Q3 2022 Ferroglobe PLC Earnings Call
The conference will begin shortly to raise your hand during.
Good morning, ladies and gentlemen, and welcome to favor groups third quarter 2022 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 is being recorded I would now like to turn the call over to English Pot-walloper fabric Lopes, Vice President of Investor Relations and corporate strategy you may begin.
Thank you.
Good morning, everyone and thank you for joining federal groups third quarter 2022 conference call.
Joining me today, Yeah, as Javier Lopez must read our executive chairman.
Garcia of course, our Chief Financial Officer.
Benjamin Christy our Chief operating officer.
Then what Olivier <unk>, Chief Technology, and innovation officer, and Deputy CEO , and Craig Arnold our Chief commercial officer.
Marco Levi, our Chief Executive officer on the call, but will not be speaking as he has laryngitis.
Before we get started with some preferred prepared remarks, I'm going to read a brief statement.
Please turn to slide two at this time.
Statements made by management. During this conference call that are forward looking are based on current expectations.
Risk factors that could cause actual results to differ materially from these forward looking statements can be found in <unk>.
Most recent S.
SEC filings.
It exhibits to those filings which are available on our web page.
<unk> Dot com.
In addition, this discussion includes references to EBITDA adjusted EBITDA adjusted EBITDA margin working capital adjusted gross debt net debt adjusted net profit and adjusted diluted earnings per share, which are non <unk> measures.
Reconciliation of these non <unk> measures maybe found in our most recent SEC filings.
At this time I would now like to turn the call over to Javier Lopez Madrid.
<unk> Chairman slide four please.
Good morning, or good afternoon, everyone. After a second I'm sorry.
Record second quarter, we reported solid results in Q3.
Despite the challenging market environment.
During the third quarter market prices for each of our product groups declined from record levels in the previous quarter.
Higher and volatile energy costs in Europe continued to persist during.
During the third quarter, we actively manage our global asset footprint by reducing operations and higher costs.
<unk> like Spain, and relocating volumes to other geographies.
Higher raw material costs negatively affected our margins too.
Last month in line with our new strategy, we announced the restart of our Polokwane plant in South Africa, which will start up in November .
Ramping up according to plan and on budget.
The facility will provide up to 50000 tons of high quality and cost competitive silicon metal capacity on an annualized basis out of which 35 35000 tons will be produced in 2023 and give us the flexibility to supply it globally.
During the third quarter, we continued to execute on our primary financial objective by deliberate deleveraging the balance sheet.
During the quarter, we redeemed our $60 million, 9% Super senior secured notes due 2025.
We continue to progress on our transformation plan with our incremental EBITDA run rate objective of $225 million with.
Spec to achieve by 2024, enabling us to be a stronger and more resilient company.
Specific to the third quarter, our revenues declined 29% from record levels in Q2 to $593 million and our adjusted EBITDA declined by 39% to $185 million.
Adjusted EBITDA margin was 31% in Q3.
Compared to record margin of 36% in the prior quarter.
Our adjusted EBITDA was the third highest in the company's history on a bit the margin was significantly higher than.
In any prior years. This is a direct result of successfully implementing our strategic plan over the last two years.
Our earnings per share was 52 cents compared with 90 cents per share that we delivered last quarter.
Our cash balance at the end of the third quarter was $237 million down from $307 million last quarter. The decline in cash was primarily driven by the repayment of the reefer 60 million $60 million of Super Senior notes are due.
Total cash balance combined with our Undrawn facilities provides total liquidity of $337 million, giving us ample flexibility to execute our business plan.
Our net debt of 194 million was flat versus the prior quarter, which is the lowest level in the company's recent history.
Overall, the third quarter highlights our ability to perform in a very volatile and challenging market environment.
In addition, as part of our corporate update we will provide details on our specific actions being taken to being taken to actively manage our operational footprint.
Moving ahead to slide five please.
Yeah.
Silicon metal revenues was $264 million in Q3 down 26% from the prior quarter.
Our silicon metal business was down as a result of challenging market environment, primarily impacting volume, which declined to 50545 metric tons down 20% from the prior quarter they've.
This had a negative impact on our EBITDA of approximately $43 million.
During the third quarter, we are seeing European aluminium producers curtailing production by 50% due to on sustainable energy prices, causing a decline in demand for silicon metal and negatively impacting our market price. The aluminium sector continues to be adversely impacted by weaker outdoor demand.
In contrast, silicon speciality grades continued to be the strongest contributor to our portfolio.
The average realized price of silicon metal was down seven 6% over the prior quarter, resulting in a negative impact to.
EBITDA of $11 1 million.
Excluding GB shipments average prices were down four 7%.
It's important to note that we outperformed the market where index prices in the U S and Europe were down, 18% and 22% respectively over the prior quarter.
And the industry prices in Q3 in the U R to stabilize over 3600 units per metric ton, while U S spot prices declined to 7000 U S dollars per metric ton.
