Century Aluminum Co (CENX) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Century Aluminum Company first quarter 2009 earnings call. (Operator Instructions). As a reminder, today's conference is being recorded. I would now like to turn the conference over to Ms. Shelly Lair. Please go ahead.

Thank you Art. 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. Please note that website participants have the ability to advance their own slides.

The following presentation and 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 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's Discussion and Analysis sections of our latest annual report and quarterly report.

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

Thank you Shelley. Good afternoon everyone and thank you for joining us.

We have been very busy on many fronts. All of our efforts are focused on preserving the value of your Company, and we welcome the opportunity to report to you on our progress. So let's get started on slide number four. I will address the market in more detail over the following slides.

So let me just provide context here by saying we have not as yet seen many concrete signs of improvement in the end markets, either in North America or around the world. There are some signs out there, particularly from China, that could indeed indicate stabilization or at the very least a significant slowing to the decline. Yet until we see more evidence, it's difficult to gain much confidence at this time.

Bottom line? The industry remains in an oversupplied position. We do not believe it's prudent for producers to plan that improving demand will solve the problem anytime in the near term.

In the shadow of this very difficult business environment, I could not be more proud of how our employees have performed. It's during such times as we are experiencing at the moment that effective performance is even more critical. Most importantly, the safety performance at the smelters has been very good, especially in the face of full curtailment at Ravenswood and the one-line curtailment at Hawesville. It is during these times such as that we sometimes forget about the bedrock principles like safety. These principles should not be trivialized. Our employees have proven their commitment, and I want to thank them all.

The curtailments have been handled efficiently and at or near their targeted costs. Wayne will provide more detail when he talks with you and will discuss the remaining operations.

Grundartangi, which is cash flow positive even at today's current metal prices, continues to produce well above its rated capacity. Our near-term strategy is straightforward, to strengthening the Company's cash flow and thus preserve Century as a survival when the conditions improve. To that end we have significantly improved our liquidity during the last quarter. Mike will provide the detail. And as Wayne will discuss, we are all working on the operations to institute significant changes to allow for the long-term value preservation.

Can we now move on to slide number five.

The Icelandic economy continues to experience challenging times with unemployment reaching 9% recently. This is a significant change from a base of effectively zero a year ago. With the financing packages from the IMF and individual countries in place, we are seeing some stabilization of the local banking system.

General elections are being held this weekend, at which point a formal coalition will be formed. Recent policy indicates that the parties which have been leading the government since February may well remain in power. Obviously we shall see on April the 21st.

As Wayne will discuss when he talks about operations, our Grundartangi plant has essentially been unaffected by the political and economic turmoil in Iceland. Efficiencies continue to improve, and operating costs -- primarily power, carbon, and labor -- continue to decline.

We have significantly reduced activity and spending commitments on the Helguvik project as we reassess the path forward for this world class project. We are refining our project costs based on a small and initial phase and recent commodity prices and construction costs. We expect that the analysis will be completed in the second half of 2009.

Just last week the investment agreement was approved by the parliament in Iceland and is now awaiting ratification by the [European Surveillance] Authority. This as you know is a very positive milestone for the project, as this evidences the government support for the project and addresses important aspects of the project such as the fiscal regime.

As you would expect, we are investigating many financing alternatives for this project. At this point in time we have not made any commitments with respect to financing. Any agreement we would consider entering into in the future specifically for the project would not be -- would be nonrecourse to the Century parent and to Grundartangi.

And we move on to slide number six.

When we look at the market, we see that the average LME prize for the first quarter was $1,360 per ton. This is the lowest quarterly average since first quarter of 2003. The most recent spot aluminum price was quoted at $227 per ton. US demand remains weak; however, the [Midwest] premiums continue to be in the $0.04 range.

The LME -- where our stocks continue to rise. In quarter one of this year we saw an increase of roughly 1.2 million tons, taking the total LME stocks up to 3.5 million tons. Inventories are now equal to 67 days of global demand, a level we haven't seen since the early '90s when the collapse of the Soviet Union drove significant inventories into the warehouses.

Can we move on to slide number seven.

As the global economy slowed and the alumina demand declined, producers implemented production cuts. Today 6.7 million tons of production capacity representing some 17% of the 2008 global production capacity have been announced for closure. Additionally, 8.1 million tons of alumina production capacity have been announced for closure as well. We believe a significant portion of the announced closures have been implemented, but there is still a bit of a lag effect.

Shanghai prices have stabilized at somewhat higher levels than the LME. Alumina price due to government actions, strategic stockpiles, taxes, GDP growth targets -- to name a few. As a result new capacity curtailments in China have essentially stopped, and it is believed that some Chinese smelters may have restarted capacity recently, and several others are expected to restart in the near term.

The rise in the Shanghai metal price has increased the arbitrage for the metal imports on a [turn-in] basis to some $500 per ton, with traders sending metal into China to benefit from the price differential.

