Century Aluminum Co (CENX) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first-quarter 2013 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time.

(Operator instructions)

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

Thanks, Marissa. Hello, everyone, and welcome to the conference call.

Before we begin, I would like to remind you that today's discussion will continue 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 centuryaluminum.com.

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

Thanks, Enrique. Thanks, everybody, for joining us this afternoon. If we could turn to slide 4, please, to give you a quick review of what we've been working on over the last couple months.

First, just to set some context, at the macro environment, it's been reasonably difficult to read recently for us, and I think similarly for many of you. [End] market demand in our key vertical markets in the US remain decent. We've had a couple segments off a little bit from a growth perspective over the last couple months, but most remain pretty good.

No real change in any other developed markets. Conditions in the euro zone, as you know, remain reasonably poor. Data from China indicates some slowing, so it's difficult at this point to find any real trends there, in our opinion.

We've obviously seen a significant sell-off in the prices of all commodities. The price action has appeared seemingly indiscriminate, with no evidence of most of the normal relationships and correlations to which we're all accustomed.

It's difficult, in our opinion, at this point to call where things are heading here over the next couple quarters. And thus as we execute our strategic plans, about which I'll talk to you in a moment, we're being careful to build in some good flexibility.

Okay, let's move on. We had a very good quarter in the operations. Most importantly, our safety performance remains flat to a very good fourth quarter of last year. We remain very focused on programs to identify areas with the potential for serious injury, and obviously to prevent those kinds of accidents before they occur.

The operations have remained stable. Production, volume, efficiency metrics all remain very good. Costs are also stable, and Shelly will give you some more detail on that in just a moment.

This safety in operating performance is especially notable at Hawesville, given the uncertainties surrounding the power contract at that plant.

And now let me bring you current on what's been going on in Kentucky over the last couple months. As you remember, as we told you in February, we had sought a simple legislative solution to the issues there. The legislation would have allowed the two smelters in the state to access power directly from the competitive wholesale markets.

As you probably know, the smelters are by far and away the largest consumers of electric power in the state. We weren't seeking any other help. We weren't seeking any subsidies or anything like that. As we've said before, and as we'll continue to say, Hawesville remains a viable plant with a market power price.

Regrettably, this solution, which we thought was a pragmatic one, failed in the legislature; and for that reason, over the last month we have resumed direct negotiations with the power supplier.

We're trying to reach an arrangement that would accomplish, in essence, the same thing as the legislation would have, at least from an economic perspective, for Hawesville. While we're not there yet, I can say the discussions with the power provider have been pragmatic and productive over the last couple weeks.

Given that we didn't have an agreement yet, we recently needed to give a four-month termination notice to our largest customer, as required under our contract with them. And at the same time, we issued a conditional warning notice to our employees at the plant.

I can't overstate that we're doing everything we know how to find a solution to keep this plant open. As I've said before, we've got a safe and increasingly efficient and productive operation in Kentucky. We've got a truly talented and dedicated group of employees committed to that plant and to the communities in which we operate.

In my couple decades in industrial businesses, I can easily say that I haven't seen a group of talent so broad and deep as we have there, and that's just one of the reasons that we remain dedicated to keeping this plant running. And with a market-base power and the flexibility on how we're able to buy it, we continue to believe this plant will have a long life.

Moving on to Ravenswood, the reopening of which remains a priority for us -- we also believe Ravenswood could be a productive plant, with a long-term future like Hawesville, based on the emerging energy environment in this country.

We continue to work on a solution to bridge the remaining gap in the effective energy price. We're very grateful for the support that we received from the Governor of West Virginia and other key state leaders, and we want to make sure we're able to prove to them that their efforts were worthwhile.

Lastly, at Grundartangi in Iceland, we continue to work on our two major investment projects there. Both of these projects will create long-term value at this already excellent plant. And thus, we're continuing to execute these projects, as I said a moment ago, despite the current difficult macro environment.

Just to remind you what the two projects are -- the first is the expansion of the plant's hot metal capacity. It'll increase it about 15% from where it was when we started this project. The project will take another three, maybe four years; and as we've told you before, these new tonnes will come on at a very attractive invested cost.

