Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Century Aluminum Co. (NASDAQ:CENX)

Q3 2011 Earnings Call

October 25, 2011 5:00 PM ET

Executives

Shelly Harrison – Investor relationship

Logan Kruger – President and CEO

Mike Bless – Chief Financial Officer

Analysts

Kuni Chen – CRT Capital Group

Brett Levy – Jefferies & Company

Peter Ehret – Invesco

Paretosh Misra – Morgan Stanley

Richard Garchitorena – Credit Suisse

Sai Tharani – Goldman Sachs

Tim Hayes – Davenport & Company

John Tumazos – Very Independent Research

Frank Duplak – Prudential

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Third Quarter 2011 Earnings Call. At this time, all participants will be in a listen-only mode and then later, we’ll conduct a question-and-answer session, and the instructions will be given at that time. (Operator instructions)

As a reminder, this conference is being recorded. And I’d now like to turn the conference over to our host Ms. Shelly Harrison. Please go ahead.

Shelly Harrison

Thank you, [Laurin]. 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. 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 all for joining us today. We had a busy quarter and I’m pleased to have the time to report our progress. So, let’s get started on slide number four.

First, let me provide some general comments, to set the context for the more detail review of the external environment and company’s operations. The issues confronting Europe, the U.S. and other developed markets have obviously been well reported and discussed.

I can summarize by saying that in our opinion, it is the risk of a major event having the track of difficult to control impact we saw several years ago that has driven asset prices lower and kept market so volatile.

China, Brazil and other developing markets have continued to perform on balance very well. They of course, dealing with inflationary pressure and the risk of so-called contingent from Europe and elsewhere. That said, these governments have thus far managed to maintain robust growth. The fact that the rates of growth have declined modestly is mitigated by the growing absolute size of these economies.

Despite the all these micro issues, the business environment remains reasonably good included – including in developed economies. Industries such aerospace, transportation and packaging have continued to perform well. As you know, physical premiums remained strong, still supported by financing environment and the absolute price of the commodity is influenced by cost pressures that are being felt by all of the producers.

I will go into more detail on the progress at our Hawesville smelter in the moment. We’re now having placed a strong team who are confronting the issues that have built up of the time at the plant. They’ve continued to stabilize the operation and have identified issues requiring remediation. The effective out of production capacity has been reduced by a third and they are working toward a plan to regain full production capacity over the next few months.

Grundartangi has an excellent quarter with record production and conversation costs well in line. I’d like to congratulate Grundartangi’s team in Iceland.

Mt. Holly’s production was consistent with our expectations the plant however continues to struggle with higher power costs. We and our partners have brought this issue to the forefront and have communicated clearly with the power supply in the other important constituencies in South Carolina, that’s the long-term future of this excellent plant is in jeopardy. We will be expanding significant effort over the next few months on this process.

On our Helguvik project, the arbitration procedure with HS had concluded and we are waiting the decision from the panel. In addition, we continue to have discussions with all of the other power supplier about a way forward. This process continues to proceed at a frustrating slow pace. We remain and maintain our belief that this project will go forward and will be a very good one for Century’s shareholders and also for the various constituencies in Iceland itself.

Let’s move on to slide number five, have a look at the market. In the third quarter the LME cash price averaged $2,400 a tons, the lowest quarterly average price so far this year. Since then prices have fallen further, but seem to have found support around the $2,200 per tons range driven by marginal operating costs.

Aluminum currently has a strong price support as experts believe that the fourth quarter cost curve and passively from third quarter is producing at a cost above that of the LME price. As a result, a significant number of smelters are loosing money at recent prices, but it’s soon to expect any meaningful production cut backs, because of the significant costs associate with having a plant. We have however seen some restart projects delayed and if prices stay low for a sustain period of time we’d expect to see production cuts implemented.

In the third alumina spot prices decrease slightly with most recent tender in the order of about $360 per ton. Overall, the alumina market is expected to remain reasonably well balance for the rest of this year.

Chinese aluminium demand remained flat during the third quarter as compared to that of the second. Annualized production reached at a record of some 20 million ton, moving the Chinese aluminium market into roughly balance position. We’ve continue to believe that China will remain balanced or a modest net importer over the longer term.

If you look at the statistic for China, China’s third quarter 9.1% year-over-year in GDP is a low since 2009 and the industrial production fell from 15.1% in June to 13.8% in September. As expected markets reacted to this recent performance but we continue to note that these are still very healthy growth rates and are calculated off what is now a very large base. We’ve continued to monitor inflationary pressures and monetary policy actions in China, but at this point do not anticipate a hard landing.

