Century Aluminum Co (CENX) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by, and welcome to the fourth quarter 2009 earnings conference call. At this time, all participants are in a listen-only mode. Later there will be a question and answer session. (Operator Instructions)

At this point, I would like to turn the meeting over to our host, Ms. Shelly Lair. Please go ahead.

Thank you, David. Good afternoon, everyone, and welcome to the conference call. For those of you joining us by telephone, this presentation is being webcast on the Century Aluminum web site, www.CenturyAluminum.com. Please note that web site participants have the ability to advance their own slides.

The following presentation and discussion may 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 uncertainty. Century's actual results or actions may differ materially from those projected in these forward-looking statements. For summary of the risk factors that could cause actual results to differ from those expressed in the forward-looking statements, please review Annex A and refer to Century's Form 10-K for the year ended December 31, 2008, Corm 10-Q for the quarter ended December 30, 2009 and other reports filed with the Securities and Exchange Commission.

Information provided in this presentation and discussion is based on information available as of February 23, 2010. Century undertakes no duty to update or revise any forward-looking statements, whether as a result of new of information, actual events, future events, or otherwise. In addition, throughout this conference call we will use non-GAAP financial measures. Reconciliations to the most comfortable GAAP financial measures can be found in appendix of today's presentation, which is available on our web site.

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

Thank you, Shelly. Good afternoon, everyone and thank you for joining us. We welcome the opportunity to report on our progress. So let's get started and we will move on to slide number four.

Given the events of the last 12 months or so, I think it makes sense to step back and provide a quick review before we summarize Century's achievement and then where would we go from here. It goes without saying that the shocks of 2008 and 2009 were unprecedented in most of our lifetimes. The rapid and sharp drop in economic activity and resultant impact on the value of almost all assets were breathtaking to say the least. Commodities, as you know, given their direct exposure to the global economic activity were affected in an outsized manner. I will comment in more detail on the market in a few moments. Suffice it to say, that we believe we're in a dynamic environment, with positive long-term forces at work but some substantial near term answer to these remain.

In a nut Shell, global economic activity appears to be at least to have stabilized. China in particular has shown a remarkable recovery and return to robust growth. Despite some recent concerns about the governance intent in China to restrain certain perceived excesses. We continue to believe and think these particular concerns might be exaggerated.

Aluminum is tight in physical markets virtually everywhere in the world. On the other side of that coin, this physical tightness which is certainly keeping premiums high, and may be having an impact on the actual price as well, is largely supported not by fundamental forces, but by interest rates and other financial factors. In addition, the much reported inventories, both in warehouses and elsewhere, are likely to be a drag on the metal prices for sometime to come.

Lastly, we continue to see older and economic smelters continue to produce for a variety of reasons. We worked tirelessly through this difficult environment to preserve Century's unique asset and overall value. I think it's at first instructive to note that our smelter at Grundartangi in Iceland produced positive cash flow throughout the year of 2009. We have a great business in Iceland, run by a great team.

One of the five lines remains curtailed at [Helguvik]. Our team there has done an extraordinary job managing the plan through uncertain environment and in taking significant cost out of the business. This is the major continued focus at Hawesville as our cash power costs will increase significantly after this year, 2010, when the support from E.On, which we negotiated when we terminated the old power contract, comes to an end.

Mt. Holly has had a poor year from a performance standpoint. This was disappointing given the timing and the fact that this plant has generally performed well and has been well managed. We have had detailed discussions with our partner who operates Mt. Holly.

Ravenswood remains totally curtailed since February. We are maintaining a skeleton staff to keep the plant safe and ready for restart if the conditions were to warrant it. Wayne will provide additional commentary on that.

And lastly, we divested 50% interest in Gramercy and St. Anne's alumina and bulk sized business. This has been a tactical and defensive investment for Century in 2004 and the time and the circumstances were right for us to access this in the last year.

Let's move on to slide number five. This is the overview. Mike will provide details, but given significant work we did to improve the Company's financial situation, I wanted to note this up front. We raised a substantial amount of cash and made major changes in our desk structure that will provide the company with much more flexibility. Bottom line, as I look back to the list last year, I'm proud of the aggressive and sometimes difficult actions our team took to keep the company on a level footing through these difficult times.

As important, the operational and the financial actions we have taken have set the company up in a good position for a return to growth as we go forward.

Moving on to slide number six. The environment has recently been complicated by events in European economies and by the actions of the Chinese government and ostensibly at preventing excesses in their final sector -- financial sector. And thus, the broader economy. We, like others, are watching these developments carefully and analyzing our alternatives to mitigate risk, were the environment to deteriorate significantly, which we do not think is overly likely.

Our near term view is relatively balanced. Over the last few months, aluminum prices appeared to be stabilized in the low 2000. Near the level of the cash cost of smelters in the fourth quarter on the cost curve.

Global cost pressures, especially that of par and currency are continuing to put upward pressure on the cost curve. Physical supply remains partly due to financing transactions, and whereas inventory levels had flattened. We have no trouble selling all of our production, and our customers appear to be in reasonably good shape.

One of our primary objectives is the restart of major construction activity at the Helguvik smelter project during the next several months. There's substantial work on guiding several important areas aimed at this goal. Together Wayne and I will provide more detail in a few moments.

Of equal importance is the continued diligence around the cost structure of existing facilities. We took aggressive actions in 2009 that produced real results. Some of these actions we knew were temporary, as they involved running the plant in a manner that cannot be sustained. Others we believe are structural and thus we must work to perpetuate these cost savings in addition to finding new areas of cost improvement and operating efficiency. This will be especially important for Hawesville given the magnitude of the power cost increase in 2011. In addition, we are constantly looking at the capacity we have curtailed and analyzing under what circumstances it may make sense to consider reopening it. Again, Wayne will give you some more details.

