Century Aluminum Company (CENX) Q4 2007 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2007 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]. As a reminder this conference is being recorded. I would now like to turn the conference over to our host, Ms. Shelly Lair. Please go ahead.

Thanks Michele. Good afternoon and welcome to the conference call. For those of you joining us by telephone, this presentation is being webcast on the Century Aluminum website at www.centuryaluminum.com. Please note that website participants have the ability to [Indiscernible]. The following presentation accompanying press release and comments include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to future events and expectations and involve known and unknown risks and uncertainties. Century's actual results or actions may differ materially from those projected in these forward-looking statements. These forward-looking statements are based on our current expectations and we assume no obligation to update these statements. Investors are cautioned not to place undue reliance on these forward-looking statements. For risks related to these forward-looking statements, phrase or view, NSA and periodic SEC filings, including the risk factors and managements discussions, and analysis sections of our latest Annual Report and Quarterly Report. In addition throughout this conference call we will use non-GAAP financial measures, please refer the appendix which contains the reconciliation to the most directly comparable GAAP measures. This presentation including in the appendix is available on our website. I would now like to introduce Logan Kruger, Century's President and Chief Executive Officer.

Thank you, Shelly. Welcome all of you to the fourth quarter conference call. Joining me today is Wayne Hale and Mike Bless. I will also have here in Monterey, Bob Nielsen and Steve Schneider. We would like to turn to slide four, we will get on with the program for the day. 2007 has been a successful year. We have managed through some obstacles as you all know the cost pressures particularly on raw materials and part has been a challenge for the whole of the industry. Setup for the currently detected losses on what we see a favorable mid to long-term environment. The aluminum products market is robust and we believe this will continue. The LME average $2,640 per ton for 2007, approximately 2.7% of 2006. Increases due to ongoing rollout demand in the Far East mainly China, but this ongoing growing demand in other BRIC countries and particular of interest is India. All the plants are operating well. Production has been at or above capacity at all the primary facilities. We made significant progress in our projects in Iceland and we will talk about that in a moment. We have also advanced our projects in Jamaica, The Republic of the Congo and China. And particularly in Jamaica, we secured Bauxite resources to progress to Jamaican refinery project to pre-feasibility study. Our financial results are strong, cost pressures remain and we have to deal with it. Record shipments and record free cash flow of $250 million is for the year. Our role was strong 2007 and we had a good start to 2008. We move on to slide five. The Grundartangi expansion has been a whole lot of success. We have nearly tripled our capacity over the last three years and this is being done a long time and on budget, despite the ongoing cost pressures that we have mentioned. We energized the last part at the end of November and still produced at nearly designed capacity for the fourth question. If you do the numbers, you will see it's about 258,000 tons per annualized rates. As you would expect, the plant has additional improvement capacity and I am sure you look forward to Wayne giving you some detail on this. On slide six. In 2007 for the Helguvik project we have made good progress as well. The power contracts are signed. The environmental impact assessment was approved, the harbor agreement was completed, the project team has been assembled and we enjoy continued strong support from the community. Consistent with our approach to major projects as you have come to know us, we want to make sure that we get this right from the start, and confirm our ability to successfully staff engineer and ultimately and secure this very important project for us. The commercial project execution is a couple of months later than we would have anticipated, but this is being done in the highlight of continuing to work on advanced engineering, as well as securing our long lead-time items. We hope to begin initial construction at or around the end of the first quarter for this year. We still expect first metal at the fourth quarter of 2010. You will know that it's still a 13 plus month period. Capital cost we will deal with in the phase, but the likely production range for phase I will be between 150,000 tons to 180,000 tons. The project capital, we are still working on to confirm, but as we said before, we indicated some $5,000 per ton for a full potline. As you are aware, we've employed technologies that will give us full potlines, 360,000 tons per year. This of course is front-end loaded, because in the phase, the part that we do, we still have to purchase rectifiers and other key important equipment, and if you would like to have measure of how this $5,000 per ton will change for the first phase, industry measures will face something that increased from about 25% to 30% of the total cost. More detailed spending information to come upon completion of the feasibility study again in this first quarter. We'll move on to slide seven. Again, looking at 2008, the market fundamentals remain robust. Despite down sense in the US and slower growth in Europe we have continued good consistent growth in the BRIC countries, and as you probably learnt in the last few weeks, the supply side remains constrained and susceptible to the key events. Our plans has performed well, but not immune to the global cost pressures. We have been putting in place structures to address the