Century Aluminum Co (CENX) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the fourth 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 with instructions being given at that time. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Century Aluminum's Director of Corporate Relations, Mr. Mike Dildine. Please go ahead.

Thank you. 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 website, www.CenturyAluminum.com with an accompanying slide presentation. The slide presentation is also available in PDF form on the website. Please note that website participants 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 that involve known and unknown risk 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 in our periodic SEC filings, including the risk factors in management's Discussion and Analysis section 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 fourth quarter.

2006 was a transitional year for Century. We achieved some important milestones and are well positioned for the future. Joining me today are Jack Gates, who will discuss the operating results and Mike Bless, who will provide comments on our financial performance. Also with us this afternoon are Bob Nielsen, our General Counsel; Steve Schneider, our Chief Accounting Officer; and Shelly Lair, our Treasurer. Let's get started.

If we move on to the next slide, we are pleased to report to you on a successful quarter and share with you our major goals and objectives for what will be a very exciting year in 2007.

Starting on slide four, I would like to provide you with an overview of the year just ended. The macroenvironment obviously remained favorable during the whole of 2006. Aluminum demand exceeded supply and global inventories remained lean. Despite some volatility, the commodity price performed well, averaging $2,565 per ton for the year, up some 35% on 2005.

We've made substantial progress in the development of our business in Iceland. By year end, we had more than doubled the size of the plant in Grundartangi from 90,000 to 220,000 tons. I'd like to take a pause here to thank all the employees at Grundartangi for their hard work and their dedication to making this project a success.

As a result of the significant efforts [indiscernible] provided in Iceland, we received incremental [tar] for the further expansion of this plant earlier than originally planned. We commenced construction of the 40,000 planned expansion at the beginning of 2006 and expect to be producing at 260,000 tons by the end of this year.

We have made major progress in our greenfield project in Iceland near Helguvik. We have an ongoing support from the local communities, a truly world-class site, and a memorandum of understanding for 435 megawatts of power, which translates roughly to 250,000 tons of aluminum.

In the U.S. our plants are performing well. Hawesville, in particular, had a record year in safety, [petrol] production and labor efficiency. Ravenswood has come back well from the potline shut down in August. In 2007, Ravenswood will celebrate its 50th year of operation, and I would like to recognize the hard work of all the employees that continue to make the plant a successful operation.

We have made real progress during 2006 on preserving and enhancing the long-term competitiveness of our U.S. facilities. We achieved multi-year labor contracts with the United Steelworkers at both Hawesville and Ravenswood. We also signed an amendment to our pot contract at Ravenswood, which shared some upside with the (indiscernible) at (indiscernible) that preserves the historical rates with no increase at lower but still attractive [alamene] prices.

We are pleased with the Company's financial results. Operating cash flow was at (indiscernible) levels, driven by the metal (indiscernible) and by a substantial increase in volume at Grundartangi. Our on time, on budget performance for this major expansion drove significant incremental cash flow for the year.

Lastly, we spent significant time and energy during 2006 broadening our development pipeline of potential growth project.

Obviously, our activities in Iceland come first and foremost. In addition, we believe there are opportunities available to us in which we can creatively and prudently further the Company's strategy of growth and cost position improvement.

If you move onto slide five, I will spend a few moments on the aluminum industry as a whole. After a roughly 300,000 ton deficit in 2006, most experts are forecasting a balanced to a modest surplus in 2007. However, recent reports indicate that the 2007 consumption forecast may be underestimating demand from China. As you have seen, this has happened for many years, as well as the impact of substitution of aluminum for more expensive metals.

China is now the largest consumer and producer of aluminum and will likely be the major driver of the supply/demand balance going forward. The (indiscernible) speculation that the additional idle capacity in China will be restarted in 2007. But my observations during recent visits along with discussions with industry experts indicate that most of this capacity is already producing or is currently being ramped up. The remaining idle capacity will likely stay closed.

Further aluminum supply growth in China will be somewhat limited by the availability and price of [tar] and by further government controls. Semifabricated products in China are still receiving a rebate on exports, but this is widely expected to follow the [chamber] of primary exports and become very taxed in the near future.

