Companhia Siderúrgica Nacional (SID) Q2 2013 Earnings Report, Transcript and Summary

Good afternoon and thank you for waiting. Welcome to the Earnings Results Call for CSN for the results regarding the second quarter of 2013. Here with us today we have the management of the company. We would like to inform you that this event is being recorded and all participants will be in a listen-mode only during the company’s presentation right after that we’ll start our question-and-answer session when further instructions will be given. (Operator Instructions) Today’s webcast is also being simultaneously translated and broadcasted and you can have access it through CSN’s Investor Relations website at www.csn.com.br/ir wherein you will find the presentation. The slide selection will be controlled by you, there will be a replay service for this call on the website right after it finish. We’d like to inform you that due to the number of participants, the company will answer only two questions per participants with no rights to reply. Therefore, we kindly ask you that all questions are made at once as soon as the line is opened by operator. Before proceeding let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reforms Act of 1996. of 1996. Forward-looking statements are based on the beliefs and assumptions of CSN management as well as on information currently available to the Company. They involve risks, uncertainties, and assumptions because they relate to future events, and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also impact the future results of CSN and could cause results to differ materially from those expressed in such forward-looking statements. Now, I'll turn the conference over to Mr. David Salama, CSN's Executive Investor Relations Officer, who will present the Company's operating and financial highlights for the period. Please Mr. Salama you may begin your conference.

Good afternoon everyone. Thank you for participating on this call for CSN to discuss about the results of the second quarter 2013. Here with me I have other executives from the company. Let’s look forward in slide 3, where you have consolidated results for the second quarter of this year. The consolidated net revenue for the second quarter of R$4.06 has increased 11% since the first quarter due to higher revenue in the mining comparing the second quarter as well, there was an of 14%, these are higher sales volume for steel products. We have sold a record volume of 3.1 times an increase of 15% recently the first quarter of 2012. Gross profit consolidated is R$1 for the second quarter, 32% above the gross profit for the first quarter of 2013 comparing the second quarter. We were pleased at the 80% of the net income with R$502 million an increase of R$186 million the first quarter of this year. Net investment in the second quarter totaled $660 million, $287 for steel products, $147 mining, $226 logistic. Adjusted EBITDA reached 1.095, 21% above the first quarter of 2013 especially due to the contribution of steel, mining and logistics segments. Adjusted EBITDA margin was 24%, two percentage points increase from the first quarter of 2013. Now, let’s check slide number four where we’ll see the results per segment. We have here in the slides the net revenue and the adjusted EBITDA by segment and the participation of the steel segment represented 69% of the net revenue and 63% of total EBITDA for the second quarter of 2013. Mining reached 21% of net revenue and 34% of EBITDA. On slide number five, we’ll have details for steel. Let’s start with the top left corner. In the second quarter the sales volume for steel was 2% above the one on the first quarter 2013. The volume in the first quarter of 2013 when CSN has reached its record of sales from 27% were in the domestic market, 20% higher subsidiaries abroad, and 3% were audit. Still on the top part of the slide now, so our right we have the net revenue for steel that also has reached a record of R$3.2 billion with an increase of 7% vis-à-vis first quarter of 2013. The average net revenue was of R$1,944, an increase of 4%, vis-à-vis fourth quarter of this year. It’s important us to highlight about the net revenue $6.1 billion and steel for the first quarter it’s also a record. Now, in the bottom part of the slide, we will analyze the EBITDA, the adjusted EBITDA for rescue on the second quarter was over $619 million an increase of 17% vis-à-vis the first quarter of 2013 and adjusted EBITDA margin at 20% increase – 2.2 percentage points, vis-à-vis fourth quarter of 2013. In the next slide we have the same analysis for the mining sector. Let’s just start once again, the top left corner in the second quarter of sales volume for mining Namisa reached the 6 million tonnes, 45% more than the first quarter 2013 from the total 3.1 million tonnes by CSN and 2.9 million tonnes by Namisa. It’s important to highlight that the fact the sales for our customers CSN has also used 1.5 million tonnes for preventive other clients in the second quarter. It’s still on the top part to our right with the net revenue for mining in the second quarter at $984 million and expansion of 32% vis-à-vis our prior quarter that is due to larger volume, partially offset by lower prices and that we had in the fourth quarter. The average price for CNS rate were $89 in the second quarter, and in the first quarter they were at $103, it was reduction of around 40% It’s important to remember that in the second quarter, the average was $126 a drop in 15%; this will be the first quarter of this year. Now, let’s analyze the mining EBITDA in the bottom left part of the slide. In the second quarter, the EBITDA totaled almost $400 million and increase in 22% vis-à-vis fourth quarter and the adjusted EBITDA margin was up 40%. Let’s go to slide number 7, where we will see the EBITDA evolution. The EBITDA $1.1 billion in the second quarter was only 4% above the ones from the first quarter. In fact, the EBITDA higher of sold volumes few, also more sales and mining and iron ore, we had a reduction in mining prices, also there was an increase of cost mining subsidiary of volumes. Finally, we will go to slide number 8, where we will show you the net debt evolution. The net debt of R$16.9 billion at the end of the second quarter of 2013 it has increased when compared to the first quarter of 2013, our growth fact of $32 billion with a balance of $13.1 billion, the CapEx for the second quarter was $600 million, the disbursement they charge $500 million and risk on equity $400 million. And, increase on the working capital, almost $300 million both contributed through the increase on the net debt there were approximately offset by the EBITDA of R$1.1 billion, at the end of the second quarter the ratio of net debt EBITDA reached 3.9 times the EBITDA of R$4.3 billion in the last 12 months. The total of the growth fact at the end of the further was in riyals and 44% and 13% mainly in American dollars of that 90% of the deck is a long-term and 10% short-term down. That concludes my presentation, so let’s now turn to our Q&A session. Thank you.

