Century Aluminum Co (CENX) 2011 Q2 法說會逐字稿

Ladies and gentlemen, good afternoon. Thank you for standing by and welcome to the second quarter 2011 earnings call. (Operator Instructions). I would now like to turn the conference over to our host, Ms. Shelly Lair. Please go ahead.

Thank you, Tom. Good afternoon, everyone, and welcome to the conference call.

Before we begin, I would like to remind you that today's discussion will include forward-looking statements related to future events and expectations including our expected future financial performance results of operations, 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. Reconciliations to the most comparable GAAP financial measures can be found in the appendix to today's presentation and on our website www.centuryaluminum.com. I would now like to introduce Logan Kruger, Century's President and Chief Executive Officer.

Thank you, Shelly. Thank you all for joining us today. Let's move onto slide four to get started.

I will provide detail on the market in a moment, but we'll make introductory comments here to set the context for our broader discussion. Obviously you have all seen what the equity markets have done today. All around I would characterize the aluminum market conditions for developed economies as continuing to exhibit steady but slow growth.

The pace of economic activity in the developing regions remained strong. The economic from China, India, Brazil and the other fast-growing countries continues to look good. Other than well publicized macro concerns, we see no signals of a pending slowdown from these growing areas. Physical supply of metal continues to be tight for a variety of reasons.

The dialog around the rules governing the LME warehouses has recently become quite animated. Clearly, different types of market participants will continue to have their distinct views. The LME has studied this issue in detail and has made some changes. We don't believe these changes will have a significant impact on prices or premiums.

In this environment physical premiums in most regions have remained at or near all time highs. While this environment may not be attainable over the long-term, we do not see major changes for at least the balance of this year. I obviously do not need to comment on the global macroeconomic conditions.

Suffice it to say that we are managing the Company under the assumption that the debt issues in the EU and in the US do not significantly impact the broad economy or markets. The same philosophy applies to China where if the risks for a hard economic landing out of control inflation or the popping of potential asset bubbles were to materialize, the world would surely be a different place. We, like others, are closely monitoring recent global economic data which has been somewhat sobering.

Overall we remain generally positive on the aluminum market for the medium term. But there is some concern for the slowing global economic activity may be more than temporary. Now I will give you a few quick comments on the Company's operations, again just to set the scene.

Later in my remarks I will provide a more detailed review of the situation at Hawesville, what happened, where we stand today and most importantly what we have learned and where we are going. Suffice it to say that we did not adequately compensate for the relative inexperience of new personnel in the plant who are responsible for the front line operations including the restart of the previously curtailed line number five. This coupled with the challenges in our planned technical improvements as well as logistical problems caused by the historic flooding in the region resulted in a situation that we found harder than expected to get back under control.

The good news is that we believe we now have reached stable operations. I will speak further on this in a few moments. If we look further, the Company's other operations turned in a very good quarter.

The team at Grundartangi continues to perform well and happily Mt. Holly, under it's new leadership, has largely regained its strong historical performance. We had milestones on the Helguvik project in Iceland during the quarter, and I will detail those at the end of my remarks.

Let's turn to slide number five. Now turning to an update on the market, in the second quarter the LME cash price averaged about $2,600 per ton, the highest quarterly level since the third quarter of 2008. Prices remained in the $2,500 per ton range despite macro concerns I discussed earlier.

Alumina spot prices have drifted low with the most recent tender quoted about $380 per ton as there appears to be sufficient material available in this market. It is our expectations that the alumina market will remain reasonably in balance for the rest of this year.

Chinese aluminum demand remained strong during the second quarter, almost across all of the sectors. Annualized production reached a record of about 19.5 million-tons yet demand stole our pace production by over 200,000-tons in the quarter.

If you'll just take a pause. On annualized basis at near a million tons per year, it is our view that China will be in balance or a modest net import of aluminum over the medium term. Aluminum demand outside China continues to recover as Japan ramps up its manufacturing industry after the earthquake and tsunami.

Western world demand continues to grow driven by demand from transportation and beverage sections. On the macro side, China finished the quarter with 9.5% year-on-year growth in GDP, consistent with the last several quarters. Industrial output advanced an amazing 15.1% in June, the most since May 2010. Even after the central bank boosted lending rates five times since October and raised bank reserve requirements to a record level.

