Century Aluminum's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Century Aluminum (CENX)

Century Aluminum Co. (NASDAQ:CENX)

Q4 2013 Results Earnings Conference Call

February 20, 2014 5:00 PM ET

Executives

Peter Trpkovski - Senior Corporate Financial Analyst

Mike Bless - President and CEO

Shelly Harrison - Senior Vice President, Finance and Treasurer

Analysts

Timna Tanners - Bank of America Merrill Lynch

David Gagliano - Barclays Capital

David Olkovetsky - Jeffries

Operator

Ladies and gentlemen, thanks for standing by. Welcome to the Fourth 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, this conference is being recorded. I would like to now turn our conference over to our host, Mr. Peter Trpkovski. Please go ahead, sir.

Peter Trpkovski

Thanks, [Juana], and good afternoon, everyone, and welcome to today’s call. Before we begin, I’d 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 conditions.

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’ve 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 our website at www.centuryaluminum.com.

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

Mike Bless

Thanks so much, Pete, and thanks everybody for joining us again this afternoon. If we could turn to slide four please, I’d like to give you a quick review of the last couple months, which as I think you will agree has been a busy and productive period for the company. We generally really pleased with the progress that we have made.

Okay, let’s started, at the end of January, as you have seen, the Kentucky Public Service Commission approved the new power contract to Sebree and it was approved exactly as filed by ourselves and by the power company. This development allowed us to move forward in long-term plans and investments for this excellent plant.

I’d like to note how extraordinary it was that our employees were able to work safely and productively through these uncertain times. They should be commended for that. The plant is running extremely well. We have got great efficiencies in the potrooms and record production coming out of the casthouse and I will give some more detail on that in just a few moments.

I should note, Hawesville is also firing on all cylinders now. We’ve got a record amount of high-purity production coming out of that plant. Again, I will make some more comments here in just a couple minutes.

Let me talk about the power situation at Hawesville where we had some issues that impacted the full rates that we paid in the Q4, given some things that happened at the power company generation stages.

As you might remember, we paid a net cost by contrast of maintaining that power station next to Hawesville, it’s obviously owned by the power company, until the power station can be closed and I’ll update you on the status of that process in just a moment.

In October, the power company loss some generation units to unscheduled maintenance. At the same time, there happened to have some transmission lines down for schedule maintenance.

They were thus forced to buy some replacement power for their other customers in the real-time market. Those of you follow these markets now the price in the real-time market is generally far greater than the price in the day-ahead market. And this resulted in $3 million of excess costs that we had to pick up under the contract.

That same incident also drove up power prices in the region significantly for the better part of that same week and this resulted in $4 million of excess power costs to us in October.

So at the bottom line, our power costs for Hawesville in October and that’s obviously in the fourth quarter was $7 million higher than we expected, that obviously impacted our Q4 results by $0.07 a share.

Other than this incident, the power costs for Hawesville were right on with big expectations that we had in the forecast that we made. Just to remind you this was for an energy costs in the low $30 per megawatt hour and a fully delivered price in the range of $35 to $36 per megawatt hour.

I’ll talk about this some more in the few minute but quickly we believe the conditions ought be satisfied sometime during the second quarter to allow the power company to close its generation station if they so choose and at that time we will start paying this monthly holding costs, that’s whether they actually choose to close the plant or not.

There are some important transmission related issues that still need to be resolve to support reliable service to both client in Kentucky over the long-term and again I will make some more comments on this situation at end of my remarks.

Okay, moving along let me just talk about Mt. Holly little bit. As you know, the current off system contract ends in December 2015 that was put in place couple years ago. We are working actively with the power provider, with the state and multitude of third-party on the post-2015 structure that would the plant in an acceptable competitive position.

Difficult to know at this point whether this particular structure will be successful. We and the power provider in December mutually extended the notice date for termination of post-2013 service until June of this year. That date is significant. We need to provide that termination notice or we are on the hook to continue to pay demand charge to the power company after 2015 even if for whatever reason the plants were not to run.

Moving along we completed a restarted the Grundartangi plant in December, that project was on time and over a $1 million under budget. At the end they themselves at Grundartangi for over a month and they are performing very well.

The next decision that we will take is when to rebuild the second furnace, as you recall 150,000 metric tonne plant, two furnaces of 75,000 metric tonne each and Shelly will discuss this when she talks about CapEx budget for 2014.

Moving along partly as you know we had several important commercial agreements that were set to expire at the end of 2013 and we have successfully replaced this. First, we signed a new hot metal sales contract with Southwire at Hawesville. The new contract is for one-year duration. The volume is somewhat lower than the old contract. It’s about 40% of Hawesville production.

The reason for this is that we have seen a significant increase over the last half a year and high-purity production coming out of Hawesville. We obviously want to realize the highest net price that we can for the product that we are able to produce at that plant. That being said, Southwire remained an extremely important valued customer and we hope to continue to do business with them for years and years and years to come.

Also if you know the original (inaudible) contract at Grundartangi expired in December that was for 130,000 metric tonnes a year. We actually replaced that contract with the direct sales arrangement. There are two primary reasons for that.

First, the market for tolling arrangement has become much more limited than it was when that tolling originally put in place was actually 15 years ago. More important reason is our intend to also move Grundartangi to more value-added product production and this is the first step in that process and again, I will give you some more detail on that in just a couple moments.

