Good morning. Welcome to another Gerdau Investor Day. It's always a pleasure to welcome all of you here, and it's nice to see so many familiar faces. Next to me is Gustavo Werneck.
CEO da companhia.
CEO of the company. I am Mariana Dutra, Head of Investor Relations. We'll just go over the agenda very briefly. For today's event, we will start with our CEO. The second topic will be one of the most expected topics, which is CapEx and general capital allocation or financial management. That will be presented by our CFO, Rafael Japur. And for the first time in our Investor Days, we have Mauricio Metz. So he is Head of Gerdau Brazil. And then we will conclude with Chia Yuan Wang's presentation, who is the leader of the North America operation. And then I'll come back for the Q&A. I wish you all a very good event. Thank you. Thank you very much, Mari. Good morning. Again, welcome to our Gerdau Investor Day.
We've been together for many years, but this event in particular is always a very good opportunity for us to give you more details about what we've been doing, how do we see the future, and today, I'm also taking this opportunity to bring a good part of my team, and more specifically, as Mari was saying, I would rather speak a little less today and give the opportunity to all of our other leaders to tell you more about what they do. We will talk about mining, and we will talk about what we think about Brazil, and Wang, last year, he joined us, and so I invited Wang to come over here. He's been working with us for several years: Brazil, Canada, the U.S., so he has a very encompassing view of the North American steel market. He has a very precise view of that market.
I mean, Japur has been with me for years, and together, we will talk about all of the financial issues, but before we begin, we do a lot of these events in Brazil, and sometimes there might be emergency situations in events like that, so when we come to a space like this, we look at everything in many details, especially regarding security and emergency matters. Many events happen in this venue. This building has a very trained firefighter team. We also have emergency access that are very well located and distributed according to our legislation, so in the event of an emergency, I'm sure we will be able to exit the building very safely. I only have two slides in my brief introduction, and then I'll briefly turn the floor over to my colleagues.
I'll just give you a general overview of a few of the things that run through our minds. Speaking about safety and people, we always understand and understood through our 25 years of history that one way of our stakeholders to look at the health of the organization is through some indicators that are often disregarded. I mean, environmental and safety things. Every single employee in our plants, in mining, etc., we look at what attitude they have. I mean, they have to look at the company as they are the owners. They cannot accept any deviations. And I'm personally very shocked when I look at safety, not only in Brazil, but abroad. And sometimes I am puzzled of how little sometimes we evolve. Every year in Brazil, there are 5,800 people that lose their lives in a work environment. So we all experience a distinct situation, a different situation.
Sometimes it's hard for us to feel the pain of the families that go through that. We measure all of these indicators because at the end, we believe that this develops the level of emotional development, the level of engagement of people, and how committed they are to our customers and how committed they are to their own lives. Therefore, we are very mindful of security. In the last few years, we achieved the best accident levels, I mean, lack of accidents in our history. We've never been so prepared to face the challenges ahead. Brazilian companies are struggling in general when it comes to attracting and retaining talents. Another topic that is constantly in our minds relates to the lack of engineers in Brazil. Not very long ago, Estadão, a major newspaper, said that by 2030, Brazil will have a deficit of one million engineers.
This is staggering because in the past few years, metallurgical engineers were very few. I mean, just Gerdau alone would be capable of hiring all of the new graduates in mechanical and in other types of engineering. Therefore, now we are focusing on education because the future of companies like ours, we have to be mindful of the education, especially engineering education of people in our country. Still remains a crucial element for the future of mankind. So in the last few years, I was constantly looking at new business models, and even because I was concerned to see whether there was any material that could probably replace steel. And from all of the progress that I saw in the past, there are materials that will coexist with steel. And we've seen in our everyday work that we are also already using some of these products.
But steel is something that will not be replaced, even though there is volatility in general. And when we talk about that, our business will be around for a long time. The main product that we manufacture is the product that brought us to this state, and this is something that will exist for a long time. Competitiveness and production are also relevant topics for us. We will talk a little bit here about China and the absurd penetration of imported steel. The largest player in Brazil is steel that comes from China, subsidized. So it is really an unfair competition. And then despite the fact that we remain constantly seeking for trade defenses in Brazil, we cannot afford to just sit and wait that our strategy in Brazil is based on trade defense. We understand that there are several opportunities for us to improve our competitiveness in Brazil.
There are several segments of our business. I know, and I'm sure that we can compete on equal footing with other countries, especially China. So we are looking at other opportunities in the mining sector. If you look at the exchange rate in Gerdau's history, a sustainable mining operation is something that will start ramping up at the end of this year, and this will allow us to be even more competitive, something that we didn't have in Brazil in this industry, in this sector. So investments like that will increase our competitiveness edge. And in several cases, we will be unbeatable in regards to competitiveness, even comparing ourselves to Chinese steel. And we are still very firm in our financial discipline and capital allocation. Throughout the past 10 years, we made important divestments. We left 13 countries, and now we remain in seven countries.
These are geographies where we have a competitive edge. We do not intend to open other operations in other countries or leave where we are. We think we are in the geographies that are most suitable for us. We are very disciplined in capital allocation. This morning, we officially said that we will promote a reduction in CapEx disbursement. You know that usually we give visibility of CapEx disbursement early in the year, but we decided to anticipate that because the decision was already made in our last earnings release presentation. I told you that we were looking at that very carefully. So we understood that we didn't have to wait until March. But Japur will give you more details about that. So before I turn the floor over to Japur, I would like to emphasize security.
If we look at all steel producers in the world, we are a reference when it comes to accident levels. One of the indicators measured by industrial companies in general, the number of accidents per hours worked in the steel industry, most companies release these indicators. As you can see through the years, we promoted a very significant reduction, not only in terms of the number of accidents, but the severity of the accidents. That's why we are very proud to say that preserving the lives of our people has been a crucial part of our existence, and we made important advances, and that's why I wanted to show you those numbers, but I'll stop right now, and I will certainly return later on, and if you want more details, you can send me an email. I will now turn the floor to my colleagues.
Now I'll turn the floor over to Rafa, and he will start with CapEx. Thank you. Thank you, Gustavo. Good morning. Good morning, everybody. Gustavo is always great to listen to Gustavo's remarks because we start the day full of energy. So as Gustavo was saying, our release, the release of this morning, we talked about Gerdau's CapEx for the coming years. So I will start by elaborating a bit more on the facts that were released in our material facts. In regards to 2025 CapEx, we do not anticipate any changes vis-à-vis the guidance of early this year, BRL 16 billion of investment. However, Gustavo, myself, and the company's management, we've been very vocal in our last quarterly results when we refer to the need to review part of our project portfolio.
We went through a very important investment cycle related to crucial products that will help us to build the future of the company. One of them is the integration project, and we'll also bring you some more details. But we are approaching the conclusion of a great part of these projects. That's why it makes sense that once we do not have other large projects of the same magnitude, there will be a reduction in CapEx disbursement, which is natural. So for 2026, we are just anticipating the disclosure of the CapEx. But I'm saying that we are reducing our CapEx disbursement by 22%, which totals 4.7 billion BRL. Out of this total, 2.9 billion BRL will be earmarked for maintenance. We will keep our assets operating at a great level of security. And 1.8 billion BRL will be invested in competitive edge and competitiveness return.
I will detail those further on. The left side of the slide, I think we already knew that, but this relates to our main projects. That will be the strategic CapEx of the company, and since we started talking about that, a great part of that portfolio was gradually concluded, was the case of downstream investments in North America, the Ouro Branco Hot Rolled Coils, and so we spent some good time updating our project portfolio, so on the left side of the slide, we present the new view for our main projects. So this was a substantial reduction in the amount of projects we have. Now we're focusing on three projects that in our view will be priority projects for the next three years of the company, one of them being the expansion of our plant in Midlothian, Texas.
In the last quarter, we told you that we postponed the maintenance stoppage to conclude that expansion in the next half of next year because of the impacts we are seeing in North America. And as this is a brownfield expansion, this comes with some risks. So once we understand the scope of the project better, we decided to go through a more secure route. This will reduce disbursement by BRL 300 million in the asset. But again, this also reduces the additional capacity with the investment. The second important project for our future in Brazil is our recycling center in Pindamonhangaba. The shredder and the recycling center will be state-of-the-art. Not only this includes important ferrous activities, especially to increase competitiveness in the southeast part of Brazil, but this will also include the recovery of non-ferrous, copper, and other elements that are very important for the energy transaction.
This will also be a leverage to generate increased revenue. Finally, our investments in mining to be concluded at the end of this year, and the ramp-up should occur in early next year. So after a deep evaluation and once we get closer to the conclusion of the project, we believe that, first of all, we gave an update of the amount invested, which was 3.2 billion BRL. Now we understand that as visibility increases in the last phases of the project, the investment will be around 3.6 billion BRL, which is slightly higher. When you look at the project that was approved in the first half of 2023, when the exchange rate was about BRL 4.5 - BRL 4.8, and today the exchange rate is much higher, about 10% - 12% higher than what was initially forecasted.
But as we got a better understanding of the project, and we will see that further on, we understood that some changes in the scope had to be done to improve the project. And because of that, there was an increase in that investment that in part is mitigated by the reduction we had in the investments in Midlothian. Shed more light on this. This is a more consolidated view in terms of our portfolio in the coming years. So you notice that CapEx, committed CapEx for 2026 of 1.8 million BRL, almost half of this investment is concentrated, I mean, 800 million BRL, slightly above that, is mostly concentrated in these three main projects that are about to be concluded soon.
Part of the disbursement in mining, even though it's about to be concluded at this year, and some of the structures will only be concluded throughout the ramp-up of the operation. That's why we still have some disbursements, even though the project, I mean, or the bulk of the project will be completed at the end of this year. Part of the disbursement will occur next year. I think something new in terms of guidance and market communication, a recurring question has to do with Gerdau's need throughout time to maintain its assets, maintain, I mean, in terms of maintenance. So here we have a guidance that, as we understand it, on average, we will invest BRL 3 billion in maintenance. And here, this includes general maintenance for our mini mills. And also, we will invest in our Ouro Branco integrated mill, including investments in the coke plant and furnaces.