Thank you. We will now let’s start the Q&A session for investors and analysts. (Operator Instructions) Also we would like to remind you that this is the large number of participants, the company will answer only up to two questions per participants with no rights to reply. Therefore we kindly ask you that all the questions are made at once as soon as the lines open by the operator. Our first question is from (inaudible) from Merrill Lynch.

Hello good morning everyone. Thank you for the results, I have few questions about repurchase of slab and the first half close to 170, and I want to understand and if you could give us a bit more detail as the reason why you are buying these labs from the market even after two quarters of volume slab from third-party. Second question to Martin is about steel prices in the domestic market. How do you feel the current premium, do you believe prices may go up and give us an idea about the (inaudible) considering perhaps more aggressiveness by the competitors to gain market share and what you have to say about import. So if you could give us some more details on that?

Thank you for your questions, I would like Martinez to please help me in the answers. Hello Tiago, good morning. How are you? First question about the purchase of slab. First let me highlight that in the second quarter, our DL production has already increased 8% when Mario 500 and 6000 units compared to 147 in the first quarter. And (inaudible) also had an increase in its outcome. 1205 products compared to 1089 in the first quarter. Conclusion is that our production has fixed up and as I said in the first call, we did have production issues in the first quarter that has been solved and our production is back to usual levels, we have become (inaudible) also important about slab is also related to market opportunity we are looking into that is aligned to our strategy to add values to our products and have a more diversified product mix, it is interesting to buy the slab , second important reason we have a clear built of our slab inventory and (inaudible) so that CSN is here for a better market, we believe the second half of the market we will have better demand and also in the next year. Regarding costs, so as to give you some more color to the purchase of slabs, if you’ll look at our pie chart looking at costs. We are talking about a number R$1.7 billion. Our total cost of production for this quarter is 1.7, 11% will be slabs, 190 million, approximately. Now, if you take 1772 and divide by the projection of rolled products, our cost of slabs from third parties R$1429 per ton compared to the first quarter 2013, we’ve had a drop of 7%, which shows that even purchasing slabs from third parties we’ve been able to reduce our production costs by 7% or 8%. Also, let me highlight our current cost of slabs with the ore. The price is around $450 dollar to 223 to 225 and the ore costs $400 and the CSN is already fully prepared for the competition on the market, be it in the domestic or on the international market. Also, interesting to look at the CPC which we publish quarter-on-quarter. It is the height of the purchase of slabs, it is stable. So, I believe that your question about the purchase of slabs from third parties has already been answered, at least, partially and let me say that in the third quarter, we will still have slabs we purchased in the second quarter, and I welcome you to look into market opportunities for that.

