Golden Cariboo Resources Ltd.

Good morning and welcome to GCC's first quarter 2024 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 listen-only mode. Please also note that a slide presentation accompanies today's webcast. The link is available on the company's IR website at gcc.com. I would now like to turn the call over to Sohorya Gushi, 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 Strecker, Chief Financial Officer. The earnings release detailing this quarter's results was released yesterday after market close and is available on the company's website. This conference call is also being brought to you live within the Investors section of the company's website at dbc.com. And 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 forth in yesterday's press release and in our quarterly report filed with the DMV. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update the statements as a result of new information of future events. With that, let me now turn the call over to Enrique.

Good morning and thank you for joining today's call.

We began the year on a strong footing. The first quarter was outstanding across the board, exceeding our expectations with an 11.9% year-on-year revenue increase, driven by strong U.S. volumes in the first quarter of 2024. First quarter 2024 sales were a company record for GCC. I want to acknowledge our team for an excellent start. Importantly, we delivered strong profitability led by commercial excellence, operational stability, and continued cost improvement throughout our organization, also benefiting from low fuel and energy costs during the quarter.

First quarter EBITDA margin reached 30.4%. GCC's first quarter results affirm the effectiveness of our strategy

and our relentless focus on GTC's three strategic pillars, balancing exceptional results with sustainable business practices, which also drives long-term profitability. These three pillars, people, profit, planet, will continue to lead our business success through 2025. Let me begin first with updates on our people pillar. As part of our strategy, we remain focused on strengthening our safety culture. This is a deliberate approach and an ongoing program to ensure that our operational team is continuously trained and coached on key safety leadership capabilities and practices to proactively control exposures. Our goal is that everyone, every employee, and every other that interacts with DTC with our operations return home safe to their families. During the quarter, we also leveraged the GCC Cement Training Institute to develop the team's technical capabilities and further build out this program through the end of the year, going more deeply into the overall execution. During the first quarter, we dedicated more than 4,200 hours training employees. In addition, this quarter, we partnered with the Mexican Institute for Cement and Concrete to ensure our teams have thorough understanding of our value chain and that employees and customers improve their know-how on the use of GCC's products. This involves a series of virtual and on-site training sessions scheduled for 2024 and 2025. Turning to our profit pillar, as I noted, we continue delivering improved margins executing on our strategy to achieve a 36% EBITDA margin by 2025. This has been driven by cost-improvement opportunities and operational efficiency initiatives throughout the organization, while benefiting from notably low power and gas prices. GDC's flexible fuel strategy is an important competitive advantage, enabling us to stabilize fuel expenses while proactively leveraging our hedging options as a border anchoring factor. And while we have appropriately relied on natural gas and alternative fuels for the past years, this strategy has enabled GCC to reduce our use of coal, closely aligned with our planet pillar. Improved plant utilization, enhanced overall operation stability, and our team's laser focus on best practices with a drive towards achieving important stretch goals were a meaningful contributor to GCC's first quarter profitability. As an example, GCC's Tijeras, New Mexico plan received permitting approval for a debottlenecking project, which increases finished milk capacity target to blended cement, while cost-effectively adding storage. A focus on this kind of organic initiatives to maximize plant efficiency and output ensures GDP continues to meet market needs. Optimized plant performance not only strengthens our profitability, but also helps us achieve our sustainability-related goals and objectives. Regarding GDP's planet pillar, continued progress on noteworthy projects includes production and commercialization of blended cement, increase of our alternative fuel substitution capacity, and GCT's first solar project in the United States at our Trident Montana plant. We completed phase one of setting 11% of the site's total electric usage. With the implementation of phase two, we anticipate of setting 22% of our required electricity. translating to more than 6,400 metric tons of carbon dioxide emissions annually. Phase two is expected to be completed by year end.

Turning to an update on our market.

