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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009

 

OR

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Registrant’s telephone number, including area code:  (831) 642-9300

 

 

Securities registered pursuant to Section 12(g) of the Act:  None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨   No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨   No x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x   No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*     Yes ¨     No ¨

* - The registrant is not currently required to submit interactive data files.

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in a definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes ¨   No x

 

Based upon the closing price of the registrant’s common stock on the NASDAQ Global Select Market on June 30, 2009, the approximate aggregate market value of the common stock held by non-affiliates of the registrant was approximately $285,000,000.  As of February 28, 2010, 92,535,991 shares of common stock of the registrant were issued and outstanding.

 

Documents Incorporated by Reference:

 

All or a portion of Items 10 through 14 in Part III of this Form 10-K are incorporated by reference to the Registrant’s definitive proxy statement on Schedule 14A, which will be filed within 120 days after the close of the fiscal year covered by this report on Form 10-K, or if the Registrant’s Schedule 14A is not filed within such period, will be included in an amendment to this Report on Form 10-K which will be filed within such 120 day period.

 

 

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	TABLE OF CONTENTS	PAGE
	PART I
Item 1	Business	1
Item 1A	Risk Factors	13
Item 1B	Unresolved Staff Comments	24
Item 2	Properties	25
Item 3	Legal Proceedings	25
Item 4	(Removed and Reserved)	25
	PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6	Selected Financial Data	28
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	49
Item 8	Financial Statements and Supplementary Data	52
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	118
Item 9A	Controls and Procedures	118
Item 9B	Other Information	118
	PART III
Item 10	Directors, Executive Officers and Corporate Governance	119
Item 11	Executive Compensation	119
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	119
Item 13	Certain Relationships and Related Transactions and Director Independence	119
Item 14	Principal Accountant Fees and Services	119
	PART IV
Item 15	Exhibit and Financial Statement Schedules	120
	Signatures	127

 

Item 1.   Business

 

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains forward-looking statements.  We have based these forward-looking statements on current expectations and projections about future events.  Many of these statements may be identified by the use of forward-looking words such as “expects,” “anticipates,” “plans,” “believes,” “projects,” “estimates,” “intends,” “should,” “could,” “may,” “would,” “will,” “scheduled,” “potential” and similar words. These forward-looking statements are subject to risks, uncertainties and assumptions including, among other things, those discussed under Item 1, “Business,” Item 1A, “Risk Factors,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8, “Financial Statements and Supplementary Data,” including;

 

·	Declines in aluminum prices have adversely affected our financial position and results of operations in the recent past and future declines in aluminum prices or an increase in our operating costs could result in further curtailment of operations at one or more of our facilities if alternate sources of liquidity are not available.
·	As part of our operational restructuring, we have curtailed and may continue to curtail operations at one or more of our facilities, which has required us to incur and may require us to further incur substantial costs and subject us to substantial risks in the future.  The failure to successfully implement our operational restructuring or to achieve its intended benefits could have a material adverse effect on our business, financial condition, results of operations and liquidity.
·	A continuation or worsening of global financial and economic conditions could adversely impact our financial position and results of operations.
·	Our ability to access the credit and capital markets on acceptable terms to obtain funding for our operations and capital projects may be limited due to our credit ratings, our financial condition or the deterioration of these markets.
·	Poor performance in the financial markets and/or our curtailment actions could have significant and adverse effects on our pension funding obligations.
·	The cyclical nature of the aluminum industry causes variability in our earnings and cash flows.
·	International operations expose us to political, regulatory, currency and other related risks.
·	If economic and political conditions in Iceland deteriorate further, our financial position and results of operations could be adversely impacted.

