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

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" XP Inc. (NasdaqGS:XP)

" Itaú Corretora de Valores S.A., Research Division

" JPMorgan Chase & Co, Research Division

" Santander Investment Securities Inc., Research Division

" Citigroup Inc., Research Division

" Banco Bradesco BBI S.A., Research Division

" Morgan Stanley, Research Division

" Goldman Sachs Group, Inc.

" BofA Securities, Research Division

[Interpreted] Good morning, and thank you for waiting. Welcome to CSN Mineracao's Conference Call to discuss the Company's Results for the Third Quarter of 2025. Today, we are joined by the company's executive officers. Please note that this event is being recorded. [Operator Instructions] The event is also being streamed on CSN Mineracao's Investor Relations website, ri.csnmineracao.com.br, where the presentation is available. A replay of this call will also be available shortly after it ends. Before we proceed, we would like to clarify that certain statements made during this call may constitute forward-looking statements based on the current beliefs and assumptions of the company's management.   These statements involve risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed herein as a result of factors such as general economic conditions in Brazil and abroad, interest and exchange rate levels, future negotiations or prepayment of obligations or foreign currency-denominated credits, tariffs from the U.S. and Brazil and other countries, changes in laws and regulations, and general competitive factors on a global, regional or national scale.   We'll now turn the call over to Mr. Pedro Oliva, Chief Financial Officer, Investor Relations Executive Officer, who will present CSN  Mineracao's operational and financial highlights for the period. Mr. Oliva, you may go ahead.

