Century Aluminum's CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.25.14 | About: Century Aluminum (CENX)

Century Aluminum Company (NASDAQ:CENX)

Q1 2014 Earnings Conference Call

April 24, 2014, 05:00 PM ET

Executives

Peter Trpkovski - Senior Corporate Financial Analyst

Michael Bless - President and Chief Executive Officer

Shelly Harrison - Senior Vice President, Finance and Treasurer

Analysts

Sal Tharani - Goldman Sachs

David Olkovetsky - Jefferies

Brett Levy - Jefferies

Timna Tanners - Bank of America

David Gagliano - Barclays

John Tumazos - Very Independent Research

Paretosh Misra - Morgan Stanley

Operator

Welcome to the 2014 first earnings conference call. (Operator Instructions) I'd now like to turn the conference over to our host, Mr. Peter Trpkovski. Please go ahead.

Peter Trpkovski

Thank you, Joseph, and good afternoon everyone, and welcome to today's call. Today's presentation is available on our website www.centuryaluminum.com. We use our website as means of disclosing material information about the company and for complying with Regulation FD.

I would like to remind you that today's discussion will contain forward-looking statements related to future events and expectations, including our expected future financial performance, results of operations and financial condition. These forward-looking statements involve important known and unknown risks and uncertainties, which could cause our actual results to differ materially from those expressed in our forward-looking statements. Please review the forward-looking 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 on our website.

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

Michael Bless

Thanks very much, Pete, and thanks all for joining us this afternoon. If we could just turn to Slide 4 please, I'd like to give you a brief rundown on what's been going on in the company since we talked to you, I guess it was just about two months ago in late February.

During that time, we've seen our markets in the U.S. and in Europe continue to strengthen. We believe the strong premiums for value added products are function of both present and future expected demand coupled with a limited onshore supply in these key product areas.

In addition, regional delivery premiums have firmed during the last month or two as you've seen. Bottomline, we think the sentiment may finally determine in these markets. That having been said, we think the price is being held back by a number of factors. Chief amongst them obviously are geopolitical concerns, obviously that are dominating the news and the uncertain trajectory of China's economy in capital markets. I'll cover our view of the markets here in more detail in just a couple of minutes.

We've had a busy last two months in the Kentucky power markets. As a reminder, we've received a positive order from the Kentucky Public Service Commission on Sebree's power contract in late January. And in that respect, we've been buying market based power since the February 1.

Energy prices at both plants were obviously considerably higher in January and February than normal due to the weather. That having been said, the power cost for the quarter came in generally consistent with the forecast that we provided to you in late February. There was a substantial cost impact because of cold weather during the quarter as we would expect, and Shelly will give you some good detail on that in just a couple of minutes.

She'll also show you that energy prices appear headed back to where we originally forecasted. The prices at the Indiana Hub for the rest of the year generally backed in the mid-30s and looking pretty flattish over the next several years, if you look at the forward screen.

Continuing along, also by the end of this month, the system will be in place, which should mitigate the price impact of any future transmission congestion issues. And again, I'll cover that in more detail in just a few moments. Thus, we believe we're still squarely on track with the power strategy that we've laid out for these plants.

Basically, improvements that we made in both the plant cost structures and our corporate cost structure have materially changed the company's financial profile as you've seen. And we believe we're now at a point, where we have really good protection against weak industry conditions and significant leverage to the upside.

Just to give you a sense of what I mean, our cash flow breakeven, and I'll define what I mean by cash flow in a moment, our cash flow breakeven for the remainder of this year is now well below $1,600 per metric ton LME. And this is bottomline cash flow after everything, but investment capital expenditures, so that would be after sustaining CapEx, after cash taxes, after interest expense, after SG&A, after pension contributions, after everything generally, but discretionary CapEx.

Moving along our carbon plant in Netherlands reached full capacity during the quarter. Anodes have been through several set cycles in the sales at Grundartangi and are working very well. We were able to produce at the high quality levels we believe we'd be able to achieve. Importantly, the conversion costs are also on plan.

As next step, we now need to decide, when to proceed with the investment to rebuild the second base furnace. We're currently producing at 75,000 metric tons of the year, just as a reminder, and this project would double the plants capacity to its full capacity of 150,000 metric tons per year.

At that full capacity, we'll be close to covering all of Grundartangi requirements. Investment would require less than $50 million of capital spending, as a reminder that's less than 50% of the cost that was required to bring back the first half of the plant. Importantly, it would also lower the conversion cost significantly, little bit over $100 per metric ton of anodes. So the project has a very high internal rate of return.

We're likely to make the decision some time during next few months based largely on our assessment of market conditions. And as a reminder, this investment is not in the capital budget that we gave for you previous for 2014.

