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Executives

Shelly Harrison – VP and Treasurer

Logan Kruger – President and CEO

Michael Bless – EVP and CFO

Analysts

Brett Levy – Jefferies & Company

Sai Tharani – Goldman Sachs

Richard Garchitorena – Credit Suisse

Cyan Gosh – Millennium Partners

Sal Tharani – Goldman Sachs

Century Aluminum Company (CENX) Q2 2011 Earnings Call August 4, 2011 5:00 PM ET

Operator

Ladies and gentlemen, good afternoon. Thank you for standing by, and welcome to the Second Quarter 2011 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I’d now like to turn the conference over to our host, Ms. Shelly Harrison. Please go ahead.

Shelly Harrison

Thank you, Tom. 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 statements disclosure in today’s slides and press release for a full discussion of these risks and uncertainties.

In addition, we have included some non-GAAP financial measures in our discussion. Reconciliations to the most comparable GAAP financial measures can be found in the appendix to today’s presentation and on our website 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 all for joining us today. Let’s move on to slide four to get started. I’ll provide detail on the market in moment, but we will make some introductory comments here to set the contest for our broader discussion. Obviously, you’ve all seen what the equity markets have done today.

Otherwise, I would characterize the aluminum market conditions for developed economies as continue to accelerate steady but slow growth. The phase of economic activity in the developing regions remain strong. The economic data from China, India, Brazil and other fast growing countries continue to look good. Other than well capitalize macro concerns, we see another signals of pending slowdown from these growing areas.

Physical supply of metal continues to be tied for a variety of reasons. The dialogue around the rules covering the LME warehouses that’s recently become quite animated. Clearly different types of market participants will continue to have a distinct view. The LME had studied this issuing detail and has made some changes. We don’t believe these changes will have a significant impact on prices or premiums. In this environment, physical premiums in the most regions have remained at or near all-time highest. While this environment may not be attainable over the long-term, we do not see major changes for at least the balance of this year.

I obviously do not need to comment on the global macroeconomic conditions. Suffice it to say that we are managing the company under the assumption that the issues in the EU and in the U.S. do not significantly impact the broader economy or markets. The same philosophy applies to China, where it looks for a hard economic landing, out of control for inflation or the popping of potential asset bubbles which can materialize the world would surely be a different place. We like clarity managing recent global economic data, which have been somewhat sobering.

Overall, we remain generally positive on the aluminum market for the medium term, but some concern for the slowing global economic activity may be more than temporary. Now, I’ll give you a few quick comments on the company’s operations, again, just to set the scene. Let’s say in my remarks, I’ll provide a more detailed review of the situation also what happened, where we stand today and most importantly much as we learnt and where we are going. (Inaudible) to say that we does not adequately compensate for the relative and experience of new personal in the plot.

We are responsible for the first line operations, including the restart of the previously curtailed line number five. Those coupled with the challenges in our plant technical improvements, as well as logistical problems caused by the historic flooding in the region resulted in a situation that you saw harder than expected to get back under control. The good news is that, we believe we now have reached stable operations. I will speak further on this in a few moments.

If we look further, the company’s other operations stand in a very good quarter continues to perform well and happily, Mt. Holly under its new leadership has largely regained its strong historical performance. We had some milestones on the Helguvik project in Iceland during the quarter and I will detail those at the end of my remarks.

Let’s turn to slide number five. Now turning to an updates on the market, in the second quarter, the LME cash price averaged about $2,600 per tons, the highest quarterly level since the quarter – third quarter of 2008. Prices remained in the $2,500 per ton range despite macro concerns I discussed earlier. Aluminum spot prices have just developed with the most recent tender quoted about $380 per ton as there appears to be sufficient material available in this market. It’s our expectation that the aluminum market will remain reasonably in balance for the rest of this year.

Chinese aluminum demand remained strong during the second quarter almost across all of the sectors. Annualized production reached a record over about 19.5 million tons, yet demand still out pay production by other 200,000 tons in the quarter. If you just take a poles on an annualized basis that near a 1 million tons per year. It is our view that China will be imbalanced by a modest net import of aluminum of the medium term. Aluminum demand outside China continues to recover as Japan ranched up its manufacturing industry after the earthquake and the Tsunami. Western (inaudible) demand continues to grow driven by demand from transportation and beverage section.

