Minerals Technologies Inc (MTX) 2006 Q3 法說會逐字稿

Good day and welcome everyone to the Mineral Technologies third quarter 2006, earnings conference call. Today's call is being recorded. With us today is the President and Chief Executive Officer, Mr. Paul Saueracker. Please go ahead, Sir.

Thank you Operator. Good morning and welcome to the Mineral Technologies third quarter 2006 earnings conference call. Minerals Technologies' had a strong third quarter in which we leveraged a 7% increase in net sales into a 15% increase in net income. Diluted EPS of $0.72, or $0.12, were 20% above the $0.60 for the third quarter of 2005. MTIs worldwide sales of $265.3 million increased $18.5 million, or 7% compared with the third quarter of 2005, third quarter income from operations of $24.4 million represented a 28% increase over the same period last year. Our third quarter net income, $14.1 million, was up 15% over prior year. Both segments contributed to MTIs sales growth. Specialty mineral segment, sales were up 6%, and the refractory segment sales increased 10%.

Our principal end use markets presented a mixed performance as scale, construction and paper moved up, down and sideways respectively. Third quarter steel production was up 12.3% globally and up over 11% in the U.S. construction, as measured by housing starts, was down over 17% compared with the third quarter of 2005. North American free sheet paper production appeared to stabilize after declining in the first two quarters of this year. The fact that the U.S. economy is slowing is a concern. Third quarter GDP in the United States expanded at a 2.3% analyzed rate. This is substantially below the first cap rate of expansion of 4.1%.

Slow down also occurred in industrial production which dropped to a still strong 4.1% an arrived rate of increase versus 5.9% in the first half. Fortunately, on a positive note, the recent decline in oil prices may inject new life into the U.S. economy. Although we are approximately 60% of MTI. sales are located in the U.S. our two key markets, paper and steel, are increasingly impacted by economic trend. Long-term we expect growth in the production of steel and paper to be highly regionalize. This supports our with the market strategy that is to say, concentrated vestments in regions that are growing. This strategy was particularly sick says full in our paper PCC. business with the ramp up of our new plants in China provided about 50% of the third quarter PCC volume increase compared with the third quarter of 2005. In a similar fashion earlier this month, Minteq successfully completed the acquisition of [inaudible], the Turkish factory producer.

This acquisition provides Minteq with an established base of operation in the rapidly expanded middle eastern steel market and is also well situated to do serve the Eastern European steel maker regions. Following my introduction, Ken Massimine, Senior VP, Managing Director of our paper PCC business, will provide more detail on the issues and programs related to our PCC product area. Alain Bouruet-Abuertol, Senior VP and Managing Director of Minteq, will report on the factory segment of our business, and John Sorel, Senior VP of Finance and Chief Financial Officer, will provide a brief financial summary and some detail on the factors that affected MTIs financial results. Following John's presentation, I will conclude with a few remarks and open the floor to your questions.

Before proceeding further, I need to remind you that on page 6 of our 2005, 10(K) we list the various facts and conditions that may affect future results. Statements related to future performance by me or other members of management are subject to these cautionary remarks and conditions. MTI continues to invest heavily in three strategic programs that should drive its long-term growth and improve operating margins. First, increasing our participation in regional markets of high growth potential, particularly China and Eastern Europe. Second, the development and commercialization of disruptive technologies including silver glass, silver deposits for paper and for steel. And third, cost and expense controls which contributed to a production margin increase of 13% and increase in income from operations of 28% in the recent quarter.

While I will not dwell on the details of the programs as they effect PCC and refractories, which will be explained by Ken and Alain, we would like to mention some highlights. Paper PCC and the new China facilities are contributing as-planned. We continue to advance the fiber composite program has the potential to dramatically increase filler levels in uncoated presheet paper. We also have initiated many coating trials 840 PCC and newer analogs, in all geographic regions.