In her remarks Shelly will provide some detail and some additional liquidity for the company we created over the last couple months. We feel really good about the company’s financial position given this and a significant improvement that you will see on the cost side.

As usual, Shelly will also give you some financial estimates for 2014, so you can build your model and based on this data you will be able to calculate the company’s breakeven point and the company’s cash flow at any LME to choose, but let me just give you a little bit of foreshadowing so you don’t have to calculate the number yourself.

If you look at bottom line cash flow, after every thing other than working capital changes which are difficult to predict of course and investment or non-maintenance CapEx. So after everything really including maintenance CapEx, the company’s free cash flow breakeven in Q1 and Q1 will be significantly higher than the rest of the year given some higher power prices we’re seeing in Kentucky right due to the cold weather. Shelly will give you more detail on that in a couple of minutes.

The best breakeven cash flow will be $1715 per metric tonnes roughly in Q1 and then importantly through the full year, we see a cash flow breakeven of around $1600 per metric tonnes. So you can see we brought the company’s cost structure down to a point where we feel like we’re strongly protected on a downside but we’ve retained the tremendous amount of upside for our shareholders to higher commodity prices.

Okay. We could turn to Slide 5 please. We just make a couple of quick remarks on the market. Because of that, we’ve seen some real volatility in global economic data as late as today, data going each direction moving markets around as you know. And this has obviously been reflected in the price of industrial commodities.

In aluminum specifically, the cash LME price during the fourth quarter averaged 1768 per metric tonnes. That was down by 1% from Q3. If you look at it, the price was relatively steady throughout the quarter but then as you know it fell just after the turn of the year and bottomed out in about mid 1600. The cash price has now found its way back into low 1700s. That having been said, we’re still looking at the lowest levels we’ve seen since 2009 due to spot prices.

Turning to regional premiums, obviously these have been subject to a lot of attention. If you look back to December, the U.S. Midwest premium has been supported at the end of the quarter. It has been trading around $0.10 and then went up to about $0.12 at the end of December and of course, we saw a rapid increase during January that’s currently sitting just shy at $0.20 a pound.

There has been a lot of speculation as to what’s behind this move. We think there are whole bunch of factors at play. I’ll name a couple of them. One is on the actual business side, demand remains very good, especially in the U.S. Midwest and it’s driven principally by automotive market amongst some others.

A significant amount of metal remains tied up in financing transactions as you know supported by a lot of contango and continuing low interest rates. Scrap markets remain very tight obviously supported by the premium. Based on all this, we believe a lot of consumers have waited to secure metal anticipating or hoping for low premiums when those didn't come the situation began to feed on itself.

In Europe, newly paid premiums are also up significantly, laying the Midwest premium and is about $350 per tonnes, little bit above that. In our own business planning, we’re in, Shelly will take you through these numbers. We are not planning on these types of elevated levels to persist. We do believe that there are some structural changes that will support premiums comfortably above historical levels.

But we also believe that market forces should drive down premiums from the current levels at some point. Obviously the art is going to be deciding when until what extent those premiums movements happen.

Turn to the fundamentals on demand remains generally good as I said in the U.S. led by the aerospace and automotive markets. We’ve read a lot around fixing some real substitution towards aluminum that Ford F-150 is a most obvious example and you’ve probably seen GM's recent -- very recent announcement along the same line. The EU, it also looks like it could be building some momentum but again as I said the data are little bit spotty.

Data coming out of China has also been inconsistent. We still see that the potential for a meaningful surplus in primary metal in Q1. In China, the Q1 demand forecast for primary metal is about 12%. At the end of day, a lot will depend on the supply side.

At the global level, Q4 demand in the aluminum rose 7.5%. That was 3.3% at China. Couple of comments on the supply side, you’ve obviously seen an increasing number of curtailment over the last couple of months. Seen two plants in the U.S., one in Europe, a recent confirmation about a plant in Australia intends to shutdown by midyear.

We’re also starting to see some real capacity come out in China but still not at the levels we need to have an impact on the global balance for global inventory for these specifics. Excluding China, we see another significant new capacity coming on in the foreseeable future. In Q4, the global supply growth lagged demand that was 4.5% versus 7.5% increase in consumption about which I talked.

Supply growth ex China in Q4 was 2%. As you’ve read, most forecasters are now calling for a deficit in 2014 on a global basis and certainly by 2015. The ones that looks very certain that there will be a deficit in the world excluding China and of course, the global balance is going to depend upon China’s ability at the very least to clamp down on new primary capacity.

Okay. Let’s move on to Slide 6, talk a little bit about the operations. Most important, we continued to have a very good safety performance across the plans. We remain very focused principally on the identification of hazards and behaviors that could lead to serious injuries in our plants. We had a lot of programs focused at that.

Looking at production volume, as you see, Grundartangi is up 1%, this is all quarter-over-quarter. So these data would be Q4 over Q3 which is obviously from the continuing capacity creep program. In Q4, the plant produced at an annualized rate of 297,000 metric tonnes.

As you see Hawesville and Mount Holly, we’re steady. We had great improvement at Sebree. The plant is now operating in a stable manner and is now producing as I said at record hot metal and cast-outs volumes. As you’ll remember, we had a tough couple of months right after the acquisition but team down at Sebree has done just a superb job of getting the plant quickly into really good shape, really proud.