On the macro side, China finished the quarter with 9.5% year-on-year growth in GDP consistent with the last several quarters. Industrial output advanced in amazing 15.1% in June, the most since May 2010 even after the central bank boosted lending rate five times since October and raised bank reserve requirements to a record level. GDP in India grew at 7.8% year-on-year in the fourth quarter, consistent with recent performance.

So we move on to slide number six. Inventories decreased slightly in quarter two while quarterly demand increased to 11% year-over-year, noticeably impacting the relationship between global days inventory and price. Days inventory are now at 52 days as compared to 58 days in quarter one, quite a change. The most meaningful indicators of vertical demand and market tightness are the local premium. European, U.S., Midwest and Japanese premiums all remain at or near record high levels.

Two key factors are contributing to constraint vertical supply at the moment. These are the continuous financing arrangements which we have discussed in previous quarters and the existing logistical challenges of moving metal out of warehouses.

In the second quarter, we saw a push by customers to change the below rate from LME warehouses. As a result as you have read, starting in April 2012, low adopt rates will be increased on 1500 tons to 3000 tons per day for those operators with more than 900,000 tons in one city. Because of these modest increase in volume and the limitation to only larger locations for example Detroit, the net effect of this change is expected to be small.

These vertical supply constraints coupled with the continued cost pressures are expected to support pricing over the near to medium-term. We can now move on to the discussion on the operations on slide number seven. Let me first provide additional detail on our Hawesville operation. As we mentioned in our previous earning calls, the restart of the curtail pot line required the hiring of some 130 new people. We had significant interest in the community for new jobs and believe we brought on broad a very group of new employees. We were aware that most of these people had no prior experience in aluminum smelter and that would require significant training.

Let me fail to adequately appreciate towards the impact of the recent demographic changes around the plant. Due to the accruals in our union contract the more senior and as you would expect the more – more experienced people had significant latitude in job movement where the job openings occur. Thus we have a significant number of actions opting to shut another portions into other areas. With the restart of line five, the vacancies on the Portland themselves look forward with a disproportionate number of new hires. This situation was exacerbated for a variety of reasons. We lost several key people including technical and operating management. And I must make notes although effective people of the plant to put in.

Although, the entire group works very hard, those of you who have been around know that it does not take too long for one of these plots to develop operational conditions that are challenging.

In addition, some planned technical improvements during this period exacerbated the issues about which I just spoke. In addition to this environment where some significant logistical challenges, of course by the historical floodings in the area, we like many other manufactures under that were forced to turn to consistency plans to access key materials like alumina, fluoride and other materials. While we successfully address these issues, the requirement to focus on them brought a diversion of management stand away from the operational issues confronting the plant.

So now what have we done? Where are we heading? Our most significant focus has been – has of course been to get the right leadership in place. I’m pleased to report that in late June, we hired a very experienced and hailed individual named Dave Henry as our new plant manager at Hawesville. Dave has significant experience in every area of this smelters operation. Perhaps just as important, he is a clear and incredible leader and a good communicator. He has thoroughly addressed the plant situation and has put in place a plan to maintain stable operations in the short-term, as they quickly to return the restart process that bring the plant to full capacity. Dave has already addressed the technical changes to which I referred. As you suspect a significant portion of these aimed and getting the right people in the right places or properly trained to do their job safely.

During the past month, we have showed much of the key roles which I described. We are enthusiastic about this new group of leaders, because we’re not saying that additional training has been set as a priority. These efforts have already shown results. We believe we have achieved a stable operating environments in the plant. This is our primary focus and it’s requires daily blocking and tackling. These last two months have clearly put behind us where we would like to be and where we would previously thought we would be in achieving full plant operations. Bottom line, we now believe the plant will be operating at rated capacity by the end of this year. Mike of course will provide you with a forecast of what this means for shipments and operating costs in the third quarter.

