Gerdau Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 1 speakers on the call.

Operator

My name is Renata, Head of Investor Relations. And participating in our video conference are the CEO of Gerdau Gustavo Werneck and the CFO and RO, Rafael Joport, we would like to inform you that this video conference is being recorded and it will be available in the company's IR website where the complete material of this earnings release is available. You can also download the presentation using the chat icon. We would like to remind you that the broadcast of this video conference is being done with simultaneous translation through the tool available During the presentation of the company, all participants will have their microphones disabled. Following the presentation, we will begin the Q and A session.

Operator

Analysts and investors can send their questions in advance using the Q and A button, and they can open the camera if they prefer during the Q and A session. We would like to highlight the information in this presentation and other information related to this video conference related to Gerdau's business prospects, projections and Good morning, all of you. Hello, everyone. I hope you're All well, and thank you for the opportunity to join us today during this video conference to announce Gerdau's results for the Q2 of 2023. Next to me is our CFO, Rafael Chapour and for both of us, it's always a pleasure to talk to you about our performance and also clarify issues that may arise during our presentation.

Operator

I would like to start by talking about the macro business environment, the general results. And right afterwards, I will detail give you more details about our business operations. Right after that, Jean Claude will talk about our financial performance. And at the end, I will give you some more details about our ESG agenda. And at the end, we will both be available to talk to you about any points that you want to elaborate further.

Operator

I would like to start the second slide talking about the macro environment in which Gerdau operates throughout the Q2 of 2023 and emit a very challenging scenario. We continue to deliver very consistent results based on a model of geographic diversification of assets in the Americas in our flexible production routes. 2 factors China remains having very high steel production very close to historic levels, while at the same time measures of stimulus to boost steel consumption, particularly coming from the construction sector, are not yet reflecting In the dynamics of the market, in view of the scenario of excess steel production in China, China's steel total without approximately 90 tons a year. Even EBITDA backdrop of import restricted markets such as the United States and Europe, which has impacted the markets where we operate, in particular, Brazil. In this next slide, even before we start talking about Gerdau's financial results in the Q2, I would like to say that we came to the end of the first half of the year with an accident frequency rate of 0.66, and this is below the 0.76 rate recorded in consolidated 2022, which represented the lowest rate ever recorded in our historic series.

Operator

This performance reinforces our Therefore, as part of our digital transformation journey, we have invested in several artificial intelligence and Industry 4.0 initiatives in our operations to improve our monitoring of critical tasks and prevent accidents and enforce the safety and active care among our employees and partners. Now in the next two slides, I briefly bring you some highlights that reflect the results recorded by Godau in the Q2. Later on, Jean Paul will provide details of our financial performance. Even in the face of a challenging global macro scenario with a decline in steel consumption, as I mentioned earlier, Gerdau posted between April June of 2023 another quarter with financial consistent results with the best adjusted EBITDA for the period, which amounted to BRL 3,800,000,000. This performance reflects the continuity of the company's sustainable growth strategy focus on the continuous generation of value for our and the integration of the process in this platform.

Operator

It is possible to reduce the delivery forecast of orders placed by about 7 days. Gerdau is currently experiencing the best moment of its 122 year of history, a result of its cultural transformation, which has enabled the company to innovate and transform itself in the face of dynamic, different and challenging scenarios. This agile and innovative mindset of the company of our employees who work daily in several initiatives in search of continuous operating excellence, improving our ESG practices and offering products, solutions and services centered on the present and future needs of our customers and other stakeholders. And all of that ensures that Gerdau finds itself in a very high level profitability and operating efficiency that is higher than it appears in the global industry. Now on the next slides, I will talk about the highlights of each of our business operations and the outlook for the markets where Gerdau operates.

Operator

The North America business operation continues to deliver sound results. In the Q2, the BOE adjusted EBITDA totaled BRL 1,800,000,000, reflecting a still very resilient market. Our order backlog in the United States, for example, remains stable at a high level of 60 days, mainly influenced by nonresidential construction activities, infrastructure, energy and industry in general. The recent measures adopted by the U. S.

Operator

Government, such as the Inflation Reduction Act and the CHIP Act, have had a positive effect on the market, though the inflationary landscape, the interest rate hike, which reached its highest level in 22 years and a possible downturn in the local economy are points of attention, which may also impact soup consumption in the coming cycles. In this sense, our North America business operation remains well prepared. Focus on improving the profitability and productivity of the mills. I would like to also highlight that we also highlight the start up of solar farm adjacent to our Midlothian site in Texas 230,000 solar panels, the farm has a capacity of 80 megawatts, which is expected to be reached already in August. Initiative reflects Gerdau's plans to increase the use of renewable energy at its industrial units in all the countries where it's present in the Americas.

Operator

And this is part of our commitment to reduce greenhouse gas emissions. The solar plant will contribute to reduce the carbon emissions at the Midlothian side by 65,000 tons of CO2 equivalent annually, equivalent to more than 10% of the mill's emissions. Moving on to the next slide. I'm now talking about our Special Stew. In addition, the oil and gas segment remains flat, approaching a monthly average of 900 rig counts over the months.

Operator

In turn, the outlook for the special steel market in Brazil continues to be influenced by uncertainties linked to access to credit lines and the high interest rate contributing to the lower demand for vehicles. In the second quarter, as a result of plant shutdowns and reduced shifts. It is estimated that around 90,000 units, including light and heavy vehicles, were no longer produced. The National Association of Vehicle Manufacturers, MVAVIA, even Amed, I would also highlight that the competitiveness of The vehicle sector, especially auto parts, was lower this quarter this half year due to the depreciation of the U. S.

Operator

Dollar. Moving on to the next slide. I would like now to talk about the long and fat steel scenario in Brazil, whose performance in the Q2 reflects a reduction in steel consumption in the country in several industrial sectors. According to data from the Brazil Steel Industry Institute's domestic shipments fell 5.7% in the first half of twenty twenty three when compared to the same period last year. Initiatives such as the new fiscal framework and progress in tax reform, coupled with a possible drop in interest rates, have not yet been enough to unlock the Brazilian economy.

Operator

It is worth remembering that steel consumption is a leading indicator of GDP. And in this sense, it is important that there is a progress actions aimed at improving the competitiveness of Brazilian industry such as CUSTO Brasil, the Brazil costs so that the steel sector and start a new cycle of sustainable growth. Initiatives that seek to boost the competitiveness of the steel sector in Brazil and fair market conditions are also crucial to address the world's surplus, mainly in China, as I said earlier in my presentation. And this resulted in an increase in direct and indirect imports of steel and also imports of machines and equipment. According to the members from the Brazil Steel Institute, Brazil ports were up more than 43% in the first half of twenty twenty three year on year, totaling 2,200,000 tonnes.

