Good morning, ladies and gentlemen, and welcome to Ferroglobe's Third Quarter 2022 Earnings Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Anis Barodawalla, Ferroglobe's Vice President of Investor Relations and Corporate Strategy. You may begin.

Thank you. Good morning, everyone, and thank you for joining Ferroglobe's Third Quarter 2022 Conference Call. Joining me today here is Javier López Madrid, our Executive Chairman; Beatriz García-Cos, our Chief Financial Officer; Benjamin Crespy, our Chief Operating Officer; Benoist Ollivier, our Chief Technology and Innovation Officer and Deputy CEO; and Craig Arnold, our Chief Commercial Officer; Marco Levi, our Chief Executive Officer, is on the call but will not be speaking as he has laryngitis. Before we get started with some prepared remarks, I'm going to read a brief statement. Please turn to Slide 2 at this time. 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 most recent SEC filings and the exhibits to those filings, which are available on our web page, ferroglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, adjusted EBITDA margin, working capital, adjusted gross debt, net debt, adjusted net profit 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. At this time, I would now like to turn the call over to Javier López Madrid, our Executive Chairman. Slide 4, please. Javier López Madrid: Good morning or good afternoon, everyone. After a second -- after a record second quarter, we reported solid results in Q3 despite a challenging market environment. During the third quarter, market prices for each of our product groups declined from record levels in the previous quarter. Higher and volatile energy costs in Europe continue to persist. During the third quarter, we actively managed our global asset footprint by reducing operations in higher-cost regions like Spain and…

[Operator Instructions]. And your first question comes from the line of Lucas Pipes from B. Riley Securities.

My first question is on the inventory build the third quarter. You touched on it a little bit in the prepared remarks. It sounds like there were some tactical reasons to build inventory here ahead of the winter. I would like you to maybe elaborate on that. And then also, is this a sign of potentially declining margins in Q4 and Q1 with higher costs flowing through the P&L? If you could comment on that as well, I would appreciate all that color. Beatriz García-Cos: Thank you, Lucas, for your question. This is Beatriz. Yes, it's true that working capital consumption has been increasing. The main reasons are as follows. So on the manganese ore side, we built up inventory due to changes on the macro environment, in particular, on the European steel producers' shutdown. And on the other side as well, in response to the curtail of our Spanish operations. As well in response to our France winter stoppage, as you mentioned, right, we had to bid some inventories in silicon and ferrosilicon to account for the winter shutdown. And as a result as well of this volatile environment from Russia and Ukraine, we have hedged our position in electrodes and coal, yes. And as well, please remember that we are ramping up our plant in Polokwane, and this has been as well taking some of the working capital consumption.

That's very helpful. So in terms of returning the ratio of inventory to sales that you mentioned, Beatriz, what's the timing of that? Should we expect sizable release already in Q4? Or do you think that, that ratio will normalize into Q1 2023? Beatriz García-Cos: Thank you, Martin. I think for the reasons that we mentioned, particularly the winter stoppage, naturally, our inventory is going to be depleting, yes, so -- because of that. So we expect to go back to normalized levels in the coming months.

That's helpful. And then two... Javier López Madrid: I mean they have been -- Lucas, it's Javier here. As you say, it was tactical reasons on manganese, we reacted to market demand. And yes, we have an excess of manganese ore that will be used, will be manufactured over the coming months depending on demand. So there is like 2 sources: finished products and tactical supply of coal and electrodes and the manganese ore that we will be transformed into manganese alloys over the coming months depending on demand because as we mentioned in the call, we stopped our production in Spain.

Got it. On the order approval of the new strategy, can you maybe shed a little bit more color on what the strategy entails? I assume it's mostly about the silicon metal powders and high-end products and pursuing that market in a measured way but would really appreciate additional color on that, Board-approved plan. Javier López Madrid: Lucas, thank you very much. Obviously, yes, silicon metal is our core business, and a great deal of our strategic plan relies on going deep into specialty and high-added value product. Together with us is Benoist, which is our Chief Technology Officer and maybe he can add a bit of color of what we're trying -- what we're doing, what we're currently doing in that respect, which I think would add a bit of color to what I just mentioned. Benoist?

