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Executives

Michael Bless - President & CEO

Bill Leatherberry - EVP, CLO, General Counsel & Secretary

Steve Schneider - SVP, CAO & Controller

Analysts

Kuni Chen - CRT Capital Group

David Gagliano - Barclays

Lloyd O'Carroll - Davenport & Company

Richard Garchitorena - Credit Suisse

Tim Hayes - Davenport

John Tumazos - Very Independent Research

Sal Tharani - Goldman Sachs & Company

Century Aluminum Co. (CENX) Q2 2012 Earnings Call July 24, 2012 5:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the second quarter 2012 earnings conference call. At this time all participants are in a listen-only mode. You will have an opportunity to ask questions after the presentation with instructions being given at that time. (Operator Instructions) As a reminder, the call is being recorded.

I would now like to turn the conference over to our host, Enrique De Anda. Please go ahead, sir.

Enrique De Anda

Thank you, Sarah. Hello 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 conditions.

These forward-looking statements involve important known and unknown risks and uncertainties which could cause actual our 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 centuryaluminum.com.

I would now like to introduce Michael Bless, Century Aluminum’s President and Chief Executive Officer.

Michael Bless

Enrique, thanks very much and thanks to all of you for joining us this afternoon. Enrique and I are here today with Bill Leatherberry and Steve Schneider, our colleagues. We’ve let Shelly Harrison, our colleague who normally joins us on these calls, we've let her take this one off. Shelly is due to have her first baby here within the next couple days and we figured that wasn’t the kind of excitement we needed on this phone call. So Shelly is going to sit this one out. We wish her and her husband, John all the very best and we’re looking forward to having her back obviously after she takes a couple of months off. And with that, let's get started. If you could turn to slide three please.

As usual, I’ll give you some highlights of the quarter that just ended and I'll give you a sense of some of the things on which we’ve been working. First and importantly, Hawesville continued to show a significant improvement during the second quarter. Most importantly, the safety performance has been very good. I think it’s worthwhile to note that very soon we will cross an important metric. We will have gone 12 months at the plant, without a lost time accident. That’s obviously an admirable performance and something that we’re celebrating down at Hawesville.

The team at Hawesville under the leadership of Dave Whitmore and Sean Byrne have done a terrific job across the operations and we’re proud of them. They’re targeting further improvements in the quarters to come and one of the things that we’ll be working on significantly and about which I’ll talk here in a moment is the power situation at Hawesville. At this point in time to be blunt, the plant is not viable at the current power rate and we’re spending a lot of time and effort to fix that situation.

Moving on down, cost across the company have continued to fall this quarter, coming from a variety of factors. Number one, better operating leverage and higher production volumes at all of the plants, most specifically Hawesville; two, better efficiencies at Hawesville; three, we have seen a reduction in the power rate at Mt. Holly despite the lack of movement at Hawesville. Again I’ll speak about all these things in more detail in a few moments. And fourth, we’ve seen carbon costs start to fall across the system. Again I’ll provide more detail.

As you saw us announce in June, we made an acquisition of a carbon anode plant in Netherlands this quarter, obviously that's the supply, that key raw material for Nordural operations at Grundartangi today and Helguvik in the future. It’s a good investment for us that comes at an attractive invested costs and it’s going to produce a good IRR for us. I’ll give you some more details here in a couple of slides.

At Mt. Holly, as I said we’ve seen a good reduction in fuel costs translated into our power rate and also as you saw announced in June, we’ve come to a contract amendment with the power provider there. Importantly, that will give us some additional flexibility if we had to, to terminate that contract at very low LME prices and importantly that will give us some runway as we and Alcoa obviously are partners there, working on long-term power solutions.

Very importantly, we've made progress on the restart of the Ravenswood plant. A key milestone we submitted in April, our application to the Public Service Commission of West Virginia for a LME-based power rate. Since then, we’ve engaged in detailed discussions with all of the major constituencies in West Virginia. We’re very focused on this process. And we continue to believe that the restart of this plant would be a very good investment for our shareowners.

Lastly, we’ve advanced our discussions with our power providers in Iceland regarding Helguvik. The number of issues that we need to solve with each of those providers has continued to decrease. I can say that now for the first time, we do see some light at the end of the tunnel here and we think it will take the balance of the year in order to get to the finish line with the power providers. If we didn’t achieve that, we could begin construction in the spring. That’s the restart of major construction activities. Obviously our ability to do that will depend heavily on the external environment. Until then as you have seen, we are holding spending on Helguvik at an absolute minimum level.