Operator

Chinese products account for more than 50% of this total amount. As a positive outlook for the Brazilian steel market, There was a 30% increase in the number of real estate launches in the Q2 when compared to the previous quarter. The city of Sao Paulo, for example, is already showing in June the resumption of launches with sales when compared to the months of April May, posting a 9% increase in the period according to data from Seco v Sao Paulo. This scenario is supported by better financing conditions. The number of active construction sites in Brazil remained at a record level in June, above 10,500 units, an increase of 14.5% year on year.

Operator

In addition, I would like to mention that the industrial construction segment remains stable with good demand from the pulp and paper sector, for example. Another factor that should positively impact the agribusiness sector in the second half of the year is the recently announced crop plan of more than TRY 360,000,000,000. In turn, retail sales in the second quarter remained flat when compared to the immediately previous period. We have already seen some impact from the one off government aid measures in the popular program called Miacasa Miavidas, but the sector's performance remains hindered by high interest rates and credit crunches. In addition, I anticipate a return to public and private investment in infrastructure works, which will drive the country's growth, such as possible expansion works in ports in Sierra and Santa Catarina and the new Sa Bespi project here in Sao Paulo.

Operator

There was even a signal from the federal government regarding public investment of around BRL 70,000,000,000 in highways and railroads over the next 4 years. Options in the energy sector for the construction of transmission towers also expected for this half year should have a positive impact on steel demand in the coming cycles as well as the new PAC or growth acceleration planned to be launched by the federal government in the next few days. We now move to the next slide. Generally speaking, The drop in commodity prices and the appreciation of many currencies visavis the U. S.

Operator

Dollar and the high interest rates bring about a very challenging economic growth scenario for the South American region. In Argentina, steel demand remained firm in the second quarter, mainly driven by the construction sector, which led us to record the best EBITDA for the in our historical series in the period. The inflationary pressure, the effects of the drought and the presidential elections scheduled for October remain a point of attention for the future performance of the local markets in the coming quarters. The scenario in Uruguay remains positive, reflecting good levels of to consumption, particularly in the agribusiness sector, which are close to historical records. In Peru, we continue to monitor political tension, social conflicts and climate issues linked to El Nino and also its impacts on the domestic market.

Operator

The forecast despite the uncertainties is that the economy will recover throughout the second half of twenty twenty three, simulating the demand for steel, mainly coming from the construction industry. I will now turn the floor over to Jean Paulpour, and then I'll be back to talk about our ESG journey and also to answer your questions. Thank you, Gustavo. Hello, everyone. It's always a great pleasure to be here with you once again for our earnings call, I hope that you're all well.

Operator

So let's start with Slide 12. And here, we'll talk a little bit about our working and cash conversion cycle. In the chart on the left of the screen, we see the evolution at the end of the period of our working capital and how it has evolved in the last few quarters as well as our cash conversion cycle. At the end of the quarter, we had a working capital of BRL 16,400,000,000 with a slight increase of BRL 36,000,000 when compared to the previous quarter. It is worth noting that this is the 3rd consecutive quarter in which we have reduced the level of inventories in our business with signals that our action plans and business operations are bearing fruit and that we should see a reduction in working capital in the second half of the year.

Operator

We understand that there is still room for further reduction in both our working capital and also our cash conversion cycle. Now moving to the right side of the slide, we will talk about our quarter's cash flow. Our adjusted EBITDA, as mentioned by Gustave, our EBITDA stood at BRL 3,792,000,000 with of 21%. It is worth noting that we had an average dollar 5% weaker this quarter, which affects both the profitability of our exports from Brazil and the currency translation of the results generated mainly in North America. We allocated BRL 5 BRL69 1,000,000 in working capital.

Operator

And here, the difference in the percentage of our cash flow It's basically attributed to the exchange rate variation of the working capital of the companies located outside Brazil. We also invested BRL 1,229,000,000 in CapEx this quarter, in line with our guidance of BRL 5,000,000,000 for 2023. Looking at the cash flow after net interest and income tax disbursements, which historically occur in greater concentration In the Q2, we ended the period with a free cash flow of BRL784 1,000,000. In the chart below on the right hand side, we have the historic evolution quarter on quarter of free cash flow generation since 2014. And here, the 2nd quarters of each year are highlighted in the chart in green.

Operator

So I draw your attention to the continuous and positive cash flow generation that we've been experiencing in recent years. Now let's move to the next slide. And now I will talk a bit about our liquidity and debt. We continue to post an excellent level of leverage with a net debt to EBITDA ratio of 0.37 times. This quarter, we reduced our gross debt by BRL 1,600,000,000, mainly due to the payment of BRL 931 BRL1 1,000,000 of the 2023 bond and BRL600 1,000,000 of the first tranche of the 16th series debenture.

Operator

Thus, we ended June with a gross debt of BRL10.7 billion. This is our lowest debt Since September of 2,007, meaning more than 15 years ago, we ended the quarter with a net debt of BRL 6,500,000,000, very much in line, as you can see in the bottom of this slide, much in line with the financial policy parameters and very close to what we believe to be our optimal capital structure for the business. The average cost of our BRL denominated debt is around 105% of CDI, while our Dollar denominated debt has an average cost of 5.6 percent per year. In the chart on the right hand side of the page, and now I will detail our liquidity. We have here the debt profile, I mean, how much we have of available cash.

Operator

And also here, we have the debt amortization schedule. Considering our cash position at the end of the quarter of BRL4.2 billion plus our revolver facility of USD 875,000,000 per barrel, and we've not John, we have a liquidity position of BRL0.5 billion. Now speaking briefly about our debt amortization schedule, I would like to highlight the extension of our debt with long term maturity profile this quarter went from 78%, which is what we had in the previous quarter to 92%. Our next most important maturity, as you can notice In the chart, we will only take place in 2027 when our bond matures. This well balanced and well distributed schedule, together with our healthy capital structure, allows us to make the necessary investment in the years to come to ensure the evolution and sustainability of our business, always focus on generating more value to all different stakeholders with whom we interact.

Operator

And to finish this part, due to the results of the Q2 of this year, the Board of Directors of Gerdau S. A. Approved the payout of dividends in the amount of BRL 752,000,000 or BRL 0.43 per share, based on August 29. Metalogica Gerdau, in turn, will pay out BRL268,000,000 or $0.26 per share, also in the form of dividends and this payment, will occur on August 30. In both cases, both from Italooska Gerdau and Gerdau S.

