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Companhia Siderurgica Nacional (NYSE:SID)

Q3 2012 Earnings Call

November 1, 2012 8:00 AM ET

Executives

David Salama – IR

Luis Fernando Barbosa Martinez – Commercial Director

Juarez Avelar Saliba – Commercial Mining Director

Analysts

Thiago Lofiego – Bank of America/Merrill Lynch

Rodrigo Barros – Deutsche Bank

Andres Pinheiro – Banco Itau BBA

Renato Antunes

Ricardo Reisen

Leonardo Correa – Barclays Bank

Ivano Westin – Credit Suisse

Operator

Good morning ladies and gentlemen. At this time we would like to welcome everyone to CSN’s Third Quarter 2012 Earnings Conference Call. Today, we have with us the Company’s Executive Officers. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the Company’s presentation. After the Company’s remarks are over, there will be a question-and-answer session, at that time further instructions will be given. (Operator Instructions)

We have a simultaneous webcast that maybe accessed through CSN’s Investor Relations website at www.csn.com.br/ir. The slide presentation maybe downloaded from this website. Please feel free to flip through the slides during the conference call. There will be a replay service for this call on the website.

We would like to inform that due to the number of participants, the Company will answer only up to two questions per participant, with no right to reply and therefore we kindly ask that all the questions are made at once as soon as the line is opened by the operator.

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of CSN management and on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of CSN and could cause results to differ materially from those expressed in such forward-looking statements.

Now, I will turn the conference over to Mr. David Salama, CSN’s Executive Investor Relations Officer, who will present the Company’s operating and financial highlights for the period. You may begin your conference sir.

David Salama

Thank you. Good morning to all. Thank you for participating in this CSN conference call to discuss our results for the third quarter of 2012. Participating with me in this presentation is the management of CSN. Let us start on Slide 3, where we give you the consolidated results for the third quarter of 2012. Our net revenue amounting to R$4.3 billion in the third quarter is 3% higher compared to the second quarter of 2012. This highlights going to record sales in the steel segment. Gross profit in the third quarter reached to R$1.2 billion, the same level of the second quarter.

The EBITDA for the third quarter was R$1.5 billion, 12% down vis-à-vis the second quarter. It’s clearly due to lower iron ore prices partially offset by higher steel sales. The EBITDA margin for the third quarter was 25%. The CapEx in the third quarter reached R$892 million and made highlight investments made in steel to R$157 million, mining R$119 million, cement R$58 million and logistics R$290 million. In the third quarter of 2012, the Company’s net income reached R$159 million.

Let us now move to Slide 4, where we see the EBITDA Evolution. The EBITDA of R$1.1 billion in the third quarter of 2012 showed a 4% decrease compared to the second quarter. The positive effect from the EBITDA were, more steel sales, 13% up compared to the second quarter, higher volumes of iron ore sales, up 8% quarter-on-quarter and reduction in the unit cost in the steel business basically standing from the lower transportation expenses and the sale of byproducts and the result of other segments where the company operates.

On the other hand, the following factors negatively impacted the EBITDA. One of lowest iron ore prices down 24% compared to the second quarter and a higher nominal mining COGS.

Let us now go to Slide number 5. Here we have the net revenue and EBITDA of those segments where CSN operates. Steel accounted for 67% of the net revenue and 50% of the total EBITDA of CSN in the third quarter. Mining accounted for 22% of net revenue and 35% of EBITDA.

We’ll now move into Slide 6, where we give you detail on the result of the Steel segment. Let us start with the chart on the left upper hand corner. In the third quarter, the volume of steel sold of 1.6 million tonnes was a record mark for CSN, representing a 13% growth compared to the second quarter. Basically due to more steel sold in the domestic market following the continued strategy to prioritize the demand of the domestic market, where we highlighted the following industries, automotive, white lines and civil construction.

