Century Aluminum Co (CENX) 2011 Q4 法說會逐字稿

Ladies and gentlemen, good afternoon. Thank you for standing by, and welcome to the fourth-quarter 2011 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)And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Ms. Shelly Harrison. 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 contain Forward-looking statements related to future events 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 website, at www.centuryaluminum.com.

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

Thanks very much, Shelly. If we could turn to slide 4, please, we will go into a quick review of 2011, the last couple of months. In a couple minutes, Shelly is going to come back on and take you through our view of the macro environment, so I won't be repetitive there. I guess I could just suffice to say, in summary, now, at this point, we are prepared for the volatile conditions in the marketplace to continue for some reasonable period of time, and we are going to continue to manage the Company in that context.

Okay, let's take a quick review of 2011. At Hawesville, starting off, as you recall, we started line 5 in February of this past year. As we have discussed at length, the plant got away from us a few months into this process. Upon assessment, we have confirmed, as we have talked to you about in the past, that the issues were primarily related to the management and leadership in the plant. As we have looked through the causes, we have found no purely technical reasons as to what happened in the plant. Due to the upset conditions in the plant, our safety performance there also fell below our normal standards. And, again, as we have talked to you about in the past, it took us longer than we initially expected to diagnose the problems in the plant and to get the systemic fixes into place, which we have now done. When all was said and done, just to bottom-line it for you, the upset conditions in the plant last year cost us $50 million in lost profits. This is a combination on the one hand of unabsorbed fixed costs, which were due to the lower volume; and number two, due to higher spending, both on materials and outside contractors.

As I said, we think we have now gotten back to a stable condition in the plant. Importantly, we have a terrific management team in place, to manage the plant for the long term. We have a very talented Plant Manager in place; Dave Whitmore has been at the plant for years, he has been in a variety of positions there. We have great confidence in him. He has filled all of the key supervisory and general manager positions at this point, and we think we have a great opportunity to improve Hawesville and make the plant more productive and valuable. The biggest issue at Hawesville, as it is at Mt. Holly, as well -- and I will talk about this all later in my comments, is power. And this will be a key focus area for us in 2012.

Okay, moving to Mt. Holly -- the plant had another good year, this past year in 2011. A couple operational issues over the summer are now well past us and cleared. Mike Rousseau has been in the Plant Manager position now for about 1.5 years; we think he is doing an outstanding job. Again, we will talk about the power issues at Mt. Holly in just a moment. Grundartangi had a terrific year, with record production and very good improvement, I should say, over the last couple of years on the plant safety performance. I will talk a little bit more about that later in my comments. We have a great management team there, as well. Gunnar Gudlaugsson and his team are working very well together. And on this base at Grundartangi, we have the confidence to go forward and invest in an expansion of the plant. And I will talk about that, again, in a couple moments.

Moving on to Ravenswood -- we have spent quite a bit of time, especially in the latter part of the year, on the potential restart process. The situation is a complex one, and it's now at a reasonably sensitive stage. And I will give you a bit more detail in just a few moments. At Helguvik, the project team continued with modest site and engineering work. Obviously, the major effort over the year was the arbitration process with one of the two power providers. We have talked with you about that in the past. We did get the panel's findings in December. The results were favorable to us -- and again, I will give you a bit more detail and, importantly, what the next steps are there, in just a moment.

We had an active year on capital management. As you may remember, back in the second quarter we redeemed the remaining $47 million of convertible notes. Beginning in the summer, we announced a $60 million share repurchase program that began in August. And under that program, we have repurchased $46 million of common stock to date. So, we have $14 million to go on that authorization. And we believe we have continued to invest prudently in our businesses, and Shelly will give you some more detail on our CapEx plans for 2012.

Lastly, and obviously, we have had some changeover in the Management of the Company during 2011, the last couple of months. I have talked about the Plant Managers at Hawesville and Mt. Holly. On the Senior Management side -- we have talked about this before, but we were fortunate to have John Horner join us in the third quarter, he joined in late August. John has terrific technical and leadership skills. To say he has hit the ground sprinting here is an understatement, and he is already effecting great change, positive change in the Company. Obviously, you saw my own appointment recently, and of -- at the bottom line, I and the Board are convinced now we have the right team to move the Company forward.

And with that, Shelly is going to give you a couple comments on the marketplace. Shelly?

Thanks, Mike. If you will please turn to slide 5 -- the LME cash price averaged approximately $2,100 per ton in the fourth quarter. This is a significant decline from previous quarters, and resulted in an average price of approximately $2,400 per ton for 2011. Prices have strengthened a bit from the $1,900 level we saw at year-end, and have traded in the low $2,000s so far in 2012. Price support is being driven by global cost pressures and western world producer discipline, but it's being capped by macroeconomic concerns in Europe, large aluminum inventory stockpile's, and concerns over the lack of action by Chinese producers in taking off-line high-cost capacity. In recent months, there have been several announcements of plant curtailment actions taken by producers in Europe and Australia, as well as supply disruptions affecting production in Canada and other parts of the world.