If we could skip to Slide 5 please, as I promised a couple more comments and our view of the markets. The Q1 average LME cash price was down 3% from the fourth quarter on a one-month lag basis. However, the U.S. Midwest transaction price was up 5%, as premiums refund over the last two months as you've seen. And of course, you've seen the commodity price firm over the last couple of weeks. LME stocks remain near to all-time high at about 5.3 million metric tons and cancelled warrants were also at a high around 56%.

Delivery premiums now appear to be holding steady with the U.S. Midwest premium at about $18.04 and appearing to be trending slightly upwards. European Duty Paid premium is currently holding at about $375 per metric ton.

Just a couple of comments on industry fundamentals. In the first quarter global demand was up 5.6% versus the first quarter of 2013. If you pull out China, it was up 2.4%. And our markets in the U.S. and Europe were seeing increasing confidence from downstream manufactures, who are increasingly committing to the launch of investments that they need to support the customer requirements.

These markets, as you know have been undersupplied for some time, and thus they're short of the key value-added products that are required to support significant capital investments that the OEMs are making in the automotive markets and in another key industries.

We see real opportunity for our company to participate in these developments. And this participation would require only some modest and low-risk investments. And we'll update you on these activities over the course of the next couple of quarters.

On the supply side, global supply was up 5.5% in Q1 versus the first quarter of 2013. Extracting China, it was actually down 1.5%. Outside of the China, we are seeing the expansion come on in the Persian Gulf and India as expected, but otherwise we're looking at a growing list of actual and announced curtailments in the U.S. and Europe and in places like Brazil, Australia and South Africa.

In China, we think about 1 million ton came out in the first quarter, in addition to recent announcements of further incentive curtailments. That having been said, we're taking a wait and see attitude, given the spotty performance in China historically on curtailment announcements. Bottomline, we see deficits in this market coming for this foreseeable future.

Just a couple of quick comments on alumina, which continues to trade at about $325 per metric ton at the FOB Australia price. We expect modest surpluses to continue in this market. That's obviously a favorable environment for us as a purchaser of this commodity. That being said, the alumina balance remains a longer-term issue that we're working to resolve.

We can go to Slide 6, please. Couple of comments as usual on the operations. First and most importantly, safety was generally good across the plants during the quarter, with total incidents and the severity of those incidents about equal to Q4. Our plans are now comfortably in the top half, the best performing half of smelters in North America and approaching the best cortile.

That being said, we aspire to an environment that's consistently, without serious incidents. So we're always looking at the forward-looking indicators in this area. And these data say that we're heading in the right direction. As you know, this is an area that you must stay absolutely vigilant and we did so on a daily basis.

Moving down the chart here, you see production is flat or up other than the slight decrease at Mt. Holly. Despite this group production performance, we've had shipments down at Mt. Holly and at Grundartangi. Shelly will give a little bit more data on those, and let me explain what happened. We built a little bit of inventory at Mt. Holly. This was a normal course intended to maintain an orderly market in this value-added products. And as you would expect this is largely clear during the first couple of weeks in April.

At Grundartangi, we had a significant change. As you know this was the first quarter that we had after replacing the former 130,000 metric tons per year totaling agreement. And we obviously replaced that was the direct sales agreement. Under the old tolls, we recognized revenue exactly when it was produced. This was based on the contractual terms in those agreements.

However, under the direct sales agreements, that is normal. The revenue recognition takes a few days longer. Obviously, the customer has to actually take titles and material and there are certain other requirements that have to be fulfilled, before revenue can be properly recognized.

So for the first quarter ever, we actually built a little bit of finished goods inventory at Grundartangi. This resulted in lower recognized shipments during the quarter and obviously had profit impact. Obviously, it's a timing issue as those revenues would have been recognized and were during the early days of April.

As we told you that in February Grundartangi shipments were also down in the first quarter and will be further down in the second quarter, it is a power curtailment cost by the unusual weather patterns in Iceland. And near-historic record water in the reservoirs forced the national power company to curtail power supply to all large users in the country. And Shelly will give you some more detail of the impact of this on Grundartangi's production.

Moving down the page here, production metrics were excellent across the plants. And we're especially pleased with the developments we're seeing at both Kentucky facilities. We had excellent performance in the reduction plans, current efficiency was up, energy usage down, and line current was up nicely at Sebree.

At Hawesville, the production and capturing of high purity metal continues at record high. And at Sebree, billet production is also at rapid levels. We really proud of our operations people who produce these results, especially without any disturbance, especially in an environment of cold weather in the region.

Lastly on the page, conversion costs were impacted mostly by power during the quarter. That was obviously the major factor. Shelly will give you some more detail on this, but if you look at these data here, you can see more than all of that variance versus the fourth quarter at Hawesville and Mt. Holly was produced by the highest power prices due to the weather, so the plants improved in all of the other areas.

