Century Aluminum Co (CENX) 2006 Q3 法說會逐字稿

Ladies and gentlemen than you for standing by and welcome to the Third Quarter 2006 Earnings Conference Call.

At this time, all participants are in a listen-only mode; later we will conduct a question and answer session and instructions will be given at that time. [OPERATOR INSTRUCTIONS]. As a reminder, this conference is being recorded.

And I would now like to turn the conference over to our host, Communication Director Mr. Mike Dildine; please go ahead.

Thank you [Rochelle]; good afternoon everyone and welcome to the conference call. For those of you joining us by telephone, this presentation is being webcast on the Century Aluminum Web website, www.centuryaluminum.com, with an accompanying slide presentation. The slide presentation is also available in PDF form on the website. Please note that unlike the previous conference call, website participants will now have the ability to advance their own slides.

The following presentation, accompanying press release, and comments include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to future events and expectations and involve known and unknown risks and uncertainties. Century's actual results or actions may differ materially from those projected in these forward-looking statements.

These forward-looking statements are based on our current expectations and we assume no obligation to update these forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements.

For risks related to these forward-looking statements, please review Annex A and our periodic SEC filings, including the risk factors and management discussion and analysis sections of our latest annual report and quarterly reports.

In addition, throughout this conference call, we will use non-GAAP financial measures. Please refer to the appendix which contains the reconciliation to the most directly comparable GAAP measures.

I would now like to introduce Logan Kruger, Century's President and Chief Executive Officer.

Thank you Mike and hello everyone. Welcome to Century Aluminum's conference call covering the third quarter of 2006.

During the quarter, we achieved some significant milestones and positioned ourselves well for the fourth quarter and beyond.

Joining me today are Jack Gates, who will discuss our operating results, and Mike Bless who will provide comments on our financial performance.

Also with us in Monterey this afternoon are Bob Nielson, our General Counsel, Steve Schneider, our Chief Accounting Officer, and Shelley Lair, our Treasurer. Let's get started, and if you turn to the slide on the market; aluminum traded at just under $2,500 per ton during the quarter, some 6% below the second quarter, but one of our long-term averages. Market fundamentals, we believe, remain positive. I will have further comments on the market in a moment.

We had a busy and very challenging quarter. We believe that we have positioned ourselves well for the fourth quarter by securing our U.S. labor situation and completing our major Nordural expansion. In August the steelworkers ratified a 3-year agreement covering 580 hourly workers at the Ravenswood, West Virginia plant. We did, however, shut down subsequently restart one of the plant's 4 pipelines as a result of the union's 72-hour notice to strike. Jack and Mike will detail the operating and financial implications of this action.

Outside the labor issue at Ravenswood, our U.S. operations performed well across the board during the quarter. Volumes were up at both Hawesville and Mt. Holly, which helped offset the impact of the Ravenswood line shutdown. Jack will discuss this in a few moments.

There were some increased costs during the quarter, primarily due to the Ravenswood potline shutdown and the efforts required to stabilize the Nordural expansion startup. These were one-time costs and are largely behind us. At Ravenswood, our new pricing arrangement with the Appalachian Park called for somewhat higher prices during robust aluminum markets, and also provided some downside protection.

At Hawesville and Mt. Holly we are continuing to explore options for future electricity pricing. Jack and Mike will provide further detail on this.

We continue to work on our [inaudible] objectives. Earlier this month, we energized all of our parts of our major 130,000 ton growth and expansion at Nordural, and we expect to reach full-rated capacity of 220,000 tons by year-end, on schedule and on budget. Our Nordural expansion to 260,000 tons per year is now well underway and will be completed in the fourth quarter of 2007.

If we look at the next slide on IP growth, my comments on the market reflect the views of the key industry commentators as well as our own insights and observations. As we move through 2006, the global economy remains strong, with industrial production growth in the 5% to 6% range. Increased demand in the non-residential construction market seems to be offsetting the decline in the U.S. housing market, and U.S. consumer confidence is getting a boost from lower gas prices and a healthy labor market.