The refractory segment was able to capitalize on the strong industry conditions in North America and Europe, furthermore the business continues to strengthen from organization and infrastructure to support the ramp up of its new refractory manufacturing facility in Sujo, China. Synsil sales, essentially doubled to the third quarter of 2005, and we now have three major customers. Several trials in various last segments are planned for early next year. However, as you know multiple trials are required to commercialize these potential new customers. Our new Synsil facility in Cleburne Texas, is expected to initiate production in first quarter 2007. We will now ask Ken to provide details related to our PCC business. Ken?

Thanks, Paul. I would like to begin my discussion with a few comments on the global paper industry followed by brief highlights of MTIs PCC business performance during the third quarter. Global demand and product of printing and writing paper showed modest improvements in the third quarter of 2006 compared to the same period last year. However, these games were not uniform in all regions. In particular, North Americas' paper demand continues to win. Preliminary U.S. data showed declines in overall paper shipments and consumer consumption in the third part of, 2006, compared to the third quarter last year.

With prospects for a showing U.S. economy the outlook for paper production for the remainder of the year shows a sequential decline from the third to fourth quarter. Furthermore, the economic slow down is expected to extend into next year couple with an anticipated postal rate increase would negatively effect overall paper shipments in 2007. North American production and consumption of uncoated free sheet papers, our most important market segment, has remained stable after the success of quarter to quarter decline, in short we saw the closure of 1.5 million tons of uncoated sheeted capacity, for the past year and a half. International, western European production consumption of printing and writing papers picked up slightly this past quarter in association with a more favorable economy in the region.

The growth in production of printing and writing papers advanced 0.4% year over year during the third quarter and was forecast Todd advance 3.5% with a full year primarily due to comparisons with a weak 2005 which was the result of an extended paper workers lock out in Finland. Going forward into 2007, paper production is anticipated to be modestly higher. Most of Asia and especially China have exhibited strong paper production growth in recent years to satisfy, not only increasing domestic demand, but export opportunities as well. Because North America is one of the largest export markets our slowing economy is expected to moderate the growth of paper exports from Asia, at least for the next few quarters. This, along with China desire to temper thorough bust economy, means Asia printing and writing paper production should see growth slowing to around 4%, well below the approximate 6% growth rate of the past two years. MTIs world wide PCC sales for paper and non paper applications for the third quarter advanced 6% over the prior years third quarter from approximately $131 million to $139 million. Paper P. CC sales grew 7% over the over the prior year period from $117 million to $125 million. We achieved sales growth in all regions as worldwide unit volume grew by almost 4%. The ramp up of volume at our new PCC facilities in China was a major contributor to this volume increase.

In addition to our growth in China our third quarter sales increase included sharp gains at select paper millions in North America, due in part to increasing capacity shutdowns, which increased demand in our PCC satellites and large locally competitive paper mills. We also restated our PCC. satellite at river papers, our [inaudible] in WIsconsin, the paper mill resumed production this past quarter. In Europe we expanded several satellites to accommodate increased PCC demand. On the other hand paper PCC sales were negatively affected by the June shut down of at [inaudible] Mill in Wisconsin, as well as previous mills and machine shut down at several paper mills in the U.S. and Canada. In addition our satellite plant in Israel closed early April, due to the expiration of our supply contract.

However, the performance of our group facilities in China coupled with strong demand in North America and satellite expansions in Europe, more than offset these volume losses. For comparison, same on a same store basis, third quarter sales for paper PCC from existing satellites, 2% ahead of the same period a year ago. Our fella fiber composite development program can use the press towards commercialization.

While proceeding with additional trial work scheduled during the fourth quarter of this year, we remain optimistic that we can commercialize this technology during 2007. However, further trials will be required to ensure full commercial process capability. Our over carb coating grade PCC initiatives continue to advance all be it more slowly than planned in all regions of the world. In Europe while experiencing new trial activity in our newly introduced over part PCC analogs, capable of delivering paper properties, have been favorably, we have yet to turn this activity into commercial sales. Our goal now on a global basis is to gain full customer acceptance to commercialize these paper mill opportunities. Now, let's briefly turn our attention to specialty paper application. In the third quarter sales within our specialty PCC group were affected by a softening of the automotive construction and consumer markets. Consequently sales in the third quarter did not generate the expected improvement versus last year.