When we look at India, it continues to show healthy growth rate with GDP up 7.7% year-over-year in the second quarter, as compared to 7.8% in quarter one.

Let’s move on to slide number six. Days inventory remain relatively flat in the third quarter while at quarter end LME price dropped from 12%. This shifted the price inventory relationship to a level more consistent with the historical correlation, but still well above the trend line.

We continue to believe that this is driven by price support from costs pressures and financial transactions, although, there has been some concerned express recently that the euro zone debt issues may impact the aluminium financing market.

The Physical market itself remained reasonably tight and European, U.S., Midwest and Japanese premiums all remain well supported. In Europe GDP premiums are above a $195 per tons and in the U.S. the Midwest premium remains at the $0.08 per pound region, much of these all slightly from recent highs but still well above historical level.

We believe aluminium prices have support at the current level, which are below the marginal cost of production for the potential portion of the cost curve. While this cost pressure impact against the broader economic concerns. We expect that the aluminium prices may range -- be range not for a short-term, but are well supported for outside potential of the medium to longer term.

This view is driven by the longer term expectation for robust aluminium demand growth, limited access globally to affordable and sustainable power to supply new aluminium project, as well as the ongoing global cost pressures which we have already discussed.

Let’s take a moment to move to slide number seven. First of all, I’d like to provide an update on the situation at Hawesville. We have largely completed the critical process of pulling plant’s leadership and key technical position. As we’ve discussed in August, this was our most important short-term objective. We now have experienced and capable team of management, operations and technical leaders.

In addition, we supplemented the plant leadership was an important hire over this summer. John Hoerner joined us as Vice President of North American Operations. John brings a long and successful career in the upstream – smelter. He will also be lending his skills to the stabilization and improvement program at Hawesville.

While we have still some way to go, the plant is operating in a reasonably stable manner, production and shipments will consistent with our expectation for the third quarter. While we are obviously like to get to the finish line as quickly as possible, we are prudently making sure things get done correctly along the way.

As I have discussed previously and as we’ve all seen in many smelters around the world, when operations become unstable, it takes some time and a large amount of determine effort to get them back on track, based upon our experience and observations after a year is not unusual. At this point, we are probably a two-third mark that will end up being a nine months process.

We told you in August that we expected to reach essentially full capacity by the year end. At this point, due to our preference for maintaining measured and steady progress, our best estimate is that we’ll reach this stage in the middle of the first quarter of 2012. Mike will detail how this will translate into our expectation for fourth quarter costs and volume.

We continue to wait the decision on the Public Service Commission in Kentucky on the right case that was filed by the power company earlier this year. In accordance with Kentucky law, Hawesville was required to begin paying the full amount of the proposed increase on September 1st taking the right case after. Any over payment will be refunded to us when the PSE resolve this right case. Escalating power costs at our Hawesville plant negatively impact the facilities long-term viability and we will continue to monitor this situation closely.

Mt. Holly had a good quarter, with production in line with expectation. Due to timing issues, shipments would have bit behind and the plant brought a small amount of inventory. We expect that this will get flush through in the current quarter as the demand is there. We continue to see increases in carbon cost at Mt. Holly consistent with what we and others are seeing around the world. This is largely due to the movement in the price of calcined coke as we manufacture our own anodes at Mt. Holly.

In the past this costs have tended to lag downward movement in the aluminium price by approximately six months. So we will be watching this area closely.

Most probably for Mt. Holly is the continued increase in power costs, this is a major issue for this plant, due to it’s been a modern and efficient plant, this plant would be competitive at even averaged price paid by U.S. smelters. The power cost here is very high and on the north -- of North America and has shown no signs of improvement. We and Alcoa had instigated aggressive campaign to show the relevant constituencies in a transparent manner. The impediment of a long-term viability of this facility cause by the power costs. This process will be a major focus over the coming months and in 2012.

Grundartangi had an excellent quarter with record volume of production. The continue focus on safety has produced a good trend of improving results. The team at Grundartangi produced continuing improvement in production efficiency [off and ready] very good base, the one troubling area is increasing carbon costs, to address this we are working hard on a longer term anode strategy for this facility. I should also note that the large portion of the Union contracted Grundartangi is now complete. This contract now takes us through 2014.

With that, I’ll pass it onto Mike.

Mike Bless

Thanks very much, Logan. If we could turn to slide eight please and as usual you could have the financial information that follows the verbiage in the press release handy I’ll be referring it toward my comments, make it easy that follow along. As usual also I will refer my comparisons to the quarter that just ended versus the prior quarter sequentially, so here obviously Q3 versus Q2.