Now, in terms of the furnaces and the coke plant, we have something new to share with you. In the last few years, Max and the engineering team, they made important advances in terms of building a multidisciplinary team dedicated to the maintenance of our assets in Ouro Branco, so they engaged in partnerships with suppliers and other vendors, and whenever we have our predictive maintenance activities, we start by analyzing the lifespan and the current status of our assets, and by doing so, we came to the understanding that we needed, in the case of blast furnace number one, we needed a stoppage for maintenance that was forecasted for 2027, but according to the level of the assets, we looked at it, and we could postpone that while at the same time we maintain the level of performance, so that stoppage was postponed to 2028.
In terms of our coke plants, and we do have expert maintenance teams, we understand that a good surprise that we had through the last maintenance is that coke plant number two, which lifespan would be until 2034, now that lifespan can be extended to 2038, very close to the lifespan of blast furnace number two.
Another recurring, frequently asked questions by our investors has to do with one of the few M&A investments made by Gerdau recent years, particularly those focused on electricity generation in Brazil. Why does it make sense for Gerdau to invest in power generation? And here, I bring you some information. Electricity accounts for 4% of the production cost of Gerdau in Brazil, something which is extremely representative, particularly in moments when the market is more challenging with our margins close to 10% at some moments.
Some investments are capable of improving our competitiveness and reducing by two percentage points our cost. These are extremely important for our performance level. The biggest advantage we have in investing in those assets has to do with three main drivers. The first is that when we purchase power with a PPA, with a provider or a distributor, we pay for the electricity itself, which is in the pie chart. It accounts for kind of half of the value. But there is a hidden part, which are the charges and field fees that we pay, and that increase the total cost of electricity, and they account for the other 50%. And by investing in self-generation in Brazil, we can eliminate that light blue part of charges. If we self-generate, we do not pay for these sectoral charges, and that reduces by half the field charges.
As regards power itself, we replace a take-or-pay contract by OPEX and depreciation of the asset over time. That means savings of 20 percentage points. Overall, by investing in self-generation assets in Brazil, we reduce our electricity bill by 60%, which is a lot. If we consider four percentage points to 1.6-1.8 percentage points, these investments, without leveraging the company, in our understanding, these investments in self-generation assets have brought to Gerdau a return of IPCA +16%, which we believe is very adequate to remunerate our capital. We continue with the possibility of evaluating these power assets to continue to increase our competitiveness in Brazil. Now moving to financial management, indebtedness, and debt indicators.
As Gustavo mentioned in the presentation, perhaps this is one of the biggest strengths of Gerdau's balance sheet, its financial policy, its financial health, low leverage, and the quality of our debt. Why do I highlight the word quality of debt? When we think about Gerdau's cash generation, the percentage of cash generation in strong currency is extremely representative. Today, more than 100% of the free cash flow of the company, which would be a proxy of EBITDA minus cash, excluding working capital for this analysis. More than 100% of the cash generated today at the company is generated in US dollars, which gives us a level of predictability and quality of credit, which is unprecedented in Brazil. When we think about our debt portfolio, credit quality is reflected in the performance of our bonds in the foreign market.
Today, our level of potential issuance, the lower left part of the chart, where we show the difference of spread in U.S. bonds and Gerdau bonds, the last bond issued by Gerdau with maturity in 2035. The last price we had for our bond is a spread of 112 basis points compared to Treasury rate, which is extremely low and extremely competitive. When we compare with other Brazilian players and even Brazilian Treasury, we are very well positioned, and even compared to international players, our U.S. competitors, we see that we are not so far from them, and what is important to highlight is that Gerdau bonds have a high level of liquidity.
They trade really well in the secondary market, as we can see on the top right, more than $63 million of monthly trading, which means that the level of price is not a level that does not have significant liquidity. No, this is a strong mark to market given the volume of trading. And the long-term outlook is very clear regarding the intrinsic quality of credit of Gerdau. When we see the difference between a 30-year bond compared to a 10-year bond, the price difference, which is normally that 30, is just 5 points, 5 basis points only, which shows the long-term quality and the trust that institutional fixed-income investors have in Gerdau and also the credit ratings. And here we have a long portfolio with a long maturity and with a very competitive spread level.
In the latest earnings conference calls, there were some questions regarding the increasing leverage of Gerdau, and I can tell you, Gerdau may have many issues, but leverage, indebtedness is not one of them. Since 2015, we have been consistently reducing the level of leverage measured by net debt over EBITDA ratio. Even with strong EBITDA generation levels in 2021, 2022, Gerdau had a level of net debt over EBITDA ratio of investment grade. Normally, companies work with two times net debt over EBITDA ratio if they're investment grade, and Gerdau has a triple B flat with levels of 1.5x net debt over EBITDA, and 1.5x net debt over EBITDA ratio is our internal covenant. It is our cap for net debt over EBITDA ratio, but at 0.85x , we would have some time to increase that.
Depending on the projection of the front row guys, the sell-side analysts, this would mean between BRL 6 billion and BRL 8 billion additional without impacting the company's rating. It doesn't mean that we intend to increase our level of leverage. It just shows the health and the strength of Gerdau's balance sheet. And not just talking about credit and balance sheet, let's speak a little about the return to our shareholders. Consistently, Gerdau since 2018 has been paying more of its net income than it is set forth in our bylaws. The corporate law in Brazil establishes a minimum requirement of 25%, but Gerdau says that we have a minimum payout of 30% of net income. But consistently, as we can see in the top yellow line, Gerdau has been distributing more than what is set out in our bylaws.
Over the last few years, when we evaluate how much the company has generating free cash flow, 75%, three quarters of what we generated of cash flow has been returned to our shareholders through dividend payout and share buyback. This is a non-negotiable priority for us at Gerdau. Speaking more about return to shareholders and speaking about share buyback, because oftentimes we get asked about that. Since we started share buybacks as an instrument of more effective capital allocation for our shareholders, we reduced at Gerdau S.A. the share count, number of shares outstanding by 7%, which is a substantial reduction. It means that all shareholders who remained with us, they are greater owners of Gerdau than they were in the beginning of the process. We continue with our share buyback program.
The current share buyback program for 2025, up until September 30th, has been executed by 85%, which is the blue part of the pie chart. We have 2.8% of outstanding shares already repurchased, and a good part of the repurchased shares have been canceled. Today, undoubtedly, even in perhaps the most challenging market for the company with a level of CapEx for 2025, which was higher, with a cash generation in Brazil, which was not as strong as we were accustomed to, still, Gerdau is investing in share buyback and is perhaps increasing a little bit its leverage. It was 0.3x, 0.4x , increasing to 0.85x . Why? And why are we doing this? Why do we continue to repurchase our shares? I've shown this to you a couple of times, but I'd like to show it again.
When we compare the sum of the parts of Gerdau, comparing bananas with bananas, in the case of Brazil, in the case of the US, apples to apples, if we look at the last 12 months' EBITDA of the company in each one of the reportable segments comparing with the multiples of similar companies in their respective geographies, the implicit firm value of Gerdau would be around $10 billion, $9.8 billion of firm value. If we discount the joint ventures, non-controlling shareholders, that would detract $1.7 billion. The equity value, implicit equity value, would be $8.1 billion, which would mean a value of about 22 BRL per share. Very similar to the target price of most sell-side analysts, which would give us an enterprise value over EBITDA multiple for the company of 5.4x . Low, but decent.
On the other hand, when we look at the balance sheet, the book value, how much we have accumulated, the book value of Gerdau would be around $10 billion or 28 BRL per share, with an implicit multiple of 6.5x EV over EBITDA, very much aligned with the track record of the last 15 years of Gerdau. It is between 5.5x and 6.5x . However, in the gray middle column, we see that Gerdau on screen is trading at around 16 BRL per share, with a multiple of EV over EBITDA of 4x . In other words, either comparing to our assets or to our equity or comparing with our peers, we are substantially under-evaluated compared to all of these metrics.
So with that, we understand that continuing to have share buyback programs and continuing to reward our long-term investors in the current context is an excellent driver of return and retention of shareholders and capital allocation. And we understand that once we complete the program, we will possibly consider other share buyback programs. Thank you very much for your attention. Now, I would like to invite on stage Maurício Metz, our head of the Brazil segment. Thank you, Japur. Well, this year, I think that some people liked it more, some people liked it less, but we changed the reportable segments of Gerdau. And now we have the Brazil operation, the North America operation, and South America operation, and we don't have the specialty steel operation anymore. So it's important to remind you of the Brazil operation, the Brazil segment.
What I can affirm to you is that there's no one more prepared to speak about the Brazil segment than my friend Maurício Metz. He's not only the head of the Brazil segment, but he built a good deal of his career in specialty steel. I think it's interesting that whenever he visits the mills, we visit them together. He's a very curious guy. I tell them, "I'll shadow you in the mills in the investor days." I told him, "You're going to be on stage side by side with me." What about the Brazil operation? We have 13 industrial plants, and Aldo is here, he's responsible for the specialty steel and automotive segment. We have 13 industrial plants. We have the integrated operation and the mini mill operation. So we have a lot of flexibility.
Of course, we can have very high basis costs and high scale, but because the plants are positioned all over the country, we can have a flexible production. Over time, we expanded the product portfolio, and today we have an operation that makes us very proud. We have the DNA of rebar and reinforced concrete, but that accounts for 30% of our product portfolio. 40% is longs for the industry, including automotive ones, and we are stronger and stronger in flat steels, as we can see in the pie chart. Additionally, we have 23 downstream units and 74 branches of Comercial Gerdau with our own distribution, practically representing the GDP of the country and our operation, which is very much verticalized. So it's basically that. What are we seeing in terms of trends for the year? We're discussing a lot of Brazilian context, oversupply, GDP, demand.
