thanks for participating.

Ladies and gentlemen, this conference will be available for replay after 6:45 p.m. eastern time today. Running through midnight the evening of this Friday, the 21st of February. You may access the AT&T executive playback service by dialing one of the following two numbers. Either 1-800-475-6701 or 320-365-3844. The access code for this call is 666614. That does conclude our conference today and thank you for your participation, you may now disconnect.