Century Aluminum Co (CENX) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Century Aluminum 2010 earnings call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions and instructions will be given at that time. (Operator Instructions) I'll now turn the conference over to your host, Shelly Lair. Please go ahead.

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

The following presentation and related contents by Century Management contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Information provided in this presentation and discussion is based on information available as of April 27, 2010. We believe the expectations reflected in these forward-looking statements are reasonable based on information available to us on the date of this presentation. However, given the described uncertainties and risks, we cannot guarantee our future financial performance, results of operations, or financial condition. You should not place undue reliance on this forward-looking statements.

Century undertakes no duty to update or revise any forward-looking statements whether it's a result of new information, actual events, future events or otherwise. In addition, throughout this conference call, we will use non-GAAP financial measures. Reconciliation to the most comparable GAAP financial measures can be found in the appendix of today's presentation and on our website.

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

Thank you very much, Shelly. Good afternoon, everyone and thank you for joining us. We welcome the opportunity to report on our progress today.

Let's move on to slide number four. We were pleased with our first quarter performance. We have continued to build the company's financial strengths and have made good progress on some of our long-term strategic objectives. My colleagues and I will give you some details during the next few minutes. We continue to see decent improvement in many fundamental measures of market activity.

In the US and in Europe, the price of manufacturing recovery has been increasing. Certain industries, notably automotive, are experiencing their first meaningful increase in activity levels in the last several years. The supply chains remain genuinely lean, with distributors and other intermediary continue to exhibit a wait-and-see mentality. Despite recent restrictive efforts by monetary authorities in both China and India, those economies continue to perform very well.

Turning to trends, which gives us our pause, certain industries remain depressed. Commercial construction being a good example of those. And we remain under a watchful eye of the warehouse and other stocks and further on the actual amount of metal available to the market. There are a myriad of factors, as you know, as well as the disparity of the aluminum ETS, and the changing shape of the forward price curve, which can influence these critical measures.

Our business continues to perform very well. First, our safety results, already above those of the industry, continue to show consistent improvement. This result is a testament to Wayne and his team at each of our plants. Hawesville had a good quarter and continues to scrutinize every aspect of its cost structure with a review toward the step up in realized power prices the smelter will see in 2011.

Grundartangi is also operating well and continues to produce a meaningful premium to its rate of capacity. We had a business -- busy quarter in labor relations. We have received a tentative new five year contract with Nordural's unions in Iceland. And we are working hard in a constructive dialogue with the steel workers in Hawesville to finalize a new, mutually acceptable contract that provides a base for the smelters' long-term competitiveness.

We are focusing on two major issues at Mt. Holly. The plant is still showing only a slow return to normalcy from our operational issues it faced last year. And we and our co-owner have spent a significant amount of time talking amongst ourselves. And then with the power supply about the long-term future of the power arrangements at Mt. Holly. Again, our goal here is to obviously find a structure, which provides for the long-term economic competitiveness of the business.

We are facing a complex business environment in Iceland but are working very hard to restart major product activities. We continue to be encouraged by the fact that important constituencies, the local and national government, the government and society in general remain very supportive of this project. When restarted, it will be the largest economic development in Iceland. And that is an important contribution to the return of the strength of the Icelandic economy over a number of years. I'll comment a bit more in detail in a few moments.

Let's move on to slide number five. The LME cash price averaged $2,167 per ton for the first quarter of 2010, and prices have climbed to around $2,300 recently. We should take a pause, obviously today, with the markets being influenced by what's going on in Europe, particularly Greece and Portugal. The prices come off $150 a ton reminding us how volatile these markets can be.

The aluminum markets remains [unbalanced] and prices continued to climb with the most recent spot prices for aluminum, quoted in the range of $330 to $350 per ton, up from the $300 per ton in the fourth quarter. Global aluminum metal demand continues to improve, mostly driven by China and some modest growth in the US. As an aside, China's GDP accelerated to the fastest pace in almost three years in the first quarter with 11.9% year on year growth and industrial production was up 18.1% in March year-over-year.

India. Economy has increased some 6% year-over-year in the fourth quarter for GDP. Industrial production was 15.1% year-over-year in the month of February. This industrial production growth rate is significantly higher than even pre-recession levels. A cautionary note. Global cost pressures, most notably power, carbon, and aluminum, have also been supportive of the higher prices for the metal we've seen recently.

