Genco Shipping & Trading Ltd (GNK) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited third quarter 2009 earnings conference call and presentation.

(Operator Instructions).

To inform everyone, today's conference is being recorded and is now being webcast at the Company's website, www.gencoshipping.com.

(Operator Instructions).

At this time, I will turn the conference over to the Company. Please go ahead.

Good morning. Before we begin our presentation, I note that in this conference call we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see the Company's press release that was issued yesterday, the materials relating to this call posted on the Company's website and the Company's filings with the Securities and Exchange Commission, including, without limitation, the Company's Annual Report on Form 10-K for the Year Ended December 31, 2008 and the Company's subsequent reports filed with the SEC.

At this time I would like to introduce Mr. Gerry Buchanan, the President of Genco Shipping & Trading.

Good morning, and welcome to Genco's third quarter 2009 conference call. With me today is Peter Georgiopoulos, our Chairman, and John Wobensmith, our Chief Financial Officer.

I will begin today's call by discussing our third quarter and year-to-date highlights as outlined on Slide 3 of the presentation. I will then turn the call over to John to review our financial results for the three- and nine-month period ended September 30, 2009. Following this, I will discuss the industry's current fundamentals. We will then be happy to take your questions.

During the third quarter, Genco once again drew upon its significant time charter coverage with high-quality charterers to deliver strong results. Turning to Slide 5, for the third quarter net income was $34.3 million, or $1.10 basic and $1.09 diluted earnings per share. While John will discuss the financial results in more detail later in the call, I would like to note that Genco's cash position increased to $260.8 million as of September 30, 2009 due to the strong cash flows generated by our modern fleet.

During the third quarter, Genco drew upon its considerable financial strength to once again increase the Company's earnings power and expand its leading industry reputation. Specifically, we took delivery of the Genco Commodus, a Capesize newbuilding which commenced a long-term time charter with Morgan Stanley Capital Group Inc. for 23 to 25 months at the rate of $36,000 per day.

Building on the successful execution of our growth plan, we also took delivery of the Genco Maximus, another Capesize newbuilding, last month. This vessel commenced a time charter with Cargill International S.A for three to 4.5 (sic - see press release) months at a rate of $31,750 per day. Consistent with our portfolio approach to signing contracts with staggering -- staggered durations, we also reached agreements to lock away seven sub-Capesize vessels on fixed time charters with durations ranging from three to 6.5 months.

In further advancing our objective to take advantage of the freight rate environment as market conditions improve, we reached an agreement to enter five Handysize vessels chartered to Lauritzen Bulkers A/S in a leading spot pool under the management of Lauritzen Bulkers at the expiration of the current charters in August of 2009.

Moving to Slide 6, I will now discuss the time charter coverage for Genco's fleet in more detail. Based on our past successes in executing our time charter strategy, we currently have approximately 75% of our [fixed] available days secured in contracts for the remainder of 2009 and 45% in 2010. In addition to our contracted revenue streams that provide a high degree of earnings visibility, three of our Capesize vessels have profit sharing arrangements, enabling Genco to benefit from future rate increases without sacrificing the base rate.

In seeking opportunities to increase our significant time charter coverage, we will maintain our focus on signing contracts with high-quality counterparties, as we have in the past. The Company's ongoing success in partnering with a diverse group of top multinational charters such as Cargill International and Lauritzen Bulkers A/S and others continues to serve as a core differentiator for our company as we further expand our sizable fleet.

Upon the expected completion of the Metrostar acquisition outlined on the latest slide, Genco will own 35 dryboat vessels, consisting of nine Capesize, eight Panamax, four Supramax, six Handymax and eight Handysize vessels, with an average age of approximately 6.9 years, well below the industry average of approximately 15 years. In building a modern and versatile fleet that adheres to the highest operational standards, Genco has solidified its leading brand for the global transportation of essential drybulk commodities.

I will now turn the call over to John.

Thank you, Gerry.

I will begin my remarks by directing you to Slide 9, which presents our financial results for the third quarter and nine months ended September 30, 2009. For the three- and nine-month period ended September 30, 2009, we recorded revenues of $92.9 million and $283.3 million, respectively. This compares with revenues for the third quarter of 2008 and nine months ended September 30 of 2008 of $107.6 million and $303.8 million, respectively. The year-over-year decreases were due to lower charter rates achieved for certain vessels in our fleet.

