Befesa S.A.

Good morning and welcome to the first half 2023 results conference call of BFESA. I am Rafael Pérez, CFO of BFESA. Today we have with us Javier Molina, Executive Chair of BFESA, and Asier Zarranandia, CEO of the company. Javier Molina will start with an executive summary of the first half. After that, Asier will explain the business highlights of the period, covering steel dust and aluminum salt slag recycling. I will then review the financials with a focus on cash flow, net debt, and our hedging program. As here, we'll close this presentation providing an update on our growth plan, as well as some thoughts about the outlook for the second half of this year. Finally, we will open the lines for the Q&A session. Before getting started, let me remind you that this conference call is being webcast live. You can find the link to the webcast and the first half results presentation on our website, www.befeso.com. Now, let me turn this call over to our chairman.

Javier, please. Thanks, Rafael, and good morning, everybody. The first half of the year has been characterized by a challenging macroeconomic environment. Despite these difficulties, BESESA has delivered solid results. Although revenue have increased by 8% compared to the last year, driving by the integration of the zinc refining operation in North America, EBITDA in the first half was 95 billion euros, 20% down compared to the previous year. The main driver for this decrease has been higher zinc treatment charge, up 19% compared to last year, lower zinc prices, same period of last year, as well as higher coal prices, which are up 25%. All these negative effects have been partially offset by higher sink etching prices and lower operating costs, driving by productivity improvements and lower natural gas and electricity prices. Our aluminum business has continued to show benefiting from strong margins and a decrease in the energy prices in Europe. Asier will explain the performance on the steel and aluminium business in more detail later. From the strategic point of view, during the first half, we have continued the integration in the US, including the steam refining plan, which is improving its performance gradually with higher utilization rates. Also, In the U.S., we continue with the refurbishment works on the plant in Palmerton, Pennsylvania. In China, where the steel production continues to be weak, we continue to progress with the third steel dust recycling plant in the province of Guangdong, one of the most prominent provinces in China. Nevertheless, as we explained in the past, we can module the speed of the investment and we are adapting to the current situation in China. With regards to the outlook for the rest of the year, overall, we expect a stronger second half of the year compared to the first half. This is based on expected overall higher volumes of the second part of the year, combined with a gradual decrease on code price through the year and some recovery on SIN price, which at the current level are scratching the C90 cost curve. Finally, on ESG, in June we published a way ESU report for 2022, which includes the reporting on European taxonomy, scope-free emissions, as well as a chapter on green metals, where we are very well positioned with low-carbon aluminum as well as green zinc. Before handing over to Asier, I would like to thank Wal Lehman for his contribution as CFO over the last year. As we are known, Rafael Perez has been appointed as CFO. Rafael has been part of the executive team of Bethesda for more than 15 years, reporting directly to me. He has the required knowledge, experience and leadership skills and will be supported by a highly experienced team. The change in CFO will have no impact on Bethesda our ability to deliver the global growth plan that we presented at the Capital Markets Day last November. Now, Axel will explain the business performance in more detail.