medium to long-term cost and competitiveness of our plant. To talk to you about a few of these, we have completed or we are on the process of completing our big rivers unwind for Hawesville. We are looking at longer term power solutions for Ravenswood within Mount Holly, and obviously we are keenly and clearly looking at strategic raw material investments, particularly in the aerial banners. Our relative competitiveness of the U.S facilities, we have seen in the last year to 18 months have been improving. The reasons for this, obviously as you know is the weak dollar. The rising cost globally, the U.S power contract pricing is fairly reasonably estimated and doesn't seem to be escalating as the same prices as other parts across the world. We obviously had looked at this over the last two years and have made a decision to have a prudent capital program to reduce our long-term risk and make sure that we continue to make high return investments on our capital employed. We continue to advance our growth initiatives. Jamaica is us moving towards a full pre-feasibility study. Guangxi Investment Group, are looking at our joint venture agreement in the Guangxi province it has good hydro, bauxite and aluminum and us is the minor partner are looking forward to taking that to the next step. In The Congo as you are aware that's a longer term project. We also have certain other projects that are maturing to the investment decision and some of these costs occurring in the SG&A and Mike will talk to those. We move onto slide eight. 2007 global consumption increased about 10% to a total of 38 million tonnes in 2007. 38% demand growth was in China which overall contributed 95% of the global consumption growth. China's GDP was about 11.5% and more importantly for demand, industrial production growth was about 18%. India very low on a per capita use of aluminum, significant room for growth now the industrial production growth was nearly 10%. In 2007, the production increase worldwide was about 12.5% to just over 38 million tonnes. 35% occurred in China and China ends about 12.7 million tonnes of production last year. This seems to be aimed at about 15 million to 16 million tonnes for this year probably closer to 15 million tonnes. We must note that efforts by the Chinese government to restrain aluminum production growth have been steadily brought today. These higher taxes is the removal of preferential power rates, shift the environments on a products standards have been deployed and you will note in the last one our export adopts 55%. There is a lot of talk amongst the industry and the community that China will be a next importer in 2009 and maybe earlier. Half of the increase in global production was from restarts in 2007. This is a one-time event and that will not occur again in 2008. The industry is offering a rating at full utilization of about 95%, so the risk on the downside remains and over the last few weeks China was weather, South Africa was power, and Tajikistan was about both power and weather has been victims to this. We can add something in Brazil and at few other places as well. We move on to slide nine. If you look at the aluminum valid balance the metal balance for the year. Despite the 35% production increase from China in 2007, surplus for last year was somewhere between 200,000 to 300,000 tonnes. This is less than 1% to the market. At the end of 2007 full cost is on average, we are predicting 400,000 tonnes surplus for 2008 and this was before supply side disruptions. If we adjust for the power shortages in China, this market surplus can reach a balance. Lot of this does not account for any impact of power shortages in both Southern African and other places. If we look at Southern Africa 10% of 1.5 million tonnes of production would give you a reduction of 150,000 tonnes, and we have no idea how long this power shortages will continue are they months or years. There've been other notable disruptions. Overall from outside, looking at all the information in the market we see an expected balance to a modest surplus in 2008. If I move on to slide ten, the intensity of aluminum use; the per capita aluminum usage in BRIC countries remains low. Significant increase in China's usage has occurred since 1990, but at this stage it's still one-third of the usage in the USA. If you go to the midpoint between the current Chinese usage and U.S., China will require $10 million tonnes of new metal each year. So, we can see we have significant room for growth in Brazil, Russia, and India that the forward curve is going to indicate how the market fills. We turn on to slide 11. If you look at the forward curve and this is Chinese effecting in the last 24 hours maybe 36 hours, there has been a significant upward shift and flattening of the forward curve. Forward pricing were $2,013 today was $2,760 per tonne. What's driving this? Well, we all know that the cost pushing capital and operating costs is at globally. Energy, carbon, freights China's high cost structure, ongoing delays in Greenfield and Brownfield expansion projects and cost increases for these projects and not lastly but also the long lead time to bring new projects today. Let's turn to slide 12. Again just looking at what the balance is in terms of inventories. The date inventories and this is on a global basis are still low and we expect this to continue. The U.S market remains subdued. Markets are soft with the exception of aerospace which continues to do well. The northwest stream and has strengthened to $0.039 recently, modest part of product producer restocking has occurred, increased freight cost and the premium is still below historic averages. On the aluminum side, spot prices are around the $400 per ton at the year end and has settled in around us for the moment. Again, the aluminum side has seen the same cost ratios, caustic side for example. Overall the aluminum market fundamentals remain strong as indicated by the current prices on the forward screen. I would like to pass it over to Wayne to talk about our operations.

