Century Aluminum Co (CENX) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first quarter 2012 earnings call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session, and instructions will be given at that time. (Operator Instructions). As a reminder this conference is being recorded. I would now like to turn the conference over to our host Mr. Enrique De Anda. Please go ahead.

Thank you Kristina. Hello 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 performance, development 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 statement disclosure in today's presentation 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 in today's presentation, and on our website at www.centuryaluminum.com. I would now like to introduce Michael Bless, Century Aluminum's President and Chief Executive Officer.

Thanks very much Enrique. If we can turn to slide 4 now, I would like to make some introductory comments before we move on with the detail. I am going to talk on the next slide about the external environment, so I won't be repetitive here. Suffice it to say that you all know that the aluminum price along with the other price of commodities has been held down here recently, and quite frankly has performed poorly over the last couple of months, due to a variety of factors. Again I will mention them in just a moment, and most of them if not all will be well known to you.

Moving along importantly to our operations at Hawesville we did indeed reach and maintain stable operations this quarter as we expected, with the plant now operating essentially at full capacity. As we predicted the costs have started to move down nicely and though we still have a ways to go here, I would say the team has done a really, really excellent job. They inherited about 9 months ago a reasonably new team, a pretty seriously difficult situation in the middle of last summer, and they have done an extraordinary job in getting the plan to where it is today. We have still got a ways to go, and I will talk about that in a moment too, but we are very gratified by the job that has been done by the management team at Hawesville. The biggest remaining issue at Hawesville now is the power cost. It is a complex situation, and I will talk about it in some detail toward the end of my remarks.

Moving on we had a busy quarter at Ravenswood as we predicted. Importantly we reached a team milestone there in reaching an agreement about post-retirement health benefits with our retiree group. That was a complex process that went on for some months, and we are gratified that we did reach that key point. Next we had a tax bill passed in support of our power price in the West Virginia legislature in the last couple of weeks. We had great support here from a variety of constituencies in West Virginia on this, and importantly, terrific leadership from Governor Tomblin of West Virginia and we are very grateful for that leadership. Next on in West Virginia will be our submission of our application to the Public Service Commission for a new contract, and I will talk about that in some detail again later in my remarks. We have begun discussions with representatives of the Steel Workers. Those are going well so far. Obviously a key part of getting to a restart. So we are moving along well here in developing again, continuing I should say, good traction.

Let me just take a step back for a moment and remind everybody what we are trying to accomplish here in Ravenswood, and more importantly why, you might ask the question we seem to be bucking a trend a little bit, others who own similar capacity in similar markets as you all well know, tend to be at the very best maintaining that capacity, and in many circumstances curtailing that capacity. So in essence what is different about Ravenswood. There are a couple things here, and a couple reasons why we continue to think that this could be a very good investment for our shareholders, i.e., restarting this plant. First and foremost, we think the market environment in the US both current and prospective is conducive to reopening this plant. The supply/demand equation in the US, the products that this plant will produce, has produced successfully and will produce, and the customers for whom it will produce. We think that whole mix is an attractive one.

Second the physical plant here is in reasonably good shape. As you have heard us talk, we have been spending modestly but spending to maintain the plant in reasonably good order, ready for a restart. And though despite the fact that as we have told you before that total cost of a restart here is quite substantial, on the order of $80 million, I might add that about half of that amount is to build the working capital that you need for a restart. The portion of that nonworking capital amount that is attributable to CapEx is relatively modest. So the plant is reasonably ready to go.

Next on, importantly we have got great support in the local community, from all of the constituencies. And importantly we have got a very good work force in the local area ready to go. We have obviously lost a lot of talent since we curtailed the plant, just three years ago was a full curtailment at the beginning of 2009. Obviously people have moved on and gotten new jobs, and regrettably in circumstances have left the region to get new jobs. But we still believe here that we will get a very good very talented very motivated work force back to work for us when we are able to restart that plant. And we have got great confidence in the senior plant management that we have already got on site.

Last and most importantly as you know, we need a power arrangement that is flexible, and that will protect the plant in weak LME environments, and I will talk about that. That is what we have been working on. That is what the tax bill that was successfully passed in the State Legislature is aimed at, and that is what we will be working on to supplement that bill in this special contract process with the Public Service Commission, again I will provide some more detail.

Let me move on to Mt. Holly, there as well we have been working hard on power. We have been talking obviously with our partners and co-owners at Alcoa with the power provider, Sandy Cooper, about a short term amendment to the power contract, and that we have been making good progress in those discussions. Here again, we have had great support from the local constituencies and local legislature, and here again, we have had excellent, excellent leadership for which again we are grateful from Governor Haley of South Carolina. We hope to be able to conclude these discussions successfully over the next couple of months, and have something to talk to you about in detail both the form of the short term amendment and the economics to Mt. Holly when we release our earnings to you in July.

Lastly before moving on to Helguvik, we continued to have substantive discussions with all of our power suppliers. I will make some more comments here at the end of our remarks, but bottom line we are reasonably confident here that before the summer or by the summer, we will know on what trajectory we are heading here, in terms of timing for a restart of that project.

