Views & Opinions

“Fool me once, shame on you.  Fool me twice, shame on me.”

First, I will take the time to correct a very gross miscalculation on my own part.  In my previous article I had listed that $374 million divided by 170,000 was $2041.  As it turns out, the correct answer is $2200.  I mistakenly used $347 million instead and I do not want an incorrect calculation to be left uncorrected.  I would encourage anyone else that has found mistakes in anything that has been viewed by the public to do the same and if you notice mistake, but say nothing, then you are part of the deception.  As for the rest of the calculations in my previous article, dispute them all you want.

 

These are the numbers that I will use for analysis purposes:

·         On January 15, 2008 Ric Love, acting plant manager, says that “energy accounts for about one-third of our costs.”

·         It has been cited in news articles on December 19, 2008 that Mr. Dildine said that power is 35% of operating costs.

·         It was printed on Dec. 23, 2008 that “Plant Manager Jim Chapman said it costs about $31 million per month to operate the facility. About one-third of the cost is related to energy, and another one-third to the raw materials necessary to make aluminum.”   Reaffirming Ric Love’s statement in January.

·         In a separate meeting with the Union on January 9, 2009, it was said that the average power cost is $9 million a month and if this number has fluctuated during the year of 2008, I would hope that this number is at least accurate for the month of December in which it was provided.

·         It was also stated in this meeting that alumina cost $9 million a month, which I also assume is accurate for at least the month of December in which it has been provided.

·         The “December 2008 alumina cost to the plant was $.342 per pound of aluminum produced.”

 

As you can see, the previous numbers are either from company representatives or from reputable news sources that are quoting company representatives.   I will use these numbers to make most of my calculations from and I hope that these numbers are correct for the month of December in which they are reported. I am using these numbers because they might not be relevant to any month other than the one in which they are reported and may lead to faulty assumptions, by using false and incomplete data.  So let’s use these numbers to look at what is actually being reported.
 

How do these electricity numbers compare to the $31 million operating costs?

·         $9 million is 33% of $27,272,727

·         $9 million is 35% of $27,714,286

·         33% of $31 million is $10,230,000

·         35% of $31 million is $10,850,000
 

It looks a little uneven, but whatever.  I guess it could be totally feasible that the news media dug these numbers up from a completely irrelevant time and printed them to make a story, the media took the actual numbers completely out of context, or maybe there is something that I am misinterpreting in the meaning of one-third or 35% in relation to a mathematical equation.   Who knows, it could be all three.

 

For the benefit of the doubt, when you say average without a specified time period, you really can’t tell exactly what has been averaged.  It could be an average of 1 year and it could be an average of 10 years, who knows.  And Ravenswood did have an 11% increase in power rates in 2008. 

 

Let’s move on and analyze the alumina cost.  I believe that “alumina cost to the plant, per pound of aluminum produced” would include all costs associated with the alumina, including shipping.  If it doesn’t then I would argue that statement to be a little misleading and ask for a clarification.
 

·         The yearly aluminum output for Ravenswood is 170,000 metric tonnes, according to Century’s website   (hopefully this website has reported this properly)

·         Average aluminum production, at full operation capacity, for one month is 14,166 tonnes or 31,230,684 pounds.

·         Alumina cost to make this amount of aluminum for the month of December should have been $10,680,893 if it is $.324 of alumina cost per pound produced.  And that should be a little less because a pot line was shut down before the end of the month and full potential was adverted.

·         At 28,332 tonnes that would equal about $377 a tonne.  I had originally calculated this as $357 a tonne but, as I said, I want to remove any faulty information after it has been brought to my attention.

·         The average aluminum price for the month of October (got to account for the two month lag) is $2,176 per tonne.

·         This means that Ravenswood is paying for alumina at 17.3% of LME price.  It’s been well documented that 11.5% to 13.5% is normal.  But hey, whatever.

·         Remember, alumina was quoted at $9 million a month.   Maybe the previously calculated number represents the added costs for shipping and whatever else hasn’t been added into it.  I guess that is something that will just have to be a mystery and I don’t want to make any assumptions.

·         Remember that the alumina price is based on a two month lag, so it would be reflective of aluminum prices in October.