Thank you, Javier. I will now provide an overview of the performance of the business during the first half of 2023. Overall, the first half of the year has been a challenging one, as explained by Javier. impacted by lower steam prices, high treatment charges, high coal prices, and still a weak environment in China. Befesa's total revenue increased by 43 million, or 8% year-on-year, to $615 million in H1 2023, primarily attributable to the contribution from the U.S. steam refining operations. PFESA delivered and adjusted EBITDA of $95 million, down $23 million, or 20% year-on-year. This decrease was primarily driven by the lower think market prices. Reviewing the main drivers of the year-on-year $23 million EBITDA developed many more details. On volume, overall, approximately 2 million negative volume year-on-year impact mainly due to the 6% decline in electric car furnace steel dust throughput, primarily driven by the U.S. operation and the earthquake in Turkey. On price, overall, approximately $29 million negative price year-on-year, impact explained by lower zinc and aluminum market prices. About $27 million from the steel dust business, around $3 million from the aloe salt slag business. I will explain later in more detail. On cost order, the negative impact from high coal prices have been compensated with lower operating costs in our steel, dust, and aluminum, salt, and slag business. In this case, mainly through lower energy prices. Turning now to the results from our steel, dust, recycling business. Steel, dust delivered 67 million EBITDA in the first half, down 28 million or 29% year-on-year. Overall, the year-on-year 28 million decrease in EBITDA was mainly driven by the 25% decrease in SYNC LME market prices. The volume level was negative by around 2 million EBITDA year-on-year impact. As explained, mainly due to the earthquake impacting operation in Turkey and the U.S. operations beginning of the year. After the earthquake occurred in Turkey in February, we successfully restarted operations in March, and our plant in Iskenderun has been operating at normal levels since then. Total steel dust volume in the first half was 592,000 tons, which is 6 percent lower than the last year, and reaching an average utilization rate of 70 percent. Steel dust volume in Q2 has been 6% higher than Q1, and we expect this trend to continue. Overall, steel production globally has been weak during the first half of the year, as it sounds on page 11, with Europe down 10%, U.S. less 3%, or Turkey and Korea less 7%. Despite this, in Europe we achieved solid volumes, which helped us to run our European plans as strong utilization levels. In China, volumes were weak, driven by a delay in the recovery of the economy activity with still production below pre-COVID levels. The price level was overall negative by about $26 million year-on-year, with main price components being $27 million negative impact for lower SIN LME prices, down 25% or close to $900 per tonne year-on-year to around €2,600 per tonne on average for the period. The €6 million positive impact from higher zinc hedging prices, which is up 1% year-on-year to around €2,350 per tonne average, helped us to fully offset the unfavourable increase of zinc treatment charges, which was set at €274 per tonne for the year 2023. versus 230 per ton in 2022. Regarding the cost of the lever, the pressure from higher coal prices was offset by the positive impact through the productivity and synergies. With regards to Befesa's coal price, after reaching an all-time high level in Q1, Befesa's coal price started to moderate in Q2, 3% lower versus Q1, However, the first half average coal prices was 25% higher versus last year and is still around 90% above the 2019 to 2021 average levels. Revenue in the steel dust business increases by $49 million or 13% year-on-year to $403 million, mainly attributable to the contribution from the U.S. in refining operations. Consequently, the BDA as a percent of revenue stands at 17% in the first half versus 27% last year. The year-on-year profitability decrease is mainly driven, as explained, by the lower thin market prices. The unfavorable thin treatment charts increase, the higher co-prices, as well as the thin refining operation contributing to revenue but not yet to the BDA in the first half. As we saw on page 9, SIN LME prices have significantly decreased in the first part of the year. However, SIN prices have historically rebounded strongly upon touching the C90 curve. This is something that we have seen many times in the past during periods of strong economy stress. SIN price is currently trading around the C90 cost curve, which should balance supply demand and hence provide price support at these levels. Regarding co-prices, on page 10, you can see that after reaching an all-time high levels in the first Q2023, Befesa's co-price saw a small reduction in the Q2, 3%, versus Q1. However, the first half 2023 average co-price is still around 90% above the 2019 to 2021 average levels. In Q3, we are starting to see further normalization, which hopefully will continue over the rest of the year. Natural gas and electricity prices continue to normalize during the Q2 back to average levels of 2021. Moving now to the results of our aluminum salt slag recycling business. Aluminum salt slag delivered a strong first half with 28 million ABDA in the first half. up 17% or 4 million year-on-year. The year-on-year 4 million EBITDA improvement was mainly due to the lower cost, primarily through lower energy prices, partially offset by lower aluminum market prices. Regarding volumes, our salt slag and SPL recycling volumes slightly decreased by 1% year-on-year to 171,000 tons in the first half, primarily due to the ramp-up of the Hanover plant, which we completed in the second queue. Our aluminum alloy production volumes increased by 3% year-on-year to 87,000 tons in the first half. With these volumes, we operated our plant at solid utilization rate of about 85% in secondary aluminum and close to 75% in salted slag on average. Overall, as you see in the VDA work, no VDA impact year-on-year from the volume level. The higher secondary aluminum volumes were offset with lower salt slag treated. With regard to prices, aluminum allow F&B market prices showed a 12% or around 300 euros per ton decrease versus last year to around 2,250 euros per ton average in the first half. This negative price effect was partially compensated with year-on-year hydrogen-aluminium metal margins and resulted in about 3 million negative price effects that you see in the EBITDA work. The cost of the level of the EBITDA work solves around 7 million EBITDA positive effects year-on-year. This was driven by lower operating costs mainly through the lower gas and electricity prices. Bethesda's gas and electricity prices reduced further in the Q2, around 20-25% lower versus Q1, and back to 21 average levels. Bethesda's average price of gas in the first half was approximately 50% lower year-on-year. EBITDA, as a process on revenue in the solar slag segment, remaining strong at about 35%. Now, Rafael will explain the financial section.