Going forward, we anticipate a modest improvement in our specialty PCC segment due to increases in Food and Pharmaceutical sales in global sectors. In conclusion, although we remain guarded for the fourth quarter and continue to face a challenging business environment we were able to advance our planned strategic initiatives in most of the markets we serve. We ramped up two PCC satellite facilities and our production at existing ones, and offset the closure of several others. We are also hopeful that significant ongoing projects culminate in the important new PCC business in the future. Now, I will turn the microphone over Alain to who will review the factory segment and business performance. Alain?

Thank you, Ken. The third quarter 2006 was very strong for the refractory segment which benefited from compound presenting from strong demand both in equipment systems, success in the implementation of cost reduction initiatives. Sales in third quarter of 2006 were $87.5 million, a 10% increase compared to prior year third quarter. This increase was driven by a 16% increase refractory product sales which was partially offset by a 5% decrease in metal product sales. Income of $8.7 million Minteq achieved a double-digit operating margin of 10% and more than doubled the $4.2 million delivered in the third quarter of 2005. Strong performance in North America and Europe drove significant improvement in results.

More so we achieved this increase despite the negative effect of the first full quarter impact of cost structure costs with our new refractory plant in Sujo, China. More so, not only did we deliver a satisfactory performance in the third quarter but we also made progress toward an important strategy goal resulting in the successful acquisition October 2, of refractory company; and established position as Minteq for the growth platform to secure sales in Turkish, Eastern European and refractory markets. The acquisition is in line with our stated strategy to move in the market and invest in high growth steel markets. For the first nine months in the year, net sales were $258 million, a 5% increase over to the $244.6 million in the prior year and operating income was leveraged to $23.1 million, a 12% increase over the $20.6 million reported for the same period last year.

The Minteq performance environment which has been favorable and was up 9.3% in the first nine months of 2006 include ago year over year growth of 12.3% in the third quarter. China continued to be the strongest contributor to the growth of steel production worldwide and accounted for only 56% of the total increase in the third quarter. This compares to 100% of the world increase during the first quarter. In other words, other nation including the U.S. and the EEU showed science of life signs of life. During the product in the U.S. was up 11% compared to the third quarter of 2005. U.S. steel capacity utilization rate exceeded 88% in most of the third quarter compared to 82% in the third quarter of 2005 when steel production in the U.S. tanked. 2006 YTD steel production for the U.S. was reported up 9% compared to the first nine months of 2005. However, it is important to note that for the first time in July, imports of steel into the U.S. from Sujo China exceeded those from the traditional largest import source, Canada.

Steel production in the EEU 25 or so came back strongly with third quarter production of steel up 10.6% reflecting an accelerated recovery in the European industry. In light of strong steel product demands and in the face of surging Chinese imports European steel producers summer shutdowns which strengthened our third quarter performance. For the first nine months of 2006 EEU steel production was up 5.8%. In Asia China steel production continues continues to surge in the third quarter, increasing by 19 million tons or 21%. Production of steel in Korea and Japan also expanded but that's more or less a rate of 6% and 3% respectively.

As China continues to grow increased pressure on Japanese and Korean and steel producers can be expected. From Minteq in North America, refractories products and systems have benefit from increased production rates both in terms of refractories consumed, the [inaudible]. integrated mix is strong increasing demand for Minteq highest performance premium products, while sales of steel products were down based on lower index pricing of competent metals North American volumes remained strong.

European performance improved significantly in the third quarter due to a combination of strong steel production levels and substantially increased demand for our new products and equipment systems. Performance in Asia was affected by the first full quarter impact in China of infrastructure costs associated with the new China manufacturing plant and the expands of expanded qualification tries. However, as new business is being generated the volume ramp up of the plant will provide increasing financial contributions going forward. In addition to strong profitability improvement we made significant progress in the third quarter in our strategy to mitigate the very significant cost of raw materials which has impacted Minteqs overall performance over the last few years. In the third quarter we benefited from important cost reduction initiatives including introduction of product formula this is that optimize performance formulas under practices while utilizing cost and raw materials.

