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Edited Transcript of CENX earnings conference call or presentation 25-Oct-18 9:00pm GMT

Q3 2018 Century Aluminum Co Earnings Call

Monterey Oct 30, 2018 (Thomson StreetEvents) -- Edited Transcript of Century Aluminum Co earnings conference call or presentation Thursday, October 25, 2018 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Craig C. Conti

Century Aluminum Company - Executive VP & CFO

* Michael A. Bless

Century Aluminum Company - President, CEO & Director

* Peter A. Trpkovski

Century Aluminum Company - Finance Manager

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Conference Call Participants

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* David Francis Gagliano

BMO Capital Markets Equity Research - Co-Head of Metals and Mining Research and Metals and Mining Analyst

* Jeremy David Kliewer

Deutsche Bank AG, Research Division - Research Associate

* Lucas Nathaniel Pipes

B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst

* Paretosh Misra

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the third quarter 2018 earnings call. (Operator Instructions) As a reminder, the conference is being recorded. I will now turn the meeting over to our host, Mr. Peter Trpkovski. Please go ahead, sir.

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Peter A. Trpkovski, Century Aluminum Company - Finance Manager [2]

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Thank you very much, Lori. Good afternoon, everyone, and welcome to the conference call. I'm joined today here by Mike Bless, Century's President and Chief Executive Officer; Craig Conti, Executive Vice President and Chief Financial Officer; and Shelly Harrison, Senior Vice President of Finance and Treasurer. After our prepared comments, we'll take your questions. As a reminder, today's presentation is available on our website, www.centuryaluminum.com. We use our website as a means of disclosing material information about the company and for complying with Regulation FD.

Turning to Slide 1. Please take a moment to review the cautionary statement shown here with respect to forward-looking statements and non-GAAP financial measures contained in today's discussion.

With that, I'll hand the call to Mike.

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [3]

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Thanks very much, Pete, and thanks as always to all of you for joining us this afternoon. If we could turn to Slide 3, please, I'll give you a quick rundown of the last couple of months. Before we start, you probably noted that we recently announced the passing of our Non-Executive Chairman, Terence Wilkinson a couple of weeks ago. Terence joined us in that capacity in mid-2011. He had a really relevant background in the metals and mining industry plus a lot of experience as a CEO in his own right. He was a great guide in helping us focus on the long-term value and sustainability of our operations and he was a really excellent director. He was always there to provide consistent, balanced and calm counsel. Lastly, Terence was a true and supportive friend to a lot of us. We'll miss him greatly and we've obviously passed along our sincere best wishes to his family.

As you saw, the board acted quickly in this regard. Several months ago, we had welcomed Andrew Michelmore back onto the Board. Andrew had served for us for several years earlier in the decade on our board. He has substantial experience as a CEO of major metals and mining companies, the latest of which, from which he retired recently, was as CEO of MMG. For those of you know, it's the Hong Kong listed diversified commodity company that's majority owned by China Mid Metals Company. In that respect, Andrew has deep knowledge of our industry and markets and we're really, really pleased to have someone of his caliber in this important role.

With that, let's get started. We think we had a really good quarter here. The results as expected and as you've seen were impacted by the extraordinary conditions during most of the quarter in the alumina market. Cash flow was also impacted per our expectations by several factors that are now largely behind us. There was a panoply of things, let me just tick them off quickly here and then Craig will give you some more detail about the many of them. The point here is that most of this is largely now behind us and trending the other way of course.

First you had a rising alumina price. Of course, you've seen that now going the other way. I'll cover that in more detail in just a moment. You had an increase in the quantity of our alumina inventory, and that was a decided decision to ensure the stability of our supply. You just don't want to be in the position of needing to chase high priced cargoes in a market like this. And that severe risk, as you've seen, seems to have dissipated.

We had first [spills] of raw materials for the restart of the line at Sebree and the first line and then the second line at Hawesville. That's ongoing now, again, I'll get to that in a moment. You had a good chunk of the remaining restart spending at Hawesville. Again, we'll give you more detail on that. At Sebree, you had the missing cash flow from the line 3 outage and then the restart spending itself to get line 3 back into full production which we now have. And we'll now receive in the coming quarters the full amount of insurance proceeds. Again, Craig will detail that. So you had a bunch of trends here that impacted cash during the quarter. Again, most of those now going in the other direction.

