Good afternoon and thank you for holding. At this time, we would like to welcome everyone to CSN's Conference Call to present Results for the Second Quarter ‘20. Today, we have with us the company's executive officers. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company presentation. And following this, we will go on to the question and answer section. [Operator Instructions] We have a simultaneous webcast that may be accessed through the CSN's Investor Relation website at ir.csn.com.br where the presentation is also available. The replay will be available for one week. Now, once again, you can look at the presentation at your own convenience. Before proceeding, we would like to state that some of the statements herein are near expectations or trends that are based on the current assumptions and opinions of the company management. They are future events, performance and events that may differ materially from those expressed herein. And in fact, actual results, performance or events may differ materially from those expressed or implied by forward-looking statements as a result of several factors, such as general and economic conditions in Brazil and other countries, interest rate and exchange rate level, future rescheduling or prepayment of debt denominated in foreign currencies, protectionist measures in the U.S., Brazil and other countries, and general competitive factors as global, regional or national basis. We would now like to turn the conference over to Mr. Marcelo Cunha Ribeiro, Investors Relations Executive Officer, who will present the company's operating and financial highlights for the period. Mr. Ribeiro, you have the floor. You may proceed, sir.

A good day to all of you, and thank you for participating in our earnings release presentation for the second quarter ’20. Before beginning, due to the logistics difficulties caused by the pandemic, our speakers will have myself and Luis Martinez, our Executive Commercial Director. Now, before we speak about the highlights of the period, I would like to highlight that, we continue within the context of the pandemic. And I would like to take advantage of this earnings call to update the market on the impacts of the pandemic on the company. And making an analogy, where our executive officers have obtained positive results during this very turbulent period. We have the good fortune of having a very limited number of cases within our operating areas, in the mines, or at the port, or even at our administrative offices. And all of this, thanks to the protocols and the very stringent procedures that has been followed not only by the leadership, but by our entire labor force, making it possible not to impact operations, we have not had any interruptions. And of course, we do have higher ups in key run rate. A few impacts on procedures but without an impact on results, all of this thanks to the management and cooperation. During the period, we were also able to comply with all of the requests of health authorities, the Labor Ministry, the Health Ministry, adjusting our operations. And we do believe that the worst is over, is behind us. And going forward, we think that we have a very low risk that this will continue to cause a problem for our business. We’ll go on to the highlights for the period. We are on page two of the presentation. The first highlight was a good operational result measured…

We will now go on to the question and answer session for investors and analysts. [Operator Instructions] Our first question comes from Thiago from Bradesco BBI.

Hey, good day to all of you and thank you. I have two questions, the first referring to volumes in mining for the coming quarters. How is this evolution going to work? And of course, you have that issue of authorization. And we still think this will have a strong impact on production during the year. Now to work with 35 million tons if this is feasible for this year? The second question refers to the liquidity events and capital allocation. Considering you have been able to renegotiate with the bank and you're generating cash, should we expect further prepayments, higher sales in mining, or are you somewhat calmer at present. And so you now have a positive accounting balance, which means that you are calmer when it comes to your balance in general. And, well this question leads to capital allocation. What is it that we should expect in mining or eventually in a new line downstream during this period of the pandemic? What is it that you're thinking about for this period? Thank you.

Ladies and gentlemen, please hold while our speaker reconnects. Thank you. Once again, Marcelo Ribeiro has been able to reconnect. Marcelo, would you like me to repeat the questions now? The first refers to mining volumes and secondly, the liquidity events. And I complimented the second question was capital allocation. This trend for improvement in your balance leads you to think about why in terms of capital allocation well they'll be done in mining or any new line, galvanized products as part of the steel mills.