On production metrics, you’ve also seen an improvement there at Sebree, a meaningful one. I’ll give you just a few examples. Those of you who follow the technical side of the industry, current efficiency was up two points quarter-to-quarter. Power and carbon efficiency is obviously critical, improved between 4% and 6% and we have 4% more average operating sales in Q4 over Q3.

And as you see, Hawesville, Mount Holly and Grundartangi were nicely stable. Couple of comments on cash production cost, we see good performance on Hawesville. This was driven principally by decrease in maintenance spending. It was down about $40 per metric tonnes between maintenance and supplies.

As I said, power went the other way. It was up $25 per metric tonnes. Shelly will elaborate further on this. Sebree, that nice improvement comes from most areas in the plant. At Grundartangi, those data are little bit funny. The actual operating performance Q4 over Q3 was flat. So stable operating performance, no increase. What you see there is just a bit of an anomaly. The plant just quickly -- the plant actually built some inventory purposely at the end of Q3, principally in the rotting shot.

We knew we had to take the rotting shots down for a couple of days in Q4 to do some major upgrades consistent with the -- to support capacity creep unless we had a lot of rotted anodes at the end of Q3 when those blew through the state in Q4 that obviously impacted cost. But really a one-time issue event with inventory movement, the real operations were flat quarter-over-quarter from a cost standpoint.

Okay. Let’s move along to Slide 7 please. I’d like to talk about just some of the major items before I turn it over to Shelly to go through the numbers, just some of the major items that we think will impact the business in 2014. First on the revenue side, as I had mentioned a couple of times here we are very focused on maximizing our production of premium products and we’d also be making some target investments to increase future production of value added products.

The chart you see here shows monthly production of high purity metal at Hawesville, our ability to produce high purity at the plant consistently is based on maintaining very soft, stable operations in the potting rooms, and is also the result of some modest investments that we successfully made in 2013.

Customer requirements are driving increasing demand for very pure metals, just principally in the aerospace and some other specialty markets. And as many of you know, Hawesville is one of the very few volume high-purity suppliers on the road. The premiums in this market, of course, on top of the Midwest transaction price are very attractive. And the incremental cost to make these products is small.

Seeing the same trend in daily production at Sebree and we will talk to you about that as we move through the year. The improvement in the net realized prices from these premium products in 2014 is embedded in the forecast that Shelly will share with you in just a couple moment.

Okay. Moving to Slide 8 please, that was on the revenue side. Here is the major issue on the cost side obviously. I want to give you a sense of what we are dealing with on the power side in Kentucky. The chart here shows the price for energy alone and this is at the Indiana Hub, which is the most liquid node near our plants.

The actual energy price that either, Hawesville or Sebree, can vary a little bit during normal times from these data, but this shows you the trends. As you remember, the forecast that we had provided you assumed energy prices in the low $30 to megawatt hour. But we still think that’s a good number.

But having being said, we can see no great surprise for those of you who follow these markets and see the impact of weather on January and regrettably February has continued at this kind of elevated levels. On the other side, the forward screen shows prices reverting to more normal levels by April and May. That, having being said, in Q1, our power cost will be a good deal higher than our prior forecast and our forecast for the rest of the year.

And I will turn it over to Shelly now who will provide you with detail on that and other items. Shelly?

Shelly Harrison

All right. Thanks, Mike. You can turn to Slide 9 please. I will take you through the company’s financial performance for the quarter. Our U.S. shipments were up 2.5% in Q1. This was largely due to higher production volumes at Sebree.

In Iceland, we had direct shipments of approximately 3,400 tonnes in Q4 and total volumes for Grundartangi was at just about 1%, as a result of the additional volumes from the ongoing expansion projects.

So, overall global shipments were up 2% quarter-over-quarter. On a one-month lag basis, the average cash LME price was down about 1% from Q3 to Q4. When you look at our realized unit prices, they were down 2% in the U.S. and essentially flat in Iceland, so both pretty much in line with the change in LME.

Our net sales were essentially flat quarter-over-quarter with a slight increase in shipments, offsetting the decline in LME. Continuing down the operating loss lines, in addition to our normal adjustments for depreciation and amortization and lower cost of market inventory adjustments, this quarter we also had an $8 million charge related to the separation of our former CEO in 2011. After backing out these three items, we had an adjusted operating loss of $8 million in Q4, which compares to an adjusted operating loss of $4.5 million in Q3.

Let me take you through with some of the changes quarter-over-quarter. Lower LME prices in Q4 reduced operating income by about $5 million. But raw material costs were favorable by $3.5 million, primarily due to lower carbon costs at our facilities. At Hawesville, power costs were up about $1 million in the fourth quarter.

Given that Q4 was the first full quarter with Hawesville market based power, we expected power costs to go down by $6 million. The difference between our expected power costs between our expectations and actual results for Q4 related to issues with the power plant next door and higher energy costs that Mike mentioned. Partially offsetting this power impact, maintenance spending at Hawesville was an improvement of $3 million quarter-over-quarter.

At Sebree, power costs were down about $1 million due to a refund of excess charges in Q3 while the rate case was still pending. Sebree also had an improvement of about $2 million in the quarter from maintenance and other costs driven by improved efficiencies of the plant.

