...Good morning, and thank you for waiting. Welcome, everyone, to CSN Mineração's conference call to present the results for the second quarter of 2024. 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's presentation. After the company's remarks are over, there will be a question-and-answer session, when further instructions will be given. Today's event can be accessed on the CSN Mineração's Investor Relations website at, all right, csnmineracao.com.br, where the presentation is also available. The replay of this event will be available right after its conclusion. Before proceeding, we would like to declare that some of the statements herein are mere expectations or trends, and are based on the current assumptions and opinions of the company's management.
Future results, performance, and events may differ materially from those expressed herein, which do not constitute projections. In fact, actual results, performance, and events may differ materially from those expressed or implied by forward-looking statements as a result of several factors, such as the general and economic conditions in Brazil and other countries, interest rates and exchange rate levels, future rescheduling of prepayments of debt denominated in foreign currencies, protectionist measures in the U.S., Brazil, and other countries, changes in laws and regulations, and general competitive factors on a global, regional, or national basis. Now, we would like to turn the floor over to Mr. Pedro Oliva, CFO and Investor Relations Officer, who will make the presentation of the company's operating and financial highlights for CSN Mineração for the period. Please, Mr. Oliva, you may proceed. Good morning.
I'd like to start by thanking everyone to our earnings conference call. We're going to start the presentation with the highlights of the period. In the second quarter, we had the best performance of our own production since 2016, which is a record in the current situation of the plant. The CSN Mineração delivered an increase in the sales volume, with drop in production cost and better product mix, which increased our EBITDA margin to 49%, although there was a drop in the price of ore in the period. We had a solid cash generation in the second quarter, with adjusted cash flow positive by BRL 1.2 billion, which resulted in a net cash position at the end of the quarter of BRL 2.8 billion. On the next slide, we have the production data.
Here, we had a growth of 18% regarding previous quarter, reaching 10.4 million tons. The strong growth in the production reflects on one side, seasonality for drier period, and also the increased efficiency in the operations. Considering this, our own production level is the second-highest volume in the history of the company, a record when we consider the situation of our plants. In the current situation, the drop in the volume is due exclusively to the lower iron ore purchases from third parties. Actually, it is a commercial strategy of the company of prioritizing margin to the detriment of volume at the moment. We highlight that in the first quarter of 2024, compared to the first semester of 2023, the company delivered a growth of production of 2.94 million tons.
I remind you, the market, at the CSN Cement Day last year, we talked about the growth of 2.5 million tons of our own production. In other words, we have exceeded four hundred and forty thousand tons, the goal for growth of our own production, and we are confident that the second semester will be a semester of strong volumes. Regarding total sales, we reached 10.8 million tons, which accounts for a growth of 13.8% compared to the first quarter of 2024, when we sold 1.9 million tons. The increase in production with the drier period, combined with the strong trading activity, were the main factors responsible for the solid revenue growth in the period, attaining BRL 13.3 billion in the quarter.
On the other hand, the unit net revenue decreased by 54.4%, reaching $58.6 per ton as a consequence of a drop in the price in the period and greater adjustment of the exported product before, before, because of the merit. On the next slide, we have price realization details. Here, I highlight that this part, the costs dropped 11.8%, the Platts to $133.6- $111.8. Our unit net revenue dropped to $58.6. On the positive side, we had the impact in the QPs basket, and previous period had been -$7 in the previous quarter. In this one, it was $0.3.
CIF freight costs, $1 higher than the previous quarter, reaching $25.2 in the second quarter, and adjustment of quality, that was 12.9- 16.2. This is part of a commercial vision of the company, that deterioration of margins of the Chinese steel mills encourage the growth for lower content ma- ore, and so we are tapping into this market window. On the next slide, we have, actually, COGS, with an increase of only 2.8% compared to the growth in sales that we saw in the previous slide of 13.8%. I think this grow significant. The inferior growth regarding the sales volume is the drop to C1 of 10%. That was $23.5 per ton in the first quarter to $21 per ton.