Since the end of Q3 U S index pricing a border declined to 6700 U S dollars per metric ton, while EU index have held at the referred $3600 per metric ton.
While adjusted EBITDA contribution for Silicon metal.
$130 million was down from last quarter record level. It remains strong compared to prior year's adjusted EBITDA margins for this segment were robust at 43%.
To put this in perspective.
Metal adjusted EBITA margin for 2019, 'twenty until 2020 before we began to implement our plan where did the signal digits.
Cost from silicon metal and silicon metal.
Second silicon metal negatively impacted adjusted EBITDA by 8 million driven by high higher raw material costs, particularly coal and energy, which impacted cost by $6, four and $1 4 million respectively.
Slide six please.
Silicon based alloys revenue was 170 million in Q3 down 24% over the prior quarter.
Adjusted EBITDA for Q3 was $60 million down 39% from the second quarter.
Sales volume declined 50% over the prior quarter negatively impacted EBITDA by $10 million, while the average realized pricing was down 11% over the same period.
Deeply impacting EBITDA by $26 million.
Costs had a slight negative impact of $1 3 million driven by higher coal price in Europe .
Adjusted EBITDA margin for Silicon based alloys was 33% in Q3 was down from prior two quarters Q3 was the third highest in the company history and significantly higher than 2021 level.
Lower demand for Silicon based alloys, and was driven by the summer slowdown as well as weakness in end markets, particularly construction in.
In addition, as a result of higher energy prices in Europe , where capacity closures among foreign steel producers driving a decline in demand for silicon based alloys.
Benefiting our margin was our strategy to focus on higher margin specialty and foundry product, which was enabled which has enabled us to improve margins compared to commodity silicon alloys.
Low visibility of steel demand persists and is pushing customers towards depleting inventories.
Moving to slide seven please.
When manganese alloys manganese based alloys revenues was 19 $98 million in the third quarter down 49% from the prior quarter sales volumes declined 37% over the prior quarter negatively impacting adjusted EBITDA by $10 million.
Average.
Realized pricing was down 20% over the same period negatively impacting EBITDA by $32 million.
This volumes declined at the third quarter was positively impacted by a normally high demand in second quarter, Scott customers focus on securing supply, which enabled us to sell at higher prices.
Cost was favorable primarily due to positive one off mark to market adjustment related to the earn out provision of $25 million.
Late in the second quarter, we purchased manganese ore reacting to a shortage of supply in the market.
In response to significant changes in market conditions, including shutdown of European steel producers, we slow down our production and respect to hold manganese ore longer and convert manganese based alloys based based alloys in line with demand.
Overall.
Our sales for this segment declined 49% from the prior quarter, while adjusted EBITDA declined by 55% on our adjusted EBITDA margin declined to 51% from 71.
Percent capacity closer among private payers as steel producers in Europe , and weakening end market have negatively impacted demand.
We continue to actively monitor this market and manage our production accordingly.
I would not now like to turn the call over to Teresa Krause, Our Chief Financial Officer to review the financial results in more detail.
Thank you Javier and good morning, or good afternoon all please.
Please turn to the income statement on slide nine revenue for the third quarter was $592 million.
79% from the second quarter.
The volume declines and lower prices from record levels in the play of course, it across all our product categories.
In my opinion, it energy consumption declined 23% from the second quarter, resulting in the roadmap and.
Entity.
Consumption as a business, that's a sales increasing 4% from the prior quarter to 48%.
Up from Q2, raw materials and energy consumption as a percent that'll shape down.
Down significantly from prior year, yes.
Well, then operating expenses declined 40% versus the prior quarter to 30% of revenues versus 60% in the second quarter.
The improvement.
Operating expenses was due to lower consulting fees higher tier two credits and the mark to market that definitely related to the earn out provision for the manganese based alloys.
Great.
Adjusted EBITDA in the third quarter was $185 million.
Down from a record adjusted EBITDA as reported to the play you collect it.
$303 million adjusted EBITDA margin was 71% down from 36% in the prior question.
Our earnings per share <unk> 52 cents in QC compared with 98% reported in Q2.
Next slide please.
<unk>.
Volume and price were the biggest contributors to our adjusted EBITDA declining some CIS under $3 million from the second quarter to 185 million in the third quarter lower volumes across all three segments combined with price declined negatively impact adjusted EBITDA by $180 million.
Cost was favorable one by 15 billion, mainly due to the positive impact of $35 million from the earn out the cooler.
Partially offset by higher <unk>.
Energy costs of $10 million.
<unk> the overall impact of energy prices in the Spain, Westfield forward alone $2 $8 million quarter over quarter and a lot of.
<unk> realized unit cost of energy in the Spain decreased by approximately 11%.
We continue to actively manage our global footprint to cope with volatility in energy prices.
Slide 11 please.