Operating income for the third quarter and nine-month period ended September 30, 2009 was $50.2 million and $158.6 million, respectively. This compares with operating income for the third quarter and nine-month period ended September 30, 2008 of $70.6 million and $226.7 million, respectively. The decrease in operating income for the three- and nine-month periods ended September 30, 2009 is attributable to increased vessel operating expenses, management fees, depreciation and amortization associated with the operation of a larger fleet, as well as a $26.2 million gain in connection with the sale of the Genco Trader during the comparative period in 2008, all partially offset by lower general and administrative expenses.

Interest expense for the third quarter of 2009 was $16 million, and $45.4 million for the nine-month period ended September 30, 2009. This compares to interest expense of $12 million for the third quarter of 2008 and $35.4 million for the nine-month period ended September 30, 2008.

The Company recorded net income for the third quarter of 2009 of $34.3 million, or $1.10 basic and $1.09 diluted earnings per share. Net income for the nine months ended September 30, 2009 was $113.1 million, or $3.62 basic and $3.60 diluted earnings per share. This compares to net income of $63 million, or $2 basic and $1.99 diluted earnings per share for the third quarter of 2008 and net income of $197.9 million, or $6.60 basic and $6.56 diluted earnings per share for the nine-month period ended September 30, 2008.

Key balance sheet and other items as presented on Slide 10 include the following. Our cash position was $260.8 million as of September 30, 2009, and our debt-to-capital ratio was 61%. Our total assets as of September 30, 2009 were $2.3 billion, consisting primarily of our current fleet, cash and cash equivalents, and our investment in Jinhui Shipping and Transportation. Our EBITDA for the three months ended September 30, 2009 was $72.5 million, which represents an EBITDA margin of 78% of revenues.

Moving to Slide 11, our utilization rate was 99.5% for the third quarter of 2009, compared to 98.8% in the year-earlier period. Our time charter equivalent rate for the third quarter of 2009 was $30,743 per day versus $39,349 per day recorded in the third quarter of 2008. The decrease in TCE rates was due to lower charter rates achieved in the third quarter of 2009 versus the third quarter of 2008 for five of the Panamax vessels, six of the Supramax and Handymax vessels and five of the Handysize vessels in our current fleet. Furthermore, lower TCE rates were achieved in the third quarter of 2009 versus the same period last year due to the comparatively lower revenue from the profit-sharing agreements on two of our Capesize vessels. This was slightly offset by higher revenues on four of our Handymax vessels and two of our Panamax vessels.

For the third quarter of 2009, our daily vessel operating expenses were $4,878 per day, which compares to $4,187 per day for the third quarter of 2008. Daily vessel operating expenses for the nine months ended September 30, 2009 were $4,789 per day, versus $4,279 per day for the nine months ended September 30, 2008. The increase in daily vessel operating expenses is due to the operation of more Capesize vessels for the third quarter of 2009 versus the same period last year, as well as higher crew and insurance expenses.

As we have stated in the past, we believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all the expenses that each vessel in our fleet will incur over a full year of operation. In maintaining an efficient cost structure, we are pleased that our daily vessel operating expenses for the third quarter of 2009 were below our budget of $5,350 per vessel per day on a weighted basis.

On Slide 12, we present a pro forma balance sheet that shows our pro forma cash position of $248.3 million, which includes $17 million of restricted cash under the terms of our revolving credit facility and takes into account the repayment of $12.5 million under our revolving credit facility. Our pro forma net debt to total cap ratio of 61% was as of September 30, 2009.

On Slide 13, we detail our upcoming capital expenditures associated with the payment on the remaining vessel to be delivered to Genco. As Gerry mentioned earlier, we expect to take delivery of the remaining Capesize vessel in the fourth quarter of 2009 under our agreement in 2007 to acquire a total of nine Capesize vessels from companies within the Metrostar Management Corporation Group.

In further expanding our high-quality fleet, we intend to utilize our sizable cash position to fund the purchase of the Genco Claudius. Management remains committed to actively consolidating the drybulk industry, as we have consistently done since going public in July of 2005. With a strong record in capitalizing on attractive growth opportunities, combined with considerable financial flexibility, Genco remains well positioned to further strengthen its industry leadership. In executing our acquisition strategy going forward, we will maintain our disciplined approach by adhering to a strict set of return criteria related to earnings and cash flow accretion as well as return on capital hurdles.

