Good morning ladies and gentlemen and welcome to Ferroglobe’s second quarter 2022 earnings 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. As a reminder, this conference call is being recorded. I would now like to turn the call over to Gaurav Mehta, Ferroglobe’s President of North America, and Executive Vice President of Corporate Strategies, Technology and Investor Relations. You may begin.

Good morning everyone and thank you for joining Ferroglobe’s second quarter 2022 conference call. Joining me today are Marco Levi, our Chief Executive Officer, Beatriz Garcia-Cos, our Chief Financial Officer, and Benoist Ollivier, our Chief Technology and Innovation Officer. 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 those forward-looking statements can be found in Ferroglobe’s most recent SEC filings and exhibits to those filings, which are available on our webpage, www.ferroglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, adjusted gross debt, net debt, 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 like to turn the call over to our CEO, Marco Levi. Slide 4, please.

Good morning or good afternoon everyone. Today I’m really thrilled to present our second quarter results, which set a new company record in terms of our quarterly revenues, adjusted EBITDA, margins, profitability, and net debt level. In fact, the second quarter marks the sixth consecutive quarter dating back to Q4 2020 where we have consistently improved our performance in areas such as sales and adjusted EBITDA. Please keep in mind that adjusted EBITDA was negative in 2019 when this management team took over. I am extremely proud that we have been able to deliver adjusted EBITDA improvement in nine out of the last 10 quarters despite challenges posed by COVID, the energy crisis, and most recently the Russia-Ukraine conflict. These stellar quarterly results are a reflection of the strong performance across our portfolio of products coupled with the ongoing focus on cost rate actions, improved operational flexibility, and quicker response to capitalize on market opportunities. We have been pretty clear on our priorities and I am pleased that we are delivering on all fronts. In fact, we are excited to be over-delivering in some areas; for example, we continue to uncover new pockets of value. During our investor day a few weeks back, we announced our revised target of $225 million of run rate EBITDA benefit from the various transformation areas. Specific to the second quarter, our revenues increased 18% to $841 million and we achieved adjusted EBITDA of $303 million, an increase of 26% over the prior quarter. Our adjusted EBITDA margin further improved by 234 basis points to 36%, and our earnings per share on a fully diluted basis was positive $0.98, a 23% increase over $0.80 per diluted share we delivered last quarter. Moreover, we continue to improve our cash generation. As a result, our net debt…

Thank you Marco and good morning and good afternoon all.

I think I can talk. Can you hear me?

Yes, please go ahead, Beatriz.

Yes, okay. Thank you very much. I solved the connection.

You can go, Beatriz.

Thank you Marco, and good morning or good afternoon all. Please turn to the income statement on Slide 9. During the quarter, our top line grew by 80% to a record $841 million, driven by strong revenue across all our product categories. Silicon metal and manganese based alloys experienced volume growth over the first quarter while stronger pricing in silicon based and manganese based alloys contributed to higher revenues. Cost management has been a priority, and during the quarter we continued to drive cost improvement despite high inflationary pressures and higher energy costs in Spain. As a result, our cost of sales improved to 44% from 48% in Q1. Operationally, the plants ran well through the quarter with minimal disruptions. Keep in mind that we are constantly re-prioritizing our capital spend this year, and so far this appears to be working quite well. After reporting record adjusted EBITDA margins of 33.7% in Q1, our Q2 adjusted EBITDA margins improved further to 36.1%, up 234 basis points over the prior record quarter. Our diluted earnings per share increased to $0.98 in Q2, up 33% over the $0.80 reported in Q1. Next slide, please. Our adjusted EBITDA increased by $62 million during the quarter to $303 million. The largest driver of this was the growth in volumes contributing approximately $50 million and to a lesser extent the improvement in pricing in some product areas which contributed $13.4 million. On the cost side, we faced inflationary pressures across a number of key inputs such as electrodes, [indiscernible] and coal. That said, we were able to offset most of these increases with the positive energy adjustment in France, which net back approximately $13 million in Q2. As mentioned earlier, we will continue to benefit from this contract through the second half of 2022. During…

