Century Aluminum Co (CENX) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first quarter 2015 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, this conference is being recorded.

I would now like to turn the conference over to our host, Peter Trpkovski. Please go ahead.

Thank you, Zach. Good afternoon, everyone, and welcome to the conference call. Today's presentation is available on our website at www.centuryaluminum.com. We use our website as a means of disclosing material information about the Company and for complying with Regulation FD.

I would also 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 statements disclosure in today's slides and press release for a full discussion of these risks and uncertainties. In addition, we have included some non-GAAP financial measures in our discussion. Reconciliations to the most comparable GAAP financial measures can be found in the appendix to today's presentation and on our website.

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

Thanks very much, Pete, and thanks to all of you for joining us this afternoon. We appreciate the time. If we could flip please to slide four, I'll give you a quick update on what we've been working on here over the last couple months at Century.

First just to put my comments here in a little bit of context. Let me give you just a couple high-level thoughts on the market environment that we're seeing. I'm going to keep these pretty brief because in just a couple minutes Shelly is going to give you a whole lot more detail on the market environment. But it goes without saying that volatility and uncertainty remain constants in our markets.

Obviously, at the most macro level, a strong dollar continues to pressure all commodities including base metals. We've seen a little bit of give-back by the dollar here over the last couple days and you've obviously seen the aluminum price and the price of other commodities react to it but the flat price, the cash price is up over $100, close to $150 over the last several trading sessions.

In our market specifically, fundamentals remain generally favorable. U.S. remains on a very good pace. We're seeing some light in Europe in agreement with the general economic indicators that we're seeing out of Europe and little new supply we see in the world outside of China.

Of course, China is driving the sentiment towards aluminum in particular. Couple factors. Obviously over-capacity remains even though the pace of new projects is obviously slowing. Growth in domestic demand is simply not keeping pace with the new supply in China, and of course, the cost base has come down due to a decrease in energy costs amongst other factors.

These factors and others have contributed to an increase in the flow of exports coming out of China. We saw that at the end of 2014 going into early 2015. Some of the very recent data looks like that trend may be ending but obviously we'll have to watch this very closely. And Shelly, again, will cover the market environment in more detail in just a few moments.

So on now to the Company. We think in this very complex environment that we've been seeing we had a very good quarter here. We saw operating improvements across all of our businesses, most noteworthy at Hawesville, and I'll get into more detail about that in just a couple minutes.

Power prices in the U.S. continue to be supportive of our business, and we think we posted very good financial results with strong cash flow.

Okay, getting to slide four now and the individual activities. Obviously at Mt. Holly we've been giving a lot of focus. The post-acquisition activities there are going very well. We continue to see really good value creation with our other businesses in key areas like safety, operations, and commercial activities.

The most significant transition work that remains continues to be the transition of the business systems at Mt. Holly. And we're using this opportunity to upgrade the systems across our entire Company.

Our SAT installation at Century is now ten years old, and we've put reasonably little investment in place since 2004. At the same time, we're adding a full suite of the most modern analytic tools. This'll be a meaningful investment this year. It's included in the capital budget that we gave you in February but we're convinced it'll add real value, especially as our business becomes more complex as it is.

Moving along. Of course, the major objective at Mt. Holly is -- before us is reaching a post-2015 power arrangement. Just to take a step back in our minds, the currency that we put in place in the middle of 2012 obviously expires at the end of this year. It's got two parts. We take 75% of the power we need at Mt. Holly from a third party resource and 25% from the traditional supplier, that being Santee Cooper which is owned by the State of South Carolina.

We spent the last four months in intensive negotiations with Santee Cooper. We've put a variety of proposals on the table, all of which would leave all other rate payers unharmed in any way. Thus far, the power company has declined to pursue any of these structures and we're continuing to work through the issues with them and with other parties to reach a package that'll support the plant's operations over the longer term.

The more time we spend at the (inaudible) this plant only increases the commitment to finding a path forward. I really can say we have world-class employees down at that plant. When you spend time down there, it's an infectious environment. And, again, it just hardens our resolve to find a solution here. The plant's got great production efficiencies and very good product quality. In addition, we've come to find that South Carolina is a terrific environment for a business like ours. Frankly, for any business for that matter.

So we're absolutely committed to running this plant for the long term. That having been said, the power price [on offer] from the traditional supplier is just not close to supporting the continued operations at this plant, and therefore, we need to find a creative solution. And I'll give you some comments later on about where we're heading here.