Moving along, Pete will give you some detail on the industry environment in just a couple of minutes, but let me just make a couple of quick comments to put the rest of my words into perspective. Most importantly, our key end markets remain strong. We're seeing good growth in the US and also in the European countries. Key US downstream sectors are reporting record results and continuing positive outlooks. Global primary aluminum demand looks set to come in up about 4% to 5% in 2018. And at most we're seeing supply growth during the year at about 2%. So this produces a deficit of almost 2 million tonnes in 2018 of primary aluminum for us. And you're now seeing forecasts beginning to call for a similarly large deficit in 2019. Predictably, you're seeing decreasing inventories throughout the supply chain, not just in the warehouses.

Given all the issues that have been swirling around the industry this year, we think a lot of people may simply just not be focusing adequately on the strong fundamentals. The LME price itself has obviously been somewhat ranged down. As we all know, it's subject to a lot of macro factors. Interest rates, global trade discussions, other geopolitical issues, etc., etc. Of course, the aluminum market has been extraordinarily volatile, that's perhaps an understatement. We remain absolutely convinced that the fair value of alumina in this kind of LME pricing environment is in the low to mid $300 per tonne and we're pretty confident that others feel similarly, that's both buyers and sellers of alumina.

As you know, it was more than halfway back to this level before the recent couple days of panic when it looked like the Alunorte refinery might shut down entirely. We're obviously now past that. And since that time, it's traded down more than $100 and we believe it will continue to fall.

So obviously 2 issues that remain to be finalized in order to get the price down to where we believe the fair value is. The first of course is Alunorte needs to receive permission to bring the refinery back to full production. The operator has consistently said this could be done in a matter of months once the full permissions are received.

Second of course, we need resolution of the sanctions relating to RUSAL. During this period of disruptions and uncertainty, the physical market, importantly, has successfully rebalanced. And thus, this gives us further confidence that once these issues are cleared up, the market should be very well balanced and likely in a surplus for some period of time.

We're also setting up the company for its alumina requirements over the coming years. You may have seen we've made good progress through a multiyear contract that we recently executed and announced. This is for a good portion of our US requirements for the 5-year period 2020 to 2024. It's a really excellent counterparty plus the material will largely be sourced from the refinery in Louisiana from which we've traditionally bought. The quality of that material is good and obviously the logistics are favorable for our Kentucky plants.

The contract pricing itself we believe is innovative and spreads the risk. It's partly based on fixed price, partly based on a percentage LME, and partly based on the index.

Last, we're finally seeing some steadiness in the price of other key commodity inputs. Coke is obviously the most important to our process and our economics, and as we've been expecting, that market looks like it peaked earlier in the year and we're seeing pricing now easing. You'll see this when I make some comments on the individual plants' cost structures and results in the third quarter in just few minutes.

Okay, moving along, the restart process is on track at Hawesville. As a reminder, we announced back in March our intent to restart the 3 potlines that were curtailed in late 2015. As we expected, the first of these lines was fully operational during September. As you've seen if you've had a chance to poke through the numbers, it produced just shy of 7,000 metric tonnes during the third quarter. And as a reminder, when producing for a full quarter, each line at Hawesville is good for 12,500 tonnes approximately per quarter. So this line in and of itself will have growth Q4 over Q3. We just began the restart a few weeks ago in the second potline, a little bit ahead of schedule, and we continue to expect that line to be fully operational before yearend. And we continue to expect the last line to be fully operational during the first quarter. So none of those assumptions have changed consistent since we announced the project back in March. The project also remains on budget as you've seen again if you've had a chance to quickly poke through the press release. Through September, we've spent $40 million of the $75 million budget and Craig will give you some more data on the timing of the remaining spending.

As a reminder, this is the first phase of the project. The next phase comes with the rebuilds of the 2 existing lines. As we've been saying, that will happen sometime in 2019 and 2020. That's an aggregate of $45 million. And then the second phase is the technology upgrade. That's a variety of projects that aggregate to about $30 million in spending.

