Golden Cariboo Resources Ltd.

Good morning and welcome to GCC's second quarter 2023 earnings results conference call. Before we begin, I would like to remind you that this call is being recorded and that all participants will be in a listen-only mode. Please also note that a slide presentation accompanies today's webcast. The link is available on the company IR's website at gcc.com. At this time, I would like to turn the call over to Sohori Ogushi, head of investor relations. Please go ahead.

Good morning, everyone, and thank you for joining. With me today are Mr. Enrique Escalante, our Chief Executive Officer, and Mike Strucker, Chief Financial Officer. The earnings release detailing our 2023 second quarter results was released yesterday afternoon and is available on the company's website. This conference call is also being broadcast live within the investor section of the company's website at gcc.com. In both, the webcast replay of the call and transcript will be available on the same site approximately one hour after the end of today's call. Before we begin, I would like to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set for in yesterday's press release and in our quarterly report filed with the BMP. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. With that, let me now turn the call over to Enrique.

Thank you, Saori, and good morning, everyone.

I'd like to begin today's call by noting that this is GCC's ninth consecutive quarter delivering year-on-year double-digit top-line growth. I'd like to thank our team for their hard work and relentless focus on operational excellence while we further optimize GTC's operation and leverage close relationships with clients and partners alike, also enabling us to capture exciting opportunities from the favorable momentum we are seeing in Mexico. During the second quarter, we continued to feel the adverse effect of the weather-related headwinds challenging our industry and a prolonged wet spring within many of our key markets. As one example, June 2023 was Colorado's wettest month in recorded history of more than 150 years ago. Also exceeding Colorado's annual rainfall for the entire year. This impacted projects and slow down shipments within certain regions in which we operate. At our U.S. operations, while we believe the pandemic and post-pandemic uncharacteristically high demand for construction materials will be forced to moderate, weighted by decreased spending on residential projects, GDC has demonstrated ability to quickly people our business to ensure we are positioned to capture opportunities. ensuring year-on-year improvements to our bottom line. Our decision to pivot GCC's business away from residential construction continues to prove insightful in light of recently released construction spending data. Rising interest rates are slow in residential construction. However, non-residential construction spend remains strong. Within the Federal Reserve economic data for May, private non-residential spending increased 21% and private manufacturing construction by 73% compared to May 2022. GCC remains well positioned to capture related demand. During the quarter, we also further strengthened how we manage variable costs across GCC's plans. We took additional steps forward in the quarter to better serve our customers and deliver for key stakeholders by leveraging enhanced cost controls and optimizing our supply chains while continuing to increase our investments in innovation, our people, and end-user activation. I'm encouraged by our progress thus far, and I'm confident that by using the current transition period to focus on our strategy, we're positioning the company for strong long-term growth, cash flow generation, profitability, and shareholder return. This continuous improvement mindset and related optimization will make a sustainable difference as activity levels begin to accelerate with the infrastructure bill, funding allocation we expect next year, and related bidding in the fourth quarter of this year. Let me share some highlights related to the three pillars aligned with our vision and goals through 2025. Starting with people, even though across all sectors, labor continues to be a concern in the U.S., I'm pleased to note that in the second quarter of 2023, GCC achieved the fewest open positions within the last five years. This level of retention is the result of prioritizing and investing in our team's well-being skill building, and training. We're also ensuring our team's safety through two important strategies. During the first half of the year, GCC began the implementation phase of our safety strategy plan that will enable us to become a world-class safety company through proactive identification and control of exposure to hazards. We have been implementing safety governance practices to strengthen our communication, resource allocation, and empower our employees. In addition, we are putting in place a serious injury and fatality prevention system which involves all leaders across the organization. I'm pleased to report on GCC's ongoing commitment to fostering a skilled workforce and maintaining our competitive advantage by investing in training and education initiatives to build technical capacity, increase professional knowledge, and accelerate careers, motivating and supporting individuals to adopt a strategic approach that positively affects our business performance and profit. The GCC CEMENT Training Institute has enabled us to identify gaps within our operations. As a result, during the second quarter, we rolled out further GCC training programs tailored to our respective plans' needs and areas of improvement, including job-specific training programs based on a learner-centered experience. This has been fully deployed by the end of the second quarter, with the appropriate work plans in place and employee training at all GCC plans. This results in the quantifiable benefits of strengthened organization stability while mitigating turnover. also in enhanced efficiency with cost savings. Attracting and training the industry's best talent is a critical part of our operational excellence goals.