 

·	Any future reductions in the duty on primary aluminum imports into the European Union (the “EU”) would decrease our revenues at our smelter in Grundartangi, Iceland (“Grundartangi”).
·	Substantial additional delays in the completion of the Nordural Helguvik ehf smelter (“Helguvik project”) may increase its cost, lower the project’s financial returns and impose other risks to completion that are not foreseeable today.
·	Our power supply agreements for the Helguvik project are subject to fulfillment of certain conditions, and there can be no assurance that these conditions will be met or that the cost required to meet the conditions makes the project impracticable or less attractive from a financial standpoint.
·	Changes in the relative cost and availability of certain raw materials and energy compared to the price of primary aluminum could adversely affect our operating results.
·	Many of our contracts for raw materials, including certain contracts for alumina and electrical power, require us to take-or-pay for fixed quantities of such materials that may limit our ability to curtail unprofitable production capacity.
·	Further consolidation within the metals industry could provide advantages to our competitors.
·	Disruptions in our power supplies could adversely affect our operations.
·	Union disputes or our inability to extend any of our existing collective bargaining agreements could raise our production costs or impair our production operations.
·	We are subject to a variety of environmental laws and regulations that could result in significant costs or liabilities to us.
·	Climate change legislation or regulations restricting certain types of emission of “greenhouse gases” could result in increased operating costs and cost of compliance for our business.
·	We may be required to write down the book value of certain assets.
·	We require significant cash flow to meet our debt service requirements, which increases our vulnerability to adverse economic and industry conditions, reduces cash available for other purposes and limits our operational flexibility.
·	Despite our substantial level of debt, we may incur additional debt in the future.
·	We depend upon intercompany transfers from our subsidiaries to meet our debt service obligations and any limitations on the ability of our subsidiaries to do so may adversely affect our ability to meet our debt service obligations.
·	We have implemented a Tax Benefit Preservation Plan and taken other efforts to protect against a possible limitation on our ability to use net operating losses (“NOLs”), tax credits and other tax assets, however, there can be no assurance that these actions will be effective or that the Tax Benefit Preservation Plan will remain in place.

 

Many of these factors are beyond our control. We believe the expectations reflected in our forward-looking statements are reasonable, based on information available to us on the date of this Form 10-K. However, given the described uncertainties and risks, we cannot guarantee our future performance or results of operations, and you should not place undue reliance on these forward-looking statements.  Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law, you are advised to consult any additional disclosures we make in our quarterly reports on Form 10-Q, annual report on Form 10-K and current reports on Form 8-K filed with the SEC.  See Item 1, “Business - Available Information.”

 

Overview

 

We produce primary aluminum.  Aluminum is an internationally traded commodity, and its price is effectively determined on the London Metal Exchange (the “LME”).  Our primary aluminum facilities produce value-added and standard-grade primary aluminum products.  Our current primary aluminum production capacity is 785,000 metric tons per year (“mtpy”), of which approximately 219,000 mtpy was curtailed as of February 28, 2010.  We produced approximately 605,000 mtpy of primary aluminum in 2009. 

 

Our primary aluminum capacity includes our facility in Grundartangi, Iceland with capacity of 260,000 mtpy; our facility in Hawesville, Kentucky (“Hawesville”) with capacity of 244,000 mtpy; a facility in Ravenswood, West Virginia (“Ravenswood”), currently curtailed, with capacity of 170,000 mtpy; and a 49.7% interest in a facility in Mt. Holly, South Carolina (“Mt. Holly”) that provides us with capacity of 111,000 mtpy.  We are also developing a 360,000 mtpy primary aluminum facility in Helguvik, Iceland.  In addition to our primary aluminum assets, we have a 40% stake in Baise Haohai Carbon Co., Ltd. (“BHH”), a carbon anode and cathode facility located in China.  The BHH facility has an annual anode production capacity of up to 180,000 mtpy and an annual cathode graphitization capacity of up to 20,000 mtpy and supplies a portion of the anodes used in our Grundartangi facility.

 

In light of global economic conditions and our high relative operating cost structure, as of December 31, 2009, all operations at Ravenswood and one potline at Hawesville remain curtailed.  We have also significantly reduced spending on the Helguvik project.  With the curtailment actions implemented, our annualized production rate of primary aluminum is approximately 566,000 mtpy.  During 2009, we implemented several restructuring activities and we may consider implementing further restructuring activities in the future.  See Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations —Operational Restructuring.”