Moving along, Sebree as you've seen also returned to full production towards the end of the quarter. Again, a little bit ahead of our expectation. As you'll recall, we lost that potline due to an extraordinary equipment failure at the end of May. The restart process was really well done with excellent, excellent attention to safety. Craig will give you some more detail about the lost production and the restart spending during the third quarter. And again, that plant is now back to full capacity.

As you saw a couple of weeks ago, we announced that we signed an agreement to extend Mt. Holly's power contract for 2 years. It's essentially the same contract as the one that expires in December of this year and we're now in the process of finalizing the third party power. As you know, that's 150 megawatts we buy from third party sources. That's versus the 50 megawatts that we're still required to buy from the instate power supplier. Thus, the economics will look pretty much similar to what we've had for the last 3 years. You've got 75% of the power, to remind you, at a very competitive price, definitely in the second quartile on the global cost curve, power cost curve. And then you had 25% in the third or maybe even the fourth quartile. So the weighted average there regrettably remains at third quartile power price.

Countering that, as you know, the plant has a competitive cost structure and a really good and high value product mix. And most importantly, we have a really, really good team of employees here. We're pleased that they stuck with us through these uncertain times. It's been a long year for the folks there in the plant, their families and in the community. We really do value the talent there because we're absolutely convinced that this plant is going to run for a long, long time.

That 2-year extension is important because it does give us time to find a solution to support getting the production back to full capacity. The situation is difficult now, those of you who follow the situation know that the instate power provider is undergoing a period of reasonably significant uncertainty. We do believe, continue to believe there's a path that makes sense for all parties once the data are simply assessed logically. That path is for us to be able to buy all the power for both potlines from the third-party market and we intend to continue to pursue this objective vigorously.

Bottom line, given the status of our operations and the market dynamics as we see them developing over the next couple of quarters, we think the company is really well setup for 2019. I'll give you a quick preview of what that might look like before taking your questions in just couple of minutes. But before we do that, I'll give you to Pete for some comments on the industry.

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Peter A. Trpkovski, Century Aluminum Company - Finance Manager [4]

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Thanks, Mike. If we can move on to Slide 4, please, I'll take you through the current state of the global alumina market. The cash LME price averaged $2,056 per tonne in Q3, which reflects a 9% decrease from Q2. Aluminum prices have averaged $2,050 per tonne, 5-0 per tonne, for the month of October and are currently siting just shy of $2,000 per tonne. In the third quarter, regional premiums averaged approximately $0.206 per pound in the US, down 5% quarter-over-quarter, and $156 per tonne in Europe, a 23% decrease from prior quarter. Spot premiums are around $0.1965 per pound in the US, and $130 per tonne in Europe.

In the third quarter of 2018, global aluminum demand grew at a rate of 4% as compared to the year-ago quarter. We saw approximately 5% year-over-year demand growth from China, and approximately 3% growth in Europe and approximately 2% in North America. Global production growth was up a modest 2% in Q3 versus same period last year. China production was up only about 2%, and the world ex-China was up about 2% as well. As a result, in Q3 the global aluminum market recorded a deficit of approximately 333,000 tonnes, and we continue to see a drawdown of inventories globally. For the full year 2018, we expect to see a global supply deficit of nearly 2 million tonnes and forecasts are predicting a similar global deficit in 2019 which should result in continued destocking of inventories, and support LME prices over the long term. With that, I'll hand it back to Mike.

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [5]

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Thanks, Pete. Okay, if we could just move along to Slide 5, please, a couple of quick comments on the operations. Again, we had a really nice quarter in all the plants. Most importantly, it was a really nice quarter in safety performance. We had less than a handful of recordable injuries in all the plants combined, and also very importantly, fewer of what we term near misses of any serious injuries. Especially noteworthy is the performance at Hawesville and Sebree. Each of those plants you had a really complex environment, as you had all that restart activity coexisting right next to the normal operations. And we're really proud of the folks at both of those plants.

Production came in as you would expect. You see the incremental tonnes at Hawesville from the restart of line 5 that I referenced before, just shy of 7,000 tonnes. And this trend will continue during the next several quarters, so look for the next several quarters to see similar growth or even increased growth rates at Hawesville.