Thank you. So the -- our strategy in terms of growth is focused on the development of high-purity silicon for advanced applications, including batteries. And this -- when we look at it, the silicon for advanced application and batteries is anticipated to have accumulated annual growth rate of 30% per annum. And this will have an increased and significant step that will take place in 2025 when the gigafactories currently being built in the U.S. and in Europe as well as Canada will be producing at capacity requiring significant quantities of raw materials. Ferro road map, we continue to invest in our technology to ready ourselves for this exponential market ramp-up. One attractive side we have is that we leverage all the technology we have developed for the last 15 years in solar, and we believe that our metallurgical route technology has 3 main advantages against any other silicon alternative for batteries. It is lower cost, lower CapEx intensity and modularity and a much faster ramp-up dynamics.

We will take our next question. The question comes from the line of Martin Englert from Seaport Research Partners.

I wanted to touch on the French power contracts and maybe we can -- specifically the sequence here in how to think about volumes moving through next year. So it seems like maybe the ask from the government was don't produce on the French assets or significantly reduced production during the winter months or 1Q '23. And then you're free to ramp based on wherever market demand is in the remaining quarters of 2023. And if you kind of follow that framework, they'll keep you comparable on your fixed energy price with your go-forward contract in 2023 versus the legacy one. Is that the way to think about it? Or does something differ? Javier López Madrid: Yes. It is slightly different because it's a fixed agreement. It's a fixed agreement that we have reached with EDF, but maybe Benjamin you can add the specifics to Martin.

Yes. Thank you, Martin. It's Benjamin speaking. So I think, generally speaking, it looks like -- so we entered into a 3-year contract agreement, right, with energy provider, and this is from 2023. For 2023, specifically, I mean, yes, we are taking action during winter in France. And by modulating during winter, we will achieve energy costs in 2023, similar to the one we have in 2022. So this is beneficial to our competitiveness, right? That said, I think when talking about volume, I think it's too early to talk about 2023 volumes overall, given that we are presently in our contracting period and performing our forecasting and budgeting exercise for 2023. And what we should keep in mind is that we will shift our annual plant maintenance shutdown into Q1, and that's only one way of mitigating the impact on volume. As we already mentioned that we will use our global platform, in particular, Polokwane and Becancour, to balance production and demand.

So no sense. I mean, with the South Africa restart and you're looking, I think, that we're supposed to add, what, 30,000, 35,000 tons for next year. But no sense on, I guess, if we think about before the restart was announced and after what the net volume gain or [indiscernible] constant might be from that, given that there will be some downtime during the winter months. Javier López Madrid: Maybe, Craig?

Yes. Maybe just to support what Benjamin was saying, with the anticipated modulating of the assets and bringing forward some of the maintenance -- plant maintenance this quarter 1, well timed with the start-up of the Polokwane in South Africa and how it's going to service the global franchise. On a net effect, on a year-over-year basis, it will be roughly the same because, as you highlighted a little bit later -- earlier in your comments there or your question was as we begin to operate throughout the remainder of the year, the post French winter, we will be able to actually push the entire franchise a little bit harder in France.

Okay. Understood. So kind of comparable from a volume perspective year-on-year, remainder of the year, that's when we'll see more opportunity for net gains of constant based on the demand environment. Okay. And essentially thinking about the cost per megawatt going into the French assets, a comparable level as to what it was with the legacy contract, yes.

That's correct.

Okay. Understood. So we discussed the South Africa restart maybe in a little bit more detail. And where the volumes are going to be going, maybe a split between the Middle East and North American market and the euro market. And I imagine based on modulating the production in France, that will probably evolve a bit as we move through '23.