 

(1)	In March 2009, we curtailed one potline at the Hawesville facility.  We are currently operating four potlines with a capacity of 195,000 mtpy.  We may restart the curtailed potline if economic conditions improve.
(2)	In February 2009, we curtailed all operations at the Ravenswood facility.  We may restart the curtailed operations if economic conditions improve.
(3)	Alcoa holds the remaining 50.3% ownership interest and is the operator.  Century’s share of Mt. Holly’s capacity is approximately 111,000 mtpy.

 

(1)	Guangxi Qiangqiang Carbon Co., Ltd. holds the remaining 60% ownership interest and is the operator.

 

Our current long-term strategic objectives are to: (a) expand our primary aluminum business by constructing, investing in or acquiring additional capacity that offers favorable returns and lowers our per unit production costs;  (b) further diversify our geographic presence; and (c) pursue low-cost upstream opportunities in bauxite mining, alumina refining and the production of other key raw materials.  The following table shows our primary aluminum shipment volumes since 2004.

 

 

 

 

 

Recent Developments

 

Information on our recent developments is available in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein.

 

Competition

 

The market for primary aluminum is global, and demand for aluminum varies widely from region to region.  We compete with U.S. and international companies in the aluminum industry primarily in the areas of price, quality and service.  In addition, aluminum competes with materials such as steel, copper, carbon fiber, composites, plastic and glass, which may be substituted for aluminum in certain applications.

 

Our Hawesville plant is located adjacent to its largest customer.  This location allows Hawesville to deliver a portion of their production in molten form, at a cost savings to both parties, providing a competitive advantage over other potential suppliers. We believe that Hawesville also has a competitive advantage in that it currently is the largest producer of high purity aluminum in North America.

 

Customer Base

 

In 2009, we derived approximately 70% of our consolidated sales from our three major customers: Southwire Company (“Southwire”), Glencore International AG (together with its subsidiaries, “Glencore”) and BHP Billiton.  Additional information about the revenues and percentage of sales to these major customers is available in Note 23 Business Segments of the Consolidated Financial Statements included herein.  We currently have long-term primary aluminum sales or tolling contracts with each of these customers.  More information about these contracts is available under “Forward Physical Delivery Agreements” in Note 19 Forward Delivery Contracts of the Consolidated Financial Statements included herein.

 

Financial Information about Segments and Geographic Areas

 

We operate in one reportable segment, primary aluminum.  Additional information about our primary aluminum segment and certain geographic information is available in Note 23 Business Segments to the Consolidated Financial Statements included herein.  For a description of certain risks attendant to our operations, see Item 1A, “Risk Factors.”

 

Energy, Key Supplies and Raw Materials

 

We consume the following key supplies and raw materials in the primary aluminum reduction process:

 

●	electricity	●	carbon anodes	●	liquid pitch
●	alumina	●	cathode blocks	●	calcined petroleum coke
●	aluminum fluoride	●	natural gas	●	silicon carbide

 

Electrical power, alumina, carbon anodes and labor are the principal components of cost of goods sold.  These components together represented over 75% of our 2009 cost of goods sold.  We have long-term contracts to attempt to ensure the future availability of many of our cost components.  For a description of certain risks attendant to our raw material supplies and labor, see Item 1A, “Risk Factors.”

(1)	Pricing under the new contract is fixed for the first 125,000 metric tons (“MT”) delivered and LME-based for the remaining 65,500 MT (subject to certain conditions for floor pricing).

 