In addition, the acquisition[inaudible] of with its own sources of capacity located in turkey, the Minteq business in Eastern Europe and the Middle East is stable alternative through the supply of magnesia of China. The ought session presents a first step to what I will call a internal cape bill to source magnesia as we continue to explore further opportunity. Overall significant progress was achieved in the third quarter of 2006. In terms of both operational performance and implementation of our key strategies. However, it should be remembered that comparing third quarter 2005 to third quarter 2006 it is to go from cycle 2005 to third quarter 2006 it is to go from cycle does not represent a sustainable trends rate of increase. Notwithstanding the volatile had the of the markets we serve particularly in North America and western Europe, the year over year operating income growth sustainable rate target. In this regard our outlook for the rest of the year is less favorable than what we experienced in the third quarter as we are seeing a rapid slow down in steel production in North America.

Furthermore imports of steel from China where we still have a limited presence continue to gain ground in North America and western Europe our largest markets today. At the same time we anticipate that Minteq will continue to be benefit from increased demand for high performance products and equipment systems and from the favorable impact of its cost production progress. Going forward Minteq will also benefit from the continuing ramp up of its new China operation and from the acquisition of [inaudible]which integration is well. John?

Thank you, Alain. You have just heard the description of the company's business environment and highlights of our product line initiatives, key development activities during the quarter. I will now review with you how that information is reflected in the company's consolidated financial results and summarize our business segment performance. MTI achieved diluted EPS for the quarter of $0.72, a 20% growth over prior year, a strong improvement from the $0.64 to $0.63 achieved in the first two quarters. Net sales for the quarter were $265.3 million, an increase of $18.5 million, or 7% compared to prior year.

Overall, foreign exchange had a favorable effect on sales growth equal to about one percentage point. Most segments again delivered top line growth during the quarter with continued success of our commercial development programs. Sales in the specialty minerals segment were $177.8 million, a $10.5 million or 6% increase. Sales of PCC increased 6% to $138.9 million from 130.6 million, primarily due to the ramp up of volumes from our new PCC facilities in China, expansions we have made in Europe and the strong market conditions at our PCC facilities in the United States; which more than offset the business loss, due to paper machine and paper mill shutdowns. Sales of specialty PCC were $14.2 million, 3% above prior year. Sales in the process minerals product line increased 6%, to $38.9 million, $36.7 million last year.

Health product line sales increased 7%, to $14.4 million, $13.4 million the prior year, due to improved pricing, continued strong global demand in plastics and consumer related end markets. The other process minerals product line growth of 5% was due to the ramp up of Synsil product from the New Chester, South Carolina facility , which offset the weakening demands from our product lines that serve the construction related industries. Refractory segment sales increased 10% to $87.5 million, $8 million over the 79.5 million recorded in the prior year. Sales growth was driven by refractory product and system sales which increased 16% to $66.3 million with a strong industry operating conditions primarily in North America and Europe, partially offset by metallurgical product sales which declined 5% to $21.2 million, to $22.4 million in the prior year.

MTIs COGS,S grew 6%, slightly below the rate of sales growth resulting in a 13% increase in production margin. The specialty minerals segments production margin grew 2% as compared with a 6% sales growth. This segment continues to be affected by unrecovered raw material and energy cost increases, paper mill shut down and market development and ramp up costs, associated with our Synsil product line. These items were partially offset by increased volume of satellite PCC in North America and Europe. Collectively these factor has an adverse impact of approximately $1.5 million margin, however benefited by the turn around achieved in our China PCC operations compared to the prior year. In refractory segment, production margin increased 36% as compared with 10% sales growth. Refractory products and systems products line margin increased due to higher sales volumes and improved cost. Total marketing and administrative expenses for the quarter increased 5%, to $25.8 million from $24.5 million in the prior year.