GCC's U.S. operations strong first quarter was underpinned by robust demand fundamentals. We saw a 17% year on year increase in sales. Last quarter, we noticed that many projects planned for Q1 were completed in the fourth quarter when favorable weather enabled projects to be put forward. And while we had flagged this to the market, it did not adversely affect GCC's first quarter of the year. In fact, we experienced record volumes in February with plenty of additional projects. As Mike will later discuss, Cement and concrete volumes increased 8.3% and 5.6% respectively. GCC's oil and gas clients were extremely busy during the first quarter, and we remain bullish on the Permian Basin, the most cost-effective oil field in the continental U.S. Our Odessa, Texas plant is sold out for the rest of the year. and we have communicated a $15 per ton price increase to our oil well clients, which comes into effect July 1st. While the U.S. residential market has not bottomed out today, we are seeing signs of recovery. GCC's commercial teams noticed some increased demand for residential projects with activity that's above last year's. Turning to updates on the Infrastructure Investment and Jobs Act, While projects directly linked remain backlogged, it is clear that states are using funds to expand or improve existing projects. We are seeing a strong project code level and a solid backlog, which we are confident will keep GDC busy throughout the year. To briefly touch upon December's Mexico border crossing challenges, these have since softened. enabling GCC to return to source its product from the lowest cost point. In January, we resumed product delivery through El Paso, making use of an additional railway capacity we had contracted on a precautionary basis. We are supplying the Olesya market from Samalayuta, freeing product from the public plant. Therefore, while the outcome was ultimately favorable, This was another opportunity to demonstrate, once again, GDC's competitive advantage, the ability to quickly and easily adapt when needed. We leverage our flexible network of plans, then quickly return to lower cost routes. Importantly, GDC's ability to proactively address challenges, again, enabled us to consistently meet our customers' needs. Turning to Mexico, while successful pricing and favorable fuel costs enable solid first quarter margins, infrastructure project inquiries have decreased, decelerated, due to power supply limitations. Delays are expected to be resolved in 2024, with the projects moving forward once the necessary infrastructure is in place. Construction of the Terranova power substation in Juarez is also expected to be completed in the second half of this year, but timing remains a little bit uncertain. However, Mexico's new sharing momentum and related industrial real estate, housing, and infrastructure demand remain intact. Today, our pipeline comprises 26 industrial real estate projects. We have six projects which were originally planned for 2023, but delayed due to permanent issues. Strong demand has enabled us to implement a mid-single digit price increase, effective February 1st. And we are allocating capital towards new cement mixers and trucks, also replacing outdated equipment, to ensure we are optimally positioned to address the continued demand we're expecting from the Mexico market. To conclude, GCC delivered a very solid start to 2024. We expect continued success in the second quarter of the year, while building a substantial backlog, implementing continued cost-effective efficiency measures within our control, and executing on our commercial strategy. We are creating a stronger culture to continue traction on our guiding three pillars. With that, let me turn the call over to Mike for his financial review.

Thank you, Enrique, and good morning to everyone. Today I will walk you through the key financial highlights and explore the factors driving our success this quarter. Consolidated sales grew by 11.9% on a year-over-year basis. Revenue from our U.S. operation increased 17% as demand was strong with cement and concrete volumes increasing 8.3% and 5.6% respectively on a year-over-year basis. Additionally, Price increases implemented over the last 12 months also contributed to our revenue growth within the U.S. market. Mexico sales increased 4% compared to the first quarter of 2023 to approximately $99.4 million, reflecting the price increases implemented throughout the period. both cement and concrete volumes sold in Mexico decreased by 9.5 and 14.5 percent respectively as projects are getting delayed in the context of energy constraints cost of sales as a percentage of sales was 66.8 percent a decrease of 5.4 percentage points compared to the first quarter of 2023. This reduction reflects lower fuel and production costs, favorable operating leverage and selling prices, as well as decreased freight costs. SG&A expenses increased 16% on a year-over-year basis, mainly due to the appreciation of the Mexican peso against the U.S. dollar. First quarter EBITDA increased 31.6% on a year-over-year basis, reflecting the strong growth in our gross profit as described before. EBITDA margin reached 30.4%, nearly five percentage points higher than the prior year's quarter. Net financial income was $10.2 million. a 173% year-over-year increase due to increased financial income resulting from higher cash balance and also benefiting of a year-on-year increase in U.S. and Mexico treasury rates. In turn, consolidated net income for the quarter was $48.9 million. a 51.1% increase compared to the first quarter of 2023. Turning to our cash generation, free cash flow was $40.4 million in the first quarter of 2024, reflecting increased EBITDA generation and interest income during the quarter, as well as lower maintenance capex and working capital needs. These cash requirements were partially offset by higher cash taxes. Turning next to our cash balance, GCT ended the first quarter of 2024 with $980 million. At the end of March, our net debt to EBITDA ratio remained at minus 0.99 times. Finally, I would like to provide an update on our capital allocation. We have set the following priorities for 2024. First, we're focusing on general maintenance and revisiting in our plans through a very detailed review process our operations. Second, we're enhancing the efficiency of our distribution network, and finally, Consistent with our prior discussions, we're allocating capital expenditures to sustainability-focused projects, as Enrique has noted before. In the meantime, we continue executing on the Odessa plant expansion as planned. A key driver of our strategy is identifying new sources of growth, both organically and through acquisition. Therefore, we maintain in discussions and are looking into attractive opportunities, not only within the cement sector, but also within aggregates. We reiterate our commitment to creating long-term shareholder value, ensuring high levels of operational performance while keeping you informed of any new developments on this front. I will now return the call to Enrique to share his closing remarks.

