Ferroglobe PLC (GSM) 2021 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Ferroglobe's Third Quarter 2021 Earnings Call.

(Operator Instructions)

I would now like to turn the call over to Beatriz García-Cos, Ferroglobe's Chief Financial Officer.

You may begin.

Good morning, everyone, and thank you for joining Ferroglobe's third quarter 2021 earnings call -- earning call.

Joining me today are Marco Levi, our Chief Executive Officer; Benoist Ollivier, Head of -- Chief Operating Officer and Deputy Chief Executive Officer; Gaurav Mehta, our Transformation Director and EVP of Strategy and Investor Relations; and Jorge Lavin, Group Controller.

Before we get this started with our prepared remarks, I'm going to read a brief statement.

Please now turn to Slide 2. The statements made by management during this conference call that are forward-looking are based on current expectations.

Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Ferroglobe's recent SEC filings and the exhibits to those filings, which are available on our web page, www.ferroglobe.com.

In addition, this discussion includes reference to EBITDA, adjusted EBITDA, gross debt, net debt and adjusted diluted earnings per share, which are non-IFRS measures.

Reconciliation of these non-IFRS measures may be found in our most recent SEC filings.

Next slide, please.

During today's call, we will first review the highlights for the third quarter as well as our business and operating environment; then I will provide some additional details on our financial performance and key drivers behind our results; and finally, we will provide an update on the execution of our strategic plan.

At this time, I would now like to turn the call over to Marco Levi, our Chief Executive Officer.

Next slide, please.

Thank you, Beatriz, and welcome to our third quarter 2021 earnings call.

I hope that my voice supports me during this call.

Otherwise, I will hand over part of my presentation to Mr. Mehta.

This is certainly a unique time for our Company and for the broader industry.

The sharp and unexpected recovery in demand across our end markets, which started in the fourth quarter 2020 continued throughout this year.

In fact, global demand has outpaced supply, driving the index to unprecedented level in products such as silicon metal and reached multi-year high levels across our alloys.

For example, the latest index pricing for European silicon metal has been at all-time high at EUR 8,100 per ton last week, up from around EUR 1,700 per ton just 1 year ago, an increase of 375% approximately.

I am pleased to report that we are seeing fundamentals remain extremely favorable for a sustained pricing environment throughout 2022.

On the demand side, our customers across the chemical, aluminum and steel sectors are signaling healthy demand into next year.

On the supply side, we expect that tightness, particularly in silicon metals, to continue.

The trend of lower net exports out of China continues to benefit Western producers.

As a result, we announced the restart of our Selma, Alabama facility in the United States, which is strategically located to benefit from the growth in the region.

Current market dynamics set the stage for a significant improvement in our earnings at the beginning of 2022.

However, our Q3 performance remained constrained due to the composition of our order book, which is heavily weighted towards fixed price contracts.

Nonetheless, the limited price increase realized across the portfolio compared to the movement in the index was enough to offset drastically higher energy in Spain, higher input costs, operational and supply chain disruptions.

We're also pushing ahead vigorously on the strategic turnaround plan, which is helping to offset some of the inflationary pressures and also helping to create the foundation for a stronger Ferroglobe.

Overall, we are not surprised by the factors impacting our costs.

The energy situation in Spain was an issue last quarter and we'll continue to have an impact through year-end.

What surprises us is the pace and the level at which the market price for energy in Spain has shot up.

To provide some perspective, the market spot price in Spain averaged EUR 45 per megawatt hour in Q1, EUR 72 in Q2, EUR 118 in Q3.

Once again, these are the average quarterly prices and do not fully highlight the big inter-quarter pricing, which was EUR 189 in Q3.

We are currently pursuing several alternatives to mitigate this problem.

We are reviewing term sheets for PPAs with strategic and financial counterparties, covering a portion of our 2022 energy needs in Spain.

We are also working on solutions with our customers to pass-through these costs in the wake of this unprecedented situation.

As we rebound from the depths of where this Company has recently been, we are engaging and strengthening our relationship with customers.

As cash generation accelerates, we are focused on reinvesting in our asset base to ensure efficiency and competitiveness.

Additionally, we need to recognize the efforts of our workforce through a challenging period.

