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Fair value measurements
 3 Months Ended
Mar. 31, 2012
Fair Value Disclosures [Abstract]  
Fair value measurements
Fair value measurements
ASC 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value, and delineates disclosures about fair value measurements. This guidance applies to a broad range of other existing accounting pronouncements that require or permit fair value measurements. ASC 820 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value is an exit price and that exit price should reflect all the assumptions that market participants would use in pricing the asset or liability.
Our fair value measurements include the consideration of market risks that other market participants might consider in pricing the particular asset or liability, specifically non-performance risk and counterparty credit risk. Consideration of the non-performance risk and counterparty credit risk are used to establish the appropriate risk-adjusted discount rates used in our fair value measurements.
The following section describes the valuation methodology used to measure our financial assets and liabilities that were accounted for at fair value.
Overview of Century’s valuation methodology
 
Level
Significant inputs
Cash equivalents
1
Quoted market prices
Trust assets (1)
1
Quoted market prices
Surety bonds
1
Quoted market prices
Primary aluminum put option contracts
2
Quoted London Metal Exchange (“LME”) forward market prices, historical volatility measurements and risk-adjusted discount rates
Natural gas forward financial contracts
2
Quoted natural gas forward market prices for primary aluminum and risk-adjusted discount rates
Power contract
3
Quoted LME forward market prices, power tariff prices, management’s estimate of future power usage and risk-adjusted discount rates
E.ON U.S. (“E.ON”) contingent obligation
3
Quoted LME forward market prices for primary aluminum, management’s estimates of the LME forward market prices for primary aluminum for periods beyond the quoted periods and management’s estimate of future level of operations at Century Aluminum of Kentucky, our wholly owned subsidiary (“CAKY”)
Primary aluminum sales premium contracts
3
Management’s estimates of future U.S. Midwest premium and risk-adjusted discount rates
(1)
Trust assets are currently invested in money market funds. The trust has sole authority to invest the funds in secure interest producing investments consisting of short-term securities issued or guaranteed by the United States government or cash and cash equivalents.
Fair value measurements
The following table sets forth by level within the ASC 820 fair value hierarchy our financial assets and liabilities that are accounted for at fair value on a recurring basis. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and the placement within the fair value hierarchy levels.

Recurring Fair Value Measurements
As of March 31, 2012
 
Level 1
Level 2
Level 3
Total
ASSETS:
 
 
 
 
Cash equivalents
$
175,321

$
—

$
—

$
175,321

Trust assets
15,572

—

—

15,572

Surety bond – workers comp insurance
2,391

—

—

2,391

Primary aluminum put option contracts
—

2,981

—

2,981

Power contract
—

—

53

53

TOTAL
$
193,284

$
2,981

$
53

$
196,318

LIABILITIES:
 
 
 
 
Natural gas forward financial purchase contracts
$
—

$
236

$
—

$
236

E.ON contingent obligation – net
—

—

14,310

14,310

Primary aluminum sales contract – premium collar
—

—

1,169

1,169

TOTAL
$
—

$
236

$
15,479

$
15,715


Recurring Fair Value Measurements
As of December 31, 2011
 
Level 1
Level 2
Level 3
Total
ASSETS:
 
 
 
 
Cash equivalents
$
176,284

$
—

$
—

$
176,284

Trust assets
15,889

—

—

15,889

Surety bonds – workers comp insurance
2,391

—

—

2,391

Primary aluminum put option contracts
—

9,331

—

9,331

Power contract
—

—

106

106

TOTAL
$
194,564

$
9,331

$
106

$
204,001

LIABILITIES:
 
 
 
 
Natural gas forward financial purchase contracts
$
—

$
281

$
—

$
281

E.ON contingent obligation – net
—

—

13,958

13,958

Primary aluminum sales contract – premium collar
—

—

908

908

TOTAL
$
—

$
281

$
14,866

$
15,147


Change in Level 3 Fair Value Measurements during the three months ended March 31,
 
Derivative liabilities - net
 
2012
2011
Beginning balance, January 1,
$
(14,760
)
$
(13,802
)
Total loss (realized/unrealized) included in earnings
(613
)
(473
)
Settlements
(53
)
(36
)
Ending balance, March 31,
$
(15,426
)
$
(14,311
)
Amount of total loss included in earnings attributable to the change in unrealized losses (gains) relating to assets and liabilities held at March 31,
$
613

$
473


The net gain (loss) on our derivative assets and liabilities is recorded in our statement of operations under net loss on forward contracts. See Note 3 Derivative and hedging instruments for the location of our Level 3 derivative assets and liabilities within our consolidated balance sheets.