On Slide 14, we present our anticipated break-even levels. As stated on our previous conference call, we adjusted our budget of daily vessel operating expenses to $5,150 per vessel per day for the third quarter of 2009, from $5,350 per vessel per day. For the fourth quarter, we estimate daily vessel operating expenses to be $5,300 per vessel per day. The higher estimate is due in part to timing of purchases of spare parts and lubricants as well as lower than anticipated crew costs. We expect our daily free cash flow break-even to be $12,458 per day per vessel and our daily net income break-even rate to be $20,233 per day per vessel on a weighted basis of an average number of 34.11 vessels for the fourth quarter of 2009.

Before I turn the call back to Gerry, I mentioned that as you may know Genco announced the proposed IPO of its subsidiary, Baltic Trading Limited, in an October 14, 2009 press release. Baltic intends to conduct a drybulk shipping business focused on the spot market. As announced, Genco intends to make a $75 million capital contribution to Baltic, which Baltic would use, along with IPO proceeds, to acquire its initial fleet. Genco has no current plans to contribute any of its vessels to Baltic in connection with Baltic's IPO. As Baltic is currently in registration, we cannot take questions on Baltic during this call.

I will now turn the call back to Gerry.

Thank you, John.

I will now take this opportunity to spend a few moments discussing the industry fundamentals. I'll start with Slide 16, which points to the drybulk indices. Represented on this slide are the overall Baltic Dry Index and the Baltic Capesize Index. As can be seen when looking at the graphs, the Baltic Dry Index has been trading at the 2,000 to 3,000 point range since June of 2009. As I will explain later in more detail, we believe that the strength in the drybulk market has been almost exclusively driven by China's infrastructure growth, and the short-term volatility has been a factor of increased reliance on this bulk market for iron ore cargos.

Moving on to Slide 17, we summarize the demand side fundamentals. As indicated on the graph at the bottom right, Chinese steel production reached 419 million tons for the first nine months of 2009, showing a 7% increase over last year's production figures. Over 470 million tons of iron ore were imported into China for the same period, showing a 36% increase on a year-over-year basis and breaking new records for the months of July and September.

The first reason for the record iron ore imports has been the increased demand for steel driven by China's appetite for infrastructure and real estate development. The second reason behind the significant increase in the amount of imports of iron ore, as mentioned on our previous call, has been the substitution of domestic iron ore for imported iron ore due to the fact that a price target below the $90 per ton mark makes it unprofitable for domestic mills to produce ore.

It is important to note on this slide that as iron ore imports have been growing over the past couple of months, iron ore inventories have remained flat and have even decreased slightly in October, implying that the commodity is being consumed and is fueling projects driven by the Chinese stimulus spending. Furthermore, while we have seen no signs of a conclusion of the iron ore price negotiations for this year, initial discussions for the 2010 calendar year price setting have begun.

Coal, the second most important commodity in drybulk shipping, has been an increasingly important factor through the third quarter of 2009. As can be seen in the graph at the bottom left of the page, China has been a net importer of coal since the beginning of the year, with record amounts of the commodity being imported through the last three months. As is the case for iron ore, much of the increase in imports has been driven by the arbitrage between imported and domestic pricing. Additional factors have been the increase in power consumption, increased steel production and pressures from the Chinese government to shut down domestic coal mines due to environmental and safety reasons.

To illustrate the magnitude of this effect, I note that China was a net importer of 59.1 million tons of coal in the first nine months of 2009, while a net importer of 4.8 million tons over the same period last year. Moreover, inventory levels at the main coal port of Qinhuangdao are 41% down, to 3.92 million tons, representing the lowest point since the peak observed in July 2009. While one would expect higher freight rates as a result of the record iron ore imports into China, the effects of the financial crisis on the rest of the world have thus far held back the more substantial increase in freight rates.

On Slide 18, we see the effect of this trade imbalance through the first nine months of the year. While iron ore and coal imports into China increased by 36% and 157%, respectively, imports in Japan, South Korea and the European Union showed decreases for both commodities. As previously stated, we believe that although this trade imbalance explains the market's dependence on China, currently it might also prove to be beneficial in the medium to long term, as the drybulk industry could receive further support with a potential recovery in the rest of the world. Moreover, as shown on the graph at the bottom right corner of the slide, a potential tempering in China's growth would well be offset by strong prospective growth in the rest of the world.

On Slide 19, we present our view for the supply side of the equation. Looking at the graph in the bottom left of the slide, we can see the drybulk orderbook through 2013. Although the projected drybulk orderbook still represents 64% of the existing fleet, it is questionable whether it will be delivered in its entirety. As presented below, approximately 40% of the new building orders scheduled to deliver in 2009 and 2010 are contracted at newly established, expansion or greenfield yards.

