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Century Aluminum Company (NASDAQ:CENX)

Q3 2010 Earnings Call Transcript

October 26, 2010 5:00 pm ET

Executives

Shelly Lair – VP and Treasurer

Logan Kruger – President and CEO

Wayne Hale – EVP and COO

Mike Bless – EVP and CFO

Analysts

Brett Levy – Jefferies & Company

Mark Liinamaa – Morgan Stanley

John Tumazos – Very Independent Research

Tim Hayes – Davenport & Company

Operator

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2010 earnings conference call. At this time, all phone lines are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions given at that time. (Operator instructions) As a reminder, today’s conference call is being recorded. And with that, I would now like to introduce your opening speaker for today, Shelly Lair. Please go ahead.

Shelly Lair

Thank you, Doug. Good afternoon, everyone, and welcome to the conference call. Before we begin, 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 statement disclosure in today’s slides and press release for a full discussion of these risks and uncertainties. In addition, we have included some non-GAAP financial measures in our discussion. Reconciliation to the most comparable GAAP financial measures can be found in the appendix to today’s presentation and on our website at www.centuryaluminum.com.

I’d now like to introduce Logan Kruger, Century’s President and Chief Executive Officer.

Logan Kruger

Thanks, Shelly. Thank you for all for joining us today. We had a perfect quarter in an environment of slowly improving market and business conditions. I’d like to make a few brief introductory comments before speaking in more about the market. So let’s turn to slide number four.

We have now working this consistent improvement of the last few quarters in many regions of the world. As I’ll detail in the next few slides, the BRIC countries and other regions in Asia are continuing the lead the way. In the U.S. and Europe, slow growth seems to have settled in with significant disparity in performance amongst end markets.

On the supply side, production coming on stream outside of China and India, during the next few years, if limited generally to a few projects, mostly in the Persian Gulf. Marginal amounted in the developed world continued to be at risk to the aluminum price on a short-term basis, but more importantly, the power price and the availability of power over the long-term.

In China in particular, the supply side environment has become quite interesting. We believe that central authorities are, this time quite serious about reigning in the growth of finding aluminum business. As you know the twin issues of the power costs and the availability on the one hand and the environmental commitments and concerns on the other are driving this besides of behavior.

In addition to limiting future growth, they have targeted inefficient existing capacity for closure and appear to be intense on forcing these actions too. Wayne will make detailed comments about our operations, so I’ll simply hit a few highlights here.

We are very pleased to have a tentative four-year labor agreement at Hawesville. It has been agreed by the Union Leadership and its pending ratification by the membership. This brochure should be concluded in the next few days. The fact that this process took several months to complete is evidence of the many significant issues we believe needed to be addressed.

The contract gives the plants, the foundation from the perspective of labor costs to be competitive for the period of this contract. Wayne will provide detail on other significant work ongoing to increase Hawesville’s long-term competitiveness.

I’d like to take this opportunity to thank the leadership at Hawesville and the entire employee group for the plant’s performance during this period.

The Grundartangi is now continues to perform very well during the extended period of a major repair of one of its transformers. As we reported during the last call, the unit had been repaired and then extends to lead damage when it was shipped back to Iceland. It is now again under repair. Both Wayne and Mike will update the timing and the financial impact of the situation.

I will speak in greater detail about the spaces of the new plant at Helguvik at the conclusion of our remarks. This brochure is taking longer than we would have expected and we continue working towards a restart of major construction.

With that, let’s turn to the next slide number five.

Looking about the market. The LME cash price averaged approximately $2,090 per ton for the third quarter of this year. Prices are running strongly from the $1,925 per ton at the start of the third quarter to the much 2,300 per ton as of today.

Alumina stock prices affirmed from about – to about $360 per ton from about $300 per ton at the end of July. The rising prices for alumina was more pronounced in September on the back of the high aluminum prices.

Global aluminum demand continue to improve in the third quarter with growth in China leading the way. Both India and Brazil have also shown reasonably good growth recently and there has even been the modest pickup in the U.S. and Europe, most notably in Europe as the case is Germany.

On the more of macro level, Chinese economic growth in the third quarter of 2010 was 9.6% and industrial production remains in the 13 to 14% range year-over-year. Similarly GDP in India was 8.8% year-over-year in the second quarter, its highest level since 2007.

