Ferroglobe Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Ferroglobe's Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference call may be recorded. I would now like to turn the call over to Alex Ortonen, Ferroglobe's Vice President of Investor Relations.

Operator

You may begin.

Speaker 1

Thanks, Sandra. Good morning, everyone, and thank you for joining Ferroglobe's Q3 2023 conference call. Joining me today are Marco Levy, our Chief Executive Officer and Beatriz Garcia Cost, our Chief Financial Officer. Before we get started with some prepared remarks, I'm going to read a brief statement. Please turn to Slide number 2 at this time.

Speaker 1

Statements made by management during this conference call that are forward looking are based on current expectations. Factors that could cause actual results to differ materially from these forward looking statements can be found in Ferroglobe's most recent SEC filings and exhibits to those filings, which are available on our website atferoglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, adjusted gross debt, Net debt and adjusted diluted earnings per share, among other non IFRS measures. Reconciliation of non IFRS measures may be found in our most recent SEC filings. At this time, I would like to turn the call over to Marco Levy, our Chief Executive Officer.

Speaker 1

Next slide please.

Speaker 2

Thank you, Alex, And good morning, good day and good evening to everyone. Thanks for joining us on the call today. We appreciate your interest in Ferroglobe. Since I joined Ferroglobe almost 4 years ago, we have focused on revamping the business and operations by optimizing the cost structure, improving the balance sheet and positioning the company for growth. During this time, we increased adjusted EBITDA from $33,000,000 in 20.20 to $860,000,000 in 2022.

Speaker 2

And we are on track to meet our 2023 guidance of $270,000,000 to $300,000,000 in a period of extremely weak demand, declining market pricing for 5 quarters in a row, coupled with unprecedented macro uncertainty. In addition, we reduced our gross debt from $473,000,000 At the end of 2019, the current level of $237,000,000 Significantly strengthening our balance sheet and approaching the target that we indicated more than a year ago. The dramatic improvement in performance has been the result of our cost cutting efforts and various initiatives Focused on improving efficiencies and driving sales productivity, such as focusing on higher margin specialty products, which has ultimately made us more competitive in the marketplace. Although we continue emphasizing continuous improvement and further cost reductions, The initial optimization phase of our plan is essentially complete, and our leverage objective has been reached. We are now focused on positioning the company to lead the silicon metal industry in addressing the solar and the Recent legislation in the U.

Speaker 2

S. And Europe has provided incentives to increase on shoring, Which will further benefit Ferroglobe with its strong presence in these regions and worldwide production capabilities. At the same time, we are looking to maximize the value of our manganese and silicon based On primary requirement to produce advanced silicon metal That is needed for this growth end market applications is access to high quality quartz. To ensure access to a reliable supply, We recently completed the acquisition of a high quality quartz mine located in South Carolina. This quartz Supply will support our silicon metal production plants in the U.

Speaker 2

S. As we position the company to benefit from the secular growth in solar and EV batteries. The South Carolina mine It has annual production capacity of roughly 300,000 tons with an expected reserves life of at least 10 years. Our current quartz mine in Alabama has annual capacity of about 200,000 with approximately 3 years of mine life remaining. We expect to be in production And the new mine in the second half of twenty twenty four.

Speaker 2

Not only will this increase our self reliance on Coors for our current needs. But also for the coming years, cyclical metal demand in U. S. Is expected to grow significantly. In fact, we believe that North America will have a structural shortage of silicon metal in the next 2, 3 years.

Speaker 2

Our total investment is expected to be around $15,000,000 Including $11,000,000 for the property, plus an additional $4,000,000 for infrastructure, mainly rail access, a processing facility and The cost structure to be favorable approximately 10%, 15% lower than the current cost in our Alabama mine and its proximity to our operations secures the long term competitiveness of our U. S. Footprint. 1 of Ferroglobe's key differentiators is our backward integration, where we have access to critical materials needed for the production of our products. In addition The quartz mine just purchased in South Carolina, we also have other mines supporting our production facilities around the world, Ensuring that we have access to high quality quartz.