Okay if we can turn to slide five please, talk a little bit about the external environment. First and foremost the cash aluminum price for the quarter on average was $2,180, that was up 4% from Q4, but down 13% from the same period last year. The price reached a high of just over $2,300 a metric ton in late February, and has come down pretty consistently from then. Again the factors that have led to this and the performance of other commodities are well known to all of you.

Amongst them are obviously first and foremost concerns about what is going on in the Euro Zone, the lack of a new quantitative easing program in the US, the slowing of China's growth target, as you know they took their economic growth target down from 8% to 7.5%, although we would note that they have consistently beat their targets over years and years and years now. Also in China again I will make some more comments about that in just a moment, but we have seen continued capacity growth and production growth there. And then around the world you have seen the maintenance of high inventories. That having been said, the physical market remains reasonably strong in most markets. Metal remains pretty scarce, the Contango obviously cash to three month contango has averaged around $40 for some months now. It has been a little above, a little bit below, but it has been hanging in that range.

In US the Midwest premium has been above $0.09 a pound. In Europe the Rotterdam duty paid premium $200 per metric ton obviously, Japan premium $150 a ton. We see nothing out there that tells us that this regime should change over the short or even medium term. On the actual demand side, the picture is a bit mixed. In the US consumption remains pretty good, primary metal consumption, aluminum consumption I should say was up 5% in Q1 versus Q4, with the transportation sector continuing to perform extremely strong. Obviously Europe is quite weak, and will be so or certainly is expected to be so through the balance of this year. I don't need this elaborate on the situation there.

In China the picture is somewhat varied. In the first quarter demand was up 9%, primary aluminum demand again versus prior yearQ1 of 2011. The market for primary metal remains reasonably in balance. On the production side, we have continued to see some pretty heavy growth. Q1 production was up 18% versus the same period in 2011 versus Q1 2011, and the market is expecting around 3 million tons of new capacity to come on in 2012, so quite a substantial amount. At the same time we just haven't seen the cuts from local producers in older and higher cost facilities. Bottom line, I guess I should say that we are expecting and preparing the Company for a range bound LME price somewhere in the very low 2,000s, about where it is today at least for the next quarter or so.

Quickly on the aluminum side, the market remains reasonably flattish, spot prices have been trading in the range of $310 to $320 a metric ton. We have seen some minors cuts in developed markets, but again some new capacity coming on in other places, like Vietnam and Australia. The consensus in the aluminum market is currently around 1 million tons of consensus for surplus, I should say of 1 million tons in 2012.

If we could move on to slide six please, I will detail the operational performance for you this quarter. First and foremost on safety, we got a good quarter across the Company. Trends at Hawesville have been very good, and we are gratified by the performance there. We had a major peer audit at Hawesville in February. This is a program where we bring safety professionals from across the Company to a facility, and for several days look at the policies, the practices, and the performance of that plant.

It is a good process and we always learn a lot of things. So again, the trends there are good. As importantly as the actual performance, we have seen a good increase in the awareness of all of the constituents at Hawesville, our employees and others on the importance in this area, the importance of consistent housekeeping and related areas. So again we are glad to see the progress there, and proud of the management team for what they are doing there.

Mt. Holly and Grundartangi also good safety performance for the quarter. At Grundartangiwe had that same peer audit program in April. And we have continued to roll out with much success you may remember I talked about this last time, the behavioral based safety program, this is an excellent program in which you look systematically at the root causes of unsafe behavior that can obviously give rise to incidents in the future. It goes without saying what you are trying to do is to stop those incidents from happening in the future by getting people to think differently about their behavior, and how the behavior could be unsafe. It is a terrific program, it has had great uptake at Grundartangi, and we are hoping to be in a position to roll that out at Hawesville, if not in late 2012, then certainly early in 2013.

Moving down the charts on the production side, as I said we are now stable at Hawesville at reasonably full capacity. The plant is operating now at any given time with only about 1% of the reduction sales out of service that is quite normal for a plant of this type, and we produced this quarter at an annualized rate of 250,000 tons that is a bit above the rated capacity of the plant. Mt. Holly production was essentially flat Q1 versus Q4 with the full plant producing again a little bit above its rated capacity at an annualized rate of 230,000 tons. Obviously we own 50% of that capacity. Grundartangi I would note had a terrific quarter, annualized production of 283,000 tons, that is a record. And that is despite the serious power outage with which we were faced in January. The team has done a terrific terrific job there.

Moving down to talk quickly about production metrics or KPIs, as one might suspect the performance at Hawesville was up across all categories this quarter, let me give you a couple of examples. Current efficiently key measure was up a point across the plant, energy efficiency improved by 3 percentage points. Bath temperatures were down, anode defects were down significantly. For those of you who know our business that is real important, not only in respect to conversion costs, but in respect to improved environmental compliance. Finally metal purity was very good. As I said at the beginning of my comments we have made progress at Hawesville, but the team there would be the first to point out that we have got a ways to go to get this plant where it needs to be, and where similar plants are producing. Mt. Holly and Grundartangi also good KPIs this quarter, essentially consistent with what they did in Q1, already at good levels.