We continue to expect more cuts outside of China, primarily in the US and Europe, as the majority of the smelters continue to operate with negative cash flows. We believe these further curtailments will be necessary to balance the market.

Can we move on to slide number eight.

In February the Company announced the full curtailment of its 170,000 ton per year Ravenswood facility, and in March we announced the closure of one potline with a capacity of 52,000 tons per year at Hawesville. In total the Company has reduced production capacity by 220,000 tons per year, which equals 28% of our 2008 production capacity. As you can see from the slide, this puts us at the high end of curtailments compared to other industry players, but we are prepared to take further steps to reduce production levels if the economics make sense.

If we look at slide number nine, aluminum prices have been range bound for the last three months. Since mid January the LME cash prices have been between $1250 per ton to $1475 per ton with a current price at around $1400 per ton. The majority of the industry experts agree that prices reached a bottom in February and are unlikely to go much below recent levels. But we could see prices move towards the lower end of the range again in the near term.

The 50th percentile producer is now operating around $1650 to $1700 per ton, about $150 per ton above the high end of the range of the LME prices we've been seeing this year. We do not believe that the LME prices are sustainable at this level where all but the very lowest cost producers are operating at a loss. But current prices could persist for some time until the economy regains confidence and particularly demand picks up.

I would like to now pass this on to Wayne to talk us through the operations.

Thanks Logan. Let's turn to slide 10.

Looking across the operations, Ravenswood saw significant change during the quarter. After closing one potline in December, we made the difficult but necessary decision to curtail the entire plant in February. The process was completed by mid month.

Adding my thoughts to Logan's comments, it is during these challenging financial times that unfortunate decisions must be made. Our employees at Ravenswood acted in a safe and professional manner to efficiently curtail the plant. My thanks to Jim Chapman and his entire team for managing the curtailment effectively.

We are now operating the plant in a care and maintenance mode with a support staff of around 28 people. This number will be reduced over the next couple of months by another four to five as some of the service and support work concludes.

The contract with the United Steelworkers expires at the end of May, and we are now working with the union leadership to commence the usual formal bargaining process. We look forward to the new contract being an enabler to when it's time to consider restarting the plant.

Moving on to Hawesville, we curtailed Line 5 in early March, and the plant is now operating efficiently at an annual capacity of around 200,000 metric tons per year. We are in discussions with our customers and suppliers to ascertain if and when the curtailment of additional capacity is feasible and makes economic sense.

At this point I can say there appears to be benefits to curtailing an additional potline. This is being considered for sometime in the near future, and if completed would represent an additional 50,000 ton reduction.

The new power contract for Hawesville continued to move somewhat circuitously to completion. The parties are in the process of satisfying the conditions of the Kentucky Public Service Commission imposed requirements. In addition the world has changed significantly as we all know, since the principal terms and economics of the transaction were agreed over a year ago. In this context, we are carefully analyzing all aspects of the power contract to confirm that it still provides economic benefit to us over both the short and long term.

Insofar as the cost of these curtailments, Mike will be providing the details later.

Moving on to Gramercy, the plant has been producing smelter grade alumina at half capacity since early February. On an annualized basis we and our partner are each taking now around 250,000 tons of SGA. This reduction in Gramercy throughput, in addition to a reduction in sales of bauxite, has reduced the rate of production at St. Ann's as well.

At the lower production rate, Gramercy is performing well with key operating metrics such as energy efficiency being favorable to our expectations. We continue to discuss with our partner the various near- and longer-term options for this business.

Turning to the next slide, as we've stressed consistently in previous discussions, Mt. Holly operates safely, performs well, and has good productivity. The issue is the power price. While the forecasted power price for 2009 has reduced substantially from what it was predicted just a few months ago, and it looks like it might fall even a bit further, it's still significantly above the price necessary to achieve profitable operations, even at higher LME prices than today. We and our partner continue to work with the power provider on short- and longer-term solutions that could meaningfully change the equation. Such a change has thus far been elusive.

In parallel we continue to engage with our partner about the options available to us jointly in regard to the operation of the plant.

Reviewing Grundartangi, we continue to see improved performance from the plant and operating team. Best-ever performances continue to be surpassed. Operating metrics such as injury reduction, emissions, equipment damage, production, and cost efficiency continue to improve from an already excellent base.

From an external environment perspective, we have seen no real negative impact on our business from the economic and political uncertainties in Iceland.

Turning to a review of our markets, we are seeing weakness in the extrusion and billet market with some limited support in the rod and cable business due to the President -- the present administration's directive to strengthen the transmission grid that centered around Texas, an our recent ice storms in the Midwest.

There has been some recent, short-term pricing support due to reduced scrap availability with associated tightening of spreads. Generation of scrap is down, in line with industrial production, which has reduced consumption as well.

Aerospace has fallen off, centered around Boeing and Airbus. Boeing is aggressively destocking inventories.

Automotive looks slightly stronger in May due to destocking winding down a bit.