Thanks, Logan. Let's turn to slide 13. US smelter operations had an excellent year in 2007. Not only do they improve in overall operations, but they also established several safety production purity records. In particular, Hawesville continues to produce more high-purity metal than any domestic smelter providing for additional premium on this metal sold. Looking at Ravenswood with increased interest and focus, the injury reduction during 2007 set a new standard of performance for the plant, and in fact with continued operational improvement, stabilities, some of the best metal purity in the past 50 years of its history, were produced last year. Mt. Holly, in addition to its several operational records that they established, they also were awarded the North American Maintenance Excellence Award which recognizes a plant for outstanding maintenance and reliability implementation. Focus continues with the Big Rivers on line to secure long-term power for the Hawesville plant. Essentially, Big Rivers will serve 100% of the current load of the plant until 2023. This transaction is on track to be approved by the Kentucky Public Service Commission, during the first half of this year, and I'll talk to more detail later on that. And Grundartangi, with the completion of phase V, the plan continues to improve and we work to continue to fine tune the performance to extract additional value and metal. Let's move on to slide 14. And I'll talk little bit about bauxite, alumina and sales. At St. Ann's, they had a good safety performance in 2007. All areas of the mine were impacted by heavy rains during the fourth quarter. However, despite this ship tonnage for the year was the highest in the history of the plant. A Gramercy, the performance in all areas improved throughout the year with the fourth quarter performance being above expectation in terms of tons and quality. Looking at sales and marketing. High purity remains strong due to the aerospace market and Billet, the construction sector was reduced about 20% from the 2007 average. We battled that with sales through the automotive sector. Scratch spreads have tightened from the reduced import of operate, and as we saw last year, consumers dropped inventories. However, we've see some restocking and some emergency just in time buying and certainly, the early part this year, all of which are supportive of the present Midwest premium. Our finished goods inventories or facilities are very low to take advantage of these strong markets. Moving on the slide 15; I would like to say a few words about our key priorities for this year. Foremost it is improving the safe operations of our facilities. This fundamental value sets the foundation for all areas of execution in all our faculties. We will continue to extract incremental production from all of our plants, and we will be doing this through transfer of best practice and extracting additional production through focused and targeted capital investments. Certainly, the specific to the domestic smelters, we believe the medium to long-term fundamentals for the US primary smelting is improving and in fact with focused and modest capital investment these plants will continue to be long-term contributors to Century. Looking across the portfolio and the capital investment area, Hawesville, over the 2008 and 2010 investment period, we are going to be targeting $68 million for the upgrade and improvement of transformers and the modification of cell components, with improved operation and this will increase the mill production from the 2007 base by 3 to 5 kilotons in 2009, and another 8 to 10 kilotons in 2010. Now Hawesville is the last guys of P69 plant that has made this move to this upgrade and having worked in several P69 plants in my past, I know this to be a proven technology and its sets a firm foundation base for future improvement. Looking at Ravenswood and their capital program over the next three years, we have $10 million focused for replacement of some transformers that have reached the end of their useful life and the insulation of an automated sow caster, in force with the improvement in operation we expect an additional 3 kilotons of metal in 2010 and a subsequent reduction in costs. Now both Hawesville and Ravenswood have continuing development programs that will further improve the operations and we expect further cost reduction in those areas as well. Of course as one might expect, Grundartangi has also a capital investment program over the next three years. Here we have $17 targeted, and with the expected improvement in production, we would see an additional from... the 2,000... from the 260 kiloton base, we will see 6 kilotons in 2008 and other 2 kilotons in both 2009 and 2010. Now, supporting these operations and capital improvements is the implementation of a maintenance excellence and reliability program. Now, the value to Century of this program is that with the improved implementation of systems and the additional training and upgrading of the skills our employees will see, obviously increase in our equipment availability and reliability and subsequently reduced costs. Now, as I spoke earlier, we continue to see progress with the Big Rivers inline that will secure long-term power for Hawesville facility. Now, we require long-term available, portable and predictable power, so that we can make the necessary capital investments to this facility in order to maintain and improve it in the longer term. Now, this transaction, it provides and we expect it to provide a power supplier that it's lower cost, the less volatile and more predictable than the market price power. And of course, reaching this agreement now, instead of waiting for existing agreements to transpire in end we have achieved sufficient certainty to make the financial commitments that I spoke about earlier. In total, these programs set an excellent foundation for our business operations and improvement. Now, I will turn it over to Mike, who will discuss the financials.