At Sebree, that equipment failure happened at the very end of May, so the impact on Q3 was worse than the impact on Q2. That's what you're seeing there. As I said, the plant is now at full capacity, so you'll see it swing nicely the other way for Q4.

Moving down to production metrics at Hawesville and Sebree, what you are seeing there is entirely the result of inefficiencies of bringing the production back on. That's to be expected and that should go away as we move forward. Then you see nice stability at each of Mt. Holly and Grundartangi.

Moving to production costs, a few comments that pervade the plants for us, we had power costs up a little bit at all the US plants. As you'll remember, there was some really hot stretches during the summer. And the other raw materials, as I said, principally carbon products, we're finally seeing some easing in market pricing.

A couple of comments on the specific plants. First, at Hawesville, you had an impact of the incremental volume coming in. That was offset by continuing restart costs and higher power price. At Sebree, higher power price was completely offset by really good performance in controllable costs, really nice job there.

At Mt. Holly, of that increase, 2/3 is represented by the power price increase alone. And at Grundartangi, you had really nice performance across the board on controllable costs with labor costs down very nicely. And again, for the first time in several quarters, a lower carbon cost, so very good performance at Grundartangi.

And with that, I will give you to Craig.

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Craig C. Conti, Century Aluminum Company - Executive VP & CFO [6]

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Thanks, Mike. Let's turn to Slide 6 and I'll take you through the high-level results for the third quarter. On a consolidated basis, global shipments were up about 2% quarter-over-quarter, while realized prices were up 1% as a result of slightly higher-lagged LME prices and regional premiums.

Looking at operating results, adjusted EBITDA was $29 million this quarter, and we had adjusted net income of $2 million or $0.02 per share. In Q3, the primary adjusting items were $16.9 million related to the Sebree equipment failure, $9.2 million for net realizable inventory adjustments, and $4.5 million of noncash gains related to the extinguishment of legacy contractual obligations at the curtailed Helguvik project.

Let me give you a little more detail on the Sebree adjustment. For Sebree we expensed about $7.5 million in Q3 for costs to prepare the line for restart. We also had reduced production of approximately 9,000 tonnes in the quarter which translates to slightly over $9 million in lost profits and fixed costs. As Mike mentioned, we are currently back to full capacity in Q4.

As a reminder, we expect to fully recover these losses and those we mentioned last quarter from our insurance policies net of our $7 million deductible. We are still in the process of finalizing our estimate of the total loss and will continue to call out any impact from recovery in the future as our cash receipts and associated P&L benefits will lag losses.

Turning to liquidity, our cash balance decreased by $51 million, primarily as a result of a build in inventory and increased spending on the Hawesville restart which I'll talk about in a couple of slides. Availability under our revolving credit facilities was impacted at the end of Q3 by $16 million, primarily as a result of some borrowing due to the timing of customer payments. Specifically, we have one large customer with extended quarter end terms that remitted approximately $20 million in early October. Our credit facility was fully repaid on October 1st and is currently undrawn.

Okay, let's go to Slide 7 and I can walk you through our quarter-to-quarter bridge of adjusted EBITDA. During Q3, we generated $29 million of EBITDA as compared to $54 million in Q2. The $26 million decrease was largely driven by higher alumina process as we forecasted on our last call, and was slightly offset by higher LME prices and regional premiums.

On a lagged basis, alumina was up about $100 a tonne which drove approximately $35 million of decreased EBITDA. Conversely, the LME was up $40 a tonne and the US Midwest premium was up $75 a tonne which was accretive to EBITDA by about $8 million.

Looking ahead to Q4, the lagged LME is down about $160 a tonne, and the lagged US Midwest premium is down about $75 a tonne. These 2 items translate to a decrease of about $30 million to $35 million in EBITDA. In addition, we expect higher realized alumina and power prices to decrease EBITDA by $15 million to $20 million. So as a result of lower realized selling prices, higher alumina costs and higher power prices, we expect to see a net decrease in Q4 EBITDA of $45 million to $55 million.