Thank you, Osir. Turning to page 13, on hedging. The FESAS hedging strategy remains unchanged and continues to be a key element of the FESAS business model, providing same price visibility, lowering the impact from same price volatility, and therefore improving the stability and visibility of earnings and cash flow throughout the economic cycle. Our same hedge book includes close to 300,000 tons of zinc payable, hedge equivalent to 65 to 75% of our zinc exposure, up to and including July 2025. Therefore, we have two years of hedges on our books at increasing hedging average prices, around 2,400 per ton in 2023, 2,500 per ton in 2024, and around 2,650 per ton for the first half of 2025. In Bethesda, we have been doing hedging for same price for more than 15 years. And it is right now, in moments like this, with falling same prices caused by weak economic outlook, when the hedging proves its value. The hedge book at current price levels has a mark-to-market value of more than 100 million euros. Turning to page 14, the cash flow, net debt, and leverage results. on the EBITDA to cash flow bridge, starting with 94.7% adjusted EBITDA and to the left, walking to the right. Working capital was up by around 28 million euros year on year. This is very much driven by the usual first quarter seasonality impact without cash consumption in Q2. Interest paid increased year on year by 13% to 13.4 million in first half 2023. This was explained by two elements. On the one hand, the higher margin applicable to the term loan B, which increased in December 2022 by 25 basic points to Euribor plus 2% due to the increase in the leverage ratio. On the other hand, the year-on-year higher Euribor from 2% last year to 1% to 3% applicable in first half 2023. As a reminder, our long-term capital structure consisting on a trend loan B is 50% hedge against increases in the interest rate. Taxes paid reduced by 29% year on year to $11.4 million in the first half of 2023, resulting in an operating cash flow of $42 million in first half, 34% of $32 million lower versus the same premium of last year, very much driven by the lower earnings. CapEx-wise, in the first half, we spent $43 million in maintenance CapEx, including expenditure related to the final recovery of our Hanover plan and related to the operational excellent projects in the U.S. Normalizing for the Hanover recovery CapEx, regular maintenance CapEx amounted to roughly $30 million in the first half. Growth CapEx for the period was $10 million, including the remaining expenditure for the Henan project and capex related to the refurbishment project at Palmerton in the U.S. Overall, total capex of 53 million in first half. Normalized for about 13 million for Hanover spend, total capex will amount to around 40 million, which annualized would be equal to approximately 80 million, well aligned with the 85 to 95 million capex guidance for the full year 2023. After funding working capital, interest, taxes, and capex, total cash flow amounted to minus 18 million in the first half. Cash on hand stands at 143 million, which, together with our entirely undrawn 75 million revolving credit line, provides Befesa with a strong liquidity well above 200 million. The 567 million net debt with the 191 million LTM adjusted EBITDA results in a net leverage of 2.96 at Q2 closing. Now, back to us here on growth and outlook.