In the U.S. and Europe, there have been several announcements of potential capacity restarts and delayed plant closures. These facilities should be able to produce in the current strong price environment but (indiscernible) longer-term, especially where long-term [tar] at affordable prices or rates is not available.

Expansion project [growing] are taking more time and more money to complete due to insufficient labor, government regulations and increased material costs. Clearly these other random delays will constrain the supply side to some extent.

On the demand side, global aluminum consumption for 2006 increased nearly 7% and expectations for 2007 are in the 6% to 7% range. China showed incredible demand of more than 20% last year and is expected to report continued growth in the mid to high teens over the next few years, even with the large and growing demand base.

If you move on to slide six, you can see that the aluminum prices remained fairly strong in the fourth quarter of 2006 increasing by more than $200 per ton from an average of $2,480 in quarter three to $2,720 in quarter four. In 2007, the LME cash price for aluminum has averaged about $2,800 per ton so far.

We continue to see strength in European premiums, which reached $200 per ton in January for duty-paid metal at levels not seen since the 1980s before putting back to about $175 per ton in February. In January, the European Commission recommended a decrease in the import duty on aluminum from 6% to 3%, but this change was blocked by the European Union delegates earlier this month. We expect that that discussion of reducing duty will be ongoing, but for some time the duty remains at 6%.

In the U.S., [motivated] premiums have declined to $0.026 per [pound] due to the seasonal producer in inventory de- stocking as well as a significant scrap availability and the recent (indiscernible). With the strength in European premiums we expect to see imports attracted to that part of the world, ultimately causing tightness in the U.S. market and driving the [midwest] premiums back up.

[Alime] aluminum inventories have increased by a little more than 100,000 tons since mid-December 2006. Given the significant backward direction in aluminum prices during this period, this increase in inventory is quite modest. Even with the recent increase, inventory levels continue to indicate price fundamentals at roughly 35 days of consumption.

Spot alumina prices have been extremely volatile recently, falling from over $600 per ton in 2006 to less than $200 per ton by the year end. Recently we have seen the alumina prices trending upward again with the unwritten Guinea as well as the announcements of delayed aluminum projects globally. Guinea represents roughly 9% of the global bauxite production and a prolonged strike in the region could have a meaningful impact on alumina prices which already are trending into $350 to $400 per ton range in reaction to bauxite supply concerns.

Chinese alumina expansion projects, which contributed almost 70% of the aluminum supply growth in 2006 will find challenges such as an expansive imported bauxite and government controls.

I would like now to turn the next part of the discussion over to Jack.

Thank you, Logan. Turning to slide seven, our U.S. smelter operations had an excellent year in 2006, setting several annual safety, production and productivity records. The Hawesville smelter set annual records in all three areas and metal production beat the old record by approximately 5 million pounds. The additional volume and productivity was the result of better operating efficiencies, higher amperage on the pots, and fewer operating personnel. For the first quarter 2007, Hawesville performance is continuing that same trend.

The Ravenswood smelter, which closed one of its four potlines during the year successfully restarted the potlines back to normal operating levels; it started with an excellent startup in all areas. Safety performance, while not yet at desired level, did show a 30% improvement over 2005 results. The successful negotiation of the new labor agreement and the new power contract were major accomplishments during 2006 in our efforts to keep Ravenswood competitive.

The Mt. Holly facility has set annual safety and production records in 2006. The Mt. Holly casthouse also set an annual record for production of premium products including a record billet production year. Mt. Holly was also awarded the 2006 sustainability award by the South Carolina Chamber of Commerce, a recognition of its environmental and business leadership.

As Logan mentioned in his earlier comments, Nordural completed the first two phases of its expansion on time and on budget, increasing the annual rate of capacity of the smelter to 220,000 metric tons per year.

The next phase we call Phase 5, which will add an additional 40,000 metric tons a year, continues on budget and on schedule to be completed by the end of the year. I would estimate we will begin starting pots by the end of the third quarter with the startup completed by year end.

I would like to personally think Dick Starkweather, past Plant Manager of Nordural, who retired this year, for his many years of devoted service at Nordural and to Century Aluminum. Mike Tanchuk, who was Vice President of Operations at the Hawesville smelter has replaced Dick.