Let's move on to slide number six. [Aluminum] stocks remain flat over the last couple of quarters. This is a meaningful improvement from the significant conditions to warehouses that we saw in the first three quarters of 2009 but we have yet to see any sizable and sustained declines. Aluminum, [TARDEC], and financing deals has provided some support to the prices as regional practice has lifted premium. In the US, the Midwest premium has climbed to $0.0635 cents range, an increase of some 50% from a year ago. In addition, the European duty pay premium is currently around about $150 to $170 per ton and the premium in Japan is in the low $120.

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. To this point, they has recently been some discussion of transactions being [unwound] or not rolled forward in Europe in order to take advantage of the increased local premiums. We believe that the significant warehouse inventory levels will be another overhang on the market for some time to come.

Let's move on to slide number seven. With inventories at 63 days of global demand, we are at roughly double the normalized level of 30 to 40 days of global demand. As noted on the chart in slide number seven, we see even a greater disconnect in quarter one from the normal relationship between days, inventory, and price. As a result, we continue to be cautious in our views on pricing, and will continue to focus on running the business prudently in uncertain environment and times.

Now I would like to pass you on to Wayne for our operations.

Thanks very much, Logan. Let's turn on to slide number eight. The team at Grundartangi continues to post excellent performance results in all areas. Not once did they take their eye off the key performance requirements during the protracted labor negotiations, safety and operating performance remained strong.

The contract had been agreed by the Union leaders, and is in the process of being reviewed by the work force. The repair process of the transformer, we have previously reported to you, is proceeding as scheduled. It has been removed from service, and it should be back in place as expected in August. As a reminder, we expect the impact on production will only be a couple thousand tons.

I wanted to comment on the volcanic eruption in Iceland and our operations. As you saw, we issued a press release last week, confirming there had been no impact on our business. Frankly, the only reason we did so was the increasing number of inquiries we were experiencing. The volcano is about 100 miles east of Grundartangi and has had no impact on our operation or electrical supply. All of our critical supplies travel to Iceland by ship to a port located adjacent to our operations, and of course our finished metal leaves the same way.

Looking at Hawesville, and regarding the labor contract as you have seen in our press releases. We have extended the contracted with the United Steel Workers as we work with them on a new contract. Discussions to date have been constructive and the plant continues to operate normally. We are confident of achieving a mutually acceptable agreement which recognizes the challenging environment faced by all US smelters. Now as we have previously discussed our supply agreement with our major customer at Hawesville expires in March 2011.

We have had extensive discussions with them about the future relationship and believe this process will soon come to a head. We are hopeful a mutually acceptable solution can be reached for continuing this long-term relationship. If we cannot reach such agreement Hawesville will simply sell metal to the general market. There should be no problem selling all of the plant's production of both high purity and standard grade metal.

At Mt. Holly, Logan gave you a pretty much good overview of the issues. The plant continues to improve albeit slowly from its poor operating performance in 2009. The management team is focused on all the right issues. Importantly, we are in the midst of extensive and substantive discussions with our partner and the power supplier for Mt. Holly. We have told them that the current pricing and structure put the plant's long-term viability at risk. And that we need to work with them on a structure that would allow us to plan to operate the plant with confidence through different types of market environments. It is a complex issue and will require significant efforts by all parties.

Let's turn on to slide nine. At Ravenswood, we have seen some encouraging recent developments. The state legislature recently passed and the governor signed into law legislation which permits the state public service commission to approve pricing arrangements and structures for specific classes of customers, such as large electrically intense industrial companies. For those of you familiar with our industry, this is similar to what was done last year in Ohio.

Of course, this is only an enabler for us to negotiate specific competitive agreement that collectively meets our needs, requirements of the power provider and the PSE, acting on behalf of all the [rate pairs] of the state. Voluminous work. In order to restart the plant we will need to renegotiate the labor contract which was extend today August of this year to provide for long-term competitiveness of the plant.

