Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited First Quarter 2019 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com. To inform everyone, today's conference is being recorded and is now being webcast at the Company's website www.gencoshipping.com. We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference will be accessible anytime during the next 2 weeks by dialing 888-203-1112 or 719-457-0820 and entering the passcode 6246906. At this time, I will turn the conference over to the Company. Please go ahead.

Good morning. Before we begin our presentation, I note that in this conference call, we will be making certain forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe, and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on management's current expectations and observations. For a discussion of factors that could cause results to differ, please see the Company's press release that was issued this morning, the materials relating to this call posted on the Company's website and the Company's filings with the Securities and Exchange Commission, including without limitation, the Company's annual report on Form 10-K for the year ended December 31, 2018 and the Company's report subsequently filed with the SEC. At this time, I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.

Good morning, everyone. Welcome to Genco's first quarter 2019 conference call. I will begin today's call by reviewing our first quarter and year-to-date highlights. We will then discuss our financial results for the quarter and the industry's current fundamentals and then open the call up for questions. Starting on Slide 5, we review Genco's first quarter and year-to-date highlights. During the first quarter, we generated $17.5 million of EBITDA and concluded the period with $193 million of cash on the balance sheet. We continue to draw upon our active commercial strategy in our barbell approach to fleet composition, maintaining exposure to both the major and minor bulk commodities. The benefits of this approach were evident in the first quarter as we effectively operated through a challenging freight rate environment. Specifically, while the Capesize market came under significant pressure, the earnings for the smaller class vessels exhibited relative strength during the quarter. An important differentiator of Genco is we maintain the upside potential of the Capesize sector and the iron ore trade through the ownership of 17 vessels in this asset class, while the remaining fleet of 41 minor bulk vessels that transport materials such as grain, bauxite, fertilizer and cement, among various other commodities, are expected to provide us with a steadier stream of cash flows. During the quarter, we also continue to access capital under favorable terms. In February, we amended our $460 million credit facility in support of our comprehensive IMO 2020 strategy. Specifically, the amendment provided an additional tranche of up to $35 million to finance a portion of our scrubber program, the details of which Apostolos will discuss later in the call. As we have mentioned previously, we are implementing a portfolio approach ahead of IMO 2020, focused on installing scrubbers on our Capesize vessels and…

Thank you, John. Turning to Slide 11, our financial results are presented. For the three months ended March 31, 2019, the Company generated revenues of $93.5 million. This compares with revenues for the three months ended 31, 2018 of $76.9 million. The increased revenues for the quarter were primarily due to the employment of vessels on spot market voyage charters as compared to time charters. For the first quarter of 2019, the Company recorded a net loss of $7.8 million or $0.19 basic and diluted loss per share. This compares to a net loss of $55.8 million or $1.61 basic and diluted loss per share for the first quarter of 2018. Turning to Slide 12, we present key balance sheet items as of March 31, 2019. Our cash position, including restricted cash, was $193 million. Our total assets were $1.6 billion, which consists primarily of the vessels in our fleet and cash. Our total debt outstanding, gross of $16 million of unamortized debt issuance costs and inclusive of the current portion of long-term debt, was $534.8 million as of March 31, 2019. Moving to Slide 13. Our utilization rate was 97.4% for the first quarter of this year. Our TCE for the first quarter was $9,230 per vessel per day, which compares to $10,463 per vessel per day recorded in the same period of last year. The decrease in TCE was primarily due to lower rates achieved by the majority of the vessels in our fleet during the first quarter of 2019 versus the first quarter of last year. Daily vessel operating expenses were $4,420 per vessel per day for the first quarter, below our budget of $4,525 per vessel per day. Turning to Slide 14, we highlight our favorable debt structure, which consists of two credit facilities. Following the…