Speaker 2

In Europe, we have the Cerro Ball Coats mine in Spain, which supplies primarily to Spain And France, we have rights to operate this mine until 2,038. And in South Africa, we have several quartz mines supplying our operations there. Overall, our mines supply over 70% of our internal needs, A key competitive advantage in managing our costs and assuring reliable availability of this Tierra material. Having a stable supply of high quality quartz is essential in addressing the solar and EV battery market, which we expect to be a significant long term opportunity for the company. In batteries, high purity silicon provides significant advantages over graphite in battery anodes, Such as increasing battery capacity and reducing charging time.

Speaker 2

As the percentage of silicon The next generation batteries continues to increase. We expect to see a dramatic increase in demand for high quality silicon In line with our focus on solar and EV batteries, we continue to actively develop partnerships and alliances to position us to maximize our participation in these growth opportunities. These prospective partnerships are aligned with our strategic vision and seek to enhance our capabilities within our core Our focus with these partnerships is to further enhance Our position in developing a purity silicon metal that is used in advanced battery markets, Including vertical integration, further advancing the technologies or using different approaches in our production process that improve our decarbonization initiatives. Our objective in securing these partnerships is to enhance our market leadership in the value added silicon metal sector. One recent development we're paying attention to relates to China, the largest graphite exporter, which recently announced It's curbing exports of certain graphite material used in batteries, putting upward Pressure on graphite anode prices.

Speaker 2

We believe this restrictive action by China will accelerate the shift towards increased use of silicon in anodes, especially in light of its superior performance. In solar, we are positioning Ferroglobe to be the leading provider of silicon used in solar panels. Given worldwide effort to transition to green energy, we expect significant demand in solar for years to come. Our opportunity in solar is amplified by increasing on showing trends in North America and Europe to expand local supply of these critical materials. Recent legislation, including the Inflation Reduction Act, The Cheaps Act and the European Grain Initiatives will drive significant demand in this market.

Speaker 2

Ferroglobe's market leadership and worldwide distribution position us to benefit from these trends. In our ongoing efforts to access a stable supply of power in Spain, we signed an additional PPA that locks in and increased portion of energy for the coming years. This agreement has a term of 3.5 years and became effective on November 1. This PPA combined with 2 we signed last quarter are expected to allow us to produce higher volumes in Spain to serve our customers during the winter months when our facilities in France are idle. Our facilities in North America continue to benefit from favorable U.

Speaker 2

S. Policies. In September, a bipartisan bill was introduced in the U. S. Senate to enact a 35% tariff on imports of Russian and Belarusian For Aerosilicon, we believe this is a very positive trend for the American industry and employees, showing the U.

Speaker 2

S. Commitment to increase reliance on friendly supply chain participants. While we are excited about the long term outlook, the near term visibility remains open. Prices for our products continue to be weak and the money remains subdued. Recently, there has been commentary from various Market participants cheating weakness in the solar and EV end market.

Speaker 2

Higher interest rates Negatively impacted demand for electric vehicles and recent commentary from auto manufacturers indicate a very competitive market with increased pricing pressure. While there is currently weakness in this market, We are focused on the significant long term opportunity. EV market battery market, sorry, is expected to be driven more by the Increasing content of silicon in the adults, unless by short term supply demand imbalances. The solar opportunity is expected to be driven by increased government incentives and the focus on onshore and The supply of silicon metal, a critical material for solar cell production. Our integrated asset footprint combined with favorable long term market trends and supporting U.

Speaker 2

S. And European digital actions A bright future for Ferroglobe's future in the coming years. I am very pleased with our operations How our operation have been performing in the Q3. We are executing at a high level in nearly all our locations As evidenced by the fact that our plant efficiency is at highest level in certain areas. The efficiency of our furnaces is very strong and we are navigating with the energy landscape exceptionally well in all regions With the exception of Spain, as we modulate production based on adventures apart the U.