Operator

A, the payment will be made on the basis of the shareholding position on August 18. Thank you so much for your attention. And now I turn the floor back over to Gustavo to talk more about our investment in our new sustainable mining platform as previously mentioned. Thank you, Jean Paul. In the following, we detail the Sustainable Mining Investment Plan, which we announced the event held at the Gerdau Museum of Mines and Metals in Belo Horizonte with BRL3.2 billion in the period of 2022, in a new sustainable mining platform in Minas Gerais, reinforcing the state's role as a growth platform for Gerdau in Brazil.

Operator

This amount is part of a cycle of investments of more than BRL 6,000,000,000 made by Gerdau in the state of Minas Gerais in recent years to modernize, to perform a technological upgrade, improve environmental practices and also expand its local Mining operations at the Miguel Bournier mine located in the district of Ouro Preto are scheduled to start up at the end of 2025. With this, our annual iron ore processing capacity will reach a total of 5,500,000 tons. This project will allow Gerdau to increase the competitiveness of its operations and expand its steel production in Lina Gerdau in the future. Now I will say that this investment, which includes equipment and processes with the most modern technologies available, We'll follow the best mining practices, and we'll use the dry stacking method to dispose of 100% of the mining tailings, eliminating the use to use the need to use a dam. The use of an ore pipeline for the transportation of iron ore will also bring important logistic in addition to reinforcing our commitment to sustainable mining.

Operator

I would like to highlight that this new sustainable mining platform is also an important decarbonization initiative as it will ensure steel production with an even lower carbon footprint than the one we have today as we will have high quality ore. I highlight the high quality ore with a higher iron content and better agglomeration requires less coal in its production process and improves the energy and operating efficiency of the blast furnace, which contributes to reducing greenhouse gas emissions, making it a relevant product for the decarbonization process of the global steel industry. Currently, as a result of our sustainable production matrix, Gerdau already has one of the lowest average greenhouse gas emissions at 0.89 tons of CO2 equivalent per ton of steel, which is approximately half the global industry average of 1.91 tons of CO2 equivalent per ton of steel according to the World Steel Association. And by 2,031, our target is to lower carbon emissions to 0.83 tons of CO2 equivalent per ton of steel. And this higher quality ore that will be processed, Emiguel Bournier, will supply Gerdau's forest steel production units in the state, also taking these mills to another level of sustainability practices.

Operator

Finally, I would like to highlight that the independent certifier SRK Consulting has prepared a report certifying the iron ore reserves at the Mine. And this is a very important milestone for this investment in sustainable mining. According to the report, Kedown now holds certified reserves of 776,000,000 tonnes of iron ore. This document has been prepared in according with Subchapter 1300 of Regulation SK issued by the U. S.

Operator

Securities and Exchange Commission in compliance with the technical report standard established by that regulation. Considering the expected annual production level of 5,500 tons of iron ore, the certified reserves guarantee a 40 year lifespan for the investment, reinforcing Gerdau's commitment to the socioeconomic development of the state of Minas Gerais today and in the future. And also detailed points of greater interest to you. Thank you, Vernek. Now we will initiate the Q and A I would like to remind you that to ask questions, you must click on the Q and A icon that is in the lower part of your screen and wait for your question to be available.

Operator

And when you are ready to ask your question, Our first question comes from Caio, an analyst from BTG Pactual. Caio, you may proceed. Hello. Good morning, everyone. Thank you.

Operator

Can you hear me well? Great. Well, thank you. I have two questions here. The first question is about your results in North America.

Operator

It's interesting to see that you're able to sustain margins above that level of 25%, even in a quarter when you had lower shipments. You had several scheduling, non schedule maintenance shutdowns. And maybe now with the recovery anticipated for the Q3, we see some slight movement of expansion in the metallic spread. And when we put that together with comments from your peers, the impression is that we could continue to see high levels and Still moving into the Q3, I would like to know your impression about how you see that profitability of margins going forward and now still focusing on the Q3. But if you have any comments about the Q4 and what you anticipate for 2024, that will be great.

Operator

And my second question is about dividends. This quarter, we saw that you paid dividend in line with your policy, 30% of net income and 30% of cash generation and the buyback program had a slowdown. I just want to understand because given the fact that we are seeing your net debt slightly below that indication of BRL 7,000,000,000 And also putting that together with Japura's comments during the presentation that we have a great possibility of seeing working capital in the second quarter because you paid more taxes now in the Q2. Maybe that leads me to understand that you should use more cash now in the second half. So I just want to understand whether the company still thinks that you will maintain that net debt at EUR 7,000,000,000 that would indicate that your entire cash generation in the second half could be paid in terms of dividends and whether you're or were you believe you would be a little bit more cautious given the current market situation?

Operator

So I would just want some light in terms of Dividend payout. Caio, thank you for your question. I will start by answering your first question and talking a little bit about North America, and then I'll talk about dividends. Now about margins in North America, our projections indicate that we would have flat margins throughout the next quarter. On the one hand, the volumes in the backlog are Still very resilient.

Operator

Now when we look at our shipments and even when we compare ourselves to our peers, we see A general drop in demand, we had a higher decline because of our meal in Canada, Whitby, we had a one off problem in our Charlotte mill. But in general, this 10% drop in demand was already and I think it will resume normal levels. And due to the number of orders we are receiving, I think that this is a level that will be maintained throughout the Q3. Although the Q4 has atypical seasonality. So that's why it's difficult now to tell you how big that seasonality will be, but our backlog remains very sound.

Operator

We still have to take into account that we haven't yet seen orders related to the major incentive If I look at our backlog, the infrastructure deal and everything else, we haven't seen large orders coming Stemming from this package, even incentives related to renewable energies, We are now seeing an increase in our backlog of steel being delivered to the construction of solar farms. But if you look at the magnitude of these packages, we see we anticipate future demand coming from these packages. And this also could anticipate the risk of a drop in demand in view of the macroeconomic scenario in scenario in North America. In terms of scrap, we concluded our purchases of scrap Last Friday, the price has been flat in terms of comparison with the past few months. Now as for prices, prices remain flat.

Operator

Costs. I think we were able to capture a lot of good opportunities in relation to energy. So in general, Cai, In my view, things remain very stable in North America, and it should remain in this quarter. In the Q4, it's difficult to tell. There were years where there was no seasonality.

Operator

In some other years, seasonality was stronger. And in 2024, it should be very similar to what we're seeing now. The spread levels will be maintained. So in general, our business in North America is very sound, very solid. And so this is how we see our business.

Operator

And now I'll give the floor to Jean Pierre. But if you Jean Pierre, if you want to add anything else about North America, just go ahead, feel free to say. I just want a further clarification because you said that in terms of volumes and shipments, despite that reduction because maintenance shutdowns, you still expect stable shipments in the Q2, right? Yes. Yes.