Thanks again, Rafa. As we have explained in the past, the decarbonization is a global mega-trend that will drive the increased production of electrical and furnace steel, making our natural market to grow significantly in the coming years. We have a well-defined growth plan consisting of nine projects in Europe, China, and the U.S. to capture the growth opportunities that we are seeing in the market. The first part of the investment plan will focus on the U.S., with the refurbishment of the Palmerton plant, which has already started with the demolition works and one of the two kills, and the signing of the EPC contract. As explained in the past, the refurbishment of the Palmerton plant consists of the upgrade of the two kills in the plant, one at a time, in order to capture the growth that the North American market is going to experience in 2025 and beyond. The first phase of the project will be completed by the Q3 2024, while the second phase will be completed by the beginning of 2025. The second focus of the investment plan is China, where we are developing the third plan in the province of Guangdong. With more than 120 million people living in the province, Guangdong is one of the richest in the nation and the largest car manufacturing location in China. As explained in the past, our growth fully depends on the FESA, which means that we can accelerate or slow down the investment depending on the development of the markets where we want to grow. The current situation in China, characterized by a weak economy environment and weak steel production, makes us be more cautious and adapt to the situation in the country. We are monitoring the evolution of the market and don't expect to invest in the plan in 2023. Anyway, the question in China is not if the economy will recover. But when will it happen? Finally, on outlook, as explained by Javier, we expect a stronger second part of the year compared to the first half. From the volume point of view, we expect higher volumes overall with continued strong operation in Europe and the US, with China gradually improving after a challenging economic environment in the first half. We also expect better performance on the same refining plan in the US. From the price point of view, as explained earlier, SIN prices have historically rebounded upon touching the marginal cost curve in the C90D by a supply-demand rebalance. We also expect cold prices to continue the normalization of prices that we are seeing in the Q3. Based on the above, we expect a stronger second part of the year. And looking ahead for 2024, we expect a strong earnings growth driven by better hedging on the books, expected lower TCE, higher volumes, and normalized single gold prices. Thank you very much.

Thank you, Asir.

We will now open the lines for your questions.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on the touchdown telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. So anyone who has a question may press star and one at this time. And we have the first question from Sandy Pitti from Morgan Stanley. Please go ahead.

Good morning. I have two questions. I'll take one at a time. So firstly, if zinc prices and coke prices remain on spot, what level of EBITDA should we be expecting for 2023? Also, can you help us understand what assumptions are implied in your lower end and upper end of the guidance range in terms of zinc price, energy cost, China plant, and zinc refining assets?

Sorry. Thank you, Sandeep. Well, obviously, we were expecting the question. But the case is that, as I said before, this is a combination of many things. What I can say is that the ZIN prices have been affected, especially in the last two months, and we don't expect that it's going to happen for the rest of the year. Today it's above 2,500, so we think that it's going to be there. Coal prices, what I can say is that we are watching... in the next quarter that the price for the petcoke in our, as an example, European plants have dropped in the range of 100 euros. So the question is that it's a combination of all the headwinds that we are having, as I say, treatment charges, same prices, China valuation, same defending, you know, ramp up, everything that has been affected to the first quarter, well, we are considering that it's going to not affect or affect less in the second part of the year. Having said that, you know that we are not giving exactly assumptions for the year, because at the end of the day, every one of you are modeling, and we cannot enter into one-by-one assumptions. But this is a combination of everything that would make us to be in the position that the second half is going to be stronger than the first one, and we will land, obviously, somehow in the low level of the guidance.

Thank you. Very clear. And then second question, today you have disclosed EBITDA of Euro 10 to 20 million from your Palmatone plant at Euro 60 to 70 million of CAPEX. Based on those assumptions and sustaining CAPEX of 2 million per annum, tax rate of 25% and VAC of 8%, I get to an IRR of 17%. Can you help us understand how is greater than 30% IRR calculated and the payback period of three to four years?

Again, Sandy, this is a good summary of your calculation. Basically, you managed better than me. What I can confirm is more or less those amounts of investments, probably the amount of the BDA level, and IRR, yes, I think that our calculation is in a range of 15 or above 15. The main question here is how many tons you are considering that we are going to capture with the new situation of the American market in the future. Yes, we can confirm those kind of things because it's the same that we were discussing in the November capital market. And there are not many changes in the medium term. The storm is coming in the 2023 year, end of 22 and during the 23 is where we are in the middle of a perfect storm. But we see the future or the near future starting 24, no changes for us. So we do think that we are going to driven in the business in better in better waters in the future no so no changes and i think that we can confirm that we see the same for the palmerton project as we explained it in the past okay and just an extension so your implied profitability uh for zinc refining asset is 20 to 30 million can you confirm that Yes, in the long run, yes. I think that probably in 2023 we are not going to reach this for the whole year. This is difficult because the ramp-up is in the first quarter especially, as well as some in the second quarter. Second half, sorry. And second half we see that the plant is more stable, and 2023 again, probably we will not reach those levels. But we're sure that 24 hours we will be there. In the 10 to 15 or even better years of 20, this is the maximum that refining can have.

Perfect. Thank you.