It's a hot topic in our sector overall. We see moderate growth for next year, very much aligned with the GDP, with nuances in the different segments. We follow 30 different segments with very different drivers in the country. For civil construction, which is the segment that has surprised us the most in terms of being resilient, we see small growth for next year, but still growing, but with a good base of activity. Basically, because of the interest rates should affect the growth of high-income residential segment as well as commercial segment, well, individuals have different ways of getting credit, and there are new concessions which are improving investments in infrastructure, and we understand that there will be a demand for steel that can come to life with these concessions. Industry overall, in energy transmission, we had recent auctions which were very relevant.
For a long time, we haven't seen that, so that's positive. Solar power likewise, although a lot of the panels are imported, and there's some demand for our products and all segments linked to agribusiness and productivity of the agribusiness and even basic topics for the agribusiness, so that has a positive outlook as well.
So in a way, they escape the interest rate issue, which is very important for civil construction, so in terms of light vehicles, we see a good demand and a good outlook for next year, but we are still uncertain about the inflow of imported goods that could probably jeopardize the growth or things coming from China. There are several inputs that are now coming from abroad to serve the automotive industry, and there is a recurring question about demand, and I think here you have a good idea of what the sectors represent.
A recurring question we get is, how is Gerdau affected by the major tariffs imposed on Brazil? Brazil does not export plates or almost nothing to North America. So unlike other players, we are not really feeling the effects from the major tariffs, but many of our clients are impacted. Downstream industry, Yellow Line and others, these are industries that export to North America. They are competitive enough, and obviously, this external factor can probably impact demand and probably decrease demand and impact the use of steel and the portfolio. All right, this is a very simple example of auto parts. About 20% of auto parts produced in Brazil are exported, and 20% out of the 20%, 20% goes to the U.S. These are data from Fabio.
So we are saying that 40% of the top line of a very important sector that generates a lot of jobs eventually will be impacted by the big tariffs. So this is, I mean, we're talking to our customers. We are trying to support them, but we have to be very alert because even though Gerdau has positive results in North America, and we will hear more about it soon, it doesn't mean that we don't have to be alert to all of the other businesses that we have in Brazil. I mean, I talked about the operation, I talked about demand, and I also talked about what we expect for every segment. And this is probably one of the most critical factors in terms of this imbalance between supply and demand. And profitability is also another topic that we monitor very closely.
Recently, we had the Steel Brazil Congress, and we talked about that. Now, we are experiencing a record level of steel imports. Putting data in an annual perspective, it's 6.3%. Most of the imports come from China, about 4 million. And there are also some important characteristics that should be taken into account. From 10%, I mean, historical figure, I mean, most of the imports were for flat steels. Flats are reaching close to 30%, according to recent data. And long steels are surpassing 15%, especially wire rod, which is something different from our historical numbers. And this certainly impacts profitability because the competitive dynamics is even more complex for Brazil. And this has led most of the movements in the market that we have seen in the past few years. We are constantly speaking to the government.
We saw the quota tariff system as something good, but there is a lot of dumping and subsidies. We still have to think. I mean, the industry as a whole has to discuss more mechanisms and stronger mechanisms like anti-dumping, which is a mechanism that tries to combat low prices, prices that are even below the cost. We should have a better balance here. We look at the productive chain as a whole. This topic of direct steel import as a movement. This is not a problem of steel alone, but equipment, parts, vehicles, all of the other sectors are being impacted because we meet with these people all the time, and the story repeats itself. There is an impact in the downstream industry, and this is an important topic that needs to be revisited. Well, we were talking about the leverages, the levers.
Having said that, we put together the strategic plan, and we are putting together our own internal defense line in a very competitive environment. We have to position our operation with a cost structure that can be ironclad. We have to tackle competition in a very strong way. So we put together three pillars of what is happening today, and we will see the benefits of this strategy in the coming years. So we've decided to verticalize our Ouro Branco assets. I mean, basically, this means having my own ore to stabilize their production at competitive costs. We also want to grow in flat steels. Our Ouro Branco mill was an exporting unit. We exported semi-finished goods.
Therefore, Ouro Branco is increasingly importing a full portfolio with high added value to the domestic market and the strategic optimization of mini mills to increase the potential of the mini mills focused in a very specific market, buying scrap at competitive costs. So I will elaborate on every topic. Mining, therefore, 5.5 million tons of high-grade iron ore. This is an investment that will allow us to have our own supply of iron ore for many years. So we have 40 years of certified reserves, CapEx of BRL 3.6 billion. I mean, 65% of iron grade is a luxury for a blast furnace. We are not using dams. Gerdau does not have any active dams, integrated logistics with a mineduct, and we have BRL 1.1 billion in EBITDA a year. We expect ramp-up to start early next year.
The cash cost of that iron to be delivered at Ouro Branco is $30 per ton. In a typical year, we will consume 3 million tons, and we will have 2.5 million tons to sell in the connection of the train line we have in our Ouro Branco mine. I will just show the video, and as the video plays, I will talk more. Yeah, the team just produced a time lapse of the construction of that mill. It's an interesting investment because we use a lot of metallic profiles. In terms of the verticalization of the buildings, the construction occurred very, very fast. Some people visited the worksite, and all of a sudden, there was an entire construction already standing. We use metallic construction to expedite the construction of the industrial facilities.
Obviously, this operation is longer than dry processing, and this is what will allow us to produce itabirites, which has a lengthier production process. And this will allow us to get 20% iron, which is the secret to the competitiveness of a blast furnace. It's quite interesting because we have lots of videos and photos. You can also check that out in the social media. At the plateau of the wet sector, we see Ouro Branco at a lower level. I mean, gravity will also help us to take that iron ore to the blast furnace. These are more recent pictures. Yesterday, I mean, last night, I heard that two areas, I mean, the primary grinding and also filtering of the concentrate is already in the ramp-up phase.
Since this is a very integrated plant and very long, and today the critical path is the middle part of the project, I mean, the mill and also all the wet parts of the plant, the team is already testing and are commissioning the edges so we can integrate everything by the end of the year, reaping the benefits in the first quarter of 2026. So this is an illustration that helps us to see what's coming. What is the benefit of the project? Well, we hope to have a potential gain of 400 million BRL by next year. So as the ramp-up occurs, we will then no longer use ore from third parties. We will increase the use of our own ore. Not only ore is important, but we can also consolidate a high grade of iron.
If you look at the total volume of ore, I mean, this higher rate of iron will bring about indirect gains when it comes to reducing things at Ouro Branco because the quality of the iron not only will lead us to a lower cost, lower cost because this will reduce the use of third-party ore. In 2027, once the ramp-up is concluded and all of the costs and qualities are stable, we will be able to save BRL 1.1 billion. 60% is the cost of performance at Ouro Branco, and 40% refers to sales of iron ore. I am passionate by this project. That's why I wanted to make that video. I share your excitement.
But in 2026, not only 2027, in 2026, we estimated that in the Brazil operation, we will have benefits of about 400 million BRL, mainly due to the fact that we are consuming the iron ore internally. We won't have a large number of sales in the first year, or shipments in the first years, but we estimate that we will be able to post something more tangible at the beginning of next year. Perfect. Thank you. The second pillar, very briefly, this shows the growth of flats in general. We have a new capacity, or we will get capacity gains, but we will continue to develop new qualities for heavy plates, a strong focus in the oil and gas industry. So we reinstate our position as a major producer of flats. I have another video of how we operate. Last week, we produced 4,000 tons in a single day.
[Foreign language]
[Foreign language]
Beautiful video. Congratulations, Mari.
[Foreign language]
How is the ramp-up moving and what are the benefits of the project?
As we developed all of the new sections of the plant and we were moving it faster, certainly our productive capacity increases and we reached 100% of production capacity in this last quarter. The benefit of the project: 80% is revenue. We are no longer selling plates in the domestic market or the external market. We are selling now coils. We have a very good go-to-market approach, not only in terms of production, but industry. We have gains in productivity and revenue and also quality improved. The surface of the material allows for new applications, and through the agile chain, we don't have to cut the sides in the finishing process. Obviously, new sectors can also be served with this new product, and we continue to use Comercial Gerdau and other partners to process and industrialize the coils.
As part of that approach, we have now a supplier that can also process structures and merchants in Araucária as part of that model to use our own facilities to serve our customers. Japur ? Now, speaking about the mini mills, I think we talked about mining, flats, and the maintenance of our critical assets. I mean, the DNA of our company has to do with scrap recycling. That's why we thought it would be important for us to tell you what we are doing to optimize our assets. Obviously, there are some different characteristics when you look at the integrated route and mini mills. So we are looking at the units more regionally. We are trying to make better use of our assets. We are focusing on the local market. What is the DNA of that plant? How can I better recover scrap?
How can I increase the use of assets? Then acquisition and processing. I will talk about an investment we did in that area. We have a very competitive energy portfolio and CapEx adjusted to that region. This is just an example of changes in our footprint. We are potentializing that concept. To do that, we stopped the Mogi das Cruzes unit. We invested in the billets after starting with settings. We have a mega shredder in Pindamonhangaba, which is capturing scrap in that Pindamonhangaba region. We are now getting scrap at more competitive prices. This portfolio, competitive energy, is totally earmarked to these units. We have a regional view of products. For instance, this is a small investment, but it makes it feasible for us to produce larger profiles at Cosigua, increasing the portfolio and also decreasing our dependency on Ouro Branco.
These are just a few examples of how we are improving our footprint organically, serving our customers better, and also increasing competitiveness, which is the name of the game right now, so thank you very much. I'm very pleased because I just concluded my remarks. We are becoming stronger in Brazil. I mean, Gerdau's DNA is here. This is where our strength is, and regardless of all the challenges, we have a very strong plan going forward, and now I will call my colleague Wang to talk about North America. Thank you. Next time, I'll come here by myself.
[Foreign language]
Good morning, everyone. It is a pleasure to be here. It's always good to come back to Brazil. I've been in North America for 24 years, but I grew up here, and I'm extremely thankful to Brazil.