If one considers estimations from the industry sources that only 40% to 50% of the current orderbook has financing in place, we believe that it is fair to assume the last part of the current newbuilding orders will never be completed. Furthermore, it is estimated that approximately 450 contracted vessels have been canceled and that only 321 vessels out of a total of 964 vessels which were scheduled to be delivered year to date in 2009 have actually been delivered to their owners.

Approximately 27% of the world's fleet is 20 years or older. As we have indicated on past calls, bulk carrier scrapping is not mandated. It is more of an economical equation. To that extent, scrapping showed significant strength through the last quarter of 2008 and first quarter of 2009, leveling off into the second and third quarters of 2009 amid a higher spot rate environment. As illustrated on the graph at the bottom right of the page, 193 vessels have already been scrapped year to date as compared to the approximately 80 vessels scrapped in 2008.

Turning to Slide 20, we note that, as visually illustrated on the graph at the bottom of the page, the main engine of growth on what has been providing support to drive up rates over this past quarter has been the increase in infrastructure spending around the world, led by the stimulus efforts in China. Leading worldwide efforts to boost economic growth through fiscal policy was the Chinese government's $586 billion stimulus plan, which we have always argued would stimulate demand for commodities our vessels carry. Moreover, we believe that although the approximately $300 billion of stimulus spending around the world is not as heavily weighted towards infrastructure as the funds invested in China, this prospects of a world economic recovery driven by stimulus or even consumption spending bodes well for the drybulk fundamentals.

Indications of the positive effects of the economic stimulus plan and the growth trajectory in China come from a variety of different metrics, of which I will mention only a few. Namely, the country's GDP growth on a year-over-year basis was 8.9%. PMI rose to 55, continuing in expansionary territory, and urban fixed asset investment increased to 33% year-over-year basis through September of 2009.

Moreover, the recent strength in the demand for steel and iron ore and [expansion] can be explained by the fact of majority of China's GDP growth is attributable to investment activities. Coupled with the fact that 42% of all medium- to long-term loans extended in the first half of 2009 were loans allocated to infrastructure projects indicates that the demand for steel and steel products should remain strong as these projects are coming to the construction phase.

And, lastly, although the amount of new loans in China were lower for the months of July and August, one of the contributing factors to that was the maturities of short-term loans issued after the financial crisis to fund liquidity needs.

This concludes our presentation, and we'll be happy to take your questions.

(Operator Instructions).

We will go first to the site of Doug Mavrinac, with Jefferies & Co. Your line is open. Please go ahead.

Great. Thank you, operator. Good morning, guys. Just had a handful of questions this morning, with the first couple being more on the macro. In Gerry's comments and in the presentation, and has been well publicized, we've seen a big surge, record levels of imports of iron ore and coal into China, with the rest of world really not kind of keeping pace. But over the last couple of months we've seen that steel production in Japan and Korea and the EU region has also begun to finally increase. And I guess one would expect that we would finally start to see more iron ore, more coke and coal going to those regions. Have you guys seen a pickup in [fixture activity] or anything like that over the last month or so that would be consistent with that we are finally starting to see some things moving to places other than China?

Yes, I mean, Doug, the answer is yes, we have, both Japan and Europe. And actually if you look at -- we've done some sort of back-of-the-envelope numbers, but if you look at what's been happening since the beginning of the year, I think China accounted for approximately 80% of the Capesize liftings in the first quarter, 82% in the second quarter, 81% in the third quarter, but actually so far in October that balance has shifted to 34% from other sources other than China, and China going down to 66%. So we're starting to see increased liftings just outside of China.

Okay, excellent. That's good to hear. And then, John, would you say that that pickup in activity, has it translated to more time charter inquiries, or, I guess from your own standpoint, or with the lack of time charter inquiries, if it's not translating into that, would it be more in the spot market that we've seen this pickup in activity?

I would say it's more in the spot market. There aren't too many time charter deals that are being done right now.

Okay. Okay. Excellent. Thank you. And then one final question, and it has to do more with the supply, and Gerry also touched on this in his commentary, talking about how much of the orderbook has yet to be paid for. But my question is, of the portion of the orderbook that has already received financing, how does the decrease in asset values affect maybe some of those agreements, i.e., collateral values have declined, are some of those newbuilding contracts that have already received financing affected by the change in asset values, as well, and could that potentially affect future supply growth?