Very well. Thank you for the questions Thiago. In mining, as I mentioned, our guidance is 35 -- R$33 million to R$35 million. And we have been able to purchase from third parties in a very successful way. Purchasing higher volume, these are the loss shares. And as I mentioned, we have those opportunity of shipments. Now the margins are still very good, which leads us to think that we can be optimistic in terms of this range within the figures that we mentioned Thiago. Regarding the liquidity event, we’ve not put aside our goal of being below R$23 billion for the coming year, for 2021. And as I mentioned during the presentation, this is set with the assets, with the opening of capital and subsidiaries or maybe both. We continue to work on this. We're going to have perhaps survey ideal for mining as we have already remarked on, I think the moment is favorable. We have good liquidity globally. And we're undergoing an analysis at this point. The sale of the subsidiary in Germany continues to be a possibility. We came to a standstill because of what pandemic, but this is still part of our game. And there are other possibilities as streaming in iron ore [indiscernible]. Of course, these assets were already part of our plans. And we will use this to reduce our indebtedness to respond to the second part of your question. All of this will be geared to investment seeking opportunities for growth opportunities that are attractive. And the most important is an extension of mining. As mentioned previously, the project of the plant of 10 plus 5 million is preceding full steam. And in the month of May, we obtained a prior license from a tender, very interesting, and we're speeding up with the detailed part of engineering. And we're going to begin in the coming year. We have $500 million that will be an investment for this. And we also have investments in steel mills and investments of capacity and revamping. And at this point in time, without truly expanding the projection, of course, the galvanized project is very interesting, but we have to be cautious because of what is happening with the automotive industry globally and of course, dividends with minimum mandatory dividends paid off. We will continue on the 25% of our net revenues.

Marcelo, if you allow me to go back a bit, which are the liquidity events that have greater probability that’s still happening this year? As the capital market is quite receptive, you have had an improvement. In mining, the situation is favorable. So, which will be the ones with the greatest probability of happening in the short-term and in second semester basically? Which are the ones that you are focusing on mainly?

So, the work that we're working on actively at present, profitability is a crystal ball, of course. But we're actively working on the possibility of holding an ideal for mining. And we're also working on negotiating the service of some of our assets. These are the asset, the projects that are underway presently. And the profitability is happening, as I said before, is somewhat binary. I really can't say more than this. These projects are well advanced. They have profitability. They're not remote profitability.

Very well. Thank you, thank you very much, Marcelo.

Our next question comes from Daniel Sasson from Itau BBA.

Hey, good day to all of you and thank you for taking my questions. Another question Marcelo, which is into the cash generation, I had a slight difficulty in understanding the R$1.4 million for cash generation, especially because of the impact you have mentioned in the exchange variation. In the previous quarter, you had a problem with I don't know, something that was very obvious. Now perhaps, you couldn't help us to continue to sum up and what it is most impacted this cash generation during the quarter? And second question to Martinez, who still have not spoken up this quarter. Martinez, if you could explain that surprising performance for the steel price in the domestic market. What is it that underlies all of this, is it distribution? I know that you made some attempts in June and the quality, the COVID products, if you could share with us your expertise and your forecast for prices going forward? Thank you.

Well, regarding the evolution of net debt, we have a bridge that explains stage by stage of this variation reaching 31, that R$1.4 billion and is being offset by 1.48 as exchange variation. And that is why we have that slight increase. Now, the only thing that has not been included in these two concepts is the prepayment we advanced by Glencore, we had an increase of R$68 million. Now, why do we exclude this? Because we just announced another one of R$600 million, and we have a line of others, which is the only thing with a difficulty of conciliating a R$100 million. Part of this R$16 million refers to our contribution to the Transnordestina work, which is something non-recurrent. It's the end of our commitment. We had done at the beginning of the work. The rest we have conciliated very well, through explanatory notes in the release. You should look carefully at the footnotes referring to our cash flow. Once again, should you have any doubt we are at your disposal to clarify your doubts? I now give the floor to Martinez.

Good morning, Daniel, thank you for your question. And I have to be intellectually honest, to be able to respond to your question and to respect the report done by analysts, and to respond to your question with the necessary detail about the CSN performance. Marcello has already told you some of this, but I will give you other details to solidify what we're doing going forward. Our net revenue with all of this turbulence in the market and the world dropped only 2.8%. We maintain a level of R$3.5 billion for the quarter. Another aspect, which is very important and we see the importance of having price, the price is the best asset a company has. We have a price of 330, 10% and is highly challenging and unfavorable situation. You have to be more than resilient you have to be tenacious not to go bankrupt. And in the second quarter Daniel, although there was a drop of 20%, we had a profit of 12% for the entire semester, which is something positive in my opinion. Now this will go into greater details of what we did. I think perhaps, we never had such a mix of added value. We got 33% of our sale of flat steel. And if you add this 750,000 tons of flat steel, 400,000 tons of coated material and that’s a 400,000 a 100,000 or 110,000 tons were sold in the United States with a local premium, so it helped us a great deal because of the dollar and the U.S. prices. Another very important price is that of the template which helped us to give thrust to our results. The prices at present are R$5500 per ton, and that got to a volume of a 100,750, sold 400,000 and then the templates. So,…

Thank you, Martinez. To make sure that I have understood about prices of our domestic market, in distribution, the prices are 7% higher than they were in the first quarter. And do you foresee the possibility of further increases?