This increase in sales with the cost control, with the improvement of mix, with a drop of third party, rather than an increase in our own volume, supported robust EBITDA growth and an expansion of margin of 8.6 percentage points when compared to the first quarter, 2024. In addition, current evaluation also had a positive impact on the quarter's results. We concluded the quarter with EBITDA at BRL 1.6 billion. On the next slide, we have the comparison between the quarters and the factors that explain the variation. We moved from an EBITDA of BRL 1.1 billion in the first quarter of 2024 to BRL 1.6 billion in the second quarter. This accounts for a growth of BRL 495 million and 44% growth.
The main factors that explain this is our lower impact of the provision of prior prices of previous quarters, added to an improvement in volume, improved mix, with more of our own production and logistics network optimization and cost reductions and sales. These factors actually offset the negative effect of the drop in ore prices and increase in freight prices. Next slide. We present the investments of CapEx of the company. Second quarter, we had an increase of 60.9% of our company's CapEx, explained by the increase in investment to maintain operational capacity. This helps explain the records the company has been reaching and also an advance in the expansion projects, especially P15. Regarding P15, I highlight that we concluded the contract of the infrastructure package.
With that, we're going to have a level of moves of associates on the site that will be higher over the next few months. It's worth highlighting that this CapEx tends to keep growing materially, especially expansion CapEx, as we had commented and reinforced that in this earnings results calls. Regarding net working capital, on the next slide, we had reduction or negative of BRL 536 million- BRL 566 million negative. Here, this is explained by the fact that the line of suppliers has grown more than the accounts receivable. Accounts receivable has grown because of the increase in volume and the accounts payable, especially because of the increase in sales volumes, CIF, in which we are responsible for hiring the freight. On the next slide, we have the indebtedness profile.
The company, in terms of amortization, has long-term, solid, reaching BRL 11.8 billion and at the end of the quarter, reinforcing the net working capital of the company, reaching BRL 2.8 billion, increasing our net debt, EBITDA indicator reached 0.32x. With that, we have a very solid structure of capital in the company to face our growth projects and keep on paying dividends according to our policy. In the next slide, we have the free cash flow. Here we have positive data, BRL 1.1 billion, as a consequence of sound, stronger operating results, with the BRL 1.1 billion and positive impact of hedging operation on our ore prices and an exchange rate variation over the period. As usual, we're going to go to the last slide, focusing on the ESG agenda, on governance.
I highlight the publication in May of the 2023 integrated report of the company. It's a very detailed document for those that are interested in diving deeper in this agenda and where we follow the development of the goals defined by our board. As to diversity, I highlight a growth of 86% in the representation of women at CSN Mineração, compared to the base year, which is 2020. As to environmental management, we had a reduction of 6% in the emissions of CO2 per ton of iron ore, compared to the previous year. And in terms of dams, we also had statements of stability renewed in March for all our dams. I would like to congratulate the team for this progress with a quarterly record in the volume of our own production since 2016, with 10% drop in C1.
And conclude the presentation, highlighting the growth of our net income, reached BRL 1.5 billion. That accounts for 2.7 x the net income of the previous quarter, and 2.9 x the net income of the same period last year. With this, I conclude my presentation, and I turn over to our Chairman of the Board, Mr. Benjamin Steinbruch, before we start the Q&A session.
Good morning, everyone. I would like to greet you once again in the presentation of CSN Mineração's earnings results. I'd like to share with you how happy we are that every quarter we present improvement in numbers and results.
We are working hard, and with this challenge of being able to have book capacity or capacity of our production equipment, is being a very big challenge, because we will always want to produce at full capacity, aiming with this better productivity, cost reduction, and also to make sound investments. We analyze everything, and we're very concerned when we do not attain full capacity. Regardless of all the records that we are showing in this quarter, consequent of the work performed in the previous quarter, I'd like to tell you that we have been able to work on the challenge of working full capacity, of reducing the flows that we're working hard in reducing costs. And the happy—how happy we are with the shipment of our own production. We reduced a lot the purchase from third parties, as in a strategy to improve margin.