Sheet mill orders and coil flat sheet remain very depressed. This will not improve until the transportation market recovers.

There are signs that China's stimulus package is gaining traction. The World Bank predicts a recovery in the second half of the year and an annualized economic growth rate of around 6.5%, yielding a potential impact on aluminum demand. Unfortunately there is little similar evidence in other international markets, suggesting continued challenges in 2009.

Now I will turn it over to Mike, who will discuss the financials.

Thanks very much Wayne. If everyone could please turn to slide 12. And also as usual I would ask you to have handy the earnings release and the financial information that comes right after it, as I will refer to it in my comments. It will make it easier to follow along.

First, before diving into the financial results, just talk about the market movements quarter to quarter. As usual I will make all my comments comparing the quarter just ended to the prior quarter -- so Q1 over Q4.

In that period, the cash LME price averaged -- the cash LME price declined 26% Q4 to Q1. On a one-month lag the cash price was off 35%. And as you know, many of our revenues and some of our costs price on a one-month lag. So one-month lag, the LME down 35%.

Our realized average price is a weighted average global. The result for us was down 32% in that context.

Turn to shipment volumes. You can see the data at the end of the financial information after the earnings release. Domestic volumes were obviously down significantly. Wayne has described that, obviously due to the curtailments. Volume in Iceland down 2% sequentially on a reported basis, but on a per-days basis, flat. There were two less days in Q1 than there were in Q4.

And as you've had a chance to look at the numbers, Grundartangi again shipped at an average annualized rate of 276,000 tons. Obviously compared to the 260,000 ton rated capacity, that's a terrific result, and we continue to be very, very gratified with it.

So based on those data, the change in sales -- in -- pardon me -- in price and in volume, net sales -- as you can see on the slide here -- are quarter to quarter off 44%.

Now if you go back to the financial information, let's walk down the income statement. I will call out the major items here.

Gross profit as you can see, off $10 million sequentially on a sales change, or a decrease sequentially of $178 million. A couple of comments on that result. It might look a little strange out of context. Price alone dropped gross profit by $100 million quarter to quarter. You might remember that in Q4 we took a inventory charge to reflect our inventory at lower cost of market, as required; and that charge was $56 million. In effect that $56 million would have rolled through cost of sales this quarter had we not taken it last quarter. So obviously gross profit is $56 million higher than it would've been if we hadn't taken that LCM charge last quarter or in the fourth quarter as required.

A couple other comments on gross profit. Alumina costs were offset, were down $17 million quarter to quarter. Most of that was based on the fall in the metal price, but $2 million of it was based on lower alumina price in -- or alumina costs into Hawesville, mostly from Gramercy as you know.

Nordural power off $5 million quarter to quarter -- obviously LME linked, and raw materials continuing a trend we've seen over the last couple of quarters, off $4 million quarter to quarter, mostly carbon-based products.

Continuing down the income statement, a new line item that you haven't seen before called other operating expense. This is where all the Ravenswood curtailment-related costs will go. Basically the accounting principals say that if you don't have revenues attached to a cost, you can take it and put it on this line, and that's where we put it. We obviously believe that it will be helpful to investors to see it isolated and it's the right accounting treatment.

You see $24 million on this line. It's actually the result of a $35 million charge that I will detail in a moment, reduced by an $11 million curtailment gain related to employee benefits at Ravenswood.

So a $35 million gross expense this quarter. Of that $35 million, only $6 million of it was cash. The rest are accruals and reserves. Obviously that will be paid out in cash in future quarters, and I will detail our estimates for future spending at Ravenswood here in a couple of slides.

One more item to note in that $35 million, we have just today finalized a settlement of our alumina long position related to Ravenswood over the next 12 months. That's a beneficial settlement for us. It's -- $6 million is the cost of the settlement to us. It compares favorably to the size of the liability that we believe we had there. And as we finalize this agreement here over the next day or two, we will be putting out an 8-K to detail the terms of the settlement. Again, I will cover the cash impact of this spending -- or this charge in a couple of slides.

Continuing down the income statement, SG&A as reported, GAAP basis, $10 million this quarter. Obviously that includes some noncash accruals. We continue to believe per our expectations that we told you about last call that around $2 million a month cash SG&A is a good estimate for 2009.

Equity earnings -- you see a slight loss this quarter. The majority of that is due to an inventory adjustment of about $3 million at BHH, which as you know is our 40% owned anode plant in China.

Also lower third-party sales at both Gramercy and at St. Ann's bauxite contributed to lower sales and therefore lower profits there.

Just a quick comment on the effective tax rate. You're going to see largely a result centering around zero for the foreseeable future. We are paying no taxes in the US obviously given our huge NOLs here. And we don't provide a benefit on the income statement for losses. So the effective tax rate in the US is effectively zero, other than small changes like FIN 48 reserves and interest and things like that.

Iceland -- as you know, we report or provide 15% taxes and pay them on our income there. So you're going to see an effective tax rate until things improve pretty close to zero on a quarterly basis.