I think -- It's Benjamin. I might start on commenting that Polokwane is maybe our most flexible assets in the platform. It can fill any markets. And so I think it's -- as the markets evolve and as the opportunity comes, we will manage the volume and where we allocate them. But I will let Craig comment on the market aspect, but Polokwane is really a flexible platform that can go to most of the geography in the world.

Yes. Martin, as we look at how we plan to go to market with the Polokwane assets has been highlighted, as a global asset, originally designed around the high-performance polysilicon area targeting Asia Pacific. But since it has been planned to be restarted during the course of the coming quarters, the idea is to service a variety of regions. And looking at Asia, looking at the Middle East and looking -- of course, looking at Europe and the U.S. I can't give too much detail on the level of those contracts. But certainly, as we scale up the 3 furnace operations over the coming quarters, we'll certainly be able to give a little bit more highlights and updates on the performance of that assets in those particular target markets.

Okay, understood. That's helpful. And when we think about where it sits on the cost curve, accounting for contracts and everything else is -- I think historically, this has been a bit of a lower cost production facility. Is that kind of where it will remain once it gets restarted?

Yes, that's correct.

Understood. Just for modeling purposes and given the South Africa restart and maybe taking a step back and looking at coming from 2021 to 2022, there was a pivot within the company away from -- and this is specifically for silicon metal that I'm discussing not the other business lines but a pivot away from fixed annual contract prices where it's a fairly de minimis amount of the contract structure in 2022. Is that expected to remain so in 2023? Or is there anything changing that we should expect a larger mix of fixed annual price silicon metal contracts in 2023 versus 2022?

Yes. Thanks, Martin. Thanks for the question. Fixed price contracts are almost a thing of the past at the moment. So we hardly have any fixed price contracts. Certainly, it would not be wise if you're in a fixed price contract mechanism during today's volatility because going out there and trying to embed all that volatility in one single fixed price at a higher price is not something that a consumer would lock itself into. The strategies we've chosen right now are multiyear strategies and have a combination between market related and other related aspects into that. So yes, we're very happy to have retired all of our fixed price contracts.

Okay. That's helpful. I'm going to circle back on the working capital question, and the 21% target was notably exceeded. You had discussed in another follow-up question, the component as to why, and I understand that. But what's the timing of -- when can we expect to achieve that 21% of sales, I believe, is the target? Is this something that happens after 1Q results are reported or 2Q or 3Q? Beatriz García-Cos: Yes. Thank you, Martin, for the question. Let me take one step back. So I think going back to the reasons that caused this increase in our percentage, as you know, and we mentioned in one side, we have the manganese ore buildup due to the change in the macro environment and as well all the European steel producers shutting down operations. And in response to that, of course, we are curtailing our Spanish operations, right? Then the second point to bear in mind is the -- of the France winter stoppage, as you mentioned. And then the third point is, of course, as a result of the volatility in -- for the conflict between Russia and Ukrainian, we buy some additional electrodes and coal, yes. And on top, of course, we are ramping up Polokwane, right, as we are speaking. So this -- we invest working capital on that. So being said that, so -- and provided the winter season is starting very soon, we see this level of working capital coming on the next -- progressively on the next coming months, if this answers your question.

I'm sorry, could you just repeat the very last part that you said, kind of you expected this level of working capital to... Beatriz García-Cos: Yes. Sorry, on the next coming months.

Next coming months. So something within -- in my mind, I think that's a 3-month or less framework? Or am I wrong in thinking that? Beatriz García-Cos: We're going to be hitting the target, yes, on maybe between Q1 and Q2 for sure.