On the next slide, I'll discuss our bauxite and alumina operations. Even with the severe weather issue that we're faced by the St. Ann bauxite mine in the latter part of 2006, the mine set annual records in both mining and shipping tonnage. The recent capital investment in upgrading the mobile equipment fleet at the mine is beginning to produce positive results, as more tonnage is being mined and shipped with fewer outside contractors.

The Gramercy alumina refinery achieved 97% of its stretch 2006 production goals. A power failure in November did affect the fourth quarter production by 10,500 tons and necessitated the purchase of 8,500 tons of replacement alumina to ensure the security of the Hawesville operation. We also purchased two additional spot cargoes in January '07. Safety performance at the refinery in 2006 was excellent and the bauxite conversion cost was well below the annual plan goal driven primarily by lower-than- expected energy costs.

In the sales and marketing area, the year 2006 ended with a weakening of the midwest premium due to year end inventory adjustments by both producers and consumers. The midwest premium ended the year at $0.0335 per pound, picked up a little strength in January, '07, averaging $0.0342 per pound, but is again showing some weakness in February, dropping to its current $0.026 per pound. Currently the large backwardation is attracting inventory onto the LME.

The current market for aerospace is very strong with increasing high purity premiums. With Hawesville being a major producer of high purity metal, this is an important part of our marketing strategy going forward. The demand in the [sheve and plate bits and] segment remains good, with the exception of automotive and building products.

The automotive housing wire business has softened due to the reduction and new home construction; other segments of the aluminum wire and cable remain strong. Demand for billet has also weakened in the past several months. Our finished good inventories at all of our facilities are very low to take advantage of the strong markets.

Now I will turn it over to Mike.

Thanks very much, Jack. If everybody will turn, please, to slide nine, we'll talk a little bit about the fourth quarter performance versus the third quarter of 2006. Let me start with the sales line and talk a little bit about the factors that drove that increase in sales, as you can see there from Q3 to Q4.

First, the cash LME price with a one month lag during the quarter increased 5%. Obviously, the increase in the commodity price is a major factor in our sales growth. Next on volume, if you've had a chance to look at the fourth page of the financial information that was released along with the press release, you've seen some of these data to which I'll refer.

Direct shipments were up [4,200] tons during the quarter. That puts us back almost to the Q2, Q3 levels where we were operating before the Ravenswood potline shut down over the summer. That shutdown caused us 2,700 tons in the fourth quarter. As you will remember, we talked during the third quarter call that in the third quarter we lost 8,500 tons. So, those two together saw a loss of a little bit more than 11,000 tons for the total effect of the line shutdown, which was within the range that we talked about up to 12,000 tons.

Importantly, Nordural was right on target for the year and for the quarter as we have been forecasting since the beginning of the year. As you can see, again, on that page four, Nordural shipped slightly over 50,000 tons for the quarter yielding 157,000 tons shipped for the year or slightly over half of the 130,000 ton expansion that we brought on over the year; again, as we have been predicting since the beginning of 2006.

Based on these factors, as you can see on the slide, net sales increased sequentially about 11%. About 40% of that increase was from the increase in the commodity price with the remainder primarily from the higher volume, a little bit from better mix.

Walking down the income statement, again, if you've had a chance to look at the financial statement, that's the first page of the statement of operations data. Gross margin was up a little over 300 basis points to 21.9%, showing conversion of over 50% of the increase in sales down to the gross profit line.

Let me talk now about a couple of the factors that affected gross profit for the quarter. First and foremost obviously the Ravenswood potline shut down. We spent an additional $1.1 million during the quarter on so-called startup costs. That is in addition to the $2.5 million we talked about in the third quarter, again, within our estimate of $4 million for the total line shutdown that we talked about over the summer.

Our alumina costs -- oh, pardon me, one more issue on Ravenswood I should note. As we did last quarter, the 2,700 tons of lost volume that I talked about a few moments ago yielded a lost profit on that lost tonnage of $3.6 million, again, consistent with what we said in Q3.

Moving on to alumina costs. Our alumina costs were up about $2 million Q4 over Q3. Jack talked about the factors at Gramercy and at the bauxite mine in Jamaica that drove some of those operational issues -- largely weather-related and the power problem in the fourth quarter at Gramercy.