They gave me practically my education free of charge. And I was a record intern at Gerdau, at Rio Grande, and then 10 years in Canada, two years in China dealing with M&As, which didn't work. But it's a good thing looking back. Sometimes not doing a couple of things is a better outcome. And of course, in Canada, in the United States now. So it's a pleasure to be here. And I'm representing the North American segment. And Billock was my friend in college. He's here as well if he has anything to add. You know, I'm going to give you an overview of North America, the North America business. And I think then we cannot speak about steel in the United States without talking about the tariffs, right? So this is very clear when we look at this.
Well, I don't intend to give you all of the details. I think you know. And things changed dramatically. Last year, things were declining. And now with the tariffs increasing to 50%, things changed completely. So what was the impact? When we think about the tariffs, we think about the level of imports. So on the chart on the right, we start seeing that imports started declining as the tariffs were imposed. And one more detail for the United States: it's not just 25%-50%, but there's also the byproducts involved. So it includes a lot more in terms of total steel volume. In Canada as well, Canada imposed a retaliation tariff to the United States. So it's a 25% tariff. And this has an impact for us. And I'll speak about our operations because we have assets both in Mexico and Canada.
And also Mexico is proposing, so like everyone is trying to defend themselves, proposing new tariffs of 10%-50% on steel imports. And the impact is that imports are dropping to levels similar to 2018, 2019, and 2020. I'll speak about the demands as well. Demand is kind of sideways. Occupation or servicing demand in Mexico includes the players in Mexico. And that benefit it has. We practically operate with the U.S. assets with 100% that reduced imports, and that was substantial. And there's a reflection on price as well. As you saw, prices started increasing in the first quarter. And in terms of line of product, the strongest line of product would be for structural profiles and beams. Merchant bars are a little weaker, but overall the prices are quite strong right now.
We look at the import spread in terms of beams, structural profiles, about 7% for the profiles overall. If we start looking at U.S. prices compared to international markets, it's a big differential. This has driven our profitability. Another point that I think is worth highlighting is that normally when we start negotiating commercial agreements, steel is included. Only the United Kingdom has reached 25%. The rest hasn't changed. There's a big movement around the world of seeing steel as a national security item. We believe that this trade defense tends to be prolonged. We don't know how long, but our feeling is that it will continue. USMCA negotiations will be critical in the end of the first quarter of next year. In our minds, I think it makes sense to have this block.
It should mitigate flows between Canada, the United States, and Mexico. This will have an impact on our operations. To me, these are the most important highlights. And here we see the impact of all this on Gerdau. We know that we have 25% of our assets in Canada. And we have about 150,000 tons from the United States to Canada. And the other way around. When the tariffs are as they stand today, we had to quickly examine the flow between the borders, across the borders. And what happened was we tried to ship less material to Canada and vice versa. And we tend to focus more on the domestic market. So the U.S. operation is focusing on the domestic market quite strongly, with high utilization of the assets and with very good profitability. In Canada, we had to adapt there.
Now we're working more on merchant bars and rebar. The financial result is a little lower, but quite sustainable, particularly for Cambridge and Whitby. We have the Manitoba operation with slightly differential. Those are specialty profiles, and 50% of the volume will come to the United States. So on average, we are sharing tariffs in some cases. So the result of all that is that we generate a lot more results in the U.S. outside of Canada. So this is manageable. And in the United States, the sectors that are bringing us a big up will be solar power. And I'll speak in more detail about that. Gerdau operates in a differentiated way. And I will show you how. In SBQ, 25%-50% for automotives and auto parts. And here, this is an onshoring process.
It takes a long time, but we're starting to see some positive results in terms of quotations. The quotations normally translate and result in orders, so this trend is also pointing to a positive trend. People ask about remanufacturing in the United States, and if we are seeing an impact in terms of volumes, perhaps it's too early to think that there will be an extra demand for steel, for remanufacturing, or nearshoring in the United States, but in the case of North America, we provide the automotive industry more than 85% of the portfolio. When a car maker is going to launch a new product on a new platform, they have to have approval by the OEMs, and they have to have approval of the parts early on. These are not off-the-shelf parts. They are parts for specific models.
On specialty steels, this is a good indicator of trend, as Wang mentioned. We are seeing a greater number of quotations, new orders. They are saying, "What would be the price to manufacture this type of specific steel for this kind of application?" This is a good lead indicator that there is indeed a process on the way to increase consumption of the steel industry. In the USMCA negotiation, it is bringing benefits for us. We are not bringing steel from Mexico to the United States, by the way. That's an important point. Then we start looking at the demand in the U.S. Demand overall is kind of skidding sideways. There are some positives and negatives. It's quite stable, typical of a stable economy of the United States.
Now, a reduction of imports makes players have a big advantage, even if the demand is sideways, so considering the sectors, 55%, well, 5% of the portfolio is downstream, 50% of profiles, 45% of merchant bars. I'll speak more about renewable power. That's a strong sector that has an impact in the United States, and renewable power, the One Big Beautiful Bill, OBBB, will accelerate spending with renewable power. We believe that the cost is so positive today compared to conventional power that this will continue, and we are well positioned to capture this demand and have a high utilization of our assets operating in this market, and in nonresidential construction, that's the weak point, and I think that the big hope here is regarding interest rates. The trend is of a declining interest rate, and this could be slightly negative, but could improve. In infrastructure, I personally expected more.
We're not seeing such an impact, but this is good. Perhaps it's some savings that we can activate in the coming years. One thing is sure. If you travel to the United States, you know that the infrastructure is deteriorating, and they'll need money to invest in infrastructure. There's still very little signaling in that direction, and this impacts practically all of the product lines. Automotive, there is a big negative impact in terms of affordability. Automobiles are very expensive right now. There's a 1.9% decline in production of lightweight vehicles, but in terms of demand, Mexican players are changing. So the trend is that this will be recovered by Mexican players, and reshoring will take a little time. I think that the process is not clear yet, so this is slightly positive.
Manufacturing, if we look at the PMI indices, this has been contracting in 31 of the last 33 months. But this is stable. This results in merchant bars being not as strong as structural profiles because of solar power and investments in data centers. So that's the overall picture for demand. And now looking at supply, we start studying new capacity in the United States, and it's kind of scary. However, if we analyze in detail, most of the new investment is going to flats and rebar, particularly in micro mills. These are new technologies that bring us new sections or that bring a significant cost differential. They make new investments, expecting that they will exit the non-competitive assets. And this is not happening in merchants and structurals. And most of our portfolio operates with that. So these technology opportunities are not present.
Everyone is investing in brownfield, and that's why we're not hearing about greenfield in this product line of merchants and structurals. It is estimated that the structural profiles capacity in the north of Mexico, the north of Mexico, will reach the American market in 2027. It will depend on the tariffs and what will happen with the unfolding of this project. We're talking about 7% of merchants and structural. There's also Midlothian involved in here and some micro mills expanding to merchant bars. This can be done, but we cannot ensure the full range. And we do not believe that they will be producing this at competitive costs with a dedicated merchant bar mill. What can happen is that with the appearance of more micro mills, this will allow the hybrid competitors to participate more in merchant bars. But again, they will not have a much better cost level than we do.
In that regard, I think that we will remain very competitive in structural profiles, merchants, and structurals, so this is something for us to look in detail. I think that we are in a very strong position, and here, looking a little at our journey in North America starting in 2018, here we have a combination of divestments in St. Paul's, sale of rebar. We spoke about optimization of assets. We've done that as well. What matters is we're not losing volume or market share. We're just transferring to other plants, so we have the rebar mills that can work as a buffer for us. We have a utilization level which is much higher of our mills compared to six, seven years ago. This is a big differential. This resulted from investments. We can see investments in Petersburg, Cartersville, Midlothian, Jacksonville. They are the powerhouses for us.
That's where we will invest. That's what will bring us results. The assets that will remain competitive for many, many years to come. We also changed the go-to-market strategy. We had a structure based on segments, construction, manufacturing segments. It's no longer done by region. And now at Gerdau, we have the most well-manageable commercial platform that gets good feedback from our customers. And we are expanding a lot the downstream segment. One example, solar power. So we had our CapEx because we needed to invest in sustainability. We do this to bring new sections, expand the portfolio, increase profitability. At the end of the day, this is about the cost structure. Today, our mills have a higher utilization rate with a better cost structure, with an offering of our portfolio, which is better. And this is what's bringing us the results.
And solar power, this chart in terms of installed capacity in gigawatts, we can see that because of the law, this has increased a lot. So it would be a market of about 1 million tons a year for Gerdau. Well, we have about 30% of that because we are very well positioned in our Midlothian, Cartersville mills, and in Florida. Over there, we have the solar farms installed in the United States. And we have a vertical integration. We have three channels to go to market. We can sell, roll the products directly. We can hire third-party processing and sell directly to projects. And the trend now is to sell directly with a processed bar directly for the projects. This helps us retain market share. It adds value, and it increases our margins quite a lot.
When we look at piles used for solar power, seven years ago, this was zero. Now, it accounts for around 6% of the total portfolio, about 4% for the whole of North America. This is reasonably high and with a good profitability. And this sets us apart from our competitors. One important point of renewable power, this is a frequently asked question. They ask, "How worried are you with the reduction of investments in solar farms in the United States in the future?" By analogy to Brazil, it is important to individualize distributed generation for individuals, when individuals set up solar panels on their roofs. In the U.S., there are more houses rather than flats, apartments. So they will be placing solar panels on their roofs. But investments in industrial solar farms, this does not have a clear trend of reduction.
The impact will not be that representative, given the demand that we see of power sources for consumption and for the investments made in data centers. In LLM models, there's an outlook of not just solar power, but all power sources will be needed to supply the power needs of the United States in the future. Even with the total investments in solar power being reduced, perhaps the specific consumption of steel for solar farms will not be that reduced. One million down to 750-800 million. That's still a good volume for us. This is an example of an agility project. We saw this opportunity, and we approved this in the board very quickly with Gustavo in three weeks. That meant a significant investment. Now we are delivering it six months, or we are starting the project six months before planned.