Ladies and gentlemen, please bear with us. We will soon reconnect the call. Please remain with us. You may proceed.

Okay, I’m sorry. We lost the connection, but now everything is back. So, Tiago going back to your question, I believe in terms of slabs – just going back to our last sentence. So, in the third quarter, we will still have a remainder, a carryover of slabs we purchased in the second quarter and obviously we will still be analyzing all market opportunity related to that and maybe interesting to see to add value to our slab and be able to sell more to the market at partially selected products. Your second question about the market prices, current prices and premium first thing, when you look at prices, I would say that it is a function of supply, demand, cost and the competitiveness of our supply chain. And CSN is always paying attention to these elements. Also it depends on how much each one of our clients depend on CSN of course they are more vulnerable to the variation, small or more significant. Now regarding price strategy is very clear. Our strategy has remained the same in the last three years. We focus on cost reduction much stronger now. Our cost will continue down our lead cost is around $400. We will continue to work to bring this cost even further down, the lower price of feedstock, I don't have to privilege our higher value added mix which represents 33% of our sales today. I believe we have an opportunity of getting up to 50 as we posted about two years ago and extract the most of our project portfolio which is complete compared to the market. Now, to the increase profitability, there are two things, either we generate more wealth or we reduce cost. So regarding higher margins, we will increase our margins by adding values to our mix and reducing cost. This is our strategy. So sell more, grow fast product and keeping a strong commitment with our clients in the domestic market. Today going back to your question about premium, our premium today is around, I mean, in the case of hot road product, let me refer to my number here, in case of hot road products, just a second. Say for hot road projects premium around 2%, right. If you can imagine a starting price 540 for hot road product, this is SOB and in case of (inaudible) starting price of $110 the premium would be around 7%. This is the premium we see in practice today $230, so back to your question, and providing more details. The conclusion is we will increase our profitability by improving our mix, focusing on the domestic market, and reducing costs. Regarding the market, you spoke about the competitive market. Now, what do we see on the market today. Our GDP projection for Brazil, I mean, I don’t really want to be ambitious to talk about Brazilian GDP, but it would be around 220 to 270, so 2.2 to 2.7 and the industrial GDP which matters the most to us 1.2 and 1.45. We have some bad news because the processing industry in the second quarter came down 2.5%. What does that mean? It means that the steel market is not really going and either flat to you market. Despite all that, it is still favorable for mills because then ports are down and CSN is also working towards full capacity. Now, when you look segment-by-segment, I don’t want to extend myself, but we view opportunities to improve. We are watching the sales of rebar, white steel, and cement very closely. We still have room for improvement. We’ve got things in the pipeline. The white lime had a significant growth last year. This year it will grow, of course, not 12% as last year. Automotive, despite the negative headlines of the last few days, it will grow significantly this year. Light vehicles may drop a little bit, but this is going to be offset by trucks and buses. Then, packaging and distribution, it will follow the market. So, the market in the second half well be bullish. Third-quarter will be good and the fourth quarter will also probably be very favorable. Now, regarding our current consumption, 2011, to give you an idea, train consumption was 13.8 million; 2012, 13.6 million; and this year, IABR has projected a 3% growth. We believe it’s going to be around 14 million tones approximately. Finally, regarding imports and that’s very relevant data. The bad news is that in the (inaudible) imports have grown. Today, we have more than one PSM coming to Brazil in terms of processed products or finished products. 7 million tons a year, this is the current rate of imports, which is very harmful for the country. Regarding indirect imports, as I said, in the last call, I believe the number will be around 1 million in the first half we have had a 28% already. So, basically this is the market scenario CSN today, 97% of sales and the parent company are in the domestic market, as well as higher value added has grown 26% quarter-over-quarter and we want to come to 50% today as well 43%. So, thank you very much Tiago.

Our next question comes from Marcelo Aguiar of Goldman Sachs.