Speaker 2

S. Energy prices. This was made possible by the efficient management of our capital expenditures over the past couple of years. After an extensive evaluation, we have made a decision to implement the capital allocation policy And plan to announce details of our capital return in the Q1 of 2024. At the same time, we are reiterating our 2023 guidance Of $270,000,000 to $300,000,000 We are not immune to the current soft market conditions And anticipate the 4th quarter adjusted EBITDA to come in below the Q1 results.

Speaker 2

Next slide please. Telecom Metal revenue was $199,000,000 in Q3, From $195,000,000 in Q2, an increase of 2% adjusted EBITDA for this segment remaining strong, down only 2% from the prior quarter. Volumes increased 13% over the prior quarter to approximately 57,000 driven by strong shipments in North America. Our average realized price of silicon metal Sales decreased by 10% compared to the previous quarter, driven by lower index pricing in U. S.

Speaker 2

And Europe. This price decline negatively impacted adjusted EBITDA by $19,000,000 We continue to benefit from our energy agreement In France and indirect CO2, which together contributed roughly half of the cost benefits with lower material costs being the next largest contributing factor, primarily coal. As for silicon metal outlook, The market continues to show muted demand and the lack of liquidity due to macroeconomic uncertainty affecting both the chemical and the aluminum sector. While we are positive about long term opportunities for silicon metal, We expect demand to remain weak in the near term, particularly in Western markets. This weakness is partially offset by our expansion into new markets such as Asia, where we have started actively participating in their solar value chain.

Speaker 2

Next slide please. Telecom based alloys revenue was $115,000,000 in Q3, down from $133,000,000 A decrease of 14%, primarily driven by weaker prices. Adjusted EBITDA for Q3 was 25 dollars down 20% from the prior quarter. Sales volumes Declared by 6% for the Q3 to 46,000 tons And average realized pricing was down 8% over the same period, negatively impacting EBITDA by $10,000,000 Relative to the prior quarter, silicon alloys benefited from lower raw material costs, which was the largest contributor to cost improvement. The silicon alloys segment was adversely affected by the weak steel sector in U.

Speaker 2

S. And Europe, partially offset by the strong specialty ferrosilicon Sales into the electrical steel market. In addition, our sales into diverse segments such as foundries have been more resilient. Next slide, please. Turning now to Manganese Basaloids.

Speaker 2

Manganese Basaloids revenue was $59,000,000 in Q3, down 25% over the prior quarter. Adjusted EBITDA for Q3 was $11,000,000 up from $1,000,000 in the prior quarter. Sales volumes were down 10% over the prior quarter, Negatively impacting adjusted EBITDA by $43,000,000 while average realized pricing was down 16% on the same period, which negatively impacted EBITDA by $11,000,000 This was offset by higher energy and CO2 compensation In France, in lower manganese oil prices. The end market, primarily still, remain under pressure with a lack of visibility in 2024. Within the construction segment, we expect incremental improvement in the first half of next year as a result of a seasonal uptick in demand.

Speaker 2

Now I would like to turn the call over to Beatriz Gracia Kos, our CFO, to review the financial results in more detail. Beatriz?

Speaker 3

Thank you, Marco. Please turn to Slide 9 for a review of the income statement. Sales in the 3rd quarter declined approximately 9% from $456,000,000 the prior quarter to $470,000,000 The decline in Q3 was primarily due to good pricing and lower volumes in our silicon alloys and manganese alloys segment. And higher volumes in silicon metal. Silicon metal volumes was up 13% over the prior quarter.

Speaker 3

The increase in volumes in Q3 was primarily due to stronger shipments in North America, While declines in silicon alloys and manganese alloys were a result of weak end markets, particularly steel. Average realized prices lowered across all product categories as a result of continued price decline in index prices. Raw materials and energy consumption costs improved during the Q3 to $196,000,000 down from $229,000,000 in the prior quarter or 47% of sales versus 50% perspective. This improvement was driven primarily by our energy agreement in France. The energy agreement provide a benefit of approximately $56,000,000 in the 3rd quarter.