On the market conditions again, Logan pretty much summed it up. Premiums in the US, Europe, and Asia remain strong, despite some recently changing conditions, which we are watching closely. Some sectors, like automotive, that have long been ailing have are showing some signs of increased activity, thus renewed investment. Impact of increasing production rate is exacerbated by the low supply chain in inventories. Now over to Mike to review the financials.

Thanks Wayne. If we could please turn to slide ten and as usual, I will refer my comments to the financial information that follows the verbiage in the earnings release. If you have that handy, it will make my comments easier to follow along with. As usual, my comments will compare the quarter that just ended -- Q1, sequentially to the quarter before that. So Q1 over Q4. Before we get to the top of the income statement, let's just look at the market. Logan and Wayne both referred to the changes in the market.

The cash LME sequentially, quarter to quarter, was up 8% and with a one month lag up 14%. On that basis, our realized unit prices in the US were up 13% and our total revenues in Iceland again, on a per unit basis were up 14% so right on top of the market. Looking at volumes, you can see these data at the end of the financial information after the press release. On a reported basis, both domestic and total volumes were down a little bit. On a per day basis they were exactly flat. There were two less production and shipment days in Q1 versus Q4.

And again, as we noted in the press release, we are happy to say Grundartangi continues to produce at the rate of 276,000 tons on an annualized basis. Great performance, given the rated capacity of 260,000 tons and the fact as Wayne reminded you that we do have the transformer out for repair right now. So putting the pricing and volume data together, net sales on a US dollar reported basis as you can see on the slide up 11% Q1 over Q4.

Walking down the income statement, I'll point out a few factors here. Gross profits first. Up $20 million quarter to quarter on a sale increase of $29 million so good conversion there. The only two items I would like to point out to you this quarter both relate to the market directly, are aluminum costs in the US, obviously, up $13 million quarter to quarter. Obviously those are indexed to the market and power costs at Grundartangi in Iceland, of course indexed as well to the metal up $2 million, quarter-to-quarter.

Again I would like to emphasize, you see it in the press release, included in cost of sales this quarter. And obviously [deduct] the gross profit, is $15 million cost of sales charge for power costs in Hawesville for which we are not responsible. For which the prior power supplier to Hawesville is responsible for the balance of 2010. We spoke about that at length.

Moving on to the income statement. Other operating expense. Those are obviously curtailment expenses relating to Ravenswood. $5 million for the quarter. The cash amount this quarter was $7 million. SG&A was $12 million. Cash amount was $10 million for the quarter. Income tax provision, as you know, we provide no taxes in the US given our large deferred tax assets, so the whole amount there you see is a provision at the statutory rate of 18% for our taxable income in Iceland.

Bottom of the income statement data. Just to point out to you average shares, common shares 93.1 million and remember, there are 8.3 million average this quarter preferred shares. As you will recall, the preferred shares are essentially common stock equivalent. Adding those two together the entire share base is about 101.4 million shares average for the quarter. On that basis, if you could turn to slide 16 near the back of the deck. Just talk through again some of the per share data. As you can see here in back to the reported income statement data, net income on spread over those 93 million common shares, $0.06 per share.

When you spread all the net income over the entire share base of 101.4 million, obviously you get the same amount. As that net income is allocated pro rata to the common shareholders on the one hand and the preferred shareholders on the other hand. Then you see also on this page, the one on slide 16 now payment that E.ON is making on our behalf, as part of power bill for Hawesville this year. On an after-tax basis spread over all those 101 million shares, that was $0.15 for the quarter.

Turning back quickly to the financial statement data a couple of comments on the balance sheet. As you will see, cash for the quarter, including $9 million of restricted cash ended at $223 million up nicely from year end. Just to remind you most that of that restricted cash, other than a couple of million dollars of it, is cash we have on deposit for our power contract. That same new power contract in Hawesville, in favor of the power supplier Big Rivers energy corporation.

Most of that cash will come back to us. I.e., that whole amount that we have on deposit with Big Rivers. When later this year, when we post a letter of credit for the remaining security deposit that we take a step back. We talked about this on the last call. In the fourth quarter this year, we are required to deposit a further $22 million. So what we intend to do is rather than deposit that cash, consistent with our rights under the contract with Big Rivers, we'll post an LC, backed by our revolving credit agreement. And in fact we'll most likely take back the $7 million of cash that we have already deposited and have the LC cover that amount as well.

