Century Aluminum Co (CENX) 2010 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the third quarter 2010 earnings conference call. (Operator Instructions). With that I would now like to introduce your opening speaker for today, Shelly Lair . Please go

Thank you, Doug. Good afternoon everyone and welcome to the conference call. Before we begin, I would like to remind you that today's discussion will contain forward-looking statements related to future investments and expectations, including our expected future financial performance, results of operation and financial condition. These forward-looking statements involve important known and unknown risks and uncertainties which could cause our actual results to differ materially from those expressed in our forward-looking statements. Please review the forward-looking statements disclosure in today's slides and press release for a full discussion of these risks and uncertainties. In addition, we have included some non-GAAP financial measures in our discussion. Reconciliation to the most comparable GAAP financial measures can be found in the appendix to today's presentation and on our Web site at www.centuryaluminum.com. I'd now like to introduce Logan Kruger, Century's President and Chief Executive Officer.

Thank you. Shelly. Thank you all for joining us today. We had an impressive quarter in an environment of slowly improving market and business conditions. I'd like to make a few brief introductory comments before speaking in more detail about the market. Let us turn to slide number four. We have now witnessed consistent improvement of the last few quarters in many regions of the world. As are detailed in the next few slides, the British countries and other regions in Asia are continuing to lead the way.

In the US and Europe, slow growth seems to have settled in with significant disparity in performance among end markets. On the supply side production coming on stream outside of China and India during the next few years is limited generally to a few projects, mostly in the Persian Gulf. Marginal smelters in the developed world continue to be at-risk to the aluminum price on a short-term basis. But more importantly to past price and availability of par of over the longer term. In China, in particular, the supply-side environment has become quite interesting. We believe the (inaudible) quite serious about reigning in the growth of primary aluminum business.

As you know, the twin issues of the power cost and availability on the one hand and the environmental commitments and concerns on the other are driving this decisive behavior. In addition to limiting future growth, they have targeted inefficient existing capacity for closure and appear to be intent on forcing these actions through. Wayne will make detailed comments about our operation so I'll simply hit a few highlights here. We are very pleased today have a tentative four year labor agreement at Hawesville, it has been agreed by the union leadership and is pending ratification by the membership. The smelter should be concluded in the next few days. The fact that this process took several months to complete is evidence of the many significant issues we believe needed to be addressed. The contract gives the plant the foundation from the prospective of labor costs to be competitive for the period of this contract.

Wayne will provide detail on other significant work ongoing to increase Hawesville long-term competitiveness. I'd like to take this opportunity to thank the leadership at Hawesville and the entire employee group for the plant's performance during this period. The (inaudible) smelter continues to perform very well during the extended period of a major appeal of one of its transformers. As we reported during the last call, the unit had been repaired and been extensively damaged when it was shipped back to Iceland. It is now again under repair. Both Wayne and Michael will update the timing and the impact of the financial situation. I will speak in greater detail about the specifications of the new plant at Helguvik at the conclusion of our remarks. This process is taking longer than we would have expected and we continue to working towards a restart of major reconstruction.

With that, let's go on to the next slide, number five. Looking at the market, the alimony cash box averaged approximately $2,090 per ton for the third quarter of this year. Prices have varied strongly from the $1,925 per ton at the start of the third quarter to the mid $2,300 per ton as of today. Aluminum smelt prices have grown from about $360 per ton from about $300 per ton at the end of July. The rising prices for aluminum was more pronounced in September on the back of the high aluminum prices. Global aluminum demand continued to improve in the third quarter with growth in China leading the way.

Both India and Brazil have also shown reasonably good growth recently and there has even been a modest pick up in the US and Europe. Most notably in Europe as is the case of Germany. On the more macro level, Chinese economic growth in the third quarter of 2010 was 9.6%, and industrial production remains in the 13% to 14% range year-over-year. So many GDP in India was 8.8% year-over-year in the second quarter. Its highest level since 2007. As I mentioned in my opening remarks, there's been some interest in supply-side developments out of China over the last quarter. In recent history we have considered comments on the Chinese government concerning programs aimed at reducing production in the energy-intensive industries, such as ours, with some skepticism due to the lack of action coming out of these programs.