(1)	In February 2009, we curtailed all operations at the Ravenswood facility.  Appalachian Power supplies all of Ravenswood’s power requirements.  We will be subject to minimum demand charges associated with this contract and these costs are included in our curtailment costs.  Effective July 28, 2006, the Public Service Commission of the State of West Virginia approved an experimental rate design in connection with an increase in the applicable tariff rates.  Under the experimental rate, Ravenswood may be excused from or may defer the payment of the increase in the tariff rate if aluminum prices as quoted on the LME fall below pre-determined levels.  In September 2009, the West Virginia Public Service Commission (the “PSC”) extended the experimental rate design through September 30, 2010.
(2)	On July 16, 2009, Century Aluminum of Kentucky , our wholly owned subsidiary, (“CAKY”) along with E.ON U.S. (“E.ON”) and Big Rivers , agreed to an “unwind” of the former contractual arrangement between Big Rivers and E.ON and entered into a new arrangement (“Big Rivers Agreement”). The Big Rivers Agreement provides adequate power for Hawesville’s full production capacity requirements (approximately 482 megawatts (“MW”)) with pricing based on the provider’s cost of production.  The Big Rivers Agreement is take-or-pay for Hawesville’s energy requirements at full production.  Under the terms of the Big Rivers Agreement, any power not required by Hawesville will be made available for sale and we will receive credits for actual power sales up to our cost for that power.
(3)	The agreements are subject to the satisfaction of certain material conditions including, among other things, approval by the boards of directors of the power companies and environmental agency approval.  See Item 1A, “Risk Factors — If we are unable to procure a reliable source of power the Helguvik project will not be feasible.”

 

 

 

Labor Agreements

 

Our labor costs at Ravenswood and Hawesville are subject to the terms of labor contracts with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (“USWA”) which generally have provisions for annual fixed increases in hourly wages and benefits adjustments.  The five labor unions represented at Grundartangi operate under a labor contract that establishes wages and work rules for covered employees.  The employees at Mt. Holly are employed by Alcoa and are not unionized.  A summary of key labor agreements is provided below.

Facility	Organization	Term
Hawesville (1)	USWA	Through March 31, 2010
Ravenswood	USWA	Through August 31, 2010
Grundartangi (2)	Icelandic labor unions	Through December 31, 2009

(1)	We are currently in discussions with the USWA regarding this labor contract, but are unable to predict the outcome of such negotiations at this time.
(2)	We are currently in discussions with the Grundartangi labor unions regarding this labor contract.  It has been our experience that discussions past the contract expiration are not unusual in Iceland. The plant has continued to operate normally during these extended negotiations.  See Item 1A, “Risk Factors — Union disputes could raise our production cost or impair our production operations.”

 

Pricing

 

Our operating results are highly sensitive to changes in the price of primary aluminum, power and the raw materials used in its production.  As a result, we try to mitigate the effects of fluctuations in primary aluminum, power and raw material prices through the use of various fixed-price commitments and financial instruments.

 

Generally, we price our products at an indexed or “market” price, in which the customer pays an agreed-upon premium over the LME price or other market indices.

 

Grundartangi derives substantially all of its revenues from tolling arrangements whereby it converts alumina provided by its customers into primary aluminum for a fee based on the LME price for primary aluminum.  Grundartangi's revenues are subject to market price risk associated with the LME price for primary aluminum; however, because Grundartangi tolls alumina for its customers it is not exposed to fluctuations in the price of alumina.  Grundartangi’s tolling revenues include a premium based on the EU import duty for primary aluminum.  In May 2007, the EU members agreed to review the three percent duty after three years.  Any further decreases in the duty could have a negative impact on Grundartangi’s revenues.

 

Primary Aluminum Facilities

 

Grundartangi

 

The Grundartangi facility located in Grundartangi, Iceland, is owned and operated by our subsidiary, Nordural Grundartangi ehf.  Grundartangi is our most modern and lowest cost facility.  Operations began in 1998 and production capacity was expanded in 2001, 2006 and 2007.  The facility has a production capacity of 260,000 mtpy.

 

Grundartangi operates under various long-term agreements with the Government of Iceland, local municipalities, and Faxafloahafnir sf (which operates the harbor at Grundartangi and is jointly owned by several municipalities).  These agreements include: (a) an investment agreement which establishes Grundartangi's tax status and the Government's obligations to grant certain permits; (b) a reduction plant site agreement by which Grundartangi leases the property; and (c) a harbor agreement by which Grundartangi is granted access to the port at Grundartangi through 2020, subject to renewal at its option.

 

Tolling Agreements.   Grundartangi has long-term tolling agreements for all of its production capacity with BHP Billiton, Glencore and Hydro.  The tolling counterparties provide alumina and receive primary aluminum in return for tolling fees that are based on the LME price of primary aluminum.  See Note 19 Forward Delivery Contracts in the Consolidated Financial Statements included herein for more information about these agreements.