·         Also keep in mind that the alumina price for January is going to be lower than the month of December.  How much?  I don’t want to assume anything, (but I do know from company statements that it is tied to the LME price of Aluminum, so if Aluminum comes down, so does Alumina), so I will decline to answer, but it should reflect a lower operating cost for the month of January, February, and  March.

·         What I am inclined to ask now is, will these savings adjust the operating cost or is Century still going to use the outdated, irrelevant numbers of December 2008?  I’m just curious because it wouldn’t be right to use false or incomplete numbers that could lead to faulty assumptions, especially if you have the proper numbers that would make calculating things much easier.

I can’t go any farther without using numbers from other sources that will be argued as flawed.

 

                For all those who still believe that these cuts are going to “save” us, then try this on for size.  The following numbers are directly quoted from Jim Chapman.  If these numbers are wrong, then there is a major problem somewhere and it’s not in the following calculations.  These calculations involve no assumptions and can be figured using the simplest of math skills.

 

	$31,000,000			Quoted cost of operation
Less	4,200,000			Quoted wanted savings in electricity
Less	1,100,000			Quoted wanted savings in raw materials
Less	366,667			Quoted wanted savings in “other” cost
Less	333,333			Quoted wanted savings in labor cost
	$25,000			Total cost of operation
$25,000,000 ÷ 14,166 = $1,765

      That would mean the plant would have to get $1,765 tonne in order to break even, while still losing $1.2 million dollars a month, as reported.  If the 1.2 million dollars a month could be erased also, then the operating cost would be $23,800,000 a month.  That would require that the company get $1,680 tonne in order to break even.  Hmm, it seems to be a little higher than $1420, and I know, I know, it has gone even lower.   It was asked that if these cuts actually came about, could Century guarantee that they wouldn’t shut any more pot lines down.  Century responded that they couldn’t make that kind of guarantee.  So I ask,
 

·         Do you really believe that a company that is complaining they are losing money is going to keep their doors open if they are going to continue losing money?

·         Why hasn’t Century already made financial cuts that they don’t need the approval of the Union to do? 

·         Why is there an average of 1 foreman for every 10 employees in the pot rooms?  That seems a little excessive.

 

        Just to summarize on my position, the numbers used in this article are all numbers and figures that were released directly after December 16, 2008 and should fully apply.  If they don’t, then somebody needs to contact whatever media source printed them and ask them to politely correct their mistake, people may be looking at these numbers completely factual. The information used from my research may be flawed and admittedly could create great discrepancies between the actual numbers, but I used what I can find and shared it.  Hopefully no-one will just accept all of this as true and without flaw, but do their own research, find their own evidence, and present it for others to see.

 

·        I will not just accept things as true without evidence. That honor is reserved for family and close friends.

·        I will not hide numbers from calculations, even if they don’t support my position.  That would be a form of deception.

·         I believe that if you won’t provide the evidence for all those affected to see, then someone will always go looking for it. 

·        In these days of the post-Enron scandal, I don’t know how anyone could just accept information given to them by any business as true, without the evidence to back it up.

·        If numbers don’t and can’t be shown to prove the desired results, then how could anyone accept them as true?

·        I do not want this facility to close its doors, but I also know that what has been asked is that we give up all pay raises since before 2000. 

·        Can you provide for your family on what you was making almost 10 years ago with today’s prices?

 

Is this facility in dire need of help?  I don’t know. 

·         I haven’t been provided with enough proof that we aren’t just wasting money that could be used to cut costs.

·         I haven’t been provided enough proof that what has been said is true.

·         I haven’t been provided enough proof that all options to save money have been explored. 

·         I haven’t been given enough proof that the only option Ravenswood  has is to cut my pay, possibly have me pay more for electricity (which would further reduce income for everybody in the state), and then tell me that Century Aluminum  will make sure you share in the good times when they come back around.   

·        How much money is Century losing at its other facilities?

·         How much would it cost a month for Century to shut this plant down?