The next question is from the line of Michael E. Hoffman from Stifel. Please go ahead.

Hi. Good morning and thank you for taking the questions. I have to ask because most of my coverage in environmental services has been able to use pricing. on things like collection fees and what have you to pass through inflation. So why not have passed through the Coke price increases in the EAS business through the collection charge?

Thank you, Michael. Well, interesting question as well. I think that we have to make a difference. In aluminum, we are, you know, it's more sensible to the cost because the part of the price consideration is perhaps lower and it's more sensible to the cost of the plants. That's why we are able to transfer the cost or the higher cost to the fees, and we are, you know, increasing this profitable. That's good. In the case of the same prices, because the competition in the market that we are and the percentage of the cost that for the steelmakers has this with the ability to manage the residues makes very, very difficult that is an immediate transfer of the fees to the steelmakers. Long run, in a couple of years, you can increase the level. We have as well some formula basis, but normally based on the same prices, so it's not so clear that you can transfer immediately the fees and the cost for that. Having said that, once again, if you see the bottle half full, it's going to be a temporary matter about the coke and energy prices. So at the end of the day, because we are suffering this and coming back to the normal level would be enough to count the profitability good. But it's true that it's not an immediate transfer system regarding the prices in the same business.

Okay. And then I'm not sure I totally heard or understood all the answers to the first person's question. What I think I heard was that if zinc prices stay at the current spot market and coke prices continue to correct, we'll be at the lower end of the current guidance. So we should have modeled towards about $200 million of EBITDA.

Julie said... Michael, you listen more or less well. It is, again, it's a combination. I mean, if everything remains as it is, probably it's going to be difficult. But we do expect changes in these four or five FX that we are suffering in the first half. So, again, same prices. We don't see it's going to be in this level for the year. It happens. We will see what the other FX have. The co-prices are getting down, definitely. I don't know. We don't know now exactly the level of the drop. refining, the asset refining in U.S. coming better for the first, second half. The synergies in U.S. are to come in the second part as well. We expect to deliver better. And then let's see China that looks like with the last announcement of some stimulus or whatever could be, I don't know if it's spectacular or not, but probably doing better definitely than the first half. So the combination of all the effects, makes us to be, you know, confirming the guidance. Other thing is that if you put everything in the very, very bad situation, it would be difficult. But we don't see like that. We see that it's going to be, again, better performance in the second half.

Okay. And then, Rafael, what should we be assuming for operating cash flow for the full fiscal year now?

I think, Michael, if we go through the cash flow statement, I think if you look at the capex, I mentioned in the presentation that it will be around 80 million. Working capital, which is in the first half, minus 28, I think a significant part of that should recover through the year. We can think about taxes, a very similar level to last year. And then the other bucket is interest rates, which, as you have seen, is slightly increasing. And we expect also a slightly increase in the second half driven by higher euro. So when you put everything together, I think total cash flow for a full year should be around minus 40 to minus 50 million euros.

Okay. And that means we're probably at about an operating cash number of 110 to 120 million euros? compared to the 43 in the first half.

Yeah. Which finally, if you convert that into the leverage ratio, probably we will end up the year with a leverage ratio of slightly above three times. But as I said, we expect a very strong 2024, and therefore the high peak in leverage will be temporary.

Okay. Okay. Thank you very much. Thank you.

The next question is from the line of Cameron Neatham from Bank of America. Please go ahead.

Thanks for the presentation. Look, first question from me. I'm interested, just in terms of China, I'm interested to get an insight into what sorts of conversations you're having with customers or potential customers. And also, on China, has anything surprised you so far with the move there? Thanks.

You mean customers in general are coming out, right? Yeah. Yeah, that's correct, yeah. Well, in China, basically, I think that the conversation with the customer is to focus on what is going to be the production for the next month. And this is basically they should consider the orders they have and how the steel prices are in terms of cost, and then normally this is the main, you know, topic that we are discussing with them. Normally the contracts are in place. We have formula basis in terms of same prices, same content, and everything is going well in terms of the break, you know, performance of the framework of the business. But the situation there is that they depend a lot from the real estate and construction business in China, because normally the electric car furnishers are, well, are producing long, you know, long products. like the bars and so, so well, basically they are suffering this. So we are, you know, the conversation are all the time about the production and probably the future. This is in general. The other point is in the Guangdong province and talking with the filmmakers, getting more commitment for the future. And then I will say that the problem is really the production, not is a problem of the business framework or the contrast and so on. This is the main issue in China. which at the end is not very difficult to the rest of the conversation with the other areas and steelmakers.