Of our total sales, 79% were in the domestic markets, 19% was sold through our overseas subsidiaries and 2% for exports. It is worth pointing out that steel sales in the domestic markets reached a record mark of 1.3 million tonnes, 21% up compared to the second quarter of 2012. Here in the top right of the slide to the right now, we see that the steel segment net revenue reached R$2.9 billion, a 10% increase vis-à-vis the second quarter of 2012, basically as a result of a higher sales volumes.

Now on the bottom right of the slide, we have the EBITDA. In the third quarter, the EBITDA for steel was R$567 million, a 20% growth compared to the second quarter of 2012 and the EBITDA margin improved to 19%.

Our next slide, we will have the same analysis but this time, for Mining. Again let us start with the chart on the left upper hand corner. In the third quarter of 2012, iron ore sales of CSN and Namisa reached 6.6 million tonnes, 8% up compared to sales in the second quarter of 2012. It is important to highlight the fact, in addition to sales to our clients, CSN consumed in the third quarter 1.6 million tonnes of iron ore of volumes not included in this chart.

Here in the top right of this slide, now to the full right we see that net revenue in the third quarter reached R$937 million impacted by lower iron ore prices which reached in this quarter US$82 per tonne vis-à-vis a US$109 per tonne in the previous quarter, following a downward trend for iron ore prices in the international market. Now let’s analyze the mining EBITDA on the left hand corner at the bottom. In the third quarter of 2012, EBITDA totaled R$398 million, with a 42% EBITDA margin primarily impacted by the reduction in iron ore prices as I previously mentioned.

We are now moving to Slide 8, where we see the evolution of our net debt. The net debt of R$15.6 billion remains stable quarter-over-quarter with the gross debt of R$30.2 billion and the substantial cash balance of R$14.6 billion. Despite the fact that the net debt remained stable in this quarter at the same level from offsetting factors which has to be mentioned. On one hand, the following contributed to an increase in the net debt, the CapEx which totaled R$800 million and debt charges which reached R$500 million. On the other hand the adjusted EBITDA of R$1.1 billion and a R$100 million reduction in working capital and other accumulated effects totaling another R$100 million brought the net debt down to the same level of the previous quarter.

In the end of the third quarter of 2012, the net debt to EBITDA ratio was 3.3 times considering EBITDA of R$4.8 billion in the last 12 months, of the total gross debt of September 30, 64% of debt was denominated in reais and 36% foreign currency denominated particularly in U.S. dollars. At this position, 93% of the debt was long-term and 7% short-term. So it’s basically end of our presentation. We will now start to the questions and answers session. Thank you very much.

Question-and-Answer Session

Operator

Thank you. We will now start the Q&A session from investors and analysts. (Operator Instructions) Please hold while we collect the questions. Our first question comes from Mr. Thiago Lofiego from the Bank of America/Merrill Lynch. You may proceed.

Thiago Lofiego – Bank of America/Merrill Lynch

Good morning. My first question, if you could tell us a little bit about your commercial strategy, you regained market share reasonably other players and basically you got lost a bit in the domestic market but looking forward, what should we expect from your commercial strategy have you increased the price and also on the premium on certain products?

Unidentified Company Representative

Hello Thiago, how are you? The fact is Thiago, what is happening, our commercial strategy in fact has always been in CSN commercial strategy is generate cash, reduce costs, and maximize our profitability. Now what is happening today in the world is making things more difficult. In the equation, our supply demand, today we practically have idle capacity in our steel world of 600 million tonnes of steel in the world of idle capacity with a production of 1.7 billion.

And this is a fact which puts a lot of pressure on us and affects Brazil. When you go to Europe and the situation there is no different. And in Europe, we practically have from 35 million to 40 million tonnes idle in Europe. And 27 million cuts in productions and China for five or six years now is a bit scarce of the iron ore [ph] producing again and with the slowdown of the Chinese market, this might bring problems. So we want China to do very well and they have a great domestic market. It’s impossible to compete with China with incentives or subsidies, everything we have to do here in Brazil and it’s difficult to export to China.