Thanks very much, Wayne, and if everybody can please turnover to slide 16. As I normally do in addition to the slide that themselves that will be going through. I'm going to refer to both the appendences in the slide that itself that's the reconciliation charts and we talk about adjusted earnings and cash flow and such measures. In addition, I'm going to be referring to the financial statements which come right after the earning release in the press release itself. So, if could have all those things in front you it might make following a lot of my comments a bit easier. So again, page 16; this is the sequential comparison Q3 to Q4 and just starting at the top of the income statement. As you can see revenues Q3 and Q4 down about 5% or $22 million, breaking that 5% decline out our realized price was down about 6%, volume was up 1% and just sticking to that volume with a little bit more detail. Total volume again up 1% in shipments, direct volume i.e., U.S. smelters, shipments down 1% as Wayne said the smelters are all producing above the rated capacity, the slight decline quarter-to-quarter is simply a matter of timing of shipments and no indication as to production. Total shipments up 7%, obviously due to the continued expansion of Grundartangi plant where the 40,000 tonne expansion capacity came online in the fourth quarter. So again, putting those two together, revenues down 5% sequentially or $22 million. More than, all of that decline in revenues came from decline in price. So 27 if you will of that $22 million, was due to decline in unrealized prices and continuing on income statement, obviously that $27 million ran right to the gross profit line obviously, pricing falls right to profit. And if you are looking at the financial statement you see gross decreased $25 million. So again just to help you understand what happened there more than all of that gross profit decline is explained by the price decline. Couple of other items as I normally talk about that impacted gross profit across the sales obviously. U.S. power costs were actually favorable this quarter versus Q3. They were about $2 million favorable. As Wayne said Gramercy had a real good quarter it's best to the year and therefore it's costs obviously reflected in Hawesville's aluminum costs were few million dollars favorable Q4 over Q3. And total raw materials mostly, carbon fluoride and other such key raw materials were unfavorable again this quarter by at a slower rate only $1 million unfavorable Q4 over Q3. Continuing down the income statement, you see SG&A was up quarter-to-quarter. Let me break that out for you, first Helguvik project spending continued obviously. We spent $1 million more in Q4 than in Q3. We are up to the rate of $4 million in a quarter now and in Q4 Helguvik project spending so that's a million of the variants there. $30 million comes from normal Q4 comp-related items versus Q3 and the biggest jump there about $3 million of the difference between Q3 and Q4 SG&A are professional fees, largely around the business development projects about which Logan spoke. Obviously, as those projects come closer to a go-no-go decision you start employing experts like attorneys and accountants and other such experts to help with detailed due-diligence and so that's our spending up a little bit this quarter. Continuing down, less than four contracts obviously $229 million. Logan addressed the continuing increase in largely the forward end of the year of the screen. And EPS on an adjusted basis, if you go to the charts on the back of the slide deck, we pull out two items there to calculate, adjusted EPS. The first as we normally do is the after-tax mark-to-market or charge of less than four contracts. The other item this quarter, if you go back to Q2 you will remember that we had a tax benefit due to a state law tax change and its impact on our deferred tax assets, to remind you was $4.3 million in Q2 and we had a similar benefit from the same item in Q4 another $4 million in Q4. So if you pull both of those items out i.e., add back the mark-to-market charge after-tax and subtract out the benefit from the deferred tax increase which we count as a one-time item. The adjusted earnings as you will see $0.77 basic and $0.72 diluted. Feel the footnote to the next slide 17. This is year-over-year '07 over '06 obviously, again same treatment I'll go through. Revenues as you can see at the top of the income statement up 15% year-over-year, looking at that 15% I realized price up 2%, the volume up 13%, and again decay on that 13% in volume. Direct volume up 2% year-over-year, 531,000 tons as Wayne said, we're very pleased with the production of the plants. Toll volumes again the continued expansion of the Grundartangi plant increased 50% year-over-year, and you see all this data in the financial information that comes right after the cash flow information that is attached to the earnings release. So back to revenue is up 15% or $240 million year-over-year, about 30% of that is price and 70% of that's volume related. Talk about gross profit in some of the major items that affected that, the largest of which is our alumina costs which were up $60 million year-over-year. Of that, about two-thirds relates to increased contract price that came into effect in January 1 of this year for Mt. Holly and Ravenswood. We've been talking about that for the past two years as we signed those new contracts in February of '06. They started in January of '07 and increased freight costs. So freight in the new contract price contributed about two-thirds of that $60 million step up in alumina cost. And the rest was obviously just the impact of the LME itself, higher LME prices, higher contract prices for the alumina. Couple of other items US power cost up $40 million year-over-year. Raw materials again principally anodes and carbon-related materials going into making the anodes and fluoride, that's up $50 million year-over-year and lastly deprecation foreign exchange $50 million unfavorable variance year-over-year. Again, continuing down SG&A up $20 million year-over-year, while this component there obviously is a Helguvik project expenses $12 million for the year, obviously not in '06. Professional fees again, the business development projects about which Logan spoke were $4 million. And then a variety of other items, mostly payroll and benefits related about $2 million, as we've modestly grown the staff to accommodate the growth of the company. Plus important contracts over $500 million for the year again just shows tangible evidence on our financial statements of the increase in the forward end of the screen, far end of the forward screen. A couple of other items quickly to note; interest expense net down from $35 million to $22 million, you'll see we went into the year with our Icelandic debt at $309 million and ended the year at 0. Effective tax rate for the year, if you pull out that $8.3 million in state tax benefit one-time item that we talked about. Effective tax rate on the adjusted earnings 26%, that's pulling out the mark-to-market as well. And again, EPS on that same basis 589 basic and $5.52, pardon me, diluted. And if you flip please to slide 18. Just a couple of comments on cash flow; as you'll see, free cash flow $250 million or 114% of adjusted net income, we are very pleased with that result. To remind you and again the reconciliation is in the back. We defined free cash flow as cash from operations minus CapEx, but CapEx excluding the expansion CapEx for Grundartangi. I need to remind you too when you go to the cash flow data there, in order to calculate cash from operations and again this is in the reconciliation, you need to add back the net increase in the short-term investments, which is shown on the cash flow statement as the use of cash. Couple of other items to note for you. Take a look at the cash flow statement, Grundartangi expansion was 89 million for the year, our budget for that project remained $95 million, so there will be some carryover spending in 2008, and I'll get to 2008 CapEx in a moment. Other CapEx both sustaining and what we call our small ROI projects $25 million for the year, within the range of $20 million to $35 million about which we've been talking; Cash settlement of our derivatives for fixed