This increase was primarily attributable to employee benefit expense, including increased stock option expense of approximately $0.7 million related to FAS 123 R., and planned increases in our worldwide business infrastructure. Reasearch and development expense increased 4% to $7.7 million. MTIs third quarter 2006 income from operations was $24.4 million, 28% above the prior year. For the quarter, the operating ratio was 9.2% of sales compared with 7.8% in the prior year and an average of 7.5% in the first half of this year. Specialty minerals income from operations of $15.7 million, increased 5% from the prior year and was 8.8% of net sales as compared with 8.9% of sales in the prior year. Refractory segment operating income was $8.7 million, 107% above the 4.2 million recorded in 2005 and was 10.0% of net sales, as compared with 5.3% of sales in the prior year.

The improvement in the operating income ratio was primarily due to significantly improved operating conditions in the steel industry. Total operating deductions for the quarter were $2.3 million, an increase of 86% over the prior year. The increase was due primarily to higher interest expense resulting from additional borrowings related to our stock repurchase program and foreign exchange losses. The overall effective tax rate for the quarter was increased to 31.9%, an increase of about three percentage points from 28.8% in the third quarter of the prior year. Due to a change in the mix of earnings the overall rate for the year is now expected to be 30.9%. The provision from minority interest increased to $1 million, was $0.5 million last year as a result of the improved profitability of our joint ventures, primarily in China. Net income was $14.1 million, 15% above prior year, while diluted EPS for the quarter were $0.72, 20% above the prior year.

To summarize the income statement for the quarter, sales and gross margin increased 7% and 13% respectively from the prior year, total expenses grew 5%, resulting in an operating income growth of 28%, and improvement in the operating ratio, 7.8% of sales last year, 9.2% this year. Turning to the balance sheet, our debt to total capital ratio is about 20%. At the end of the quarter we had cash on hand of approximately $95 million, which included about $30 million required for the operating expense may acquisition in the third quarter. was strong, about $102 million, nearly double last year's amount. Our working capital remained stable versus a substantial increase in the prior year. YTD third quarter we invested about $68 million in capital additions worldwide. Depreciation and amortization totaled approximately $20 million for the quarter, 60 million for the nine months. We repurchased an additional 451,200 shares for treasury during the quarter at an average price of $51.24 per share for a total expenditure of $23.1 million. Year to date, we have repurchased 808,500 shares for $42.9 million, or $53.08 per share. Now, I will turn the microphone back to Paul, for his closing remarks and for questions.

Thank you, Ken, Alain and John. As you have heard, MTI was able to deliver strong third quarter performance along with passing its programs and introduce new product innovations and expands our geographic presence. We are however, somewhat concerned by continuing decline in construction activity in the United States and the steel industry shutdowns that are now occurring.

Hopefully a recent decline in energy costs will provide for a soft landing rather than a more severe cut back. For full year 2006 our earnings guidance remains unchanged from the last quarter which is to say an estimate of $2.62 to $2.72 per diluted share would be reasonable. With the uncertainties mentioned above, more towards the lower ends of the range. Operator, we are ready for the first quarter.

Thank you. [OPERATOR INSTRUCTIONS]. We will go first to Ray Kramer, First Analysis.

Good morning, all. A few questions. On the filler fiber composite, encourage to go hear that moving along pretty fast. If you start commercializing it in '07 how quick would the ramp be there? Is it something that would take a few years to get fully in effect?

Ray, you are pretty much on track there. As Ken has indicated in his comments, that program continues to move forward with additional trials as we move into the fourth quarter and into 2007 with the hopeful expectations that we will be able to commercialize that during 2007. But, you're right, the real impact of that will be a couple of years in the future.

And the target is still to roughly double load levels?

That is correct, yes, it is, and it has that potential to dramatically increase the filler loading levels primarily beginning in North America, uncoated presheet market in North America where most of the work is going on.