The increase was 10% in July Daniel, for distribution. On September 1st, we're going to have a new price increase for distribution and depending on the product, this will vary between 10% to 12.5%. This is a new increase as of July, has been fully put in place. For you to understand is better in terms of premium. If you think about in BQ and there are two accounts that I will share with you, one on the table and what is happening in China. China has even bought slabs from Brazil and the BQ reach $500 in China. Let's imagine that the variation of BQ is $470 in China to $500 with a fixed exchange rate and a price domestically of $2800. Without that 10% increase, that premium will be from 8% to 12%. And the September price increase is more than rational when it is applied. And there is a favorable demand supply ratio. The plants are working at levels of 758,000 tons. There is no surplus in terms of surplus and demand. And we should have a normal export and the dollar at the level that this will allow for stronger exports. Therefore, the scenario for a price correction is surely favorable for September. I don't know if this has remained clear. Once again, the pricing risk in July has already been implemented and it is not in our price release, Daniel.

Our next question is coming from Mr. Carlos de Alba with Morgan Stanley. You may proceed.

Yes, hello and good morning. Thank you very much. My first question is, maybe coming back to your capital payment. What about $204 million of change in working capital absorb the cash flow operations in the quarter in the Portuguese or Russian? Is it attributed to EBITDA and fees? So I wonder if you can explain a little bit more what that is given that $204 million of cash which you mentioned is in the quarter? And then, coming back to the balance sheet discussion. The expectation the company had is to be able to reduce net debt and net debt-to-EBITDA to R$23 billion and three times by the end of next year, the annual price and the forecasting improvement in these numbers as well as any subsequent increases in domestic prices that are embedded in that calculation? Thank you very much.

Carlos, thank you for your question. Now, regarding the cash flow and working capital, as I mentioned in the presentation, we had significant variations. Thanks to intentional initiatives we carried out some activities during the quarter to increase the liquidity in terms of the inventory. The finished product inventory increased, but we have taken actions to reduce the margin in parts and raw material. So presently we have a higher inventory. When it comes to the liabilities, we have a significant lengthening with suppliers. We negotiated results that of course can work with this, especially international vendors for coal. And this has helped us significantly in terms of our cash flow. When it comes to our receivables, we have a made fortune of having receivables in mining with confirmed letters of credit. And so, these receivables are very nickel currency. And some will have no cost whatsoever and others will have a low financial costs and that is why we have that significant cash flow. What helped mostly were those activities of support from the government towards liquidity reduction or deferral of taxes and rates and social security contributions. All of this helped us and it is a set of actions that allowed us to have that working capital that has helped us so significantly. When it comes to our forecasts what we have in terms of iron ore is the consensus curve. If the consensus of the analyst that the coming year, the projections will be of $75, we're not inventing anything. We think these figures are conservative at present and their assumptions as well. In terms of exchange rate, it will be the market exchange rates as foreseen and we'll focus survey of the central bank and the price of steel we're working with the present day prices. And this is what has been included in our forecast.

[Operator Instructions] Our next question is from Thiago from Goldman Sachs.

Good afternoon to all of you. Thank you for taking my question. I have a question for Martinez, regarding the steel supply and demand situation. You spoke about the general activities of the sector, where activities came to a standstill. And now the demand is surprising you. So, what will happen with the resumption of this activity? Will this increase the competition for prices despite having the parity that you have? And the second question refers to mining. We have seen an increase in volume, but the cost per ton also increased. And there's the concept of idleness that was put in place during the first quarter. But why has the cost increased while the quality has decreased, if you could explain this?