Unlike past announcements of this nature, we understand that current initiatives have been enacted upon, meaning that significant production has been taken off line in an effort to bring the current five-year plan to target levels for energy savings. Of course, it remains to be seen what will happen with the curtailed facilities when the current plant period ends. But they will clearly be a near-term impact on production and longer term it is expected that some portion of the existing idle capacity will not come back online. Let's move onto slide number six. Aluminum stocks have been flat to modestly declining recently. That said, the declines are very touch a very large inventory board, which if you can, in early 2009.

And entities remain at very historically high levels in warehouses and elsewhere. In this period of rising inventories we would generally expect to see weakening premiums. But as you can see from the charts, exactly the opposite has occurred. And premiums are now near or near multi year highs in all areas, US, Europe and Japan. There are two financial products that have received a lot of press recently that are causing typical market tightness or at least the perception of tightness and may help explain this unusual relationship. The first is the widely discussed correction's with vertical aluminum units are used to categorize financing arrangements, essentially borrowing against the metal units at today's low interest rates and steady going forward to take advantage of the (inaudible) curve of aluminum.

As long as we remain in low interest rate environment and the ford curve of aluminum remains in Grundartangi, it is likely that these contracts will be rolled forward and continue to tie physical units. The second financial product is in anticipation of one or more physically backed aluminum exchange-traded fund in the near-term. This speculation continues to draw market interest and removes some of the pressure of the inventory overhang. As a result, the [mudrick] prelim remains in the low $0.06 range, the European duty pay premium is approximately $190 per ton and the premium in Japan is about $120 per ton.

Again, all at near multi year highs and at odds with the significant inventory levels in the market today. Let's move on to slide number seven. We'll have a look at the relationship between stocks and the aluminum price. With the [allimia] $203 per ton at the end of the quarter and inventories at 57 days of global demand, aluminum pricing has moved even further out of sync with the historical relationships to today's inventory.

We believe this is in part due to the financial prospects we discussed previously, but it also implies, and I think importantly, a structural shift in commodity pricing in response to global cost precious. I would note that copper is trading at 3.5 times the price of aluminum. This historical relationship is also out of sync with historic norms and we would expect some substitution while modest in volume, maybe on the horizon. We continue to expect that LME prices will remain range part of the near-term due to existing idle capacity but are optimistic that prices over the longer term will benefit from interest in financial markets in modest substitution and more importantly global cost pressures as availability and pricing of power becomes even more challenging. I'd now like to hand over to Wayne for the operations.

Thanks, Logan. Let's turn to slide number eight. At Grundartangi, as I reported to you in July, the rectifier which had been removed from operation and was being returned from repair to the plant suffered significant damage in transit from Norway. The cause of the damage was a combination of turbulent seas and the size of the ship being used for transport. The transformer remains on schedule to be back in service towards the end of the first quarter of 2011.

All elements to assure a safe return to Iceland have been catered for including a significantly larger and more robust shipping vessel. Consistent with our expectations, this event impacted production in the third quarter and will do more of the same during the next several months. Mike will provide detail on the production statistics. As Logan noted earlier, during this period all elements of plant operation have met expectations. Regarding the agreement with the United Steelworkers of Hawesville. The new contract is pending ratification by the membership. We expect result of the vote at the end of the week.

I will not comment on the contract detail other than to say that it's four years in duration and provides a solid labor-cost foundation for the plant. Looking at the bigger picture, the labor contract is only one item of a multi-element program we are progressing at Hawesville. All are targeted to significantly reduce Hawesville cash operating cost and the programs are focused to increase through put, improve efficiency and reduce costs. Most projects are pure efficiency improvements, while some will require modest capital investment.