Staying on paper for a SEC, IP made an announcement earlier this week that you were doing a joint venture with a big Russian paper company. As I understand it there's very little PCC in use there now. Looking longer term, you talk about trying to be in the growth markets, is Russia one of those long-term growth markets and do you think there's some potential there?

Yes. Again, as you look going forward, that is one of the areas there where additional of paper would be produced and we would think that long-term, long-term it would be an opportunity there for PCC. Again, it will depend on the grade mix of the paper that they actually produce there.

Is raw material and all that other stuff, is there enough in Russia or could that be a potential issue to ramping up PCC there?

Well, obviously raw materials are an issue when you go into what I would call countries that don't have the full infrastructure that you have, say, in North America and western Europe. But those resources are available there and certainly are available for producing

On the refractory side, with the merchant plant up for maybe two quarters in China, about how full on capacity are you at the plant either in terms of overall capacity or relative to your expect stations of the ram there?

Well, starting in you we just started up that plan it's just in the initial phases of start up. Certainly Alain has built an organization there to move that plant forward. So, with that brief introduction, Alain, if you would you provide some additional color to that.

Yes, Ray. The plant was started up by the end of the second quarter so it's really the first full quarter of operation. At the same time it's the beginning of the volume ramp up for this plant and we anticipate the volume ramp up to continue for quarter over quarter. At this point we are at the beginning of the ramp up. We've done the business before in China that is sold out of this plant, but we are at the beginning of the ramp up.

How long is it a year, year and a half to two years to ramp up, any idea on how long that takes to get it fully loaded, at levels you're happy with?

It's a large plant, it's also a large market. For a large number of years but at the same time again, we are going to be moving quarter over quarter over quarter. I think we indicated before that it's going to start making a significant contribution or more significant contribution entering 2007.

All right. Thanks a lot, guys.

Next, Jeff Zekauskas with J.P. Morgan.

In your processed, in your other processed minerals products, you talked about some decrease in the products serving the construction industry. Was that a large magnitude or a small magnitude?

Well, as you look at the business we are talking here, Jeff, as you know, our what we call our process minerals plants primarily ground calcium carbonate and we have those plants in the northeast and west coast serving the Los Angeles basin and primarily on the West Coast have seen a decline in the construction rye lated activity there. So in fact that plant is probably the one that's impacted the most. We've had some also in the Middle northeast in terms of where we are. But in toll it's probably down about 10% in the third quarter in terms of versus last year. So we do see a reduction there again primarily for construction related activities.

If it were down about 10%, that's about $2 million, maybe a tiny bit more than that. And you increased your sales about $1 million or so. And so that would imply that Synsils revenues are maybe three or $4 million? And given that that plant has probably something like a $25 million revenue capacity it would seem that that ramp up must be a little slower than expected.

Well, in fact that's true, Jeff. As we continue to move the program forward we are making the progress, as I indicated in my remarks, that we have a three major customers in my remarks that we have a three major customers now that we are moving forward with. We have numerous trials established. But would I like that ramp up to be going more quickly than it is? The answer is, yes, I would, in fact in most programs, I get impatient, because I would like to see all of them moving forward more quickly.

I guess just from my point of view, it sounds like you've spent 30 million in capital for this Turkish refractories plant and it looks like your Cap ex this year are going to approach something like 100 million. So, you are spending something like $5 to $6 per share in growth capital and the operating income is flat on a nine-month basis. Is this just an unusual year and the capital program really steps down once your refractories project and two Synsil projects are completed or do you plan to keep your growth capital at this high level?

Well, certainly that that is speculation at this time Jeff, as we continue to look forward, we continue top invest in those opportunities that we believe will provide long-term sustainable growth for Minerals Technologies, whether it's Synsil , for example, whether it's as we look on the Minteq side, whether it's new investments that we made in China for the refractory business. We certainly believe that those investments will long-term have a very handsome return for this company.

Is there a time line you've got, because these investments seem way under your cost of capital at this point? Or when do you expect them to get to your cost of capital?