First, Logan talked about the market, just very quickly again to remind you the cash LME price on average was down 8% in Q3 versus Q2. As you know, we do much of our business on a one-month lag basis and so the one month lag price was down 4% quarter-to-quarter. In this context our realized unit prices both in the U.S. and in Iceland were down as expected, down 5% in each of the U.S. and in Iceland.

Turning to the shipment volumes you can see this data if you go to the end of the financial information, again, that follows the press release. Firstly, in past quarters we did a small portion of our business in Iceland on direct basis versus total this past quarter, in the third quarter were 2,030 tons, so when you make that adjustment you’ll see that, yeah, domestic volumes were down 2% quarter-to-quarter, just to pull that apart a little bit as Logan said, we has expected were flat at Hawesville quarter-to-quarter.

And again, as Logan detailed, Mt. Holly while production volume came in exactly as expected about flat quarter-to-quarter. The plant did build up a little bit of an inventory again we expect that to get corrected in Q4, so just a timing issue there.

In Iceland as you can see, volumes up 2% quarter-to-quarter and as Logan said, Grundartangi had a fantastic quarter producing as you saw in the earnings release at an annualize rate of 280,000 tons that’s record for the plant, again to remind you the real capacity of that plant is 260,000 tons, so great performance there.

So putting the pricing and volume data together, if you go to the top of the financial information and look at the income statement data, you’ll see that net sales Q3 over Q2 were down 6% on a dollar basis. Of that 6%, 5 percentage points was caused by the decline in realize prices and 1% was the volume impact.

So moving down the income statement gross profit in Q3 down $41 million from Q2, that’s on a $21 million sales decline. Let me just give you some of the big mover in driving gross profit down.

First, the realized price decrease costs $17 million gross profit, if you had a chance to look at the earnings release you’ll see that we book an inventory, non-cash inventory charge, lower custom market, you’ll remember that that we and another producers during a last go around prices were falling book similar charges that does all get reverse when prices increase, that was a $13 million, again non-cash charge this quarter.

Continued inefficiencies in spending at Hawesville, I’ll detail a little bit just in a moment, cost of $6 million quarter-to-quarter. Global raw material costs as Logan said mostly related carbon up $3 million quarter-to-quarter and Logan detailed that both Hawesville and Mt. Holly, Hawesville because of the rate increase that we still waiting finalization on. U.S. power costs were up $4 million quarter-to-quarter.

Going the other way costs related to the LME, obviously those are alumina costs in the U.S. and electric power costs in Iceland, those were down $9 million quarter-to-quarter. And on other controllable costs at Grundartangi and Mt. Holly those were largely the flat or down a little bit. So, as Logan said, both plants did a great job this quarter of controlling costs.

Let me talk a little bit more about Hawesville, so as we’ve said, shipments in Q3 first were flat versus Q2, on the costs side as well as you back to August you remember that we predicted that costs at Hawesville and translated to total U.S. costs would be about $300 per metric ton higher in Q3 than those annual averages that we gave you back in February and in fact, that is where Hawesville came in and the U.S. costs did come in for the quarter.

Let me give you little sense of what we see in Q4 for Hawesville. So as Logan said, will be near mid full rated capacity by the end of the year and by the mid of the first quarter 2012 we expect to be there. Translating that into shipments in the U.S. blending in Mt. Holly shipments as well, we see U.S. shipments up about 6% in Q4 over Q3.

On costs side we see about flat costs in the U.S. again this is total U.S. now, Q4 versus Q3, just pulling that apart a little bit, love this to get better fixed costs absorption at Hawesville given the higher tons shipped and produced in Q4. That’s been said, we are still producing with reasonably inefficient production metrics, important measures like current efficiency and usage of both carbon and electric power, and that will continue until the plant regain stable full operations.

We are also spending somewhat on outside contractors, who are helping us regain full production capacity as quickly as possible. So we expect that $300 excess over that full year average we gave you back at the beginning of the year to continue. Just pulling that $300 apart a little bit more, start thinking about going forward about half of that amount relates to the current situation at Hawesville and the other half is structural costs that have built in over the course of the year, you heard this same theme from other upstream aluminium producers as well, mostly carbon and power costs. And we’ll – and when we report to you in February on our Q4, we’ll obviously give you a look at 2012 as to how we see costs playing out.

Okay, back to the third quarter and continuing down the income statement, you’ll see other operating expense of $3 million that as expected, to remind you those are the Ravenswood related costs.

SG&A of $8 million this quarter, gain on forward contracts all that described in the earnings release $4 million, obviously the value of our put option increases as the metal price goes down.