Okay. Okay. Let me pivot. I wanted to get your thoughts on the recent greenfield projects that broke ground since the last quarter in the U.S. for silicon metal and that you called out in the press release targeting growth for your silicon metal business. It looks like there may be a new entrant pushing forward in the U.S. But yes, any high-level thoughts from your perspective there? Javier López Madrid: Yes, Martin, thank you very much for the question. Well, the greenfield, I guess you're referring to the greenfield projects in [indiscernible] and others that have been announced. Well, I think we have first and positive reaction because I think it validates a bullish case for silicon metal going forward. I think -- and we have expressed our new market dynamics, reshoring energy transitionally positively impact silicone demand in the western world in the coming years. And we should expect high growth in that sector. And as a result of that, there are announcements of production being made, which will take some years to -- so -- on that side, very positive. I was a bit -- we were a bit surprised, but we haven't -- we don't know the numbers. And -- but we were positively surprised about the -- it was a sizable investment of around $300 million to $400 million. Again, I don't know the numbers, but from what we heard or what we read is $300 million to $400 million for 60,000 tons capacity or Phase 1 of 60,000 tons capacity. Just to give you a perspective, in Ferroglobe, we have global silicon metal capacity in excess of 300,000 tons with a flexible global asset footprint, which should certainly add perspective to our own valuation potential. But maybe, Benjamin, maybe you can give a bit of perspective on greenfield -- brownfield project and managing assets, which might add a bit of color to what I just said.

Yes, Javier, and thank you, Martin, for the question. So I think silicon supply can be expanding through multiple routes, right? And the CapEx intensity of those options is very different. If you talk about shrinkable capacity, furnace conversion, plant reactivation, brownfield or greenfield, the CapEx intensity of all those options are very different. And I think as an integrated company, we are able to have quickly capacity by reactivating assets, and the cost of that is maybe 50x less the cost of a greenfield. And that's what we have been doing. That's what we are doing now in Polokwane and that's what we've been doing earlier this year in Selma. I think on top of that, if -- our global footprint is a source of competitive advantage, providing a secure integrated supply of critical inputs like quartz, coal and electrodes. And I think that's significant when you are a nuclear, those -- access to those critical inputs is not that easy. And I think another advantage is the proximity to market.

Okay. That's helpful. And I guess, probably worth highlighting that there has been some -- over the last cycle or 10 years or so, there has been some notable capacity reductions within the North American market that -- you had one facility that exited. Dow had a facility that exited, and I believe, remains down. So net-net, maybe things aren't wildly different even with a greenfield expansion. Can you touch on maybe any more details to share about the high-purity silicon that you're ramping in Spain? Any comments on leveraging the prior know-how that you gain from an upgraded metallurgical product that you were previously trying to take to market? And then as the market turned down, that kind of went away, but it seems like you're leveraging some of that today. Javier López Madrid: Absolutely. And Benoist, maybe you can add a bit.

Yes, I can add a bit. The high-purity silicon we're targeting is of slightly lower purity than on solar, which makes the cost extremely efficient because it's the first process steps that we are basically adapting to -- into the plants mostly. So the production of high-purity silicon is integrated into the plants, which is one of our main cost advantage. The second is that we will develop the metallurgical route. As I mentioned earlier, it's the easiest, most efficient route, less CapEx-intensive route to -- when you want to put silicon into the anodes. We're targeting specifically the silicon carbon composites markets and also the SiOs -- SiO producers. And eventually, we believe this solution can be engineered for the silicon-rich anodes, which are one of the alternatives for the lithium metal anodes in the solid-state batteries. Javier López Madrid: Maybe -- sorry, Martin, just maybe what is the expected growth, Benoist, for the market going forward on that type of...

So we have had negligible sales in 2022, a few hundred tons in advanced technology and battery. We expect to triple those sales year-on-year and with a marked step up as soon as the gigafactories will actually start consuming. And this is one of the challenge of these developments is to face the huge one-step demand of gigafactories. And that's why we have to ready ourselves now, and we have started grading ourselves for quite some time now to be prepared for that big step.

Okay. So kind of still in the preparation, I mean, you are selling volumes this year, and you'll continue to -- moving into 2025. But the bigger step change that you're anticipating is 2025 when kind of more Western gigafactories are ramping -- ramped and producing and consuming more. That's more of the step change anticipated, right?

Correct.

Okay.

It's tripled until then.

We triple every year until then. We will triple the volume under sales until then in 2020 -- 2023 and 2024.