As I summarize, Grundartangi in Iceland has continued to operate quite well. Production and shipping volume for the quarter were at record levels and controllable cost are all well in check. We continue to look at creep opportunities that this plant and these projects generally have high returns and quick payback periods. Overall, Grundartangi continue to do a good job.

After a period of operating challenges, we believe Mt. Holly has really turned the corner and is on track to its formal best in class operating performance. The long-term issues around the plants’ power cost remain but we have a first right management team executing very well. I won’t spend much time on the commercial conditions in the U.S. Metal remains tight. The Midwest premium stays in close to a record levels. Certain products remain a short supply with end markets like automotive continued relative strengths.

And with that, I would like to hand over to Mike.

Michael Bless

Thanks, Logan. If you could turn to slide eight, please. As usual, I’ll refer to the financial information that shows the earnings release. So we have that handy, you’ll be able to follow on with my comments. And also as usual, I’ll compare in my comments the quarter that just ended to the one sequential prior to it obviously here Q2 to Q1.

Before we get into the income statement data, just remind you about the market Logan referred to it. The cash LME price on average in Q2 was 4% higher than in Q1 and with the one month lag with 7% higher than Q1.

Next our realized unit prices track to market, domestically we were up 7% quarter-to-quarter and an Iceland our realized prices on average grew up 6% quarter-to-quarter. Again before I get to the income statement let me just comment on shipment volumes. You can see these data – if we go to the operating data at the end of the financial information, first in the last couple of quarters this quarter we had a small amount of our shipments in Iceland that were done on a direct sale basis rather than total sales, it’s about 2350 metric tons this quarter. So when you adjust for those tons, you’ll see that domestic shipments were up 7% quarter-to-quarter and in Iceland, we were up 3% quarter-to-quarter.

As will noted, Grundartangi shipped at an annualized record rate of 278,000 tons obviously we are extremely pleased with that. That compares as you know to the rated capacity of the plant of 260,000 tons. Okay let’s start at the top of the income statement and walk down first putting the pricing and volume results together, you will see that net sales on a dollar basis were up 12% quarter-to-quarter. Of that 12% volume contributed 5 points and pricing remaining 7 points.

Gross profit quarter-to-quarter was up $7 million on a $40 million sales increase. Let me just give you some of the major contributors there. The increase in our realized prices drove gross profit up $24 million quarter-to-quarter and we had a bunch of items going the other way. First cost that are linked directly to the increase metal price of course. Those cost being alumina for a U.S. plants and power in Iceland. Those cost in aggregate were up $7 million quarter-to-quarter.

Raw material costs as you know these are mostly carbon related were up $5 million quarter-to-quarter. And cost related to the situation as ours, Logan described were $6 million higher quarter-to-quarter. Let me just describe that and then I will detail the third quarter just pardon me, the second quarter cost in a movement. As you recall in Q1, we had $6 million of cost attended to the restart of the fifth pot line.

In the second quarter, we had $12 million of cost related to the situation of the plant again I will get to that in a moment. So the net difference between Q2 and Q1 related to Hawesville is $6 million. As Logan said, we had good performance across the remainder of the company and so other costs across the company quarter-to-quarter were mostly flat or in many cases favorable.

Each of the $12 million in Hawesville for the second quarter, a couple of buckets it came from. First is very straightforward, we had a cost structure in place for a production volume level higher than we actually got. So those unobserved cost everybody who follows manufacturing companies are familiar with this issue. Those unobserved costs flowed through. There was about $5 million of labor and other items.

Second, where actual operating efficiencies in the plant itself and spending required to get the plant back to first stable operations and then as Logan said later in the year to full capacity was another $5 million in aggregate. And then we had an additional $2 million in spending relating to the fifth potline restart, so that’s the $12 million for the quarter.

Before I continue to detail the income statement changes for the second quarter, let me just talk a little bit about what we see in Q3 specifically related to Hawesville. Logan gave you a sense of where the plant is and our plan to get the plant back to full production capacity by the end of the year and as we rolled that all and look at the production forecast. We are looking at a shipment forecast quarter-to-quarter, Q3 over Q2 for our whole domestic operations essentially flat, so flat shipments Q2 to Q3.