Very clear. Thanks. And then if I could, just a very quick follow-up. In the steel market, there's been a lot of talk around green premiums. Given your kind of alignment with this market as a zinc producer or recycler, I'm just interested to get your thoughts. Do you think this will become a reality? Is it already becoming a reality and starting to come into conversations at all?

Thanks. We do think that this is already a reality. Other thing is what is the premium for this reality, right? I think that everyone is very interested in our thing in the U.S. markets as an example because it's the only one being green sealed around the world. And the conversation with the steelmakers, especially for the growth plans, and for the future are considering as well somehow a change of dust and waste and change for green sink. So definitely the answer is yes. I think and we think that is a reality. The world is not going to be back. I think that the green sink in this case is going to be good. But it's early to say if there is any premium on the back of this or how much premium is going to be that I consider that will be somehow a premium for us.

Very clear, thanks very much. I'll jump back in the queue.

Thanks. The next question is from Lionel from Bernberg. Please go ahead.

Hi, good morning. Maybe just two questions to start with. Can we just discuss the development of code prices again, just to make sure we understand the dynamics? I think you mentioned that they're down 3% versus Q1. But, you know, when I look at some of the indices in the market, some of these are down, you know, 30, 40, 50 percent since the beginning of the year. So it'd be good to understand how your price dynamics work. And, you know, is that 30, 40 percent decrease something we should be looking at for Q3 and Q4? And then the second question I would have is. you sort of mentioned that, I might have missed this earlier, but that volumes in steel dust recycling should improve. Can you just run me through sort of why you're confident that that will happen and what the basis for that assumption is? Thank you.

Thank you, Luis. Well, regarding coal price, as we have explained in the previous calls and so we have a combination of coal prices, of different coal prices with different with different, you know, evolution of the market. We have pet coke, which is driven by issues regarding the availability of the refining, oil refining and so on, and the market dynamics of this sector. The metallurgical coke that is still high, and I think is like not driven by the same issues that the thermal coke and the others, and well depends as well on the locations and traders and broker situation with this. And the third one is the anthracite, which is driven by other things, especially in the area of Europe, well affected by the Ukrainian issue. The fact is that in a perfect storm as well, the last queues, since the second half of 22 until now, the coal prices have been a very, very high level, and we were not, you know, observating sign of that is decreasing, but now we are observing this. And as an example I put before, For the Q3 petcoke, the whole European plan is dropping $100, coming from $240, which is absolutely a crazy price that we never saw before. Now, coming back to $220, $130, $110, it's a logical and normal level. It's still perhaps on high, but it's normal levels. But still, medcoke and anthracite, we don't see in the other regions a reduction, and again, We'll see, because definitely it's not increasing, but I think that is, well, it's mostly reduction, and we hope that the reduction should be higher for the next months and period. The question is when it's going to happen, and always you need a couple of months to allocate your needs to the reality. So it's not something like you guys can say, okay, it is like following the LME or the... market prices that you can even hedge. I think it's something more complicated. On the other hand, nothing to be unmanageable. It's a matter to be close to the real consumption that you have. And I guess with the second question about why we see the steel dust second part, the strong as well, there's again a combination of many things. Starting for the volumes, we had, as we explained it, a production site very low starting of the year in u.s and we have the problem in turkey with the earthquake and and and everything has made that we have a kind of delay in the expectation for the 23 that now we don't see i mean u.s operations are coming strong at the level that we hope i mean considering the the contract we lost last year and so on but the level is is quite considered that in the first half was not second we see that in the with this level of production we can implement finally

Hello, everyone. Apologies, because I think we have a problem here with the line. I think, Lasse, are you still there? I think I see an operator. I see it was answering a question to Lasse from Edinburgh. We can continue with the Q&A, and maybe Lasse can go back in the queue.

Yes, Lasse, you are now live again.

