Good day, everyone, and welcome to the Ternium Second Quarter 2012 Earnings Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Mr. Sebastián Marti. Please go ahead, sir. Sebastián Marti: Thank you. Good morning, and thank you for joining us today. My name is Sebastián Marti, and I'm Ternium's Director of Investor Relations. Ternium issued a press release yesterday detailing its results for the second quarter and first half 2012. This call is complementary to that presentation. Joining me today is Ternium's CFO, Mr. Pablo Brizzio, who will discuss our performance. At the conclusion of our prepared remarks, we will open up the call to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information, and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and in our press release issued yesterday. With that, I'll turn the call over to Mr. Brizzio.

Thanks, Sebastián. Good morning to everybody. I would like to provide you with some comments on our performance in the second quarter 2012 to where the outlook for the following quarter, and then we will be able to walk through the Q&A session. EBITDA during the second quarter 2012 was $348 million, slightly lower than the EBITDA in the first quarter this year, as lower revenue per ton was not completely offset by lower operating cost per ton. 3 months ago, we estimated that the shipments were going to increase and margin will remain relatively stable in the second quarter. At the end, shipment were marginally higher, but not as much as we expected. In addition, EBITDA margin was somewhat lower instead of remaining stable, mainly as a result of a stronger decrease in prices than what we were expecting and of course, per ton a little higher than anticipated, with some impact from our expected maintenance works in our facilities in Argentina. SG&A increase in the second quarter 2012 compared to the first quarter with higher level of export from Argentina and Mexico to our markets in the region from an increase in freight costs, as well as higher export taxes in Argentina as a result of the higher export volume. Finally, labor costs in Argentina increased due to a renegotiation of annual contracts with wage increases effective since April this year. In addition, in the second quarter 2012, we decided to permanently reclassify certain expenses from cost of sales to SG&A. These were performed during the second quarter and adjusted retroactively in the first quarter and 2011 numbers issued in yesterday's press release. Let's review shipment performance now. Shipments of flat products were relatively stable in the quarter compared to the first quarter 2012, a 5% increase in…

[Operator Instructions] Our first question comes from Carlos de Alba with Morgan Stanley.

First question, if I may, is can you quantify the impact of the unexpected maintenance that I think you mentioned the company had in Siderar during the quarter, the second quarter? And second, if you can just explain to us briefly what sort of economics for Ternium can we expect on the material that the company is buying from Usiminas and perhaps selling in Central America, in Columbia and Venezuela, and perhaps also in Argentina?

Okay. Carlos, with respect to the maintenance issues in Argentina, we're around $15 million. The impact of this during the quarter, of course, this was already done and performed during the quarter, and we expect to see this to repeat in the following quarter.

Pablo, was that $15 million, 1-5 million?

1-5, $15 million. In respect to your second question, which is the sales of products from Usiminas in the market in which we are -- this is something that we comment on then in the last call, during our call during the quarter, is something that, of course, we understand and we believe it's important to generate value for both companies, both for Usiminas and for us because we have a very well-diversified pool of distribution in the different countries, basically, the one that you mentioned Argentina, Columbia, Central America, Mexico. So this is one of the ways in which we understand the value we generate in working together in this case with products produced in Usiminas and distributed throughout our market.

Okay. So yes, the benefit for Usiminas is quite clear because they are able to increase their production, which we saw already in the second quarter and that reduces their average unit costs. But for Ternium, is there an explicit benefit in dollar per ton of these products beyond just servicing the clients better, perhaps, and offering a wider portfolio of products?

Well, we see a lot of benefit of doing that, I know what you mean. In the case, we haven't yet finalized the negotiations among the companies to see how will we servicing fee that we will be offering to Usiminas. So at this point, I believe it was already clear given Usiminas conference call, there is nothing in place. And this is something that we'll -- is still under negotiation, and we believe that we will increase the possibility of this. But in respect to the benefit for Ternium, it's not only that we will offer product to our customers is that we were -- as you know that we are working at quite full capacity these days. So the availability of products to serve current customers is limited by the level of production that we have at the moment. So being able to provide new products to our customers is something that we consider important to complete the value range of products that we can offer and to being able to source all the different range of products to -- as a single provider to different customer is something that we consider quite important.