Turning to our profit pillar, we have seen some positive developments in the U.S.

volume in recent weeks and remain committed to pushing for maximized production and delivery efficiency in the coming months. Due to a slower first half of the year, we find ourselves with a robust inventory at our plants and terminals, and we're well positioned to service our project's pipeline in the second half of the year. However, catching up entirely to the volume lost in the first half of the year will be a challenge given the ongoing labor constraints in the construction industry chain. and other market dynamics. While second quarter volumes for our U.S. business decreased year on year, these were offset by continued price trend and by running our operations as stable and efficiently as possible. The use of rail transport has strengthened our margins on a per ton basis compared to the trucks we were forced to use last year. In addition, thanks to our flexible fuel strategy, Most of the plants can burn natural gas, coal, and alternative fuels, switching between fuels when we identify a cost benefit. During the quarter, we converted the plants in Mexico to get the maximum benefit from favorable natural gas prices. During this period, we are capitalizing on the opportunity to take advantage of current market dynamics by accelerating coal sales to third parties. It's important to note that GCC's coal is high-efficiency and low sulfur, ideal for this specific industrial process. Our third-party customers are therefore burning our coal instead of sulfur-heavy coke. This leads into our planet pillar. This week, we will release our 2022 Sustainability Report, which provides detailed updates on our commitment to our people, the planet, and best practice corporate governance. To highlight a few of these important milestones we achieved, let me say, number one, 50% of total power consumed in 2022 was derived from renewable sources. As a reminder, we have renewable energy agreements for our Rapid City, Montana, and Odessa plants, which substitute 50%, 75%, and 100% of their hydrocarbon generated electricity with renewable sources, respectively. Number two, alternative fuels, including biogenic fuels, are key to reducing emissions from our production process. In 2022, we achieved a 7.7% substitution rate, and we remain on track to reach 25% of our fuel consumption by 2030. Number three, we achieved strong fuel substitution rates of roughly 40% at our Juarez plant, 18% at our Zamalayuca and Pueblo plants, and 6% at our Chihuahua plant in 2022. Number four, we decreased our clinical ratio to 86% in 2022 from 87% in 2021. Also on track to achieve our target of 80% by 2030. Regarding CO2 emissions, number one, during 2022, our scope one CO2 emissions decreased 1.7% year on year. and by 3.4% compared to our 2015 baseline year. And number two, during the same period, our scope to CO2 emissions decreased by 26% compared to 2015. As another related comment, we installed a pilot solar plant at our Samalayuka plant in 2022. And we're continuing today with similar projects at other Mexico facilities. This strategic initiative enables us to gain valuable insight into the technology and its practical implementation. By actively engaging with solar energy at this stage, we are building the corporate knowledge and expertise to effectively incorporate this within our larger scale operations in the future. During the quarter, GCC saw continued investment in solar projects in Montana. These are progressing nightly and are projected to provide 11% of the plant's electricity needs, representing a significant step towards our goal of transitioning to renewable energies. Solar plant construction began during the second quarter, with full installation and commissioning set to be completed in early 2024. GTC has secured the newest and most cutting-edge equipment available in the market, all sourced locally within the United States. Further, this solar project aligns with the U.S. federal grants through the solar investment tax credit tax rate deductible. While we evaluate the second phase for this solar plan, we will continue to source the remaining electricity from regional suppliers on their long-term contracts prioritizing economic efficiency and sustainable practices in line with our company's objectives.

Let me now review our markets.

