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January 29, 2009 Dear Friend, We initiated research coverage on Century Aluminum with an Overweight investment rating owing to its valuation near an enterprise value of $0.37 per pound of smelting capacity, including working capital, which is greatly below recent years' construction costs exceeding $2.00 per pound and greatly below Alcoa's current greatly depressed enterprise value of $0.85 per pound of capacity. We believe the aluminum market is in severe oversupply, and shows no sign of an upturn. However, we believe LME metal prices are near a low point, record cash losses encourage output cuts and a governmental output cut regime similar to 1994 will evolve from today's duress. We have visited all of Century's smelters in WV, SC, KY and Iceland. We participated at DLJ in 1995 as co-manager with Morgan Stanley in Century Aluminum's IPO and covered the stock for several years afterwards. Our $6.25 price target reflects current risks, and we do not hold any hope of recovering mid-2008 $80 share price highs. Lower aluminum prices, over 3.3 mmt of commodity exchange inventories, higher costs, $32 per share of hedge losses since 2003 and 35 mm more shares issued since last July all have reduced underlying values. Times are tough. Faithfully, John C. Tumazos |
Copyright © 2008 John Tumazos Very Independent Research,
LLC
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