Good morning. My name is Lydia, and I will be your conference operator today. At this time, I would like to welcome everyone to the FESSA Investors Presentation. After the speakers' presentation, there will be a question and answer session. I would now like to turn the call over to Mr.
Rafael Perez, Director of Investor Relations and Strategy. Please go ahead.
Good morning. Welcome, and thank you for attending this conference call of where we will explain the transaction announced yesterday evening about the acquisition of American Zinc Recycling in The U. S. I am Rafael Perez, Head of Strategy and Investor Relations of Befesa. Today, we have with us Javier Molina, CEO of Befesa Wolf Lehmann, CFO of Befesa and Afir Farron Ambilla, Vice President of the Steel Gas Business of Befesa.
Javier will provide an overview of the transaction and the strategic rationale of the acquisition. Wolf will review the value creation and the financials in more detail. Then Javier will close this presentation providing some final remarks. Finally, we will open the lines for the Q and A session. Before getting started, let me remind you that this conference call is being webcasted live.
You can find the link to the webcast of the AZR acquisition presentation on our website, www.defesa.com. Please consider the legal disclaimer that you can find on the last page of the presentation. Now let me turn this call over to our CEO. Javier, please.
Good morning and thank you for attending this conference call. I'm very pleased to announce that yesterday, the FESSA signed that we see term of 100% of American Scene Recycling, the market leader in the steel dust recycling in United States. As a result of this transaction, Vestascia will become the global leader in the steel dust recycling with a strong presence in the three main markets in the world, Europe, North America and Asia. The acquisition is very attractive for our shareholders as it will deliver high value creation reflected in a strong earnings per share accretion, higher overall margin and greater geographic diversification. This acquisition makes a great sense from the strategic point of view and it has also a lot of industrial logic.
ACR is The U. S. Market leader in recycling steel dust, electric car furnace steel dust with uninstalled capacity of around 620,000 tons, distributed in four plants located in the eastern part of the country. Electric car furnace is the dominant steelmaking route in The U. S, representing more than 70% of the total steel produced, driving by the highest steel scrap availability.
The used steel staff recycling market is quite similar to European market. It has a pretty similar site and it is a highly regulated and mature market, where similarly to Europe, the steelmakers pay a collection fee for the full environment service provided, which includes collection, transportation and recycling of the steel dust. For Befesa, acquiring ACR means growing in our highest margin business unit, the steel dust recycling services, which today already represents around 80% of BECHSA's total EBITDA and where we are the leader in Europe and Asia with our strong growth potential driving by China. Growing in our highest margin business will further improve the overall profitability of the company. After the acquisition, the steel gas recycling segment will represent more than 85% of the total EBITDA of our company.
The technology that ACR used to recycle steel dash is the same than the one the HESA operates based on world scheme technology. All these aspects are translated into a low risk acquisition. With this acquisition, Befesa becomes the global leader in steel dust recycling with around 1,700,000 tons of total steel dust recycling capacity. But more importantly, a geographically diversified and balanced footprint across the three main steel dust markets in the world, Europe, Asia and North America across 12 recycling facilities. But also it is a transactions that creates a lot of value for our shareholders.
The purchase price of the 100% of ACR is $450,000,000 which implies an attractive acquisition multiple of around six times EBITDA pro form a for post near term synergies. This compares with the facial trading multiple of around 13 times based on twenty twenty one figures, which is around two times the acquisition multiple of ACR. We are acquiring the asset at the purchase price, which is similar to the replacement cost of building the same recycling capacity in The U. S. The transaction is highly accretive for Refesa shareholders with a strong return expected to be achieved within the first three years of combination.
More than €300,000,000 of value creation, near EUR400 million with further upside potential and double digit earning purchase accretion. In addition, we expect further upside potential in the medium term, mainly coming
from capacity utilization, efficiency and profitability improvement.
There are a clear and evident near term synergies in the acquisition as can be seen from the comparison of the EBITDA per ton of ACR and Befesa. Currently, the ACR's EBITDA per ton is around EUR 100 per ton of steel gas compared to the phase out EUR185 per ton based on estimated 2021 figures. We have already estimated the most evident near term synergies of around $20,000,000 These synergies are mainly in
the original
escalating area, but also in the commercial area as well as in the overhead cost. Once these near term synergies are captured, the ACR's EBITDA per ton will improve to around EUR 138 per ton, still 40% below the RCESAS level. The funding of the transaction will be done through a combination of the issuance of new equity and debt. Yesterday evening, we complete an accelerated equity offering of 5,800,000.0 new BCESA shares and the authorized capital. All the shares were allocated to our existing as well as new shareholders in a successful offering.
The capital increase was complete yesterday at the price of EUR 56
share,
which represents a discount of 3% over the closing price of yesterday. Additionally, we will include Term Loan B add on of EUR 90,000,000, maintaining BEPEZZA's leverage ratio at similar level post acquisition. With this, the acquisition will not represent an stress in our balance sheet and it will enable our shareholders to benefit from the value creation that the deal will generate. ACR also runs a thin smelting business with a facility in North Carolina, centrally located between ACR's steel gas recycling asset. The smelter applies new solvent extraction technology to process well site, also known as WOX, into special high grade zinc, with a capacity to produce around 140,000 tons of pure zinc per year.
The plant restarted operation in 2020 and it is currently ramping up. The works will be purchased from Assier's steel gas recycling plant at market prices. As part of this transaction, Befesal signed the acquisition of a minority stake of 6.9% in the zinc smelting plant for a purchase price of $10,000,000 and will secure an option for the acquisition of the remaining 93%. Upon the fulfillment of two phases operational, a financial milestone of the smelter at any time prior to 12/31/2023. The performance milestones are defined based on a combination of two parameters, conversion cost and capacity utilization, as you can see on Slide 11.
