CSN Mineração S.A. (CMIN3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to CSN Mining for the earnings results for the first quarter '25. Joining us today are the company's executive officers. We would like to inform you that this event is being recorded. [Operator Instructions] You can access this at and csn.com.br/ir, where the presentation is also available. The replay of the service will be on the website. Before proceeding, we would like to state that some of the forward-looking statements are mere expectations and trends and based on the current assumptions and opinions of the company management. Future results, performance and events may differ materially from those expressed herein, which do not constitute projections. Actual results, performance or events may differ materially from those expressed or implied by forward-looking statements as a result of several factors. General and economic conditions in Brazil and other countries, interest rates and exchange rate levels, future rescheduling or prepayment of debt, debt in foreign currencies, protectionist measures in the U.S., Brazil and other countries, changes in laws and foreign regulations and general competitive factors at a general, regional and national basis. I would like to turn the floor over to Mr. Pedro Oliva, the CEO and Executive RO. Mr. Oliva, you may proceed with the presentation.

Good morning, and I would like to begin by thanking all of you for your attendance at this call for the earnings release for the first quarter '25. We will begin with the highlights. We had 27.1% EBITDA growth BRL 14 million with a margin of 41.8%, representing a growth of 1.7 percentage points vis-a-vis the first quarter '24. Now these figures were supported with a new sales record for the period. And without adding capacity, the company shows its operational excellence, delivering a growth of 5.4% in sales volume. Now this was made feasible by a growth of 1.5% in the volume of production and purchases added to a drop of 11% in the C1 cost that reached $21 per ton compared with $23.5 per ton in the first quarter. This gave us to the adjusted free cash flow reaching BRL 546 million. In the next slide, we have the production volume and purchase of iron ore reaching 10.2 million tons with an increase, a yearly increase of 11.5%. This shows the greater efficiency of the operation and drier weather vis-a-vis what we had last year in the same period. In the comparison with the fourth quarter '24, the drop of 7.3% in volume is the result of a smaller volume of purchases. The evolution of inventories vis-a-vis the end of the year was -- went from 3.4 million tons to 3.9 million tons due to the strong production volume during the period. In the next slide, you see information on sales. We reached 9.6 million tons sold with an annual growth of 5.4% vis-a-vis the same period last year. In our sector, it's always important to speak about seasonality and the impact of rainfall, especially in summer. This represents a new company record for the first quarter. And net revenue was 21.1% higher than the first quarter, reflecting not only operational improvements, but a more devalued exchange rate. The net revenue unit was $61.96 per ton, virtually stable compared with the first quarter of '24 and $61.70 per ton in the fourth quarter of '24. In the following slide, you see our price realization. We began with a P 62 of $63.64 per ton, very close to the $103.4 of the previous quarter. Now the quality, we had positive data this quarter with a quality adjustment of 14.7%, an improvement of $0.8 compared to the figures of last quarter and sea freight with a reduction of $4 per ton, $3.97 compared to the previous quarter. Now in terms of the QPs of the previous quarter, we have had a positive impact of $4.55 in price realization. Now this quarter, it was negative in $0.24, basically flat with a unit net revenue of $61.96 per ton, somewhat higher than the $61.7 of the previous quarter. Now speaking about our COGS, we had a growth of 4.8% quarter-on-quarter, reflecting increased volume of high-value purchases for the domestic market that has high road transportation costs. The increase of 27.1% in EBITDA in the first quarter '25 compared to the first quarter '24 is the result of a combination of several factors, higher volumes, as we mentioned, a drop of 11% in C1 cost and a drop of $4 in seaborne freight with lower quality discounts, $0.87 per dollar. We speak about adjusted EBITDA comparing the fourth quarter of '24. In the first quarter of '25, we had BRL 1.4 billion, thanks to several factors. We had a positive evolution in the iron ore price with little variation in costs. All of this supported with a lower quality adjustment positive for the company. And this came along with a lower cost of seaborne freight and an improvement in mix with a higher share of our own production vis-a-vis purchases from third parties. Now these factors were offset with a seasonality we expected and with a drop of volume with an impact of $285 million and the lower sales volume, lower cost and purchases as explained because of the very long distances in the trading of iron ore in the domestic market and the exchange rate variation. In the following slide, you can see our information on the company investment. In the first quarter of '25, we reached BRL 377 million. Now the pace of investment and expansion continues to be heated up with the progress of infrastructure works at B15. Now the expansion CapEx is threefold what we had for the same period last year. In terms of operational continuity, we have less expenditures with maintenance, and we're concentrating our investments in expansion -- we will concentrate our investments in the second half of the year. In the next slide, the net working capital in the first quarter, this indicator was negative by BRL 188 million. It represents stability compared to the BRL 194 million negative of the previous quarter. The main variations are a reduction in accounts receivable and a reduction in the suppliers line item. Speaking about our indebtedness profile, it continues to be quite lengthened CSN Mining closed March with BRL 14.3 million in cash and cash equivalents, down 5.9% compared to the previous quarter. Now this reflects the impact of the exchange rate variation on its strong cash position in U.S. dollars. Now despite this, the company continues to have a solid net cash position, totaling BRL 4.1 billion in the quarter with a leverage ratio measured by net debt EBITDA of negative 0.65x. In the following slide, we present the adjusted cash flow that was positive by BRL 546 million, supported by the strong adjusted EBITDA because of record sales and also the lower CapEx volume in the period, which is seasonal and will tend to grow relevantly throughout the coming quarters. Now regarding our net profit, CSN Mineração recorded a net loss of BRL 357 million compared to a net profit of more than BRL 2 billion in the previous quarter. This is explained by the impact of BRL 1 billion of the exchange rate variation on cash in dollars. Now we have a cash position in foreign currency. In the first quarter, it was BRL 2.4 billion. Now the dollar rate was BRL 619 on December and went to BRL 5.74 per dollar in March of 2025. Now this strong cash position in dollars has been something that sets us aside in this very turbulent volatile market, and it is fundamental because of the expansion that we have. If we look at the fourth quarter results and the exchange rate, it was positive by BRL 1.13 billion. And last year, it was positive by BRL 1.65 billion. With this, we conclude and before we go on to the Q&A, we will speak about our ESG highlights. On the governance front, I highlight the conclusion of our integrated report 2024 made available to the public in April 2025. It has a wealth of information on the different ESG indicators and shows what the company is doing regarding its different goals. In the social and diversity front, the great highlight clearly is the fact that 1 year ahead of schedule, we complied with our diversity target. Women represent 26.4% of the workforce. In occupational health and safety, we had a reduction of 17% in the accident frequency rate and environmental management, we're operating with 8% reduction in CO2 emissions per tonne of iron ore compared to the baseline year, which is 2020. Regarding subsequent events, the main one was the approval by the company Board yesterday of a payout of dividends amounting to BRL 1.9 billion and BRL 210 million of equity on our own capital. Jointly, they represent BRL 2.3 billion that will be paid out until the end of the year. This additionally to the BRL 11 billion that had been approved last year and will also be paid out in 2025. So the proceeds already contracted for distribution during the year totaled BRL 1.5 billion. Now we have here with us Mr. Carlos Mello, Director, Superintendent of CSN Mineração and the Chairman of the Board, Mr. Benjamin Steinbruch.

