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Century Aluminum Company (NASDAQ:CENX)

Bank of America Merrill Lynch 2013 US Basic Materials Conference Call

December 10, 2013 2:50 PM ET

Executives

Michael A. Bless – President and Chief Executive Officer

Analysts

Timna Beth Tanners – Bank of America Merrill Lynch

Timna Beth Tanners – Bank of America Merrill Lynch

Good afternoon. I am Timna Tanners. I am the U.S. Metals and Mining Analyst at Bank of America Merrill Lynch. Thank you for joining us. This session we have Century Aluminum with us. Century Aluminum is a upstream aluminum producer able to give us context on the global aluminum market, aluminum supply and demand and all the steps that they are taking, I should say toward improving their cost structure. So an interesting story and I will hand over to CEO, Mike Bless. Thank you.

Michael A. Bless

Thanks Timna very much and thanks everybody for being here this afternoon with us. [indiscernible] let’s try this. Here we go. If you’ve read those before, I won’t belabor that. Pete Trpkovski my colleague is up here with me and again, Timna, thank you for sponsoring us being here. Just a couple of comments. What we’d like to do here is, I’m sure you’ve heard this from others, just keep this interactive. So I would encourage you please do interrupt us as we go through. We’ll try to move through the materials. We only have a couple of slides here because our preference would be to provide plenty of time for your questions, which we think is a more helpful format here. You can barely see that. So I’ll make sure I refer to what I’m talking about.

Century, as Timna said, is an upstream producer. So by design we produce and market a commodity. Our mission is to provide our investors with exposure to the commodity. Obviously our intent is to provide a return in excess of the movement in the commodity price whether it’d be going up or going down. As Timna said, we do this through a number of measures.

First, we’ve been working hard and we think quite successfully at improving the cost structure of the plants over the last couple of years. And for those of you who follow Aluminum you know the real differentiator from a strategic standpoint essentially worded in from a cost structure standpoint is the power price, but the structure, I should say the power arrangement. So both the structure, i.e. the duration, the longevity of the power price and obviously the ultimate price itself and how it’s managed or structured and I’ll comment on that as I go through each of our businesses because they are quite different in those regards.

Second, we’ve been working very hard recently with good success to improve the value added content of each of our plans. So despite the fact that we only do produce a commodity there are value added products in the commodity space that one can produce for which you want to return above the commodity price and I’ll wait and comment specifically on each of our plans, but that’s quite important in a business like ours, especially given the commodity environment under which we’ve been operating here over the last couple of years.

And third is, we try to invest intelligently in the business, both inside the four walls of our plants and externally and I’ll talk about a recent acquisition that we have made and some investments that we have made and are making in our plant. So that’s the company in a nutshell before I go through each of the facilities.

Just quick background, the company was formed in the mid-1990s. It was prior to that owned exclusively by Glencore. I guess they call Glencore Xstrata now with whom you probably or most of you are probably familiar. It was their collection of aluminum assets that they took public in the mid-1990s and Glencore still owns just about 45% of the common stock of this company.

So as we go through the business, really an easy way to think of it is two separate but equal businesses. We have a terrific business in Iceland about which I’ll talk in just a moment. I’m actually going to start on the U.S. and move I suppose to the Northeast. It’s a world-class business in the first quartile i.e. the most favorable quartile of the global cost curve.

The real differentiator there is very long-term, decades long, I call them structured power contracts and I’ll talk about what structured means when I get to Iceland. But basically the form of the contract there or the form of the pricing management there, just to foreshadow, has us paying for our power bill as a percentage of the commodity price. So in essence we have a natural hedge, fancy term to the price of our product, i.e. our power price goes up as the price that we received for our product goes up and our product price goes down when it goes in the other direction. That’s a terrific business and again I’ll get to that in a moment.

Of the 865,000 metric tonnes per year of current productive capacity that we have operating, we have one other plant and one other project that are right now not operating and I will get to those as I go through this. But at the 865,000 tonnes, 300,000 tonnes is in Iceland, so about 70% and their partners 30% and the remainder is in the USA.