Lastly before I finish these remarks, cash conversion costs, obviously critical at Hawesville, as we predicted last time upon attaining full production again, the costs have started to come down nicely, and they have come down across all product cost categories, pardon me, accept electric power, and again I will talk about that at the end of my remarks. Just to give up a sense of how these costs are coming down, if you put aside power and aluminum, obviously the two largest costs, and take some of the other large conversion costs, for example, potlining, maintenance and supplies, and total labor costs, those costs categories in aggregate came down, decreased by $9 million quarter-over-quarter, and that was obviously in the face of increased production.

You get a sense there of number one the leverage obviously of the volume, and number two, the absence of the unusual spending to get the plant back to where we needed it to be. Mt. Holly as you see also costs came down nicely that is largely a result of lower carbon costs and as you see, Grundartangi flattish, just is down a little bit. That is obviously in the face of higher power prices, driven by the increased LME. I might note and Shelly will elaborate on this in a little bit, for the first time in quite some time across our system we are seeing some relief on carbon costs, both today and predicted for the future so that is gratifying. And with that, I will turn to over to Shelly.

Thanks Mike. If we can move along to slide seven please, the average cash LME price was up 4% Q1 over Q4, but on a one month lag basis the LME was down 3%. When you look at our realized unit prices in the US, they were it actually flat quarter-over-quarter. This was due to improved product mix at both Hawesville and Mt. Holly. In Iceland our realized unit prices were down 2% in the quarter, which is consistent in the market. Turning to shipment volumes as a reminder a portion of our shipments from Iceland are now in the form of direct shipments rather than tolling. In the past quarter direct sales from Iceland were 4,200 tons, if you include that volume along with the towing shipment, you will see that Iceland volume were flat Q1 over Q4. At Hawesville we reached full stable production during Q1, and that drove a shipment increase of 8.5% in the quarter. Mt. Holly shipments were essentially flat with Q4, so overall we had a 3% quarter-over-quarter increase in our global shipment volume.

Moving on to the income statement data, net sales were up 2.5% Q1 over Q4, the decline in LME price drove net sales down by 2%, but increased volume essentially offset this decline, and higher premiums from improved product mix in the US, made up the balance of the increase during the quarter. Adjusted operating income increased $12 million from Q4 to Q1. As you can see on slide 14 of the presentation, the two adjustments we made to reported operating income include an add back for depreciation, an elimination of the lower of cost or market inventory adjustment. The $12 million improvement is on an $8 million sales increase, so we are able to bring 100% of the increase in revenues down to operating income level, plus an additional $4 million.

Let me just take you through a few of the key cost drivers there. In Q1 we saw a net favorable LME linked illuminate power costs of $4 million, and raw materials were better by $3 million. As Mike said the raw material improvement was primarily due to lower carbon costs, especially at Mt. Holly. This is the first time we have seen a decline in carbon costs after several quarters of very large increases. Going the other way, we saw a $1 million increase in power prices at Hawesville, and a $1 million increase in casting costs at Mt. Holly. At Hawesville the higher costs associated with the additional volume produced in Q1 were primarily offset by efficiency improvements in labor, supplies, maintenance, and potlining, as the plant returned to stable operations.

Moving down the income statement we had a quarterly adjusted loss of $16 million, or $0.17 per share on total common and preferred shares. As detailed on slide 13, the adjustments to reported net loss include a deduction for a $17 million credit related to the inventory adjustment I mentioned earlier, and an add-back of $5 million for unrealized losses on forward contracts related to marking to market, our remaining put options as they only rose during the quarter. Our total share count consists of 88.7 million common shares, and 8.1 million common share equivalents related to our outstanding preferred stock. During Q1 we repurchased 400,000 shares under our stock repurchase program. That brings the total to 4.8 million through August. At this point we have approximately $10 million remaining under the original $60 million stock repurchase program.

Lastly on this slide I will just make a quick couple comments on cash flow. As you can see here CapEx for the quarter was $3 million. The decrease from Q4 is in line with our expectation. The capital spending will generally be weighed towards the back end of the year. Helguvik CapEx was $2 million for the quarter, which is consistent with our expectation of approximately $1 million per month. Quarter-over-quarter cash flat at $183 million, and I will take you through this in more detail on the next slide.

So if we can move on to slide eight please, I will just give a quick explanation of some of the larger or unusual items we saw during the quarter. Similar to recent quarters we had a withholding tax payment of $10 million in Q1, related to return of cash from Iceland to the US. As we have mentioned previously, these are temporary tax payments that are refunded to us at the end of the year. We also spent approximately $4 million during the quarter on our share repurchase program, and the last item I would like to call out is a payment of $3 million we received from our joint venture Anode facility in China. This represents the final payment on a loan we made as part of the original acquisition.

With that I will hand it back to Mike.

Thanks Shelly pardon me if you turn to slide nine please, just a couple of last comments and then we will take your questions. I thought we would give you a sense of the issues on which we would be working the next couple of months, and on which hopefully we will have some progress to report to you in July when we report second quarter earnings. So first Ravenswood, I think I said most of this already, so the application for the special rate and the special contract goes into the, we will be submitting that to the Public Service Commission here within the next week or so, as I said the purpose of this contract is to develop a special rate, and a structure that will protect the plant in weak LME environments, and we have been told to expect at least a four month process, it is quite a complex process as you might expect, so some time during the summer we should start to get a sense of where we are heading there.

