Ferroglobe PLC

Good morning, everyone, and thank you for joining Ferroglobe's first quarter 2024 earnings conference call. Joining me today are Marco Levy, our chief executive officer, and Beatriz Garcia-Cost, our chief financial officer. Before we get started with some prepared remarks, I'm going to read a brief statement. Please turn to slide two at this time. Statements made by management during this conference call that are forward-looking are based on current expectations. Factors that could cause actual results to differ materially from these forward-looking statements can be found in Ferroglobe's most recent SEC filings and the exhibits to those filings, which are available on our website at ferroglobe.com. In addition, this discussion includes reference to EBITDA, adjusted EBITDA, adjusted gross debt, net debt, and adjusted diluted earnings per share among other non-IFRS measures. Reconciliation of non-IFRS measures may be found in our most recent SEC filings. Before I turn the call over to Marco Levy, our Chief Executive Officer, excuse me, I want to announce that we'll be participating in B. Reilly's 24th Annual Investor Conference in Los Angeles on May 22nd and May 23rd. We hope to see you there. Marco.

Thank you, Alex, and good morning, good day, and good evening to everyone. Thanks for joining us on the call today. We appreciate your interest in Fairblood. Let me start from operations. On April 1st, we successfully restarted operations in France with all services running efficiently. In addition to France, we are currently running all three silicon metal furnaces in Savon, and an additional manganese furnace in Bo, due to competitive energy prices in Spain, resulting from strong renewable energy generation. As you recall, last October, we acquired a high quality quartz mine in South Carolina to secure reliable supply source, of course, to support our expected increased production of high quality silicon metal in the U.S. We are on track to begin mining in the third quarter. This was a strategic purchase that will provide a competitive advantage as demand begins to materialize. To further support our growth plans, We are in the process of applying for a permit to expand our silicon metal production in North America. The additional capacity will be a brownfield expansion requiring a significantly smaller investment versus a greenfield and faster to develop. This investment will allow us to meet the significant growth opportunity ahead of us in solar and EV batteries. Strategically, we continue to position the company to take advantage of big secular trends occurring in the market. Solar and batteries for electric vehicles are large markets that will drive strong growth for the foreseeable future. As the leading producer of high-quality silicon metal in the West, Ferroglobe is well-positioned to be a significant beneficiary In March, we announced the signing of an MOU with Corsair, a US-based advanced battery solution company focused on driving battery transformation in the electric vehicle market. This relationship will enable us to advance the industrial integration of battery anodes from graphite to silicone metal, producing various benefits, including lower cost, longer range, and faster charging time. For the past several months, we have been testing at our lab core shell nanocoating technology using silicone-rich anodes with very promising results. As a result of this early success, and to further solidify our commitment to this effort, we recently made a strategic investment in core shell. Improving the characteristics of battery performance in EVs is an important endeavor, and it will accelerate EV adoption, and we want to be at the forefront of this technological innovation. Turning to markets, The indexes across all our businesses are up from the lows, with demand trends beginning to diverge between Europe and the US. We are encouraged by the sustained increase in silicon metal prices, especially in North America. Some of the factors contributing to the recent price trend are the results of supply-related factors. We're also seeing signs of incremental improvement in U.S. demand, while demand in the European market remains stagnant. European price increases have lagged behind the U.S. market, which has seen an improvement in demand, especially . I'm also pleased to announce that on May 10, the U.S. International Trade Commission voted in our favor in the trade case against ferro-silicon imports from Russia, Kazakhstan, Malaysia and Brazil. The Commission preliminarily determined that these ferro-silicon imports are causing material injury to the U.S. industry. Here is some background on this trade action. On May 28, together with CC Metals and Alloys, we filed a petition with the U.S. Department of Commerce and the International Trade Commission, asking them to investigate unfairly traded imports of ferro-silicon from Russia, Kazakhstan, Malaysia, and Brazil. These imports are receiving significant subsidies from their government, resulting in predatory pricing practices, which have forced American ferro-silicon producers to idle some of their operations negatively