If we could turn to slide four please, as usual, I'll give you a couple of comments on the external market environment. As you know the LME cash price this quarter averaged $1,980. That’s down 9% from the average cash price in Q1. Obviously and especially since May we have seen a significant deterioration in the sentiment, on commodities and also called risk assets. I don’t need to go through in detail what factors are driving that process as everyone on this call is well aware.

Contrasting that somewhat, we have seen a continued increase in physical premiums around the world. The US Midwest premium is now sitting at $10.75. European duty paid premium $250 to $260 per tonne, Japan $230 per tonne and all regions, the long queues at the warehouses and ongoing financing transactions continue to give support to those physical premiums. And in the US importantly, the actual market conditions that we are seeing on a daily basis continue to be pretty good. We are still seeing decent demand across our US Midwest customer base, although of course we are watching it very closely.

Taking a step up, on a global standpoint demand is up 3% year-to-date, the US up 9%, China up 8%, Western Europe no surprise down 8% year-to-date demand. On the production side globally, we are up 4% in primary aluminum production year-to-date%. China represents much more than, all that add up 12% as government power subsidies continue to prop up non-economic smelters. That said, we have seen some delays of start ups of greenfield projects in the northwestern part of China. In the developing region we have seen some curtailments here starting, but they are still coming at a relatively slow pace.

If we could turn to slide 5. We thought we would show you our rendition here of the breakeven global cash cost curves. Just give you a sense of how we constructed this. We've excluded all the production capacity in China from this chart, given the fact that from a primary production standpoint at least China is reasonably closest to meaning, it is balanced over time. We have also excluded just about a million tonnes of non-economic or social producers as they are sometimes called. Small smelters around the world that really produce for social reasons and/or would be well off at this cost curve to the right hand side of course.

As you can see in footnote also, we have reduced the cash cost by the current physical premium. So you're seeing really an LME equivalent cost here. As you can see just eyeballing it, just picking a price like 1900 even or even a little bit above, you've got a significant portion of the production capacity on this chart that is making cash losses at those kind of metal prices. Obviously the problem would be even more pronounced without the current high premiums in the market place. We believe these data obviously support the case that over time we need significantly higher aluminum prices to gain a market equilibrium.

And compounding this over the longer term again we still believed in the case that we have got in the world planned a very small amount of new capacity outside of China. Near term, obviously we have got other forces at play that we’ve got to deal with. Just a couple of quick comments on the aluminum market before I move on. The market has been relatively flat this quarter. Spot prices hanging in about $300 a tonne. We've seen some recent announcements and also some rumors of closures principally in the Atlantic basin, that's a region in the world that's been over supplied in alumina for some time.

In China, alumina market conditions continued to be somewhat uncertain. You have seen the recent moves in Indonesia to increase taxes on mineral exports there. We don't believe there's been a tangible impact on the marketplace yet in China. We saw reasonable stockpiling ahead of that action but obviously there's more there to come.

Bottom line, we expect the aluminum markets to remain in relative surplus for the foreseeable future. If you could turn to slide six please, go to the company's operations for the last quarter.

Starting at the top there, as you see, safety, we had a generally very good quarter across the company. Hawesville, as I said the trends continue to be very, very good, both in incidents rates and severity. In Mt. Holly, we are proud to say that they had an incident free quarter, this past quarter, that's obviously an admirable result.

Grundartangi continuing good performance that was consistent with Q1. Moving down to production, Hawesville was up 2% quarter-to-quarter, this is all Q2 over Q1 now. It produced in Q2 at an annualized rate of 253,000 tonnes. Mt. Holly was stable at 115,000 tonnes, that's obviously our share of the plant; and Grundartangi production up 1% at an annualized rate of 284,000 tonnes, that's another record production quarter for Grundartangi, so terrific performance there.

Moving down to production metrics or KPIs, we've seen as I said earlier continued improvement at Hawesville. KPIs there are now reflective of a stable operation. I will give you a couple of examples. Anode effects continue to come down at the plant, impurity levels are decreasing, and we've seen a continued and good decline in cell failures.

At Mt. Holly and Grundartangi, both of those plants continue with the excellent performance they’ve had in prior quarters. Lastly, down the chart, conversion costs; as you see we are continuing to make very good progress here. As you recall, the big improvements that we saw, the step function changes that we saw in Hawesville as we predicted were in Q1 of this year and Q4 of last year. And in that respect I thought it might make sense to just take a little bit of a step back here. Although it's not on the chart I am going to read you the data and look at the improvement in cash conversion costs that we've seen across the plants. So I will give it to you plant by plant over the last couple of quarters.