When we talk about exports, situation is still difficult. In the last quarter, in the third quarter, the importation of flat steel was up 20% growing to 472 million tonnes in the second quarter. There was a slight drop in the year of 9% but importation still provides and continues to be important for us to manage. And also point I would like to highlight is to do with China. The problem in China is not profitability, but employability. And China was worried about keeping jobs, so they will produce at any cost.

Here in Brazil today, well in Latin America generally speaking particularly Brazil for each million dollars of products in the metal mechanics chain which are imported, there is a loss about 46 to 64 jobs, direct jobs and this will show you how difficult our situation is regarding the metal mechanic sector. This is something that we have to follow very closely. Now talking a little bit more about Brazil. In fact, in the third quarter, we have had a price increase of 3.5% to 5% which came into force from the 1st of September in distribution, accounting for 30% of our chain of our portfolio, excuse me, and part of this increase will be felt in the next few months.

And another important point is our revenue increased 10% total net revenue and the price is pretty well stable. Once again the product to drop a little of about 1.3%, 1.4% in the domestic market. We sold typically sold 39% of galvanized materials, compared to 43% in the second quarter. So this helps a little to hold the price stable. What we are seeing in the market, Thiago, is that the market continues to be difficult. Brazil has a automobile chain which is okay, the white line increased 15% and assembly plants will go up as well and we do have capital goods and packaging and so there is still a lot of room to grow but probably in Brazil, it is difficult to stay more profitability. What we’re going to do in CSN is work hard on this cost control. We’re not sure what the price in the market is going to do, so these two goals are very important.

Regarding the premium, today the premium of imported materials was $530 in China. If you take this metal and import it and rationalize it and compare it to domestic markets, a difference of 6%. And in the hot rolled products it’s almost nothing. In the cold rolled products, there is still attracts the premium, still there and the zinc products even more. The premium has advantages from 10% to 20%. So this is something we have to be very careful about.

The anti-dumping question in Brazil has been rejected and now clearly it like cold rolled products and others be included in the new list of products to the government should be analyzing by the end of November. So basically then this is just an overview of what is happening in the market and then I can complement this with some more detail should you need it. Thank you.

Operator

Due to the large number of participants, the company would answer up to two questions per participant without right to decline. (Operator Instructions) Our next question comes from Mr. Rodrigo Barros from Deutsche Bank. Mr. Barros you have the floor.

Rodrigo Barros – Deutsche Bank

Thank you for this opportunity and two questions. First, I would like to hear from you more about the projects of consolidation of the plant in Transnordestina and the debt that perhaps you could give us some details. And an update regarding the mine and port capacities, particularly in port capacities and could you elaborate before the expansion of the mine from reported stand before the expansion of the mine?

Unidentified Company Representative

I will answer your second question and Daniel will answer the question about mining and then I’ll come back regarding the question to comment on Transnordestina. Good morning, regarding your question and the port capacity. In the case of port, we are working with this the first quarter of next year, we will complete this project. We will have an additional capacity ramp up next year of coming to full capacity in the second half of the year.

We are much aware of this because in mining, the market is quite difficult, the situation of the market will have most of the companies would cost control and in mining more specifically would be improvement of some of the products to increase our competitiveness, to built mainly in Namisa and this is being implemented in the last few quarters and would be giving us good results. And we hope to improve even more the quality of our products.

Daniel dos Santos

And regarding the mining, we have some production mines projected for the beginning of next year, we have the recovery projects of the Namisa package and couple of mines. And this will happen now at the end of the drought period and during this rainy period, we will do some work and at the end of the cycle we should start an electromechanical facility which will bring about an increase to complement this expansion of the port. The Casa de Pedra expansion which is the most important is ongoing and we have decided to do as I said in the last call the installation on expansion of the Casa de Pedra.

And in line information so some lines will be installed in the second half of next year and this will start generating some product also to follow the growth of the ports. Besides that CSN Namisa has been very strong in the area concentrated, whether concentration of ore, we are competitive there but we have high quality high grade ore at quality, that’s the real required by the market and this has been growing too. We have greatly increased our participation in the market, because we dropped and the price of the ore also came as an opportunity for us to renegotiate some contracts and we increase premiums because we offered better terms, only we were only able to offer better terms.

So generally speaking this is a very tight schedule, but we are in line or we’re trying to keep this our capacity in line increasing the port our own production and also the mining activities in the region.

Unidentified Company Representative

Rodrigo, I am going to answer the questions regarding the Transnordestina. This is a project which has the original project of R$5.4 billion when we approved. This was extended until the end of September, R$3.7 billion. We already see that this investment will be a little bit higher than that. And because of this, we are negotiating with the Ministry of Transport, seeking a more responsible way to make this project viable and feasible. It’s long-term project as you know, it is a project which in some way will bring significant impact on the Northeastern region of Brazil.

And we assume as we have all the data and all the final elements of this negotiations, we will be presenting this to you. Now I would like to call your attention that the company would be very careful regarding its investments. All our investments will be carried out with responsibility. We find ourselves at the moment where the market volatility is high, but we can take considerable care in the execution of our projects. And this does not apply only to the Transnordestina project but in fact to all the companies projects. We should analyze them, we must grow but carefully. So do not expect to see anything different from CSN in this way.

Operator

Our next question comes from Mr. Andres Pinheiro from Itau BBA.

Andres Pinheiro – Banco Itau BBA

Good morning to all. My first question is about the global steel market and the question is market mix. What do you expect to be the steel price in the international market for the first quarter? We have an inventory showed in the third quarter but if the Chinese production continues to grow, that might put pressure on prices. My second question is about the other businesses, particularly cement. Could you elaborate on the cement business with the market growing in recent quarters, the results of the company has been improving but I would just like you to give us an update on those other businesses? Thank you.

Luis Fernando Barbosa Martinez

Andres, good morning, this is Martinez again. As for prices in the global market, for the first quarter of this year $520, $530 FOB this was basically applied to into the working list [ph]. The premium will be close to what I mentioned to 2% to 6% by the end of the year. Honestly, we don’t know what’s going to happen next year. What we will determine that the plans remain at this level or to the slightly higher will be the strength of the Chinese market and that’s the scenario that we are looking at.

Your second question was about the cement business, that Dave will complement after I speak. We are telling the full capacity of price rebound [ph] 2 million tonnes a year around that approximately. I do have some data that I would like to share with you regarding our cement business, in the third quarter, we had our production up by 116,000 tonnes sales of 558,000 tonnes in revenue of R$195 million. And operating cost of R$110 million and in a way we reached the EBITDA margin of 22%.

Unidentified Company Representative

The cement business continued to grow in Brazil. It is a segment for which we have announced expansion plans. We (inaudible) expansion plan, so that the company makes very diversify its operations for the coming years in that business.

Operator

Our next question comes from Renato Antunes [ph] from (inaudible). Mr. Renato, Please proceed.

Renato Antunes

Good morning to all. Thank you for the opportunity. My question goes back to the price of steel in the domestic market. As I would like to understand two points, in the third quarter, with the performance of the domestic market, did we see clients in the distribution business bringing payments forward. Could this have an impact in the fourth quarter because I think purchases remained in advance and any expectations of a increase in purchase of the automotive things, and we just been cut down to the automotive business. And second question is about iron ore. I would like to understand better what it could be – what would be the expected mix between Namisa and Casa de Pedra? In fact it would impact the capital performance and being reduced compared to 2011, so what could we expect in terms of the mine – in terms of the mix between mine and Casa de Pedra looking forward?

Luis Fernando Barbosa Martinez

Hello, this is Martinez again. Actually your question related to distribution for 2013 to growth in the domestic market. That is related to a couple of factors. The increased – demand in our billing segments that consumes the automotive, white line and civil construction which improved in the last quarter.