As I mentioned in my opening remarks, there has been some interesting supply side developments out of China over the last quarter. In recent history, we have considered comments on the Chinese government concerning programs and at reducing production in the energy intensive industry such as us with some skepticism due to the lack of action coming out of these programs.

Unlike past announcements of this nature, we understand that the current initiatives are being acted upon, meaning that significant production has been taken offline in an effort to bring the current five-year plan to target level for energy savings. Of course it remains to be seen what will happen with the curtail facilities in the current play area plan period end but they will clearly be a near-term impact on production and longer term, it is expected that some portion of the existing idle capacity will not come back online.

Let’s move on to slide number six. Aluminum stocks have been flat to modestly declining recently. That said the declines have barely touched a large inventory board which has began in early 2009. And inventories remain at a very key high level in warehouses and elsewhere.

In this period of rising inventories, we would generally expect to see weakening premiums. But as you can see from the chart, exactly the opposite has occurred. And premiums are now near or near multi, at/or near multi-year highs in bus [ph] in all areas, U.S., Europe and Japan.

There are two financial products that have received a lot of price recently that are causing physical market tightness or at least the perception of tightness and Wayne help you explain this unusual relationship. The first is the widely discussed transactions where physical aluminum units are used to collateralize financing arrangements, essentially borrowing against the metal units at today’s low interest rates and selling forward to take advantage of the upward slope in curve of aluminum.

As long as we remain in low interest rate environment and the forward curve of aluminum remains in contager [ph] it is likely that these contracts will be rolled forward and continue to tight physical units.

The second financial product is anticipation of one or more physically-backed aluminum exchange traded funds in the near term. This speculation continues to draw market interest and remove some of the pressure of the inventory over hack.

As a result, the Midwest premium remains in the mid $0.06 range, the European duty paid premium is approximately $190 per ton and the premium in Japan is about $120 per ton. Again, all at near multi-year highs and that answers the significant inventory levels in the market today.

Let’s move on to slide number seven. We’ll have a look at the relationship between stocks and the aluminum price. With the LME at $2,300 per ton at the end of the quarter and inventories at 57 days of global demand, aluminum pricing has moved even further out of sink with the historical relationships through day’s inventory. We believe that impart due to the financial pros I’ve discussed previously, but it also implies and I think importantly a structural shift in commodity prices is response to global cost pressures.

I would note that copper is trading at 3.5 times the price of aluminum. This historical relationship is also out of sink with historical bonds and we would expect some substitution while modest in volume maybe on the horizon.

We continue to expect that LME prices will remain range bond of the near-term due to existing idled capacity. But I’m optimistic that prices over the longer term will benefit from the interesting financial markets. Some modest substitution and more importantly global cost pressures as availability and pricing will par becomes even more challenging.

I’d now like to hand over to Wayne for the operations.

Wayne Hale

Thanks Logan. Let’s turn to slide number eight. At Grundartangi as I reported to you in July, the rectifier which has been removed from operation and was being returned from repair up to the plant suffered significant damage in transit from Norway. The cause of the damage was a combination of turbulences and the size of the ship being used for transport. The transformer remains on schedule to be back in service towards the end of the first quarter of 2011.

All elements to assure a safe return to Iceland have been catered for including a significantly larger and a more robust shipping vessel. Consistent with our expectations, this event impacted production in the third quarter and will do more the same during the next several months. Mike will provide detail on the product statistics.

As Logan noted earlier, during this period all elements of plant operation have met expectations. Regarding the agreement with the United State workers at Hawesville, the new contract is pending ratification by the membership. We expect the result of the vote at the end of the week. I will not comment on the contract details, other than to say that it’s four years in duration and provides a solid labor cost foundation for the plant.

Looking at the bigger picture, the labor contract is only one item of a multi-element program we are progressing at Hawesville. All are targeted to significantly reduce Hawesville’s cash operating cost. And the programs are focused to increase throughput, improve efficiency, and to reduce cost.

Most projects are pure efficiency improvements while some will require modest capital investment. We will continue to implement this – later this quarter, and will provide you with details and expected benefits during our next call.

At Mt. Holly, we continue to make progress including the appointment of a very experienced new plant manager. He is hoping that critical eye on the operations that led to the significant operational issues over the last 12 months. Now those operations are improving with continued focus from plant leadership and both partners.