The weather-related disruptions in the US I described led to an 11% year-on-year decrease in cement volumes for the quarter in such markets. In contrast, concrete volumes grew 4% in the period, driving or driven by strong wind farm projected related demand in South Dakota and a multi-lane widening project on I-10 at El Paso, Texas. We are working at full capacity while we benefit from close relationships with our clients to assess their needs for the quarters ahead and until the end of the year. Demand from GCC's infrastructure and oil and gas clients remain strong, as its industries continue to see favorable momentum. Revenues from GCC's U.S. operations increased by 6.6% as compared to the same quarter in 2022, benefiting from sequential price action over the past year. GCC selectively implemented the year's second price increase of $7 for construction cement and $15 for oil well cement, which took effect on July 1st. It is important to note that we did not anticipate a second price increase at the beginning of 2023, which will have a favorable impact on margins. As I noted, We continue strengthening margins by reducing our variable costs, with notably high standards at our South Dakota and Pueblo facilities. Our Pueblo facility has maintained flat costs year on year despite inflation. We achieved this by running the plant more efficiently, resulting in decreased power prices. Our Rapid City plant has also benefited from streamlined operations, and from our renewable energy commitment that supports our energy costs. To update you on the Odessa plant expansion, we signed the equipment purchase agreement during the second quarter and expect to sign the construction agreement during the third quarter. In parallel to the contracts, we continue to advance in regards to the site and utility preparation, as well as foundation construction according to our plan. We have worked hard to reduce the original investment communicated in August 2022 and expect to inform the final cost per ton to build a new line during the third quarter upon finalizing the construction agreements, aiming to start production by the end of 2025. And as noted, oil and gas activity in the premium basin remains strong. GCC successfully sold every ton of oil well cement we produced during the second quarter and expanded our shipping schedule to include Sundays to address high demand. Regarding GCC's Mexico operations, we continue to benefit from today's positive nearshoring trend with 15 manufacturing projects currently underway in Juarez and seven in Chihuahua. with clients such as Foxconn, Wistron, Pegatron, and Inventec, as well as housing demand to support the flow of labor and employees in the area. To illustrate this point, GTG received 44 new ready-mix trucks during the last 18 months. And during the quarter, we purchased 48 additional new ready-mix trucks, a new concrete pump, and one more ready mix plan. All this in addition to the recent investment into mobile crushers for our aggregate operations in Juarez. These additional investment commitments are focused in maintaining a high service level to all our customers today. In conclusion, during the quarter, GCC continued to make meaningful progress on our strategic pillars. Our people, profit, and planet priorities for 2023 remain unchanged as essential parts of our strategy. With all elements in place, we are well positioned to capitalize on the positive U.S. infrastructure outlook, supported by the Infrastructure Investments and Jobs Act and the Inflation Reduction Act, while taking advantage of the impressive momentum we are seeing in the Mexican market. Our team is activated against our strategy, and I'd like to extend my sincere thanks to all our operations associates throughout all the markets where we participate. Let me now turn the call over to Mike for some further financial highlights of the quarter and our latest outlook.

Thank you, Enrique, and good morning to everyone.

Starting with our financial results on slide 22, Consolidated net sales for the second quarter increased by 14%. This was mainly driven by increases in concrete volumes in Mexico and the US, higher cement volumes in Mexico, coupled with strengthened prices in both markets. This was partially offset by lower cement volumes in the US due to the adverse weather conditions during the quarter.

Please turn to slide 23.

Cost of sales as a percentage of revenues decreased seven percentage points in the second quarter to 62%, mainly reflecting favorable cement prices in both divisions, higher fixed cost dilution, and lower fuel prices. These were partially offset by higher production costs and expenses. It is important to highlight that last year we experienced some logistical headwinds associated with the rail network, which led us to use more and reliable on trucks and to deliver the products to our customers on time. However, I'm pleased to inform you that the situation has now returned to normal, allowing GTC to return to our more cost-efficient rail freight. In addition, as you may recall, we concluded the Samalayuka e-bottlenecking project in the second half of April, which came at a half million dollars one-time impact on our U.S. freight costs for the quarter, and a total of $3.5 million one-time impact year-to-date. These incremental costs were required to support our southern network through shipments from our Tijeras and Pueblo facilities.

Please turn to slide 24.