While aluminum markets have been generally strengthened by these announcements, there is an overhanging disappointment from the limited action taken by China, the world's largest producer of aluminum. Aluminum inventories continue to reach new record levels, yet local premiums have reversed their pullback from late 2011, and are steadily creeping back towards the record levels we saw earlier last year. Low interest rates and a widening contango have reinforced the economics of aluminum financing transactions, and wait times to access metal from warehouses continue to grow. Even with the increased load-out rates that are planned to come into effect over the next few months, long wait times for metal are expected to persist, and premiums should remain strong. [Alumina] markets have been somewhat soft, and recent trades have been completed in the low $300s per ton. This market is expected to remain balanced to slightly over supplied in the near term.

To move on to slide 6, please. Over the next several years, most analysts anticipate that the alumina market will remain in a modest surplus. Even in this environment, metal prices are forecast to strengthen, as global economies recover from the financial crisis and producer cost pressures, especially power, continue to drive up the aluminum cost curve. Western world supply growth is expected to be limited over the next several years, with few large-scale projects in construction, and most of the Persian Gulf projects having reached or neared full capacity by the end of 2011. Chinese production is showing no signs of slowing, as aluminum projects continue to migrate to the less costly regions in the northwestern part of the country. And production is expected to reach a record level of 22 million tons in 2012. US aluminum demand continues to grow at a reasonable pace, while European demand is expected to remain somewhat sluggish in 2012. Chinese demand is forecast to grow at a healthy pace of approximately 10%, and we continue to believe that China will remain balanced, or a modest net importer, over the longer term.

Overall, we expect prices in the near term to remain range bound in the low $2,000s. Prices will receive support from rising cost pressures and limited access to physical metal units, but will face downward pressure from historically high, overall inventory levels and uncertainty in the Eurozone recovery. Longer term, we continue to believe in a strong outlook for the aluminum industry. [Desor] supply will be constrained by access to affordable long-term power, and we believe that it will only become more challenging for [desors] to find attractive regions for further development.

Now, Mike will take you through our operations and financial results.

Thanks, Shelly. If you could turn to slide 7, please. As Shelly said, I would like to just give you a quick review of the Company's operations in the fourth quarter.

Let's start with Hawesville. As I said, we returned during the quarter to controlled operations, and we are now working to maintain that condition, obviously, and to improve the plant. Moving down here, you will see that safety was a -- we had a good performance in safety during the quarter and in the last couple months. The incidence rate has come down nicely. One of the areas on which we are focusing here, just to give you a little bit of flavor, is on housekeeping. For those of you who have been around industrial plants, you will know that keeping the plant orderly and everything in its place is key to improving safety performance. It sounds easy; in a complex environment like an aluminum reduction plant, it's not at all. And we have had one of our most experienced and talented people -- he is actually from our Ravenswood plant, on loan to Hawesville to help them put in place the right processes. And Gordon Hopper has been doing a fantastic job there.

Production metrics were improved across the board at Hawesville over the quarter. Let me just give you some examples. Current efficiency was up two percentage points, Q4 over Q3; power usage or efficiency down 3% -- or our usage down 3%, efficiency up 3%; we had 45 more average [pots] in service, Q4 over Q3 -- and obviously, that improved production, drove labor productivity up 12%. You see the conversion costs coming down. Most of that improvement came towards the end of the quarter, now that we have all the third-party contractors out of the plant; the unusual and high usage of maintenance and materials has abated; and the volume, importantly, in the plant is now where it should be. So, we are no longer under absorbing our fixed costs. In that respect, you will see the impact of all those actions on the cost base in the current quarter and as we move forward in 2012. Importantly, the product quality at Hawesville was up significantly. We returned back to the purity markets this quarter. You will see -- I will talk about our net realizable prices, Q4 over Q3, in a moment -- you will see that impact there. And our off-grade production was down.

Turning to Mt. Holly -- safety performance at Mt. Holly was a bit below that plant's usual high standards in the fourth quarter. We have had a look, there is no pattern in the incidence there. Management is very focused -- plant management and ourselves and Alcoa are very focused on this; and in fact, the performance has improved over the last couple of months. Production was up about 1%, Q4 over Q3, with improvements in KPIs across the board. Quality was excellent this past quarter; we reached multi-year highs for billet and total premium production -- obviously important for our revenue. You see the conversion costs at Mt. Holly coming down nicely. A big chunk of that was power cost, which abated a bit, Q4 versus Q3.

Moving to Grundartangi -- we had a couple bumps in safety performance also this quarter. That having being said, the plant has made terrific improvements over the last couple of years; and when we look at the incidence during this past quarter, we note that most of them come from simple risky behaviors in the plant. And I will talk about behavioral-based safety and where we are heading there at Grundartangi when I talk about the items on which we will be working in 2012. Like Mt. Holly, the last couple of months safety performance at Grundartangi has come back and has been quite good. Production has been flat -- or it was flat, I should say, in Q4 versus Q3 at Grundartangi. For the year as a whole, we had record hot metal production of 280,000 tons. KPIs were good and improved across the board at Grundartangi from already good levels. And as you see, the conversion cost was down.

Okay, if we could move along to slide 8, please -- as normal, I will give you a review of the quarter that just ended against the quarter immediately prior. So, a sequential comparison here. As usual, also, I will refer to the financial information that follows the earnings release. Before we dive into the numbers, just talk about the market a little bit -- Shelly referenced some of these data. The cash LME, Q4 over Q3, was down 13% on average. And on a one-month lag basis, the LME and the US Midwest transaction price was down 12%. When you look at our realized unit prices in the US, they were down only 11%; so, there you see the impact of those high-margin products at Hawesville coming back, very important. And at Iceland, realized unit prices were down 12% -- that is right on the market.