The real pieces here in the USA again for those of you who know this industry, pardon me, I think probably you need to stay close to this thing so people can here. Sorry, Timna – is the power situation in the U.S. markets, the fuel situation i.e. the cost of the ultimate fuel whether that be coal or natural gas or renewables and importantly the supply demand equation in the U.S. power markets. That’s the thesis here for our U.S. business.

I think for those of you who followed the sector for some time or if you would ask any experts in the sector, a couple of years ago and certainly today there are those who have given these assets up for dead, given the balance of power prices in the U.S. and in another parts of the world principally the Persian Gulf where a lot of capacity has come on in China, which runs to its own accord in many circumstances.

Our thesis here is somewhat different than we acted on and we think these plants can have a long productive life and are in very good returns for our investors as long as we get the power right. And that’s where we focused with the plants that we traditionally owned, historically owned I should say; one plant in Kentucky, and one plant in which own half in South Carolina, Alcoa being the other co-owner. And actually a plant that we just bought from Rio Tinto Alcan, obviously an industry major earlier this year, under the thesis that these plants can be quite productive and earn quite good returns if these power contracts and power arrangements can be constructed correctly.

We spend a lot of time doing that. So with that let me just go through the businesses one by one, talk about the salient characteristics of each of the products that they produce and sell and importantly the power and then we’ll move to Iceland.

Hawesville, Kentucky starting over here on the Western edge, I guess of our product portfolio, anyway is one of our longest held plants. We’ve owned that business since the early 2000s. That plant importantly has a major customer next door to it, a very large private corporation called Southwire, it’s about $5 billion family run business quite a good competitor in the electrical grid market and a very good customer of ours has historically taken about two thirds of the metal from our Hawesville plant in molten form, so we saved on the cost of having to cast that metal and the cost of having to ship it, because in this industry the convention is that the prices of delivered one i.e. the production bears afraid. And they’ve saved from not having to our customers Southwire was saved from not having to buy cold metal and caustic.

As we have over the last two years tuned Hawesville and got it running in our opinion and the statistics would bear this out, much better than it has in its history. We have continued to ramp the amount of high purity metal, I’ll talk about what that is in a moment that we can produce out of this plant and so while Southwire will continue to be by far in a way that I’ll call it the anchor customer for a long period, a better turn of this plant. And we’ll always take if not half of the production of this plant, close to half of it.

We are producing enough parity day where we want to sell that metal in the market place and attract the premium that it garners, just to give you a sense for those who don’t know the business bear with me for a second, the final price that a producer gets is obviously the commodity price, here the LME price which is roughly a cash price of about $770 a metric tonne, pretty low in the grand scheme of things.

On top of that you get a local delivery premium depending upon the region in which you’re producing and delivering in the U.S. that’s the Midwest premium. That’s quoted in cents today that’s a $0.11 or roughly $230 a pound or per tonne on self of that. And on top of that price – final price, you get a premium for any value-added products that you produced.

So at Hawesville with the purity that we’re producing which could be upwards of 40% or even more of the plant. We might be receiving a price on top of that anything from another $0.07 or $0.08 to up to $0.20, maybe even a little bit more per pound based on the grade of high purity metal. Most of that metal is going into the aerospace in defense and some into the electrical markets.

So we get a differentiated product there at Hawesville. We and DUBAL, the Dubai Aluminum are the only high volume producers of high purity metal in the world. So if you're a U.S. consumer and need high purity you're buying from us or if you're having it freighted in imported in from DUBAL, and all the other majors buy from us. Alcoa, buys from us, Kaiser buys from us. I understand Timna they presented that just a little bit ago. So they are all good customers of ours for high purity metal.

The biggest issue at Hawesville was the power contract. We this plant got itself into a lot of operational difficulties a couple of years ago and we work very hard over the last two years, really three years now to get the operations where we need to be – we took about $250 per tonne, this is pre, the change in the power arrangements out of the operating cost of that plant. And what we were then left with – was a very good plant with a terrible power contract.