Shall we move on to slide number seven? The LME cash price, averaged $2,000 a ton for the fourth quarter of 2009 and some $1,670 per ton for the full year of 2009. Prices have climbed as high as $2,300 per ton in early 2010, but have since pulled back to approximately $2,100 per ton.

Aluminum prices continued to climb with the most recent spot price in the Pacific basin quota to $335 per ton, up from $284 a ton in the third quarter. Global aluminum demand continues to improve with China leading the way, as the economy returns to a robust growth levels we saw in 2007, and early in 2008. Importantly, we are seeing real growth in domestic Chinese demand as local consumers are becoming more comfortable with buying on credit.

Chinese economic statistics ended the strong year for 2009 at 10.7% GDP growth in the fourth quarter. And 18.5% year-over-year IT growth in December. While this has created a fear about an asset bubble, and potential government action to dampen excessive growth, I would note that China has had a long history of sustaining impressive growth levels without overheating its economy as we have seen in other parts of the world. I would also further note that there's significant portion of the Chinese population living in rural regions that are expected to provide a meaningful resource for additional demand as these particular populations make the shift towards a more urban lifestyle.

India's economy has also returned to solid growth levels which is reflected by a 7.9% year-on-year rise in third quarter GDP, and more interestingly, a 16.8% year-on-year industrial production growth in the month of December 2009. Similarly Brazil was 18.9% for year-on-year for December 2009.

With the exception of Russia, the brick countries appear to be leading the way once again toward economic growth on a worldwide basis. When we look at US and Europe, we continue to deal with unemployment concerns and an unclear economic picture. With default risks in Europe adding additional uncertainty to commodities and broader markets. That said, we have seen these markets show some signs of stabilization of the past several months and most recently, some tentative indications of modest growth.

Shall we move on to slide number eight? The LME stocks increased only slightly in the fourth quarter of 2009. This is a significant improvement from the dramatic daily additions to warehouses we saw in the first two quarters of the year. Thus far in 2010, stocks continued to remain in a reasonably tight range, but we have yet to see any meaningful or sustained declines as we technically expect in the period of restocking. This is likely the result of the Chinese smelter restarts and new capacity coming online, particularly in the Middle East.

The well publicized issue of aluminum being tied up in financial deals has provided some support to the prices as regional practice has lifted premier. In the US, the Midwest premium has climbed to the $0.06 range, a level that we have not even since the year 2006. While supportive near term, these financing transactions add another element of uncertainty to our market, as the economics of these transactions can be influenced by a variety of factors, including the slope of the forward curve, interest rates, rents, insurance and other factors.

Should any of these elements individually or in the combination change in such a manner to make financing of the metal economically unattractive, these transactions will no longer be rolled forward and may even be unwarranted. Thereby alleviating much of the physical tightness in the market.

We continue to believe that significant warehouse inventory levels will be an overhang on the market for sometime to come.

Let's take a quick look at slide number six. With inventories at 65 days of global demand, this is roughly the double. The normalized levels are 30 to 40 days of demand. While we saw modest shift from quarter three to quarter four, towards a more normalized relationship between days of inventory and price, the data continues to indicate a disconnect with historical norms. As a result, we continue to be cautious in our views on pricing and will continue to focus on running the business prudently in this uncertain environment.

Moving on to our project in Iceland, on slide number 10. I would like to provide some more detailed update on the status of the Helguvik project. We continue to believe that the first 90,000-ton phase will have a capital cost of around $600 million. This would be before financing costs. As we have progressed this project, we have gained increasing confidence in this estimate as the contracts we have signed to come in and better than the original capital estimates. We are also maintaining our estimates for the capital cost of the full 360,000-ton pot line at around $5,000 per annual ton of capacity.

Again, this total we have spent $100 million at the end of 2009 and that is inclusive of our project development costs. Mike will provide a bit more detail of this and our estimate for 2010 spending. He will also provide the details of the progress of debt financing.

With the development of this project execution itself has progressed well. I will ask Wayne now to give us a few comments to take us into some more detail. Wayne?

Sure. Thanks, Logan. We have in place an experienced team made up of a combination of (inaudible) employees and representative of the Icelandic engineering firms who have helped us on the successful expansion at Grundartangi. They have been making deliberate and safe progress on the project, engineering and construction together. In addition, they have spent a great deal of time working with the major suppliers to ensure these companies are ready to support our timing and other objectives when we are ready to restart the major construction. Lastly, the project team has worked to put in place the organizational structure, processes, and systems to support the full project level of activities and requirements. Logan?

Thanks, Wayne. Our best estimate is that we should be in a position to resume major construction activity at the project site around the middle of this year. There are many variables that go into this estimate, but the largest is the finalization of the contract with our [power] supplies and the confirmation that they are in a firm position to finance and thus deliver the [power per] at an agreed schedule.

I would also like to note that we continue to have strong support from all parties in Iceland, including unions, local communities and the coalition government.

Thank you very much, Wayne. Would you give us the operating report?

Sure. Thanks, Logan. Let's turn on to slide number 11.

From an operational perspective, we finished the year strong and have made a good start to 2010. Hawesville is now maintaining stable operations at four full pot lines, roughly 80% of its capacity. The work required to restart the cells which had been allowed to sit out of service is successfully behind us.

As Logan has mentioned, the Hawesville management team has taken a clean sheet of paper approach to the plan's cost structure, and have taken some very good actions thus far on this basis. These actions span every facet of the plant's cost structure, including operations, purchasing, sales, and the organization.

The [own us] now is not only to be certain these actions can be sustained but to seek additional reductions as well. This requirement is especially important as the power rate support we negotiated with E.On falls away after 2010. On this basis, Hawesville effective power price will rise substantially in 2011, all other things being equal. Mike will provide some additional detail on this.

Based upon this we need to optimize every part of the plant's operations to ensure we are in the best position to keep it viable long into the future. We will soon be entering into negotiations with the union leadership to renegotiate the labor contract that expires on March 31, 2010. And we continue to speak with our major customer at Hawesville about future arrangements after our current contract expires in early 2011. Both of these discussions are important to the future of the plant.