Moving along, we reached an agreement with our unions at Grundartangi during the quarter. It's a five-year contract. The agreement preserves good operational flexibility for the plant and it ties the development of our personnel costs to the broader labor market in Iceland. We think it was a very good result for all involved.

At Hawesville, we began negotiating a new labor agreement with our union February. Our goal continues to be to reach a fair and reasonable contract for employees that'll achieve the operational efficiency and flexibility that the plant needs and obviously will control growth in future healthcare cost.

We reached two separate agreements with the union negotiating committee during the month of April, and both regrettably were voted down by the membership. Thus, we presented the union with our last, best, and final offer last weekend and we're now considering the appropriate next steps.

Just a couple comments on the power situation in Iceland. There's a not a point on this slide, but I think it bears mention. Two parts, Helguvik first. As we've told you, we're back in arbitration with one of the geothermal companies. This company is making the same claim on which we prevailed in the first arbitration, and that claim, obviously, was that the contract is now longer valid. Frankly, they've been trying to do this since the present majority owner of this company, of this Icelandic company -- the non-Icelandic owner bought this company five years ago, so obviously we'll have to continue along with that process. With the other geothermal company we're continuing a good level of discussions.

At Grundartangi, the contract with the national power company expires in 2019. This was the original contract when Nordural was first built in the late '90s and it now represents just about 30% of the plant's power requirements. We've begun discussions with Landsbankkin regarding a post 2019 extension. The contract says that the two parties should be talking now, even at this early time.

Moving along at Ravenswood. In recent months, we've had the most substantive dialogue that we've had with the power company over the last couple years. We now have a detailed proposal on the table and in conjunction with the state tax credit that we've been voted, it would absolutely support the restart of the plant.

It's important to note again our structure requires no support from other rate payers. Thus far, we've had no commitment from the power company on our proposal. The state remains extraordinarily motivated to get the plant reopened, and we're getting close to a decision point here, at which point either we can push the [ball] over the line over the next few months or regrettably we're going to have to conclude it can't be done, and again, I'll have a few more comments here at the end of my remarks.

Just lastly here to remind you we've got a pretty aggressive capital expenditure budget for this year, for 2015. We detailed that for you during the February call. Just to remind you, we've got two reasonably large, one-time efforts this year, the first being the refurbishment and modernization and restart of the second big [furnace] at Vlissingen. This is our (inaudible) plant in the Netherlands. That project is on schedule and on budget and will conclude before the end of this year.

We'll then have 150,000 metric tons of final (inaudible) capacity at Vlissingen, and that's nearly enough for Grundartangi's current production rate. As a reminder, this is a $12 million project with a simple payback of under one year.

The second major project is the modernization of the (inaudible) up at Hawesville. This again is a significant investment, $15 million. Still on budget and on time. As we explained to you last time, this project is absolutely required for the operational stability of that plant but it'll also bring benefits in areas like a reduction in power usage and an increase in purity production.

We remain committed to the 2015 capital plan that we showed you in February despite the market disruptions we've been seeing here over the last month or two but, of course, we reassess it constantly.

And with that, I will turn it over to Shelly and ask her to talk a little bit about the industry environment. Shell?

Thanks, Mike. We can move along to slide five, please. I'll provide some comments here on the industry environment. The average cash LME price fell to $1,800 per ton in Q1. That's an 8% decline from Q4. [Spikes] were fairly range-bound in the $17.50 to $18.50 area during Q1 but in just the past few days we've seen prices push through the high end of this range and the cash price today closed just above $1,900 per ton. That's a level we haven't seen since late last year.

While Western World Aluminum fundamentals remain positive, concerns around Chinese exports and a strong dollar continue to weigh on the market. There have also been some recent changes in Chinese tariffs that have heightened concerns that exports of primary aluminum disguised as semi-fabricated products will continue to grow. These changes are still being evaluated but so far it appears that the products for which the tariff was removed represents only a small portion of Chinese exports.

In addition, falling premiums in Europe and the U.S. Midwest should discourage exports from China as the arbitrage is now essentially gone.

Okay, so let me talk about the regional premiums in a little bit more detail. The European duty-paid premium peaked at $490 per ton in January. It is now down at $175 per ton. In the U.S., the Midwest premium peaked at $0.24 per pound in February, and this is now trading at $0.1425 per pound.

The weakness in premiums is being driven by a combination of several things. These include the backwardation in the LME curve causing aluminum financing transactions to become uneconomic as well as changes in LME warehousing rules and continued overproduction of aluminum in China. All of these things result in increased availability of aluminum and less pressure on the premium.