No change in the company’s tax posture this quarter, U.S. still providing at a zero percent effective rate and Iceland at 18%. Down at the bottom of the income statement data you’ll see that average diluted – average common shares, I should say, decreased this quarter to $92 million on average and as we saw in the press release we repurchased $3.6 million shares over the course of the quarter, so obviously driving that average down. Preferred shares stayed constant this quarter over Q2 at $8.1 million.

If you could just quickly, I’ve put the slide 14, take a look at adjusted earnings, reasonably simple this quarter. Again, you saw these couple adjustments in the first paragraph of the earnings release, so I won’t be late with them. Net loss as reported, this is on a base of common and preferred shares $0.07, non-cash inventory adjustment which was $0.13 charge this quarter and again in put options which was $0.04 of gain.

Turning back to the financial statement, couple of quick points on the balance sheet and cash flow, you’ll see we ended the quarter at $260 million of cash, good result, despite the spending of almost $40 million on share repurchase. Going to the cash flow statement, cash from operation of $27 million, again a good result in given environment we believe. We took some capital out of, I should say some cash out of working capital as you would expect in the period of falling LME prices.

Couple other points on the cash flow statement, CapEx of $4 million, we’re just to $11 year-to-date and helped expending down this quarter to $2 million, brings us to $10 million year-to-date.

If we could slip the slide nine please, just a quick summary of movement in cash during the quarter, we begin, now we ended Q2 with $232 million, $39 million just spend on share repurchases, tax that’s of course all in Iceland $13 million and then the CapEx and Helguvik CapEx which I just spoke.

And, with that, I’d like to turn it back to Logan.

Logan Kruger

Thanks Mike. Now, let me update you on where we are on the Helguvik project. We are dealing with a complex situation in Iceland, a country which is still working its way back from a jarring financial crisis, including the collapse of all its major banks and a significant devaluation in the currency. We have been working diligently through the issues with many counter parties and constituencies. As a reminder, we plan to build this plant in four phases of 90,000 tons each.

Two of the power projects necessary to supply the first phase have already being completed and HS has obtained all licenses and permits necessary to complete and operate the bulk of the remaining power for the Phase I. This power from HS however remain subject to the arbitration process that we initiated some 15 months ago, which is now going to close. We are hopeful that the arbitration decision will allow us to put in place a process to conclude the discussions with both power suppliers and move toward restarting the construction process.

Finally, let’s have a look at slide number 11. In summary, we will continue to closely watch external conditions. At this point, the environment for our business remains reasonably good. However, we are certainly aware of the hazard that external short could bring and are putting in place contingency plan to be used in the event that such a scenario were to play out.

While we are by no means at the finish line, we are seeing steady progress at Hawesville. We hope to report to you in February that the plot is back at its full rated capacity. At that point, we will be able to proceed with programs to improve the smelter and thereby extract additional value.

Production metrics at all the other plants remained good. Thus despite that the striking large upward we are seeing in U.S. power prices and in carbon costs globally. These all the areas of major focus going forward.

Finally, we are optimistic for a favorable conclusion of the arbitration proceeding with one of our suppliers of electric power for the Helguvik project. We believe the completion of this process will be a key step in breaking out the log jams. We will report on these events once we are able.

And, with that, I’d like to take questions that come from the callers. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question from the line of Kuni Chen with CRT Capital Group. Please go ahead.

Kuni Chen – CRT Capital Group

Hi. Good. Good day, everybody.

Logan Kruger

Hi Kuni.

Mike Bless

Hi, Kuni.

Kuni Chen – CRT Capital Group

Hey. Just a couple ones here, I guess, on Grundartangi, obviously ran pretty well in the quarter, should we think about 280,000 is sort of the right pace for next year or the reasons why that may reflects up and down as we go for the year?

Logan Kruger

I think, Kuni, when we are at record level as they were in the last year, you’re doing extremely well. But we are confident that the team in Iceland will continue to produce a result that we have seen, and we continue to work at opportunities to improve the business. So you’re going to have to take a your view of that obviously, but Mike obviously, I think, in February we give…

Mike Bless

Yeah.

Logan Kruger

… give headline numbers for everyone to think about. So that’s piece we’ll come out in February as well.

Mike Bless

We’ll give you, as Logan said, we’ll give you 2012 forecast, we are in the middle of our business planning process right now run for the next month and half or so, and we presented to our Board. And so when we talk to you in February we’ll give you an annual estimate for Grundartangi and as Logan said, quarterly it can go up or put down a little bit, but we’ve seen a nice progression this year.

Kuni Chen – CRT Capital Group

Okay. Good, good. And just quickly, can you walk me through the tax rate again, just assuming the U.S. operations are in loss for any upcoming quarter here, are we just using the zero effective tax rate on that or should we look at some kind of tax benefit?