Great. Okay. I think that question was clear. I was just asking about volumes in the U.S. I'm not sure if there's much else to add. Or volumes overall, sorry, in steel dust. Maybe just a final question. Can you just give us an update on, you mentioned the zinc refining asset. I think you were targeting positive EBITDA by sort of the end of Q4. Is that still on track or what's the update on operations in the U.S. zinc refining asset?

Well, I think as I said before in the question that Michael or Sandy gave, the idea is that we don't change our target to have the range of 10 to 15 million in the future. If we can, probably we can in the fourth quarter or no later than next year, 2024, right? Well, again, this is something that we will monitor and we'll come back with the results and how the plant is doing. But what I can say is that it's more and more stable. The plant is reaching good levels of production. And, well, we will be in the next step to increase this to the almost 100% utilization rate when those ABDS will come. Hopefully, it will come in the last quarter of the year or something like that. And we will confirm that, obviously, will be much better than the first half of the year.

Okay, I understand. Thanks. I'll jump back in the queue.

Thank you.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star and one on your telephone. And the next question is from the line of Mumal Irfan from Goldman Sachs. Please go ahead.

Hi, thanks for taking my question. I just wanted to check on the CapEx guidance of 50 to 60 million for the China plant. This is higher than the capex you have previously spoken about for China plants. So can you just help us understand why this is higher and around what capex should be assumed for the additional gins at these and this plant? Thank you.

Thank you for the question. We can confirm that in the guidance is not included the Chinese, the Chinese capex for the 23 because we are concerned that the Chinese project will come more in the 24 in view of the current circumstances in China. So we are obviously doing things there, but it's based on the authorities of the industrial zone preparation of the lands and so on, but it's not on our investment. So we are gonna try to, basically we have not considered investment in China for the last part of the year.

Thanks for that. Sorry, if I wasn't clear, my question was more around the overall capex that you mentioned for the Guangdong plant, 50 to 60 million. So previously you have talked about, I remember, 42 million euro number for a new plant. So I was just wondering if we should take 50 to 60 million as the new capex guidance when we are thinking of new plants in China.

Well, basically I think that we are providing the 50 to 60. It's a range that will be probably more in the 50. The other thing is that the inflationary pressure and the things that you can't making us be a little bit conservative but i think that the range of 50 plus less 10 is the typical amount that we thought in the previous plans we talked about 40 something and that was more or less well because we were in on budget but i think that is more realistic now under the current circumstances and with the one done conditions of the land and everything to think in the range of 50 million and the 60 probably is a very high range that just if anything comes. But again, when we are progressing the project, we can give more color about the CAPEX site, because now we are still in a very early step.

Thank you. That's very clear. Thanks.

We have a follow-up question from Sandy Petty. Please go ahead.

Hey, hi. Thanks for taking my question again. Just a very quick question on Zinc prices. So Zinc realized prices came in below the benchmark price, prices despite your hedging in place that were above benchmark price. So can you help us understand what's happening? And this has happened for the second time during the year, i.e. in 1Q and 2Q.

Thanks, Sandy. I don't know if we are getting you very well. You mean that the blend sim price is higher than you were expecting? And what is coming from the second half? Or what exactly is the question?

Yeah, no, the blended price is lower than the benchmark price. And this is despite your hedging, which is above the benchmark price, at least in 2Q.

Benchmark price. Well, I think that the blended price is not a matter of comparing with benchmark or the market because it's depending on the hedging and the real thing prices as well.

And the moment that we sell, Rafa, you can... Sandy, the blended prices, as we have explained many times, is basically the weighted average between the hedged volume at the hedge price with the unhedged volume at the average spot price, okay? And that's the calculation driven by that. Let me go into the details of the Q2, and I'll get back to you later after the call.

No problem. Thank you. You're welcome.

And we have another follow-up question from Cameron Needham. Please go ahead.

Thanks, all. And I just wanted to ask a quick question on the recent CFO change as well. I appreciate the sensitivity of the issue, but I just wanted to see, are you able to comment on the change And can we expect any changes on things like great strategy and also how the balance sheets run from here? Thanks very much.