Good morning. First of all, I'd like to thank you all for joining us on our conference call. We are going to start the presentation with the highlights of the third quarter of '25. We reached a new production record, including purpose with a volume of 1.991 million tonnes, a growth of 4.5% compared to the third quarter of '24 and a record sales of 12.4 million tonnes. The highlight is that this was the first time that the company exceeded the amount of 12 million tonnes sold in the same quarter. The company continues to operate at a level that is of $21.1 per tonne, an increase of 14% and the variation is explained just by the appreciation of the exchange rate. If we remove the effect of the exchange rate, it would be $19.3 per tonne.   Adjusted EBITDA for the third quarter '25 was BRL 1.991 billion, a growth of 57% compared to the previous quarter and 74.9% when compared to the same period of last year. With the strong results, the adjusted EBITDA margin for the third quarter was 45.2% and net income of BRL 695 million, a fivefold increase compared to the previous quarter. On the next slide, we show the production volume plus iron ore purchases that reached 11.9 million tonnes in the third quarter, a growth of 2.8% compared to the previous quarter and 4.1% compared to 3Q'24. This number is a new production record, including purchases, and reflects the excellent operational efficiency and strong logistics performance.   On the other hand, the consecutive drop in inventories over the last two quarters is a consequence of the strong sales volume during the period. We closed the quarter with 3.1 million tonnes in inventory, a drop of 12.4% compared to the previous quarter. This drop is explained by the strong sales volume. The company reached 12.4 million tonnes, a growth of 4.3% compared to the previous year and 4.8% compared to the previous quarter. This is a new record, reflecting operational efficiency and logistics optimization with TECAR reaching for the first time 4 million tonnes shipped in a single month for the first time, operating above its capacity. And MRS is operating at a record in terminals and really optimizing these numbers.   Net revenue was 48.2% that of the second quarter '25, driven by record numbers of shipments and improvement in realized prices. Net unit revenue of $65.7 per tonne reflects the increase in the average iron ore prices, lower demerit due to quality, and the positive impact generated by cargoes exposed to future quotation periods. On the next slide, we give details on price realization. Unit net revenue was $65.7, a growth of $13.8 compared to the previous quarter. And in the period, we had $4.2 growth, but it was also impacted on our QP basket of $2.1 compared to the previous quarter, and positively impacted the cargoes in future quotation prices, and had an impact on price realization of $13.9 per tonne.   When we think of discount per quality, we also had an improvement. The discount was $14.1 per tonne, $1.5 better than the previous quarter. And sea freight had an increase, $21.9, but the company continues to have efficient management of freight costs and is operating below the C3 route between Brazil and China. As for the adjusted numbers, we had a growth of CPV of [3%] compared to a higher sales volume, but also a higher procurement from third parties, and the impact of iron ore prices in the period applied to the sales volume. Adjusted EBITDA reached BRL 1.991 billion, an expansion of 57% compared to the previous quarter.   This growth is a result of the recovery of iron ore prices and better operational performance, as we have seen in the history of the company with solid management of costs and expenses, which has always been and will continue to be a priority for our group. As for adjusted EBITDA reconciliation, we started with an EBITDA in the second quarter of '25 of BRL 1.268 billion and went to BRL 1.991 billion. The improvement of iron ore prices and the effect on cargoes that are subject to future quotation prices adjusted the increase in EBITDA, offsetting the decrease in freight and the increase in costs of iron ore.   Investments grew 20.6% compared to the previous quarter and 27% compared to the third quarter of '24, reaching BRL 603 million. CapEx growth reflects efforts to maintain the high level of execution of the operation, which continues reaching record numbers in addition to expansion projects, particularly the infrastructure works of P15.   As for the net working capital, we had growth from negative BRL 450 million to negative BRL 49 million, with an increase in accounts receivable, and also a result of an increase in sales volume and iron ore prices. This increase in working capital happens despite the supplier line in response to the higher sales volume and trade payable, and the higher volume of iron ore purchases from third parties.   In that business profile, our amortization schedule continues elongated with an average time of 52.3 months, and the company closed the third quarter of '25 with BRL 13.6 billion in cash availabilities, a reduction of 5.3% versus 2Q '25 due to the payment of dividends that offset cash generation and the partial rollover of prepayment contracts. As a result, the net cash position reached BRL 3.9 billion, and the leverage measured by the net debt over the last 12 months EBITDA ratio stood at 0.59x.   On the next slide, we show our adjusted cash flow that was positive at BRL 284 million, even before a higher working capital consumption and increased CapEx and the negative financial expenses, the company still has the impact of the appreciation of real vis-à-vis the dollar, but a smaller impact than what we had in the first and second quarters of the year.   Net cash reached BRL 696 million, 5x higher than that of the previous quarter, driven by the of factors, including operational records as we showed and favorable pricing dynamics, and a reduction in financial expenses due to a better exchange rate in the period. As usual, we conclude our presentation with our highlights in ESG. In governance, we are the seventh best company in mining, in sustainability.   Our score ESP had an important increase to 62, above 93% of the companies in the sector. In diversity, we reached 26.2% of females in our company, overcoming the target that was established for '25. In dams, we had all renewals for '25 with all dams of CS Mineras Gerais considered stable. And in safety, once again, we celebrated 11 years without fatality in the company and a reduction of 25% in serious events compared to the first 9 months of '24. In environmental, we reduced 11% CO2 per ton of iron ore produced compared to 2020, and we reduced 3% compared to the first 9 months of the previous year.   I conclude my presentation, talking about the approval by the company's Board of Directors of the payout of BRL 903 million in dividends and interest on equity to be paid on November 19 this year. And here with me, I have Carlos Mello, the Superintendent Director; and Benjamin Steinbruch, who is the President of the Board of Directors, whom I'm going to turn the call over to him to make his remarks.

Good morning, everyone. Thanks for attending the CMIN's conference call. We had a quarter, as you had the opportunity to see, that was quite good. We had improvements in almost all indicators, and we are on the right path to continue showing positive results, operationally speaking. We had an increase in iron ore prices. This has been kept at better levels than expected.   And we see a higher demand in lower quality iron ores, which enables us to work with the quantities we have expected, and the demand makes our quantities basically the nominal capacities that we have. So, it was a quarter that was quite exceptional. Our team worked very hard. So, we thank your willingness to break barriers and establish targets. And thank God, we had no accidents.   Our safety is quite stable in our work environment, and we are quite optimistic for the future quarter. Demand continues to be very good. Prices are good. Margins are good. So, from the perspective of CMIN, I believe that we had a very, very favorable quarter, hitting records. and established a good financial margin and a good result. So that's basically it. And now we are going to take your questions, and I would like to thank you all.