The first question is from Emerson Vieira from Goldman Sachs. He -- he apologizes and said our first question is from Barbara Soares from Itau BBA.

I'm going to begin asking about the trade war. The last month, we saw that tension has increased and iron ore is one of the products that has stood firmly with price when compared to others because of the rather unrelevant stake in the United States. For those of you who work more closely, which is the feeling of the Chinese so far? My second question refers to the improvement of freight in $4 per ton. With the trade war, we will also see a rearrangement of global costs. Is there an estimate of the impact going forward? And the last question changing topic refers to third-party purchases. We saw that the share of purchase from third parties in the fourth quarter was 25%. What happened this quarter?

Barbara, thank you for the question. Well, regarding the trade war between the U.S.A. and China and the feeling of the Chinese, the tariff of 145 beginning in April. China retaliated with a tariff of 125%. Regarding our segment, now 65% of the purchases went to the Chinese market, 35% to the U.S.A. So the impact on Chinese still occurs indirectly affecting countries where China exports like Vietnam, and they had already spoken about measures to reduce this flow. The antidumping tariffs were 81% and Vietnam began temporary tariffs, 18% or 20% over the great Chinese steel companies. And there also is a tariff safeguard tariff on certain products of Chinese steel. Now this contact leads the specialists to estimate a reduction in the volume of exports, something that has not materialized so far. If you analyze the export data, the more recent data this morning, the volume is BRL 103 million, very close to the BRL 111 million last year and the estimate was between 82 million and 86 million tons of exports by China. When you think about the feeling in April and May, we have a reduction of 54.5 million to 49 million, once again, a reflex of this trade war. United States and China will have a meeting on the 10th of this month. And there's the indication of possibility of reducing tariffs to 80%. This, of course, will depend on the trade Secretary of Trump. Now we're going to see changes on this front that should be positive. There is already an impact when I speak about the feeling of the Chinese. The United States is the greatest market for China. But luckily, the iron ore indicators continue to be very sound. Regarding the improvement in freight, we have several variables at play. Oil, as you mentioned, was quite impacted. by the recently announced measures by the U.S. government and the Chinese tariffs. Now the reading of specialists is that, that drop to a level of $19 is a seasonable issue. In the second half of the year, there's a greater demand, but there will be a drop of around $5 compared with the $25.1 per ton in 2024. Regarding the volume purchase from third parties, we have 1.7 million tons in the first quarter, a significant drop vis-a-vis the fourth quarter of last year. Our production volume was basically flat. It went from 58 million to 57 million tonnes. It would make sense to purchase to keep in stock. We have 500,000 tons in stock. But compared to the first quarter of '24, Barbara, we had only 2.1 million tons. So we purchased some more because we expected a better performance in our capacity, which we did obtain for the year, we expect a slight income increase, I'm sorry, in the purchase volume, very close to the levels of the year. Last year, this was 23%. And for this year, we estimate 25% as well.