GDP in India grew 7.8% year-on-year in the fourth quarter consistent with recent performance.

Shall we move onto slide number six. Inventories decreased slightly in quarter two while quarterly demand increased 11% year-over-year, noticeably impacting the relationship between global days in inventory and price. Days inventory are now at 52 days as compared to 58 days in quarter one, quite a change.

The most meaningful indicators are physical demand and market tightness of local premiums. Europe, US, Midwest and Japanese premiums all remain at or near record high levels. Two key factors are contributing to constrained physical supply at the moment. These are the continued financing arrangements which we have discussed in previous quarters and the existing logistical challenges of moving metal out of warehouses.

In the second quarter we saw a push by customers to change the load out rates from LME warehouses. As a result, as you have read, starting in April 2012 load out rates will be increased from 1,500-tons to 3000-tons per day for those operators with more than 900,000-tons in one city. Because of these modest increases in volume and the limitation to larger locations, for example, Detroit, the net effect of this change is expected to be small.

These physical supply constraints coupled with the continued cost pressures are expected to support pricing over the near to medium term. We can now move onto the discussion on the operations on slide number seven. Let me first provide additional detail on our Hawesville operation.

As we mentioned in our previous earnings calls, the restart of the curtailed part line required rehiring of 130 some new people. We had significant interest in the community for new jobs and believe we brought on board a very group of new employees. We were aware that most of these people had no prior experience in aluminum smelter and thus would require significant training.

What we failed to adequately appreciate was the impact of the recent demographic changes around the plant. Due to the web rules in our union contract, the more senior and as you would expect the more experienced people had significant latitude in job movement where the job openings occur. Thus we had a significant number of veterans opting to shift out of the part rooms into other areas. With the restart of line 5 the vacancies on the part lines themselves were filled with a disproportionate number of new hires.

This situation was exacerbated by a variety of reasons. We lost several key people including technical and operating management. I must make note of the effort that people at the plant have put in. Although the entire group worked very hard, those of you who have been around smelters know that it does not take long for one of these plants to develop operational conditions that are challenging.

In addition, some planned technical improvements during this period exacerbated the issues about which I have just spoke. In addition to this environment with some significant logistical challenges caused by the historical flooding in the area, we like many other manufacturers on the river, were forced to turn to contingency plans to access key materials like alumina and other materials. While we successfully addressed these issues, the requirement to focus on them was a diversion of management's time away from the operational issues confronting the plant.

So now what have we done andwhere are we and where are we headed? Our most significant focus has been to get the right leadership in place.

I am pleased to report that in late June we hired a very experienced and able individual named Dave Hensley as our new plant manager at Hawesville. Dave has significant experience in every area of the smelter's operation. Perhaps just as important he is a clear and credible leader and a good communicator.

He has strongly addressed the plant situation and has put if place a plan to maintain stable operations in the short-term and then quickly to return the restock process to bring the plant to full capacity. Dave has already addressed the technical changes to which I referred. As you would suspect, a significant portion of his effort is aimed at getting the right people in the right places all properly trained to do their job safely.

During the past month we have filled much of the key role which I described. We are enthusiastic about this new group of leaders. It goes without saying that additional training has been set as a priority.

These efforts have already shown results. We believe we have achieved a stable operating environment in the plant. This is our primary focus and it requires daily blocking and tackling. These last few months have clearly put behind us where we would like to have been and where we would previously thought we would be in achieving full plant operations.

Bottom line, line we now believe the plant will be operated at graded capacity by the end of this year. Mike, of course, will provide you with a forecast of what this means for shipments and operating costs in the third quarter. As I summarized, Grundartangi has continued to operate quite well. Production and shipment volume for the quarter were at record levels and controllable costs are all well in check.

We continue to look at creep opportunities at this plant as these projects generally have high returns and quick payback periods. Overall the team as Grundartangi continues to do a good job. After a period of operating challenges, we believe Mt. Holly has firmly turned the quarter and is on track for the former best in class operating performance. The long-term issues around the plant's power costs remain, but we have a first rate management team executing very well.

I won't spend much time on the commercial conditions in the US. Metal retains tight with Midwest premium staying close to record levels. Certain products remain in short supply with end markets like automotive continuing to exhibit relative strength. With this I would like to hand it over to Mike.