Shares outstanding at the bottom of the income statement data, you can see 65 million average outstanding during the quarter, obviously impacted by the closing of the common stock offering in early February. To get a sense of where we are at the end of the quarter, if you look at the balance sheet data, you can see down in the shareowners' equity section -- common shares at March 31, 74 million; preferred shares convertible into another 15.4 million common shares.

Just one accounting item to note because it impacts the presentation on the balance sheet and the income statement. I just want to point it out to you to clear up any confusion. This Standard is APB 14-1. You've probably seen it in other companies that you follow that have reported. This has to do with the reporting of convertible securities like the one that we have. And it impacts both the balance sheet and income statement.

What it basically requires at a high level is that you bust up the debt and equity features of that convert and show them separately. So if you look at the impact of it, just look at the income -- pardon me -- the balance sheet to start, in the -- and the 331 column. You will see that despite the fact of course that the convert continues to have a $175 million face amount, it's now stated at $155 million with the balance in shareowners' equity.

The APB also requires you to restate prior periods, so you'll see actually in the December period it had a slightly -- a $2 million lower balance, and that balance will continue to accrete up through the put date to its full face amount.

If you go back to the income statement -- just to conclude on this -- you will see interest expense, about $2 million in the year-ago period, higher than it was reported. That $2 million that's the same amount in this current quarter is noncash of course. All these changes of course are noncash. That $2 million basically is the result of the requirement in this accounting standard that requires you to accrue interest on the debt as if the debt were non-convertible or straight debt -- higher interest rate. The important thing here of course is there are no changes to any of the terms and conditions of the convert. It's just the way you account for it.

Before we move on slides here, two items on the cash flow statement. CapEx you will see -- this is non-Helguvik CapEx on that line, $9 million in the quarter. Detailing that, $3 million of that was new spending this year. $6 million of that was spending for projects that were -- or commitments that were made and liabilities that were incurred last year when we were obviously shutting off all those capital programs last fall. Those amounts were in accounts payable at the end of the year, and they were paid out early this year.

Lastly, Helguvik -- $6.5 million of spending, up per our expectations.

If you could turn to slide 13, please.

Due to the changes in the cash balance quarter to quarter, we thought it might be helpful if we just detailed these for you very quickly here. So obviously we began the quarter, a 12/31 cash balance of $143 million.

Two capital items during the quarter, obviously the equity offering, $104 million net proceeds. And as you know, we repaid our outstanding revolver balance, $25 million during the quarter.

We talked about the two tax refunds totaling $90 million that you see.

About $40 million from the liquidation of working capital. That's largely from the curtailment of Ravenswood obviously. That's as expected.

And again as expected, the actual cash loss from operations, as Logan said, the LME cash averaged $1,360 during the quarter. And as we predicted on that basis, the loss -- cash flow loss after tax was in the low $20 millions -- you see up there.

Ending cash -- as you see on the balance sheet and on the slide -- of $267 million.

If you just turn to page 14, before I turn it back to Logan, we thought it would be helpful to lay out some forecasting items to help people build their financial models and such.

Two important assumptions for this page. The first is the LME assumption of course, the assumed LME. When you start talking about cash costs at smelters and such, it is impacted by the LME. It obviously prices our alumina at Mt. Holly and our power costs in Iceland. And these assumptions assume alumina -- pardon me, metal prices around where we've been, around the $1400 level -- give or take.

Second is importantly these data, specifically the cash costs blended estimate in the US assumes the current power contract at Hawesville. As Wayne detailed, we still expect the new power contract to move forward. It's very complex and it's taking some time, but we believe for prudence sake it's right to plan our liquidity and to show you these numbers given the current power contract.

The only changes when the new power contract closes -- there's really only two. It's pretty straightforward. The first would be as we detailed for you before, that we would receive on the date of the closing of the new power contract a cash payment of $45 million. And second as we've said, our pro forma or future power costs will go up.

Based on where we are today and the estimates that we've seen from the power company, which we are assuming will decline based on movements in coal markets and such things, but as we see the data right now, our power costs going forward would increase on a quarterly basis about $8 million from the current run rate. That's assuming four lines running at Hawesville, obviously, as they are today.

So with those assumptions you see our estimates here, a weighted average cash cost in the US of about $1800 per metric ton obviously. Iceland, $1,350 -- that's obviously an alumina-equivalent number. Given that we don't pay for alumina in Iceland due to the towing arrangement, our true cash cost is obviously much lower than that. But to equate it we have assumed basically current global -- current world alumina prices and grossed up our cash cost there, $1,350.

I would say the obvious here. These estimates are always moving. They are moving every day. There's a myriad of factors that are moving these up and down every day -- and that these estimates -- the margin of error on these estimates are at least a couple of percentage points on either side of these numbers.