Just to review the status of the [revolver] for you we talked about this last time. As expected, we have mandated a lead arranger. They are hard at work on completing their due diligence and finishing the structure of the facility. And as we told you last time, we continue to be very confident that we'll have a new facility in place sometime this spring, at least a couple of months before the current facility expires in September of this year.

A couple of other comments really on the balance sheet down on the debt line. We exchanged some more of the new 8% notes for the old 7.5% notes this quarter. We bought back $4.3 million principle amount of the old 7.5% notes. So the principal amount balance, is at the end of this quarter, are now $2.6 million for the old 7.5% and $249.6 million for the new 8% notes.

A couple comments on the cash flow statement if you have had a chance to take a quick look. Cash from operations for the quarter was $22 million. As you see one large item before that, $21 million source of cash for due to affiliates, essentially accounts receivable. Little bit of that amount had to do, as you would suspect, with simply the growth of the metal price over the quarter, but a large chunk of it was simply timing. I.e., the regular payment schedule just a couple of days after the balance sheet data. Obviously that cash came in so that was largely a timing issue.

One other cash flow item, I would like to point out that wasn't a first quarter issue but you'll see it in the second quarter. We, like many other companies, put in for increased tax refunds, due to the expansion of the US carryback period from three years to five years, from the legislation that was signed by the President -- obviously enacted by congress and signed by the President earlier this year. So we applied -- we put in for additional refunds of $16 million and received that full amount in April. So you'll see that coming through our cash flow statement when we report our second quarter earnings.

Just two other items in the cash flow. Maintenance CapEx of $1 million for the quarter, and Helguvik spending, as we expected just over $1.5 million on a monthly basis. As you can see there, $4.7 million for the quarter. Just turn to page -- slide 11 please. This is the liquidity changes chart. Basically cash, quarter-end to quarter-end that we have been showing you. Nothing much to point out on this quarter. Other than that one item I noted on the working capital, that $21 million increase in the due to affiliates, again just a timing issue there. With that, I would turn it back to Logan.

Thanks, Mike. If we turn to slide number 12, we can wrap-up the presentation and move on to questions and answers. I thought you enjoyed seeing some of our relatively recent photos from the construction site at Helguvik. It is a good -- a project as I have seen. The results of the limited site work which were continued will serve as an excellent jumping off point whether we restart major activity.

In addition, we are significantly further ahead, in terms of engineering efforts than (inaudible) typically at this point in time. This gives us continued confidence in the project execution, and in the capital budget. Thus far, the team has delivered X, or favorable to the budget, on all areas. We are spending considerable time and effort on finalizing the remaining issues required to restart the project in earnest. Given the ongoing situation in Iceland, the business environment is somewhat complex.

But we enjoy strong support from the important constituencies. And thus we are confident that we can make progress toward a major construction restart later this year. This includes having a financing package in place. We'll obviously update you as we go forward. With that, we'd be happy to take your questions. Thanks. Cathy?

(Operator instructions). Our first question comes from Kuni Chen with Bank of America Merrill Lynch.

Hi. Good day, everybody.

Hi, Kuni.

First question -- the potential formation of an aluminum ETF. Can you talk about your thoughts on that. And what type of impact that should have on the industry? And what impact that may have on inventory levels?

Thanks, Kuni. It's Logan. I'll have a go and ask Mike to pass in some comments as well. First of all, obviously, it does take some commodity or metal off the market as you well know. The numbers talked about anything above a million tons, maybe more.

In fact, there is a talk about a second ETF. We'll see how that progresses. That should be supportive of the price, because it does take that metal out of the circulation. So I think you know, overall, first impressions are that it should be supportive and it should continue to support the market.

The greater support of the market is obviously growth and demand above supply. So we keep noting that and Kuni, we've been and remain somewhat cautious on that process, albeit different from what has happened in the market today. I think today's market reaction is a bit different from some of the fundamentals. Mike, any other comments?

No, Logan stole my thunder. Short-term obviously, all else being equal, there is a block of demand that, as long as that ETF trades of course and the physical metal has to back it up, we'll never be able to go anywhere. We are talking about a reasonably large vehicle there.