Thanks, Logan. If we could turn to slide eight, please. As usual I will refer to the financial information that follows the earnings release, so if you have that handy, you will be able to follow along with my comments. Also as usual I will compare in my comments the quarter that just ended to the one sequential prior to it obviously here, Q2 to Q1.

Before we get into the income statement data just remind you about the market. Logan referred to it, the cash LME price on average in Q2 was 4%, higher than in Q1, and with the one month lag was 7%, higher than Q1. Next our realized unit prices tracked the market. Domestically we were up 7%, quarter to quarter, and in Iceland our realized prices on average were up 6% quarter to quarter.

Again before I get to the income statement let me just comment on shipment volumes. You can see these data if you go to the operating data at the end of the financial information. First like the last couple quarters this quarter we had a small amount of our shipments in Iceland that were done in a direct sales basis rather than total sales, so about 2,350 metric tons this quarter. So when you adjust for those tons, you will see that domestic shipments were up 7%, quarter to quarter and Iceland we were up 3%, quarter to quarter.

As Logan noted, Grundartangi shipped at annualized record rate of 278,000-tons. Obviously we're extremely pleased with that. That compares as you know to the rating capacity of the plant of 260,000-tons. Okay. Let's start at the top of the income statement and walk down.

First putting the pricing and volume results together, you will see that net sales on a dollar basis were up 12%, quarter to quarter. Of that 12% volume contributed 5 points and pricing remaining 7 points. Gross profit quarter to quarter was up $7 million on a $40 million sales increase. Let me just give you some of the major contributors there.

The increase in our realized prices drove gross profit up $24 million quarter to quarter, and we had a bunch of items going the other way. First costs that are linked directly to the increased metal price of course, those costs being alumina for our US plants and power in Iceland. Those costs in aggregate were up $7 million quarter to quarter.

Raw material costs as you know are mostly carbon related, were up $5 million quarter to quarter, and costs related to the situation at Hawesville that Logan described were $6 million higher quarter to quarter. Let me just describe that and then I will detail the third quarter -- pardon me, the second quarter costs in a moment. As you will recall in Q1 we had $6 million of costs attending to the restart of the fifth pod line.

In the second quarter we had $12 million of costs related to the situation at the plant. Again I will get to that in a moment. So the net difference between Q2 and Q1 related to Hawesville was $6 million. As Logan said, we had good performance across the remainder of the company so other costs across the Company quarter to quarter were mostly flat or in many cases favorable. Let me just detail the $12 million in Hawesville for the second quarter. A couple buckets it came from.

First is very straight forward. We had a cost structure in place for a production volume level higher than we actually got, so those unabsorbed costs everybody who follows manufacturing companies are familiar with this issue. Those unabsorbed costs flowed through. That was about $5 million. That's labor and other items.

Second were actual operating efficiencies in the plant itself and spending required to get the plant back to first stable operations and then as Logan said later in the year to full capacity. It was another $5 million in aggregate. Then we had an additional $2 million in spending relating to the fifth pod line restart, so that's the $12 million for the quarter.

Before I continue to detail the income statement changes for the second quarter, let me just talk a little bit about what we see in Q3, specifically related to Hawesville. Logan gave you a sense of where the plant is and our plan to get the plant back to full production capacity by the end of the year, and as we roll that all in and look at the production forecast, we're looking at a shipment forecast quarter to quarter, Q3 over Q2 for our whole domestic operations essentially flat, so flat shipments Q2 to Q3.

Let me talk a little bit about the cost side now. If you go back to February, per our custom, we provide an estimate for the year of our cash operating costs and our smelters for the US on the one hand and for Iceland on the other hand. So you can go back and look at those slides and see the cost estimates we gave you for the US.

As we told you again at the time, we saw at the beginning of the year the costs for Hawesville and Mt. Holly to be essentially equal. You get there in very different ways as we always said but they were to be about equal. Mt. Holly has been on plan this year and expected to remain so.

We need to focus obviously on Hawesville now. Given the inefficiencies that we're still experiencing in the lower than planned production volume compared to the cost structure, we're looking at Q3 estimate of cash operating costs to be about $300 per metric ton higher than we had estimated back in February, $300 per ton higher for Q3. So if you apply that over our entire US operations based on the basis of the data we gave you back in February, we're looking at US cash operating costs on that same basis about $200 per ton higher given that of course Hawesville is about two-thirds of our US production, so Hawesville about $300 per ton higher in Q3 and translates to US cash operating costs about $200 per ton higher. If you want to adjust your models, you simply go back to the data we gave you back in February, choose your LME, of course. We gave you the sensitivity, and then add $200 per ton cash operating costs for the US.