Speaker 3

We expect an additional benefit in the 4th quarter. In addition, raw materials, primarily coal, benefit from lower prices in the 3rd quarter. Staff cost in the 3rd quarter increased to $84,000,000 up from $75,000,000 in the 2nd quarter. Operating profit in the 3rd quarter was $75,000,000 versus $63,000,000 in the 2nd quarter. Operating margins were 18% in Q3, up from 14% in the prior quarter.

Speaker 3

Net finance expenses in the 3rd quarter were $9,000,000 up from $1,000,000 in the prior quarter. The increase over the prior quarter was a result of the coal premium related to the $150,000,000 partial redemption of senior notes and the accounting impact. In addition, in the Q2, we had a long time to work of accrued interest of 1 of our government Loans. We expect net financial expenses to decrease going forward, consistent with the significant Reduction of our growth rate. Next slide, please.

Speaker 3

Our adjusted EBITDA in the 3rd quarter was $104,000,000 versus $106,000,000 in the 2nd quarter. Adjusted EBITDA margins increased to 25% in the 3rd quarter, up from 23% in the 2nd quarter. Overall, volumes provide a benefit of $8,000,000 primarily driven by higher volumes in silicon metal, which increased 13% over the prior quarter, partially offset by volume declines, methanolids and manganese alloys, which declined by 6% 10%, respectively. Prices in the 3rd quarter were weak across the board with the overall average realized price declining 11%. Weakened markets with pricing pressure across Our three segments result in a negative impact of $37,000,000 on our adjusted EBITDA.

Speaker 3

Cost had a positive impact on adjusted EBITDA in the 3rd quarter versus the 2nd quarter, primarily driven by our energy agreement in France as well as lower raw material costs, primarily coal. Next slide, please. We end the 3rd quarter with a cash balance of $166,000,000 down from $363,000,000 in the 2nd quarter. This decline reflects the redemption of the $150,000,000 of the 9.375 senior secured notes during the Q3. This redemption will save the company approximately $14,000,000 in annual interest cost.

Speaker 3

As a result of the reduction, total adjusted gross debt declined to $237,000,000 down from $400,000,000 in the 2nd quarter. This is a record low for Ferroglobe. The debt increased to $71,000,000 up from $37,000,000 primarily to increase Moving capital. Next slide, please. During the Q3, Cash used by operations was $9,000,000 versus $24,000,000 of cash generated in Q2.

Speaker 3

The primary factors impacting our cash flow include a $51,000,000 impact from working capital and non cash items of $44,000,000 These non cash items, more than energy benefits are expected to boost Our cash position in the Q1 of 2024. CapEx in the 3rd quarter was $19,000,000 versus $23,000,000 in the prior quarter. Lastly, cash flow from financing activities in the 3rd quarter was negative $171,000,000 versus positive $19,000,000 in the 2nd quarter. The negative cash flow from financing activities was a result of the bond redemption and associated premium call. Next slide please.

Speaker 3

At this time, I will turn the call back over to Marco.

Speaker 2

Thank you, Beatrice. Moving to the corporate update on Slide 14, please. As we already discussed during the call, the strategic acquisition of high quality quartz mine ensures that we remain self sufficient in North America, enabling us to take advantage of the significant solar and EV battery growth in the coming years. We completed an additional long term PPA in Spain to enable us to reduce cost And increased production in Spain. We are actively looking to add more PPAs.

Speaker 2

We are pleased To receive continued government and legislative support in the U. S, highlighted by the recent introduction The U. S. Senate bill to enact a 35% tariff on imported ferrosilicon from Russia and Belarus. Also the inclusion of silicon as a critical material as discussed last quarter is expected to benefit us going forward as it encourages local supply chain development.

Speaker 2

In January of this year, We reached an agreement to divest the Chateauquay property in France to Swiss Steel Group. Last week on October 31, The transaction was officially completed. This is the final step in the original footprint optimization process that we started 3 years ago. Through our innovation and technological advancement, we're able to produce high quality silicon, which has enabled us to expand our market opportunity into the advanced technological portion of the silicon metal business. In line with this strategy, we recently added a new large global customer, increasing our presence in Asia.