Mike Bless

Yeah. So the answer is zero percent, so as you know, we’ve got a large deferred tax asset that’s fully allowed for from a financial statement presentation standpoint. So the short answer is, Kuni, the zero percent effective rate in U.S. whether we’re making losses in the U.S. or making taxable income in the U.S.

Kuni Chen – CRT Capital Group

Okay. All right. That’s fine. And then just one last one and I’ll turn it over. Potentially you may see some assets coming on the market here in North America, see this comment on, your appetite there and whether, there’s any benefit to potentially owning another smelter that’s nearby to an existing one?

Logan Kruger

That’s quite pointed question, I must say, we falling about, thinking about this one. I think, Kuni you know, what we have said before is we don’t really comment specifically, but you know that we would everyone else would, would look at things as they come available and that’s as far we had comment.

Kuni Chen – CRT Capital Group

All right. Fair enough. Thanks.

Logan Kruger

Thanks Kuni.

Operator

And our next question is from the line of Brett Levy with Jefferies & Company. Please go ahead.

Brett Levy – Jefferies & Company

Hey, Logan. Hey, Mike.

Logan Kruger

Hi, Brett.

Brett Levy – Jefferies & Company

We saw Alcoa pulled out of an Iceland project, you guys must have been at least fairly familiar with what succeeded and what failed there. If you can sort of talk about what didn’t go right there and what you hope was right for you? And may be just do a little bit of a compare and contrast to get people comfort that where our color might have…

Operator

I am sorry, this is the operator. Hey may have disconnected accidentally from the call, if he queues back, we’ll open his line, okay.

Logan Kruger

Yeah. I think you know, if I understood Brett’s question may I should answered it now. It’s really trying to make a contrast. What I rather do is just tell you what we have been placed at Helguvik. I think this contrasts somewhat subject, we have one more privilege information in place already at Helguvik.

We have as you know early 2008 start of the construction effort we have existing contest, although we are in some part contrast into dispute with one of our -- we have as we have mentioned in our presentation today, a portion of the path already both them online and the next portion from HS is available.

So I think from a effective point of view our project is significantly different in terms of where it is in advance. The last piece I would suggest is that the availability of path in that area, the south west of the Iceland is very well understood and significantly more developed then it may have been the case of where the bucking smelter would be, I don’t know, if Mike or anyone else to cover it.

Mike Bless

No. I think Logan, you hit the main thing there. We have power contrasts that have been in place for years, they were signed in 2007 as we talked about often. And again, I think Logan point is right, we don’t like to comment on other, but it’s no worthy that there are no power contrasts related to that other project, so Brett as to about the other project it was in a very different stage then ours I guess we followed.

Operator

And Brett is back on the line with us. I am going to just open up his line again there we go.

Brett Levy – Jefferies & Company

Thank you.

Logan Kruger

Brett, actually you heard that.

Brett Levy – Jefferies & Company

I heard the last part of it. May be it was too tougher question.

Mike Bless

You dropped us. So I mean that the bottom line was, we have powered contrasts as Logan started out saying we have (inaudible) developed the engineering has done, the project started -- I think that’s in summary, you’re comparing two different or trying to compare two different item. And I think from our side, we draw the focused on what we have in hand.

Brett Levy – Jefferies & Company

Right. Then the second one is the question I always ask which is sort of what is your plan for kind of your foots position going forward, especially where LME is and where cost have gone. And sort of what percentage of production is you looking to the fourth quarter 2012, is it target level of hedging that you want to do for North America production.

Mike Bless

Yeah. I can answer the last question first and then I will give you the facts. Which is, as we’ve -- and this is as we consistently said that there’s no magical target here and nor do we believe there can be in a commodity business like this where facts and circumstances in the external alignment change and around internal environment changes and I won’t go on an on, but Brett I think you understand what I am saying, just to give you our current position.

So it’s an ever changing, not even a target but they never changing analysis like I just said. Just to remind you where we are today, so for the balance of this year for the fourth quarter, again to remind you how we look at it, we look at it as a percentage of what we called unpriced production in the U.S. and unpriced is our total production minus the value of the alumina which by the nature at which our contrasts of crystal price provides the natural hedge.

So on that basis, we’re hedge at about 45% for Q4 and then for the first, again there is no change here from where we have been in the last couple of quarters, for the first two quarters of 2012 that number go down to about 25%. And then the book is clear for the remainder of the year and we’ll keep looking at it as the situation is fluid.

Brett Levy – Jefferies & Company

It could go up 25%?

Mike Bless

Sure absolutely.