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

Shelly Harrison

Thanks Mike. If you could turn to Slide 7, please, I'll take you through the company's financial performance for the quarter.

Our U.S. shipments were down 4% in Q1, and this was largely due to slightly lower production as well as a temporary inventory build at Mt. Holly and few fewer days in the quarter. In Iceland, we had direct shipments of approximately 37,000 tons in Q1. It was a significant increase over Q4, due to the tolling contract expired at the end of 2013.

Total volume for Grundartangi was down 6% and mainly due to low water levels impacting power availability and fewer days in the quarter. As a reminder, the reduced water levels were driven by unusually low rainfall and lower temperatures causing less snow melt on the glaciers.

For Q1, reduced power availability impacted production by about 1,500 ton. At this point we expect an additional 2,000 ton to 3,000 ton to be lost in Q2, before we return to full production level.

We also build out 2,500 tons of finished goods inventory at Grundartangi related to the shift from tolling to direct shipment. As Mike mentioned, under our tolling arrangements, all finished goods are owned by our tolling counterparty, but with greater direct volume we expect to carry a small finished good balance going forward.

So, overall, global shipments were down 5% quarter-over-quarter. On a one month lag basis, the average cash LME price was down about 3% in Q4 to Q1. When you look at our realized unit prices in the U.S., they were up 5% as a result of the significant increase in the Midwest premium.

In Iceland, our realized unit prices were up 23% primarily due to shift from tolling volumes to direct sales. Our net sales were up 5% quarter-over-quarter, again due to more direct sales in Iceland and higher premiums, which were partially offset by lower overall shipment volumes.

Continuing down to the operating loss line. In addition to our normal adjustments for depreciation and amortization and lower cost of market inventory adjustment, this quarter we also had a $3 million charge for a legal reserve related to power in Iceland. After backing out these items, we had an operating loss of $7,000 in Q1, which compares to an adjusted operating loss of $8 million in Q4.

So let me take you through some of those changes quarter-over-quarter. Higher aluminum prices, which include both the LME priced and regional and value-added premiums, increased operating income by about $12 million and that includes the LME impact on our alumina and power cost.

Operating cost at Sebree improved by $2.5 million due to higher labor and maintenance cost in Q4 that did not occur in Q1. Power prices at Sebree were relatively flat quarter-over-quarter, given maintenance move to market-based power until February. The power costs were up about $9 million at Hawesville and $3 million at Mt. Holly, primarily due to the extreme weather conditions in Q1.

So let me make you jump ahead to Slide 8 for just a moment. I'll take you through the weather impact in a bit more detail. In the upper chart here, what we've done is taken our adjusted operating income from the previous slide and further adjusted this for the impact of normalized power prices, we would have expected absent the harsh winter condition. Under these assumptions, Hawesville's operating income would have improved by $16 million and Sebree would have improved by $13 million, assuming a full quarter and market power prices.

At Mt. Holly, operating income would have been better by about $2 million at normal natural gas prices. So in total, simply by adjusting for the power prices, we would have expected based on historical level, this would have resulted in higher operating income, $41 million for the quarter. And this also stand to the bottomline so the benefit to EPS would have been roughly $0.32 per share.

In the bottom chart, you can see historical and forward pricing information for the Indiana Hub, which is the closes liquid node to our Kentucky smelters. If you look at both the historic prices before Q1 '14 as well as forward prices from Q2 onward, you'll see that these levels are consistent with the pricing and the example I just gave you, that results in a $31 million increase in quarterly operating income. So far in April, undelivered power prices in Kentucky are averaging in the mid-to-high 30s, so we are seeing prices return to more normal level.

Let's go back to Slide 7, please. So the last item I want to note for operating income was a reduction of about $2.5 million in SG&A. This is related to startup cost in Q4 for our anode plant in Netherlands and did not recur in Q1, since that plant returned to operating status at the end of 2013.

Moving on to the EPS data. For Q1 we had an adjusted loss of $23 million or $0.23 per share after adjusting for the Sebree power contract amortization and the legal reserve that I mentioned earlier. Continuing down to the balance sheet info. We repaid the small balance on our Icelandic revolving credit facility and we have full availability on our U.S. revolver with no amounts outstanding other than line of credit. So our cash was down $32 million for the quarter, our available liquidity only decline by $14 million.

Moving on, we've already covered Slide 8, so let's flip ahead to Slide 9. Here we show our normal cash flow waterfall bridging Q4 to Q1. As expected, we had $6 million in carryover capital spending in Q1 related to our anode plant in Netherlands. We plan to spend another $5 million in Q2 to wrap up spending on the first furnace. We also spent $10 million at our smelter facilities in Q1, primarily related to investment in the expansion project at Grundartangi and maintenance capital.