Turning to shipment volumes -- as in past quarters, and this will continue going forward -- you will note that a portion of shipment volume that we recorded, direct shipments, was in fact in Iceland versus the US. Most of our direct shipments, of course, are in the US, and Iceland is mostly [toll]. The fact that Grundartangi is producing so far in excess of the toll contracts gives rise to some direct sales in Grundartangi. And this past quarter, the amount of those direct sales was 2,240 metric tons. So, when you do the adjustment there, you will see that Iceland's shipments were flattish, actually off about 0.5%, Q4 over Q3. Turning to the US, at Hawesville, as I have said, we were back to near full production by the end of the quarter, with about 98% of the sales and service by year-end. And that drove a shipment increase versus Q3 of 8% in the fourth quarter. Mt. Holly shipments were up 3%; and putting Hawesville and Mt. Holly together, that gives a total domestic shipment increase for the quarter of 7%.

Moving on to the income statement data -- net sales on a dollar basis were down 8%, Q4 over Q3. The price decline drove net sales down by 12%, and volume got us back 4 percentage points. Gross profit in the quarter was down $25 million versus Q3, that is on a $27 million sales decline. Let me just give you a couple of the big movers there. The price decline reduced gross profit by a $41 million, quarter to quarter. Going the other way, we had a couple items -- US power costs were favorable by $4 million. LME-linked costs were favorable by $8 million; those, as you know, are -- number 1, our alumina costs in the US; and number 2, the price that we pay for power in Iceland. Raw materials this quarter were flat. This is the first time that we have seen, in some time, largely carbon-based costs flattening out. We saw some very large increases earlier in the year; I will get to that in a moment. And all the other costs across the Company were either flat or favorable in the quarter.

Moving down the income statement -- you see the $2 million unrealized gain on forward contracts; that is obviously the marking to market of our put options, as the LME fell during the quarter. Continuing down, average diluted shares for the quarter -- 89.4 common shares. We repurchased 800,000 shares under the repurchase program during the quarter, and that brings the total since August to 4.4 million shares. There were 8.1 million preferred shares outstanding, on average, during the quarter.

If I can ask you to slip ahead to slide 19 for a moment, I will take you through the diluted EPS for the quarter. As you know, we state this generally for you here in this presentation, on the base of the total shares outstanding -- common and preferred shares. So, again, on slide 19 you can see the net loss as reported was $0.32 a share, lower of cost or market inventory adjustment, that $0.06 a share cost us during the quarter. The gain on the marking to market of the put options was a $0.02 gain during the quarter -- and thus, on an adjusted basis, $0.28 loss per share.

If you could move back to slide 8, a couple quick comments on cash flow and balance sheet, and we will move along to the full year. As you can see here, CapEx was $9 million for the year -- pardon me, for the quarter, and Helguvik spending -- or Helguvik CapEx, $3 million for the quarter. Both of those numbers as expected. And we ended the year and the quarter, of course, with $183 million in cash on the balance sheet. Okay, let's move along to slide 9, give you a couple comments on the full-year results. First, the market again -- the cash LME was up 10% year over year, and on a one-month lag basis, up 12%. Our realized unit prices came in right on top of that -- in the US, we were up 12%, Iceland up 13%. Turning to shipment volumes -- the direct shipments for the full year at Grundartangi were just shy of 10,500 metric tons. So, again, when you do the math there, you will see US volumes were up 4% year over year, Iceland shipment volumes up 2% year over year.

Moving along to the income statement -- net sales, on a dollar basis, up 16%, 2011 versus 2010. Price drove the sales up by 13 percentage points, volume up 3 percentage points. Moving down, gross profit was down $23 million on a sales increase of $187 million. That is a result, obviously, that no one here is happy about. Let me give you the big movers there -- price drove gross profit up by $149 million, 2011 over 2010. And then, we had a couple big items going the other way. First, market-linked costs, US Alumina and Iceland Power, again, were up $43 million year over year. Raw material costs, largely carbon, were up $58 million year over year -- again, all in quarters 1, 2, and 3. Lower cost of market inventory adjustments cost us $20 million of gross profit in 2011 versus 2010. And as I said, the condition at Hawesville during the year cost us $50 million in gross profit.

Moving on to cash flow -- you will note that cash from operations was slightly negative for the year. A couple of big items I would like to note there that drove that -- first, we invested $36 million in inventory this year. As you will note, if you looked at the quarterly progression there, most of that came during the early quarters of the year, and was directly related to the restart of the fifth potline at Hawesville. We invested $35 million in contributions to our pension plans this year; about half of that was to fund our qualified plans to their target levels, and the other half was to fund a non-qualified plan, due to the Board changes that occurred in June.