We ended Q3 with a cash balance of $257 million down from $607 million in the second word. It is related to you know what Neil Undrawn ABL the liquidity was over $637 million I've quoted in.
Cash was used to pay down $60 million in debt.
To meet this expenses and $10 million related to C. O. Two bookcases. The remaining balance was primarily used to reduce our spending factoring that in.
Our net debt they remains at the lowest point in company history at $194 million flat versus the prior quarter. The gross debt was 431.
A million at the end of Q3 down from $500 million in the prior quarter.
Decline reflects the successful redemption of the $60 million plus 9% Super Senior notes went up all of our top priorities continues to be deploying our cash flow to further deleverage the balance sheet mix aside please.
The value of our assets totaled $1 9 billion at the end of QC and our equity book value was $700 million, we have set a target for working capital is sufficient that shelf space at 31%.
The third quarter, we went above this level of 30%.
Working capital was driven by an increase in total might be yet.
And finished goods, which will support our plan over the winter period, we expect.
So aggressively decline overtime on the coming months.
It's like mix it as I said in place.
We generated $5 million, a $55 million in operating cash flow at $55 million.
This is a record level of $165 million in the play you recorded it is the fourth consecutive quarter of positive cash.
Cash flow, our operating cash flow was driven by robust earnings partially offset by gas consumption for working capital of around 87 million.
Water, we have spent $50 million in capex versus $40 million in the prior quarter.
End of Q3, we have spent $46 million in Capex, we continue.
We expect our capex for the year to be on plan around 75 million.
Please keep in mind that the timing of the upfront cash flow impact of the Capex spend maybe first on the balance sheet feedback in the third quarter, our cash balance declined by 69 million, mainly driven by the debt repayments and working capital investment free cash flow during the quarter and was positive $40 million.
Our goal remains to keep working capital around 21% of sales across the cycle.
Next slide please slide 14.
As we generate strong cash flows and lowered our quantum of debt and cost of capital the credit profile of our company is improving in Douglas Moody's upgrade the 975 senior notes due in 2035 to be see this is a testament to the work we are doing the execution.
Our plan today.
Third quarter, we were able to successfully manage through Monday.
Highlighting the structural improvements we have made to the company over the past two years at this time I will turn the call back over to <unk> for a few updates on some noteworthy corporate madness.
Thank you for your interest now turning to slide 16. Please.
I want to highlight a positive development relating to our energy cost specifically in France for 2023.
While we have competitive energy prices and frankly in 2022, we have successfully negotiated for next year, a favorable contract to reduce exposure to volatile energy markets. This allow us to get similar energy rates compared to 2022. However, the contract contains higher prices during the first quarter.
When we manage by idling production in France.
During that quarter and supplying Europe or not.
Clients from lower cost facilities, such as polo, Guan Ambac, oncor, which have become favorable federal block global plants.
While the environment is challenging due to lower global demand and volatile volatile energy prices in Europe were successfully managing our business to maintain high margins and profitability.
As a result of our transformation plan that we have been implementing for the last two years.
To optimize our revenues and effectively manage all cost, making our business more efficient overall.
We continue to monitor our business with the focus of using our cash flow to further strengthen our balance sheet by continuing to reduce leverage longer term, we're focused on growing our silicon metal business.
Being even more into specialized high growth markets to drive overall growth for the company.
In that respect we're moving forward each day capitalize in silicon metal of critical materials to the energy transition.
We're taking advantage of our technological expertise developing solar and advanced application materials. During the last 15 years and we believe we are ahead of the pack.
As a direct result were now ramping up industrial scale production of three and four and purity liquid silicon.
In our portal Yano facility in Spain.
Our high purity silicone will supply advanced technology solutions, and in particularly engineered materials for the fast growing lithium ion battery market.
Moreover, we're in advanced discussion, we'd lead with leading silicon Carnival compensate producer and we're entering into joint development agreements across the E.
Keep EV filing change citic.
Silicon metal is suspected to be key to green energy transition driven by growth in electric vehicle demand energy storage solutions in shoulder for providing us with exponential growth opportunities.
Once again, a tremendous number of things going on that causes us to get excited about the future.
We have said from the beginning that <unk> was going to be a slow steady and purposeful purposeful journey focus on transformation value recovery and value creation.
Solid earnings should we view it as a fair validation of our team and our plan.
There is a lot more.
There is a lot more work that is left to be done and we remain committed to reaching our goals, while navigating a period of uncertainty as the macro picture evolves.
At this time I'll ask the operator to please open the line.
Four questions.
Thank you as a reminder to ask a question that you would need to press star one on your telephone.
Wait for your name to be announced.
Please someone please standby, while we compile the Q&A roster.
And your first question comes from the line of Lucas pipes from B Riley secure.
Please ask your question.
Thank you very much operator, good morning, good afternoon, everyone. Thanks for taking my question.
My first question is on the on the inventory build.