Briefly recapping during the first quarter of 2024, we strengthened our leadership position within the U.S. market, while the benefits of streamlined operations continue to resonate on our results, particularly on our profitability. I will now turn the call over to your questions. Operator, please begin with the first question.

Thank you. And a reminder to the audience, to ask a question, press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Alejandra Obrejon with Morgan Stanley. Please state your question.

Hi, good morning, GCC team.

Thank you for taking my question, and congratulations on the amazing numbers. I guess I have two questions on my end. The first one having to do with Mexico, if you can help us understand demand backdrop. So you did mention that there are some bottlenecks on the electricity side, but just wondering if maybe you speak about residential in your press release, and I'm assuming that you are doing more exports from Samalayuca. So wondering if there's I mean, what would make demand go up towards the second half and keep you up or on track with your full year guidance? So that's the first question. And the second one having to do with these attractive opportunities that you mentioned on cement and aggregates. Just wondering if there's any sort of framework or metric that you're using in order to evaluate all the options that you might have on the table. What would make any of these options attractive? Is it Is there any framework from your side that you're looking at and that you expect to see from any sort of acquisition?

Those are my questions. Thank you. Good morning, Alejandra. Thank you for your question.

Let me address first your question on the Mexican demand backdrop. We see this as a delay, basically, not a structural issue, definitely be. And it's caused by what we've been saying, there is a lack of enough distribution power of electricity for new plants in the forest area. TFE, it's addressing this with the construction of this new substation named Terranova. It's a high-tension substation from 30,000-some volts to, I mean, 15,000, so there's still the need to go Lower to what the plants need, lower voltage, medium and lower. So the larger developers have decided, as we understand, to build their own substations to fit them in several of their new buildings. And they're in the process of completing those substations to get back on track in terms of, I mean, putting those buildings on service. There's somewhat smaller developers with one or two buildings. They're a little bit more on a time constraint until we find a solution or the market finds a solution to lower the power from the 15,000 volts to whatever those plants require. So we're still waiting to see what else is developing in the second part of this year to solve the issues for those smaller developers. But overall, we see it as a timing issue. The backlog of projects is very robust. We see, obviously, the accompanying demand in all other sectors for this development. So we're confident that this is going to be a transitory issue that should get resolved during 2024. The relationship to the additional exports and what we mentioned of the residential market in the U.S. and exports to Odessa come up mostly from incremental demand that we are seeing in the U.S. It's not a result of lower volumes in the forest, but it's basically because we're seeing a more robust demand in the U.S. than what we anticipated. So that's why, I mean, solving the issues at the border has helped us a lot. So we could, I mean, free up volume in Pueblo for the northern market, and then reduce capacity from Zambrayuca to, I mean, serve, I mean, the Odessa road market. So it's all good news. We're, I mean, seeing a much better forecast for the rest of the year than when we anticipated them in a few months ago. And last but not least, on your second question on cement and aggregates, I mean, I'll just make a couple of remarks here, and I might give you a little bit more information. But of course, the framework for us is dual. It's always, I mean, the financial returns that we can find in those projects on one hand, and of course, the alignment with our long-term strategy on the other. So both, I mean, the cement, I mean, growth strategy, and now an incursion in the aggregate industry goes, I mean, line in line with those two, I mean, guiding principles for us. I'll turn it to Mike.