The next question comes from Emerson Vieira from Goldman Sachs.

We have 2. First, regarding the quality adjustment. We have seen a very positive performance of this variable and the drop of $1 per ton in the first quarter. I would like to know if this ends up being a reflection of the demand for iron ore with a lower iron content, especially in the Chinese market. There is news speaking about this new dynamic or if this simply reflects a better perceived quality of your company product. The second question is a follow-up. Your contracts to anticipate iron ore. If I'm not mistaken, in the fourth quarter last year, there was an increase to $355 million. This year, there has been no incremental contract. Is this strategy ongoing looking forward? Was the first quarter simply a temporary pause? Any update would be very helpful.

Thank you, Emerson, for the questions. Regarding the quality adjustment, you spoke about that dynamic of strong demand for the low grade in China. This continues to hold true. When you look at the data of average margin of Chinese steel companies, it is negative by $17. When you open between AF and BF, there's a big difference. EOF is operating $80 negative and the BOF positive with $108 per ton. Even so the margins are still quite low. And as this is an average, there are companies operating at a loss, and they're trying not to maximize the flow and minimize the unit cost. Now if we add to this, the strategy of some adjustments, trade adjustments some of the products in our portfolio. This has proven to be a strategy that is accepted to maximize and optimize price realization, considering the demand for different products in China regarding the prepayments, we have BRL 11.1 million opened up with a maturity at 12 months of BRL 13.5 million. So you commented correctly. We did nothing in the first quarter. And our expectation is to roll the maturities we have in coming quarters. We're already holding conversation with our main customers to execute these transactions in coming months.

That was very clear. And congratulations for the results.

The next question is from Guilherme from XP.

We have 2. The first question, if you could give us a general overview of what is happening with the company's main investments, the P15 project. And if you could give us an update on what we can expect in terms of CapEx in coming years in the context of these new projects. My second question. We saw your announcement on dividends. I would like to better understand which will be the balance between CapEx, dividends and buybacks looking forward in the context of the new company investments. These are my 2 questions.

Thank you for the questions. Regarding P15, the project is advancing well, 44% of physical advance. We have already disbursed BRL 54 million. We have 150 people working on the work site with equipment. The next steps are hiring the yard machine for the civil construction. Our negotiations in this are quite advanced. When we look at coming years, Guilherme, and throughout, this year, we will have a ramp-up. We're going to begin with BRL 377 million at the end of the year. At the end of the year, we will be at twofold or threefold that projection. And in the coming years, we will disburse BRL 13.2 billion, BRL 2.6 billion per year. So these indicators that we shared during CSN are being maintained at present. Regarding that combination of CapEx, dividends and buyback, luckily enough, the net cash position of the company and the operational excellence hitting records recurrently during the last quarters mean that we have significant comfort in executing this challenging expansion plan. It's not something trivial to deal with these projects. And when it comes to dividends, given that combination of a good operating performance and a comfortable leverage, our outlook has been to maintain the dividend policy that we have delivered since our IPO between 80% and 100% of net profit to be paid out annually. Regarding the buyback, the program is open for up to 100 million shares, of which 53.2 million shares have already been acquired. It will be open until December 19 of this year, which means we can continue to execute this. In the last few months, the priority has been dividend payout and the execution of company projects.

Our next question comes from Henrique Pereira from Morgan Stanley.

One question regarding your cost. Do you foresee increases during the year? And how are you going to adhere to the last guidance that you shared with us?

Thank you for the question, Henrique. We began the year with exceptional C1 results, 11% below 2024. The guidance is 21.5% to 23%. And at present, we maintain the guidance given the good performance of the first quarter, we have a comfortable position, therefore, to deliver that level.

The next question is in writing from Mr. Lauren [indiscernible], investor. He says good morning. In the release, we said a negative increase of the financial result hampering your profit. Could you comment on this? And which is the outlook for the coming quarter?

