Century Aluminum Co (CENX) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the second quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. You will have an opportunity to ask questions after the presentation with instructions being given at that time.

(Operator Instructions).

As a reminder, the call is being recorded. I would now like to turn the conference over to our host, Mr. Enrique De Anda. Please go ahead, Star.

Thank you, Star. 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 financial performance, results of operations, and financial condition. These forward-looking statements involve important known and unknown risks and uncertainties, which could cause our actual results to differ materially from those expressed in our forward-looking statements. Please review the forward-looking statement disclosure in today's slides and press release for a full discussion of these risks and uncertainties.

In addition, we have included some non-GAAP financial measures in our discussion. Reconciliations to the most comparable GAAP financial measures can be found in the appendix 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.

Enrique, thanks very much, and thanks to all of you for joining this afternoon. Enrique and I are here today with Bill Leatherberry and Steve Schneider, our colleagues. We let Shelly Harrison, our colleague who normally joins us on these calls, we let her take this one off. Shelly is due to have her first baby here within the next couple of days, and we figured that was not the kind of excitement we needed on this phone call. So, Shelly is going to sit this one out. We wish her and her husband John, all the very best, and we look forward to having her back, obviously, after she takes a couple of months off.

And with that, let's get started. And if you could turn to slide 3, please. As usual, pardon me, I will give you some highlights of the quarter that just ended, and give you a sense of some of the things on which we have been working. First and importantly, Hawesville continued to show a significant improvement during the second quarter. Most importantly, the safety performance has been very good. I think it is worthwhile to note, that very soon, we will cross an important metric. We will have gone 12 months at the plant without about a lost time accident. That is, obviously, an admirable performance, and something that we are celebrating down in Hawesville.

The team, at Hawesville, under the leadership of Dave Whitmore and Sean Burn have done a terrific job across the operations, and we are proud of them. They are targeting further improvements in the quarters to come. And one of the things that we will be working on significantly, and about which I will talk here in a moment, is the power situation at Hawesville. At this point in time, to be blunt, the plant is not viable at the current power rate, and we are spending a lot of time and effort to fix that situation.

Moving on down, costs across the Company have continued to fall this quarter, coming from a variety of factors. Number one, that our operating leverage and higher production volumes at all of the plants, most specifically, Hawesville. Two, better efficiencies at Hawesville. Three, we have seen a reduction in the power rate at Mt. Holly, despite the lack of movement at Hawesville. Again, I will speak about all these things in more detail in a few moments. And, fourth, we have seen carbon costs start to fall across the system. Again, I will provide more detail.

As you saw us announce in June, we made an acquisition of a carbon anode plant in Netherlands this quarter. Obviously, that is to supply that key raw material for Nordural's operations at Grundartangi today, and Helguvik in the future. It is a good investment for us. It comes at an attractive investment -- invested cost. And it's going to produce a good IRR for us. I will give you some more details here, in the couple of slides.

At Mt. Holly, as we've said, we have seen a good reduction in fuel costs translated into our power rate. And also as you saw announced in June, we have to come to a contract amendment with the power provider there. Importantly, that will give us some additional flexibility, if we had to, to terminate that contract, at very low LME prices. And importantly, that will give us some runway, as we and Alcoa, obviously are partners there, work on a long-term power solution.

Very importantly, we have made progress on the restart of the Ravenswood plant, a key milestone. We submitted in April, our application to the Public Service Commission in West Virginia for a LME based power rate. Since then, we have engaged in detailed discussions with all of the major constituencies in West Virginia. We are very focused on this process. We continue to believe that the restart of this plant would be a very good investment for our shareholders.

Lastly, we have advanced our discussions with our power providers in Iceland, regarding Helguvik. The number of issues that we need to solve for to each of those providers has continued to decrease. I can say that now, for the first time, we do see some light at the end of the tunnel here. And we think it will take the balance of the year in order to get to the finish line with the power providers. If we did indeed, achieve that, we could begin construction in the spring. That is the restart of major construction activities. Obviously, our ability to do that will depend heavily on the external environment. Until then, as you have seen, we are holding spending on Helguvik at an absolute minimum level.

If we could turn to slide 4, please. As usual we will give you a couple of comments on the external market environment. As you know the LME cash price this quarter averaged $1,980. That's down 9% from the average cash price in Q1. Obviously, especially since May, we have seen a significant deterioration in the sentiment on commodities, and also called risk assets. I don't need to go through in detail what factors are driving that process, as everyone on this call is well aware.