[Operator Instructions] Our first question comes from Guilherme Dias Benchimol from XP.

Congratulations on your results. So, I have 2 questions. The first goes along the line of purchases from third parties. If you could mention the volumes that you had in the third quarter, what do you expect for the fourth quarter? And what is the expectation for '26, if you carry on the rationale of keeping a level of third-party purchases around 25%?   Second question, prepayment contracts for iron ore. Here, the question perhaps is split into several parts. I would like to first understand how much room you have to increase exposure to these contracts. If you could give some color for the future in terms of volumes and what is like the evolution of these volumes will be for the coming years?

Guilherme, thanks for your questions. With regard to third-party purchases. We had a volume of 3.2 million tons, very close to the 3.1 million of the previous quarter, and that was about 25% of sales volumes. As for the fourth quarter, we generally expect a higher loss metric because of the size of the operation. And subject to availability, we can increase the volume of purchases. The logistics system has been hitting records and opening room for us to accommodate higher volumes for third parties.   As for 2026, we should not have any significant variation compared to the levels we are operating now. We expect to close the year between 25% and 30%, less than 30%, but above 25%, which is what you mentioned. And this level should be kept for the year 2026.   With regards to prepayment, well, today, we have a volume that was completed in '25. For '26, we are comparing BRL 15 million, BRL 27 million, BRL 14 million, BRL 28 million, BRL 18 million, and then BRL 29 million, way below that. This year, basically, we had our investments, we had 2 operations, one of $240.9 million, another of $300 million. And these were the investments for this year. And the strategy for the future, Guilherme, is to keep the rollout and the current level of exposure in terms of prepayments.

Our next question comes from Daniel Sasson from Itau BBA.

Congratulations, specifically on your performance on volumes this quarter. My first question has to do with capital allocation. If you could talk a bit about the last review and update of your CapEx plan for the coming years. And perhaps here is how much of CapEx, especially short-term, '26, I mean, is already contracted? And how much margin do you have to either wait or delay, or postpone to '27, compared to iron ore?   So, just to try and understand your capital allocation, how do you balance your investments in expansion in B15, which is very important for the company's long-term sustainability, and the payout of dividends that you've been very strong in acting on, as you announced for this quarter.   The second question is a bit more overall, talking about the supply and demand of iron ore. I think iron ore was one of the commodities that most positively surprised the market in '25, huge resilience about $105 in recent months. For '26, what do you expect? What do you think the balance of the market is going to do? We have Cimadu starting to ramp up. China perhaps decelerating a bit, but Southeast Asia is strong, depletion is strong. So that can help us understand your projections in terms of average prices and market for next year.

As for capital allocation, since the IPO of CMIN, we have been saying that the company is one of the few in the market that allows for this combination of strong dividend payout and delivery of expansion plans. And I think this is possible for 2 reasons. First is where we start in terms of the balance sheet, a negative net cash, and strong cash generation from its operations.  So fortunately, our projects deliver a very appealing return to our shareholders. And today, we are keeping the plan for the execution of our projects with also priority for research and P15 has its challenges, but our target to keep capital for '27 is maintained.   As for margins, we have the strategy of continuing paying high dividends along '26 and the coming years. As for supply and demand of iron ore, in fact, supply increased a bit this year. In September, it grew BRL 14 million up to September, with BRL 12 million coming from Brazil. CMIN is really being structured to have the first shipment. And next year, I believe we should have approximately BRL 20 million in terms of iron ore supply trans-Oceanic.   In terms of demand, I think that we have important data. On the one hand, you have an increase in inventories, imports in recent weeks, but inventories are 148 tons, 8.8 million below what we had in the previous year. We have 88.6% that means a healthy level and above the level that we had 1 year ago in terms of utilization. So I think that, given the deceleration of the Chinese consumption, we are seeing a step that our exports. So exports grew 14.4 million tons from a level that was already very high. And together with that, when you see the demand of iron ore to China, we have a number that is quite impressive despite the total production of steel having dropped 22 million.   So again, I highlight the change of mix in production of Chinese steel. Steel went from 38% to 52%, but now it's going from 52% to 41% and margins with Chinese steel companies are negative and they are behaving in a way that I would highlight that the deterioration of Australian iron ore is increasing the change of this benchmark from 462 to 461 next year. And that has driven demand for Brazilian iron ore because of its low alumina and the need for you to correct to the high alumina tenor of the Australian iron ore, which is abundant in this region for you to have a more efficient mix.   So our interpretation is that that can have an impact on prices. Prices should be about $110, and this is what happened. When we believe that it was not consensus, a lot of people should think that there was a barrier of the $100, but we continue with our conference calls, talking about higher numbers than that, now at $104.9. I believe this is a hedge at this level to decrease the volatility of our results in the coming months.