Speaker 2

Finally, we'll provide more details about our capital allocation policy on our Q1 earnings call

Operator

We will now start the question and answer We will now take the first question from the line of Lucas Pipes from B. Riley Securities. Please go ahead.

Speaker 4

Thank you so much, operator. Good morning, everyone, and congratulations on good results in what I understand is a tough environment. Marco, Beatrice, my first question is on the capital allocation point. Mark, if I heard you right, just There at the end, you expect to provide details on the 4th quarter results update call in February. And I wondered, can you maybe share at this time kind of what are some of the Key items you're still looking to address or determine, I assume with the Board too Between now and then.

Speaker 4

Thank you very much.

Speaker 2

Well, in an action, we believe that It is the right time to implement a prudent capital allocation policy. Our balance sheet is much stronger than it was in the past. Our gross debt is pretty close to the 200,000,000 Dollars that we mentioned several times, we are in a difficult Extremely difficult market condition, but we are extremely confident on our medium and long term opportunities. So we really think it's the right time to implement this policy. This implies, of course, 2 scenarios, either we pay down the renaming bonds Or we got an agreement With the current bond holders, but we're going to do 1 of the 2 and we are going to finalize Our policy by February, I think it's February 22, the date when we are going to disclose Our policy, which is going to be in place, I expect, starting Q2 of next year.

Speaker 4

That's helpful. And so in terms of paying down the bonds, is part of the Dynamic here that you had some working capital uses during Q3 and that maybe cash flow is going to Improved between now and then that you have more flexibility to just pay those bonds down as an alternative to an agreement?

Speaker 2

Let me tell you and then I will allow Dieter to elaborate on that. But In a nutshell, we are going to be we are in a healthy position. We are going to be In a healthier position in the Q1. And we think that When you consider the balance of the cash that we have available, the cash that we are going to generate Releasing working capital, we're going to be in a good position Either to pay completely down the bonds or to pay most of this part and still have Right level of cash to run the company.

Speaker 3

Yes, maybe just to add on that point. I think the overall What we plan to do in February, we are thinking in a nominal dividend and maybe an opportunistic share buyback, Right. But as Marco said, we will provide more details on our policy in February. And over time, as we have been repeatedly saying, we expect share buybacks to be larger than dividends if our shares continue to be

Speaker 4

Thank you very much both of you for those details. I want to touch on another theme and that is The market environment and your contract process. So If I understand correctly, you're in the market with your customers. You negotiate Offtake commitments, there might be ceilings, there might be floors. I understand they're kind of always lags To spot prices, but in the current environment, how are those conversations going?

Speaker 4

What would you what visibility do you have on the volume side, on the price side for 2024 at this stage? Thank you very much.

Speaker 2

Yes. This is about the question, Luca. Let me say that Clearly, we come from 5 quarters, we're in the market, we have seen index Deterioration and for most of the product Weakening demand, maybe with the affection of silicon metal that I think was particularly low in the Q1 of See at least on what we could see. We don't see the current market conditions improving Short term in the coming couple of quarters, but We expect some improvement on demand and as a consequence of pricing in the second half of the year. We are fully involved In the contract negotiations for next year, our overall balance between Contacted volumes, spot volumes has not changed.

Speaker 2

It's more or less fifty-fifty, 50% contracted, 50% in the open market. In silicon, when you exclude the joint venture volumes, the contracts cover 51%, The quarterly context 12%, the 6 months context 24%. So There is very little left for the spot business, which tells you that the liquidity is not there. And the Liquidity index for us in the West is mainly aluminum. In ferrosilicon, 63% is contracted like in manganese alloys.

Speaker 2

At the end, most of the volume Goes to still 24%, 26% go to Quarterly contracts and yes, the rest is spot business. So this is The current picture. Customers are clearly extremely cautious In committing volumes, but we have already closed the contracts with most of our large accounts.