Let me talk a little bit about the cost side now. And if you go back to February for our custom, we give – we provide an estimate for the year of our cash operating cost and our smelters for the U.S. on the one hand and for Iceland on the other hand. So you can go back and look at those slides and see the costs estimates we gave you for the U.S.

As we told you again at the time, we saw at the beginning of the year, the cost for Hawesville and Mt. Holly to be essentially equal. You get there in very different ways as we’ve always said but they were to be about equal. Mt. Holly has been on plan this year and it is expected to remain so. So we need to focus obviously on Hawesville now.

Given the inefficiencies that we are still experiencing in the lower than plant production volume compared to the cost structure, we are looking at Q3 estimate of cash operating costs to be about $300 per metric ton higher than we had estimated back in February, $300 per ton higher for Q3. And so if you apply that over our entire U.S. operations based on the basis of the data that we gave you back in February, we are looking at U.S. cash operating costs on that same basis about $200 per ton higher given that of course Hawesville was about two-thirds of our U.S. production. So Hawesville about $300 ton higher in Q3 translates to U.S. cash operating costs about $200 per ton higher, so if you want to adjust our models, you simply go back to the data that we gave you back in February, choose your LME of course we gave you the sensitivity and then add $200 per ton cash operating cost for the U.S.

Just to give you a little bit more detail on were that we see that $300 per ton for Hawesville increase in Q3 versus the original estimate coming from. About 50% of it comes from the unabsorbed cost and inefficiencies that I described about 50% of that $300 per ton. The remainder comes from an increase that we’ve experienced over the year in – it’s in structural cost most specifically carbon and power.

The 50% obviously due the inefficiencies should dissipate as we reach or get close to 200 and then reach full production capacity. On the cost like other producers in our industry were watching very closely, we’ve actually seen very recently perhaps some release and some of these cost specifically related to carbon but we want to continue to watch this and see if there are any trend lines there. Okay, that’s Q3.

If I could turn back to Q2, turn back to the income statement. We are about halfway down the income statement if you got the data in front of you. Other operating expenses as you recall this is where we account for cost relating to Ravenswood a curtailed plant. As we expected, we had $9 million of income this quarter related to the changes in retirement benefits from last year at Ravenswood. So this is the final accounting for those. And if you strip those out of that line item, you will see $4 billion in expenses as expected for the Ravenswood curtailment.

SG&A, as we detailed in the earnings release, $8 million (inaudible) $8 million of the amount on the SG&A line item has to do with changes of the Board from June and some Senior Management severance during the quarter. Ravenswood contracts as you know this is mostly the market-to-market of productions obviously as the LME price drives higher. You take a price at the end of the balance sheet to value those options at the balance sheet data obviously June 30th here and the value of those options decreases, so that’s the mark-to-market there. Other income just shy of $1 million on that line is the charge for the earlier redemption of debt as we early redeemed in May the convertible notes before they would have been put to us this month in August.

Just finishing up on the income statement on the tax line, no change in the company’s tax cost here. In U.S., we still continue to provide 0% tax rate here due to the full-year LIBOR deferred tax assets. In Iceland, we continue to provide at 18% and again related to the retirement benefit changes at Ravenswood as predicted we booked at

$2 million discrete tax benefit, so that’s part of the tax line there.

Lastly, on the income statement, average diluted shares for the quarter common and equivalent shares came in at 93.6 million average, preferred shares 8.1 million average. Okay, and if you could just turn forward to slide 14 for a moment where as our norm we’ve given you a reconciliation slide for the various items and in earnings.

The items that we described in the first paragraph of the earnings release just to a put it out together here as you can see reported EPS of $0.24 plus some forward contracts again mostly the market-to-market of inputs to $0.02 of it was $0.02 of expense that earlier time was penny, accruals related to board changes in the severance was $0.08, reversal of an insurance claim of $0.03 a share, the Ravenswood retirement benefits a changes accounting therefore was $0.09 of income and the tax benefit related to those changes $0.02 of income. All of this of course is net of the $12 million in spending or $0.12 a share related to the – situation in Hawesville this quarter that we’ve talked about.