Contrasting that somewhat, we have seen a continued increase in physical premiums around the world. The US Midwest premium is now sitting at $0.1075 European duty paid premium, $250 $260 per tonne, Japan, $230 per tonne. And all regions, long queues at the warehouses and ongoing financing transactions continue to give support to those physical premiums.

And in the US, importantly, the actual market conditions that we are seeing on a daily basis continue to be pretty good. We're still seeing decent demand across our US Midwest customer base, although of course, we are watching it very closely. Taking a step up, on a global standpoint, demand is up 3% year-to-date. The US, up 9%, China, up 8%. Western Europe, no surprise, down 8%, year-to-date demand. On the production side, globally, we're up 4% primary aluminum production year-to-date.

China represents much more than all of that, up12%, as government power subsidies continue to prop up non-economic smelters. That said, we have seen some delays of startups of greenfield projects in the northwestern part of China. And in the developing region, we have seen some curtailments here starting, but they are still coming at a relatively slow pace.

If we could turn to slide 5, we thought we would show you our rendition here of the breakeven global cash cost curve. Just to give you a sense of how we have constructed this, we have excluded all the production capacity in China from this chart, given the fact that from a primary production standpoint at least, China is a reasonably closed system, meaning it's balanced over time. We have also excluded just about 1 million tonnes of non-economic, or social producers as they are sometimes called, small smelters around the world, that really produce for social reasons, and would be well off of this cost curve, to the right-hand side, of course.

As you see can see in the footnote also, we have reduced the cash cost by the current physical premium. So you are seeing, really an LME equivalent cost here. As you see, just eyeballing it, just picking a price like $1,900 even, or even a little bit above, you have got a significant portion of the production capacity on this chart, as making cash losses at those kind of metal prices. Obviously, the problem would be even more pronounced, with the -- without the current high premiums in the marketplace.

We believe these data, obviously, support the case that over time, we need significantly higher aluminum prices to gain a market equilibrium. And compounding this over the longer-term, again, we still believe in the case, that we have got in the world planned, a very small amount of new capacity outside of China. Near-term, obviously, we have got other forces at play, that we have got to deal with.

Just a couple of quick comments on the aluminum market, before I move on. The market has been relatively flat this quarter, spot prices hanging at about $300 a tonne. We seen some recent announcements, and also some rumors of closures, principally in the Atlantic basin. That's a region in the world that has been oversupplied in aluminum for some time. In China, aluminum market conditions -- alumina, pardon me, market conditions, continue to be somewhat uncertain. You have seen the recent moves in Indonesia, to increase taxes on mineral exports there. We don't believe there has been a tangible impact on the marketplace yet in China. We saw a reasonable stockpiling ahead of that action. But obviously, there is more there to come. Bottom-line, we expect the aluminum markets to remain in relative surplus for the foreseeable future.

If we could turn to slide 6, please, go through the Company's operations for the last quarter. Starting at the top there, as you see safety, we had generally, a very good quarter across the Company. Hawesville, as I have said, the trends continue to be very, very good, both in incident rate and severity. Mt Holly, we are proud to say, that they had a incident-free quarter, this past quarter. That's obviously an admirable result. Grundartangi, continuing good performance, that was consistent with Q1.

Moving down to production, Hawesville was up 2% quarter-to-quarter, this is all Q2 over Q1 now. It produced in Q2 at an annualized rate of 253,000 tonnes. Mt. Holly was stable at 115,000 tonnes, that is obviously our share of the plant. And Grundartangi production, up 1%, at an annualized rate of 284,000 tonnes. That's another record production quarter for Grundartangi, so terrific performance there.

Moving down to production metrics, or KPIs. We have seen, as I have said earlier, continued improvement at Hawesville. KPIs there now reflective of a stable operation. I will give a couple of examples. Anode defects continue to come down at the plant, impurity levels are decreasing, and we have seen a continued and good decline in cell failures. At Mt. Holly and Grundartangi, both of those plants continue with the excellent performance they have had in prior quarters. Lastly, down the chart, conversion costs. As you see, we are continuing to make very good progress here. As you will recall, the big improvements that we saw, the step function changes that we saw in Hawesville as we predicted, were in Q1 of this year, and Q4 of last year.

And in that respect, I thought it might make sense to take a little bit of a step back here. Although it's not on the chart, I am going to read you the data, and look at the improvement in cash conversion costs that we have seen across the plants. I will give it to you, plant by plant, over the last couple of quarters. So starting with the third quarter of last year, I am going to give you the aggregate step down, or improvement in cash conversion costs that we have seen by smelter. And I will exclude from these data, the costs that fall only due to the LME. Obviously, alumina price or cost in the US, and power costs in Iceland, so the true conversion costs that we can control.