Final question. Traditionally, the fourth quarter is the weakest quarter for the company or the second weakest quarter for the company. But given the increases in the steel prices that we're starting to see in North America, particularly, and the recent declines in iron ore prices, is it possible that after a decline in the third quarter relative to the second quarter, we can see an improvement in operating income in the fourth quarter because of these 2 factors that I just mentioned?

Well, of course, the possibility exists, always depending on the way the prices will move. We usually mention that the fourth quarter is the lowest of the year due to seasonal effects. Traditionally, in Mexico, price during the fourth quarter are lower in comparison to the rest of the quarter due to the holidays, Christmas and these days that are happening during in the fourth quarter. But the election of price and cost move in the way that you are mentioning probably you will have a better result than traditionally expected.

Our next question is from Thiago Lofiego with Merrill Lynch.

I have 2 questions. First, could you give us an update on your CapEx plans for the next couple of years, if you could also give us the CapEx budget and which are the projects that you're going ahead with? That's the first question.

Okay. Let me summarize these projects that we have and then total number of CapEx. We are still working on a budget of $1 billion CapEx plan for this year. The main project there is the one that we are moving ahead at the moment in Mexico with the new cold rolling mill in Pesquería and the development of Tenigal together with Nippon Steel for the galvanizing line. These are the 2 main projects that we have at the moment, together with the plans that we have in Argentina for the new slab caster machine. So these are the 3 projects or main projects that we are under performance in the moment. And of course, none of them will be finalized within this year, so we will move in the following year. And if no new projects are approved, we are expecting to review the number of CapEx from $1 billion during 2012 to a level of around $800 million in 2013.

Okay. Pablo, just to confirm, so you're going ahead with the Argentinian project. Could you give us some color on what your perception is in terms of the political environment in the country? So are you facing challenges in terms of your investments there? And also perhaps in terms of the pricing dynamics in the country, could you elaborate a little bit on that?

Yes. As you know, as we've described in the press release, we are unable to increase shipments to the local markets in Argentina, but we were able to ship to regional markets. So the total level of production in Siderar was sustained basically at similar levels. So for us, the production in Argentina continues to be good, not only to provide to the local market in which, as we comment, we are not expecting to see further reduction in volumes in shipment to the Argentinian market, but we will continue to ship product to regional market. The project that we are discussing basically is to increase the slab production in Argentina at the end of coming year, and most part of this new slab will be to ship or to export these from Argentina to Mexico. And so we are still under the same plan. We have seen no issue related to our CapEx plan from any, as you put it, of any political issue in Argentina, but we are moving ahead with this plan as scheduled.

Okay. And final question. We've recently seen some price increase attempts in the U.S. for steel. What's your perception on that? Do you think that's sustainable or maybe steel prices won't gain momentum. So what's your thoughts on that?

Well, we, of course, have seen these price increases. There were some around $30 per ton increase in the last couple of weeks or 3 weeks, which is important. This is a movement from, especially the mills in the U.S., to sustain pricing in the coming months. Hopefully, these would stand and we'll we -- as we mentioned, and the bottom price that we saw a couple of weeks ago is the one stop there, and now we could see a better pricing. We are not utilizing in our projections at the moment increased pricing from this level, so we have an opportunity to see, as Carlos de Alba put in at the beginning of his questions, that if there is better result from pricing increases in the market, of course, we will be benefiting. The uncertainty in the market is important, it's always very difficult to predict, which will be the movement in pricing, which is very related to the dynamics of what the economy. And how uncertainty in Europe, especially, news coming from China, news coming from the U.S, so our region is doing quite well in this environment. It's very difficult to put all things together and to come up with a number. But when we saw the price increase, the price increase was fast. The price increase is reflecting in the pricing in the region, of course, in our pricing also in Mexico. So that's positive time. Hopefully, there are not that many bad news in economic terms and this will be sustained.

Our next question comes from Marcos Assumpção with Itaú BBA. Marcos Assumpção: First question is regarding your project being Mexico. Recently, I saw that the CRC capacity was increased from 1 million tons to 1.5 million tons. Can you comment a little bit on that? And my second question would be on CSA, the potential sale of ThyssenKrupp assets here in Brazil. If you could comment a little bit if Ternium was interested in these assets here in Brazil or in both assets in Brazil or in the U.S? Or like if Ternium is really participating in the due diligence project process of this sale.