Let me just talk about the power situation in Kentucky in a moment, because it’s relevant to both Hawesville and to the plant we just acquired from Rio called Sebree. And each of those two plants have the same or has had the same power provider. It’s a small rural cooperative electric system in Kentucky called Big Rivers Energy, it’s got 1,100 megawatts switch, for those of you who know the electricity business is really a very suboptimal system old coal-fired plants and basically [ph] it’s really four generation stations. So four units old coal-fired system and we had a – we and Sebree both – we were their major customers. We and Sebree combined took almost 75% of the power from this small system.

Had a power arrangement in which we were contracted to basically paid their cost, their total cost. And that meant not only a production cost but the cost of their overheads and the cost of their balance sheet, there was actually an adder on top, it’s a highly leverage company their bonds trade in S&P and Moody’s reports that you can read. There was actually an adder every month that went up or down to ensure that they maintain a 1.45 fixed charge covered ratio. So we were actually in essence back stopping their balance sheet which, we didn’t think it was a smart thing to do and it resulted in a power cost that just wasn’t competitive.

So after a year of pretty tough negotiations with the power provider, we terminated our power contract last August, 2012. That was a one-year notice period required under the contract and what we were certified to do when we terminated the power contract we were required to certify under the contract that within that one-year period either we found a better power arrangement or we were promising that we would shut plant down and that’s what we intended to do.

That resulted in a series of further negotiations and a lot of political involvement as you would suspect, and we finally after six or seven months did come to a power arrangement with the power provider. I’ll talk about it in a moment that was submitted to the regulators in June and approved for Baden [ph] and just as it was submitted in August. So we are now on a new power contract at Hawesville and we’re buying from the market for those of you who again follow the utility industry we are buying in the MISO market, which is the regional transmission [technical difficulty] that healthy market for about 120,000 megawatt, from which we purchase on a day ahead basis everyday. It’s also eminently hedgeable, it’s a very liquid market, so one can price manage, power cost areas to selling client.

Just to give you a sense that took our power cost down from about $50 a megawatt hour which would have had us in the upper quartile or at least the third quartile of U.S. producers down into low $30 per megawatt hour which is one of the more favorable prices in the U.S. and just to give you a sense the change in run rate EBITDA for Hawesville around that change produce was about $60 million a year. So it added $60 million a year independent of the commodity price to the cash flow of that plant and it was critical to us.

We were either going to shut that plant down or get a new power customer, we send out warning notices, I am sure you’re familiar what those are to all of our employees. We had sent a notice of termination to Southwire, our good customer there. So we were on the road to closing that plant. We had come to the termination that we were not going to run that plant on behalf of our investors for a cash flow breakeven or a loss.

Moving onto Sebree, it’s a very similar thesis there, so I’ll talk about the plant very quickly and then I’ll move on to the acquisition. Again, same power contract with Sebree. Their power contract ends on 31st of January 2014 and so assuming that the same contract is verbatim how bills is approved by the regulators in January as they did in August.

We’ll move to that same power contract that we’re having with Sebree. It will be actually a little bit greater because Sebree’s power price today is actually little bit higher after Hawesville left the system, Big Rivers raised, everybody is raised, it’s a collaborative, so they had no other way to balance their PNO other than to raise their revenues when they loose a customer.

That plant also makes the value-added products about half of the production capacity there, 2,000 tonnes is automotive billet principally. So then the U.S. automotive market which is a very attractive market today garnering very high premiums, so it’s about half of the capacity there. We bought that facility from Rio. I’ll talk about the terms of the acquisition but after a two year negotiation, we think we made a pretty good deal there with Rio and are now a major billet supplier in the U.S, Midwest – I’ll get to our share at Mt. Holly in a moment which put us in a very attractive position, especially given the strong automotive market in the Midwest, U.S. So that’s Sebree.

You should look in January to the extent that you’re the following the company for a approval by the Kentucky Public Service Commission of that contract, which as they did about two of the Hawesville contract in August.

Moving quickly to Mt. Holly, 230,000 tonne plant roughly of which we own just shy of 50%, so we get about 115,000 tons from Mt. Holly. Alcoa owned just over 50%. They operate the plant on behalf of the joint venture. Also half of the capacity here is billet. So about half of our 115,000 tonnes that we take there is automotive billet, again a very good business.

On power, importantly we in 2012 came to an accommodation with the power provider there, it’s a large system called Santee Cooper, that’s owned by the state of South Carolina somewhat unusual for the state to actually own the generation system there. It was a short-term contract. It goes up to the end of 2015. We in essence found a generation resource that’s one happened to be in Alabama, a gas-fired resource that had spear capacity. So we in an essence released 400 megawatts, that enough for the whole plant from them for three and half years. That deal as I said, ends at the end of 2015.

So we’re are actively now working with the state and with Santee Cooper to re-op that deal. We think what we accomplished in Kentucky could be a role model here, but the circumstances are somewhat different, again, given the ownership of the generation asset. So we have to tailor obviously our approach given the facts and circumstances here.

Importantly, again, if you are following the company, we’ve talked about all this for the last two years. The current deal requires us to, Timna you obviously know this, to provide a termination notice to Santee Cooper if we wish to terminate their service post 2015. And you might ask why we would do that, little over two years from now. If we don’t provide that termination notice and don’t find a solution with Santee Cooper, the joint venture is on the hook for paying a demand charge to Santee Cooper whether the plant runs or not till 2023. That will be about $12 million a year to potentially share.

So while obviously two years is a long period of time and it took us almost a year in Kentucky, as I said, the conclusion at Hawesville, you could well see us provide that two-year termination notice just to make sure that that contingent liability isn’t facing us post 2015. So, again, that’s something to the extent that you are following the company that you might want to look for here over the next, I suppose, 20 days now.

I’m going to talk about Ravenswood in a couple of slides. This is a plant – our obvious plant that we curtailed during the financial crisis, 170,000 tonne plant, again with an anchored customer next door for those of you who cover the downstream market, Constellium, which is a large French-based company owned partially by Rio and partially by Apollo with a little support by the French state, which is largely sold down I suppose now. Owned this plant and when it was running, took about two-thirds of the metal in molten form as well. It’s aerospace plate, basically a Boeing supplier. Good business, plan to shut now, but I’ll talk about our efforts to restart it in a couple of slides.

And with that let me move to Iceland. So we have an operating plant here at Grundartangi, is the pronunciation. Century bought that business. The parent company is called Nordural, basically Nordural Aluminum in Iceland I suppose. In 2004, it was a 90,000 tonne plant at that time. We paid a little of shy of $400 million for the business and put another $600 million in the ground and currently have a productive capacity of 260,000 tonnes there. We’ve prepped that plant to 285,000 tonnes without any further investment. And then just last year announced an investment program to put another 45,000 tonnes in there for about $60 million.

For those of you who know the industry, a greenfield investment and new plant in the Persian Gulf might cost you $8,000 per tonne or $9,000 per tonne of new capacity. So we are putting this capacity on in this greenfield investment for less than $1,500 a tonne. So even in the current commodity environment it’s a very high return.

It’s a terrific plant, world-class metrics in efficiencies; power efficiencies, carbon efficiencies, safety and all the rest. We are very proud of it. Timna was talking about it, potential field trip there, which we would be very happy to sponsor. It’s a really great plant to see. I would recommend June rather than December, January if you want to go, but it really is a terrific plant.

Again the selling characteristic there, it’s power contracts that go out into the mid-2030s that are priced as a percentage of the LMEs. So we pay the power companies six percentage of the LME price. With that the cost structure for example is at the current LME price this would be way down in the first quartile, the most favorite quartile. Back when metal was 2,500, 2,600, the spent was probably in the more favorable portion of the second quartile, but we’d be happy to have there again. Obviously as the commodity price goes up, we pay more for power that we leverage at the fixed cost of the plan. So the cash EBITDA margin increases obviously as the LME price goes up and obviously decreases as it goes the other way.