The last time I wanted to note where operating income with the inventory drawdown Mike mentioned at Grundartangi. This is a timing difference related primarily to a reduction in anodes inventory, which impacted cost by $4 million in the fourth quarter.

And moving on to the EPS data, for Q4, we had an adjusted loss of $27 million or $0.28 per share. In addition to the items I just mentioned, we also had a $3 million reduction in income taxes quarter-over-quarter primarily due to lower taxable income at Grundartangi.

So continuing down to the balance sheet info, in the first quarter, we entered into a new $50 million revolving credit facility that’s secured by the short current asset of our Grundartangi plan. We also increased the size of our U.S. revolving credit facility from $137.5 million to $150 million.

At the end of the year, we had $6 million borrows on our Icelandic revolving credit facility and nothing outstanding on our U.S. revolver other than letters of credit. So our cash was down $57 million for the quarter. Our available liquidity actually went up by $11 million.

Moving on to Slide 10 please, so here we show our normal cash flow waterfall bridging Q3 to Q4. Capital spending in Q4 was the highest of the year with almost $10 million with the restart of our anode plant in the Netherlands. We spent $14 million in CapEx at our smelter facilities and that includes $7 million for investment in the expansion project at Grundartangi.

During Q4, we received a refund of $22 million for withholding taxes in Iceland. At this point, we have about $10 million in withholding taxes that were paid in 2013 and will be refunded to us in Q4 2014. We also received a refund of almost $10 million in prepaid income taxes for Grundartangi.

Moving on to the right, we had $11 million of net reduction in debt, as we repaid the Q3 balance on our U.S. revolver, about $6 million on our new Icelandic facility. So quarter-over-quarter, cash was down $67 million and at the end of the year was $84 million of cash on the balance sheet. And while we're discussing cash flow, I wanted to mention that the $10 million payment related to the separation of our former CEO will be made in the first quarter 2014. So the cash impact will lag the accounting charge that occurred in Q4.

Okay. We can move on to Slide 11, I will take you through the company’s full year performance. Total shipments were up 18% in 2013, primarily due to the acquisition of Sebree in June. We also saw a 3% increase in shipments from Iceland as a result of the ongoing expansion program.

It was about 13,000 tonnes in direct shipments from Iceland and that number will increase significantly in 2014, as the first of our tolling contracts expired at the end of the year. In 2013, the one month lag LME price was down 7% year-over-year. When you look at our realized prices, they were down 5% in the U.S. and 6% in Iceland, reflecting the improvement in regional premiums in 2013.

Net sales were up $182 million primarily due to the Sebree acquisition and this was partially offset by lower LME prices. Adjusted operating income was down $27 million in 2013, the most significant impact coming from the decline in LME. Lower metal prices reduced operating income by $52 million, including the impact of our LME based alumina power contract.

Partially offsetting this decline was an improvement of $24 million in raw material cost across all facilities and a $13 million decrease in power cost primarily at Hawesville. We also saw an improvement of $11 million in higher shipments from Iceland and another $11 million Grundartangi but lower pot lining maintenance and supplies cost. The acquisition of Sebree negatively impacted operating income by $28 million due to higher power cost under the previous contract and low LME prices. We also had an $8 million increase in SG&A in 2013 due to activities at our anode plant in Netherlands that preceded the startup of operations.

Moving on slide 12 please. So here we have the full year cash flow waterfall and I will just call at a couple items to note. We spent $18 million in 2013 on the restart of our anode facility in the Netherlands. The entire project cost is about $28 million. We will see an additional $10 million cash outflow in early 2014. We also spent $49 million in CapEx at our smelters in 2013 and that includes $24 million for the multiyear expansion program at Grundartangi.

For the full year we had a net inflow of $3 million related to withholding taxes in Iceland. We also received the $10 million prepaid income taxes that I mentioned earlier, but this is offset by $10 million in Icelandic income tax payments. In the U.S., we also received a $5 million income tax refund and that related to loss carryback.

Moving to the right, we spent approximately $48 million for the Sebree acquisition and that amount still subject to working capital adjustments which have not yet been finalized. We also spent $8 million in the year to refinance our bonds that were maturing in 2014.

If you can turn to slide 13 please. On the next couple slides I will take you through the company’s expectations for financial measures in the coming year. There is a lot of data on these pages so I am just going to focus on some of the key points. In 2014, we anticipate that all operating facilities will be producing above their rated capacity levels. In Iceland, the severe lack of rain this winter has impacted water levels. As a result, we expect to have reduced power availability over the next few months, which will have a modest impact on volume.

The numbers shown here include the expected loss of about 2,000 tonnes due to extremely low water level. As Mike mentioned, value-added products are becoming a much more meaningful part of our business so we’ve now included premiums product volumes in the shipment section on pricing information below.

For 2014, we expect to earn an additional $250 per tonne above the Midwest price and that’s on average of all of our Canadian products volume. For power, we broken this out by Q1 and then the balance of the year due to high energy prices we recently experienced in Kentucky as a result of the harsh winter weather.