Good morning everyone, thank you for this opportunity. My first question is about Namisa, Namisa’s negotiation. I would like you to tell us a little bit on how the deal is going on?

We should have a conclusion of the process in the very short-term.

Also, I have a question about your liabilities. If you analyze your balance sheet, you have liabilities close to 13.6 million and you mentioned that you were successful because you were able to reduce 6.3 million of this amount. Is that a final decision, is that came up, go back to the decisions about it, that’s what I would like to ask about this tax liability?

Thank you Marcelo for your questions, I will address both of them. First, about Namisa, what I can tell you is negotiations are ongoing. As you know, the negotiation is very complex. It involves several topics, but we have seen the development of the process and we still believe that we are going to come to an agreement in terms of new way of working in mining. And that this will give us important gains of synergies. We will have an important energy in the mining sector gathering all assets as strong cost reductions. Therefore, we still focus ourselves on other topics, and we do leave that we will conclude that very soon. About the second question, really, we did have – we were successful in May 2013, in a trial, here in São Paulo and the decision was favorable to CSN, cancelling out a notice of inspection with Namisa. So, that represents 6.3 million reals, that’s a very significant value. After that, we appealed and that is going to be judged by CAPA, but this was a success for the company so, it shows that we’ll be able to decrease all processes that have been quantified as possible in our balance sheet. And you see lot of those actions in the different areas in the federal, state and the municipal areas. Those represent 13.5, so it does have an important for us and we’re doing a close follow-up on the process and we believe that we’ll have the results.

Our next question is from Ivano Westin with Credit Susie, the floor is yours.

Good morning everyone. Thank you for the opportunity. Congratulations on your results. First question about mining, you published total volume of sales. Please let us know the output volume of CSN Namisa in the first quarter. This would be my first question. The second question is about -- I would like you to tell us about the current status of negotiations and if you have a deadline for the conclusion of these negotiations? Thank you.

I would like Daniel dos Santos our Mining Director to answer the first question, and then I’ll answer your second question.

Hello Ivano. As we always say, we show our consolidated output, Namisa, Casa de Pedra and ore purchase. This is the number we show in our report showing a significant growth back to the same levels of production. We had 6 million tones as we posted in the second quarter. This resumption is thanks to some action we implemented in the first quarter to solve operational problems we reported in the last call. Now, we have been able to pick up our previous production level and were our going through our basis of tapping opportunities the market has offered in ore purchase as I said already. As we did not have the additional capacity entering the market, small and medium-sized producers in the South and the IRN at the South. Today, they have production, which has been offered to CSN and to Namisa. That is, we have been very successful in the negotiations with them, which has helped us in our growth plans. This is also showing in the results as of this quarter. This really consolidates CSN’s position in the South that is we prevail in this market where we have this acquisition and it has also helped to use our port’s capacity and that 45 million project we announced early last year has materialized. It is a reality today. It’s been fully implemented and now we are starting operations. We started operations a month ago and we’ve been very successful in this additional capacity. So, we will be able to deliver the 43 million project coming to 5 million up to year end as we announced last year and early this year. In addition, we have been positively surprised by the Chinese markets and we can even talk about that a bit more where we’ve been able to place projects there, at a price even higher than we expected when we planned for production this quarter.

Now, answering your second question Ivano, actually, I’d rather not make comments about specific transactions. Let me only let you know and also let the market know that CSN is continuously looking at potential operations that may add value to our shareholders. As we speak, I can tell you there are no transactions or agreements already executed so that we would be publishing relevant facts or material facts in addition to what has been previously announced. Let me also reinforce our commitment. If we have a transaction, it will not compromise our current luggage and it is going to be done in a very prudent fashion. Also, serious and will immediately publish and communicate any transactions that may happen. Actually, this in compliance with our disclosure policies.

Our next question will come from Mr. Marcos Assumpção with Itau BBA. Mr. Marcos, the floor is yours. Marcos Assumpção - Itau BBA: Good morning everyone. First question is about mining. You sold in the first half of the year close to 10 million tones. I would like to understand if you are forecasting that for the year 30 million tons for export and this is the result that you have in terms of port capacity and so on? Also from the 6 million tones that you manufactured with Namisa can you break that down? How much was the production of Namisa and CSN? Thank you.