The changes we are driving throughout the Company are an important part of the new Ferroglobe.

My first objective continues to be the strengthening of the Company and I think we are making progress.

At this stage, it is critical that we fully capitalize on the near-term opportunities and we must not compromise on the execution of our turnaround plan in order to ensure cost competitiveness in a sustained manner.

I can confirm that at this stage, we're recovering market share from key customers and we are focused on our ability to convert these opportunities into faster cash generation, higher margins and, where attractive, trying to negotiate longer-term contracts.

I will touch a bit more about how the current negotiation season is shaking up, but let's first review the third quarter results.

Moving ahead to Slide 6, please.

Our third quarter results were impacted by several factors, some of which were one-off, limiting our ability to benefit from the strong market conditions this quarter.

Index prices continue to increase across the product portfolio during Q3 on the heels of strong demand.

On the production side, we faced some outages and logistical issues constraining shipments.

Total sales increased 3% over the prior quarter to $429 million.

On the cost side, energy had the single largest impact, costing us an increment of [$90 million] during the quarter, with other inputs, such as coal and coke, facing inflationary pressures.

Furthermore, we faced some one-off issues at few facilities, which constrained our production.

Operational challenges coupled with some inbound supply chain and outbound logistical bottlenecks adversely impacted costs during the quarter.

Our adjusted EBITDA increased 10% over the prior quarter to $37.6 million.

For the quarter, we had a net loss of $97.6 million, primarily due to a non-recurring accounting impact.

This accounting change -- charge relates to the refinancing costs specific to the senior notes, resulting in a financial expense of $90.8 million.

This charge relates to the accounting of the aggregate fees, expenses and equity, which were issued as part of the overall costs.

Beatriz will elaborate a little bit more on that.

During the quarter, we consumed some cash, ending the quarter with a cash balance of $95 million.

Operating cash flow, in particularly, was negative by $35 million as a result of an investment in working capital to support our strong near-term demand.

As we think about Q4, we expect revenues to increase, driven by the recovery in volumes and continued improvement in selling prices.

And while some cost pressures will continue, the top line growth is expected to outweigh these costs, resulting in continued recovery of our EBITDA and margin expansions.

The acceleration of cash generation originally expected for 2021 will be limited due to increasing costs.

As we get the benefit of the new prices at the beginning of January, we expect operating cash generation to improve.

With regard to 2022, the order book is shaping up favorably.

Today, we have approximately 35% of our overall sales contracted.

We are currently negotiating a number of other sizable contracts, which we anticipate to close shortly.

With this contract, approximately 70% of our order book will be booked.

In 2021, we had a higher weighting towards fixed prices, which constrained our upside.

In 2022, we will have more market exposure due to a higher weighting towards index-based contracts.

Additionally, we have built in more protections in -- to our contracts in this cycle.

Next slide, please.

Turning first to silicon metal on Slide 7. On the volume side, we had 8% decrease in silicon metal shipments to approximately 61,700 metric tons, somewhat back to the levels realized in Q1.

Earlier this year, we announced plans to restart the furnace at the Sabon facility in Spain and another furnace at our [Montricher] facility in France as the demand picture strengthened.

With the restart of these 2 furnaces, our production volumes in Q2 increased relatively to Q1.

During Q3, we decided to idle the same furnace at Sabon due to the sharp rise in energy prices.

This resulted in lower total silicon production during the quarter.

Outside of Spain, we had a planned maintenance outage at our alloy West Virginia facility, which further limited our production.

The maintenance work has since been completed and this facility is fully operational.

As a result of these developments, we expect volume in silicon metal to increase in Q4, as well as a continuous step-up in prices.

We have recently signed a very attractive contract supporting the decision to once again restart the furnace at Sabon.

On the pricing side, our average realized pricing increased to $2,467 per metric ton in Q3, up 5% from the prior quarter.

During the quarter, approximately 2/3 of silicon metal sales, excluding the joint venture volumes, were contracted.

Of this contracted portion, 90% were under fixed price contracts.

Hence, our average realized prices do not reflect the same pace of momentum reflected in the indexes.

The index prices in the United States and Europe on the top left hand of the slide show a parabolic movement in prices towards quarter-end that has continued in the fourth quarter.