Yeah. Hi, Alejandro, and thanks for your question. So, yeah, as Enrique said, we have a very specific financial framework with hurdle rates that need to be reached to make the financial business case. But then we also have a very practical operational framework. And when it comes to cement, it's really deploying what we've done with the, at the time, Odessa acquisition and then the Trident acquisition. We look first for assets that are close enough to connect to our existing network, either via terminals that we have or future terminals. because that's what we see makes a lot of sense and that allows us to grow really long term. Secondly, as we've stated, we have broadened the focus on the US, so we're looking also broader in the United States to see do we have an opportunity to start a new network for GCC with the same philosophy of, you know, having strong plans and connected with terminals and then executing our logistics strategy. And those are really the two cornerstones of how we evaluate the cement opportunities. And then when it comes to aggregates, As we said, this is a new endeavor for us, a new strategy, although we have made some very good progress over the last couple of months. We have a very clear framework with the market assessment that we're deploying. And here, since we're starting, we're looking for anchors to build out this aggregate business. And then to deploy, again, what we believe is a strong logistics strategy driven by our experience that we already have. And then, of course, connecting future bolt-on acquisitions on the anchors. So that's how we're looking at it. As I said in my remarks, we have some very good conversations and are in processes to make some moves. and we're very positive that these elements will play long-term dividends for the company.

Perfect. That's very clear. Thank you for answering my questions, and congratulations again on the numbers.

Thank you.

And our next question comes from Adrian Huerta with J.P. Morgan. Please state your question.

Thank you. Hi, Enrique, and congrats on the results. I have two questions. The first one has to do with how the quarter was versus your original expectations at the end of the last year and how you overall feel about the guidance that you have. I understand that one cue is early to make a change on guidance, et cetera, but how do you feel so far versus original expectations? That's my question number one. And the second one is on If you can just tell us a little bit how is the competitive dynamics in your market, let's say excluding Colorado, which is a more competitive market. Are the large players on aggregates on the markets where you are? If you can give us any details on the competitive environment and how do you see the likelihood of doing a transaction already this year? Thanks.

Good morning, Adrian. Thanks for the questions.

I'll address the first question and let Mike elaborate on the second one. So, as I was mentioning to Alejandra, obviously, we have a little bit of mixed results from what we originally projected at the end of last year in terms of market. Certainly, I mean, Mexico is a little bit lower than what we expected for the reasons that I already mentioned. On the other hand, the U.S. is acting a lot better also than what we expected. So overall, we're much better than our original expectations. We're not changing guidance yet, Adrián. It's too soon. We did expect to have a little bit of a slowdown in the U.S. in the second quarter compared to the first and the third because of precisely going transitioning from projects in the pipeline to new work. That seems to be going pretty well now in the second quarter. Again, so reaffirming that we're seeing, I mean, a better demand than what we originally anticipated. To the point that we're thinking that we're getting a feel, I mean, at capacity basically at all our system in the U.S. for the rest of the year. So that's now a good problem to have. That's where we're seeing, I mean, the pressure on making sure we have enough inventories for the rest of the year and the plants really run consistently So we can serve, I mean, everything that we see on the pipeline. Again, next quarter, we can, based on the results of the second quarter, we can tell you we decide to move our guideline or stay. But we are also, after we see how Mexico continues to develop. So that's what I can tell you for the markets. I'll turn it to Mike so he can elaborate on the aggregate side.

Yes, good morning, Adrian. So on the aggregates, our first phase of the strategy is really we've assessed the markets within our traditional footprint, our cement footprint, which, as you know, is a large footprint in the US. And it's very clear it's still a very fragmented market in our footprint. Lots of smaller local companies, a few larger players uh but i think that's the the attractiveness why we're saying we can we can build out this this aggregate business because it's highly fragmented still um we also see that within that footprint we can a leverage our existing uh facilities right we run worries across that footprint We have people, we have knowledge of the market. So that we believe is an important cornerstone and an advantage that we can bring to that strategy. Then second, as I said earlier, the M&A topic and building kind of a cornerstone and then work with bolt-on acquisitions to execute on that. We believe, again, within our footprint, there are still plenty of opportunities to do that. And then finally, you know, we also thinking about some of our properties kind of greenfield to then enhance that, that future network. So, so with those three elements, we feel, uh, in a fragmented market with a clear focus, uh, we have a very strong chance to, uh, to execute on that. And to your question, uh, yes, we're planning and working hard to see the first, uh, acquisition, uh, this year. As you know, it always depends on two ways and two sides to be finally getting to the finish line, but we're in deep talks to make the first deal happen this year.