We and our partner concluded an agreement with the power supplier at Mt. Holly earlier this quarter, while the new agreement will not significantly change the challenging energy cost environment at the smelter provides for increased flexibility to curtail operations in low LME environments.

Let’s turn to slide number nine and I’ll provide a brief update on the situation at Ravenswood. In regard to the ongoing costs, the curtailment activities continue at/or below forecast. On the point of recommencing operations, we’re developed – devoting substantial effort to create the conditions in which we could restart. In the further market environment, a restart would most likely make sense.

But however, as soon as we have enabling labor contract and a power contract flexible enough to predict the plant profitability during times of weak market conditions. As we’ve mentioned previously, the state legislature under of leadership of Governor Mansion asked legislation earlier this year permitting this type of energy contract. We remain in discussion with the power supplier to achieve our objectives.

On the labor front, we continue to meet with the Union Leadership regarding a new multi-year contact.

Now turning to markets, a shortage of scrap coupled with the general scarcity of available primary metal has continued to support premiums in the U.S., Europe and Japan. We’ve seen certain sectors in the show consistent but slow improvement in the U.S. as an example in automotive. Aerospace continues to look strong and we see some signs of lives in rod and cable, though we continue to be concerned about the construction markets.

With that, I’ll turn it over to Mike.

Mike Bless

Thanks very much, Wayne. We could turn to slide 10 please. Before I go into our results for the quarter, let me just make some comments on the markets. As usual my comments will compare the quarter that just ended to the prior one sequentially, so obviously this quarter Q3 versus Q2.

Logan made some comments about the markets. Quickly, the cash LME for the quarter on average Q3 was flat to Q2. However, on a one month lag basis, the cash LME price was down 8%. As you know, most of our sales globally are priced off of one month lag basis, but we do have this one contract here in the U.S. that is priced up on month, month basis. And that contract goes for the remainder of this year.

So when you put those two together, and you look at our realizing unit prices, so our realized price our large shipments per metric ton in the U.S., they were down 4%, less than the market down 8% on a lag basis due to that contract. And Iceland realized unit prices per metric ton down 7% so consistent with the market.

Turning to volumes, if you had a chance to look at the operating data at the end of the earnings release, you need to make a small adjustment this quarter to compare Iceland versus domestic shipments. For the first time this quarter, we had some sales, a minor portion of our sales of about 5% of the sales and shipments in Iceland reported its direct sales instead of total sales, about 3,100 metric tons.

So when you do the math, you’ll see on a volume – from a volume standpoint that domestic shipments were about 3% on an actual basis that equates to about up 2% on a per day basis, there was one more day this quarter. And in Iceland we were up 1% to actual and about flat per day.

Wayne talked about the Grundartangi rectifier transformer, being out. From a production and shipment standpoint, that situation costs us slightly over 1,000 metric tons a quarter it’s about 400 metric tons a month. As Wayne said that situation will continue until the unit is back in place and in service during the first quarter of 2011, so if you look at the math, on an actual basis, Grundartangi shipped at an annualized rate it was up about 272,000 metric tons in the quarter due to the transformer outage.

If you adjust it for the transformer outage in the volume that we lost, production would have been at about 277,000 tons so at/or above where we were in the winter before the incident with the transformer.

Putting the sales and the volume and the pricing dated together, as you’ll see net sales on a U.S. dollar reported basis, were down 3% Q3 over Q2.

Now walking down the income statement, couple of items to point to you. As usual, gross profit was down $6 million quarter-to-quarter. Of this price alone, the LME price change quarter-to-quarter, accounted for $16 million of reduction in gross profit, so more than the entire reduction. Couple of other items, as you may have noticed in the first paragraph of the earnings release, we released the remaining lower of cost or market inventory reserves we have this quarter, that’s obviously solely due to the aluminum price at the end of the quarter and that accounted for a $7 million reduction in cost of sales and then obviously a $7 million increase in gross profit, Q3 over Q2.

Raw materials globally were up $4 million, so this advantages $4 million Q3 over Q2. Most of that was carbon, obviously related to the manufacturer of anodes and the price of anodes themselves in Iceland. And again, as we noted in the first paragraph of the earnings release, $16 million of our cost of sales this quarter, related power costs at Hawesville or a portion of that obviously that we don’t actually pay for the remainder of this year. But the former power supplier contributes to our power costs at Hawesville.