Well, each one is looked at on an individual basis. But overall, we expect them to be strong contributors to this company as we go forward.

I guess lastly, what's going on with [inaudible]? What happened to the operating rates there and the profitability of that operation?

That plant, we continue to make progress in terms of the trials and the total tons of, that we continue to sell from that plant. Our coating program has gained traction, Jeff. We again think that as we move forward we will ramp up the volume. It certain is not contributing to what we would like it to at this point, although it is below we would like it to be. But certainly Ken and his team continue to move that program forward.

Okay. Thank you very much.

As a reminder, [OPERATOR INSTRUCTIONS]. Next, Rosemarie Morbelli with Ingalls and Schneider.

The acquisition gets you 923 markets as you pointed out. Is that more important to you than putting your hands on some production of magnesia? And then following up on that, based on your comments it almost sounded as though you would be looking at acquiring more magnesia and does that mean mining properties or could you give us a better feel for what you are planning on doing in that area?

Certainly Rosemarie we can, I will start and then I will ask Alain to provide additional color. As you know we just completed the acquisition last month. As you probably recognize the opportunities there in the Middle East and in Eastern Europe which are rapidly growing steel making areas. But the acquisition also gave us the opportunity to again move forward with one of the strategies within the Minteq and refractories segment is to have our own ability to have access to magnesia and Magma cite so that we are not so depend dent on the Chinese market for those materials. This is really a one step in that strategy that Alain has stayed out. With that, again, a brief introduction I will ask Alain to provide some additional color to that.

Yes, Rosemarie, there are two strategies that go along with this acquisition, the first one is to position us to serve the growing markets in Europe and the Middle East. At the same time it's also relying on the local Magma site and magnesia sourcing and I would say the combination of the two is what really creates the competitive position of assets into this market. So, the goal is not to transfer the Magma site from turkey to the rest of the world and to China but what it does is it stable leases and is also a hedge against the volatility of magnesia from China. In other words, if there are some spikes of prices from China the operational house us to extend our coverage in the Eastern Europe and some packets of Europe from turkey. So it's a hedge against the volatility of China and also a very good competitive position in this growing markets.

Are there any sources of magnesia elsewhere in the world that you would be interested in? I mean this is a first step in the Chinese, or are the Chinese the sole producers.

We still anticipate the Chinese magnesia to be a very important source of supply for our industry. So the question is not to compete with the Chinese source of supply but to optimize the supply further. So, yes, there are some other sources of magnesia, Magma site and we are still working on some projects as I have indicated in the past it does take time. We've been working for a long time on this projects and we see what is going to in the future but that's part of our strategy in this regard, is the first one that came to fruition.

Where else in the world do we find the Magma site?

There are some other parts of the world. I mean, whether it's in South America, in Asia, other parts of the world where there are some sources of magnesia but it's not as important as China, but there are some other sources.

Then following , if I could ask another question on this steel production, it seems as though, all right, there is the demand is coming down because of the automotive and construction slow down, but I also read that there had been an increase in production of steel which was way above the demand for that particular product. Are you going to be hit by two wammies in demand and inventory reductions in the fourth quarter? And how long do you see that going on into '07?

I think the steel industry may be in a better position to respond, but it's clear that the there are clearly monitoring the situation and

at the same time there is a in terms of higher supplies from China and I clearly don't know how it's going to keep it up but that's a trends that is there to remain. So clearly, we see a short term impact in terms of the slow down of the and it's a longer trends impact or so in terms of the Chinese supply, but also the economies, now a lot of things can happen in China.

When you say short term are we talking about two, three quarters?

I don't know. I cannot answer that. Clearly we see a slow down in the fourth quarter. That may have an affect on us in the first quarter of next year. I can't answer that at this point.

And then lastly if I may, is the demand in China such that with your new plant you could actually offset the slow down in Europe and North America or is that just not optional?