Of course at a million tons -- at a couple thousand dollars a ton, you are talking about a couple billion dollar vehicle. But given the size of this marketplace perhaps. And the number of investors who seem to be interested in investing in this marketplace, perhaps it's not that large. But as Logan said, long-term, any positive technical or funds flow or whatever you want to call it impact of that, will be hugely overshadowed by the confluence of supply and demand over the next three to five years.

All right. I guess this is a follow-up. I don't know if you mentioned it in your opening remarks. But as far as the potential restart of Ravenswood, can you just update us on what the timing looks like for that situation?

I think, Kuni, I don't think you missed any remarks and I'll ask Wayne to comment on it. We don't see an imminent restart at Ravenswood, but let me put together some of our thoughts. The legislative process in West Virginia has allowed the Public Service Commission now to negotiate or establish a, what we believe, may be a competitive power pricing mechanism. But that is early days. The law has just been promulgated.

And then the next step, obviously, is a competitive arrangement with our people manning the plant. And with our labor negotiations the contract comes up at the end of August, and then our view, Kuni, with what the market will be longer term -- medium to longer term. We think this is positive, but I wouldn't try and get ahead of ourselves, looking at this. I don't know if anyone else -- Wayne, do you have any comments?

Just an addition. Insofar as the law that was passed by the legislator and signed by the governor, that doesn't come into effect until mid-June. So, we can't have the advantage of that until that time. However, that doesn't prevent us from stopping and starting discussions with the power supplier, and perhaps the Public Service Commission. But that is a time line element we have to be considerate of.

Potentially any agreement on a power -- new power contract there would be sometime after mid-year? Is that the right way to think about it?

Oh yes. Absolutely Kuni. I think you have got to think anything will develop toward the end of this year. I think we are just giving you a heads up that there has been a change, and obviously we are going it look at this opportunistically and work on it.

Okay, very good. Thank you.

Thanks, Kuni.

We will go to Brad Lehl with Jeffries & Co.

Hi, guys. More of a political update question. Can you guys give an update on the efforts -- I know Iceland tried to do a bond. I don't know how successful that was. Just some sense as to the stability of the Iceland government and the likelihood of any default on the Iceland debt? And then also in the various scenarios, whether or not there is going to be any impact on the profitability of the Century operations in any likely scenario?

Sure, Brett. It is Mike. So we don't have any inside information here. I'll just tell what you we know, based on what the government has announced. Obviously we talk with the government ministers all the time.

So as you have just seen, the IMS has approved -- the International Monetary Fund has approved the second stage of the rescue package. And that amount says the Icelandic government is enough to ensure that they have no liquidity or refinancing [needs], at least through 2011. So I think again, based on that and the people to whom we talk. People seem to believe in the short-term anyway, there are no funding issues.

In answer to your second question, it's hard to predict. As we talked about when the market was at its, perhaps worst, last two falls ago and through the early part of 2009. Our business wasn't impacted at all in terms of operations, in terms of our ability to get product in, and continue to satisfy our obligations to our customers and such.

As you remember, we did move our banking operations out of Iceland, given that we were worried at the time in October of 2008, a long time ago, about the condition of the banks. That turned out to be a good move, as the banks all, of course, became insolvent. And we continue to do our banking operations outside of Iceland maintaining all (inaudible) cash accounts in Europe and in the US. So the only thing that stretching your mind you can think of. Unless Logan and Wayne, if they can think of anything else.

The currency continues to be weak, it is trading in a band. It is an artificial, I guess I would call it, market, given that it doesn't freely float today and won't for some period of time. If the currency were to move one way or the other, that would affect our local costs, which are roughly say 20% or so of Grundartangi's cost of sales. Otherwise, I can't really dredge up any other answers to your question. I don't know Wayne, Logan, if you guys --

I'll take my queue. Just spot on. We continue to operate through difficult times end of 2008, early 2009, Brett. So we don't try and make any predictions on the political situation. But the (inaudible) is very positive. The discussions around the ISK continue. We are no more knowledgeable than anyone else publicly. I think, it's good to see the country is stable and the there is progress being made in small steps on the economy.