We believe we're rapidly approaching a level where premiums should find support purely based on a logistical cost and for Europe [the duty] to get metal into these regions. [As things] often do in markets, the downward momentum may overshoot before it corrects to fundamentally supported levels.

In Q1, LME inventories continued the trend of a steady decline that we've seen since early 2014 and are currently sitting at the lowest point since mid-2009. As you can see in the chart, we're now approaching 40 days of demand in inventory. Dropping below this level has historically been considered an indication of tight aluminum markets but movement of inventories to non-registered warehouses has made this data much more difficult to evaluate.

Despite the market overhangs that I've mentioned, we continue to believe that there remains a good fundamental story for aluminum. North American year-over-year demand was up 5% in Q1 driven by the automotive sector and European demand is showing some signs of life. On the supply side, we continue to see new production in China as lower power prices are improving the cost structure for aluminum plants in that region but outside of China new smelter projects are essentially non-existent. Even with the expected Chinese exports, the global market for aluminum is forecast to be reasonably well balanced for 2015.

Okay, so just a couple quick comments on alumina before I hand it back to Mike. Australian pricing traded down in Q1 from $355 per ton in early January to $335 per ton in early March. Since then we've seen alumina prices tick up just a bit to the current level around $340 per ton. Pricing for Atlantic alumina continues to trade at a discount of about $10 per ton and overall the global alumina market's expected to see a modest surplus in 2015.

So with that, I'll hand it back to Mike.

Thanks, Shelly. If we could turn over to slide six please. A couple quick comments on the operations, and then I'll turn you over to Rick who will obviously go through the financial results.

First and most importantly, safety performance as you can see flattish at the U.S. plants. This is a comparison as usual of the most recent quarter to the quarter before that, so here obviously Q1 versus Q4. Grundartangi though uncharacteristically had a very difficult first couple months of the year. The team there has identified a variety of root causes for this and has put in place strict remedial actions.

The last two months have seen an improvement and much, much better performance but we continue to watch this closely. This is an area of significant focus from the highest levels of the Company.

Moving down to production. As you can see, good results across the plants with Hawesville in particular having significant improvement from the levels where it was in Q3 and Q4.

Moving along, KPIs or production metrics. Again, Hawesville showing noteworthy performance. A couple examples here. We have amperage and current efficiency both up nicely. Power efficiency improving by 2% and 2.5% more average sales online during the quarter. That's what obviously drove the production increase.

Going down and finishing with cost performance. As you can see again, good results across the board. Hawesville in particular was very strong. As a reminder, going back to about the middle of last year, we endured some pretty severe power modulations, and this caused an instability in the process, a drop in production as I've referred to, and an increase in maintenance and related costs as we fought to get the plant under better control. And we've seen a significant improvement in these areas, and as I said production's now back to full capacity.

As you can see, Sebree and Grundartangi obviously good performance, as well. No particular area of note there. The improvement was across the board.

And with that, I'll turn it over to Rick.

Thanks, Mike. Now let's turn to slide eight of the presentation, and I'll provide some additional details on our financial performance for the first quarter of fiscal 2015. Our net sales were up 7% from the fourth quarter reflecting the impact of increased volume from the Mt. Holly acquisition and our continued convergence from tolling to direct sales in Iceland partially offset by unfavorable market conditions quarter over quarter.

Let's start with the market impact. As a reminder, our fiscal 2005 (sic) pricing is on a two-month lag basis versus the one month lag used in fiscal 2014. The average cash LME price was down 3% on a two-month lag basis and the Midwest transaction price was down less than 1% sequentially.

[Realized] prices in the U.S. were down 3% in the first quarter reflecting that transition from one month to two month lag pricing. It is important to note here again as Shelly pointed out the LME and the Midwest transaction price actually declined 8% since December 2014 and this decline will show up in our realized prices in the second quarter of 2015.

Our Iceland direct sales are also on a two-month lag basis as they have been historically. [All in], two-month lag LME and European duty-paid premium decreased 2% in the first quarter consistent with the decline in realized prices. Iceland had direct shipments of approximately 46,000 tons in the first quarter, an increase of almost 6% from the fourth quarter of 2014.

We continued our migration from tolling sales to direct sales with an additional Iceland tolling contract for 49,000 tons expiring at the end of fiscal 2014. There is one remaining contract for 90,000 tons, which will expire mid-2016. Tolling sales were down 15% in the first quarter at approximately 30,000 tons.

On a consolidated basis, global shipments were up 9% in the first quarter versus the fourth quarter with the Mt. Holly acquisition driving the U.S. shipments up 15%. Iceland shipments were down approximately 4% sequentially, which is a reflection of the timing of title transfer on direct sales as discussed in previous quarters. Daily production in Iceland was actually up 2% in the first quarter versus the fourth quarter of 2014.