Just very quickly, curtailment costs for Ravenswood. This is consistent with what we put out before, so balance of '09, $30 million to $35 million; and 2010, $25 million to $30 million. Thereafter, as we told you before, they fall off quite significantly.

SG&A -- again, about $2 million a month cash. CapEx under $10 million, balance of the year -- this is exploiting Helguvik obviously. And we've got $15 million in for a budgetary placeholder for 2010.

Helguvik -- again, consistent with what we've told you before. Incrementally this -- through the balance of this year, $15 million. That's mostly deferred supplier payments and in addition the cost of the minimal site activity. 2010 -- $5 million are all here deferred supplier payments. Site activity will increase these numbers.

And cash interest expense hasn't changed, about $22 million a year for the two bonds that are outstanding.

With that, I would like to turn it back to Logan.

Thanks Mike. We, like all the industry participants, continue to look at the data as carefully as we can, both daily movements and any trends we can discern.

There are some hopeful signs, chief perhaps among them the recent level of activity in the broad economy in China. However, we do not believe the industry is yet in balance, and risks remain, even on the supply side as for instant capacity is rumored to be poised to restart in China. We continue to believe the industry cannot declare itself finished with its supply response. Despite the fact that our participation has been amongst the most aggressive of any industry participant, we will continue to do our part.

We are working diligently with the appropriate parties to find ways to meaningfully lower the Company's near-term cash burn and thus preserve value for the longer term. None of these discussions is easy as they all involve other parties with their own interests and requirements.

We have added significantly to our cash position as Mike has described, and we will continue to analyze ways to enhance the Company's liquidity profile in a way that benefits our shareholders.

With that, we will return to your questions. Operator, we are ready now to take questions.

(Operator Instructions). Kuni Chen, Banc of America.

I guess just first question on working capital, how much more do you think you can wring out going forward through the balance of this year?

Kuni really -- it's Mike. That's really -- assuming the metal price stays where it is, obviously working capital is going to go up and down based on -- at a steady-state production capacity based on the metal price, but assuming it stays where it is, we're -- it's basically out. The line came down at Hawesville towards the end of the quarter -- maybe two-thirds of the way through the quarter, Wayne -- and that provided maybe a very small bump, but the real nut there was Ravenswood, and that's happened.

Kuni, it comes through -- comes out pretty quickly, as you know, because we take these pots offline and we get the metal balance and obviously the alumina being recovered, etc.

Got you. And basically that Ravenswood curtailment, $30 million to $35 million, that flows through that other operating cost line through the balance of the year; correct?

Well, yes and no. I mean, that line there -- what you saw in that line this quarter, again, was a $35 million charge of which only $6 million was in cash, so we've already recognized, again, at a residual -- all other things being equal, $29 million of expense. You won't see those come through. Those are already on the balance sheet. So when you -- when we pay the cash, you will just see the reduction in those balance sheet liabilities, and you will see the cash going out on the cash flow statement, if you will.

And just last question. On Helguvik it looks like a couple of things are percolating there. I was just hoping you could give us some color on what's happening there. It looks like you are working on some nonrecourse financing. Maybe you could just give us a sense as to sort of what the investment in a smaller phase 1 might look like you. Do you retain basically 100% equity stake in the project going forward? If you could just kind of talk to some of those issues?

Yes, Kuni. Let me just take it. I think first of all just to make sure we all understand, the major work on the project was curtailed, and we have reviewed the project, and that full review will be ready in the second half.

As you would expect, we all continue to look at ways of financing this project, and I don't think it's appropriate at (inaudible) [time] to comment now on what that may or may not bring, other than the comment we said right at the beginning, that it would be a nonrecourse type of funding.

Secondly, we've split the project into four phases, each one about 90,000 tons. And until we've done a sufficient work, I don't believe that we should comment on what the capital estimates are. But we should note that obviously with commodity prices and construction costs coming down, that we are seeing and we expect to see some reduction in that. So I think I've covered all your points.

In terms of the others on ownership and those sort of things, as a matter of policy we wouldn't comment on that. Mike?

Yes. Let me just say one further thing before we let Kuni go here. Steve Schneider, our Chief Accounting Officer, who is here in the room with us, reminds me that the ongoing costs at Ravenswood for the curtailment, those that we didn't reserve this quarter, will indeed flow through those lines. The costs that we've recognized, that have already been recognized on those lines, you won't see those again of course on the income statement, but new costs every quarter, those that we can't recognize now under accounting rules, FAS 5 liability recognition or whatever, those will every quarter flow through those lines. But you will see them every quarter on that line.

Last piece on Helguvik, Kuni, is just that we've got a engineering team -- it's very small -- working on the re-looking at this project, and a very limited on-site work. And I think Wayne commented and Mike commented on it as well. Very low-level, very low cost.

The good news of course was the investment agreement being approved by the Icelandic parliament just pre the election week. Obviously that is subject to the European Surveillance Authority's approval. We think that will come through. It will just take some time.