Brett Levy – Jefferies & Company

Okay. Thank you very much guys.

Mike Bless

Thanks, Brett.

Logan Kruger

Thanks, Brett.

Operator

And we have a question from the line of Peter Ehret with Invesco. Please go ahead.

Peter Ehret – Invesco

Hi. Good afternoon, thanks for taking call.

Logan Kruger

Hi.

Mike Bless

Hi.

Peter Ehret – Invesco

Just had a question about a balance sheet at some point here the company going to re-capitalize refinance, can you talk little bit about timeline for that on some of the current offer for that?

Logan Kruger

Sure. So you are referring to the senior secured notes that are outstanding which we exchanged a couple of years ago for the old notes.

Peter Ehret – Invesco

No obviously, there’s a big point here with what’s when you get kind of released or in Iceland and may be the other caller asking questions in North America, but so there’s a lot deal, but what are you looking at for recaptilizing?

Logan Kruger

Okay. So there is two I guess, now that you add that there is perhaps two point to your question now, if I understand it correctly and then two quick answers. So the first is just, if one were to look at it of course one can’t study state, the current notes mature in 2014, they currently called it below the four point premium at a one or four phase and that’s step down to one or two in May of this coming year.

And so that’s something that will launch and as you’ve seen in the past we’ve done, at least tried to have been opportunistic when market opportunities present themselves. So those bonds will most likely be refinanced at the right time, we can’t guess now at the medium through which we would refinance them but as you would hope we look at the bond market as one likely source carefully every time.

From the Helguvik standpoint, I guess with the second part of your question if I’m understanding it, just to remind everyone, we talked about this at last for the first phase which is a 90,000 tons there’s about give or take $500 million of CapEx to go once we restart full construction we will debt finance good portion of that. We have a structure in place a non-recourse structure that could be utilized that was put in place and finalized upwards of a year ago Shelly, a year ago.

And so if there’s a more efficient manner higher lower cost and more flexible manner in which to finance the debt portion of the CapEx remaining for phase one, obviously we’ll look at that one time to go, it’s a premature at this point in time until we’ve got at least an agreement in principle with the power providers. But we think that given the edge with the project in the banks agree a good portion of that or it can be or should be on behalf of our equity holders and can be debt financed.

Peter Ehret – Invesco

Okay. So no real trigger out of there for…

Mike Bless

No trigger at all. We got a structure in place, we talked about this in the past. We’ve has finalized. We got a term ship has done. We got a common terms agreement that’s sitting there on the base of that term sheet it’s a very detailed term sheets, five dozen pages if I recall, Shelly and. So we chose with the banks to really get the negotiation done by the term ship rather then wait for the documentation so it’s pretty much ready to go, it could be implement very quickly now. Obviously, one might know that the European bank market had changed there’s statement for you over the last couple of months. So again all of this needs to be looked at when we get a bit closer to a time that which we can see a restart taking place.

Logan Kruger

Yeah. I think Mike, I think what you are saying is that we got options available to us and we will examine those more closely as we move forward.

Peter Ehret – Invesco

Yeah. Okay. Just maybe one quick follow up once you get power resolve what’s the timeframe to restart after that?

Logan Kruger

We would be up full field operations in three to four months and in 24 months once notice to proceed, we’d producing first metal period.

Peter Ehret – Invesco

Great. Thanks.

Logan Kruger

Thank you.

Mike Bless

Thank you.

Operator

And a next question from the line of Paretosh Misra with Morgan Stanley. Please go ahead.

Paretosh Misra – Morgan Stanley

Hi. Good afternoon.

Logan Kruger

Hi.

Paretosh Misra – Morgan Stanley

So in your press release you talked a bit about higher macro risk over the last two month but just related to that, do you sense any improvement in your customer sentiment or order book in October or versus like you saw may be September or late August, just trying to figure out if the things seems, if your things seem to be improving or still at the slow like August type demand trend?

Logan Kruger

It’s a interesting question, in fact we have seen a strong continuing consistent demand for my customer’s right through the summer period. So we haven’t, we didn’t see any summer low at all, it’s not what we see very often and in fact I’ve just speaking with our sales team this morning and they is consistent demand from our customer base. So we have got the demand, we fully utilize in our potential sales. They reverse it -- we try to stretch it in our presentation today to show that the underline demand that we see in our business consistently remains good, this macro issue create on, the underlying demand automotive, aircraft, whatever, infrastructure type materials like south mark that business continues to be very good.

Paretosh Misra – Morgan Stanley

Got it. Thanks. And then just other real quick if you could just comment on what you are seeing in the spot Asian cook market?