 

Power. Grundartangi purchases power from Landsvirkjun (a power company jointly owned by the Republic of Iceland and two Icelandic municipal governments), HS Orka hf and Orkuveita Reykjavíkur (“OR”) under various long-term contracts due to expire between 2019 and 2029. The power delivered to Grundartangi is priced at rates based on the LME price for primary aluminum and is produced from hydroelectric and geothermal sources.

 

Employees .  Our employees at Grundartangi are represented by five labor unions that operate under a labor contract that established wages and work rules for covered employees for the period through December 31, 2009.  We are currently in extended discussions with the unions and the plant has continued to operate normally during such negotiations.

 

Hawesville

 

Hawesville is owned by Century Aluminum of Kentucky , our wholly owned subsidiary .  Hawesville is located adjacent to the Ohio River near Hawesville, Kentucky and began operations in 1970.  Hawesville has five reduction potlines with an annual rated production capacity of 244,000 metric tons.

 

In March 2009, CAKY completed the curtailment of one potline at its Hawesville, Kentucky aluminum smelter.  The action reduced primary aluminum production by approximately 49,000 metric tons per year and impacted approximately 120 employees.

 

Hawesville's four operating potlines are specially configured and operated to produce high purity primary aluminum and have an annual capacity of approximately 195,000 metric tons, making it the largest producer of high purity primary aluminum in North America.  The average purity level of primary aluminum produced by these potlines is 99.9%, compared to standard-purity aluminum which is approximately 99.7%.  High purity primary aluminum is sold at a premium to standard-purity aluminum.  Hawesville’s specially configured plant provides the high-conductivity metal required by Hawesville’s largest customer, Southwire, for its electrical wire and cable products as well as for certain aerospace applications.  The fifth curtailed potline has an annual capacity of approximately 49,000 metric tons of standard-purity aluminum.

 

Metal Sales Agreement.   Hawesville has an aluminum sales contract with Southwire (the “Southwire Metal Agreement”).  The Southwire Metal Agreement will expire March 31, 2011. The price for the molten aluminum delivered to Southwire is variable and is determined by reference to the U.S. Midwest Market Price. Under the contract, Hawesville supplies 240 million pounds (approximately 109,000 metric tons) of high-conductivity molten aluminum annually to Southwire’s adjacent wire and cable manufacturing facility.  Under this contract, Southwire will also purchase 60 million pounds (approximately 27,000 metric tons) of standard-grade molten aluminum each year through December 2010.  In addition, we have a contract to sell to Glencore all primary aluminum we produce in the U.S., less existing agreements and high purity sales through December 31, 2010 (the “Glencore Sweep Agreement”).  The Glencore Sweep Agreement provides for variable pricing determined by reference to the U.S. Midwest Market Price.  More information on the Southwire Metal Agreement and Glencore Sweep Agreement is available under “Forward Physical Delivery Agreements” in Note 19 Forward Delivery Contracts of the Consolidated Financial Statements included herein.

 

Alumina.   In 2009, Hawesville received essentially all of its alumina supply from Gramercy Alumina LLC (“Gramercy”) .  In 2010,   Hawesville will receive its alumina supply from Gramercy and Glencore.

 

Power.   On July 16, 2009, CAKY, along with E.ON and Big Rivers , agreed to an “unwind” of the former contractual arrangement between Big Rivers and E.ON and entered into the Big Rivers Agreement to provide long-term cost-based power to CAKY. The term of the Big Rivers Agreement is through December 31, 2023 and provides adequate power for Hawesville’s full production capacity requirements (approximately 482 MW) with pricing based on the provider’s cost of production.  The Big Rivers Agreement is take-or-pay for Hawesville’s energy requirements at full production.  Under the terms of the agreement, any power not required by Hawesville will be made available for sale and we will receive credits for actual power sales up to our cost for that power.  The current market price of electrical power in this region is less than Big Rivers’ forecasted cost.  