Just to give you a little bit more detail on where we see that $300 per ton per Hawesville increase in Q2 versus the original estimate coming from. About 60% of it comes from the unabsorbed costs and inefficiencies that I described, about 60% of that $300 per ton. The remainder comes from an increase this we have experienced over the year in really in structural costs, most specifically carbon and power.

The 60% obviously due to the inefficiencies should dissipate as we reach or get closer to and then reach full production capacity. The other costs like other producers in our industry we're watching very closely, we have actually seen very recently perhaps some relief in some of these costs specifically related to carbon but we want to continue to watch this and see if there are any trend lines there.

Okay. That's Q3. If I could turn back to Q2 now and turn back to the income statement, we're about halfway down the income statement if you have the data in front of you.

Other operating expenses as you will recall, this is where we account for costs relating to Ravenswood, the curtailed plant. As we expected we had $9 million of income this quarter related to the changes in retirement benefits from last year at Ravenswood, so this is the final accounting for those, and if you strip those out of that line item, you will see $4 million in expenses as expected for the Ravenswood curtailment. SG&A as we detailed in the earnings release, $8 million, just shy of $8 million of the amount on the SG&A line item has to do with changes of the board from June, and some senior management severance during the quarter.

Forward contracts as you know, this is mostly the market to market of put options obviously as the LME price drives higher, you take the price at the end of the balance sheet to value those options at the balance sheet date, obviously June 30th here, the value is options decreases so that's the mark-to-market there. Other income just shy of a million dollars on that line is the charge for the early redemption of debt as we early redeemed in May the convertible notes before they would have been put to us this month in August.

Just finishing off on the income statement on the tax line, no change in the Company's tax posture. US we still continue to provide a 0%, tax rate here due to the fully allowed forward deferred tax assets in Iceland continue to provide at 18%, and again related to the retirement benefit changes at Ravenswood as predicted we booked $2 million discreet tax benefit, so that's part of the tax line there.

Lastly on the income statement, average diluted shares for the quarter, common and equivalent shares came in at 93.6 million average, preferred shares 8.1 million average. Okay. If we could just turn forward to slide 14 for a moment where as our norm would give you a reconciliation slide for the various items in earnings.

The items that we described in the first paragraph of the earnings release, just to put it altogether here. As you can see, reported EPS of $0.24, loss on forward contracts again mostly the mark-to-market of the puts, $0.02 of expense, debt early retirement was a penny, accruals related to the board changes and the severance was $0.08. Reversal of an insurance claim $0.03 a share, the Ravenswood retirement benefits changes accounting therefore was $0.09 of income and the tax benefit related to those changes $0.02 of income.

All of this of course is net of the $12 million in spending or $0.12 a share related to the situation in Hawesville this quarter that we talked about. If we could go back to the financial statements, then, please. Just a couple comments on the balance sheet and the cash flow statement.

Cash ended the quarter at $232 million. I will detail the changes during the quarter in the cash balance in a moment. As you will see on the face of the balance sheet the convertible notes are now gone. Over on the cash flow statement you will note that CapEx year-to-date $7 million that excludes Helguvik. That was $4 million for Q2, so $4 million of CapEx for Q2, $7 million year-to-date, and lastly for Helguvik $4 million for the quarter.

As we have said, pending the restart of major construction we would be spending at the rate there of a little over a million dollars a month. That's where it came in, $4 million for the quarter. If I could ask you to turn to slide nine, again, we'll go through quickly the changes in cash during the quarter.

Talked about the redemption of the convertible notes. Again, those notes would have been put to us in August anyway. We decided to early redeem them and save a little bit of interest expense. That was $47 million.

Again, the change in the Company's board required a certain nonqualified benefit plan to be funded. That was $17 million in cash. That cash is sitting in a trust account now.

As you know our bonds like most pay interest on a semi-annual basis so you see it during this quarter. We have talked about the CapEx in the Helguvik spending already. As you can see, we had a little bit of a working capital build this quarter, about half of that amount that you see there relates to inventory and receivables for the new capacity coming on for line 5 at Hawesville. With that I will turn it back to Logan.