Nordural power costs were up $2 million quarter-over- quarter. That is totally due to the increase in the LME. As you know, our power costs in Iceland are priced as a percentage of the LME. Other costs at Nordural increased about $2 million for the quarter, mostly miscellaneous maintenance items.

And lastly, I would note that our power surcharge at Mt. Holly decreased about $2.5 million Q4 over Q3.

Walking down the income statement a little bit further, SG&A, as you can see, came in at $10.7 million, a bit above the normalized run rate. I would note as you can see in Q4 of last year consistent with it, we are normally a little bit higher in Q4 than in other quarters as we do book some compensation-related items in that quarter. But also as Logan discussed during his comments, we are spending more energy and resources on business development activities. And that is going to drive a slightly higher quarterly SG&A rate going forward than we have had historically.

As you know, we've been talking to you historically about a range of $8 to $9 million of SG&A in our plans. And a better rate to use going lower than we have in our plan for '07 is about $9 million a quarter. That is an average number, obviously; be up a little bit higher than that some quarters, a little bit lower some quarters.

Moving down the income statement, obviously, you see the large mark-to-market charge we had during the quarter. That obviously is based on the run up in the market from the end of September to the end of December. As you know, we calculate our liability as of the balance sheet date, i.e., the end of the quarter. And as you also know, the forward market if you look at the '07 to 2011 strips, was up between 11% and 15% depending on the year during those two periods, and that's what drives the increase in the liability and obviously that large charge of $283 million pre-tax that you see.

One other item to note that we noted on our earnings release is in other income. You see that $7 million of other income, most of that, about $6.7 million of that is our share, our obviously 50% share of a gain on some excess land that is adjacent to the site of the Mt. Holly smelter.

Finishing up on the income statement, the effective tax rate for the quarter was about -- almost 2 points lower for Q4 than it had been for the first three quarters of the year. If you look at the effective rate for the entire fiscal '06, it's right back to the rate at which we were booking in those first three quarters. EPS for the quarter excluding the mark-to-market charge and the Mt. Holly land sale was $1.70 per basic share and $1.64 per diluted share. You can see that on the schedule on the appendix to the slides.

Lastly, a couple of comments over on the cash flow statement, if you have had a chance to look. Free cash flow was strong for the quarter at $55 million; represents about 13% of net sales and 100% of net income. It's obviously net income excluding the mark-to-market charge in the Mt. Holly land sale gain.

Continue to have good, strong working capital metrics. And a couple of items to note in terms of the use of cash for the quarter. Two principal items to note -- one is the Accounts Receivable obviously expected due to the significant increase in the commodity price. And we also used $12 million of cash for the settlement of our derivative contracts during the quarter.

One last item on the balance sheet, again, if you've had a chance to take a look you see a reduction in share owners equity. Part of that obviously is due to the net loss in the quarter obviously caused principally by the mark-to- market charge. But we did also have a charge of $73 million for the implementation of FAS 158 -- obviously the new pension rules that drove a decrease in our share owners equity.

Turn to slide 10. Similar format, just I'll make a very few comments about the year-to-year comparison. As Logan said, the average cash LME for '06 versus '05 with a one month lag was up 35%. Our domestic volumes, again, going back to that slide four -- page four, pardon me, of the financial information, were essentially flat '06 versus '05. That is obviously despite the Ravenswood potline shutdown in '06.

Nordural volumes were up 65,000 tons or 70% due to the expansion coming on, on schedule. That drove total company shipment volumes up about 10.5%. And that along with the market price drove net sales, as you can see on the slide, up 38%.

The operating margin, operating income margin, increased from 11.2% to 19.8%, representing a conversion of over 40% of the increase in sales down to the operating income line. And then again, as you can see in the appendix, diluted EPS excluding the mark-to-market charge of both years, the Mt. Holly land sale in '06, and the small charge for debt extinguishment in '05, increased from $2.56 to $6.03 in '06.

Lastly on page 11 -- you will see here on the left hand side of the chart, the shipment volumes to which I have been referring, and on the right hand side of the chart, our average realized prices, both on the direct and total basis. As you know, our realized prices on the direct side don't track the increase in the market price due to the impact of our fixed price forward sales.

