Century to resume building at new Iceland smelter

www.reuters.com
Nov 18, 2009

Century Aluminum Co (CENX.O) plans to restart construction at its Helguvik greenfield smelter project in Iceland and to produce its first metal at the plant by early 2012, a company official said Wednesday. "We'll restart construction in earnest in spring 2010," Century Chief Financial Officer Mike Bless said at the Knight Tumazos Metals and Mining investor conference.

Bless said a project of Helguvik's scope would normally take 30 months to get up and running, once construction was underway, but, considering work already carried out on the project, the first hot metal should be produced in early 2012. Bless said the U.S, primary aluminum producer plans to bring smelting capacity online in four 90,000-tonne phases, building up to full operating capacity of 360,000 tonnes with 86 potlines.

Century halted construction on the project during fourth quarter of 2008, when demand for aluminum, and consequently aluminum prices, plummeted at the onset of global economic recession. Since then, Bless said, the company has been maintaining minimal work levels at the site so as not to lose the work already begun.

By the end of the year, he said, Century will have spent $100 million of the total project cost of $600 million. The company is currently mulling options for financing the rest of the project, including the possibility of an investor with a minority interest, the CFO said. He said, however, financing was not the biggest worry at the site. Rather, its energy supply presented a bigger potential concern.

Once the smelter comes online, production costs at the Icelandic facility should run in the lowest quartile of global smelting capacity, but, Bless said, the risk remains that the energy plant will not be built in time. Helguvik will be the world's only smelter run 100% on geothermal power, but the CFO said the power plant must also be built in stages and be coordinated with the smelter's construction.

Century already operates the Grundartangi smelter in Iceland, which Bless said was able to break even when aluminum fell to $1,275 a tonne, a 7-1/2-year low, in March because of low power costs partly using geothermal energy. He said the company's overall breakeven level, including capital expenditure and maintenance costs, runs $1,800 to $1,900 a tonne of aluminum, depending on input costs. Benchmark aluminum MAL3 prices on the London Metal Exchange ended Wednesday at $2,055 a tonne, after a recent price surge. It traded as low as $1,883 a tonne this month.

Though Bless said Century sees a pick-up in aluminum demand in the medium to longer term horizon, the near-term price risk was to the downside in light of recent supply restarts in China, Europe and elsewhere amid slow global demand. "We're not chasing the bubble, we're still managing for tough times," Bless said. Century's 170,000-tonne-per-year aluminum smelter in Ravenswood, West Virginia, has been idled since February.