And then, just to stay on the on the political side. If there is a changeover in the government, as it relates to ISK or any other aspect of it. Is there -- what do you see as the probability or possibility that the green party or some other group that would be opposed to Helguvik could have any influence on this project, as best as you can tell, from your political take on the situation?

I -- I think, Brett, I try and keep out of political forecasting. Because I don't think that is going to work very easily. But you would note that the green party is already a coalition partner anyway. I think the project itself is significantly important.

And it included in the IMF projections for the Icelandic economy in the next two to three years. So I think all people that have got knowledge of what this means to the country and to the impact, particularly on jobs and employment, are all very supportive of this pro-project. So, I would like to be a guess of what the future may bring. But certainly the value of this project to Iceland and the broader economy and the recovery is critical. And it's part of the Icelandic plan that the IMF is part of.

Thanks very much guys.

Thank you.

Next to David Gagliano with Credit Suisse.

Hi. First of all, thanks for taking the questions. This question is actually for Logan. I couldn't help notice that you were pretty cautious and even negative regarding outlook for the aluminum pricing in your prepared remarks.

So I was wondering if, first of all you could remind us what your hedging policy is at the moment. And if you are considering making any changes to that policy, in light of this this cautious outlook and the financing needs for Helguvik ?

Yes. Thanks, David. I'm not negative. I'm just cautious. We've got through a challenging 18 months very successfully. I think, we clearly look at this market to see some positive ends, which we have (inaudible) and premium and things like that.

We also note the metal is for large inventory but a lot of that is tied-up in financing deals, but we also want to note of it. So, we are cautious. We are not negative. I think when you look toward ourselves, we obviously look at our domestic production. And I think as Mike and ourselves have reported in other previous calls, we have taken some downside risk protection for our local or domestic operations.

We know that Grundartangi can make cash in the cycle -- we know in a very difficult cycle, and Grundartangi does that. We wish to protect the downside because that is the element that is going to get it. I don't know if Mike wants to add any?

Just on the hedging, just to reflect upon what Logan said. Remember the hedging we've done, and I wouldn't even -- we call it hedging but it is really just as Logan said buying insurance. It is very tactical.

It is directed at, as Logan said, our domestic operations and specifically Hawesville and specifically the step-up in power prices we are going to see next year. We think we have paid some nominal insurance premiums to protect the downside of prices i.e., buying put options for 2010.

As we told you, we bought some for 2011 and we are opportunistically watching the marketplace to buy a little bit more insurance. But we are not in the mode in the proof in the pudding category, David, not to take issue with what you said. But we are not in the mode right now of entering into any arrangement that would limit upside. So, in that respect, I think, perhaps where we are is, as Logan said, a bit more balanced.

Oh, perfect. That concern was just to make sure that that wasn't in the works, obviously.

No, no. With downside protection. The last piece, I would add just on the market to put some balance to my cautious remarks as you pointed out, is that China and India continue to go ahead greatly and great guns. And that is going to hopefully in some ways drag the rest of the world. But we are at a point in time we are starting to see some positive signs, but we are not going to start celebrating. I think we have learned a lot in the last 18 months to look at these things and treat them with respect.

Okay. Just to follow-up on the Ravenswood question earlier, what medium to long-term aluminum price do you think you would need to see in order to restart Ravenswood? Assuming a power agreement is reached.

I think David you can look at the numbers and Ravenswood falls in the fourth quarter all across producers. So we want to get Ravenswood with a competitive set of conditions, power, labor, et cetera -- and operations. Down into the lower part of the fourth quarter. And with the majority of the cost produces in the fourth quarter, all that worldwide, as you know, the Chinese. We want to get ourselves a bit lower down in that quarter. If you go look and see all our charts, you'll see that more than $2000 a ton.

Okay. Thanks.

Thanks, David.

We have a question from Tony Rizzuto with Dahlman Rose.

Thanks very much. Actually it was a question about hedging and I think you guys addressed it pretty well. Actually, in reading the press release I also felt the same way. It looked like you guys were looking maybe to lay around a little bit more protection there. But I think you answered that pretty well. Appreciate that.

Thanks Tony.

Thank you. Then we'll go to Tim Hayes with Davenport & Co.

Good day, everyone.

Hi Tim.

A question on the Helguvik and the power plant. Can you remind us of the status of that? That's not, it's still got to be built and what about financing for that?

Tim, I'm going it take a go at this and try to answer the question in context and ask Michael or Wayne to fill in.

There is two major suppliers to the Helguvik project -- OR, and HS. And approximately about even in the split, maybe a bit more from HS. OR is very well advanced both in the project and their financing. And that is particularly true for phases one and two. As you know, there is development of the project, because geothermal emergency takes five to six years, as you would know.

On HS side, obviously the initial development of phase one is done and the challenge remains now as part of their financing is to take on phases two, three, and four. I'm less concerned about phase four, because that is a long time and at that point in time you are generating cash from a number of different sources. So I think that's where we are.

And our concern remains on the financing side, particularly with HS. But we are obviously working with that and with them on that situation. And we also know that there is some power available from the other major producer, the largest one in Iceland. And obviously, we hope to have some actions from that supplemental and bridging.

Tim, it is Mike. One further comment on HS. And this will ring for those of you, especially who came on our tour a couple of years ago, the majority of the power that HS will supply to the first phase, as Logan said. They are well on their way your comment was well taken Tim.

The answer is both. Both existing plants and new. But the majority of the power that HS will supply will come from simply an expansion of that existing power plant in [Reykjavik],that many of you -- all of you who were on the tour saw. They will be adding more capacity in that existing plant.

So that makes the, the size of the task, both in respect to financing and execution, exactly, a bit less than it would be, if it were Greenfield. So they will both be putting on Greenfield capacity as we add further phases.

Okay. Very good. Thank you.

Thanks Tim.

Next we have Mark [Bonamo] with Morgan Stanley. Hello, all.

Hi, Mark.

There has been a fair amount of discussion or increasing discussion recently about changing the pricing dynamics in the aluminum market. Can you comment on your thoughts on that and how it may or may not affect Century?

Thanks, Mark. Good question. Early days. It's been a lot of discussion about that. A lot of it actually arising out of what's happened in the iron ore business. I think -- a couple of [nuts] -- first of all, I think the proportion of spot to long-term business iron ore is a lot higher than it exists in the alumina business.

The alumina business has been as (inaudible) for a long time and this is not necessarily a new idea. At this point in time, it is difficult for us to comment, because it was no surprise that this discussion is happening with the spot market is about the long-term price market. So you have to look at what the other side is going to look like and over a period of time, how that may or may not affect your business. Too early to comment really, Mark.

But I wanted to sketch two things. One it is a different look and you have to got at both sides of this equation over a period of time.

So you are in favor of keeping the same traditional benchmark system, I would assume?

It seems to have worked over a long period of time. Obviously it is protecting us, to believe that it should change. On the other side of the coin is a number of others that will be reasonably settled with the arrangements as they are.

Thanks and just quickly on Helguvik. As you get closer to major construction, is there anything as far as changes in the capital budget that seem to be creeping up? Or is it pretty much going to cost the same as last time we were discussing it? Thanks.

Yes, Mark, thanks for the question. We are actually feel the team have done an excellent job, both from the level of engineering and the execution. And we are -- we really feel good about our capital estimate. Particularly about phase one. We know it well. We have been through it extensively. We know where it is coming from and in detail, it is looking robust at this point in time. I don't know if Mike wants to comment on both of those subjects, alumina or anything like that?

No, no change at all. Like it said on Helguvik CapEx, as Wayne said, every quarter that goes by, despite the fact that spending and activity right now is reasonably modest.

Every quarter that goes by where we continue to be on budget, continue to re-estimate, the future spending, continue to do further engineering and Wayne might comment about the level of engineering that we've done thus far. We become, as Logan said, more confident in that number.

Wayne, any comments?

Quickly, just to conclude on this. We have been in this space for quite sometime on this phase one.

We know the suppliers intimately, they know us intimately, so far as the contracts. The engineering has been largely completed in the general terms and the detail is now upwards of 30% to 40%. And so it's moving along as we expect. But we have been in the spaces a long time. We know it well.

Mark, there is no technical risk on the actual plant itself. As you know.

Great. Thanks Logan. Good luck.

Thanks, Mark.

And we do have a follow-up from Tony Rizzuto.