Thank you, Mike, and again, I appreciate it.

Thank you.

Our next question comes from Alejandro Azar with GPM. Please state your question.

Hi. Good morning, Enrique, Mike, Saori.

Thank you for taking my questions. Two quick ones. One is related to your CapEx. You've been, during the past year, two, three years, you've been low on the CapEx that you actually pay versus the guidance. And the first quarter, 36 million is a really significant high divergence versus the guidance of 470 million, I think. How should we think about CapEx for this year? Should we see some quarters with 100 million paid? That would be my first one. And the second one is also regarding on M&A and your framework. And given the historical discipline that you guys have had regarding the value you get for what you pay. What would be a plan B in terms of capital allocation if you don't find an acquisition target at your desired valuation or within said framework?

Thank you.

Good morning, Alejandro. Thank you for your questions.

I'm going to address first your second question on Plan B. I think that's a relevant one. I think that, yes, we have been consistently conservative and very careful about our capital allocation and return on our projects, and we'll continue to be there. We're a very disciplined company in that regard. But certainly, too, our financial position today allowed us to take a little bit on a, let's say a little bit higher risk in terms of, I mean, missing something in our due diligence process. So we're being a little bit more flexible in how we do some of the projects in this time. That's also obviously, I mean, coupled by the lack of many opportunities in the market. And obviously, I mean, there is appetite for many, I mean, competitors to keep expanding. So we're being a bit more flexible And I can tell you that we've incorporated that as a plan B, although with a lot of confidence. I tell you, I mean, that's not going to make us depart from being a very responsible and certainly conservative. So that's a little bit on the strategy that we've been discussing with our board in terms of M&A.

Can I add something, Enrique? I'm sorry. Do you find, I don't know, integrating, you have already integrated the north of Mexico with the center cut of the U.S., but what about Canada? Have you analyzed or is there interest of, you know, maybe integrating further north of North America?

Yes, not only that, Alejandro, and that's part precisely of the flexibility and plan B of us, I mean, departing from our core model, which is not only Canada, which we're open to, something that can also be integrated, I mean, with our operations, I mean, in the mid-continent of the U.S. But more importantly, we have mentioned moving to other areas in the U.S. where we can start another system. And that's obviously, I mean... a system where we will not necessarily have, I mean, many synergies with the current one, but we know how to do it, and we're long-term focused, long-term study, and we can do another one in the U.S. in the right region. So that's where we're putting a lot of stuff on going forward. Okay? So I'll pass it on to Mike again to continue, I mean, giving you the answers.

Thank you, Enrique.

Yeah.

Okay. Hi, Alain. So, yeah, regarding CAPEX, the maintenance side of the CAPEX, we are confident that, you know, with a very structured process this year that will execute against that number, you know, the guided $70 million. The first quarter, there is a little timing effect in it where we didn't have the full flow out. But again, I'm confident with a plan-by-plan review, the right people focusing on these projects and working through it, we're on a good track. On the maintenance cap, still there is a little bit of bottlenecks in the supply chain. Sometimes parts just take longer to get, and then we have to manage when do we do those outages and when do we implement those new parts. That's one aspect. You know, the U.S. is very active when it comes to contractors and, you know, third-party specialists that need to work with us. So there is often a little bit of timing that flows into it. But again, high confidence that we can execute on that with this focus and process that we have now in place. Regarding the strategic and growth capex, the important one for us this year is ODESA and the execution on ODESA. That's flowing well. And, you know, as I made the comment, we're on track. We're, you know, according to our plan. Here, again, there's a little bit of timing on some of these capex flows that sometimes move from one quarter to the next. But overall, we're very confident that this year we're executing against the Odessa project. And then the final element, I would say we have some growth topics in those numbers. And they have to jump a hurdle rate. So here, again, we're very strict. And when we look at de-bottlenecking projects, enhancing the network, sustainability projects, what Enrique mentioned with grinding and blending, again, they have to have a good return. And that's where I think our strictness and methodology comes in. And sometimes these projects don't make it and then we make the decision not to do it. So that has a little bit of an influence on that growth aspect. Although here again, the pipeline for what we control internally is very attractive, and it's now just a matter of executing against it.