The packaging and capital goods are still lagging behind. What’s happening is actually two simultaneous phenomena. As the demand increases, value chain upstream by more materials, in addition there is a re-composition of inventories not only our distribution but also industrial block that have worked contractual with their inventories sometimes causing downtime in some segments, white line, automotive, auto parts. So two phenomena includes the things with [ph] good management of inventories. To your second question I will ask our Commercial Mining Director Juarez [ph] to answer, your second question about the mix.

Juarez Avelar Saliba

Good morning as for the sales mix between CSN and Namisa. There is certainly been an optimization and it includes (inaudible) that we have attend. We have tried to adjust our product to market demands. Now that we have managed to tap into some opportunities that have presented themselves using our revenues, because of the balanced quality of products that we offer in the market.

For example, in the Chinese market, we have different price index for different qualities of product. So we started optimizing our products for us to reach a quality of product and that has a higher price, certainly looking quality control and not production. We simply not feel good in terms of product mix between the two companies.

Operator

Our next question comes from Mr. (inaudible). Please proceed sir.

Unidentified Analyst

Good morning to all. My first question is related to costs per tonne in the steel segment, with certain 8% decrease quarter-on-quarter in the units costs per tonne, it reached R$1,582 per tonne in the second quarter. In the third quarter we see a cost of R$1,462. So I just wanted to know it is simply reflecting lower cost in the mix of metallurgic component that you are using. The second question is related to investments. You showed an increased investment in mining, Casa de Pedra, also in Namisa (inaudible) trend, could we expect it to continue in the coming quarters? Thank you.

Luis Fernando Barbosa Martinez

Hello, this is Martinez again. Just to give you an idea our slab costs with ore had a cost of price was $554 per tonne in the first quarter, to currently $466 per tonne in this quarter. So we remain in the first quarter with a stability of about $456 per tonne. Obviously this reflects the cost of coal with the plant that we have. We’ve started with $315 in the first quarter increased to and we were close to $123 for the first quarter and targeted [ph] to decrease our $460 per tonne. So basically small. We have is a cost stability of about $456 per tonne which makes CSN very competitive in the international market.

When the Chinese are selling at $520, you imagine that they are following at this price without remunerating their investment. They are looking at more money. This is the real situation that is happening in the world and it will only be solved with increased sales in the Chinese domestic market. We see very hard that the Chinese reversing all of their production out that they are accumulating now and revert that to exports to other countries because there are no markets in U.S., the U.S. of course. The only or labors is less in America that’s where investments are coming, so not only in Brazil. Recently (inaudible) association up steel productions in Latin America, showed that industrial GDP of Latin American economy to jump to 23% from 23% to 14% with the consequent reduction of jobs in all of the metal mechanic chain.

So sometimes we hear people talking about protectionism, but actually what we need to do in Brazil is to value the jobs of Brazilians, so we don’t want to be protectionists.

Unidentified Company Representative

Thank you. And I will be delighted complement Martinez’s answer saying that today the government will focus on reducing production costs. Our expectation for 2013 is to have between standard raw materials. We see this happen with the price of scrap and our expectation before the ore prices will remain at current prices between a $100 and $120, it should give you an idea coal and the power and the coal had a significant reduction in prices that we will see particularly of 2013. So the results of our extension on top of price of about $130 per tonne and this will add all the costs, the price will move to $160 or $170 that should have a substantial impact on the company’s results.

In other words, we work with basically a very strong discipline like I said, presently regarding investments. We guys have cost controls as well, we are controlling costs very closely, very carefully, we got the company particularly as of the beginning of next year, we’ll have a margin and the big recovery. Daniel will answer the question referring to mining.

Daniel dos Santos

This is the trend that you would see in the execution of CapEx but it was more than a trend. As we informed in the conference call of the second quarter, we would expected to be observed as of the third quarter and as I mentioned, it is our strategies part of our business plan. We will have a greater investment in mining because this is linked to the additional port capacity that we are installing.