Operator

We delayed some deliveries due to these two one off events. When we extended the shutdown in Whitby, we had to move to make a transfer from Canada to the U. S. So there was just a drop of 2 percentage points when compared to the average of other players in the U. S.

Operator

But we already recovered that number. Therefore, this drop in demand of 10% when you compare in the first and the second quarter, I think we already reached a demand level that should be in place for the coming quarters. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Okay, Jean Robert. Now in terms of dividends, Caio, I will start with our net debt. At the end of the quarter, we ended close to BRL 6,000,000,000 of net debt.

Operator

So this is pretty much in line with what we expected. Gross debt was slightly lower, but the cash was lower due to the important disbursements we had during the quarter with the maturity of some important the debenture and the bond and payment of taxes that was quite relevant this quarter. But now when we think about dividends, we even move forward with our policy, both in the case of Gerdau Sia and Metalogica, we paid a little slightly over 30%. So Despite the fact that the results were slightly worse in terms of corporate net income, we maintained the same cash distribution per share in relation to what we did in the previous quarter in the coming quarters, in the next quarters, I think we will continue to monitor the performance of the market and we will continue to monitor our business. There will be probably some additional pressures even though we believe We truly believe that there should be a reduction in working capital in the next quarters in relation to our position today.

Operator

And on the other hand, whenever we think about CapEx disbursement, the one that we had this year, year to date, it is below the average. If I were to take that BRL 5,000,000,000, as I mentioned in the guidance, in addition to the disbursements that we mentioned, specifically for Gerdau Next, they didn't occur yet. I mean, it is about BRL 2,100,000,000 in terms of cash disbursement visavisat BRL 5,000,000,000. So there are other elements that may compensate that cash generation that we expect to see in the coming quarters. We remain very optimistic with cash generation, and we will continue to pursue our policy of not reducing significantly our net debt, vis a vis our optimal capital structure.

Operator

Well, truth be told that it is the 3rd consecutive year that we've been talking about a possible taxation of dividends and interest on equity. So not only our Treasury Department, but also our tax area, I mean, we are monitoring that very closely, not only ourselves but all of the other companies in Brazil. So we are following that very place. And regardless of how things will advance, we may be more or less assertive, let's say, in terms of dividend payouts in the coming quarters. Great, both of you.

Operator

Thank you. Thank you, Caio. Our second question comes from Daniel Sassoon, a sell side analyst from Itau BBA. So please open his camera. Hello, good morning.

Operator

Thank you, Vernecki, and thank you, Japur, for the presentation. My first question relates to CapEx. Looking at the chart of your presentation, when you show the disbursement profile of EUR 3,200,000,000 of investments in this new mining platform, it seems that the disbursements in 2024 should be probably 3 times larger than that of 2023. So it should be reasonable to imagine that your EUR 5,000,000,000 CapEx will increase next year or there are other areas that maybe you could postpone in terms of postponing investments, so then you would have a flat CapEx in 2024 vis a vis 2023. I know that you don't have any approved guidance, but this could be helpful for us.

Operator

My second question has to do with Brazil. We've seen imports, at least When I look at SIFAX and ABR, exports increasing even in a period when the domestic market, the premium is not as high when compared to historical levels. I mean, the long stew premium in domestic market is around 5%. So what do you think can justify this increase of imports? And how do you see the competition dynamics in the domestic market more specifically?

Operator

Daniel, it's a pleasure to talk to you. I can answer both questions, but Jean Paul, you can jump in if you think it's important. I mean, it's There is no guidance for CapEx for the next coming years, but we will continue to be very conservative when it comes to disbursements or CapEx spending. So there is no expectation on the part of the company to significantly increase our investments, our So we will remain conservative. So when we approve an investment of BRL 3,200,000,000 that will be spent in a certain period of time, this will necessarily have to fit into a spending level that we deem adequate.

Operator

I mean, it has I mean, even in a very complex scenario that we're experiencing right now. Therefore, I would say that we will continue to be very conservative. We remain very conservative. So this is not a guidance, but there is no estimates to grow our CapEx level at least in the next coming years. In terms of imports, imports in Brazil, this is a concerning issue because it's not very rational.

Operator

When we look at a rational market situation, I mean, we could draw a correlation with import premium using the known variables. By doing so, we can arrive at some good conclusions because we've been in the market for a long time. But the world at the moment is being flooded with Chinese steel And we knew we know that this is still highly subsidized. China, I mean, with this attempt to cut production in the last few months, This is not as fast as people would imagine. China continues to put noncompetitive and subsidized still in the global market.

Operator

So it's very hard to do that math. Therefore, everybody is concerned, even the more mature countries are putting some kind of protection in their industries to mitigate unfair competition in the market and to reinforce my speech. I mean, the numbers that you see in some statistics like even the ABR report does not reflect another concerning aspect, which is the import of continuous When we look at the 1st months of the year, there was a significant drop in our deliveries, in our shipments to the industry because in Brazil, we saw the entry of machines and equipment with steel that wasn't ours. It's difficult to quantify that, but this influenced our demand from the industry. The demand coming from civil construction didn't drop as much, but the industry, that was impacted.

Operator

So this is irrational, but I think this may be corrected throughout the next months. We are closely monitoring the movements from China. I mean, these cuts in production take a long time, but they are happening. At the same time, this attempt to reinvigorate the Chinese economy to reach percentages that are close to what was expected in terms of GDP growth of 7% are taking place. So this remains a concern.

Operator

Now speaking about Brazil. Now for the Q3, We see that the demand is quite stable. There was a decline and maybe more for longs than flats. But I think in terms of the bed, we find ourselves at a comfortable level. So what we see today will remain in the next quarters.

Operator

But In the mid range, we see that some sectors will resume growth. Even civil construction, there have been many launches and These launches will demand more steel. There have been options for transmission lines, and they are very relevant when it comes to the demand for profiles and bars. Well, it may be slow, but it will happen. But looking more specifically to the 3rd quarter, Daniel, I believe that the domestic market level will be very similar to what we saw now in the Q2.

Operator

Now Jean Paul, it's with you. I would just like to say, I mean, in relation to what I've heard from your questions about mining. This year, in 2023, we already spent RMB 500,000,000 BRLs related to the new sustainable program in the mine in Minas. This is a portfolio with important sets of investments that include not only the mine per se, but everything around it like logistics, utilities, transmission lines. This has been in progress.

Operator

And so as part of that disbursement, a big chunk of it, a big chunk of the investment relates to that program. As you well noted, in terms of the chart I showed you, I mean, deliberately, we didn't put the amount. We just put some order of magnitude precisely because of what Gustavo said. We do not have any guidance for next year's CapEx, even though we again ratified that we do not anticipate any substantial increase in CapEx for the next coming years. But in fact, a very substantial amount of that RMB 5,000,000,000 or maybe 45 percent of that amount is concentrated in 2024.