Okay, let's turn to Slide 8 and we'll take a quick look at cash flow. We started the quarter at $124 million in cash and ended September with $73 million. During the quarter, we had $31 million of spending associated with the Hawesville restart, and we spent $6 million for all other companywide CapEx. Also, as I mentioned earlier, customer payment timing drove a $14 million temporary draw on our revolving credit facility which has been fully repaid as of October 1. We also made a significant investment in working capital during the third quarter, primarily as a result of increased inventories. The majority of the increase related to alumina inventories driven by higher prices and volumes on hand. We also had some buildup of materials in anticipation of the ongoing restarts at Hawesville as well as some higher safety stocks in response to the dislocated alumina market, as Mike mentioned previously.

As Mike mentioned, we expect to spend around $75 million for the restart of the 3 curtailed lines at Hawesville, the majority of which will be spent in 2018. This includes the approximately $40 million we have spent through the third quarter, taking into account both capitalized and expensed amounts.

As I've spent my first several months at the company travelling to our facilities and meeting with our employees and investors, a few things have become clear to me and I'd like to share them with you today. The first is that we are in a time of transition, both in the market and within the company. The market, while volatile by nature, is currently pricing inputs, most notably alumina, at a historically elevated level. We fundamentally believe that the price will regress in the short and medium term to more normalized levels. Within the company, we continue to invest in our capacity to bring more products into short markets where we have a demonstrated track record of success. All of our internal transition work is driven and enabled by our world class employees across the organization who share a genuine desire to see Century, our customers and our investors succeed.

The second half of 2018 financially represents the leading edge of this transition as we continue to invest in our company in the midst of the current high-priced environment. We are undeterred. As our additional capacity comes online and input prices regress to historical market norms, we are excited about the performance potential we will be able to employ.

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

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [7]

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Thanks very much, Craig. As Craig detailed, Q4 reported results are still going to be impacted by those alumina prices which at this point will be dated as they will reflect themselves in our Q4 financial statement. Just to give you a sense, the price that's assumed behind the EBITDA changes that Craig gave you, the price that's assumed there for the realized alumina costs in Q4 will be nicely above the current market price and well, well above the forward price. So importantly, as Craig just said, looking out beyond to the end of 2018, we really do believe the company is set up well to produce strong financial results. We will have Hawesville completed restarted, again, subject to the need at some point over the next couple of years to rebuild the existing potlines. Thus, you'll have a significant decrease in spending, there will be the absence of that restart spending, and you'll have meaningful incremental profitability from the increased production and I'll get to that in a moment. You'll have Sebree of course at full capacity where it is today, and we really do believe a normalized alumina pricing environment is just around the corner. We recently did an analysis of what the pro forma profitability could look like. We talked about it at a High Yield Conference in which we recently participated. The materials, you may have had a chance to look already, are on the website. You can check them out if you haven't already had a chance.

The math hasn't changed since then, so let me just walk you through it in the last minute or 2 here of my comments and then we'll get right to your questions. So if you start with the quarter that we just reported and you just annualize it, you get annualized EBITDA of about $115 million. Then we would simply make 2 adjustments to that based on the current state of the company. First, you just adjust for approximately today's LME and Midwest premium. Today the spot prices are below what the average was in the third quarter. And then again, just adjust for what we believe to be the fair value of alumina at this LME level. We think that's in the mid-$300 per tonne at around a $2,000 LME. You can do that math yourself with the sensitivities that we have long provided you and you'll see it works out to an annualized EBITDA of around $250 million. And that's with Hawesville at essentially only 2 lines. Then to this you need to add the contribution of the 3 lines we're bringing on from Hawesville. Again, we're about halfway through that process. You start with the estimates that we previously provided to you in terms of the contribution of the Hawesville restart, again adjust to the current LME and Midwest, and again to alumina at about $360 a tonne and this works out to an incremental EBITDA of over $90 million a tonne. Of course, that's incremental to the $250 million a tonne. So you can see, the company really is set up to produce meaningful cash flow we believe once the alumina environment normalizes. And very importantly, the plants are all operating very well to support these kinds of financial results.

And with that, Pete, I think we can move to questions.

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Peter A. Trpkovski, Century Aluminum Company - Finance Manager [8]

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Thanks, Mike. Lori, if you could please facilitate the Q&A session now?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Jeremy Kliewer with Deutsche Bank.