Absolutely.

Yes, I mean, Doug, obviously there are collateral maintenance clauses in almost every one of these loans, and so even loans that are -- even ships that having financing in place could be under pressure, and it could be difficult to fund some of those.

Okay. So it's more than just the greenfield yards and the unfinanced orders. It's also -- I mean, it's pretty much everything that was ordered at the top of the market and where the market is today. It could be an issue.

Yes, and not only that, you also have to keep in mind that there are a lot of options, or so-called option orders in the orderbook.

Right.

And obviously they're a way out of the money, so most likely they're not going to be built, but no one's really adjusted the orderbook for those -- to those.

Right. Got you. Okay, great. Thank you very much.

And next we'll move to the site of Jon Chappell, with J.P. Morgan. Your line is open. Please go ahead.

Thank you. John, question for you on the target capital structure. After you take delivery of the Claudius, you have very limited capital commitments. You should be very free cash flow positive next year. What do you think the target, that the cap should be, and also what's your true liquidity for potential growth, given your credit facilities, free cash, etc.?

Well, I mean, look, our pro forma cash, obviously, at the end of this quarter is $248 million. We obviously have the $96 million that most likely that ship will deliver sometime in December. And, as you said, we'll be building free cash flow next year. Without going into any specifics, we still think we have room for growth, and obviously there are other mechanisms other than cash. The high yield market is open, the convert market's open. We still think bank financing is actually available. It's just available at wider margins and tighter loan to values.

And would you access the traditional bank financing if it was available if the right deal came along, or would you use some of those other alternative methods?

I think everything's on the table, but obviously we'd like to use the bank market first.

Okay. Then a question on the industry, something that Gerry mentioned, 450 cancellations announced so far. Two questions on that, first, do you have the dead weight tonnage to that number? I mean, are these mostly VLOCs or Capesizes or are they smaller Handies? And then also is there any way to tell whether those are true eliminations from the orderbook or they're the original owners who've canceled and there's the potential for the governments to come and actually have those ships be delivered?

I understand that the cancellations are across the board. It's not limited to any particular one class of vessel. We don't have the dead weight tonnages at hand. If you really need those, we can get them for you and send them to you. I have heard that the Chinese government may take up some of the cancellations and that they would be translated into vessels that may be required for the domestic coal transfer, but other than that I haven't heard any more.

Okay. And then, just finally, on the domestic coal transfer, if the Chinese-flagged vessels started to become a larger part of that, what kind of impact would that have on the broader global trade?

Well, I think you have to look at the age of the fleet of the Chinese domestic coal transfer vessels. I think a lot of those vessels are rather old, but, to be honest with you, I don't know. I think that fleet is rather aging.

Plus we wouldn't be in it anyway.

Yes, that's true, we wouldn't be in that anyway. That's a domestic (inaudible) trade.

Has it been sucking any of the -- I guess it hasn't been sucking any of the vessels out of the global trade, then?

No.

No.

So your older ships get sold into it.

Right.

So, no.

Usually the sweet spot's around 18 years old, and there's still another going in there.

All right. Thanks, guys.

And next we'll move to the site of Urs Dur, with Lazard Capital. Your line is open. Please go ahead.

Hi, good morning, guys.

Good morning.

Good morning, Urs.

You went over this in the call again, and you mentioned that the term charter market's not particularly liquid, but we do see an increase in overall charter rates and another tick-up in the FFAs this morning. Are you currently considering planting a number of one-year contracts on the remaining 55% of your operating days available for next year over the fourth quarter?

At the right numbers, absolutely. We've always done that. I mean, that's been our history.

Right. And so with this spike up it's, I guess, I'm asking is that reasonable to expect or is that just something you look at?

I think it's -- I think our history has proven it's the kind of thing that we will typically do.

Okay. Thank you very much. On the orderbook, and you just went into this in depth again, we see tremendous slippage and/or cancellations. More of a question, I guess, for Gerry, but all of you, if the orderbook has slipped this much, I mean, how much integrity did it have in the first place, and then if it has slipped this much and with cancellations despite big numbers showing up in 2010, doesn't that mean a lot of what now is expected in 2010 has to slip by default into 2011 and beyond?

Yes. I think if I can just sort of try and answer all those questions or all those thoughts --

Yes, sorry.

-- I think that it did really have integrity. And when ships were $150 million each and people were paying a lot of money, yards figured out how to get things done on time.

Right.