Operator

So there is no doubt that this that there will be a more significant spending in 2024, earmarked for in the sustainable program this year. If you recall that CapEx material fact this year, almost twothree of our CapEx disbursement is earmarked for Milagiras. We already said in the past, we talked about these investments that we are making now. It's also important to highlight also in line with what Gustavo said and also linking that to my initial presentation about our balance sheet. This quarter, we reached the lowest level of gross debt of the last 15 years, and This is due to all of the hard work that we did and our partners did as well.

Operator

And this is also preparing the company to move on with all of the projects that we have in the pipeline with a lot of resolve and without having make changes in the investments that we already started to execute. One of the reasons that will. When you look at our debt amortization schedule, you see that the most significant maturity only occurs in 2027 with our bond, And this gives us a clear path to make all the necessary investments to modernize and to continue to generate value to our business. Perfect. That is very clear, Jean Pierre and Vernecki.

Operator

Thank you. Benaki, if you allow me, just a very quick follow-up. Do you see any movement maybe coming from the sector in terms of increasing import tariffs for steel? Or maybe, I mean, You talked about the fact that the Chinese steel is flooding the world in this. Do you think that this could be also another concern.

Operator

This wasn't the case in 2015 or 2016 when we saw some similar moves. Do you think that this is possible? I think it's possible, yes. And these are talks that happen every day. I mean, When you talked about 17.4 level, I think that was the level of import penetration, 17.4, I think.

Operator

I haven't seen that for a very long time. Also, I talked about continued steel. As we've always said, this is a narrative that has been prevailing in Brazil that the steel industry is not competitive, that we want protection. No, we just want to compete on equal footing. We've been very vocal about that, and we give clear examples to the authorities that there is an unfair competition.

Operator

So that's why I think that every Brazilian industrial sector should seek for that. Just as it is done in the U. S, you're very familiar with Resolution 232 and adjustment mechanisms and tariff in Europe, these are mechanisms that have to be utilized by company, by countries whenever We see some predatory moves like in this case, in the case of steel. Our next question is from Rafael Barcelo, sell side analyst from Santander. So please enable his camera.

Operator

Good morning, everyone. Can you hear me? Yes. Good morning, Verneke, Japur and Renata. Thank you for taking my questions.

Operator

And the last time you talked to investors, one of the main discussion points was related to cost, mainly due to the fact that We look at some figures that are referenced for price, so that are coming down. So the cost debate is very important because it helps us understand about margins and stability in the Brazil market. Could you comment about your cost expectation for the Q3, looking at the movement of the main raw materials, do you think it will make sense To see some more stability, I would just like to hear more about the topic of cost. And my second question is about Special Steel. We consider it to be one of the highlights of the quarters.

Operator

We saw a very significant recovery in terms of shipments in Brazil, but we also see some more modest numbers when we look at the EMEFALGIA numbers. Do you have any specific issue that really led to that situation. And so how do you see that division as a whole evolving in the second and third quarters? We had a technical problem. I'm sorry.

Operator

Well, basically, I think there is a very important element because the cost index. And also, you referred to price of raw materials and products. There is an important element in our Brazil operation in addition to managing the fixed cost, And I'm referring to coal. We consume coal in our Ouro Branco Mill. Coal typically has a long lead time, and this probably explains a little bit of our working capital issues.

Operator

It's about 150 days to 180 days. So what we see today when we look at the price index, this will only reflect in terms of COGS, 150 days to 180 days ahead. So the drop in prices of coal mainly throughout the first half of the year should probably have a greater effect in terms of the coal cost, which is our raw material that is more representative of the Brazil cost, this will be more important and more relevant in the 3rd Q4. Just to show you a few elements that in our view are important in terms of cost. In addition, we are seeing some moves in the scrap market in Brazil in terms of price adjustments, and this should also reflecting cost reduction.

Operator

In addition to that, we have our journey in our business operation in terms of everything that we try to do to maximize our efficiency, and We diligently seek for expense reductions in general. Rafael, about Special Steels, we are going through different moments in our special steel operations at our North American operation and the Brazil operation as well. In North America, our operation remains very sound. The volumes or shipments are very good, both in the automotive sector, both for heavy duty and light vehicles and oil and gas segments and others. Volumes are very sound, and we are also benefiting from some benefits from improvements in our Monroe meal in Michigan, which is one of the most modern meals in the world.

Operator

So we are now reaping the benefits due to the fact that 3 years we made movements to improve that meal. So we are not we are investing a little bit also in the rolling mill. So the mill is now equipped to cater to all of the new industrial needs. So our operation in North America is quite sound. On the other hand, we are facing difficulties in Brazil.

Operator

We are looking at constant layoffs and plant shutdowns in the automobile industry And the slight recovery of volumes that we saw through the government incentive in terms of the acquisition of Popular Cars, that was not relevant. So in addition to the credit crunch and high interest rates, I mean, there was some anticipation in the purchase of heavy vehicles in the beginning of this year. There was a change in the diesel engine because there was a replacement to Euro 5. So we have an advantage with our special steel operations when we compare it to flat and long steel operations because we can make very good changes in our cost level. So we do not take off coal that Jean Pierre mentioned and it's not as complex.

Operator

So I think we were very quick and very efficient in I think the capacity of our special steel plants in Charquilladas, Mogidas Cruises and we are now adjusted to a good level of production. So I don't think this demand will recover in the short run. So in Brazil, we'll see lower volumes. But We believe and we trust that our operation is very lean and very adequate to navigate in these dire periods while we wait for a recovery of demand. I mean, if we look at Special Steels, putting North America and Brazil together, I see the situation very stable, repeating going forward what we were able to do this quarter, but there's also seasonality at the end of the year and we have to monitor that.

Operator

So the 4th quarter may bring some variables that at the moment we cannot describe to you. But in general, I see stability, North America very well and for those still facing some difficulties. Thank you. Jean Paul, I just have a quick follow-up. Maybe it was my connection that was bad.

Operator

So you understand that this cost should start coming down now in the Q3? Or do you think that this will only have at the end of the year. Can I say something in between the 3rd Q4? Well, Okay. Regarding already in the Q3 in terms of coal and other initiatives, but in fact, I think that reduction in the average cost, which is tricky because we are working with FIFO.

Operator

Maybe we could have a little bit more clarity in terms of search cost. But as we work with the average cost of Brazil, this is our objective, but we expect some results In the Q3, but it will be more relevant in the quarter. Thank you very much. Thank you, Rafael. Next question from Thiago Lofiego, sell side analyst from Bradesco BBI.