Turning our attention to operating profit, we are reporting an adjusted EBIT of this quarter of $101 million, an increase of $9 million compared to the $92 million adjusted EBITDA in the fourth quarter of 2014. The impact of higher sales volumes from the Mt. Holly acquisition, favorable power prices, and other operating costs was partially offset by the unfavorable impact of market conditions on pricing and higher alumina costs.

More all-in pricing, including the impact of a declining LME, regional premiums, value added product premiums, net of the impact of the LME on our power costs all combined to reduce our operating profit by $15 million.

As we noted on our last call, the majority of our alumina purchases will be based on an indexed price in 2015. This change combined with the expiration of certain percent LME contracts negotiated with historical terms very favorable to current market terms resulted in $12 million of increased alumina costs in the first quarter of which $6 million remains in inventory and will be realized in the second quarter of 2015. We'll refer to that again when we discuss cash flow.

Hawesville power costs were down $3 million and Sebree power costs are down $2 million from the fourth quarter of 2014. Our average delivered price to Kentucky in the first quarter was $34 per megawatt hour in line with our discussion of last quarter's call down from the $37 incurred in the fourth quarter and well off the extreme highs experienced last year this time as you can see on slide seven.

Mt. Holly power costs were down $2 million driven by the decline in natural gas prices with average prices just under $3 during the first quarter versus just under $4 experienced in the fourth quarter of 2014.

Our operating costs decreased $13 million in the first quarter with Hawesville cost improvements being the largest driver. As Mike discussed, the costs incurred in the back half of last year getting Hawesville [top line] stabilized and the resulting impact of lower production volumes on fixed costs absorption are behind us resulting in approximately $7 million in cost reductions sequentially from the fourth quarter of 2014.

SG&A costs decreased approximately $2 million during the quarter. That's after the adjustment to exclude severance related costs and was attributable primarily to a decrease in stock compensation costs in the first quarter.

In summary, incremental volume from the Mt. Holly acquisition, lower operating costs including power, partially offset by unfavorable aluminum pricing and increased alumina costs drove a net operating profit improvement resulting in adjusted earnings per share of $0.72 for the quarter, an increase of $0.08 from the fourth quarter.

Moving on to liquidity and turning to slide nine. Cash increased during the quarter by $84 million with the adjusted operating profit being the obvious driver. I will note our ending cash balance on slide 9 includes approximately $21 million of restricted cash as a result of a decision -- a cash collateralized from short-term power commitments that was released as expected just subsequent to the quarter end.

Capital spending during the first quarter was $13 million, and we expect spending in the remaining quarters of fiscal 2015 to be higher. As Mike discussed, we will continue to anticipate planned spending levels in that $80 million to $90 million range.

As noted in the earnings release, during the quarter our Board expanded our share repurchase program by approving an additional 70 million. In the first quarter of 2015, we repurchased 1.2 million shares with an aggregate purchase price of approximately $19 million. As of the end of the quarter, we have remaining authorization under the program to purchase approximately 61 million of additional shares. In the first quarter, we initiated the purchase of $7 million worth or 500,000 shares of common stock that settled subsequent to the quarter end and we do expect to continue to execute under our share repurchase program in the second quarter of 2015.

The increase in cash from working capital is driven by favorable accounts receivable payment terms negotiated for 2015 and the timing of liability payments. As we discussed last quarter, we expect to see a significant increase as we realize the full quarter benefit of these new sales terms. This benefit however was offset by an increase in inventory during the quarter. The growth in inventory is primarily attributable to the timing of alumina inventory receipts at Mt. Holly combined with that increased cost for alumina noted earlier.

While there were no acquisition-related payments during the quarter, subsequent to the quarter we did make an additional payment of $38 million pursuant to the terms of the purchase agreement for Mt. Holly which covered the final resolution of the pension funding obligations and the working capital and economic [close] settlements as previously discussed.

There were no outstanding borrowings under our revolver other than the letters of credit and available liquidity increase by $96 million as of quarter end including the temporarily restricted $21 million in cash.

With that, I'll turn the call back over Mike.

Thanks, Rick. If we could turn to slide ten, please. Just give you a sense on what we'll be focusing on here over the next couple months and then we'll get right to your questions. Obviously, Mt. Holly right at the top of the list. As I said, we need to reach a form of agreement for the post-2015 power arrangement. And in this respect, we need multiple parties to work with us and work together creatively. Time's getting short. If we can't find a solution over the next few months, we would be required to begin operating that plant with a view towards December.