Quickly go back to the financial statements then please it’s couple of comments on the balance sheet and the cash flow statement. Cash ended the quarter at $232 million I have detailed the changes during the quarter and the cash balance in a moment. As you’ll see on the face of the income statement, pardon me, the balance sheet, the convertible notes gone. Overall in the cash flow statement, you will note that the CapEx year-to-date is $7 million that excludes Hawesville – pardon me, Helguvik that was $4 million for Q2. So $4 million of CapEx for Q2, $7 million year-to-date. And lastly Helguvik $4 million for the quarter as we’ve said pending the restart of major construction we will be spending at the rate there a little over $1 million a month that’s why it came in $4 million for the quarter.

If I could ask you just turn to slide nine then we’ll go through quickly the changes in cash during the quarter. Talking about the redemption of the convertible notes, again that’s would have been put to us in August anyway. We decided to early redeem and save a little bit of interest expense that was $47 million. Again the change in the company’s Board required a certain non-qualified benefit plan to be funded, that was $17 million in cash, that cash is sitting in the trust account now. As you know our bonds like – like most pay cash on a semi – pay interest on a semiannual basis that you see it during this quarter. We talked about the CapEx in the house of expanding already and as you can see we had a little bit of working capital build this quarter by half of that amount that you see there relates to inventory and receivables for the new capacity coming on for mine five at household.

And with that I’ll turn back to Logan.

Logan Kruger

Thanks, Mike. Let’s have a look at slide 10. We continue to make modest progress at the construction side as you can see from these updated photographs. As we have discussed some time, we believe we need to achieve good certainty on both part for the plant and the sequence and timing of that power before we can proceed. We must lock on to key items including specific pricing and delivery commitment before moving ahead. This requirement makes the discussions of the power providers more complex than they would be if we were willing to move forward with lesser commitments. Some news on these trends, the arbitration was one of the two spots can be took place as scheduled in May. We were pleased (inaudible).

The findings of the panels are during September. At that time, we will assess the decision and then most likely sit down with the power provider and just to talk about the way forward. We have also seen some province of the other provider – power provider – we hope to be in a position to report some developments and I will be speaking with you after the third quarter. We believe that we can log at a mutually and track the outcome by the end of the year with a restart to begin soon after that. Let me move onto the final slide number 11.

In summary, the alumina market conditions are stable and demand growths from the BRIC countries remained encouraging. We will be closely monitoring the impact of the slowing global economic activity on trading conditions in our markets. Grundartangi and Maintenance. Holly both produce method at record levels during the quarter and operating performance has been good.

At Hawesville, we have putting place to plan to maintain stable operations in the near term and then return to the restock prices to bring the plant of full production capacity by the end of the year. As I mentioned in the previous slide, we continue to make modest progress at health in our discussion with a power providers.

We will now take your questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Brett Levy with Jefferies & Company. Please go ahead.

Brett Levy – Jefferies & Company

Hi guys. First question is, I always ask which is as you guys look at how you are set up in terms of puts against the U.S. production, how you guys set up this year and what are your plans for kind of subsequent years?

Michael Bless

Thanks, Brett, it’s Mike. No changes in our put position during – during this quarter, so it will be the same as you can go back and look at the last 10-Q or the new 10-Q that we’ll be filing early next week Monday, Tuesday and you see the position has unchanged. So we are at 9,000 tons a month for the balance of this year and 5,500 tons a month for the first half of next year, that’s the current book.

Brett Levy – Jefferies & Company

And the thought is still 30% is about your target?

Michael Bless

Yeah I mean that – it depends, Brett, upon what – upon what basis your – your defining target. We look at the denominator if you will. I think we’ve talked about this before in unpriced tons, so we take our total production and then back off the tons that are priced and quickly that are hedged partly and implicitly through the linkage of the alumina contracts to the metal price that is roughly 30% of the production right there is naturally hedged. And then you ask yourself what part of that residual do I want to hedge. And that’s I did not know fast target, what we’ve been somewhere in that range, the third to a half of the unpriced and we’ll kind of continue to assess that as we see market conditions in the cost of the production and the cost structure in the U.S. and bunch of other factors.