Moving on to the right, you can see the $6 million is on repayment of our Icelandic revolver. And lastly, we had the $10 million payment related to the separation of our former CEO. As I mention last quarter, this amount was accrued in Q4, but the cash payment wasn't made until Q1. The quarter-over-quarter cash was down $32 million and we ended the quarter were $52 million of cash on the balance sheet.

With that, I'll turn it back to Mike.

Michael Bless

Thanks, Shelly. If we could just turn to Slide 10, please, we'll conclude before taking your questions, by just talking about some of the major things on which we've been working and will be working over the next couple of months.

First, we recently engaged a major energy marketing firm to represent us in the MISO market. This change will take place during the next couple of months, and it will increase our option significantly relating to how we purchase energy in the market, and we're now looking at a broad range of alternatives with these outside experts.

We're also spending significant effort, analyzing methods, to mitigate the transmission related risks about which we've talked. As expected, our obligation to pay the cost of the power station next to Hawesville ends at the end of this month. And as I mentioned earlier, this should mitigate any price impact from any future congestion issues.

As a reminder, we've entered into agreements at both Hawesville and Sebree, which should require us to shed load under a range of unlikely, but possible series of events in the local transmission grid. And under the worst circumstances, these could be material to either plant's operational stability.

We can't operate over the long-term with these risks, however remote they may be. Especially, as the events, which could produce a worse case scenario aren't under our control. Of course, they may be subject to acts of nature and also to the actions of other parties. So in that respect, we're working really hard on a range of alternatives.

Moving along, we continue to believe there should be a solution to Mt. Holly's post-2015 power requirements, a solution that would keep the plant viable and be acceptable to all the key stakeholders. That having been said, we've yet to be able to reach an agreement in principle with the power provider.

As you know, we need to give notice by the June 30 of the termination of post-2015 service. If weren't to do that, we'd remain on the hook after that time to pay the demand charge.

As you know, Mt. Holly is one of the safest and most efficient smelters in the U.S., with an excellent team of employees, and we're convinced, it's worth investing the effort to find a path forward for this plant, and we're working hard on a range of alternatives. That said, we would have no choice, but to shutdown the plant, if we cannot find a material improvement from what the power company is now offering.

Expansion project at Grundartangi is continuing on plan and on budget. And in addition to that we're working on a modest capital investment to repurpose about 20% of the plant's production through a premium product. This is a low-risk high-return project for which production will begin in Q4 and shipments in 2015, and we'll give you more detail on this as we move through the balance of the year.

We continue to seek a path for the restart of the Ravenswood, West Virginia plant. As you know, we've continued to invest to hold the plant in a ready state. Discussions are currently ongoing with the power company and also recent discussions with the state and with the other key constituencies. We've had some progress here and continue to believe there is a solution to which we remain absolutely committed. And that commitment also remains at the Helguvik project in Iceland.

We think that fundaments are very good for this project. The production is needed to supply the European markets. Otherwise product needs to come in from the Persian Gulf and Russia and other places. We continue to spent time on the smelter design, on the technology, working with our vendors on our other activities. And we've kept in place a small but high-quality team, that team can be quickly expanded when the time calls for it.

We haven't yet seen all those lot of progress on the power front. We've yet to reach agreement with the new contracted power suppliers, and we've not seen yet any interest from the national power company in participating in the project in a major role. That said, we remain hopeful that their position will change in the reasonably near future.

And with that, Pete, I think we can open it up for questions.

Peter Trpkovski

Thanks Mike. Joseph, could you please take the first question in queue.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from Sal Tharani from Goldman Sachs.

Sal Tharani - Goldman Sachs

I wanted to understand at Mt. Holly you are a partner with Alcoa over there. And obviously you have to -- I think you have now delayed the termination notice or whatever the notice, as of June of next year?

Michael Bless

June of this year, Sal, so the notice itself provides cancellation of the service after December of 2016, but that notice must be given by June 30 of this year, i.e. 18 months before the termination date.

Sal Tharani - Goldman Sachs

And Alcoa has been aggressively shutting down smelters or curtailing around the world as the electricity contracts are coming up for renewal. I was just wondering, if you don't get the power contract from the local utility company and you have to go that route, which you did at Sebree and Hawesville, and Alcoa doesn't want to participate in that kind of route, would you be willing to buy their portion?

Michael Bless

We certainly wouldn't discuss something like that on this call, Sal, as you know.

Sal Tharani - Goldman Sachs

Is it a viable, what you call plan?

Michael Bless

The thing about Mt. Holly is, the answer is absolutely yes, it is amongst, and we've always said -- and Alcoa would say the same. It is number one, as I think you know, it's the only non-union smelter in the USA. And two, if you look at all measures of efficiency, most importantly energy usage per kilogram or metric ton of aluminum produced, it's the best or if not the best, one of the very best in the USA. So the plant with a reasonable cost absolutely survives. There is no doubt in our minds.

Sal Tharani - Goldman Sachs

And the transmission issues which could be a problem you mentioned in the Kentucky area. And you say you're looking for alternatives. What kind of alternatives can you have? Is there other transmission company you work with?

Michael Bless

The wires are owned by whom they are owned, so there are a bunch of things that could happen, Sal. There are upraise, which we wouldn't pay for directly, most likely, which would be paid by system operators and then amortized into power crises for the whole region of, let me take a step back, this system is only as good as its weakest link. And so what the studies do is they isolate the weakest line in the grid and model various contingencies based on that line being out another line, surrounded being out.

And so short answer to your question is, is one thing that could be done is that weakest link could be upgraded to the reasonably investments, in addition to our other things. There is a whole panoply of other things we're looking at, nothing is close right now, but we've got a lot of -- a bunch of things in our book.

Operator

Next question comes from David Olkovetsky from Jefferies.

David Olkovetsky - Jefferies

So just a couple quick questions here. The first one, as I'm sure you guys are aware, there is a another vertically integrated -- or I should say a vertically integrated producer that's making some noise, trying to get better rates from their power supplier. And it appears that a conclusion to that case is fairly imminent, within the next two months or so. They've indicated that if they don't receive the kind of rates they'd like, they might shut that down. I realize it's a negotiating tactic, et cetera. I'm just wondering if you've done anything to position yourself to potentially take that business at medium levels, contract in that business or potential business.

Michael Bless

Sure, we're obviously familiar with the situation to which you're referring. We are in, David, as you obviously know, some of the same markets in the Midwest, billet to be specific, it goes with that saying that if that production went away, the market, which is already short would be even shorter, so one would think that all else being equal, I suppose producers who remain would benefit, but there's a lot of production that comes from that plant. It couldn't easily be made up. As you know, our plants operate at full capacity, above their design capacity. But of course, we were interested in what's going on there. And like most industry participants in the U.S. are following it.

David Olkovetsky - Jefferies

I guess just sort of maybe to follow-up a little bit, the question, I was sort of alluding to Mt. Holly specifically, if this decision would come out at the end of the line, you have to give notice in June. So I'm wondering if there's any way to extend the Mt. Holly drop-dead date.

Michael Bless

No, I think there are two separate issues, because Mt Holly is viable and profitable and can make good cash on cash, good cash returns at the right power price. I don't think there's an increase that you could conceivably and realistically see in billet and other value-added product premiums that could make the plants at an unrealistic or bad power price, let's say, all of a sudden viable. It wouldn't flip that digital switch there. I think those are, if I'm getting your question right now, I think there two separate issues.

David Olkovetsky - Jefferies

Really what I was getting at was when Ormet shut down, I mean pretty soon afterwards we saw a robust premium spike pretty dramatically, and if you experience that sort of thing, and the gross premium goes to say $0.30.

Michael Bless

The June 30 termination notice, Dave, is just that, it's a date by which we have to provide notice, to terminate service 18 months later. There's nothing there, it's just I mean I suppose maybe now I understand why you started drawing analogy to what we did in Kentucky.

We gave that termination notice as you well remember in August of 2012. And then proceeded to get down to business and negotiating there agreement with power provider that finally culminated nine or so months later. And so there's nothing to that prevents us, if we and our partners at Alcoa felt we had to give this termination in June. There's nothing that plant would most likely almost certainly continue to run number one. There's nothing would prevent us from finding a solution in the ensuing months.

David Olkovetsky - Jefferies

And then if I could just switch gears quickly to Grundartangi. You mentioned the expansion project there. I'm just wondering if that implies a reduction in production.

Michael Bless

In absolute reductions, David or a reduction versus what the expectations otherwise would have been?

David Olkovetsky - Jefferies

Yes, if you don't undertake that project, would you reduce your production?

Michael Bless

I'm sorry.

David Olkovetsky - Jefferies

I mean like in a state where you don't undertake this project, do you increase your -- I'm phrasing this horribly, if you were to not take this project on, would you decrease your production?

Michael Bless

Maybe you're mixing up two things. So we are currently engaged in the hot metal production expansion project at Grundartangi. It's started a couple of years ago. It's on phase where we are at or above ahead of plan. The only plan you had in the Grundartangi of course is as Shelly referred to is the short-term year in Q1 and Q2, lots of production due to the power shortage, due to lower reservoir levels. And perhaps you referring to the expansion of the anode facility in the Netherlands that you were talking about?

David Olkovetsky - Jefferies

I'm sorry, I must have misheard.

Michael Bless

So that's the no go decision, that there is no impact there at all on Grundartangi's expansion capacity. We're buying the anodes now from our 40% owner affiliate in BHH. We can scale up there. So there is no impact to Grundartangi's production whether and when -- I should really just say when, because we're going to do it when we choose to double the productive capacity at the anode plants in the Netherlands.