The third quarter, you touched on it a little bit in the prepared remarks.
Sounds like there were some tactical reasons to build inventory here.
Ahead of the winter.
And I would like you to maybe elaborate on that and then also is this a.
Sign of potentially declining margins.
In Q4, and Q1 with higher cost flowing through the P&L. If you could comment on that as well would appreciate all that color. Thank you very much.
Hello, Lucas Lucas.
Thank you. Thank you Luca for your question this is <unk>.
Yes, he's through that working capital consumption.
As we decrease in demand.
So inside of escrow loss.
So on the manganese ore side, we built up inventory.
Takers on the macro environment and particularly on the European.
As steel producers shut down.
And on the other side as well and in response to the sale of our Spanish.
<unk>.
As well in response to our friends say winter is still but as you mentioned right. We had to build some inventories in silicon and such as silicon to account for that we did in shut down and as a result, as well of this volatile vitamin and circulation and in Ukraine, we have.
Our position in electrodes and cole yeah.
And as well please remember that we are ramping up.
Our plant in <unk>.
Taking some of the big working capital consumption.
That's very helpful. So in terms of returning.
The ratio of inventory to sales that you mentioned.
Whats the whats the timing of that should we expect.
A sizable release already in Q4 or do you think.
No that that ratio will normalize into Q1 2023. Thank you. Thank you very much.
Thank you Martin.
Thank God for the four divisions here that we mentioned in particular and maybe that way.
It's still but not totally.
Got it.
Our <unk> depleting, yeah, so because of that so we expect it to go back to normalized levels in the coming months.
Okay. That's helpful. Thank you very much for that color and done.
Great.
Lucas.
Have you have here.
As you say it was tactical reasons on manganese, we reacted to market demand.
Yes, we have manganese, we have an excess of manganese ore.
That will be.
Use will be minor.
Manufactured over the coming months, depending on demand. So there is like two sorts of finished products and taxi.
In tactical and tactical.
Supply of coal.
Electrodes.
Bangin easel that we will be will be transformed into into manganese alloys over the coming months, depending on demand because as we mentioned in the call we stop all production in Spain.
Got it.
Thank you for that additional color.
On the.
For the approval of the.
New strategy can you maybe shed a little bit more color on what.
What what the strategy entails I assume it's mostly about the.
Silicon metal powders and high end product and pursuing that market in a measured way, but would really appreciate the additional color on that.
Thank you.
Lucas Thank you very much obviously yeah.
Silicon metal is our core business is our core business and a great deal of our.
So far.
Our strategic plan relies on going deep.
Into speciality and high added value product.
Together with us.
Denmark, which is our chief Technology officer.
And maybe he can add a bit of color of what we're trying to what we're doing what we're currently doing in that respect, which I think we're at a bit of.
Color to what I just mentioned.
Thank you.
Hello.
Our strategy in terms of growth.
Focused on the development of high purity silicon.
Advanced application, including batteries.
This when we look at it the silicon Portland's application in batteries is an and.
Dissipated to a accumulated annual growth rate of 30% per annum.
And this.
We'll have an increased <unk>.
Significant step that will take place in 2025, when the Giga factory is currently being built in the U S.
And in.
In Europe , as well as Canada will be producing at capacity requiring significant quantities of raw materials.
Beryl roadmap, we continue to invest in our technology to radio ourselves for this exponential markets.
<unk>.
<unk> attractive.
<unk>, we have is that we leverage or the older technology. We have developed for the last 15 years in solar and we believe that all metallurgical route technology, a three main advantages against any other silicon alternative for batteries. It is lower cost lower capex.
Intensity and modularity.
Much faster ramp up dynamics.
Yeah.
Very helpful very exciting work during the quarter and I appreciate all the color in response to my question. So continued best of luck.
Lucas Thank you.
Thank you we will take our next question.
The question comes from the line of Martin Englert from Seaport Research partners. Please ask your question.
Hi, Good day.
One.
Hey, Good day, good Dave Martin how are you.
Thank you very much Joe bodes well with everyone.
I wanted to touch on the French power contracts and maybe we can.
Specifically the sequence here.
And how to think about volumes moving to your next year. So it seems like maybe they ask from the government was.
Don't produce on the French assets or significantly reduced production during the winter months or <unk> 23.
And then you're free to ramp based on wherever market demand is in the remaining quarters of 2023, and a few kind of follow that framework.
Well keep you comparable on Euro six standard.
<unk> price with your go forward contract in 2023 versus the legacy one.
The way to think about it or did something differ.
Yes.
H.
Slightly different because these are fixed agreement is a fixed agreement that we have reached.
With the with the ETF, but maybe Benjamin you can you can I be of specifics to Martin.
Thank you Martin it's Benjamin speaking so.
Generally speaking it looks like so we entered into a three year contract agreement right.
Energy provider and this is from 2023.