Thank you Beatriz. Now turning to Slide 16, please. As you have just heard, there is a lot to be excited about us. You see the trajectory of our financial performance. Beyond the record results, we have also made some tremendous advancements in other areas, some of which I would like to highlight. During our recent investor day, we stressed the significance of our transformation plan in terms of the value creation, but also with regards to the capabilities we are developing. As we have now passed the 18 month mark in the execution phase of this plan, we are advancing at a faster pace than anticipated but more importantly, we are identifying new pockets of value throughout the organization. As a result, we revised our run rate target to $225 million, up from the initial target of $180 million by 2024. We have also discussed our inaugural ESG report on recent calls, and I am proud to announce that report has been published last month. If you have not already seen it, please visit our corporate website and look under Sustainability for the full report. Ferroglobe is 100% committee to ESG and this is an important milestone in the journey for our company. I would like to thank our organization for their dedication in this critical area and continued hard work as we transition from the planning to execution phase to reach our targets. On the product innovation side, we are moving forward each day, recognizing the criticality of silicon metals for energy transition. We recently announced the milestone of industrial production of up to 99.995% purity silicon at our plant in Montricher. The nominal capacity is 1,500 tons per year. This is based on a proprietary technology which is very cost effective and environmentally friendly as it doesn’t…

[Operator instructions] Your first question today comes from Martin Englert from Seaport Research Partners. Please go ahead, your line is open.

Hello, good afternoon everyone.

Hi Martin.

Hello. Can you provide any update regarding power contracts in Spain, and then for France as well into next year? Will France continue to benefit from the government program in 2023 as it is in second half?

Okay, let me start from France and then our new COO, Benjamin Crespy, probably can elaborate a little bit more. As you know, Martin, we have a contract in France on energy that runs through 2022. In this contract, there are two components, one is fixed and the other one is a variable market component. What happened is at the end of May 2022, the French government decided to increase the fixed part, called RN, from 100 to 120 terawatts for 2022 in order to reduce exposure to the spot market for residential and high energy intensive industries. As a result, we have received €29.5 million benefit in France, like mentioned in my report. Post 2022, we have entered in a new two-year contract with the local supplier based on the same two components. This contract will allow us to leverage our flexibility, minimize our exposure to spot markets, and give some visibility on the evolving energy costs. I have to underline that today, the relative weighting for 2023 - 2025 between fixed and variable has not been finalized yet. Benjamin, anything else you want to add on that?

I think you covered it pretty well, Marco.

Okay. Martin, are you satisfied about France?

Yes, so it sounds like there is going to be a renewed contract in place post 2022, no visibility if the government is going to extend or how those relative weightings between fixed and variable will shake out just yet. Is that correct?

Correct.

Got it, and how are things progressing in Spain?

Yes, in Spain it’s a little bit more complicated, not that France is easy. In Spain, first of all, I mentioned that we had a lower cost of energy in the second quarter - this is why we ran our assets at Spain at a decent rate in the second quarter. We had a cost of $209 per megawatt hour versus $252 in the first quarter. What happened in the second quarter is also the Spanish government took some measures to cap the gas price between €40 and €50 level, but these measures have not been effective, meaning that they have slightly reduced our cost of energy but the cost of energy yesterday was above €300 per megawatt in Spain, and this tells me that the measures that have been taken have not been effective. We are still working hard on having PPAs in place as of January 2023. We have term sheets on the table which are under negotiation, but we have not finalized any negotiation yet for PPA payment.

Okay, thank you for all the detail on that. Maybe taking a step back and looking across the cost per ton on the segments here, just what are the expectations for sequential changes to the degree that you have visibility in 3Q versus 2Q?

Yes, you are right - to the degree of visibility. I would say alloys will stay flat quarter over quarter, both manganese and silicon-based alloys overall, while silicon will have a cost increase between 3% and 5%.

Thank you for that detail there. Given spot prices have been declining somewhat across the metals basket, there is some partial delay given the lagging contracts, but any updated thoughts on the ASPs across the businesses Q-on-Q here into 3Q?

Yes, of course. It is true that the pricing overall is coming down across the portfolio, but I have to say that it’s going down at a much slower pace than what we expected, I would say all across our portfolio, also because we were coming from extraordinary price levels at the end of 2021. Being specific by product, if you look at silicon metal, the market today is very liquid, especially in North America but the index is holding in the U.S., while in Europe the prices have started eroding but then I would say they have sort of stabilized. In China, which is always a reference, yesterday we got the news that prices were going substantially up due to some lack of capacity in some of the Chinese regions, so I will say volatility is the rule of the game but we are still counting in silicon prices which are profitable. Switching to ferro silicon, or silicon alloys, during the quarter prices increased mainly due to the impact of the Russia-Ukraine conflict. I must say that we didn’t see too much of an effect in the U.S. We expected some shortage of ferro silicon in the U.S. from Russia that has not occurred in Q2. Price overall in Europe is under pressure mainly due to increased Chinese exports. Due to the slowdown in China, we have seen all cross the portfolio an increase of exported Chinese products. Concerning manganese alloys, there have been two key factors on pricing: one, of course, the war, we’ve reduced exports outside of Ukraine; but then the market has become very attractive during the quarter for the Indian producers, who have penetrated the European market at a level that has never been seen before with a negative impact, a substantial negative impact on pricing. At the same time, the cost is going down because manganese ore is significantly going down.

