Century Aluminum agrees to Hawesville power deal

NEW YORK, June 17 (Reuters) - Century Aluminum Co (CENX.O) said on Wednesday it reached an agreement on a new, long-term power contract with E.ON U.S. and Big Rivers Electric Corp (Big Rivers) for its Hawesville, Kentucky, aluminum smelter. Century said it has been negotiating for more than five years, along with E.ON U.S., Big Rivers and Rio Tinto Alcan, to unwind an existing power contract between Big Rivers and E.ON U.S., and to set a new long-term, cost-based power agreement for the two aluminum smelters in western Kentucky. On May 29, Century said it was unable to move forward on the unwind agreement due to unfavorable business conditions that could have created unacceptable near-term financial risk. E.ON agreed to help Century mitigate a significant portion of this risk during the near-term, the aluminum producer said. For a limited period, to the extent that Century does not use all of the power under a take-or-pay contract, E.ON will, with some limitations, assume Century's obligations, it said. As part of this arrangement, E.ON will defer payment of about $40 million, which it had previously agreed to pay to Century upfront and will defer funding of an escrow account of about $40 million that would have been used to reduce Century's power costs during the next several years, the company said. E.ON will now pay these amounts if Century consumes power under the contract. At Hawesville's current production rate, Century would receive the entire economic benefit of the deal in about eighteen months. Century would repay over time payments made by E.ON above $80 million, though only if the LME aluminum price were to exceed certain undisclosed thresholds, the aluminum maker said. "Although we still face significant issues in the near-term as a result of depressed aluminum prices, the unwind agreement is a major step forward for the long-term viability of the smelters and for the economic health of the local communities here in western Kentucky," said Hawesville vice president and plant manager Matt Powell. The Hawesville smelter currently receives its electrical power from Kenergy Corp (a member of the Big Rivers system), under a power supply agreement between WKE and Kenergy that expires at the end of 2010. Hawesville's 244,000 tonne-per-year aluminum smelter has five potlines, each with 112 pots, but only four are currently running. In March, the Hawesville plant closed one potline, cutting 4,370 tonnes of monthly output, or about 52,400 tonnes a year, to reduce the aluminum producer's significant cash losses in the face of depressed global aluminum prices and demand.