Thank you Apostolos. I'll begin with Slide 17, which represents the daily spot rates for the sub-indices of the Baltic Dry Index. During the first quarter of 2019, the BDI came under seasonal-related pressure, which is typical for the beginning of the year. In fact, in each Q1 of this decade, the BDI has fallen relative to the prior year's Q4. Subsequently the BDI has increased in each Q2 as compared to Q1 in all but 1 year. This is a trend that is currently playing out once again in 2019. During the course of the year to-date, Capesizes have seen the most volatility as displayed on the page, while the smaller sectors have been more resilient in terms of their earnings. As John has mentioned earlier in the call, this rate development highlights the importance of our barbell approach to fleet composition. As it has historically been the case, the following factors materialized in Q1. Increased newbuilding deliveries due to the front-loaded nature of the order book, the celebration of the Chinese New Year holiday in February, as well as weather-related disruptions impacting cargo availability, particularly in Australia as cyclones negatively impacted shipments from several of the iron ore majors in March. On top of these factors were unique developments, including coal restrictions in China, the overhang of the U.S.-China trade dispute, as well as the tragic Vale dam collapse at the end of January. These developments accentuated what is already a seasonally softer period for the drybulk market. This was particularly evident on Capesize vessels, as earnings levels became very sensitive to announcements made by Vale regarding production cuts, which have totaled 93 million tons of output. The latest iron ore sales guidance provided by Vale ranges from 307 million to 332 million tons for 2019, which compares…

[Operator Instructions] And our first question will come from Randy Giveans with Jefferies.

So looking at the pretty impressive $2,100 a day outperformance of the benchmark indices, just trying to figure out what drove this. Was it because of the offices in Copenhagen, Singapore, the fleet age, asset mix, timing of short-term charters, your geographical positioning or something else. And more importantly, should we expect more of the same in 2Q '19 and beyond?

Okay. Probably all the above, but if you really, if you really cut down to it, we did a lot of forward fixing in the fourth quarter to get us through what we believe was going to be a soft first quarter. Obviously, we weren't pressured enough to take into account the Vale disaster, but because of the fixtures that we had done, we were well set up to weather it. I also think it's, again, it is the overall strategy and the forward cargoes that we were able to book outside of our own ships and take care, take advantage of arbitrage trades and use other people's ships to move some of those cargoes to supplement our owned fleet. I would tell you, overall, and I think I've said this before, our sort of target for the Company is to outperform by $500 a day. Obviously, we had a very good first quarter and we expect our performance to continue this year. Hard to tell what that absolute number will be though, as we get into the end of the year and look at the entire 12 months.

Okay, that's fair. And then now, although your Capsize spot rates are down to $9,000 a day, something like this, forward freight agreements look much better with rates in 4Q '19 around $18,000 a day. So you mentioned that all of your Capes will have scrubbers installed by the end of 3Q '19. So do you expect to operate these in the spot market thereafter or maybe lock away some of the tonnage on FFAs or long-term time charters once the scrubbers are installed?

I think you are aware, we don't trade FFAs. So I don't see there any, I don't see that being put into place now. Look, to get the maximum benefit out of scrubbers, you really need to be trading on a voyage basis. So, I would tell you that will be our strategy and as we look at the second half of 2019, all the way through 2020, a couple of things, we think, are going to happen. One, we think the maximum spread between high sulfur fuel oil and the ships that have scrubbers and the ability to burn that, versus low sulfur fuel oil, will probably be at its widest towards the end of this year and then going into the first half of next year. So we want to be in the position to take advantage of that 100%. As we look at the supply-demand dynamics, again for the second half of this year and all of 2020, we are obviously positive. We believe Vale will start to come back and get a lot of their operations back up and going, as we get towards the end of this year and certainly into 2020. So we think that's a positive factor and we're, as Pete mentioned, where the price of iron ore is today, they are certainly incentivized to do that as quickly as they can, from a regulatory standpoint. Low net fleet growth projected only 1.5% next year, that is at, I mean, that's definitely at a historical low. So that's why we also remain positive. And then just going back to your question on the time charter side, it is interesting, we've seen a few time charters done on Capes now for 1 year, anywhere from $16,750 a day to a little more than $17,000 a day. So I think that bodes well for the confidence in the Capesize market going forward from the chartering side. Even though we will be putting scrubbers on, we will clearly look at this opportunistically and if there comes an opportunity at the end of this year and into next year to put tonnage away and we can still get the economics that we want from the scrubbers, we will certainly do that.

Got it. And then one last quick question, so you still have seven vessels kind of earmarked for fleet renewal, for sales this year, obviously there has been some sales recently yourselves in January and some of your peers selling the Supramaxes. Do you expect those to be done in the next few quarters? What's your timeline on that?

Look, I think it is a more opportunistic approach. I mean the ship that we, that we sold, the Genco Vigour, we actually agreed to the sale of that in the fourth quarter, so it only delivered in January. We don't view selling ships in the first quarter as typically very smart, it tends to be the weakest time period from a freight rate standpoint and a valuation standpoint. So with the expectation of values firming again in the second half of the year, we will be more focused on that, than anything right now.

Sounds good. Okay I'll turn it over. Go ahead.

No, I would just say it's a nice thing about those seven ships. Look, we're earning well, we're outperforming our benchmarks and getting good return on capital. So we really have the -- I would say the luxury of waiting to make sure we get the right transaction for selling those.

Got it. Hey, thanks again.

Thanks Randy.

Thank you. Our next question comes from Espen Fjermestad with Fearnley.

Hey good morning. I wanted to challenge you guys a bit on the comments you made around the restart of mines and potentially new supply elsewhere. I mean, how confident are you that the likes of [Indiscernible] want to put more volumes into the market, I guess, not only from a regulatory perspective, but also seeing the -- they are greatly benefiting from higher prices at the moment.

I think, they are greatly benefiting from higher prices, but I think they are highly incentivized to, as I said, as quickly as possible get some of these facilities back in line and also get S11D ramped up in a quicker fashion. Do I think it's going to happen over the next few weeks? No, but do I think that it will start to happen more towards the third quarter of this year, fourth quarter and certainly a much more robust recovery in 2020? Yes, I think they -- Vale needs to restock their facilities in China and Malaysia. So my guess is they are focused on that as well. And I think from a standpoint of -- if you look at the shipments that occurred in February and March, those are really sales from their existing inventories, and as I said, I think those inventories have run down. So they will need to be built back up again.

Alright. I guess it's fair that Brazilian inventories are low, but the Chinese ones are -- they're not low in a historical context. So, what's going to stop the Chinese from kind of continuing drawing on the iron ore inventory seeing where the prices are at the moment?

I don't think anything does. I think they'll continue to draw down, to some degree, but we are getting into quality issues, nothing has changed in terms of the environmental focus in China and improving air quality. So I think the high quality ore will certainly be in demand. I would take issue with you a little bit on the iron ore inventory. I agree with you on absolute numbers they may be not near historical lows, but steel production continues to grow in China, which means that you should have higher inventory. So I think this will come to a tipping point. And I also think that this market and this restocking could be a sort of a coiled spring, where as we get into the latter part of the year, we could see some major restocking occur.

Fair enough. And then finally, I guess on the scrubber installations, there have been a couple examples now on the tanker side where these processes are taking a lot longer than people anticipated. Curious to hear your experience with the planning and kind of upcoming installation so far, whether you see any delays on the, I guess the equipment side or on the yard side?

Well, we certainly don't see any delays in terms of the slots and getting our ships in. As I said, the, the first one, the first installation we're going to do will begin in about 10 days. So, I'll have a lot more to report as we do our second quarter earnings call. But we are still anticipating having everything done by September of this year. We're going to do six scrubbers this quarter, six of the 17, and we have been able to do a lot of pre-fabrication in the yard ahead of the ship getting there. So look, we're still of the mindset, yes, maybe the first couple of ships may take somewhere around 25 days. But we expect that number to come down as we do the rest of the Capes.

Thank you. Our next question comes from Chris Snyder with the Deutsche Bank.

So high iron ore price, high iron ore prices have, to bring down inventory levels, but I was wondering, have you noticed other regions starting to ramp iron ore production to kind of take advantage of these higher prices and fill the Vale void?

Yes, well, essentially the thought was that Australia would be ramping up and they have their own issues with the cyclones. But yes, I mean it's not necessarily a turnkey sort of event. We could see India pick up a little bit, we could see a little bit more from South Africa and Canada. Those are the central growth regions. But keep in mind that over the last few years Australia and Brazil have really put a stranglehold on this market, where they are the two main players. So there's not as much spare capacity out there and there hasn't obviously been a ton of investment in new CapEx. One positive though that we have seen is Fortescue invest in a new mine that's coming on in a few years. So that was actually a step in the right direction in terms of increasing overall capacity. But yes, the two main players are obviously Brazil and Australia.

What I find very interesting right now is that if you look at spot shipments coming out of Brazil, in April, there were only three and in May thus far, there's only been one and yet we've had a major bounce off of the lows of $3,000 a day in the Capesize sector, and that really is on the back of Australia and shipments out of South Africa. So you can imagine, again, I'll just go back to this loaded spring when Vale does come back into the market in a meaningful way on the spot side, hopefully, we see a good improvement on the rate side, which is why I think you're seeing these 1-year Cape TCs done in the high-teens right now.