What does this do with silicon metal looking at it from a segment -- what does this do to the go-forward margin profile, EBITDA margin profile of that business? I understand that these products are fairly high margin, high value. And I guess any kind of framework that we should think of when we think about kind of legacy silicon metal margins but what it could look like 2025 forward with more of this in the mix?

Yes. Thanks, Martin. I mean of course, with a higher proportion mix tilting towards these specialties, you would certainly see an earnings profile transformation. The way I'd see it is typically, your aluminum sector will take a bit of a knock with the recyclability and the shift of the general industry going towards EVs. But the chemical sector favoring electronics, photovoltaics, these areas are going to take more of a share mix of our portfolio and the greater silicon metal market. So without a doubt, that profile, that earnings profile will change tremendously, as you pointed out.

Okay. All right. Thank you for all the detail and color. Congratulations. I thought that you all did a very nice job but I think it's a tremendously difficult environment in Europe as well as the North American market, maybe to a lesser degree. So congratulations on the results.

We will take our next question. And the question comes from the line of Michael Lam from Jemekk Capital Management.

Yes. In terms of -- when I look at the end-use demand that your products go into, I mean, your auto production has been flat and going higher. Solar, I'm less familiar with how the solar production ramp is. But it looks like -- like how much of your volume decline in Q3 was customer destocking or you mentioned also increased competition from imports?

Yes, if I may. Thanks, Michael. In Q3, we saw a number of headwinds coming from a variety of different challenges across the area, whether it has been just the severe global inflationary pressures or actually regional energy situations or just the zero COVID policy. When we looked at how intervention was taking place on the supply side, there was a number of actual supply production coming off and that was meeting or matching with the demand balance. So in effect, the market was becoming quite balanced. So the liquidity of those sectors had really balanced out. As you pointed out on the chemical side, we had a number of customers who had expressed concerns around the economic situation and obviously the consumption starts to drop as they are currently preferring for decreasing towards year-end. To the earlier question that Martin was asking, we have seen also an increased demand in the premium [indiscernible] but unfortunately, there hasn't been enough to make up for the short term that we had seen in siloxanes or aluminum industry. Moving forward, I mean, generally, the chemical sector is going to be robust and it is [indiscernible] of the growth in the future -- up in the medium term as demand for solar grade and that's what [indiscernible] has been driving it to batteries, going to pick up. Aluminum, yes, you're talking around the auto sector. And we think there's going to be a little bit of a lengthy slowdown primarily due to the auto sector. Started off with semiconductor shortages, but we will -- additional curtailments in aluminum production because of the very high production cost primarily in energy. And so -- but going forward, at least a high growth rate -- a growth of a high base but at a slower rate expected in the longer term, as I've mentioned earlier, you can relate it to aluminum and we'll have to go to a transition based on the higher uptake in recycling and the general transition to EVs.

And then last question is just what is the estimated like cost of ramping up Polokwane?

Yes -- that's -- yes, Benjamin.

It's Benjamin speaking. So I think we -- of course, we cannot be too much precise on that respect. What I think we mentioned earlier in the previous answer that it's much cheaper than a greenfield, and we are talking 50x less than a greenfield project. So that's the level of detail we are going to be able to be into. We don't want to be so precise in that respect. Javier López Madrid: But I mean, very cheap in terms of -- I mean we can -- one of the things that we are and actually is -- our global footprint is becoming more and more valuable as the world is deglobalizing a bit. We can restart facilities very quickly and very cheaply. And that's -- and we've -- and that's why it allows us to react to market, anticipate market movements in a much more agile way. One, we did that in Selma in Alabama. Last year, we've done that in Polokwane. In the reverse, we're stopping production -- we've stopped production in Spain, and we're stopping production for 3 months in France. And that is a tremendous advantage for the world we live in.

We will take our next question. The question comes from the line of Lucas Pipes from B. Riley Securities.

I wanted to ask a bit on for -- we're halfway through the quarter. How are volumes holding up so far? What are your volume expectations for the fourth quarter in light of the uncertainty on the macro front? I would appreciate your color there.