Thank you. I will answer this question. Well, as I said in the speech, after nine years of successful collaboration, Wolf Lehmann has decided to pursue new opportunities outside of the company. uh we don't have anything special to comment about that is a personal decision and we have done and we have a get a good agreement to to finish our relationship then later on we have decided to upon rafael perez that has been 15 years in the company he has the knowledge the experience the the leadership skills to to manage the perfect elicitation. All of you know very well Rafael because he has been in charge of investor relations with all the analysts of the company and with all the investors. And on top of that, we have a strong team led by Juan Albizu, which is our global controller, that will continue supporting the CFO as he has been doing in the last year. So nothing is going to change in any sense Wolf Lehmann was an excellent CFO, but he was not the person who defined the strategy of the company. The strategy of the company is defined by the board of directors and myself with the help of a CEO. And this is what will continue to happen in the future. So you are not going to see any change. We will continue to marry the situation as we have been doing. with the same rigor and in the same way we have been doing.

Thanks, all. Thank you, Cameroon.

The next question is from the line of Jamie Escobrano from Santander. Please go ahead.

Yeah, hi. Good morning. My question is from the Salt Lake Division, which increased quarter on quarter to around close to 8 million EBDA in Q2. My question would be what could we expect in following quarters and why is the result being so high? I don't know if it's still positively impacted by the insurance payment or what's the outlook here. And then second question, if you can remind us in terms of maintenance, what maintenance you need to do in the second half of the year, and whether this could also be a negative for maintaining the guidance at 200. Thank you.

Thank you, Jaime. Well, the salt and slag division, as we have explained, is benefiting now from the better margins coming from the low energy prices, and as well because we have passed through the increase of the energy prices recently to the customers, and we are still in this. So the margins are coming better, and the idea is still to be there for a while, as much as long as we can, until the market probably realize all the, well, basically organize the margins, but we don't expect many changes for the second part of the year in the salt slag business. Key is the Hanover plan being back of full production, contributing with margins, so all in all, I think that is a you know, reliable level where we are located. The insurance matter is not affecting to the operations, to the normal NLVDR, and to the results of the operation. It's something that is a different animal, and we don't treat in the normal operations, right? For the maintenance, Rafa?

Yeah, for maintenance, Jaime, basically in the first half, maintenance cap was around $43 million. Out of that, you have to consider that $13 million, $13 million, were coming from the Hanover recovery works. So if you normalize that, that's 30 millions for the first half. I think for the second half of the year, you can use the same amount. So total full year maintenance capital should be around 60, 65 million euros.

Thank you. My question was more about the maintenance, the typical maintenance stoppage of plants that you need to do, which usually take place in summer, and I was wondering whether this could also negatively affect Q3, I don't know if in terms of volumes, and how would you reconcile that with the VDA guidance for the 2023?

Okay, Jaime, understood. Well, basically, as normally we do yearly basis stoppages, I think there are no differences with the previous year. So normally the Q2 and the Q3 are the weaker in terms of production, and then the fourth one will be stronger. We can say that is more or less what is going to happen this year. We are having some stoppages of the plants in the Q2. Some of them are going to be in the third plant, nothing massively. So I think that is the normal trend of the timing for the production and throughput that we are having every year. Nothing special. Okay, very good. Thank you.

We have another follow-up question from Lasse Steuben. Your question, please.

Hi, again. Sorry, final question for me. Just on the hedged volume, what's the hedged volume for 2025 so far? And I guess more of a conceptual question, but are you considering raising the proportion of the hedged volume up from the 65% to 70% or is that something you you continue to keep at that level. Thanks.

Thank you, Lassie. Well, for 2025, we have hedged all the way until July, and including July. And we have hedged the usual 35,000 to 38,000 tons per quarter. So that's the volume that we have considered for 2025. When it comes to extend the hedges, we look at the current price. And when the same price is at the current levels, which is around the Sinaiticus core as Asir is playing, we don't go along with the hedges. We just wait because we are sure that we are fully covered for the next full years. And over that period of time, SIN price should recover and we will have the opportunity to extend the hedges for the second half of 2025. And we have done in the last 15 years.

Great, I understand. Thank you.

Thank you, Lasse.

At this time, there are no further questions, and I hand back to Rafael Perez for closing comments.

Thank you all for your questions. You can also contact the investor relations teams of Befesa for any further clarification. We will now conclude the conference call and the Q&A session. Let me remind you that you can find the webcast and the dial-in details to access the recording of this conference call at our website, www.befesa.com. Thank you very much to all of you, and have a good day.