So starting with the third quarter of last year, I am going to give you the aggregate step down or improvement in cash conversion cost that we've seen by smelter. And I will exclude from these data the costs that fall only due to the LME, obviously alumina price or cost in the US and power cost in Iceland, so the true conversion cost that we can control.

So stepping through the plants, Hawesville over the last three quarters, we've seen conversion costs down $190 a tonne. Just to give you a bit of detail about a third of that improvement has come from labor efficiencies, about $80 per tonne from better usage of maintenance and supplies, and the rest is spread out amongst various departments throughout the plant.

Mt. Holly next, $220 a tonne since Q3 of last year, power is about two-thirds of that and carbon is a good chunk of the remainder. Grundartangi from an already very attractive rate, down $60 a tonne from Q3 of 2011. Carbon is about two-thirds of that improvement with pot lining and other departments in the plant representing the rest.

Going forward, obviously, we are going to continue to see improvement in efficiencies across the plants. We also see some good improvement coming in carbon costs in the second half of this year. And again as I said already and as I will talk to again in some detail, our main focus here is going to be on our power costs in the US and specifically at Hawesville in the near-term.

Okay. If we can go forward here to slide seven, we will give you a sense of our estimates on cash costs in the US here as you see. If you recall every February, we give you an estimate of average cash costs for the plants both in the US and Iceland for the year.

In addition, as you know, we give you various other metrics that you use in building your models, cash flow and other earnings metrics. Given the step down in cash cost that we’ve seen thus far this year and our confidence in them for the rest of the year, we felt we ought to give you an update here for the second half of the year what we see in terms of conversion costs in the US.

As you can see here, we’re using the same LME function that we used in February just so you can see an isolation that changes at 2200 here obviously we’re not there today. Just to remind you in the US, the sensitivity of our cash cost per LME hasn’t changed. So for every $100 change in LME, our cash is up or down of course. Our cash costs go up or down by $25 a tonne. So for example here, if you want to model this out at, say, 1900 LME, you would reduce that bar on the right hand side of the chart by three times, $25 or $75 a tonne.

To remind you again, we state these on a directly LME comparable basis. So we reduce the cost by the premiums. Obviously, it goes without saying that our US system is making cash losses at the current LME prices. No great surprise there. But obviously that situation has been helped by the step down in conversion cost that we’ve seen.

It’s not on the charts but let me just give you quickly the data for Iceland. Again, going back to the data the cash cost estimate that we gave you in February. If you just pull that slide out from February slide it's obviously still on our website.

We’ve improved $50 since then. So cash costs $50 lower than we showed you in February. And just to remind you again on the sensitivity in Iceland, it hasn’t changed. So for every $100 a tonne LME up or down, our cash cost in Iceland changes by $50 a tonne obviously up or down.

Okay, I think we can move on to slide eight please. We just wanted to give you some detail here on the acquisition of the anode plant. This was actually an integrated smelting facility in the Zeeland Province in the Netherlands that went into liquidation in December just before the end of the year. Smelter had a hot metal capacity of 200,000 tonnes a year obviously the plants had an anode facility and the casthouse.

We bought the anode facility only another company has actually bought the rest of the site and is working to demolish the smelter and it will run the casthouse and we have joint use agreement with this other company. It’s important to note that we have bought assets only here so we have been fully indemnified for any and all historical liabilities.

We know this plant and its products very well, Gunnar Gudlaugsson who is our Plant Manager at Grundartangi use these products, these anodes from this plant for many years when he was a senior executive at another smelter in Iceland. And we had actually intended to contract to buy from this plant which was then called Zalco in the future. Thus far we have bought a large truck already from that performed I should say very well in Grundartangi.

So obviously given the bankruptcy this was an opportunistic acquisition but one we think has strong strategic rationale let me just detail it. From a defensive standpoint, we had here to for been buying in Europe from two suppliers, but we had gotten to the point where we didn’t anymore see a safe future with those two companies given some changes in their businesses.

From an (inaudible) standpoint as well we had come to the conclusion that it would be far preferable to control our own product for the Grundartangi capacity creep and for health of it obviously once it’s running. So both of those projects will need larger anodes and it’s far preferable to for us to control our own anode supply in order to drive those projects.

Over the last couple of years we have looked at several opportunities around the world frankly, quite a few opportunities to invest in captive anode capacity. What we like to do here obviously is to compliment the significant success we've had with our investment in BHH in China which we made several years ago.

Just to look at the economics here, the total invested cost by the time we are done will be about $75 million and that will buy us a 150,000 tonnes of baked anode capacity, that works out to about $500 a tonne per installed tonne and that compares very favorably to all opportunities that which we have looked and which we are aware even those in China.