Yes, thanks, Lucas. That I have highlighted a little bit earlier, there's a number of factors that are playing into the marketplace right now, and we've seen this correction on supply and demand. But in general, we're -- most of the market is out of summer slowdown. There is a slight but yet cautious order load coming through in quarter 4. We see it still playing favorably out according to our expectations. Now the real area that we're sitting at right now is looking at how we commit and how we conclude successfully the remaining part of our negotiations for next year. But of course, I cannot comment too much further on that, but that's driving a lot of the current purchasing posture for fourth quarter.

Okay. And for the expectations today, we expect a modest increase in volumes across the 3 segments? Is that reasonable? Or can you elaborate on that?

Well, we've made the curtailments in Spain. So essentially, we are operating just with our U.S. assets and part of the Spanish assets, the French assets, our Norwegian assets. We focused on the successful start-up of South Africa. Argentina also continues to be a good provider to that franchise.

Okay. That's helpful. And then a bigger picture question, but the aluminum makers have been -- western aluminum makers have been lobbying for a ban of Russian aluminum on the LME, for example. So Russian material continues to come in. And what is the impact of that material on GSM? Do you -- does that ultimately directly compete with you as well? Or do fabricators take aluminum from the LME, for example, your material and then produce the demanded blends and alloys for the end consumer? Just trying to understand the market dynamics around the aluminum demand side of the equation a little bit better.

Yes. So your question is specifically around the aluminum sector into the U.S., if I understood your question, right?

Not just the U.S., Europe -- Europe as well.

Yes.

And the interplay with production in Europe, in the U.S. vis-a-vis inputs of Russian aluminum material effectively, if Europe -- if Europe buys Russian aluminum, do they still buy the alloys from you to make those specified alloys? Or does the Russian aluminum come with grades of alloys that already meet customer specifications?

Yes. So the imported Russian aluminum that is coming into Europe, if it is coming into Europe, does it replace our demand going into aluminum? No, it doesn't. I mean we are currently contracted and we are currently working with our downstream customers. They have made the necessary adjustments, and we'll operate accordingly. But no, no direct impact for us.

We will take our final question. And the question comes from the line of Thomas Murphy from Odeon Capital.

Can you hear me? Beatriz García-Cos: Yes.

Loud and clear.

Great. My question is probably directed towards Beatriz. Well, first of all, congratulations on the quarter, very good quarter. Beatriz on the Q2 [indiscernible] you had made a statement that, ideally, over time, you'd like gross debt to get down to $200 million, recognizing that the environment has changed a bit since Q2 and still, though, a very strong Q3. Is that still a target? And if yes, ideally, over what time frame would you hope to achieve it? That's my question. Beatriz García-Cos: Thank you, Thomas, for your question. I think the first part of the answer to your question is, yes, we reconfirm the target of $200 million of gross debt. That's what we said. And it is true that the interest rate and environment is changing. But what we are doing is we have continued to build cash, yes, as you saw from some of the results, we are evaluating all the options that we have at the moment to reduce this gross debt. And we continue to think that this could be something that we're going to be doing, I would say, sooner than later to reach this $200 million of gross debt target. Being said that, let me -- just to remind, so our target is to keep the cheap debt that we have in our balance sheet. Of course, we have, as you know, some government loans that we plan to keep and we're going to be working to get rid of the expensive debt, right? Well, maybe before was very expensive. I recognize that maybe now is not so expensive, right? But we are working on that. And it could be one of the developments on the -- the next quarter or so.

Thank you. I would like to hand back to the speakers for closing remarks. Javier López Madrid: Thank you. That concludes our third quarter earnings call. In Q3, we demonstrated our ability to manage through challenging markets to still generate positive operating cash flow and maintaining a strong balance sheet. We will continue to focus on improving our operation efficiency and reduce our leverage. We remain focused on rolling our profitability and generating strong earnings throughout the cycle. Thanks again for your participation and support and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please standby.