price sales contracts; $20 million for the quarter Q4 and $98 million for the entire year '07. And then lastly on the balance sheet, I would note that cash ended the year at $342 million. That's an increase from the end of Q3 after continuing to spend on the Grundartangi expansion and paying off our remaining $20 million of debt in Iceland. If you flip to slide 19, please; just a couple items here to help people on their modeling of 2008. Starting at the top, couple comments about volume; we've gone through some of this before '07 again, Wayne commented about the current rate of production of the U.S smelters. We think we will be about flat year-over-year as those plants are already producing above their design capacity. And Grundartangi as Wayne explained, we think we will get some early returns from the capital improvement project there, and so we are looking for another 6,000 tons at Grundartangi. Back on the domestic smelters as Wayne explained also, we will see the incremental tonnage from those investment programs coming in 2009, 2010 incrementally as you've been detailed. A couple of comments on price; obviously, we don't forecast the LME, but a couple of comments on the major components that go into our price. In Iceland, on our total sales as you recall, the EU duty was held last May from 63%, so will have a residual impact on '08 versus '07 comps. On the domestic side, obviously, beside the LME price in new Midwest premium and the major impact to our domestic realized prices is obviously are fixed price forward sales. And we'd like to ask everybody to just turn one page forward now on slide 20, just provide a bit more detail on those. These are the same data that we have provided every quarter and in all of our investor presentations. We just did it in graphical form here, to try to make sure everybody understands what's going on here. It's a total fixed price forward sales, as you can see it's been reasonably consistent on a tonnes basis over the last couple of year, roughly 200,000 tonnes a bit more in '06 and '07. And as you can see in '08 they are down just by a little bit 11,000 tonnes. What's markedly different of course is the accounting treatment to those. So if you look going forward other than 90,000 tonnes in '08 all of the fixed price forward sales are accounted for derivatives. Just to remind you from an economic standpoint there is no difference between the cash flow hedges and the derivates. We settle them on cash the difference between the markets price and the contract price obviously. There is, however, a major difference as we have discussed before in the accounting treatment. Just to review one more time the cash flow hedges, settled through the P&L if you will, so the net settlement value is reflected as a reduction in net sales revenues every quarter and obviously flows directly through deposits. But derivates on the other hand, as you know that's the large lost and forwarded contracts line, we mark those to market. Every quarter the whole remaining tonnage for 2015 we mark-to-market as the net present value of that liability and the change in that liability is what runs through largely that loss enforce contracts line. Obviously the liability is going up that means metal prices are going up and we took a loss in that loss and forward contracts line. When they settle in cash every month or public reporting every quarter that obviously results in a reduction of that liability, which you see going through the cash flow statement, but it does not affect revenue, just wanted to make sure people understood that. If you go back to slide 19, I will just finish up with '08 and then turn it over back to Logan. Couple of other major cost items just to make you aware of, aluminum costs these are contract rates for Ravenswood, Mt. Holly. As you know we have talked about this before that the rate starts to come down here. So its about 1 percentage point that's 1% of the LME the way these contracts are obviously priced lower and we are credibly right now based on our estimates we will give all of that benefit back in increased freight '08 over '07. We have done some really good work over the last couple of months reducing freight cost for '08 and we are continuing to do that good work but we are credibly right now, given where freights of cost are, you are all aware of those. It looks like we will give all of the alumina benefit that's why our delivered cost will be about the same in those two plans year-over-year. Quickly US power cost to strategic three smelters, Ravenswood as you will recall we had a low double-digit percent rate increase, tariff rate increase last summer in July. So that will carry over for this year, say 5% to 6% for the half of the year comparison. Mt. Holly we are looking at about flat to maybe up a little bit. Mt. Holly power cuts were actually favorable in '07 by $4 million versus '06. Now plan shows '08 going back to the '06 rate, so maybe a couple of million dollars increase '08 versus '07. Hawesville, Wayne gave you all the details on the figures if it's online, I want to label that, but just right now for the first half of the year we are assuming a close towards the end of the second quarter. For the first half of the year our weighted average rate is about the same as it was in '07. And what we are seeing right now in terms of the estimated cost under the new contract, they are estimated of course fee that the cost-based contract, as it looks like that rate will be about the same as we are paying in the first half of this year and the same as we paid in '07 anyway, so about flattish our cost at Hawesville '08. SG&A, if you look at what we spent in '07 on a quarterly basis excluding the Helguvik project cost. We were on the rate of about 12 million a quarter and we think that's a good number to use for '08 with continued spending on the projects. On Helguvik itself, we are assuming that those costs are beginning to be capitalized this quarter as the project reaches that level of certainty. And therefore, you won't see those costs in the P&L this quarter going to the capital base. Quickly CapEx, Wayne talked about the three year program, let me give you what those will be from an '08 standpoint. Hawesville as he said three-year programs $68 million totaled over the three years. We are looking to spend about $25 to $30 in Hawesville against that program in '08. Grundartangi about $10 million against the 17 total that he talked about and Ravenswood were about 5 of the 10 total. In addition to that, we will have our normal sustaining CapEx and small ROI projects of another thirty same ranges we always had. So, when you add all that up for '08, we got about $75 million CapEx budget for '08, obviously exclusive of Helguvik. Helguvik project, Logan talked about the timing. So again I won't detail that any more, but our current project plan that our project team as obviously been working on in detail, so spending of about $200 million to $250 million for Helguvik this year. Quickly, depreciation; fixed asset depreciation about $70 million. Amortization full run rate $15 million as most of you known that amortizations relates to the intangible for the power contract in Kentucky and obviously the day we cancelled the old agreement and signed a new, we will write-off that amount and that amortization will cease. So if we did about midyear we may have $7 million to $8 million of amortization for this year instead of 15. Just a couple last items that are on the chart, to help you out with '08. interest expense tick through domestic versus international. Our domestic cash interest expense based on our two bond issues outstanding and small amount of ROEs is about $22 million. Our plan calls for no debt for this year drown down in Iceland, so there is none there and obviously netting against that gross interest expanse cash is interest income obviously that will depend on the cash balance that we run on average over the year. Effective tax rate up in the 27% to 28% range is our current projection and lastly, outstanding shares you got 41 million outstanding today and then obviously, you need to continue to remind you that diluted shares always depend in whatever the average stock price was for the quarter. And with that I'll turn it back to Logan.