Okay, so some modest headwinds, I think that weren’t wholly unexpected given how high some of the prices were, but there is still a substantial book of business that was based on 2Q lagging index spot prices that will kind of carry over into the 3Q order book--

Yes, I forgot to underline this, but this is well known that we have these index prices, so whatever you see for Q2 gets applied in Q3.

Okay, that’s very helpful, thank you. Maybe one last one, if I could, on working capital, which has been managed well within the targets, but looking at 3Q and just more broadly over the back half of the year, do you anticipate a release? What could you say about the potential magnitude of a capital release here?

Yes, we expect a release of working capital in Q3 which is going to be a key contributor to our estimated positive cash flow in Q3.

Okay, thank you for all that, and congratulations on navigating the environment, the good results, and progress in de-risking the balance sheet.

Thank you Martin.

Thank you. We will now go to our next question. Please stand by. Your next question comes from the line of Brian DiRubbio from Baird. Please go ahead, your line is open.

Good afternoon Marco and Beatriz.

Good afternoon Brian.

Two questions for you. First Beatriz, on the goal of reducing debt to $200 million gross, obviously the second lien notes are callable today but at a high price, so my question is what is your sense of timing on achieving that goal?

Yes, I think this quarter, we have been starting working towards this goal, Brian, so we did a couple of things. First, we reduced--we repurchased [indiscernible] $90 million of the senior notes, and on the other side we, as a subsequent event, we repurchased or redeemed the full super senior, right, so you will see the impact not--you have not been seeing the impact in Q2 but you will see that, you will see the impact in Q3. It’s true that there is a journey to get there from the $500 million to the $200 million, and what we plan to do is to do two things. On one side, we’re going to be continuously watching what we can do in terms of repurchase senior notes, the 9.375%, on one side, we are along to do that; and on the other side, you saw that our credit rating has been upgraded lately in June and then in August for our senior notes, so we are exploring opportunities, what is the best moment for us to tap into the debt markets. It all depends on what will be the debt market opportunities, but this is a very, very important target for us, the reduction of the gross debt.

Understood, that’s helpful. Then I don’t think you’ve ever disclosed this but, given some of the concerns just regarding European manufacturing costs, and understand you’re getting some relief on the energy side, but can you either qualitatively or quantitatively split or provide a split between the profitability from North America versus Europe?

Yes, you want to take that one, Marco?

Well, we do not look at the business in this way and we do not report data split by geography.

Understood. Appreciate the color, thank you.

Thank you.

Thank you.

Thank you. Once again, if you would like to ask a question, please star one-one on your telephone keypad. We will now take your next question, and your next question comes from the line of Thomas Murphy, Odeon Capital Group. Please go ahead, your line is open.

Thank you. My question was asked by Brian and was answered, so it was around the timing of getting to that $200 million gross debt number. As I say, that’s been answered, so thank you.

Thank you anyway, Thomas.

Great quarter, by the way. Great quarter.

Thank you.

Thank you. We will now take our next question, and the question comes from Gregory Bennett - apologies - from MS. If you’d just bear with me one second, your line will be open shortly. Gregory, you are now open.

Good afternoon. I’m new to your company but I’ve listened to your investor presentation. The reserve life, you had exponential growth for the use of silicon, and I think that was reflected in the United States and Spain, but how long of a reserve life do you have? Are you going to need to acquire additional reserves in the future?

This is an excellent question. You refer to quartz reserves. We have very good reserves in Spain. We have very healthy reserves in South Africa. We are looking for new reserves in North America.

Are there assets for sale, or is this something that you would do a greenfield site?

We are exploring both options.

Okay. You mentioned in your investor day and I think the previous call about South Africa and about possibly bringing that online, but that you wanted long term contracts or commitments. I don’t think you said anything about it today. What’s the status of that today?

Well, I will keep the surprise for the next quarter - no. The [indiscernible] is the following. The project is proceeding, like we have to start up the plants. At this stage, we keep our commitment to go to the board at the end of September with our recommendation to re-start the plant in terms of timing and amount of furnaces that we are going to re-start.

Okay. NOLs, your net loss carry-forward, it said something in your slide that you were limited.