We're already seeing good benefit from this project. This past quarter, Q1, Grundartangi produced at an annualized rate of 288,000 metric tonnes.

The other project, as you'll remember, is that we restarted the anode plant in the Netherlands that we bought out of bankruptcy. This will balance the supply we receive -- the anode supply we receive from our 40% owned affiliate in China called BHH. And, in addition, it will improve Grundartangi's cost structure.

Okay, if we could turn to slide 5, please. I'll just make a couple comments, as normal, about the market. The cash LME price in the quarter averaged about $2,000 per metric tonne. That was flat to Q4.

During the first couple months of the quarter, the price traded in a reasonably tight range, about $2,000 to $2,100 is where it looked like it had settled in. And then, of course, we saw the rapid drop in March, below that $2,000 support level.

Recently, the price looks like it's settled in again, at least in the near term, at a range of about $1,850 to $1,900 a tonne. And sitting here this afternoon, we're trading a little bit above the high end of that range.

This price action has occurred consistent with all other industrial metals, as you know, and most other commodities -- this in the face of fundamental data, as I said a moment ago, in most regions that remain stable, if not robust. Therefore, we believe that speculative activity and other forces are at work in driving the prices of these commodities, in addition, of course, to legitimate concerns about global fundamentals.

LME stocks were relatively flat during the quarter. They were up only 27,000 metric tonnes. However, we do know that other stocking did take place around the world. For example, China's State Reserve Bureau bought a couple hundred thousand metric tonnes this past quarter.

Premiums have remained at historically high levels. The US Midwest premium is still trading just shy of $0.115 a pound. The duty-paid European premium softened a bit this quarter, but it's still at $280 a metric tonne, obviously very high in that historical context. Japanese demand remains strong, as reflected in a very strong premium of about $250 a metric tonne.

A couple quick comments on alumina before we move forward. The average spot price during the quarter was up a bit, averaged about $330 a metric tonne. It's come off just recently just a little bit and is now trading in the low to mid $320 per metric tonne. And on a global basis, we believe this market remains balanced to [in a lot of] surplus. But, as you know, there are significant regional variances.

If we could move on to slide 6, please. We've updated this cost curve for you. Just as a reminder, we state these costs adjusted for all premiums. Thus the data at which you're looking are directly comparable to LME prices.

So as you can see -- if you take a look there at the chart, you'll see about 45% of global capacity is now operating at a cash loss. A significant portion of those fourth-quartile producers continue to be in China.

We are seeing some cutbacks around the world. Some of the higher-cost regions in China have cut back some capacity, a little bit in Europe, and [Rusaw] within the last month or two has announced some capacity curtailments.

That having been said, those actions aren't offsetting the new capacity that's coming on in Western China, where the power prices are lower, and the Persian Gulf.

If we can move along to slide 7, please, a couple quick comments about the operations. As you can see here, operating metrics remain evident of a stable operation, as I said before. Safety performance is generally flat across the operations, as I said, versus a very good performance in the fourth quarter.

We did see some -- a little bit of a tick-up in incidents at Hawesville in January, and we're focusing on that and managing it very closely, again given the environment at the plant.

Production volumes were good across all the plants. Hawesville was down just about 0.5% on a per-day basis quarter to quarter. Shelly will give you some more information on that. Mt. Holly, as you remember, was down slightly in Q4, and as we predicted, came back with a very good performance in the first quarter.

Production metrics and efficiencies are good across all the plants, and also as you can see, conversion costs, good performance across the board; and Shelly will give you some more detail there.

And with that, I'd like to turn it over to her.

Thanks, Mike. If you could turn to slide 8, please, I'll take you through the company's financial performance for the quarter.

Average daily shipments were flat Q over Q. But because Q1 had two less days, total shipments were down 2% in the quarter. Shipments at Mt. Holly were up, along with production, but Hawesville experienced a reduction in shipments due to higher pot failures in the quarter, as well as timing of shipments.