 

And speaking of the “good times”, most of our expenses seem to be tied to the LME.  Why aren’t our wages tied to the LME also?  Oh yeah, hourly wages were at one time.  The employees shared in the good times, bad times, and everything else.  The employees knew that if prices were up, then they would get a piece of the “good times”.  The employees also knew that if prices were down, then they would share in the hard times.  As it is right now, Century decides when it’s the “good times” and how they will share in them if they so choose.  But when the bad times come around, well, either give us what we want or we shut it down and don’t worry, we’ll give it back, when the “good times” come back around, when Century feels that the “good times” are here and it’s an appropriate time.

 

 This was done once before in the 80’s, the same promises were made and this facility has yet to give back to the employees, as promised, what they asked us to give up then.  “Fool me once, shame on you.  Fool me twice, shame on me.”  You can only cry wolf so many times.

 

“Take not from the mouth of labor the bread it has earned.”

Thomas Jefferson Third United States President (1743-1826)

“Every man is dishonest who lives upon the labor of others, no matter if he occupies a throne.”
             Robert Green Ingersoll (1833-1899) American politician and orator

Nuff Said,
Robert Harvey
8922 Windy Ridge Rd.
Sandyville, WV 25275
304-273-9319

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Fact or Fiction?

Century Aluminum has made claims, once again, that they can’t continue to operate their Ravenswood facility without major cost cuts from everyone involved with the operation. Logan Kruger and Jim Chapman, his lesser, have made statements that this plant needs to cut 6 to 7 million dollars off current operating cost. They want to do this by getting the power company to decrease their cost by 45%, have the employees take a 12.41% pay cut, reduce material costs by $1.1 million a month and cut out $367,000 a month in “other” costs. Century is very clear on what they want, but they provide us with facts, figures, and numbers that can’t be validated. In the following I will give a few examples.

It was stated that operating costs were $374 million or $2,200 a metric tonne on average. Ravenswood makes 170,000 tonnes of aluminum a year and if you divide that into $374 million you will come up with $2,041 a metric tonne to break even. Century says that power is 35% of overall cost and comes to about $9 million a month. If you do a little math, you will find that 35% of $31 million is $10.8 million, not $9 million. Or, if you like, I’ll calculate from reverse and $9 million a month is 29% of $31 million. Either way they don’t match up.

Another example, if you figure operating costs on quoted electricity costs, you will come up with about $308 million in operating costs. This in turn would change the break-even metal price to $1,815 a tonne. Take off what they want to save and you would come up with a break-even price of $1,388 a tonne. This is below market price.

And yet another example for those who still believe that Century just wants to help the common man keep their job. If the world was perfect, and Century actually got all the cuts that they have asked for, it would only bring the break-even cost to $302 million a year or $1,776 a tonne for aluminum, based on their provided figures. Century is complaining that they can’t make it with metal prices at $1420 a tonne and the last time I checked $1,776 a tonne is still over $350 higher than $1,420 a tonne. This is all while still losing $1.2 million a month. For arguments sake though, I’ll give you the operating costs as if Century would be able to eliminate all of their losses through cuts. Take off the extra $1.2 million a month that they claim they will still be losing and you will come up with a $288 million operating cost or $1,694 a tonne minimum. This is still well above $1,420 a tonne and makes me wonder, are they saying that they can operate at $1,694 a tonne?

What does all this mean? The numbers that Century has provided to the media and the Union is either made up for the benefit of the media and general public or it’s a very big mistake that their well paid accountants and executives have failed to correct before publicizing it. Century has taken all this information to the media right from the start. Most of the workforce employed at Ravenswood, first found out about it when they turned on the TV first thing in the morning or read their morning newspaper.

For all those still skeptical, do the math. It’s there in black and white and all it takes is some paper, a pencil, and a calculator. You can see how all these numbers were calculated and more interesting discrepancies in the attached document.

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September 2007 Anniversary Dinner

Numbers given by Wayne Hale[i]

Total Plant Operating Costs[ii]

Alumina	37% - $122,400,000
Electricity	26% -   $86,010,810
Labor	16% -   $52,929,729
Raw Materials	12% -   $39,697,297
Carbon	8% -   $26,464,864
	99% - $330,810,810
Missing????	1% -     $3,308,108
	100% - $334,118,918

           In Wayne Hale’s speech, he gives percentages without any real numbers.  On further research, I have worked out production costs and real numbers that seem to be fairly accurate when compared to documents and statements made by Century Aluminum executives.