 

E.ON has agreed to mitigate a significant portion of this near-term risk through December 2010.  During this time, to the extent Hawesville does not use all the power under the take-or-pay contract, E.ON will, with some limitations, assume Hawesville's obligations.  As part of this arrangement, E.ON will pay up to approximately $81 million to CAKY in the form of direct payments to Big Rivers under the Big Rivers Agreement to compensate CAKY for the fair value of the previous contract and to compensate CAKY for power in excess of CAKY’s current demand.  At Hawesville's current production rate, Hawesville would receive the entirety of these economic benefits over the term of the agreement.  To the extent the aggregate payments made by E.ON exceed the approximately $81 million commitment, Hawesville would repay this excess to E.ON over time, but only if the LME primary aluminum price were to exceed certain thresholds.  See Note 3 Long-term Power Contract for Hawesville in the Consolidated Financial Statements included herein.

 

Employees.   The bargaining unit employees at Hawesville are represented by the USWA.  Century’s collective bargaining agreement, which covers all of the represented hourly employees at Hawesville, expires March 31, 2010.  We are currently in discussions with the USWA, but are unable to predict the outcome of such negotiations at this time.

 

Mt. Holly

 

Mt. Holly, located in Mt. Holly, South Carolina, was built in 1980 and is the most recently constructed aluminum reduction facility in the United States.  The facility consists of two potlines with a total annual rated production capacity of 224,000 metric tons and casting equipment used to cast molten aluminum into standard-grade ingot, extrusion billet and other value-added primary aluminum products. Value-added primary aluminum products are sold at a premium to standard-grade primary aluminum.  Our 49.7% interest represents approximately 111,000 metric tons of the facility’s annual production capacity.

 

Our interest in Mt. Holly is held through our subsidiary, Berkeley Aluminum, Inc. (“Berkeley”). Under the Mt. Holly ownership structure, we hold an undivided 49.7% interest in the property, plant and equipment comprising the aluminum reduction operations at Mt. Holly and an equivalent share in the general partnership responsible for the operation and maintenance of the facility.  Alcoa owns the remaining 50.3% interest in Mt. Holly and an equivalent share of the operating partnership.  Under the terms of the operating partnership, Alcoa is responsible for operating and maintaining the facility.  Each owner supplies its own alumina for conversion to primary aluminum and is responsible for its proportionate share of operational and maintenance costs.

 

Metal Sales Agreements.   We have a contract to sell Glencore 20,400 metric tons per year of primary aluminum produced at Mt. Holly or Hawesville at a price determined by reference to the U.S. Midwest market price, subject to an agreed cap and floor as applied to the U.S. Midwest Premium (the “Glencore Metal Agreement”).  Under the Glencore Sweep Agreement, any additional primary aluminum produced in the U.S. (including Mt. Holly), less existing agreements and high purity sales, will be sold to Glencore at variable pricing determined by reference to the U.S. Midwest Market Price.  More information on the Glencore Metal Agreement and Glencore Sweep Agreement is available under “Forward Physical Delivery Agreements” in Note 19 Forward Delivery Contracts of the Consolidated Financial Statements included herein.

 

Alumina.   Substantially all of our alumina requirements for Mt. Holly will be provided by Trafigura AG under an agreement that extends through 2013.  The pricing for alumina under our contract with Trafigura is variable and based on the LME price for primary aluminum.

 

Power.   Mt. Holly purchases all of its power requirements from the South Carolina Public Service Authority (“Santee Cooper”) under a contract that runs through 2015. Power delivered through 2010 will be priced at rates fixed under currently published schedules, subject to adjustments to cover Santee Cooper’s fuel costs.  Rates for the period 2011 through 2015 will be as provided under then-applicable schedules.  We are currently in discussions with Santee Cooper regarding rates for these years.

 

Employees .  The employees at Mt. Holly are employed by Alcoa and are not unionized.

 

Ravenswood

 

The Ravenswood facility is owned and operated by our subsidiary, Century Aluminum of West Virginia, Inc.  Built in 1957, Ravenswood has four potlines with a production capacity of 170,000 metric tons.  The facility is located adjacent to the Ohio River near Ravenswood, West Virginia.