Lastly, on Hawesville, as we have discussed in the past, we purchased some downsized price protection for 2010. Mike will provide some additional detail on this as well.

Moving to Grundartangi, the local team has continued to drive excellent performance. Shipments were strong and costs are in check. We recently had some troubling readings on one of our transformers at the plant as we performed routine maintenance. After analyzing the issue with the manufacturer, we determined it would be prudent to take this unit out of service for several months to have it properly repaired. This major maintenance will require us to dial back the power a small amount and thus will cost us some production in 2010. Mike will provide some additional detail on this as well.

We're also going through regular labor negotiations in Iceland. As you might imagine, these types of discussions have been a bit more difficult, due to the economic events that the country has had over the past year and a half. We have confidence that we will reach an acceptable conclusion as both parties are interested in finding common ground.

As Logan mentioned, Mt. Holly had a difficult year, plagued by several seemingly unrelated categories of production inefficiencies and supplier problems. We are concerned about the persistence of these issues and have discussed them openly with [Art Colliner] who operates the plant. We are optimistic that the management team will get the plant back to its normal status. The plant has also had a problem with one of its transformers and will require -- that will require removal and replacement. This is being staged for later in the year, but unlike Grundartangi this work should not impact production. Commencing last year, we and our co-owner have been conducting detailed discussions with the power supplier about the future of that arrangement. Bottom line, we have told them that the plan's long-term viability will depend heavily on whether we can come to some type of accommodation that ensures the plant is protected from secure, downsized movements in the aluminum price, and we have flexibility of operation. I would characterize these discussions as preliminary, but productive thus far.

Let's turn on to slide number 12. Briefly on Ravenswood, the personnel on site continue to keep the plant ready for a restart. As Mike will detail, we are on track with performance against the shutdown costs we estimated last year. In order to contemplate a restart of the plant, we would obviously have to perceive market conditions in which we had -- have confidence over a reasonable period of time.

As importantly, we would also need an enabling power and labor agreement. We are presently working to create a power agreement in partnership with the political leadership in West Virginia and other constituencies who would like to help get the plant restarted. Such an agreement would -- which would provide the plant with protection in the event of market dislocations, is an absolute prerequisite before we would consider restart of the plant.

On the labor front, we continue to maintain contact with the ownership in light of the contract expiration in August of this year. On the market, Logan has touched on most of the points. I will not repeat them, as he's done a good job here. We are seeing some real evidence in tight supply conditions about which we have heard in the vertical market, there really has not been substantial change over these last few months, other than the fact that we have seen some modest firming of conditions, primarily in the US automotive sector.

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

Thank you very much, Wayne, if we could turn to slide 13, please.

And as usual, I will make reference in my comments to the financial information that follows the earnings release. So if you could have that handy, it will make my comments easier to follow. Okay.

Slide 13, as usual, we are showing here a sequential comparison of the quarter that just ended to the prior quarter. So obviously Q4 to Q3 here. Before diving into the income statement data, let's take a quick look at the market to put it into context. The cash LME price was up 11%, on average, quarter to quarter and on a one-month lag basis, up 10%. Our realized unit prices were in line with that in the US, up 12%, and in Iceland up 10%.

Turning to shipment volumes, you can see these data at the end of the financial information on the page entitled Operations Data. Our domestic and total shipments in Iceland were each up 1%, sequentially. And as you have seen, as Wayne described, Grundartangi again, produced at annualized rate of 276,000 metric tons, a good 5% to 6% above its rate of the capacity.

So putting those price and volume data together, net sales in dollar terms up 12% quarter to quarter. I'm back on the income statement data now in the earnings release. On that net sales increase of $28 million quarter to quarter, gross profit, gross $16 million, a couple of cost items to note for you. First power in Iceland was up $3 million quarter to quarter, of course, that's entirely pegged to the market.

Pot relining expenses at Grundartangi in Iceland were up $4 million, quarter to quarter. It was due to a proactive decision we've made to institute, per industry norms and practice, a regular pot relining program so that you don't have pots all coming out at once. This is due to a significant amount of expansion capacity we brought on a couple of years ago at Grundartangi.

I would like to remind you also and, again, this is described in the earnings release that in terms of our power costs, at Hawesville, there's $17 million this quarter of cost of sales for which we didn't pay that E.On is paying on our behalf, and this same condition will exist through the end of 2010, when that support agreement with E.On concludes.

Moving down the income statement, other operating expense of $6 million, that's the curtailment expense at Ravenswood as you know. The cash spending on those items was $9 million this quarter, versus that $6 million accrual.

SG&A you saved $15 million for the quarter. A cash amount of that was about $10 million. We had about a $4 million accrual this quarter for a multi-year compensation plan. So the payouts under a plan like that occur over several years, but obviously under GAAP, you accrue properly for a plan like that at its inception.

Loss on forward contracts that's the Hawesville hedging to which Wayne referred. Other expense, $5 million that primarily -- or wholly relates to the debt exchange offers that we talked about before in some detail.

Taxes just quickly. You saw the one-time benefit discreet items in the earnings release. Just to remind you, in the US we provide from an effective tax rate standpoint, a 0% tax provision in the US. As you know, we have large NOLs and full valuation allowance against those NOLs in the US. So when we have income, we don't provide a tax provision and when we have taxable loss we don't provide a benefit. In Iceland, we provide taxes at an 18% statutory rate. That rate in Iceland increased from 15% during the latter half of 2009.

Just at the bottom of the income statement, you see the average shares, 88.2 million common shares. Not on the financial statement per se, but we do, obviously, as you know have the preferred shares outstanding as well, largely common stock equivalents. Those were 10.1 million average shares for the quarter.

Just to give you a sense about how the share count may look in the first quarter of 2010, let me just give you the year end balances, common shares ended the year at $92.5 million -- pardon me, preferred shares at 8.3 million.