impacting American domestic production and employment. The Commerce Department will continue its investigation to decide whether further action is needed. It is expected that the preliminary countervailing duty determination could take place in June and the undeniable determination in September. We expect a positive outcome. At the same time, we continue to work with both houses of Congress to pass the bipartisan bill increasing American Ferro-Silicon Production Act, which was introduced in September of last year. If passed, this bill would enact a 35% tariff on imports of Russian and Belarusian Ferro-Silicon. As mentioned in our previous call related to Q4, We redeemed the reminder of the senior secure notes in February and ended the quarter with a stronger financial position in the company's history. For the first time ever, FerroGlobe is net cash positive. Last quarter, we initiated our first dividend in the amount of 1.43 cents per share, which was paid on March 28. we are declaring our second quarterly dividend of 1.3 cents per share payable on June 27th. In an effort to continue developing our capital allocation policy, our Board of Directors has approved a share-by-back program, which will be included in the notice of the June Annual General Meeting. Once approved by the shareholders as required, we will begin to execute opportunistic buyback. The authorization request is to repurchase up to $200 million of shares over a five years period using both discretionary and non-discretionary methods. While we're still cautious about end market demand, we are adjusting our guidance to reflect a stronger pricing environment. Accordingly, We are rising the low end of our guidance from $100 to $130 million, while maintaining the high end at $170 million. Next slide, please. Let's start from Silicon Meta. Revenue in Q1 was $168 million, flat versus the fourth quarter. Adjusted EBITDA declined $6 million to $16 million, a 28% decline over the previous quarter. The decline in EBITDA was primarily driven by lower realized prices, which were down 6% in the quarter. Our average realized price for silicon metal increased by 2% in Europe and decreased 12% in the Americas compared to the previous quarter. During the first quarter, index prices increased approximately 17%. The difference between the index and the realized price was the result of the three-month lag on price realization for contracted volumes. We expect to benefit in the second quarter from the higher index price in Q1. Volume shifts were up 7% driven by Europe, which was up 30% from the fourth quarter. The silicon metal outlook is quite different in North America compared to Europe, where demand remains quite weak, with prices being impacted by incremental imports from China and easing supply tightness. The US markets continue to be firm with prices increasing into the second quarter. Asian demand for our products remains solid as we are shipping traceable high-quality silicon metal to the solar segments in China and Korea. Next slide, please. In our silicon-based alloy segment, Adjusted EBITDA for Q1 was $40 million, down from $35 million in the fourth quarter. This was mainly due to higher costs, driven primarily by lower energy compensation in France, relative to the pre-year quarter. Overall average ALS prices were down 5% versus the pre-year quarter, due to weakness in the Americas, which continued to deliver, I think, of imports from Russia, Kazakhstan, Malaysia, and Brazil. As was the case in silicon metals, the difference between the index and the realized price was the result of the two-month lag on price realization for contracted volumes. Again, the U.S. market is showing more strength with prices increasing, while industrial activity in Europe is more muted. In its latest April short-range outlook, the Workfield Association cuts its EU steel production forecast growth by half to 2.9%, with the Americas remaining essentially flat with their October forecast at 1.4%. We expect Europe to be more challenging, while the US market is expected to benefit from potential anti-dumping actions and stronger economic outlook. Next slide, please. Turning now to manganese-based alloys. Revenue increased 10% to $66 million in Q1, driven by increased prices and volumes, up 8.2% respectively over the prior quarter. Volumes in North America increased by 426%. However, these volumes are off a low base and therefore not meaningful. While prices in Europe are up 13% since year end, they have stagnated over the past three months due to weak steel production. The shutdown in late March of South 32's Gemco manganese ore mine in Australia has tied supply, resulting in a meaningful increase in ore prices. As a result, the manganese alloy indices have also increased. Given the weak steel production in Europe, European indices have not improved as much as the U.S. We anticipate that the demand will improve in the second half of this year. I would now like to turn the call over to Beatriz Garcia-Cost, our Chief Financial Officer. We'll review the financial results in a little bit.

Thank you, Marco.

Please check if the sound is not very good.

