Good day, everyone, and welcome to Ternium's Third Quarter 2012 Earnings Results Conference Call. This call is being recorded. At this time, I'd like to turn the call over to Mr. Sebastián Marti. Please go ahead, sir. Sebastián Marti: Good morning, and thank you for joining us today. My name is Sebastián Marti, and I am Ternium's Director of Investor Relations. Ternium issued press release yesterday detailing its results for the third quarter and 9 months 2012. This call is complementary to that presentation. Joining me today are Ternium's CEO, Mr. Daniel Novegil; and Ternium's CFO Mr. Pablo Brizzio, who will discuss our performance. At the conclusion of our prepared remarks, we would open up the call to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and in our press release issued yesterday. With that, I'll turn the call over to Mr. Novegil.

Thank you, Sebastián, and good morning to everyone. Thank you very much for your interest in the -- our company. Sorry for the voice, I'm not in my best day, maybe because I'm speaking too much. But anyway, I will try to do my best, and I hope you will understand. So let me start by saying that I'm very pleased with the Ternium's performance during the year. Our operating results, EBITDA margin of 15% of revenues, profitability and key indicators compare quite well against most of our peers and competitors in the industry. I am especially proud that we were able to achieve these results in a very complex and volatile global environment. And now we are ready to capture profitability through a market access, growth and gains in market share from imports in the region, Latin America, that is growing in a healthy fashion. With a net debt of $1.8 billion, we continue to have a sound financial position equivalent to around 1.3x EBITDA at the end of September 2012. We believe this performance is a direct result of our management process. Our company model is focused on always dedicating our efforts to process management and follow-up of key indicators of performance through end marketing, safety, efficiency rate, workforce, streamlining logistics, energy consumption, market share, value adding are just to mention some example of these -- examples these key indicators. Also, it is important to mention as we did in our latest Investor Day, that production flexibility is proving to be a key competitive edge for Ternium. For instance, right now, we are enjoying low gas prices in our Guerrero reduction facility in Mexico, as well as a good gap between slabs and hot-rolled coil prices in our rolling works in formerly IMSA in Mexico as well. I…

Okay. Thanks, Daniel. I would now like to provide a brief comment on our performance in the third quarter 2012 and the outlook for the following quarter. EBITDA generation during the third quarter was $340 million, slightly lower than EBITDA in the second quarter, as lower revenue per ton offset the positive impact of higher volume, and there was slight reduction in operating profits. Shipments of slab products were 4% higher in the quarter compared to the second quarter 2012 with a 5% increase in South and Central America region and a 4% increase in the North America region. Flat product revenue per ton decreased 3% during the quarter mainly due to a 5% reduction in the North American region. Shipment of long products across all regions also increased compared to the second quarter, in this case, 3%, and revenue per ton was stable. Prices in the North American region seem to have found a bottom, with steel prices increases recently announced by major U.S. producers, that if maintained, could translate in better average prices for Ternium in the following quarter, although mostly impacting towards the first quarter of 2013, considering we are already in the middle of the fourth quarter. In the South and Central American region, Argentina steel market has been doing relatively well with slightly weakening of local demand compared to last year third quarter. Despite this, we're still selling around 90% of our total production in the local market. And as we look ahead to the next quarter, we are not anticipating any change in demand in Argentina. Summarizing, total shipments were 4% higher, and for the long products, EBITDA per ton decreased slightly from $160 in the second quarter to $149 in the third quarter. We had $21 reduction in revenue per ton, partly offset…

[Operator Instructions] Our first question comes from Carlos de Alba of Morgan Stanley.

First question will be on -- if you can quantify for us at least the potential impact of the disruption that you saw for in blast furnace #2 in Argentina, if you're going to have make additional repairs and you probably also -- or you will have to buy slabs and hot-rolled coils to make sure that you supply your customers. Is there any number that you can guide us to in terms of these impacts?