In addition we will obviously be meeting again with the Steel Workers to make progress on the labor agreement and we will be doing some modest work on the site to prepare for the eventual restart of the plant. As I said, we would like to be in the position to conclude these processes, the PSE contract process and labor contract process by the end of the summer. At which point we would require about four months to prepare the plant for restart. There would be a lot of hard work done during this four month time.

Ultimately as I said, we have got to get the power situation right in order to put ourselves in a position to be able to restart that plant, but it also goes without saying that along with the power we need an economic environment and commodity price environment that will be conducive to the restart of that plant, so we will obviously be watching the market carefully here as we go forward over the next couple of months.

Mt. Holly it as I said we are going to be working with the various constituencies on this short term power amendment here over the next couple of months. This arrangement would give the plant some relief here over the next couple of years, while we work on longer term solutions, and again we hope to have some success to report to you at or before the next earnings call.

At Hawesville as I said the power issue here is a very significant one, to our knowledge Hawesville along with Rio's plant Sebree, which takes power under essentially the same contract from the same generation system, those two plants are again to our knowledge the only two smelters in the US that continue to face either rising or certainly not decreasing power prices. So we have got a lot of work here to do. The situation that produces this is quite a complex one. It has to do with a variety of factors amongst which are number one, the size of the generation system it is a reasonably small system in western Kentucky. And two, the position of the smelters in that system, the two smelters, Hawesville and Sebree combined take 70% of the power generated by this system. It is a reasonably unique system there. As I said we are undertaking now a significant effort to change the equation here. And we will again hope to have something to report to you over the next couple of months.

The importance here is quite simple that at the power price forecast that we have been given by the power supplier, we have a smelter that is not economically viable. It is very simple, so there is a lot of hard work to be done, and it is critical work. At Helguvik we have continued to work with the vendors here, and to look at where we can make reductions and improvements in the capital costs. As I said over the next 60 days we are going to have some meaningful discussions with the power suppliers here, and by the beginning of the summer we think we will have a good sense on the timing for a restart of the major project activities there.

With that I think we can take your questions.

(Operator Instructions). The first question comes from the behind of Brett Levy with Jefferies.

Hey Mike hey Shelly, can you talk a little bit about kind of the political environment in Iceland?You said it is kind of in the next 60 days. What do you think some of the key gating issues are politically, economically, to kind of getting yourself to the point that you can actually restart construction here?

Good question Brett, thanks. I can talk at length obviously about the political environment, but there is nothing specific in the political environment either today or prospectively over the next couple of months that will push this process either way. It is just unique to these discussions, where we have got some processes with both power companies with whom we have contracted. Remember these contracts go back to their signing in 2007, where we will be able to determine where we are.

Just to remind you two very different power companies, one HS, that is the one with whom we did the arbitration. The result of which we got just before the end of the year, and so after that over the last couple of months, we have had some discussions with them on the basis of that arbitration result, and those discussions I would say are sort of in the seventh or eighth inning. I am not a Red Socks fan, so I probably shouldn't go there at this point in time. But we are getting close to discerning whether we can make an agreement there in the near term.

And then with OR the other power company, Reykjavik Energy, as they are really known, again there has been a process ongoing there that should be winding its way to a conclusion here over the next couple of months. So I don't want anybody to believe that we just sort of successfully conclude these discussions here over the next 60 days, and we are going. I mean that would be the successful conclusion of those two processes would be a precursor to a lot of additional work that would have to be done to memorialize agreements, and then get the project ready to be restarted later in the year. But I think the next 60 days, Brett, will be telling.

And based on the way the bullpen has been performing so far, you don't really want to be a Red Socks fan.

I know where you are a resident, so I thought I might at least get a friendly voice there, but maybe not.

It is what it is, they have no bullpen.

It is what it is.

Let's see. In terms of the short position, you have sort of versus US production, can you talk about the current quarter, and sort of how you positioned yourself in aluminum in terms of hedging for the balance of the year?

Yes, Shelly do you want to gross profit ahead and answer that?When you say short, I think you mean just the puts or--?

The puts. Yes, essentially puts.

Yes, we have not sold forward any metal obviously.

Yes, as we mentioned in previous quarters what we have got in place as Mike says right now, it is simply put it is downsized protection, and it covers roughly 25% of our unpriced domestic production through the first half of this year.

Anything for the second half?

No that is where we are right now and as we have said we have been looking at it carefully. We think sort of where the market is now, our view of the, it's our view, but our view of the potential downside from here, upside from here, and obviously the cost of protecting that downside, we just don't think it as a good trade right now for our share, investment right now for shareowners. We are watching it carefully but that is where we are right thousand.

Alright and lastly and I know I will get a diplomatic answer to this of the capital markets are relatively open, you guys are posting decent numbers here, any thoughts with respect to call prices and refinancing the 8% notes?

As you would expect, as you know those notes have about 24 months left to run, there is another call date approaching in a couple of weeks here. So we will be taking a very hard look at this over the next 12 months. We certainly wouldn't want to get very close to that one year maturity mark, so we will definitely be watching those markets.

As you know, Brett, your market there has, as you say it has generally been pretty good. I don't have to tell you it has had some fits and starts here over the last couple of weeks for all of the obvious reasons. As Shelly said here we are looking at it hard.