For Q1, we are forecasting the fully delivered power prices will be $50 per megawatt hour on average for both Kentucky smelters and then we expect prices to revert to more normalized levels and average around $37 per megawatt hour in Q2 to Q4. Down at the bottom of the slide, we updated our forecast for net cash cost. As in past years, we are presenting these costs net of all premiums that we received above the LME price. That way this number is directly comparable to the LME, meaning that if we take the LME and deduct this number, the resulting amount is our expected cash margin per tonne, but no further adjustment needed for regional or value-added premiums.

If you can turn to slide 14 please. For CapEx, in 2014, we expect to spend $15 million to $20 million on the Grundartangi expansion and another $10 million to wrap up spending on the first furnace at our anode facility. We also plan to spend about $10 million on other investment projects that are quick pay back high return projects. As Mike mentioned, we’re also analyzing the restart of the second furnace at our anode facility, which is expected to cost around $15 million. At this point, we have not included these costs associated with the project in our capital forecast.

Moving down to the amortization line, we amortized the remaining balance of the power contract liability to Sebree in January so we’ll have a credit of $5 million in Q1 and no further amortization, Q2-Q4. Plus on taxes we continue to expect our U.S. NOLs to shelter essentially all of our U.S. taxable income. In Iceland, we paid some cash taxes related to 2013 income. These payments will be more than offset by the withholding tax refund we expect in November.

With that, I will hand it back to you Mike.

Mike Bless

Thanks. If we could just turn to slide 15 please, we want to get to your questions. So I am going to quickly go through some of these items that we will be spending time working on certainly in early 2014. I have covered most of these already, so I think I can go through these reasonably quickly.

As I said, we’ve got the meaningful issues still in Kentucky in the realm of power. First, as I briefed earlier, we need to complete the process of allowing the power company to close the generation station next to Hawesville if they choose to do so. We’ve installed the physical infrastructure that’s required to do this and the regulators have approved that, so that part of it is done behind us. What’s remaining now is the regulators need to sign off on the operating protocols that are required if we were ever forced to cut power during great emergency. After the regulators approved those protocols, as I said we will stop paying the monthly support cost of that generation station. And again, that’s the problem that hit us during the fourth quarter.

Again, we believe this whole process will be wrapped up some time during the second quarter. The remaining issue in Kentucky to which I referred is the maintenance on the regional transmission system and the potential impact it could have on both Hawesville and Sebree. Thus far, the power company had maintained its insistence on de-energizing the transmission line when they perform maintenance even on a scheduled basis. If an unscheduled event were ever to occur during this period, we will be at risk to have to curtail load at one or both plants, potentially a significant amount of power.

Working on energize lines is a proven and safe practice and it’s done by utilities across the country, so we need to find a solution to this issue which puts our clients at some unnecessary risk in the future. It is also important to be working on alternatives managing the price risk on power in Kentucky. We are now buying over 850 megawatts on and around the cost basis so it goes without saying this is a significant issue for us. We are looking hard at a range of alternatives including bilateral, physical purchases, financial hedges and other transactions and we will be updating you on this as we move throughout the year.

As I said, we are in detailed discussions on post 2015 power arrangements in Mt. Holly. As you know, this is a terrific plant with an excellent group of employees, great safety deployments and production efficiencies, a good cost structure other than power and also a premium product mix, so about half of its products are billet. Under the power company’s tariff, Mt. Holly has one of the highest if not the highest power price than any North America smelter, obviously that would not support the plants operations post 2015.

In this case, the state of South Carolina has a major role to play, they obviously like any state would be concerned about the preservation of the substantial economic benefits that are provided by the plant, but here the state actually owns the generation system so they have a unique role to play in this discussion.

The complex structure is now being negotiated as I said. Multiple parties are involved. We need to find a solution here either this one or if this one doesn’t work an alternative solution. So we’re going to be working hard on that, obviously with our partners at Alcoa. We will continue to press forward on the hot metal expansion at Grundartangi, it’s been a great success thus far.

As Shelly said, we were looking for about an additional 5,000 metric tonnes from this program, 2014 versus ’13 and we will still get those but we will get some back due to the impact of the curtailments of power from the National Power Company to the unusually low reservoir level and again Shelly mentioned that we will be working hard to try to make up part of that volume loss.

As I have said a couple of times, we will continue to work hard to increase the value of each of our plant we see -- I think you can tell on major opportunity here at each of the plant. At Hawesville again it’s high purity. At Sebree where we want to maximize the current billet production, plus we see some real opportunities for other value-added products that we are working on now.

Lastly, at Grundartangi, we’re working on a really exciting trial with a customer that could lead up to 20% at the plant’s production going into high value European auto market. This likely wouldn’t come until 2015 or late this year, so we haven’t had -- thus not reflected it in any of the forecast that Shelly took you through. But it hasn’t been an exciting opportunity for us. At Halguvik, we continue to work with the two contracted power providers as you now. We really do still believe we should be able to eventually reach an arrangement which works for ourselves and for each of these companies.

This will however take some time, and it also, however will be for aggregate amount of power we believe in the foreseeable future, far short of what we’ll require to get this project up and going again. Now as we’ve said, we really do need the support of the national power company here. We’re not looking for a subsidy or any kind of special deal from them. We’re just looking for terms that we believe should work for each side in our strong opinion. But we do need first their willingness to stand up and support the project in a major way and we’re working with them on that.