I indicated that it's going to be a combination of factors that hopefully are going to offset some of the decline in the demand. China is one of them. The [inaudible] is another one and moving our strategy is also another driver. All in all, we hope to mitigate the effects, but all in all I don't know what the end results are going to be at this point.

Thanks. Good luck.

Thank you, Rosemarie.

Back to Jeff Zekauskas with JP Morgan.

A couple of questions. Can you tell us which plants have been closed down in paper PCC since the beginning of the year and how much capacity is attached to it? And sort of can you give us an idea of the gross capacity you've brought on so far this year and the net difference is?

In terms, Jeff, we shut down as you know one of the plants in the early part of this year, shut down, that was the one in-- -- Israel, excuse me, Israel shut down, and we also had Cornwall up in Canada which was part of and for a short period of time falls was shut down. That one as Ken, indicated has been restarted. So that was shut down for short period of time. In terms of volumes, they were not very large, satellite plants, so they were not huge operations in terms of that, but certainly you also had the impact of paper mills shutting down, for example. As you know, Ken indicated that shut down and one of the big machines in [inaudible], Ontario was shut down. so we've had quite a behind wind in terms of not only compensating for those shutdowns but at the same time the programs continues to yield increase of total volume of PCC that we produce. So, I'm very pleased with Ken and his team and the ability to overcome those head winds. But again, those were more one tune unit type of shutdowns.

So is it fair to say 30, 60, 90, maybe that you lost 150,000 tons from all of these different events?

It's hard to just say a number like that because obviously you've had a cumulative effect of machines and satellites that shut down in 2005, for example; that you are seeing the impact here now in 2006. But again, it's several units of capacity that would have been shut down and when you add up the individual and machines on top of it you are probably talking about of capacity.

I guess I would like to go back to Synsil l for a moment. Can you give us an idea of why the ramp is so slow? I guess by my calculations the thing looks like it's about 15% loaded and you are going to bring on another 200,000 metric and to plant and maybe you are selling something like 30,000 metric tons. I guess I am puzzled as to why the capacity is so large and why the ramp up is so slow?

There are a couple of reasons for that, Jeff. One obviously it takes a long time as we continue to develop customers but also there are logistics issues. Not all of the potential customers are adjacent for example to the Chester facility. So you are looking at why we are building a plant in Cleburne, Texas, quite a distance away. The answer is it's a very large opportunity that we see there that we have developed in trials Texas.

Are there product quality issues?

Not product quality issues, in terms of that, no, it's just a matter of trials moving the program forward. You have also to remember that in 2005 we were sold out. We weren't able to really run any large trials in 2005, other than with the basic facilities, excuse me, the basic customers that are the corner stones for these plants.

When does Cleburne come on stream?

We expect it will come on stream the first quarter of 2007.

Is that a later date than had you expected before?

No, no, it's pretty much where we have indicated we would be.

If I can just have one last question for John. How much is remaining on your share repurchase authorization? And do you have a timetable for completing it?

Well, it's, it was $75 million authorization, you may recall, and against that we have repurchased about, I think if you give me a second to think of the -- again, that one, we purchased about, 43 million, so we are probably just a little more than halfway through it and we didn't, we don't have a specific schedule. It's a discretionary program.

Is there, I mean all things being equal you've been buying back a fair amount. Do you expect to continue that or not to continue that.

I prefer not to discuss that at this time. It's a management discretion program.

Okay. Thank you very much.

Thank you.

If there is no further question I would like to turn the call back over for any closing or additional remarks.

Thank you, operator, and thank you all for participating in the third quarter conference call for Minerals Technologies. We are pleased obviously with the performance that we achieved in the third quarter of 2006. We still maintain our guidance for for the full year 2006, although as I indicated earlier because the sum of the issues we see and in the markets that we serve that we will be towards the lower ends of that range. Again, we are very confident about the future of this company and we certainly appreciate your interest in MTI. Thank you for joining us this morning and please have a wonderful day. Thank you.

Once again, that does conclude today's call, we thank you for your participation and you may disconnect at this time.