Thanks a ton. I will get back in queue.

Thank you.

Thank you we will go to the line of David Gagliano with Barclays.

Thanks for taking my questions. I just have a few. First on the cost improvement during the quarter, obviously very nice improvement relative to Q4 some of which was expected. I didn't hear much specific commentary with regard to Q2, any reasons we should expect the cost savings realized in the first quarter to reverse in Q2?

I think our expectation at this point is it we will continue to sees those cost improvements the main area being carbon, which if you look at what we anticipated back in Q4 we thought we would see flat in 2011. We actually saw some pretty good improvement in Q1. We are looking forward to that continuing in Q2 and we expect if that does continue and hopefully we will have some power pricing update as well, we will come back to you in July at our earnings date then, and give you some new guidance.

David as Shelley said, we are not going to, those improvements are here to stay, and hopefully will continue and as it relates to other positive trends we see them. We are not quite ready to call it yet. But as it relates to the cost guidance, and what not we gave you just I guess what Shelly, two months ago now, if these trends are to continue the way we have been seeing them, you could expect us to come back in July and update that positively.

Okay great. That is very helpful.

Good.

My next question in your Ravenswood negotiations, I am curious, what is your sort of down side aluminum price assumption embedded in that weak LME environment commentary that you made on the call?

Yes. There are two answers to that question. And I am speculating now because we haven't submitted this application yet, and then it becomes a pretty complex process, where a lot of constituencies are looking at this, but in a perfect world, David, you would have a power price that is so flexible to that it protects the plant almost at any LME. That world doesn't exist, A because it just, the support you would need gets too onerous at some point in time, and B because if things got really ugly, you wouldn't be start of restarting a plant any way. It goes without saying, so it is a hard question to answer.

If you look back, I think one way to approach it is if your look back at where we put all of our economic analyses in place, and began the substantive discussions with the retiree group, and then with active labor, it was around kind of the end of the year, and it really accelerated in January, February. And at that point in time as you well know the LME was kind of $200 or so ahead of where it is today, and if you look at as you well know, people who forecast for the nominal price for the long term, they are in that range or a little bit better 2300, 2400 or so. That is a long winded answer to you were question. Our base case was probably a little bit higher than we are today 10% our so, but again depending upon what kind of power accommodation we could get, one could confidently reopen the plant at lower levels, and that kind of longer term rate. So was that responsive?

Actually yes, it was, it was actually very helpful.

Okay good.

And then I just have one more, one more quick one.

No problem.

This is along the lines of asking the obvious question I guess, but with regard to Hawesville, obviously nice sequential cost improvement also commentary that it is not economic. So the obvious question is why not shut it down until a reasonable power agreement is reached?

Good question and I am glad you, let me make sure and perhaps I didn't say it clearly enough. So when I said that the forecast for the future the next couple of years that power provider is giving to us, the plant is not a viable one from economic standpoint it is not necessarily today but it is prospective. If everything else held the same LME was frozen, and those power prices were perfect forecast and came to be, that wouldn't be a good equation that's why we are pulling the fire alarm now, and saying something has got to give.

The second half I think the second answer to your question as you saw or as you are seeing at Ravenswood is it is neither easy nor costless, I guess those are both understatements to shut and reopen these plants. I will take that black. Shutting them is reasonably easy. Restarting them as you are seeing nowin Ravenswood takes some time. You are starting with essentially nothing, without a power contract, without a labor force, and even though working capital tends to largely finance itself, you are dealing with a reasonable investment, $80 million to get Ravenswood back to producing hot metal, so I think that is the two part answer to your question.

Okay. Thanks very much.

Thanks David.

Thank you we will go to the line of Kuni Chen with CRT Capital Group.

Good afternoon folks. I guess thanks for all of the detail here. Just one more question on Ravenswood, obviously on the power side of the equation, that is undetermined at this point, and could go many ways. But I guess as you see things right now, where and if the plant does restart over the next few months, where do you see Ravenswood on the North American cost curve?

That is a good question. Do you want to do North America or US? North America you have got all the Canadian. If I may answer on the US it's an easier more discrete set, I would say it is still Shelly solid third quartile, high third quartile, would that your guess? Again it depends on the power. It is such a, in answering that question, I kind of used an average US power price. But as you said at the beginning of your question, it depends so heavily on where that power comes in. Shelly, do you have a.

Yes, I would say it is very dependant on the metal price and depends very much on if the negotiations we are having now. So it is a bit hard to pinpoint that but somewhere in the third quartile is probably the right place to put it.

Is the idea when and if that restarts, that the metal would be sold at market prices, or would you do something to sell that forward, and kind of lock in your spread there?

That is a very good question and we have thought a lot about that and done some modeling on that. I am not trying to duck it but it really depend upon again how flexible that power price is. Because again in a perfect world if you had a power price that was perfectly linked to the LME like we do in Iceland, you have got a natural hedge there, and you buy your alumina largely if not wholly on an LME linked basis. You have got a pretty large hedge right there naturally between those two items. Thus you might depending upon your view of the market might be willing to, or think it's the best alternative for your share owners to take advantage of the market price. So it really depends. But I can tell you it is something that we will look very hard at and already have that in place, the analysis that is.