If you could just slide forward -- no pun, sorry -- to slide 24, just delineates some of these items that are described in the first paragraph of the earnings release. So, as you see at the top of the page, and as you saw -- or see at the bottom of the income statement, the net income on -- or net loss this quarter, obviously as reported on the common shares. This is the treatment prescribed by GAAP is $0.28 a share. If you spread that same loss over the common and preferred shares, again, the preferred being essentially common stock equivalents, you get a loss of $0.25 a share. And then let me just take you through the items that we talked about in the earnings release that you saw.

So the Hawesville hedging costs recognized all up front, $0.12 a share. The loss on the debt exchanges, a good chunk of that was non-cash, $0.05 a share. Again, that portion of the power cost that's in our reported cost of sales but that we don't pay, E.On pays it, $0.18 a share. And that discreet tax benefit gave us income this quarter of $0.07 a share.

Okay. If we could go back now to slide 14, we will just go through a quick review of the year-over-year financials. We will do this at a pretty high level. Again, talk about the market first, the cash LME was down on average, 35% fiscal '09 over fiscal '08.

On that basis, our average realized prices in the US were in line, down 36%. Iceland realized prices down 39%, a little more than the market as those of you who have been following the Company for a while will remember, the EU duty halved in the early part of 2008 from 6% to 3%. We get some of that as income in our [toning] arrangements. So we did lose a little bit of revenue due to that reduction in the EU duty.

Shipment volumes in the US obviously down significantly due to the curtailment of Ravenswood and the one line at Hawesville. Grundartangi shipments up 2% year-over-year, again, a great performance. So putting the price and the volume together, net sales down 54% year-over-year, that was $1.07 billion. You can see this now on the income statement over on the right-hand side, obviously. So $1.07 billion in sales. On that gross profit down $377 million.

Just to step back and give you a sense of the extent -- the impact of the price, the reduction in the LME price alone drove our gross profit down $536 million for the year. So we had $160 million of costs going the other way, obviously, improvements, a big chunk of that, as would you suspect relates simply to the reduction in the aluminum price, but a big chunk as well relates directly to the expenses that Wayne and his teams have taken out of the business.

Just a couple of comments on the cash flow statement that you see, appended again to the earnings release before I move on, just note a couple of items, maintenance CapEx of $2 million for the quarter and $17 million for the year, in line with our expectations. Helguvik spending, $4 million for the quarter, and $22 million for the year. Again, in line with our expectations.

Okay. Let's turn to slides 15 and 16 and give you a quick synopsis of the movement in cash during the fourth quarter and during the year.

So slide 15 is during the quarter, as you can see cash essentially flat from September 30, 2009 to December 31, 2009, up $2 million. Just a couple of items to note as you see $20 million in adjusted operating income, that was at an average cash LME as Logan noted of $2,000 for the quarter, per metric ton, obviously. That $20 million is net of the $9 million in curtailment spending at Ravenswood about which I spoke a couple moments ago.

You see the purchase of the hedging instruments at Hawesville, $2 million this quarter that was after spending as you remember last quarter, Q3, that is, $8 million. And as you recall, our transfer of our interest, our 50% interest in Gramercy and St. Anne's to Noranda, required two $5 million payments. The second of which we made per the contract in December.

Moving forward to slide 16, please, again the same treatment. Cash up, $69 million for the year. Go through a couple of elements here. The adjusted operating loss, $78 million for the year, that was at an average cash LME, again as Logan noted of 16.70 per metric ton. That number includes, or is net of, Ravenswood cash curtailment spending of $47 million, from Q2 to Q4. You see the significant working capital liquidation that occurred earlier in the year, mostly in Q1, some in Q2 as well, mostly related to the curtailment of Ravenswood a little bit to the curtailment of Hawesville.

Obviously significant, the proceeds from the equity offering in the tax refunds in Q1 you see, we repaid the $25 million outstanding revolver balance. As you recall, we and like a lot of people got nervous about the state of the credit markets in late 2008 so we did borrow on our revolver just for defensive measures. We paid that back fully in early 2009.

Again, Helguvik spending, I mentioned before.

And just one item to note, because it's relevant for 2010, we deposited $8 million as a security deposit for our new power contract at Hawesville. That contract requires to us post an additional $20 million in Q4, 2010. What we will likely do rather than posting cash is post it per our rights in the contract through a letter of credit. And what we are likely to do as well is roll that $8 million of cash into the LC. So we will actually be taking $8 million out of that. That LC will obviously be backed by our revolving credit facility.

Before I move on, let me just make a few comments as to the status of the revolver. As you note, the revolver was a five-year facility that expires this September. We are well on our way to replacing it. We have in front of us a couple of strong proposals from some strong financial institutions. We're likely in the next week or so to mandate one bank to put the facility together. We are confident that we will get something put together here by the end of spring. So at least a quarter before -- three to four months before the other facility -- the current facility expires.

New facility consistent with the current market for facilities like this is likely to be a four-year facility, versus the old one being five.

Okay. Let's move on to slide 17. Slide 17 and 18, just give you a quick sense of some of the estimates for 2010, so you can build your models.

First volumes, Wayne, again, took you through where we are in the facilities. Our planning assumptions for 2010 are for four full lines for the full year at Hawesville. And Mt. Holly back at its expected performance. So that would give us production and shipments in the US of about 315,000 tons. In Iceland, again Wayne talked about the transformer repair there. That will cost us a couple thousand tons of production in shipments this year. We are showing you a range here of 270,000 tons and 275,000 tons. We will precise that as we move forward and get a better sense from our sales from the supplier who is doing the major maintenance for us as to exactly how many months that unit will be out of service.