The current spot prices are over $9,500 per ton in the US and EUR 8,100 per ton in Europe.

EBITDA from our silicon business declined from $13.7 million in Q2 to $11.4 million in Q3.

On the cost side, we encountered a few challenges which contributed to a negative impact of $8.3 million.

The most significant driver was higher energy cost in Spain, which adversely impacted Q3 by EUR 4 million.

Beyond energy, there have been some cost inflation and sourcing challenges in other raw materials such as coal, forcing us to seek for alternatives.

In the absence of the optimal raw material mix, we have seen a negative impact on our overall operational efficiencies, driving an increase in production costs.

Regarding the Selma facility restart, our current plan is for one furnace to be restarted by year-end, and the second furnace to restart in late Q1 2022.

End market demand remains strong.

Currently, we are in negotiation season for 2022 contract.

In silicon metal, we are close to having approximately 80% of our volumes contracted.

Of the contracted volumes, approximately 30% is at fixed price.

Next slide, please.

Turning to silicon-based alloys on Slide 8. During the quarter, our average selling price increased by 9% to approximately $1,990 per metric ton, up from $1,850 per metric ton in the second quarter.

Our silicon-based volumes were down 14% to just under 55,900 tons.

The approximately 9,000 tons decrease across the silicon-based portfolio is primarily attributable to ferrosilicon and foundry to a lesser extent.

We missed approximately 5,000 tons due to operational and logistical issues.

In South Africa, there were shipments delays that were a result of congestion at the Port of Durban in South Africa, and also logistical challenges in procuring large container vessels.

Additional, at our Bridgeport, Alabama facility, we had a planned downtime for maintenance, plus some unexpected operational issues, which kept the plant down for several extra days.

Similarly, at our eMalahleni facility in South Africa, another planned maintenance outage took longer than expected.

In addition to the operational disturbances, we had approximately 2,000 tons that customers asked to delay into the fourth quarter as a result of some seasonal slowdown during the summer period.

EBITDA for our silicon-based alloys business was positively impacted by prices, but offset by volumes and higher costs, resulting in adjusted EBITDA of $8.4 million in Q3, down from $11.4 million in Q2.

In terms of the $10.5 million cost impact, approximately $6 million is attributable to higher energy cost in Spain.

Cost inflation in coal and charcoal resulting in $1 million on higher costs and also impacted furnace performance, which add another $1 million impact.

And lastly, with the operation of disruptions at Bridgeport and eMalahleni, we had a lower fixed cost absorption impacting the results by $2.5 million.

Looking ahead to Q4, we feel this part of our portfolio is poised for a strong recovery relative to Q3.

First, there are volumes, which customers pushed from Q3 to Q4, as well as the incremental volume contribution from the furnaces, which had operational issues.

On the pricing side, keep in mind that ferrosilicon generally has either 1 or 3 months pricing lag.

The ferrosilicon index in US and Europe are up 40% and 35%, respectively, since the end of Q3.

Overall, steel demand remains robust and we are just getting back to pre-COVID levels.

Keep in mind that the way steel producers manage their order books is very fluid.

So while there might be some slowdown from time to time, the fundamentals have not changed.

In fact, many of our larger customers have been looking at multi-year deals in light of the current environment.

With regards to calcium silicon, the trade case in Europe was favorably concluded in early October.

There are now anti-dumping duties against Chinese producers up to 50.6%.

At the moment, these trade protections are in place until April 2022.

Which -- with regard to ferrosilicon taking into account the sizable contracts, which we anticipate to close soon, 55% of our expected production for 2022 will be contracted.

Of this portion, about 20% our contracted volume at fixed prices.

Next slide.

Overall, manganese-based alloys was the strongest part of our portfolio in the third quarter.

Despite the strong increase in EBITDA this quarter, this segment was impacted by the same seasonal slowdown in steel demand as well as curtailment in Spain due to energy costs.

Volumes increased 12% to approximately $76,500.

We had the incremental production from the furnaces restart at Mo I Rana in Norway.

In an effort to optimize our energy costs, we shifted some of our contracted terms from Spain to Norway during this quarter.

Additionally, we were able to capitalize on few opportunities as competitors faced operational and logistical challenges on their end, mainly in Southeast Asia.