Thank you, Marco. Please turn to slide 10 for a review of the income statement. Sales increased 4% in the first quarter to $392 million, up from $376 million in the prior quarter. During Q1, we saw increased volumes across all three segments, while weaker prices for silicon metal and ferrosilicon offset some of the volume gains. Raw materials and energy consumption for production increased as a percentage of sales from 53% to 66% in Q1, primarily driven by lower energy compensation in France and CO2. Staff costs decreased by $9 million in the first quarter to $71 million, driven mainly by profit-sharing arrangements in Europe. Adjusted EBITDA in the first quarter was $26 million versus $60 million in the prior quarter. During the quarter, we earned approximately $8 million from our 2024 French energy agreement, which boosts our EBITDA by the same amount. As a reminder, these benefits will be collected early in 2025. Net income finance expenses for the quarter declined 38% to $8 million due to the full redemption of the senior secured notes. The full benefit of the debt repayment will be fully realized from the second quarter onwards. Next slide, please. I'm on slide 11. Our adjusted EBITDA margins declined from 60% in the prior quarter to 7% in the first quarter, primarily due to higher costs, which impact EBITDA by $39 million relative to the fourth quarter. The higher costs were driven by lower energy compensation in France and CO2 compensation, partially offset by lower raw materials and energy prices in Spain. Silicon metal and silicon-based alloys also contribute to lower adjusted EBITDA, with prices declining 6% and 5% respectively. Overall, realized prices declined by 2% from the fourth quarter, impacting adjusted EBITDA by roughly $9 million. Total volume increased by 6%, with a small $2 million positive impact on EBITDA compared to the prior quarter. Head office and non-core business contributed approximately $11 million, driven by improved performance of our mine operations in the first quarter and a tax accrual in the fourth quarter. Slide 12, please. During the first quarter, we generated a stone's-thread cash flow of $180 million. driven by the $155 million rebate for French Energy and $17 million through the working capital, primarily due to $19 million reduction in inventories that has been partially offset by accounts payables. CAPEX outflows in the first quarter were $18 million versus $26 million in the prior quarter. We used the strong cash inflow to pay off the remaining $150 million of Senior Secure Notes, paving the way for us to begin our share buyback program once the shareholders approve it in the June Annual General Meeting. In March, we paid 1.3 cents dividend per share, which we will pay again on June 27. Next slide, please. I'm on slide 13. the fourth quarter with a cash balance of $160 million up from $138 million in the fourth quarter. Our financial position improved from net debt of $101 million to a net cash positive position of $79 million with a just gross debt declining from $239 million at the end of the fourth quarter to $81 million due to the retention of the remaining $150 million of senior secured notes. At this time, I will turn the call back over to Marco.

Thank you, Beatriz. Next slide, please. Okay. Thank you, Beatriz. Moving to the key takeaways on slide 15. Our non-capital return policy is entering the second phase as we wait for the shareholder vote to approve a share by then. The third phase, quarterly dividend, was paid in March with a second quarterly dividend of 1.3 cents per share declared, 3.2 cents. We are in a full position to take full advantage of the exciting development in the silicon-rich EV battery market. Combined with the robust growth expected in the solar market, we are very pleased with our position as the leading Western silicon metal producer. Finally, to meet the growing demand, we are applying for a permit to expand our silicon metal production in the U.S. Operator, we are ready for questions.

Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now go to your first question. Oh, one moment, please. We will now go to your first question. And your first question comes from the line of Martin Englert from Seaport Research Partners. Please go ahead.

Hello. Good afternoon, everyone. Hi, Martin. Good afternoon. Could you provide, since it's available, some more detail on the potential U.S. brownfield expansion, where it might be planned, at what facility, what type of capacity, timing, the capex associated with it?

Yeah, this stage is a bit premature to provide more details about that. Of course, the first thing we're going to do to satisfy the monthly cap in U.S. is to restart our capacity in Selma that is ready to be restarted with two furnaces. But as mentioned in the previous call, we expect a significant growth in the West for silicon metal demand of about 200,000 tons minimum of silicon metal in the next five years. And in order to satisfy this additional demand, we will need to be part of the suppliers and have enough capacity to satisfy this demand. This is why we started the process to apply for permit in the United States of America. Looking at financing, we already mentioned that we do not intend to go back being a company very leveraged. So we will look at all the options to finance this expansion with our own cash, with subsidies that are getting available in the United States, and also exploiting some of the partnerships that we have already in place in the United States.