Upon fulfillment of milestone one, BESESA would have a cumulative stake in the smelter of 34.5% and after the second milestone, the stake would become 100%. With this approach, we secure the price and we will only acquire the smelter if we have full certainty of successful operations and economics, hence, by meeting the downside risk. The price for the acquisition of the subsequent stake is agreed and once complete the total purchase price of the smelter would be $145,000,000 representing around seven times EBITDA acquisition multiple. With this vertical integration in North America, we do not want to change the business model nor the strategy of BREFSA. We just want to capture a growth opportunity in an especially geography where there is undersupply of pure zinc.
Now, Wolfgang Liman will explain in detail the value creation of the transaction. Wolfgang, please.
Thank you, Javier. Let me explain the key underlying financials and the value creation. Please turn to Page six. On this page, we show financial metrics for Befesa steel dust recycling business at the midpoint of our 2021 guidance range and correspondingly aided our steel dust recycling business pro form a for 2021. For Vufissa, using the midpoint for 2021, our steel dust business runs at €138,000,000 EBITDA with an electric arc furnace dust throughput of around 740,000 tonnes or 90% planned capacity utilization, which is equivalent to 185 EBITDA per tonne of EFD throughput.
Using the last ten days share price of about €58.45 per share as of and including the closing price, our trading multiple over the €191,000,000 EBITDA Bloomberg consensus is 12.5x. On the right hand side of the page, we show AZR's pro form a for 2021 with and without the near term synergies. The synergies I will explain in detail on the next page. Pro form a in 2021, AZR is targeting €45,000,000 EBITDA. AZR changed their capital structure and with it changed to a more competitive zinc hedging program closer to the phase of hedging excellence.
The underlying pro form a zinc price for the zinc hedges is $2,580 per tonne, same price level as Perfeso's hedges for 2021 and in line with last five years' average zinc price, obviously much lower compared to the recent strong $2,900 to $3,000 per tonne market price levels. At €45,000,000 pro form a EBITDA, AZR is running at 101 EBITDA per tonne of throughput, which is 45% below the business run rate and the significant opportunity to improve and drive synergies. Near term, we target €17,000,000 synergies, which results in €62,000,000 pro form a EBITDA and €138 EBITDA per tonne. Post near term synergies, EBITDA's run rate of €138 EBITDA per tonne leaves further midterm room to improve towards BVESSA's 185 EBITDA per tonne. Looking at multiples at the bottom of the page.
BVESSA's total group twenty twenty one EBITDA Bloomberg consensus is 191,000,000 This is in line with the upper end or €190,000,000 of our guidance for 2021. Using the last ten days trading share price of 58.45 as of Tuesday, June 15, the fiscal is trading at 12.5x twenty twenty one multiple, as explained. The acquisition of AZR, including the near term synergies, is at 6x multiple, so it's around half of Perfes' multiple. In terms of value creation, taking the multiple difference of 12.5 minuteus 6x, so 6.5x and multiplying with the €62,000,000 pro form a EBITDA post near term synergies, this results in circa €400,000,000 value creation for our shareholders, certainly bigger than 300,000,000 Also remember that the acquisition expands our core business, our steeled up business unit, which is our highest margin business unit, which ran at 33% EBITDA on average for the last three years, including the 2020 COVID burdened year. Really, it is an excellent opportunity and highly accretive to our shareholders.
Please turn to Page six for a synergy walk. The near term synergies of $20,000,000 or €17,000,000 we target to execute across three areas, as explained by operational excellence, SG and A, commercial excellence. Over the last years at Pfeesa, the operational excellence projects we executed achieved less than two year payback always. As such, we plan conservatively for 10 to €15,000,000 onetime implementation costs in the first eighteen months to fund the targeted €70,000,000 synergies with the first three years post closing. Overall, we are ready to take on the steel dust recycling operations in The U.
S. And are very comfortable with the targeted near term synergies and see sizable further midterm synergy potential. Turning to Page eight, explaining funding leverage and financial considerations. On funding, we provide an overview on the left hand side. The acquisition price is €460,000,000 which is €450,000,000 for the recycling operations and €10,000,000 for the minority 7% stake in the zinc refining operations.
We are funding this in a simple and efficient way. We're using 5,900,000.0 shares of our authorized capital and €90,000,000 is preapproved upsizing of our Term Loan B. The capital increase, as mentioned by Javier, we completed successfully with the accelerated book building overnight. We have raised 5,933,293.000000 shares at 56 per share, representing 3% discount versus the 57.9% prior day closing price. The Term Loan B upsizing we're going to the market today.
Thursday, we're hosting a lender call sorry, the lender call we're hosting tomorrow, Friday, at eleven a. M, asking for commitments back in about ten days. Furthermore, please note we completed a contingent foreign exchange hedge to mitigate any foreign exchange exposure between signing and closing. We locked in an FX rate all in of 1.21, successfully ahead of yesterday's Fed update. On the right hand side, we show the pro form a financial profile.
The FISA stand alone midpoint 2021 guidance is at €178,000,000 EBITDA for the total FISA business and targeted circa four zero eight net debt at 2.3x leverage. Upsizing the €90,000,000 Term Loan B and adding the €62,000,000 pro form a EBITDA of AZR, the combined pro form a run rate is around €240,000,000 EBITDA on approximately €498,000,000 net debt, a slight leverage reduction or roughly we target a leverage neutral acquisition. We also mentioned EPS accretion and return on invested capital in the presentation. The Pesars weighted average cost of capital, WACC, is circa 8%. Post the near term synergies, as explained, we expect, whether on a 2022 or on a 2023 basis, a solid double digit ROCC.