During the quarter, the average selling price increased by 11% to approximately $1,575 per metric ton on a (inaudible).

EBITDA from this business was up over 40%, contributing $22.5 million in Q3 versus $15.7 million in the second quarter.

Increasing pricing more than offset the cost pressure from energy and higher ore costs.

We realized further improvements to our spread, which is the delta between the alloy and the ore price.

We expect this trend to continue into the fourth quarter as the index for silicon ferro manganese have increased.

The end market demand for manganese always remain solid, particularly on the construction and machinery end market.

Given the near-term demand outlook for Q4, we decided to replenish and did some inventories with manganese alloys during Q3.

For the manganese business, we are targeting to have approximately 60% of our volumes contracted as we finalize the current round of negotiation for 2022.

Today, the majority of the contracted volume is indexed based pricing.

I would now like to turn the call over to Beatriz to review the financial results in more details.

Beatriz?

Thank you, Marco.

Beginning with Slide 11, I'll touch on a few specific line items on our income statement.

Sales of $429 million during Q3 were 3% higher than the $418 million of sales in the prior quarter due to higher pricing across our portfolio of products.

During the product category review, Marco highlighted several underlying themes related to energy and inflationary pressures impacting the quarterly results.

These factors contribute to higher cost of sales, adversely impacting our gross margin during the quarter to 31% in Q3, down from 36% the prior quarter.

The decrease in other operating income and other operating expense this quarter is primarily attributable to the accounting treatment related to the CO2 emissions rights.

In Q2, we had the impact of the mark-to-market adjustment for the CO2 rights we were repurchasing in the open market.

As a reminder, these repurchases conclude in Q2.

In Q3, we had a decrease in the mark-to-market adjustments by $10 million related to the 2021 allocation for CO2 credits.

These credits are booked at a fair value at a grant date with zero net impact in our P&L.

During the quarter, we accrued $3.2 million for the CO2 rights, which we will need to purchase to address our deficit for 2021, with the cash impact in 2022.

With regards to staff cost, the Q3 results were impacted by $10 million for the partial release of the restructuring provision based on the latest discussions to Europe.

Reported EBITDA was $35.2 million in Q3, a 10% increase versus the $31.9 million in Q2.

When accounting for the one-time costs relating to the implementation of the strategic plan, the adjusted EBITDA was $37.6 million.

And lastly, with the completion of the refinancing, during the third quarter, there were several one-time items that we account for relating to the senior notes.

Since the exchange of the senior note is considered, debt extinguishment from an accounting perspective, a one-off financial expense of $90.8 million was booked in Q3.

This includes $31.7 million in advisory fees; $40.6 million, which was the value of the equity given to the bondholders; $11 million in underwriting fee paid in stock; and $7.5 million of further accounting-related charges.

The net impact of this is reflected in this quarter P&L.

Including these one-time expenses, result in a net loss of $97.6 million for the quarter.

Slide 12, please.

Adjusted EBITDA increased 10.3% over the prior quarter as a result of higher prices, partially offset by lower volumes and higher costs.

The $22.7 million impact from cost is attributable to several factors, primarily energy.

During the quarter, we saw a significant ramp-up in energy prices, particularly in Spain.

These costs consist of factors that are one-time in nature, as well as some that will linger into the coming quarters.

The cumulative impact of higher energy costs in Q3 was $19 million, of which $15 million was attributable to Spain.

As Marco commented earlier, we anticipate energy prices in Spain to be a lingering headwind in Q4.

The key is to mitigate this risk with some combination of [PPA] and cost pass-through provisions with customers.

We are urgently pursuing both alternatives.

Beyond energy, the business has been impacted by inflationary pressures on selected inputs, such as coal, charcoal and coke.

Collectively, this input cost increase account for $2.6 million of the cost impact.

At the moment, we are seeking ways to mitigate the impact going forward.

For example, in the case of coal, we are evaluating the ramp up of our coal mine in the United States for potential export to our European facilities.

And lastly, we had an adverse impact of $4.5 million resulting from a lower fixed cost absorption.

This is a collective result of the impact of operational maintenance downtime, both planned and unplanned.

Next slide, please.

Turning now to Slide 15.

I will review our balance sheet in greater detail.