So we think there is a lot of things we can do at this plant to continue to improve it and we’re right now doing right in the middle of this investment program to get the capacity to closer to 325,000 tonnes that’s right on target and on budget. Let me spend a moment on Helguvik right now. So this is a new plant in Iceland, mould out of the current plant. It will be newer technology than the current plant and therefore more productive lower cost. We had signed power contracts with two geothermal power providers. This is going to be the first smelter in the world that’s 100% geothermal powered. It sources for our current plant at Grundartangi about two-thirds geothermal and one-third hydroelectric.

So we signed two power contracts with these two geothermal power companies right before the crash is where small company owned won by the city of Reykjavik and the other by the municipalities around the smelter, which is in southwest, I’d say, near the airport for those you have been there. Of course, Iceland promptly went bankrupt. These companies are functionally and so are still operating, understands to agreements with their lenders, we understand the story and we’ve been struggling with them for about the past two and a half years once the dust cleared to try to restructure these power contracts to give them the means to build develop a geothermal power they need to do to get our project going again.

The problem has been their idea of restructuring this power contract has been to have us paid more money that hasn’t been our idea. And so we’ve been kind of stuck with them for the past two years. We’re now speaking with the National Power Company, by far the largest in Iceland, largely hydropower resources to bring them into the project, which would at the right price for us enable that project to get restarted.

It could be a world class plant. We’ve got $150 million in the ground before we start construction there, which we’ve largely done now. We’ll spend to keep the project alive. In 2014 we’ll spend maybe a $0.25 million or maybe $300,000, less than $0.50 million to keep that project alive. We told the Icelanders we’d be happy to develop this project, but only if it’s a extraordinarily good return for our share owners and anything short of that our investment here is sunk and we’re happy to sit here. We are not happy, but we feel comfort to sit here than to proceed with an investment that’s not going to be a good one and are risk low one from a financial standpoint.

So that’s where Helguvik sits. To us it’s a great option to use a fancy term for our investors, but at this point that’s what it’s continue to be until and unless Landsvirkjun, the National Power Company wants to help us get this project going. It could be a wonderful, wonderful investment for us. It could be a great investment for Iceland even in the current LME environment. This plant would be a very attractive one, an extraordinarily attractive one. But we have to have a same sort of facts and circumstances in order to procedure.

Moving quickly, just before I switch to the next slide, we’ve made very good progress over the last couple of years in filling in a key raw material here. These are carbon anodes. So there’s two principal raw materials for making aluminum other than electric power. One is alumina. I’ll talk about that in a minute. That’s the white powder that is refined from bauxite, which is the base with the dirt that mine. We’ve got some ways to go on alumina. I’ll talk about that in a moment.

On carbon anodes, we buy those for our plant in Iceland and we had bought them until a couple of years ago from some European supplier whose supply was getting just uneconomic. And so we bought a share, 40% share in a plant in China, which you can see over here. It’s an excellent high quality supplier, very low cost. We’ve done a terrific investment. And then out of bankruptcy last year when a smelter in the Netherlands just near Flushing, Rotterdam went bankrupt, we went in and bought only the anode plant there for a nominal sum it would take €10 million for that plant and expense $30 million this year to bring it back up to a productive stage, and then we’re actually making anodes as we speak today. That will be a very good return on investment for us and it’s also allowed us strategically to do the things we need to do at Grundartangi to creep the plant there.

Pete, I miss anything here, shall we move on.

Strategy is pretty straightforward. In a nutshell, it’s been to get the cost structure of this company to the point where in a reasonably ugly commodity environment like we’ve been slugging through over the last year or so, that our investors aren’t hurt. So we said to ourselves, we must get whatever system we’re going to have here, the cost structure of the system must be adverse, the cash flow breakeven at this kind of commodity environment even down into the 1,700 and that’s where we are today and I’ll comment on that in a moment.

At the same time of course on behalf of our investors we want to leave as much rationally on a risk adjusted basis as much upside to the commodity prices as we’re able, and I’ll talk to you that in a moment as well, but just to go through the strategy. Safety is critical to us. It really I think a lot of people may pay a lip service. It’s the way we run each and everyone of our plants.