Very importantly, we plan to continue our dividend policy. Also for the combined business and post near term synergies and with our continued same dividend policy, we do expect at or above 15% rather at or above 20% EPS accretion in 2021 as well as 2023. Dow Jones published already on May 5 a report that Pefita is well positioned to join the MDAX, and this acquisition is expected to increase our market cap further and strengthen our potential to join the MDAX in September. Overall, we carefully prepared for this transaction and plan to continue to create significant value for our shareholders. Over to Javier for the final remarks.
Javier, please.
Thanks, Wolf. I would like to finish highlighting that these transactions represent a great step forward for Bessesa as it is as this will create the global leader in the steel gas recycling industry. It is important that you understand how we are transforming Befesa in the last fifteen years as we explained on Slide 12. We have moved from a pure European leader to the global leader in the steel industry cycling with presence in the three main markets in the world, Europe, North America and Asia. This global transformation will provide the Heska market diversification and exposure to different market trends as well as accelerate volume and earning growth.
2021 is being a great milestone in the history of Befesa with the entry into major markets, China and U. S. In U. S, a large and mature market, we are growing via M and A, which is something we have done successfully in the past. BEPESA has the management capabilities, experience and knowledge to successfully integrate ACR and at the same time execute our growth plan in China.
In China, the largest steel market in the world, our first plant at Jiangsu province is complete. We are currently finalizing the commissioning of the plant and will start delivering commercial output in the next days. The construction of our second plant in the province of Henan is progressing as planned on budget and on time. We expect to complete the construction by the end of summer and ramp up at the end of this year. In summary, with the acquisition, we are increasing our steel gas recycling capacity by about 60% to become the global leader in our industry, which will drive a strong earning growth in the medium term.
Thank you very much.
Thank you, Javier.
We will now open the lines for the Q and A session.
Ladies and gentlemen, the Q and A session starts now. The first question comes from Ingo Sechel from Commerzbank. Please go ahead.
Yes. Thanks for taking the question and congratulations on finally striking this, I think, very meaningful and transformational deal. Very, very impressive that you've finally done it. My first question would be on the operational excellence synergies, and you showed that your own profitability per ton is a bit higher than ACRs. Can you explain a little bit more detail when we talk about best in class process, best in class technology, what exactly or give some examples what the biggest levers are going to be in terms of improving the process?
Is this really energy consumption, coal inputs? Or in which areas do you see most upside and most differences to your own process?
Thanks, Ingo, for the congratulations. We have today with us, Casir Saruman Dia, the Head of our Steel Recycling business that will support us in answering your more technical questions. So this is I think this is a clear question for Assier. Please Assier.
Thanks, Javier. Thanks for the call for the question, sorry. Well, we are focusing the question on the operational excellence, which I do think is correct one focus. But the reality is that those synergy we are putting is clearly we view as a combination of the three statements that we are showing in the presentation. I mean, we are under operational excellence to put some examples.
Well, Bell's concept is basically the same across the world. But in the first half, we believe we have improvements over the traditional concept. We are applying some proprietary technologies like SHDL and as well our know how or how we operate the plant, we think and well it's very well demonstrated that we are better than others. So as a way of a specific examples, basically the SHDL, well, means better performance in terms of Coke and other reduction agents and consumptions, raw material handling probably we are better mixing the different materials starting from the last. And basically, we save cost and as well we get better yields of recovery of zinc.
This is clearly one of the fields that we have to improve there because at the end of the day, we have seen in the past running the plants like ACE and R is doing now in other countries like when we enter in Turkey or even in the concept technology of South Korea. So we are prepared to make some modifications in a very short term with a limit investment to capture this issue. So the key is this. I mean, it's a mixture of many things. It's not just one.
But at the end, I think we can achieve in a very well and short term. You are not specifically asking for, but the other fields of the synergies is the SG and A. And well, obviously, AZR is a full organization covering many aspects that we have already covering from our headquarters. So it's logical to think that we are going to have a short overlapping functions and we have to clearly update to the professor and it's going be some synergies and cost as well. Selling the same and selling and commercial is a little bit something to understand as well because, well, not telling negative things over nobody, they were in a different position over the last years because they were selling the production through traders, which normally take a piece of the cake.
And then we are going to now apply benchmarking turns to sell the works initially the smelter. And of course, logistics and things like that are going to be easier because it's going to be focus all to sell in U. S. While the alternative is to be focused on volume. So these are the three main aspects that we understand are the quick win points we have to achieve.
I mean, we don't expect very, very big CapEx or cost to implement it. Anyway, as Walt explained, it's in the past less than two years payback when we have them when we have done other things. And then on top of this and for the future, after we evaluate, we have to evaluate well, basically, if changing or upgrading some equipment, we can capture even more synergies for a long term run. So this is basically the plan based on best technology process because we think as well that we have things to capture for the technology or know how from ACR because they are running the peers for many years. So probably there are something to learn and even to synergies to capture for our current plans in other fields.
So altogether, I think it's very conservative and realistic figure to achieve in the next two, three years.
Okay, very clear. Thank you. And can you talk a bit as well about the greenfield growth opportunities that might be in The U. S? I mean, it's a market that's strongly growing electric arc furnace steel production.
Would you consider also doing a greenfield in the next five years? And if so, would there be a trade off between, let's say, the next not the next the current two, but then subsequent projects in China, I. E, would you still have a vision of six plants in China? Or could it also be that six plants in China is delayed because you might prefer to build two greenfield plants in The U. S?
Well, good point and question as well. At this point, I'm pending to be confirmed after we give us at least one hundred days to analyze everything after the closing. But we think that there is a space for both. Obviously, we have the growing idea in China and this is on track and not going to change because finance financials as well as Javier has played it, well, it's given we are not changing, so we have this opportunity. And then whatever you have in mind, previously, we are going to do in China for sure.