I mean -- I'm sorry, last question. Do you think potentially you could be in a position to move forward with this project at some point say over the next 12 months if a financing package gets put together here?

I think, Kuni, it's a good project. We know that. It's competitive, it's in the right spot, it's got competitive setup. We would be I think somewhat adventurous to comment at this point in time. We have to do our homework. And you know what we like. We will spend the right time on this thing. And it's hard to forecast it in today's world. We see the world as being pretty tough, but we recognize the value of this project. We recognize the importance of it, and so it's important for us to continue to work on this at the right level to see what opportunities there are. And the world may or may not change. We will see as we go forward.

David Gagliano, Credit Suisse.

On Hawesville, I was wondering if you could remind us again, given the off-take agreement there, how much capacity theoretically could you shut in at this point? I know you mentioned one additional potline; is that it?

Basically -- this is Wayne -- we have four lines operating now to supply sufficient metal to the Southwire. We can take an additional line down. So three lines will supply Southwire.

All right; perfect. Then just as a follow-up, on the cash flow information on page 14, the -- first of all the smelter cash cost, that $1800 a ton, that's basically for Mt. Holly and Hawesville; is that right? That excludes Ravenswood; right? (multiple speakers)

That's correct. You bet, David; absolutely.

Okay. And then so sort of back of the envelope, that looks to me like it gives you enough, if you kind of do the math and assume $0.66 aluminum forever, is my math right in saying that liquidity extends basically to year-end 2010?

You got a lot of assumptions there, and we -- again, we -- you've heard what we've said in the past in the written materials. I think we would say clearly, based on these data, that it extends into 2010 nicely. As to when in 2010, whether it's year end or something otherwise, I mean everybody's going to have their own interpretation.

I would say it's well into 2010. To try and pick a particular period in 2010 is difficult, David, but you've done the right arithmetic I think.

Oh, another statistic I could give to help out, we talked about in the past and I should've updated it quite frankly, is you -- I was just doing your $0.66, David, to get around 1450 -- is that based on where we are today, today's production capacity -- so four lines at Hawesville, Mt. Holly going, Grundartangi -- and our tax position, which is basically a non-taxpayer every, every $100 in the LME -- up or down -- increases or decreases of course bottom-line free cash flow by somewhere in the $40 million to $45 million range. So you can play with your sensitivities in that respect.

Tony Rizzuto, Dahlman Rose.

A great job on reshaping the Company in this difficult environment.

The primary realization on your direct shipments at $0.72 a pound would seem to reflect more than just the Midwest premium. Has it been accentuated by the greater shift towards high purity metal as you guys shut down Ravenswood?

There's a [bit] of that, Tony. I don't know if my colleagues here -- Wayne, do you want to add to that?

There's certainly been a shift of opportunistic developments in the plant to take advantage of the high purity (multiple speakers)

But I think Tony has got it -- sorry -- on a weighted average basis -- Tony, it's Mike -- you got it right, which is we haven't changed our high purity and the denominator is lower, so -- and all the stuff we've taken out obviously is standard grade, so I think the math result that you're looking at, I think you got the right explanation for it.

Okay. And then at Mt. Holly, guys, what is the time frame? Can you give us an idea of the time frame for a possible decision there? And can you give us an idea of what the current power price is that you are paying right now?

Yes, Tony -- it's Logan. So I think the answer to try and give you a time frame on Mt. Holly is very difficult. You have two partners, both are operating companies, both come at it perhaps from different directions. We're in very extensive discussions with Alcoa. We like the facility. It's just how do you see that facility in this period of time, and what do you do with it? So I would be wrong to put a timing on this because it will just put everyone in a box, which we don't need. It's receptive but parties do have different views.

In terms of the power prices, I'm not sure what we said before, but you could look it up I think from CLU, and that would probably give you some reasonable idea of where it is.

Yes. As we've said before, we can't state the exact price due to the agreements with the power supplier, but as we've said before, it's not the least attractive power tariff in the electric power tariff for smelters in the US, but it's probably, Wayne, in the back half of the third, maybe forth quartile for power tariffs, and it's not a good situation.

So Tony, in summary you've got a good facility, well-run, with a -- as Wayne said earlier, an unattractive power price, and the discussions are ongoing. They are not cursory. They are run in a very professional manner, and we'll keep you up-to-date as things happen if it's significant.

Okay. That -- because that is a good facility. I know there was -- I think it was one of the most recent vintages of smelters.

It is. And it's -- you know, it's very well-run I think, if you look at it from an operating statistics from a safety point of view. I think Wayne also indicated that when we looked at power prices going into this year from Santee Cooper you know as a supplier, they were somewhat higher than we've seen so far. But even with that improvement, it's still -- as I think Mike and Wayne have described -- somewhere in the third quartile of power prices, so you know -- you can go to CRU. They may give you an indicator. I don't have that in front of me at this time.

Got you. And Grundartangi, when you guys gross up the costs on alumina, do you essentially take the average -- for purposes of a presentation you look at the average in the quarter of the LME, and you kind of use that index there to kind of utilize what the alumina costs would be on a --?