This is a downstream investment. It has no channel conflict with our customers. Nucor is also doing that, and just beside the Midlothian plant, we have thermal treatment. Our solar farm has 80 megawatts, so here our vision is to create a solar pile park, capacity of 90,000 metric tons a year, accounting for about a third. We will always want to have 5% utilization, prioritizing our downstream with an extremely competitive cost for lines. One line is already operational. The second one is being tested by year-end. We'll complete the ramp-up. By the end of 2026, we'll complete the ramp-up. The whole processing of the piles is done via laser. Our competitor chose the press. What is the advantage? Laser cuts a lot faster with a better finishing, and I don't have to change the setup from one order to another.
In the press, you have to do a physical setup adjustment, not here, so this is very innovative, and we are learning more and more how to operate downstream, and just like with scrap, we want to expand vertically.
We have eight people per shift to operate the four lines, and here, we look at the data centers. This is surprising if you look at the investment. We are participating in the flooring vis-à-vis our competitors, but we have great advantages because our plant in Virginia is located in the region where there is a large amount of data centers. We have a dedicated team serving data centers. They are constantly adding new projects to our portfolio, and this is a region with the lowest carbon emission in the world, particularly North America, and this can bring us future benefits if the agenda grows.
We also have other investments in Midlothian that helped us to prepare a good portfolio to serve that market. Finally, I would like to speak about Midlothian. Midlothian is our largest plant in North America to melt shops. I mean, we had to do a lot of things. We are working to upgrade. I mean, there is phase one investments of 1.2 billion BRL, translated into $275 million a year. What is the project entails? First of all, we will increase the runs. I mean, if you're familiar with melt shop, the easiest way to increase the volume is by refurbishing the structure, putting new bridges. One of the ingotings that we call knockball, we are doing a significant ramp-up that we are introducing a state-of-the-art new area. This ingoting will increase the production of the rolling mill.
We call this combo caster, meaning that if you put three areas, one goes to the ingot line and the other one to other areas. This will increase output, and this will allow us to produce more and to produce things of larger sizes. So this is phase one. Phase two, I will elaborate when that comes. So thank you, Wang. Thank you very much. Wang almost missed his flight. I mean, the pilot lost his passport, and Brazil didn't allow him to get a passport waiver, but all things considered, I'm here. So let's move to our Q&A. So thank you, Wang and Japur and Gustavo for the presentations. I couldn't tell who raised the hand first, but let me just put the chairs together. Let's wait until our presenters just drink some water.
There is a microphone in the auditorium, and we will take the microphone to you so you can ask your questions through the microphone. Please identify yourselves and tell us the company you work for when asking your question. Okay, Mari.
[Foreign language]
Do we already have all the microphones? I see a lot of hands up.
[Foreign language].
Okay, we can start with Caio.
[Foreign language]
Good morning.
[Foreign language]
Well, thank you. I'm Caio Greiner from UBS. I would like to focus on two subjects, especially like we have Chia Wang present here today. My first question is to Chia. We talked a lot about the commercial strategy of Gerdau in Brazil, and I think you're mostly focused on rebars.
In the last nine months, it became very clear that Gerdau adopted a more aggressive position in terms of market share because you understood that it wouldn't make sense to operate with such a low market share because you lost a lot of market share due to recent imports and the entry of new players in Brazil, and still, when we talked to a lot of people in the industry, they said that Gerdau is now more aggressive and that you're operating at prices that are lower than the competition in some instances, so my question is, how far will Gerdau go with that strategy? What should we do to recover X points of market share, and now the company is ready to add more value. Maybe they should start thinking more about margin. I know that Gerdau thinks about margins.
You were very aggressive in your cost strategy, but thinking more on the commercial side. And Wang, my question to you, even going back to what Japur said, Japur said that when the market is complaining that your net debt over EBITDA ratio is too low, now I will play the devil's advocate with Wang. Last time we talked, we talked about value over volume in North America. And you said something quite interesting because now we are seeing extremely high prices of your products, merchant bars. You were able to increase prices, and I think there is room for further increases. But the question I hear from investors is, why is it that this does not motivate new capacity entries in the U.S.? How come this balance is not broken? And why is it that you do not add more capacity? Is it because competitors are not adding capacity?
Wouldn't it make sense in economic terms? I mean, is there a little bit of this volume over value approach at play? Okay, Marcos, before you talk about rebars, and Caio, whenever people talk about rebars, I just want to give you an overview in general terms. The audiences with whom we talk to, and our customers as well, they still believe that Gerdau is a rebar-only company. I mean, or reinforced concrete. It's the fourth largest segment of our total portfolio. We are a company that produces flats. We produce special steels. We are a company that produces structurals. And we are then a company that produces reinforced concrete. And that involves many products and many customer channels. So this very specific point that you were mentioning, and Marcos, you can also then talk about the percentages of each side.
This battle in rebar is more related to rebars that go to distribution. I mean, rebars that go to civil construction, there is no competition with imported products because our service level is different, and you also need ready delivery. If you look at putting concrete to build a skyscraper, in the past, that would require a lot of steel and cement. It was a very confusing working site, but today, if you look at our work site, there is nothing stored right there. The truck arrives, and it delivers steel, and the, I mean, the construction company prepares the floor. Every piece is numbered. Every position is numbered, so competing in this segment is very difficult. I mean, the imported good finds competition in the product that goes to the construction stores, the construction shops, so we're talking about two different markets.
In the U.S., you have big Home Depots. But in Brazil, the market is very fragmented. It's more focused on residential construction. There are 150,000 construction stores, and so the imported goods penetrate that distribution industry. Because when you look at the profitability level in view of that battle with rebars, this does not motivate the entry of imported goods because of the profitability issue. I think Caio is referring to the fact that there is a lot of competition in the distribution of rebars. Yes. Gerdau, in its long history, was the one that now got a lot of market share in longs. It's very difficult to export using scrap. You do not have a cost structure that would be enough to sustain that going forward, so we made a decision, and the market understood the context. It understood this dynamics of the distribution sector importing things.
You run all the batches through iron ores. This was a movement that was extensively discussed. This can change anytime. I mean, if there is a reduction in imports or for other reasons. Today, we set up a limit to ensure at least a minimum production in the plants and to reduce costs. Speaking about prices, oftentimes competitors, I'm not going to mention any names, sometimes competitors set the price as saying, "It's Gerdau's price minus X%?" If you think about Gerdau as someone that is reducing prices, it sounds like it's something contradictory. Or maybe it's just a commercial strategy of the other companies. In general, the price reference starts with Gerdau. I mean, considering our presence in Brazil.
The topic of distribution and rebars and imports. This is part of the debate we have when we go to Brasília because we are asking for some isonomic competition. There are difficulties in Brazil. Take, for instance, this bilateral agreement that Brazil has with Egypt since the beginning of the years 2000. This is a great entry door for rebars. How can we have an equal footing and competition if with this bilateral agreement with Egypt is different? I mean, Santa Catarina, this ICMS rebate, this is a lack of level playing field. I mean, when you have equal footing and competition, there are two major non-isonomic entry doors of this rebar. One is the bilateral agreement with Egypt and Santa Catarina. We want to fight that.
We believe that by increasing our competitiveness with this cost reduction in mining, we just occupy the space that was ours to begin with. We will see more competition because we want to occupy that space, and it will be there for good. That's a good question. I mean, we ask ourselves that question all the time. I think I will revisit what I said. First of all, in terms of supply and demand, in the U.S., things are very fierce, especially in terms of merchants and structurals. If you look at the structurals or merchants, there are only three players. Commercial structures, there are four players. No more than that. These players set some discipline. Do you remember the Bayou Mill ? They produce merchants, and they ended up closing their doors. They shut down.
If you look at the prices in the U.S. market before and after that mill, totally different now. There was a player that was desperate to sell. But now, today, we have consistent players, well-disciplined. Therefore, now, if you start analyzing the equation, there is a very high CapEx. It takes much longer than we think because it's hard to find contractors. Civil workers, they're expensive. When I look at a melt shop, I ask, "Should I refurbish that equipment or just buy a new one?" Sometimes the cost of capital of having a new one is too high. And all of our competitors are now investing in organic growth. It doesn't show here, but it's 50,000 tons here, 25,000 there. Once you add up, that will be the equivalent to a greenfield mill. So mainly for these reasons, and in addition, the market dynamic can change overnight.
Today, you say, "Okay, I mean, maybe tomorrow the numbers should come down to 80 or 95." So there is no technology that can bring any significant differential in terms of cost. So for all of these reasons, I mean, everyone wants to avoid cannibalization because we've seen that in the past. And we do not want to move value in the change either up or down. So that's the answer. I mean, the productive steel production does not have any major innovation since its inception. So we are constantly looking for cost reduction opportunities. And one of the innovations that we saw in the past few years in terms of rebar production is what the Americans call micro mills. To reduce cost, they remove a reheating furnace, what you produce of different steel specs.
And this has to do with CapEx as well because CapEx is very high, and this does not motivate the sector to invest there because in the U.S., people are very aware their profitability falls. Not when you have a new plant, but the day you announce that a new plant is being built, profitability falls. So that business view to operate in the U.S. is more mature than we are here in Brazil. Therefore, I think that if someone were to have a new plant in the U.S., they would have announced that maybe in Trump's first administration with Section 232. And I mean, we won't do that. Japur already said that this will hardly happen. And the idea of betting on the phase-out of legacy assets is very dangerous. You recently saw how much money that the Canadian government is giving to Alcoa.
I mean, even non-competitive assets take a long time because there is a lot of risk involved.
Good morning. I'm Rafael Barcellos with Bradesco BBI. Congratulations on the event, and congrats to the IR team for the organization. My first question is about a topic mentioned in your presentation, Japur slide number 17, where you showed the sum of the parts. It's not high as the performance in North America, how different it is versus the Brazil operation. So we see the difference in pricing. In that regard, we have seen other Brazilian companies exploring the same point, unlocking value with a more appropriate structure to capture that value. How are you debating this topic at the company? This could be interesting for us to hear. My second question is more specific, capturing what Wang mentioned about the micro mills. Wang, we've talked about this in the past.