Logan Kruger

Yeah. I think the cook process have [exculpated] over the last 80 months you can follow that pretty easy yourself, there’s enough message out there. What we’re seeing in a lot of it’s influence by what cook straightening other places like China and may be the middle east is that it seems to flatten the bet in the last month, it’s early days though because we’re in a middle of obviously pricing for our next year. Pitch slightly up from what we see but it’s early days we will take that all through our planning process in the next couple of week as Mike has mentioned.

Paretosh Misra – Morgan Stanley

Great. Thanks so much guys.

Logan Kruger

Thank you.

Operator

We have a question from the line of Richard Garchitorena with Credit Suisse. Please go ahead.

Richard Garchitorena – Credit Suisse

Thanks. And good afternoon.

Logan Kruger

Hi, Richard.

Richard Garchitorena – Credit Suisse

First question, just on Helguvik the path contracts, we already have in place and the once that you waiting for that, are those basically for all four phases in terms of, in past you say that it’s a go forward you wanted to -- and show you had low cost power going forward not just faded one, but for all of them. Is that correct?

Logan Kruger

That’s I think we’re trying limit our comment particularly while we are in at this stage of arbitration or a process, a litigation process. We have context that in position of supply for the full four phases. Obviously those were spread out over a number of years with different condition. So our focus is really to get the first phase up and going and so that we can move on to the subsequent phases similar to what we did at …

Richard Garchitorena – Credit Suisse

Okay. Great. That’s helpful. And another question about your press release out in October saying that you had bought some shares back, I was curious if you can give us an update, as if that time if you brought any share since October 1st.

Logan Kruger

No. As you can, as you know the securities laws that dictate the companies that are in, I guess quite period is the term of, but it’s a jogging that’s often used. Prescribe how that can be done and so we choose not when we went in to our so called quite period to put in a plan that would have taken discretionally from management during that period to be consistent with the loss, so we’ve been out of the market now since the end of the quarter.

Richard Garchitorena – Credit Suisse

Thanks.

Logan Kruger

Sure.

Mike Bless

Thanks a lot Richard.

Operator

We have a question from the line of Sai Tharani with Goldman Sachs. Please go ahead.

Logan Kruger

Good afternoon.

Sai Tharani – Goldman Sachs

Hi. How are you? Let me ask you about the cost over the next couple of quarter, is there that they are the lag in the carbon projects when do you start to see some relief probably it would be a first quarter or fourth quarter.

Logan Kruger

We didn’t predict that I think what we were making a note that if you follow alumina process and carbon cost it seems to be a core relation with all six months delay, so we’re watching that, so haven’t gone forward and made a prediction on that to the same, if you’re interested you can go and look at that detail but it seems to be in the reasonable correlation. So adding six months as you look into the end of the first quarter of next year put more or less in that sort of order.

Sai Tharani – Goldman Sachs

Okay. And apart from the material cost at your end alumina process are under pressure have you done or are you doing anything more to cut cost, I think has it or will give you release at least some lower cost once its fully running, the other operations is there anything you can do for this?

Mike Bless

I think the division really, if you look at our two business operation in the U.S. path and you’re fully aware of what we talked about and what we’ve been doing with our partner in Mount Holly, similarly that we are working in Kentucky on the power asset because those were the drivers. Obviously put whole this units denominator, units produced as you mentioned all the key one and Grundartangi showing leading the way, we’ve obviously seem that pretty good performance and with whole this units including Grundartangi we look to have each year add another incremental couple of percent of throughput.

Sai Tharani – Goldman Sachs

Great. Thank you very much.

Logan Kruger

Thank you.

Operator

We have a question from the line of Tim Hayes with Davenport & Company. Please go ahead.

Tim Hayes – Davenport & Company

Hello everyone.

Logan Kruger

Hi, Tim.

Tim Hayes – Davenport & Company

Few questions just back on Helguvik in a different stages, is there scenario where you may only do the first stage of 90,000 and then not do the rest given the power situation?

Mike Bless

You know Tim, I think you are asking a hypothetical question so, but you have to look at the power of our ability in that area and it’s pretty bullish searched and available and ported by including the head of one of the largest power producers in Iceland. Is that in the order of about 1500 megawatts of available easily, reasonably easily developed power in that area. So I think you have to just make your own decision or not, we were obviously planning to develop those whole projects out of time, similar to the way we’ve done Grundartangi.

Tim Hayes – Davenport & Company

Right. And the capital cost for the first stage, I believe is 63,000 a ton is that correct and then just remind what would be the capital cost if all four stages are completed?

Logan Kruger

Yeah. Tim, good question. The 63,000 is about right and for the fully developed facility is somewhere around $5,000 – $105,000, $200,000 per ton, which by any means you will see is pretty competitive.