Before we move on, before I turn it back to Logan, let me just take a couple of minutes here in providing some forecast items for 2007 to help people with their modeling.

First, I'll start with volume. As you know, our U.S. capacity is 525,000 tons and we would plan to ship that entire amount in fiscal 2007, and perhaps a little bit of creep on top of, as much as 0.5% -- maybe even up to a whole percent higher than that. At Grundartangi in Iceland, that is our existing plant, of course, we are now, as Jack detailed, at 220,000 tons and we shipped that whole amount in 2007. And again, as Jack and Logan discussed, we will be commissioning our 40,000 ton expansion by the end of the third quarter and we'll be producing in the fourth quarter. And we would plan to ship between [5,000] and 7,000 tons of that new capacity in fiscal 2007. Again, all of that in the fourth quarter.

Turning to CapEx. A good number for sustaining CapEx remains at $20 million. As we talked to you in the past, we do have a good list here at Century of additional so- called return projects that we look at. These are projects that have very high returns on invested capital. The metric we use here is a simple payback of under two years. Those could add as much as $10 million, maybe even $15 million of CapEx in '07. The completion of the 40,000 ton Grundartangi expansion will add another $95 million, give or take of CapEx in fiscal 2007.

And lastly, spending for Helguvik. Assuming that we continue on the schedule that we've got planned could add spending of $5 million, maybe as much as $10 million in fiscal 2007 as we continue on [heavy] engineering and design work moving towards beginning of construction by the end of the year.

A few more items for you. Depreciation and amortization, about $80 million for the year. SG&A, I talked about before, about $9 million on average for the quarter. Net interest expense should be about the same in '07 as it was in '06, within $1 million or $2 million, certainly.

A couple of major cost of goods sold items, obviously that drive our earnings. Our power costs in the U.S., let me just make a couple of comments. Number one, Hawesville, given that we are reasonably fully priced there in '07, we can say with confidence that our power costs will be about the same '07 versus '06.

Mt. Holly, we planned that -- we know that the baseload will be the same. As you all know, we don't plan on, nor can we plan on, the various level of surcharges that we will have above or below. So, we don't plan on those unless we are planning on power costs at Mt. Holly to be consistent '07 versus '06.

At Ravenswood, as you now, we are operating under our new so-called experimental power rate. At current high metal prices that rate is in the low teens percentage-wise above the old rate, and that new rate came on in the middle of the year. So, if metal were to stay around where it is today, we could see power costs at Ravenswood up in the mid single digits on a percentage basis, '07 versus '06.

Lastly, alumina; obviously a major cost component. No change there in the new contracts that have now come that we've been detailing for you since the beginning of last year for Ravenswood and Mt. Holly. As a percentage of the LME as we have told you, they're up about 2 points, 2 percentage points versus the old contract. Those are three year contracts. And as we have told you, they are front end loaded from a pricing standpoint, so a little bit higher in the first year. But on average that two points in the second year; a little lower in the third year, in '09.

And then lastly, effective tax rate, we are planning on an effective tax rate in '07 about equal to what we booked in '06. Got a couple of items going both ways as our Icelandic incomes becomes a greater portion of the mix, pretax income obviously that drags our rate down. We've got state rates going up a little bit. We've got some tax, good tax planning items in place to try to counter that.

But until we see how those go through the year, until we go through our FIN 48 analysis, obviously in the first quarter of this year as we are required, we are going to stay at an estimate of an effective tax rate consistent with '06. And as we get better data, we'll obviously update you.

And with that, I would like to turn it back to Logan.

Thanks, Mike. Moving on to slide 12, we are optimistic about the year before us. As I discussed earlier, the macroenvironment continues to look attractive to us. There will more clearly be challenges which are simply part of doing business in our sector, but overall we see a favorable climate.

Four of our operations are performing well. We will take the lessons learned during the startup at Grundartangi last summer and apply them to the current 40,000 ton expansion. We have experience, talent, and proactive managers in place at all our operations, and we plan for productivity and other improvements at all our facilities in this year.