So when you're referencing partnerships, are you referencing partnerships to the degree that you have JDs or more so some of the recent partnerships that you've been establishing in the kind of batteries market?

Well, all kinds of partnerships, of course. No secret that we have a partnership with Dow Chemical and two at our plant. And, you know, the overall growth in silicon metal is impacting both Dow and FerroGlobe. But then we are talking about partnerships that may mature in the solar supply chain or the battery supply chain too. And there, as you know, we have announced our partnership with Corshell, but as previously declared, being the main player in the West, we have been approached also by other players in the supply chain. So I think we have different opportunities here.

You mentioned that the cost would be significantly lower for brownfield expansion versus greenfield, which intuitively makes sense. But any framework or goalposts as to what you think it would cost to build a greenfield facility today in the U.S. or North American market and what that capacity might look like?

Well, let's say a meaningful silicon metal plant would have a capacity of 50 maximum nameplate, 60,000 tons of silicon metal. Greenfield, we estimate that you would require about $400 million or north of this number. When you build brownfield, you take a big fraction of this cost out for the same capacity. And on top, you can build much faster. and and you know when you you start and this is why we're applying for the permit because then we can we when when when things materialize in the supply chain of new markets then we were going to be much faster we think in executing uh what we want to execute okay and you noted a

big fraction of the cost is taken out. Is that something like 25% of the cost is reduced versus Greenfield, 50%?

More than well served.

Okay, that's extremely helpful. Thank you for that. I wanted to pivot and talk about the raw materials energy costs increased 29% sequentially at the group level, the $257 million. Then there were some puts and takes on cash costs within the businesses. Within silicon metal, cash costs per ton I think was about $28.53. That was actually a bit lower by about $70 a ton. Silicon-based alloys stepped up. Burt Lazarin- Three about 360 a ton sequentially. The question is looking ahead to you. Could you touch on unit cost expectations across the businesses based on how you see things transpiring today.

Burt Lazarin- Yeah. Burt Lazarin- Speaking Looking ahead in the second half of the year, there is a main difference versus 2023. As you remember, we have this huge credit on energy, as we discussed, of $186 million in our P&L in 2023. Now, in 2024, our estimation, as we were discussing on the previous quarter, it's about 40 million, right? So this could be a big driver to fill the gap, right, in terms of cost. That's number one. And then as well on the CO2, the indirect CO2, I think on the second half of the year, it's going to be a little bit higher, the compensation versus the H1. So this is going to be offset. On the other side, raw materials will be offsetting partially with increase of the energy pricing. So this is a kind of a mix back for 2034 in terms of cost. Last but not least, and I think Marco will talk to you about that later, if you remember that we mentioned this cost reduction program that we are working on it at the moment, and hopefully we'll crystallize before the end of the year. I think the amount that we mentioned was around 40 million.

There is another element, if you allow me to add, which is more short-term because Martin was asking about the second quarter. The cost of manganese ore is going up significantly as a consequence of the Australian shutdown. This doesn't have a big impact on us. in the second quarter, but it will start having a significant impact on manganese alloys cost starting the third quarter. This is why we are reacting, increasing prices of alloys as much as we can in order to reestablish the delta between manganese ore And the final one is the low-e pricing.

Okay. So, several puts and takes moving through the course of the year. And it seems certainly year-on-year lower energy credit from the French Power Agreement And then it sounds like there's maybe some higher raw materials in the back half, forgetting manganese for a second, but silicon-based alloys and silicon. Still some elevated raw materials, but you're going to get some more favorable, what's essentially credits regarding CO2. Is it correct to think of it as second half silicon metal and silicon-based alloys unit costs maybe see some relief and step down marginally to modestly?

Well, there is a... It's difficult to... To give you a picture here, let me pause for a second. When we look at the European situation, we expect also some pressure from energy at market. As you know, we buy still most of our energy in Spain at market, and we expect a rise of of energy cost in Spain in the second half of the year. So this will impact mainly our operation in Sabon. Looking at the other critical geographic areas for silicon metal, I expect a rather flat energy cost versus the first half.