Thanks Mike that's great. For the 2007 year, another strong year even with the challenges. We've achieved all of our major growth objectives and our plans continue to perform well. A special mention is obviously Grundartangi three years is 93 times the capacity and once we finish the first phase or Phase II of Helguvik 50% of our production will coming out of Hawesville [ph]. Looking forward to 2008, we see sound market conditions on the inventory side we see a balance to modest surplus. Continued for cost pressures and we are working on those as Wayne and Mike have pointed out. We are doing some a modest capital investment program in the U.S in our plants. We believe that perfect we have been studying for the last two years and the time we believe is correct. On Helguvik ground breaking and start-up project execution is at or about the end of this first quarter and I must make note that we've taken the additional time to make sure that we got our engineering along these on items at all the other conditions, including a very experienced project team in place before we make the jump off. We continue to build our global products pipeline in Congo, Jamaica and China. Thanks very much for listening and we'll like to invite your question. Michele? Question And Answer

Are you ready for questions?

Thank you.

Okay. [Operator Instructions]. First question comes from the line of Brett Levy of Jefferies & Company. Please go ahead. Brett Levy - Jefferies & Co.: Hey, guys. On behalf of the East Coast guys, actually you not do conference calls this late on Valentines Day in the future?

Give us your home address, please and we'll send the flowers. Brett Levy - Jefferies & Co.: Okay. Thank you, that's very kind. As you guys kind of go through the numbers and I have gotten most of the deltas, but if look at 3Q and I look at this quarter on an EBITDA basis, you guys are down almost $30 million. As I look forward into the first and second quarter, can you talk a little bit to why or why not I should expect the quarters of 2008 to rebound a little bit from the fourth quarter number?

It's, Mike. We don't obviously give guidance on earnings or cash flow or certainly EBITDA. So I'm going to touch year '08, other than to just reiterate the discreet items that we gave to try to help people with the modeling. I mean the only thing I would point out is what I tried to stress on Q4 versus Q3, is that the major difference there of course was just the LME prices that impacted our shipment volume and you have your own estimates for the other major items. You've detailed the power and the alumina contract rates. So you should be able to come to your own estimates. Again, we'd rather not comment on sort of forward-looking earnings. Brett Levy - Jefferies & Co.: Alright. And again, I know it depends based on your hedges and that sort of thing, but given kind of how you are currently set up for 2008, one penny movement in LME is worth per pound is worth what per I don't know quarter or a year in EBITDA?

On an EBITDA basis I don't have that handy. I can give you on a reported EPS basis, it's just shy of $0.20, because at $0.18, $0.19. And I can... if you give me a calculator here, and give me a minute I could translate that into EBITDA for you. Brett Levy - Jefferies & Co.: I can work my way from that.

Alright, it's fair enough.

Thanks for asking the question. Brett Levy - Jefferies & Co.: Beg your pardon?

I said thank you very much. Is there any additional questions you've got? Brett Levy - Jefferies & Co.: No, I will get back in the queue. Thanks guys.

Okay, thank you.

Okay, thank you.

The next question comes from the line of David Silverstein of Merrill Lynch. Please go ahead.

Good evening. Just I had a quick question. I know we had to ask these silly questions last time the question was how much of your short-term investments were sub-prime there? The great thing to hear was that nothing was there, the next question now is, what's the nature of the short-term investments, just any auction preferred at all that are in there?

No, no, not at all. We... Logan asked Shelly and me the exact same question long ago and happy to report the answer was and is no.

Okay, for auction rates. I mean what's the nature of the short-term investments that you have?

There is nothing municipal at August [ph] with Blackrock manages it for us. But no auction rates, no sub-prime.

Excellent, thank you guys. I apologize for asking the question.

No, don't apologize. It's a very appropriate question.

Thanks, David. That's great.

Okay, thank you. And the next question comes from the line of Lloyd O'Carroll of Davenport & Company. Please go ahead. Lloyd O'Carroll - Davenport & Company: Good afternoon or good morning with you guys. Several things; were there any unusual costs in the quarter? I am thinking about start-up costs of Nordural?

I think, Lloyd its Logan, and Wayne can also comment. I think in Nordural the operations were stable and there weren't any unusual startup costs. A good question, but we had of lot of practice as we started up the various phase. So the last phase has gone particularly well.

Yes, in fact, just to add to that. Just to emphasize this is startup was the best we have seen on record and that's a good standard for us going forward. Lloyd O'Carroll - Davenport & Company: Was the profit for Nordural up or down sequentially?

We don't comment, Lloyd, wait for the K. You can read on the back as everybody likes doing it again to our statements. Lloyd O'Carroll - Davenport & Company: Okay. And one of the cost pressures is carbon, linked to oil. Can you talk a little bit about what that's done over the last year and going into anode and cathode lining?

I think Lloyd our exposure is two-fold. One, we make our anodes in our U.S facilities. So it's the raw materials and I think if you just track the price of oil, you get a good idea of what's happening with carbon and you can look up coke prices as well. And so, off the top here, I think double the long. Wayne, any comments?

Yes, I mean just on this point, we have seen year-on-year increase in coke and pitched that are used to producing alum and just for an example in the alchemic anodes which... or excuse me, the Grundartangi and which we would buy. We are seeing obviously significant increases as well.

I think Lloyd that's related to another subject because one of the reasons why we are looking strategically for the sourcing of particularly anodes and you are aware that, as they were analysis we've been talking for a while. Because that exponential growth in Iceland because we don't have anode facilities as you know.