The acquisition will produce a very good IRR from a make versus buy standpoint. As you have seen us announce we have capital project and other restart activities that will require pretty much of full year to get through. The largest item and getting one is the requirement that we put in standalone environmental treatment system that is given the fact that the smelter will no longer be operating so we can’t use the fume treatment system that's currently in the smelter.

It's important for everybody to note that we have good flexibility to defer or slow this capital program, if the economic environment in the world still wants and in that case if chose to do that we could simply increase our supply from the BHH in the interim.

Okay I think we can move to slide nine now and go through the financials. As usual I will detail the financial results in the just completed quarter and compare them to the quarter just prior sequentially. So here obviously Q2 versus Q1, take a look at the market before we dive into the numbers the cash LME prices I said earlier at the beginning of my remarks were down 9% quarter-to-quarter.

If you look at the one month [lag] price though upon which much of our commercial activity is based, it was only down 2%. So that drop in June obviously we'll see the impact of it in our Q3 results.

Looking at realized unit prices in the US, down 1.6% so a bit better than the market due to the rising premiums; Iceland down 1%. I’ve got the chance to look at the shipment volumes, and yet again this quarter a portion of what we reported direct shipments occurred in Iceland, this quarter that number was 3,450 tons, just to remind you the reason for that, the plant now this is obviously Grundartangi is producing at a level well above the contractual volumes in our towing contract, so we make the rest of those sales as direct shipments. So if you adjust for those 3,450 tons, you’ll see that the US was up 0.6% quarter-to-quarter in shipment volumes, Iceland up 0.5%.

Turning back to the slide now, on slide nine we are on to the income statement data. You will see that net sales on a dollar basis were down just under 1% Q2 over Q1; pricing drove net sales down quarter-to-quarter by 2 percentage points; volume gave us back one of those 2 percentage points, so net down 1%.

Walking down the income statement, if you look at gross profit and if you were to exclude in both quarters the adjustment for the lower cost-to-market inventory, you would see that gross profit was up $8 million quarter-to-quarter on that $2 million revenue decrease.

Let me just give you a couple of movers there up or down, the price decline, the LME price decline took gross profit down by $5 million, incremental gross margin in Iceland caused the gross profit to go up by $2 million; LME based costs, that's obviously alumina in the US and power in Iceland, were down $4 million, raw materials across the system down $2 million and power at Mt. Holly down $2 million.

Walking further down the income statement, you see the unrealized gain on the forward contracts, obviously as the LME sale. At the bottom of the income statement you can see diluted shares for the quarter 88.5 million common shares; 8.1 million preferred shares.

If I could ask you to just turn quickly to slide 15, as usual we calculated it here for you our calculation for our custom of adjusted loss. This quarter it was $0.09 as you see the adjusted loss there. Just to build up for you, you can see its pretty straight forward this quarter. The net loss as reported $0.13 per share; that's important to note that that’s on all of the shares, both common and preferred and then the two items this quarter, if you would add back the LCM charge, non-cash obviously, $0.06 a share and the gain on forward contracts, $0.02 a share. That works out to an adjusted loss of $0.09 a share.

If you could just move back to slide nine, quickly a couple comments before I move on, on the cash flow statement. You see here we’re managing capital pretty tightly in these times; CapEx of $3 million for the quarter and Helguvik spending of $2 million for the quarter.

With that, I think we can move onto slide 10. As usual, we’ve just given you a bit of detail on the movements of cash during the quarter. We can be at a pretty good cash flow quarter despite the external environment. You see the spending obviously on the anode plant acquisition and some related spending.

Everything else on this chart is reasonably straight forward. The one other thing I would like to point out to you is as you see over on the right there we have a very good customer in the U.S. whose payment, large payment is scheduled towards the end of every month and in this month, it happened to be scheduled to be paid on Friday the 30th; obviously, the balance sheet date. Due to some systems issue, the payment actually wasn’t received, we didn’t actually receive it until the morning of Monday, which would have been the 3rd of July.

So technically, obviously that cash wasn’t in the house during the second quarter and therefore you don’t see it on the June 30th balance sheet. So you will see the result and build up of receivables on that June 30th balance sheet if you had chance to look and obviously that will reverse itself in Q3 as I said, we have the cash on the 3rd of June. So just a technical – just a systems issue there.