It continues to be a hot topic. I'd like you to elaborate so we can get more detail. To what extent can we see migration to merchants? We see a level of profitability for merchant bars quite interesting in the U.S., even with a lower profitability level. Perhaps that can be a move that can happen, and how big will be this movement, and Marcos, how can the U.S. example be followed in Brazil? Perhaps to get away from a more challenging market and migrating to a better market in comparative terms. Thank you. I'll start answering your first question on slide 17. We are following the moves that companies like JBS and others are making, perhaps to reconsider their domicile. It is not a dogma at Gerdau to evaluate the fiscal benefits and costs necessary for making this kind of corporate change.
We do not have any tangible plans to execute in that regard. But of course, it is an opportunity that we may explore in the future. It is important to highlight that today in Brazil, we are discussing the eventual tax reform that will impact both dividends and perhaps profits abroad. So these are topics that Gustavo, the board, and myself, we evaluate. But right now, we don't have any tangible plans for that. But we are monitoring the moves made by Brazilian companies in that regard. At the SEC, there is also some debate ongoing, some open consultations regarding the eligibility of foreign issuances. So there are a number of moving parts that we have to take into account to make a decision, a decision which is extremely complex and which has a lot of repercussions, not just for the company, its shareholders, stakeholders, and the community overall.
As for the micro mills, this is an interesting topic. We don't have a micro mill, but we look into that a lot in North America. Our biggest micro mill competitor, that's California. They are trying to produce merchant bars and rebar at that plant. And it's not easy. They're having a hard time. And the OEMs are not good for that. And even with rebar, I agree with Gustavo, small gauges of rebar for micro mills are not desirable because productivity declines substantially. If you look at another competitor operating with micro mills, after all that, they made a decision of not making profiles and merchant bars in the micro mills to avoid that kind of risk and complication. It's not just the rolling setup. We have to change the section, have to stop, change the setup.
That takes time, and that kills the biggest advantage of the micro mill. It contradicts the whole equation. The second point is casting. When you cast four meters per minute and you increase that to eight and 10, the chemical composition, the whole variation in the run will have an impact on productivity. There are technical consequences involved which are not yet solvable today. So perhaps in the future, micro mill merchant technology will appear. But I don't think that it will be enabled to convert the current micro mills to convert merchants. So it's all very complicated. What will happen is when you have more rebar capacity via micro mills, the hybrid mills for some of the competitors, they can pivot to merchants. But it depends on where the mill is located, the logistics, the cost structure. That can add pressure to the market.
But I even think that they will be in an advantageous position vis-à-vis us in terms of location, portfolio, and even the cost structure. Let me add, Rafael, I think that all four of us here, we're each dealing with a relevant project at Gerdau. You spoke about changing the fiscal domicile. Japur is dedicating a lot of energy to that. There's nothing mature in the radar, but Japur is studying that together with the board. I mean, we have to discuss that given the maturity and the moment that the organization is living. Another big project for us is what are we going to be in the future, 10 years from now in the United States? Wang spoke a little about downstream. Nucor has been doing this for a while. We have been cautious about that, but we are taking some steps in that direction.
Marcos is looking in detail at the reconfiguration of Gerdau Brazil. So is it possible to replicate experiences in the U.S. in Brazil? It is possible, but in the next 10 to 15 years of steel production in Brazil, I think that there will be significant changes. I cannot really tell you how it will be, but there are some very important questions that have to be considered in our day-to-day. If we look at mining, for instance, if we don't have our own low cost and highly competitive, or it will be very difficult to compete. And also the level of care with the coke plants, for example. It's incredible. If you monitor the segment, you know that if the coke plants are not healthy, the cost to replace the equipment is almost prohibitive. So in 10 years, will everyone continue to manufacture steel in Brazil?
Or perhaps in 10 years, Brazil will be importing those slabs. And then we will roll more than produce crude steel, perhaps. It's a question that will be answered. It's a very relevant question. This concept of micro mill in Brazil, when you have a small-scale mill in a certain region, in a certain geography, you buy local scrap, and you use local resources to sell to the local market. That worked in Brazil for many, many years. So these are questions. Will it continue to work in the future? Perhaps not. Perhaps yes. So Marcos is doing all kinds of analysis. We've been closing down, decommissioning less competitive mills. Usiba in Bahia is not operational. There's another one that is losing competitive, and it is closed. We are in the process of migrating specialty steel from Mogi to Pindamonhangaba mill.
What Wang and people in the U.S. call powerhouse, that's a concept that is changing. We move from small scale. We start having greater scale and move around the material more. Perhaps the charcoal route will no longer be competitive in Brazil. There are blocks and flats that are using this. There's the cost of land, there's the cost of trees, the availability of hematite, low cost. Low cost or it does not exist anymore. If you look at mining, or if you look at all players, even the mainstream players, they have a very high level of CapEx. Because to enrich itabirite, remove silica, and removing other components, it requires a lot of CapEx. So there will be significant changes coming in the mining environment and in the steel manufacturing environment in Brazil, and we want to be in the avant-garde of that.
We are looking for more detailed answers than whether this model is replicable or not, but rather if replication makes sense or not, looking at these substantial changes that are coming in Brazil, in mining, and in steel making in the coming years. These will be important changes. Daniel Sasson with Itaú BBI. Mari, the IR team, thank you for the organization. Thank you for the presentation. I think that you made an internal effort to communicate the guidance for next year. To that point, Japur, if you could detail if we sum BRL 2.9 billion of maintenance CapEx with the BRL 800 million for the three major projects, Miguel Burnier, Midlothian, and the Pindamonhangaba shredder, that increases to BRL 3.7 billion. What about the remaining billion to get to the BRL 4.7 billion in the guidance? I imagine it is a number of smaller projects.
So perhaps if you could elaborate, what are these projects? What has been approved by the board? Is there anything not approved yet? Do you have space to maneuver to perhaps this worst moment in 2026 to be below BRL 4.7 billion? My second question is perhaps to Wang, and it's related. Briefly, Wang, you mentioned briefly the phase two of Midlothian. So you're living a good moment for the business in the U.S. So what kind of market conditions? What do you need to see for you to want to move forward with that Midlothian expansion? Or do you already want to do it and you just have to convince Japur to give you the money? I just want to understand, in addition to the BRL 3.7 billion for maintenance, this has been a super nice guidance for the next five years.
But how are you thinking about the new projects? Perhaps you have room to even increase the 75% of money returned to the shareholders in the absence of major projects. Thank you. Hi, Daniel. We tried to detail in the disbursement CapEx for 2026. We're going to have BRL 1.8 billion for competitiveness projects, and almost 45% of that are the major projects, those three major ones. And there's BRL 1 billion reais for other projects. In that portfolio of projects, we have a number of smaller initiatives underway. Many of them are already approved, and they're moving forward. To give you some examples, Marcos mentioned one example. We are investing to expand our capacity of W150 profiles of Cosigua and Rio de Janeiro. It's not an investment of hundreds of millions of reais. It's a smaller investment, but a competitiveness one.
It's not a maintenance investment, but it creates value for us. It improves the Cosigua portfolio, our go-to-market strategy, and it brings us a return. Just like Wang mentioned, other investments we made, smaller to the bottleneck, our mills in North America, which add competitiveness and add capacity. But these were not projects which individually will move the needle. So I think that many of the projects are of that nature. Of course, we always have room to disburse less with these competitiveness projects because we will not stop performing our maintenance investments because we have to ensure the health of our long-term operations. But in this BRL 1 billion of other competitiveness projects, there are some initiatives that have not yet been approved. They will be approved most likely over 2026, and these may be discussed. We have a good outlook that they will continue.
A good part of that investment is already contracted, has been approved already. This 22% reduction in disbursement for 2026 is the result of a smaller number of projects approved. So there might be some room for that, but that reduction would not be very material in 2026, considering these competitiveness projects. Before I turn the floor to Wang regarding the investments, you say that I need to put money in the pocket. Well, I think that there's the financial aspect, but it is also important to remember that there is also the technical aspect that Wang will explain. And it has to do with the complexity of making a brownfield investment. It's almost like renovating our homes. Either you move out, or it's going to be a hassle.
When you're operating at the mill and you're going to make a brownfield investment, there will be many interactions with the existing assets and the day-to-day operation, and oftentimes, you don't have clarity when you're starting the project of all of the repercussions you're going to have when you make that kind of investment, so this is not just a supply-demand topic, but it's also a risk management topic. We have to have more clarity, right, Wang, in terms of industrial engineering before we invest more, so Midlothian involves that, right? It's good to have a CFO who understands the business, but you see, it's quite interesting. When do we want to invest? When we're doing well, when the market is hot. What do I do with Midlothian? How many days can I stop, or what is the risk involved?
When the market is poor, Japur will not let me do it. One important point, when we approve an X amount to invest in Midlothian, it is understood that a part of that, sometimes 50% of that, will be done anyway. The question is, what are the next steps? I spoke about the size of the tap weight. In Midlothian, what do we want? We have a production capacity. Gustavo spoke about the powerhouse. At Midlothian, we have 1.4, 1.5. It really depends on the market portfolio. We would like to increase that to 1.7 or 1.8. Not just that. With a combo caster, do we need three casters?
There is $3 billion in an additional $3 billion for the competition CapEx. They look at the numbers without looking at the necessary counterpart.
So maybe we don't have an answer yet, but I would just like to get a better understanding about how should we think about Gerdau. I mean, what is the difference between maintenance CapEx and recurrent CapEx? It seems to me that we have two different numbers because this may lead us to difficulties in pricing. Anyway, I don't think my question is clear. I don't think I don't have any clear question. But more like, are we going to see that BRL 3 billion in your P&L? Maybe the answer is no, but maybe you would penalize with an additional BRL 1 billion a year. And my second point to Wang, I think your major project is to develop downstream about 2% of the total. And according to what Gustavo was saying, you were benefiting from better margins, and you tried to communicate that as being more recurrent.
So maybe if you could give us more details about where you're looking at, if it's just energy or if you see an upside in other sectors that could probably add more volume. And with that, we would have bigger margins, recurring margins, and what do you see coming for the U.S.? First of all, this provocation is absolutely relevant, even though it might be difficult. And I talked to Japur and Mari , saying that we have to give you more visibility and give you more and more details, probably very similar to what we did with the mining project, because it's not easy to put things on paper and show it to you. So how can I translate in writing the health of our blast furnaces and the coke plant?
I mean, if I look at the competitors we had in the past when they talked about the health of the equipment, how it would be if we didn't have an operating coke plant and how much value that could destroy. So how can we translate the health of our equipment in Ouro Branco and also the fact that safely we could postpone a maintenance stoppage of our blast furnace? So for you to say that the health of my equipment will certainly allow me to deliver what I deliver to my promise, this is the summation of many investments. But the equation is ready. I think what we are lacking is more visibility. I mean, how can we show you in numbers? Because when we say that we have to be mindful of the health of our equipment, I mean, this is something that is already in my mind.
We just have to work on the details, how we can give you more details. Maybe we could look at the insurance. How much insurance are we paying? So when the insurance company has to reinsure your assets, they do a great scrutiny over the equipment. When you look at the insurance policy, maybe we could also show that it pays off to invest BRL 1 billion, BRL 2 billion, BRL 3 billion just to ensure operating safety so we wouldn't have problems in the future in the blast furnaces or coke plant. I think for us, sometimes it's frustrating for us when we want to show you the returns we have in the mining project, etc. And sometimes we don't perceive that as being totally captured. So when we say BRL 1 billion of others in competitiveness, I would say all of this BRL 1.8 billion of competitiveness, including scrap processing, mining, and HRC.
I mean, the summation of the parties is not perceived by the market at all. This is frustrating, but it's up to us. Then I know it's not that easy. I'm a very optimistic guy. Gustavo provokes me a lot, but we will certainly give you more information about the project. Like today, we talk more about HRC. We're talking about mining going forward. And as Gustavo was saying, it's important that you come and demand answers from us because it's important that you demand that Gerdau delivers to our promise. Speaking about the competitiveness projects, just to refer to Gustavo's point, and Wang also mentioned that in one of the answers he gave, sometimes it's difficult for you to draw a line in the sand and to say that the project is competitive with maintenance.
Let me give you the example referring to part of our investment in Midlothian when we increase the rolling capacity. We had two choices. Choice A, the rolling bridge has been there for a long time. It needs to be maintained. All the beams, I mean, the cost of the project. Okay, we have to change the conveyor belt. I mean, by something with the same capacity, same model, the cost will be 10, let's say. But there is another opportunity here. If we have to stop to remove the conveyor belt, maybe we can refurbish that conveyor belt, maybe to increase the ceiling height, and with that, we increase the tap weight and increase the steel production, and we would have to do maintenance of 10, and then we will invest in competitiveness.
This investment will be like 20 because we would be paying for that 10 in a way in maintenance, but at the same time, we will increase the mill's capacity. We ask ourselves, is this an investment in maintenance or competitiveness? Internally at Gerdau, I don't know whether this is good or bad, but our criteria is when in doubt. Let's put it as competitiveness. Why? Because then the leaders of the business operations will need to prove that that incremental investment is necessary and it's worth it. Because we don't want to fall into a trap because we have a very strong bias of operating safety, because we don't want to approve more investments than whatever is necessary or adequate. That's why it's difficult. Sometimes we talk about investments, we scratch our heads.
I mean, is this an investment of critical level one, or is something a bit disguised? So we classify it as competitiveness. And the example that Wang gave is quite recent because we had to invest in Midlothian. I would have to do maintenance investment anyway. So I'm just taking advantage of this stoppage moment to do maintenance and do something else. In Midlothian, there is an aggravating factor. In Midlothian, due to the risk of the infrastructure, I mean, beams, we were reducing the tap weight. We are investing in reversing the situation. Of course, there is a ladle size and everything, but we will certainly bring increased productivity. But speaking about downstream, I think the first point is very clear that in order to gain share in the steel market, the market is very complicated.
It is well grounded, so we would have to look for other ways. Downstream, and also, we won't be able to buy large operations that will cost billions of dollars, and we are already operating downstream. We have mills. We participate in the roadway industry in Manitoba. There are several places of super light beams for trailers. I mean, we already have a certain experience there, but when we look at downstream alone, the objective is to protect share. This will add more value and profitability, and we also try to avoid getting into segments where there is no conflict of interest or competition with the other 50% of service centers that we sell. I mean, then we saw an opportunity and we got into that. Are we getting into these downstreams? We don't want to adopt old technology.
We want to bring robotic technology that will increase productivity to indeed make a difference, and we have to learn that. This is a learning process. We are looking into that. I think that two important factors. One is a different business model, different than steel because we cannot do the same thing. This will be a strategic mistake, and the second aspect, and the most important one, is having human resources, people who understand the market and know how to do it, so we are trying to build a team in the market, just like we did with market segmentation. And GSN, I mean, they have extensive experience with downstream, given thermal treatment, so we want to elaborate more on that. These are the ideas.
If the solar project works out, we will be confident enough to venture into new areas, things that are adjacent to areas that are adjacent to what we do. To conclude, Gustavo Pimenta, I mean, is my friend. He is my namesake. We come from the same state. We cheer for the same soccer team. And sometimes our chairs at the soccer arena are next to each other. I wish the market would look at Gerdau in the same light as mining. Sometimes the market doesn't see as well. We have an opportunity to talk more about verticalization. This is a good opportunity for us. If you don't have integrated mills in Brazil with a very competitive operation, this absurd transformation that this industry is going through, if you're not there, you will have a hard time competing. We have mining assets that are very robust.
This project is adjacent to Ouro Branco. There will be a mining pipeline connecting our feed to the mill. We will start selling an iron ore capacity that we didn't have, about 2 million tons, or at about 65% or 67% of iron grade. I mean, this small mining space will significantly increase our competitive edge. So in our operations outside Brazil, we will give more visibility of what I personally see a competitive transformation of Gerdau very intense. We are getting into a more robust production of pellet feeds there in the U.S. I'm Gabriel Barra from Citi. Congratulations to your IR team. I have two points here. First of all, I would like to link three points that drew my attention. First is CapEx. You're operating with a lower level of CapEx compared to what we've seen in past years.
Secondly, your leverage, your capital structure is quite comfortable. I also noticed the issue of valuation. As you said, there is a very interesting upside, especially in regards to valuation. Once we put all these three points together, you have space, capital structure. You generate more cash going forward. I mean, we saw a strong cash generation, but the valuation is not at the level that it should be. How do you see capital allocation going forward? Looking at buyback, maybe buyback would be a good option, especially envisioning a scenario of uncertainties, not only in the U.S., but also in Brazil. Maybe buyback could be a good option in terms of capital allocation. The second point, another slide that drew my attention, was the one on cash generation and how much the dollar-denominated cash generation is so strong.
I mean, there is a positive side because the U.S. is performing well. North America is performing well. But on the other hand, South America and Brazil are facing difficulties. So what I didn't see you mention is OPEX. How can you bring that discussion to the table? And how much room do we have given the fact that there are still uncertainties, high interest rates? How can you talk about OPEX and capacity rationalization? And sometimes I know that this is difficult, but I would just like to hear your opinion about that or your remarks about that. Well, Mauricio is just telling me that I have to be more objective. Mauricio is saying that I should be more objective in my answers to give opportunity for more questions. About buyback, I would say yes. Today, this is a priority for the company.
This is an opportunity for the company, and also, long-term shareholders, it's important that Gerdau continues to invest in buying back shares. This is what we've been doing. This is not just what we are saying. This is something that we are doing and we will continue to do. Now, in terms of CapEx, there was a significant reduction of 22% of CapEx vis-à-vis what we're doing now in 2025 because we understand that this will allow us to be more flexible to allocate capital, including buyback, and so these are things that we are taking into account, and last but not least, when we talk about OPEX, Max was very clear when he talked about all the mills that we hibernated to consolidate productive capacity and to increase the optimization level of the companies. And also, by the same token, to reduce fixed costs.
So we see that there are opportunities and other levers we can use to continue capturing fixed cost optimization. But in the short run, we do not contemplate stoppages or hibernation of the mills, especially in terms of mini mills and long steels in Brazil. Speaking about OPEX, I think the major lever that we envision for the next quarters are related to what Gustavo and Max said related to mining. In the case of our blast furnaces, there was a significant reduction basically related to cost reductions for next year's those 400 million BRL of EBITDA. This is the reference of what we think in terms of the return of the first year of operation of our investment in Miguel Burnier. But there are other levers as well.
Part of the power mills that we acquired at the beginning of this year, we will see the full year of power generation in terms of savings in OPEX of power in the following year. The same thing goes to our investments in greenfields or solar farms that are not completed. They will be completed next year, and the same thing goes for our recycling center investment in Pindamonhangaba, which will ensure access to a more competitive raw material, cheaper raw material. Not only that, it will improve performance of our blast furnace because we will be able to have a more compacted scrap. So the furnace will not be idle for a long time, so we did not quantify in terms of BRL per ton of steel how much reduction we will see in CapEx.
But if you think about the individual levers of every project, mining, Pindamonhangaba's shredder, and the reduction in energy. And this is a very good question, but I think we should translate that into something more practical. Just as we did about a year and a half ago when we clearly stated our opportunities to promote cost reductions. Maybe we could say, on the one hand, well, we are referencing many KPIs. If you look at G&A over revenue, nobody has one as old as ours. But looking at what you're saying now, maybe in our next meeting, we could give you more clarity on the numbers. We are just finalizing the plan for next year. So last year, we hibernated Barão de Cocais, and we clearly stated the magnitude of that opportunity. So maybe this is a way for them to evaluate our project. Yeah.
And then we have to track that later on. Yeah, we are used to doing that. And more recently, we did that, that 1 billion BRL of cost. And then we monitor that. We track that. And then we can translate your point into something more clear. OPEX, you have something to say about OPEX? No. So write it down, Manuel.