And Lloyd lastly kind of tapping all three of us here just to restate the statistic I gave about '07 versus '06. Total raw material costs were up $15 million and of that, carbon anodes for Grundartangi and petroleum coke for the domestic smelters, constituted about three-quarters of that. The rest was largely fluoride and other stuffs. Lloyd O'Carroll - Davenport & Company: Good. Your purchase anodes are produced in Europe?

Some in Europe, some out of China. Lloyd O'Carroll - Davenport & Company: Okay, fine. Thank you.

Sure, thanks Lloyd.

Okay, thank you. [Operator Instructions] And you have question from line of Mark Lenima of Morgan Stanley. Please go ahead.

Good evening guys.

Hi Mark.

More of a big picture question, one of the concerns that some people have when they think about aluminum industry is over capitalization in the so called areas of low-cost power. Clearly the energy picture is changing rapidly. Are you seeing any change in regional governments would have the willingness to give low-cost long-term power contracts that would make some of these very expensive smelters buyable?

I think the answer is the pressure on energy worldwide continues to be on the upfront. And as specifically to your question, I am not seeing to much willingness to reduce the ongoing power cost. So, I think it's by nature become more competitive anyway and I think you know that's what we have seen. So you have got the pressures two-fold and then I'll ask Mike to comment as well. One you got the capital profitable the CapEx... the capital investment that you are looking at and on Helguvik because we spoke earlier, we've taken our next two months or so just to make sure we've got this right, because the number we are looking at for the full per tonne [ph] is about $5000 a tonnes without the manual plot. Obviously because we did that in phases as we take the 25% to 30% higher for the first two phases. But as you look around what is reported on other capital projects in relatively competitive power markets elsewhere in the world, they have pretty much higher than that. So I think the challenge the remains. There are some examples perhaps, I saw a note today and someone suggesting what power has been offered in South Africa for Cuckoo project. But with what's going on with power in Southern Africa in the last six months, you wonder how that project is going to get going in the time frame ahead and what perspective for that may well be. Short answer I don't see easy, Mike may have a comment.

Mark, may be where you might going with the question and help me out if I am going in the wrong direction, some of the regions let's take the present Gulf for example, where the power is being offered at 'advantageous' that's a subjective word of course but advantageous long-term prices. As Logan correctly stated, the capital costs are going way up there but if you look at the root of those projects and why they are occurring, those governments have made sort of sovereign decision to try to diversify their economies and so, I wouldn't think that the changes that you are correctly alluding to would effect their desire to... they are taking sort of 50 of year views of their economies. Is that really where you were kind of heading?

I have a view that I think it's not going to be as bad as some people think. Because --

I think we would probably agree. I think bottom line we think those gets done, but boy the capital costs are going to make them tricky to pull off on an economic basis.

I think, Mark, if I sit back and I just look at the forward screen, you got to say that the market in some way is trying to indicate what the cost push be at capital part... operating costs is going to due what is an expectation of pricing for the commodity going forward.

And just quickly on your supply-demand summary. You are calling for a balance market without any impact of the 10% curtailments in South Africa?

What we have done is, we looked at all of the industry information and we came up with an average around about a 400,000 tonnes surplus. But with the like storms and delays and impacts in China that basically -- that's 1.5 million tonnes for a quarter, knocks that number also. Again we will still leaving a balance to a modest surplus and we haven't taken into account any other impact in Southern Africa or Tajikistan or Brazil where else they have been impacts.

So it would be... based on your analysis within the realm of possibilities that we have a deficit market in 2008?

We are not calling that Mark, we are just saying balanced and modest surplus, I think this is the game that was played last year if you remember in the beginning of the year and we just took a middle road position on the information available and said, here are some thoughts, lets see how the year progresses. We're actually only a month or two, so it's a bit of a game that's going on and we will see how it develops. Let's see what happens in China in the next two to three months. Let's see what happens in Southern Africa.

Well, thanks and good luck with all the projects this year.

Great, thanks. Nice to speak to you.

Okay, thank you. And the next question comes from the line of David Rosenberg of Oaktree Capital Management. Please go ahead.

Hi guys.

Hi, David.

My question is you guys did a good job comparing I guess sequentially Q3 to Q4. But if you look year-over-year Q4 to Q4, it looks like it's more of cost issues it's kind of driving your EBITDA down. I see that... it looks you yes the earning is down but volumes up and revenue is still up. And I was wondering if you can kindly do the same breakout you did sequentially as hard what are the major cost drivers? It looks like costs were up about $40 million?

Sure, absolutely David. Good question, I am happy to do it. If you look Q4 '07 versus Q4 '06 gross profit, which is what we look at principally obviously the SG&A is separate announces but the gross indicative but the operations are down little over but $33 bucks. Of that price constituted 26, so just to fall on LME average or I should say all realized prices right way to say it quarter-over-quarter, Q4 '07 over '06 was $26 million. In addition, on this picking out some larger items here; alumina again the same impact that I talked about year-over-year the new contract rate where we are in '07 versus '06 hit us for another $10 million '07, '06 in the fourth quarter. And then other items here I will just -- I am getting down small items here domestic power was up unfavorable by three, raw material on favorable by four. Going the other way as Wayne said in response to a question that was asked earlier, Nordural operations costs were actually favorable by $4 million as Wayne detailed. Gramercy was favorable by $2 million. So that gives a next but you can see it's really again the LME that our realized price based on the market and the alumina contract right drove most to that gross profit decline.