I would like to remind you of one thing cash flow wise before we move on. We talked about this in the past. We’ve made some substantial withholding tax payments over the last couple quarters as we moved cash out of Iceland for other uses and to look at the large slug of that back during the fourth quarter of this year. So we’ve got just about $30 million of cash coming back in terms of refunds from the Icelandic Government that will be flown back in the fourth quarter of this year.

I think that’s all there. If we can just move to slide 11 now; I’ll give you some sense of some of the major things on which we’re working here over the next couple months. First and foremost, as I said, we’ve got a situation that needs to be fixed at Hawesville relating to the power price there. We’ve not seen any release in our power rate at Hawesville despite the fall in fuel costs across the U.S. and despite the market price of power in that region.

As I said, the situation here must change for the plant to be competitive in the near and long-term. This is really important, because they are long-term investments that we would like to make in Hawesville to make it even more competitive to further lower the structural conversion costs there, but until we have a long-term power rate in which we have confidence, obviously those investments don’t make sense.

We’re working very hard with all the constituencies in Kentucky, including the political leadership both locally near the plant and statewide. We really believe this plant should have a bright future. So we’re very focused on succeeding here. We’ve got a great leadership team we got in place now as I told you over the past couple quarters. We’ve got a terrific, terrific employee group there.

Second, we’ve got excellent and strong customers that are in good growth markets in the U.S. Midwest and third everybody is well aware of the structural changes that have taken place in fuel costs and in the power markets in the U.S. For all those reasons we are convinced this plant should have a bright future, but we need to get through this difficult period and fix this power rate.

In that respect, the current contract with the current power supplier does have a termination provision. It does require 12 month notice period, so we will be looking closely at that over the next couple of months as we move forward to try to fix the situation there.

A couple of other items, obviously, Helguvik as I said, we are moving forward there; we hope to see some good intangible progress this quarter in our talks with the power companies there. Importantly, we are also spending a lot of time looking at the capital cost there and we were engineering that plant back in the 2007, 2008 timeframe and a lot has obviously changed that we need to take advantage of change; including importantly some significant advances in reduction technologies around the world, so we are looking hard at all of that.

I talked about the project that what we have now renamed Century Anodes in the Netherlands; again we will be assessing very carefully the external environment before making any kind of significant capital commitments there.

Ravenswood again, we’re continuing to spend significant time and efforts on creating the conditions in which we could responsibly restart the plant; significant part of the process has now the pending application before the Public Service Commission about which I’ve talked for the Special Power Arrangement.

Just to remind you, what we are looking for there is an arrangement that would smooth the power price overtime and in a spec protect the plant in periods of weak commodity prices just like the one we are seeing right now. The PSC’s ruling is due in mid-September so we’ll have a good sense over the next couple of weeks of where we may be heading.

Obviously, we would need to have a labor agreement as well with United Steel workers and upon attaining those two agreements power and labor, the plant would require about four months of preparation before we would be ready to start energizing the pods and producing hard metal. For the same reasons about which I spoke at Hawesville, we think this plant ought to have a bright future and we are very focused on what we think again would be a good investment here for us to get this plant reopened.

Lastly, as you would expect we spend a lot of time especially in environments like this look at our liquidity and contingency planning for various economic scenarios to a couple of points here. As you know, we have unused capacity on our revolver; it’s currently standing just shy of $60 million of unused and available capacity there.

We have many other financing options that which we have looked and which we could take advantage of if we gain the situation appropriate. And as you would also suspect again and especially in environments like this we’ve got a strict control of spending if you look at the SG&A results you’ve seen evidence of that.

And with that, I think that’s it for our prepared remarks, but we would love to take your questions. Enrique?

Enrique De Anda

Are we ready for questions?

Question-and-Answer Session

Operator

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

Kuni Chen - CRT Capital Group

Yeah I think that’s me; it’s Kuni Chen. Just a couple of quick ones you know as you noted on the SG&A front that’s come down very sharply; were there some one-time items you know that’s kind of a sustainable level going forward?

Michael Bless

No one items in there; and well it go up or down at times when we account for incentive comp and things like that that should be around a sustainable level going forward, yes.

Kuni Chen - CRT Capital Group

Great, a good job on that. And just as far as Hawesville goes, can you sort of lay out for us how under the current arrangement, the power costs step up from here. You know I think as it stands today that that plant still maybe running near breakeven levels, but what point does that really go into the red for you if aluminum prices stay at these levels and can you talk about your timeframe as far as trying to renegotiate a new agreement?