The only thing that we still need to improve a bit more is the area of quality, in which we're still being penalized because of quality, which is natural in a change of product that we are going through over these months. We're going to wait until we have the P15 product. Also, we had the pleasant surprise of closing all the packages, as Pedro mentioned, regarding the infrastructure that was the last one closed. I would like to thank the support of all our associates, and more than just greet them and congratulate them on the results presented, because it's been a consequence of a lot of dedication, of a lot of work, and many challenges faced.
We were certain that we could reach our full capacity of our equipment, and we finally managed to, and with that, we brought the results that are very sound and consequent, and even better than the previous quarters. I'd like to thank all the employees, the associates, and thank them for their dedication and for the deliverables. I would like to greet all of you, thank you all for your participation, and I turn the floor back to Pedro.
Thank you all very much. Thank you, Mr. Chairman. With that, we proceed to the Q&A session with investors and analysts.
Thank you. We will now begin the question and answer session for investors and analysts. If you have any questions, please press the Raise Hand button or submit your question through the Q&A button. Please wait while we collect questions.
Our first question is from Bárbara Soares, from Itaú BBA. Your microphone is open.
Good day, everyone. Can you hear me okay?
We can, Bárbara. Good morning.
Can you hear me?
Yes.
First, congratulations on your results. Thank you for taking my question. I have a few here. Starting with China, how do you see the supply and demand there? Last call, we talked, well, the panoramas or the landscape seems to be better. We had some big markets, so the margin of steel mills that China had, they had improved a bit, whereas now it seems the situation has been changed. The macro data are weaker, margins of steel mills went back to negative. The inventory of ore and port is high, and, you know, this is reflecting at lower prices, as we talked about.
In addition, there is exports that was being used as escape valve for a domestic market that was weaker. We dropped. We see many countries protecting themselves, including more for by the imported Chinese product. I'd like to know a bit more about that. And linking to this point, I'd like to understand how to think about quality, premiums, for next quarters with the demand for low grade increases and prices realized that end up suffering. Do you h ave July? Is it reasonable to think in a quality discount similar to this quarter to the next? And lastly, regarding buy from third parties, you mentioned the growth of over 3 million tons of first semester this year versus the first semester last year....
a bit higher than the goal of 2.5, and you mentioned that the share of third parties would be about 23% in the market. Is this number going to be maintained, or should we think about something lower? Those are my questions. Thank you.
Bárbara, good morning. Thank you for your question. Starting with China, you are correct. Actually, there is an evolution of 27.5 million tons regarding the same period, with 150 million tons in the ports. Today, the inventories in the mills a bit lower than historically, the 21 days we have today. And this has been reflected in the price, so at $98.58, so that's a flat price. So it's interesting regarding the expectation. If you look at SGX in December, SGX in $98.5.
Market essentially flat at a price that a bit higher at the end of the year than the export market. The production of concentrated Chinese market dropped about 10% in the past 15 days. I think there's a bit of a price impact and also rainfalls where the mills are located or. And the steel mill margins in China are lower today, $53 -. And you as you put it correctly, favors the demand for low grade. The use of blast furnaces is at a level that is healthy, 87%. Same cannot be said regarding electric furnaces. The use is only 36.3%. The impact of this change in standards occurred in June, regarding, you know, beams at about 26 September.
So we have a strong pressure of traders to release those beams that are outside specification, and also this has reduced the use of the electric furnaces. Regarding future of China, there is a trend of growing urbanization, and the state council signaled to a level of 70% of the population being in the next year, moving from a level of 66%. It looks like it seems to be a reasonable target. Brazil has over 80% of the population that is urban, and a total of 160 million people. This growth in China represents 150 million people demanding housing in the urban areas, and this represents over 30% of the urban population in Brazil, just to give you a reference. Actually, exports are strong.
There was a drop in the pace in July, but if you compare January to July 2024 to January to July 2023, there is a growth of 10 million export tons in the exports. If you analyze data, we have an expectation of 2,405 million tons of exports in steel in China, compared to 91 million in 2023. Despite this reduction in July, it's still at a very strong pace. I think there's a point that you have an approach in your question, which is growth in supply. If you see the growth in inventories in the Chinese ports, 27.5 million, it's exactly coinciding with the growth of the seaborne supply of 800,000 from January to July. 17 million tons came from Brazil. So this is our reading of the market, it's constructive.
We recognize that it depends on the encouragement and incentives of the Chinese government. So the future market regarding spot, I think it's a signal, though, there is a negative feeling. There are not people putting heavy money of that the price is going to drop in the near future, right? Regarding premium quality premiums, I think the trend is for us to keep this level for the next quarter. We're very much, because of this window of opportunity, of very negative margins in the Chinese steel mills regarding buying from third parties. We've grown our own production, 12.94 million tons. The reduction in buying from third parties has been quite significant over the period, which leads us to have that quarter, the percentage of 23% of purchase regarding sales dropping second quarter to 18%.
And for the next quarters, can I keep thinking on these 18% or something close?
It's close to the level of the previous quarter, 20-some %, perhaps a bit below, a bit over 20%.
Okay, thank you very much.
Perfect.
Our next question is from Gabriel Simões, from Goldman Sachs. Your microphone is open.
Thanks for taking my questions. And, on quality, you commented on the worsening quality, that you'll be tapping a market window with the change in the pro-
... profile of the project. It's interesting to know how you see that in more structurally follow-up in Bárbara's question, thinking about the quality of the ore that is being extracted at the end in Casa de Pedra. Thinking about not only this quarter, but ahead and over the next years, just to understand the importance you see in the investment of P15, how this could be changing the quality of the ore that you extract, how it's been changing at Casa de Pedra? Second question regarding advance and supply of iron ore that you announced this quarter, strategy you've been using with certain frequency. I'd like to understand how much space you see to apply this strategy now on, what sizing that is ideal for these prepayments vis-à-vis your production capacity, if you have a target or a number that you see to that. Thank you.
Thank you for your questions, Gabriel. Good morning. Regarding quality, in the short-term, we tend to stabilize, but structurally, no significant change until we have the Itabirito project, especially P15. P15 will place the company at a different level. In 2028, it is the content of ore that is 59%, a bit below 60, moving to 65% on average. We're going to go through a transformation that is quite relevant, less to do with the content of feed. That will drop in P15. We're going to have 42% of iron ore content to have a product of average content of 67% iron. And these are the investments, Gabriel, that will enable a structural change in the product mix and quality of the company.
Regarding the payments that we have been making in the past quarter, that basically the volume that we should amortize over this year. It's a roll out in, from our view. We would have space to do more. We regularly discuss it, but for the time being, the company has not yet decided to making new prepayments. Gabriel, we have a volume of prepayment that is already contracted for the next years at a level of 7.7 million for 2026, and 7 for next year, 18.1 million tons. We understand it's a level that is quite comfortable. There is room for more, but there is no decision of the company of doing it for the time being.
Perfect. Thank you.
Our next question is from Carlos de Alba, from Morgan Stanley. Your microphone is open.
Good morning. Sorry for my poor Spanish. Just confirm the purchase of third parties in second quarter were 1.87 million tons, 18% of your sales. Is that true?
Sorry. Carlos, just to give the exact number, 18 is a rounding number. The volume of third party got to 1.945 million tons.
Thank you. I'd like to understand a bit whether the schedule of P15, if the CapEx will continue according to what has been presented, what was presented last year, or if there are any changes that needs to be updated to the market.
Carlos, we have been discussing that with our project team. I think there are some factors that would generate some kind of update in the schedule, and there are efforts and initiatives to try to anticipate it.
The net effect of these factors, decision of actually starting some of those possibilities, for example, working on a night shift, those are possibilities that are being analyzed, makes this updating of our schedule to be made on the CSN date. This update has not been defined by the project team, and it will be done when it is mature. Carlos, there are some factors that, yes, would generate an update in our schedule. I wouldn't say delay, but there's an effort on the other side so that we don't have any delays. Some decisions the company has not made regarding some of those possibilities.
Okay. Right.
Just like to understand the difference between CapEx of BRL 407 million that you've presented in your report with the number that we see in the detail of the cash flow operation of BRL 391 million. I don't know if you can explain a bit, what's the difference between these two numbers?
I don't have here with us a breakdown. Probably, it's related to cash and competence. There is a mismatch of those things of recognizing CapEx from the accounting standpoint and, you know, effective output of cash. Sometimes these things are not communicate.
I understand. Thank you, Pedro. Not at all.
Our next question is from Yuri Pereira from Santander. Your microphone is open.
Good morning, and thank you very much. With the strong P15 investment, does this change anything regarding dividends?
And in this, well-discounted share price, is there any intent of, sales of some kind of stake? Thank you.
Yuri, thank you for your questions. I believe that regarding dividends, considering our sound position, cash with net cash at the moment, we are comfortable to keep the dividend policy from now on. Any possible change, we'll certainly share with the market, but we have no reason to do that. Regarding sale of equity, from the view, we have a buyback program that has been announced. There is no interest of selling equity. Regarding CSN, I'm not the correct person to approach the topic. It may be addressed at the CSN earnings results call.
Okay, thank you.
Our next question is from Ricardo Monegaglia from Safra Banco. Your microphone is open. Ricardo, we cannot hear you.
Can you hear me now?
Yes.
All right. Good morning, everyone.
Congratulations on the performance volume calls on the quarter. I have a couple of questions. Just, the first, just to confirm if I understand how we can think about the progressive evolution of costs in second semester. For prepayment, did you mention how much you intend to deliver in the second half in these prepayment contract? The third question is a brief one. We were a bit in doubt regarding the foreign exchange fluctuation. I see that in the results presentation, that we see positive variation. Thank you.
Thank you, Ricardo, for your questions. Regarding volume, for the second half, we expect a stronger semester than the first. It is necessary for us to attain our guidance for the company.
As to cost, in the third quarter, despite the drop we had in the second quarter, we see room to keep on reducing cost in this third quarter, lead to reduction of fixed costs, increase in production volume, and also regarding initiatives that the team is always carrying out to make the operation more efficient and reducing costs. An example of this is the beginning of operations of advanced hubs in the mines, so that the trucks have to move less to the filling stations, actually, so they have to have a shorter displacement. There is an increase in productivity, and we have associates and equipment. I mentioned the 25 data. For 2024, we have a projection of 7 million tons. I don't have the data broken down by semester.
This is reasonably linear, 3.5 million tons in the second semester. Regarding foreign exchange fluctuation, when we open the cash flow, the main impact there is actually the iron ore hedge underlying the foreign exchange fluctuation. It's not so much—Well, it impacts a bit more than the financial account there, because it's not on that column. The greatest impact, Ricardo, would be actually in the cash that the company has in dollars of those $11.8 billion of availability. Great part of the cash is in strong currency, is in dollars, where we get paid for our sales, so it's CSN Mineração. This is what explains the positive impact of the cash, well, because of the foreign exchange devaluation over the period. Super clear.
Thank you very much.
Our next question is from Caio Greiner from BTG Pactual. Your microphone is open.
Hello, good morning, everyone. Thank you. I'd just like to follow up on the topic of quality. I think it draws a bit our attention that you have this guidance of 65, iron content for 2028, with a start-up of P15, which is a 67% project. But it draws great attention, actually, that you today you're running of the production of 59%. Only the start-up of P15 would not be enough to heighten so much the iron content, average iron content for 2028. Is it just to understand that you have other initiatives in-house to heighten this average content of the other operations, that you've been talking about that, but it's a bit ahead, but you have more reserve of hematite. How can we read that, each one of those lines?... for you to get to the guidance 65.
Hematite, with 65% content of our, how do you develop the content in each one of those lines that you're going to have over there?
Well, thank you for the question to detail this topic, which I think is very strategic. I think it's very much related to the entrance of the projects. Not on P15, you have recovery projects, out of phase or tailings. All of them are at a level of 65% or even more of iron content. It increases the quality up. Within our assets, processing points, we have the central one that is the heart of the operations. And Caio, it does have an average iron content above the benchmark. On average, we have a volume of pa-mills that you don't have the processing of the ore? No, enriching. It's just a granulometry.
It depends on the strategy, on the plan that we have, and we have a volume of resources that is relevant, that is rich in hematite, in Casa de Pedra, it's a mining plant. It depends very much on our central in the future and allocation the iron ore over time. Well, in addition to the new projects, we have a trend of the dry plants reducing the volume over time. This is reflected in the numbers projected. This helps to explain, Caio, this improvement in quality as well.
Okay, wonderful. Thank you, Pedro.
Our next question is from Camilla Barder, from Bradesco BBI. Your microphone is open.
Hi, Camilla, we cannot hear you.
Hear me now? You hear me now.
Yes.
Sorry. Good morning, everyone. Two brief questions on my side.
First, regarding CapEx, I don't know if it's a bit early to say: Do you have any estimate of disbursement for next year? Second question, just briefly, cash flow we've seen as being very positive. It reached BRL 1.6 billion. We had this positive effect of the hedge operations of BRL 450 million. Just if you could comment briefly how you have this open hedge position, it would help.
Thank you. Camilla, regarding next year's CapEx, we're starting to discuss budget, starting to have some projections. I'd rather not present a number to you that would be subject to relevant update in the next few months. What I may tell you is the number for this year.
We've run so far with a CapEx below BRL 700 million, and we have an expectation of reaching close to BRL 2 million that we had mentioned early this year. So this means that we should run in the second semester at a CapEx materially higher than what we've seen so far. And what I can tell you regarding next year is that the growth will be significant regarding these BRL 2 billion of 2024. Regarding cash flow, you're correct. There's been a positive impact of our iron ore hedge. We had a settlement of hedges, a volume of 4.8 million, at an average price of $129.1 per ton. And with this settlement, we have currently no hedge in the price of iron ore. We don't have any open transactions, and that's the current situation of the company.
Perfect. Thank you.
Our next question is from Igor Martins, from Vokin Investimentos. Your mic is open. Igor, we cannot hear you yet. You may enable your microphone, Mr. Martins.
Our next question is in writing from Mr. Bruno Oliveira, and there are two questions. We congratulate everyone for the good results and questions. Is there any frequency on the payment of dividends that may be announced or enforced by the company on financial leverage? Is it expected to have any material change for the next quarters, considering the increase of disbursement for current projects?
Bruno, thank you for your questions. Regarding frequency of payments of profit. There is no formal policy of the company regarding this topic. I may tell you this, that the decisions are made on the level of the board, and in the past years, all the payments have been made in May and November.
This is true, has been true since 2022. I cannot confirm it that what will happen in the future, this is, depends on a decision of the board. That has been the practice of the company in the past 3 years. With regard to leverage, you are correct, expecting an increase in leverage over the next years, thanks to the greater volume of CapEx to start expansion projects. Fortunately, the projects of the company that are underway have generated expected results, even with the, you know, significant higher ore prices of P15 in the long-term price. We mentioned that in the CSN Day, that last year has only been projected at BRL 4 billion a year for a CapEx that is less than 2 x this amount.
Even though we have an increase in the execution of the project, once they are operational, we believe that the level of leverage of company is still healthy, with space to generate great value to our shareholders.
We would like to remind you that if you have any questions, you may click on the Raise Hand button or submit your question in writing through the Q&A button. Please wait while we collect questions. There are no more questions. I would like to turn over to Mr. Pedro Oliva, CFO and Investor Relations Officer, for his final remarks. You may proceed, Mr. Oliva.
I'd like to thank you once again for your participation in the earnings results call to CSN Mineração, and to congratulate all the team of CSN Mineração that have exceeded their performance to be able to deliver record production with, you know, a drop of 10% and cost resulting in net income of BRL 1.5 billion in the quarter. That is 2.7 x the net income of the previous quarter. Thank you all very much, and have a good day.