Okay, understood. If I could, one last one. The silicon metal volumes were quite strong for the quarter and you had called out strengthen. EMEA is a contributing factor. How do we think about the volume trend now given that seemingly incremental contribution when we proceed through the year? Do you have any targeted goalposts for silicon metal volumes for the year or at a minimum maybe what you're seeing with 2Q?

Well, you know, clearly we are starting our plans in France in the second quarter and so we expect to sell more higher volumes. The point is the following. I go back to the market dynamics. U.S. demand is pretty stronger, I would say, because silicone's demand of our customers is better. Aluminum demand from the aluminum players is better. So U.S., we expect to become more and more robust at this stage. While Europe, while we have our productions up and running, we don't see any improvement in demand. On the contrary, aluminum market seems to be even weaker than in the previous quarter. So I would be very cautious on volume expectations in Europe.

Okay. I appreciate all that detail. I'll pass it along for others that have their questions. Thanks and good luck.

Thank you. We will now go to the next question. And your next question comes from the line of Lucas Pipes from B Reilly Securities. Please go ahead.

Thank you very much, operator. Good day, everyone. Marco, I want to ask you kind of a higher level question. Looking back over the last few years, you improved the operations, improved the commercial side, fixed the balance sheet, and now obviously you're in a net cash position. Congratulations to you and the team on that accomplishment. So it appears you have a lot more opportunities strategically to maybe do what you want to do. And I wondered if you could maybe lay out the priorities for the company over the next couple of years. Thank you very much.

Thank you for the question, Lucas. Of course, you stimulate my ambition. I want to underline, underpin that most of our business has not changed. We are still playing in commodities and as a consequence, our performance short term is still linked to the market dynamics that I commented before. Of course, we are extremely bullish about the future because we are involved in a lot of strategic discussions with different partners for batteries, particularly in U.S., but also in Europe, that we're sure will drive to a major uptake of silicon metal consumption in the world. I think we have never been so close to solve the famous swelling problem of silicon metal for batteries. And this is why we believe in what we are doing with core shell. We have invested in core shell and we think that we The Corsair solution will speed up the introduction of a massive introduction of silicon metal in batteries. Looking at solar, there are different new supply chains that are getting established from the traditional markets, China and Southeast Asia. And we are ready to exploit these opportunities. So growth is there for sure in silicon metal. Now we need to look at profitable growth. And one key phenomenon that we are looking at is the polysilicon market situation because there is a tremendous excess of capacity of polysilicon in China. The Chinese have difficulties to place volumes, and as a consequence, polysilicon price in China has dropped further, a little bit more than $6 per kilo when it was at 35 about one year, one year and a half ago. And this is causing a lot of dynamics in China. The polysilicon market outside of China is still around $21, $22 per kilo. We'll see how it develops with the new supply chains set up for solar, mainly in the Middle East. But our position is very good because we have the assets at the right place. strongly back integrated with the right quality of quartz. So my aspiration, Lucas, is to dramatically grow this company by growing the silicone metal envelope.

Thank you. And a quick follow-up on Corshell. Sorry if I missed it, but what is approximately the the investment or the terms of the investment and what percentage of the company which you maybe own today or eventually own and also not familiar with their specific technology. Maybe you can comment quickly on why you think this is the right horse to bet on in the battery market. Thank you very much.

Yeah, no, thank you, Lucas. The first investment is a few million dollars, but we have the right to further invest in the next round of capital rise for the company. The beauty of this thing at this stage is that all our tests look extremely promising, and these tests are being made on cell samples, right? reproducing the same test that Courchelle has made and they're all based on our silicon produced in Europe. The key is to go through the charging discharging cycles and basically the property of the battery don't change. This means that you can charge and recharge this battery is faster guarantee a longer tenure to the battery. The beauty, I think, of this opportunity is that at the beginning of next year, together with Corshell, we will sample directly the automotive industry with 60 ampere batteries. And this basically is a leapfrog move because we don't need to go through battery element manufacturer or battery manufacturer. We will have a pilot plant that produces more quantities of batteries that will represent our technology that based on our assessment with Corshield don't require any change in terms of layout of the gigafactories. And we'll have the opportunity to be validated directly by the automotive OEMs. I consider this a breakthrough. Of course, it has to be validated, right? You know that a new solution in battery takes time. So we are talking about significant growth if successful in a time range of three years from now. But at this stage, everything seems to be working fine, and we are aggressively making progress on this development line.

Thank you, Marco. This is helpful. Beatriz, some quick one for you. In terms of working capital, anything major to be aware of for the balance of the year? I know it can be lumpy, so if you could maybe flag anything that might stick out from a working capital perspective, I would appreciate that. And then with the updated guidance range, what's been holding back increasing the high end of the guidance? Obviously, good to see the low end of the guidance come in here. but would appreciate your comment as to why not the whole range shifted, but just the low end. Thank you for any additional comment there.

Maybe I start from the second part of the question. Lucas, if you don't mind, on the guidance. The reality is that there are a number of factors And there are opposite factors, meaning we're facing a salad of different trends in our view at the moment. As I mentioned, let's start from Europe. Demand is very weak. Prices have been stabilizing in the first quarter, are trending down now in the second quarter. And I refer mainly to silicon metal and ferro-silicon, right? In US we have the opposite trend. In US you have demand going up in silicon metal, price reinforcing, aluminum is rather balanced, ferro-silicon is reinforcing on pricing in view of what I mentioned before during my speech. Then you have another element, which is manganese ore. As I mentioned before, manganese ore price is skyrocketing and this is very difficult for us because we sell in Europe where still demand as I mentioned before, is reduced by those expectations. So demand is not there and the oil price is going up. As I mentioned before, energy market price in Europe in the second half of the year is expected to go up. So there is, you know, we have increased the bottom of our guidance because we see slightly better price and because we trust in our capabilities to reduce cost. Beatrice mentioned the cost program. But there are also a lot of challenges, particularly in Europe. So this is why at the end we ended up increasing the bottom and so this is where we feel comfortable.

Maybe I'll jump into the working capital. So as you remember, we built up inventories at the end of Q4 last year in preparation of the islanding of our plants in Q1 in France as it's happening. Now in Q1, we have been releasing a working capital. As you have been seen, but we have some hiccups as well in Q1 that we are fixing now. So we have a relatively increase of working capital in our plant in South Africa, right? Due to ramp up, you know, that we are ramping up our Coloquane plant, so we face some issues there. And then, as well, in one of our plants in France, PSC, that is located in the south of France. So, at the end, this has been allowing us to release 30 millions, but would have been a little bit bigger if we would have been facing this situation in South Africa and in France, as I mentioned. Now, for the rest of the year, now we are pumping up our production in our plans in France for the rest of the year, in the U.S. and in Spain, right? So when you look at the overall picture of working capital, I would say that we should expect a balanced picture, but as you said, Lucas, it is a little bit bumpy. So I would expect maybe small additional consumption of working capital going forward. And this is going to be as well favored because of what Marco mentioned on the manganese oil prices, right? So the prices of the oil has been increasing. So this would affect directly, not in the number of tons, of course, but in pricing to our working capital to be seen. Yeah.

Thank you very much for all the color, Marco and team. Continue best of luck.

Thank you. Thank you. Thank you. Once again, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. We will now go to our next question. And your next question comes from the line of John Rolfe from Crescent Rock Capital. Please go ahead.

Hi, good afternoon. Most of my questions have been answered. I did have one. I noticed in the most recent 20F, Marco, that the number of shares that you beneficially own as well as the number of shares that you Mr. Madrid owns had increased substantially from the prior 20th. And I was just wondering, is that due to grants or to open market purchases or some combination?

Well, if you ask to Marco, both. Exactly. Sorry, if Mr. Madrid is also here, it's due to both. Okay.

Great. Well, it's good to see. Thanks very much. Thank you.

Thank you.

Thank you. There are currently no further questions. I will hand the call back for closing remarks.

Thank you. So let's go to the closing. In a nutshell, I have really to say that we are excited about our prospects in solar and lithium-ion battery markets, and our We are positioned to take advantage of improving the fundamentals that we expect in our core market. I want to thank all of you for your participation, and we look forward to hearing from you on the next call. Have a great day.