At the end of the quarter, our cash and restricted cash balance was $95 million, down from $106 million in Q2.

Total available cash decreased to $89 million in Q3 from $100 million in Q2.

The consumption of cash during the quarter is primarily attributable to an increase of $62 million in working capital.

This is driven primarily by a $44.7 million increase in inventories.

Given low level of stock during the quarter, at our fourth quarter outlook, we decide to invest in replenishing our stock level.

The gross debt at quarter end was $499 million, up from $464 million.

During the quarter, we raised the remaining $20 million of the new Super Senior Secured financing.

Additionally, we had the impact of the interest accrual of both the senior and super senior notes.

Net debt increased to $404 million, up from $358 million in Q2.

Next slide, please.

Given the investment in working capital, our operating cash flow turned negative for the quarter, resulting in a total outflow of approximately $34.7 million.

Cash from investing activities was $8.2 million and is primarily attributable to the capital expenditures during the quarter.

Finally, cash flow from investing -- from financing was positive $32.0 million due to the incremental proceeds from the equity and super senior debt issuance.

Overall, our net cash flow during the quarter was negative $10.9 million, with free cash flow of negative $42.9 million.

Next slide, please.

On October 6, we entered into an equity distribution agreement, enabling the Company to issue up to $100 million through at-the-market, offering a structure through June 2024.

For the sake of clarity, we are not obliged to issue any shares under this program should we elect not to.

As we just reviewed, our available cash position at the end of Q3 was at the low end of the cash required to run our operations.

Since the business is expected to generate cash in the near term, we would not typically raise cash at this point.

However, in the intermediate term, there are number of positive developments, which could potentially yield they need forecast.

On the one hand, we have attractive growth opportunities and are investing in working capital and the restart of Selma.

As such, we need to ensure sufficient capital for these type of opportunities, while maintaining a cash base level to run the business.

And on the other hand, we have some lingering uncertainties, such as the power cost in Spain, which has been consuming significant cash the past few quarters.

Our rationale for putting this program in place is to quickly access capital if and when is absolutely needed.

Since the inception of the program, we have only issued a total of 186,000 shares for the net proceeds of approximately $1.4 million.

Our intent was to raise approximately $10 million.

However, we were able to free up and generate cash through our operations through a few successful measures to satisfy our needs.

At this time, I would turn the call over to Marco to comment on our strategic plan.

Thank you, Beatriz.

Now turning to Slide 17, please.

While the broader market sentiment and pricing environment tends to be a major focus these days, I want to stress the importance of our execution of the strategic plan.

This is the foundation on which we would turn around the Company and position it to deliver strong results through the cycle.

We are pushing forward on initiatives touching every part of the Company, challenging the norm and seeking to adopt best practices.

This contract business season has underpinned the importance of the changes we're driving with the Company.

Through our commercial excellence initiatives, we're better prepared to have constructive engagement with our customers.

We continue to incorporate the new products into the pipeline under our centralized procurement structure, including global coordination and negotiation of our energy contracts.

On the operational side, our efforts and the renewed culture of excellence on the plant floor are driving improved efficiency and helping offset some inflationary pressure.

We had an important development during the quarter in the area of footprint optimization.

On Monday, we reached an agreement with the French government relating to the restructuring process.

Under the agreement, Ferroglobe has the support from the government and projects to strengthen its competitiveness across the 5 manufacturing sites that would continue to operate in France, specifically the Clavaux facility would remain operational with a clear plan to modernize the facility and improve its cost position.

This facility would also benefit from a new commercial agreement with a long-standing customer.

As planning the initial project, proposed in March 2021, the Chateau-Feuillet facility will stop production and the calcium silicon production capability would be transferred to the Clavaux.

We are encouraged by this outcome as it would minimize the social impact, while ensuring a stronger operational footprint in France.

Overall, during the third quarter, we have achieved 58% of our cost savings target for 2021.

And lastly, on working capital, we have achieved our target cash release of $49 million.

Please keep in mind that this initiative is tracking on a rolling 12 month basis to adjust for seasonal swings.

Furthermore, we are tracking working capital as a percentage of sales to assess the relative improvement as the business ramps up.

Given the development in France, the scope of our footprint optimization work [stream] has changed.