In The U. S, yes, we are agreeing with you and it's not a secret that the electrical furnace production capacity is growing and is growing a lot. There are a lot of projects to come there, so it's going to be more vast. And yes, we have to evaluate what is better to do greenfields, is always a possibility or brownfields improving or increasing capacity of the current plants. But it's clear that we are now entering into a market with system growth.
As always, Javier and Wolf and Rafa, normally, European, it was a market which we see what we saw limited growing, which can change with the current focus of the steel business because they are changing to some more mini mills. But in any case, it's less or it's more medium term. In The U. S. It's clear that they are increasing capacity.
So yes, we have to capture in one way or another this flow. And finally, yes, we do think that we are going to have the powerful or the high power in terms of financing even with the cash generated by the proper U. S. To capture this increase.
Okay. Maybe just a quick last one on the zinc refining asset just to understand your message here that you were saying you're on a full certainty on the economics and returns. So with full certainty on the returns, you would probably mean that this 20,000,000 to €25,000,000 that you're mentioning, you have full visibility on that? Or is the hurdle rate lower, I. E, you would do the deal if that's certainly around €15,000,000 EBITDA and then the base case is 20,000,000 to 25 And maybe also comment a bit on the, let's say, management expertise.
I mean, it's a very different asset from what you're doing and had issues in the past. Do you think there's enough management capacity within the sector or within the assets to successfully run it? Or would you try to keep a minority shareholder like Glencore investors to get a bit more smelting expertise? How do you think about that?
Okay. Thanks, Hinbo. The first thing I would like to remark is that we are going to acquire the facility once the facility will be running properly. So we are not assuming any risk in that sense. Second is that seeing the enter of Glencore in the stake of in the shareholder of ACR, there has been a big change in the performance of the plan.
Now we are pretty sure that the plan will be running successfully in the next month because Glencore has a great expertise in that same day running a plan very similar to this one in Europe. So we don't have any doubt that they are going to achieve the profitability and the performance. Regarding the economics, we've seen that 20%, 25% more in the range of 25% will be normal EBITDA of the plan in normal conditions. No matter the same price, because as you know, this is a business that buy and sell things. So they have or the plan has a natural hedge.
So let's say that around EUR25 million is a comfortable figure for us. And we don't have we will Glencore will be supporting the plan until our full acquisition and later on probably we will maintain technical contract with NEM to support us in the margin of the plan. So this is the summary.
Thanks for the great answer and congratulations again on this idea. Thanks. Thank you. Thank you, Ingo.
Thank you. The next question comes from Oscar Valmas from JPMorgan. Please go ahead.
Yes. Good morning, everyone. And again, congratulations on the transaction. I had three questions. You've touched on this a bit, but could you provide some background on the acquisition in terms of was this a competitive process and how long have you been under discussion?
That's the first question. And then the second question is more of a technical one. You referred to $300,000,000 close to $400,000,000 of value creation. Can you just explain how you calculate that number? And then finally, another technical question.
How many years out is American Zinc hedged? And yeah. So kind of
that's the third question. Thank you.
Okay. Thank you, Oscar. And thank you for again for the congratulations. I will answer the first question and Wolf will answer second and third. Well, have been following ACR, I would say for the last ten years.
For sure during the last year and a half, we have been involved in conversation with ACR shareholders and management. I think this has not been a competitive process, at least we don't know that has been a competitive process, but has been a direct negotiation between those two companies present and involved in the steel gas recycling business. As you know, we are market leader in Europe and now market leader in Asia. ACR is a company that we know very well from many years ago and we have had in permanent contact with the management team, shareholders, etcetera. So has been a natural process that has finished in this successful acquisition.
And then, Wolf, you can answer the the other first question, please.
Absolutely. Thank you, Charlie. Oscar, for the first question around value creation, please turn to Page six. I covered already earlier, but let's just go through the numbers one more time. Go to Page six and then look at the multiples at the bottom of the page.
So looking at the FASAS total group twenty twenty one EBITDA Bloomberg consensus. If you pull up your Bloomberg terminal, you're going to see 191,000,000 EBITDA for 2021 consensus. I mentioned this is more or less in line with the upper end of our guidance. We had pointed towards upper end as €190,000,000 EBITDA for 2021 for this year. Now then using the last ten days trading share price of €58.45 then you come to that the FedRA is trading on a 2021 basis at 12.5x, 12.5x twenty twenty one, optimal.
Then looking on the AZR side, the acquisition including of AZR, including the near term synergies, is at a 6x multiple. Now value creation, we calculated. We're taking the multiple difference between 12.5x, our overall EBITDA multiple, minus the 6x multiple for the acquisition, that leaves a 6.5x differential. And if you multiply that with the million pro form a EBITDA for the acquisition post near term synergies, this results in about EUR400 million value creation. Now in conservative view, we're saying more than EUR300 million value creation.
Now a side note here is, again, that the acquisition expands our core business, so to say, the jewel of our portfolio, which is steel dust recycling business unit. This is our highest margin business unit, which we ran at, again, at 33% EBITDA on average for the last three years, and that is 2018, 2019 and 2020, even the COVID burden 2020. So really, again, I think we are calculating the value creation here in the appropriate way, and it's an excellent opportunity. Oscar, then on hedging, over to hedging. The acquisition, AZR, changed their capital structure beginning of this year.
And with that improved capital structure came the obligation for twenty four month rolling hedges. So AZR has twenty four months hedges on the books. And for an example, in the second year next year, they have, in 2021, roughly the hedges on the books for $2,767 per tonne. So really, that new capital structure, including collateral and then the obligation to put twenty four month rolling hedges on the books, was a great change. And as such, it's not yet as long as our hedges.
