Century Aluminum Company (CENX)

Q2 2010 Earnings Call Transcript

July 27, 2010 5:00 pm ET


Shelly Lair – VP and Treasurer

Logan Kruger – President and CEO

Wayne Hale – EVP and COO

Mike Bless – EVP and CFO


Kuni Chen – BofA/Merrill Lynch

Brett Levy – Jefferies & Company

Chris Doherty – Oppenheimer & Company

John Tumazos – Very Independent Research

Mark Liinamaa – Morgan Stanley

Tim Hayes – Davenport & Company



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» Century Aluminum Company Q1 2010 Earnings Call Transcript
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Ladies and gentlemen, thank you for standing by. Welcome to the second quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions being given at that time. (Operator instructions) I would now like to turn the conference over to Shelly Lair. Please go ahead.

Shelly Lair

Thank you, Rocko. Good afternoon, everyone, and welcome to the conference call. Before we begin, I would like to remind you that today’s discussion will contain forward-looking statements related to future events and expectations, including our expected future financial performance, results of operations, and financial conditions.

These forward-looking statements involve important known and unknown risks and uncertainties, which could cause our actual results to differ materially from those expressed in our forward-looking statements. Please review the forward-looking statement disclosure in today’s slides and press release for a full discussion of these risks and uncertainties. In addition, we have included some non-GAAP financial in our discussion. Reconciliation to the most comparable GAAP financial measures can be found in the appendix of today’s presentation and on our website at www.centuryaluminum.com.

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

Logan Kruger

Thank you, Shelly. Good afternoon, everyone, and thank you for joining us. We welcome the opportunity to report on our progress. So let’s move onto slide number four. I’d like to make some brief introductory comments at this point and then turn to an update on the market. We will get into this in more detail in just a moment, but at high level, we would characterize the market as somewhat sentiment-driven at this point in time.

Physical activity is reasonably good across the globe, and I think this is a positive indicator. Demand is exhibiting healthy growth in most of the developing regions. At worst, it is drifting sideways in developed economies that seem to have the most persistent structural issues. Supply growth is constrained.

And just as important, we believe there is a fair amount of existing capacity that is cash flow negative at and around current metal prices. Underlying this, of course, is the fact that aluminum, like all commodities, is subject to often volume strengths produced by changes in investor sentiment. I’m sure you have seen it as we have in the last couple of months.

I’m pleased to report that the teams at Grundartangi and Hawesville have maintained their excellent performance. As Wayne will detail, the team at Hawesville is very focused on pulling every cost lever it can identify as we prepare for the step-up in power prices in the year 2011. He will also report on the operating issues at Mt. Holly.

As you all are aware, we continue to negotiate with the local unit at Hawesville for a new labor agreement. There are clearly some issues pending, but we are hopeful that the presses can conclude in the near future. Most importantly, during this entire period, the plant is operated in a safe and efficient manner. And this, I believe, is the real testament to all of the employees. We have continued to spend significant time and effort on the completion of the task required for a restart of major construction at the Helguvik project. I’ll provide some additional detail at the end of our presentation.

So we move on to slide number five. The LME cash price has reached approximately $2,100 per ton for the second quarter of this year. Aluminum prices fell from their peaks in 2010 of some $2,450 per ton in April to $1,830 in June. Since then, prices have recovered and are currently in the $2,000 per ton. Aluminum prices have moved lower over the past month to currently stand at about $325 per ton. Alumina spot activity is variable in the wake of a decline in aluminum prices and the uncertain outlook for the second half of this coming year.

Global aluminum demand was reasonably strong in the second quarter, mostly as you would know, driven by China’s yesterday increase of approximately 35% due in part to the government stimulus measures. When you look at China, the economic growth slowed in the second quarter of 2010 to only 10.3%. This moderation still reflects impressive growth and follows on a very strong first quarter growth of some 11.9%.

It was recently noted by an economist that the Chinese economy has grown at an average of more than 9% for over 30 years. It is also noted that this can’t go on forever, only another decade at the most. I’m sure you will agree these are massive numbers. And even moderate growth rates in China will have a significant impact on all areas of global demand. Additionally, another significant area of growth is India, with an 8.6% year-on-year rise on the first quarter GDP and industrial production growth of 11.5% year-over-year in May.

Let’s take a look at slide number six. LME stocks declined again in the second quarter and are down approximately 220,000 tons year-to-date. This is a meaningful improvement for significant additions to the warehouses, as we saw in the first three quarters of 2009. That being said, there is still some concern that metal is being delivered out of the LME warehouses and slightly new warehouse in deals on a basis, which involves less expense as rents.

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