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Jeremy David Kliewer, Deutsche Bank AG, Research Division - Research Associate [2]

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You gave some good color there on the alumina kind of inventory adjustments and everything that happened. I didn't know, would there be any I guess working capital drawdown or any reduction in inventories following the opening of the Olmstead Locks and Dam project this month? Or do you anticipate those inventories not needing to be as of urgency rate?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [3]

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That's a very good question. And you remembering correctly that in prior quarters, there was some severe disruptions from the lock and dam situation on the river. Principally it was lock if I recall. It was 52 or 53, I may be 1 or 2 off there. And in that respect, we did have some I wouldn't say purposeful build, but some irregular timing of receipts of barges on the river. The answer is no. All of the increased inventory that's in the silos at the plants at this point in time, Jeremy, is as I said, specifically to mitigate any risk of any dislocations in the physical market due to any kind of new risks in the Alunorte or other situations there. You just -- we've seen it before. We haven't done one of those guys, but we've seen a couple of guys get stuck having to really bid up for cargoes coming from some far formed places when some of these announcements have come out unsuspected. And so we just have a bit more alumina in the silos than we would normally have. Another detail is that, and this is just based on the vagaries of when ships literally dock, we had an alumina ship show up near the end of the quarter at Mt. Holly. Of course, those aren't barged on the river, those are oceangoing vessels, so they come in larger quantities. And so we had I would say an abnormal amount of alumina at Mt. Holly at the end of the quarter due to just based on the vagaries of when that ship loaded at its load point and arrived in Charleston.

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Jeremy David Kliewer, Deutsche Bank AG, Research Division - Research Associate [4]

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Okay. Then further on the alumina point, you mentioned that your new contract with Gramercy that's going to be kind of priced differently, either fixed or partly based on LME, partly based on the API. So what should we anticipate for your guys' sensitivities moving forward?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [5]

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That's a great question. We will provide you all of that as we normally do in February when we give you all of our metrics for the new year, all of our cost metrics and CapEx and SG&A and all the rest. So in addition to that, so the cost of the alumina will be embedded in the cost estimates that we give you. And then we'll provide you the specific sensitivity as well. I would note that, thank you, Shelly, that this contract begins in 2020. Now we do have some alumina in 2019 that will be priced also on an LME basis and so that will be in that sensitivity as well, but it's smaller quantities. Then we'll start with this contract in 2020.

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Jeremy David Kliewer, Deutsche Bank AG, Research Division - Research Associate [6]

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That one is at Grundartangi, correct?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [7]

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No, that's -- actually that could deliver, just thinking about -- are you talking about the 2019? So the 2020 to 2024 will be just very almost certainly US. Because the principal source there is the Gramercy Refinery in Louisiana. So obviously you have a very definite freight advantage to barging the material up the Ohio River to our Kentucky plants. The contracts to which I'm referring in 2019 could, depending upon the source, could go to any of the 4 plants.

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Operator [8]

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Our next question from the line of Lucas Pipes with B. Riley FBR.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [9]

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I wanted to follow-up on that 2019 contract. I appreciate you want to share more of the details in the new year, but could you maybe elaborate on roughly what percentage of your alumina needs for 2019 would be covered under this agreement?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [10]

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It's a small amount. It's, just adding it up, it's 10% or less give or take. I'd say about give or take 10%.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [11]

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About 10% of your alumina requirements?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [12]

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That's across the system. So for the global requirements. And that's assuming, as we have with, that's assuming Hawesville at full capacity reasonably and all the plants obviously except for the one line at Mt. Holly.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [13]

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Got it. And my impression is that obviously alumina prices have been, understatement, very volatile recently. But I'm sure you can appreciate that investors are maybe a little bit skeptical of timing of a contract for 2019 during this very volatile period. So can you maybe share your thoughts as to what roughly the pricing arrangement could be? I think investors can really appreciate kind of a vote of confidence that you've been locking in prices closer to historical averages.

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [14]

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No, no one can lock in prices next to historical averages. No one with the market at $490, Pete, where are we today, $480, that's actually going to sell to you at $330, unless they have a definite view. The forward price, for what it's worth, for both December and calendar 2019 is at $410. That's not a particularly liquid market, but it's a posted option, it's a traded option on CME, so it's a real financial contract that's being traded. So you can use that price there. There's not a lot, as I said, of liquidity if you really wanted to buy financially of course at that price. But it's reasonably difficult, I would say verging on impossible, to just “buy at historical averages”;. It would be like saying when the LME price was at $1,800 I want to sell it at historical average of $2,100. Unless the forwards are there and you can take advantage of them and you wish to take advantage of them, it's pretty hard to do that in a commodity market, right?