We will continue to implement this latest quarter and will provide you with details and expected benefits during our next call. At Mt. Holly we continue to make progress, including the employment of a very experienced new plant manager. He has focused a critical eye on the operation that is led to the significant operational issues over the last 12 months. Now that Hawesville operations are improving with continued focus from plant leadership and both partners.

We and our partner concluded an agreement with the power supplier at Mt. Holly earlier this quarter. While a new agreement will not significantly change the challenging energy cost environment at the smelter, it provides for increased flexibility to curtail operations and low LME environments. Let's turn to slide number nine. And I'll provide a brief update on the situation at Ravenswood. In regards to the ongoing costs, the curtailment activities continue at or below forecast. On the point of recommencing, operations we are devoting substantial effort to create the conditions in which we could restart. In the present market environment, a restart would most likely make sense. This, however, assumes we have an enabling labor contract and a power contract flexible enough to protect the plant's profitability during times of weak market conditions.

As we have mentioned previously, the state legislature under the leadership of Governor Manchin, passed legislation earlier this year permitting this type of energy contract. We remain in discussions with the power supplier to achieve our objectives. On the labor front, we continue to meet with the union leadership regarding a new multi-year contract. Now turning to markets, a shortage of scrap coupled with a general scarcity available primary metal has continued to support premiums in the US, Europe and Japan. We have seen certain sectors begin to show consistent but slow improvement in the US. As an example, in automotive. Aerospace continues to look strong and we see some signs of life in raw end cable, though we continue to be concerned about the construction markets.

With that I'll turn it over to Mike.

Thanks very much, Wayne. If we could turn to slide 10, please. Before I go into our results for the quarter let me just make some comments on the markets. As usual my comments will compare the quarter that just ended to the prior one sequentially, so obviously this quarter, Q3 versus Q2. Logan made some comments about the markets. Quickly, the cash LME for the quarter on average Q3 was flat to Q2. However on a one month lag bases the cash LME price was down 8%.

As you know, most of our sales globally are priced off of one month lag basis, but we do have this one contract here in the US that is priced up a month basis and that contract goes for the remainder of this year. So when you put those two together and you look at our realized unit prices, our realize price of our shipments per metric ton, in the US they were down 4%, less than the market down 8% on a lag basis due to that contract. In Iceland realized unit prices per metric ton down 7%, so consistent with the market. Turning to volumes, if you had a chance to look at the operating data at the end of the earnings release ,we need to make a small adjustment this quarter to compare Iceland versus domestic shipments.

For the first time this quarter we had a minor portion of our sales, about 5% of the sales with shipments in Iceland reported direct sales instead of total sales, about 3100 metric tons. So when you do the math, you'll see from a volume standpoint, that domestic shipments were up about 3% on an actual basis, that equates to about up 2% on a per-day basis. There was one more day this quarter. And in Iceland we were up 1% actual but flat per day. Wayne talked about the Grundartangi rectifier transformer being out. From a production and shipment standpoint, that situation cost us slightly over 1,000 metric tons a quarter. About 400 metric tons a month. As Wayne said, that situation will continue until the unit is back in place and in service during the first quarter of 2011.

So if you look at the math on an actual basis, Grundartangi shipped at an annualized rate about 272 metric tons in the quarter due to the transformer outage. If you adjusted for the transformer outage and the volume that we lost, production would have been at about 277,000 tons so at or above where we were in the winter before the incident with the transformer. Putting the sales and the volume and the pricing data together, as you'll see net sales on an US dollar-reported basis were down 3%, Q3 over Q2. Now walking down the income statement a couple of items to point out to you as usual, gross profit was down $6 million quarter-to-quarter. Of this price alone, the LME price changed quarter-to-quarter accounted for $16 million of a reduction in gross profits and more than the entire reduction.