Now they fund in the previous quarter, we’re going to include in the mining CapEx. We would expect that, it is part of our plan. In addition as we said in the beginning of today’s conference call, we’ll have to look at the world scenario to assess the world scenario and although we would be really implement as quickly as possible, while it gets more profitable for the company, discipline in investments and CapEx execution are only efficient for the company and we have to find the balance between CapEx and the need to supply the port according to investments made there, but still investments are growing according to our strategy and very carefully with a lot of responsibilities.

Operator

Our next question comes from Ricardo Reisen [ph] from (inaudible). You may proceed.

Ricardo Reisen

Good morning. I wanted to know about the iron ore project and the Casa de Pedra production which is similar to the second quarter, but a few times below. So I would like to know whether you are expecting an improvement in the next quarter and elaborate little bit on this question.

Unidentified Company Representative

We maintain both the objective of (inaudible) million tonnes and this is between the companies well it’s variable according to the market demand and quality requirements of each one of the steel mills or the plants who are buying the ore. So we keep that guidance of 21%.

Operator

Our next question from Mr. Rodrigo Barros from Deutsche Bank. Mr. Barros, please proceed.

Rodrigo Barros – Deutsche Bank

I would like to know about the development of the port capacities from 28 to 9 [ph] what would be it in 2013 and 2014 the additional capacity?

Unidentified Company Representative

Well as from the first quarter of next year, we have the second plant ramp up [ph] and this will bring an installed capacity of 45 million tonnes. Obviously this capacity has a curve regarding loading and we estimate that the middle of the second half of the year, next year we will reach full capacity. The 60 million ton capacity which is the second step of our expansion project for the port should occur at the end of the fourth quarter of 2013, the end of the year of 2013 with the completion of the installation of the necessary equipment and the necessary changes and alterations. And the balance for 84 million tonnes will be towards the end of 2015.

Rodrigo Barros – Deutsche Bank

And investing in this capacity before the mining, are you considering to sell perhaps the port installations to third party?

Unidentified Company Representative

According to our plans, yes for next few years. For the next three years, we are seeking what we are going to also increase the capacity of the mining and also producing the special fields and then coming into stream of some new lines of the Casa de Pedra and also the strategy of the purchase of ore in the region. We have a dominant position and we have the capacity of buying ores from the mines in (inaudible) where the Casa de Pedra facilities are found and the Namisa installations because we can produce high grade ore from our mines and this helps us to maintain our supplies under those positions.

Operator

The next question Mr. Leonardo Correa from Barclays Bank. You may proceed.

Leonardo Correa – Barclays Bank

I would like Mr. Martinez to give us. The first question is the volume which is drawn our attention, the increase of volume where competitive that there have been a drop in volume. I would like to know when you will reach this level of volume even excluding as well as this is sustainable and can be compared basically to pre-crisis peaks 1.3, 1.4 billion tonnes. This has drawn my attention. So I’d like to know well perhaps in this quarter you were consumed some inventory, so I would like to understand a little bit more about the level of sustainability of these volumes. That is my first question. And second, the assets of – it is public, that you might have a possible interest in this and perhaps if you could tell us about your interests if there is any interest in bank to assets or do you have a small focus in CSA, so what is the rationale and what are your alternatives on financing. So perhaps you could give us a better idea regarding a possible interest in this asset?

Unidentified Company Representative

Well Leonardo, I would ask Martinez to help me for the first question and the second regarding CSA, I’ll come back and answer later.

Luis Fernando Barbosa Martinez

Well there is a question here, asking whether what we have done in the third quarter sustainable for the next quarters in the next years. The truth is and I want to clarify a point here. There is no way out. We have our production today, our focus is the domestic market. I have been saying for more than three years now that our ambition is seek more value added products and not put all our eggs in the same basket, I want to work with all different kinds of markets, automobiles, white line, capital goods and add value.

