Globe Specialty Metals Earnings Call Insights: Silicon Alloy Volumes, Silicon Metal Prices
On Monday, Globe Specialty Metals, Inc. (NASDAQ:GSM) reported its third quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.
Silicon Alloy Volumes
Ian Corydon – B. Riley: The silicon alloy volumes came in quite a bit ahead of what I expected in the quarter. Is 30,000 metric tons is that about the right quarterly run rate?
Jeff Bradley – CEO, COO: Well it came in ahead of expected Ian largely because we were able to restart the Bridgeport plant sooner than expected and the restart went very well and we shifted from 50% which you make when you first restart the plant to 75% very quickly. That – the 120,000 ton run rate is based on our current setup. So assuming that continues that’s probably accurate.
Investing Insights: Warren Buffett and Charlie Munger Tag Team Gold>>
Ian Corydon – B. Riley: I wonder, if you can give us a sense for how your other sales broke down between Alden and silica fumes?
Malcolm Appelbaum – CFO: Well we don’t – we haven’t broken out the third party sales to Alden. We continue as Jeff, had talked about to use the vast majority of the Alden output for ourselves. But as the CapEx that we’ve spent allows us to reopen mines which Jeff indicated, we have just done one mine in particular, there will be more output in the future and we will be able to sell more to third parties. I believe the other revenue in the quarter – yes Ian, we will come back to you and mention as we are taking other questions what the other revenue was in the quarter which includes byproduct sales.
Ian Corydon – B. Riley: As far as Alden can you just talk about what the plan is going forward after opening the one mine that you’ve opened and then can you talk about what you’re seeing for low ash coal prices out there?
Jeff Bradley – CEO, COO: As we’ve said since the beginning we looked for things at Alden to continue improving, shipments will come as we open up additional mines and expand the capacity of the company. I can’t really talk about specific pricing out there for coal other than to say we are very optimistic about what we are seeing. We have taken samples of our coal to many of the suppliers in the — or many of the producers in the silicon and the ferrosilicon industry. And the comments that we’ve gotten back from the industry is that yes, this coal is of very high-quality and I don’t think we are going to have any issues at all selling to third party because of what I talked about in the comments and that’s really the quality of this coal and the impact on our furnaces.
Ian Corydon – B. Riley: Last question is just on silicon metal inventories out there at your customers, do you have a sense for what that looks like or how that’s trended over the past quarter or two.
Jeff Bradley – CEO, COO: We really don’t get much information from the chemical industry. I can tell you from what we’ve seen and heard the automotive suppliers don’t have much inventory at all. As you know with solar we are selling directly to the poly producers, so we don’t have a sense. But again as I go back to my comments demand, demand is increasing. So we have to assume that the inventories are trending down at the customer level?
Malcolm Appelbaum – CFO: Our other revenue will be about $16 million from the quarter the vast majority of that is the byproduct sales.
Silicon Metal Prices
Martin Engler – Jefferies: At what price do you think silicon metal prices will begin to see some costs curve support or in other words I guess how much farther could prices pull back before it would no longer be economical for some of the importers to be moving material into the United States and North American market?
Jeff Bradley – CEO, COO: We get the feeling that silicon prices have really hit bottom, and as we said, as demand increases in the markets we serve, eventually price will follow demand. So I believe that they are at the bottom and the only place we have to go from here is up.
Martin Engler – Jefferies: One other question for Alden. You had provided prior EBITDA guidance. Any change to that what you are expecting for this year?
Malcolm Appelbaum – CFO: We got a little bit of a late start. I think we indicated when we closed the acquisition we are going to expect about six to eight months of breakeven EBITDA. We had a little bit more of that given that there was long lead time for certain underground mining equipment that we were acquiring to open this new mine that Jeff talked about a little while ago in addition to just getting up to speed on some of our aboveground mines. So we got a little late start. I think we indicated for calendar 2012 that we’d expect $20 million of EBITDA from Alden, about half from third-party coal sales and about half from reduced cost of coal that we use ourselves. We are probably one quarter late in achieving that goal. So we don’t we have a new number for you, but it’s just we are probably three or four months late in getting that number for calendar 2012.
Martin Engler – Jefferies: If I could, one other question. It seems like you are benefiting quite a bit from using the higher quality coal now that you have Alden. Can you give any more color on that? How much that’s I guess improving your cost structure?
Jeff Bradley – CEO, COO: Well, we talked about the efficiencies in the furnaces. This is a very reactive coal. It performs very well in the furnaces and again, I think we are seeing it in the results I talked about records at two of our plants and as you drive these efficiencies, you are just going to drive your cost lower.
Malcolm Appelbaum – CFO: And so, we have seen pro forma cost decreases, so we will return to price – cost levels that were below the Bridgeport fire and the significant major maintenance outages that we had in the last quarter but probably even more important than the cost reductions, are the increase in output. So although as a percentage the output increases are not dramatic, the fact is that we’re able to get more tons of shippable material out of the furnaces without significant capital upgrades, is dropped straight to the bottom line. We talked about expectation in the next quarter of having higher volumes to ship, which will likely offset the lower index pricing in our fiscal fourth quarter. The fact we are getting more volume out without significantly upgrading the furnaces with the coal is a real advantage to us.
Jeff Bradley – CEO, COO: And in addition to the coal, as you know we spent an awful lot of money last year on maintenance outages and upgrades and we’ve seen the impact of that as well.
Martin Engler – Jefferies: So one way to think about it would be as I understand it, these increased efficiencies in addition to the coal, essentially have some marginally higher capacity out there to be producing usable material and getting it on to the market?
Malcolm Appelbaum – CFO: That’s correct and we expect that to manifest itself noticeably in the next quarter. But again as you said it’s marginal. It’s not a dramatic percentage. But every additional ton that we produce is a ton we’ve wouldn’t have had if we didn’t have these efficiencies driven by the coal.