Brett Levy – Jefferies & Company

And then one more question and then I will get back in queue. In terms of timetable how I mean it sounds like you have a lot more clarity hopefully not with by the end of the year and then obviously that makes some key decisions. You need clarity on Helguvik before you start thinking about capital markets options by addressing the 8% notes or could you go earlier than that? I mean my sense is you probably don’t know what’s going on in Helguvik before you start making some decisions on your straight balance?

Shelly Harrison

I think there is about three questions in that Brett, so let me try and answer some of it. Just clearly on Helguvik obviously we’ve gone to first arbitration with HS and we would click piece about how that went and we will hear at the end of September and we’ve also have made some progress with discussion with (inaudible). But clarity for Helguvik is, we’ve got all the permits, we’ve got all permissions, we’ve got all the contracts in place, we basically have to bring to a conclusion the thought provider discussion so that’s the clarity on Helguvik. And I will ask Mike may be to pick up the other two.

Michael Bless

Sure, Brett, on the – the callable at 104 today and then they step down to 102 in May. And so – and the maturity is two and three quarters as from now would have in May of 2014 and so we look at it other time. I mean I guess I would answer your question by saying in one respect, there are two separate decisions. From an IRR standpoint does it make sense and when does it make sense to look at paying us the premium or to look at it price to the step down date in May of 2012.

You are asking sort of a broader questions in terms of capital requirements over the next couple of years when you start talking about health of Hawesville, that’s our valid question as well, but given that financing that we have locked in place and ready to go is as we’ve discussed many, many times, there is a non-recourse financing. It really is kind of this is a simplistic way of looking at and of course come part and analyze, so you can really in my opinion anyway you can’t look at those is to a very separate and distinct decision sets.

Shelly Harrison

Thank Brett.

Brett Levy – Jefferies & Company

Thanks very much guys.

Shelly Harrison

Thanks Brett.

Operator

And next we will go to Sal Tharani’s line with Goldman Sachs. Please go ahead.

Sai Tharani – Goldman Sachs

Thank you, good afternoon.

Michael Bless

Hi.

Shelly Harrison

Hi Sai, how you doing?

Sai Tharani – Goldman Sachs

Good, can you I just want to get some clarity on your volume guidance, how really is obviously has trying to (inaudible) you ramping it up, yet you saying that you are going to have a flattish volume, it means that some other units or facilities may have a lower volume?

Michael Bless

No, no. You are assuming that’s a good question. No absolutely not, your – I think conclusion assume that Hawesville volume would have been, production volume would have been flat during the quarter that was not it’s started high and then went low and then – and then came back and so that’s what you are – that’s what you’re seeing there. So what you are seeing the average for Q3 at Hawesville is going to be per hour forecast equal to the average of Q2 and same with Mt. Holly.

Sai Tharani – Goldman Sachs

I got you. Okay. Thanks for clarifying. And also on the cost side, you gave the – y you gave a good detailed guidance of what to expect, but how about from Q3 to Q2, is there a – do you pay more electricity cost during the Q3 in your – is your electricity all tied to the LME?

Michael Bless

No, no the electricity at Hawesville is not tied at all to the LME. It obviously it hasn’t correlations given coal prices and such, but the utility much of its core and advances as you are familiar with and so now there is no correlation there. As I said we are seeing some step up this year in both power costs part of that was scheduled or expected part of it as we have announced and discussed in the past the provider has filed for a rate case and that is close up will be completed in the third quarter so they could be a little bit of a step up there. The major increases saw that we’ve been seeing quarter-to-quarter have been carbon related like – like many other I should probably say most other producers.

Sai Tharani – Goldman Sachs

Great. Thank you very much.

Michael Bless

Thank you.

Shelly Harrison

Thanks, Geul.

Operator

And our next question comes from the line of John (inaudible) please go ahead.