Despite this change, we remain confident to deliver $55 million of EBITDA target for 2021.

At this time, I will ask the operator to please open the line for questions.

(Operator Instructions) And your first question is from the line of David Rosen from Rubric Capital.

I have a few questions.

So the first one is on this ATM usage.

So you mentioned that you were looking to raise $10 million, but you've actually found that capital.

So do you intend on accessing this ATM?

Thank you for the question, David.

Let me give you a little bit of color around that.

First of all, the Board and the management team of Ferroglobe put this equity program in place as a flexible option and to be prudent in light of the difficult stretch that the Company has recently gone through on the financial side.

For sure, we did not intend to use this tool right away, but during the quarter, we had a number of positive developments following discussions with our customers.

We are looking for a product in Q4 and in 2022 and I would say even after 2022.

As a result, we decided to invest in working capital; we have restarted one furnace in Mo I Rana for manganese alloys; we decided to restart some in US, which clearly require cash; and we have restarted the furnace that we had shut down in Sabon, like I mentioned during my speech, on the back of a new profitable contract.

So we are convinced that we had to capitalize on this opportunity and fund the working capital to restart Selma, and we wanted to make sure that we had a comfortable level of cash to run our Company.

Our intent when we made the decision, David, was to raise about $10 million, but we were successful in freeing up cash in the business through pass-through of cost to customers and by some collaborations always with customers to share some of the start-up costs.

As a result of these measures, we have minimized the ATM impact to $1.4 million.

Just to be clear, and answer your question, at the moment, we do not intend to use the equity program or ATM, given our current view on the cash flows of the Company.

Okay.

I'm going to make a statement.

So we are very big believers in the Company and we actually are very big believers in the strategic change and the fundamental change in the markets that you operate in, and we have -- we're big investors in the Company.

And we'd be happy to provide capital when you need it.

$10 million, you just give us a call and we'll provide the capital.

So you should have no fear of not having access.

And I agree with you, you should not be using this ATM.

So next time, you need $10 million, give me a call.

I appreciate that.

The problem is that we are in a situation where we couldn't wait and we decided to act fast.

But what you say I hear you and is highly appreciated.

Thank you.

The second thing I want to talk through Spain and some of the mitigation.

And so, can you just walk us through the mitigating items?

I know you now have a contract with Sabon, which sounds like it's a very -- it sounds like a good contract for the incremental furnace.

Can you walk us through kind of that process to actually get on -- to get pass-throughs and kind of where you think you're going to go from, maybe this quarter to where you should be in the first quarter of '22?

Let me take it from this point.

Energy in Spain has gone up much quicker than expected and it has reached unprecedented levels, right?

Prices have been going up far above EUR 200 per megawatt, EUR 300 per megawatt, today EUR 225 per megawatt.

This means 4 times, 5 times the price level of the first quarter of this year.

And this year, we have quite a lot of contracts committed with customers, where we couldn't move the price.

And as a consequence, we did 2 things: one, we tried to reallocate production outside of Spain to supply the same customers; two, we entered the negotiation with customers to implement some price -- temporary price to others in order to share of that pain with these customers, and in some cases, we have been successful, in other cases, we have not.

But, for sure, we have factor this uncertainty for the new agreements in 2022.

So overall, in Q4, based on the elements that I have the assets in Spain are going to be profitable, while in Q3 that we are not profitable.

So our measures at least have corrected the profitability of the Spanish footprint.

Got it.

[Just] to be clear, so you said you're going to be profitable in Q4 in Spain versus (inaudible)

Slightly profitable.

I mean I'm not -- but these compared to the negative result of Q3 is a significant step change.

Can you -- how much -- what kind of losses did you generate in Spain in the third quarter?

We are not prepared to share this number.

Okay.

But it was a meaningful number?

It's a meaningful number.

And the key correcting factor for Q4 is the new contract with a new customer in Sabon for silicon.

This is key factor.

Because energy impacts much more silicon production than the alloys production.

I was mentioning, just to stress, for 2022, first, we are exploring the opportunities to enter long-term contracts for energy supply; second, we are discussing with customers within the new contract negotiations about energy cost pass-through or at least having some hardship clauses in our contract that basically allow us to get back to the negotiating table to the customer and decide if we continue to supply at the negotiated conditions or pull out of disagreements.

That makes sense.

So when you talk -- it's going to be my third question.

So when you talk about protections, the protections will be around your input costs, but it is also just -- would you think about putting floors into your contracts?

Like, maybe you could talk about when in a strong marketplace where there is lot of Chinese competition, I presume there should be some amount of flexibility that should benefit you, and I'm just wondering kind of what are the things that you're doing.

You're right, David.

Customers are looking mainly for supply security particularly in silicon.

And as a consequence, we have -- we are negotiating different contract terms where we move away from fixed yearly pricing and we link the price more to the index.

At the same time, we make sure that we are protected in case the market turned, which is something that we don't foresee in the next few months, but due to the cyclicality of our business one day it's going to go back to certain levels.

So we are using these favorable moment of demand to change our contract structure.

And just to give you an idea while this year we had about 70% of our silicon volumes at fixed yearly price, next year, the amount of volume at fixed price, at different level by the way, will be only 25%, 30%.

Your next question is from the line of Brian DiRubbio from Baird.

Just help me understand with all the work that you're doing with Selma, what your CapEx budget would be -- is looking like for 2022?

What we are doing -- sorry if I was not clear with my coughing.

We start Selma already in December.

By the end of December, we start the first furnace and we start the second furnace by March 2022.

The cost to restart Selma when you consider CapEx and working capital is around $50 million.

And that's for both furnaces starting back up, correct?

For both furnaces, yes.

And just for total CapEx spending in 2022, have you put a budget on around that yet?

Yes, we are discussing that.

Like I mentioned in my speech, we need more CapEx than the amount of CapEx that we have spent, for sure, in the last 2 years.

I don't have a fixed figure in mind.

Work out with my team.

But we -- I think that is not going to be different from what we mentioned in the past.

So we need to ramp up to around $75 million per year of CapEx.

Understood.

You mentioned in your scripted remarks that you're looking to enter into longer-term contracts with customers.

Do you anticipate those to be more indexed base versus fixed price?

Definitely.

Well, the key change is for silicon metal, because for alloys, we have already indexed price in our contract and then depending on the product prices, sorry, get adjusted either monthly or quarterly or every 2 months, but in silicon, we have moved more toward market prices, yes.

And there is quite an interest from a lot of customers to move to 2 years contract.

I guess just the final question is that as I think about your global footprint, how is the current freight and logistics situation impacting your ability to move production, production from one plant into a different market?

Is that becoming more challenging?

And are you getting paid for that?

You asked a very good question.

And this has been -- this question has been keeping us very busy in the third quarter.

I mentioned to you the fact that we slowed down production in Spain, we slowed down production in Spain at all our facilities in quarter 3 versus quarter 2 and we have ramped up our assets in France and in Norway.

By the way, we have 6 plants in France, not 5 like I said in the speech, plus one where we have stopped production.

And at the end, for us, the energy cost rise in Spain has been the critical determining factor to decide on reallocating volumes to the other facilities in France and Norway and we have successfully managed to do that.

When you look at South Africa, I mentioned the difficulties that we had in the supply chain, in moving our material that had a negative impact on our ferroalloys sales and was also a [big gap] on our foundry sales in Europe and in Asia too.

In the US, the situation is much more -- in the Americas, I would say, the situation is much more stable for us from this point of view.

(Operator Instructions) And your next question is from (inaudible).

Marco, can you give us a breakdown of the silicon metal production by region in the third quarter, like how much of production is from Spain and how much is from say North America?

Yes, I can give you.

Let me look for the numbers.

Give me -- I think I have it somewhere.

Thank you.

So if you look at the -- are you asking me for capacity or production?

The production of silicon metal?

Yes, silicon metal, Spain was about 10% in total volumes.

Okay.

Just 10%?

Yes.

So if the Spanish power price, given what just happened with Nordstrom with Algeria pipeline et cetera, et cetera, if the Spanish power price stays at this elevated levels for 2022, when you ramp up the Selma plant, would you be willing to shut the production down in Spain or do you have to maintain certain level of activity there?

Well, the I don't think that Selma is a good option to supply our customer mix in Europe.

Selma is pretty much -- going to be pretty much devoted to satisfy the additional demand in the US.

What -- clearly, we are watching the situation by the day because the energy pricing in Spain is extremely fluid.

The outlook that we have about energy is that, the energy price in Spain would be on the high side, let's say, above EUR 200 per megawatt in the rest of Q4 and Q1.

But then the futures show an energy price of around EUR 110, EUR 120 per megawatt in Spain.

And at this level, the business that we booked for next year is covering us.

The other option that we can always exploit particularly for silicon metal is to repeat what I have done already in quarter 3, slow down production of silicon in Sabon and produce more at other silicon plants that we have.

The situation is less stressed for alloys, but due to our footprint, Dunkirk and Mo I Rana represent a very good alternative to the asset in Spain.

So we evaluate this, personally 3 times per week, my team every day, and we need to be pretty flexible in switching our production sites.

And then talk about the 2022 contracting.

The 25% to 35% fixed price volume, is that a -- did you guys strategically pick that level, or is that because the spot market is so high that there is maybe customers unwilling to accept this kind of a spot price and therefore everybody just like let's go index?

Well, the volume at fixed price has to be either at the pretty high price level, I mean, let's say, index price of today or should be limited in time.

We have a lot of -- we're going to have a lot of fixed prices in silicon just for the first quarter.

My key message is that we are -- again, we move away from yearly fixed prices.

Right.

I'm looking at -- on Bloomberg EUR 6,300 for silicon and $1.95 per pound for the US price.

If you were to go to customers and sign a fixed-price contract, would you be able to do at a spot level, or do you have to give a backward dated discount?

Well, the spot level is an indication, then it depends on the purchasing power of the customer and it depends on how strategic this customer is for us.

There are a lot of considerations, but the index becomes -- has become a solid reference in a period of lack of supply of silicon.

I would just add we also find that the Bloomberg Index isn't necessarily has accurate as what the industry uses.

So just as a reference, we get the question a lot, and it's a good indication, the relative movement, but it's certainly not as precise as (inaudible).

Is that index higher or lower than actual?

If I look at the numbers that you have mentioned, it's lower.

Lower.

Okay, got you.

And just on this power -- because you guys try to manage the power price, what is the threshold for you to say, all right, customer you need to help us absorb this power price, is that EUR 120 Spanish power price?

Well, it's -- there are too many moving parts here.

It depends on the price that we can get from the customer and so the evaluation is run on the specific customer [product] combination, and then in a broader way, we look at the customer mix by furnace and then we make our call.

But it's a moving target, because if you refer to Spain, there are big swings within the same week on energy price, and same is happening on the market price of silicon.

So final question on silicon.

So are you guys making progress in terms of improving product mix to sell more into the higher end in the solar industry or perhaps even with Tesla making the news of 4680 batteries to sell into the battery market?

Well, on the -- as you know, the polysilicon business moved a long time ago to Asia.

The -- on the short-term, due to the reduced availability of silicon from China, we are seeing some opportunities, interesting opportunities, in Asia to supply polysilicon players.

The other trend is that particularly in the US, there is a lot of pressure to bring back some polysilicon for solar production in the United States, outside of China.

This is the trend that we are watching.

And talking about batteries, we are working hard on it on this project.

I do not foresee significant sales before 2 years from now.

This is Beatriz.

Let me make just a remark on the point regarding Spain.

So we expect to get closer to breakeven in Q4 because of the new contract that Marco mentioned.

But I don't want to give the impression that there is a drastic change overnight and return to profitability in Spain, provided the current electricity prices just to caveat the point.

There are no further questions at this time.

Please continue.

Thank you for joining today's third quarter call.

As you will see shortly, we are hosting an Investor Day in New York on November 30.

Sorry.

Given the growing interest amongst the investment community and others stakeholders around the Ferroglobe story, we wanted to conduct this event to provide a more comprehensive overview of the Company.

The changes we are driving to turn this Company around, our views on the market, amongst other important topics.

Investors who are new to the Ferroglobe story will particularly benefit from the overview, but I encourage everyone who can carve out few hours to join us on November 30.

Please keep an eye out for a press release and register for the event in advance.

Thank you again for joining today and have a great day.

Thank you.

That concludes the presentation today.

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