This fourth quarter of this year is the last quarter in which that relationship is still on and then beginning in the first quarter 2011, as we brief you extensively we’re on the hook for the entire power costs at Hawesville, so $16 million this quarter.

Moving down the income statement, SG&A expensed $12 million for the quarter. Of that amount less than 11 of it was cash SG&A the rest non-cash. One item to point to you this quarter, we had a franchise tax accrual of over $1 million this quarter, about $1 million than we would normally have in a quarter simply due to a change in the calculation methodology to franchise taxes. So that’s a one-time catch-up if you will about $1 million versus a normal quarter. And Hawesville expending in the quarter that run through SG&A was a little over $1 million.

Moving down, loss on forward contracts that’s almost entirely the mark-to-market of our aluminum put contracts for the quarter. Obviously simply due to the aluminum price at the end of the quarter, so $12 million of unrealized or obviously non-cash swaps.

No change in our tax provisioning this quarter. We still provide zero percent effective tax rate in the U.S. that’s obviously due to our significant deferred tax assets in the U.S. that are fully allowed for. Iceland that still rates to 18%. One item in tax at this quarter that you will see in the first paragraph of the earnings release, $1.4 million of tax reserves no longer required due to the exploration of the relevance statues of limitations and therefore we’ve released those reserves resulting at a tax benefit of $1.4 million for the quarter.

Average diluted shares for the quarter 93.3 million is the total for common shares and common share equivalence. Preferred shares, no change at 8.3 million shares. If you could just look quickly at slide 16, we’ve given you the normal detail on the reconciliation of the EPS and some of the items. Starting at the top are actually, not on the chart but back on the earnings release data itself, actual reported results on common shares alone was a loss of $0.18. We report common shares alone due to the anti-dilutive nature of the preferred shares this quarter during the loss.

Now back on slide 16, as you know, the preferred shares are generally common stock equivalence in their right. So we think the right way to look at the company’s results profit or loss just to look at it on the entire share base so that’s the one 1.6 you see there. So in that basis, same loss is $0.17 a share and let me just take you through these items, I’ve talked about most of them.

So the unrealized loss from the puts, $0.12 a share, the amount of payment that the former supplier at Hawesville for the power made for us this quarter, $0.16 a share. Tax reserves, again resulted in a benefit of $0.01 a share and the inventory adjustment, lower cost to market was a $0.07 per share benefit this quarter.

Turning back to the financial statements in slide 10. Before I get over to slide 10, let me just make a couple of comments on the balance sheet and the data are on the slide obviously, if you had a quick chance to look at the balance sheet data. Total cash this quarter including restricted cash was $288 million, so up nicely from the end of Q2. As you may have noticed, we had an increase in restricted cash this quarter that’s solely due to the fact that we’re still getting our letter of credit facility up and running from an administrative standpoint during the quarter.

And therefore, we had to put some cash where before we had some LCs outstanding. Just to pickup on that revolver again as you may recall, we finalized our new revolver just a couple of days into the third quarter so after the last balance sheet date in the early days of July, $100 million revolver just like the old one, four years in duration this time, larger the same term as the old revolver.

And as you know we use this facility only for letters of credit. We don’t draw on it from a cash perspective. So this quarter, however at the end of Q4 when we report to you in February you’ll see that most of that restricted cash fill back into regular cash and equivalence as we’ll post those LCs under our new facility.

No other change in debt in the quarter. Let me just take a moment to comment on the debt financing for Helguvik, the non-recourse financing. We’ve made great progress there during the quarter. With the banks who are leading that process for us just to remind those institutions are three

BNP Paribas number one, Société Générale number two and ING number three. We’ve got a very detailed, almost 50 page churn sheet are largely agreed now, just a couple of points left outstanding.

And we think we can quickly turn that into a full set of documentation and the bank still obviously need to take the final product through their credit process. But bottom line, we are confident that we’ll have a financing ready to go when the project is ready to restart in earnest and Logan will have some comments on that for you in just a couple of moments.

If you could please turn to slide 11, just a couple of comments on cash flow. Good cash flow from operations for the quarter, if you add back the $4 million of cash we spent on put options for the quarter, I’ll comment on those in a moment. So you look at the true cash flow production of the operations, $32 million for the quarter that was above our expectations based on the average LME for the quarter.