Operator

The next question comes from Brett Levy from Jefferies.

Brett Levy - Jefferies

Sorry, if it seems like Jefferies is trying to monopolize.

Michael Bless

You guys are ganging up on us, Brett.

Brett Levy - Jefferies

I'll be brief. First off, can you make the case that the current Midwest premium is the new normal given warehouse policies and the tightness of supply and capacity shutdowns and that sort of thing. What do you see as the threats to the Midwest premium going back to a single-digit number as it has historically been? And then like I said, makes the case for the current situation being the status quo.

Michael Bless

I mean your former and your latter, that's a tough case to make. We don't think as we've been saying. We don't think the old normal of say $0.06 to $0.08 give or take is supported anymore. Just given the increasing costs, given the dearth of onshore supply, given the freight cost, you know all the, we'll call it the fundamental factors that go into the market assessment of what the regional, the local delivery agreement ought to be, and so then it gets hard. If you are now in the double-digits, cents per pound, of course, what's the right equilibrium level and a lot of that your partner their asked the question about -- I think it was David, not Sal before about supply coming on road.

Brett Levy - Jefferies

We haven't merged or I missed the memo.

Michael Bless

No. I didn't mean that. That would be interesting. But in a market that's already short, marginal tons coming up as the reference was absolutely right. We saw it when the Hannibal smelter own by Ormet came up. That had intangible impact. So there's a lot of factors there. I'm probably going to punt to be honest, if you look at for example at, Shelly, at third-party forecasts you've got CRU at least for the balance of the year in sort of the mid-teens. There is one reference point, time will tell whether that's good one or not.

And then you've got all the extraneous, let's call them factors, Brett, to which you refer as well. It's hard. As we told you before you've seen it in the forecast that we provided during February. Our business plan isn't based on the kind of levels, spot levels, at which we're sitting today I suppose is the way I should probably just stop.

Brett Levy - Jefferies

And then in terms of your discussions with Iceland, I know sometimes there could be an unreasonable situation. But doubling of Grundartangi, starting up at Helguvik, I mean at some point do they just say listen, power costs should be -- I mean, at Grundartangi, if you double production, is there any change in your power costs from kind of where you are now to like what you would require if you double production? And can you just sort of walk into somebody's office and say, you know what, it's six of one, half a dozen of another, at the end of the day, you should let both happen -- or I don't know, it feels like reasonable people should agree.

Michael Bless

Just a couple of distinctions. No doubling of capacity at Grundartangi. That would be a nice concept. The hot metal capacity that we announced two years ago is that in 40,000 to 45,000 tons. So based on that rich phase, we're going to pick out at the end of 325,000 to 330,000 tons. And we believe we've got the power for that and the small amount of incremental power that we'll need in addition to the power that we have contracted for that now, will come at around the same levels as give or take as we're currently paying. Again, I think that the double productions, which you're referring is the anode plant.

Brett Levy - Jefferies

But I mean, honestly it would be something actually to propose to them. Add more product lines at Grundartangi and let them sort of leave Helguvik and sort of a scale up.

Michael Bless

I mean, Brett, that's been something that has been talked about. We've never talked about it as we've talked in Iceland. We think Helguvik is the right side for a new plant for a whole host of reasons. That's how the project was conceived. That's how the power contracts were assigned. That's how the operating permits were given and it was based as you know on the original concept of both power being available and made available by the owners of that power in the region. And of course on the creation of jobs in the region of Iceland, which is needed and still needs them in the north, that's the Reykjanes peninsula in the southwest part of the country.

And so that's where we're still heading here. We think we can do both? Yes, I mean it's a reasonably modest expansion at Grundartangi and Helguvik still stands as an independent project as long as you'd saw the digital problem of getting power, that kind of chunk of power at the right terms. But yes, we think both can be done. We are plowing ahead at Grundartangi, regardless of when we get Helguvik off the drawing board.

Operator

The next question comes from Timna Tanners from Bank of America.

Timna Tanners - Bank of America

Long day, so I think we're getting a little confused. I know I am. So I might have some basic questions here. Sorry. A couple of things. On SG&A, you're still targeting $34 million for the year?

Shelly Harrison

We are. And that's just corporate SG&A. So if you look at this quarter we were about $10 million total SG&A, back off about $2 million for plant SG&A, that gets you right in line with $34 million for the year.

Timna Tanners - Bank of America

And then there seems to be a lot of things in play, right, that are being negotiated and kind of being worked on. But I just wanted to drill down into Grundartangi a little bit. First of all, into the second quarter, is it going to be, do you think a similar amount of curtailments because of the weather as the first quarter or is it still playing out?

Shelly Harrison

You're talking about in Iceland?

Timna Tanners - Bank of America

Because of the power conditions, yeah.

Shelly Harrison

So 1,500 in Q1, 2,000 tons to 3,000 tons additional in Q2.

Timna Tanners - Bank of America

And you kind of didn't give us a lot of details and I assume there's a reason for that. I just wondered if you had anything else for us to kind of grasp onto in terms of how to think about what it's going to take for Ravenswood, what it's going to take for Helguvik. Those have been kind of out there for a while. Has there been any progress? Are there any upcoming kind of deadlines that we should be watching for or things that will help us know whether or not this is going to move ahead?

Michael Bless

No, in answer to the latter part of your question, Timna, no, specific deadlines at either of those. So it's not Mt. Holly where we can point to specific deadlines and say, look, watch and see if we get that termination notice, we and Alcoa -- when I say we, I mean ourselves and our partner prior to 30 June here. Discussions are ongoing in West Virginia. I would say they're ongoing even as we speak. There is a meeting next week with the power company. But there is no sort of nearing event or date or deadline to which we could point to.

I would say it's very much the same in Iceland. Discussions there are continuing. There are various developments, but there's nothing tangible to which we could point you to say, watch this data and watch this space and watch this as an indicator. I think I understand what you're seeking, regrettably the answer is no.

Timna Tanners - Bank of America

And the only last thing, it sounded like you were alluding to some possibilities of further value add. Do you mean like processing, do you mean value add in terms of the aluminum ingots you make or what did you mean by that? If you could give us a little more detail?

Michael Bless

Good question. Thanks for that, because we probably should have provided a better distinction. So we're not talking about processing downstream, as the industry generally goes. What we'll be talking about is further development of either value added primary products that we currently produce at foundry, ingot, billet, et cetera, et cetera, or some new primary products, various mixtures, alloying on metals, et cetera, et cetera. That kind of thing. But that's a good question, and thank you. This is not a move to go into what people generally refer to as a downstream space.

Operator

The next question comes from David Gagliano from Barclays.

David Gagliano - Barclays

Mt. Holly, just a quick one. What was the profit contribution from Mt. Holly in the quarter?

Michael Bless

We don't give plant profit contribution, David, you know that.

David Gagliano - Barclays

How about this? Obviously, we've been talking about the run up in Midwest premiums, the LME price, not so much, but a little it of a bounce. But anyway, when you add the two together, the realized price for your existing assets, not plant-by-plant, but overall what percent of our production was positive on sort of EBITDA basis in the quarter?

Michael Bless

Let's talk about it this way. Basis, current cash LME plus basis, we'll talk about the U.S., basis current spot, maybe it's a bit redundant, basis spot Midwest premium and adding on the net product per net casting premiums, we get obviously the premium net of the incremental casting cost are casting something other than an ingot or a cell. An easy answer is that at current power prices, i.e., not the average for the quarter including the spikes, all of the plants would be cash EBITDA positive for sure.

Shelly Harrison

And I'll even add on to that, at first quarter power prices at today's metal price are up from where it was in Q1, but the rate what we're seeing has already run out, they would all be positive as well.

Michael Bless

Even including those power prices.

Shelly Harrison

Yes.

Dave Gagliano - Barclays

And can you remind me again, where does Century sit on the global cost curve?

Shelly Harrison

So with normalized power costs, we would be sitting right around at the midpoint of the cost curve for our U.S. facilities and in Grundartangi we'd be down in that cortile.

Michael Bless

As you remember, two, three years ago the U.S. facilities were up and sort of on the border between third and fourth cortiles. And as Shelly said, Grundartangi is, it moves based on the metal price.

Operator

Next question comes from John Tumazos.

John Tumazos - Very Independent Research

Could you update us on your aluminum arrangements and how far out they go, how many years whether you only book the current operating smelter without anything for Ravenswood or Helguvik? And where the bauxite feeds, the refineries go, and as much as you can about the tolling arrangements or if anything as a fixed price?

Shelly Harrison

We don't currently have anything insight for the non-operating facility. But we do have insights for all operating facilities is the product taking it out through 2017 under percentage LME based contract. But the only real exception for that being, the Grundartangi for this year about half of the alumina under our direct shipment is spot price rather than percentage LME.

Operator

The next question comes from Sal Tharani from Goldman Sachs.

Sal Tharani - Goldman Sachs

Can you tell us what was that increase in the legal reserve at Grundartangi you were talking about?

Michael Bless

Sure, Sal. So that has to do with one of the original Helguvik contracts. In a take or pay provision in that contract, we're obviously now using that power to fuel the extension at Grundartangi. The issue is the -- I guess I'll call it a historical one in there, if there is a liability there and I'll address that in a moment, it's fixed because we're now using power that's at or above the take or pay level. So there is no even claim by the supplier that any issue would be growing. Most importantly, we think we have no liability there. And if they were to make a formal claim, which they haven't, we would aggressively defend it. But again, it has to do going back to those original Helguvik power contracts.