Well, I don't want to get too technical about what happened in Argentina in our rough furnace. You have to mention that after proceeding with the replacement of staves -- there are numerous [ph] refrigeration devices, in the second blast furnace of Siderar, we had some problems during the blow-in. And then we decided to stop the operation and to replace refractories and afterwards to extend the useful life of the blast furnace from 6 to 10, 12 years. So we will compensate the lost steel production during the repair of the furnace. That will take 90 to 110 days. With third party, the steel purchases of slab and some hot-rolled coils as well, so that we will be servicing the market needs of Argentina and neighboring country with no disruptions and it will not be a problem. So because of the current oversupply of the slabs and the fact that we have an insurance that covers both remediation and opportunity cost, we do not consider the loss being significant. If you ask me an estimation, I would say that maybe we could be losing around $20 million, $21 million, not more than that.

Okay. And then the -- my other question was regarding volumes for next year. You have the Tenigal project being completed in the third quarter or in the second quarter, and then the start-up in the third quarter of next year. The vacuum degassing station in Argentina is also being completed, the cold-rolled coil as well in Mexico. So could you give us an indication of how much incremental volumes do you expect from these projects?

Yes. I cannot give you an exact indication, but many things are going on and are happening on our marketing side and on our commercial side. First of all, as I mentioned in my very short speech at the beginning, we signed with Usiminas a distribution agreement that is quite important for both companies, for Ternium as well as Usiminas, because it broadens the product portfolio and the bargaining power vis-à-vis competitors and customers on one side. On the other side, we will be producing the vacuum degassing that will be giving Siderar the chance of supply and gaining market share against imports of steel in Argentina, mainly in the automotive and in the home appliance industry. And then we have the Tenigal project that will enter into operation in the third quarter of year 2013. We do not have an exact estimation of the impact of all these volumes. But no doubt that at the end of the year 2013, we will have a new Ternium with a new different -- and different commercial approach more dedicated to high-end products, more dedicated to serve the needs of global customers with some important changes in our commercial approach vis-à-vis customers. Maybe we can enter into more details on these numbers and ideas when we're having Investor Day in New York in the coming June.

All right, Daniel. Final question, if I may. Any comments, any thoughts about a listing in one of the local markets in Latin America?

Well, Carlos, as you know, we have discussed this issue in the past. We always keep an interest on analyzing this. Actually, we are not in the moment or currently analyzing it right now. But if some opportunity appears, that make us doing this, of course, we'll keep an eye. I will look at this in the future. But we -- your question is, do we have plan right now to do it? No, we don't have a plan at the moment to do it. But we are still looking at this as an opportunity because we know it's something that not only you, but other people related to the company, is asking the same question.

We know that you are an advocate of this idea, so we'll analyze in depth.

Our next question comes from Leonardo Correa from Barclays.

My first question is, Daniel, going your initial point regarding Usiminas, we read recently that you inked a deal with Usiminas on distribution where basically you would pay a 1.5% fee to Usiminas on all of the volumes transacted -- that would be sold in Brazil, right? And Usiminas would also pay with the same 1.5% fee from volumes sold in Argentina and Uruguay and other markets. So I just wanted to understand if you can help us better understand the logic and the opportunity, right, and if you can potentially quantify a magnitude of what type of impact we can expect going forward. And also I was interested if this is something that will apply also to Mexico. So if you could potentially be also striking a deal on distribution for Mexico, okay? So that's my first question. The second question is on CapEx and leverage ratios. I mean, if you can give us a bit of guidance on CapEx for 2013 and also what level of net debt-to-EBITDA you think is comfortable. I mean you guys are running clearly on a very solid balance sheet. You now have the receivable from Venezuela. So I wanted your thoughts on that side. And also if you can comment finally on CSA, any potential interest on how that transaction is evolving and how you could potentially fit your interest of integrating? So those are my questions.

Okay. So let me pass to -- first to Pablo Brizzio to answer your second question about CapEx, and then I will go back to Usiminas and CSA.