For 2023, specifically I mean.
Yes, we are taking action during winter in France, and by modulating during winter, we will achieve energy cost in 2023 similar to the one we are in 2022. So this is beneficial to our competitor.
<unk> right.
That said I've seen when talking about volume I think it's too early to talk about 2023 volumes overall, given that we are presenting our contracting failures and performing a of focusing and budgeting exercise for 2023.
And what we should keep in mind, you that we will shift our annual plant maintenance shutdown into Q1 and it is only one way of mitigating the impact on volume as we already mentioned that we reduced our global platform in particular, <unk> and we continue to balance production and demand.
So no sense.
Yes.
South Africa restart.
Do you think that was supposed to add 30 to 35000 tons for next year.
But no sense on I guess, if we think about before the restart was announced.
Or what.
As you can gain all told comps might be from that given that there'll be.
Some downtime during the winter months.
Maybe maybe Craig.
Yes, maybe maybe just to support will Benjamin was saying with the anticipated modulating up the assets for some of the maintenance plant maintenance in quarter, one well timed with the startup of the polokwane asset in South Africa in it and how it is going to service the global franchise on a niche effects.
On a year over year basis, it'll be it'll be roughly the same.
Because as you highlight some of it later earlier in your comments there. When your question was as we begin to operate throughout the remainder of the year. So post post French winter, we will be able to actually push.
The entire franchise, a little bit harder in France.
Okay understood. So.
Comparable from a volume perspective year on year.
The remainder of the year, that's when we'll see more opportunity for gains.
Based on the demand environment.
Okay.
That's actually thinking about the.
Cost per megawatt going into the French assets.
Comparable level as to what it was with the legacy contract.
That's correct.
Okay understood.
We discussed the South Africa restart.
Maybe in a little bit more detail.
Where are the volumes.
We're going to be going.
Maybe a split between the middle East and North American market and the Euro market imagine based on modulating the production in France that will probably evolve a bit as we move through 'twenty three.
Okay.
I think Benjamin I might start on implementing the <unk>, maybe almost flexible assets in the platform. It can silva any markets and.
So I think it's.
As the markets evolve and as the opportunity comes we will we will manage to the volume and where we allocate them, but I will let Craig comment on the market is big but political and he's really a flexible platform that can go through most of the geography in the world.
Yes, Martin as we look at.
How we how we plan to go to market with the polar corner assets has been highlighted as a as a global asset originally designed.
The high performance, partly polysilicon area targeting Asia Pacific, but since it has been our plan to be restarted during the course of the coming quarters.
The idea is to is to.
Surface.
A variety of regions.
And looking at Asia looking at the Middle East and of course, looking at Europe , and the U S. I can't give too much detail on the level of those contracts, but certainly as we scale up the three furnace operations over the coming quarters. We will there will certainly be able to give a little bit more highlights and updates on the performance of that asset.
And this particular target markets.
Okay.
That's helpful.
When we think about where it sits on the cost curve.
Accounting for contracts and everything else.
Historically this has been a bit of a lower cost production.
Facility is.
Kind of where it will remain once it gets restarted.
Yes, that's correct.
Understood.
Hi.
Just for modeling purposes ill dig.
Dig into South Africa restart.
Maybe taking a step back and looking at.
Coming from 'twenty, one 2021 to 2022 there was a pick up within the company away from.
Specifically for silicon metal that I'm discussing not the other business volumes.
A bit away from fixed annual contract prices, where it's a fairly de minimis amount of the contract structure in 2022.
Is that expected to remain so in 2023 or is there anything changing.
We should expect a larger mix of.
Fixed annual price silicon metal contracts in 2023 versus 2022.
Yeah. Thanks, Martin Thanks for that and thanks for the question.
Fixed price contracts are almost a thing of the past at the moment. So we hardly have any fixed price contracts.
Certainly it would not be wise had been a fixed price contract mechanism during today's volatility.
Because going out there and trying to embed all that volatility in one single fixed price at a high price is not something that's a consumer would would lock itself into.
And the strategies, we've chosen right narrow multiyear strategies and have a combination between.
Market related and <unk>.
Other related related aspects into that so yes, we are very happy to have retired.
All of our fixed price contracts.
Okay.
Paul Thanks for Ricky.
Reconfirming that.
I'm going to circle back on the working capital question.
Okay.
21% target was notably.
Exceeded.
Discussing another follow up question.
The components as to why and I understand that but.
What's the timing of.
When could we expect to achieve that 21% of sales I believe is the target business something that happens.
After <unk> results are reported in <unk>.
Yes. Thank you Martin for the question, let me take a one step back and so I think going.
But the reason I'm, saying that caused the see increasing in our present that says you know and we mentioned a one side, we have the manganese ore and we built up there due to the tenncare in India in the macro environment and as well or the European it still producers shutting down operations.
And in response to that though of course, we could say Allied Spanish operation right. Then the second thing to bear in mind is the.