Quickly on slide 12, I’ve touched on most of these items as usually walk you through the change in the cash for the quarter. I’ve talked about the movement out of cash and equivalents into restricted cash, number two we did as I say, – as I said spend $4 million on put options for the quarter downside price protection. So we’re not giving up any upside there.

Just to give you a sense of where we are right now, if you look at our current rate of production for 2011 and you take that rate of production excluding the amount of production that’s naturally hedged due to the linkage of the aluminum price to the LME price. What we call unpriced production. We’re about 50% hedged based on that unpriced production during the first half of 2011 and about 40% during the latter half.

Other items you see there CapEx $2 million and consistent with our expectations, Helguvik spending $5 million for the quarter. And with that, I’d like to turn it back to Logan.

Logan Kruger

Thanks, Mike. I think just one comment before I’d say few things on Helguvik. Overall we are encouraged by the improvement in the market conditions, but as you know and you saw in our press release we are off going to continue to manage the potential on the downfall and we obviously want to make sure everyone understands that is our strategy but when you look at the market and what’s going on the market we remain somewhat encouraged.

We had made progress on the Helguvik project during the last few months. We continue to analyze and opted the capital expenditures estimate for the Phase I and I’ve confidence in our ability to deliver the project at that level all better. While onsite activity is at a modest level, we continue to talk with suppliers and make progress on engineering and other activities.

As Mike has explained, the debt financing is closed to completion, pending the finalization of the power arrangement. The power situation continues to be conflict and frankly the progress has been slower than we would have expected. As you know in 2007, we signed power contracts with two principal geothermal power providers in Iceland. These people also and these countries also supplied power to the Grundartangi facility.

It goes without fame that in Iceland in general and the power suppliers in particular, has experienced significant changes on platform. And in that context, we are negotiating certain amendments to the contracts. All parties, ourselves and the power suppliers have made significant investments in this project and thus we believe it is only a matter of time until we reach agreement.

However, these are decades of long contracts of power. The plant’s largest operating cost, so we believe it is worth the delay in our preferred schedule to get them right. Lastly I would note that the economic activity of this project and the operating smelter will bring, is a key to Iceland’s economic recovery and community and the public support for this project is increasing.

With that, I’d like to take some questions. Thanks, Doug.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from the line of Brett Levy with Jefferies & Company. Please go ahead.

Brett Levy – Jefferies & Company

Hey guys, at Mt. Holly I think up until this point you’ve talked about major business issues, performance issues et cetera and now you’ve got a new management team in there addressing all of these issues. I’ve never really got my sense as to what exactly the issue has been. Can you talk about what the problem was and what the fix is going to be?

Wayne Hale

Certainly. This is Wayne. Basically the problem started with a familiar of cathodes and in an ability to replace those cells in the appropriate timeframe with additional stock of cathode blocks. And so, as a result the management and others worked hard to find additional supply but we’re unable to and as a result there was significant times where there was sell – sells out that could not be put back in. So as a result the tonnage at that smelter was not as expected. However, as a result of the increased work and dedication at the facility, there is sufficient cathode blocks now in supply and they’re running at the full capacity and as you would expect, the operational performance is now nearing the expectation.

Logan Kruger

Thanks, Brett. You need any others?

Brett Levy – Jefferies & Company

Yeah. Is there any sort of prior to this whole transformer issue at Grundartangi? Is there any business interruption insurance? Is there any – is there anyway of recapturing any of the lost EBITDA here?

Mike Bless

Absolutely, Brett. It’s Mike. So there is most definitely business interruption insurance under our policy. It’s got a small deductible $0.5 million or so. It’s obviously only kicks in due to the maritime accident, so the first chunk I’ll say when the unit sales and descendants in Norway that’s for our account. The chunk, we are in the process of working on a claim, obviously the carrier was notified, I mean, if the incidents have placed at sea. So that’s a long way that answers your question. Yes absolutely.

Brett Levy – Jefferies & Company

All right. And this is admittedly a lazy question.

Wayne Hale

Those are of its kind.

Brett Levy – Jefferies & Company

Okay, to do the math for me. What’s the total impact of this transformer problem and how much of that is going to get back in insurance side?