Okay. Leonardo, the -- I did mentioned the financial position of the company is quite solid, and we discussed in the past that we are still under the same budget to have a CapEx for the year 2012 of $1 billion. As you know, up to September, we invested $700 million, and so we are on budget. In going or moving to next year, we are expecting if there is no projects eyeing to the one that we have right now to have a CapEx expenditure of around $800 million. After that, you know that with the generation of the EBITDA that we have this year, we may utilize the funds generated by the company for CapEx interest and taxes. So if next year we are able to reduce, as I mentioned, the level of CapEx are sustained, the level of the generation for, of course, if we can increase it much higher, we will be able to reuse a little bit the net debt and consequently, the EBITDA to -- net-debt-to-EBITDA ratio. We are still -- we are now after a collection of a payment of Sidor with the level of below 1.2, which is extremely solid and we understand among the best in the steel industry. So we are expecting to sustain this good level of EBITDA ratio and the strongest of our financial. So basically, this answer your second question. And now, I will turn to -- back to Daniel to answer the other 2 parts of your questions.

Well, regarding the first of your question, the one about Usiminas and the distribution agreement, no doubt that the distribution agreement is going to be a very important tool for both companies, for Ternium as well as for Usiminas, because it broadens the product portfolio for the distribution agreement will allow us to gain market share against imports in all the relevant markets where we are operating. We are going to be through the distribution agreement ready to sell needs of global customers from a global supply base. We will have a new and gross commercial network with a legal framework. And so I think that both company will be able to create -- and to share value. We are in the process of making an assessment and addressing all the implication of this agreement in terms of volume, in terms of market share, in terms of high-end products portfolio base, and so on and so forth. So I'm not yet in a position where I can put the value on that. Maybe, as I said before, when we share the Investor Day, we will be in the position where we share some ideas or some numbers with you. No doubt that this distribution agreement of -- that you are asking includes Mexico as well. So it includes the most relevant markets in Latin America, Mexico, Brazil, Argentina, Colombia, Central America. So we're going to be having, as I said at very beginning, the kind of new marketing approach and more sophisticated commercial network in order to serve our customers' needs. Regarding your third question on CSA, as you know, CSA is slab producer, and we are a big buyer of slabs in the market, maybe the largest worldwide. So it makes sense for us to check if there is an integration opportunity for Ternium there. In this respect, we will follow the process. At the same token, we are not looking at decent rolling facilities in the U.S. I'm talking about Alabama Works. So as for now, it's all I can say. We are following up, we are checking.

Our next question comes from Marcelo Aguiar of Goldman Sachs.

Daniel, just exploring a little bit more to your last answer. Is this analysis that you're doing, I mean, you're doing by yourself or you're considering partnering with any potential client or any company in any way? And also on this topic, I mean, do you have a view on how long this process could take based on what you already saw happening on the whole issue? That's the first question.

Okay. As Daniel mentioned, we are very early in the process. We are analyzing this issue by ourselves. We are not looking at anything else at the moment. So this is the situation. This has been a very public issue very recently. So we are in the early stage of this, and we will continue seeing, as Daniel put it, the process and we'll follow the process. We are at the moment doing this by ourselves.

Yes, we are standing alone. We are in a very early stage of the whole process. And it is always impossible for us to avoid to pay a look to this given that could be a good supplier for us in any event. And we are a very important slab buyer. So we are checking and following the process.

Second question. I mean, you mentioned about the Mexican and the opportunity of demand growth in Mexico with the auto. I mean, can you guys share with us what you see as a potential demand increase in, let's say, a million tons in the next 3 to 5 years in Mexico of auto sheet?