The next question comes from Tatiani from JPM.

I would like to explore your CapEx a bit. We did see a bit of an acceleration as expected this quarter, but still below expectations, which would lead to an even higher acceleration in the fourth quarter or an amount lower than expected for the year. What should we expect for the fourth quarter? Are you revisiting the CapEx for the year? Should we expect something below what we thought we would have? And if so, what led to that?  Any change in the project, anything that was delayed? Just to try and understand it a bit better. And in terms of volumes, obviously, we did see sales records, very strong sales. You did reinforce your guidance. So I would like to understand if there is room in your operation, even considering third parties for the guidance to be different, or if it should be considered at the top range?

Thanks for your question. As for the CapEx, you are correct in expecting an important growth in the fourth quarter. I think that we have been concentrating our CapEx in the third quarter. So we expect an important growth in expansion CapEx. It's not a delay. Projects are going on quite well. We have a very advanced structure in many of our projects, completing civil works. For next year, we have the electronic assembly of our project, but the idea is to keep the schedule of our projects, which will have an important impact on the group in terms of increased EBITDA as we kick off the start-up. In terms of volumes, we have been hitting a record operating above what we expected, fortunately, and the guidance is from 42 million to 45 million tons.   The guidance is kept. We always have to consider the uncertainties in the operation. But at the pace we have been operating so far, we believe that we are going to meet our guidance. So despite the rains, I think we are going to be able to keep our pace. So we are still cautious about changing our guidance. And considering what we have so far, we are going to work even to exceed the guidance. And as the year goes on and we are able to keep this value, we can even consider some acceleration.

Our next question comes from Yuri Pereira from Santander.

I would like to have a follow-up on hedges. Could you tell us the amount of the hedge, the price, or the average price for the quarter? And do you anticipate the payout of dividends, considering a possible change in regulation?

Thanks for your questions. As for hedge, I would say, about 8 million tons at an average price for the coming months for the fourth quarter, but also for the first quarter of '26 of $177 per ton, which is a positive markup considering the results of today in approximately BRL 80 million for the company. Dividend payout we announced last night the approval of additional dividends of BRL 903 million, considering the results of this year.

Our next question comes from Gabriel Barra from Citi.

I do have some follow-ups, really. First, trying to go back to the P15 and company leverage. You did give us a lot of color, but could you talk a bit more about the ramp-up process, what you were considering that is at about 28 when you are going to start, so what is the process going to be about? And in terms of leverage, 2 points. Considering the remainder investment of P15, we have a relevant part of CapEx to be invested. The company is in a very comfortable leverage position. And considering all this, I would like to ask you 2 things. One, about dividends. You did mention something, but I'm considering the context of the possible taxation on dividends. You have a profit reserve; perhaps you could do something extraordinary. So I would like to understand what you're thinking about that? And also, what do you see the company's leverage is going to be more in the mid, long term? So what would you expect CSN's leverage to be post P15? What level would you be comfortable with for the future? So these are my 3 points.