Michael Bless

Sure, let me just correct one thing you said or perhaps with apologies I misheard you, Kuni. The plant is not breakeven today, it's making cash losses today at the current power rate and the current LME price. So it's an acute situation and I suppose that leads into the second part and answer pardon me to the second part of your question, we are looking for some success here over the next couple of months at most. We've been working hard on this for the last couple of months but as I said the plant right now is in jeopardy given that power rate.

Kuni Chen - CRT Capital Group

Right and it only continues to step up from here, right?

Michael Bless

Correct.

Operator

Next we go to the line of David Gagliano with Barclays. Please go ahead.

David Gagliano - Barclays

Just a follow-up on that Hawesville question, I thought did I hear you correctly in terms of the -- what exactly did you mean by the 12 month termination notice? Does that impede you from shutting down capacity at Hawesville within the next 12 months or did I miss that?

Michael Bless

We could, no, no. We could certainly shut down capacity, but we have a 12 month notice period to cancel the power contract. So what would happen David perhaps to answer that, what your follow-up might be if we chose, if we had to, we could certainly close down the plant, but we would have to pay a base demand charge, nothing approaching the full cost of the power, but a base demand charge during the tendency of the contracts during that 12 month period.

David Gagliano - Barclays

And then just unrelated or somewhat unrelated slide seven, I just have a couple of questions related to that slide, it's very helpful I appreciate it. The US second half 2012 cash cost of $2095 per metric tonne, what were the cash cost equivalent number for Q1 and Q2 for the US assets?

Michael Bless

They were pretty close to that estimate, David that you see on the left hand part of the chart. We came in, as we said in those quarters within spitting distance of our expectations?

David Gagliano - Barclays

Of the 2095 number, correct?

Michael Bless

You got it.

David Gagliano - Barclays

Okay.

Michael Bless

No, no, I am sorry of the number at the left hand part of the chart. So again before the step down here, right.

David Gagliano - Barclays

Okay, so the move from 2240 to 2095 is all second half, right. Just want to make sure.

Michael Bless

Oh I see what you are going. I see what you are saying here. No, no, no, pardon me. Part of that step down was realized in Q1 and Q2, so what you would have to do -- now I understand your question, pardon me. The best way to get at that, my recommendation would be is to look at the -- putting us in the financial statements as you know in the guarantor statements in the back there. You get a pretty good sense of the results in the US versus non-US, in essence Iceland and you can crank that number that you are looking for.

David Gagliano - Barclays

Okay and then just somewhat related. In terms of the Hawesville timeline and just the US assets in general, obviously you mentioned even with the revised numbers here, making money, how should we expect the, this unfold, if aluminum prices stay where they are. [Pipelines] being shut down and/or full asset closures and what would be the pecking order and when should we expect to start happening?

Michael Bless

I mean, that’s, I’m not trying to duck it, David. As you know, that’s a hard question to answer because you have to, when you do that analysis, there is a bunch of inputs. One, obviously is you know, sort of the average price that you expect over the next quarter or two and then you know, how long you expect this current weak period to pervade or if you expect it to get worse and that’s why you don’t see as you know a lot of capacity shutting down now because as we all know, you can use our own example at Ravenswood.

These plants are not inexpensive to restart here. As we've said, it’s going to cost us $80 million to $90 million to restart Ravenswood. Now about half of that, as we've said, is working capital. So in essence you get that back out of the system, but half of that is if you will some – I don’t like to use that term, but that’s really what it is, your sunk restart cost. So again not trying to duck, but there is a lot of things that go in there. I can say there is no plant closures right now at Century, but we’re watching this thing very, very closely and like all of our peers are here and will be over the next couple of months.

David Gagliano - Barclays

Okay, and then just one last question. If aluminum prices stay flat versus current, will you continue with restarting Ravenswood and will that restart be profitable on an ongoing basis?

Michael Bless

David, it all depends. Based on the -- it’s a great question, thank you. Based on the application that we've submitted to the PSC, to the Public Service Commission, the answer is yes because with the floating rate there, with a variable rate in that application, the special power contract that we’ve submitted, that would allow the plant to operate at LME prices like this. So, it will all depend upon what we hear back from the PSC.

Operator

(Operator Instructions) So we go to the line of Lloyd O'Carroll with Davenport & Company. Please go ahead.

Lloyd O'Carroll - Davenport & Company

Yes, talk a little bit more about Hawesville power, it looks from the press release was from the power provider that you are paying roughly [$6] a megawatt hour we know that in ‘14 the EPA for all the coal fired plant that would probably are going to see operating cost go up in the 25% range. So if you do nothing, there’s a big problem, what are your options if you just bought power off the grid and wield it, if you build your own turbines or if you had a contract with an independent power provider ahead gas powered power. Can you talk about any kind of numbers with those options and what if, if we, another way to look at it is what the LME price do you need with your current power contract to get an acceptable return, something that you will be prepared to run the smelter on an ongoing basis?