Well, as you know, we do have a very relevant opportunity for import substitution in the auto steel market in Mexico. And of course, we were talking about that in different occasions, especially during our Investor Day. As you know, now the imports in Mexico are around 1.2 million tons of coated products and 1.3 million tons of hot and cold rolled products. So we are going to be targeting this market. We are going to be producing sophisticated and high-end products. We are now in the process of working on the specification of the products and specification in weight, in width-ness, in thickness, in specs and so on in order to optimize the capacity use of this facility. And also, as you know, we are doing this in a partnership, 49%, 51% with Nippon Steel. We are going to be controlling the serial line, the galvanizing facility with a 51% ownership. And we are building the cold roll, I mean, on our own base, I mean, 100% from Ternium. So I gave that I'm not in a position where I can share these numbers. But no doubt that we will have an accelerated ramp up in these plants, and we will go up as fast as possible in the learning curve. Also we have to take into consideration that because of having the partnership with Nippon Steel, we will be servicing the market that Nippon Steel is servicing now from Japan from this facility located in Mexico. So at the very beginning, we will be -- we have quite a high level of capacity utilization, given by the fact that we will be taking this part that is going to be supplied from Mexico as opposed of being supplied from Japan through the partnership with Nippon Steel. So I gave that -- when I do not have precise number, looking at the capacity of the line and looking at quite the fast learning curve and quite fast ramp-up of this capacity utilization, we will be, I hope, we will be growing very fast to run the facility at very high capacity utilization rates, 80%, 90%.

Okay. And the last question if I can. Looking ahead, I mean, given now the bullishness on Mexico's steel consumption and given your capacity utilization will be at full very, very closely, are you guys considering already getting back to the project or to build a new DRI in Mexico in rolling mills and so forth? So is this something that you guys consider it to be analyzed and maybe approved in the course of 2013 because it's going to take 2, 3 years to fill it good up. And how would this kind of all fit in the analysis of TCSA? It is something that, I mean, if you do one, you cannot do the others? So looking at the leverage side.

We are not analyzing this project right now. We are not analyzing this project. Maybe if we continue developing our iron ore reserves in Mexico some time down the road, it would make -- it could make sense to integrate our iron ore upstreaming with a rerolling -- a new rerolling facility in DRI Mexico. But this is something that we are not considering right now, and we'll not be considering this in 2013. For the time being, we are going to be concentrated in finishing our investment in Pesqueria, the galvanizing line, as well as the cold rolling mill and also finishing the intensive CapEx plan in Argentina and that's it, I mean. Also, and going back to your first question, when you analyze the opportunity to gain market share that we have, given the tremendous market that is being served from abroad in Mexico, you will understand that our purpose and our idea, our mission, our vision and everything is going to be to fill the capacity as soon as possible and to take over market share from imports, servicing with logistics, with speed, with service, with a just-in-time delivery and so on and so forth. So we will be having a tremendous competitive advantage vis-a-vis the imports. And that's why I'm very confident that we will be able to fill the capacity in a very accelerated span of time.

Our next question comes from Thiago Lofiego of Merrill Lynch.

I have 2 questions. The first one, I'm sorry if you already answered this, I just got in for technical issues. But how should we think about your slab shortage in the long term? So what's your strategy behind this? Also do you intend to close this gap at any point in time? And if you could also put into perspective the potential upstream from that project and do you see a sequence? That's the first question. The second question is more on volume growth for 2013. You mentioned in the press release you do expect a stronger demand environment both in North America and Brazil. So in particular, in Brazil, I mean, how does that impact your demand expectation considering that you don't have any facilities there? I mean, what's the driver behind you citing Brazil in your release? That's -- those are my questions.

Okay. Yes, we have answered, I understand, both of your questions, in previous ones. But let me summarize what we said. First of all, we, as you know, we are buying around 2.5 million tons of slabs per year. And in respect to CSA, Daniel mentioned that we are following the process, but this is very early stage in the situation. Of course, as you know, being one big buyer in the market, it makes sense for us to follow the process. We are not in the moment analyzing the possibility of increasing our steel capacity in Mexico. We are concentrated right now in finishing the CapEx plan that we have right now, the galvanizing line and the cold rolling line in Mexico and all the CapEx plans that we have in Argentina. We mentioned that we are positive in Mexico, in the region in fact. But due to the fact that we are taking growth in -- as a whole in Mexico and also in some particular industries or industrial sectors like the auto industries, make us to be bullish on possible increases in demand in that market and be at the one that serve that. In the case of the Southern column, knowing the relevance that Brazil has in this region, we have expectation for Brazil to increase growth, GDP growth, coming into the next year, and this will pull demand in the whole region. That's why it makes us feel comfortable that what we are estimating for next year is on the right direction.

Okay. And could you just update us on your numbers for CapEx for 2013 and '14?

Okay. In -- we are finalizing this year with $1 billion. And next year, we estimate it around $800 million without taking into consideration any new projects. This is just finalizing what we have right now. As you know, the project in Mexico and, coincidentally, in Argentina too, end during the third quarter next year. So that's why we are having the remaining CapEx basically in the whole 2013.

So 2012, $1 billion; and 2013, $800 million?

Correct.

Our next question comes from Marcos Assumpção of Itau. Marcos Assumpção: My first question is related to profitability in 2013. We had seen EBITDA per ton drop in the third quarter a little bit, probably in the fourth quarter a little bit lower. What are -- what is the company's expectations for profitability in 2013? If you could comment a little bit on the drivers on the cost side and the revenue side as well. And my second question is related to the U.S. steel market. If you could comment about the potential price increase that the companies are announcing right now, if you think this will stick and the reasons why?

One moment, please. Yes, all right. So regarding the fourth quarter of the current year, as you know, price is -- have been weak even when we do have right now in the marketplace a rebound of around $50 to $60 in the U.S. market. There is no doubt it will impact favorably our pricing system in Mexico. Also, we have that slab cost will still impact our cost base because of having a first-in, first-out accounting. Then we have the impact of the blast furnace in Siderar that will have some impact in our cost base. Maintenance expenses will go to the cost, and we will recover afterwards through the insurance payment. But in the third -- in the fourth quarter, we will not be able to avoid this charge. Also we are going to be buying slabs and cold-rolled coils from third parties, and this will increase the opportunity cost of taking over our own production. So putting all these factors together, we understand that maybe we will have a weaker kind of fourth quarter 2012. Then for 2013, we are doing very well in long steel, in volume and in prices. And the North American slab market is rebounding nowadays, and we believe this price, we'll be able to pass to the market, that will stay in the market for a while. So we are going to be having a better portfolio and product mix in Ternium in the coming year. So we feel that 2013 looks well promising for us. Afterwards, we can comment on some drivers looking forward. First, market recovery in North America, and also prices bottoming up. Second, Latin America is doing well. We are just coming from the new dealing moved early from World Steel Association. And the steel consumption in 2013…

You summarized pretty well all the issues coming into the next year. The only thing that I may add is that raw material inputs are moving to the right direction now. We know that during the last month, coal and iron ore and [indiscernible] have reduced its pricing. Of course, we are not still seeing that, but coming in 2013, this will be an issue.

Our next question comes from Jon Brandt of HSBC.

The first question I have, and just -- sorry to harp on this, but just on CSA, if you are successful in winning this asset, you're currently buying about 2.5 million tons of slab in the market. My understanding is CSA is producing a little bit less than its nominal capacity of 5 million tons. So I guess the question is what -- assuming that you ship that 2.5 million tons into Mexico, what do you do with the excess capacity? And then secondly, I mean, Thyssen is having a tough time with this asset. What gives you the confidence that you can turn this around and run it profitably? And then secondly, just on Usiminas, you mentioned before that there were some management tools available that you're offering them, such as your IT and subcontracting, et cetera. Would that go hand in hand with the management fee? And sort of where are you with those negotiations? Has Usiminas taken you up on any of those offers?

Yes. Let me start by the second question, the one on the management fee. Probably, management fee is not the best way to call it. I mean, it's not the right word or the right phrase to talk about our relationship, the Ternium relationship with Usiminas. At Ternium, we have been paying fees to Usiminas in the past when we require specific services from them and also from Nippon Steel. So this is the other way around, and Usiminas feels that they need some of the tools that we were using in Ternium like, for example, a streamlining white collared basis, a streamlining and optimization of administrative tasks like the administration of subcontractors, like the supply chain on production planning devices and IT, IS and so on. Maybe we're going to be backing all these tools and all these ideas on a fee basis, sort of on an agreement basis. We will work on that provided that they ask us before they consider that they can use and they could profit from these ideas, first. I mean, the CSA, as I said before, and we were mentioning with Pablo, we are talking about an idea that this is in a very early stage. So we -- the only thing we did there, we are checking, following up, because we are an important slab buyer and they are an important slab supplier. Talking about volumes, Ternium is buying product for our Mexican operations, is buying around 3.2 million tons of slabs per year. Or Peña Colorada will continue buying 3 million to 2.8 million tons, depending on the level of utilization of capacity on CSA, we'll give you there. Also we could have some need of a slab fee, these are required in the medium term in Argentina; in the short run and medium term in Brazil, Usiminas will go up. So I guess that there is some kind of fit between the supply and the need of slab. But in any event, I wouldn't be aggressive on saying that we are going to be participating. We don't know. We are just checking, following the process, analyzing, no more than that.

Our next question comes from Alex Hacking of Citi.

I have a quick question on the decision to sideline the iron ore expansion opportunity. Is this being driven by the economics of the project and your view on the long-term iron ore price, or is this big driven by the need to preserve balance sheet flexibility to explore the CSA opportunity?

Well, it is not related to the CSA opportunity, it's related to the same -- the very same project. We are looking at the volatility in the market, the different drivers in demand and supply in the iron ore market that we are seeing worldwide today. We are not the only one reviewing projects in iron ore development, so it's driven only by that. And as Daniel put it, we will revisit this project if we believe there is an internal need within Ternium for our Mexican operation thinking in the future, even if we took a decision to expand capacity related to the very same project.

Our next question comes from the line of John Greene [ph] of LCV [ph].

Just 2 things. First on, if I understand, you guys are guiding to operating costs being higher in 4Q versus 3Q. But when I look at how slab prices have evolved during the year as well as other input costs, I would have expected your P&L to show lower slabs and iron ore and coal and so on prices flowing through. So I just wanted to understand what I might be missing on that front, just given you guys should have some visibility on 4Q -- or pretty good visibility, I should say, on 4Q materials costs, given the history of those? That's my first question.

Okay. John, you are right. We are seeing prices not only of slabs but also prices of coal, iron ore and scrap going down. But due to the way that we reflect our financials following first-in, first-out, we are not yet seeing these price reductions in our financials. We are not expecting to see this, or at least, a significant portion of this, in the fourth quarter. Specifically in the case of slabs, we are still -- or you will be seeing in the fourth quarter slabs that we bought 4 or 5 months prior to that. So that's a reason why we are saying that. Of course, moving ahead, the situation will be different. But this, together with the issue that Daniel mentioned on the situation on Siderar, was making that saying that we would increase a little bit the cost on the company.

So Siderar is kind of -- sounds like a meaningful factor there. And then the other question is, just wanted to get your sense on how often you guys revisit and review the dividend payout policy and capital return policy of the company? I mean, you guys are doing very well on a deleveraging basis. Sounds like you freed up a little bit of room in your CapEx budget by putting the iron ore project on -- into a holding pattern, I guess. And obviously, you have the successful resolution with Venezuela, recovering quite a lot of money there. And so just wondering how often do you guys revisit the dividend policy for the company, given that would suggest there is capacity to raise the dividend at some point.

John, first of all, let me clarify one thing. We did not say that the issue on Siderar is relevant. They are around -- We believe is not material. And to go into your second question, as you know, the company does not have a dividend policy. So the dividend payment strategy is resolved once a year in the shareholders' meeting. That is, of course, every year is taking place for the company.

I guess, expect a lot of phone calls and e-mails going into that meeting then, I guess.

I'm showing no further questions in the queue at this time. I'll hand the call back to Mr. Brizzio for closing remarks.

Okay. Thank you, again, for your interest in Ternium and for your time today. We look forward to remain in touch with you. As always, please contact us if you have any additional questions. Thank you very much. Bye-bye.

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect and have a wonderful day.