As you know, Oscar, we currently have hedges up to and including July 2024 on the books. So that's for more than three years. And after closing, obviously, we will integrate the hedging approaches and apply our standard hedging approach that you know.
Okay. Yes, perfect. That covers everything. Just a quick follow-up. Will the FEDSA be recorded pro form a going forward with synergies?
I think we're going to tackle that when we get there. So let's first get the closing done. And also, we're not providing any new revised guidance for this year yet. So this is all after closing, we're going to talk about that.
All right, Oscar?
Okay. Great. Thank you very much.
Thank you.
Thank you. The next question comes from Olivier Calvert from Kepler Cheuvreux. Please go ahead.
Yes, thanks. Hi, everyone. Hi, Javier, Rafa, Rolf and Olivier, I'm sure you've been waiting for this for a while now. So I can only also say congrats on my end. A few questions, I will take them one by one, if possible.
Could you come back on the business first? American Zinc Recycling still active in what I think Jose was doing recycling and production for Nikolais. And is this business part of the acquisition? That would be the first one.
Okay. Thanks Oliver for the Congress again. Yes, American Steel Recycling has an operation of the stainless steel business, but this has not been part of the deal. This is called Egetco and was totally out of the deal. So we don't have nothing to any relation with this company.
Okay. Okay. Fair enough. And then can you talk a bit about the four EF dust recycling mills? I see that they are slightly bigger.
Is there any other difference that we need to be aware of versus your typical plants? I'm thinking notably also if you could clarify, mean, from the slides, I understand that the in the past, there's some talk of the prior Mooresboro plant in North Carolina that doesn't seem to be in there. That seems to be a plant that is not existing anymore. Could you just confirm the suspect on the technology side and on the differences between the plants that you have right now and the plants that American Zinc Recycling is operating?
Thanks
Oliver for the question. Well, yes, I think it's the typical design of the four plant, how to say in AZR are the same. We can say that it's a well, the way of the wealth schemes operating under, you know, in America, North America, the other players are doing there. And, yes, they have differences on on our standard design that we are as as an example developing in China. Again, West Technology is nothing like it's a proprietary, it's a rotary kiln and it's very well known.
But the the difference is basically length of the kiln and other things and the dasher tube chamber differences and all gas treatment part as well. So conceptually, it's the same, but yes, we do it in a different way. So in the particular case of those, normally are lower capacity peers that we are currently currently designing. And and they have bigger setting chamber cameras and so on. But at the end of the day, conceptually is the same.
So as I say before, that will be is that we can operate on that way. What what we have to understand is really how they are operating, speed, and and raw material or whatever, and better mind what is better with our proper knowledge. We have the experience to to deal with those kind of, contact. And we really strong team that with minor changes and with a very limited investment, we can become better, not entirely up to our standard because in that case, you need to change everything. But yes, I think that we can we can get a very quick improvement over the over the current operations.
Obviously, they are operating well. They have a lot of expertise. So so again, I mean, it's nothing coming from scratch. I mean, it's something that is running and we have to improve. So this is one thing.
I understand well, you were talking about the most of our technology as well too. Yep. But in this case, it's something that because the same or the the issue of course get going to chapter 11 in 02/2016. I mean, with this technology, there is a sensation that is a brand new technology. Well, it doesn't really like that.
Solvent extraction has been used for many, many years in other metal fields, copper, nickel and so on. So and it started to be used in a Scorpion in Namibia for the mining or concentrates, right? Using in the smelter because it's a kind of particular concentrate, which is now more normal or acidic external sulfur. So the normal route of treating the ores changes. So what was new is to try to use this over extraction in the in the treatment of electrical furnace dust and other material.
That was really new. And in the year 2011, Hostgard has started to do like that based on some proprietary technology of, in particular, technical vermilas. So they will try to apply this to this. So they fight with something that in other smelters, they will do similar things and they will do the same trials. In a big, a massive way that Horsehead tried to do with all the raw material feeding coming from this group was the first time.
But as a complement to the other feeding stage in the smelter was very well knowledge, very well known. So a combination of the first time and a massive investment and massive extra cost that were coming the host at Bantou City. But in the meantime, many years happened, Mr. Glencoe and others developed the technology And now it's basically a proven one and that's why they have made some modifications from the when they come up from the charter 11. And now with the modification or with the assistance of them together with a very big and stable management there at the plant.
They are getting the normal ramp up with this kind of technology is taking time. So as Javier said before, I think they are going to get it. We are sure that they're going to get it. And in any case, if they don't get it, we are not going to enter in. The risk is very little.
Okay. Okay. That makes sense. And then I was just wondering, is there I think, if I'm not mistaken, there was at some point an issue of environmental liability. I think it was the Pennsylvania plant.
Is going to be I'm assuming there's going to be an audit in terms of the handling the hazardous waste that they handle, right?
As you can imagine, we have run a very deep due diligence process, not only departmental side, legal, financial, taxes, etcetera. And this is perfectly covered and perfectly known. Now Achir can give you more color about it.
Yeah. It's a good point. I mean, that most of you have made a homeworks. Yes. They have made some problems in the best scheme, and they are having some particular problems in the in the in the most pro plant as well currently and there are some news release and so about that.
Well, I will different that. I mean, my particular our particular view is that the problems with the world schemes in the past were coming basically for the financial situation of the plant that they were doing a no current CapEx maintenance or current maintenance because all the money and all the efforts were going the plan. As a consequence of that, they were having problems to submit the to meet the environmental limits and so on. So they enter into some programs, in particular, in Pennsylvania, in Palma Tome and some others as well. And at the end of the day, one of the things the new owners they have made is to fix those problems and fix the CapEx to solve them.
Now after the review of that, we see that the CapEx is already done. The last one is coming in 2021, probably for the closing is finished. So as I explained in, up to the level of operation, they have done this, not expect that. And we understand that the rest of the fields are starting from the North Carolina line. They will be fixed and we will see at the moment of the acquisition for the status of that.