SG&A expenses as a percentage of sales increased 70 basis points in the quarter to 8%, mainly due to the depreciation of the Mexican vessel. As a result, second quarter EBITDA increased by 33% to $133 million, and the EBITDA margin expanded 540 basis points to 36.4%. As we mentioned at the beginning of the year, we remain committed to improving our EBITDA margins by leveraging our own logistics network, operational excellence, normalized energy costs, and the pricing strategy that enables us to offset the impact of inflation on our cost structure. Moving down the P&L on slide 25, net financial income totaled $5 million in the second quarter of 2023, compared to net financial expenses of $4 million in the prior year quarter. This was mainly due to higher cash balance and increased U.S. and Mexican interest rates on our treasury investments. In turn, consolidated net income increased by 29 million U.S. dollars in the second quarter to 82 million U.S. dollars, and earnings per share increased 56% year on year. Moving to our cash generation, on slide 26, free cash flow decreased 62% to $21 million in the second quarter of 2023. This was mainly driven by higher working capital requirements, cash taxes, and maintenance capex, partially offset by increased EBITDA generation. Turning to our balance sheet, we ended the quarter with $770 million in cash and equivalents and $500 million in total debt. Our net debt to EBITDA ratio stood at minus 0.69 times, which is well below the industry's average. As we announced during our first quarter earnings call, GCC's General Shareholder Meeting held in April, declared an annual dividend of 1.3364 Mexican pesos, which was paid on May 24th. Please note that during the quarter, we repurchased a net amount of 900,000 shares, equivalent to $8 million under our current share buyback program. In terms of capital allocation, and inorganic growth. We're optimistic with the opportunities ahead, and we continue to actively pursue value-creating initiatives through acquisitions of cement assets in the U.S. that could be plugged into our network and are aligned with our long-term strategic vision.

Finally, turning to slide 29, I would like to discuss GCC's updated guidance for 2023.

Starting in the US, as a result of the adverse weather conditions we experienced in the first half of the year, we now expect GCC's cement volume to decrease mid-single digit year over year. In the ready mix business in the US, we had a strong first half of the year. Those we expect volumes to increase mid single digits. In terms of prices, in light of the announcements we've already made, we now expect price increases in the double digits range for cement and high single digits range for concrete.

In Mexico, we continue to see a strong market with robust demand

and positive pricing environment. Therefore, we now expect concrete volumes to increase high single digits and prices for both products to increase low double digits year over year. The outlook for Mexico's cement volumes remains unchanged. Regarding profitability, thanks to the operational efficiencies and cost strategies, Enrique mentioned, we now expect 2023 EBITDA to increase double digits against 2022 levels. We expect to recover the margins lost in 2022 during this year. With that, I will now turn the call over to your questions. Operator, please begin with the first question.

Thank you. And again, at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Nick Lipman with Morgan Stanley. Please proceed with your question.

Thank you very much. Congrats on the fantastic results here. I have two very simple questions. Can you first talk a little bit about how we should think about US pricing for the second half? It looks like you're sold out in oil cement, which is the highest priced product. You're going to be growing in the mountains, as far as I can see, as the weather improves, which is kind of the second best option. Does that mean that you know, net-net, we're going to have a... How should we handicap? How should we think about U.S. pricing? Would it be going down a little bit on a sequential basis? Or can it continue to grow in your view? So that's question number one. Question number two, can you talk a bit about the strategic reasoning for your aggressive push into ready-mix concrete?

Thank you very much. And again, congrats on the numbers. Hi, Nick. Good morning. This is Enrique.

Thanks for the questions. On pricing, if I understood correctly your question, it's, I mean, about the effect of our recent price increase. So we expect it to, I mean, hold in several of the markets that we are, I mean, doing business on. In some of the markets, it's not going to take, I mean, we discussed specific situations for several markets within our customers. But overall, we expect it to improve our total price on a sequential basis. The second question was related to ReadyMix, but I missed a little bit what you said. Can you repeat that, please?

Yeah, if you can talk a bit about, so you have historic data relatively, compared to many of your peers, you've had less of an emphasis on ReadyMix, and it looks like you're trying to increase your ReadyMix exposure. Can you talk about some of the strategic reasoning behind that?