Okay. Marcos, let me first answer your question related to equipment in Mexico. In fact, the only change that you have seen is that the capacity of equipment that we will be installing in Mexico, in fact, is as you said 1.5 million tons of sales of one, the number that we usually and always mention, which is the level that we are expecting to produce in this facility. But the actual agreement we have the capacity to produce up to 1.5 million tons. I don't know if this, Marcos, is clear. Okay, and then we go to your second question, which is CSA, the development that we are seeing from Thyssen in Brazil. As you know, they have announced the intention to sell their assets in Brazil. Brazil is one country or -- within our region and as you know, we are always looking for the different situations that appear in the M&A world and within our vision. So of course, we were invited to participate in the process, and we will analyze the situation to see if there is anything that would suit the strategy and the needs of Ternium. As you know, this is a slab producer company in Brazil and we need slab, but we need to fully analyze the situation. I understand that the process has not yet been well developed meaning that there is not yet a release process in place, but I understand that this will be, in a very short period of time, this will be a different level.

Our next question is from Leonardo Correa with Barclays.

So Pablo, the first question is regarding SG&A. During the quarter, we saw the SG&A perhaps a bit higher than what we were expecting at the market, which includes a 10% of sales. So I just wanted to get a view if there was anything specific on the quarter to generate that increase and if we think this number is sustainable, this type of level of SG&A versus sales? That's my first question. And the second question is regarding a couple of themes. The first theme is Acu, the Brazilian potential project that you were -- you have been analyzing for the past couple of years. You had previously disclosed the deadline of September to come up with a final decision, green light or no on that project, so I just wanted to see how that is evolving. And the second or, let's say, second part of the question is also regarding the iron ore assets in Mexico. If anything has evolved on that side in terms of CapEx and production increase potential monetization or anything has been evolving differently on that side? So anyways those are the questions.

Okay. Leonardo, let me first tackle your question regarding SG&A, which we tried to convey the message at the start of the opening remarks. There are things that are specific for this quarter, and there are issues that, as explained in the remarks, with classifications that we deal and of course, will remain there. In relationship to a specific situation of this quarter, what we have is a higher level of export coming from Argentina and Mexico, and of course, this has a higher freight cost related to export comparison to sales in the domestic market. In the case of Argentina and the export -- together with the export, you have to include export taxes that are charged in Argentina. So these 2 things increase the number of SG&A for the quarter, and we continue to see this level of exports from -- especially from Argentina. This will continue during the quarter. In relationship to the -- we did some permanent reclassification of several expenses moving them from cost of goods to SG&A because we understood, after some review, that are better reflected as part of SG&A and not in cost, and this is permanent. So this, of course, we'll reclassify that in all the numbers that we presented in this financials and this will be seen there from now on. So this is why you are seeing this movement in SG&A. In fact, the growth of SG&A was not that big if you take out the permanent reclassification, and it's only related to the issues I mentioned at the very beginning, which are the increase in export from Argentina, Mexico and tax-related issues together with some wage increases in Argentina due to the, of course, increase in pesos in comparison to the dollar, the difference between increasing pesos and the dollar. So these are the issues in relationship to the SG&A. Let me comment in respect to your second question, which are different projects that we have. You are right. We already mentioned with respect to the Acu project that we have a deadline in September. As you know, and it's public, there were some delays in issues related to that project like the mining activity related to the Port Acu, which is the possibility of getting iron ore into this port has been delayed. So most probably will lead to a delay in the possibility of us taking any decision on that project. So it will be what we are expecting to see in the coming months. In respect to the other project that we mention, which is iron ore in Mexico, we have nothing new from where we have said in the previous quarter. There's no new development in relationship to that.

Our next question is from Rodrigo Barros with Deutsche Bank.

I have 2 questions. The first one is regarding the increasing iron ore -- sorry, in inventories in the second quarter, if you could explain is that's a trend or if that's likely to reverse in the coming quarter? And my second question is more, let's say, theoretical. In the last 8 out of the 9 quarters, you had EBITDA per ton above $106 just like we reported now. So I wonder if you could comment to us how you see EBITDA per ton in the coming quarters in the third and fourth quarter and going forward.