A couple other items as you may have noticed in the first paragraph of the earnings release. We released the remaining lower cost to market inventory reserves we had this quarter. That is obviously solely due to the aluminum price at the end of the quarter and that accounted for $7 million reduction in cost of sales than obviously a $7 million increase in gross profit Q3 over Q2. Raw materials globally were up $4 million so disadvantageous $4 million Q3 over Q2. Most of that was carbon, obviously related to the manufacture of anodes and the price of anodes themselves in Iceland.

And again as we noted in the first paragraph of the earnings release, $16 million of our cost to sales this quarter related to power costs at Hawesville or a portion of it obviously that we don't actually pay for the remainder of this year. The former power supplier contributes to our power costs at Hawesville. This fourth quarter of this year is the last quarter in which that relationship is still on and then beginning in the first quarter 2011, as we reviewed extensively, we are on the hook for the entire power cost at Hawesville. So $16 million this quarter. Moving down the income statement, SG&A expense $12 million for the quarter, of that amount, less than $11 million of it was cash SG&A, the rest non-cash. One item to point out to you this quarter, we had a franchise tax accrual of over $1 million this quarter.

About $1 million than we would normally have in a quarter, simply due to a change in the calculation methodology for franchise taxes. So that was a one-time catch-up if you will, about $1 million versus a normal quarter. And Hawesville spending in the quarter that runs through SG&A was a little over $1 million. Moving down, lost of forward contracts almost entirely the mark to market of our aluminum put contracts for the quarter. Obviously, simply due to the aluminum price at the end of the quarter. So $12 million of an unrealized or obviously non-cash loss.

No change in our tax provisions this quarter, we still provide 0% effective tax rate in the US, that's obviously due to our significant deferred tax assets in the US that are fully allowed for. Iceland's statutory rate is still 18%. One item in taxes this quarter that you will see in the first paragraph of the earnings release, $1.4 million of tax reserves no longer required due to the expiration of the relevant statutes of limitations, and therefore we've released those reserves resulting in a tax benefit of $1.4 million for the quarter.

Average diluted shares for the quarter 93.3 million was the total for common shares and common shares equivalents, preferred shares no change at 8.3 million shares. If we could just look quickly at slide 16, we've given you the normal detail on the reconciliation of the EPS in some of the items. Starting at the top or actually not on the chart, but back on the earnings release data it self, actual reported results on common shares alone was a loss of $0.18. We report common shares alone due to the anti-dilutive nature of the preferred shares this quarter due to the loss. Now I'm back on slide 16. As you know the preferred shares are generally common stock equivalents in their right.

So we think the right way to look at the Company's results, profit or loss, is to look at it on the entire share base. So that's the 101.6 you see there. So on that basis the same loss is $0.17 a share. And just let me take you through these items I talked about most of them. So the unrealized loss on the puts, $0.12 a share, the amount of payment that the former supplier at Hawesville for the power made for us this quarter, $0.16 a share. Tax reserves again resulted in a benefit of $0.01 a share, and the inventory adjustment lower cost to market was a $0.07 per share benefit this quarter. Turning back to the financial statements and slide 10, before I get off of slide 10, let me make a couple of comments on the balance sheet, the data on the slide obviously, If you've had a quick chance to look at the balance sheet data. Telecast this quarter, including restricted cash was $288 million, so up nicely from the end of Q2.

As you may have noticed we had an increase in restricted cash this quarter. That's solely due to the fact that we're still getting our letter of credit facility up and running from an administrative standpoint during the quarter. And therefore we had to post some cash where before we had some LCs outstanding. Just to pick up on that revolver again as you may recall, we finalized our new revolver just a couple days into the third quarter, so after the last balance sheet date in the early days of July. $100 million revolver just like the old one, four years in duration this time, largely the same terms as the old revolver. And as you know, we use this facility only for letters of credit.