Wayne Hale

Well, I mean, you have to obviously, BR replaces lost profits and so here is the way to attack it. From the time of the incident, which was weighing over the summer in July was it?

Mike Bless

Yeah.

Wayne Hale

July. As I told you it’s just about 400 tons a month of lost production. Then you would to calculate your claim, multiply that by the perhaps the cash operating profit or gross profit in the plant of those lost tons. It’s a bit of a difficult one we don’t provide you, sort of marginal cost, but you can take a swipe at it by going back to the data that we showed you in February, it’s still on the website there back from the, I think back in February looking at the…

Brett Levy – Jefferies & Company

$0.50 a pound?

Wayne Hale

Sorry?

Brett Levy – Jefferies & Company

$0.50 a pound of margin?

Wayne Hale

I’m not going to add – Brett you got to calculate what the aluminum price was for the time. So, I got to ask you to be a little less lazy but I’ve given you the building blocks.

Brett Levy – Jefferies & Company

Okay, I appreciated that.

Mike Bless

Thanks Brett.

Brett Levy – Jefferies & Company

All right. And then, in terms of the situation at Ravenswood, how close are you guys to kind of the finish line? Would you describe yourself at this time optimistic? Is there a still lot of gap between where you guys all with the power supplier in the union distributed, you gave a little bit sort of sense as to how close to the finish line you might be there?

Logan Kruger

Yeah, before I ask – it’s Logan. Before I ask Mike – Wayne to comment Brett, I think really its – we’re working on two major pieces and both of them require a lot of negotiation and agreement. There is two parts, one is the power enabling of encouraging contract and that obviously requires a lot of input from a number of various different parties. And the part is obviously as you are aware, we’re in contract negotiations and that’s where the steel work is. Wayne anything else?

Wayne Hale

Thank you. You hit the major points Logan. Certainly we are in active discussions with both the power supplier and the Union Leadership to progress those major issues. And I think we can be optimistic that we’ll get these both concluded.

Logan Kruger

I think in terms of timing which is the other part of your question. It’s difficult to spread apart that above that. I think once we get closer to a sense that we can achieve those two objectives then I think we can put some timing around it.

Brett Levy – Jefferies & Company

Thanks very much guys.

Wayne Hale

Thanks Brett.

Logan Kruger

Thanks.

Operator

Our next question is from the line of Mark Liinamaa with Morgan Stanley. Please go ahead.

Mark Liinamaa – Morgan Stanley

All right, good evening everybody. Logan let’s made your comments, you sound a little more constructive of inventory financing deals and potentially and EPS can provide sustainable support to prices relative to comments I’ve heard you made in the past. Is that a fair characterization or what changed your view?

Logan Kruger

Yeah, I think it’s a number of things Mark. Thanks for the question. I think we are seeing a bit more constructive as you used optimism in the market and I think it’s a whole number of things. Businesses are starting to move forward. People are starting to make more demands and I think Wayne mentioned about cable and rod, as we’ve seen that market as well. The financing deals continue to roll forward from what we can see and what we know and I’ve got the potential of an EPS and there’s a lot of debate about EPS which are aware, but at least we see that will put us – put in one side or one pocket, a fair amount of commodity material, alumina. And then as you’ve seen the alumina inventories, they’ve not grown they’ve come off a bit maybe 150,000 tons over the last 12. And China and India now that continue to grow. So adding also the restrictions in China, some of which seem to quite serious now and you’ve seen that as well, and so a number of China’s production for this year of 50 million tons, I think that’s a bit low. But all of that adds up to a changing collateral scope of picture, if you wish to use that, in the market. And so I’m a bit more constructive, encouraged and I may have been six months.

And from the management of the company, obviously we will manage to look at the downside. But I think from the market point of view, Mark, certainly there is a different lack in the room.

Mark Liinamaa – Morgan Stanley

Okay. Thanks for that. And then, just quickly on the Helguvik project. Can you put any more color, it sounds like you’re going to holdout for the best power contract or what you feel you need? Can you put any more detail around what you think you need?

Logan Kruger

I think we clearly have ideas and there are contractual arrangements to bring this to some sort of conclusion as you know. So I would like to get ahead of ourselves in these discussions with our partners. What I was trying to do at the end was, say that all the partners have significant interest in this project going ahead and we believe we will get to an end point in the settlement.