With the financial crisis, I think that's where the integrity of the number, the integrity of the -- and the timing of getting these ships delivered has slipped, has slipped tremendously. I think your last point was -- is correct, that a lot of things that people thought were going to come in 2010 probably won't come in 2010 and will either get canceled or shifted into 2011 or 2012.

Great. Thank you very much. And then, I guess, John, interest rate was -- interest expense net was a little bit lower than we had expected, which is great, and you've given your guidance on the slide for the next quarter. Is there anything reasonable to expect that it's going to stay relatively low at this kind of pace for next year, or you're not going to comment there?

Well, we have -- I think if you look at what we have floating, I think we have about $500 million that's floating, so depends what three-month LIBOR does more than anything else.

Okay.

We don't expect a spike there any time soon.

No, nor do I. You mentioned it, but can you just mention again what your total liquidity is now, available lines of cash?

Well, our credit facility we have zero availability. We've borrowed fully under that, in fact are repaying $12.5 million a quarter.

Right.

And our pro forma cash, again, as of September 30, is $248 million. And we have $96 million of CapEx on the Claudius, which, as I mentioned before, most likely will be coming in December.

Okay. Hey, thank you very much.

Thanks.

And we'll move next to the site of Natasha Boyden, with Cantor Fitzgerald. Your line is open. Please go ahead.

Thank you, operator. Good morning, gentlemen.

Hi, Natasha.

Just a question on your OpEx here, obviously you're forecasting about $5,300 a day, but it's been coming in quite a bit lower than that. Can you give us any color on what's driving this? Because it doesn't seem like costs are going down across the industry.

No, but we've been controlling our drydocks. We've been controlling our lube oil consumption, spare parts, etc., etc. It's just through good fiscal control, Natasha.

Yes, and it's also a little bit of timing, Natasha, on purchasing. I mean, we actually -- the $5,300 number for the fourth quarter, I think -- that's the number we're putting out, I think it's a pretty good number, because we are going to have a little more spare parts purchase in the fourth quarter than we have in the last couple of quarters.

Okay, that's very helpful. Thank you.

I would definitely use the $5,300 number.

Okay.

Remember that it's not linear.

Right. And then maybe some pretty broad macro questions here, because I think everything else has been touched upon. The first thing I wanted to get your thoughts on is really Vale and their absence from the spot market in August and September and the fact that they are trying to ship more of their iron ore through a controlled fleet of their own. What do you think the long-term implications for the cape market are because of this development?

Well, I mean, I wouldn't necessarily look at Vale not shipping in August as any indicator going forward. I mean, the fact is the Australians were actually shipping quite a bit in August and early September. I mean, I think everyone knows that Vale is building their own fleet, but I think if -- I mean, again, we've done some back-of-the-envelope calculations on it. It looks like by the end of 2012, once their VLOCs are delivered and their Pan Ocean COA is in place, I think they'll be able to cover, assuming no growth, and that's a very important factor here, assuming no growth in iron ore output over the next two years, I think they're able to cover somewhere around 40% of their transportation needs. So it's not like they are covering 100%. And they have long-term charters, but keep in mind these things roll off and expire, so they're going to have to replace some of those. And, again, I think the biggest factor here is no growth, and Vale has come out and already said that they're restarting projects for growth over the next couple of years.

No, definitely, I agree with that, but wouldn't, even if it's -- even if they can transport up to 40% of their own needs, that's 40% that wouldn't have been in the spot market.

Well, again, it's a little difficult just to focus on that number, because you don't how much of that percentage is under long-term charter now that may be rolling off and they're simply replacing.

Okay.

Unfortunately, I mean, you've really got to -- you'd have to ask Vale directly as far as --

Sure. No, no, I understand. Okay. All right. Thank you very much.

And we'll move next to the site of Scott Burk, with Oppenheimer. Your line is open. Please go ahead.

Hi. Good morning, guys. Just a few follow-ups here. I'm wondering about the Maximus and the Claudius, if you have received any inquiries on those for longer term charters.

I mean, we've received inquiries for charters. It's all a matter of what rates, right, Scott? So, as we've done in the past, when we're ready to fix we'll assess the market and decide whether we want to go long term or stay short.

And have -- in terms of those rates that kind of are implied, have they been improving? Are they getting close to where you might want to do that, or you've still got a ways to go?

Oh, they're definitely moving in the right direction.

Okay. Then I also wanted to ask about the charters you got. You mentioned new charters in the presentation on the Muse and on the Cavalier. Are those the same ones that you discussed last quarter, or are there new ones for starting in November, as well?