Smelter cash costs, let me just give you a sense of the basis upon which these costs are put together. You see it largely in the footnotes here. So these data include all the cash costs at the smelters that includes maintenance CapEx, and includes all the plant overheads, includes all of the employee related spending at the plant, everything. They are stated on a basis meant to be consistent with the LME and what I mean by that is to the extent that we earn premiums like the Midwest premium in the US or any kind of product premiums we have netted those premiums against the price to derive again, in essence an LME equivalent price that you can see.

We have run them at a range of LMEs from 2,000 to 2200 and given you the sensitivities at both ends of that range so obviously you can calculate easily the sensitivities and then rerun them at whatever LME you want to use.

The cost detail that we have shown on the rest of this page is for your information. Again, all of these costs are already embedded in these cash costs we are showing you. The one we will continue to emphasize to you and point out is the Hawesville power costs. Again, as Logan and Wayne have described, all else being equal, those costs will increase significantly in 2011. You get a sense here as we detailed in the earnings release as well about the current quarterly amount of that support.

Slide 18, to finish out here, a couple of other items. Ravenswood, if the plant were to remain curtailed for the entire year, spending -- cash spending would be about $20 million. That would decrease significantly, again, if the plant were to remain curtailed after 2010. It would go down to somewhere in the range of $5 million to $10 million annually.

SG&A, here you see the cash and the book amounts. This is the amounts for which we plan. Obviously any large transactions that we would look at or certainly enter into, would likely drive these amounts up.

Interest expense cash, for the year, you see the amount here. Let me -- you can look on the balance sheet data to see where we ended the year at a summary level in terms of the debt structure. Let me just go through it with you right now. You will see it obviously in detail in the footnotes when we file our 10-K here in just a couple of weeks. Let me just stop here and go through it for you.

We ended the year with $47 million face value of the convertible notes left. Those obviously pay 1.75% cash interest. $247 million principal amount in the new 8% notes. I have $5 million left still of the old 7.5% notes that were not tendered in the exchange offers. $8 million of the IRBs and we assumed that the revolver for the year is undrawn, other than used to support the letters of credit that I described a couple of minutes ago.

Pension. No required contributions for Century in 2010. We are currently analyzing pros and cons of making up a $10 million voluntary contribution in 2010, just to give you an extent of the issue here at Century. It's not a large issue for us. The total unfunded balance of all the defined benefit plans we sponsor is only about $20 million.

Again, taxes, no cash or booked taxes in the US or Iceland. Again, we provided an 18% rate. That's what you will see on the face of the income statement embedded in the tax line. But given accelerated depreciation and some other items, our current assumption is our cash taxes in Iceland will be a couple million dollars.

Let me just close here, a couple of comments on Helguvik, obviously Logan and Wayne covered it. Our assumption is that we will spend on average the first half of the year about $2 million a month on the continuing construction and project development. Our financing plans assume that at the time that we were to close the financings and resume major construction, that we will have contributed a total of $40 million of cash equity for the year. So we will, again -- our plans assume that we will top up that incremental amount at the time that we re -- restart major construction.

Obviously, the rest of the CapEx would come from the debt and the equity markets in some way, shape or form. Let me just comment on those quickly here before -- before I complete my remarks. We make great progress here in the last couple of months on the debt financing. We have been working hard. As you recall, we mandated three strong banks in Europe to help us, advise us on structuring those facilities. Those banks are Societe Generale, BMT [Paraba], and ING. We made great progress, those of you familiar with structures like this, a lot of work goes into them and so we have a lot of work to go, but we are encouraged by the progress we have made and are on track.

We have also done a lot of work thinking about the best way to finance the non-debt part of the structure and we'll obviously be updating you on that as we make some decisions as we get closer to the restart of the major construction activities.

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

Thanks, Mike.

As you followed Century during last few years you have seen us take aggressive actions to grow the Company. This last year, we spent considerable effort on the protection and preservation of the present and the future value of our shareholders investment. We raised substantial increased liquidity and chief cost reductions and in (inaudible) financial flexibility.

Through these efforts, we have kept the Company viable during an extraordinarily difficult time. As important, we preserve the company's growth options principally the Helguvik project which we hope to create future value for the long term. While we believe the industry could well experience volatility, and even some turbulence during the next year or so, we are convinced that the longer term fundamentals will reward those like ourselves or invest in the world cost capacity.

With that, David, we would like to take questions from those who have callen in.

Absolutely. (Operator instructions) And our first question comes from the line of Kuni Chen with Bank of America. Please go ahead.

Hi, good day, everybody.

Hi, Kuni.

Just first off on the hedging issue, so if I kind of back into this, it's basically all of the output out of Hawesville, maybe about 200,000 tons in 2011, or 2010, rather, and, you know, can you just sort of update us on your thought process or on hedging going forward? I guess with -- with the power cost stepping up significantly in 2011, maybe your biases to continue to look to hedge that out.

Yes, good question, Kuni. This is Mike. I will answer the first part of the question and ask if Logan or Wayne have any input on the second. So, that's a little bit more than we did, what you are calculating there. If you step back and take a look at -- let me just show you the way we approach it and then you can get to the number.

Number one, the portion of the production is naturally hedged versus the linkage of the alumina price to the metal price. You know, with alumina prices, the contract rates over the long term being in the, say the 14% range, you've got almost 30% of your production, obviously two tons of alumina per tons of metal, naturally hedged. You wouldn't therefore, ever want to hedge 100% or you would be effectively over-hedged.

So, starting at that 70%, we didn't hedge that whole 70%, we hedged a chink of it. More than half of it in the sort of two-thirds to three-quarters region. And the philosophy, again, was that we are not looking to sell forward here. We are looking to protect the plant especially on this is transition period.

So as we said at the time that we entered into these contracts, we bought protection, or good old -- principally -- good old-fashioned just put options, insurance, right around it, Hawesville's cash break-even cost for 2010. Going forward, we will be looking at a lot of options as we look at both our options to mitigate the risk of the power take or pay and the LME price in 2011 going forward. I don't know if -- Logan, Wayne, do you want to say anything else?