In Iceland, we had direct shipments of approximately 5,800 tonnes in Q1, which is higher than we've seen in recent quarters. We expect that total and direct shipments will balance out over the course of the year, to be in line with the forecast that we provided in Q4.

The average cash LME price was essentially flat Q1 over Q4. So on a one-month lag basis, the LME price was about 3.5%. When you look at our realized unit prices in the US, they were up just under 3% quarter over quarter, so pretty much in line with change in LME. In Iceland, our realized unit prices were up 5%, which reflects the impact of higher direct shipments during the quarter.

Moving on to the income statement data. Net sales were up 1% Q1 over Q4. The increase in the aluminum price drove net sales up by $9 million, or 3%, but lower shipments offset a portion of this impact during the quarter.

Turning to costs, in our last earnings report, we put out an estimate of our US and Icelandic net cash costs for 2013. As you may recall, the format we used takes cash costs on a per-tonne basis and deducts premiums so that they're truly comparable to the LME price.

On this same basis, our US net cash costs were up about $40 per tonne from $1,976 in Q4 to $2,015 per tonne in Q1. This reflects the impact of higher LME-linked alumina costs, as well as the impact of [spring] fixed costs over the lower-shipment volume in Q1.

This impact was partially outset by improved carbon costs in the quarter. On an LME-adjusted basis, Q1 actual results were about $35 per tonne, higher than our forecast of $1,979 per tonne, primarily due to higher-than-anticipated labor costs at Hawesville, as well as costs associated with the power-contract negotiations.

In Iceland, net cash costs were basically flat quarter over quarter, at about $1,580 per tonne. The LME-linked power costs for Grundartangi are based on current-month LME, which is also essentially flat compared to last quarter.

Q1 actual results for Grundartangi were almost $40 per tonne, favorable to our forecast of $1,619 per tonne, due primarily to lower carbon costs and higher total shipments.

In the first quarter, we saw SG&A up $6 million over Q4. This increase relates primarily to severance and other costs associated with the corporate headquarters relocation to Chicago, as well as an increase in legal fees. In Q2, we expect legal fees to remain elevated, due to some outstanding litigation and other items.

For the relocation, we expect to incur additional charges of approximately $5 million over the next two quarters, for a total of just over $7 million in 2013. By Q4 of this year, the relocation should be essentially complete.

Moving on to adjusted operating income, we had a couple of adjustments in Q1, in addition to our normal adjustments for depreciation and lower cost-of-market inventory adjustments. Let me take you through those.

In March, we reached final settlement on a legal claim related to the Ravenswood plant for $2.2 million less than the amount reserved on our balance sheet. As a result, we removed a benefit from this adjustment when calculating adjusted operating income.

As we touched on before, we had a $2.2 million charge in the quarter, related to the corporate headquarters relocation, which was also excluded from the calculation. So on this basis, you can see that adjusted operating income increased $3 million from Q4 to Q1.

Continuing down the income statement, we had a quarterly adjusted loss of $2 million, or $0.02 per share, on total common and preferred shares. In addition to the adjustments I just mentioned, we also flew to a $15.7 million gain, related to a write-down in the value of the contingent obligation.

As you may recall, when we unwound the Hawesville power agreement in 2009, we entered into a contingent obligation with a former power supplier, and this amount is only payable to the extent the LME exceeds a specified threshold.

Based on the [forward screen] at quarter end, no payments will be required for the life of the agreement, so the contingent obligation on our balance sheet was reduced to zero.

Lastly on this slide, I'll just make a couple quick comments on cash flow. As you can see here, CapEx for the quarter was $9 million. This includes $7 million for Grundartangi, of which $6 million related to the expansion project.

We also spent just under $2 million on Helguvik CapEx during the quarter. We expect Helguvik spending for the rest of the year to be less than $1 million per quarter, unless there's a change in the status of the project. So quarter over quarter, cash was up $11 million, and we ended March with $195 million on the balance sheet.

So let's go on to the next slide, and I'll take you through the changes in cash in a bit more detail. So on slide 9, we show our normal cash flow waterfall, bridging Q4 to Q1. We paid $11 million in taxes in Q1, most of which relates to an $8 million withholding tax payment that will be refunded to us in November. The remaining $3 million is primarily related to estimated payments of income tax for Iceland.