Well, Marcos I will address both questions. Yes, we manufactured 10 million tons in the first half of the year as it has been informed. Last year we are increasing our port capacity, increasing capacity in the mining, and in spite of the problems we had in the first quarter they were already overcome, and we are back to our regular condition. We do have, in the second half of the year, a major challenge of bringing in very significant figures. I would like to remind you that we have a historic record of shipping in June with over 3 million tons for export. So, that capacity is there, it exists. We do have production and shipping capacity and we do have a few opportunities that are being worked on. Those are better opportunities than we had last year. In terms of mine purchase we are keeping our guidance as to 29 million tones, because we are at a stage in which we are increasing capacity and also starting units that have been implemented. For instance, this month we have opened two new production lines in the one of Namisa’s unit, which is (inaudible). We have there the ability of producing a concentrate with 56% of iron. It is a fine concentrate and with that we can produce (inaudible) material with outsourced products as well and with that we can add. This ability of doing a blending to CSN. It’s actually due to the installations we have in Namisa and Casa de Pedra, as well as we have developed ports. In that logistics circuit of MRS. Since we do have this competitive advantage, when we bring in the line with an additional capacity for richer or better material that brings us good condition or good possibilities to purchase some third parties ore and that’s something that our competition is not able to do. So, we are able to blend the material and therefore bringing in synergy to our product. Besides that, we are still working on our expansion in Casa de Pedra, as you’ve probably have seen. We’ve been mentioning it since last year. And we expected to be able to have all production lines working in the beginning of next year, and those have also contributed to growth. But along the second half of the year we will have the benefit of some additional lines coming in, that will help us follow the guidance, the guidance we have forecasted. We are operating within the area in the mine and area that is coal, Casa de Pedra but that is a new mining hunt and then we have dedicated work to implement some project, some reclaiming projects of them, those and the person who are considered way and now those work, makes sense quite in the market. So, therefore we have advance the work being done. So, both Namisa, as well as in Casa de Pedara, we will have extra volume due to the recovery of them and that needs to be done as soon as possible.

Our next question comes from Mr Rodolfo Angele from the JP Morgan. Rodolfo, the floor is yours. Good morning. The first question. Rodolfo Angele – JP Morgan: I would like to hear for new, what is the company's view about to get your – and get to this level but it's growing up, now do you believe, it is still acceptable? is it going to fall and now following Diego's question about the market. You mentioned that the driver are a better mix and cost reduction. Now, could you be a bit more specific, I mean, do you view stable prices in the domestic market, does that mean that? These are my questions. Thank you.

Thank you Rodolfo for the questions. I am going to enter the first one, you call ask Martinez to answer your second question. But first, actually first I mean, first of all, I would like to tell you that CSN as the whole will have two big goals in the second half of this year. One, is the focus on cost, we will pay close attention to reduce cost. We have already detected some opportunities for us to have gains in terms of cost reduction, which will have a significant impact in our profitability in the next quarter, we will be very focused on these opportunities to materialize these gains. Second – secondly, we will focus on the company's leverage, we are aware, as our current in rapidness but we also believe that the company will naturally as of now, we will naturally grow our operating results and this is going to generate a very favorable impact on leverage. We keep the same goal which is to reduce the net debt at a ratio to three times because we believe this will be an interesting level for us, especially considering all the current CapEx project, we have. So, I believe that working on this two both sides, that is trying to reduce cost on the one hand and improve results on the other. This process will be gradual, however the focus is very clear for us in the company. So one more time, let me summarize, the second half of the year, our number one focus will be cost and leverage. Now, can you help me Martinez with the second question. Yeah, going back to your question, I will try and be more practical in the answer but I also want to explain for you what is going on the market. So, regarding to supply today, the market has over supply actually because we will have new players coming into the Brazilian market with new equipment, let me be more specific, (inaudible) also focusing the domestic market as a priority and furthermore, we have opened doors for imports, after they recent change in the text from 25 down to 12, that is the – supply is not a problem in Brazil today. Now they demand although we have red, some pessimistic headline, Brazil demand and it's still good and the second half of the year, we will have a strong demand because we seen a drop in imports already, a significant drop in. In the case of CSN, this drop is stronger and higher value added product that is – so I will be able to grow my market share, my domestic market share and high value added product. Now, cost today is a must for us today because there are only two possible way, if either you generate more revenue by improving your project mix and by improving your product portfolio and the other task is cost reduction. So, we will only continue to focus on cost reduction. We have seen a 7% cost reduction already and the first half. Yeah, they must actually, there can be only two possible ways, either you generate more revenue by improving your product mix and by improving your product portfolio and the other task is cost reduction. So, we will continue to focus on cost reduction, we have seen a 7% cost reduction already, in the first half and we will continue in the same length. The exchange rate 2.3 today, improvable for us to able to increase price hike little bit on the market. But the other important thing is that, we took quite some time to eliminate the direct imports of TL in Brazil. But the CSN still very careful when looking at this level of import today. It's more important to work with the better product portfolio, higher value added products, then it is for you to work on crisis because it might go wrong and import may grow again in Brazil. Also CSN is very interested in what's going on in Brazil, that is, they wants to have more competitiveness in the automotive line, wide lines, civil construction and our commitment is of course with the company but also we are committed to the growth of the country. That is we look at all of the factors. So, our scenario for the quarter is a margin improvement by reducing cost. That is, if you want me to be very straightforward, this would be my answer.

Our next question comes from (inaudible).

Good morning everyone. Thank you for this opportunity. My first question is about the long carbon steel product. Can you tell us a little bit about the agenda, the one you have that available and then domestic market. And also I would like to know, if you have regular tax rate for income tax refine and how that is going to be for the next quarter.

We believe is that, a regular tax rate for income tax for model, we will be around 20%, something that you can forecast for long term. Of course that we will have a fluctuation from one quarter to another but for a model that would be cost, model considering the long term. Now, can you help me with the long carbon steel. The product is being, you know, delayed, I mean it's delayed but I can assure you that we will have up the plant in September of this year, obviously September, October and by the - end of the year. We will be working with the improvable with the product that have to be manufactured, we do have some legal attenders to work about the rebar and we will be then consolidating all approval and by the next year, we are set to be operating at full speed with the plant of both for rebar as well as wire rod, (inaudible) because our some introduction in the Southeast now is completely at full speed. We are selling 2.4 million tons here in the Southeast. The knowledge of that we already have in the some end market. We will surely leverage ourselves for long carbon steel in the market, it's actually rebar. This project will take a long. So, that is the project they did, has good places of replacement, we are working on our extent in the market and see if, in terms that to be a very high added value product in market, we do not intend to work with margins that are lower than, the ones that we have in the market. This is going to be, a project with high added value project as well.

Our next question comes from (inaudible) from CBN investment. Pedro, the floor is yours.

Well, good morning. Congratulations on the earnings. First question is about CapEx. We want you to give us a bit more color regarding CapEx, the first quarter 2012 for 800 million, first quarter 500, second quarter 600. So, when can we expect to have a few authorizations that it will have recurrent for the company? Second question, is that leverage. How do you plan to go below three times as you are now simple discount, how do you plan to go below three times because if I do some basic math here, I find it difficult to come down to this number you have announced. That will be my two questions. Thank you.

Pedro, thank you for your questions, let's begin. I will take that. Actually you are right. We had a CapEx of about 500 million first quarter this year, the second, well 3600 million and now we are talking about 1.1 billion for the first half. Our projection for the second has and I will include maintenance there too, where we will have a total 1.9 million rough for the second half of the year. And maybe few breakdown on this. We are talking about 280 million steel including maintenance and mining 570 million, 210 million for cement. Now the trend northeastern or Transnordestina which is currently being consolidated and our numbers 800 million and then if we had other smaller projects, we are talking about 110 million approximately. So, the number amounts to 1.1 million for the second half totally something like 3 billion in 2013. Now, of course when we talk about the investment, the time to return was be in the medium and long term that is for the very nature of the company, it couldn't be any different but we can already see some results, like Daniel mentioned, we have gained a growth in our shipment capacity of the port (inaudible) also spoke about the long carbon steel products. So, this is something which has materialized and it will show in our results. This is relevant because the trend is for added to our growth, earnings growth because we are growing our revenue and also we have a relevant cost reduction. So, now going into your second question. This is going to make our leverage yet to this level of three times. We see an interesting potential in terms of generation of earnings in the next quarter. So, this profits is going to be only natural. Revenue growth, cost reduction and also leverage in the next quarter.

Our next question comes from Mr. Robert Pasadena from (inaudible) Bank. Please Mr. Robert.

Good morning everyone. I am still very optimistic about the company and your segment. My question is aligned to several other, it's about leverage. This is still topic of attention for investors. Therefore, what I believe is criteria that has reserve, is using the acquisition of (inaudible) that is my question.

Well, as I said, specifically, I would not like to comment on any transactions but I can assure that you we are committed to maintaining and looking for a leverage target. Any transaction, any analysis will carry out here, is done in a very criteria way and we take into consideration, our current investment level. So, if we put it together a structure for a possible acquisition that is going to be done in the way that we still can have our leverage target in the short and leading term.

Our next question comes from Carlos de Alba of Morgan Stanley. Hey Carlos, floor is yours. Carlos de Alba – Morgan Stanley: Thank you very much for taking my question. Listen, (inaudible) room full of people trying to understand how much was the production of iron ore, not the (inaudible) but the production of iron ore in Casa de Pedra, the production in Namisa and how much per inch in Dubai from third party during the quarter and I will really appreciated if you can answer that and also give us your guidance, as to how do you see for this year and next year business of actual production in Casa de Pedra actual production in Namisa and third party purchases for reason and purposes. That's the first question, and then the second question is, you can talk a little about how do you see the growth in iron ore volumes, the production volumes in the next few years. Have you finalized the revision of your Casa de Pedra expansion plan because you have (inaudible) for quite a long time. Thank you.

Carlos, thank you for your question. Daniel Santos can answer both of that.

Yes. About production, we saw a - announced production in a consolidated way Casa de Pedra or purchases. We keep the same guidance 29 million we already mentioned 50 or we have had some issues in the first half of the year, but they have been overcome. Now we are ready at normal operating condition and delivering our output as planned. In regards to our project, we have a few project in the – I mean some of them in the final phase of delivery that is their already contributing in production or sales this is the case of our port some project and as we announced in the last call, and also last year we provide more details when we present project by project, company by company but some of them are ongoing in 2013. They will begin to contribute with results in the second half of 2013 and 2014. One of them is the duplication of Casa de Pedra capacity which is today in a very advanced stage of construction. I believe we are now at the pick of this construction work. We have three large companies working with us there at the moment. Companies which are well known for is one of them providing support to the engineering aspect of this construction work. We have a local company build plant during the erection. We also have an erection company Kuwait which is operating the construction with us that is so that we can deliver this project to double our capacity. Now this specific project it is the most important to the company right now. It will increase Casa de Pedra capacity which is today 20 million ton and in the end of 2014, I apologize – yes in the end of 2014, it will be 40 million tons that is it will double its capacity. Our output growth as of late 2013 will help us get us to a capacity of 40 million tons by the end of 2014 only in Casa de Pedra, but (inaudible) also has a few projects in their final phase of delivery to line that have already been added to the current output. They have also helped double our concentrate production at Namisa and we also have the recovery of our done, which will now also contribute for the output. These projects will help us reach the capacity and the second stage of growth $60 million and together they will be able to use its additional capacity that will be added next year. So, today our port and they have an installed capacity, which started operation last month, but there is near over the experimenting some benefits of the new facilities to come up to pretty $5 million by year end. Now, at the end of next year, we will come to the 60 million tons, the project will be over the deep quite offense and we will be able to fill in this capacity with these projects coming from the mining segment especially the one I mentioned we’re just to double the capacity of (inaudible).

Our next question comes from Kevin (inaudible) Berkeley.