I think just add one thing, obviously, Kuni, we are protecting the downside and trying to preserve upside potential. So I think that's the only thing additional that I would add to what Mike has said.

Okay. Fair enough. And I guess as far as the thought process on Ravenswood, you know, what's -- what's the bigger hurdle there? Is that the steelworkers, or a power contract? And can you just give us a sense on kind of CapEx and timing that would be involved in a potential restart?

I will ask Wayne to answer that one. Thanks Kuni.

Yes, Kuni, this is Wayne. In so far as the major issues as we have identified in the past our is the most significant followed by obviously the labor contract and then wrapped around that is the conducive LME environment. And so we are progressing the discussion of an enabling power agreement with the leadership of the state and I have to say, it's progressing reasonably well and we are confident that we will see some direction here.

Right. And it's important, too, that you have a power contract that -- that floats with LME or it could be more fixed and then you can hedge out the metal price?

I think, you know, it's too early really.

I think the answer is we are trying to position ourselves to take advantage of a -- a period of improved market conditions and the power contract -- the LME linked experimental rate is in place, and that's continued, but, you know, let's not prejudge what we may think is appropriate. Our CDA or the contract with the steelworkers comes to end in August. So, you need to get this in some sort of sequence and then you need to consider your options in the prevailing market.

All right. Got you. I'll turn it over. Thanks a lot.

Thanks.

And our next question comes from the line of Justine Fisher with Goldman Sachs.

Hi. How are you?

Very well. Thank you. How are you doing?

I'm okay. Thanks. So, just regarding the Hawesville power contract increase, I mean, that's -- it's pretty significant on an annual basis, if you take the $17 million a quarter. Would you guys -- I mean, what's the ability to shut Hawesville down if you can't find a better agreement there?

Well, let me -- I will let Wayne address the latter half, and in first half, that -- that -- the better agreement is in place. I mean, the different -- the -- what's producing the step up, obviously, is a short-term arrangement to which we agreed with E.On when they exited the power supplier and we -- we signed a long-term agreement with Big Rivers. It's a cost-based power agreement.

So our view after doing a tremendous amount of work on this, and employing all sorts of experts and advisors and consultants is that -- that in terms of smelting capacity -- I will ask Wayne to comment -- in the United States, this is about as good a contract as you are going to get and so the real issue here is making sure that we have the flexibility to do what we need to do if we were to have to take some capacity off at Hawesville. I will let Wayne or Logan --

Yes, Mike, I think you hit upon the major issues there as far as the costs of the power in so far as the plan, of course. We did significant work as I mentioned in 2009 to remove costs from the facility, and we continue to do that this year, with a special program to actually squeeze out all the things that we need to squeeze out in anticipation of the step up in the power. So far as the curtailment, with the Hawesville facility as it presently stands under the existing agreement with the union leadership, we have no trailing liabilities with the people at this moment in time. So it's not obviously simple to shut down, but it obviously -- we don't have a financial trail.

And Justine, the other one on the power contract, they obviously it's a 12-month notice period. So, obviously, we will be looking at this. Wayne's team has done a great job of getting the cost position in a better position. So now we have to look what 2011 is the next steps we can deal with.

Right.

-- Earlier question about downsize protection.

Right, but I mean on a quarterly basis, it could be $70 million out of whatever your EBITDA would be that year. A $70 million swing if it's $17 million quarter for 2011.

That's right. No different than we have been talking about this since last summer when we entered into the contract.

Right. Right. Okay. Just checking. Thank you so much.

Sure, thanks, Justine.

And our next question comes from the line of Mark Liinamaa with Morgan Stanley.

Good evening, all. Could you comment a little bit more about the production issues that you are having at Mt. Holly, what's going on there and what the likelihood of coming up with a favorable power contract reset is?

Okay. This is Wayne talking. Basically, as I said earlier, we've -- through the operation of the facility, they have experienced some challenges in regards to raw material supplies, both in coke and capital blocks. It appears that the leadership there has that in hand and things are actually progressing quite well back to normal production.

In so far as the power agreement, the local leadership there in association with ourselves and our partner have been discussion with Sandy Cooper who is the power provider in so far as gaining an additional ground in how we can reduce the cost of that power contract. Certainly I have to say in the discussions we've had thus far with Sandy Cooper, there has been added discussion and certainly some interest in managing the contract differently and providing a direction. So we are pleased thus far.

Okay. Thanks for that. And you mentioned labor discussions at Grundartangi. Can you just comment a little bit on what the tone of those, given all of the turmoil that's gone on over in Iceland? Thanks.

Certainly, as I mentioned, we have been in discussion with the local labor unions, since the beginning -- since prior to the contract conclusions now, we have been a bit delayed for a couple of issues over there. One of which was an additional union one of representation. That has now been concluded and I'm pleased to say that we are back into serious negotiations with the union and there has been no indication that they will not be concluded successfully.

And is it mostly a wage issue? Is there anything else in particular that they are looking for?

I think, Mark, it's Logan. We haven't missed a beat in Iceland with this operating team right through the middle of all of the challenges. It's just normal discussions that have been exacerbated by currency affects et cetera, but I think we will get a equitable solution. As normal in these negotiations, they fluctuate up and down, but they come to a conclusion and I think this one will just be the same. I do want to emphasize that the right through very difficult times we have not missed a moment's worth of production, and, you know, safety and the performances just continue to be world class.

And when does the agreement end?

It's already ended.

It's already ended. So you just --

Again to Logan's point, this is the cooperation we have between the labor unions and ourselves to manage the process and the plant at the same time, without the indication of problem.

Thanks and good luck with everything.

Thanks, Mark.

You now have a question from the line of Brett Levy with Jefferies.

Hey, guys. In the sort of context of the current financing market, do you think that 198 or so of cash is a little bit too much? As you look at the subpiece of the converts, are you more inclined to go towards cash supplements when they mature or are you going to continue -- or are you inclined more towards using more stock to take out the converts?