Thanks for your questions. P15, the expected ramp-up is 12 months. So we are going to expect running it at the end of '27, ramp-up would be throughout '28. So in '29, we would be with normal operations. In terms of leverage, indeed, the company has been a great payer of dividends. Since our IPO, we have already paid BRL 17.46 billion, with approval of BRL 903 million, as we mentioned. So we are going to go above our expectations. But the idea is to keep our dividend payout policy. And always use our profit reserves to keep these payout levels. As for leverage in the mid and long term, naturally, as you execute a project the size of P15, keeping the policy of dividend payout, you have a trend to increase your leverage. And we do consider it healthy to have a capital structure that is more efficient. And eventually, this leverage in the long term will go back to a level close to 1x net debt-to-EBITDA ratio. But until P15 starts operating, we are going to have a one-off increase in this leverage, slightly above this level.

Our next question comes from Matheus Moreira from Bradesco BBI.

Congratulations on your results. I have 2 questions.   One about costs, another very strong quarter in terms of costs, close to $21, even with the negative exchange rate variation for the future, I know that there are variables that you can't control the exchange rate itself.   But how can we consider cost performance for '26? The second question is a follow-up on Sasson's question on dividends. To better calibrate our expectations, do you have a level of iron ore prices that makes the likelihood of dividend payout higher or lower?

Okay. As we showed in the presentation, this is going to be a priority for the group. We always have a challenge.   Next year, you're going to have an increase in A&E. So it's probably going to be a bit higher with a bit more volume in terms of handling. But on the other side, several increases in efficiency and better performance, as we have been showing in terms of records, and that we continue to reach in the next months, because this all happens to keep the company at the levels that we believe are suitable.   With regards to dividends, you talked about iron ore prices. Well, as Pedro mentioned, we also have a half-full glass view. In the recent past, the sector was a bit more negative in terms of data from China, but that did not necessarily generate better iron prices.   They came with an increase in measures from the Chinese government to foster internal demand. And we continue to believe this is what is going to happen. And I think that we are having the right interpretation until now.   And therefore, we do not believe that we are going to change our policy in terms of dividend payout based on iron ore prices.

Our next question comes from Eugenia Cavalheiro from Morgan Stanley.

I think the question I have is about NRS logistics and the expansion they are having in waterways.   I would like to know if there is an impact on your company. Any change with regard to logistic costs related to that? And also your ideas in terms of freight costs for the next quarter?

Thanks for your questions. Well, this is a renewal process, and the company was able to keep investments in its network and move on to several market niches with room for growth, but growth in the allocation of capital with a return to its shareholders.   So we don't expect that this is going to be a problem for the iron ore operation. We have in contract that an improved efficiency translates into more competitive tariffs. And that has been the case as we have been hitting records in our operation.   As for freight costs, we have a spot of $23.6 per ton. It's worth mentioning that today, we have the volume for the fourth quarter of 3 million tons at a cost of $20.9 per ton.   So we have a trend in the fourth quarter with the coming of the rains and some impact from Australia of having better demand in terms of freight. And the trend of the spot price is going to show in the fourth quarter and the beginning of 2026.   This is a time when we want to close volumes for next year. So, although the spot price is a bit above what it was in the previous quarter, I believe that we have this dynamic, which is an additional demand in the Atlantic.   But despite all that, I think the freight segment tends to continue strong and seasonal. So we have to understand what are going to be the impact will be for that in the future.   As for the price of fuels, we did talk about the demand for ships, and fuel is also an important cost. And fortunately, the cost of the oil bearer has not been an offender along the year on the cost of freight on the C3 route.

Our next question comes from Emerson Vieira from Goldman Sachs. Mr. Vieira?

I have 2. First, this quarter, we had a slight increase in forfeiting and the rollout of iron ore contracts in a market that was a bit more challenging because of several corporate moves that we saw.   First, you said that you have the rollout strategy and that this is going to continue. My question is, what is the company's capacity to eventually increase prepayment volumes without jeopardizing operational cash generation of operational cash. And also, what is the cost of prepayment contracts when we think of yield in dollars, for example?   So this is my first question. And the second, a follow-up on the dividend. I understand that out of the BRL 900 million approved this quarter, half is related to results from previous years, BRL 450 million that was accrued. So that was used as a reinforcement of cash for CSN.   Now, considering that the worst has passed, considering the steel market, probably your cash needs for the future are not going to be as high. So, does it make sense considering dividends for the future at the levels that we have today?   This is the question I have, considering a bit of a more pessimistic scenario, so to speak, in terms of iron ore prices for next year. Thank you.