Good morning and thank you for taking the question. The first question is there’s the leverage goal of three times contemplate any potential asset sales and/or issuance of common equity. And then, my second question is if an investment grade rating strategically important to the company? Thank you.

Kevin, thank you for your questions, as I’ve said before, we are strongly focused and that focus has been happening since the beginning of the year, but we do have, we are more concentrated now on the leverage of the company, we are aware of the levels we have reached. But we also have the scenario in which we foresee from now on a natural increase of our operating results and those will bring leverage back to the standard that we consider reasonable for a company that at the peak of its investment is always good remember that we are doing really large investments. I just described around $3 billion an investments along this year, and these investments have their term, they take some time to barefoot, but we do foresee the results and the outcome and the company will be able to reduce leverage and natural ways we will be able to improve the rating and by the main risk agencies. We would like to remind you that to ask a question, you have to press the star one.

Our next question comes from (inaudible)

Yes, hi this is Investment UBS, can you hear me alright? Hello?

Grander you may proceed.

Yes, can you hear me alright?

Yes, we can hear you.

Right, I just want – so two questions for me, thank you for hosting today’s call. Just going back to the target leverage question, given the fact that you’ve got still pretty aggressive CapEx plan and given the facts that there’s a fair amount of consensus out there, who thinks the iron ore prices are going to fall over the next couple of years on account of high supply. What kind of iron ore price are you assuming when you basically give us your target leverage of three times, so that’s my first question? And, my second question relates to taxes, basically you were saying that we should model 20%, which is significantly below the average tax rate, but still obviously, can you just highlight to why we should use 20% is that because of differed tax essence going forward? Thank you.

Now, thank you for your questions. Now, regarding the tax rate of income tax, of course we consider a consolidated tax rate. So, considering also tax credit that we may obtain in time, our projections show it is the upward tax rates considering all of our operations and the current tax data’s of the group-to-date. Let me now ask to (inaudible) our mining commercial director to give us more details about long-term our renewal prices. Hello, good morning. Before I start talking about long-term our renewal prices, I’d like to talk about the short-term and then what you mentioned that is the content. And the short-term, we’ve seen price list at the 133.5 in the Chinese market list price is completely off the consensus we’ve than tracking at least in the last 12 months, I mean, the market expectation is in general, but prices should be much lower than they are actually. And, further on into the future, the Chinese output, although it is growing slower, I mean, the Chinese production is still growing very strongly as the receipt, the Chinese receipt are closer to exhaustion, they are less competitors. So, it’s – their production will not be feasible at these high levels in the long-term. So, further on, the future I believe that, yes, the market will tang forward (inaudible) perhaps a bit lower than the (inaudible) we see today. But, in general terms we expect that in the next three to five years the prices will still be close to current level, so that the drop will be much lower than what the market anticipated.

And, next question is from (inaudible) Credit Suisse Bank (inaudible)

Good afternoon, thank you for the opportunity. I would like you talk a little bit about CapEx towards the (inaudible) for the next year and your expectations for the future and the expectation for, the conclusion of (inaudible)?

Thank you for your question. You may know that now in the first half of the year we have invested around $250 million riyals (inaudible) project, if we consider all financial source system – and financing source. We as fact that the figure actually in the second half of the year is close to $750 million, so we should end the year close to R$1 billion (inaudible) projects for this year 2013. It’s important to highlight that today we are consolidating 100% of the project within our balance sheet and also 100% of the deck, you want to know that we are negotiating and you know that these are advance negotiation with the federal government where we are going to have a new model for the (inaudible) project. We are now in the stage in which we are finding documents and then soon as we conclude that we should communicate the model of those new projects (inaudible) from now on. So, you can expect a very positive impact and the balance sheet of the event. And, that is going to make feasible other founding to conclude the project. I’ll talk about relatively something very important the visibility of the return investment capital. So, that’s best very important so that you can understand, from now on we can have a structural change within CNS balance sheet regarding CNS for us to understand the project. As soon as we conclude that at the fusion stage, we are going to believe four more communication about the new project. And, if we don’t have any more questions, we would like to get this forward to Mr. David Salama, IR, for final consideration.