Brett, it's Mike. A couple of things on the cash. First in answer to your question, I think our -- I don't want to call it -- maybe a base case now is that those get cash settled. So once anything changes, I think that's a reasonable assumption to make. You know, we'll always consider being opportunistic and if market conditions change and we come to the view that handling it a different way might make sense for our share owners, we will do it, but I think that as a base case for everybody to consider, that's a decent one.

In terms of the other use of cash, you know, we are assessing right now, as I said, we have a very major project that we're aiming to restart later in the year. So it's going to be a world-class facility just like the current one, even better. So we are -- you know, we've got to make sure that we are adequately capitalized to support all of that. So I would say sort of steady state for now. We are obviously cash flow positive, nicely on a consolidated basis at the current LME. So, we'll be developing through the year. But on the converts, especially, I would say, let's assume that those are going to be cash settled.

All right. And in all scenarios, are you guys the 100% equity holder, or significantly close to 100% equity holder in the new project?

Yes, that's the great question. We are looking at a lot of alternatives and so as I said before, we will absolutely always be the majority owner, developer, operator of the plant, but if it makes sense to do something strategic here with somebody who could not only add capital, but I think importantly add whether it's commercial weight to the project, or supplies, or, you know, in any way could help get the plant constructed faster, that's something we would look at. So I would say, you know, in the next couple of quarters this will all be coming to fruition.

All right. And then speaking of JVs, can you guys talk a little bit about where you view the major issues are and your partner, at least some preliminary thoughts are doing about those problems.

You are talking about Mt. Holly, Brett?

Yes, Mt. Holly.

Yes, I think Wayne.

Yes, again, as I stated previously, the problems, I think, have been overcome and now the plant is presently coming back to normal operations. So, presently coming back to normal operations. So it's was a dislocation in material supply that's been corrected.

So what do you think break-even costs there, or cash costs would be at Mt. Holly going forward?

Yes, we don't break out, as you know, Brett, smelter by smelter. We have given you the domestic costs for the year and let me make a couple of comments on that. We used to say, and long term, it's still probably true and I will come back to what I mean by long term. I think it's probably evident already that the cost between Hawesville and Mt. Holly for different reasons were about the same, that Hawesville had a better power price but Mt. Holly was a more modern efficient plant. So it kind of equalled out. Obviously this year, because of the E.On support, the cash cost at Hawesville was lower. But once that support terminates per the contract with E.On at the end of the year, that equilibrium will, you know, within spitting distance, return. So on the sheet there we gave you, I forget what slide it is --

Slide 17.

Thanks, Shell. You get a sense of around where Mt. Holly's cash cost is.

Thanks very much, I will get back in queue.

Thanks a lot.

You now have a question from the line of Chris Dougherty with Oppenheimer & Company.

Hi, Chris.

Good evening. I just wanted to sort of drill down and clarify the cash costs. The cash costs that you list in the US of 1800 a ton to 1850 a ton, does that include a normalized power cost at Hawesville?

No, those -- that's a great question. Those are 2010 items. I think it's on the title of the slide. Yes. And that's -- so that's why I specifically noted on that page, when you look at the power costs, that in 2011, you would have to adjust for that cost.

I mean -- if you assume that it's $70 million, I mean, that could be up to $365 per ton. I mean, is that the right math?

At Mt. Holly alone, spread over all of the US, I think it's going to be a lesser amount. Right?

But it's in that order at Hawesville for the full line operation.

For Hawesville alone.

And then in terms of the hedging charge this quarter, is that an aggregate mark-to-market or is that just the stuff that rolled off this quarter? So the question is, if LME prices stay flat to where they are right now, or were they average for the quarter, would you see any more charge or benefit on the hedges?

No, it's an aggregate. As I said, I think when I made my comments, it was a recognition up front in a non-accounting way. So it's -- it's your latter statement. Pardon me, your former statement, not your latter. Aggregate mark-to-market. So it's in essence, LME prices didn't move, you wouldn't see any further adjustments, all else being equal.

Got it. Okay. Thanks.

Thanks.

Thanks, Chris.

And we now have a question from the line of Tim Hayes with Davenport & Company.

Hi, good afternoon.

Hi, Tim.

Just a quick question. When you talk about Hawesville's alumina cost into 2010 that's comparable to Mt. Holly, is it comparable because it's also going up 1% points? Or is it just comparable that Mt. Holly's cost is going up and it will be roughly the same in terms of the level?

I think (inaudible) they're comparable. They are not exactly the same. This is Logan. So I think it really just gives you a comparison. They work in the same region of pricing.

Yes, they are not materially different.

So Hawesville for 2010 has obviously some different supplies and mixture of supplies but that averages out and, whereas Mt. Holly has a single supplier.

Okay. Just to clarify, is Mt. Holly's percentage to LME -- excuse me, is Hawesville's percentage of LME also going up '09 to 2010?

Prior to 2010, we were purchasing from Gramercy.

Yes. Yes.

Okay.

So you are comparing a dollar price out of Gramercy and a larger portion of LME linked. Sorry. You've got to be careful.

So comparable in terms of percentage for LME for both facilities then.

Right.

Okay. That's all I have.

Thanks, Tim.

You have a question from the line of Tony Rizzuto with Dahlman Rose. Please go ahead.

Thank you very much. Good afternoon, everybody.

Hi, Tony.

I've got a question on Hawesville, just a follow-up that line of question earlier. You have a lot of obviously moving parts there and with the labor discussions underway and the power price increases scheduled for 2011. If you guys don't -- if you are not able to achieve a more economic power price, what is the interplay with the customer relationship? It looks like you are also renegotiating your relationship maybe with South Wire there. How does that all interplay? And would you be able to effectively idle those facilities? Or would there be some type of cost that you would have to pay in addition to to -- to that? Would you be able to extricate yourself from that?