Operator

So, Thiago, please open the camera. I have two questions. Going back to the dividend issue and capital allocation, in fact, I have a few questions on the topic. First, the 35% payout, which is slightly higher. Is this a one off situation?

Operator

Was there any rationale behind it? Should we expect any changes in that level? I just want to understand what the rationale was. And Jean Paul, you also talked about the credit line, that revolver facility. And then I mean, just to clarify, you do not consider that level of liquidity whenever you think about dividend payouts.

Operator

I just want to clarify that concept because your cash is below that 5,000,000,000 or 6,000,000,000 that you mentioned. And in your view, that is the optimal position. But after all, all I want to what is the possibility in the Q3 of you not paying extraordinary dividends because the cash position is slightly below the ideal level. I know that leverage is pretty much in line and is comfortable. That's not the issue.

Operator

I know working capital helps, but CapEx maybe is more intense in the next quarter. So I just want to understand if there is any possibility of you becoming more conservative and probably maybe not paying that extraordinary dividend that you usually pay in the Q3? And also if you can clarify, percent, that will be good. And the other question, going back to the Brazil operation, I just want some further clarification because I understand and you said that we should see the beginning of a drop in cost in the 3rd quarter. The price of rebars in Brazil should fall.

Operator

A 14% margin, Vernac, do you think that this is A margin that is in line with the current moment. Okay, now it's August. Is this the market dynamics today? Or you think that we should see some additional margin pressure even though costs are beginning to fall? Okay.

Operator

Jean Paul, you answered the first part. You talked about Brazil, rebars, etcetera. Hi, Thiago. Well, let me start with the easier question. In the Q1, we paid based on interest on equity.

Operator

So when we think about the net dividend perceived by shareholders, that was below 30%. So this quarter, taking into account the cash position, the profitability levels that we have and the predictability of dispersants for the next quarters, we chose to maintain the profile so that the shareholders will perceive the same economic benefit, I mean, in terms of price per share and then we estimated to 35%. But when we look at the end of the year, we are Maybe slightly above that 30% that our bylaws mandates, but It's a bit of what we saved, I mean, with expenses in the 1st quarters and that also reflected on a lower tax rate. And so that was basically it. That was the rationale behind that slightly higher payout of 30% or like the full payout of 30%.

Operator

Now in terms of the extraordinary dividend payout, and I think you mentioned several aspects, and I think I mentioned that when I answered Caio's question. In addition to our own uncertainties and considerations about our own business, considering I mean, in terms of CapEx pay, CapEx investments and working capital. I mean, working capital is becoming a buzzword in the company. I mean, we seek for further reductions, but it will certainly depend on other external aspects like the tax reform or maybe some possible changes in our tax performance, I mean, the tax rate, I mean, certainly, Maybe we could revisit our capital structure. When I talk about the revolver facility, it is not structurally thought to do the balance sheet.

Operator

It is a facility of immediate liquidity. It is there to support us and to act as a bridge for some transaction, but this is not something that we think about using, let's say, to do some refunding of the company. But once again, our leverage position is very good. Our disbursements of debt maturity in the next years will allow us to move on with our investment program in a very comfortable way with no hiccups, and we are just evaluating giving good returns to our shareholders based on what I said. Good.

Operator

So now, Thiago, I will answer the question about Brazil. I understand that the drop in rebars, even I mean to draw a model about measuring prices in some construction stores of rebars. I think for the model, it is correct. But I'm a bit careful because in our specific case, in the case of Gerdau, this does represent the whole. So we have a big strength at Comercio Gerdau and it doesn't necessarily uses the prices.

Operator

At the distribution end, we have contracts and agreements with construction companies. So this drop in rebar prices does not necessarily represent the current reality. Of course, it is a concern, but how and how do we create mechanisms to prevent this drop? We've been working on that. Our number today does not reflect the numbers on the screen.

Operator

So we are working on that. Another very sensitive topic and we are always very careful when we talk about that refers to the margins, The export margins of the domestic market, our major concern right now, we are mitigating the risks. I mean, and we don't see the possibility of continuing practicing margins in the domestic market as we have today. So how can we not deteriorate these margins with bad Expert, so we are removing export capacity very quickly now in the Q4. The numbers that you saw in the results for the quarters will be lower, I would say, closer to the shipping volumes of the Q3 downwards.

Operator

So when we talked about 14. The topic today is how can we prevent further deterioration of the export margins? Our capacity. We have a capacity of 20% to 22% in terms of exports. Sometimes this is helpful, sometimes it's not.

Operator

This time, it's not helping us because it pulls the domestic margin down. Therefore, we are betting that this volatility in the market will not be over the long run, But we believe that there will not be a reversal in the short run-in international prices considering the situation coming from China. So We are removing our productive I mean, taking some of this production capacity out not to be heard in terms of exports. So this is what we are doing at the moment. Thank you.

Operator

That was very clear. Thank you for the answers. Thank you, Thiago. Our next question from Gabriel Simone, a sell side analyst from Goldman Sachs. He asked 2 questions through the platform, and I will read them.

Operator

Good afternoon, and thank you for the presentation. I have two questions. The first, Despite the drop in profitability coming from the North America business, the business operation still post strong margins. I would just like to understand how do you see the market dynamics in the region, whether the metal spreads remain at similar levels going forward and whether you can see a different effect of the Inflation Reduction Act and if you have more examples of near shoring, etcetera? The second question is, we saw the need to I mean, we saw working capital requirement increasing this half year, why we expected a decline.

Operator

So what is leading that, especially when you look in terms of days and whether, in fact, we should see an increased reduction of this line in the next quarters or whether there are more structural factors that should keep that line Still high for longer. Let me well, you can talk about North America, And then I will add with I will talk about North America, and then I'll be very brief. Somehow, we already talked about that before. But as I said, It's very resilient. Our backlog and the medium range outlook is very, very good.

Operator

So In terms of metal spread, a relevant aspect of metal spread is scrap. We are working with a scrap level that has low volatility at the moment. I said that we already ended our August purchases at a flat level in terms of scrap purchases. We look at our backlog and we see near shoring appearing. I think a good example has to do with automotive components and more semiconductors.

Operator

We see now a transfer of plants from Asia into the U. S. We are delivering Still, this is part of our business, so we see things running very smoothly and stable. Now we are trying to have more visibility in terms of what the Q4 holds. And so I'll leave that for Zafour, because In terms of working capital, how do we see the dynamic of the markets where we operate starting in Q4 of this year?

Operator

So, Jafoor, now it's up to you. Hi, Gabriel. I don't have a very simple answer, but I will try to summarize topic of working capital at dispute of things. When we break down our working capital structurally or basically, we have about 30 days of accounts receivable, 30 days of accounts payable. And basically, the difference is the inventory that it's very close even when we look at our historical chart.