Very clear, Mike and Ricky. Thank you very much. Thank you, Alejandro.

Thank you, and just a reminder to the audience, to ask a question, press star 1 on your phone. To remove your question, press star 2. Our next question comes from Alberto Volaro with UBS, please state your question.

Congrats again for the results. Thank you for taking my question, GCC team. I have just one more follow-up. It's about CAPEX as well. If you could update us with the final numbers for this planned CAPEX and if you keep on track to have the capacity addition by the end of next year.

Thank you. I will take the first part. This is Mike.

And then maybe you can repeat the second part of your question. We had a little bit of an interruption here on the audio line. But regarding what that's, as we have said, the 750 million numbers we communicated from the beginning of the project is still a good number for your models and for your analysis. We've said many times, we believe there's work to be done and to optimize it, but to give, you know, every quarter a new watermark, we don't see that as beneficial. So, you know, the project at the 750 is very effective for GTG, for the company. Actually, some of the assumptions have even further improved when we modeled the project, you know, almost two and a half years ago. So 750 is the number, and we feel very confident we can get into that and potentially, when it all settles down, come back with a more optimistic number at the end of the project.

Fantastic. My second question was also on this plant, was about the capacity addition, whether it will come if it's still the same as planned in the beginning of the project.

Yeah, the capacity addition is still the same. You know, nothing has changed. We have all the permits in place to execute against that. So that's still as we communicated from the get-go.

Fantastic. Thank you very much, and congrats again.

Thank you, Alberto.

Thank you. And our next question comes from Daniel Rojas with Bank of America. Please state your question.

My question. Most of the good questions have been asked, so I'm going to try to drill down on a few subjects here. If we look at your input cost, you had a great margin expansion. Gas prices are down a lot, 1.7, 1.8 per million BTU. Could you please talk a little bit about how, if you look at unit prices or cement on a per ton basis, compared to coal, How much is gas more cheaper now than coal? And how does this play into your strategy going forward and margin expansions into the rest of the year?

All right, Daniel. One of the exact numbers at this moment to give you in comparison in the net coal versus gas, but what we can tell you is that we expect gas to continue at this level. We only see a little peak above our break-even caused with cold in the winter of 2025, according to the features today, which is very, very mild and I should say very small. And so we expect to continue running on gas for the foreseeable time. I mean, all these years, probably next year too. But we're always prepared to, I mean, use our hedging there for those months in which gas may go in the winter above our cold cost.

And Danielle, I would probably add, besides the gas topic, which we're very proactively managing, I think important to note also is the alternative fuels for us. Again, the plans, specifically the larger plans, have very specific projects to increase and enhance the alternative fuel usage, which has both the benefit from a cost perspective, but also, of course, from a sustainability perspective. So I think that has to be seen a little bit holistically, that flexible fuel strategy that we're working on. It's the traditional coal, it's the gas, and now it's the alternative fuel that will receive some future potential.

But on a marginal basis, you think the incremental increase will come from alternative fuels?

Again, I think it's going to be a mix. Daniel, it's going to be a mix and even, you know, a plant by plant mix. So I don't think we can generalize. Nevertheless, the fuel cost will help and support, you know, our stated ambition to expand the margins and, you know, to perform again.

Okay. Thank you. And going back to the oil cement and if I understood correctly, you pushed for a $15 increase July 1st. Can you give us some sense of how that pricing increase came about? And I mean, was there some pushback on the industry, or is demand so high you could usually push that? I'm trying to get a sense of the pricing environment, and not also for oil well cement, but for construction cement.

Yeah. Okay, Daniel. So on oil well cement, I mean, the price increase, the $15 for July 1st, has long been discussed with customers in the industry. It has been very well accepted, no pushback. I mean, we all know about, I mean, all the sticky inflation cost pressures that we have, and they also have them, and everybody understands it, and it's taken it pretty well. So no issues there at all. In terms of the second price increase in cement, obviously, we have the concerns. We have the concerns, obviously, of this inflation that has not, I mean, eased as we all would have liked to, and obviously it would. going on with interest rates and everything in that regard. And on the other hand, the additional backlog of projects and demand that we're seeing and we're seeing a more tight market. So the combination of both keep us very actively talking to our customer base. And we're most likely going to try to implement the second price increase. that we have just recently announced, and we think the conditions are there. But we'll continue, obviously, I mean, seeing the market and discussing and talking with our customers in the next few weeks.