The French him or defense, and we did and they still Bud-test SCO. Since you mentioned and then the third point. This of course has really sort of the volatility in the conflict between Russia and Ukrainian.
We buy some and additionally, electrodes and and and call Yeah and on top of course here, we are ramping up a political on it right. That's what you're speaking to this.
Net working capital on that so they can take that so and provided that we do see suddenly starting very soon we see this level of working capital coming in.
The next day progressively on the next day or the next coming months seem to be sent to your question.
I'm sorry could you just repeat the very last part of that you said.
Kind of you expected this level of working capital to yeah, sorry.
On the next coming months.
Next coming months so.
In my mind, I think that phase III month, or less straight quarter or am I wrong in thinking that yes.
Yes.
Well I was going to be keeping the target there yeah.
Maybe a.
Let me. Thank you Wyman, thank you too for sure.
Okay.
Okay.
In Q.
Okay.
Is it.
I wanted to get your thoughts on the recent greenfield projects that broke ground.
So last quarter.
In the U S for silicon metal.
You had called out in the press release targeting growth for your silicon metal business.
It looks like they're Macy's to untrained pushing forward in the U S.
But any high level thoughts from your perspective there.
Yes, Martin Thank you very much for the.
For the question the Greenfield.
I guess you are referring to the Greenfield play Youll see nobody.
I know others that have been announced well I think we have a first positive reaction because I think it validates a bullish case for silicon metal going forward.
I see.
We have expressed less new market dynamics re shoring energy transition on the positively impact silicon demand in the western world in the coming years.
And we should expect high growth.
In that sector.
As a result of that.
Announcements of production being made which would take some years to.
And so that all of that.
Type very positive I was a bit we were a bit surprised but we havent, we don't know the numbers and.
But we were.
Positively surprised about it.
It was a sizable investment of around 300 to 400 billion.
Again, I don't know the numbers, but the probe what we heard about regret is three 300 to 400 million for 60000 tons of capacity for phase one of <unk> capacity.
Just to give you a perspective in federal we have global global silicon metal capacity in excess of 300000 tons with a flex flexible global asset footprint.
Which.
Certainly at perspective tour on valuation potential, but maybe Benjamin.
You can give a bit of perspective on.
Greenfield brownfield project, and managing assets, which might add a bit of that.
Called out to what I just said, yes. Thank you Martin for the questions. So I think.
Silicon supply can be expanded through multiple routes right and the capex intensity of those options is very different if you talk about single capacities furnace conversion plant reactivation brownfield or greenfield the capex intensity of all those options are very different.
And I think as an integrated company, we are able to quickly capacity by reactive aging assets and the cost of that is maybe 50 50 time less because of a greenfield and that's what we've been doing that's what we're doing now is <unk> and that's what we've been doing earlier this year in cinema.
I think on top of that our global footprint as a source of competitive advantage, providing a secure integrated supply of critical inputs like quarks KOL.
Call in electronics, and I think that significant when you are nuclear those access to those critical inputs is not that easy.
And I think another advantage is the proximity to markets.
Okay. Thank you for that that's helpful and I guess.
It's probably worth highlighting there.
There has been some.
The last cycle or 10 years or so there has been some notable capacity reductions within the North American market.
You had one facility today.
At a facility that exited in I believe remains so.
Yeah.
Maybe things are wildly different even with a greenfield expansion.
Can you touch on maybe any more details to share about the <unk>.
High purity silicon that Youre ramping.
Okay.
Any comments on.
Leveraging the prior Knowhow that you gain from.
Great.
Co product that you were previously trying to take to market.
As the market turns.
Went away.
Like you're leveraging some of that today.
Absolutely.
And then maybe maybe you could map.
I can add a bit.
The ichor to Silicon, where we're targeting is is.
Slightly lower purity that non celeb, which makes the cost extremely efficient because it's the first.
The process steps, that's where basically adapting to into the plants.
Lisa.
Section of high purity Silicon is integrated into the plants, which is wonderful main costs that vintage.
The second is that we are in.
We will we will develop.
Develop the metallurgical route and as I mentioned earlier.
The easiest most efficient routes less capex intensive routes to when you want to.
Silicon into the a notes we're targeting specifically the silicon carbon composites markets and also the S. iOS.
<unk> produces and eventually we believe this solution.
Can be engineered for the silicon rich I notes, which all one of the alternative for the lithium metal I know it's in the solid state.
Batteries.
Maybe Amy.
Sorry, Marty just maybe what these the spectator growth venture.
Meanwhile.
Paul demand for the market going forward on that type of officers. So we have had negligible sales in 2022 few hundred.
Tons.
In advanced technology, and battery, we expect to triple those sales year on year and where the marked.
With a marked.
Step up as soon as the Giga factories will actually can start consuming and this is one of the challenge of these developments is to face the huge one step demand of Giga factories, and that's why we asked to ready ourselves now and we have started rating ourselves for quite some time now.