Thanks, Mike. Let's have a look at slide number 10. We continue to make modest progress at the construction site as you can see from these updated photographs. As we have discussed for some time, we believe we need to achieve good certainty on both par for the plant and the sequence and timing of that power before we can proceed. We must lock down on key items including specific pricing and delivery commitments before moving ahead.

This requirement makes a discussions with the power providers more complex than they would be if we were willing to move forward with lesser commitments. Some news on this front, the arbitration with one of the two power companies took place as scheduled in May. We were pleased on how it went.

The findings of the panel are due in September. At that time we will assess the decision and then most likely sit down with the power provider, HS, to talk about the way forward. We have also seen some progress with the other provider, power provider OR. We hope to be in a position to report some developments when we speak with you after the third quarter.

We believe that we can arrive at an mutually satisfactory outcome by the end of the year with our restart to begin soon after that. We move onto the final slide, slide number 11.

In summary, the aluminum market conditions are stable and demand growth from the BRIC countries remain encouraging. We will be closely monitoring the impact of the slowing global economic activity on trading conditions in our markets. Grundartangi and Monte both introduced at record levels during the quarter and operating performance has been good.

At Hawesville we are putting in place a plan to maintain stable operations in the near term and then return to the restock prices to bring the plant to full production capacity by the end of the year. As I mentioned in the previous slide, we continue to make modest progress at Helguvik in our discussion with the power providers. We will now take your questions. Thank you.

(Operator Instructions). Our first question comes from the line of Brett Levy with Jefferies & Co. Please go ahead.

Hey, guys, first question is what I always ask. Which is as you guys look at how you're set up in terms of puts against the US production, how are you set up this year and what are your plans for subsequent years?

Thanks, Brett. It is Mike. No changes in our put position during this quarter, so it will be the same as -- you can go back and look at the last 10-Q or the new 10-Q that we'll be filing early next week, Monday/Tuesday, and you will see the position hasn't changed. So we're at 9,000-tons a month the balance of this year and 5,500-tons a month for the first half of next year. That's the current book.

And the thought is still 30% is about your target?

Yeah. It depends, Brett, upon what basis you're defining target. We look at the denominator if you will. I think we talked about this before, in unpriced tons, so we take our total production and then back off the tons that are priced or hedged, pardon me, implicitly through the linkage of the alumina contracts to the metal price. That is roughly 30% of your production right there is naturally hedged and then you ask yourself what part of that residual do I want to hedge and there is no fast target. We have been somewhere in that range and the third to a half of the unpriced and we'll kind of continue to assess that as we see market conditions and the costs of the protection and the cost structure of the US and a bunch of other factors.

And then one more question and then I will get back in queue. In terms of timetable at Helguvik, sounds like you have a lot more clarity, hopefully not by the end of the year and then obviously you have to make key decisions. You need clarity on Helguvik before you start thinking about Capital Markets, options for addressing the 8%, notes or could you go earlier than that? My sense is you probably want to know what's going on at Helguvik before you start making some decisions on your straight bonds.

I think there is about three questions in that, Brett, so let me try to answer some of it. Clearly on Helguvik obviously we have gone through the first arbitration with HS, and we're pleased about how that went. We will hear at the end of the September, and we have also made some progress with discussions with OR. Clarity for Helguvik is we have got all the permits. We have got all the permissions. We have got all the contracts in place. We basically have to bring to a conclusion the power provider discussions. So that's the clarity on Helguvik. I will ask Mike maybe to pick up the other two.

Sure, Brett. On the eights as you know, they're callable at 104 today and step down to 102 in May, and so the maturity is 2.75 years from now, whatever, May 2014, and so we look at it all the time. I mean, I guess I would answer your question by saying in one respect they're two separate decisions. From an IRR standpoint, does it make sense and when does it make sense to look at paying the premium or do you look at it price to the step-down date in May of 2012. You're asking a broader question in terms of capital requirements over the next couple of years when you start talking about Helguvik, so that's a valid question as well, but given that the financing that we have locked in place and ready to go is as we have discussed many, many times is a nonrecourse financing. It really is kind of -- this is a simplistic way of looking at it, corporate come part mental lies. You can really in my opinion anyway look at those as two very separate and distinct decision sets.