So stepping through the plants. Hawesville, over the last three quarters, we have seen conversion costs down $190 a tonne. To give you a bit of detail, about a third of that improvement has come from labor efficiencies, about $80 per tonne from better usage of maintenance and supplies, and the rest is spread out amongst various departments throughout the plant. Mt. Holly next, down $220 a tonne since Q3 of last yea. Power is about two-thirds of that, and carbon is a good chunk of the remainder. Grundartangi, from an already attractive rate, down $60 a tonne from Q3 of 2011. Carbon is about two-thirds of that improvement, with pot lining and other departments in the plant representing the rest.

Going forward, obviously, we are going to continue to see improvement and efficiencies across the plants. We also see some good improvement coming in carbon costs in the second half of this year. And again, as I have said already, and as I will talk to you again in some detail, our main focus here is going to be on our power costs in the US. And specifically, at Hawesville in the near-term.

Okay. If we can go forward here, to slide 7, we will give you a sense of our estimates on cash cost in the US here as you see. If you recall, every February, we give you an estimate of average cash cost for the plants, both in the US and in Iceland for the year. In addition, as you know, we give you various other metrics to use in building your models, cash flow and other earnings metrics. Given the step down in cash costs that we have seen thus far this year, and our confidence in them for the rest of the year, we thought we ought to give you an update here for the second half of the year of what we see, in terms of conversion costs in the US.

As you can see here, we are using the same LME assumption that we used in February, just so you can see in isolation the changes, so $2,200 here. Obviously, we are not here today. Just to remind you, in the US, the sensitivity of our cash cost per LME hasn't changed. So, for every $100 change in LME, that's up or down of course, our cash costs go up or down by $25 a tonne. So for example here, if you want to model this out at say, $1,900 LME, you would reduce that bar on the right-hand side of the chart, by 3 times $25, or $75 a tonne.

To remind you again, we state these on a directly LME comparable basis, so we reduce the cost by the premiums. Obviously, it goes without saying, that our US system is making cash losses at the current LME prices. No great surprise there. But obviously, that situation has been helped by the step down in conversion costs that we have seen.

It's not on the charts, but let me just give you quickly the data for Iceland. Again going back to the data -- the cash cost estimate that we gave you in February. If you just pull that slide out from the February slide deck, it's obviously still on our website. We have improved $50 since then. So, cash costs $50 lower than we showed you in February. And just to remind you again, on the sensitivity in Iceland, it hasn't changed. So for every $100 a tonne LME, up or down, our cash costs in Iceland changes by $50 a tonne, obviously up or down.

Okay. I think we can move on to slide 8, please. We just wanted to give you some detail here, on the acquisition of the anode plant. This was actually an integrated smelting facility in the Zealand province in the Netherlands, that went into liquidation in December, just before the end of the year. The smelter had a hot metal capacity of 200,000 tonnes a year. Obviously, the plant had an anode facility and a casthouse.

We bought the anode facility only. Another Company has actually bought the rest of the site, and is working to demolish the smelter, and it will run the casthouse. And we have a joint use agreement with this other company. It's important to note that we bought assets only here. So, we have been fully indemnified for any and all historical liabilities.

We know this plant and it's products very well. [Alti Gudmundsson], who is our plant manager at Grundartangi, used these products, these anodes from this plant for many years when he was a senior executive at an another smelter in Iceland. And we had actually intended to contract to buy from this plant, which was then called ZALCO, in the future. Last fall, we bought a large trial quantity from them that produced, performed I should say, very well, in Grundartangi.

So, obviously, given the bankruptcy, this was an opportunistic acquisition, but one we think has strong strategic rationale. Let me just detail it. From a defensive standpoint, we had heretofore, been buying in Europe from two suppliers. But we had gotten to the point where we didn't anymore see a safe future with those two companies, given some changes in their businesses. From an offensive standpoint as well, we had come to the conclusion that it would be far preferable to control our own product for the Grundartangi capacity creep, and for Helguvik, obviously, once it's running. For both of those projects, we will need larger anodes, and it is far preferable to -- for us to control our own anode supply in order, to drive those projects.

Over the last couple years, we have looked at several opportunities around the world, frankly quite a few opportunities to invest captive anode capacity. What would like to do here is obviously, to complement the significant success we have had with our investment in BHH in China, which we've made several years ago.

Just to look at the economics here, the total invested cost, by the time we are done, will be about $75 million, and that will buy us 150,000 tonnes of baked anode capacity. That works out to about $500 a tonne for -- per installed tonne. And that compares very favorably to all the opportunities at which we have looked, and of which we are aware, even those in China. The acquisition will produce a very good IRR, from a make, versus buy standpoint.

As you've seen us announce, we have a capital project and other restart activities that will require pretty much a full year to get through. The largest item and a gating one, is the requirement that we put in, a stand-alone environmental treatment system. That is given the fact that, that the smelter will no longer be operating, so we can't use the fume treatment system that is currently in the smelter. It's important for everyone to note, that we have good flexibility to defer or slow this capital program, if the economic environment in the world so warrants. And in that case, if we chose to do that, we could simply increasing our supply from BHH in the interim.

Okay. I think we can move to slide 9 now, and go through the financials. As usual, I will detail the financial results in the just completed quarter, and compare them to the quarter just prior sequentially. So here, obviously, Q2 versus Q1. Take a look at the market before we got dive into the numbers. The cash LME price, as I said earlier at the beginning in my remarks was down 9% quarter-to-quarter. If you look at the one month lag price though, upon which much of our commercial activity is based, it was only down 2%. So that drop in June, obviously, we will see the impact of it in our Q3 results. Looking at realized unit prices in US, down1.6%, so a bit better than the market, due to the rising premiums. Iceland down 1%.

If you got a the chance to look at the shipment volumes, yet again this quarter, a portion of what we reported, direct shipments, occurred in Iceland. This quarter, that number was 3,450 tonnes. Just to remind you the reason for that. The plant, now this is obviously Grundartangi, is producing at a level well above the contractual volumes in our tolling contracts. So, we make the rest of those sales as direct shipments. So if you adjust for those 300 -- 3,000, pardon me, 450 tonnes, you will see that the US was up 0.6% quarter-to-quarter in shipment volumes, Iceland, up 0.5%.

Turning back to the slide now, on slide -- let's see, slide 9, we are on, to the income statement data. You will see that net sales on a dollar basis was down just under 1%, Q2 over Q1. Pricing drove net sales down quarter-to-quarter by 2 percentage points. Volume gave us back 1 of those 2 percentage points, so net down 1%. Walking down the income statement, if you look at gross profit, and if you were to exclude in both quarters, the adjustment for the lower cost of market inventory, you would see the gross profit was up $8 million quarter-to-quarter, on that $2 million revenue decrease.

Let me just give you a couple of the movers there, up or down. The price decline, the LME price decline, took gross profit down by $5 million. Incremental gross margin in Iceland caused gross profit to go up by $2 million. LME base cost, that is obviously alumina in the US and power in Iceland were down $4 million. Raw materials across the system, down $2 million, and power at Mt. Holly, down $2 million.

Walking further down the income statement, you see the unrealized gain on the forward contracts, obviously as the LME fell. At the bottom of income statement, you can see diluted shares for the quarter, 88.5 million common shares, 8.4 -- pardon me -- 8.1 million preferred shares.

If I could ask you to just turn quickly to slide15, as usual we have calculated here for you, our calculation per our custom of adjusted loss. This quarter, it was $0.09, as you see the adjusted loss there. Just the build it for you, you can see it's pretty straightforward this quarter. The net loss as reported,$0.13 per share. That is important to note, that is on all of the shares, both common and preferred. And then two items this quarter, if you were to add back the LCM charge, non-cash, obviously, $0.06 a share. And the gain on forward contracts, $0.02 share, that works out to an adjusted loss of $0.09 share.

If you could just move back to slide 9. Quickly, a couple of comments before I move on. On the cash flow statement, you see here, we are managing capital pretty tightly in these times, CapEx of $3 million for the quarter, and Helguvik spending of $2 million for the quarter.

With that, I think we can move on to slide 10. As usual, we have just given you a bit of detail on the movements of cash during the quarter. We think we had a pretty good cash flow quarter, despite the external environment. You see the spending, obviously on the anode plant acquisition and some related spending. Everything else on this chart is reasonably straightforward.

The one other thing I would like to point out to you is, you see over on the other right, there. We had a very good customer in the US, whose payment, large payment is scheduled toward the end of every month. And this month, it happened to be scheduled to be paid on Friday the 30, obviously, the balance sheet date. Due to systems issues, the payment actually wasn't received. We didn't actually receive it, until the morning of Monday, which would have been the 3rd of July. So, technically, obviously, that cash wasn't in the house on the -- during the second quarter, and therefore you don't see it on the June 30 balance sheet. So you will see the result, and build up of receivables on that June 30 balance sheet, if you've had a chance to look. And obviously, that will reverse itself in Q3. As I have said, we had cash in 3rd of June(sic). So it's just a technical, it's just a systems issue there.

I would like to remind you of one thing, cash flow-wise, before we move on. We have talked about this in the past. We have made some substantial withholding tax payments over the last couple of quarters, as we have moved cash out of Iceland for other uses. And so, we will get a large slug of that back during the fourth quarter of this year. So we have got just about $30 million of cash coming back, in terms of refunds from the Icelandic government, that will be flowing back in the fourth quarter this year. I think that's all there.

If we could just move to slide 11 now, and give you a sense of some of the major things on which we're working here, over the next couple of months. First and foremost, as I have said we have got a situation that needs to be fixed at Hawesville, relating to the power price there. We have not seen any relief in our power rate at Hawesville, despite the falling fuel costs across the US, and despite the market price of power in that region. As I have said, the situation here, must change for the plant to be competitive, in the near- and long-term. This is really important, because there is long-term investments that we would like to make in Hawesville, to make it even more competitive, to further lower the structural conversion costs there. But until we have a long-term power rate in which we have confidence, obviously those investments don't make sense.

We are working very hard with all the constituencies in Kentucky, including political leadership, both locally and statewide. We really believe this plant should have bright future, so we are very focused on succeeding here. The plant has a great leadership team, we have got in place now, as I have told you over the past couple of quarters. We have got a terrific, terrific employee group there. Second, we have got excellent, strong customers that are in good growth markets in the US Midwest.

And third, everybody is well aware of the structural changes that have taken place in fuel costs, and in the power markets in the US. For all those reasons, we are convinced this plant should have a bright future. But we need to get through this difficult period, and fix this power rate. In that respect, the current contract with the current power supplier does have a termination provision. It does require a 12-month notice period, so we will be looking closely at that over the next couple of months, as we move forward to try to fix the situation there.

A couple other items, obviously, at Helguvik I said we are moving forward there. We hope to see some good intangible progress this quarter, in our talks with the power companies there. Importantly, we are also spending a lot of time looking at the capital costs there. We were engineering that plant, back in the 2007, 2008 timeframe, and a lot has obviously changed, we need to take advantage of, including importantly, some significant advances in reduction technologies around the world. So we are looking at hard at all of that.

I talked about the project that, what we have now renamed Century Anodes in the Netherlands. Again, we will be assessing very carefully the external environment, before making any kind of significant capital commitments there. Ravenswoods, again, we are continuing to spend significant time and effort on creating the conditions in which we could responsibly restart the plant.

The most significant part of the process is now the pending application before the Public Service Commission, about which I talked, for the special power arrangement. Just to remind you, what we are looking for there, is an arrangement that would smooth the power price over time. And in effect, protect the plant in periods of weak commodity prices, just like the one we are seeing right now. The PSC ruling is due in mid-September. So we will have a good sense here, over the next couple of weeks, of where we may be heading.

Obviously, we would need to have a labor agreement as well, with the United Steel Workers. And upon attaining those two agreements, power and labor, the plant would require about four months of preparation, before we would be ready to start energizing the pots and producing hot metal. For the same reasons about which I spoke at Hawesville, we think this plant ought to have a bright future. And we are very focused on what we think, again, would be a good investment here for shareholders to get this plant reopened.

Lastly, as you would expect, we spent a lot of time, especially in environments like this, looking at our liquidity and contingency planning for various economic scenarios. Just a couple of points here. As you know, we have unused capacity of our revolver. It's currently standing just shy of $60 million of unused and available capacity there. We have many other financing options at which we have looked, and which we could take advantage of, if we deemed the situation appropriate. And as you would also suspect, again, especially in environments like this, we have a got strict control of spending. And if you looked at the SG&A results, you have seen evidence of that.

And with that, I think that's it for our prepared remarks. But we would love to take your questions. Enrique?

Yes, we are ready for questions.

(Operator Instructions)

And our first question comes from the line of Kuni Chen with CRT Capital Group. Please go ahead.

Yes, I think that's me. It's Kuni Chen. Hi, guys.

Hi, Kuni.

Just a couple of quick ones. As you noted on the SG&A front, that has come down pretty sharply. Were there some one-time items in there, or is that a sustainable level going forward?

No one-time items in there. And while it will go up or down at times, when we account for incentive comp and things like that, that should be around a sustainable level going forward, yes.

Great. Good job on that.

Thank you.

And then, just as far as Hawesville goes, can you lay out for us, how, under the current arrangement, the power costs step up from here? I think as it stands today, that plant still maybe running your breakeven levels. But at what point does that really go into the red for you, if aluminum prices stay at these levels? And can you talk about your timeframe as far as trying to renegotiate a new agreement?

Sure, let me just correct one thing you said, or perhaps, with apologies, I misheard you, Kuni. The plant is not breakeven today. It is making cash losses today, at the current power rate and the current LME price. So, it is an acute situation. And I suppose that, that leads into the second part -- an answer, pardon me, to the second part of your question. We are looking for some success here over the next couple of months, at most. We have been working hard on this for the last couple of months. But as I said, the plant right now is in jeopardy, given that power rate.

Right. And it only continues to step up from here, right?

Correct.

Okay. I'll turn it over. Thanks.

Next we go to the line of David Gagliano with Barclays. Please go ahead.

Thanks very much. Just to follow on that Hawesville question. Did I hear you correctly, in terms of the -- what exactly did you mean by the 12-month termination notice? Does that impede you from shutting down capacity at Hawesville within the next 12 months, or did I --?

No. We could certainly shut down capacity, but we have a 12-month notice period to cancel the power contract. So, what would happen, David, perhaps to answer what your follow-up might be is, if we chose, if we had to, we could certainly close down the plant, but we would have to pay a base demand charge. Nothing approaching the full cost of the power. But a base demand charge, during the pendency of the contracts, so, during that 12-month period.

Okay. And then I -- just unrelated, or somewhat unrelated, slide 7, I just have a couple of questions related to that slide. It's very helpful; I appreciate it. The US second-half 2012 cash costs of $2,095 for a metric tonne, what were the cash costs, the equivalent number for Q1 and Q2 for the US assets?

They were pretty close to that estimate, David, that you see on the left-hand part of the chart. We came in, as we said, those quarters, within spitting distance of our expectations.

Of the $2,095 number, correct?

You got it.

Okay.

No, no, I am sorry. Of the number at the left-hand part of the chart, so, again, before the step down here. Right?

Okay. So, the move from $2,240 to $2,095 is all second half, right? Just want to make sure.

Oh, I see what you're going -- I see what you are saying here. No. No. Pardon me -- a part of that step down was realized in Q1 and Q2. So, what you would have to do -- now I understand your question, pardon me. The best way to get at that, and my recommendation would be, is to look at the footnotes in the financial statements. As you know, in the guarantor statements in the back there, you get a pretty good sense of the results in the US versus non-US, in essence, Iceland. You can crank that number that you are looking for.

Okay. And then, just somewhat related. In terms of the Hawesville timeline, and just the US assets in general. Obviously, you mentioned even with the revised numbers here, not making money. How should we expect this to unfold, if aluminum prices stay where they are? Potlines being shut down and/or full asset closures, and what would be the pecking order, and when should we expect these to start happening?

Yes. That is -- I am not trying to duck it, David. As you know, that is a hard question to answer because you have to, when you do that analysis, there is a bunch of inputs. One, obviously is sort of the average price that you would expect over the next quarter or two. And then, how long you expect this current weak period to pervade, or if you expect it to get worse. That is why you don't see, as you know, a lot of capacity shutting down now because, as we all know, you can use our own example at Ravenswood, these plants are not inexpensive to restart here. As we have said, it's going to cost us $80 million to $90 million to restart Ravenswood.

Now, about 50% of that, as we have said, is working capital. So, in essence, you get that back out of the system. But 50% of that is, if you will, sunk. I don't like to use that term, but that is really what it is here -- sunk restart costs. So, again, not trying to duck, but there is a lot of things that go in there. I can say there is no planned closures right now at Century. But we're watching this thing very, very closely, like all of our peers are here, and will be over the next couple of months.

Okay. And then, just one last question. If aluminum prices stay flat versus current, will you continue with restarting Ravenswood? And would that restart be profitable on an ongoing basis?

David, it all depends. Based on the -- it's a great question, thank you. Based on the application that we've submitted to the PSC, to the Public Service Commission, the answer is yes. Because with the floating-rate there, the variable rate in that application, the special power contract that we have submitted. That would allow the plant to operate at LME prices like this. So, it will all depend upon what we hear back from the PSC.

Okay. Thanks very much.

Sure, thanks.

(Operator Instructions)

And we go to the line of Lloyd O'Carroll with Davenport & Company. Please go ahead.

Talk a little more about Hawesville power? It looks, from the press releases from the power provider, that you are paying roughly $50 a megawatt hour. We know that in '14 the -- with the EPA, for all of the coal-fired plants, that we are probably going to see operating costs go up, in the 25% range. So, if you do nothing, there is a big problem. What are your options? If you just bought power off the grid, and [wheeled] it? If you did your own turbines, or if you set a contract with an independent power provider that had gas-powered power? Can you talk about any kind of number of those options? Another way to look at it is -- what LME price do you need, with your current power contract to get an acceptable return, something that you would be prepared to run the smelter on an ongoing basis?