           Based on numbers in the U.S. Geological Survey Minerals Yearbook 2007, alumina ranged from $330 tonne (metric ton, 2,400 lbs.) to $360 tonne between the months of July 2007 until December 2007[iii].  I used the higher price of $360 tonne. I also used the standard calculation of 2 tonnes alumina for every 1 tonne of aluminum produced[iv].  This does fluctuate depending on the circumstances, but is usually close enough. 

December 2008

This is a comparison of the numbers from 2007 and 2008.

		2007 Numbers		2008 Numbers
Overall Cost of Op		99%  $330,810,810		100%  $308,571,428
Alumina Cost		37%  $122,400,000		39%   $121,430,614
Electricity Cost		26%    $86,010,810		35%   $108,000,000
Labor Cost		16%    $52,929,729		13%     $39,664,808
Raw Materials Cost		12%    $39,697,297		13%     $39,476,006
Carbon		8%    $26,464,864

Numerous articles and quotes from Jim Chapman and Mike Dildine have said that power is 35% of the overall cost of operation[v].  He also stated in meetings with Union Officials and in news reports that the average power cost was $9 million a month[vi].  Based on that, the overall plant operating cost can be figured at $308,571,428 or $25,714,285 a month. 

If Ravenswood had a $308,571,428 total annual operating cost and they produce 170,000 tonnes of aluminum annually [vii] then $308,571,428 divided by 170,000 = $1815 tonne at 170,000 tonne a year to break even at full capacity.  NOT $2200.

Jim Chapman has stated that 12.41% of 460 hourly workers yearly salary would amount to   $2,887,807[viii].  He also states that 95 salary workers pay cut at 12.41% would equal $826,506[ix].  Using these stats on pay the annual payroll is $39,287,469 with company expense for FICA added for 569 Union Employees and 115 salary employees.

Hourly pay for 569 Union workers           $30,985,954 a year with FICA added

Salary employees (115)                           + $8,301,515 a year with FICA added

                                                                      $39,287,469 a year total

                                                                         $3,273,955 a month

 

Alumina was quoted at costing $.324 per pound of aluminum produced for December 2008, and at 2 pounds of alumina per pound of aluminum:

1.      170,000 tonne aluminum a year/12 = 14,166 tonne (monthly average at full operation)

2.      14,166 tonne x 2204.62262 = 31,232,154 lb. per month

3.      32,232,154 lb x $.324 = $10,119,217 in alumina a month (at full operation)

4.      $10,119,217 x 12 = $121,430,614 a year

5.      $121,430,614 / 340,000 tonne = $357 tonne

·         February 2008 spot alumina prices were $400 tonne (Q4 ’07 Report) which is 14.5% of $2741 (Feb. 2008 alumina price)[x]

·         April 2008 spot alumina prices were $428 tonne (Q1 ’07 Report) which is 15.5% of $2956 (April 2008 alumina price) [xi]

·         July 2008 spot alumina prices was $458 a tonne (2008 Q2 Report) which is 15.6% of $2935 (July 2008 alumina price)[xii]

·         Contract terms historically worldwide have fluctuated in the range of 11.5% to 13.5% of the LME aluminum metal price[xiii].

·         The December 2008 average aluminum price was $1508

            Based on the reported previous quarterly reports the price of alumina should be between 14.5% and 15.5% of the current aluminum price, and for arguments sake I will use 15.5% instead of the much lower usually accepted percentage which $1508 x 15.5% = $234 tonne.  The average price of alumina paid for December was $357 tonne as calculated.

Jim Chapman says they want $1.1 million in raw materials and $367,000 in other costs knocked off per month[xiv].  This would add up to $1,467,000 a month or $17,600,000 a year.  But what are these raw materials and other costs?  I assume that it’s partly alumina, soda ash, and fluoride with the former being the most expensive of the three. 