But as Javier said, very, very deep environmental duty is done and we don't see as a big, big of risk, very, high risk issue here.
Okay. Okay. And then two last ones, just the first one is just to clarify the Rutherford County plant you are listing, this is the former Morse plant, or is it a different one?
Sorry. No. It's the same. It's the same. Mhmm.
Okay.
That is the county, but it's most of the the the area.
Yeah. Yeah. And then just on the hedges, just to be to be clear, what kind of volumes are are they hedging going forward?
Wolf, please.
Yes. Yes, sorry, I was still on mute. I think we have about 78,000, 77,000 tonnes.
All right. Already
Olivier is similar to what we do. We like to hedge between 6075%. I think this is rather at the upper end. So it's easy to combine the two hedging approaches.
Is it fair to assume you will keep that level? Or should we expect something higher considering potential for increased capacity utilization of the kilns?
Look, we as we always do, we hedge the current run rate for multiple years, etcetera. So we apply our standard hedging approach, no changes.
The next question comes from Benjamin Sanzaro from Berenberg.
Just a couple of follow ups, please. Firstly, on the American into the recycling plants, have they been running at such low utilization currently compared to the Fizzer's average? And what gives you the confidence that you can bring it up to the group average? Is there, yeah, some easy wins here that you can already take from The US, or does that mean importing dust from outside The U. S?
Hasn't seen the utilization growth there?
Thank you, Benjamin. I will try it, please. Well, one of the things coming from those penalties, some problems they have had in the past is that there are some kills, you know, under under well, doing again or whatever, changing some grading and and and teams, and I said the the big bag or or back filter that and so on. So they were operating not all the teams in the last years because of those problems mainly. Then, well, probably they have all they are needing more maintenance time.
So basically, altogether means that they are doing in a lower capacity rate than the first half. We see that now after fixed all those issues and after finished the CapEx to come back with the kilns to the normal level, they will be close to our capacity utilization or we can or we will try to fill the gap doing this better maintenance or doing shorter maintenance to apply in the benchmark. In terms of that, I think that is available and they have some stocks. And yes, we do think that we can reach this very closer capacity rate to the Refesa. I don't know if it's in one year or in three years, but I think that's close to the 80%, very up 80% should be there very soon.
And then maybe, Ben, additionally, please go to Page four. If you look at the as Arce and Kavi described, the growing U. S. Market for electric arc furnace steel. Just like the rest of the world is looking for decarbonization of steel production, the view on The U.
S. Is also positive. So that will also help the utilization. Thanks, Ben.
Okay. Thanks. And my next question is on more of the midterm assumption that you've given, so EUR 185 per tonne on EBITDA. How do you get there? Could you maybe break down the assumptions in there also for the zinc price that you're assuming in there and utilization and also the mix of synergy?
Well, I think it's self planning insurance during the presentation as well from Javier said. But yes, this is basically coming from the pro form a VDA and divide by the current that they are treating. This is the gap that we have to fulfill with all the action together. I mean, increasing the capacity utilization for sure and as well increasing those or decreasing the cost and improving the way they operate. Basically, the synergies and they should bring to closer than the first half.
Probably we don't feel it really because depending on the same content of the material, But well, I think that we have to and the goal is to be very, very close to the CSR in the short term, well then the medium approach as is explained in the presentation. Long term should be closer. This is the goal that we have there. That's for sure.
And the underlying zinc price in that assumption, is that the same as this year? Should you give us that? Yes, Ben.
Thanks for the question. Just to clarify again, if you go to Page six, Ben, whether you look at the €45,000,000 pre near term synergies or the €62,000,000 EBITDA post near term synergies, both are stated on the last five years' average zinc price or our current hedge price, which is $2,580 per tonne, which, as you know, is far below current market price levels. Secondly, what we have not put in is the fact that next year that you know that our hedges are on the books at about €50 higher than this year, plus the AZR has hedges on the books for 2022 that are, on average, around $2,767 per tonne. So that's on the AZR side, about $180 per tonne higher hedges and on our end, €50 per tonne higher hedges. That will that alone provides another EUR 17,000,000 year over year increase in EBITDA or potential for increase, but that's not in the numbers.
So again, both EUR 45,000,000 or EUR 62,000,000 pre near term synergies, post near term synergies, we're stating here pro form a on $2,580 per tonne deep price.
Okay. That's clear. And the last one for me, just on the Moulsboro smelter. Did I understand correctly that all of the AZR output will go to that smelter now to a 100%? And would you be able to share the current operating metrics of the smelting facility in terms of either EBITDA or net profit?
Do you mean what is the current situation of the most well planned in terms of midyear or whatever?
Yes, exactly. In terms of the standalone smelting plant in terms of
Currently, I don't think it's something which is worth or nothing. It's under the ramp up. They are probably below this 85 percent. I don't know, probably it's now because it's changing every day, but it's covering 6070%. So the fixed cost is affecting totally to the operations.
And well, I don't know exactly what is the VDA level because it's something that we are not concerned on that. I think that the most important thing then is that the ramp up is going as they are planning, They are doing a substantial number of of tons of zinc metal with the with the with the necessary, you know, specification or special and and and and this. And, yes, they are going on the plan and ramping up. So the media, the current, we don't know how we don't know and really I don't think it's a matter today to analyze like this.
But any case in Bing, which I think which is important to be understood that we are not going to assume any risk. We will buy only the following stakes of the smelting plant, the plant runs properly. And so when we are in that sense pretty quite healthy. But on the other hand, we are totally sure, pretty sure that they are going to achieve with the support of LENCOR the performance we expect.