Thank you for the question. We understand this as being a onetime event. And during the presentation, I explained this. It is the result of the impact of the exchange rate and the strong cash position of the company. At the end of March of this year, we had $2.4 billion in cash and throughout the last few years, this has been what has positively given trust to the company results. Last year, the positive impact was BRL 1.065 million in the Cemin consolidated results. Now for the second quarter, it's hard to establish what will happen with the exchange rate due to market volatility, but it is very close to the BRL 5.75 per dollar. We don't expect to have significant impacts from that line item in our results in the second quarter.

The next question in writing comes from [indiscernible], investor regarding the P15. When do you foresee the conclusion of the work and which will be the increase in revenues and profit once P15 is concluded?

[indiscernible], we don't have guidance on the P15. What I can say is that the conclusion is foreseen for the fourth quarter 2027. We're on track regarding that date that we communicated at the end of last year. We're trying to anticipate this, and we think this will add expressively to the company results. We're speaking about adding 16.5 million tons in the market conditions of the present where the quality premiums are lower due to the low margins of Chinese steel plants. Notwithstanding this, the average premium of P15 expected regarding Plat 62 is $22 per ton. If you compare the quality results today, the average quality of our portfolio of $14 in the last quarter. If we add those 2 variables, we're speaking about adding somewhat more than $36 per ton of margin. The cost will increase marginally at the plant. The plant has more intensive processing. We're going to work with a poor product to deliver a richer product, and we will have 67% of iron content. So P15 will be material for the company. It will add quality to a niche where we're lacking product. It is an iron ore with a high iron content. It is important to decarbonize the global steel industries. Therefore, I believe that P15 will be highly relevant from the viewpoint of revenues and, of course, results.

The next question in writing comes from [indiscernible]. At the last assembly, you made a change in your bylaws regarding the closing of capital. My question is, does the controller intend to close the capital of CSN Mineração.

Marcio, I saw an article that analyzed this. And unfortunately, that article was not correct. The items that they presented regarding a change in the bylaws have been there in true since the IPO, and there are demands regarding the level that we have at B3 Level 2 in the Brazilian stock market. So that article was not based on correct information, and thank you for the opportunity to clarify this. There is no intention in the company regarding closing the capital of CMI.

As we have no further questions, I will return the floor to Mr. Pedro Oliva, CFO and IRO for the closing remarks.

Once again, I would like to thank all of you for your attendance. And I will now turn the floor over to the Chairman of the Board, Mr. Benjamin Steinbruch.

Thank you all for your attendance at the earnings results for CMIN. And to close, I would like to reiterate our commitment with our cost reduction and a direct focus of everybody in the company. We have had excellent results when it comes to cost. And the feeling is that everything that was put in place regarding the cost issue is truly materializing. And with this, we can offer products at a highly competitive cost. I would like to complement everybody working in operations in the company. They have worked very successfully, helping us with the cost of production of our iron ore. We believe that this cost will tend to be maintained at the present day level between 21 to 23. That is our will and our determination to maintain it at that level. And we have done that successfully. In terms of production, our own production, we also had an increase. This is another of our efforts as we are decreasing our purchases from third parties and increasing our own production because of the very good performance of the plant and of course, a good performance that has been delivered throughout the last quarters. We believe that this is a trend that will remain an increase in our own production. Now we look upon freight with an outlook of reduction. We're working towards this and also thinking of the possibility of contracting freight at a lower cost. We believe that we will have good results when hiring freight. Now regarding the Chinese market, it's what we always say because of the present moment. We believe that China as well will deploy great efforts to recover their own domestic market. Iron ore has proven to be comfortable with a price range of $90 to $100. Now the quality of iron ore is not good. So the price oscillates somewhat at somewhat less than $100. And because of this effort of China to recover its economy and the commitment that they've made to the infrastructure and civil construction market, they will probably have this recovery of iron ore simply because of their demand. They don't have inventories and we're looking with tranquility upon this recovery of the Chinese market. Now when it comes to that balance, it's always favored us. The fact that the company is strongly dollarized in its accounts. And well, basically, all of our accounts are pegged to the dollar. All of our revenues are in dollars, and this has always been a positive thing for us. there was a devaluation of the dollar, but this is a onetime effect, and we do believe that -- well, the dollar has always favored us and will continue to be something positive in the company. Therefore, the quarter was good. We did have a negative result. But in terms of operations and commercially, we are going through an excellent moment and we will have a recovery for the second quarter. Once again, I would like to thank all of you for your attention. I thank the team for their effort, for everything that they have done and for the results that they have brought in, always with that outlook of improving so that we can face up to the investments we would like to make and to make this company the company we all wish it will become.

Thank you very much to all of you. Results conference for CSN Mineração is here. We would like to thank all of you for your attendance. Have a good day.