Okay. Thanks. That is all I had. Thanks Kuni.

Thank you we will go to the line of Sal Tharani with Goldman Sachs.

Hi guys.

Hi, Sal.

Quickly on Mt. Holly You mentioned about a short term amendment with Sandy Cooper. When is that contract renewing, or come up for renewal, and what does short term amendment mean?

Okay. So the contract is almost evergreen one, but in 2015 is the new rate schedule that basically gets published. Practical answer to your question is 2015. The answer to the second part of your question is it is still under discussion but several years. It is not one or two years. But it is not five years. Sorry to be so cute about that answer.

You are looking for an amendment after 2015 it doesn't change or are you looking--?

Yes, I am sorry to cut you off. This amendment as it is being discussed would supersede that 2015 date about which I just spoke.

Got you. And the next question is on the premium you mentioned which obviously have gone up. I was wondering if the premium has to do with also the load out rates at the Alameda houses, and with the roofs changing I believe this month and next month you might think there might be some decline in the premiums going forward?

I would absolutely say Sal that is part of it. I think the bigger driver is probably the financing transactions tying up the metal units that we have talked about a bunch of times. The load out rates are important as well, but talking about the changes that actually came into effect this month and the talk has been so far that the impact is very very modest, and so we don't expect that to have a major impact on the premiums.

Thank you.

Thanks.

Thank you we will go to the line of Tim Hayes with Davenport and Company.

Hello Mike and Shelly.

Hi Tim.

Several questions just to clarify on Hawesville that it is not economic under this new power contract, is that at current LME price or is that on the forward curve for LME?

Let me three responses there Tim with apologies. First it is not a new power contract. It is the power contract which we entered in 2009, when the old one was terminated with Eon. It is a just a current price deck or forward forecast, the current forecast for future prices coming from the power supplier. And yes, imbedded in that comment thanks for the clarification, was at and around current LME. So it is if the future price that they have given us were to be applied to current LMEs, then you have got an economic equation that doesn't work.

Okay. And then at today's aluminum price, do you have a sense of how much of the industry is losing money?

Depends on regional premiums, and regional prices, obviously when you look at China. Shelly do you want to take a stab at that?

A third maybe even a little more than that.

Yes, I was going to say 40, I don't think it's half, I think Enrique a is pointing thumbs up as well, we have a consensus here at 35 to 40%.

That sound about right. Okay. And the SG&A of 8.5, is that now sustainable, or it may be a little higher going forward?

No we think it is always going to bump around based on whether you are working on some things, or it goes up and down based on legal fees for a variety of things, and other consultants' fees, and things like that. But that is kind of Shelly an average number, it should be, and a portion of that is non cash as we have talked about before a small portion. I think that is a pretty good number.

We said about $10 million including the non cash plus a little bit for Q1 was a little bit for Helguvik, so if you want a little bit better than that, but it is in the ballpark.

That is a good point Shelly makes when we gave you the guidance items in February, or whatever we called them, embedded in there was an average number for SG&A spending, that is distinct from what we report on the cash flow statement, project spending at Helguvik. And that has been while the project is in a relatively dormant phase, we are spending CapEx now as you have seen well under $1 million a month by design, the related SG&A is going to be relatively small until and unless, or I hopefully should say until we reach a combination with the power companies at which point we will start revving up the engine again, the financing discussions and on other things around that, obviously getting the documents with the power companies memorialized will take some time and effort and dollars.

Alright. And then moving to the LCM benefit, how does that split between the US smelters and Iceland?

It is all US.

And last question in the press release you mentioned how customers are wary about signing long term contracts, is that a comment for Century, or is that an industrywide--?

That is a very good question. The comment was meant specifically on our customers and the other people in the market place, the US market to whom we speak. So I can't comment more generally than that. But I can tell you with good certainty that is what our customers are telling us at this point in time.

Okay thank you.

Thanks.

Thank you, we will go to the line of John Tomaso with John Tomaso.

With tongue in cheek, Mike I was going to ask if the UN has asked to send you to Syria or to fix the Irani or the North Korean nuclear issues. In all seriousness, could you give us a little background on how the Steel Workers issues, how the progress was made toward resolving those, and the legislative support, and the public utilities et cetera?It sounds like an interesting novel but maybe you could give us a brief explanation?

Well, I appreciate the comments, John. My son is hoping I get the call to replace Valentine, but that hasn't come quite yet. Look, this was a, I know it sounds like a lot of word it was a complex process with the retiree group. And at the end of the day like in all good negotiations, both sides didn't like it. So that is as we all know, that is the A signal of a good negotiation when everybody is equally as unhappy. But we came to an accommodation. I can only speak on our side that we thought made sense. And the reason it makes sense for us, is that A, it is conditioned on the plant restarting successfully, and B, it takes into account the support that we are going to be getting on the power side.

So it in essence uses that in order to fund a VIVA trust for the retiree group. We said from the outset, and obviously people didn't like hearing this, but we were quite serious about it, we said that we can't get back on behalf of our shareowners into a situation where we are rebuilding a long term fixed liability. We can't do it. It has got to be something that we can pay, but pay out of the plant's cash flow as long as it the plant is operating. And so that is how it came together. I mean again it sound like words, but we had just tremendous help here. Not only from Governor Tomblin, from the Mayor of Ravenswood, Lucy Harbor who did a great job, and directly and personally from Senators Rockefeller and Mansion, who spent their own time, I have got to say, and energy on this. And so it kind of took all of that to wrestle this over the goal line. And we are very hopeful that it will come to pass, i.e., that we can get this plant reopened.