Okay. Thanks. And the other part of my question was just does will AZR sell all of its output to the smelting facility now? So it will all be internal. Right?
I couldn't understand very well your question. Can you don't you mind me Yes. To repeat
Sure. So all of the outputs now from AZR, so will that be sold to the Mortsboro smelting facility 100%?
Yes. Yes. Yes. Yes. Yes.
Mean, the water groups will be sold to a smelting facility. Yes. Yes. At the market price.
Understood. Okay. Thanks very much. Thank
you. The next question comes from Michael Hoffman from Stifel. Please go ahead.
Thank you very much. Well done everybody. Well, me never to play poker with you. Last week at our conference, we talked about sort of future M and A and this was well guarded. So well done on your part.
You also, though, last week suggested that given the current operating environment that you were very likely to be better than the upper end of your guidance. There's no change in that sentiment, although you're not changing guidance. Is that correct?
We are not going to change the guidance. Regarding ACR, we will wait until the closing to see when we close the deal and then how many months we have in front of us. And regarding the BFSS stand alone guidance, well, what we can say today that if the metal prices stay in price especially at the current level, we will be in the early in the upper end of our guidance or even slightly above that.
Okay. And then could we walk through the economics of the plant or the AZR itself? So you're positing 180,000,000 of revenues. You did say there's a collection fee. So can we frame approximately what the collection fee is?
And you often talk about your 240,000 tons of was and then there's 68% of that the zinc content and walking all the way through the math to get to the how many tons you actually sell after on a free metal discount and all that. Can you share similar modeling assumptions about The U. S. So we can start thinking about how we're going to build our models?
Yes. We see that The U. S. Market will be very similar to Europe. We expect to have collection fee.
Perhaps the zinc content will be lower than in Europe. It's something that we need to confirm once we will be in the company. So that will be in our opinion the main difference in the single. The rest of the team will be very stable and very similar to Europe.
And because you're selling 100% of the zinc to smelter, are you take do you have to take a discount like you do
in the smelter? No. No.
No. No. At all. They they they can we will sell at market conditions clearly. No no doubt about it.
So no free metal discount then?
Yes. Yes. No. The normal discount. No.
85%.
Okay. Normal conditions. Normal conditions. Okay. All right.
And then just to be clear about current to the 2020, I guess the $45,000,000 what you're doing, but the actual reported EBITDA in 2021 on a full year basis is about $13,000,000 less because of the difference in the uncompetitive hedge. Is that so when you report if this sort of closed on October 1, this would be reflecting the uncompetitive hedge for that quarter?
That is correct.
On
the other hand, the change of the hedging program has already been done by the business by the acquisition target already in the first quarter, Michael, right? So you're just bleeding off basically this year's uncompetitive hedges, yes? And then next year, which has been put on the books majority under the new capital structure of the acquisition target, yes? And that's why those hedges are now much more competitive. And that's why, yes, on a run rate basis, really, you have to take those very competitive uncompetitive hedges of this year's out.
That wouldn't reflect the run rate of the company properly.
Fair enough. Just want to again, from when the numbers are reported, if you actually did get it closed October 1, then we've got to account for that there is one quarter left of that. There was an illusion of collateral and an answer to a previous question on the hedges. You don't use collateral. So as as the future owner, will you be able to hedge the same way you do where today without having to provide any collateral?
Yes, that is correct. The capital structure of AZR currently, that again has gotten much better in the first quarter and provided a collateral for hedges that and these are now more but that will be entirely taken out and replaced, yes. And then we will provide our usual hedging approach. Absolutely, you're right.
And I did forgot to ask one other question, and I think, Javier, you probably have already assumed this, but you have a treatment charge in Europe. I'm assuming a treatment charge exists in The U. S. So all of the same parameters I use in modeling the base of Europe, I can apply to The U. S.
So I'm trying to build up to the $180,000,000 of revenues.
Yes. The payment charge is in place and the benchmark. The only thing you should consider in the model is that in The U. S, we are going to sell unwashed material, right? So there a washing fee because we don't have the cost for washing they do in the smelting.
So this is something to consider. The rest, you can use the same.
Okay. Perfect. And then is this an asset purchase or an equity purchase? So just trying to understand what's going to be the impact of the balance sheet when this closes.
It's an equity method.
Okay. And did you get a step up in the valuation? Or is it this is going to come in as more goodwill than intangibles?
Yes. We have to use a PPA at the end of the allocation about the price to be paid, and this is on profit as soon as the closing is done. So we have to do the allocation of the payment over the accountancy.
But it's not yet finished.
Okay. And then how is this gonna be staffed? Are you or is there a U. S. Management team that you're going be able to retain?
Or are you going to have to think about relocating operators We from your current
will do as in the
same way we have done in the other geographies. And as we have explained, we prefer to have local teams and we have in China, Chinese people, in Turkey, Turkey people, etcetera, etcetera. And that will be our approach in U. S. We will have a local team, especially at plan levels that will be managed and supported by our headquarter that will support them in the financial, commercial, in the legal, everything.
But we will have in North America, American people.
Got it. And then lastly, on the smelter, ultimately, the North Carolina facilities was pretty much tripped up formerly horse heads and propelled it into bankruptcy. And you all have talked about often that it's not the best thing to be vertically integrated. So why contemplate that for $25,000,000 or €20,000,000 of EBITDA? Why add that risk?
Because, Michael, I think we are not assuming any special risk. As we have explained during the presentation, we will die only once the plan will be running properly. So that will be a fact. We are not going before to be totally sure that the plan is being running properly. And on the other hand, there is a great opportunity in the market in North America where there is a lack of supply.
So being able to in the order of the plan, will get very good synergy selling the works in U. S. Instead to transport the works to other geographies like Europe, Asia or whatever. So at the end, the summary is we think we are not assuming any risk and we are doing a vertical integration that in the North American market has a lot of things.