If we could move along to slide 10, please -- just give you a quick walk-through of the changes of cash during the quarter. We began the quarter with $216 million of cash on the balance sheet. As you can see, share repurchase cost us $7 million during the quarter. We had a net inflow of $19 million from withholding taxes in Iceland. Let me just explain this for a moment, because it can give rise to some large movements in cash, quarter to quarter. So, we pay these withholding taxes when we move cash back to the US from Iceland. Obviously, that cash was moved back this year, largely to fund the redemption of the converts earlier in the year, and then the share repurchase later in the year. We make withholding payments when we move the cash back, and we get those repaid to us in the fourth quarter of the year. What happened in the fourth quarter of this year is we received refunds of $27 million that we repaid earlier in the year -- that we had paid earlier in the year, pardon me, and we paid an additional $8 million. There is the net of $19 million that you see there. And that $8 million, we will get back in the fourth quarter of this current year. Lastly, you will see the $14 million we paid in income tax payments in Iceland. Those are always made in November -- thus, during the fourth quarter.

Okay, just quickly if we could move to slide 11, talk about the same thing, movement of cash for the full fiscal year. We began with $304 million. You will see $122 million of adjusted operating income, that was at an average cash LME of about $2,400 for the year, so you get some sense of the profitability of the Company at that LME level, even with the issues at Hawesville. Iceland withholding taxes -- it was a net $20 million outflow this past year -- $47 million in payments and $27 million of refunds. Just to give you a sense -- in the first quarter of this year, we will make another $10 million payment, and then we will get that back plus the net $20 million from 2011 in the fourth quarter of this coming year. So, look for $30 million there. That is, of course, if we don't bring back any more cash, and pay any more withholding taxes this year. CapEx of $20 million for the year, at our budget. Helguvik, $13 million for the year -- again, at our forecast. And most of these other items I have already talked about -- pension contributions, repurchase of convertible notes, common stock repurchase program. One other item I would note -- that in that other category you see all the way to the right, $9 million of that amount was related to the direct cost of the line 5 restart at Hawesville.

And with that, I will ask Shelly to take you through a couple of our forecast items for 2012.

Sure. If you will turn to slide 12, as we do in the fourth quarter of each year, we are providing a couple of slides with detailed information on the Company's anticipated financial measures for the coming year. In 2012, we expect all operating facilities to be producing above their rated capacity levels. As Mike has mentioned, Hawesville is now operating at its rated capacity, and we expect production around 250,000 tons this year. We anticipate production at or above record levels for both Mt. Holly and Grundartangi, as a result of the efficiency programs that have been implemented at these facilities. Increased production over 2011 levels will be weighted towards the back end of the year.

As in previous years, the vast majority of the products we sell, both in the US and Iceland, we priced on a one-month lag. For 2012, we provided cash costs for our US an Icelandic facilities. Obviously, our cost of production is highly dependent on metal prices, due to our LME-linked alumina and power contracts. The indicated ranges for cash costs are consistent with an LME price of $2,200 to $2,400 per ton. For this purpose, we are presenting cash costs in a format that we believe is directly comparable to the LME reported price. To do this, we added a cost of alumina for our tolling operation in Iceland, and deducted regional premiums above the LME price for all facilities. In power costs, we are forecasting a 15% year-over-year increase at Hawesville. A portion of this increase is related to the rate case, which was approved in late 2011; and the balance is due to higher producer fuel costs, which do not require PFD approval.

As Michael discussed, we are working very hard on the situation at Mt. Holly, and hope to have some progress to report soon. For now, our forecast calls for flat power costs, year over year. Carbon costs are coming down from the levels we saw in Q4; but because our prices rose throughout 2011, we expect the average for 2012 to be comparable to last year. I would note that our joint venture anode facility in China has become our largest supplier of anodes for Grundartangi.

Moving on to slide 13 -- we expect that interests will be similar to last year, and SG&A for corporate and Helguvik will be approximately $40 million on a book basis. SG&A for the operating plants is included in cash costs on the previous slide. Pension contributions for our wholly owned subsidiary should decrease from $17 million in 2011 to $10 million to $15 million in 2012, in order to maintain our target funding status. We expect that maintenance capital across all of our operating facilities will be around $20 million in 2012. This includes $6 million for a major overhaul of our rodding facility at Grundartangi, to replace some aging assets that were purchased used for the original construction of the plant. We also plan to spend about $1 million per month, on average, at our Helguvik facility until we are able to issue a notice to proceed. We expect to spend another $5 million to $10 million on investment programs to improve efficiencies and increase production, primarily at Grundartangi. As is normal, we would expect capital spending to be somewhat weighted toward the back end of the year.

For book purposes, our current-year income in Iceland will be taxed at a rate of 18%. Cash taxes in Iceland are on a 1-year lag, and we anticipate these will be approximately $15 million for 2012, based on 2011 taxable income. In the US, we continue to expect essentially no book taxes, due to our significant deferred tax assets, which are fully reserved against on the balance sheet. From a cash standpoint, we expect to pay some modest amount of taxes in the US, due primarily to limitations on state NOL usage.

Now, Mike will take you through for our priorities for 2012.

Thanks, Shelly. If we can turn to slide 14, as Shelly said, I would like to talk with you just for a few moments here about some of the major items on which we will be working in 2012 and going forward. So first -- safety is always going to be our first priority. And we truly believe here, at the Senior Management and Board level, that this is a commitment to our people and to all visitors in our facilities. And I also believe firmly, based upon my experiences in industrial plants, that it's a foundation of a well-run manufacturing plant. Let me just give you a couple examples of what we are doing at both Hawesville and Grundartangi. At Hawesville, as I said, the new management team there has a renewed commitment and focus in this area. Each department in the plant has their own plan. Each of those plans is modeled off the principles of plant-wide program.