We've all been commissioning the latest 40,000 ton expansion at Grundartangi by the end of quarter three and we'll have some 260,000 tons of capacity in Iceland by the year end. You should note that that's one-third of our global total. So we have a lot of work to do. We anticipate beginning preliminary construction of our greenfield plant in Iceland by the year end. I will discuss this in more detail in a moment.

In addition to our activities in Iceland, we will continue to spend considerable effort looking for creative ways to grow the Company's asset base globally. Our pre- feasibility study and conceptual engineering for the potential greenfield refinery in Jamaica is progressing.

Just earlier this month we signed a memorandum of understanding for the exclusive rights to explore the development of the alumina business in the Republic of the Congo. I want to clarify that this memorandum of understanding is related to the Republic of the Congo, not the Democratic Republic of the Congo. I would note that both of these projects are in the exploratory phase to evaluate the potential for a profitable growth project.

As we move on to the next slide, just take a step back and tell you what's going on in Iceland [as] that is our focus. This is an aerial view of our existing plant in Grundartangi. It is located 45 kilometers north of Reykjavik. The current 40,000 ton expansion is on top of the plant [before they lays it out].

This is a world class facility running an excellent productivity and operating metrics. With only a couple of exceptions, it is totally run by Icelanders. Electrical power in Iceland is clean and renewable. Our Grundartangi facility is powered by both hydroelectric and geothermal power. The new plant at Helguvik will be exclusively based on geothermal power -- a first.

We have the (indiscernible) working relationships with other power providers in Iceland based on long-term mutually beneficial business dealings. We are growing our business together in a manner, in a timely advantageous manner to both parties. By linking the contract price to the LME, our interests are further aligned. The (indiscernible) provides benefits when the aluminum market is strong and in less attractive markets, the (indiscernible) is (indiscernible) to allow both parties to earn acceptable returns.

Just a note again, and most of you do know this, we operated notice, we operated our Grundartangi facility (indiscernible). Our customers bring their alumina. We process it into metal for a fee that is determined as a percentage of the LME and the customer takes away the finished product. As the result, we have the revenue stream and a major cost component that provides a hedge to the commodity price.

In addition, we are not exposed to the price of alumina nor do we carry any victory for employing a salesforce. This [actually] helps to underpin cash flows when aluminum prices are weak while offering significant upside in higher price environments.

Just a bit of an update on the next slide on the Helguvik greenfield project. You'll see we have made a lot of progress in support of our new plant near Helguvik, which is about 50 kilometers southwest of Reykjavik, near the International Airport. The (indiscernible) is adjacent to the U.S. Department of Defense base, which was recently closed, causing the loss of 700 direct jobs and over 1,000 additional support jobs.

We chose in fact two years ago over several others due to its excellent flat location, existing harbor, proximity to the capital and other industries, and the desire of the community to force the industry (indiscernible) as part of its efforts to replace the loss of local jobs.

Recently the two adjacent communities that the preferred site location would stand announced that they had come to an agreement on revenue-sharing and other matters. This development allows us to situate the plant in a zone which is optimal for (indiscernible) construction and further away from any residential activity.

We signed a memorandum of understanding with the power companies last spring that provides for 435 megawatts of power in 2010 to 2015. The first phase of the construction is being planned based on the availability of up to 250 megawatts of power by late 2010, corresponding to 150,000 tons of metal. A further 185 megawatts is expected to become available not later than 2015.

We submitted our environmental impact assessment to the regulatory authorities earlier this year. We've hired an experienced project management team and are actively proceeding [on] our project. The next critical milestones include the selection of the reduction technology, finalizing the budgets in [Parma] and progressing with the necessary approvals.

Moving on to our final slide. We have come out of our transitional year of 2006 in a very good shape. We finished all our major growth objectives for the year and weathered a few challenges. We are now all set up to grow our business during the next few years. As you can see, after the completion of the current phase of expansion at Grundartangi, we will be at an annual capacity just shy of 800,000 pounds of primary metal.

When the first phase of Helguvik comes onstream in 2010, we will be closer to one million tons of primary metal. We continue to progress the study of a greenfield refinery in Jamaica and are actively pursuing additional growth opportunities worldwide.

I'd like to now open the lines for questions. Thank you.