To be prepared for that big step.
Okay, so kind of still in the preparation I mean, you are selling volumes. This year and you will continue to.
Moving into 2025, but the bigger step change that you're anticipating is 2025.
Kind of a more western giga factories are ramping ramp producing and consuming more that's more of a step change anticipated Ryan.
Correct.
Okay.
Three pulp until then.
We tripled.
<unk>.
But what has tripled.
Volume on the sales.
2020.
300094.
What does this do with.
Silicon metal looking at it from base segment.
What is this due to the go forward margin profile EBITDA margin profile of that business.
Yeah.
And as these products are fairly high margin high value.
And I guess.
Any kind of framework that we should think of when we think about.
Kind of legacy silicon metal margins.
What it could look like.
25 forward with more or less in the mix.
Yeah. Thanks, Martin I mean of course with a with a higher proportion mix tilting towards the specialties you would certainly see an earnings profile transformation.
The way I see it is typically your your element game sector will take a bit of a knock with the recyclability and the shift of the general industry going towards Evs.
But the chemical sector favoring electronics photovoltaics. These areas are going to take more of a more of a share mix of our portfolio and the greater silicon metal.
Metro markets, so without a doubt that that profile of that earnings profile will change tremendously as you as you pointed out.
Alright, Thank you for all the detail and color.
Thanks.
You all did a very nice job.
It's a tremendously difficult environment.
Europe as well as the North American market to be Duvelisib agree. So congratulations on the results.
Yeah.
Yeah Martin.
Thanks, Martin and Martin.
Thank you we will take our next question.
And the question comes from the line of Mike <unk> from Janney Capital Management. Please ask your question.
Yes, good morning.
In terms of when I look at the end use demand.
Your products go into.
Auto production has been flat going higher.
Solar.
Less familiar with how the solar production ramp is it.
It looks like.
Like how much of your volume decline in Q3 was customer destocking.
Or you mentioned also increased competition from imports.
Yes, if I may thanks, Michael.
In Q3, we saw a number of headwinds.
Coming from a variety of different.
Challenges across the area, whether it had been.
The severe global inflationary pressures are actually regional energy situations or just the zero carbon policy.
When we looked at when we looked at how intervention was taking place on the supply side. There was a number of actual supply production coming off.
And that was meeting or matching what the what the demand with the demand balances. So in effect the market was becoming quite balanced.
Because of the liquidity of those sectors.
It's really.
Really balanced out.
As you as you pointed out on the chemical side, we had a number of customers.
I had expressed concerns around the economic situation and obviously the consumption obviously dropped.
While currently preparing for a deep clean towards year end.
<unk> earlier question on motion was asking we have seen also an increased demand in premium.
But unfortunately that hasn't been enough to make up for the short term that we had seen an si lok Samsung aluminum industry.
I think Florida, I mean generally the chemical sector is going to be a robot.
The growth in the future.
Putting up in the medium term.
Demand for solar grade and Thats, what pain, while it's been popping into batteries.
And the menu.
Yes.
Around the order of the auto sector.
We think theres going to be a little bit of a lengthy slowdown primarily due to the auto sector.
Started off big semiconductor shortages of LIBOR.
Additional curtailments and element in production because of the.
It's a very high production costs primarily.
Energy.
And so but going forward.
That's at least a high growth.
Both have a high base, but at a slower rate expected in the longer term as I've mentioned earlier.
Related element.
We will have to go through transition.
Higher uptake in recycling and the general transition to EV.
And last question is just.
What's the estimated cost.
Cost of ramping up polokwane.
Yes.
That's.
Yes.
Benjamin Benjamin speaking, so I think we of course, we cannot.
Too much precise on that respect what I think we mentioned that we mentioned submitted earlier in a previous answer that.
It's much cheaper than a greenfield and we are we are talking 50, 50 times less than a greenfield project.
The level of detail, we are going to be able to be into you don't want to be so precise on that but.
Amit I mean.
Very cheap.
In terms of the army.
We can.
One of the one of the things that.
That we are.
And I'm actually.
Our global footprint is becoming is becoming more and more valuable.
The wall as the World is D globalizing a bit we can restart the facility.
Very quickly.
And.
Very cheeky and Thats that.
We've.
And that's why it allow us to react to market anticipate bulk movements.
A much more agile way.
Hello, Glenn.
We did that in Selma, Alabama last.
Last year, we started that in front of blending in the reverse.
Stopping production.
Stopped production in Spain, and we are stopping production for three months in France and that piece for us.
Mendes advantage.
<unk>.
For the World we live in.
Right.
Okay. Thank you.
Okay.
Okay.
We will take our next question.
The question comes from the line of Lucas pipes from B Riley Securities. Please ask your question.
Thank you very much for taking my follow up question.