Okay. Thanks.

Thanks, David. No problem.

Okay, thank you. And the next question comes from the line of David Lipschitz of Merrill Lynch. Please go ahead.

Hi everyone.

Hi, David.

Hi, David.

Just a quick question, what do you say the tax rate was going to be for 2008?

27% to 28% David on the same basis. So we came in at 26% in '07 if you strip out the after-tax loss on forward contracts mark-to-market charges we call it for shorthand, and you strip out that $8.3 million tax benefits from the West Virginia State law change and on that same basis comp play apples-to-apples were on adjusted earnings as determine we are looking for 27% to 28%.

Okay, great. Thank you.

It's very... just add more thing and I should have said before, it's really heavily dependent on the mix of pretax income between Iceland and the U.S. obviously, a step story rates in the U.S. federal part of the state are something above 35 obviously in 36 to 37 kind of range, and Iceland is 18. So in any given quarter, depending on the metal price obviously the mix of those two items can really drive it up or down.

Okay, thanks.

Sure, thanks David.

Okay, thank you. And the next question comes from the line of Sam Martini of Cobalt Capital. Please go ahead.

Hi, guys.

Hi, Sam.

Just two quick questions not simple way for this, but Mike you said $15 million was raw material that was year-over-year, that's total '07, correct?

You got it Sam, year-over-year total '07 over total '06.

And I mean there has been a dramatic... can you guys just briefly to the anode move in the back half of '07, I mean can you help me just put some numbers around it. We have gone from $300 a tonne to $600 a tonne, what are we looking for anode in the market to... just on Grundartangi right now, what do we have to pay right now?

Well, I think Sam, I will give some range to talk about, and Wayne may want to comment. But I think if you just look at the oil price, you've probably seen 30% or low and I think looking at us going in for anode prices, you're looking in the range somewhere around $700 a tonne, and the pressure is still on the up side. [Multiple Speakers].

August-September type levels were 350?

No, not as low as that.

Just to make it out, Sam you may not have heard because we were both talking at the same time, Sam. That's 700 is delivered not FOB. I think you are quoting pretty much probably you sort of plant we see the FOB type prices. So the time on where majority is come from, you add to FOB. If it comes from China of 150 plus, if it comes come from Europe, the Iceland, may be as little as 50. So let's make sure we get our apples-to-apples. I guess the spot prices Wayne have probably been up at least 50% year-over-year.

Absolutely, yes. I think we've seen spot prices at 800.

Okay

And above that not preferred to deliver across because that gives you the mix of vast sources I think that.

Okay, and just secondly Logan, back to the aluminum balance charts, the first bar the 41.4, I know it's industry analysts estimate. But do you have breakdown just your own opinion of that supply? What's the company is best guess of the mix of that incremental, I mean that's modeling north of 3 million tonnes coming on. Where do you that is coming from for 2008?

I think most of that coming, probably 80% of that is coming out of China. I think there is lot of installed capacity that's coming on stream in China, although there is less being bolt now for the reasons we spoke about earlier. So, I would say 80%, unless I go project by project and you never know these are being completed particularly in China. But I would say 85%. You then grew out some increase coming out of us in Iceland, you have got the Fjardaal project in East Iceland from Alcoa, and plus something out of Russia. So that gives you some idea of what we are seeing some marginal increases out of other producers. So the majority of that is driven out of China, but out of India we know one or two smelters that have come on stream in India. I've got Shelly, she may want to comment, Shelly.

Yes, I want to tell you a significant portion of that is coming out in China and as we all know that the data there is not as detailed as it is in rest of the world. So you have to make some prior assumption as to what is coming in on the smaller more unknown smelters. So there is lot of estimation that goes in the China capacity.

I think Sam, China about 12.5 million tonnes of production in 2007, 12.7 depends on those numbers you accept. You could add somewhere between 2.5 and 3 depending again from China. So you get about 15 million. As I said earlier to markets, it's a bit early to start calling all these things, so I think we'll develop a better picture in the next couple of months.

But it's your assumption that a big chunk of this growth and supply is coming from China throughout 2008?

Absolutely.

Okay. Thanks so much guys.

And they are the only people that can bring those projects on time, in the next 12 months. Thanks Sam.

Thank you. And the next question comes from the line of Matthew Miller of Seneca Capital [ph]. Please go ahead.

Hi guys.

Hi Matthew.

Hi Matt.

I just wanted to make sure I was thinking about the change in hedge accounting correctly. So, it looks like on page 20 you've had 120,000 tonnes hedged with cash flow hedges in '07 and only 9,000 tonnes were hedges in '08?

That's right.

So, just to walk through a quick example, if we were using let's say 2007 average LME at $2,700 a tonne and estimated the hedge price on those cash flow hedges was about 1,700 a tonne, based on the time when you send them out. That would be a $1,000 tonne difference on about $1,011 tonnes. So $1,011 million of additional revenue and rate, is that right?

Yes, 100, based on your 1,000, just doing your math. You got it.

Goy you. Okay, great. Thanks.

Sure thanks, Matt.

Okay thank you. And there are no further questions in queue. Please continue.

Well, we would like to thank everyone for listening to our fourth quarter call today, and we look forward to having the next call with you and thank you very much for listening. Thanks Michelle.

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