(OPERATOR INSTRUCTIONS). Kuni Chen, Banc of America securities.

Congrats on all the progress. Just a question on Helguvik to start off. You mentioned that you have yet to finalize the budget there. Perhaps you can give us a range though, and talk about potential financing strategies.

I will just take the first piece and then I will ask Mike to give you some thoughts on the second piece.

I think people are indicating in the industry for those sort of facilities, of somewhere between 4,000 and 5,000 tons per annual ton of capacity for a greenfield smelter. And it's too early for us to have a definitive idea of that, but that's the order of what people are seeing in the industry. Mike?

I'll answer the financing question. The only other comment I would make on the capital costs, Kuni, as you know, it is heavily dependent on the reduction technology, number one. That range depends upon, for example, on one end of the range might be a plant without an anode plant included in it. On the other end might be a smelter including an anode plant. So it's really -- we've got a ways to go. We are obviously working on those data.

In terms of financing, we're actively working on this right now. Just to give you a sense of our thinking, we believe that given the earnings and cash flow that should come out of Grundartangi, the existing plant, over the next couple of years obviously depended upon metal prices, we ought to be in a very good position, if we choose, to be able to finance that plant solely in Iceland, out of A, cash flow from Grundartangi and B, an increase in the existing debt facility there. We are also considering other financing vehicles, but that is kind of the lay of the land right now.

Just on some of the other projects in the backlog -- obviously, if you were to do a refinery project, that's also pretty large investment. Would you consider doing a minority stake in any of these similar to what Alcan is doing with some of their projects? Or is it really not attractive to you unless you can be a majority owner?

I think first of all, all those projects, particularly Jamaica and Republic of the Congo for example, are long- term early stage projects. In terms of our position and equity, I think that will be part of our evaluation, or for value of the project and risk profiles. We're open to a number of options on that and we will look at that as [we] progresses.

And just one last question, I will turn it over. You seem to perform pretty well with your joint ventures in the fourth quarter despite some of the spot purchases of alumina and bad weather in Jamaica and whatnot. How much higher could the income have been if you normalized for some of these impacts?

Let me address that. Remember the issues that Jack discussed and that you just referred to, the weather- related issues and therefore production at the bauxite mine at St. Ann's of Jamaica, and the resulting problems at Gramercy and some of the other issues at the refinery -- those find their way into our cost of sales because they go to our alumina costs at Hawesville. Those quote/unquote problems or issues, or whatever you want to call them, wouldn't impact the equity income line. Equity income is up a little bit this quarter. Our equity income is largely based on our third party bauxite sales and our third party chemical alumina hydrate shipments. And there were a bunch of issues this quarter that drove up that result a little bit.

I still think -- I didn't talk about this in the forecast section, but now that you've asked, something on the order of what we have been experiencing, say, three-ish million dollars a quarter is still a good estimate on average basis for that equity income line.

(OPERATOR INSTRUCTIONS Timothy Hayes, Davenport & Co..

A question on the gross profit that you had, sequential increase, the gross profit was up $22 million from Q3 to Q4. How much of that came from Nordural?

We don't break out as you know, Nordural versus the U.S. operations. So I can't -- we can try to address it but we really don't get into breaking out, as you know, those two items.

And then in terms of the spot alumina that you are buying in January, what's the tonnage on that?

I think Jack may want to comment on that. Jack?

Approximately 20,000 tons.

Matthew Starick, Citadel Investment Group.

Just a very quick one. On the Nordural as it sits right now, I think it is permitted to go up to 300,000 tons at that facility. Is that potentially before Helguvik?

That is a good question. I think our focus is to get the 250,000 tons done this year. We continue to look at sources of power but our memorandum of understanding with the two geothermal producers is specifically for Helguvik. So that obviously will bring forward Helguvik into the phase as we described. But should some other power come forward and we have other options at Grundartangi, we will consider them.

This is a completely unrelated question, just nuts and bolts -- the tax rate after you back out the one-off, it looked relatively high to me. What was it, actually, in percentages?