I wanted to ask a bit on.
Four we're halfway through the quarter.
How are volumes holding up so far but what are your volume expectations for the fourth quarter in light of the uncertainty on the on the macro side would appreciate your color there. Thank you.
Yes. Thanks.
<unk> highlighted a little bit earlier, there was there's a number of factors that are playing into into the marketplace right now and we've seen this correction on supply and demand but in general.
Where.
Most of the market is out of summer slowdown and there is a slight but yet cautious.
Order load coming through in quarter four.
We see it we see it little players playing favorably.
According to our expectations.
Now the real the real.
Area that we were sitting at right now is looking at.
How we commence and how we concluded successfully the remaining part of our negotiations for the next next year, but of course.
I cannot comment too much further on that but that's that's driving a lot of the current.
Current purchasing posture for fourth quarter.
Okay.
And for the.
Expectations today, we expect modest increase in volumes across the three segments is that reasonable or.
Uh huh.
Yeah, we would elaborate on that.
Well, we've made the curtailments.
In Spain.
So essentially we are operating just just with our U S with our U S assets and part of the Spanish assets, the French assets on Norwegian assets, and we focused on the successful startup of South Africa.
Argentina also continues to be a good a good provided to that franchise.
Okay. Okay. That's that's helpful and then.
A bigger picture question, but the aluminum makers have been what western aluminum makers has been.
Lobbying for a ban of Russian.
Russian aluminum.
On the <unk> for example, so so Russian material continues to come in.
And what is the impact of that material.
On GSM do you does that ultimately indirectly compete with you as well or do do fabricators take question aluminum someday I'll, Let me for example, Oh.
Your material.
Yeah.
Uh huh.
Demanded.
Glenn said alloys for the end consumer just just trying to understand the market dynamics around.
The aluminum demand side of the equation a little bit better. Thank you very much for your color on that.
Yeah. So your question is specifically around the aluminum sector into the U S. If I understood your question right.
That's just the U S Europe Europe as well.
Yeah.
At the end of the interplay with <unk>.
Production.
In Europe , and the U S visa b input.
So it's of Russian material Russian aluminum material.
Effectively if if if Europe continues if youre buys Russian aluminum.
Still by the alloys from you at 2222 to make those specified.
Alloys or does.
Does the Russian aluminum come with.
Great of alloys that that already meet customer specifications, yes, so as the as the imported Russian element, that's coming into Europe . If it is coming into Europe does it does it replace our demands going into element it doesn't.
I mean, where we are currently contracted and we are currently working with our downstream customers.
They are they have made the necessary adjustments and will operate accordingly, but no direct impact for us.
Got it.
That's very helpful. I appreciate the color and again a continued best in smoke.
Thank you. Thanks. Thank you Lucas. Thank you we will take our final question.
The question comes from the line of Thomas Murphy from Odeon Capital. Please ask your question.
Hello can you hear me.
Loud and clear.
My question is probably directed towards Beatrice.
Well first of all congratulations on the quarter is very good quarter.
Features on this cute.
You had made a statement that.
Ideally over time, you'd like gross debt.
To get down to $200 million.
<unk> that the environment has changed a bit since Q2.
And still though very strong Q3 is that still a target and if yes.
Daily over what timeframe would you hope to.
Achieve it that's my question. Thank you for your time and thank you for your questions.
Hey, Brian .
Yeah. Thank you. Thank you for your question I think the first part of the answer to your question is yes, and we reconfirmed the target they'll say 200 million of gross adds that that's what we what we said.
It is true that the interest rate environment is changing.
But what we are doing is we have continued to build cash yes, you ask yourself from some of the results.
We are evaluating all the options that we have at the moment.
You said this gross debt.
And we continue to think that this could be something that we will not be doing it I would say sooner than that lay that out to the retail diesel maintenance I'll take a step without it being saved that let me and just to.
The mine so our target is to keep the debt that we have in our balance sheet of course, we have as you know some gold that meant the loans that we plan to keep and we're gonna be looking at to get rid of the expensive thing that maybe before westbay expensive I recognize that maybe now is not so expensive right.
We are working on that and would be one of the development somebody they've met in the next quarter or so.
Great. Thank you. Thank you so much and again great quarter.
Thank you. Thank you so much stomach.
Okay.
Okay.
Thank you I would like to hand back to the speakers for closing remarks.
Yeah.
Thank you that concludes our third quarter earnings call.
In Q3 demonstrated our ability to manage through challenging market to still generate positive operating cash flow and maintaining a strong balance sheet. We will continue to focus on improving our operation efficiency and reduce our leverage.
We remain focused on growing our profitability and generating strong earnings throughout the cycle. Thanks again for your participation and support and have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect speakers. Please standby.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
Okay.
Okay.
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Okay.
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<unk>.
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The conference will begin shortly.
Raise your hand during Q&A, you can dial star one one.
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Okay.
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