Yes.

Is the NOL in Europe or is it in the United States or both, and how much of an NOL do you have to use going forward for building cash?

Yes, I’ll pass this question to Beatriz.

Yes, thank you Marco. It’s true that we have a good stock of NOLs. The main ones are in France and in Spain, and we have a negligible amount to be used in the U.S. in this asset. To your question, of course there is certain limitations on the application of the NOLs in terms of timing and quantum, but we feel confident that we can use the most of them.

And you would use those--is that something that you project might be used over the next five years, or 10 years?

Over the next two years.

Over the next two years, you would exhaust all the NOLs?

Right, and the bulk would be in 2022.

Okay. For your debt reduction, is it prohibitive for you to call these in? I guess what’s the trigger for the board calling in the 9 3/8ths versus open--you can’t do open market purchases because the market’s rallied and the bonds?

It is very difficult to hear you, but I will try to answer. We have two tranches of bonds, the super senior that we just recently repurchased, right, and the reason why we did that is because we have the option to buy at par before October 2022. The 9.375% that is the second--the other tranche of bonds, it goes with a call option, but we have the possibility to do open repurchases in the--sorry, to repurchase in the open market to a certain limit of the total quantum of debt, and this is what we have been doing and we will continue to do, and to watch depending of course on the cash level and on the pricing, if this answers your question.

Yes, thank you. The legislation that President Biden is going to sign, I think today, and there’s parts in there, I think when you mentioned your transaction to solar, can you describe how that may benefit you, or does this benefit your end user to stimulate more demand for more silicon in the United States?

Sorry, your question was around the new legislation?

Yes.

We certainly feel that it would be helpful, and just to echo some of what Marco was alluding to towards the end of the presentation, there is a number of different initiatives, I think in various stages, and I think a lot of it does center around the mega trends that we’ve been highlighting around energy transition, which is obviously solar, a lot of the work that may help ultimately with EV mobility and then flows back into the work we’re doing in batteries. In general, we think a lot of this legislation is promising for our customer base and end markets.

Okay, thank you very much. Thank you for patience in taking my questions.

Thank you.

We’ll take one more participant, please.

Thank you. We will now take our final question. Please stand by. Your final question comes from the line of Michael Lam from Jemekk Capital Management. Please go ahead, your line is open.

Yes, good morning. There’s a company that I’ve been following very recently, called Enovix, which is developing very high percentage silicon content anodes for lithium ion batteries. The company has generated a tremendous amount of excitement because they’ve launched initial commercial products, mostly on smart watches. Is that a customer of yourself in terms of your technology SiMe products, and--it relates to the second question, is I don’t know of anybody else besides your company, given that you are the largest by far outside of China that is actually developing these type of technology SiMe, so it’s a two part question. Are they a customer, and B, who else is doing what you’re trying to do on the technology side?

Benoist, this is your territory. You want to take this one?

Yes, so yes, we know Enovix, and Enovix is using a silicon channel but using crystal aggressively oriented silicon, so they are using mono crystals of solar grade silicon. We are not supplying them [indiscernible] with them. This being said, the emergence of Enovix is just reflective of the increased importance of silicon into the anodic world of lithium ion batteries, and we see an emerging--an increasing trend in demand for silicon in the battery, so we are pretty confident that silicon will play a very, very important role as an anodic material in the battery world. To answer your second question, there’s a lot of companies actually trying to put silicon units in either as a blend in the anode or even working on silicon-rich anodes. I could give a long list of names. We are supplying some of them and we are collaborating with others, but clearly the usage of silicon in the anodes, either as silicon carbon composite or silicon re-channel, is booming and is due to boom.

Then the same question would be is there any other silicon metal materials companies like yourselves that are supplying this type of silicon? How is your competition in this kind of high technology area of silicon metal?

There’s rather a limited number of companies able to deliver high purity micronic silicon like we’re doing, so what we see--and this limited number will also be restricted by trends we see in the market of on-shoring the silicon supply in the big markets outside China, which are the U.S. and Europe. Our geographical footprint is clearly a massive advantage, our low carbon footprint is also a massive advantage.

Okay, thanks for that.

Thank you. I will hand the call back to Marco for final comments.

Thank you Sharon. That concludes our second quarter earnings call. Once again, we are excited about the record quarterly results we have reported today. We have a company that is in its best condition since its formation, and we have exciting prospects for the future. Our goal is to continue to build on this success. We remain focused on growing our profitability and generating cash to help meet our goals. Thanks again for your participation and support.

Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.