If you solve this Gordian Knot, the issues in Kentucky or in South Carolina, that Alcoa is managing, all of those things look less challenging.

Well, I don't know John. I mean every, as I have learned in spades here over the last six months, every state is different. That is obviously a throw away comment. But they look at these situations differently based on economics, and the importance of the industry, and a lot of other factors. And so we have our own set of facts and circumstances in Kentucky that is going to take a lot of work. But we think the result of the work it goes without saying is worth it, and we think there is a solution for everybody. It took a lot of effort to get there in West Virginia, and the same will be true I am sure in Kentucky, but we have got great support in Kentucky as well, and it is just working through the issues with people and being transparent. Sounds like a lot of words, but this is just what it simply comes down to, making sure everybody understands what the situation is, and what we need.

We look forward to the opportunity to live and play another day.

Thanks John. Amen.

Thank you, we will go to the line of Richard Garchitorena with Credit Suisse.

Thank you good afternoon.

Hi Rich.

Couple of quick questions, one you talked about carbon costs coming down and they are likely going to remain at those levels. I guess my question is there any way that you can lock that in either for Q2 or for the rest of the year given the possibility that you would get some improvement in the global economy in the second half of the year, and I guess what's your comfort that things don't start to move higher again?

That is a good question. So the answer regrettably is no. Our carbon contracts they all work a little bit differently. Obviously as you know, when you say carbons, we are talking principally about calcine coke and then pitch as well. We buy our own stuff if you will in the US and then for Grundartangi buy finished anodes which obviously are just the same materials. But generally speaking, they all trade where the prices are fixed there is a fixed component of all the prices, but they go up and down basically, based on the cost of calcine coke. Which is not as you know a tradable or hedgable commodity, and it has got lots of factors that go into it, it is not just simply the price of oil although the coincidence factor between oil and calcine coke is generally pretty high, but coke is its own market.

And in addition to that, within the coke market we need depending upon where we are manufacturing for example for Iceland, we need high quality or low sulfur coke, so that is it is own little specialized market as well. That is a very long winded answer to your question regrettably that there isn't a way to fix this or hedge this out. I guess one could always try to do a coke deal, go to a supplier and say hey do you want to move away from the index, and fix a price out. But my guess is they are going to be very reluctant to do it as well. There was profitability similarly they are purchasing raw materials to make their finished product that they sell to us.

Okay great, that is very helpful. My other question just on Helguvik I guess, obviously you are looking to secure some low cost power going forward. I guess my question in regard to Ravenswood, you mentioned that you would like to see not just the power but also a commodity price environment that you know warrants the restart. Is there any scenario where Helguvik may not be pushed forward?

That is a great question. The strict answer is yes of course. Excellent question. And there again, because of the framework of the power agreements that we have in place for Grundartangi and the framework of these that we are looking to finalize for Helguvik, you have got very flexible power there. It is not necessarily low cost at higher LMEs, but it is always flexible and as we have talked about before and so, you might be willing to in a sort of reasonably somber environment restart that project. But eventually you have got to be able to finance it. And you've got to be able to look with some confidence about the way the world is heading, pardon me, so long wined answer to your question, but the answer is yes. There is a level at which we would say it doesn't make sense to move forward at a point in time.

Okay. Great thank you.

Sure.

We will go to the line of Timna Tanners with Bank of America Merrill Lynch.

Hi, good evening. Two hopefully quick ones, wanted to just know just taking a step back given there are so many moving parts and so many things we will have to wait for your updates on, or the local media maybe what would you look at if you were us to get a sense of will Helguvik go ahead, or will the power arrangements and union negotiations go ahead?What would you be looking for is there anything externally we can watch?

That is a good question regrettably I think you have got two places there you talked about, so in Iceland it really is just those unique counterparty to counterparty discussions between ourselves and each of those two power companies. So there is really no, there are no macro trends, there are no political thing as was asked before. It really is just I mean, a good old fashioned negotiation with each of those guys.

On Ravenswood you mentioned union, there again, I can't, I assume that when we reach agreement with the steel workers trying to think about this real time, we would say something at that time. So you could certainly look for that. But again, as I said, that process on the labor negotiations will run in parallel here with the Public Service Commission process over the next couple months or so. So regrettably there is not a lot we can point to say look for this on the tape, and that will mean we are getting close.

Okay. That is fair. If you could comment a little about the share buyback and how that works with your business and your uses of cash and just in general?

Yes, I think you know this is a decision that was made sort of third quarter last year looking at our balance sheet seeing a fairly large amount of cash that we wanted to put to work, and knowing there would be some delay in the Helguvik project, so we thought that was a good opportunity given the share price in the market. We have continued to work towards that. As I mentioned we are $50 million into the $60 million program. So we are about done with it, but we still have a little ways to go.