Unidentified Analyst

Thank you for your good explanation, there was a lot of confusion with news reports about managers moving on and all different things and its really all that went on was 12 million of extra cost which in the grant scheme of things is much. Which year should we put the first 90,000 ton potline into our spreadsheets for Helguvik and how should we treat the long term future at Ravenswood?

Michael Bless

Yeah, good question, John. I will try and having some of that and Mike will add to it. I think obviously what we said in our remarks about Helguvik effect, obviously, we’re waiting for the arbitration in the September and then will be a discussing with power providers going forward from there. And I think (inaudible) the end of this year to bring to conclusion the part of volume discussions, subject to what goes on of course, and so as to answer your question, I would suggest in 2012 is the first 90,000 tons. Obviously...

Shelly Harrison

We started construction.

Michael Bless

To start of construction policies plus 24 months from this 12, 13, so early 240 for the first 90,000 tons. And I think, those are the two parts of your question, was it?

Shelly Harrison

Yes.

Unidentified Analyst

The second part was about Ravenswood but if I can (inaudible) up, what’s going on as we recall (inaudible) have their smelter build and weighted six to 12 months for the power that will get built and arrive?

Michael Bless

Yeah.

Unidentified Analyst

But you’re doing has been very meticulous do not have the same thing happen to you, so no other problems around year end with financing or anything like that?

Michael Bless

No, John, its Mike, John, thanks, that’s a good comment, I mean we’ve said we want to be very careful here that I think we’ve said in the past if there is no good to have as smelter ready to go with the power isn’t there.

And so as Logan has continually said here as important as getting the pricing finalized is getting the delivery commitments of these two power providers finalize. Because we said before, some of the power for Phase I, Phase I of our smelter, the first 90,000 tons, so that’s our nomenclature there, isn’t yet in the ground. It’s there, but the final work has to be done, the pipes have to be sunk, the transmission has to be – the turbine has to be connected, the transmission lines have to be – to be built.

The financing as we’ve said as Shelly told you since, boy, almost this time last year couple of months later since let’s say November of 2010 has been completed. We’ve got and agreed to sign, I think it ran to almost five dozen page, term sheet and now have a several hundred page, common terms agreement that’s ready to go and so that project financing as Logan gave us that’s to go ahead could be finalized within say a month or two.

Unidentified Analyst

Which all of that?

Michael Bless

The debt as we told you before the debt financing, we see, let me say we take a step back and (inaudible) told you before, so the debt – the senior debt financing was on the order of $200 million, so that’s the project financing to which I just described – to which I just referred non-recourse and then underneath that would be a layer of – of obviously also non-recourse junior financing mezzanine I want everyone to call it, up to another $100 million or so.

So that’s $300 million. As we’ve said, the cost to complete Phase I it’s about another $500 million that includes for skills working capital and such some of which can be borrowed anywhere and so that’s kind of the that’s where we’re today versus the cost complete Phase I.

Unidentified Analyst

And more longer this takes, the more cash you build up in self-finance anyone?

Michael Bless

That’s true, no doubt about it.

Shelly Harrison

You’re correct in an observation. I think the other part was on Ravenswood.

Unidentified Analyst

Right.

Michael Bless

Obviously we continued on to look at Ravenswood. I think the single condition that we need to having prices obviously a suitable comparative power contract and we continue to have discussions around that, obviously enabling labor contract and obviously then some view across those markets will look for a period of two to five years. I think actually, we really want to say on grievance at this point.

Unidentified Analyst

Thank you very much.

Michael Bless

Thanks John.

Shelly Harrison

Thanks John. I appreciate these questions.

Unidentified Analyst

Thank you.

Operator

And our next question comes from the line of Richard Garchitorena representing Credit Suisse. Please go ahead.

Richard Garchitorena – Credit Suisse

Thanks and good afternoon.

Michael Bless

Hi, Rich.

Richard Garchitorena – Credit Suisse

A lot of my questions have been answered, but just I want you to touch on alumina cost, you said you mentioned that stock prices are of course they’re coming down and what’s your view on that going forward versus a year into 2012?

Michael Bless

I think what we’re trying to do just talk a bit about what we see in the market rather than give you a view of what pricing maybe, but it seems to us that there is a fairly balanced supply of alumina for the demand at this point in time. And it seems to us from what we hear and see is that alumina that was testing to go into China is now staying out of China is one way of describing it.