It actually was lower. It's a bit complex, but if you back off the one-offs and those come out at a rate of 36.9%, the mark-to-market charge in the Mt. Holly land sale, you get a result [in] effective tax rate if you include the equity income in the denominator of that calculation, because as you know, most of that equity income other than some small Jamaican taxes, most of that is untaxed as it appears on the face of our income statement. So if you throw that into the denominator, the effective tax rate on the remainder is a little just shy of 29% -- 28.7%.

Okay, I wasn't making that.

We can walk you through it. I think if you look at the appendix, the reconciliation in the appendix, it will help you derive that.

No, it's okay. I forgot about that. But going forward, as Nordural ramps up, because it's an 18% tax rate there, right?

Yes, let me make a couple of comments. The answer to your question is yes, 18% is the statutory rate in Iceland and that is the rate we pay. That same rate that I just talked about for the quarter, just shy of 29% for the fiscal year '06, was just shy of 31% -- 30.8%. And that's the rate that I was using when I said that the rate in '07 as best as we know it today should be around the same as '06. Again, Iceland dragging us down, some state rate increases dragging it up, some state planning that we put in place recently attempting to mitigate that, and FIN 48, which, as you know, is the new accounting standard for income taxes being implemented this quarter, we'll know a lot more 90 days from now than we do right now. But our analyst right now tells us it should be about a push year-over-year.

(OPERATOR INSTRUCTIONS). Timothy Hayes, Davenport & Co.

Your '07 outlook for cost of goods sold -- could you repeat what you said for Nordural, please?

For Nordural and cost of goods sold -- I really didn't -- I don't believe I said much. What I said on Nordural was shipment volume, which is 220,000 tons of the existing capacity, and [5,000] to 7,000 tons of the new capacity. Again, all that new capacity will be shipped during Q4 because our current plan says commissioning by the end of Q3. Really that's the only thing I addressed on Nordural. The biggest issue on Nordural obviously, is power cost and pick your metal price and you can pick what happened to the power costs.

That's the part that -- if you could just mention that again, how that works.

The power costs or Nordural?

Yes, the power costs and how the high metal price and how that's going to affect the power costs.

Right. As we have said, our power rate at Nordural is totally linear. It is a fixed percentage of the LME. No caps, no floors, so it totally floats. Metal goes up, we pay more for power; metal goes down, we pay less for power. Given that we don't predict metal prices, it is difficult to think about predicting power costs in Iceland because the two are perfectly linked.

Matthew Starick, Citadel Investment Group.

Just a quick one. You used to talk about a sensitivity based on the old tonnage pre-Nordural expansions and that sort of thing in millions of dollars for $0.01 change or something in the L&A price -- have you updated that sensitivity?

Yes, we've got some new numbers. Mike?

Yes, the way it looks right now is that the current capacity for a $0.01 change, per pound, of course, in the LME, that impacts our reported earnings by about $0.20 a share.

It used to be about $0.15, $0.16.

(OPERATOR INSTRUCTIONS). There are no further questions. Please continue.

Thank you, guys. Mike's got a small announcement on some organizational changes, and then I'll wrap up. Mike?

Thanks, Logan. We just wanted to apprise you, you may have noticed in the press release and in the last page of the earnings slides, but we've made a management change here at Rockwell. Logan has asked Mike Dildine -- boy, I did it again -- at Century. Sorry about that. Logan has asked Mike Dildine, who you've all gotten to know over the last couple of years to lead an expanded effort here at Century in the government and community and public relations, media relations areas. And he has agreed to do that for us.

In that vein, we have asked Shelly Lair, our Treasurer, to take over the Investor Relations function. And many of you know Shelly, having worked with her in a variety of ways. You are going to enjoy working with her a lot in the future.

I want to thank Mike for the terrific leadership and support personally over the last couple of years. You all will be seeing his name, obviously, as he'll still be shepherding and be responsible for communications going forward. But we just wanted to make sure that everybody was aware of that. Shelly's contact details are in the earnings release and on the last page of the slides in the PowerPoint presentation at which you are looking.

And with that, I'll turn it back to Logan.

Thank you very much, everyone, for coming to the call today and for taking the call. We appreciate the questions. We've had a good year in 2006 and we're well set up for 2007. We look forward to meeting and talking with you as the year progresses. Thank you very much.

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.