We don't draw on it from a cash perspective. So this quarter or at the end of Q4, when we report to you in February you'll see that most of that restricted cash goes back into regular cash and equivalents as we'll post those LCs under our new facility. No other change in debt in the quarter. Let me just take a moment to comment on the debts financing for Helguvik, the non-recourse financing, we've made great progress there during the quarter. With the banks who are leading that process for us, just to remind you those institutions are three; B&P Parabound number one, (inaudible) General number two and ING number three.

We've got a very detailed, almost 50-page term sheet largely agreed now, just a couple points left outstanding. And we think we can quickly turn that into a sole set of documentation. The banks still obviously need to take the final product through their credit process. But bottom-line, we're confident that we'll have a financing ready to go when the project is ready to restart in earnest and Logan will have some comments on that for you in just a couple moments. If we could please turn to slide 11, just a couple comments on cash flow. Good cash flow from operations for the quarter if you add back the $4 million of cash we spent on put options for the quarter. I'll comment on those in a moment.

So you look at the true cash flow production of the operations, $32 million for the quarter, that was above our expectations based on the average LME for the quarter. Quickly on slide 12, I touched on most of these items as usually walk you through the change in the cash for the quarter. I talked about the movement out of cash and equivalents into restricted cash. Number two, we did as I said spend $4 million on put options for the quarter, down side price protection so we're not giving up any up side there.

Just to give you a sense of where we are right now, if you look at our current rate of production for 2011 and you take that rate of production, excluding the amount of production that's naturally hedged due to the lengthening of the aluminum price to the LME price, what we call unpriced production. We're about 50% hedged based on that unpriced production during the first half of 2011 and about 40% during the latter half. Other items you see there, CapEx $2 million for the quarter and consistent with our expectations. Helguvik spending of $5 million for the quarter.

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

Thanks, Mike. I think just one comment before I say a few things on Helguvik. Overall we're encouraged by the improvement in the market conditions. But as you know and you saw in our press release, we're going to continue to manage the potential on the down side and we obviously want to make sure everyone understands that is our strategy. But when you look at the market and what's going on in the market we remain somewhat encouraged. We have made progress on the Helguvik project during the last few months. We continue to annualize and update the capital expenditures estimate for the phase one and have confidence in our ability to deliver the project at that level or better.

While on-site activity is at a modest level, we continue to talk with our suppliers and make progress on engineering and other activities. As Mike has explained, the debt financing is close to completion pending the finalization of the power arrangement. The power situation continues to be accomplished and frankly the progress has been slower than we would have expected. As you know in 2007, we saw power contracts with two principle geothermal providers in Iceland. These people also and these companies also provide power to the Grundartangi facility. It goes without saying that in Iceland in general and the power supplies in particular have experienced significant change since that time. And in that context we are negotiating certain amendments to the contracts.

All parties, ourselves and the power suppliers, have made significant investments in this project. And thus we believe it is only a matter of time until we reach agreement. However, these are decades of long contracts of power, the plants large of operating cost, so we believe it is worth the delay in our preferred schedule to get them right. Lastly, I would note that the economic activity of this project and the operating smelter, will bring is a key to Iceland's economic recovery and community and the public support for this project is increasing. With that I'd like to take some questions. Thanks, Doug.

And thank you. (Operator Instructions). Our first question is from the line of Brett Levy with Jefferies & Company. Please go ahead.

Thank you, guys. Mt. Holly I think up in this moment you talked about major business issues, performance issues, et cetera. Now you've got a new management team in there addressing a whole lot of these issues. I've never really gotten a sense as to what exactly the issue has been. Can you talk about what the problem was and what the fix is going to be?

Certainly. This is Wayne. Basically the problem started with a failure of cathodes. And an inability to replace those cells in the appropriate time frame with additional stock of cathode blocks. And so as a result the management and others worked hard to find additional supply, but were unable to. And as a result, there was a significant times where there was cells out that could not be put back in. So as a result, the tonnage at the smelter was not as expected. However, as a result of the increased work and dedication at the facility, there is sufficient cathode blocks now in supply, and they are running at full capacity. And as you would expect, the operational performance is now nearing expectation.