Europe continues to show strong growth, especially in Germany where we saw a 7.3% year-over-year industrial production growth in August, which was somewhat [inaudible] by consumer spending in advance of the VAT increase in 2007.

Although China slowed moderately in the third quarter, growth was sill very impressive with IP in the mid-teens and GDP in excess of 10%. I recently read a statistic indicating that over the past 28 years, China's economy has grown at an average of 9.7% per year. It is important to note that China continues to grow at these levels even as the base upon which growth is measured increases dramatically each quarter.

As we observed before, the economy in India is growing at a rapid pace. Industrial production growth in India was more than 9% in the first half of 2006 and recently showed growth of 12.7% in July and 9.7% in August.

We got to the next slide to see strong aluminum industry fundamentals. Worldwide aluminum fundamentals remain strong. On the supply side, smelt capacity is expected to grow approximately 4% per year between 2006y and 2010 with production increasing roughly 5% during this period, it's possible for us to model capacity in both the United States and China.

We have recently seen announcements that Ormet will start the six lines at its 260,000 ton Hannibal smelt in Ohio and ARCO will restart a second line at its Intalco smelt in Washington bringing on an additional 90,000 tons. There's also discussion of a restart of over 130,000 tons Hamburg smelt in Germany, as well as some of the idle capacity in China. However, the Chinese government is continuing in its efforts to control expansion in aluminum, especially projects that are competing without proper authorizations. Just recently, the Chinese government reduced rebates on [inaudible] exports and further rebate reductions are expected, Fire and electricity prices in Europe continue to put some 500,000 to 1million tons of capacity at risk of closure in the near term.

Demand for aluminum continues to be strong with global consumption up more than 6% year-to-date. China was a major contributor with year-to-date consumption growth in excess of 18%. Since 1990, China's aluminum [to mark] has grown from less than 5% of the global market, some 900,000 tons to more than 25%, 8.5 million tons, making China the world's largest user of aluminum, following closely on the heels of copper. Medium-term forecast and consumption growth continues to be in the 4% to 6% range, driven primarily by emerging economy. At the current demand level, this would imply new metal requirements of 1.5 to 2 million tons annually, or between 5 and 7 new 300,000 ton smelters each year.

If we look at the slide on intensity of aluminum use, underscoring the rather [inaudible] for aluminum consumption is a relatively low aluminum usage per capita in rapidly expanding economies, such as China and India. As I've commented before, China is starting to feel the wealth effect of its growing economy, while the middle-class sector reached roughly [50] million people.

In the United States, we consume 4 times more aluminum per capita than China and almost 26 times India. With 1.3 billion people in China and another billion in India, even [inaudible] will have a significant impact on aluminum demand. To demonstrate this point, if China's consumption per capita increased to the mid-point between its current usage and that of the USA, an additional 10 million of tons of aluminum would be required each year.

We move on to the next slide; supports for the healthy aluminum markets we are currently experiencing can be seen in the relatively low inventory levels; LME and IAI starts currently represent only 36 days of Western world demand. Primary [inaudible] dropped 60,000 tons from the end of quarter 2 to quarter 3 even though the late summer, which is generally a period of [inaudible]. The LME cash aluminum price averaged roughly $2,480 per ton over the third quarter, and has recently climbed again to $2,700 per ton. [Inaudible] especially in Europe continued to evidence healthy demand for aluminum. The European duty-paid premium has been quoted recently at more than $130 per ton and the Midwest premium is healthy at $0.55 per pound.

We continue to see [inaudible] in the [sparks] and aluminum markets with recent prices of $240 per ton FOB Australia. Large aluminum surfaces are being projected over the next 3 years and China has played a significant in the increased supply with more than 50% refinery production growth year-to-date. However, significant decline in aluminum prices, particularly on the stock market as we have seen recently, along with the increased contraction costs will have an impact on the global refinery project [inaudible].

And now I'd like to hand over to Jack to tell us about the operations.

Jack Gates; Thank you Logan. Let me talk a little bit about the U.S. operations first. Safety performance at the Hawesville and Mt. Holly smelter continue on track to have a record year measured by both OSHA recurrable incidents and lost work days. Ravenswood's safety performance has been good all year with September's performance the best in several years, even during the difficult operation for the startup of the closed potline that occurred in September.