My background as a manufacturing as at Rockwell before I came to Century. I know a little bit about industrial safety. We had a safety business consulting and products business. I’d never seen a good plant, a productive plant that wasn’t a safe plant and vice versa. In addition to this being a real responsibility of ours. So we’re proud of these statistics, we’re actually the pure labor statistics. BLS statistics just came out for 2012 and we’re now, this number is now 50%. So the average rate TCIR rate that’s a rate of accidents is 4.5 per primary aluminum in the U.S. and each of our facilities is at 2.5 or better so. We are very proud of that. We’re less part of the fact that 2013 was a little less good than 2012 was and continuous improvements and so that’s not the way things are supposed to be going but we’re proud of where we are generally and we’ll continue to get better.

As I said, this is where the focus has been and where we are right now at each of our plants, just give you a sense that the commodity price right now, is at about 17.70 the cash LME price, it’s been winding up here the last couple of days.

Put that in context, each of our plants after this is true, after Sebree, second plant in Kentucky is on new power contract. Each of our plants till now will be – there are breakeven on an EBITDA minus maintenance CapEx basis, all the way down to 1,700 and some of the plants that lies in the course well below that, but each of our plants is 1,700 and above. We’ll be cash flow that’s breakeven or cash flow positive.

That’s on a plant-by-plant basis. So look at the consolidated company, obviously because we have interest expense, we have corporate SG&A, we have little bit of taxes we pay in Iceland, none in the U.S. we have a very large analogue in the U.S. And maintenance CapEx are total breakeven if you were to ask at what LME price the breakeven at the bottom line after all those expenses as their interest expense SG&A, any taxes and maintenance CapEx, which process about $20 million a year.

It’s about $17.75. So right now it’s a current commodity price, but system as a whole after maintenance capital expenditures is about breakeven. And the sensitivity to the LME price and we’ll show you this in a moment is about $55 million for each $100 of movement at the LME and we will give you that math in a moment. So that’s again has been the principal focus through the power and otherwise.

Very quickly raw materials as I said, we made great progress on carbon anodes we got, in my opinion – in our opinion, a bit of a strategic hole in alumina. So we’re completely short on alumina. We buy from the marketplace. That’s worked out very well historically. We’ve got some long-term contracts that are just coming up in the next couple of years that have been and still are way, way below market, but that’s not going to be true forever. And in our opinion a better balance here for this company would be to own a dangerous, some times in my opinion as vertical integration is to talk about because one can start kidding one self about your global competitiveness.

We think it would probably make sense to have bit more of a balance. So you’ll see us over the next couple of years looking for ways to solve that equation, which we are doing right now. It’s a global trading commodity. You can always buy it. You can always have it delivered. That’s not a problem. You can buy it in quantity and buy it at quality, but the issue here is one of price exposure.

And lastly, as I said, we think we’ve been able to invest very well within our own plants. I won’t go through all off the internal investments. So we did buy this plant from Rio Tinto last year. In essence I think what they would tell you as well is the risk on the power there. Now we can get a new power contract, wasn’t one that they wish to take and it was one that given where we are at our other plant, it’s a Hawesville plant, we were willing to take. We paid $61 million in cash for the plant and received $71 million in working capital for that $61 million along with the plant itself.

Of course, they retained all the historical liabilities; the pension, the OPEB, environmental and all the rest of it. So we think we made a pretty good deal here at Sebree. It’s a well run plant other than the power, which we’ve now, I think we solve the – assuming that the Kentucky PSC approved that contract like they did the one at Hawesville. So what’s the space?

We think given our thesis about U.S. smelting that there maybe other opportunities out there to do things similar to this. So we’re working hard on seeing if indeed there are situations that we can produce.