At Grundartangi, we're selectively working with all the important constituencies with the power company, with the states, with the union and importantly with the retiree group. We really do see the path to get this plant restarted and we remain committed to doing so. Ravenswood should be able to produce a good return at a reasonable metal price. And as you know, we’ve got a very high quality customer next door, who we continue to believe would be interested in taking a significant amount of the output in the form of multi metal.

And with that, we wrap it up and Pete, I think we can turn it over for question.

Pete Trpkovski

Thanks Mike. Juana, if you could please take the first question in queue. Juana, at this time, are there any questions? Juana, at this time, we would like to take questions please.

Question-and-Answer Session

Operator

Okay. Our first question, sir, sorry about that. (Operator Instructions) And our first question comes from the line of Mr. David Olkovetsky. Please go ahead sir.

Unidentified Analyst

Hey guys, how is everybody doing?

Mike Bless

Sorry, David, we missed that one.

Unidentified Analyst

I was just -- yeah (inaudible). My first question is around the revolving credit facility. Shelly, you mentioned that the U.S. facility was increased to 150, I think you said?

Shelly Harrison

Yeah. That’s right.

Unidentified Analyst

I didn't catch the number for the [Icelandic one], how big was that?

Shelly Harrison

Five zero. 50.

Unidentified Analyst

50, okay, got it. Can you give us some metrics around those facilities, are they both asset based, what are the interest rate, what are the advanced rates, are they 85 AR, some of the inventory?

Shelly Harrison

Right, so they are both backed by receivables inventory. They are both variable rates over LIBOR, U.S. is 125 to 175 depending upon availability, where Iceland is 375 over. Typical advanced rate 85% on receivables in U.S., I believe its 70% on inventory. Iceland is a little lower, 65% on both, but no ineligibles.

Unidentified Analyst

And are they both fully available with the exception of the 50 million or so that's drawn in Iceland and the LCs in the U.S.?

Shelly Harrison

Yeah, I mean, there are things that we have to look at like different reporting requirements at different levels and dominions and things like that, that you get into but otherwise fully available.

Unidentified Analyst

Okay. Are there any financial covenants like a minimum liquidity requirements or a fixed charge coverage ratio or something like that?

Shelly Harrison

No fixed charge coverage ratio. There is a minimum liquidity requirement but again that’s when you get into the dominion issues that I mentioned before. And that just on the U.S. side. On the Iceland side nothing like that. Sorry?

Unidentified Analyst

The dominion issues, what is that? What do you mean?

Shelly Harrison

Basically if you get down to a certain level, the bank will come in and take dominion over your cash accounts as well as your receivables and inventory.

Unidentified Analyst

Okay. And what’s that level?

Shelly Harrison

I believe its [0.5].

Unidentified Analyst

So in other words, you need to maintain at least 35 million of cash or revolver availability before the banks come in and say we’re pulling your line?

Shelly Harrison

Yeah, and David, all the stuff is on line that you can get all the details that are filed.

Unidentified Analyst

Okay, perfect. And then with respect to, maybe just talk a little bit about Helguvik. When I first started looking at Century, now it was supposed to be the huge growth project and I guess I just want to get a little bit of update on where the conversations are with the Iceland government, what sort of sawing that and are there any potential breakthrough in horizon with respect to we’re starting it.

Mike Bless

Sure. David, its Mike, there is two separate buckets of issues as it relates to power, and really three, but they compartmentalize it. The first bucket is the discussions as I said with the existing power providers. As you know, the national power company owned by the state is not a current supplier to help where the two contracts were signed.

I’m sure you know that in 2007, we had two geothermal companies and we continued to talk with them. The biggest issue with those guys as we’ve said repeatedly has been they are weak in financial state after the financial crash. They’ve gotten a little bit better but not materially so and that’s impacted greatly.

They are financing with their own power projects and that’s all been able to reach the final agreement and more on modest side agreement. As it relates to the national power company, I mean, the issue there is how that company wishes to allocate the power both that it has available to sale today on the one hand and that it can and wishes to develop in the future.

And there -- the issues are complex but they know if there is no difference in anywhere in the world that I have seen, it’s simply how a company and in this, you can say, state, wishes to use its power resources. So there as political debate going on and we have to be mindful of that and respectful of that. And so that simply -- it sounds simple. There are zillion complex issues that are embedded in this but you see this kind of public discussions and debate going on all over the world, appropriately so.

Unidentified Analyst

And if I may just one more, I want to just make sure I’m understanding correctly Mike. Earlier you were saying that there was $3 million and the $4 million associated with the power contract. Is that or you guys adjusting for that?

Mike Bless

No, that’s -- thanks David. So we haven’t adjusted for that because we felt like even though it was an unusual circumstance, and I’ll repeat again what it was. It wasn’t just the contract so much as that it drove up. Actually that’s not true. It drove up our price, part of it was the contractual obligations to the power company on that Power Station and part of it was just an increase in general prices in the region.

As a result of that, unanticipated series of event but we haven’t adjusted for it because its power costs and it hit us and we just doesn’t feel like it was appropriate to adjust for it. But if you believe it’s a one-time event, you might adjust for it. It was $0.07 or $7 million of EBITDA.

Again just to break it out $3 million of it was the incremental cost that the power company board to replace that power to their other customers. Again we're on the hook for that until we believe in the second quarter when we finished the process of getting another regulatory approvals and $4 million was simply market power price is being driven up by that unanticipated event.

Unidentified Analyst

Okay. Perfect. I'll turn it over. I don’t want to hog the queue. Thanks very much guys.

Mike Bless

Thanks, David.

Operator

Your next question comes from the line of Timna Tanners with Bank of America Merrill Lynch. Please go ahead.

Timna Tanners - Bank of America Merrill Lynch

Hey. Good afternoon you all.

Mike Bless

Hi Timna.

Timna Tanners - Bank of America Merrill Lynch

I have couple of questions, you told a lot about us and we are trying to get smarter about this power arrangement. So this are really basic questions I apologies.

Mike Bless

No problem.

Timna Tanners - Bank of America Merrill Lynch

Lot of moving parts, so on page 13, I just want to make crystal clear here , when you talk about the footer here of fee and you're saying LME price of $1,700 and $1,900 per tonne, those are your cash costs that LME price also includes in that's net of Midwest premium, that's net of any premium. That's the total aluminum price?

Shelly Harrison

$1,700 to $1,900 is the LME price. And then any Midwest premium or other premium that we receive about that LME is a reduction to the cash costs that are shown on the page.

Mike Bless

This is consistent with the way we've shown at the last at least three or four year. So the way you've been building your models, if you have been using these data to build your model based won’t change this year.

Again, Shelly said, it's just, we think it's the most helpful to those looking at the company modeling because as Shelly said it's directly LME comparable cost, you don’t have to -- for that costs you don't have make any adjustments, you can just assume whatever LME you can, you've got the sensitivity right on there and you an calculate what the cash costs would be at any LME.

Timna Tanners - Bank of America Merrill Lynch

I got it. Obviously with the volatility in the Midwest, I mean, I just want to make crystal clear what that was in…

Mike Bless

Sure. You see the Midwest that assumed down, yeah, we've just use in that the use, we just used the CLU estimate. And so you can, you know with yourself, you can see the U.S. tons for example that we have, so if you want to sensitize that number by attending or $22 per metric tonne if you did multiply for every penny $22 times the number of U.S. tonnes for example.

Timna Tanners - Bank of America Merrill Lynch

Okay. That was helpful.

Mike Bless

Good.

Timna Tanners - Bank of America Merrill Lynch

And then a couple of questions, one is, you had talked in the third quarter call about concerned of supplying sourcing alumina and there has been some bauxite pricing strength on what's happening is need, so just want an update on how that’s going there for you?

Mike Bless

It's going very well, thanks. So I just get over quickly, part of that was embedded in my comment on Grundartangi which implicitly we replace the total, so we got alumina and metal there.

But we've got alumina contracts now covering all of our activities back, all of our production in the U.S. and in Iceland. We replaced expiring contracts in the U.S. as well as expiring contracts in Nordural and Iceland, it's all embedded in the cost data that Shelly has given you there.

So the market remains, although, it's traded up a little bit as you said, I didn't make any comments, the index price was up a little bit during the quarter but tax price is now about $335 now, it's up a little bit during the quarter.

But it's usually procurable we've got importantly the right material for our plants, despite the fact that it's a commodity as you know each alumina performed a little bit differently at each plant. And so it's important that we get the right source and so net, net will cover 2017 now and we feel good about our alumina supply.

Timna Tanners - Bank of America Merrill Lynch

Okay. And then last and I am sorry if I missed it, this was on the SG&A guidance refers a lot lower, sorry, if I missed why that would be the case from 2013?

Shelly Harrison

Yes. So in 2013 excluding any unusual items that we've called that specifically, the biggest difference is the SG&A related to listening in Netherland that there NO plant we were starting up last year, I think that was about $7 million to $8 million, so we had SG&A that will basically go away in 2014 now that's a plant up and running.

Timna Tanners - Bank of America Merrill Lynch

Okay. Thank you.

Mike Bless

Thanks.

Operator

(Operator Instructions) Our next question comes from the line of David Gagliano with Barclays. Please go ahead, sir.

David Gagliano - Barclays Capital

Same line of questioning as Timna made a minute ago on the 2014 target on the cash costs side, I just want to make sure I got it right too. So if I, if you back into the math and I'm doing in pennies per pennies pound, I apologize. I will give it to you dollar, whatever easier and it works out in weighted average cash costs target let call it $1,560 a tonne? And but what you're saying is that number already includes what's called $325 reduction associated with the premium, correct?

Mike Bless

Correct. Just make it -- same presentation is always there, David, because you think the gross cash costs in order to get these data, you reduce it by all premium, not just -- as Shelly said, not just physical premium which you are referring but the product -- the value-added product premiums as well.

David Gagliano - Barclays Capital

Okay. Okay. All right. And essentially what I'm getting at it is and I think what we're trying to figure out here relative to 2014, I mean, obviously, I'm guessing that the premium assumption you're making for '14 is actually meaningfully higher than the premium assumption made for '13?

Mike Bless

It’s right there on the page, right there on the page.

David Gagliano - Barclays Capital

For '13 -- for 2013 as a premium assumption?

Mike Bless

What was embedded in '13 is…

David Gagliano - Barclays Capital

Correct.

Shelly Harrison

Yeah. The Midwest pricing around the time we put out our last numbers of around $0.11 per pound.

David Gagliano - Barclays Capital

$0.11, okay, so now with ’15 so?

Shelly Harrison

Yeah.

David Gagliano - Barclays Capital

Okay. I got it. All right. So understood and then just on the pricing side, the other question I had. I appreciate the breaking out the shipments by higher quality shipments and also the value-added number, 250,000 tonne on all premium tonnes. What I'm trying to get figure out is, what was that value-added number in '13, is this all incremental? I’m assuming it’s not.

Mike Bless

No, I can take it down so really quickly. So, let me just do it one-by-one. So at Hawesville, as you see we're predicting about a 120,000 tons of purity this year, that number was less than half of that last year, a little less than half of that. And so the plant as I said, I can't say it enough. I don't say it enough to them, it has made just extraordinary strives there. And at Sebree, it's all well, it is all since June, so I guess it’s seven months since we have three, four, probably it will be five months incremental. We had Sebree for seven months as deal closed on the first of June. So it's about the same, a little bit more than the plant produced last year. But it's just -- we owned the plant for about five months, five months more. At Mount Holly, that's pretty comfortable to what we didn't do it last year. And at Henderson County, as I said, it's essentially nothing this year. We are doing some small trials as I said but the big stuff, the big volume stuff if the trial is successful and won’t come until 2015.

David Gagliano - Barclays Capital

Okay. And then, so when you do that math on the U.S. value-added line, at $250 per tonne on average of all premium tonnes, was that a $250 per ton number as well last year or it sounds like that's probably gone up as well, correct?

Mike Bless

It's gone up as well. Maybe, I’m just trying to get, David, where you might be heading. Let me give you the right figures, at least it might be a helpful statistic. So the last time, we talked about our breakeven and this was a breakeven pro forma for market power, so it's comparable for the numbers that I just gave you a couple of minutes ago. It was $17.75 and it's a holdback number and the new number I just gave, again after we get to the cold weather in Q1 we believe and get back to power prices as Shelly said at $37 is 1,600, so a $175 difference.

If you look at that and again that’s a comfortable power for power, so there is no difference in the power there that $17.75 was pro forma for market power at both plants in Kentucky. If you look at that $175 improvement, about half of it is from, as you correctly pointed out the better assumption in regional delivery premiums, it's up regional delivery premium and the assumptions are up about 90 bucks. And about the other half is due to a better richer product mix and better high purity to do it and -- better high purity and billet premiums.

David Gagliano - Barclays Capital

That's exactly what I needed. Thank you very much.

Mike Bless

Cool. You bet.

Operator

Our next question comes from the line of David Olkovetsky with Jeffries. Please go ahead, sir.

David Olkovetsky - Jeffries

That's actually the exact line of question I was about to go down. Is the $175 you just went over so, and then I guess maybe I will just ask something else. Talking maybe a little bit about working capital, how do you guys understand working capital sort of playing out over the next quarter or so with all of the various moving parts?

Shelly Harrison

Well, I mean, obviously working capital can swing significantly from quarter-to-quarter, anything that I can’t think. If anything, that you can figure, there is nothing dramatically that we know in Q1 that would be a daily swing. There is a little bit of that inventory build maybe but nothing huge.

Mike Bless

No. And as Shelly said, you're going to get variations just because you’ll have disbursements that are scheduled on mean other last quarter or a customer payment or two will be lumpy. But if you have over the course for the next couple of quarters, there's nothing. As you know, you've loss the company I mean basically our working capital over the long-term meaning longer than a quarter to those up or down in sympathy with the LME price.

David Olkovetsky - Jeffries

And then with respect to about 37 per megawatt hour that you guys have alluded to few times. What -- how confident are you about being able to get down to that, what are the sort of parameters under which it will stay high, obviously, whether that's a big impact. But how confident are you guys when you get down to that 37?

Mike Bless

Sure, I mean, one level of confidence is based on the forward screen and our discussions with dealers. We could create that price right now, we could hedge. We could buy forward to that price right now. And so that 37 again is made up of -- it’s actually a little bit conservative. Prices are sort of 32, 33, 34, when you get to the forward screen outside April and then for the rest of the year. And then once that support cost for the generation station goes away, the remaining costs are just another couple of bucks, two bucks or so for transmission and then buck or so of ancillary costs. So, I mean, one level of confidence is if we so choose we go on and create that price today.

David Olkovetsky - Jeffries

And have you guys just made that decision to do that with elite part of your requirement?

Mike Bless

We haven't done any transactions yet. But I think it's safe to say, it's very safe to say we've done a lot of work on it. And as I said we'll be reporting to it. I wouldn't be surprise that the next we report to you we'll have put some of that in place.

David Olkovetsky - Jeffries

And then with respect to the breakeven, what is the maintenance CapEx level you guys were assuming for that breakeven cash flow?

Shelly Harrison

Yeah, we used $20 million of this breakeven.

David Olkovetsky - Jeffries

Okay. Perfect. That's it. Thanks so much.

Mike Bless

Thanks.

Shelly Harrison

Thanks.

Operator

And there are no further questions in queue.

Mike Bless

Very good. We appreciate everybody’s time and we look forward to talking with you in April if not before. Take care.

Operator

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

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