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [15]

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Absolutely. But the 10% that you've locked in for 2019, it would have a mechanism that you're not paying…

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [16]

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That's correct. That's on an LME percentage basis.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [17]

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Got it. And that percentage would be more reflective of historical averages?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [18]

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More reflective of the historical LME percentage, the percentage average of an LME percentage contract, correct.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [19]

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Got it. That's very helpful. I wanted to follow-up on this very powerful chart that you referenced at the end of your prepared remarks. I saw it in the slide deck from one of your recent investor road trips. If I added everything up correctly, it shakes out at about $340 million of EBITDA. I wanted to make sure I'm not missing something like power for example. You mentioned power prices have increased. So could you maybe elaborate on that figure and if there are any other moving pieces that we should keep in mind as we think about that potential EBITDA in a more normalized alumina price environment? And obviously when Hawesville is fully restarted?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [20]

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Thank you. That's an excellent point that you were getting at which I should have said and you've already discerned, Lucas. And that's, that chart and the math through which I went, assumes “all else equal”. And we know of nothing else right now that shouldn't be the same. The power price, I would be careful. That was a seasonal thing. As you'll recall, those of us who live in the US East, Northeast, Midwest will remember there were some scorching weeks this summer where the power price -- and the problem of course just with the averages, you have a couple of real outlier days and it can raise the price, the weighted average price, by a couple percent. Which is all it was this quarter. I wouldn't want to make too much of it. It was a couple of million dollars and that's it. And we would see that reverting to “norms” now we're in the fall and winter season. So the answer is to your question, nothing else.

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Operator [21]

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Our next question from the line of David Gagliano with BMO Capital Markets.

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David Francis Gagliano, BMO Capital Markets Equity Research - Co-Head of Metals and Mining Research and Metals and Mining Analyst [22]

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Just once again on the alumina contract, I wanted to just ask a couple more questions on it. You said it's 10% of the volumes for 2019. Does that increase in 2020 and beyond or is it still around that same percentage?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [23]

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Well, so the new contract to which we referred is for more than 10%, it's for like a third. But we haven't yet disclosed what portion of that volume, David, beginning in 2020 is LEM priced, what portion is index priced and what portion is fixed price. But we'll be doing that going forward.

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David Francis Gagliano, BMO Capital Markets Equity Research - Co-Head of Metals and Mining Research and Metals and Mining Analyst [24]

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Okay, LME, API and fixed is the mix. Okay, so you're going to disclose that when? In the year ahead guidance, is that correct?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [25]

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Yes, correct. I mean you can roughly assume it's about evenly spaced, so of that volume. It's about evenly spaced between those 3 pricing mechanisms.

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David Francis Gagliano, BMO Capital Markets Equity Research - Co-Head of Metals and Mining Research and Metals and Mining Analyst [26]

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Okay, and is it reasonable to assume that that LME percentage is similar to the commentary that you mentioned a minute ago?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [27]

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A percentage in line with historical sort of market LME based contracts, yes.

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David Francis Gagliano, BMO Capital Markets Equity Research - Co-Head of Metals and Mining Research and Metals and Mining Analyst [28]

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Okay. And then on the fixed part, similar question to earlier, given the volatility in pricing, can you give us a bit of a zone as to there that fixed price may have been locked in for the…

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [29]

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I can't, David. We've got, as you would expect, the seller has reasonably strict confidentiality provisions. Plus, it's competitive, so I realize, I fully realize per your question and per Lucas' comment why investors are interested here. We get it entirely. Don't want to sound unsympathetic to that, but from a competitive standpoint and just we don't want to get sued, it is a really good counterparty here and one that's a new counterparty for us. We just don't want to go there.

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Operator [30]

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(Operator Instructions) We'll go to Paretosh Misra with Berenberg.