Okay. That helps a lot. Congratulations again on the results. Thank you.

Our next question comes from Francisco Suarez with Scotiabank. Please, your questions.

Hey, Kent. Good morning. Thanks for the call, and congrats on a wonderful result. The question that I have is actually a follow-up to Daniel's on your overall investments. Looking forward to tackle GHG emissions. I noticed that you already have a well below two degrees scenario on your science-based targets, but perhaps you might be eventually moving to a 1.5 degree scenario. What would be the additional CAPEX and OPEX that you may see if you actually decide to move to that sort of ambition?

And basically, that's my question.

Marco, thanks for the questions.

Very important questions. somehow difficult to give you a hard number at this moment. But obviously, I mean, we're committed to move from the well below two degrees to the 1.5, and we're going to be resetting the SBTI in 2027. And the levers that we're working on, of course, thermal efficiency, clean care factor, and alternative fuels, if we uh execute according to the plan and it will take us very close i mean uh to to the numbers that we need to achieve and those those are capital that are not uh super i mean significant and those are the ones that my was uh referring to that they also need to i mean break that over uh the head of grace that we have and we're working on those as specifically on grinding capacity, blending, and stuff like that, and searching for more raw materials and other cementitious materials. So we are confident we can get there to 2027 with those levers. The more, I mean, a little bit more Uncertain today is the cost going into carbon captures that we see as a long-term solution for some of our plants down the road to really become neutral concrete by 2050. We're very actively, we continue to very actively We work on a couple of projects, specifically one in the Odessa plant and one in the Pueblo plant, I mean, two of our largest plants in the U.S., and they have the greatest potential to achieve a solution in carbon capture, either sequestration or utilization. So we're working hard with different actors in the industry, different technology companies and different contractors to, I mean, estimate what's the investment for a phase one pilot plant at both plants. And then from there, I mean, prove that the technology really works and be able to expand, I mean. And those topics are still, I mean, a little bit of a question and we're trying to understand that along with, I guess, the rest of the industry. But today, if you ask me today with what we've learned so far, I'm confident that we're going to get there. the 1.5 degree curve, I mean, where we're certified by SBTI, and then down the road when we have to, I mean, achieve our commitment of carbon neutral.

Got it. That's very insightful. Thank you. And if I may follow up on this, I guess that one of the levers that should be a low-hanging fruit in terms of less demanding capex and opex would be to explore other a type of blended cement in the U.S. market. So my question is, and I know that you are close to the PCA organization, and because this is, you know, a full effort for the entire industry, do you think that the codes, the construction codes, would be changed more soon in order to have other forms of blended cement other than the typical PLC

Yes. Hi, Francisco. This is Mike.

Yeah, absolutely.

Hi, Mike.

Hi. This is part of our roadmap when it comes to blended cement. You know, number one, and we didn't talk too much about today, but, you know, we have a very focused plan how to, you know, utilize PLC, Portland Limestone Cement, and really, I mean, we have it now in all the plans, but we have still some opportunity to fine-tune the substitution. So that's the first step. The second step, like I said, we're working with a team and with external experts on identifying other cementitious materials, natural materials that are available within our footprint to introduce those. We have some very good examples, our Tijeras plant. and we mentioned that is already utilizing cement fusion materials and has a much higher replacement rate than just the 15% of PLC. So that's the second pillar that we're working on. And then third, as you said, we are very active as a company in industry associations in the United States and Mexico. And part of that engagement activity is to work with the authorities, with the decision makers on specifications that would allow the industry to use these products more, more performance-driven, as we've seen in other parts of the world. They have been very successful, and that's certainly a key element that we see in the industry, and we're very active in that context.