So, Tony, let me try to separate these into the different boxes and let's see that we don't perhaps get a bit of confusion here. And I will ask Mike and Wayne to interrupt.

First of all, in terms of the contract negotiations, the contract goes until the end of March 2010. We had obviously put in place some sort of contract that we think makes sense. And as Wayne noted earlier, there's no ongoing costs related to that contract as is. You will see what happens with the negotiations now. So I think that's one element.

On the power costs, we have got favorable consideration from E.On, as a matter of closing out our original contract which ended in 2010. That's been well known for a long time. We then see an increase of cost based power from next year. If we stand back, one of the things that we are doing and have done very well in the last 18 months is many of our costs at Hawesville. And I think obviously we want to make sure that we continue to handle that in a manner that makes us in a position with this operation ongoing.

The last piece is obviously on South Wire. That contract as it exists comes to end of March next year. And so we are obviously having discussions with that, but that as you would remember was a fairly long term contract and obviously it would be incorrect for us to make any comments on our discussions with South Wire.

Okay.

Mike, do you want to add anything?

No, the one thing I would add, Tony, if I may is because, I'm discerning through the comments here, let's just put this in perspective. Obviously it's a significant step up as Chris -- I think it was Chris quickly calculated, but to put it into context, and you can back into this, really almost, if -- if you look at the cash costs that we have given you for both plants combined domestically. You know, the current cash cost for Hawesville is significantly below, you know, what we call either the US average, or our own average, and all else being equal, I can tell you even if you added the step up in power prices, you would get a cost sort of -- what's called pro forma for 2011 for want of a better term. That's still sort of at or probably the -- delete probably -- below the current LME price. So that kind of puts where we are into a little bit of context for you.

That's very helpful. I appreciate that both, gentlemen. Thank you.

Thanks, Tony.

Thanks, Tony.

Thank you. (Operator instructions) And we do have a follow-up question from the line of Mark Liinamaa with Morgan Stanley.

Logan, earlier in your comments you were talking about high cost in the US that was continuing to run I believe. Could you very quickly give us any comments of what you see going on there? Is that all stuff that's hedged forward and is unlikely to come down for the foreseeable future or is there any extenuating circumstances there? Thanks.

Yes. Mark, I didn't say the US. I just said high cost capacity, unless I specially misread my notes.

No.

But I said worldwide, and I think there are examples of that around the world, and I would just contextualize them as what I call the so-called social producers, and those continue to operate and some -- there's been some restarts of capacity in Europe. So I wasn't particularly looking at the US. In fact, there's probably been some come off in the US in the last while, and that seemed to have stabilized. I'm not particularly looking at anyone.

But as you talked before, you know, we stabilized production of supply by looking at the macro numbers, and the inventory numbers not going up, but there's certainly some elements of producers that are certainly not making the costs at this point in time.

Thanks very much.

Thanks, Mark.

We do have a question from the line of John Tumazos with John Tumazos Very Independent Research.

Hi John.

Good evening, good evening. In terms of Helguvik schedule, are there any EU programs for business development or loans, or I hate to use the word subsidies, but you know what I mean, or international development banks or aid programs for Iceland or small EU nations or emerging companies that the project might be eligible for?

Sure, John. Good question. Certainly no subsidies as you alluded to. That's a naughty word in the EU land. But the answer to your questions is yes. And let me talk specifically, because we are -- it's been a major part of our work to date on our potential financing and so you may be familiar there, each of the major European countries has an export credit agency, and mission and mandate of those agencies is to obviously promote the products and the services of those countries. And so what in essence you are able to do is -- is to the extent those ECAs are interested and we had some countries here in Europe from which a lot of our -- both technology and products are coming, Switzerland and France are the two largest, those ECAs are very interested in helping the projects. And what they do in essence is provide a -- a quasi sovereign guarantee, I will call it guarantee, that enables the financing structure to be put in place with attractive terms, both not only pricing but tenor as well.

And so that's a long-winded answer to your question, yes, there are other sort of quasi, sovereign, pan-European financing agencies that are out there. The European Development Bank, the IDB, the Nordic Investment Bank and we'll be talking to all of them, but I think the ECAs are probably the real answer to your question.

ECA stands for...

Export Credit Agency. Each of the -- each of the countries has a different name for their own, but ECA, the jargon is what -- is what they go by and they are very used to working on structures like this. In fact, that's what they do by mandate.

Are there particular things that might be called stimulus programs to emerge from recession, like America has?

Not in Europe.

I'm thinking the smelter in Iceland is much more virtuous than the Greek banking system.

I will leave that alone on a Tuesday evening.

We are not trying to offend a large portion of our audience. John, I think the answer is we are not aware of it, you know. We don't see it certainly there seems to be programs but they don't seem to be particularly fashioned for our project.

Yes.

Thank you.

Thanks, John.

I'm sorry. We have a follow-up question from the line of Chris Dougherty with Oppenheimer & Company.

Hi, Chris.

Mike, I wanted to clarify the accounting for the E.On payments. So the actual cost in the cards includes a $17 million that you get reimbursed for.

Yes.

Where does the credit come out of?

It's on the cash -- it's only on the cash flow statement. It's in the line item called the realized benefit -- I have to find it exactly for you. If you go to the cash flow statement, and it's about four lines down, realized benefit of contractual receivable.

Okay. Where would that be on the balance sheet sitting, the actual receivable?

It would be -- that portion would be, as Steve Schneider, our Chief Accounting Officer is sitting here, it would be in current and since it's all 2010, I guess I answered my own question, it's all in current because none of it is long term.

So it's the other current assets, not the [AR] other?

You got it. You got it.

Thanks, Chris.

Thank you. At this time we have no additional questions in queue.

Thank you very much, David. Thank you to everyone for joining our call today. We look forward to speaking with you again soon.

And that does conclude our conference for today. We do appreciate your participation and you may now disconnect.