Operator

I mean, apart from some one off moments, working capital is very close to our inventory. So accounts receivable and inventories, one cancels the other. What happens when we have a reduction in the level of activities with a reduction in sales volumes. When we look at the Q2 of last year And compared to the Q1 this year, our net sales is about 30 I mean, 5% lower, 3% refers to prices and then physical things. I mean, as our cash conversion cycle is calculated in days of net revenue.

Operator

So I take into account the past revenue. Once that sales come down and as there is a difference between the supplier's account, which is quicker versus the inventory account, one is 30 days and the other 80 days, what happens is that when you anticipate that you are selling a bit less or when you think that you will sell less, like in the case of this quarter, you reduce that trade accounts payable, but the inventory accounts will only react not in that same 30 days, but in 40 or 50 days later. That's why many times there is this mismatch between you start having these incentives in that working capital and you start preparing the operation, as Gustavo said in the previous question when you referred to volumes that we were removing some export capacity. And this is also translated into reductions in the adjustment of working capital, but there is a certain delay between the reduction in this rate accounts payable because this generates less cost and that means less working capital unless I mean, so this is different in days as explained by this topic. But once again, that's why it's important to say that we really monitor our inventory volume.

Operator

And as in the 3 past quarters, we've seen a reduction In the inventory levels, we then believe that this already signals that all of our action plans focus on reducing and adjusting our working capital and our cash Conversion cycles should bear good fruits in the second half of the year. Moving on To questions that came in writing, we have a question from Caio Hibero. He says, good morning, everyone, and thank you for this opportunity. First of all, I have a question about what you've been saying in past calls about the level of the optimal gross debt and that level of BRL 5,000,000,000 and BRL 6,000,000,000. Could you say whether this implies that you understand that a net debt of BRL 6,000,000,000 would be the most important metric to follow or whether the minimum cash of BRL 6,000,000 is more important or maybe as important as that.

Operator

If you have a minimum cash of BRL 6,000,000, What do you believe to be more important given the fact that today you are below that level? Would you try to issue more debt in the coming months to recover your cash position so you would have more room to pay extraordinary dividends? That's question number 1. Now question number 2. My second question is about your North America deal.

Operator

Given the fact that you posted lower volumes this half year due to maintenance. And the prices of bar and profiles in the U. S. Are stable in the Q3 versus the Q2, whereas scrap prices are down. Do you see room to see a margin expansion, especially if you see volumes, maintenance shutdowns and improvements in cost.

Operator

So I turn the floor to you. Okay. Caio, I can start answering the first question about our capital structure. In the slide, when we talk about debt and leverage in our financial policy. We are not referring to our net debt, but our net debt over EBITDA, which is below 1.5 times.

Operator

And this is our gross debt ceiling. That's the number we work with so that we don't have a gross debt that is higher than BRL 12,000,000,000. So this is not a target that we want to owe 12,000,000. We do not want to owe more than BRL 12,000,000,000. About the weight that we give to cash or net debt in a time line varies a lot taking into account what are the financial obligations we see in the consecutive quarters.

Operator

I would say, I mean, in the previous quarter, this would be a weaker free cash flow level because we knew that we had some that we had the maturity of our bond and the debenture as well as we needed we had an important obligation of income tax payment that we had this quarter. So okay, when we have okay, when we say, okay, we have important things maturing in the next few months, we are a bit more concerned in terms of our cash position. But we are structured with a pool of 1st line banks with a revolver facility that is solely available, and it's probably just as big as our cash today. We have that facility because if needed, if we need more liquidity, we have like D plus 2. And so we want these resources to be available if we need or maybe we want to restructure a longer term debt.

Operator

Maybe it wouldn't make sense to take a short term debt just to pay dividends or to refund the company or to do a long term CapEx. We try to match uses and sources in terms of our capital structure. And now in terms of North America, I already said it before, we don't anticipate any expansion in the margins. The margins should fluctuate up or down. It depends On some moves in terms of cost, we have concluded our initiatives in terms of energy and logistic costs.

Operator

So for the Q3, if I look at North America, I see it very stable when compared to what we delivered in the second quarter. Moving to our next questions, we received some questions from Carlos De Alba from Morgan Stanley. He has a few questions. First question, could you share more details about your mining investment plan, the year CapEx amount recovery, the average cost of mining sales to 3rd parties, etcetera. Now his second question is, how do you see the outlook for Flat and long steel prices giving the high premium in relation to exports and very challenging demands.

Operator

3rd question, SG and A expenses, 6 months in 2023 of 3% versus 2.3 percent 6 months in the year 2022. How do you see these numbers going forward? 4th question, what is the export level that you expect for flat and long sales in Brazil in the coming quarters. 5th question, what was the impact on EBITDA of maintenance shutdowns in North America in the Q2 of 2023, costs and loss of revenue and margins in that shipment reduction. 6th and last question.

Operator

Do you expect steel shipments in the South America division to remain above production levels in the coming quarters. Thank you, Carlos. So I'll now turn the floor to Vernak Angelpour. Thank you, Carlos, for your questions. So as we have 6 questions, let's follow Carlos' order.

Operator

So this is easier for us to organize. So you can start talking about mining. Okay. Looking at the numbers he mentioned, I mean roughly speaking, 10% of the disbursement is a covenant for 2023. The most important chunk is about 45% of the covenants in the year 2024.

Operator

And the remaining will occur in the following years with the start up of our main asset, which is the mining concentration and filtering that will at the end of 2025, as mentioned by Gustavo during his presentation. Today, we just announced a material fact related to the certification of the reserves That's part of the program of sustainable mining, and that was a report produced by SRK, giving us 40 years of lifespan in terms of the investment in that reserve. With that in mind, as part of that certification process, In order to do the classification of resources for the probable and possible reserves, the cash cost, I mean, it's something that we mentioned in the presentation when we gave you the returns expected, both for the use of that 5,500,000 tons as well as the improvement in the quality of the ore In Ouro Branco, we expect to generate about USD 220,000,000 a year during the ramp up. And for that, we consider a cash cost of around $30 per tonne. In the mill, when the material is ready in the mill.

Operator

That 476,000,000 of reserves, They have an average concentration of 35.7 percent with a strip rate of 63%. And basically, this is what justifies the fact that the material is about 35.7% in situ to a pellet of highly concentration of 65% with a high concentration of 65%. I think these were the main points related to That mining question. Yes, I don't have anything else to say about mining unless somebody else has another question about that subject. But quickly moving to the same question, prices of flats and longs.