This shouldn't have to happen. All the pieces are there. South Carolina authorities are very engaged and are well aware of the importance of Mt. Holly to the economy of Berkeley County and to the broader state. Now it's time to break the back of this and we're cautiously optimistic it can be done.

As I said before also, we have to find a rational path forward for a labor situation at Hawesville and we'll be spending lots of time and effort on this over the coming months. On Ravenswood, as I said, a power contract there. We've got what we think probably is our last substantive idea on the table with the power company. If we can't develop any traction on that, we'll need to assess our next steps.

These could include a filing with the PSC, the Public Service Commission obviously, on a unilateral basis. We're convinced our structure works though we think that task forward might have some merit. At the same time, we'd have to start considering what our next steps would be if we aren't able to find a path forward.

Lastly, we've continued to make very good progress with the design and engineering of the value added products investments that we've been considering both in the U.S. and Iceland, and we continue to believe given our hot metal position that we're in a unique position here.

At this point though we're going to take a short pause and assess where these markets are heading in the U.S. and Europe. We're still convinced that there are attractive long-term market opportunities and as I said that we're in a great position to exploit them.

And with that, Operator, I think we can go right to questions.

Thank you. (Operator Instructions) Jorge Beristain, Deutsche Bank.

Hey, Mike. Congratulations on a really solid quarter and a much-improved balance sheet.

Thanks, Jorge.

Although we can appreciate there's some restricted cash in there.

Just to -- I'm sorry to interrupt before you even ask the question, as my colleagues know that's always a risk with me, but that cash has now been made unrestricted as of the first couple days in April. Just what it was is it was the MISO capacity auction and the rules say you've got to post an LC. From the time you enter your order, you've got to order, obviously, all the capacity (you need) to the time the auction clears so it was just a procedural thing. It's not done in (inaudible) so that cash is back in the reel, too.

Oh, and thanks for the clarification because I actually thought it was restricted cash pending from the Mt. Holly acquisition.

No, not at all. Sorry about that. That -- it was literally -- it's a one-time thing. We have to go through it every year now to -- when we buy capacity in MISO.

Got it. And my first question, I guess, is just plain and simple. If you guys are now in a two-month lag and given where we are in this quarter, you basically know what your realized average pricing should be. Would you be able to just kind of walk us through what the next step down is because you'd kind of hinted that I think you took something like two or three percentage points of the 8% down move in aluminum so you kind of know that there's about another five percentage points to go. Could you kind of give us maybe what you're looking at for your realized price into 2Q?

Well, yes. I'm trying to do the -- I understand the math, the puzzle piece that you're asking us to fill. I can't really do it on that basis but other than to -- let me make a couple comments. We agree 100% with your comment. I mean Q2 is very close to priced at this point. And so all you really need to do is to take our volumes, obviously, and take the actual Midwest transaction price, so obviously Midwest premium plus cash LME with two month lag for the roughly 700,000 tons in the U.S. and the European delivered price, obviously the LME cash plus the European duty-paid premium in -- for the roughly 300,000 tons. Those are rough numbers in Iceland and that's kind of before product premiums.

I mean, we've given you guidance back in Feb on -- back in February on product premiums. That's going to be your delivered -- weighted average delivered price.

Right. So I was being lazy and obviously we can [work] ourselves offline but I just thought I'd ask. And then just a strategic question. Just if you could walk us through why you think that the negotiations at Ravenswood seem to be coming to a head. I just -- from your language, it seemed to be that you're going to sort of be at a make or break decision shortly and could you just provide more color on that?

Yes, sure. It's a good question. I'm sorry if it didn't come out but the reason is pretty straightforward that we're -- end of the line is maybe a hysterical statement, but we made sort of the last proposal, the last cut at this that we know how to make along the premise that we can't ask for any structure that would transfer cost from one group of rate payers to others, i.e., from ourselves to others, and so we're kind of -- we've got a proposal on the table that we believe accomplishes that and if this one doesn't get taken up, then I guess the way to look at it is if this doesn't work, what will at this point? We've tried and tried and tried.

So, there's no -- Jorge, I don't know if this -- if I'm taking the right inference in your question. There's no third party saying that it's -- we're at the end of the line or that we're at a decision point. We're just saying look, we can't keep doing this forever. On behalf of our share owners, it costs money to hold this plant in a ready state and at some point we either have to say we're going to move forward and get a structure that works or very regrettably, it would be a terrible day to conclude that we just can't get there.