Speaker 4

Thank you very much for that. And just to follow-up in terms Of price, is it right to think that it is floating with various Lags, but you're not locked in to lower prices for next year Due to the fact that prices are lower today when you've closed some of these negotiations?

Speaker 2

You're right, Lucas. We are still in silicon metal, we are still The contracts are based on the index and get adjusted quarterly. So This is why I mentioned that the we expect the last quarter being weaker Then Q3, same fate for ferrosilicon And Bangladesh, so the prices are under pressure. But when you look at At the different value centers, when you look at the cost of Kinomaterials, The energy cost and the transformation cost, overall in the industry, prices reflect Pretty close to the cost position for most of the players. So I don't think and the pressure on Coal is still there, the pressure on energy is still there in a lot of countries.

Speaker 2

So I expect that sooner or later prices are going to improve during 2024.

Speaker 4

Marco, I really appreciate your comments. I have more questions, but I'll jump back in queue. And in the meantime, continue best of luck. Thank you.

Speaker 2

You're welcome. Thank you.

Operator

Thank you. We will now take the next question from the line of Martin Englertz from Seaport Research Partners, please go ahead.

Speaker 5

Hello. Good afternoon, everyone.

Speaker 2

Ciao, Martin. Hey, Martin.

Speaker 5

Thanks for a moment for questions here. I wanted to discuss silicon metal ASPs, they did remain strong relative to market index prices. Can you discuss the components of this? Is there a bit more of a premium mix or something more favorable about the South Africa volume contribution or something else going on here?

Speaker 2

Yes. Martin, as you know, Most of the price is linked to our contracts and most of our contracts In the chemical sector and now in solar sector. So the trial dynamic is dictated mainly By these components, while we are less present being less present in the spot Transactional business, we are less exposed to the more commoditized business, which is aluminum related. So we suffer like anybody else out of the price pressure, but The index effect allows us to enjoy an overall At an average price than others.

Speaker 5

Okay. Thank you for that. Coming back to order books and what you're seeing volumes and Expectations around seasonality when thinking about 4th quarter across the business segments. Can you discuss what you're seeing there and expecting?

Speaker 2

In terms of trend, I see a similar trend to Q4 of last year and Q1 of this year, We've asked slowing down some of the production in Western Europe already During this quarter, shutting down production in France in the Q1 Of next year. In terms of this is in terms of operations. In terms On demand, we don't see short term any resurrection of demand Except for a couple of trends that we need to watch, which are related to The rebound of partial rebound expected in the construction business that has been Down for a long time. And we need to watch what happens in China. All the measures that they are taking to integrate the economy.

Speaker 2

So these two things might have a positive impact on overall demand to be seen. At this stage, we are quite conservative on our volume estimates. So Yes. We are planning for volumes for a volume level that we have seen in the recent

Speaker 6

Thank you for that.

Speaker 5

Could you review your comment on year to date EBITDA? And then you had Specific on 4th quarter, I think relative to 1st quarter EBITDA, I just didn't catch that earlier.

Speaker 2

Well, I'm not sure I understood your question. We closed the first half of the year at $155,000,000 EBITDA. We are at 104 in Q3, so we are at 259. So we feel pretty comfortable to close the year on the high side of our guidance. This is what I can say.

Speaker 2

If you your question, congrats, I think you asked It's about Q1 2024. We are in the middle of the budgeting process. Of course, we are like everybody else, we are facing a lot of challenges, right, because Pricing during this year has been going down. So we need to make our assumptions Next year and the like we already said in the previous calls, the Very favorable impact of the energy contract in France of this year We'll not be so big next year due to the fact that market price for energy It's lower compared to the beginning of this year. So pricing, we are at the bottom.

Speaker 2

We are going to have less still a very competitive position in France, but less advantaged than this year. On the other side, I think we are looking with a lot of optimism that our increased Sales position in Asia of silicon metal. So these are the main factors. The other key Positive that I want to mention is that the fact that and I already mentioned that in my presentation We have spent CapEx very well in the last 2 years. You know that in the last 2 years, we spent $75,000,000 $80,000,000 On CapEx, we're still 30, 35 in the previous couple of years.