Thanks, Brett. Any others?

Yes. Is there any for this whole transformer issue at Grundartangi, is there any business interruption insurance, is there any -- is there any way of recapturing any of the lost EBITDA here?

Absolutely, Brett. It's Mike. So there is most definitely business interruption insurance under our policies. It's got a small detectable, $.5 million dollars or so. It obviously only kicks in due to the Maritime accident. So the first chunk, I'll say, when the unit failed and we sent it to Norway, that's for our account. The second chunk we are in the process of working on a claim. Obviously, the carrier was notified the minute the incident took place at sea. So that's a long-winded answer to your question. Yes, absolutely.

All right. And this is admittedly a lazy question.

Those are the best kind.

Okay. To do the math for me. What's the total impact of this transformer problem and how much of that are you going to get back in insurance under the terms?

Well, I mean, you have to obviously BI replaces lost profits. So here's the way to attack it. From the time of the incident, which was way over the summer in July, was it?

Right.

July. As I told you, just about 400 tons a month of lost production. Then you would, to calculate your claim multiply that by the, called the cash operating profit or gross profit in the plant of those lost tons. It's a bit of a difficult one. We don't provide you sort of marginal costs. But you can take a slice at it by going back to the data that we showed you in February. It's still on the website there back from the -- back in February looking at the --.

About $0.50 a pound?

Sorry?

$0.50 a pound of margin?

Brett, you've got to calculate what the aluminum price was for the time. So I got to ask you to be a little less lazy, but I've given you the building blocks.

Okay. Appreciated that.

No sweat.

All right. And in terms of the situation at Ravenswood, how close are you guys to kind of the finish line? Would you describe yourself at this point optimistic? Is there still a lot of gap between where you guys are with the power supplier and the union? Just if you could give a little bit sort of sense as to how close to the finish line you might be there.

Yes. This is Logan. Before I'll ask Wayne to comment, Brett. But I think really we're working on two major pieces. And both of them require a lot of negotiation and agreement these two parts. One is the power enabling or (inaudible) contract and that obviously requires a lot of input from a number of various different parties. And the second part is obviously as you were aware we're in contract negotiations. And that's with the steel workers. Wayne, anything else.

Thank you. That hits the major points, Logan. Certainly we are in active discussions with both the power supplier and the union leadership to progress those major issues. And I think we can be optimistic that we'll get these both concluded. I think in terms of timing which is the other part of your question, it's difficult to plot a path past that. I think once we get closer to a sense that we can achieve those two objectives then I think we can put some timing around it.

Thanks very much, guys.

Thanks, Brett.

Our next question is from the line of Mark Liinamaa with Morgan Stanley. Please go ahead.

Good Evening, everybody. Logan, in your comments you sound a little more constructive that inventory financing deals and potentially an ETF can provide sustainable support to prices relative to comments I've heard you make in the past. Is that a fair characterization of what changed your view?

Yes. I think it's a number of things, Mark. Thanks for the question. I think we are seeing a bit more constructive as you used optimism in the market. I think it's a whole number of things. Businesses are starting to move forward. People are starting to make more demands. I think Wayne mentioned about cable and we've seen that market as well. The financing deals continue to roll forward from what we can see and what we know. And you've now got the potential of an ETF. And there's a lot of debate about ETF which you're aware. But at least we see that role perhaps put in one side of one pocket a fair amount of commodity material, aluminum. And then as you see the aluminum inventories they have not grown.

They have come off of it maybe 150,000 tons owe the last (inaudible) and China and India and others continue to grow. So you add in also the restrictions in China, some of which seem to be quite serious now and you've seen that as well, I saw a number of China production for this year of 60 million tons. I think that's a bit low. But all that adds up to a changing kaleidoscope or picture if you wish to use that in the market. And so I'm a bit more constructive encouraged than I may have been six months ago. From a management of the Company, obviously, we will manage to look at the down side. But I think from the market point of view, Mark, there's certainly a different light in the room.