These are rollovers.

Yes, I mean, Scott, I mean, if you -- I mean, we've got a full slide, right, in the appendix that -- or, sorry, not in the appendix, on Slide --

Yeah, Slide 3 or something like that, yes.

-- yes, and so if you compare that to last quarter you can see what's actually been rolled.

Okay. Okay. All right. It looks like those are the ones that you discussed back in August, then. And then --

And obviously we've put the five Handysize ships in the Lauritzen pool.

Yes. Yes. And then, now, you mentioned earlier that you're repaying I think it was $12.5 million per quarter on the -- in terms of debt repayment on your facility.

Yes.

Do you have any -- what does that repayment schedule go up to for 2010 and '11? Is that still $12.5 million?

Still $12.5 million.

Okay. Okay, and then, let's see, I guess everything else has been covered, so thanks. Appreciate it.

Thanks.

Thank you.

(Operator Instructions).

We'll move next to the site of Chris Wetherbee, with FBR Capital Markets. Your line is open. Please go ahead.

Great. Thanks. Good morning. John, I just wanted to touch on the stat you mentioned earlier, I thought it was interesting, on the percentage of China taking Capes and their market share dropping to about 66% in October. Is there a specific area you're seeing that's picking up that share? I know you mentioned that part of the developed world are starting to ramp up a bit. Is there any one specific area that looks more active than others at this point?

It's Japan and Europe. I think everyone is now under the impression that Europe is done their -- or has done their destocking, and so we're seeing some increased liftings going into Europe as well as Japan on both the coal and the iron ore side.

All right. No, that's helpful. I guess switching gears to a couple of technical questions, can you give a rough breakout of the drydocking? I think you said you have nine vessels drydocking in 2010. How should we be thinking about that?

Yes, I mean, keep in mind that -- I mean, we -- first of all, nine is the right number, but keep in mind that we typically are pretty conservative on this and we allow 20 days per ship. If you look at the breakdown between those nine vessels, we've got four that are going on for special survey and then five that are going in for intermediate survey. So the five going in for intermediate survey I doubt very much it's going to take 20 days. It'll probably be more like 10 days. So in reality the number's probably more 130 days for next year. But, as I said, we're always conservative, and that's why we've used the 160. You know, if you look at what we've done for the first three quarters of this year, I think we projected 140 days in drydocking and actual numbers are 98. Now, that doesn't mean we're not saying we're going to hit that number next year, but I think you'll see that we're pretty efficient on our drydockings.

And then as far as that's distributed throughout the year, any sense of how that's going to work out, or are you just going to be opportunistic with where the locations are at the time?

Yes, I mean, ideally we want to be drydocking in China. So it's a timing and a positioning issue.

And the five -- I'm sorry?

I'm sorry, I was just saying we've been very successful in doing that so far.

Okay. The five intermediates are the Capes, right?

Yes.

Yes.

Okay. Great. And then I guess from a G&A perspective, that's come down a bit and has been holding nicely. I saw your guidance for the fourth quarter. Is that kind of run rate something we should be thinking about for 2010? Does that look good for that as well?

I haven't actually looked at 2010, but, yes, I mean, one of the major factors of why G&A is down is compensation and the basis that's used for that.

Okay. Great. And then I guess just conceptually, I know you mentioned it before, we've seen certainly the high-yield market act up a little bit. Is that something you guys would consider as you think about kind of post-Claudius delivery, as you think about what your opportunities for growth are going forward? Is that a potential financing vehicle for you?

Yes, absolutely, just like bank debt. But I think we obviously want to see a growth opportunity. I don't think putting a high-yield bond in place just for the sake of doing it because the market's hot right now makes sense.

Yes, that certainly does make sense. And I guess when you think about that as far as vessel values, do you like what you see out there now? There certainly has been some S&P activity, but what do you think about values and where they're going going forward?

We think values have bottomed out, and we think it's getting close to a time where we would start looking at things.

Okay. That's fair enough. Thanks very much for the time. Appreciate it.

Thanks, Chris.

And we'll move next to the site of Gregory Lewis, with Credit Suisse. Your line is open. Please go ahead.

Thank you, and good morning.

Good morning, Greg.

Good morning.

John, you talked about the use of your existing capital. What's -- when you sort of target an investment, what's sort of like your minimum rate of return that you're looking for?