Speaker 2

Well, our plan has what Run much better, like I said in my presentation. So we have the opportunity

Speaker 5

Appreciate the optionality on the production footprint there. Thanks for One last one, if I could. You did provide annual EBITDA guidance for this year. Is that something that you've determined internally that you'll provide again for the upcoming year or was that a one off?

Speaker 2

Well, we will provide guidance. We haven't decided yet which guidance Because we are working, like I said, on the budget, revising our business plans and We will need to discuss with our Board, but I think once you have started giving guidance, you have to continue to give a second guidance. So we will do that.

Speaker 5

Okay. Appreciate it and congratulations navigating the market and results.

Speaker 2

Thank you, Martin.

Operator

Thank you, Martin. Thank you. We will now take the next question from the line of Lucas Pipes from B. Riley Securities. Please go ahead.

Speaker 4

Thank you very much for taking my follow-up question. It's on the quartz investment. If I heard you right there in the prepared remarks, It's going to be a total of €50,000,000 And you mentioned, Marco, I think 15% cost reductions So say it with that and I assume there are some other strategic benefits. But Just in terms of the numbers, in terms of the expected rate of return, is there a range that you could maybe provide The market would be really helpful to get a feel for that. Thank you very much.

Speaker 2

Again, when you mentioned €50,000,000 you were cut. So I want to make sure that I understood your question correctly.

Speaker 1

Lucas, it's Alex. Were you asking if the investment of EUR 15,000,000 is EUR 15,000,000, about EUR 11,000,000?

Speaker 4

Yes, maybe I didn't hear that right. The question is really, 1st and foremost, about the expected rate of return. On

Speaker 1

the mine? On the mine. That's correct. Yes.

Speaker 2

I think we

Speaker 3

need We can revert back

Speaker 2

on this number. But the key point about this mine It is security of supply of quartz, The right quality, of course, dollars 11,000,000 investment plus 4 To operate the mine and an expected cost for our coax back integration That is going to be 10%, 15% lower than our current facility. So the and there is an enormous advantage in terms of proximity To our clients. Alex, you want to add something?

Speaker 1

Yes. No, it's just yes, the IRR is clearly it's meaningfully above our cost of capital. And I don't know if we ever kind of That's where our rates are. So maybe we'll decide on that. But I don't think we want to disclose it publicly at this time.

Speaker 4

I appreciate that. I'll try to find out what costs are and then apply that 15% savings. But no, I appreciate the color. And then It's

Speaker 2

more than 12

Speaker 4

That is helpful. Thank you, Marco. And final question From me for today, I think you said, Marco, on your prepared remarks, Q4 is going to be above Sorry, it's going to be below 1st quarter results. There's still a bit of a range in terms High end, low end of EBITDA. And I wondered if you could point us to the remaining risk factors Between kind of now year end, we're almost halfway through the Q4 that could push us towards the lower or the higher end of That implied 4th quarter EBITDA range.

Speaker 4

Thank you. Thank you very much.

Speaker 2

We are already said we are at $259,000,000 EBITDA Year to date, we gave a guidance of 2.73 100 In the Q1, we are going to operate some of our plants At lower rate to control inventories, this is not going to be the case For silicon metal in Europe, in view of our shutdown in France in the Q1, The advantage on the energy contact in France is going to be lower in the Q4 versus Q2 and Q3. And I wouldn't classify like a risk, but this is the fact that Quarter 4 is always a slower quarter due to the December month. So this is where we are. And Of course, we have an impact on related to the weaker index prices Across our portfolio in Q3 that are going to impact pricing in Q4. These are The main thing that I see, I don't know, Beatriz, if you see anything else.

Speaker 3

No. Nothing to add to that, Lucas.

Speaker 4

Marco, Beatrice, Alex, really appreciate all the color. Keep up the good work. Thank you.