Okay. Rodrigo, let me answer your -- first, the question on inventory. Yes, we have an increasing inventories mostly related to products that we need to stock in relationship to the new investment that we are doing mainly in Argentina and revamping of different facilities. So we are not expecting to see this increase and moving forward in the following quarter. So going to your second question, of course, it has been at least our target to be located in a range of EBITDA per ton between $150 and $180, $190 per ton. We were able to sustain that in the last 5 quarters, of course, and we have lower number prior to that. We are -- due to the situation on price, we do not see any further surprise in the pricing environment within, specifically, the steel products. We are able to see somewhat a reduction in margins in the third quarter that leads to, of course, to a reduction in this EBITDA per ton number. But the objective of the company is to work always to sustain this level. Of course, our reaction we will be moving close or at the lower end of this range. And if there is no news in the price, of course, we will review the situation for the following quarter and the third quarter. If we move with a theory of Carlos, as we commented in the very first questions, is there is a further increase in prices, further reactions in the price of the iron ore, well, we could get out of this bottom part of the range or below the range to a higher number. So as you said, it's theoretical, but we need to wait until -- to see, which is the reality in pricing in the coming months.

Our next question comes from Ivano Westin with Credit Suisse.

Just wonder whether you have any intention to change overall strategy in terms of physical sales, whether you can expect higher exports to overcome weaker demand in some markets, especially in South America? And the second point is more on value perspective. You already anticipated, expect weaker price in demand in the short term, but on a longer-term perspective, if you have a more positive view especially in terms of 2013 demand and price?

Okay. Ivano, we have already started as we did in the past when we have this specific issues in different markets to increase shipments to what we call export market or neighbor markets. So we already did that in the second quarter when we see or we saw a reduction of shipments coming out of Argentina. So we were able to sustain the level of production by shipping our products into different markets. Of course, we will do -- continue to do that, but we are still optimistic in our vision that demand in domestic market, especially in Mexico, will be there and we will be able to sustain the level of shipments to the specific domestic market. As you know, in the case of Mexico, the general macroeconomic situation is positive and we are expecting to continue to see that. With respect to shipments in the next year, we still believe that, as we commented before, the dynamics of our region, the Latin American region, are positive. And we believe that we will continue to sustain this level of shipment. And I already mentioned it's very difficult to make projections in the pricing environment in the middle of this macroeconomic environment. But if you look at different variables if you look at different future pricing, there is an expectation of a higher pricing in the coming year. So we'll see if this is effective or not, but if the macro situation evolves positively, for sure there will be some recovery in the level of pricing.

[Operator Instructions] Our next question is from Jon Brandt with HSBC.

I just wanted to ask you about net debt. I mean, still certainly comfortable, but it's a bit high by your historical standards. I'm wondering if you're comfortable at these levels or if the goal is to pay down some of this debt or if it's dependent on the projects, the potential projects in 2013 and beyond. And I also wanted to ask you about Usiminas. We saw the currency adjustment, the $200 million adjustment. And I'm wondering if that's just FX related or if there's something a bit more and do you think you'll need to write down this asset given what's happened with the share price? And then lastly, I just wanted to ask you about the slabs that you bought in Mexico, sort of the spread between HRC and the slab price and what percentage of the slabs were bought from Usiminas.

Okay. Jon. Let me go directly to the net debt situation. We understand that the level of debt of the company is low, is manageable. We consider our financial situation is quite solid. If you take the last 12 months EBITDA generation and compare it to the net debt, we are in the low 1 in relationship to a ratio. So I mean, we believe that the financial situation is one of the best in our sector. And of course, as you know, we have the possibility to further reduce it, we will do it. It has been our tradition in order to be ready to take advantage of opportunities or CapEx plan that we have. At the moment, since we are in the middle of different CapEx plan, as the one as I mentioned before, it's difficult to believe that we can further reduce that. But in any case, we really believe that the level of debt is very good and very low in comparison with our peers and in comparison with our own standards. In the low 1 ratio, we are quite comfortable. With respect to the issue of -- in the issue of Usiminas, the adjustment that we need to make was clearly accounting, if you want, we just only related to the devaluation of the currency. You know the transactional currency of Brazil is the real, and the currency in which we are reporting is dollars. So we need to adjust the value of the investment by that. As you know, the devaluation was 10.9, and this was the impact that we saw during the quarter. And so this was mainly that, no more than that. In the case of your last question which was related to the spread between the slabs and the copper coil. We are, basically, within the range probably in the upper part of the range. As you know, we usually say that traditionally the range or the gap between the 2 prices is $150 per ton.