Sal Tharani - Goldman Sachs

Couple of things, which I think you have already said, but I just want to just confirm that. In Iceland, the production curtailment will be, because of the power issue, will be 2,000 to 3,000 ton additional to 1,500 tons? It's like 3,000 to 4,500? Is that the way we should look at it?

Shelly Harrison

That's right, in total for the two quarters.

Michael Bless

So the 1,500 is history. And the 2,000 to 3,000 will be incremental there, 1,500 in Q2.

Sal Tharani - Goldman Sachs

And alumina you mentioned price in the U.S. are linked to the LME prices at the moment?

Michael Bless

Yes.

Sal Tharani - Goldman Sachs

And until 2017?

Michael Bless

Yes.

Sal Tharani - Goldman Sachs

And when will this, whatever the link is, is that a contract? Since when do you have that contract?

Michael Bless

There's two. There is one that's been in place for a long-term that expires here over the next year or two. And then the new ones, we talked about this I think in the fourth quarter. We signed up sometimes during the fourth quarter, so I can't remember exactly when. And as we've said, as normal for this industry, they are at a range there that put/call range. So you agree on a min/max and then each year the supplier and the buyer negotiate to try to find a place within that min/max and if you can't, each go their separate ways for that one calendar year. It's very standard in the industry.

Operator

Next question comes from Paretosh Misra from Morgan Stanley.

Paretosh Misra - Morgan Stanley

I just wanted to go back to your comments about you're not interested in owning downstream assets. Is that because of capital requirements? Are you thinking the market is not big enough? Because you used to own Ravenswood rolling mill facility, right?

Michael Bless

Yes. Quite a15 years ago, the company sold it. And so it's a very straightforward answer to your question, we think they are very fine markets. But the two businesses are very, very different. My background pre-Century is in manufacturing. And those businesses are really manufacturing businesses. Ours is a process commodity business, and the two really have no linkage other than the very obvious fact that one provides a raw materials for the other.

But other than that to me all you're doing, unless you have a particular competency in the manufacturing business, all you're doing is vertical integration. In our opinion vertical integration surely, for the sake of it can lead you down to very bad path. So we think they're fine markets, many of them with good returns, and of course they require capital. It's just this company, we don't think brings anything special to its share, for its shareowners in those markets.

Paretosh Misra - Morgan Stanley

And then within your product portfolio, especially within the U.S., is there anywhere where you see any risk from imports coming from China or other places just because the premiums here in the U.S. are quite attractive?

Michael Bless

Yes, great question. Not just China and other places. So from China, we've been seeing for some time, Paretosh, the industry refers to them as semi-fabricated products. They've traditionally been showing up here more to get around the duty in taxation regime in China, which is much more favorable to our product that has value added content to it than for primary metals.

So people take an ingot and change it in that very minor way unless their economics improve. But the backend of your question perhaps, we're now starting to see because of the premium, increased material coming in from places like Russia. And while we're fencing for the last couple of years, material coming in from the Persian Gulf, we've seen increases coming in from that region as well.

Paretosh Misra - Morgan Stanley

And my last question. Just wanted to confirm that the guidance that you provided for the U.S. cash costs for second quarter, $1,550 to $1,600, is that still okay to use?

Shelly Harrison

Yes. The guidance that we gave in February is unchanged.

Operator

The next question comes from David Olkovetsky from Jefferies.

David Olkovetsky - Jefferies

I just want to apologize to the operator. There seems to be a lot of difficult names today. Except for Brett, he's got the easiest one of all, right? So as I'm looking at Chart 8, and quite frankly I'm a little surprised that none of the equity guys are honing in on this one. It looked like your 2Q power prices are sort of right in that spot, mid-30s. So I'm looking at this top chart, and almost as if I could just add $40 million to your EBITDA?

I know you're not going to give guidance to what EBITDA is going to be in the second quarter, but is there, aside from the small adjustments, pension, the incremental $2,000 to $3,000 fund reduction in Grundartangi, and I do mean Grundartangi this time. The other factor that I need to think about and is that kind of a good way to look at the second quarter?

Michael Bless

Yes, I mean David, I think you nailed it. All we're saying here that based on a lot of assumptions, and we tried to footnote this chart, and also that people could follow all the assumptions, all we're saying here is that, and then I'll answer the last part of your question, in Q1, if power prices had been at this level rather than including the spikes that we saw due to the weather, David, it not wouldn't have been this much higher. And then to answer your question, Shelly, I'll ask you, there is nothing else in Q2 over Q1 that's kind of a change -- no change in the other cut, other than what you referred to David, it ought to be roughly the same.

Operator

There are no further questions at this time.

Michael Bless

We appreciate again everybody's time this afternoon. And we look forward to speaking with you in July. Take care.

Operator

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

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