Thanks, Brett.

Thanks very much, guys.

Thanks, Brett.

Next we will go to Sal Tharani's line with Goldman Sachs. Please go ahead.

Thank you. Good afternoon.

Hi, Sal.

Good. I just to want get some clarity on your volume guidance. Hawesville has turned the corner, and you're ramping it up, yet you are saying you are going to have a flattish volume?It means that some other units or facilities may have a lower volume?

No, no, you're assuming -- that's a good question. No, absolutely not. You're I think your conclusion assumes that Hawesville volume -- production volume would have been flat during the quarter, and it was not. It started high, and then went low, and then came back. And so that's what you're are seeing there. So what you are seeing, the average for Q3 at Hawesville is going to be, per our forecast, equal to the average of Q2, and the same with Mt. Holly.

I got you. Okay. Thanks for clarifying. And also on the cost side, you gave a good detailed guidance of what to expect, but how about from Q3 to Q2? Is there -- doyou pay more electricity cost during Q3, or is your electricity all tied to the LME?

No, no, the electricity at Hawesville is not tied at all to the LME. Obviously, it has correlations, given coal prices and such, but the utility buys much of its coal in advance, as you are familiar with, and so, no, there is no correlation there. As I said, we are seeing some step up this year in both power costs. Part of that is -- was scheduled or expected. Part of it as we have announced and discussed in the past, the power provider has filed for a rate case, and that is supposed to be completed in the third quarter, so there could be a little bit of a step up there. The major increases, Sal, that we have been seeing quarter to quarter have been carbon related, like many other -- or I should probably say most other producers.

Great. Thank you very much.

Thank you.

Thanks, Sal.

Our next question comes from the line of John Tumazos with John Tumazos and Company. Please go ahead.

John Tumazos. Thank you for your good explanation. There was a lot of confusion with news reports about managers moving on and all different things, and it is a relief that all that went on was $12 million of extra costs, which in the grand scheme of things isn't much.

What year should we put the first 90,000 ton pot line into our spreadsheets for Helguvik? And how should we treat the long-term future at Ravenswood?

Good questions, John. I will try to handle some of it, and Mike will add to it. I think obviously what we said in our remarks about Helguvik is that obviously we are waiting for the arbitration the end of September, and then we'll be discussing with power providers going forward from there. And I said our look is at the end of this year to bring to conclusion the power providing discussions, subject to what goes on, of course. So to answer your question, I would suggest in 2012 is the first 90,000 tons. Obviously --

Restart of construction.

Start of construction -- apologies -- plus 24 months, so 2012, 2013. So early 2014 for the first 90,000 tons. And I think those were the two parts of your question, was it?

The second part was about Ravenswood, but if I can follow up. In plain words what's going on is we recall ALCOA had their smelter built and waited six or twelve months for the power to get built and arrive?

Yep.

What you're doing is being very meticulous to not have the same thing happen to you, so none of the problems are on your end with financing or anything like that?

No, John -- it's is Mike, John. Thanks. That's a good comment. We have said we want to be very careful here that -- I think we have said in the past, it does no good to have a smelter ready to go if the power isn't there, and so as Logan has continually said here, as important as getting the pricing finalized is getting the delivery commitments of these two power providers finalized. Because as we said before, some of the power for Phase I of our smelter -- the first 90,000 tons -- sorry, that's our nomenclature there -- isn't yet in the ground. It is there, but the final work has to be done, the pipes have to be sunk, the transmission has to be -- the turbine has to be connected, the transmission lines have to be built.

The financing, as we've said -- as Shelly has told you since, boy, almost this time last year -- a couple months later -- since let's say November of 2010 has been completed. We have got an agreed to, signed -- I think it ran to almost five dozen page term sheet, and now we have several hundred page common terms agreement that is ready to go. And so that project financing, if Logan gave us the go ahead, could be finalized within say a month or two.

It is all Dutch?

The debt -- as we told you before, the debt financing we see -- let me take a step back and repeat what we told you before. So the debt -- the senior debt financing was on the order of $200 million or so. That's the project financing to which I just referred, nonrecourse. And then underneath that would be a layer of obviously also nonrecourse junior financing, mezzanine or whatever you want to call it, up to $100 million or so. So that's $300 million. As we have said, the cost to complete Phase I is about another $500 million. That includes [force in fields] working capital and such, some of which can be borrowed anyway, and so that's kind of the -- that's where we are today versus the costs to complete Phase I.