Secondly, I think there is a growing knowledge and support of those projects, imagine from a large number of areas, local communities and the public in general. I’ll give you, perhaps the statistic you can bear in mind when you think about this. This project over a period of say developed five, six years would add somewhere between 1.5 to 2 percentage points of GDP growth to Iceland per year. So if you think about it, it’s quite a significant impact. So I can’t give you the details but certainly we’re working very strongly on this and we haven’t bear in mind that there has been a lot of challenges in Iceland both politically and commercially for everyone.

Mark Liinamaa – Morgan Stanley

Thanks. Good luck.

Logan Kruger

Thanks Mark.

Operator

Our next question is from John Tumazos with John Tumazos Very Research. Please go ahead.

John Tumazos – John Tumazos Very Independent Research

Good evening congratulations on keeping everything together through a couple of tough years. It’s a little remarkable that new arrangements have been made smoothly at Hawesville. And the Ravenswood issues are still playing out in a sense that times are hard and you would think that the employees in West Virginia and power officials would be doing their best, straighten things out clear that that so to speak. Are you able to shed any light on the last remaining points on the table?

Logan Kruger

Right. I think its early days. There is a lot of discussions going on these continuous meetings – John its Logan and I know if Wayne wants to comment. That’s work a dragon suite for both the power and the labor discussions. So we don’t generally comment about these even at Hawesville, but what Wayne was clear that we would only comment that was a four-year contract, these are about coming out at the end of the week. So I don’t know. Wayne is there anything else you want to add to that?

Wayne Hale

No, I think you’ve hit it again that, Logan. We’re working diligently on these issues and we expect to bring that to conclusion.

John Tumazos – John Tumazos Very Independent Research

So it just seems like times are hard and the people ought to be thanked for preserving the business.

Logan Kruger

John, really we don’t take any comment on that where you comment and…

John Tumazos – John Tumazos Very Independent Research

Good luck, thank you.

Logan Kruger

Thanks, John.

Wayne Hale

Thanks, John.

Operator

(Operator instructions) Our next question is from Tim Hayes with Davenport & Company.

Tim Hayes – Davenport & Company

Hey, good afternoon.

Logan Kruger

Hi, Tim.

Wayne Hale

Hi, Tim.

Tim Hayes – Davenport & Company

Just couple of question. On the one contract that’s on a prompt month, and that you said it was going to end at the – at the end of the year. When – is that going to be – when that gets renewed or how do you replace that? Is that going to still be on a prompt month basis in ‘11 or might that be on a one month lag?

Wayne Hale

It could Tim. It could be either of those. We don’t know yet. We’re not concerned about the sales volume that’s the easy part. As that was priced yet on, we’ll let you know obviously once it gets finalized. Hard to tell at this point, it’s a detailed item. It’s one of those last minute, sort of, negotiation items.

Tim Hayes – Davenport & Company

Yeah, okay. And then the 5% of sales out of Iceland that’s now direct sales. Is that something that is going to be – are we going to get direct sales going forward even if it’s a small percentage?

Logan Kruger

I think it’s part of the contractual arrangements on the toweling and one of the options in some of the toweling contract is a they’re just an option and we obviously want to use the opportunity to continue to maximize the value of the plant. So we’ve purchased on alumina and obviously had direct metal sales.

Wayne Hale

Worked very well. Slightly different but it’s a small portion of our business. I thought to say whether that option will be continued. We’ll see.

Tim Hayes – Davenport & Company

I guess, some of this quick at it. At extreme (inaudible) what will be the possibility or what’s possible in terms of the outside for direct sales? Could they reach 10, 20% in their and will it extreme part of the downturn?

Wayne Hale

No, the level – I’ve said about 5%, Tim. That’s the option level. So it’s not going to get much higher than that.

Tim Hayes – Davenport & Company

Okay. All right thank you that helps.

Wayne Hale

Sure. Thanks, Tim.

Operator

And speakers at this, we have no additional questions in our queue. Please continue.

Logan Kruger

Right. Thanks very much, Doug. Thanks very much for those were on for their time and I appreciate you listening to our call. Thank you.

Operator

And ladies and gentlemen, that does then conclude our conference call for today. Thank you for your participating. You may now disconnect.

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