Tim Hayes – Davenport & Company

Okay. And was the second smelter that Alcoa was thinking about was that may be hydro driven power or may be some of the push back or was because of the hydro rather than geothermal?

Logan Kruger

My understanding Tim is that, predominant source of power for that was going to be geothermal.

Tim Hayes – Davenport & Company

Okay. All right. And last question on slide five, you saw that cost occur, do you have the aluminum cash price that is in that cash, in that cost account?

Logan Kruger

We got Shelly to answer this one.

Shelly Harrison

It was the reason to put out. So it has been motivate but I don’t have the exact number but it shouldn’t be too far from where we are today.

Tim Hayes – Davenport & Company

Okay. Thank you.

Logan Kruger

Thanks Tim.

Operator

And we have question from the line of John Tumazos with Very Independent Research. Please go ahead.

Logan Kruger

Hi, John.

John Tumazos – Very Independent Research

Hello. You may reference to the hospital start up productivity, inventory cost issues et cetera, could you describe in a little more granular nature the lagging issues in the start up, is there a portion of the alumina is not meeting the high parity standards Hawesville is famous for or the impurities higher or something else, are there issues, amperage current efficiency or operating practice that the workers are getting familiar with, I would think, you wouldn’t have spot failure starting up because of linings are (inaudible) or if there are restarting with old mining with, if you could just give us a flavor as to your trials and arbitration behind the scenes?

Logan Kruger

I think John, you probably described a good slot as a whole lot, but I think if you really think about as its operating practices and obviously having on the floor an operating team that are work very experience in dealing with the challenges that are running in the pipeline. Obviously all those parameters seem to be improving going forward and we’ve -- as you say we were once better than we were maybe three or four months ago and I continue to work in place with a very good management and leadership team, and very good team at the facility. Obviously the restock process was a challenge and obviously, we’re working our way through that.

John Tumazos – Very Independent Research

Thank you.

Logan Kruger

Thanks John.

Operator

Thank you. And our last question is from the line of Frank Duplak with Prudential. Please go ahead.

Frank Duplak – Prudential

Thanks. Just, I think two quick one. Do you have revolver availability at 930 if you could give that to us?

Logan Kruger

We do indeed, as we’ve said before, we don’t draw our – we have nothing drawn in cash on our revolver. We use it to back step letters of credit the major use of those LCs is to back step our obligation under the Hawesville power agreement, so that’s the biggest chunk there.

To answer your question you have to see, so you answered the September 30th, the answer is yes, we would have availability above that obviously it dependent upon metal price because we have a borrowing base of inventories and receivables, but yes, there is availability above there, no plans, you didn’t ask but no plans are drawn.

Frank Duplak – Prudential

Okay. Tell us what the availability was at 930?

Shelly Harrison

We don’t know the exact number…

Mike Bless

It will be in the Q…

Shelly Harrison

… it’s about $45 million.

Mike Bless

Yeah.

Frank Duplak – Prudential

Okay. And then 2011 CapEx, it seems like from your earlier calls maybe I got the number more in the $40 million to $45 million area, you’ve obviously felt is down about $21 million year-to-date. Can you give us an update on that full year number?

Mike Bless

Sure. Two pieces. So the first piece, let’s put Helguvik to a side for a moment talk about just domestically. What we said before is maintenance CapEx of around $15 million and that – and in addition to that non-discretionary or ROI driven CapEx in the $10 to $15. I think if you put those two together right now, as you see on the face of the cash flow statement, putting those two together obviously, all non-Helguvik CapEx, we’re just met about $10 million right now.

So, I think, we can, we’ll obviously come in at the low end of the range of which we were talking before sort of $10 to $15 plus another $10 or $20 to $25. As you know from watching other companies, generally CapEx can be reasonably back end loaded from a season – from a calendarization standpoint. But that’s why we are there and from a Helguvik standpoint, we’ve spend a $11 million year-to-date, we’re spending now on around $2 to $3 a quarter. So I think around $50 million there for the full year is probably pretty good estimate.

Frank Duplak – Prudential

May be $35 to $40 should not a bad range.

Mike Bless

Not a bad range.

Frank Duplak – Prudential

Okay. Thanks.

Logan Kruger

Sure. Thanks Frank.

Operator

Thank you. And I will turn it back to our speakers for any closing remark.

Logan Kruger

Just thank you very much for you joining us on this call today. Thank you and good bye.

Operator

Okay. And ladies and gentlemen, this will conclude our conference call for today. We do thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Century Aluminum's CEO Discusses Q3 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts