Good day ladies and gentlemen and welcome to the Ferroglobe third quarter conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If anyone should require operator assistance, please press star then zero on your touchtone telephone. I would now like to turn the conference over to Phillip Murnane, Ferroglobe’s CFO. You may begin.

Good morning and thank you for joining the Ferroglobe third quarter 2018 conference call. I’m going to read a brief statement and then hand the call over to Pedro Larrea, Ferroglobe’s Chief Executive Officer. 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 webpage, www.ferroglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, and adjusted diluted earnings per share, which are non-IFRS measures. Reconciliations of these non-IFRS measures to IFRS measures may be found in our most recent SEC filings. On the call today, we will review the Q3 results across our core products followed by some consolidated financial highlights. Lastly, we will provide an update on the company’s operating environment and the near term outlook. At this time, I will turn the call over to Pedro Larrea, Ferroglobe’s Chief Executive Officer.

Thank you, Phil, and good morning everyone. If we turn to Slide 4 please, the third quarter results were disappointing as the business was challenged with the confluence of softer prices and lighter volumes. There are specific drivers impacting each of these variables and we will cover them on today’s call as we review each of our product categories. Some of the factors are ones we have touched on previously which have carried over into the back of the year, while others are newer developments impacting our results in this quarter. Volumes across our product portfolio were down quarter over quarter. In addition to some seasonal impacts there were one-off factors contributing to this result. Despite the drop in volumes in the third quarter, I would highlight that volumes overall have increased by 17% during the first nine months of 2018 compared to the same period last year. The most significant driver of the Q3 results was reduced pricing, specifically average sales price for silicon metal declined 4.9% versus Q2 2018 which average sales price for silicon-based alloys and manganese-based alloys fell by 5.6% and 7.1% respectively. To provide some context, I would highlight that prices are up over 13% on average in the first nine months of 2018 compared to the same period in 2017. The net impact of weaker volumes and pricing during the quarter yields a 9.6% decline in our top line revenue. Reported and adjusted EBITDA in the quarter was $45 million with adjusted EBITDA down 48% from $86.3 million during the prior quarter. The decline in revenues led to EBITDA margin compression in the third quarter to 8.5%, a decline of 625 basis points from the prior quarter. Ferroglobe posted a quarterly net loss of $1.2 million and an adjusted net profit of approximately $0.1…

Thank you, Pedro. Focusing on Slide 16, please, as you’ve already heard, sales volumes are down to approximately 256,000 tons in the quarter and revenues are approximately $527 million. The quarter saw revenues impacted by weaker prices across all our major products and smaller volume declines. Adjusted EBITDA of $45 million is therefore well down from prior quarter with an 8.5% EBITDA margin. Although results are down from prior quarter, as Pedro highlighted, year-to-date revenues, profits, EBITDA and margins are still well above the same period in 2017. Moving to Slide 17, overall working capital increased to $443 million. This quarterly increase is primarily driven by an unexpected build in finished inventory. The growth in working capital in both the quarter and in the first nine months has had a corresponding impact on net debt and free cash flow. During the quarter two results, we announced that we had implemented various initiatives to return this working capital during the second half. With the unexpected working capital build during the third quarter, achievement of all of these initiatives has become challenging, which I will discuss in more detail later in the presentation. Although net debt has increased in the period, our balance sheet metrics remain strong. We will continue to focus on deleveraging, and although challenged by the net debt build in the quarter, are committed to the targets we announced in Q1. Next slide, please. The working capital increase in the third quarter includes a $31 million increase in working capital at the existing assets and a further $5 million increase in the recently acquired manganese plants, bringing total working capital to $443 million. The working capital build in the existing plants has been driven primarily by finished inventory builds across the majority of our plants and particularly silicon metal…

Thank you, Phil. Next slide, please. Thus far in 2018, we have witnessed an interesting evolution in our business and the global markets for our products. There were several prominent factors impacting our results, both positively and negatively, which we will need to monitor in the coming quarters. On the positive side, we have seen increasing volumes across our end markets: steel, aluminum and chemicals. In the near term, we expect this stability to continue notwithstanding the uncertainties of the global macroeconomic picture going into 2019. While the pricing environment improved in 2018, it was really a return to historical levels. As noted, we are monitoring the supply-demand balance and we keep a watchful eye on new capacity and conversions, which can impact this balance and thus impact pricing. On the other hand, we have also been challenged by a number of factors, some of which should play less of a role in the future while others will continue to impact our business for some time. On the cost side, we have witnessed cost inflation for inputs beyond graphite electrodes, which were the main topic a year ago. With the growth in the global economy, many of the inputs we use have been in high demand and as a result, the pricing for these inputs has gone up. This includes manganese ore, coal, met coke, and [indiscernible]. In 2018, we have experienced $77 million of cost increase as a result of price increases in electrode, power and coal alone. While we do not have a crystal ball indicating when exactly these costs will improve again, we do feel inputs such as manganese ore and power in Spain are poised for a price decrease next year. Other costs such as electrodes, particularly graphite electrodes, will remain high into 2019. Lastly, we…

[Operator instructions] Our first question comes from Ian Zaffino of Oppenheimer. Your line is now open.

Hi, great. Thank you very much. A couple questions here. Maybe you can give us an idea of when you think you might hit free cash flow positive. Also, the $250 million of total liquidity you mentioned, what EBITDA is that based on? Is there any type of covenant issues or anything related to that? Then also, if we do go into a protracted downturn here, how do you think about your maturities, even though they’re not until 2022? The manganese business hasn’t been doing well, so I’m wondering if maybe that could be a source of liquidity for you guys, or how you think about that, and then I have a follow-up. Thanks.

Thank you, Ian. Your second question, I’ll hand over to Phil. In terms of free cash flow positive, Q4 will be free cash flow positive - we are pretty certain about that. It’s just that we have said that the overall targets we had established for second half of the year are now considered a stretch goal. In terms of our $250 million liquidity and possible covenants in them, Phil?

In terms of liquidity, clearly as we move forward--I mean, Pedro has talked about a lot of uncertainty in terms of the results, but we certainly see that we’ll continue to be committed to delivering on those actions we announced in Q2. Liquidity will improve today and will continue to improve by that as we deliver on those cash generating initiatives. Looking forward to the 2022 bonds, there’s no major covenant restrictions in terms of the impact that lower EBITDA would have on the bond. The restrictions and the covenant are really around additional indebtedness or additional restrictions rather than a limitation upon us or increased covenants as leverage would rise. Certainly as we look forward and when I think about refinancing, the focus is clearly going to be the cash generating initiatives that we announced in Q2 and continuing to focus on cash as we roll forward. As such, our first priority is going to be continuing to deleverage the balance sheet [indiscernible] irrespective of how the market turns.

On your third question, it is clear that we have now a stable, solid balance sheet structure and that gives us, I would say, the confidence to do what is necessary to turn the business around. We certainly do trust that our manganese alloys business will turn around and will contribute positively to our financials.

Okay, so Phillip, just to be clear, that 250 is free and clear irregardless of movements in EBITDA?

As I said, yes. It’s a limitation on additional indebtedness or other payments. It’s not going to be that there would be an event of default if leverage rose.

Okay, I’m just looking at your EBITDA declining meaningfully, and as you look back 12 months, you have a very strong quarter kind of rolling off and then as we progress throughout the next 12 months, that EBITDA base on a trailing 12-month basis would be less, so I just want to make sure that I’m understanding that properly.

You are. There will be no impact there. We have a strong liquidity position, and as I said, I would expect that liquidity position to strengthen as we deliver on the cash generating initiatives.

Okay, then can you now touch upon what the price talk now is? I mean, I think we’ve been hearing 105, 110 on the silicon metal side. Is that what you’re seeing? I know you had referenced some people willing to sell at a loss. Is that the kind of prices that you’re talking about when you’re saying people are agreeing to these types of numbers and they’re going to be producing at a loss, or maybe any type of color there? Thanks.

Yes, and again let’s remind the composition of our business. You are asking specifically about silicon metal, which today represents 35 to 40% of our total business, and within silicon metals, North America is around a third of our business, so let’s say 13% of our total revenues is silicon metal North America. Silicon metal in North America, we are certainly not selling at those kinds of levels today, not even close, and we are remaining very disciplined in not getting there. We have certainly not been requested to supply at those kind of price levels at all, so that is what we are seeing right now. It is true that total--and now I’m talking both Europe and North America, our order book today for silicon metal is around 45% of what would be our expected sales for 2019, which is slightly below where it generally is at this time of the year. But again in terms of prices, we are not seeing prices that are significantly below where the indexes are today.

Okay, so basically I could then take just this past quarter, or I guess your guidance of the fourth quarter, and annualize that, and that’s sort of a run rate you would be at in ’19, given where current price talk is. Is that the right way to think about it?

I would say that would be a [indiscernible] right way of thinking for the beginning of 2019. We continue to believe that medium term as we see it today, and of course with a number of uncertainties around that factor, but medium term the supply-demand dynamics in silicon metal, still talking about just silicon metal, remain positive, so going forward I wouldn’t be surprised that there could be some price recovery in the medium term.

Okay, thank you very much. I’ll get back in queue.

Thank you, Ian.

Thank you. Our next question comes from Martin Englert of Jefferies. Your line is now open.

Hi, good morning. While some of the costs seemed to have improved sequentially across the different product lines, their prices are deteriorating faster than that, so which of these do you believe are structural versus transitory and would you expect to roll off? You called out it might some of the power costs in Spain. Maybe if you could just go down a list of some of your major costs and what you expect to be rolling off maybe in the near to medium term here, and what you can do to better contain costs and lower costs on a go-forward basis.

In terms of cost, the main items that have been affecting our costs year-over-year, we have talked extensively about electrodes. Our view is that electrode costs into 2019 will remain stable, maybe even with a slight increase, and that is more due to the time lag, so market prices in electrode are suddenly going down but given our existing orders and our existing stock, the impact on our costs is more or less stable into 2019. Coal, international coal prices are clearly going down, so that today we see as a positive going into 2019. All that refers to energy-related costs worldwide - oil, gas, coal, etc. are going down, so that should have a positive impact on our power prices in Spain, for instance. The same applies to other factors like met coke, which has had a very significant cost impact on our manganese alloys. As we sit today, I would say that the trend looks positive, but again with all the uncertainties that are inherent to these kinds of markets.

Okay. Are you able to--you gave some cost numbers as far as your year-to-date headwinds for some of these different categories. Can you just remind us what those were again, breaking down your coal and your electricity, met coke, electrodes?

Yes, in Slide 14 of the presentation, we’re saying that the total cost deterioration year-on-year is $133 million. Power in Spain in almost $24 million, electrode is almost $21 million, met coke is almost $17 million, coal is $9 million, so all those factors are in total around $70 million. I would say again that electrodes could remain at levels that are similar with the others. Today, we are seeing signs of costs going down, so those are--those should be positives going forward.

Okay. On the idle capacity here, when exactly was this silicon metal capacity curtailed there, and do you believe that the capacity curtailments are aggressive enough given the quarterly results today?

The curtailment is taking place as we speak sequentially, depending on various operational restrictions such as existing raw materials that we want to consume, or labor regulations. They are happening sequentially. We believe that the kind of capacity we will be running in 2019 is one we need for the sales we are expecting, given what we see in terms of demand, and the only thing we are doing is ensuring that that production is run in the most efficient way, assigning production to the least cost--to the lowest cost production units, and that is what we’re doing. Yes, we think the curtailments are enough with our expectations of demand as we stand today. Of course, we always say we are ready to do more if needed, but we don’t see that need as of today.

Okay, one last question, if I could. Was there some recent news, maybe today or overnight, on refinancing for the parent company, Grupo Villar Mir?

I have seen that there is an announcement out there. I don’t know more details than what the announcement is saying, so I don’t have further information.

Okay, thanks for the time.

Thank you.

Thank you. Our next question comes from Vincent Anderson of Stifel. Your line is now open.

Thank you. When you look at the potential to switch silicon metal to ferroalloys and the margins holding up pretty well there, is there any discussion internally about maybe running that business more to maximize cash flow in the near term, rather than hitting a return requirement, particularly just given that you have this curtailed capacity sitting on hand?

We are certainly looking into Q4. We are certainly very focused on generating cash flow, and when we have higher than required inventories, the cost of producing those inventories is already incurred, so we are looking at following demand in the different product categories. We are seeing strong demand for manganese alloys, and we think that when you look at Q3 plus Q4, you will see that volumes are at expected levels and the issue of course right now is margins, but we will certainly be looking at generating cash through depleting inventory levels. On the silicon alloys in general, it’s not only ferrosilicon but also the other silicon alloys, particularly foundry products. We are running at full capacity and we are selling what we produce, so in that regard both in terms of cash flow generation and in terms of financial results, we think we’re doing what we need to do. On silicon metal, as I just explained, we are adapting our production capacity of course to where we see our demand and our sales.

Great, thanks. I know you can’t comment on Grupo Villar Mir’s refinancing, but it is public knowledge that their balance sheet is certainly in better shape. Given where shares of GSM are trading now - I mean, pennies on the replacement value of your assets, what is the motivation for Grupo Villar Mir keeping Ferroglobe a public company right now?

That is something I cannot answer. We are a public company, we’re a traded company. That is what we are today, and of course we are devoted to all our investors as a company.

All right, fair enough. Just turning back to manganese alloys briefly, I’m just trying to work out the math on the changes in the total capacity. You’re running at somewhere just south of 400,000 tons per year. The slide deck shows 552,000 tons of capacity. I know that number changes depending on the product mix, but is that really an optimized utilization rate for those assets if we’re going to stay at around 400,000 tons on 550 of capacity, or are you basically just anticipating enough of a recovery in margin that you don’t want to curtail too aggressively at this point?

A couple of answers to that one is that as of today, what we’re looking is at curtailing capacity only in Q4, and we will see how things develop into Q1 and farther. There are some signs of a recovery in margins there, and as I was saying in terms of demand and volumes, we see strength, so that’s the first. The second is a technicality that I have explained sometimes, which is that the nominal capacity, so if we look at total nominal capacity of 664,000 in Slide 28, there is an actual real capacity which is significantly lower than that due to price--power price arrangements mainly in Spain, so we have always said that our natural maximum production capacity is somewhere between 500,000 and 550,000 tons in total. That is the maximum even with no curtailments, and again because of technicalities in terms of how our power contracts are arranged in Spain.

Okay, very helpful, thank you. I’ll give somebody else a turn.

Thank you, Vincent.

Thank you. Our next question comes from Sarkis Sherbetchyan of B. Riley FBR. Your line is now open.

Yes, thank you. Looking at the EBITDA reconciliation table, it seems like the bulk of the deterioration was from the manganese alloys business. It sounded like from your comments, you expect that business to eventually normalize. Can you just give us the puts and takes on what normalization means relative to the ore capacity that’s going to come online and what you expect prices should be doing in light of your actions to cut manganese production?

Well, the actions to cut manganese production of course is more for us to adapt to actual sales and to deplete inventory levels, so I cannot comment on that from any other point of view. But I mentioned during the presentation that this is a business that--and you can look at the numbers that we are disclosing, this is a business that should be running at around $600 million revenue per year, and this is a business that over the 25 years we have been in it has been getting margins that are similar to other products. One could say a normal EBITDA margin in this business is around 15%, and just being cautious we say between 10 to 15%, so the maths are relatively simple in terms of what is a normalized level of EBITDA from this product, which is again between $60 million and $90 million, is something that should be normal. Apart from the spreads and the manganese ore prices, what has been hitting significantly this business during 2018 is both met coke and power prices that we have also--power prices in Spain that we have also mentioned and disclosed in that same page, so all of those are factors that need to return to normal levels.

Understood. With respect to the silicon metal production curtailment, if we look at the first nine months of the year, maybe there is some aberration on the EBITDA level generated, but given where you expect to take capacity for silicon metal specifically, what would you maybe call the new EBITDA generation of that business with that production cut?

We don’t give specific guidance of course in terms of what is EBITDA level. If you look at Q3 silicon metal business margin, the EBITDA margin is around 15% almost. That is something again that is not exceptional in this business. Now in terms of the curtailments we have announced, will that have a very significant impact on our sales volumes? I don’t think it will. If we think about depleting stocks and our flexibility to ramp up production if we need, we could be selling as much volume as we are selling in 2018 if the demand is there. I would say we are just taking a cautious stance and making sure that we are not over-producing in 2019, but the flexibility is there to produce farther if needed.

Got it. Bringing everything home with regards to the curtailment and the fact that you guys have built up quite a bit of working capital, you did talk about the cash flow levers that you’d like to pull. How much cash can you harvest from working capital, say over the next year?

I think most--and I’ll turn to Phil, most of the working capital we hope to harvest, as you say, in Q4 and then beginning of 2019, but it maybe just converge to normalize levels. Phil, additional color on that?

I would say if you look at the level of capital that was built above what we would expect in the recently acquired manganese plants, at the moment that sits $35 million above normalized levels. We’ve built $68 million in finished inventory in the remaining plants, so there’s $100 million there that is above where we would expect, and as you turn up or turn down different plants, clearly there’s a level of inventory that sits in each facility, so if you chose to turn down a plant, then clearly some of that working capital associated with that plant would also come back. There are significant levers there for us to pull in terms of rationalizing.

All right, thank you. That’s all for me.

Thank you. Ladies and gentlemen, this does conclude our question and answer session. I would now like to turn the call back over to Pedro Larrea for any closing remarks.

Thank you. This concludes our Q3 earnings call. Thanks again for your participation. We look forward to hearing from you on the next call and on meetings we may be having with many of you. Have a great day.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect.