Diana Shipping's CEO Discusses Q3 2012 Results - Earnings Call Transcript

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 |  About: Diana Shipping, Inc. (DSX)
by: SA Transcripts

Operator

Greetings and welcome to Diana Shipping Inc’s Third Quarter 2012 Conference Call and Webcast. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Edward Nebb, IR Advisor for Diana Shipping. Thank you, Mr. Nebb, you may begin.

Edward Nebb

Thank you very much Jessie, and greetings everyone and welcome to the Diana Shipping 2012 third quarter conference call. The members of the company’s management team who are with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Stacey Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Executive Vice President and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me remind you that under the Safe Harbor provisions, any statements which are not statements of historical fact are forward-looking and are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act. Such forward-looking statements are based on assumptions, expectations, projections, intentions and beliefs that may or may not prove to be accurate. For a description of the risks, uncertainties, and other factors that may cause future results to differ from the forward-looking statements, please refer to the company’s filings with the Securities and Exchange Commission.

And now with that, let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer.

Simeon P. Palios

Thank you. Good morning and thank you for joining us today. The performance of Diana Shipping Inc. during the 2012 third quarter reflected continued third quarter results and expanding fleet and a sound capital structure. As a result, we deliver another solid quarter at a time of persistent challenging conditions in our industry. In particular, we have made progress in our fleet expansion strategy. Today, we announced delivery of the motor vessel Polymnia, a newly built Post-Panamax dry bulk carrier of 98,704 deadweight. The vessel was purchased in October 2012 from a third party seller for a price of $24.6 million. We also announced today a time charter contract for the Polymnia with Sino East Transportation Ltd., Hong Kong at a gross charter rate of $8,000 per day, minus a 5% commission paid to third parties, for a period of about 45 days to 55 days. The charter is expected to commence tomorrow, November 21, 2012.

Another recent addition to the fleet was the Tsuneishi of the Polymnia motor vessel of Amphitrite, a newly build dry bulk carrier delivered in August 2012. The rest of the charter to Bunge S.A. at a gross charter rate of $10,000 per day for a period of about 22 months to about 26 months. The charterer rate also has the option to employ the vessel for a further 11 to 14 months at a gross charter rate of $11,300 per day. This demonstrates our continued ability to meet the needs of highly restricted charterers, which has been a main feature of our approach.

Including the Polymnia and the Amphitrite, our fleet consists of 30 dry bulk carries. We also have two Ice Class Panamax vessels under construction with delivery expected during the fourth quarter of 2013, which will bring the size of our fleet to 32 vessels. In total, we have eight vessels either delivered or under an agreement to purchase in 2012 to date. This represents significant progress in the growth of our fleet and it reflects our discrimination to capitalize upon opportunities in the current market to build our product (inaudible).

We continue to manage our fleet in a responsible manner that promotes a balance of time charter maturities and produces a predictable revenue stream. Currently, our fixed revenue days are 95% for 2012. The vast majority of our vessels are chartered for periods ranging from 2013 through 2015 and beyond.

Now, let me briefly summarize our financial performance for the third quarter of 2012. Net income of Diana Shipping Inc. was $12.3 million for the 2012 third quarter compared to $26.4 million a year ago. Time charter revenues for the latest quarter totaled $56.2 million versus $64.2 million in the third quarter of last year. Time charter rates averaged $21,335 for the 2012 third quarter compared with $27,957 in the same period of 2011. We continue to have one of the strongest balance sheet in our industry. Our cash position at September 30, 2012 was more than $452 million or about $36 million higher than at the end of 2011.

The company continues to operate with a very manageable degree of leverage. Long-term debt including current portion was $459.1 million of principal balance starting at September 30, 2012 compared to stockholder’s equity of about $1.3 billion.

While the environment for the dry bulk shipping industry remains challenging, we will continue to pursue the strategy that we believe will deliver stable and profitable results in the near term and that will contribute to our growth for the long term. We will continue our program of selectively and gradually adding to our fleet as market conditions permit to acquire vessels at attractive prices.

We will operate our fleet according to balanced and prudent chartering policies and promote a predictable revenue stream and enable us to sustain profitable operations. And we will continue to manage our balance sheet to provide financial flexibility, provide the capacity to support growth and maintain an acceptable degree of leverage.

With that, I will now turn the call over to our President, Stacey Margaronis for a perspective on industry condition. He will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a financial overview. Thank you.

Anastasios C. Margaronis

Thank you, Simeon, and welcome to all the participants to this quarterly conference call. The third quarter of this year was unfortunately a continuation of the bad news we have been receiving from the dry bulk shipping market so far this year with the acceptance perhaps of a short breather the market took from its relentless downturn during the second quarter of this year.

The Baltic Dry Index started the quarter at 1013 points and on September 28 stood at 766. The Baltic Cape Index started from 1204 and closed on September 28 at 1621. The Baltic Panamax Index showed the most significant drop by starting from 993 on July 2 only to close at 425 on September 28. Unfortunately, this was not an unexpected development from anyone to understand the basic principles of supply and demand, but some analysts have been hoping that they are surprised on the demand side with help to soften the blow and help to create markets to perform a soft landing.

In a virtuously cyclical industry, the market shows no mercy and in the case of shipping rate reacts according. Unfortunately, things have improved somewhat since the end of the third quarter and the three industries have recovered to close yesterday November 19, BDI at 1054, the Cape Index at 2359, and the Panamax Index at 902.

Let's turn to macroeconomic development. Briefly according to the International Monetary Fund, global economic growth for 2012 is forecast at 3.5%, while for 2013 the prediction is for 3.9% growth. According to the Chinese Federation of Logistics and Purchasing, the value of the Chinese Purchasing Managers’ Index for the domestic manufacturing sector dropped to 49.2% in August, down 0.9 percentage points from the previous month.

A reading of below 6 usually indicates a negative outlook. The older figure, that’s also the lowest level in nine months suggesting that the conditions in the weakening Chinese domestic economy has not yet improved. However, the September figure came in at 49.8% and at loan loss to index showed positive manufacturing growth with a reading of 50.2% in October.

Let’s look more closely at China’s slowdown which has been discussed a great deal during the last few weeks. According to China's National Bureau of Statistics, growth in China’s gross domestic product fell to 7.4% in the third quarter of this year. This was the weakest quarterly reading since 2009. According to a recent article in the Financial Times, the following possible explanations were put forward to China’s recent slowdown and these provide some insight for future growth.

First, exports have recently become a drag to economic growth in spite of the reported increase in September exports by 9.9% from a year earlier, (inaudible) by demand in the Untied States. With the sterner demand so weak, sluggish exports are predicted to [suppress] about 1% from China’s gross domestic profit growth going forward. The second reason is that investment appears to have finally peaked at nearly 60% of GDP, a record high for a large economy during these times. Because of the increased capital base, investment is predicted to contribute up to 4% to China’s growth, down from about 6% [Audio Gap] thus far.

The third reason is the current policy paralysis due to political struggle before the leadership change which could prolong the recovery of growth to its earlier level. The fourth explanation is that the government in China have come to the conclusion that slower growth is actually desirable for that country. In the past, huge stimulus packages, healthy economy in the short run have then made it more imbalanced in its reliance on continuous investment.

Finally, the inner view is that even if the government wanted to promote after long term growth, it could be unable to be very successful. This in view is based on the assessment that private businesses are restricted to a series of sector such as manufacturing and processing that are defect by over capacity. In a similar way according to an article in the Wall Street Journal, China leaders hope that domestic consumption spurred by strong rises in wages can play a bigger part in driving future growth.

Retail sales were up 14.2% year-on-year in September, up from 13.2% in August. Slowing inflation opens up room to do more to support growth through increased consumer demand. We take the last view as more critical and believe that the government in China will take a more long term view to growth, which will inevitably mean acceptance of lower rates of growth, which after all is a sign of a maturing economy.

Let's turn to steel now. According to Maersk Broker, global steel use is expected to grow 2.1% in 2012 compared to a forecast of 3.6% made in April. In 2013, steel demand is expected to grow by 3.2% to reach a record high of 1,000,455,000 tons. This forecast is based on the expectation that the Eurozone prices contain the U.S. facilities with fiscal tightening view in 2013 and the China's secures a soft landing of its economy.

According to Commodore Research, after decreasing for 11 straight weeks, Chinese stockpiles of steel products increased by 2% during the weak starting October 15. Going forward, (inaudible) believe the Chinese mill will be forced to reduce steel production at least in the near-term. However, they believe that by the end of this year, the steel markets will be supported by the commencement of construction under the newly announced stimulus process.

According to the World Steel Association, there is currently an estimation 250 million tons of excess steel in the supply chain, equivalent to almost one-fifth of annual consumption, over half of that (inaudible) is in China.

Iron ore. According to Clarksons, world iron ore exports are expected to reach 1,000,167,000 metric tons in 2013, up 6% compared to 2012. Much depends on whether recent efforts by Beijing to help the growth in the rate of economic growth and manufacturing output will be successful going forward thus increasing raw material demand.

According to Howe Robinson, over the 12 month period ended on September 30, 2012 iron ore output reached 317.4 million tons. And according to Commodore Research in mid October, Chinese iron ore for stockpile dropped to 19.8 million tons which was down 4% in a week. This marks the lowest level at iron ore stockpile (inaudible) July 2011. These market will monitor closely as a continued decline could be a signal that the Chinese steel market is finally gaining strength.

Thermal coal now. According to Maersk Broker, growing energy demand in Asia especially from emerging economies will be the key driver of thermal coal demand going forward. Clarkson predicts that world thermal coal shipment may reach 811 million metric tons in 2013, an increase of 5% compared to 2012 volumes. (inaudible) demand from China and India as the main drivers of this increase in shipment.

Export growth in 2013 is likely to come from Australia and Indonesia. As for Europe, some coal-fired power stations are expected to be closed next year as part of Europe’s Large Combustion Plant Directive. Overall, European imports of thermal coal are expected to drop by about 2% in 2013 while Chinese import demand is projected to expand and reach 138 million metric tons, an increase of 12% compared to 2012.

According to Commodore Research, Chinese power plant stockpiles of thermal coal totaled 90.3 million metric tons at the end of September, 5.5 million metric tons more than at the end of August.

The stockpiles have further increased to 92.8 million tons on October 10. As regard to Chinese electricity production, which came to 390.7 billion kilowatt hours in September; which was 11% less that was produced in August this year. Compared to September 2011, the figure is 4.7 billion kilowatt hours higher, an increase of just 1%.

Metallurgical coal map, shipments of metallurgical coal are expected by approximately grow to 237 million metric tons, an increase of 3%, compared to 2012. Growth is primarily expected to be driven by rising demand in India, Brazil and China where economies and industrial production continue to grow. Australia is expected to remain the principle exporter of coking coal in 2013 with a projected market share of 65%. Shipments from that country are expected to grow 7% year-over-year and reach a total of 153.1 million metric tons. As our European demand, this is expected to hold by 2% this year and increase by 3% in 2013 at 45.9 million metric tons.

Grains now. The United States Department of Agriculture has lowered in 2012, 2013 global grain forecast to 282.7 million tons, 2% less than previous forecast of 287.6 made just one month ago compared with the 330 million metric tons of grain estimated would have been exported worldwide during 2011, 2012.

The 2012 to 2013 grain is expected to decline by 14%. The largest drop in grain export is expected to come from Australia. The region as expected by Clarkson next quarter total of 26.5 million metric tons, a drop of 12% compared to last year. Specifically, as far as wheat is concerned, the USDA predict that Australia’s 2012 to 2013 wheat harvest would total only 23 million tons. If this materializes, it will be 22% less than what’s produced in 2011/2012. Canadian exports are expected to be take up some of this flat but price increases caused by severe drought in many parts of the world has taken their toll on demand.

A brief look at congestion now. According to Commodore Research, approximately 125 vessels were entered as for three weeks ago outside major Australian coal and iron ore ports. Approximately 35 vessels were anchored outside major Brazilian iron ore coal ports. Out of these 160 vessels waiting outside major Australian and Brazilian coal and iron ore ports approximately 110 of them were (inaudible).

Now new-building contracting, according to Clarkson, the overall contracting activity thus far in 2012 have fallen by 63.1% year-over-year in terms of deadweight ton. The largest contracting decline has been in the container sector which has seen the number of new orders fall by 78.7% year-over-year, while dry bulk carrier contracting has come down by 56% compared to last year.

Turning to shipbuilding capacity, according to Clarkson Research activity in the shipyards around the world has dropped and a record 965 shipyards in 2008 have come down to 538 in October 2012. This represents a drop of 40% by numbers over the last four year. Furthermore, Clarkson data shows that 240 of the yard with active orders at the start of 2012 do not have vessels on their books with delivery date past to the end of this year. There are about fixture possible (inaudible) necessarily evil if the market is to ever recurrent to the state of balanced supply and demand.

So far in 2012, Maersk Broker estimates that 25,703,000 deadweight tons of dry bulk carriers have been sold for scrap. Deliveries as a comparison during the same period reached a staggering 83,794,181 deadweight tons. Clarksons predicted by the end of 2012, approximately 32.3 million deadweight tons of vessels we have been sold for scrap. If it materializes, it will be considerably more than the 23.1 million deadweight tons scrapped in 2011. Out of the total, approximately 12.8 million deadweight tons are expected to be 8 million and 8.2 million deadweight in Panamax and Post-Panamax ships.

The only cloud, cloud in the horizon as we got the future scrapping, is that according to statistics provided by Maersk Broker, 79% of the Capesize fleet is 15 years old or is under. The figure for the Panamax fleet is 73%, which will eventually place a natural task on the numbers of ships, which can be scrapped over the medium term. The unships will most likely be laid up rather than sold for scrap for long the discussion materialize.

Let's turn to supply of tonnage (inaudible). The new building order book according to Clarksons Research book is continuing to shrink. As of October 1, there were 266 Capes on order representing in tonnage terms about 19.5% of the existing fleet in deadweight tons.

The equivalent numbers for Panamaxes are 703 ships representing 32.1% of the existing fleet. About 25 million deadweight tons of Panamaxes are scheduled for delivery next year. While fleet growth is expected to be slow in 2013 compared to 2012, it is still expected to be significant especially in the Panamaxes space.

The factor was anticipated to have grown by 16% during 2012. According to Clarkson in 2013, the Capesize fleet is expected to increase by approximately 4.3% to 298 million deadweight tons and Panamaxes by 11.9% to 200.1 million deadweight tons. These statistics are according to Clarksons Research based on yard-by-yard analysis of historical and expected for the book delivery performance. We suspect it means a slippage rate of no more than 25% on average across the different size ranges.

According the Korean shipping messenger on October 10, the Ministry of Transport in China revealed its plan to expand state-owned fleet during the 12th five year development project starting 2011 to 2015. By organizing a large size modern fleet during that period, China will be able to enhance transportation capacity for the importation of major commodities. Let us hope the new configuration will be facing of the prevailing market forces in the implementation of this ambitious plan.

A brief look at demand now. According to Clarksons Research study, dry bulk trade is expected to increase by 5% in 2012, as growth in Chinese iron ore import and seaborne thermal coal trade have continue to provide additional cargos to the seaborne market. However, this rate of growth is slightly slower than in 2011 when dry bulk seaborne trade grew by 6%. This is a result of several factors including slower economic growth in China and Europe this year, reduced Indian iron ore exports, and other less important factors such as Indonesian Export Regulation, et cetera. For 2013, Clarksons predict total dry bulk trade will increase by a further 5% to reach 6.646 billion metric tons.

Now let’s look at the future. According to Maersk Broker, the dry cargo market is expected to remain volatile with no immediate major improvement to be seen in the fourth quarter of this year. Changes in the Chinese leadership may boost confidence and the effect of the country’s most recent economy of $158 billion investment package may surprise analysts and spot a much needed demand boost for bulk carrier.

According to Commodore Research, if Chinese iron ore demand stays firm, which is likely as iron ore prices remain very attractive, Capesize rates are likely to find the moderate amount of additional support. We however remain various as we drive the near term prospects of the Chinese steel market that the decline steel production has so far not reduced significantly Chinese demand for important iron ore.

We agree with Clarksons who conclude that since it will take a considerable amount of time for the present global supply and the market to be absorbed there is likely to be continued pressure on the bulk market in the short term. In the medium to long-term however, we find the view put forward by Howe Robinson more closable vendor. They point out that with the exception of the 2008, 2009 trade credit collapse; there has been no sustained stock builds or capacity closures amongst exporters of major bulk commodities. The reason they say is that China has always kept in to purchase surplus cargos whenever and wherever they have been made available. But nobody knows it’s how far a domestic growth rate in China has before this trend we see.

Even in the event of a hard landed in China, not to depend on international commodity price level is relative to their domestic production cost in China. Therefore in appreciating renminbi with low dollar commodity prices could create a situation where domestic producers particularly iron ore and coal producers there will be brands of an economic slowdown allowing imports to be much less effective than they would otherwise be by such a negative gross domestic product growth development.

With all this in mind, the Diana Shipping Inc. will continue pursuing a ship acquisition program along the lines explained during (inaudible) and meetings with shareholders and investors. Based on this strategy, the fleet has gradually grown to 30 operating bulk carriers with an average age of less than 50 years and two new buildings scheduled for delivery at the end of 2013. Throughout this process, the company has borrowed conservatively, thus maintaining impact the strength of its balance sheet.

I will now pass the call to our CFO and Treasurer, Mr. Andreas Michalopoulos to provide you with the third quarter and nine months 2012 financial highlights. Thank you.

Andreas Michalopoulos

Thank you, Stacey, and good morning. I am pleased to be discussing today with you Diana’s operational results for the third quarter of 2012 and nine months ended September 30, 2012.

For the third quarter of 2012, net income for Diana Shipping Inc. amounted to $12.3 million and the earnings per share were $0.15. Time charter revenue decreased to $56.2 million compared to $64.2 million in 2011. the decrease is attributable to decreased average time charter rates that we achieved for our vessels during this year compared with the third quarter of 2011. The decrease was partially offset by revenue derived from the vessels, Leto, Los Angeles, Melia, Philadelphia, and Amphitrite delivered in January, February, May and August 2012 respectively.

Operating days were 2,624 for the third quarter of 2012 compared to 2,102 for the same period of 2011. Fleet utilization was 99.3%, compared to 99.7% in 2011 and the daily time charter equivalent rate was $21,335 compared to $27,957 for same period in 2011.

Other revenues for the third quarter of 2012 amounted to $0.6 million and consist of revenues derived from the management and administrative agreements between Diana Shipping Services SA and Diana Containerships Inc.

Voyage expenses were $1.1 million for the quarter. Operating expenses amounted to $17 million and increased by 21%. This increase is attributable to the addition of new vessels in the fleet, which resulted in the ownership days to increase by 19%. The increase was also due to increase in result of maintenance and other costs and was offset by decreases in insurance and stores and spares.

Daily operating expenses were $6,460 for the third quarter of 2012 compared to $6,387 in 2011, representing an increase of 1%. Depreciation and amortization of deferred charges amounted to $16 million. General and administrative expenses increased by $1 million or 2% for the third quarter 2012 to $6.2 million compared to $6.1 million in 2011. The increase was mainly attributable to the brokerage fees and annual meeting expenses and was offset by decreases in salaries and bonuses.

Interest and finance costs were $2.2 million for the quarter compared to $1.2 million in 2011. This increase is attributable to increased average interest rates during the period and increased average debt.

Income/loss from investments in Diana Containerships Inc. now. The loss from our investments in Diana Containerships Inc. amounted to $2.5 million compared to a gain of $0.4 million for the same period in 2011. The loss for the quarter 2012 was due to the increase in the share capital of Diana Containerships Inc. after a follow-on offering completed in August 2012 resulting to the dilution of the company’s investments in Diana Containerships Inc. and a reduction of our shareholding interest in the company from 14.45% to 10.36%. This loss was partially offset by operating gain.

Turning now to the nine months ended September 30, 2012, net income for Diana Shipping Inc. amounted to $49.6 million and the EPS was $0.61. Time charter revenues for the nine months ended September 30, 2012 decreased to $171.4 million compared to $198.3 million in 2011. The decrease is attributable to decreased revenues due to the increase in the average high rates achieved during the period compared to the same period of 2011 and was partially offset by increased revenue due to the addition to our fleet of the vessels Arethusa, Leto, Los Angeles, Romania, Melia (inaudible) delivered in July 2011, January, February, May and August 2012 respectively.

Ownership days were 7,409 for the nine months ended September 30, 2012 compared to 6,401 in 2011. Fleet utilization was 99.5% for the nine months ended September 30, 2012 and 99.4% in 2011. And the daily time charter equivalent rate was $22,561 compared to $30,015 in the same period of 2011. Other revenues for the nine months ended September 30, 2012 amounted to $1.8 million. Voyage expenses were $6.2 million for the period.

Operating expenses amounted to $47 million, an increase by 16%. The increase is attributable to the 16% increase in ownership days resulting from the delivery of one vessel in 2011 and five in 2012. The increase was partly offset by decreases in insurance and in repairs and maintenance.

Daily operating expenses were $6,341 for the nine months ended September 30, 2012 compared to $6,328 in 2011. Depreciation and amortization of deferred charges amounted to $45.9 million for 2012. General and administrative expenses increased by $0.1 million or 1% for the nine months ended September 30, 2012 to $18.9 million compared to $18.8 million in 2011. The increase was mainly attributable to legal and brokerage fees (inaudible).

Interest and finance costs decreased by $1.9 million to $5.6 million compared to $3.7 million in the same period of 2011. This increase was attributable to increased average debt during 2012 compared to 2011 and increased average interest rate.

Income/loss from investment in Diana Containerships Inc. the loss from our investments in Diana Containerships Inc. amounted to $1.8 million compared to a gain of $1 million for the same period in 2011. The loss was attributable to the company’s dilution due to the capital increase of Diana Containerships Inc. as mentioned earlier reducing the company’s ownership effect (inaudible) from 14.45%.

Thank you for your attention. We will be now pleased to respond to your question and I will turn the call to the operator who will instruct you as to the procedure for asking questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Thank you. Our first question comes from the line of Michael Webber of Wells Fargo Advisors. Please proceed with your question.

Michael Webber – Wells Fargo Advisors, LLC.

Good morning guys, how are you?

Simeon P. Palios

Good morning, Mike.

Anastasios C. Margaronis

Good morning.

Andreas Michalopoulos

Hi, Mike.

Michael Webber – Wells Fargo Advisors, LLC.

Good morning. I just wanted to jump in and talk briefly about your charters and you lost up the ratio for two years to 7,300 and I would say getting about 8-K for (inaudible) on the spot market. Why lock up the ratio for that long if you are getting a higher rate in the spot market. I know the asset classes are identical but and it does stay with your strategy, but its (inaudible) at all but may be not locking that kind of jump for so long at such a low rate.

Simeon P. Palios

We have said many times in the past, we have other vessels that we can fix if the market improves. And it doesn’t matter about how we fix one vessel, you should look at always that the portfolio we will have to the charter Inc. And in fact today that we have these different as regard to the time on how long we will be chartering vessels prove to you exactly the point that. We do not take the view that the market is going to be low for the next two years, but at the same time we are willing to charter a vessel for two years as long as we have other vessels that they are opening in-between.

Michael Webber – Wells Fargo Advisors, LLC.

Great.

Simeon P. Palios

Look at the entire picture always.

Michael Webber – Wells Fargo Advisors, LLC.

No, I understand the portfolio approach. On the point that 8-K for spot, is that just a function of the fact there is not a long term contract available there? What was my decision to (inaudible) that spot?

Simeon P. Palios

There is always a long term contract at a specific price. We chose to go shorter for the vessel and longer for the other.

Anastasios C. Margaronis

But Mike I think that you have to understand what is the difference between static money and dynamic money. Here you have a balance sheet which will allow you to weather out the volatility of the market. It is not the same thing with Diana Shipping Inc. (inaudible) today are supposed to somebody who has some money in the bank, it’s completely different. So that approach has to be maintained through all types of revenue, we are creating a very strong balance sheet to whether out the ups and downs or the dry bulk vessels trying to do.

Michael Webber – Wells Fargo Advisors, LLC

Yeah. I understand I don’t think anyone is questioning about the balance sheet. I mean we don’t see that, I guess maybe coming out from other angle, how much lower can that two-year rig really feasible to get, I mean is it really feasible that you could really get below two years $7,300 a day.

Andreas Michalopoulos

Yes.

Michael Webber – Wells Fargo Advisors, LLC

Okay.

Andreas Michalopoulos

In the market, all we grow as right as down, as the running expenses are received and the running expenses that received is approximately $300 less than that.

Michael Webber – Wells Fargo Advisors, LLC

All right, okay. I just kind of moving on quickly, I guess that your purchases, you guys have been more active this year in terms of acquiring tonnage and do you see kind of increase, I’m just curious what you guys are, something across it, just right now, and what you’re looking out over the next three to six months whether they’ve been more focused on new builders at second hand tonnage size and whether you think you’ll be able to maintain kind of the phase you guys have had in 2012?

Simeon P. Palios

I think we would be finding suitable tonnage to meet our requirement. admittedly, at this particular moment, there are not enough ships, first-class ships for state and the reason is that the interest rate is so low that I think the sellers have not come to [Athens], and have not come to Greece. they have to adjust their selling prices, but they will truly adjust their prices and we would be able to find to suitable ships and from first-class states.

Michael Webber – Wells Fargo Advisors, LLC

Okay. Thank you, I appreciate that. Thanks.

Simeon P. Palios

You’re welcome.

Operator

Thank you. Our next question comes from the line of Gregory Lewis of Credit Suisse. Please proceed with your question.

Gregory Lewis – Credit Suisse

Yes. Thanks and good afternoon.

Simeon P. Palios

Good afternoon.

Gregory Lewis – Credit Suisse

I guess my first question is, it looks like about 0.5 million shares were retired, I’m assuming that was related to the buyback, is that correct and if so was there any money left on the buyback?

Andreas Michalopoulos

The buyback was too big, Greg. the buyback is $100 million worth of stock buyback program. The sales that you are missing, it is a small portion of that.

Anastasios C. Margaronis

Yes. You’re looking, Greg, at the nine months here. For the quarter, it was much less. And so it’s very excited the buyback program that we have put into it.

Gregory Lewis – Credit Suisse

Yeah. I mean I guess, I was just wondering, are you able to disclose how many shares you bought back over the quarter?

Anastasios C. Margaronis

Yes. we bought back 67,381 shares.

Gregory Lewis – Credit Suisse

Okay. And what was the dollar amount on that?

Anastasios C. Margaronis

The dollar amount was a net amount or included a $472,452.

Gregory Lewis – Credit Suisse

Okay. And when we think about that, is that a function of the stock trading below what you’ve seen as your adjusted NAV or anything?

Andreas Michalopoulos

No, Greg, you know very well that the market is very volatile and NAV of the company changes together with market conditions. it doesn’t mean that we will always be buying at that prices that you see. it depends also on our expectation, it depends also on the market conditions at that time, and also the fact whether we can find a vessel to buy at that time or we are buying back our stock. We have made it clear to everyone that for us, the share repurchase program is nothing more than an investment that we consider to be a good investment for our shareholders, it's not that deep we're trying to keep stock price at a specific level.

Gregory Lewis – Credit Suisse

Okay, great. And then just another question more on the fleet. It looks like you have two vessels the Triton, and excuse me if I’m pronouncing this wrong, the Alcyon, and it looks like the Alcyon was expected to be delivered back to you yesterday and the Triton is sorted in this banned window from early November into February. I guess my first question is, has the Triton been redelivered back to you at this point, it’s given the fact that the charter rate is, I guess little bit more than 2.5, two times the current spot rate?

Simeon P. Palios

If you look at our fleet employment table, you will see that the Alcyon has been given back to us two days earlier than they should have and they have agreed to pay for the two days and it’s currently undergoing scheduled maintenance.

Gregory Lewis – Credit Suisse

Okay. So when that going back into the fleet?

Simeon P. Palios

Soon, it's not going to take lots of days.

Gregory Lewis – Credit Suisse

Couple of weeks?

Simeon P. Palios

Let's say a week. 10 days. And the other question was about?

Gregory Lewis – Credit Suisse

The Triton.

Anastasios C. Margaronis

The Triton, as you can see, the earliest possible delivery date is 11 November, which was not redeliver to us, then it is someway for both. We are seeking further employment, but still the vessel is started to resource money.

Simeon P. Palios

Okay. So in other words even though some of these rates are above market, it shouldn't assume that we're going to delivered...

Anastasios C. Margaronis

Hold on a sec, the Triton is 11 of November 2015.

Gregory Lewis – Credit Suisse

Okay. Yeah, I'm sorry I missed that. Anyway okay guys, thanks.

Andreas Michalopoulos

That's another year to go.

Gregory Lewis – Credit Suisse

Yeah, I see that. Okay. I thought that was the ‘12. All right, apologies, thanks.

Andreas Michalopoulos

Okay.

Operator

Thank you. Our next question comes from the line of Fotis Giannakoulis of Morgan Stanley. Please proceed with your question.

Fotis Giannakoulis – Morgan Stanley & Co. Inc

Yes, good afternoon. I would like to ask – to try to understand how you are thinking with your future acquisitions. Right now, you have a significant amount of cash in your balance sheet. I understand that this is a very volatile market and you’re trying to navigate through a very volatile market, but how exactly are you thinking – how much cash do you need to have in your balance sheet in order to protect yourself from fluctuations versus future acquisitions?

Simeon P. Palios

Thank you, Fotis, for your question. We will continuously be managing and the reason is that we have to gear up the company as we're going alone to a shorter 50% finance at the end of the dull period that is the [end]. So if you see how much cash we have today, you realize that we have plenty of room to keep on buying and we will be keeping buying six, because nobody knows when the market is going to change. So we have to be prepared. And what we are focusing on is the 50% leverage on our fleet at today's price. So there are lot of ships to be brought.

Anastasios C. Margaronis

Fotis, this is exactly the reason why we are not willing to spend a lot of money at one point in the cycle. We will continue buying vessels and that will always leave the necessary amount on our books and so theoretically it would have been the best situation for us if we were 50% financed, as a company one day before the market turns. But we don’t know that, but we think that we are going to do rather well with the way we are doing the purchases in the next period of two years.

Fotis Giannakoulis – Morgan Stanley & Co. Inc

Whether you will also try to understand is, if there is possibility of any special dividend of any given time, if you think that all this cash is not easy to be deployed during the current market or this is something that you have not considered and you are going to use this cash to expand your fleet.

Anastasios C. Margaronis

There is a possibility where we have been left with the large amount of cuts in our books and the market will turn. Then there is a possibility that we will make a special dividend with the amount that we have lesser size. But from the moment we are at the lower part of our cycle. We do not intend to pay any type of dividend. But if we take the hypothetical scenario, but the market turns tomorrow with very good prospects that is going to stay at the higher part of our cycle, then there is a possibility of a special purpose dividend. But do you see the market turning tomorrow Fotis?

Fotis Giannakoulis – Morgan Stanley & Co. Inc

That’s actually – it’s going to be my next question, and I know that you are not giving a forecast, but I would like to see what is your base case with some degree of confidence and how do you see that the market is evolving during 2013? I heard earlier Mr. Margaronis mentioning that the quarter has started a little bit better. Is this the turning point of a slow recovery and what is your view on that?

Simeon P. Palios

I think what you have to realize that there a lot of ships to be deliver until the end of 2012 and certainly in 2013. Of course, the demand for tonnage if you see the 2008 and you compare it with 2012, you will see that there is an increase across the border of 30% for both the iron ore, all types of coal and little bit less on the grain, but there is an increase of demand. The problem is the loss of tonnage around and it is enormous and what Stacey said before, also don’t forget that the gauge, which is the key issue here are a lot and they are fairly young. So I think the market will have to keep low for sometime and we have to watch it not to be over optimistic in some blips that the market eventually does. Overall, I think the market has to absorb the tonnage which is around and which is coming from the [CBS].

Anastasios C. Margaronis

Fotis, being an analyst, you can add better than we can, and if you look at 2013 in the addition to the Capesize fleet compared to the Panamax fleet.

You can see that with normal demand growth prediction, the Capesize fleet will have vessel support than the Panamaxes will. And as Mr. Fotis mentioned, these ships have to find business and the age profile is unfortunately nearly 80% at less than 15 years from the case and it’s not going any better replenishing its getting worse. So we have been prepared for treasure on earnings of these ships in 2013, but of things go as predicted by most analysts, the Panamax will probably be suffering more than a decade.

Fotis Giannakoulis – Morgan Stanley & Co. Inc.

Shall I take it as a possibility that going to be more opportunity from the Panamax sector for acquisitions and how do you view the market with rate being at around $7,000 companies are struggling even to operating expenses and in many case, then clearly, they cannot pay the interests from this cash flow. Have you seen banks or owners that they cannot deal with obligations and their debt service accounting to you offering vessels at the attractive prices and you see that these prices that we have seen recently, they can move even lower or we might have reached bottom on asset values?

Simeon P. Palios

That is the definition of low, Fotis. It’s a grey area here. you have to wait until strategically the freight market comes in line with the sale and purchase market. And because the interest rate is so low, the cost of money is low, this process is going to take a little bit longer. You are not around in 1985 while the interest rate was 23% in dollars than this lightening effect came quicker. but to date, it will take sometime, and that’s what we have to somehow wait but of course, we will be keeping, buying ships as we have arranged every two months or so, because that is our principle that we have based our company since inceptive in 2005 and we’re going to carry on doing exactly the same thing.

Fotis Giannakoulis – Morgan Stanley & Co. Inc.

In closing, my questions about 10 years ago, when you first established this company, you placed some orders in a very similar market, but perhaps not as bad as the market that is today. is this something that you might be considering putting new building orders in the current markets?

Anastasios C. Margaronis

Yes. Fotis, slowly we are going to be doing both, we’re going to be buying second time. But at the same time, we will be placing orders. We consider the two-year time for delivery of an order today or at any time for that matter to be rather attractive feature and this is why we will be ordering vessels. And of course, we have to wait little bit longer for the yard to understand that there are not going to be too many buyers around at the time, and they're going to be willing to offer us nice terms and nice vessels as well particular.

Fotis Giannakoulis – Morgan Stanley & Co. Inc.

Thank you, gentlemen. Thank you for your time.

Simeon P. Palios

Thank you, Fotis.

Operator

Thank you. Our next question comes from the line of Justin Yagerman of Deutsche Bank. Please proceed with your question.

Joshua Katzeff – Deutsche Bank Equity Research

Hey good afternoon, it’s Joshua for Justin.

Simeon P. Palios

Hi, Joshua.

Joshua Katzeff – Deutsche Bank Equity Research

It's been a long call so I will keep my question short, just kind of follow-up on the new buildings, I guess with the limited availability in tonnage, should we expect kind of your next purchases to be in the new buildings?

Simeon P. Palios

The limitation on finding vessels is (inaudible) of this month. We consider this charter, this feature is not going to continue, we would be able to find second hand vessels, but nevertheless the new building as we said, ordering is an option for us.

Joshua Katzeff – Deutsche Bank Equity Research

Got it. And just when you kind of went over the incoming supply of ships and the (inaudible) Capes of Panamaxes, I guess where does the first Panamaxes fit into this dynamic, are they kind of more willing to the Capes or the Panamexes?

Anastasios C. Margaronis

Don't forget that very soon after a year, the Panamax (inaudible) will open. And the Panamax vessels will not have the same effect as they have today. So I think the amounts of expense which are coming around will increase for the 70,000 tons more or less to something bigger. And I think that there is no bulk, I think to have the newer fleet ships for Post-Panamax, I think they would be good to have around.

Joshua Katzeff – Deutsche Bank Equity Research

Got it. And one last question. I guess for the past couple of years you guys have said that when time charter rates hit operating expense levels or below that's kind of they are starting to buy. We are now getting to those levels and I use to be the dead horse here, but should we expect maybe an acceleration of purchases on a quarterly basis more than maybe just one or two ships maybe several ships, is that a possibility [time today]?

Anastasios C. Margaronis

You should not expect us to increase or decrease the pace of our pesticides. We will try to keep it steady. We should not get influenced by what is happening around the short-term. We will continue be buying vessels as we have said many times in a steady manner.

Joshua Katzeff – Deutsche Bank Equity Research

All right, appreciate the time. Thanks.

Operator

Thank you. Our next question comes from the line of (inaudible) of Sterne Agee. Please proceed with your question.

Unidentified Analyst

Good afternoon gentlemen.

Simeon P. Palios

Good afternoon.

Anastasios C. Margaronis

Good afternoon.

Unidentified Analyst

I just have a quick question just a follow-up on one of the questions asked earlier. I think I understand your portfolio approach, if I look at your fleet, I can’t – I think 11 vessels that are coming up for redelivery next year. So according to your portfolio approach, if I understand it correctly, you are only, if freights remain where they are now, which no one knows where they’ll go in next year. But if they do, I guess you referred to be that you would not, you would only fix a portion of those and rates similar to current rates and just what the rest freight on the spot market. is that correct?

Simeon P. Palios

Well, don’t forget that we have the option of spot trading the ships. And of course, we have also the option of laying up this tool, but because you have active portfolio approach, you don’t care whether the vessel is laid up. you have a balance sheet, which is going to support you and that is big difference between static and dynamic money.

Anastasios C. Margaronis

Pal, I may add something here. by speaking regardless of the serials that we speak to vessels, you understand that from the moment we have a vessel to fleet in any time in the cycle, we have this spot exposure whether we want it or not. So basically, asking us whether we will lead some vessels trading export, it’s a bit confusing question. and I’m going to reply to that a bit differently. Our vessels are going to have employment. Some of them they’re going to have for the smaller period rather for a longer period, but the entire fleet is going to have a kind of export exposure whether it is easy for someone to see or not, because we will have always a vessel to fix. If you have 30 plus vessel, and you charter a vessel every 15 days or so in the item, this is our export exposure, don’t forget those are to us, to your way of thinking the newly purchased vessels, but they are going to be placed in between the existing process.

Unidentified Analyst

I’m sorry, go ahead.

Simeon P. Palios

And beside that also, your next purchase may be with the time charter [attach], so you can play, you have a lot of safety wells here and that is a good deal of this approach.

Unidentified Analyst

And then just a follow-up if I could. when you mentioned also the possibility of laying up a vessel, in this type of market, how long would you consider laying up a vessel for just months and months, and just to see when the market turns and then just employing it. Is that what you’re saying?

Anastasios C. Margaronis

The reference to laying up it was to show to you that we have better strong balance sheet that the entire fixture of the company will not change dramatically by having one or two even, one or two vessels being laid up in a really bad time. But at the same time, we have said that we can afford to be losing a $1,000 per day on a low charter rate, simply because we have the other vessels compensating for the ones that they’re going to be losing some money. Entering into a layup situation, this is an especially (inaudible), you need to spend some money to lay up a vessel and then you need to spend some more money to reactivate the vessel. This is a problem, but a lot of other companies will have to face before ourselves.

Unidentified Analyst

All right, that makes sense. And then if I could just ask one other question, I think you said earlier that your vessels that are being, I think it was Capesize that are being scrapped at about 15 to 16 years old, right now is that what I heard correctly, did I heard that correctly?

Simeon P. Palios

Yes, (inaudible) which were built in 1997 both Capes 170,000 ton and 175,000 the other and they were built in 1997 from very good yards too and they went to scrap at $430 per ton (inaudible).

Unidentified Analyst

Okay. Just to place that at the context, if I look at prior really challenged markets, I guess similar to our market just going back in time, what was the youngest days at which Capesize and Panamaxes was scrapped in prior bad markets?

Simeon P. Palios

The last portion and the last integrity both well everyone was 0.5 billion tons each and they never receive cargos. Those were (inaudible) they never receive cargo, they went to laid up and then they went for scrapping.

Unidentified Analyst

Okay. Thank you. Thank you very much.

Anastasios C. Margaronis

Thank you.

Operator

Thank you. Our next question comes from the line of David Beard of Iberia. Please proceed with your question.

David E. Beard – Iberia Capital Partners

Good afternoon, ladies and gentlemen.

Simeon P. Palios

Good afternoon.

Anastasios C. Margaronis

Hi, good afternoon, good morning.

David E. Beard – Iberia Capital Partners

I have two questions. First, I was wondering if you could comment or elaborate a little bit more on the pricing level for used ships. It seems like the pricing level has not really kind of what’s the reality of rates for deliveries? I want to hear your thought. And second as it relates to new builds, also want to hear your thoughts again on the "eco ships" and what's the trade off looks like new versus used as it relates to more fuel efficient level? Thank you.

Anastasios C. Margaronis

Except the low charger rates that someone may see at any time in the cycle, at the same time we have, as Mr. Palios said, the nursing of the bank or the bank’s nursing problem, but also we have the psychology for the market. We cannot say that we are in this position that everything is very good. The nursing from the banks to the owners is in a good condition and the psychology is now turning to be a really bad. When the psychology turns really bad, you will see these pricing coming in terms with the charter rates and this has always been the case there is always a time lag between the two, and also you need to have to change in the psychology as regard to the market.

As regard to the eco ships question that you mentioned, we do not consider the benefit of an eco ship to be in the degree that the yards are trying to present it to be. There is going to be small saving, and of course when you order a vessel is good to take the new technology rather than the old one, but to capture strong (inaudible) the eco ships should not be the reason why someone should invest in a new building. The reason why that someone should invest in new buildings is the timing and the price that you will find the vessel. There is no harm done buying an eco ship, but the most important factor is the correct timing of that purchase.

Simeon P. Palios

If I can add in part recessions we have seen that the values of the ships always drop for the lag to the earnings and the main reason was mentioned by the Ioannis, which is a psychology to get a general conviction that things are not only bad today, but will remain bad for the foreseeable future. And once that becomes the prevalent view, then you get both the bank and ship owners more willing to dispose the tonnage at prices that are obviously very disadvantages to their investments, projections and returns.

David E. Beard – Iberia Capital Partners

All right, that’s very helpful. Thank you.

Andreas Michalopoulos

Welcome, thanks.

Operator

Thank you. Our next question comes from the line of Brandon Oglenski of Barclays. Please proceed with your questions.

Unidentified Analyst

Hi, good afternoon. This is Keith filling in for Brandon.

Anastasios C. Margaronis

Hi, good morning.

Simeon P. Palios

Good morning.

Unidentified Analyst

It seems like you guys have been focused in the second hand purchases in Panamax, can you maybe speak to some of the opportunities in the Capesize, I mean is that just the way that you want to shape the fleet being a little bit more heavily into the Panamax side right now or maybe in new build opportunities in the Capesize?

Simeon P. Palios

Well, we are constantly looking for further acquisitions, and we do inspect a lot of ships and I think our fleet is pretty well balanced between Capes and Panamaxes maybe Post-Panamax is not enough. but at the end of the story, it will be balanced.

Unidentified Analyst

Okay. So maybe any thoughts on second hand Capesize pricing, I mean is that something you guys have been looking at?

Simeon P. Palios

The second hand – of course you don’t rule out the second, because we believe that the market will recover well before the 15 year of age that you need a new building to be in your acquisition. I think the market has to come with sort of balance well before that. So if the vessel you are buying today is five years of age even five years. She has another, let’s say 10 years usual life. So I think he is okay, provided he is from a good stable, and she does not give you a lot of headaches whilst you have the vessel in your fleet.

Unidentified Analyst

Okay. That as to define, I guess a separate question, is there any drydocking guidance that you guys can provide for us for 2013 and I think you guys do have a couple of contracts during the off-period, thinking about drydocking costs for next year?

Andreas Michalopoulos

Yeah. First of all, as we said that certainly during to drydock for the fourth quarter and at the end of November, we will have the intermediate available to the Melia, and we also have drydocks going on some repair for motor vessel [Nirefs]. And then for 2013, and this is a preliminary schedule usually that change for the second quarter 2013, we have 14 to drydock motor vessel Alcyon for an intermediate surveys. And then for the third quarter, it is under schedule for motor vessel [journey] to go to drydocking intermediate survey 2013 as well.

And finally, for the fourth quarter, we have intermediate survey for three vessels scheduled and motor vessel Polymnia, motor vessel Danae, and motor vessel Triton. For your budget, you should use for old vessels that I mentioned for 2013, the number of approximately $250,000 for each, and 16 to 20 days time (inaudible).

Unidentified Analyst

Okay. Thank you for your time. I'll pass it off.

Simeon P. Palios

Thank you.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.

Simeon P. Palios

As always, we appreciate your interest in and support of Diana Shipping. We look forward to speak with you in the months ahead. Thank you.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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