I'm going to start from the last part of your question, the pessimistic scenario.   I think the market has been more pessimistic recurrently in recent years. And fortunately, until now, the market has surprised us positively. We consistently have had a more optimistic view than the market, and that continues to be true. And that was true in the third quarter once again. So indeed, you start with a deleveraged balance sheet. And we believe this is suboptimal, considering everything to reduce the income tax to be paid. So we believe that keeping the payout of dividends together with expansion projects will bring our leverage to a healthier level for CMIN. And therefore, we don't have to change our dividend policy. As for the funding prepayments that you asked, I think that we are always trying to have long-term capital with competitive prices. In the case of P15, we had a line of $1.4 billion from a Chinese development bank led by the IDB. We also considered other very competitive credit lines. And as for credit appetite at CMIN, it continues very high. In terms of prepayment, we have had demands from partners who always work with us. They have an appetite for more and other partners that haven't worked with us this way before, showing interest in these operations with CMIN. So I think clearly, it's not a closed call. And with regards to what you're asking, we are improving constantly. Our last prepayment operation was the operation with the lease spread over the reference interest rate and a contract where we're able to reach the best levels in terms of premium, considering the pricing methodology, and also very good competitive discounts in freight. So it has been a winning model for CMIN. Commercially speaking, we are able to have an appealing product to our shareholders and be competitive in the market. I think this appetite for doing more with our partners is very good and shows that our capacity has not come to a limit.

Our next question comes from Mariana Li from Bank of America.

The first is a follow-up on volume. I'd like to know for '26, if we should expect guidance of growing volumes compared to '25? And how do you see your quality evolving? And what would be the main drivers to increase volume for next year? What should we pay attention to? And the second question on P15, if you could talk about the project status, what has been completed, next steps, and the main bottlenecks?

Thanks for your questions, Mariana. The volume for '26 on our CMIN Day, we showed a target between 43.5 million and 47.5 million tons. This target is maintained, and that represents growth compared to the guidance that we released in '25. As for quality mix, we have implemented some initiatives and operational strategies with regard to the branding that we have, which goes to each one of the different plants. And we believe that we are going to have an improvement that is going to translate into lower quality discounts for next year. So, as we mentioned in the presentation, we are seeing strong demand for lower-quality iron ores and a premium for the lower alumina in Brazilian iron ore. So we continue with a very positive understanding of the iron ore that we have for the market. Higher demand has been translating in also higher competition and lower demerits for CMIN. As for P 15, I think that the major evolution has been that infrastructure works are moving on very well. And next year, we expect to have a day with investors and analysts to be able to take a look with them in person. Civil works have a very advanced mobilization and electromechanical assembling, and the ducts that are to connect the plant to the large factors of P15, one next to the piling areas and the terminals, and the iron ore loading. So I think that those are the next steps in terms of supply are to have the electromechanical assembly of the plants that should be next year, and also the duct, the pipes to connect the plant.

Our next question is in writing from the Capital. Considering the strong profit and the net cash position shown this quarter, do you intend to review or make the dividend and interest on equity payout policy more predictable for the coming quarters?

The company has made the decision to keep the payout policy from 80% to 100% of its net income. This has been kept since the IPO, and we have had a strong payout of dividends. The announcement last year talked about an excess of BRL 18 million for the year. And the idea is to keep this policy. We believe that dividend payout is an important part of the investment thesis of our shareholders. So we do not want to change that in the short period of time.

[Operator Instructions] Since there are no further questions, we are going to turn the call over to Pedro Oliva, CFO and IR Officer, for his final remarks.

I'd like to once again thank you for joining our conference call, and celebrate with each member of the team, the operational records reached. We know that it took a lot of dedication from our members, and we also celebrate the new dividend payout to our shareholders. Good morning, everyone.

CSN and Minera conference call is now closed. We wish you a very good day.