Thanks very much. Just a follow-up on -- I have got two follow ups actually. Lumina, a large third party seller has indicated they are driving more multiple price resets. Are you guys seeing that? Or are you subject to that? Or are things being -- going on as they had previously? In terms of the pricing that you pay for Lumina?

Tony, we've not seen it. Mike or Wayne can comment. They are probably a little bit closer to this. We are not seeing that.

No.

As you know, we had some existing contracts in place anyway. So we are largely covered for a foreseeable couple of years. So it will be interesting to see how this develops. As I said earlier to the previous question, Tony. It's no surprise this has been discussed in the market where (inaudible) ahead of the long-term. It will be interesting to see when that reverses at some point in time, which it will do as you know in cycles.

Thanks, Logan. The other question I have with regard to Hawesville for next year, I think you guys have told us in the past that your power costs might go up next year on the order of magnitude about $70 million.

Should I think about $70 million power costs over the four out of the five lines operating? Or how should we think about that? And where would that place the Hawesville smelter on the cost curve? You gave us the positioning of Ravenswood. But where do you think Hawesville would be on a next-year basis?

Yes, I think obviously I think you should look at it on the full capacity of the $70 million. It -- we still go one line down.

Right.

I'm not giving you any predictions on where that is. But I would start thinking on that basis but we'll update you as we go forward so you can could have more than enough time to look at that going forward. I think in terms of where its position is, I don't think it has changed very much, because the whole world has seen escalating power costs. No one is immune to that.

I'm not knowledgeable of anyone that seeing reduction in power prices, other than some exceptions where there has been linkage to the commodity price which has taken the flat rate out of costs. I'm looking at my colleagues, and saying we will be more or less where we were, which is the upper end of the third quarter with Hawesville going forward. Wayne and his team are working on, obviously, ways to ameliorate that and they also have opportunities. We'll have to bring them to the table before we start talking about them. Wayne any comments?

I think you did it.

The only thing I would comment, Tony, back to the first half of your question. Obviously, when you look at the increment today, your $70 million and you saw the number of this quarter was $15 million and last quarter if I recall was $17 million, that is the amount by which without the E.ON support being in place, how when it expires at the end of this year, our power costs would be higher. For those current operation, which of course is (inaudible).

It goes without saying -- the current operation which is four lines. I was thinking a sentence ahead. It goes without saying, of course, if we initiate a fifth line our power costs will go up, because we feed power for that fifth line.

That will be if, it were in 2011, at that higher or unsupported by E.ON price. So it's a bit of apples to oranges. I realize just wanted to make sure that as people are -- maybe building models and such and looking at scenarios as we do. You've got to account, obviously for a full load of power for that incremental fifth line, were we can energize it and run it for the entire year.

Understood. Thanks very much Mike. Appreciate it.

Thanks, Tony.

We also have a follow-up from Tim Hayes.

Yes. If we were to assume that Ravenswood started in full in 2011, you would have to get a Lumina contract then to support both Hawesville and Ravenswood?

Yes. Tim, it's Logan. I think we are just bringing you up to speed with what's changed in our business. We are not trying to make any prediction of when or if Ravenswood, would ramp up again.

So, clearly we'd have to have fundamentals of power and labor contract and a few other things, and obviously then your basic materials were coming through that as well. But we are not in that space yet, and I think you should watch the space, rather than let us be forecasting the future too early.

Again, it's Mike. Tim, if you want to do some scenario analysis.Just obviously look in the K that was just filed a couple of weeks ago. You can see detail on the Lumina contracts and so you'll know what we got in terms of supply. Then you can lay it on top of that.

Current production, times 1.95, and any increase in production, either from line five at Hawesville on the one hand about 50,000 tons of metal or Ravenswood, which, of course, at a full capacity is about 170,000 tons. You could see pro forma for that how long or short we would be in any of those scenarios.

Right. Okay. Thank you.

Thanks, Tim.

We have no further questions. Please go ahead with any closing remarks.

Thanks, everyone, for taking the time to be on our call today. We look forward to speaking to you again in the near future. Thank you. Thanks, Cathy.

Thank you. And ladies and gentlemen, that does conclude our conference call for today. Thank you for your participation and choosing AT&T Executive Teleconference. You may now disconnect.