And is there a specific kind of line in the sand deadline you could give us?

No, there really isn't. I mean, there isn't because there isn't. And because we've continued to and we -- we're going to continue to do everything we can to find a solution so if I told you end of May but then by mid-May we had a [kernel] -- an idea that was bearing some fruit with the power company, I -- the end of May would no longer be a good date. So I'm not trying to duck the question, but it kind of -- it's like -- you kind of know it when you see it, right? I won't use the pornography analogy.

Okay, and sorry to dominate the question queue here but just lastly any relation to the other side of the table, maybe taking a wait and see attitude to how you do with Mt. Holly or do you view those as two completely separate --

That's an interesting question. I think they are absolutely and completely separate. They really are, and if you knew that's sort of the nature of the negotiation and the structure, you could appreciate that. But they really are totally separate situations, totally separate counterparties, totally separate states, totally separate -- a PFC on the one hand and a state-owned power entity on the other hand.

Okay. Thanks very much.

Thanks, Jorge.

Timna Tanners, Bank of America Merrill Lynch.

Hello, everyone.

Hi, Timna.

So a couple things. One was I think you always give us good detail on your progress on restarts or power negotiations, but remind us if your thinking changes on the -- given the Midwest premium having declined or if that is not part of the calculation when you're deciding go or no-go on some of these projects.

Yes, very good question, and on Ravenswood in particular. I'll answer Ravenswood and then I'll answer the other. So on Ravenswood, no. In fact, when we built our restart model, it's interesting as the premiums started falling we pulled it out because we hadn't updated it in two months or so and looked at it and we use long-term estimates in these kind of models as you would hope. Anybody who's putting spot prices in there on either the flat price or the premium regime I think doesn't understand our business very well, so that's a mid-winded answer to your question. No. The financial analysis that we did still stands where we think premiums are heading.

Perhaps on the second part of your question, the value-added investments turn on the net value added premiums. When I mean net value added premiums, obviously the product premiums net of the incremental casting costs. And those are totally independent of a, LME and b, delivery premiums. Those have to do, obviously, with -- if it's for [billet], the automotive market, construction market. If it's for [body-in-white's] kind of stuff like [slab] the automotive body sheet market, it's supply and demand in those markets.

So, it's no to both questions but for different reasons.

Okay. Got you. So to be greedy here, you give us really nice amount of detail on slide 13 of last quarter's deck and you don't update it, but is there anything that you could point out here that's changed in your thinking in terms of the guidance? Do you have anything to update here?

Rick?

No, not yet. We will typically when we see something that we're ready to update we will provide an update on the call. We had that discussion and pretty much we would go with the assumptions that we actually [have] to use for 2015 as presented last call. Obviously, there's movement in the premiums and the LME, but the sensitivities that we provided help you to adjust accordingly.

But on things we can control, costs, CapEx, SG&A, interest, and all the rest.

Right.

As Rick -- I think Rick made the salient point to me. If there were a significant change, we would be outbound telling you, and I think if I recall, Shell, did we not update it mid last year because there was some changes or one year we did --

We would definitely update it if it had.

We've done a mid-year update, and so we'll do that if anything changes.

Okay. Cool. Now the last question I wanted to ask is more like big picture, but it's been kind of shuffling around of like aluminum players global and domestic deciding to go upstream and downstream and where do you see Century's role in the larger picture of aluminum players? Where do you see yourself? Are you content being a mostly smelter player or do you see yourself participating in other parts of the value chain going forward? Thanks.

That's a great question which we talk about all the time so I'll try to keep at as brief as I can. We see ourselves as an upstream player. That's where our competencies lie, technical competencies and operational competencies, and on the marketing side but principally on the operations side. I mean, that's what we believe we do. And so in that respect, you never want to say never but I would be surprised to see us make a move downstream.

Now, on the upstream side, as we say, I mean, our view is that one of the areas that would be interesting for this company to look is further upstream. [Box Side] and alumina obviously were completely short alumina and while we would never make an investment in quote-unquote vertical integration for the sake of it alone, I think over time the Company probably ought to have a position further upstream, and it's just the question of waiting until the right opportunity presents itself.

Okay. Cool. Thank you.

Thanks, Timna.

David Gagliano, Bank of Montreal Capital Markets.

Great. Thanks for taking my questions. I was wondering, first of all, if you could just walk us through the next steps and the potential backup plan at Hawesville and obviously there's some issues there and feel free to use another porn reference in the answer. Thanks.