Okay. Thank you very much.
Thank you, Michael.
Thank you. The next question comes from Antonio Manzano from Santa Lucia Asset Management. Please go ahead.
Hello, good morning. Thank you for taking my question and thank you very much for the great job in creating value for shareholders. Actually, most of my questions have been answered, but maybe just a small clarification. Wolf, apologies, but can you please explain again the conditions for the €90,000,000 add on on the Term Loan B? Is it also your LIBOR plus 200 basis points?
I think I missed that.
Yes. The terms and conditions of our existing Term Loan B and capital structure are not changing at all. In the capital structure, we have the right to upsize by €90,000,000 so there's no changes on the terms and conditions. Correct.
Thank you. The next question comes from Jaime Scribano from Banco Santander. Please go ahead.
Hello, good morning and congratulations for the transaction. So a few questions from my side. The first one regarding synergies. So short term synergies, 17,000,000. If I go to the synergies slide and I calculate the midterm synergies with current production, get $23,000,000 So overall, 40,000,000.
But I have the impression that it could be more if we assume the utilization goes up to 85% or 90%. So my question basically would be if you could give us at least a range of how much could be the overall potential synergies because I think it would be interesting to understand the further upside. Then I have a quick question on CapEx, if there is any CapEx required in order to upgrade the plans or to achieve these scenarios on top of the implementation costs? And then a question on the financing. So you are raising EUR $330,000,000 plus EUR 90,000,000 term loan EUR $430,000,000, but the overall transaction is EUR $383,000,000 So this $50,000,000 gap, I'm just asking because the leverage to me is lower than what you say just reconcile that.
And just a final question on the zinc smelting. How does this change your ESG profile? Is this a very pollutant asset or not? Or what is your view on this? Thank you very much.
Okay. Hi, Nick. Thank you very much. I will answer the first two questions, then Walt will answer the financing. I'll let you the last one.
Regarding the synergies, well, I would say let's go step by step. As Assir said before, we are pretty confident that we will achieve the first $20,000,000 soon and without new CapEx investment. It's something that is a mix of operational excellence in the sense that Assir has explained before, commercial conditions and overhead cost that will be reduced. Then that will put us in a cost per ton in each year between EUR 135 to EUR 140 per ton compared with the EUR 185 that we have on average on the Pesa. We are sure that we will capture part of these synergies, but it's too soon to say how much and which will be how much CapEx we need to invest to achieve that.
I would recommend you can use clearly the first $20,000,000 that we are talking about. And then let's see, for us today is difficult to set up a range that we can achieve and to say how much will be the CapEx in between this. Probably in the next presentations, in the next earning calls that we will do during the year, we will have a better visibility about it. Okay?
Okay. Paul, do you want
to answer the finance question, please?
Absolutely, yes. Jaime, what you're referring to is sources and uses. And please also join us on tomorrow on Friday at eleven we give a lenders call, have you there. Now in terms of sources, rightfully so, you're saying the shares that we issued provide EUR $332,000,000 of sources. Then the EUR 90,000,000, Term Loan B upsizing on top, so you're talking roughly EUR $420,000,000 of sources.
Then if you look at the acquisition of $460,000,000 that we locked in through a contingent FX hedge already prior to the Fed update last night at €1.21 So you're talking somewhere around €380,000,000 acquisition price, okay? So as you described, there's about €40,000,000 between sources and users. That, we do need for general corporate purposes. The likes as transaction costs, somewhere up to €15,000,000 Then we had mentioned on the synergies slide that we need somewhere around €10,000,000 to €15,000,000 onetime cost to fund the synergies, take the upper end €15,000,000 for these purposes conservatively. And then please note that the new shares that we issued, the 5,900,000.0 shares, they will also participate in the dividend distribution in July, yes?
We have proposed 1.17 dividend per share, and we have our AGM on the June 30. Assuming that is accepted, that will mean that also the new shares that we just issued are entitled to roughly 7,000,000 of dividends. So if you take transaction cost plus of roughly EUR 15,000,000, up to EUR 15,000,000, let's say, conservative and up to EUR 15,000,000 conservative synergy onetime cost, 7,000,000 dividend, I'm laying already out for you the use the general corporate use of this EUR 40,000,000 that you were trying to bridge.
Thank you, Yes.
That's very, very clear. Thank you. And the last final question on the ESG profile of the zinc smelting plant, you can tell us a little bit about that.
Okay. Afir will answer.
Yeah. Jaime, well, basically, well, this is a different animal, but at the end of the day, the law and the EPA request line are the normal ones for industrial. I mean, they have to have the water, wastewater treatment plan, you know, limits. They have to have the emissions and and and take care of the by products and residue. So nothing strange.
I mean, yes, they are having some some claims, some problems, which is happening in the news, but it's a is I think it's more coming from the ramp up or coming from the from the previous trial they did and they failed before the chartered 11. Now it's looking under control and and and those other things are gonna be fixed. So, well, our policy is not gonna change. At the end of the day, we have to accommodate to all to the to the legal in each country, legal requirement from the from the environmental and health and and everything. Of course, we are gonna put on the our standards in the case of the melting if we take the 100% in the case of the Bells Kings as soon as we stay, but always complain the law in the country.
Okay.
Very good. Thank you, sir.
Thank you, Jaime. Thank
you. Ladies and gentlemen, there are no further questions. I will now give back the floor to mister Rafael Per. Thank you.
Thank you very much all for your questions. You can also contact Investor Relations team of VFSA for any further clarification. We will now conclude the conference call and the Q and A session. Let me remind you that you can find the webcast and the dial in details to access the recording of this conference call on our website, www.vfesa.com. Thank you very much for to all of you, and have
a good