We have 30-, 90-, and 180-day improvement programs in place, and each of those have measurable metrics. We do have some modest capital in the CapEx budget that Shelly described, for safety-related items. We want to make sure everybody understands that we won't shy away from spending capital when it improves the safety in our facilities. Most of the improvement, however, is going to come from leadership and from adherence to standard operating procedures in the plant. And after we get to the right level, our next step at Hawesville will be the implementation of behavioral-based safety, which is where Grundartangi is now heading.

Grundartangi is operating from a very good baseline, and so we know we can improve now to the next level. They have good SOPs and processes in place; and as I said before, when we analyze most of the incidents that are now occurring in the plant, they are occurring due to risky behavior -- either on the one hand, due to deviance from standard operating procedures; or quite frankly, on the other hand, from just a lack of good old-fashioned common sense. We are now rolling out this behavioral-based safety program. For those of you who are not familiar with the concepts, these are systematic programs that identify and correct the root causes of unsafe behavior in an industrial plant. And we have been very excited thus far about the buy-in of the employees and their commitment to this program.

Capital, too, we are spending here in the interest of increased safety. Shelly talked about the major upgrade of the rodding room at Grundartangi; it's a two-year program in 2012 and 2013, and it has two objectives -- the first is operational readiness, and the second is the improvement of safe conditions in this key part of the plant. I can say that Senior Management and our Board of Directors, as I said before, are very, very focused in this area. I should note that environmental compliance has also been good at all of our plants, but this is a constant effort to keep it there. We have especially had good improvement at Hawesville, since the conditions in the plant over the summer. As we noted before, the biggest challenge -- and one of our biggest focuses for this year, certainly in the US, is on power for both Hawesville and Mt. Holly.

These two smelters had two of the highest power carats of any US smelter. This is largely for complex structural and other reasons having to do with the power markets and the specific power providers in each of those regions. As you may know, the macro conditions in these areas, in this part of the US, have led to a significant increase in the availability of and the falling in the price of market-based power. And in this context, we are in detailed discussions with both power providers to see what can be done. It's too early to predict at this point in what direction this may go, but I can say we are making decent headway in both sets of discussions.

Another major, major effort continuing for this year, certainly for the first two months and we believe going forward, is the complex process whereby we hope to restart the Ravenswood smelter. We are in detailed discussions at this point with the three major constituencies there -- number one, with representatives of labor, both the retiree group and active labor; number two, with the state executive and legislative branches in West Virginia; and number three, with the power company and with the relevant regulatory bodies. As I said earlier, all of these talks are in reasonably sensitive stages at this point, and thus it's difficult to predict when we might get to the finish line. That having been said, we believe we are ready to go. We have made detailed analyses of the work at the plant that is required to get a restart done, both in terms of capital and the hiring and training of employees. We continue to believe this will be a good investment for our shareowner's, and we are determined to get it done. And we hope to have that positive update for you when we announce earnings in April, if not hopefully sooner.

Turning to Grundartangi -- as I said before, we are embarking on a low-risk multi-year expansion program at that plant. It involves a couple things, amongst which are the upgrade of the rodding room that we have discussed, larger-sized anodes beginning this year, and an improvement in an upgrade in our high-voltage electrical equipment. We will obviously need additional power, as well, as we proceed. The entire program is about five years long, and in aggregate will cost about $90 million. It's obviously staged, and the 2012 amount is relatively modest -- it's about $10 million in the capital budget that Shelly described in 2012. Given the attractiveness of this investment, we are looking at ways to accelerate it, obviously dependent on the availability of power. Ultimately, the program will lead to about 50,000 tons of additional capacity in this already excellent plant. And those new tons will come at a low per-unit capital cost and an attractive marginal operating cost.

Last major subject on which we will be working in 2012 is on Helguvik. And if I could ask you to turn to slide 15, we will talk about some of the major items here. As I said before, we made slow but determined progress in 2011 on Helguvik. But to be quite frank, we remain frustrated at the slow pace of that progress, and quite frankly, at the current condition, as well. As you can see here, the pictures of this site, the steel frames for the buildings are largely complete. We will be putting cladding on them this spring to protect these assets. The civil work and other activity at the site has continued at a slow pace, as has the engineering progress. We have been doing critical work with our vendors for the Helguvik project. This is critical work to make sure that we maintain the contracts and the bids that are in place.

We have a strong but small and experienced team at Hawesville -- at Helguvik, pardon me. They have been doing an excellent job and continue to do an excellent job. The major effort here will continue to be on the power contracts. As I said before, we undertook an arbitration process with one of the two power providers -- this is HS Orka. And that continued for all of last year; in fact, we commenced it in the prior year, in 2010. We did receive the ruling of the arbitration panel in December. It's a very detailed document, but the key points, we believe, were verified in our favor. A couple very key ones -- number 1, the panel ruled that the contract remains in force, subject to the remaining conditions in it; and two, the panel ruled that the power company remains obligated for their original intent in the contract to provide us with its portion of the power for the entire project -- that is the whole 360,000-ton potline.