So, I think there has been a better pressure certainly in the last couple of weeks or month on the down side of the so called spot price that is being published. So that’s probably come out from around about $400 to around $380 and so if do a conversion on some percentage of LME versus – you have actual cash price or stock price you’re getting pretty close to the same sort of number. So, I think at this stage the market seem to be fairly balanced maybe some pressure on the downside.

Richard Garchitorena – Credit Suisse

Okay. Great. And then just on Mt. Holly, you had mentioned that it’s operating basically at peak levels. Can you just remind us what the name plate capacity there and is this, I guess sustainable going forward?

Michael Bless

I don’t 220 I think 1,000 per year of which we get half.

Richard Garchitorena – Credit Suisse

Okay, so it’s running – it’s running a good couple of percent or it ran I should say in Q2 a good couple of percent above that main play capacity?

Michael Bless

Very pleased about the way, Mike and the team have done at Mt. Holly have done a good job and they are now operating at a very good level.

Richard Garchitorena – Credit Suisse

Okay. And my last question is on the SG&A, you have mentioned it was higher this quarter, is that a onetime event? Is that going to reverse I guess back to more normalized in (inaudible)?

Michael Bless

Yes, that was a onetime event, due to the changes that we saw in the forward competition during the quarter and – and this hesitated by the terms of those – those plans and so that doesn’t repeat.

Richard Garchitorena – Credit Suisse

Great. Thank you.

Michael Bless

Thanks.

Shelly Harrison

Thanks for your interest.

Michael Bless

Tom, any more questions?

Operator

Yes, sir. Next question is from the line of Cyan Gosh from Millennium Partners. (Operator Instructions).

Cyan Gosh – Millennium Partners

It’s (inaudible)

Michael Bless

Hi, how do you do?

Cyan Gosh – Millennium Partners

Good, good, how are you?

Michael Bless

Well, thanks.

Cyan Gosh – Millennium Partners

Good so far, sorry my apology that I jumped on to the call a little late, but I just wanted to get an update on your thinking on the raw material strategy going forward. If there was anything new, I mean on previous conference, I think you’ve articulated, but I think you probably look at some options to potentially get back some raw material integration if that made sense. Now, I just wondering if there was any update on that, especially given obviously the deal that you had with Noranda where you kind of sold your interest back to them? Sometime back.

Michael Bless

As I think that as we’re talking many time, we’d like the upstream area and we continue to look at that in terms of material supply alumina particularly we’ve pretty well set up for the next three or four years. So, we don’t have an immediate exposure on that but in terms of our interest on the upstream bonus suitable basis of course.

Cyan Gosh – Millennium Partners

Okay, got it. Thanks guys. Appreciate it.

Michael Bless

Okay.

Shelly Harrison

Thanks.

Operator

Our next question comes from the line of Sal Tharani with Goldman Sachs. Please go ahead.

Sal Tharani – Goldman Sachs

Thank you. Just a housekeeping, the five or six special items you mentioned in the front I think the three charges and two credits, of these all – or how many of these are above the operating line?

Shelly Harrison

When we say above the operate – let me just turn out and say that exactly where each one was, so the mark-to-market represents on its own line it’s called loss of forward contracts. We’re in the phase of the income statement. That earlier time is other income, the changes related to the board change, the treasury, the board change in the severance, that’s in SG&A as I said. The insurance claim would be in cost of sales. The revenues would benefits accounting around that line item, other operating expense and tax – the tax item of course is on tax provision line.

Sal Tharani – Goldman Sachs

Great. Thank you very much.

Shelly Harrison

No problem.

Michael Bless

Sure, no problem.

Operator

And gentlemen, there are no further questions at this time.

Logan Kruger

Thank you very much for you all. Let me (inaudible) call today. We look forward to seeing you again after the third quarter.

Operator

Thanks.

Michael Bless

Thanks Tom.

Operator

Thank you very much. And ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using the AT&T Executive Teleconference. You may now disconnect.

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