Yes. What we did Tony -- to keep it very simple and very vanilla -- is just -- as I said, we ran these estimates around 1400 metal, which is kind of the -- not the mathematic mean or anything, but it's just kind of the -- where the metal, as you are well aware, has been recently. And then we looked at where we believe -- based on our market intelligence, sort of long-term, meaning a year-plus contract -- alumina prices are trading today, and on that basis we grossed up the actual cash cost at Grundartangi.

What are some of the cost reduction efforts that you still see in opportunities there for reducing (multiple speakers)

Specifically at Grundartangi?

Yes.

Obviously capacity throughput. I think Wayne and the teams there and David (inaudible), the guys have done a fantastic (inaudible). I think obviously we'll work on the other key elements. Wayne, [call them]? Any other (multiple speakers)?

Yes. I think the key ones as you've hit upon, certainly the denominator -- production, but certainly we look at the labor costs, the overtime, and specifically contractor costs. And as Logan hit it, carbon costs are now even more substantive than energy costs, so we are looking into that and working with our suppliers diligently.

On the carbon side, Tony, our decision to take a equity position in China has worked out well for two reasons -- one, from a competitive position, but also to give us strategic protection for that asset. We don't want to be exposed to a market that may change significantly one way or the other even from having producing facilities for anodes available in the future. So we've positioned ourselves quite well for that.

The currency has some impact, as you are aware, as well. And the last I looked the currency was at about 129 kroner to the dollar. So that has an impact on some maintenance costs and labor.

Excellent. I've just got one more question left, Logan. I would like you to take a shot at this one. Your thoughts on this UC RUSAL, and there's been a lot of mixed reports about what the Russians are doing and what they said they would do, and I'm (technical difficulty) what are you guys -- what are you seeing here? Do you really believe that they've taken out what they said they were going to do?

Tony, you know what my answer is going to be, so -- and that is I don't comment on my colleagues, other than they run a large company, it's well-run, and their reports have been 500,000 tons of metal taken off. More visible than that is the alumina site, which Tony you know, particularly in Jamaica, you can see that Euro alumina and (inaudible). So you can look at those things, so you can make your own extrapolation from that information, which is visible through to the metal side, but the report is 500,000 tons -- somewhere in that order; maybe a bit more.

Okay. Appreciate your thoughts on that. Thank you.

David Rosenberg, Oaktree Capital.

The question I had was, historically you guys have always said that you are about 23% hedged to aluminum due to the natural hedges in all your smelters. Can you refresh that number given now that Ravenswood is curtailed?

It's -- yes. I don't have it right now, David. We are all agreeing here it's obviously lower. That's a throwaway statement. We will have to provide that sort of in a -- in maybe the next sell-side conference that we go to or something like that. It's -- I wouldn't even want to -- it would be a pure guess on my part. I'd just prefer not to do it. If we can get ourselves together quickly here to give you a reasonable estimate before the questions run out, we will do it, but I kind of doubt it. Otherwise, we will put that out there -- it's a fair, a very fair question -- the next public format that we have.

And could you also tell us what the availability was on the revolver at quarter end?

Yes. I mean, a couple of answers to that question. First is as you know, we continue to have eleven -- well, take a step back. It's a $100 million revolver. We continue to have $11 million of the capacity used to backstop letters of credit. Those LCs mostly are used for the $8-plus million, to backstop the $8-plus million of industrial revenue bonds we still have out.

Given where the inventory is priced today, we still are doing the month-end calculations, but there's not a lot of availability left on it. There's maybe another say $20-ish million, maybe as much as $25 million, but I prefer to say 20 -- now -- million dollars of actual cash drawdown availability left on it.

As we've said before -- you didn't ask, David, but then an obvious question is, well, why aren't you drawn? If you go below a certain amount -- you can look at the document online, it's $25 million of availability -- you end up in a $15 million of -- Shelly Lair, our Treasurer just corrects me -- you end up in a dominion cash situation. You are quite familiar with that term. And it's -- given our liquidity today, it's -- doesn't -- wouldn't make any sense -- I would assume you would agree -- to do that. But that's kind of the availability at current metal prices.

Mark Liinamaa, Morgan Stanley.

I think I'll know the answer to this as well, but just to be clear, there have been some press reports about Glencore force majeures in alumina supply agreements to competitors. Are there any risks or potential disruptions either in the US or Iceland?

Not that we can see, Mark. We are not -- we wouldn't comment on the discussions that are ongoing publicly, but we don't see that. We've actually just dealt with -- I think Mike mentioned it -- with a long alumina situation out of our Ravenswood facility, and the supplier there was Glencore, so we don't see it. So I have got no visibility or any concerns in that.

Okay. Can you comment at all about the -- maybe your long-term view on Gramercy?

You know, the Gramercy facility -- our partners and ourselves have agreed to take the facility down to about 500,000 tons per year of SGA. We've always said the Gramercy facility came to Century by way of a situation at an opportune time. When the LME price is quite favorable -- above levels we hear -- Gramercy as being a sort of third-tier -- a third-quartile producer does well. In today's terms obviously at whatever percentage LME you use for traded alumina, if you could get it, which it seems to be on the market, is going to be substantially less than the Gramercy operating costs. So both partners have recognized that, and obviously we continue to review the situation there and including what the impact on Sudan's bauxite mine will be.

Wayne, any other comments [on] (multiple speakers)

No. I think you hit it, Logan.

As you know, Wayne is our -- Wayne and his team look after our interest in Gramercy, and both partners have recognized the need to certainly reduce the output of Gramercy. And the plant's running pretty efficiently from an energy point of concern as well at these lower levels. But it's certainly not a market producer at this point in time, as you would guess.

Sure. And just finally as you look at the supply/demand imbalance -- and you and others have commented that we need to see more smelter capacity come offline to get things in balance -- is there enough cost differential that you have some level of confidence that there are some logical people to step up, or is this going to be a bit of a waiting game, do you think?

I don't think that it, Mark, that it's a -- deliberately a waiting game. I think it's each individual industry participant company operation has different sets of circumstances. We've just gone through our discussions with Mt. Holly, our discussions at Gramercy, so there you've got two different sets of partnerships which may give you different results or different discussions.

I think that certainly from a North American, European, and perhaps even into parts of Asia, there are significant levels of production that is above -- in costs above what you're seeing on the LME, and I think most producers have to face up to the decision to continue to run or to curtail in some form. You've even seen some level of curtailment coming out of the Middle East, which was -- I think is somewhat of a surprise to most of us. So -- a modest one, but it also sort of tells you that even at that level for certain levels of production, it's perhaps wiser to curtail.

And on China you mentioned some startups -- and this will be my last one.

Yes, Mark. The China ones have happened. Some of them already have happened. I think (multiple speakers)

The central government though I understand has been taking a little harder line view on this than the provincial government maybe (multiple speakers)

Yes.

-- [operation]. Is that your view, that the central government still wants to show some discipline?

I think the answer is yes, balanced against unemployment and other sociopolitical demands, so you're talking of a very large country with 1.2 billion people and a lot of interested parties. So I think it's very localized, but the -- overall the central government wishes to curtail in power-intensive industries. But power is not as much of a problem as it was maybe a year ago, because other industries have come off. So it's a moving feast, but obviously there have been curtailments, but there have also been some restarts of course helped by what's happened with the Shanghai price, Mark.

Yes. Well, very good. And thanks and good luck with (multiple speakers)

Brett Levy, Jefferies & Company.

Can you talk a little bit about kind of a scenario where essentially you'd take Hawesville down, you'd take Mt. Holly down. Let's assume we're out a couple of years, some of the customer contracts have gone away. Is there a viable plan to basically be a Iceland producer so long as Iceland is the only production facility that's cash flow positive?

Brett, it's Mike. I mean, you're asking a pretty loaded question there with assumption on assumption. I don't to be honest even know how to answer that, other than to tell you what you would already hope we would say, which is we're looking at -- we are studying hard all of those potential scenarios. It's a throw-away answer, but it happens to be the truth. And I wouldn't even want to start speculating about a Iceland-only company or an Iceland-only plus this, or an Iceland, or plus that. It's -- everything is in the mix at this point in time, and we're talking, as Wayne said, to suppliers, as you say correctly, customers, partners have a big equation here, and it's just -- that one I think defies an answer at this point.

(multiple speakers) I think you've got so many moving parts in your question. As Mike has said, Brett, we're looking at all of the scenarios, and those scenarios move around as you go.

And then we've seen some flexibility. Obviously you probably saw the agreement Teck Cominco reached with their banks. It looks like the credit markets are opening up a little bit. Is there a possibility of taking your existing bank agreement and maybe finding a better agreement?

Sure. We're again on the capital structure side looking at all that stuff too, opening capital markets, at fixed income markets, what opportunities could be there if and when the time is right. On the bank group, we've had good discussions with the bank group. We've got a really good group there. BofA has been a terrific agent. They are very current on what's going on at the Company. We keep good contacts with them. So we are talking to them. There is nothing advanced in any way in terms of the kind of thing you are talking about right now. The last couple of months haven't been a great time -- this is an understatement as you well know, Brett -- to start renegotiating unsecured credit agreements, but that's -- that discussion is absolutely ongoing.

Those are actually both very good answers (multiple speakers)

Okay. Fair enough, I'll give myself (multiple speakers)

Thanks very much for the questions.

[Brandon Seneese], Cobalt Capital.

Thanks. My questions have been answered. Thanks.

(Operator Instructions). At this time there are no further questions in queue.

Thanks very much operator. Thanks to everyone for taking the time to be on our call today, and we look forward to talking to you again soon. Thank you.

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