Yes, that's a good question. I guess, well, let me take it in the order in which you asked. Your last question was a great one, or part of it, Lloyd, but let me go through it in the order that you asked it. So, not to be pedantic here, but in answer to your question, we are looking at all of those things. Now -- and all of those are -- some short-term, some longer-term, potentially things that could benefit and flow through to us. Right now, we have a contract. We have a supplier -- a power provider there. And we're working with that power provider to see what options are available. And thus far, those discussions remain constructive. And so, that's what we are very focused on, and will remain focused on here until they don't make sense anymore. But we are optimistic.

But all of those things -- one thing you didn't mentioned is that, as we all know, coal prices in the US, depending upon where, over the last nine months have fallen pretty significantly. And we yet haven't seen any flow through of that movement. And so, your analysis was -- we are where we are, plus we are going up based on environmental spending. But we think there should be some relief, all else being equal, nothing else happening structurally, just due to the coal prices coming off. So, that is an answer, I think, Lloyd, to the first part of your question, which is -- as of right now, we are working, we think, constructively with the power provider there.

To answer your second question, we don't think there is -- we need to get this structure changed, irrespective of what our long-term view of the aluminum price is. Even if you look at the consensus view of the market, I would say, whatever it is today, $2,300 or $2,400 long-term nominal price. We still think that we need to find some structural changes in that power price. In order, A, to generate a good return for our shareowners, and B, in order to perpetuate that, to be able to have the longevity of view to invest in the plant.

If you are asking about a breakeven, it is $200 now, $200-plus from where we are. Maybe a little bit less than that. We brought the breakeven in the Company down $200 here over the last 1.5 years. But we are a-ways away from that plant even breaking even at this point time, and at this power price.

And you are not in the business of breaking even?

Not the last time I checked. No.

Okay. Thank you.

Thanks, Lloyd.

Next we go to the line of Richard Garchitorena with Credit Suisse. Please go ahead.

Good afternoon.

Hi, Richard.

So, yes, my first question. I was just wondering if you could remind us what your current budget is for CapEx? I know in the past you have highlighted maintenance CapEx of about $20 million.

Yes.

The Nordural expansion, if there is additional CapEx for the rest of the year. If melt prices stay the same, and we assume no restarts this year, what should we expect for run rate?

Yes. That is a good question. So, we -- our budget right now for the second half of the year is looking at an additional, say, $25 million-ish of CapEx. We could -- and that includes a substantial portion of that. And this is all excluding Helguvik now. A substantial portion of that is for the hot metal expansion program at Grundartangi, which, of course, is our best plant, and one that is still making good cash flow even at the current LMEs. We could ratchet that number back significantly. And in fact, have already done the work, as you would hope we have done, to identify exactly what we would do. And so, we've got that under pretty tight control. Right now I would say, the balance of the year, $20 million, $25 million for total CapEx, excluding Helguvik. But we have got some leeway there to decrease that by a good amount if we had to.

Great. Thanks, that's helpful.

Good.

And then, I guess, I just wanted to touch on Century anodes. You mentioned that you are monitoring the current situation, I guess globally, and with prices where they are, how should we think about where, what level of pricing? Or is it more just a function of how the global economy is progressing, in terms of a restart or not? And then, if you don't have a restart right away, I guess, are there costs associated with maintaining that facility?

Last question first is, no, none at all. All the activity going on at that facility now, is attendant to the restart. And if the world were in a position, by the end of the summer -- it's by the end of the summer, based on our engineering PERT charts, that we are going to have to make the decision as to whether to cut some reasonably large capital commitments or not. If the world isn't looking better then, we are going to have to make a sound decision. So, no, no further costs, because there is no activity other than the restart at the plant.

In answer to your first -- or part of your question. It is difficult to answer. Long-term that is going to be a very good investment. And as I said, we have got the ability to crank up production, or our take from our investee, BHH in China, if we decide to go a bit slower on the Century anodes restart. So, it's going to be a bit of a judgment call here, say, towards the end of August, going into September.

Okay. And then my last question, just on the 150,000 tonnes of initial production. How should we think about the potential cost savings from that? And how much of anode, I guess, needs does that cover for Grundartangi?