 

In February 2009, we conducted an orderly curtailment of the plant operations at Ravenswood.  Layoffs for the majority of Ravenswood's employees were completed by February 20, 2009.  We expect that Ravenswood’s operations will remain curtailed until economic conditions warrant restarting.  Such conditions would include an enabling power and labor contracts and a sustainable and suitably priced LME environment

 

Metal Sales Agreements. Prior to the Ravenswood curtailment in February 2009, we sold 10,200 metric tons per year of primary aluminum produced at Ravenswood under the Glencore Metal Agreement.  Following the Ravenswood curtailment, we assigned Ravenswood production requirements under this contract to Mt. Holly and Hawesville.  However, curtailing operations at Ravenswood does not relieve us of our contractual obligations.  We may continue to incur costs under these contracts to meet our contractual obligations, including potentially securing other aluminum to satisfy our obligations to Glencore.  In May 2009, we agreed with Alcan to terminate all remaining obligations under an agreement pursuant to which Alcan had previously agreed to purchase 14 million pounds of primary aluminum per month through August 31, 2009 and paid Alcan $0.6 million to settle the remaining delivery obligations.  For a description of certain risks attendant to these agreements, see Item 1A, “Risk Factors.”

 

Alumina.  On April 21, 2009, we agreed with Glencore to amend two alumina purchase agreements dated April 14, 2008 and April 26, 2006, respectively (collectively, the “Amendments”).  The Amendments reduce the amount of alumina Glencore will supply to Century from 330,000 metric tons to 110,368 metric tons in 2009 and from 290,000 metric tons to 229,632 metric tons in 2010, for an overall alumina supply reduction of 280,000 metric tons.  

 

Glencore supplied the alumina used at Ravenswood under a contract that expired on December 31, 2009.   As a result of the Ravenswood curtailment, we incurred cash losses of approximately $7.5 million in 2009 associated with the sale of excess alumina that was received under this alumina supply agreement.  For a description of material risks attendant to these agreements, see Item 1A, “Risk Factors.”

 

Power.   Appalachian Power Company (“APCo”) supplies all of Ravenswood’s power requirements under an agreement at prices set forth in published tariffs, which are subject to change.  Under the special rate contract, Ravenswood may be excused from or may defer the payment of the increase in the tariff rate if aluminum prices as quoted on the LME fall below pre-determined levels.   In March 2009, APCo filed a request for a rate increase to recover unrecovered fuel costs and to cover the increased cost of fuel and purchased power as well as capital improvements.  In September 2009, the PSC agreed to extend the special rate contract terms of the existing agreement for one year and attributed approximately $16 million of the unrecovered fuel costs to Ravenswood.  This amount will be factored into the special rate provision which excuses or defers payments above set tariff rates depending on aluminum prices.  We are reviewing options to further extend the term of the existing agreement that establishes the LME-based cap on the tariff rates.

 

 

 

Employees.   The bargaining unit employees at Ravenswood are represented by the USWA.  In 2009, w e reached an agreement with the USWA to extend the labor contract at Ravenswood to August 31, 2010.

 

Helguvik project

 

The Helguvik project site is located approximately 30 miles from the city of Reykjavik and is owned and would be operated through our Nordural Helguvik ehf subsidiary. This site provides a flat location and existing harbor, as well as proximity to the international airport, the capital and other industry.

 

We are currently evaluating the Helguvik project’s cost, scope and schedule in light of the current economic climate and commodity prices.  During this evaluation process, we have significantly reduced spending on the project.  See Item 1A, “Risk Factors – Construction at our Helguvik smelter site is under review” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cost Reduction Actions” for additional information.

 

We have made and continue making capital expenditures for the construction and development of our new Helguvik smelter project.  In 2009, we expended cash of approximately $22 million in capital expenditures for the Helguvik project, and, from inception through December 31, 2009, we capitalized approximately $108 million for Helguvik.   We expect that capital expenditures on this project during 2010 will be in the range of $40 to $45 million until a decision is made to restart major construction and engineering activities.