The last issue that we had to address was the pricing mechanism. The panel did rule in our favor on some key determinants and how that pricing mechanism should work, but the ultimate mechanism itself is still subject to interpretation and needs to be negotiated with HS Orka. We are going to be sitting down with our colleagues at HS over the next couple of weeks, to see if we can get to the finish line there. And I think, mutually, we will know within the next month or two in what direction we are heading. Assuming we can get to an agreement there, HS has to finish some minor details in some of its permits, and it needs to complete its financing for its projects to give us power for our first phase, 90,000 tons at Helguvik.

Moving on, we have been talking with our other power provider, [OR]. Their power that they are going to provide us for phase 1 of Helguvik is complete, it's generating power today. And the discussions now center around the financing for a new power station to be built by them, that is required for our phase 2 and going forward of our project. OR has told us that they were reluctant to take on this obligation and risk for the new power plant. And thus, a group of Icelandic pension funds are discussing with OR a transaction in which those pension funds would purchase a majority stake in that new, to-be-built power station. We have been a part of those discussions. I can describe them absolutely as cooperative and productive, and I think here, also, within the next couple of months we will know in what direction that is heading and at what speed.

As Shelly said in the beginning of her comments, there are not many places in the western world that are conducive to developing the primary aluminum business anymore. We believe the economics of this investment continue to look attractive for our shareowner's, and we continue to believe that Iceland is an outstanding place to develop our business. And with that, Shell, I guess we can take questions.

Yes. Tom, if you will open it up, please?

(Operator Instructions) Kuni Chen, CRT Capital Group.

Congratulations to you, Mike.

Thank you.

It's good to see all the progress, looks like you guys are doing a lot of good work here. First off, on Ravenswood, it seems like you appear a little bit more confident on getting this restarted at some point, maybe even with some positive news to announce near term. Can you give us some parameters around capital spending to get the plant back up?

Sure. I will give you not only capital, but the total spending to get the plant back up. Because the capital, quite frankly, is a reasonably small part of it. I will give you the bottom-line answer first, and then dissect it. It will cost around $70 million in cash to get that plant restarted. Of that, Kuni, about half is working capital, as you would expect, largely alumina there. Of the remaining half, of $35 million, less than one-third of that is pure CapEx. Most of it is preproduction labor, preproduction power, training programs, materials, supplies, and things like that.

Okay. All right, that is helpful. And then, on Glencore and [Escada]. Can you talk about how that potentially would impact Century? Just share some of your perspectives there? And longer term, would that have any impact to either your alumina or tolling agreements?

I can't imagine it would. Those are commercial arrangements, Kuni, and as it relates to Glencore is normal. We don't, and would not, comment on anything that they are doing.

Okay, fair enough. I will turn it over.

Brett Levy, Jefferies & Company.

First one is kind of a math one. It looks like your pension and OPEB went from about [162] to [216] in about a quarter. Can you talk about what drove the change in the unfunded number, and whether or not that impacts cash costs going forward?

Thanks, Brett. Steve Schneider, who is our Chief Accounting Officer, is sitting here. And he has reported here the right answer, which is, these are largely valuation assumptions. The most meaningful one is, given that you are on the fixed-income side, you know exactly what I'm talking about, the falling discount rates. And so, the answer to the second part of your question is no.

Got it. Kind of just figured that. You had said something to the effect of $50 million in bad management-related hit at Hawesville. Is there any way of drilling down on that, or getting any more specificity, where you can say, this is an easy fix, this is an easy fix? Can you give me an example of some chunk of that $50 million of stuff that went wrong?

Absolutely. And it's -- the answer is -- yes, that the fixes are all made. And so, let me drill down a little bit for you. As I said, $9 million was what we called in the past, we have talked about these numbers in the past.

But just to remind you, the direct restart costs -- so, this is purchase of materials and supplies, training of employees, et cetera, et cetera; the direct costs of bringing that potline back. Of the other $40 million-odd, about half of it or so is due to a combination of fixed costs, underabsorption.

So, simply put, you are staffed for, as Shelly said, full capacity of around 250,000 tonnes a year, and you are producing much less than that. So, that is bleeding down into gross profit. And then, on the other hand, direct cost of trying to get the conditions on the potlines back to snuff.

As I said, we had overusage of materials, and a third-party contractor is in the plant to try to help us get back online. And then, the remainder is just inefficiencies -- you are using your power less efficiency, your current efficiency is down, your labor productivity, of course, is down. Some of these are repetitive, but those are the major items there.

And then, the last one is a fixed-income question -- as call prices continue to step down on your high-yield bonds, are you contemplating a refi or any changes in your capital structure as we approach the spring here?

That is a good question, Brett. In fact, Shelly and I were just talking about that the other day. So, just for everybody's edification, the call price on our senior notes steps down from [$104] to [$102] in May, Shelly?

May, yes.

The middle of May. And therefore, potential opportunities to extend out that maturity, the breakevens of all of those, depending upon one's view of interest rates in the future, get a little bit more interesting. So, nothing to -- direct answer to your question, Brett, there is nothing on the docket right now, but we are looking at it, as we do all the time. But here, with the step-down now, we are going to look at it with some increased emphasis -- and obviously, we continue to watch conditions out in your markets as we go forward. So, we will be looking at it.