Quickly most of this we talked about already, but just as you watch the company in 2014 the things on which we’ll be focusing, so Hawesville we now – this will be true with Sebree where buying power at the market. So I think we’ll have to work hard on the blend price exposure versus spot managing that prices. I said, it’s a very, very liquid market out there. Just to give you sense, the two plants in Kentucky together buy about 800 megawatts per year of power. MISO, the market in which they buy is a 120,000 megawatt system. That’s about 25,000 megawatt now long in power. That’s above the spinning reserves or the back up reserve that better need it. So there’s plenty of capacity and plenty of liquidity out there. Sebree, as I said we need to just get the PSC to approve their contract.

How we have spoken about the long-term power arrangement, again you may or may not see in the next couple of weeks, say a long-term i.e. two year forward notice some termination there, but just like we did at Hawesville, if we were indeed to have to tender that we would be start working on getting a real deal in place.

Latest where this has been shattered I’ll just talk about it quickly. We think under the right arrangement it could be a good investment to our share owners. We’ve got now from a combination of the State of West Virginia on the one hand the power company, the division of AEP, $40 million per year over 10 years in annual support on the table, which would bring the power cost of that plant down from the territory in the low 50s to something closer to $40 a megawatt hour. We don’t think that’s good enough even in the better commodity environments.

So we’re continuing to work with the State, and with Alcoa, the power company. There are some things that we’re discussing that we think we can get that price down even further into the 30s. That’s where we think it needs to come close to where we are paying in Kentucky today, which is in the low 30s. We also need to put $80 million until what happens when get it restarted. About half of that is working capital, of course, that one gets back at the end of time and that can be financed through revolver. But the other half is in essence preproduction cost, it’s mostly preproduction labor and power, and a little bit of CapEx that needs to put in the ground where that brand would start.

So we need on behalf of the investors to be a bit more selfish there before that plant can truly go again but under the right set of facts and circumstances we think that could be quite a good investment for us, I’m going to get through the end of this quickly so we can take some questions.

I talked about Grundartangi, the capacity creep project there and the restart of the BNO plant in Netherlands, I won’t cover those. This is just a map to put it all together, and I thin largely I’ve talked about this already. So you can see if we had started out here pre-2012. You can see an even more profound change but as you can see here at a lower LME price in the quarter that just ended 17.98 average versus 18.65 last year and the comparable quarter. The result was about the same and then in fact in that $4.5 million, there is couple of million dollars of pre-startup spending at Vlissingen that would make that number a little bit more favorable.

So in essence the EBITDA was about the same at a lower LME price, if you pro forma that number for a full quarter of new power at Hawesville, because you only had half of the quarter with the plant on its new power contract after the 20th of August. And a full quarter for Sebree, the pro forma number becomes again this is at a 70-98 LME becomes the run rate of little over $80 million of annual EBITDA and again just this pure math as I said, it’s $55 million of EBITDA sensitivity for every $100 in the commodity price that would be a run rate EBITDA of around $200 million at just we depict the point at 2000, but you can run your math at whatever commodity price you wish.

So we think we’ve got good upside leverage here. We think we’ve got a good base in place in the kind of commodity environment to which we are going right now and even the lower prices that we are here couple of weeks ago and with that, Timna, I think we’ll open it up for questions?

Question-and-Answer Session

Unidentified Analyst

Excellent, and I think it’s really important figure of the details on the different facilities because in many ways this is a turnaround story right, so I think that’s why the detail there, but if I could kick it off and I don’t want to take new people in the room, but I would like to also get your perspective on where the aluminum prices weigh and what it is in the region because we assets about [indiscernible] what’s going on with the regional premiums.

Michael A. Bless

Okay, so the commodity prices are still at the regional premium. Look the price is we know better prognosticators and any body else so we obviously see what the market Glencore make your share on the obviously has a reasonably informed view or at least so they think and so we hope I suppose obviously the prices where it is due to a bunch of factories, number one we’ve had a strong recently. If you look at the coincidence fact, the relationship between the Euro dollar rate for one for example, in the aluminum price you see almost perfect correlation here over most of 2013, actually a perfect correlation over the last seven or eight or nine trading sessions, so that’s definitely and that’s true of any commodity for those of you who will follow the commodities on a more general basis.