Good morning Thiago. The accounts that I have at present for capacity, we have older mines operating with the blast furnace, and so those also operating with the blast furnace, they have announced a resumption of a blast furnace dedicated to export data down working with logs to and others. So what they're going to do is quite restricted and see a span. If we bring together all of this installed capacity that is operating, according to my accounts, the supply of steel will be of 750,000 tons to 780,000 tons per month, which is a supply that can fulfill the market at present. Additionally, to this, we have two players in the domestic market that supply slabs, to extend steel market and other that can also supply slabs. And we have the possibility of the resumption of the blast furnace from [indiscernible] and CSN. So, supply and demand is an important curve where we can implement a price increase. It is not a hurdle to already have that price increase in September. All of this will move because of the demand in China. The price in China, so there will be no price in China lower than $500 in the second semester, with $5.15, the present day price of the Q will have a negative price. That varies from 9% to 12%. The increase in September has to be implemented fast, and it has to go throughout the entire value chain. It's the issue of costs we cannot fall behind. Now, when it comes to capacity, we have to fully understand this. We have to look at this based on product lines. Because imports in this scenario, so zero impact to CSN, what comes into the country is galvanized material. So, CSN will focus on supply and demand cost, the idleness and the value chain and we will do whatever we can in our mix, to maximize value in that quest for that figure that is mentioned by Marcelo, that idea of resuming profitability of steel by a $100 per ton. This is an idea that we have, it is not a forecast. But this is what we're seeking. I don't think this will be an obstacle or a hurdle. Does that respond to your question?

Yes, thank you. That has been very clear by clarifying what is happening in mining.

And the sequential comparison of prices of the second quarter where the first quarter is very useful, the first quarter had distortion because of the high cost of idleness. These costs don't refer to the merchandise sold. Now another point is that we also have an increase in the cost of the product that is purchased. We bought iron ore at a higher price and of course, this makes the costing in reais somewhat higher as well. But this adds to the margin. But it's more relevant in this discussion is that our cash costs for production stood at $17. And this is a transition cost. It is not the cost that we would like to obtain in the second semester with volumes going back to what we had last year 10,000 per ton. So, this will value our fixed costs. And we will see an evolution -- a positive evolution in costs what we saw in the second quarter.

Thank you, Marcelo, so there's no tripping issues. And Marcelo, do you have the figure of the iron ore for third parties which is the percentage for the second quarter?

We stopped doing this because we were working according to the benchmark. We're trying to be transparent and also protecting strategic information such as the purchase of products from third parties. This is not a market that will change a good deal year-on-year. It will be very similar to 2019. So, it's only this transition going towards higher volumes in the second semester with the cost that we had last year. Yes.

The next question comes from Thiago from Bradesco BBI.

Thank you. A quick follow up for Martinez. The same question that Thiago has already posed, the demand and the steel price mix. So, you are already selling at to 850 and this is the price that you are working with after the increase in July and with those to 850, you still have a negative result of 9%.

That's right, Thiago, exactly that. The present day price of BQ without fees and concluding taxes in the domestic market is to 800 to 850 and if we think of BQ in China at $470 to $500, this premium is negative between 8% and 13%. And that is why the increase should be from 8% to 12% in September depending on the project. Now if we don't have this premium, we have to be more cautious. We want to work more with the market and not allow a penetration for imports. And for the industry -- good question. In the industry, and I have forgotten that in industry at large with the exception of some clients, we have a contract where we have a very small share in the automotive market. We work with 10% in the automotive market through August. And, of course, we have this different because there is a delay in the implementation. Otherwise, those private distributions for the industry will be much too strong. And we will begin to have a confrontation of distribution channels in industry. It's very hard to work with that. And on August 1st, we will have an increase in galva aluminum that is being invoiced in Brazil and the increase will be for civil construction and distribution for the White Line industry. And for the increases for long steel, I forgot to speak about long steel. In long steel, we’re working at full steam. It is smallest of our markets. But we have 20,000 clients that are registered and every month, we sell to 10000, and every month we have 8,000 clients. Month after month, I sell less to more clients. So the increase will be about 12%. Last month, the increase was 6%, this month another 6% price increase, 6 and 6 that’s it. And long steel, the average sales per month here in our balance, 18,000 to 19,000 per month. In Brazil once again, we haven't taken into account Germany here. Thank you.

Thank you, Martinez.

The next question is from Leonardo Correa from BTG Pactual.

Good day, gentlemen. Good afternoon. The first question is to Martinez. Martinez, there is a great discrepancy in the data. The large steel mills had a double digit drop. While in distribution, we see an increase of double digit as well. Now, I imagine that there has been a migration of volumes, perhaps. I would like to hear from you of something additional is happening in the market and this change will continue going forward, which is your reading of this movement? I think there's a big gap in the data. And a question for Marcelo, you spoke about the guidance for iron ore for 2020, R$33 million to R$36 million. And what happens with 2021 and 2022? This would be very helpful. Thank you.

Leo, good morning. And this is a very smart question. It's hard to understand what is happening, for those who don't closely follow up on the market. There has been an increase in our parent consumption. During this crisis, clients were hesitant in terms of planning and scheduling. They're buying only what they need. And as distributors have inventory and had to sell, they began to sell in fragmented amounts. It was easier for a client to access that distributor purchase smaller amount and wait a bit. What happened simultaneously at present is the following. There was this certain relay. CSN does not stop production. It was the last to stop production, and there was a certain lack of planning in the industry besides losing the inventory. They did not plan correctly, the millers stopped production and clients have to resort to distribution as they have inventory. What’s happening to distributors? So, ridiculous figures because everything was stocked with them. There’s the dynamic of distribution and industry is normal whenever there is this crisis.

I'm still here Martinez. So this dynamic industry and distributor happens when there are market and symmetries and this is what happened in the second semester, all of this should go back to normalcy. I don't know if what I said is clear.

No, that is great Martinez. Thank you very much.

Thank you for the question. Now Marcelo, regarding the coming year. It's still too early but the expectation is to resume our normal levels. The levels we have changed last year and [indiscernible] which is what we expect for the time being. And this is where we're going to remain until we have the coming into entry of our project eventually with $10 million and another $10 million beginning in 2023. This is the range of figures we're working with excellent, Marcelo. Now, the projects are the ability to this incremental. Let me reformulate my question. I think your capacity of about 40 million tons, without requiring investment, assuming it would be 40 million tons. Could you add 40 plus 15, to get to 55,000? Now if you could simply clarify this point, I still have some doubts regarding this?

Yes, that's what it is. If you look at the consolidated figures, this is what we're working for, to put those 10 million in incrementally. Now, what is going to happen within the company, a gradual replacement of all center feed product based on the production has hematite to have a larger production of pellets. And the central plant, during the coming years, we'll have this production converted from hematite to itabirite. And we're going to do this without having any drop in shipments or production and the 15 million are only a marginal value. We have several fronts and initiatives for this to happen and this is what we're projecting.

Very well. Thank you very much. Thank you, Marcelo and Martinez.

The next question comes from Gabriela Joubert from Credit Suisse.

Congratulations for your results. My first question, the first is of assumption of the Blast Furnace 2. Is there a plan for this resumption and if you could share with us what it is that you are expecting? And the second question refers to possible expansion to enable you to reach that level of 3.75 in 2021. Are you planning to announce any expansion in the mega line of galvanized products? Are you going to invest more to have greater availability of properties as you mentioned recently, this is my second question?

Regarding the Blast Furnace 2, we're working on this so that it will be ready by the end of the year. The preparations include the cleaning and the purchase of the factory material. That have already begun and this will be ready before the end of November. Everything will depend on the demand and the cost is between $10 million and $15 million. It's not such a high cost as mentioned formerly. When it comes to the new investments, we have a broad range of opportunities. And this depends on the expansion of mining, mining does have a project of 10 plus 5 million, $5,500 million this will come soon of our cash generation. But we also have projects in other areas. And depending on our capital flow, we may diversify on the matter of energy. Energy has always been an important sector for CSN. We want to go back to being self-sufficient. And generation is something that we are considering for the future, logistics structure as well, a consolidation in the sector cement sector. Once again, these are opportunities that we're always considering.

Very well, thank you very much.

Thank you. As we have no further questions, we will return the flow to Mr. Marcelo, Head of the IR, Executive Officer for his closing remarks.

I simply would like to thank all of you for your presence on the call. We have more than one hour of discussion. We hope to be able to talk to you again when we release results for the third quarter. Thank you very much and have a good afternoon. This leads conference call to end and yes you can now disconnect, and have a good afternoon.