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Paretosh Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [31]

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I have another follow-up on the alumina contract. Not this one, but the old alumina contract which actually expired in 2017 with Glencore, have you negotiated a new agreement or are you still operating under that contract?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [32]

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It's a new agreement. We're operating -- it's your basic requirements type contract. So as you know, just to maybe no great surprise, people are interested in alumina, we're interested in it as well as you might expect. We're currently, as you know, buying under a 3-year contract directly from the Gramercy Refinery. That's about, again, when we're back to full capacity, it's a little bit more right now from a percentage basis, but when we're back to -- and again, I'm going to define full capacity here as being regrettably for now excluding the second potline at Mt. Holly. It's roughly a third. So we're buying that direct from Gramercy and the rest is under that, most of the rest, most of the rest, is under that requirements based contract to which you just referred which is an index based contract. Now, given the vagaries of the market this year, we have picked up other cargoes as they've become available, from other folks, opportunistically. But generally, that's the majority of it.

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Paretosh Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [33]

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Is it possible that some of those volumes could also become LME linked going forward, like in the next couple of years or so?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [34]

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That's speculation. I'm going to answer the truth is, I don't know. Just to give investors a further flavor of what we're thinking about here, as we all know, there's a way to turn a fixed price contract, to the extent you have a fixed price, of course. If you have a floating index-based price, it's a bit of a challenge. But there's a way synthetically, fancy word, to convert a fixed price alumina, fixed alumina price, pardon me, into an LME based price. It's pretty easy. You just sell forward a pro-rata amount of the metal, of the LME, and you've got yourself synthetically an LME based contract. And that's something that we are, have been looking at as you would expect, very closely. And I think, well I don't think, investors shouldn't be surprised if we do seek to lock in some quantities over the next couple of years using that kind of mechanism.

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Paretosh Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [35]

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Understood. Last one for me, the [shape] premium, I believe you sell them on long term contracts or annual contracts. Now do they renew in January or sometime in the fourth quarter?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [36]

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You're talking about product premiums, right?

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Paretosh Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [37]

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Yes, product premiums, yes.

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [38]

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Yes, those are generally done on an annual basis. So we've been negotiating those. In fact, just thinking where we are, we're probably 3/4 -- 1/2 to 3/4 priced for 2018. Generally, as you know, the industry likes to call it the mating season. It's a bit of a hokey term but the commercial negotiations, the sweet spot of that is October and November. And so it kind of kicks off at a conference in September and then LME week in October and then by Thanksgiving, going into December, you're pretty much done. And so we're doing that right now. Premiums we see, you didn't ask but I'll answer the question, premiums look good. Billet premiums, foundry premiums, in slab premiums in both the US and Europe right now. So we've been, we haven't been and we didn't in the summer rush to conclude any negotiations because we don't think it suits us to rush. We're a long supplier in 2 very short markets.

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Operator [39]

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We'll go back to Jeremy Kliewer with Deutsche Bank.

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Jeremy David Kliewer, Deutsche Bank AG, Research Division - Research Associate [40]

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Sorry for the follow-up here. But on your renegotiation with Santee Cooper at Mt. Holly, you guys doubled your kind of notification if you were ever to shut that in. Is that more of a negotiation tactic on your part saying, hey, look, we'll give you 4 months now instead of 2 months, but can you give us the cheaper power? Or is it more of them kind of holding your feet over the fire and they just need more time?

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [41]

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The latter. Great question. Very easy answer. It's the latter. I wish we could tell you that as a trade for that we got a better power price. We don't even negotiate a power price with them. We're subject to, as all large industrial users in their system in South Carolina are, we're subject to their large industrial user rate. You can go on their website and look through their “rate filings” and even though they don't really make filings, they're not subject to a regulator, as we've discussed many times, but there's really no, regrettably, I wish we could tell you otherwise, there's no negotiation there. We pay that large user rate. So it was we agreed to that 4 months which we did not believe was a significant accommodation just to get an extension.

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Operator [42]

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We have no additional questions and I'll turn it back to our speakers.

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Michael A. Bless, Century Aluminum Company - President, CEO & Director [43]

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We appreciate, as always, the questions, the interest, and we'll look forward to talking with you in the new year or of course updating you on any meaningful developments before then. Take care.

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Operator [44]

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Ladies and gentlemen, this will conclude our teleconference for today. We thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.