Look, I don't think anything has changed since we started this several years ago. I mean, we're -- for newer ships we're looking for 15% cash on cash numbers. My view is that we'll be able to do better than that because of the lack of liquidity in the bank market, and those cash on cash numbers should theoretically expand. That's sort of the simple in-the-box way of looking at it, but we obviously run IRR analyses which can be a little more complicated that sensitizes things to future charter rates as well as residual values. Then we make a decision. Nothing's really changed from -- since day one, Greg, as far as --.

Okay, great. And then, and Gerry, lastly, have you seen any signs of pickup of port congestion anywhere?

Port congestion?

Yes.

Well, let me tell you what the latest figures are. The Australian coal ports are about 11 days. Australian iron ore ports are about three days. And the Chinese port congestion at the iron ore ports are around about five days. I mean, that's a long drop-off from what it was back in the summer.

Okay, great. Thank you very much for the time.

Thanks, Greg.

And we'll move next to the site of Justin Yagerman, with Deutsche Bank. Your line is open. Please go ahead.

Hey, good morning, guys.

Hi, Justin.

Wanted to just ask a quick question on the comment you made on time charter availability? What do you attribute the thinness of that market to? Do you think that the charterers in general think that rates are topping out here and that's why they're not willing to sign at commensurate rates? I mean, you guys seem to think that the environment's improving and on its way up, so I was just curious about commentary around that and what's prohibited you from signing more on the 2010 side.

I mean, interestingly enough, there are still charterers looking for five- and 10-year deals. We just don't like the rates that are being offered right now. I think the lack of liquidity in the FFA market also hurts some of the shorter term stuff, the year to three years at this point.

That's interesting. Looking at OpEx, a couple of questions were already asked on it, but just generally, I mean, are there line items there that in 2010 you think that you could get some additional leverage on that might push things down or keep things rather at the lower run rates that you guys have been able to achieve?

I think we're pretty much in control of what's going to happen in 2010. I mean, things that are unknown are the things like lube oils, which are controlled by the rising price of crude oil, etc. We are seeing some indications that there'll be increases there come the beginning of 2010. Most other line items we have managed to hold. The other one is insurance. Insurance always goes up, you know, irrespective of what your record is, and we have a fairly good record. So I don't see it go up unduly, but it will go up. I'm pretty confident that we should maintain good levels as we've seen in the past years in 2010.

How about crude costs?

We've managed to hold crude costs steady. Most of the crude suppliers that we use, and we use two, are very cognizant of what's been going on in the markets in the last year, and crude costs have stayed pretty steady.

Got it. All right. That's helpful. And, lastly, just on your comments around loan growth in China and a little bit of the slowdown there being due to short-term maturities, do you think that any of that has to do with, I mean, just generally the government pulling back on money supply, given how fast the Chinese economy has kind of reemerged here? And I guess have you seen any commensurate downturn in activity? You talked about pickups in Europe and Japan, but, I mean, has activity into China mellowed or stabled off a little bit relative to the growth you're seeing in other geographies?

Overall I would say no, but keep in mind that the Chinese, they don't buy in a consistent pattern for iron ore. They go into the market. They buy. And then they sit back, and then they go back in and buy. I mean, I think what's interesting right now is inventory numbers have actually been coming down, and you're still seeing spot lifting. So clearly the iron ore is being used.

Yes. Okay. That's helpful, guys. Thanks a lot for your time.

Thank you. And we'll move next to the site of George Pickral, with Stephens. Your line is open. Please go ahead.

Good morning, guys. I just have one question here, Gerry. There's a lot of talk about the orderbook, how much will be canceled, the delays. Is there any concern where if we see a meaningful increase in demand and rates go up that that orderbook actually comes back online faster than you all are talking about?

I can't see a lot of this orderbook coming back online if anything changed, to be honest with you, in the short term. Remember, a lot of this stuff is to do with financing, a lot of it's to do with greenfield yards, and that's not going to come back quickly.

Okay, even if the rates come up and banks feel a little bit better about the market, you still don't think that'll happen?

I don't think that'll happen, no.

You know, I don't see the bank market, the commercial bank market for shipping being fixed in any meaningful way in 2010. And what you have to keep in mind is, putting drybulk aside for a second, a lot of these banks have issues on the container ship side, so that keeps their liquidity, unfortunately, held back.

Okay. That's all I've got. Thanks for your time, guys.

Thank you.

Thank you. And at this time I'm showing no further questions. This will conclude today's teleconference. Thank you for your participation. You may disconnect at any time, and have a wonderful day.