Thanks for that. And then just quickly on the Helguvik project, can you put any more color? It sound like you're going to hold out for the best power contractor would you feel you need. Can you put any more detail around what you think you need?

I think we clearly have ideas and they are contractual arrangements to bring those to some sort of conclusion as you know. So I would like to get ahead of ourselves in these discussions with our partners. What I was trying to do at the end was say that all the partners have significant interest in the project going ahead, and we believe we will get to an end point and a settlement. Secondly, I think there's a growing knowledge and support of those projects in Iceland from a large number of areas, local communities and the public in general.

I'll give you a statistic you can bear in mind when you think about this. This project over a period of phase development five, six years would add somewhere between 1.5% to 2% points of GDP growth to Iceland. Per year. So if you think about it it's quite a significant impact. So I can't give you the details, but trust me, we are working very strongly on this, and we have to bear in mind that there's been a lot of challenges in Iceland both politically and commercially for everyone.

Thanks. Good luck.

Thanks, Mark.

Our next question is from John Tumazos with John Tumazos Very Research.

Good Evening. Congratulations on keeping everything together through a couple tough years. It's a little remarkable that new arrangements have been made smoothly at Hawesville. And the Ravenswood issues are still playing out in the sense that times are hard and you would think that the employees in West Virginia, the union, power officials would be doing their best to straighten things out to clear the deck so to speak. Are you able to shed any light on the last remaining points on the table?

I think it's early days. There's a lot of discussion going on. There's continuous meetings, John, it's Logan. I don't know if Wayne wants to comment. That's work for Ravenswood for (inaudible) power and labor discussions. We don't generally comment about these even at Hawesville. Wayne was clear that we would only comment that it was a four-year contract. There's a vote coming up at the end of the week. So I don't know, Wayne, if there's anything else you add.

You've hit it again at Logan. We're working diligently on both these issues and we expect to bring them to conclusion.

It just seems like times are hard and the people ought to be thankful to preserve the business.

John, really, we don't take any comment on that, you know. We hear your comments.

Good luck. Thank you.

Thanks, John.

(Operator Instructions). Our next question is from Tim Hayes with Davenport & Company.

Good afternoon.

Hi, Tim.

Hi, Tim.

Just a couple questions. On the one contract that's on a prompt month and you said it's going to end at the end of the year, is that going to be -- when that gets renewed or how do you replace that? Is that still going to be on a prop month bases 2011, or might that be on a one-month lag?

It could be, Tim, it could be either of those. We don't know yet. We're not concerned about sales volume. That's the easy part as to how it's priced. Yet unknown. We'll let you know obviously once it gets finalized. Hard to tell at this point. It's a detail item. It's one of those last-minute sort of negotiation items.

Okay. And then the 5% of sales out of Iceland. That's now direct sales. Is that something that is going to be -- are we going to have direct sales going forward even if it's a small percentage?

I think it's part of the contractual arrangements on the (inaudible) and one of the options in some of the (inaudible) projects is an option. But we obviously want to use the opportunity to continue to maximize the value at the plant. So we purchase some aluminum and obviously at direct metal sales. It works very well. Slightly different but it's a small portion of our business. It's hard to say whether that option will be continued. We'll see.

I guess as an extreme end point, what would be the possibility or what's possible in terms of the up side for direct sales? Could they reach 10%, 20% in a real extreme part of that?

No. The level I said about 5%, Tim, that's the option level. So it's not going to get much higher than that.

Okay. Thank you. That helps.

Sure. Thanks, Tim.

And speakers at this time we have no additional questions in our queue. Please continue. Logan Kruger: Thanks, Doug. Thanks very much to everyone for their time. And appreciate you listening to our call. Thank you.

And ladies and gentlemen, that does conclude our earnings call for today. Thank you for participating. You may now disconnect.