And the longer this takes, the more cash you build up and self-finance anyway?

That's true. No doubt about it.

You are correct in that observation. I think the other part was on Ravenswood?

Right.

Obviously we continue, John, to look at Ravenswood. I think that the conditions that we need to have in place is obviously a suitable competitive power contract, and we continue to have discussions around that. Obviously enabling labor contract, and obviously then some view of what this market will look for a period or three to five years. I think that's all we really want to say on Ravenswood at this point.

Thank you very much.

Thanks, John.

Thanks, John. Appreciate the questions.

Thank you.

Our next question comes from the line of Richard Garchitorena representing Credit Suisse. Please go ahead.

Thanks, and good afternoon.

Hi, Rich.

A lot of my questions have been answered, but I just wanted to touch on alumina costs. You said -- you mentioned spot prices look like they're coming down a bit. What's your view on that going forward for the rest of this year and into 2012?

I think what we try and do is talk a bit about what we see in the market rather than give you a view of what pricing may be. But it seems to us that there is a fairly balanced supply of alumina for the demand at this point in time. And it seems to us from what we hear and see is that alumina that was destined to go into China is now staying out of China, is one-way of describing it.

So I think there has been a bit of pressure certainly in the last couple of weeks or months on the downside of the so-called spot price that has been punished. So that's probably $400 to around $380. And so if you do a conversion on some percentage of LME versus that actual cash price or spot price, you are getting pretty close to the same sort of number. So I think at this stage the market seems to be fairly balanced. Maybe some pressure on the downside.

Great. And then just on Mt. Holly, you had mentioned that it is operating basically at peak levels. Can you just remind us what the name plate capacity is there? And is this I guess sustainable going forward?

I don't -- 220,000 I think, tons per year, of which we get half.

So it is running a good couple percent -- or ran, I should say, in Q2 a good couple percent above that name plate capacity.

Very pleased about the way Mike Rousseau and the team have done at Mt. Holly. Have done a good job and are now operating at a very good level.

Great. And my last question is on SG&A. You had mentioned it was higher this quarter. Is that one-time event? Is that going to reverse back to more normalized in the next quarter?

Yes, that was a one-time event due to the changes we saw in the Board composition during the quarter and necessitated by the terms of those plans, and so that doesn't repeat.

Great. Thank you.

Thanks.

Thanks for your interest. Tom, any more questions?

Our next question is from the line of [Shyam Ghosh] from Millennium Partners. (Operator Instructions).

Thanks --

Hi. How are you?

Good. How are you?

Well, thanks.

Good stuff. Sorry, my apologies, I jumped on the call a little late, but just wanted to get an update on your thinking on the raw materials strategy going forward, if there was anything new. I mean, on previous conference calls I think you articulated that I think you'd probably look at some options to potentially get back some raw material integration, if that made sense. Now just wondering if there was any update on that, especially given obviously the deal you had with Noranda where you sold your interest back to them sometime back.

I think, as we have spoken many time, we like the upstream area, and we continue to look at that. In terms of material supply, alumina particularly, we're pretty well set up for the next three or four years. So we don't have an immediate exposure on that. But in terms of our interests on the upstream on a suitable basis, of course.

Okay. Got it. Thanks, guys. Appreciate it.

Thanks.

Our next question comes from the line of Sal Tharani with Goldman Sachs. Please go ahead.

Thank you. Just housekeeping. The five or six special items you mentioned in the front, I think the three charges and two credits. Are these all -- or how many of these are above the operating line?

When you say above the operating line -- let me go through them, and I will tell you exactly where each one was. The mark-to-market of the puts is on its own line. It's called loss of forward contracts, right on the face of the income statement. Debt early retirement is other income. The changes related to the Board change -- charges related to the Board change and the severance, that's in SG&A as I said. The insurance claim would be in cost of sales. The Ravenswood benefits accounting are on that line item other operating expense. And the tax item, of course, is on tax provision line.

Great. Thank you very much.

No problem.

Sure, no problem.

Gentlemen, there are no further questions at this time.

Thank you very much for your listening to our call today. We look forward to seeing you again after the third quarter.

Thanks.

Thanks, Tom.

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