And if you allow me to elaborate on that just to give more color, this coming week we have in Denver the IEEE PCA National Conference, And this, it's obviously a topic that is at the center of the table because we all, as an industry, understand we need the support from government, regulatory agencies, and customers to understand that we need code changes to proceed forward so we can have better and higher utilization of blended cement. So no question about that. The effort is there, as Mike said. I mean, industry-wide, and next week in Denver, it's going to be a good opportunity to emphasize those points that you're addressing.

Thank you so much for your insights. Congrats again, and I'm looking forward for that execution of your excess cash that you have there.

Guys, take care. Thank you.

Thank you. And our next question comes from Alejandro Lavin with Santander Asset Management. Please, your question.

Hi, good morning, everyone. Thank you for taking my questions. I have a couple, please. The first one would be on Odessa. You mentioned that Odessa is sold out for the rest of the year. So could you give us more color on where this demand is coming from? I mean, if you could mention some specific projects, that would be great. And the second one would be a follow-up on all these M&A questions, right? I mean, given that obviously you're being very disciplined, you're waiting for the right opportunity, the right valuation, but your current GCC valuation gap versus your M&A targets is probably one of the main constraints or challenges, right? So could this be at the right time to consider a U.S. listing considering that we have seen some, you know, several transactions on this front, you know, listings and mergers going that double-digit EBITDA multiples. So if you can get that listing, you can get that re-rating and maybe you can get these acquisitions done faster or easily. And I'm not saying it's a solution, but it could certainly help. Thank you.

Alejandro, thank you for the questions.

I'll address the Odessa plant first, and then I'll give you, Mike, an opportunity to expand and elaborate on what we've been doing and the possibility of lifting. Sold out. Completely sold out in the US. The Odessa plant continues at 100% in oil well cement. So all the demand is coming, obviously, from the energy demand and the oil demand. And so obviously, everything that somebody exports to the area, it's construction cement to complement the development of the area. But the sold-out condition of the plant is clearly oil wealth cement demand. I'll turn it to Mike now for the M&A question.

Yeah. Regarding the M&A, so the access to capital and with the strong balance sheet, We don't see that as kind of a roadblock and why we would have to think about listing in the US. So that's not a concern for us. Nevertheless, the listing topic has been discussed. We have done some analysis. And it's, of course, related to the evaluation. We clearly see that there is a not justified discount that we're getting. when you look at our footprint, our performance, and so on. So in that context, we've discussed what, you know, what a listing could do, and there is some further analysis to be done. It's nothing that is immediate on the burner here, but it's something that we, of course, looking at to, again, unlock value and create long-term, you know, shareholder value. And, you know, that's where we are at the moment on this topic.

Okay. Thank you. And congrats on the results. Thank you, Alejandro.

Thank you. And our next question comes from Alejandro Asad with GBM. Please state your question.

Hi, guys. I was going to ask you about pricing, but Daniel already did.

But if I can do one more. On the blended cements, is there any way that you could share with us the percentage that the total of your volumes is blended cements and that new, let's say, mix, how much has represented in terms of margin expansions from moving, let's say, to 5% blended cements to 50% or 60%?

Alejandro, this is Enrique again.

Yeah, we're making good progress on the vendor cement, definitely. I mean, but we aspire to do more and more and faster. And we're working very hard, I mean, to move, I mean, efforts, additional efforts, especially in the U.S. from PLC, Portland Limestone Cement, that is well-known. It was a little bit of a of a step back in the U.S. in terms of the percentage of additions allowed, I mean, by the market, and now, I mean, working with customers to, in a more consistent basis, go back to increase those percentages to, again, benefit better from the potential of the fundamental cement. Having said that, the next step, the next layer for us is in the other blended cement with porcelain materials or calcined clays, oil cementitious material, and we're working with a team in the company to develop that second phase. So that's the roadmap, and that's how we think we're going to get to deliver numbers that we have in our roadmap to achieve the SBTI targets. Specifically for this year, approximately 73% of our total shipment of products is going to have a certain amount of blending in itself. So different products have different percentages for different markets. But of our total shipment, 73% are going to be considered as blended cement in these years.

Thank you, Enrique. Thank you, Alan.

Thank you, ladies and gentlemen. That concludes our question and answer session. I'll turn the floor back to Ms.

Ogusha. Thank you, everyone.

We appreciate you taking the time today to join us and for your interest in GDC. We look forward to speaking with all of you soon.

Thank you. This concludes today's call. I'll pause and disconnect.