Speaker 1

Thank you, Guillermo. Thanks, Lucas.

Operator

Thank you. We will now take the next question from the line of Greg Bennett, shareholder. Please go ahead.

Speaker 6

Good morning or good afternoon. Thank you for the great results. The quartz mine that you bought in South Carolina, I'm just Curious, how much competition is there for assets like this? I would think that Or are these very difficult to find a high quality quartz mine in America?

Speaker 2

Well, we've been lucky enough to find it. And probably you refer To a blog that I am aware about, there are some controversial Opinions about the opportunity, but we are experts in this field. We know what we are doing. When you acquire a mine, You need to make sure that

Speaker 6

Hello. Hello?

Operator

Just one moment, please. Please standby. Your conference will resume shortly. Please continue to stand by. Your conference will resume shortly.

Operator

One moment please. Your conference will resume shortly.

Speaker 6

Hello.

Speaker 2

Yes. Sorry, we had We had a technical difficulty. We had a technical difficulty here. I don't know at which point of my answer I was interrupted. What I say, the quality of the mine in South Carolina Based on the analysis that we have run, is far better than the current quality that we have in Alabama In terms of impurities and as a consequence, we plan to use the quartz out of this mine starting second half of We are to supply our silicon production and use Alabama to produce ferrosilicon.

Speaker 6

Are you facing competition in this market?

Speaker 1

Are you referring competition in quartz for quartz lines or

Speaker 6

Yes. For silicon, I would think that with what's going on in the Inflation Reduction Act, That sort of thing that it would invite a lot of competition. But I guess I want to know how strong your The franchise.

Speaker 2

In civil metal, you mean or in quartz.

Speaker 4

In courts?

Speaker 2

In courts. Well, this is why we moved pretty fast Few months ago, because we expect a Significant growth in demand of silicon metal in the United States and we assessed that our reserves in Alabama were not Enough. And we were looking for quartz of a certain quality that we have found in South Carolina And we have been, I don't know if faster or whatever than competition, but we have secured The rights of this mine on this mine? Yes, quartz is very common, but And the part is that is true that what you said before, quartz is very common, but The right quality of quartz is not necessarily so common everywhere, particularly in the U. S.

Speaker 6

Okay. You mentioned in your comments about you closed on a French facility. Did that bring in capital or is that future cost savings? I think it was at the end of your presentation.

Speaker 2

Yes, yes. No, this is We a couple of years ago, we decided to stop production in At one of our plants in France that was producing ferrosilicon foundry and silicon metal for furnaces in This process in France is always long and one of the requirements when you operate in France and you stop production One side, there is a law, law, Florent, that imposes the company The company will stop production in first to look for a buyer. And We had a long process where we had hundreds of interested buyers, but at the end We've and at the end, this process has been finalized on October 31st We've the divestiture at a nominal value, I would say, with the divestiture of nominal value of the plant To Swiss Steel.

Speaker 6

So whether cost savings going forward or Everything is normal?

Speaker 2

Yes, we are more saving going forward because we are not operating this plant More and we have reallocated productions at other sites.

Speaker 6

Okay. On your capital allocation that you're going to tell us in February, for whatever it's worth, Pay off all the debt, do a base dividend and have your cash flow 50% To a cash dividend and 50% to and or buyback and 50% to Do you have other projects that you want to do? Yes. Let me clear.

Speaker 1

No, we will announce the official Plan with details in February. So we are obviously haven't finalized it. If we had, we would have announced it today on Exact form of that return. So we'll discuss it more in February with details.

Speaker 6

Okay. Thanks for the great work. Appreciate it.

Speaker 2

Thank you. Thank you. Good to meet you.

Operator

Thank you. I would now like to turn the conference back to Marco Levy for closing remarks.

Speaker 2

Thank you. Thank you for the Q and A. That concludes our Q3 2023 earnings call. Thank you again for your participation. We look forward to hearing from you on the next call.

Speaker 2

Have a great day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Ferroglobe Q3 2023
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