Good question. So, let me maybe tweak a little bit of what you said at the beginning. Perhaps I misunderstood you. So, the final capacity will be 150,000 tonnes. The first stage here, about which we are talking, the $45 million, is to put in the environmental treatment system, do a bunch of other things, and then just bring back one of the two furnaces. It's got two furnaces, each of which produce 75,000 tonnes of baked anode. So, that first part would be 75,000 tonnes. And then, and eventually, we spend another $15 million to refurbish the second furnace, which would give us150,000 tonnes.

Just to give you a sense, a150,000 tonnes would just about satisfy today, pardon me, Grundartangi's requirements. But of course, we have a significant portion of our supply we get from BHH as well. But the way you ought to think about it right now is that, that the supply that we get from BHH, in conjunction with that first furnace restart at Century anodes, will basically take care of Grundartangi. And then, the restart of the second furnace at Century anodes, is most likely linked to Helguvik.

Okay, great, thank you.

Sure.

Next we go to Tim Hayes at Davenport. Please go ahead.

Hi, good afternoon, everyone.

Hi, Tim.

Two quick ones. The LCM impact, is that just in the US, or would some of that go into Iceland?

No, no. That would be strictly in the US.

Okay. And then the conversion costs that are shown on slide 6, I'm assuming that is ex the impact of the LCM?

Yes. Because whenever we show conversion costs, it is always only cash.

Right. Okay, very good. Thank you.

Sure.

We go to the line of John Tumazos with Very Independent Research. Please go ahead.

This may be a little academic, thank you. But Mr. Mittal at Mittal Steel is asking the steel workers for his Company to roll back $28 an hour. And it may be the end of retiree medical and the USWA contract, or the start of it. And I don't know how those negotiations end up; it could be the end of defined benefit pension for new employees. Could you just review when your labor contracts expire? And if there is any applicability of that strategy? It would seem like the aluminum price is relatively low, and the aluminum inventories are high. It might be -- workers might prefer to make concessions than have someone -- Alcoa just shut smelters in Tennessee and Texas without trying to get cheap shale gas or labor concessions and things like that. Maybe the workers think half of their compensation is better than no compensation, and should be given a chance.

Yes, sure, John. A very reasonable question. So just the factual answer to your question. You are really just talking about Hawesville here, given that there is no labor contract at Ravenswood. And as you know, Mt. Holly is not represented. So, at Hawesville, as you remember, we signed a five-year agreement with the USW last time. So, that goes through April of 2015. So, we have a long ways to run there.

We did negotiate last time some -- the kind of things that you are talking about, not to get into the detail. But given that we've got a contract right now that runs a couple of years, we are focused. And given the import of the cost here, we are very focused on power at Hawesville.

It would seem like Mittal is one-sixth or so of the steel industry, and one-third or so of the unionized steel industry, in round numbers. Do you think the potential exists to leverage off of that for the aluminum industry to completely change its labor?

John, I have -- I will answer it as straight as I can. I have absolutely no idea.

I am just wishing and hoping for something to go right.

I hear you. We will take the support, but I just -- I honestly don't know. I would rather take a pass at that one.

I know I am putting you on the spot. Thank you.

It's okay, that is your job.

Next we go to Sal Tharani with Goldman Sachs and Company. Please go ahead.

Hi, how are you?

Hi, Sal. How are you?

Good. Mike, your cash costs, the one you gave in February, or the current one. Can you stack up your different plans, where do they stand in terms of Mt. Holly and Hawesville? And where would the balance be, I mean, the highest to the lowest?

I'm sorry, Sal, I may not have -- so, you are asking the rest of the cash costs? (Multiple Speakers)

Highest to lowest in those three operations.

Oh, of our operations on the cash -- on the cost curves?

Yes.

Oh, okay. So, Mt. Holly -- well, Grundartangi, of course, as you know, Grundartangi floats based on power price. But certainly, Grundartangi today, at the current power price, and even at the current metal price, and even at higher metal prices would be the furthest to the left. And then would come Mt. Holly, and then would come Hawesville. And then would -- Ravenswood is difficult to say because we don't have power rate right now. But certainly at the old power rate, it would be furthest to the right. What we are hoping to do is obviously have it slide like Grundartangi, but that remains to be seen.

You mentioned that at Hawesville, if you decide to shut it down, you need a 12-month notice, and you may end up paying the electricity cost on the base load. Are you losing more money than what you have to pay per pound, if that were the case?

No. Not now, no.

Okay, great. Thank you very much.

Thanks, Sal.

We don't have any additional questions at this time. Please continue.

I think that is it for now. We, again, appreciate everybody joining us, and we look forward to speaking with you again, if not before, in October. Take care.

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.