The last thing I wanted to point out on this slide is the significant inflow from working capital. As I noted during our Q4 call, we expected this inflow in Q1, due to timing of metal deliveries right around year-end.

So with that, I'll send it back to Mike to talk about priorities for Q2.

Thanks, Shelly. If we could just turn to slide 10, as Shelly said. I just want to give you a quick sense of some of the things on which we'll be working here over the next couple months.

As you would expect, reaching an agreement with the power supplier in Kentucky is our most urgent near-term priority. Any preliminary agreement that we would reach would be subject to the completion of detailed documents. It would also require the approval of the Kentucky Public Service Commission and numerous other entities.

Time is getting reasonably short, so we're very, very focused on finding a solution here. Upon reaching even a tentative agreement, even one that would require all the approvals and other work that I just mentioned -- upon reaching a tentative agreement, we would, of course, make a public announcement, so you would know it as soon as we got there.

At Ravenswood, we'd like to be in a position by the end of the quarter to know exactly what we have. On the one hand, we have the arrangement as approved by the Public Service Commission last fall. And on the other hand, we have the alternative, on which we've been working. Once that is completed, we'd have all the information that's required to make a decision as to whether a restart of this plant is feasible in the current environment.

Discussions with the existing power suppliers in Helguvik have continued over the last couple months, but at a reasonably slow pace. As a reminder, the problem continues to be the weak financial condition of those two companies.

The national elections in Iceland are this coming Saturday, the day after tomorrow, with the polls indicating a strong preference for the two political parties who are in government for most of the last decade. That's -- as you may remember, that's when we more than tripled the size of Grundartangi and signed all the agreements with the government and other entities for Helguvik.

As a remainder, this project is ready to recommence. The only requirements are the completion of those power contracts and an assurance that transmission will be in place when the smelter is ready to produce. We're hopeful that the environment post-elections will be conducive to getting this great project going again.

And lastly, Shelly mentioned the corporate office relocation. Obviously, we'll be working on that. We believe it will come in on time and under budget so that when we talk to you in July to report the second quarter, we'll be talking to you from our new offices in Chicago.

And with that, Enrique, why don't we turn it over for Q&A.

Marissa, we're ready for questions.

(Operator instructions)

Our first question comes from David Gagliano from Barclays. Please go ahead.

Hi. Thanks for taking my questions. My first question -- I just wanted to verify. It looks like, obviously, the cash costs for the first quarter in the US were above the full-year targeted range. Are you sticking with the full-year targeted range at $1,970 to $2,020 for the US operations, or -- is that still a reasonable range for the year?

We are. And the one thing I would point out, Dave, is that that's actually through August for the US. That does not include any change in the power contract for Hawesville. We'll update that later in the year once we have a better understanding of what that contract will look like.

David, it's Mike. I'd just add to that, the real -- Shelly mentioned some of the reasons that we were little bit above that forecast; and she mentioned labor costs. And one of the reasons we're, as you say, sticking with that forecast -- I'd say, still comfortable with the forecast -- is that the labor costs -- the reason it was up was a temporary situation.

As Shelly noted, production volumes at Hawesville during the quarter were a little bit under what we expected. We had a few more pot failures, maybe six or seven more pot failures, than we had planned for and expected.

We're through that now. We're back to a full pot complement, and so for that reason, we remain comfortable that we'll get back to where we need to be.

So just to clarify, the average for January through August for the US, you're still expecting to come in at $1,970 to $2,020 per tonne?

At that LME range --

Right.

-- you got it.

Right. Okay, thanks very much.

Thanks, David.

Our next question comes from David Olkovetsky from Jefferies. Please go ahead.

So, first of all, I'll get Brett's usual question out of the way. Can you give us a little sense for what's going on in the put market for aluminum right now?

Nothing in our book right now. We're unhedged.

Great. And then -- I apologize. I hopped onto the call just a few minutes late, so I'm not sure if you mentioned it, but can you just give me a better understanding of the $15.7-million adjustment? What exactly is that, and is there still liability on the balance sheet for the contingent liability?