Michael Bless

Yeah, that’s a good question. I guess, well, let me take it in the order in which you asked and your last question was a great one or part of it, Lloyd. But let me go through in the order that you asked it. So, not to be pedantic here but in answer to your question we are looking at all of those things.

And all of those are some short-term, some longer term, potentially things that could benefit and flow through to us. Right now, we have a contract, we have a supplier and a power provider there and we are working with that power provider to see what options are available and thus far those discussions remain constructive, and so that’s what we are very focused on.

And we'll remain focused on here until they don’t make sense anymore but we are optimistic. But all those things, one thing you didn’t mention is that, as we all know, coal prices in the US, depending upon where, over the last nine months have fallen pretty significantly. And we yet haven’t seen any flow through of that movement and so you know your analysis was we are where we are plus we are going up based on environmental spending.

But we think there should be some relief, all else being equal, nothing else happening structurally just due to the coal prices coming off. But -- so that’s an answer I think Lloyd to the first part of your question which is as of right now we are working, we think constructively with the power provider there.

To answer your second question, we don’t think there’s -- we need to get the structure changed irrespective of what our long-term view of the aluminum price is. Even if you look at the consensus here at the market I would say whether whatever it is today 2300, 2400 long-term nominal price. We still think that we need to find some structural changes in that power price in order A, to generate good return for the share owners and B, in order to perpetuate that to be able to have the longevity of view to invest in the plant. If you are asking about a breakeven, you know it is a couple of hundred bucks now, $200 plus from where we are, may be a little bit less than that. We brought the breakeven in the company down in a couple of hundred dollars here over the last year and a half but we are ways away from that plant even breaking even at this point in time and at this power price.

Lloyd O'Carroll - Davenport & Company

And you are not in the business of breaking even?

Michael Bless

Not the last time I checked, no.

Operator

Next we got to the line of Richard Garchitorena with Credit Suisse.

Richard Garchitorena - Credit Suisse

So, yeah, my first question, I was just wondering if you could remind us what your current budget is for CapEx, I know in the past years, highlighted maintenance CapEx of about $20 million. The Nordural expansion if there's additional CapEx through rest of the year, if mill prices stay the same and we assume no restarts this year what should we expect for run rate?

Michael Bless

Yeah, that's a good question. So, our budget right now for the second half of the year is looking at an additional say $25-ish million of CapEx. We could, I mean that includes substantial portion of that, and this is all excluding Helguvik now, a substantial portion of that is for the hot metal expansion program at Grundartangi which of course is our best plant and one that's still making good cash flow even at the current LMEs.

We could ratchet that number back significantly, I mean in fact have already done the work as you would hope we have done to identify exactly what we would do and so we've got that under pretty tight control. Right now I would say balance of the year $20 million to $25 million for total CapEx excluding Helguvik but we've got some leeway there to decrease that by a good amount if we had to.

Richard Garchitorena - Credit Suisse

I just wanted to touch on the Century Anodes I guess, you mentioned that you are monitoring the current situation, I guess, globally and with prices where they are. How should we think about, where, what level of pricing or it more just a function of how the global economy is progressing in terms of restart or not? And then if you don’t have restart right away, I guess, are there costs associated with maintaining that facility?

Michael Bless

Last question first is no, none at all that. All the activity going on at that facility now is attendant to the restart and if the world were in a position by the end of the summer, it’s by the end of the summer based on our engineering pert charts that we’re going to have to make decision as to whether it cuts some reasonably large capital commitments or not.

If the world isn't better then we’re going to have to make a sound decision. So it’s a no further costs because there is no other activity other than the restart at the plant. And the answer to your first part of your question, it's difficult to answer. Long-term, that’s going to be a very good investment. And as I said, we got the ability to crank up production or take from our investee, BHH in China. If we decide to go a bit slower on the Century Anodes restart. So it’s going to be a bit of a judgment call here to say, towards the end of August, going into September.

Richard Garchitorena - Credit Suisse

Okay, then my last question, just on the 150,000 tonnes of initial production, how should we think about the potential cost savings from that and how much of anode I guess needs that cover for Grundartangi?

Michael Bless

Good question. So let me maybe tweak a little bit of what you said at the beginning. Perhaps I misunderstood you. So the final capacity will be 150,000 tonnes. The first stage here about which we’re talking the $45 million is to put in the environmental treatment system, do a bunch of other things and then just bring back one of the two furnaces. It’s got two furnaces, each of which produce 75,000 tons of baked anode and so that first part would be 75 and then eventually, we spent another $15 million to refurbish the second furnace which would give us 150,000 tons.