We will look at it as I expect and hope, I would expect we will look at it again, so the extent that we finish this authorization it is something that we will always look at from a return of capital deployment of capital standpoint.

Okay thanks.

Sure.

Thank you, we do have a question from the line of Paul Massoud with Stifel Nicolaus.

Thanks for taking my questions.

Hi.

Just a few odds and ends. First is on the above spec operating rates at Hawesville and Mt. Holly and Grundartangi. Is there any reason we should expect those rates to come down, or are those rates something that you could expect to extend the rest of the year?

Those are reasonably consistent you can always in a quarter be up or down a percent or so. Number one, you will have just statistically some quarters have more days than others. And as you know these plants run 24 hours a day. So that will drive the actual results from a per day standpoint you can always be up or down a little bit, but generally to answer your question is no, there is no reason to expect that we should backtrack on any of those.

On the direct shipments from Grundartangi on the first quarter, it looked at least I think last year, first quarter was also, first quarter was a big quarter for direct shipments. Is there a seasonality to the direct shipments, or are you starting to see the towing arrangements pushing back on when they take delivery?

No real seasonality. So as we continue to creep production capacity you are going to see more and more direct shipments as we anticipated on last earnings call, but nothing seasonal that I can think of.

Yes, there are no trends there.

And then finally, I think you had made a comment about the client base for Ravenswood as being one of the reasons why you would want to open it back up. Can you talk a little bit about the customer base, is there a special product coming out of Ravenswood, or is there, just talk a little bit maybe if could you elaborate on that?

Yes, sure. I mean the strict answer is we have got a customer on site or next-door. So the rolling mill which this company used to own until 2000 or 1999 or 2001 it was sold to the Nal-Can, and it is now owned by a combination of a private equity firm and a major industry player. So it would make sense we believe for us and for them, and as you would expect we have had discussions with them to reinstitute that relationship from an economic standpoint, a production standpoint, delivery and logistics. That would make a lot of sense. That plant produces many products, but it sort of core product base is in the aerospace business. That is the broader answer to your question, is that we really believe that going forward here, and this answer broadens our to not just Ravenswood but to Hawesville, which does produce specialty products, high purity metal and high conductivity metal that customers in the US are going to want local supplied. It sounds a bit ethnocentric, but as you talk to the customers, they really believe, they don't want to be bringing especially high purity product in from overseas. Hawesville is the only domestic producer. So as we see more and more capacity in the US either shut, or at risk of being shut, we think that they are, and this you may be seeing in the premiums and you see this in our product premiums above the Midwest that we get for example on high purity product, we believe there is a case made now, it takes probably doesn't give rise to a digital decision, i.e., making a plant economic or not, but for the plant that is running, it makes it that much more profitable.

Thanks a lot.

Sure.

Thank you, last question comes from the line of Paretosh Misra with Morgan Stanley.

Hi guys thanks for taking my question. Just I guess two questions, one on this proposed power contract at Hawesville, is that still expected to be linked to LME price?

No. The current one at Hawesville is not linked to LME price. It is a function of I should say, not linked to, the power provider's cost of production. It is a cooperative. The power provider is a cooperative so they basically to their customers including ourselves and the other smelter, and to their retail customers, they basically pass along their costs. And we would expect any change, amendment, accommodation in that to be not unlikely to be based on an LME linkage but one never knows. That is certainly one of the things that we will be looking at.

Got it and are there at least across your portfolio any opportunities from cheap natural gas for you?

Yes. Yes. It is an excellent question. And I can't go into much more detail now. But as you would suspect, the answer is yes, and as you would suspect, that is something that we are looking at very hard, and we are excited about that trend both in terms of the supply and the price. It goes without saying. And it is, we are not ready to say something that is going to change the equation of USsmelting, but we think it is something that could be very exciting for us going forward. So please watch that space it is an excellent question.

Got you maybe just the last one this amendment in South Carolina at Mt. Holly, similar question as I had for Hawesville, is that going to be LME linked or not really?

No, I can't comment. Yes, I would say again the current arrangement is on a fixed price basis, and so we wouldn't, I wouldn't expect though, it is too early to tell we wouldn't expect a wholesale change sort in the structure of that arrangement.

Very good guys thank you very much.

Thank you.

Thank you do we have time for an additional question.

Sure.

Okay going to the line of Tony Rizzuto with Dahlman Rose.

Mike and Shelly, congrats on all of the progress. I have got one question to follow up on the premiums over the Midwest and the high purity metal that you sell out of Hawesville, where is it now?Obviously we track it on some other products, but can you tell us how it's changed over the past one to two years?

You are talking about the purity premium?

Yes.

Yes, so over Midwest it has been a high of in some very sort of thin markets and times, a couple of dimes, Tony. And as low as sort of the mid-single digits. And if you ask me for, I wish I had Kip Price, our sales head here with me, but if you asked me for a general level, I would say a dime give or take Steve. Steve Schneider is nodding his head up and down, $0.10 give or take.

Is that about where it is right now or would you say it is a little bit tighter than that given the relative tightness in the--?

No, I would say Tony it is around that level now.

Alright, fair enough, thanks very much.

Thank you.

Thank you, seeing no additional questions at this time.

Thanks very much everybody. We look forward to talking with you in a couple months, if not before.

Thank you. Ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.