So the net impact on the balance sheet is zero at this point in time. I won't get into the detailed accounting, but to put it simply, the net impact is zero. And that is because at the current forward screen, there would be no payments required under the obligation.

So it's just a noncash charge, just so everybody knows, and it was, as Shelly said, a contingent obligation that was on the balance sheet. It's pretty simple; you just take the forward curve, and you discount what the payments would be under that forward curve, back to the present, like you'd value any asset or liability, I suppose. Based on where the forward curve is today, there's no liability when you calculate that. So we wrote off a liability, which results in income.

Can that liability then reappear?

Absolutely (multiple speakers). We hope it -- great question. We hope it does because that would mean that the metal price has gone back up, and -- you know, it's not unlike accounting for -- although you don't have the same -- you don't fair-value it exactly the same way; but it's not unlike accounting for a put option, right? And for the same reason, we hope that liability goes back on the books because it'll mean that that curve is shifted upwards.

And just as a reminder, if it does go back on the books, then it would only pay out in periods when the LME does exceed the specified threshold, and it's payable over a period of six years. So the cash impact is spread out over quite a long period of time.

All right. Thanks, Mike. Thanks, Shelly.

Sure.

Our next question comes from Timna Tanners from Bank of America. Please go ahead.

Good afternoon.

Hi, Timna.

So it sounds to me like -- a lot of this conference call sounds like last quarter's conference call, except that Hawesville is getting closer to a decision. And it seems to us, either way, it could be good, right? If you have to shut it down, although regrettable -- you know, it's been loss-making; and if you can get a power plant -- a power price that's viable, then that's positive. But I guess I want to see if that's a fair assessment. And then also, how far can the aluminum price for that assessment of viable with market power prices still be reasonable? Does that make sense? So, how far --

No, it all makes sense. Thanks.

(multiple speakers)

Yes, yes. No, it made perfect sense. I would -- so, kind of two parts to your question, if I got it right. The first, I would agree with, other than -- I'm sure you would expect -- I would sort of characterize differently. I wouldn't say either would be good. It would be devastating to us if we had to close that plant for a whole host of reasons.

That having been said, you're assessment is correct. If we couldn't get a power deal representative of a market power price, we would, indeed, close the plant. And that, as you say, Timna, would, indeed, staunch -- it would, indeed, close off an asset right now that's making cash losses. So your points are exactly right.

On the second part of your question, aluminum prices would have to go below where they are today. Just to give you -- to remind you, we cited this figure before. The difference right now between the price we're paying the power provider under the contract that expired (technical difficulty) on August 20 and the market power price, the sort of fully delivered market power price -- if you just went out to the marketplace and looked at your screen and then added the transmission tariffs and the other sort of ancillary fees -- equals something shy of $250 -- between $200 and $250 -- probably between $225 and $250 per tonne of aluminum. You multiply that by 250,000 tonnes of production capacity at Hawesville, and you get a sense of how sensitive that cash flow is to that power price.

So it's hard to answer your question because you'd be assuming, obviously, that power prices would remain constant if aluminum prices would be to fall. But certainly in the current environment and even below the current environment, the plant makes cash flow at a market kind of power price.

Okay. And sorry to sound callous. That's a fair observation. It's been a long day (multiple speakers) --

No. It's okay.

It is what it is. And so -- no, that's helpful, and thanks for the reminder. I guess -- again, just making the comment that some of these things are moving fairly slowly. On the July call, we should expect to hear from you from Chicago. We should expect to have a decision on Helguvik. We may or may not be proceeding with -- sorry, not Helguvik -- Hawesville. And we may or may not have a decision on Helguvik or Ravenswood. Is that what we should be thinking (multiple speakers) --?

I think you nailed it. So, yes, Chicago, obviously. Hawesville, yes. If -- by July, when we report -- I guess, Shelly and Enrique, we report towards the end of July.

Right.

So that -- we would at that point in time have a decision one way or another. And you're characterizations of the others are correct.

Okay. Thanks for the summary.

Thanks a lot.

Our next question comes from Sal Tharani from Goldman Sachs and Company. Please go ahead.

Good afternoon, guys.

Hi, Sal.

How will your largest customer -- I believe it's Southwire; is that correct?

That's correct.

Okay. Are you having discussions with them in case you have to shut it down?

Yes. As I said in my comments -- and we actually -- let's see. This would have been a week before last -- we did need to issue them -- as we've said before, our contract with them gives us the right to terminate at our sole option, but with a four-month notice. Therefore, August 20 -- you back up four months.

So we did issue to them that formal termination notice. I think it was either last week or the week before last, perhaps. As you would expect, we've talked to them every day, and so we -- they knew it was coming. We continue to talk to them, and we would continue to like to supply them hot metal, assuming the plant runs post-August. And based on what they said to us, we believe they'd continue to like to take hot metal at their rod mill next to our plant, assuming Hawesville continues to make hot metal after August 20.

(inaudible) knew that they had made some contingency plans and have invested some money in this thing that was known for almost a year and purchased equipment to have an alternative source. Is that correct?

I would never -- as you would expect -- I would never make any comment for any third party, especially a very good customer. So you have to ask them.

I was just wondering if that's the case, and even if you get the electricity contract, would you lose any of your business? Or do you think your business would be the same as before, in terms of volume you ship over there?

Fair question. We were very confident, Sal, that irrespective of whether we sold to -- we were to sell to -- or the full volume, or any volume, but let's say the full volume to Southwire or not, we'll sell every tonne we produce at Hawesville.

And as I said before, we're reasonably confident based on discussions we've had with them that they'd like to continue to buy from us. So this will all be discussed as we move forward, and hopefully as we can -- you know, report sometime soon if we get to the finish line, that we have an agreement, here.

Okay. Switching to Ravenswood, are you looking for a similar pricing arrangement as Hawesville? Are you asking sort of -- based on the future's curve of the stock market or the forward market?

That's an excellent question and an intuitive one. So, yes, there's a potential there, though the solution, as you may remember -- you can go look at it. It's filed on the West Virginia PSC -- Public Service Commission's website. But the solution that they approved last September and then finally confirmed in December doesn't contemplate Ravenswood purchasing from the competitive wholesale markets.

That having been said -- and we talked about this during the February call, Sal -- there is a potential -- when we talk about bridging that gap, i.e., getting what we have on the table today and kind of getting it to where we -- what we would need to have in order to reopen that plant, there's a potential to access, in whole or in part, the wholesale -- the competitive markets to do that. So that's a long-winded yes to your question.

Is power contract the only thing left for -- making the decision? Is labor settled (multiple speakers) --

No, it's not. No, no, no. That's a very good question. Labor is not settled, not because there's any conflict, just because we haven't sat down with the union to sort of finalize that. We've had a lot of preliminary discussions, but both sides have said to the other, kind of -- look, until there's a power contract -- unfortunately, you can't really parallel this one. It's really a serial process.

So unless and until there's a power deal that works for us, to sit down and finalize that CBA -- that labor contract just doesn't make any sense. But we're reasonably confident that could be done in a reasonably quick period of time, once we got to a power arrangement that we thought would work.

So is it fair to imply that the electricity contract is a bigger hurdle than the labor contract at Ravenswood?

Much.

Okay. Great, thank you very much.

Thanks, Sal.

Our next question comes from Richard Garchitorena from Credit Suisse. Please go ahead.

Thanks. Good afternoon.

Hi, Rich.

My first question -- I just wanted to touch on the cash costs. Can you remind us your exposure to nat gas? I believe the power contract at Mt. Holly has some tie to that. And then, what's the exposure there?

It is tied to that, mostly. Now, there are periods in which it's less tied than others; but mostly it is through -- at least December 2015 while the current amendment is in place, it is tied.

Just to give you a sense of the power costs quarter to quarter at Mt. Holly, we're about flat Q4 to Q1. And, Rich, we haven't published -- perhaps we will next quarter, if it's something that people are interested in -- you know, sort of a sensitivity, like we've done in the past.

For example, you may remember -- although it may have been before your time when you were covering the company -- back when we opened half of the Gramercy refinery and were thus a big buyer of natural gas, we used to publish a sensitivity, i.e. -- you know, so many millions of dollars worth of costs or cash costs or cash flow per dollar of MMBtu.

We haven't done that yet, but it's something that we can certainly do if -- and we'll take that on board and do that.

Right, I do recall that. And I guess the question is if it's going to be a material impact to the second half of cash costs, given where current stock prices are.

Power costs could be up, given where the spot is right now. We're not hedged there, by design. We didn't want to hedge that, and obviously the price has done what it's done here over the last six to eight weeks. So we'll see where it comes. But that could give rise to some increased power costs at Mt. Holly, no doubt about it.

Okay, great. And then my second question is, you mentioned -- you had some commentary about the coming elections in Iceland. Can you just talk about what you're currently working on there, what you think may occur, and how that's going to impact the project?

Sure. We're not working on anything. We're sitting patiently, waiting. But as you may remember -- just some quick history. So the government -- the political party that formed the government in Iceland during most of the last decade -- and, frankly, through almost all of Iceland's post-World War II history -- was a combination of parties that are reasonably pro-business. They're called the Independence Party and the Progressive Party.

And those parties left the government, were voted out of the government, as a result of the financial crisis and the crash through which Iceland went in 2008 and 2009. And then this new government came in in 2009 that was comprised of -- they have a parliamentary system there -- I'm sure you're familiar with how that works -- comprised of two parties, the social democrats and the left Green party.

As you can guess, their platforms and philosophy are less friendly towards heavy industry, for a whole variety of reasons, than the others. And so, all the polling has continued to say that those two parties that have generally been in government, the progressives and the independents, will be the two winning parties on Saturday. And thus we just believe that perhaps the environment there has been conducive.

The existing government has done some positive things, no doubt, but we believe that perhaps in this post-election environment, we may get the momentum we need to sort of push a few things over the goal line.

The project really is ready to go, and it really is, in our view -- we're biassed, of course. But when you read independent peoples' view, like the IMF and others, the project really is an important one for Iceland. So we've got some optimism here going forward.

Okay. And in terms of financing that you have secured, is there any deadline or any expiring for that, where you have to renegotiate, or --?

Richard, as we've mentioned before, it's not a committed financing. It's something we worked on for a significant period of time. We have a 50-plus-page term sheet where we negotiate all the details. But it's been sitting on a shelf for the period of time -- it's not committed. There are no deadlines.

Okay. Great. Thank you.

Thanks.

Our next question comes from David Gagliano from Barclays. Please go ahead.

Hi. Sorry to drag on a little bit. Just a quick followup on Hawesville. I was wondering if there was a way for you to frame the EBITDA contribution in a [dollar-nine] realized price environment, like we had in Q1 from (multiple speakers) --

Sorry to -- the realized price, or the delta -- if this is where you're heading, Dave, in the current power price we're paying versus a market price, is insensitive. There's no sensitivity the [alley] price because it's just -- it's a fixed, or reasonably fixed, tariff we're paying today. Of course, it changes based on the power provider's cost of operations, but it's reasonably fixed.

And then, market power prices in the US -- energy prices are -- they're certainly not fixed. They trade up and down every day -- but they have no formal, of course, correlation or relation to the alley price.

And so, there's no sensitivity there. The math is pretty simple. It's just that $15 delta about which I talked, times the utilization rate at Hawesville. So it gets you up to -- I don't know, maybe let's call it $225-ish per tonne of aluminum. And then you multiply that by 250,000 tonnes.

So, you know, it's -- as we've said, it's $50 million-plus in EBITDA -- on an annualized basis, pardon me.

Okay, right. I -- but actually, what I was trying to get at was, really what is the cash cost at Hawesville right now? I'm just trying to frame what might change if it's shut down, in terms of the financial impact. (Multiple speakers) --

We haven't -- you know, we've given you, obviously, US and Iceland, distinct costs, both actual and forecast. We haven't broken out, David, Mt. Holly and Hawesville and the US. That's getting on some reasonably competitive data there, and we just haven't done it and would prefer not to.