Just to give you a sense, a 150,000 would just about satisfy today, pardon me, Grundartangi’s requirements, but of course we have a significant portion of our supply, we get from BHH as well. And so I mean the way you ought to think about it right now is that the supply that we get from BHH in conjunction with that first furnace restart at Century Anodes would basically take care of Grundartangi and then the restart of the second furnace at Century Anodes is most likely linked to Helguvik.

Operator

Next we go to Tim Hayes with Davenport. Please go ahead.

Tim Hayes - Davenport

Two quick ones; the LCM impact, is that just in the U.S. or was that some of that in Iceland?

Michael Bless

No, that would be strictly in the U.S.

Tim Hayes - Davenport

Okay, and then the conversion cost that’s shown on slide six; I am assuming that’s ex the impact of the LCM?

Michael Bless

Yes, because whenever we show conversion cost it’s always only cash.

Operator

We go to the line of John Tumazos with Very Independent Research. Please go ahead.

John Tumazos - Very Independent Research

It would be a little bit academic, thank you. But Mr. Mittal of Mittal Steel is asking the steel workers for his company to roll back $28 an hour and it may be the end of retiree medical in the USW contract or the start of it and I don’t know how those negotiations end up; it could be the end of defined benefit pension for new employees.

Could you just review when your labor contracts expire and is there any applicability of that strategy; it would seem like the aluminum price is relatively well and the aluminum inventories are high; workers might prefer to make concessions than have some one (inaudible) cut plant, shut smelters in Tennessee and Texas without trying to get tube shale gas or labor concessions or things like that. Maybe the workers think half of their compensation is better than no compensation maybe given a chance?

Michael Bless

Yes sure, John very reasonable questions. So just the factual answer to your question, you know you are talking about Hawesville here given that there is no labor contract at Ravenswood and as you know Mt. Holly is not represented, so at Hawesville as you remember we signed a five year agreement with USW last time so that goes through April of 2015. So we got a long way to run there. We did negotiate last time the kind of things that you are talking about not to get into the detail, but given that we’ve got a contract right now that runs a couple of years, we are focused and given the input of the cost here we are very focused on power at Hawesville.

John Tumazos - Very Independent Research

It would seem like metal is one-sixth or so of the steel industry and one-third or so of the unionized steel industry in raw numbers. Do you think the potential exist to leverage off of that for the aluminum industry to completely change its labor?

Michael Bless

John, I’ll answer it as straight as I can, I have absolutely no idea.

John Tumazos - Very Independent Research

I am just wishing and hoping for something to go right.

Michael Bless

I hear you; we will take the support, but I just -- I honestly don’t know I would rather take a pass to that one.

John Tumazos - Very Independent Research

I know I am putting you on the spot. Thank you

Michael Bless

Okay, that’s your job.

Operator

Next we go to the Sal Tharani with Goldman Sachs & Company. Please go ahead.

Sal Tharani - Goldman Sachs & Company

And Mike on your cash cost, the one you have gave in February or the kind of one; can you just back up your different plans where do they stand in terms of Mt. Holly and Hawesville and where would the balance would be I mean highest to the lowest?

Michael Bless

I am sorry Sal, I may not have, see you are asking that the rest of the cash costs?

Sal Tharani - Goldman Sachs & Company

No I am just saying that which is the highest and the lowest in those three operations?

Steve Schneider

Oh of our operations on the cost curve?

Sal Tharani - Goldman Sachs & Company

Yes.

Steve Schneider

Yes of course; so well Grundartangi of course, as you know Grundartangi floats based on power price, but certainly Grundartangi today at the current power price and even at the current metal price and even at higher metal prices would be further of the last and then would come Mt. Holly and then would come Hawesville and then ratings were difficult to say because we don’t have power rate right now, but certainly at the old power rate it would further to the right; what we are hoping to do is obviously have that slide like Grundartangi, but that remains to be seen.

Sal Tharani - Goldman Sachs & Company

So you mentioned that how you really if you decide to shut it down, you do need a 12 month notice and you may end up paying the electricity cost on the base load, are you losing more money than what you have to pay per pound if that would the case?

Steve Schneider

No, not now, no.

Operator

We don't have any additional questions at this time. Please continue.

Michael Bless

I think that's it for now. We again appreciate everybody joining us and we look forward to speaking with you again if not before in October. Take care.

Operator

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

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