As reported in our second quarter conference call, a new 4-year labor agreement was concluded with the steelworkers at the Hawesville facility. Included in this agreement were several productivity improvements now in effect. During the just-completed third quarter, a new 3-year labor agreement was voted on a ratified by the steelworkers' smelter as mentioned by Logan. A shutdown of one of Ravenswood's 4 potlines occurred before the contract was ratified. Preparation for an orderly restart began after the contract was ratified; the potline was energized on the 19th. All pots will have been started by the end of October and the smelter back to its rated capacity by year-end.

Both Hawesville and Mt. Holly had extremely strong operating performances in the third quarter and both are on track to have record production years in 2007.

The usage, let's talk a little bit about energy. The energy situation at Ravenswood was settled in the third quarter by the approval of a new 3-year tariff by the West Virginia Public Service Commission. This tariff is linked to the aluminum metal price and has a [floor] that is competitive in the U.S. There's also a cap over the term of the contract.

At Mt. Holly, power costs continue high due to the fuel escalator in our current contract. There is some relief expected in '07 with [inaudible] adding more coal-generated power reducing the amount of natural gas-fired generation. Power costs in the third quarter were adversely affected by the extreme hot summer requiring more power generation from natural gas in the Southeast.

In Hawesville, the bulk of our power necessary to operate all 5 potlines has been secured for 2007. We continue to work on solutions for the future long-term power requirements. For 2007, we expect Hawesville's power cost to be approximately the same as this year, 2006.

Nordural; our project to expand Nordural from it's current 90,000 metric tons per year to over 220,000 metric tons per year continues on schedule and on budget. This additional capacity will be fully operational by year-end. Production cost as measured in total cost convert alumina to solid aluminum for our [tolling] partners was affected in third quarter due to the additional costs related to the startup of the new potline. Included in this additional cost we issued a large number of new inexperienced personnel due to starting the potline during the summer vacation period in Iceland. This period is now over and all of our experienced personnel are back at work.

The next phase of the Nordural expansion to increase production in 260,000 metric tons per year continues on schedule, on budget, and will be fully operational by late '07. I'd be remiss if I didn't compliment the expansion team made up of the Icelandic engineering group, HRB, Nordural plant personnel, the Century project manager Ron Couric, and the various Icelandic construction groups that have worked on this project. This has been a great team effort and I'm proud to have been a part of the team.

A couple of comments about our bauxite and alumina business. Safety performance at the St. Ann bauxite mine has improved significantly over their 2005 performance. Mining and shipping volume in the third quarter was at the record first quarter pace and the shipping tonnage is on track to exceed the 2005 tonnage by approximately 15%. The increase in mining tonnage in 2006 is also up over 2005 and has rebuilt the onsite stock pile that was depleted by last year's severe hurricane season. Much of the credit for this increase in both mining and shipping tonnage is due to the improvement in equipment reliability that was created by the recently expanded mobile equipment capital program. This improvement will allow the mine to continue to increase mining and shipping volumes in 2007 and beyond.

Gramercy's safety performance in the third quarter and year-to-date has been superb, a result of total dedication to safety by all refinery personnel. The refinery has operated year-to-date at a run rate that will be a record production year in 2006. Production costs greatly improved over earlier projections due to primarily lower energy costs.

Just a couple of brief comments about sales and marketing. We experienced very little falloff in demand in the so-called "summer doldrums" and we continue to experience a strong demand for our premium products, including billet and high purity. While demand for peat 1020 has softened slightly recently due to excess scrap. We believe this is sort-lived and will disappear by year-end.

The LEM inventory continues in a tight trading change at around 680,000 metric tons, and as Logan mentioned, Midwest Premium continues above its historical average to today at $0.55 a pound.

Now I'll turn it over to Mike.

Thanks very much Jack, and thanks everybody for joining us this afternoon.

We're on slide 11 now and just for your reference I'm going to also refer to slides 16 and 17 during my remarks. I'll tell you when I'm there, which of course are the GAAP reconciliation slides if you've had a chance to look forward. I'm also going to refer to the financial statements which were attached to the press release we sent out about an hour-and-a-half ago. And I hope you've had a chance to at least look through those quickly, and again I'll let you know where I'm referring to those and when.

So let's get right to the income statement; as Logan mentioned the 1-month lag average cash LME during the quarter from quarter 2 to quarter 3 was down about 6%. And if you look on page 4 of the financial statements, you'll see that our realized price on our direct sales was down about 4.5%, so there you can see this quarter -- this quarter obviously being one of declining prices -- the bumper that our fixed price forward contracts provide.

On the volume side, again on page 4 of the financial statements, you can see that our domestic tons were down about 5,800 tons Q2 to Q3; Jack mentioned obviously the impact of the Ravenswood potline shutdown; that cost us a little over 8,000 tons in the quarter. And he and Logan also spoke about the excellent performance at Hawesville, especially and also Mt. Holly; those 2 plants in aggregate made up a little over 2,000 tons. So they did help us, those 2 plants did help us make back about a quarter of the 8,000 tons that we lost at Ravenswood.

At Nordural, you see the tonnage there; we were on track as Logan and Jack both briefed to reach full-rate capacity at that plant of 220,000 tons per year by the end of the year. You'll notice that the progression in tons shipped Q3 over Q2 was little bit smaller i.e. the increase than it was Q2 over Q1. That was absolutely planned obviously given the fact that that part of the expansion came on during the summer months. Again, we're on track to reach rated capacity, and we're also on track to ship the tonnages that we talked about in [inaudible] with you this year at Nordural. So putting the price and volume together -- I'm back on slide 11 now -- net sales were down about 6% sequentially Q2 to Q3.

Walking down the income statement a little bit, I'll talk about gross margin and gross profit so you can refer to the first page of the financial statement, the income statement data. Gross margin for the quarter we 18.6%, obviously down from the all-time high we had last quarter of over 26%, but still a result with which we're very pleased.

Let me walk through some of the major items that impacted gross profit Q2 to Q3. First was obviously the impact onto the market about which both Logan and Jack spoke. That cost us about $20 million profit, obviously pre-tax -- all these number are pre-tax given that I'm talking about gross profit -- about $20 million for the quarter Q2 to Q3. About $3 million of that $20 is a negative impact from Alumina; I just wanted to call out here. That's a little bit counter-intuitive for all of you who follow the Company and now in the industry obviously who know that our Alumina contracts are priced to the percentage of the LME. The issue here is one of a lag; our Alumina contracts generally have a greater lag than our middle-sales contracts, and for that reason you had some very high-priced Alumina, like May-type market levels coming through cost of sales this quarter. Obviously that will work itself out in Q4.

Some market $20 million; Ravenswood potline shut down; Jack spoke about it, Logan spoke about it, that cost $11 million of profit sequentially Q2 to Q3, 2 major items there. As far as the startup costs that we've been talking about since we announced that plant shutdown, or potline shutdown I should say over the summer; the $4 million estimate to complete is still our estimate to complete those actions. We spent just over half of that amount, just a bit over $2 million this quarter, Q3 that is on the startup actions. And obviously the remainder will impact us in Q4.

The other $9 million is obviously the lost profit margin on the 8,000 tons that we didn't ship this quarter, and our estimate for Q4 tons again that we won't ship out of the rated capacity at that plant is about another 3,000 tons, so we'll have a related profit effect in Q4 as well.

Logan and Jack both spoke about power; that cost us about $6 million for the quarter, Q2 over Q3, I'm talking sequentially here. About half of that amount, actually just a little under half of that amount were the issues at Mt. Holly about which Jack spoke, again driven largely by the heat of the summer and the impact that had in that part of the country in particular I might add on fuel usage, and therefore prices.

Jack spoke about the Ravenswood contract. It's an excellent contract with which we're very pleased provides excellent downside buffer at lower metal prices but at current metal prices, we do pay a rate that is somewhat higher than the tariff that we were paying before. And at Hawesville, just a small contributor there; as you may know, we have a very small portion of our power needs at Hawesville that we left purposely unpriced for this year, and spot prices in that part of the country were up a little bit Q3 over Q2, so that cost us a little bit.

Lastly in terms of gross profit, Jack and Logan spoke about Nordural and as Jack detailed, we had a one-time cost there, principally related to the temporary help required over the summer to keep the expansion moving and iron out normal startup related issues.

Just walking down the income statement quickly, as you can see the SG&A in line with the $8 million to $9 million that we expect on a quarterly basis. Mark-to-market charge obviously you see a significant reduction in the liability here, obviously translates to a P&L gain. As we talk to you about frequently, and I'll remind you on the next slide when we get to it, and a very large portion of the fair market value calculation of that liability now currently has to do with the up-years in the forward screen because of the volumes in the up years and as Logan detailed, if you just take for an example a good proxy for the idea of the 2011 strip it traded down a little over 9% from June 30 to September 30, and that drove as you can see here a very large reduction in liability which obviously gets booked in the income statement as a gain.

Quickly moving back a little bit further down the income statement, equity income in line with our expectations as Jack detailed; terrific quarter at both Gramercy and St. Ann's. Effective tax rate within our expectations, 35.3% as reported, but stripping out the mark-to-market gain, 32.5% so consistent with past quarters and right in line with our expectations.

Lastly, EPS for the quarter $5.36 basic and $5.26 diluted; when you go to page 16 and look at the GAAP reconciliation obviously, and we put this in the release as well, as we've done in quarters past, when you adjust for the after-tax mark to market base EPS of $1.21 and diluted EPS of $1.20.

Lastly, free cash flow on page 17 of the reconciliation here; $47 million for the quarter, obviously the major item there is in terms of the reconciliation is that we take it before the expansion CapEx at Nordural. I might add that that $47 million was essentially equal to the cash flow that we made in Q2, but obviously on substantially lower net income. We're pleased with the performance there; we think it's strong at 12% of sales, a little over 120% of net income, obviously excluding the mark-to-market gains.

Working capital metrics, if you've had a chance to take a look, remain strong; metrics like days' sales outstanding and inventory turns.

And just lastly, if you had a chance to look at the cash flow statement detail as I've done in the past a couple of our uses of cash, again if you've had a chance to take a look, 3 major items; used cash this quarter, 1 inventories, largely related to the build-up of the business in Iceland; second, accrued and other items, largely cash tax payments there; and then or course, the cash settlement of our derivative forward contracts.

And with that, if we could just turn to page 12; this is a chart that we update every quarter; you'll find it in our 10Q when we file it in a couple weeks as well. It summarizes as you can see here our forward fixed price of sales for the remainder of this year and then for the next couple of years and then an aggregate until 2015 as you know, the out years especially 2008 and beyond are almost exclusively the 2 financial forward contracts we executed a couple years ago. And as you remember there, just to remind you the additional volumes there are due to the provision of those contracts that the volumes get doubled at market prices above the contract prices and obviously we're there now.

And with that, I'll turn it back to Logan for some concluding remarks; Logan?

Thanks Mike; and we are on page 13, just a bit of an update on our growth business in Iceland. As the map indicates, at our existing Nordural facility located to the north of Reykjavik and the proposed Greenfield site that's near Keflavik to the south. Both sites [inaudible] to have been close to Iceland's population and infrastructure center. As [inaudible] it's important to note we have already laid the concrete foundation for our next expansion phase of 260,000 tons, which will be completed in the fourth quarter of next year.

Our Greenfield site is also progressing; in September the U.S. government withdrew forces from the base at Keflavik, which is very close to the proposed site. To the extent that the smelter could help alleviate the economic disruption caused by the closure of the base, we have announced our willingness to work with government agencies on the [inaudible] to accelerate our valuation of this project. In June, we signed an MIU to purchase up to 250 megawatts of electric energy from the 2 outstanding GSM power producers, which will support the initial smelter phase of 150,000 metric tons per year, which we hope to commission in 2010. The [MIU] provides for a total of 435 megawatts which will ultimately provide power for a smelter with capacity of 250,000 tons.

Some progress over the summer, we began conducting a required environmental research of the [inaudible] in the surrounding year. We had all of us were working on the finer details of a project of fast delivery and transmission. I keep saying our proposed Keflavik is truly outstanding, plants close to the population and infrastructure and with great harbor actives. We are confident we will continue to progress this attractive project.

We go to the following slide; just in summary, and you're looking at the bar graph, we've manag3ed some important challenges in the third quarter and made some meaningful progress. But in terms of securing our U.S. operation any terms for furthering our growth and objectives, we finalized a new 3-year labor agreement at Ravenswood; we energized the potline that handled 30,000 ton Nordural expansion and expect to reach full rate and capacity of 220,000 tons by year-end, on time and on budget.

We remain on track with our plan to further increase Nordural to 260,000 tons by the year-end 2007. We continue to actively pursue our planned at Greenville project at Keflavik; in addition, we are continuing to review a number of public growth opportunities in both primary aluminum and upstream facilities. While we still have challenges before us, our plants are running well and our fourth quarter is off to a solid start. We're pleased that we are well-positioned for the current quarter and beyond.

I'd now like to open this for you discussion and your questions. Thank you.

[OPERATOR INSTRUCTIONS].

[Cooney Chin], Bank of America Securities.

Appreciate all the detail that you gave us Mike on the cost variances. Can you just give us the amount of the cost variance with Nordural, the one-time cost there in the quarter, and do you expect anything to carry over from startup-related costs into the fourth quarter?

Sure; it's about $3 million for Q3 and I'll turn it over to Jack just to talk about residual effect.

There's some residual effect, a small amount because we are still starting and we'll have some of that until we reach full capacity, but we're through the bulk of it.

I just had a point that could mean that the metal is flying well out of that line, and I think Jack has just recently come back from there.

Okay great, and you know just as far as the Alumina cost linked to LME, could you just give us a sense as to the sense of the timing you there as flow-through? Is that 3 months; is that 5 months; what's the average lag? Is that more related to certain smelters and which ones are more sensitive to that?

Yes, it's really spread across the system Cooney and it maybe adds another 30 days so rather than metal sales at 30, you might have 60 days' worth of lag for inventory. So again, as I said May as we all know is when the market crested and we had some Alumina price there flowing through our top sales this quarter.

Okay and just one last question and I'll turn it over. Can you just comment on your outlook for Midwest Premium going forward in the fourth quarter and into '07, especially given some of the restarts that we're seeing in the U.S. market? Thanks.

Its still holding -- it's Logan Cooney -- it's still holding up well. We see that obviously there's some restarts; it will be interesting to note how long some of those restarts take. We haven't got a particular view on it. We've just noticed the announcement. I don't know if Jack has any additional comments.

I agree with you Logan; I mean some of these restarts like they were in this facility, that's been down a long time with 6 potlines; it's going to be a while before that plant gets up to capacity.

Carlos Dealba, Morgan Stanley.

Good afternoon; I have 2 questions if I may; the first one is the Nordural expansion to 220,000, do you expect that, what are your expectations, what are the averages that you are expecting to produce during the quarter, if you can comment on that?

I think Carlos we've given guidance right around about March, the months from March through December, and we took the 130,000 tons and really evenly divided it up, it would give you some sort of idea of how we're going to progress, but we're very much on track with that. It's evenly spread; I don't know if Mike wants to add any comments to that.

No only modifying the same thing again; what we've said from the time were energized the first pots back at the, near the beginning of the year is that we produce about half of that 130,000 this year and we're still absolutely on track to do that.

Okay.

So 65,000 tons for the year.

Okay good, and Mike coming back to the $20 million volume that you were breaking down; so $3 million of that is related to Alumina?

Correct.

And $11 million is related to Ravenswood.

Mike Bless; No, no, no, sorry Carlos; $20 is the market of which $3 is the Lumina; the rest is just of course a decline in the price. And in addition to that $20, $11 million relates to the line shutdown at Ravenswood and then I broke that out, so it's 20 plus 11.

Yeah okay.

Got it?

Yeah, and then final question; could you update us on your outlook for the supply and demand balance in '07?

Sorry I missed that one Carlos; would you mind repeating it?

Yeah, any update on the outlook for the supply and demand balance of the industry in 2007?

I think Carlos if I can comment back, I think I've covered most of it early on. I think that demand remains very robust and the supply is continuing to not quite meet up with demand. Obviously, the restart will have some effect on that but all in all, I think the demand is at this point in time ahead of the supply.

Do you think in 2007 we'll see a deficit?

You know Carlos we don't really comment on that. I think we look at it across all the commentators and we really say if you look at a summary of our [inaudible] in demand, just go look at it's where 5% of the supply is going to come from and we find it quite difficult for that to all occur in 2007.

Okay, thank you very much.

Thank you Carlos.

Tim Hayes, Davenport.

Just on the Ravenswood tariff on the power rate; could you go into a little bit more detail of what the impact is, maybe how much percent increase the tariff adds to the base rate of power?

Tim we don't give actual costs, but let me play it through for you as we said before; it is moderate and it has a cap on the upside for when the LME is up we pay ahead of where the rate would be, and when the LME is down, we obviously revert to the lower rate. So the best I can help you is really give you guidance on this [moderate]. And the [inaudible] is very competitive on a U.S. basis anyway.

Okay so if it's still a competitive rate and the tariff in the quarter was moderate with these high prices, then we're talking maybe a tariff 10%, 15% addition to the base. Is that kind of the right ballpark?

I think that's a great question but I'm not going to answer it.

Okay.

Thanks Tim.

Very good, thanks.

Marty Pollack, NWQ Investment Management.

Just a couple of questions if I may; first just if you would on the hedging, what is the cumulative hedge position now? I'm just wondering if you could explain --?

I'll ask Mike to take you through that.

Sure; the cumulative is really laid out Marty in the, on slide 12, so those are all the fixed priced forward that we have and when they get laid out, again noting that the additional amounts only kick in above the contract price, which obviously for the calculation of our current liability given that the forward screen shows prices throughout above that contract price, the calculation of course assumes that those volumes in fact to double for all the periods.

So that really is the whole forward book laid out there.

And that would be -- let me just -- the gain itself from the previous quarters we saw, the flip side of that.

Yeah let me just explain it; it's what I kept saying; it's kind of a funny concept. It's a gain but what it really is a reduction in the liability. It's still a liability because if you calculate it out, again the calculation is pretty easy, you just take the forward screen through and then you have to interpolate it after that because of the screen doesn’t' go up to 2015, and then you just subtract from that for each monthly period the contract price and then you do a straight present value of that whole mess of numbers, and that calculates the current liability. And so what we have this quarter is just that liability shrinking and that runs through the income statement as income.

Is there a price assumption, long-term price assumption that you use here?

Just the forward screen, so go right to the screen and that's the assumption we use, you bet.

And then again, as I said when the screen ends you have to interpolate it to the end of 2015 because that's when our contracts go out.

And I think Marty just to add to Mike, once the screen runs out you can assume it's pretty flat going forward.

Yes look at the end of the screen; good point.

Just with regard to investment, at this point with the Lumina prices if they come down significantly is there an opportunity here to bulk on that, and do you need to effectively possibly invest in further Lumina capacity?

Marty we continue to look at opportunities but we don't specifically comment on any other than obviously Keflavik; I think the timing on that has changed. We also c hanged the timing of taking our Grundartangi facility to 260,000 tons as well. So you're correct, the marketing [inaudible] but we look at opportunities on a long-term basis as well. You want to see that we're not just hoping for the market to continue; we want to see that we're going to [inaudible] on a long-term basis.

Okay thank you.

[Milan Gutza], Southpoint Capital.

Hey how much was the Hawesville price increase affecting this quarter?

It was a small piece of it; just about $1 million Milan.

Okay and relates to Ravenswood, the $9 million that you broke out, was that just lost production or was there some shutdown cost in there as well?

No, no no it was, let me just, it was $11 million total on Ravens and 2 buckets; the first was $2 million which is half of the $4 million total startup cost, and the other $9 million, remaining $9 million was the lost profit margin on the 8,000 tons that didn't ship.

But there weren't any shutdown costs as it relates to shutting down the fourth potline?

None to speak of.

No major costs, and the $4 million like we said right from the beginning what we thought the initial cost would be to restart the line.

Got it, and the last question, what about the JV contribution might be a little bit high given that natural gas has come off and the profitability of your refinery might be enhanced as a result of that. Can you help me think through that a little better?

I'm looking the press release; I'm trying to think through it for you. I'm not sure; Mike may have some thoughts on it.

We came into the quarter with some hedges in place, so you're talking about natural gas principally so obviously while the market has come down and you look at the gas costs quarter-over-quarter, they were pretty comparable.

Got it; thanks.

[OPERATOR INSTRUCTIONS].

Justine Fisher, Goldman Sachs.

I just have a question about the [inaudible] merger situation; first of all will that at all affect your Lumina supply agreements with Glen Cork, because if I'm not mistaken and I may be reading through that, that the [inaudible] transaction incorrectly, but Glen Cork transferring it, Alumina assets to that merger?

Justine yes thanks for the question; it's a very important question. There's on impact to us in our contract for arrangements. But you are correct that as part of the arrangements we understand the Lumina aspect of Glen Cork and going to that business, but that doesn’t' impact on our supply and contractual arrangement.

And so it would still be the 2 contracts and then 1 of them I guess expires really quite soon, December '06 and the other one expires in January of '08?

There's not change in the contracts; whatever they are it will remain as part of the business.

Okay, and then another question related to that is I just wanted to get your take on consolidation in the industry. I know that this is something that's been thrown around in every commodity industry thus far this year and it was soon to hit aluminum; I don't know whether you guys could comment on whether or not you think the consolidation will continue or whether or not you think it will increase supply may prevent that or may spur that?

I think the consolidation process through all commodities had been going on for the past 10-plus years. And you switch and [inaudible]; this is just another part of that process and Jack just reminded Reynolds is [inaudible] So I am generally favorable of consolidation; I think it's good for the industry. We've seen it in a number of other commodities and I suspect it will continue in all the commodities.

Okay thanks a lot.

Dan Whalen, Bear Stearns.

Just back to the idle capacity question from an industry perspective; you mentioned possibly some restarts over in China and I was just interested in your perspective in terms of what percentage of Chinese idle capacity is at risk of coming back.

Dan I've just come back from China and I did a bit of chatting in the last couple of weeks. We've had a number that is widely-accepted in the industry. It's somewhere between 1 and 2 million tons of idle capacity in China and you can debate where that number is. So if we use 1.5 million tons going back 18 months ago that was idle, some of it won't come back for reasons of environmental and power supply because the power supply is somewhat regional.

I do suspect that most of the capacity either on stream or has come on stream already in China. We didn't see much evidence or much idle capacity left standing that was not bought on the street.

So to answer your question, I think there may be a few thousand tons still idling but if that hasn't come on as of yet I would be somewhat surprised.

Okay great, thank you.

I'm sorry Dan, just one other thought; obviously they're dropping the Lumina, spot prices in China have obviously accelerated there.

Cooney Chin.

Just a quick follow-up; on your forward-priced sales position you know when you look at it over the LME curve where it currently stands, is there any temptation to add to your forward positions?

Thanks for the question Cooney; I'm not sure if it's a temptation but we always look at it and see what's appropriate. At this point in time, we like being exposed to the market. You heard the earlier questions about how we feel about the market. We think it's still sound and robust and we continue to look at it Cooney but fortunately at this stage, or unfortunately we have not taken any further position. We like our exposure.

Okay great, good luck in the quarter.

Thank you.

[OPERATOR INSTRUCTIONS].

And there are no further questions; please continue.

Well thank you everyone; this is Logan. I appreciate your time and being with us today and we've had a challenging third quarter which we've come through well. We're well staffed for the fourth quarter and we look forward to a meeting and discussing with you again the progress at Century. Thank you very much.

Okay thank you; and that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.