Yes. I mean in the context of lower iron ore inventories and China still growing steel production 10%, 11% year-on-year, it obviously seems like it's positive for iron ore imports there, but can you talk about the use of scrap metal in China for steel production? Obviously that was a headwind in 2018. And can you just talk about maybe how that's trended so far in 2019?

Yes, I think overall that's been something that's been highly talked about, but when you look at the actual figures, there hasn't really been a huge uptick in scrap, scrap use in terms of steel production. It's still about 10% to 12% of overall steel production. So when you're talking about over 900 million tons and close to a billion tons of steel output, it's still a small number, relatively speaking. So the majority is going to be through blast furnace production and the use of iron ore and coking coal, but it's been creeping up slightly, but it is not going to 50% or 60% anytime soon. It's more in the 10% to 12% range.

Okay, fair enough. Then just kind of staying with Capes, I know you guys I think just said the TCE market has hung in pretty good, it is at $16,000, $17,000. Is this something that interests you guys and also how available are these opportunities? And I ask, because that's certainly above where spot markets are today and I understand the view that demand will inflect higher in the back half, but yesterday Vale announced a re-suspension of one of their larger mines, which could add to some more near-term pressure. So the $16,000, $17,000 seems pretty decent in that context.

Yes, look, again, Vale also reiterated their sales guidance. So my guess is, they don't feel that Brucutu mine is going to be down or offline again for very long. I'll just go back to my original comments. We are installing scrubbers. So, the way to maximize the economics on the scrubbers is not [indiscernible] in a time charter, but to trade in the spot market. But having said that, $17,000 a day is right now compared to the spot, a strong rate. But as I said, because of the economics on the scrubbers, because of where we think spot rates are going to go in the second half of the year and into 2020, we think we're very well positioned. If time charter rates continue to move up and we can take advantage of the subscriber economics as well, we will certainly look at fixing, but not right now.

And just one other thing that I'll add, sorry, one other thing one the, you mentioned Vale reporting yesterday their production. For Q1, obviously, the overall headline numbers showed declines, which is to be expected. But if you dig into it a little bit more, and you look at the growth volumes from S11D, their production increased 54% Q1, 2019 versus Q1 2018. So that is still on track, which is a big positive when you kind of view through all the negative headlines. So just want to point that out as well.

Interesting. And then, yeah, I mean the earlier comments on the scrubbers for the Cape fleet, certainly appreciate it. And so, just lastly, maybe can you talk about where you expect Cape scrubber penetration to wind up in 2020 and at what level of penetration do you kind of start to worry about the market competing away some of these cost savings?

I think if you look at the numbers today, at least what's projected, it's probably 15% to 20% of the Capesize fleet. So, I don't look at that as any, I look at that as the haves and the have-nots, I guess that's probably the best way to put it. And the have-nots is going to be a significantly larger number. So I don't think it will constrain competition or push down margins in the, from the scrubber economic standpoint with only 15% to 20% of the fleet scrubber fitted.

Our next question comes from Max Yaras with Morgan Stanley.

I'd like to ask a capital allocation question, recognizing we are obviously at a very weak point in the market, because you still have a considerable cash balance. Just kind of your capital allocation strategy from here, do you keep it pretty defensive, do you maybe look at to invest that in acquisitions, what are your plans?

Look, I think it's not only the fact that we have a sizable cash position, but it's also the low leverage profile. And again, you can also tap on what we believe will be -- will be an improving market from here. As we've said before, I don't see us too interested in two or three vessel purchases right now with the exception of the fleet renewal program. We're looking for something, I would say, more transformative, because of the strength of the balance sheet right now. It's, as you well know, finding the right transaction, though, can take some time. So -- but it is a focus.

Okay. And do you think asset values today are reflective of the current weakness or the expected near-term weakness or is there still more movement down?

I don't think there's too much more movement down. We clearly haven't seen a lot of sales in the larger ships, in the Capesize. I think we've probably seen a tick down maybe of around 5% from the end of the year to where we are today, but I would also tell you that's a lot. It's fairly theoretical, because we just haven't seen a lot of -- a lot of movement. I think on the older ships, the 1990s built ships that's where you've seen certainly much more of a reversion to scrap value, whereas the newer ships, like I said, we've seen a very small movement down and I expect particularly in the newer ships that are fuel-efficient, my guess is as prices start to move up, as we get closer to IMO 2020 as well as, again, what we believe we'll see a recovery in rates towards the latter part of the year.

Okay, makes sense. And then obviously it's very early. We don't know all the details, but can you kind of explain or think about what the implications of higher tariffs from the U.S. would mean on your trade?

I don't think it directly affects the drybulk trade. I mean we know where we are with soybeans, right. So soybeans is -- U.S. soybeans to China is what is impacted. Last year, we certainly dealt with this issue, there were very little exports of U.S. soybeans. Brazil took up most of that slack, I think they went from round numbers selling maybe under a typical year with no tariffs, maybe 65% of their product for export, to almost 90% last year. We saw some -- a little bit of a positive step for U.S. soybean exports earlier this year. But I would tell you, because of the -- again the increased rhetoric, anyway, we've seen that tail off, but Brazil we still expect strong soybean exports. My guess is, at least from the USDA standpoint, slightly less by -- over last year, by maybe 5 million or 6 million tons. But what you need to really take into account is that the Argentinean corn export business is doing very well and is going to be significantly higher than last year, because last year they had a drought and this year they have a healthy crop. So, look, time will tell. We obviously -- we'd like to see the tariff issue sorted out. I think it's certainly weighing on the equities, my guess is probably not warranted, because the -- again, we're talking about -- last year we were talking about maybe 2% of the overall drybulk trade was affected by tariffs.

Got it

[Operator Instructions] Our next question comes from James Jang with the Maxim Group.

So a lot of questions have been asked. I have two follow-ups. One is the Vale incident is probably doing to lead into the second quarter. But do you anticipate that bleeding into the third quarter as well?

I don't know if I expect it bleeding in. I would say that it's going to be a slow ramp-up this year, but I do expect a ramp-up as we get into the second half, both from a, just a pure seasonal standpoint, but also a recovery in shipments from a Vale standpoint. And then as we get into next year, I expect we may not get to normalized numbers, but I expect running towards that much quicker next year.

Okay. And also like, so we know from our sources that Vale was meeting with Polaris about 2 weeks ago in Singapore. Have you heard any rumbling in the industry about possible tenders to replace the VLOCs?

No, have not heard that, though, clearly we've seen some scrapping, increased scrapping on the VLOCs that has happened this year and the Capes. I think it's interesting that we had 18 Capesize plus ships, I mean plus in terms of size, scrapped last year and we've already had 18 of those scrapped this year. So that's a positive trend. I think you're going to see more of that. But no, I can't tell you I have heard anything specifically enough on that Vale [indiscernible].

And then last question, I know you guys opportunistically look for acquisition targets. Have you looked at the Tonga tanker Capesizes? I mean, if you guys were looking, would those vessels be good quality vessels that you might consider?

I am sorry, which one?

The Tonga tanker, the Korean company that's insolvent right now, they have three Capes?

Okay. I haven't looked at those ships specifically. I would tell you, overall, our strategy of growing in the Capesize sector and the Ultramax sector and the barbell approach to our fleet composition, that hasn't changed.

Our next question comes from Liam Burke with B Riley FBR.

John, going back to the opportunistic transformative acquisition you mentioned, you also have a disciplined portfolio approach on your fleet assets. When you're talking about transformative, would that be a re-weighting of those assets or how do you look at transformative acquisitions?

I think, look, again, I think it's a matter of finding the right lever to pull, the right transaction. Going into specifics on what that may or may not look like is obviously difficult, but I think we have the, with the way the Company has been set up, we are clearly in a position of strength. I think it's important to find, to make the right move and not just, to not just, to not just jump at something, but I would tell you the overall strategy of the Company and again, this barbell approach, where we've got more steadier cash flows from the medium sized ships, but with the upside and the higher beta on the Capes, below average, the strong cash position, look, I think the Company is very well positioned.

Okay. And on scrubbers, is there any thought on the product tanker side of the fleet or is that wait and see or have you just made the commitment on just using the lower sulfur fuel?

Well, we don't have any product tankers, but on the, if you are referring to the --

I'm sorry, smaller vessels.

Yeah, no, the Ultramax and the Handysize, as it stands right now, our intention is to burn compliant fuel on that part of the fleet. Yeah, and just to put a fine point, the scrubbers that we are installing on 17 Capes that hedges about 40% to 45% of our annual fuel consumption.

Thank you. At this time there are no further questions. This concludes the Genco Shipping & Trading Limited Conference call. Thank you and have a nice day. You may now disconnect.