Okay. Just to follow up then, just on the cash costs between Iceland and the US -- can you give us the volume split between Iceland and the US in the first quarter?

Sure.

So, shipments for the US in the first quarter were 88,000 tonnes, for Iceland 71,000 tonnes.

Okay. Thank you.

We have a question from David Olkovetsky from Jefferies. Please go ahead.

Just a couple quick followups, here, housekeeping, income statement stuff. So in the first paragraph, you have the $2.2-million (technical difficulty) litigation reserve, the $15.7-million contingent obligation, and the $2.2-million severance. I just wanted to know what line items in the income statement those three were in.

Sure.

All right. So the -- let me go one by one. So the severance and relocation costs are going to be in SG&A. The litigation reserve adjustment is going to be in Other Operating. And the -- what was the third one you mentioned?

The contingent (multiple speakers) --

-- is going to be -- you'll see it. It's clear on the income statement. It's (multiple speakers) --

That's the 15-and-change one --

(multiple speakers) --

It's a discrete [cash on in] the income statement --

Yes. It'll pop out at you.

All right. That's what I thought. I just wanted to make sure that's the right one. Okay, that's it. Thanks.

Thanks.

Next we have John Tumazos, a private investor.

John Tumazos Very Independent Research. Congratulations on the black ink, however we get there.

Thanks, John. How are you?

Good, good. I may not understand the accounting right, but I just wanted to run through this exercise to show how many degrees of freedom we have. My understanding is that auditors look for enough liquidity to get through the next year, and the exercise would be nine or ten months from now and closing the 2013 books. And you probably have enough liquidity to get through the next three or four years. But could you run through, first, your liquidity and then maturities, which I think are the principal tests for accounting -- certain accounting tests. And then second, would the Grundartangi smelter operating alone be enough to carry your company?

Sure. So let me have Shelly take the liquidity. That's a pretty straightforward answer.

Yes. So, as I mentioned, we ended the quarter with $195 million of cash on the balance sheet. In addition to that, we have our revolving credit facility. We don't have any borrowings against that facility at this time, but we do have letters of credit. So our net availability on that is about $50 million. So that would be our general liquidity position.

On the second question, John, I'm not quite sure how to -- when you say "carry," -- certainly from a (multiple speakers) --

-- on cash flow, running just that smelter.

Oh, sure. Absolutely. That's an easy one.

And with the other ones idle?

Sure, absolutely.

So it would pay for the front office.

(laughter) It doesn't take much. But, yes, sir, it would, indeed.

And it would pay for your interest expense, too?

Yes, sir.

So if the aluminum price fell a couple pennies and you idled some smelters, you're able to get over that bump in the road?

Absolutely. From a liquidity standpoint, yes, John.

Thank you. I just wanted to run -- everybody's probably thinking this and not asking it, and I just thought I'd (multiple speakers) ask the question. Thank you.

Thank you.

And we have a question from Paretosh Misra from Morgan Stanley. Please go ahead.

Hi, guys.

Hi.

One quick question on your power costs in Iceland, at Helguvik. I know it's linked to LME aluminum price, but is that linked to the current-month LME, or is that maybe a three-month-lag aluminum price?

The --

In Iceland.

Yes. At Grundartangi, it's current-month LME.

And your pricing is also based on current LME, not a one-month lag, right?

The [total] is one month.

Yes.

That total one-month lag power contract, current month.

Got it. Great. Thanks, guys.

Sure.

And we have a question from Paul Massoud from Stifel. Please go ahead.

Thanks. Just a quick question. You touched on the contract with Southwire, but I was curious about the contract with Glencore from Hawesville. If Hawesville were to shut down, are there obligations that you'd have to fill from Mt. Holly, or would that also be cancelled with the shutdown at Hawesville, as well?

That's just a [sweep] contract, so they take whatever free metal is there. But [definitionally], if there were no metal there, there's no obligation.

Okay.

And we have no further questions in queue.

I appreciate everybody's time this afternoon and look forward to talking with you in a couple months.

Thank you, Marissa.

You're welcome. 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 your line.