All right. Thanks very much, and congratulations on the promotion.

Thanks, Brett.

Sandeep SM, Goldman Sachs.

You have given the cash cost guidance for 2012 for US and Iceland. I was wondering if you could give the cash -- what was the cash cost in 2011?

That is a -- understand the question. And what we generally have not done is broken those two out. We can certainly do it, and in fact, I think you can get a very good view of it, rather than go through the math right now, we will be filing our 10-K here mid next week. The due date is Wednesday, so we will be filing on that day or before.

And when we talked about this in the past, when you go to -- as you know, we do not break out US versus Iceland on a segment basis, on a reporting basis. But when you go to the guarantor statements in the back of the K, on the back of the financial statements, under the footnotes -- you will see, and what is in essence there, a breakout of the US versus Iceland.

It's not perfect, but it's pretty darn close. And by making some estimates of non-cash costs, principally depreciation, of course, you can put together a pretty good estimate for 2011 of what the actual cash cost was in the US as distinct from Iceland.

Okay. My second question -- I was wondering if you could help me understand in that area, we have seen outside (inaudible) a lot of major aluminum producers actually shutting down their smelters, either because of cost issues or they feel that the market is not supporting -- market price is not supportive enough. And you are actually -- you have actually already started (inaudible), you are now starting at Ravenswood, or thinking of starting Ravenswood. So, what has changed? Is it market? Or do you think that you have a better cost structure? What is --

Yes, that is a very good question. As Shelly detailed, we are seeing, over the last couple of months and probably prospectively, meaningful curtailments and closures of capacity in Western Europe, and some in the US, I guess, as well.

The major difference is easy to qualify for you here, it's -- at Hawesville, of course, it's a marginal analysis, if you will. So, we had a plant running at 80% capacity, four or five potlines. And so, the economics of bringing that fifth potline back on, even with the power cost at Hawesville -- which, as we said right now, is very challenged, made sense.

If you were looking at bringing back a completely curtailed plant under those same conditions, it would have been a very, very difficult analysis, and most likely a different conclusion. In Ravenswood, the issue will be somewhat different.

As we have said before, we need a couple things in order to -- for it to make sense to bring Ravenswood back online. And again, we hope to get to the finish line of this one reasonably soon. As we have said, the first and most important are agreements with our labor constituents, both the retiree groups and active labor.

But then, as we have said, since we started talking about this over a year ago, what we also need is an enabling power contract that would enable us to have the confidence to bring that plant back up, and to have a power rate that supports positive cash flow operations and decent return to our shareowners, at a range of LMEs.

So, you understand where I am heading here -- we need support on the power rate, to bring that plant back up. And that is part of what these series of discussions over the last year, but intensely over the last couple months, have been aimed at.

Okay. And in the guidance, you have mentioned something like $14 million as Ravenswood curtailment charges. That goes in the other operating expense line. So, that -- assuming that Ravenswood remains shut during the year, is that right?

That is correct. That assumes the plant is curtailed.

Okay. Thank you.

Timna Tanners, Bank of America Merrill Lynch.

A couple questions for you, just to follow up on Ravenswood, to make sure I understand. Is it the case in your recent conversations with your constituents, you are getting more comfortable with a negotiation and a settlement that would enable you to run the plant, even at a lower aluminum price, LME price? Because in the past, you had talked about it requiring a much higher LME price in order to be profitable. Is that what has happened?

Yes, we -- that is the concept, Timna, with which we have been working, that at lower LMEs -- and obviously, your next question might be lower than what? And that would be a good question. It's a relative discussion. But yes, that is the concept -- that we need to be able to have protection at somewhat lower LMEs. So, that is a long-winded, I suppose, yes to your question.

Because the alternative is that you have gotten more bullish on the aluminum price. So, I was wondering, is it a case that you are more bullish on aluminum, or more confident that you can run Ravenswood at a lower cost structure?

I think it is more the former than the latter.

Okay, thank you. And then, if you could talk us through, on Helguvik, what your best-case or base-case scenario would be for start up? Because I kind of lose track, with some of the moving parts and the different steps that are necessary. Can you talk us through again what might be the possible time frame for starting up that in the best- or base-case scenarios?

No problem. Don't blame you for losing track, it's a complex process that ebbs and flows. Bottom line, to try to short-windedly answer your question, we think here that if we could get agreements on these two power matters over the next couple of months, based on the additional work that would need to happen to, less importantly, document all that, but more importantly, have the power companies go out and put in place what they would need to put in place for us to enable to have the confidence to restart, you are looking at late this year going in -- flowing into early 2013.

And then, as we have said before, for this first phase, you add 24 months before you get the first hot metal. So, extrapolating that all out -- first, hot metal, reasonably best case -- late 2014, early 2015 for the first 90,000-tonne phase.

Okay, perfect. Thanks so much.

John Tumazos.

You commented that you expect Chinese demand up 10%.

That is right.

And first 40 days of this year, the steel output is down 13%. And we have seen the aluminum smelter output cuts, less production, but still more inventory. Do you think that the first quarter is down sharply, or that there is just a massive destocking in the wake of the European bank messes?

I would say that the first quarter is probably down a bit from what we would expect for the average for the year. As you know, the first quarter is -- certainly, looking at China, is always a bit unusual, with the Chinese New Year. So, we certainly don't put too much weight on that. We continue to look out for the full year and continue to expect that on average, this will still be a strong year for demand growth in China.

Thank you.

Tim Hayes, Davenport & Company.

Two questions. What is your view going forward on using put options to protect the costs there at -- profitability at Hawesville?

At this point in time, Tim, as you know, we have options purchased that run through the first half of this year. And at this point in time, we are holding steady and looking at the market. So, I would not -- we are open-minded. I would say, as we have said in the past, we are opportunistic.

We are not dogmatic in terms of a policy we must be hedged to thus and thus percent. And anything we do in the future, I think, as we have talked about as well, anything that we would do would be reasonably short-term in nature. Right now, the facts are that that is what we have, we have not put anything on this last quarter. Of course, we would have reported it to you. And we are watching it.

Okay. And then, the expansion at Grundartangi. I missed a bit of the detail. You said that was an extension of the rod mill?

No, no. That is an extension of the hot metal capacity. So, it's no more reduction sales, it's no more pots. But it will be -- quite frankly, at the end of the day, just be cranking up the amperage to get more production out of the pots that we have now.

And in order to achieve that, we need to do a couple things, including upgrading the high-voltage equipment and, as you referenced, upgrading the rodding room, as well. So, those are enablers for being able to, with more power, as I said, increase the amperage to the pots.

How much is the expansion of the hot metal?

It will be just shy of -- over the whole program, just shy of 50,000 tons.

And it gets, then, timing and CapEx to achieve that?

Yes, $90 million over five years. We are going to, as I noted, we really are working to try to accelerate this, because it's a good IRR -- very good IRR, low-risk project for us. But as laid out right now, it's just shy of five years, just shy of $90 million. And the staging of that, as I said, is only about $10 million of that $90 million gets spent in 2012.

Thank you.

I wonder what the amperage rate day is, and what it is going to --

I can't hear you, Lloyd.

What is the amperage currently in the plant, and what are you going to take it up to?

It's in the mid-190,000s, and it will go above 200,000.

Okay, thank you.

Bridget Freas, Morningstar.

Alumina prices -- you are expected to be steady in 2012 as a percentage of the LME. So, now, with aluminum moving more to an index or spot basis, how does that affect you? Maybe in Iceland, that won't matter as much, given the tolling basis. But what about in the US?

Even in the US, there should be very limited impact, certainly for 2012, and actually, going out for most of 2014, because of existing contracts that we have in place that are already priced as a percentage LME.

Okay. And then, my second question. On your 2012 shipment guidance being above stated capacity, are these efficiency improvements that you have made sustainable? Has the capacity at these smelters increased permanently?

Yes, they have.

Okay, thank you.

Kuni Chen.

Sorry, just a quick follow-up. On Helguvik, you mentioned the, I guess the key issue there is the power pricing mechanism. Is it that you have not yet had a chance to sit down with HS Orka since the arbitration settlements? So, you do not really know how that dynamic may come together? Or have you already had some --

No, it's the former. So, we are -- just as I said, it's absolutely the former. We have each been working over the last month or two since the arbitration came out, to see where we think we are, and we are just here literally on the verge, over the next couple of weeks, of sitting down with them. There were some articles in the Icelandic press recently of their CEO was saying the exact same thing.

So, we don't know where they are and vice versa. But I think over the next month or two, as we meet and kind of digest each other's positions, we will be able to determine with them. And the dialogue has been very collegial and all that. We know them well, they know us well. It's a question of how quickly we can get something that works for us mutually.

Okay, understood. Thanks.

Frank Duplak, Prudential.

Just curious if you could give us an update on revolver availability at the end of the year?

Yes, sure. At the end of the year, we basically had full availability on the revolver. Now, that is a $100 million facility, but we do have LCs outstanding against it. LCs are about $42 million, so call it $58 million of net availability.

Thank you.

Paul Massoud, Stifel Nicolaus.

I had a quick question on Helguvik -- in the past, you have said that you prefer to wait on breaking ground until you had power secured for all four phases. Is that still the case? Or would you consider starting if maybe you had power secured for the first two or three phases?

Thanks, Paul. Let me correct or modify your question, if I can take the liberty to do that, and then answer your question. So, it's not to start, obviously, it would be to recommence. We have $130 million of investment in the project already. And so, what we have said in the past, and this has not changed at all, is that we would certainly not require certainty as it relates to specific delivery and price on the back end, say for the last phase or so, or something like that.

But given the fact that the capital cost per unit of capacity is much higher in phase 1 than it is in the subsequent phases, just on order of magnitude, it is almost 2X the capital cost per ton of installed capacity in phase 1 versus phases 2, 3, and 4, because, of course, of the infrastructure you have to put in place, regardless of how much production capacity you have.

Because of that, the returns are -- get better over the project. They are better 2 over 1, and on and on. And so, for that reason, we need to have some good -- very good certainty in the early phases. And then, our willingness to proceed with relatively less certainty, in terms of specific delivery dates and specific pricing increases, as you move out past -- certainly, past phase 3, and maybe even past phase 2.

Okay, thanks.

There are no other questions queuing up at this time.

We appreciate everybody joining us this afternoon, and we look forward to talking with you again in a couple months, if not before. Thanks very much.

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.