Well, yes. As we have mentioned in our strategy, I mean, ready mix, we only look at ready mix favorably in the markets where we have cement to have a totally integrated business. In light of that, we're always open and attentive to see if there is an opportunity to increase that business, but it will have to fit within that criteria. Irrespective of, I mean, a project, strategic project on a new business in ready mix, we always also continue to see, I mean, organic growth and look for opportunities within the regions where we are today. So name it, El Paso, southern New Mexico, and Iowa, Minnesota, and South Dakota. We're attentive for opportunities there, but if you're talking about an acquisition, it will have to be totally, I mean, on an integrated market for us.

Got it. Thank you.

Our next question comes from the line of Carlos Peralongo with Bank of America. Please proceed with your question.

Thank you. Thank you for taking my question and congrats on the results. Just a quick follow-up on Nikolai's question. In terms of the price increase you announced in the US, can you give us an idea on what type of traction you're getting? It looks from your new guidance that the traction seems to be going quite well, but we'd just like to hear if you had a little bit more color on that. And the second, in terms of acquisitions, You talked about trying to find assets that would fit into your existing system in the U.S. Can you provide any color as to whether that's something that you are getting closer to finding a potential target, or is that still something that you're looking for and it's still not something that could occur in the next 12 months or so? Thank you.

Thank you, Carlos. Again, this is Enrique. Let me address first the pricing question. So, of course, we announced a $7 price increase in construction cement and $15 in oil and oil well cement. So, as I mentioned on construction cement, several markets are definitely going up with a full $7 price increase. In other markets, I mean, there is no price increase. And in other markets, I mean, there is probably, I mean, a a partial price increase. So overall, I will say that at least 50% of our markets at least are going to, I mean, take the price increase. On oil and cement, of course, we expect 100% penetration with the new $15 price increase. So we're looking, I mean, very optimistically at the performance of prices for the rest of the year as we reported. In terms of M&A, Yes, as we've said, our priority is to find opportunities within our network. But we're not limited anymore, I mean, to just that. We are looking at the whole United States as a big opportunity to continue increasing the presence of GCC. Of course, with priority, as I said before, on the current networks. We are always very active in that, Carlos, so we don't have anything specific to report on at this moment. But I can tell you that supported by the planning team here with Mike and his staff and our U.S. folks, I mean, we are searching, I mean, very actively for every opportunity. And we think that there will be, I mean, more opportunities going forward, of course, than in the last three years.

Perfect, Enrique. If I may add one more related to pricing in Mexico. Volumes have been quite strong. As you mentioned, nearshoring is really taking off, and that's resulting in additional cement demand. Is there room in the second half to move prices higher in Mexico?

Can you repeat the last part, Carlos? I couldn't hear it. In Mexico, the...

Sure, so in Mexico, it's related about cement prices. Volumes have been quite strong as a result of the nearshoring-related cement demand. Is there room to increase prices in Mexico in the second half?

Yes, okay, thanks for the question again. Definitely, there is room. We are actively determining at this moment, I mean, how much we can increase to recover. Obviously, I mean, the inflation we've been subject to And shortly we'll be announcing a price increase for the second half of the year in Mexico.

Perfect. Thank you. Thank you.

Our next question comes from the line of Vanessa Quiroga with Credit Suisse. Please proceed with your question.

Hi. Thank you for taking my question and congrats on the results. The first one, I want to focus a little bit on Mexico in a segment that is not being talked about that much recently, which is self-construction. Remittances in PESA terms are down now year over year, and I was wondering if you are seeing that impacting negatively on the self-construction segment, which I assume is still quite relevant for your operations in Mexico. That's the first one, and the second one is about your fuel strategy currently. If you can provide your exposure to coal and to natural gas currently and how you are using coal given your existing mine that you own and your use of the coal.

Thanks. Thank you, Vanessa.

Yes, let me address first, I mean, the question on the self-construction market in Mexico and our back cement, and then I'll turn it to Mike for the analysis on fuel and strategy. We see basically a very stable market in terms of back and self-construction where we are. We have been, I mean, shipping about 24,000 25% of our total shipments in Mexico in bags, which is basically the normal level for our market. It's a little bit of a decrease from the almost 80% during the pandemic. And we're stable there. We don't see, I mean, any big growth more than anything. I think we will expect it to continue a little bit flat for the rest of the year. But we feel, I mean, that's the normal level that we'll always enjoy. So with that, I will turn it to Mike for the second question. Yes. Hi, Vanessa. So regarding the fuel strategy, so over the last few years, we really built out a more flexible fuel strategy across the plants, across the network. A very good example would be Samalayuka. As part of the expansion there, we invested so we can now burn up to 60% of alternative fuels. And that's really in the context we want to take advantage of you know economical opportunities like we've done at this quarter on gas in Mexico specific But also taking advantage of the alternative fuels market that we're seeing evolving And that's really across the network Regarding the coal again. We're in full operation the new reserve of the coal mine since the beginning of the year and The coal is our natural hedge. And as Enrique said, it's a very high efficient coal, a fuel that really brings a lot of advantages. And we're going to use that according to our strategic plan across the network, but also, again, having the flexibility of taking advantage of other fuels. And then, as we mentioned, the coal also is an opportunity in the context of sales and growing the business. Overall, that's a little bit of context around the fuel strategy. I think to complement what Mike said, Vanessa, we don't have any problem to hedge, use a lower cost fuel, and then on top of that, sell the excess coal that we produce.

No, that's great. What's your current exposure to each of the fuels, if you don't mind? Our Mexican plants are running on gas.

On the U.S. plants, Pueblo, Tijeras, and South Dakota are running on coal. Odessa runs on gas, and Montana runs on both, a combination of both fuels.

Thank you very much, Enrique and Mike.

Our next question comes from the line of Alberto Valerio with UBS. Please proceed with your question.

Hi, Henrique, Mike, Saori, thank you for taking my questions. I have two on my side. The first one, about the first half of the year, if there is anything that was a tailwind for you guys, because usually we have seasonality against GCC in the first half, but in favor for the second one, just to have an idea how much you can get on EBITDA levels. It is 20% above last year, 30%. I know both will be inside the guidance, double-digit growth, but it's a huge difference. The second one, it's about competition. With this level of price, I would expect some new projects or some players come to the market. If you have heard any additional capacity, maybe the current players, the bottlenecking or increasing capacity as you did in Samarayuka,

uh all new players come to mexico and u.s in your region thank you alberto uh good morning uh thanks for the question um i think i understood i mean uh on our epida how's it going to continue growing in the second part of the year and of course because of the seasonality that's where we are pushing now i mean uh harder in terms of shipments during the summer and fall in the U.S. operation. So that obviously will, I mean, have, I mean, a good effect on EBITDA margins. They are going to continue growing in that part of the year because of better, I mean, cost fixed absorption through the, I mean, increased sales. So that's why, I mean, based on where we are and what we expect the rest of the year, we increase our outlook, I mean, for EBITDA. as we mentioned in the report. So we're looking at it in very favorable. In terms of competition from Mexico, I mean, we don't see any additional competition coming from Mexico. I think that we saw that effect, I mean, at the beginning of the year, last year, and I think that basically today we're very stable and we don't expect any incremental competition. In the U.S. markets, of course, we are, I mean, as I said, I mean, practically sold out, but we have, I mean, inventories as well as the majority of the industry because of where we compete because of the weather. And so we all have a little bit of extra volumes available, I mean, for the rest of the year. So it will depend a lot on what type of fall or early winter we have or not. that we will be in a position to ship out those inventories. More, in my opinion, of weather-related than competition. And maybe, Alberto, if I can add, in Mexico, you know, the timing of our Samalayuca expansion was very nice. You know, we have that additional capacity really to facilitate the growth, you know, for that nearshoring aspect. And as Enrique said, you know, we're investing quite heavily in equipment and the ready-makes and aggregates business, really to stay very close to the customers and support them in their projects and their growth ambitions. I think there's a good balance right now that we can provide good quality, good products and service.

Fantastic.

If I may, just a follow-up. The growth guidance on CapEx of $220 million It's any on Odessa including there, or Odessa just should start just in 2024?

Yeah, you know, the guidance on the 220 includes Odessa. There's a good portion of Odessa spent in that number this year. As Enrique said, you know, we're progressing nicely around the utility work, around some of the foundation work. So it's an important portion of that growth capex, as well as in the first quarter, the completion of Semalayuka. That was an important element of that growth capex. And then the last important or third element in growth capex is really enhancing the distribution network in the U.S., putting some capex money in the terminal network and rail capabilities.

And that's all part of the budget, yes. Fantastic. Congrats for the result, and thank you for taking my questions again.

Our next question comes from the line of Francisco Suarez with Scotiabank. Please proceed with your question.

Hello. Good morning, guys, and thanks for the call. Congrats on the wonderful execution that you have given to us. It's fantastic. The question that I have is... Well, you know, the Teamsters just got a deal with UPS. It seems that they were going to see a little bit more pain on truck-related transportation. And you are clearly ahead of the curve, right, but what you are doing on relying more on rail freight. But the question is if you see any sort of risk to higher costs in overall transportation. Thank you.

I'll turn this question to Mike now, but thanks for it.

Yeah, so we don't see any additional pressure on the distribution cost. As we explained in the earlier part of the call, we saw that last year and we had to rely more on trucking last year than this year. No, we see some good service levels from the rail. We're going back to all our natural routes, again, heavily on rail, which is very cost-efficient for us. So in general, we feel pretty comfortable what's happening there, and we don't see any major pressures there.

Got you. And if I may, just to follow up on this, Any more investments in ground terminals or perhaps making some of your ground terminals multi-model terminals?

So we're completing and are fully operational now in Minneapolis. That has been a terminal that we have been expanding, working on, and that's now fully operational. In addition for this year, There's no additional terminal, but we're working on ideas and things that will enhance us, but more looking in 24, 25. And, you know, typically our terminals, you know, supported by rail. Again, most of our plants have good rail capabilities. And then, of course, the transloading and trucking to the final customers. So that's our typical setup, and it has proven pretty efficient.

Perfectly clear.

Thank you so much. Congrats again.

Our next question comes from the line of Alejandro Azar with GBM. Please proceed with your question.

Hi, good morning, Enrique, Mike, Saori. I'm sorry I joined late to the call, but just a quick one. Enrique, on your first remarks, you mentioned design and the construction start of the Odessa project. Is there any changes on the amount of the CAPEX that you announced back 12, 18 months ago? I don't know if I recall correctly, $775 million. Has that changed from, you know, as of today?

Hi, Alex. How are you?

Yes, Alex, what we announced, last year was $750 million. There's going to be a different total investment that is going to be lower. I cannot disclose it at this moment because we are actively negotiating the construction agreement, which is obviously a big concept in all that investment. But expect a better cost per ton investment of what we initially discussed, and we'll be prepared to discuss that in the third quarter call.

Excellent, Enrique. Thank you very much.

Our next question comes from the line of Lucia Gomez with Compass Group. Pleased to proceed with your question.

Hi, good morning. Thank you for taking my question, and congratulations. My question is just a quick I want to have a little bit more color in the U.S. volume side. I'm seeing a decrease over here. And what has changed this quarter versus the first quarter? Or was it more of the same dynamics?

Thank you. Hi, Lucia. Good morning. Thanks for the question.

As we said, I mean, our volumes have decreased about 11%, I mean, compared to the second quarter of last year. And as I explained, I mean, there has been a very unusual harsh weather and extended, I mean, wet season too. So it was difficult to really, I mean, have visibility. to see, I mean, how much was the weather related of this decrease and how much would be some soft pockets, especially on the residential side. Now that we have more visibility, we think that we're going to be able to recover part of that lost volume in the second part of the year. And probably, I mean, end up the year around what we said, mid single digits, I mean, decrease compared to last year in comparison to the, I mean, 11% that we had today.

Perfect. Thank you.

Thank you. We have reached the end of the question and answer session. I'll now turn the call back over to Sohori Ogushi for close remarks.

Thank you, everyone. We appreciate everyone taking the time today to join us and for your interest in GCC.

We look forward to speaking with all of you soon.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.