Operator

I don't see any possibility in the short run to see any increases, but I don't see the possibility of keeping these prices at the current levels, of course, but there is a lot of work to be done in that regard. And in the last few years, in fact, I mean, We look at exchange rate and things that really affect the levels of export premium. At the same time, We have a service level that is excellent in Brazil in terms of delivery terms, shipments, the strength of Comercial Gerdau, our total mix of products, we have a series of alternatives that allow us to maintain prices at the current levels. This is a challenge. And this challenge, I think, is well detailed in house, and we have good plans in that regard.

Operator

The third point was SG and A. This is a number that I've been referring to for quite some time. A company like ours with our culture and with the level of austerity shouldn't have over 3% of SG and A over revenue. So now we are hitting the ceiling at the high level of that trench. And this is explained by 2 factors.

Operator

On the one hand, Carlos, there is the issue of lower revenue and there is lower sales and that affects part of the calculation. And in the last 3 years, we put in this SG and A all expenses related to Gerdau Next. Gerdau Next is an operation that is not yet delivering revenues at the level expected. Even Ajanxi, which is the company that we recently established for the rental of trucks and machineries is not already producing the levels of revenues we expect. So there are some expenses that are included in that SG and A line.

Operator

So these two factors allow SG and A to hit 3, but there There is many initiatives. Also, we have a very intense and rigid control of our expenses and costs. And all of that is part of our nature, is part of our culture. And more specifically, during my administration in Jupur, so today, we do not have any plan to increase SG and A above 3% over revenue. The 4th point, I think, somehow I already answered about exports.

Operator

We are removing our installed capacity, earmarked for exports. But what we could expect now in terms of export volume in the 3rd quarter our volumes returning to the levels of the Q1 or even below. So we are already removing 100,000 tons of exports so that we can reach lower levels when compared to what we delivered in the Q1, which I believe it was 190. And the other question about maintenance shutdown, maybe you can help me, Xiaopo. I just remembered another point related to mining and the use of that ore.

Operator

That ore will be fully utilized by our units in Minas Gao, Ouro Bran, Cobar de Kokay, Cerro Doze, etcetera, the 4 units in Minas Gerais. So at the moment, we're not intend to sell that or to 3rd parties. And also without SG and A, as Gustavo was saying, and he referred to Gerdau Akerdao, Nesc, we have a more associative nature when compared to our business. And Most of our assets are fully consolidated, but we're now Next and NewWave and Adiente. These are all investments that we did not consolidate, meaning that they are not part of our net sales, even though general expenses to run the business, They are part of the SG and A.

Operator

So in a certain way, there's affects that numerator, but we still have to work in a few issues like the ones Gustavo mentioned. And now I forgot the other question. Oh, about shipments. In North America, There was a delay because there was a delay of over 30 days in the weekly maintenance shutdown. I think referring to South America, Renata, about volumes In South America, I think the 6th question is related to shipments.

Operator

This quarter, to see the maintenance of these shipments. Yes, we do expect maintenance. In Peru, we had some climate issues, very challenging In terms of our level of activity, well, certainly also there is semi election in Argentina, and this should probably remove some answers. But at first, but we expect the shipments to be mixed, volumes maintained in South America. I think we answered all of the six questions.

Operator

Now based on Quirika, sell side analyst from Credit Suisse, she would like to speak live. Please can you open her camera? Good morning. Thank you. My question is just it's a bit confusing to me.

Operator

In North America, in the second quarter versus the first because there was lower demand. So do you think that You expect to see the same volumes in the Q3 because demand is already lower than what it was in the beginning of the year. Is that Correct view. Yes, Vanessa, you're correct. The demand we saw in the second quarter is the demand that we are also seeing in the 3rd quarter.

Operator

We haven't seen any additional drop in demand. That is something that could happen going forward, but It's not included in this demand. So we see a slight demand in the Americas. So to answer your question, the answer is Yes. This is the current demand level that we are seeing.

Operator

Next question from Rodolfi Anja, the Hellside analyst from JPMorgan. After So many questions. I promise I only have one question and it will be very difficult on mining. I think we already talked about several numbers, etcetera. I just want to Miguel Bournier is an area where you were for quite some times.

Operator

What motivated you? What motivated you? I just want to have a picture of the before and after. That's all. Thank you.

Operator

Well, I knew that you would come with a very special question like that. Yes. Vernaki, I am used to being left behind. So okay, we have to talk about that later. Okay.

Operator

But that's a very good question. Miguel Bornea is an area we've been exploring for quite some time, but we are far from exploring all the possibilities of that area. But The iron belt of Milas Gerais has been reducing the iron content. In general, that's a geological phenomenon. At the same time, if you consider future competitiveness of Ouro Branco, if we create other alternatives to allow the mill to grow in the future, I mean, it is growing now.

Operator

In terms of semi finish, we are exchanging it by full finish. I mean, we want to be a meal dedicated to finished goods as we are doing now with BQ. But we want to create other options for the mill to grow in the future with low greenhouse gas emissions, etcetera. And everything converged for our decision to make that investment in Miguel Bune. There is a major advantage because it's physically very close to our Ouro Branco Mio.

Operator

So our logistic cost is absolutely low. With this ore pipeline, the logistic cost will be really low. We will no longer have to use trucks. And our ore processing, it only has to cover a distance of 13 kilometers. So with a 5.5 1,000,000 in capacity, not only for the President, but present, but this will give us more options for the future.

Operator

This will allow us to be self sufficient with competitive or In very long term of 40 years, part of that ore will be sent to Jupinopolis, Kokay and Sechilago. So in the long run, we will healthy, adequate competitors with a good level of CO2. So this explains a bit of the rationale when it comes to our decision to make that investment, okay, Rodolfo? Okay. Thank you.

Operator

Good. Thank you. Renato, back to you. Well, in the benefit of time, and I will now conclude our Q and and we from the IR team, we are committed to give you all the answers very briefly. So I'll turn the floor back to Vernak.

Operator

Thank you. I would like to thank you all for organizing this session. And also, I would like to thank all of you for all of your questions. On my behalf, On behalf of Jean Coutu and Renata, it's always a great pleasure to be with you. Also, I would like to invite you to join us for our next video conference related to our Q3 of 2023 results, which will be on November 7.

Operator

But before that, I would like to take this opportunity to invite you to participate in our Vidal Stakeholder Day. It will be on September 28 in our Museum of Mines and Metal in Bello Horizonte. We will have the Stakeholders' Day on September 28. And the next day, we invite all of you to visit our meal. So you will be more acquainted with that new concept of no dam mine.

Operator

And also, it's a very good opportunity for us to visit the Ouro Branco Mill and that will give us the opportunity to discuss in more detail some topics that we do not have enough time to discuss in a meeting like that, like the one today. So

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Earnings Conference Call
Gerdau Q2 2023
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