Some of the overhangs here, of course the inventories, 5 million tonnes in LME, warehouses in Ravenswood, at least that amount in addition that so called hidden stocks off exchange inventories. You’ve had the deceleration growth in China, all these macro issues about which I will bring this room I’m sure is extra ordinarily well versed, I want to try on about some, but that’s been really what’s been dragging on the sector. The demand side has been quite good in most parts of the world, quite good in the U.S. obviously in China until some deceleration recently, but still decent. We used to see traditionally until the last two years, if you took GDP in China and multiply that by somewhere between 2 and 2.5, that was aluminum demand, there was at least two times multiplied today.

If you think GDP is going to be sort of a 7%-ish number in China, aluminum demand is probably more like 8% to 10%. 8% maybe a little bit conservative, but certainly maybe a one and a quarter multiplier on base GDP in China. So that Timna, I think is generally what’s been weighing on the commodity price.

Premiums those of you who follow this space have probably read a lot about since the LME announced their proposed new structure, I think it was July peak and it was finally approved in last month.

Timna Beth Tanners – Bank of America Merrill Lynch

So no code in this today?

Michael A. Bless

I am sure they have planned it for that. Interestingly, you’ve seen a tick up since the new rules came into fruition, so just in the U.S., it’s still quoted in cents per pound, it was at 11 piece flat, thank you, went down to 9.8, it’s back to 11 today, was above 11 before, the European duty paid premium is similar movement, then so you might ask why has that happened? Obviously everyone assume the room is familiar with the financing transactions for which the metal provides security, people obviously buying the metal at the spot and selling it out on a – puts a pretty healthy tanker [ph] we are still look at about $45 a tonne between the cash in few months crisis.

And if you factor in finished working financing rates and the cost of warehousing, that locking in that carpet has been a – I hate using this word, but I will use it for the skied up, a profitable trade for commodity managed funds and others hedge funds and I suppose all sorts of other people.

So that’s been what’s part of which we have been supporting it, otherwise, it’s good demand in Europe and good demand in the U.S. and you can’t find metal in the second half, or even in the first half of the year in the U.S. and same as Europe.

Excellent demand in automotive. Consumer obviously is a big end-market for this sector. Aerospace still going very strong and the electrical grid et cetera, et cetera that’s impacting the U.S. and Europe now to talk about these two premiums. So that we think there is some fundamental stuff there, I guess to stop carrying on about this and some noise that’s been driving at the financing transactions.

Timna Beth Tanners – Bank of America Merrill Lynch

Unless somebody could ask a question next time, half a minute, probably we are out of time, and Bless, please go head…

Michael A. Bless

So we are happy to talk to you individually afterwards.

Unidentified Analyst

The 50% ownership of Glencore and Glencore talked a lot about cutting off a lot of the CapEx, planning in and policies going to call if you were legacy Xstrata or can you…

Michael A. Bless

No, we were Glencore. This is Glencore’s business. I think…

Unidentified Analyst

Two things that you color on.

Michael A. Bless

Yes, most of those comments that they have made publicly have been around Brownfield kind of big, big mining investments. I can’t speak for Glencore, I wouldn’t speak on any of your behalf if you were a share owner, that wouldn’t be right of me, but all I can point to is, number one, they have never sold the shares since the IPO. They allowed themselves to be diluted during the equity offering, business already subscribed when the company bought the Icelandic business, but since then they have bought more than a lot of share of the couple of equity offerings that we have done, it’s only been two since then.

And second is, if you listen to the company talk, the CEO talk, he will talk about this business model that they like, which is to own a trading book alongside share, whether direct shares or through a listed entity like ourselves in productive asset. They say they like that model, so that’s all I can sort of point to in terms of what’s out there publicly. But they’ve done a great share and they get 3 of our 9 board seats. They are a very, very, very additive presence for this company, I can say sincerely.

Timna Beth Tanners – Bank of America Merrill Lynch

All right. So with that we should wrap up and thanks Mike again for attending. Thank you very much.

Michael A. Bless

Yes, thanks.

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