 

Power Supply Agreements.   Nordural Helguvik has signed electrical power supply agreements with HS Orka and OR, for the proposed Helguvik smelter.    We are currently finalizing the timing and delivery arrangements with the power suppliers based on the residual scope of the project into four 90,000 MT phases.  The agreements, which are subject to the satisfaction of certain material conditions, provide for additional power, as available, to support a complete smelter of 360,000 mtpy.  See Item 1A, “Risk Factors — If we are unable to procure a reliable source of power, the Helguvik project will not be feasible .”

 

Helguvik Investment Agreement.   An Enabling Act for an Investment Agreement with the Government of Iceland for Helguvik, which governs certain meaningful aspects of the construction of a primary aluminum facility in Helguvik, Iceland such as the fiscal regime, was approved in April 2009 by the Icelandic Parliament.  In July 2009, the Investment Agreement was approved by the European Surveillance Authority and in August 2009 the agreement was executed by Nordural Helguvik ehf and the Icelandic Minister of Industry.  Among other things, the Investment Agreement includes a commitment by the Government of Iceland to assist us in obtaining necessary regulatory approvals for completion of the Helguvik project.

 

 

Environmental Impact Assessment .  In October 2007, Nordural received a positive opinion from the Icelandic Planning Agency on the Environmental Impact Assessment (“EIA”) for the proposed Helguvik smelter.  In January 2010, the Ministry for the Environment confirmed the opinion of the National Planning Agency that a joint EIA for south west (“SW”) power transmission lines and related projects is not necessary.  

 

 

Transmission Agreement.   In October 2007, Nordural Helguvik signed a transmission agreement, which was subsequently amended in February and July 2009, with Landsnet hf (“Landsnet”) to provide an electrical power transmission system to the Helguvik project.  Landsnet is the company responsible for operating and managing Iceland’s transmission system.  As a result of delays in construction of the Helguvik project, the parties are currently in discussions with respect to the timeline for construction of the transmission system.

 

Operating License.   On September 10, 2008, the Environmental Agency of Iceland issued an Operating License for the Helguvik smelter project.  The license authorizes production of up 250,000 mtpy through December 31, 2024.

 

Other agreements.   We have also entered into a site and harbor agreement with respect to the Helguvik project.

 

 

Joint Venture Facilities

 

Baise Haohai Carbon Company, Ltd.

 

In 2008, we entered into a joint venture agreement whereby we acquired a 40% stake in Baise Haohai Carbon Co., Ltd., a carbon anode and cathode facility located in the Guangxi Zhuang Autonomous Region of south China.  The BHH facility has annual anode production capacity of 180,000 metric tons and an annual cathode baking and graphitization capacity of 20,000 metric tons.  Construction on the facility was completed in 2008.

 

We paid $27.6 million for the investment and loaned BHH an additional $9.4 million.  Through December 2009, BHH has repaid $3.6 million on the loan.  Our investment in the joint venture is accounted for using the equity method of accounting with results of operations reported on a one-quarter lag.

 

Anode agreement.   BHH provides anodes to Grundartangi under a long-term agreement through 2012, renewable through December 31, 2015.

 

Environmental Matters

 

We are subject to various environmental laws and regulations.  We have spent, and expect to spend, significant amounts for compliance with those laws and regulations.  In addition, some of our past manufacturing activities have resulted in environmental consequences which require remedial measures.  Under certain environmental laws, which may impose liability regardless of fault, we may be liable for the costs of remediation of contaminated property, including our current and formerly owned or operated properties or adjacent areas, or for the amelioration of damage to natural resources. We believe, based on currently available information, that our current environmental liabilities are not likely to have a material adverse effect on Century.  However, we cannot predict the requirements of future environmental laws and future requirements at current or formerly owned or operated properties or adjacent areas.  Such future requirements may result in unanticipated costs or liabilities which may have a material adverse effect on our financial condition, results of operations or liquidity.  More information concerning our environmental contingencies can be found in Item 3, "Legal Proceedings" and in Note 18 Commitments and Contingencies to the Consolidated Financial Statements included herein.

 

Intellectual Property

 

We own or have rights to use a number of patents or patent applications relating to various aspects of our operations. We do not consider our business to be materially dependent on any of these patents or patent applications.

 

Employees

 

As of December 31, 2009, we employed a work force of approximately 1,260 employees.