Caio Ribeiro with Bank of America. Thank you for the opportunity. My question is about Mexican projects and rolling mills in Brazil. What would need to change in your mindset and in the whole scenario to have these projects approved and have a more constructive view of them? Would we need a change in the trade defense mechanisms in Mexico, perhaps trade agreements with the United States, exception made to the tariffs?
My second question is about mergers and acquisitions, particularly regarding collection or scrap collection and processing centers in the United States and small players in longs that have been expanding capacity. Are you comfortable with the proportion of scrap collection and scrap usage in this market, or do you intend to expand more via acquisitions along those lines? Speaking about smaller players in the U.S. who have been expanding capacity, I understand that in rebar, I know you're getting less focus on this market, but given what Wang mentioned, that today the market has a certain supply and demand that are well balanced, would it make sense to pursue M&A opportunities to acquire these smaller players with Gerdau being a consolidating agent in the market for specialty steels?
We are a relevant player in the Americas, not only in terms of volume, but in the way in which we have been preparing our two major mills, Monroe in Michigan, United States, and in the Pindamonhangaba mill. They are ahead of the needs of their time in terms of producing specialty steel to meet the needs of the future automotive industry. They are seeking to reduce the weight of vehicles, what we call clean steel, more resistant steel. And we've made these investments. We are very well prepared for that. We are relevant players in the Americas. We're very well prepared. We understand that we continue to have an opportunity in the Americas for a new specialty steel mill. That detailed study that we conducted for Mexico, we understand it's not lost at all.
The opportunity exists, but there is a reconfiguration of many production chains, naval industry. So this is a big opportunity when we look at remilitarization, the need for retrofits or to rebuild military and civil vessels, and also the reconfiguration of this global and more regional chain of specialty steel production for the automotive industry. But there's also the USMCA with the Mexico-US-Canada agreement. We'll need more detail on that. There's the reindustrialization trend. So it's about time to intend to hold back on that study for now until we have more clarity on all these aspects involved to make a decision to have a green light or not. The opportunity exists, but it's not the adequate moment to enjoy this opportunity in use of CapEx, which is not small, considering the commitment that we've just taken on.
So let's maintain the opportunity alive while we are still waiting for more clarity of the automotive production chain in the Americas for us to make a decision. Wang, as regards scrap, we see scrap as fundamental for our operations. It's a differentiator for us. We have a captive percentage. Recently, we bought some nine yards around our Jackson mill, and this is going to help us a lot. In terms of concept, ideally, all of our powerhouses would have a shredder. We are close to that, and we would have yards supplying it in the concept of a mini mill. It's more profitable, and GLN uses practically 5% of scrap of solar cells together with arcs and shredder. So we don't have to get to prime in GSN also. We have a certain dependency on that, but a lot smaller.
So we are looking for yards and shredder assets that can favor us in terms of the localized scrap. We've invested in non-ferrous to be in ferrous. We have to be non-ferrous copper, aluminum, etc. The moment that we create a critical mass, we have to start thinking of how we can have a non-ferrous operation. So we are still experimenting. So this is our vision. The scrap operations are a cost center for us, not a profit center. They can become a profit center, but our priority is to ensure competitive scrap for the mills and in feed for our shredders. And our shredders, particularly at Midlothian and Whitby, are the most productive in the Americas in terms of processing volume. This ensures cost competitiveness, but we have to have in-feed collections, and we will continue with that process. Hello. Henrique Braga with Morgan Stanley.
I'd like to go back to CapEx. We have your guidance for maintenance CapEx for the next five years. What about the total CapEx for that period in terms of competitiveness projects? What would be the options? What would make you have a green light for each one of the projects or not? And as for competitiveness CapEx in 2026, we have a good understanding from your presentation in terms of EBITDA gain coming from the big projects. But for the smaller projects, what could be the gain for the company when we consolidate all of these smaller projects? Well, let me start from the last comment. Typically, the return that we have for approval of competitiveness projects would be 15%-20% in dollars of nominal return of.
So that would be 15%-20% IRR, a payback of four to six years in competitiveness projects when we approve them. As Gustavo mentioned, we have a big focus on cost projects because we understand that they entail a lower execution risk because we don't have to rely on a demand growth in most of them. When we think about total CapEx at this price meta, not just for maintenance CapEx, but also of competitiveness CapEx for the years of 2027, 2028, and 2029, at this point, well, we don't attempt to give you clarity or guidance every year because it will depend on market conditions. That might be a smaller or lower disbursement than in 2026. And as Americans say, we'll cross the bridge when we get there. We are anticipating by five months our guidance.
Normally, we provide a guidance in February or March, and we are giving you the guidance beforehand, five months before for transparency reasons. But I think it would be too premature to commit to have a CapEx disbursement above BRL 4.7 billion compared to below BRL 4.7 billion at this point. In terms of differences compared to what we have disclosed here, it is what Japur mentioned. There will be a need in the future to have an overhaul of blast furnace one, blast furnace two, and the coke plants. So we are monitoring this. We have global partnerships with the Japanese to have a level of excellence that very few players in the world have. This has allowed us to dilute the CapEx over a longer time horizon. And that slide that Japur mentioned, he mentioned that overhaul would be in 2027, and it's now going to happen in 2028.
We have the need to maintain the health of the assets. What's coming in the next five, six, 10 years will be the necessary CapEx to maintain the equipment at the level of excellence we've maintained in recent years. The more we dilute the CapEx, the more predictability we have of the necessary CapEx for us to keep the current equipment up and running well. I am Rodolfo with JP Morgan. I think that this might be the last question. You can ask as many questions as you want, Rodolfo. I will ask a quick question because I don't want to take too much time. My question is, we see CapEx declining, which is something that people expected and that you delivered, but we heard you mention competitiveness CapEx. That's where we get it all right.
Is there a subliminal message there that investing in growth and new things is perhaps something more difficult? I would like to ask you, Gustavo, how do you see, not in the coming years, but thinking about the long term, how do you see mining in all that? You mentioned mining is something important that we have to look at with more attention. Can you think about mining gaining more weight in the future? Rodolfo, this is a very interesting topic. Our story in mining started more than 20 years ago when we found an opportunity in the market to acquire some mining rights that were very, very interesting. We had a first mining right to operate back in 2008 with a Várzea do Lopes mine that had been supplying our own internal needs.
So what happened in recent years is that in Brazil, we had more difficulty in cost because in transitioning from one mine to another, that's not a simple project. That's not plug and play. We need to demobilize a mine and the need to invest in the other. And this brought a longer cost difficulty for us in the last two to three years. And as of next year, we'll not only recover the cost gap, but we'll be in a whole new level of competitiveness, something that the other mine did not offer to us. Over the last 20 years, we've been perhaps more optimistic that we could become a mining player. In the past, we even announced some projects that we were considering. But then we realized that it didn't make a lot of sense, and we regained focus on mining for self-sufficiency.
But when we see all of the transformations happening in the world, a greater need for the world to consume pellet feed and Australian iron ore being corrected and the quality of our mining rights, which are very good and very well located close to railroads. It is not by chance that we made a decision to approve the Miguel Burnier project slightly above our need because we see the possibility of selling about two million tons of pellet feed. But we understand that in terms of mining rights, we're very well positioned, and then we have to consider the existence of railroads, the logistics involved. Another interesting point that happened was post the tailings dam events. After that, it's a gap, I would say. There came a difficulty for miners to continue to produce hematite. There's none anymore.
It meant to produce pellet feed, and everyone needed to invest CapEx, and smaller miners find it very hard to do so. More recently, there was an event in Minas that is going to cause more difficulty to smaller miners. So now there's a possibility for us to conduct more studies so that perhaps in the future, we can produce more ore using the mining rights that we already have. To answer your question, looking forward, if Gerdau sees the possibility of being more on the mining side, I think so. Not that dream of becoming a big miner that we had in the past, but I think that there is an opportunity for us to improve our average profitability in Brazil, producing a little more ore. I think that this is a topic that is going to consume more energy from us.
Perhaps it would be a waste not to take advantage of the quality of the mining rights that we have in the state of Minas Gerais in light of the opportunities to produce a pellet feed with the quality that we produce here. I think it will match what we have with the opportunities. This will be a driver for us to study this possibility more.
I know that when the subject is good, it ends soon. Unfortunately, we are not able to answer all the questions. Certainly, we are here at your disposal in case you need follow-up questions, in case you have follow-up questions. Before we finish, Gustavo, I would like to ask you to stay here on stage. I would like to thank Max Japur and Wang for joining us today.
As we always do, Gerdau has a long-standing partnership with APIMEC. It's our 30th anniversary with APIMEC, and I would like to call Sandra to give us the plaque for the last 30 years. I would like to thank you and also to congratulate the entire team at Gerdau. This partnership that you have with us, showing transparency and speaking to the market like you do. The entire management of Gerdau is here today. This really shows that even though Gerdau is a large company in Brazil, it is also important that you listen to the market. You continue to listen to the market, and this is really important. Now, I would just like to briefly tell you that right before you, you have a list with a questionnaire.
I know there is a pen in case you come with the excuse that you have no pen. This questionnaire is for us to see how these meetings are. You are one of the five best companies in our quality assurance topic. I would like you all to answer the questions, and once again, thank you very much and congratulations for this event. Thank you so much for this long-standing partnership, and certainly, we will continue working to improve even more. I hope that we can meet again next year, and certainly, next year, we will show you even better numbers. Thank you. Thank you all very much. Just to conclude, I know that you are all hungry. You are already standing up. I mean, for us to evaluate if we are doing a good job, it's important that we work in a very transparent way.
The fact that Mari returned to Gerdau after a few years, in my view, she is developing some excellent work. And all of that is due to her relationship with you. So please, now or even later, keep telling us about what we can do to improve our relationship with you. Thank you for everything we've built throughout the years. And if you still feel room for further improvement, please let us know. Thank you, and thank you for coming.