Okay. And the slabs that you bought in Mexico, I mean, were you able to take advantage of the Usiminas relationship and the source slabs from Usiminas? I mean, do they account for the majority of your slab purchases in Mexico?

So we were able to source some slabs from Usiminas. As you know, this is not new. We usually source slabs from Usiminas, and we did that in the past. Of course, we continue to do that. And yes, we were able to source around 80,000 tons of slabs during this quarter, coming out from Usiminas. But of course, this is just part or a fraction of the total needs of slabs that we are having in Mexico and utilizing it.

Our next question is from Humberto Morales [ph] with Goldman Sachs.

It's Marcelo Aguiar. Let me fish a little bit more on Jon's question on the potential impairment of Usiminas. I mean, you bought the stock at BRL 36 the voting share, and now it's below BRL 10 for a long time. So can you elaborate a little bit on your discussion with the auditors? What will make you not impair a portion of the investment at Usiminas by year-end 2012?

Okay. Marcelo, as you know, we have bought the shares very, very recently, in fact, less than 5 months ago. So the company has not completed any permanent test over our investment in Usiminas. Of course, we will need to do it prior to year end. And if there is a need to do that, we will need to reflect this basically in our annual statements, so this is the situation. By now we need to move further on the analysis of the situation of the company to see if there is a need to make an impairment on the business that we made. But as I said, we haven't, at the moment, performed or complete an impairment test.

I'm sorry, I just want to understand, so when do you expect to finalize the analysis? I mean, it's required to be at the fourth quarter, right?

Yes. That's required, and if there is something that makes us believe that there is a need to do it earlier, of course, we will need to do it.

Okay.

[indiscernible]

Okay. On the Acu, I didn't understand a couple of your comments about -- I mean, you said it be -- can you elaborate a little bit about the timing on the decision?

Yes. The timing of the decision, the original timing of the decision is supposed to be September. As you know, in our prior call, we said that we have different alternative. One is to try to repay or to delay the need to take revision on this project. Due to new developments during the quarter, especially in relationship to the mining activities that we're supposed to supply, the port facility in Acu that is public, the most probable situation is also to get some delay in the need for the company. So we're starting to take a decision on that project. So that was what I wanted to say in the prior quarter, I know this is still clear for you.

So to understand properly, so -- and [indiscernible] has not the right to ask you for a final decision in September. So when is going to be this new deadline, do you know?

No. This is actually that needs to be negotiated. But due to different delays in different things, it is very difficult for us to be in a situation of being asked, the one to take the decision is -- if all the things that's related to the project have some delay.

Okay, okay. And the last question is on the mining. I mean, you guys have been analyzing for a while the expansion of the mining activity in Mexico. Can you say where are you in the process? I mean, should we expect something soon? Do you have any visibility on capacity cut backs? I mean, this has been a possibility -- has been a goal for a long time already.

No. Well, we have, I believe, commented with where the situation of this project during the last call. And we are -- we said there that we were not -- we have not finalized and we will not finalize the analysis of the situation basically in this year. The decision, if there is any, should be taken at the beginning of next year. The numbers of the project were still the same. The project, the basic project is to double capacity of production of iron ore in the mine site that we have there, that we produce 4 million tons. And so that was the idea. The CapEx plan is basically to do exactly that. So we are still in the process, of course, we need to take into consideration that the reality of the sector, the reality of the pricing, the reality of the macroeconomic environment, and put all these together in order to see if we have a profit or not. But we -- from last quarter to this one, there is basically beside the news that we have in the market, no further news from our side.

I would now like to turn the conference back over to the CFO for closing remarks.

Okay. Thank you again for your interest in Ternium and for your time today. We look forward to remaining in touch with you. And as always, please contact us if you have any additional questions. Thank you very much. Bye, bye.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.