But how does all this apply?  Power and alumina make up the majority of Ravenswood’s operating costs. Century Aluminum is asking the power company to give them a 45% cut in cost ($4.2million of the $9million) and to pass the cost on to the rest of the state while asking their alumina supplier (Glencore), who is a part owner, to only take a 12% cut, but only if the raw material cost cuts are going solely towards alumina prices.  Glencore owns 28.5% of Century Aluminum stock[xv].  So Glencore is buying alumina from themselves, for themselves.                                                                        

            With this in mind, what if Century and its partners took an active part in reducing the overall operating costs?  It could look something like this:

 If alumina was priced at 19.9% it would cost $300 tonne and a save about $19 million a year.  If it were priced at 15.5% it would cost $234 tonne and save about $41.8 million a year.

$308,571,428                                                                 $308,571,428

 -$19,000,000                                                                   $41,800,000

$289,571,428 and a $1703 break even cost.            $266,771,428 and a $1569 break even cost.

The list goes on and on of possible scenarios, but if you take Jim Chapman’s numbers you will get this:

            $374,000,000

- $50,400,000 Electricity

- $13,200,000 Raw Mat

-  $4,000,000 Labor

 -  $4,404,000 Other Cost

$301,996,000 and a $1776 break-even price (higher if not at full capacity) while still losing $1.2 million a month[xvi].

           Get rid of the $1.2 million a month they would still be losing and they are still looking at a $1692 break-even price which well above current LME prices.  What is the point of asking for cuts in operating cost if they can’t make enough money to at least break even?

            It’s an insult for Century Aluminum to even suggest these numbers are truthful or accurate.  For example, 35% of $374 million is $130,900,000 or $10,908,333 a month.  Electricity has already been quoted many times at 35% of the operating cost.  It has been quoted many times that electricity costs about $9 million a month.  $10.9 million a month is 35% of $374 million a year and a far cry from “about 9 million a month”.  Even if all the rest of the evidence presented here is somehow miraculously proven to be grossly miscalculated, this last piece of evidence should be enough to cast doubt on everything else that Jim Chapman and Century Aluminum has reported.

 &sp;      In this letter I have explained in great detail the discrepancies between Century Aluminum’s numbers and the numbers that the real world is experiencing, many of which have come directly from executive officers’ own mouths. 

Numbers don’t lie, but you can lie about the numbers. 

A Concerned and Potentially Affected Employee,
Robert C. Harvey
Contact Information
(304)273-2184
8922 Windy Ridge Rd
Sandyville WV 25275

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[i] “Century Aluminum marks anniversary of processing facility” - Daily Mail - Charleston, WV - Monday September 24, 2007

[ii] As calculated by using the a price index of $360tonne for alumina

[iii] http://minerals.usgs.gov/minerals/pubs/commodity/bauxite/myb1-2007-bauxi.pdf

[iv] http://www.world-aluminium.org/About+Aluminium/Production

[v] (The Charleston Gazette online “Ravenswood fears the worst” 12-26-08); (The Charleston Gazette online “Union offers to help keep Ravenswood plant open” 12-26-08); (http://www.wowktv.com/story.cfm?func=viewstory&storyid=48895)

[vi](http://wowktv.com/story.cfm?func=viewstory&storyid=48895); (http://wsaz.com/news/headlines/36650859.html); (http://www.dailymail.com/Business/200812240112); (Meeting between Local 5668 and Century Aluminum  1-09-09)

[vii] http://www.centuryca.com/ravenswood.html

[viii] Meeting between Local 5668 and Century Aluminum  1-09-09

[ix] Meeting between Local 5668 and Century Aluminum  1-09-09

[x] http://files.shareholder.com/downloads/CENX/492079008x0x172518/3465811d-3122-40e8-9aae-f9e6460eacdb/CENXQ407Transcript.pdf

[xi] http://files.shareholder.com/downloads/CENX/492079008x0x191857/bc3bcf3c-403c-4fae-aff7-9bc00b3e587d/Q108Transcript.pdf

[xii] http://files.shareholder.com/downloads/CENX/492079008x0x216398/5d58f55c-f941-4306-a8fd-45e1548174b2/Q208EarningsTranscript.pdf

[xiii] http://www.globalalumina.com/ind_overview.php

[xiv] Meeting between Local 5668 and Century Aluminum  1-09-09

[xv] http://www.world-aluminium-market.com/news/20080425/8667.html

[xvi] Meeting between Local 5668 and Century Aluminum  1-09-09