David, thank you very much. I guess I deserved that probably. You know, look, at Hawesville right now the answer is we don't know. And we're considering the right next steps and really at this point in time that's all I can or all I should say. When there's something material to say, obviously, you'll know about it, but at this point in time we're really just thinking about what the right course of action is.

Okay. All right. Fair enough. Now, just on the -- I may have misunderstood what you said. The value add commentary, I thought what you said was you may be backing away a bit from the investments on the value add side.

We're just -- just from a timing standpoint. So, let me be transparent. Three months ago -- or pardon me. If the market had sort of developed as I think most market participants had, meaning premiums had continued to fall as we predicted they would last time but had fallen in sort of the more linear fashion that most people had expected, I think we'd probably be going forward. These are good looking investments with good IRRs, and again, the beauty of them is there are not a lot of people with hot metal capacity which is what you need, of course, to devote to investments like this. I mean, the players in these markets are looking for hot metal capacity and we have it.

And so the only thing we're saying is look, let's be sure here that we understand at least the factors that are going to drive these markets over the next couple quarters if not next couple of years, specifically what's going to come out of China and -- both figuratively and literally what's going to come out of China before we pull the trigger here and move forward.

And so that's all we're saying. We like the investments. We like them from a financial standpoint, we like them from a strategic standpoint, we think we can execute on them, we know what we're doing in this area, we got people on staff who know what they're doing. We've got customers ready to go. It's just out of an abundance of caution. Let's just hit the pause button here for a couple months or so and see what the world feels like at end of the summer or something like that.

Okay. And you touched on really the nature of where I was going with in terms of I guess -- from my perspective it sounds like you're seeing a little softness in the value add market. I don't want to put words in your mouth, but I mean, it -- essentially that's, to me, what you just said and I really --

No, no. Actually, bill of premiums have stayed pretty decent. I mean, they've come in -- when I say bill of premiums, of course I mean net over Midwest delivered or European delivered, so that's the billet content, the value added content of the premium because they're priced final delivered.

But, no. They come in just a tiny little bit but they basically fall in with the Midwest transaction price and the European price. And so it's more just from a very high level macro standpoint where these markets are heading because as you remember us talking about in February, we were seeing some products coming out of China that were disguised as things that they weren't supposed to be and some of those products were ending up in these markets, both in the U.S. and getting, for example, re-melted in secondary re-melters, secondary billet producers in places like Mexico and while those haven't had an influence yet on these markets, billet premiums, you're asking the right -- you're in the right zone as far as we're concerned. We just want to make sure we understand to the best of our ability what's going on here and it's just -- it's too -- it's so many factors moving around.

Shelly talked about the change in the export tax regime, and we just want to make sure we have a better understanding before because some of these commitments, as we said last time, are reasonably large. They're not $100 million kind of commitments, but some of them get close to that.

Okay, great. And then just the last question that's related. Obviously, you mentioned the changes in exports and in export taxes and in tariffs out of China and putting the -- sort of the steel hat on for a second, why are we hearing more or is there any reason to talk about some sort of trade protection?

Great question. It -- [if it hasn't become], there's a lot of people thinking about that, David, and looking at that and you've seen it. For those of you who cover the steel business as well, the industry as well, you see some on that side and so that's an -- it's an excellent question. It's an obvious point, and don't take any thus far sort of public silence from the industry either in the U.S. or in Europe by the way. There's been more noise from the industry in Europe thus far from the primary producers. Don't take it for a sign that there's no activity going on.

Okay, great. Thank you.

Thanks, David.

John Tumazos, John Tumazos Independent Research.

Thank you all for delivering a 5% after tax return on assets and over 9% return on equity for the quarter. I'm a little hesitant to annualize those numbers, but they're very good.

Thanks, John.

Two questions. First, does the model of reorganizing an existing smelter and lowering costs work in other countries? I noted there's a 447,000 ton smelter in Sao Luis where the power rates are very high, but I guess sometimes in Brazil near the equator it could rain.

It would be wonderful if it did, John. As you know, they're operating on about 60% of their normal hydro capacity. You raise an excellent point. We're reasonably familiar with that situation and so I get it on a restructuring of the power cost. That market in particular, that's a tough one, and you know you've got market prices in Brazil now that -- they price obviously in real but on a U.S. dollar at the current -- just shy of three exchange rate, you're talking like undelivered above $50 a megawatt hour. So that -- unfortunately, that's like the market and the market here we've been willing to structure a business against. That's what you're looking at down there, and so that -- I think that's a tough putt.

Ask another question. What is your average company-wide electricity consumption per pound smelted? And what would it cost to improve, say by a quarter kilowatt hour per pound? I was reading stuff about 600 kilo amperage in China supposedly only using 5.5 kilowatt hours per pound --

Per pound -- we do it on -- God, you're killing me here. We do on it megawatt hours per metric ton, so I can -- I have to do the --

We can convert it.

-- 5.5 times 2.2 --

We can convert it if that's the way you're comfortable.

Hang on. Hang on. Five (inaudible) 2.2 times is 12. Yes, I mean, that's close. We've heard like 12.5 on the way we look at it. You're saying 12.1. Frankly, on that 12.5 that we think that 500 and 600 KA -- I don't know much about the 600, but the 500 either the (inaudible) technology or the stuff in other parts of the world. Grundartangi is darn close to that number right now, and on a weighted average basis with the rest of our whole system just -- John, this is a guesstimate, it would be somewhere in the 14s give or take the way we look at it. Shelly's giving me the up sign. Maybe a little higher than that, so think 14.5 maybe, close to 15 and divide by your 2.2 and you'd get to the way you're looking at it.

In terms of investment, you're talking about big, big dollars, and that's the -- you ask a good question. All of these technologies where -- these pods we're running way above their design line current or design amperage, so you're talking about -- I can't cite it in the metric for which you ask, but these are nine figure investments to make a material move and material is practically anything at this point given that we're pushing all these against their stops.

So, I -- you never want to say never, but that's a tough one because it's kind of all or nothing.

(Operator Instructions) Tony Rizutto, Cowen & Company.

Thanks very much. Hi all.

Hi, Tony.

Hey, Mike. First, I just wanted to follow up a little. I wonder if you could share with us what Midwest premium you guys are using in your financial modeling over the --

Oh, gosh. It was -- you know, it was kind of consistent with the -- and this would be just for these -- for, say, something like a Ravenswood restart model, Tony, where the Midwest premium is quite relevant. You know, it's around where the [CRUs] of the world have their long-term estimates, so in the very low double digits kind of area.

Okay. All right.

Very, very low.

They just -- they lowered that. You probably are well aware --

Oh, yes. Oh, yes. They're all -- they're all -- yes.

Yes.

Yes.

And then my second question, you know, you brought up China and another question or did about steel and there are a lot of people listening in today that also cover steel and it's been occurring to us more and more that each day goes by it feels like aluminum is becoming a little bit more like steel with the overproduction. We are alarmed at some of these tax changes, the export changes, and I'm wondering as long as they over-produce, does it really matter where the arbitrage is?

Well, I mean, that's a fair point. You're saying if the material is there -- it's like a glacier, it's going to move is your point --

Right.

-- regardless of the economics?

Right.

Yes. I mean, I suppose --

It's going to go in different parts of the world --

Yes, please go ahead (inaudible).

I'm sorry. I was just going to say it tends to move into different parts of the world. I mean, it's one of the things that we've had to deal with in steel and it seems like as they move their cost position, as they're getting a little -- John mentioned about the consumption, I think if you do those numbers it comes out to about 12,500 to 13,000. They seem to be developing new technologies which are enabling them to get better electrical efficiencies than we do here in the West. I think they're probably barring --

Yes. I mean -- sure. The big mover, of course, the power efficiency is important although the vast majority of the capacity in China is still at much, much, much higher power efficiencies, i.e., worse than that. The big news, of course, is in the price of the fuel and thus the price of the power as they move the smelting base -- two things, as they move it -- the smelting base further west closer to the coal fields and it's just the world price of coal as you're well aware continues to come down. That's kind of been the big news over the last, I don't know, couple quarters in terms of China's cost base as you know.

And so, look, we believe ultimately the economics are going to dictate. They're not going to produce and export for a loss. It's really interesting. You know, you've seen so many conflicting signals and that's why I think a lot of market participants are confused. It was just a month ago when you saw the first official statement from the Chinese government through an official Chinese government-owned newspaper where for the first time there was a critique of the so-called exporting of the fake semis. And so it was clear to market participants that the government was sending a strong signal there. It was coming right from the government and then they turn around and then they remove this export tax on these very small product codes and so it's -- if anybody out there is purporting to understand what the trend is here, I'd like to talk to him or her.

That's extremely complex to try to get arms around. It really is.

Yes, sir. Yes, sir. Yes, sir.

All right. Appreciate that, Mike.

Thanks, Tony. Appreciate it.

Mr. Trpkovski, we have no further questions at this time.

Okay. We again very much appreciate everybody's time, and we'll look forward to speaking with you in July if not before. Take care now.

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.