Our objective today is not so much the question on volume, sometimes I read reports of market share, something question on market share, what we haven’t tracked in the case of CSN is a search for selling what is being produced after that since 5 million [ph] and we want to sell what we have. It is sustainable or not, I think it is, although we have to also build up our structure again for distribution and for our industrial chain.

But on the other hand the first question on the ITI [ph] being reduced forecast and also the white line is good. The scenario is good regarding volume. I think the worst we have been through the worst. Our forecast for the first quarter next year is positive and I think that the volumes are sustainable. We have to improve the equation of profitability. We can only do this generating wealth and reducing the cost. If you could do the two things together but in still so this is an important point. And another point here in your report is the distributions. We have transferred the increase, yes, it has been totally transferred to distribution to 4.5% to 5% and this should improve our price level a little in the next quarter, in the fourth quarter.

Unidentified Company Representative

Leonardo regarding the question of CSA, I have been asked several times about this and I have also seen some comments, market comments that’s actually. I can tell you that there is nothing concrete regarding this and if we (inaudible) this for first to a more effective intention of buying the assets, we will disclose the fact using legal means to inform you all.

Operator

Our next question is from Mr. Ivano Westin from Credit Suisse. Please proceed Mr. Ivano.

Ivano Westin – Credit Suisse

Good morning to all. Thank you for the opportunity to ask a question. Daniel, talked about the possibility of shipping 28 million tonnes of unit but again the guidance wasn’t much higher. How would the CapEx in the port of Londrina [ph] I understand there is bottleneck now regarding the mine, so I just wanted to leverage on where the problems or what are the problems that are happening at the mine and what is your expectation of forward income? My second question has to do with the CapEx for mining. In Q3, you had a CapEx of R$29 million in Namisa. I would like to know if you – Namisa CapEx agreed upon with the partners, and what would be the CapEx for Casa de Pedra for the years of 2013 and 2014? Thank you.

Luis Fernando Barbosa Martinez

Okay. You all know that in the beginning of the year we had strong rainfall in the region where the mine is, some situation for some CDs [ph] or in a condition of emergencies and all of the companies included were impacted by the heavy rainfall in the end of December and beginning of January. I’d assume in typical rainy season extending until the month of June. Normally that’s the beginning of the dry season and that’s why mining companies start to prepare to what happens in the previous rainy season and preparing for the next rainy season but the longer raining season impacted all the players.

We’re all aware of that and the impact of that on functions. Now what’s coming in plant, that we had and we’ve been trying to deal with it since the beginning of the year. Obviously rainfall in the first quarter right along outlaid in problems to everyone, it impacts the logistic grid for everyone. But this has been dealt with since September we’ve been heading record over record of production at Casa de Pedra and we strongly offset the performance of the first half of the year. And with second half, a very good performance in the end of the year and that’s why – that is why we are estimating this number for our port. That’s with investment in Namisa. I am not sure we understood your question but quality investments are discussed to the partners according to an agreements signed and things unfold normally, I don’t see any issues are there.

And it is my official obligation to take some investments depending on the amount for the (inaudible) discussed with the partners that we are in daily conflict with our technical team and which will present the things to our shareholder.

Daniel dos Santos

I would like to complement giving you some information about our strategy, particularly for the end of 2012 and full-year of 2013. We have followed and I have seen some comments about the company’s debt. I’m delighted to say that CSN today is very focused on its debt. We have a stable net debt in the quarter but we had a decrease in our EBITDA which made the net debt over EBITDA ratio to increase a little.

We are dedicated to maintain this ratio stable. At the (inaudible) expect this ratio to start decreasing and this will happen through a number of measures. First, in terms of investments as I mentioned, the company will make investments in a very responsible fashion, the company is going to be very careful, very selective. Investments will be made substantial sustainable growth for the company without impacting the debt level of the company.

We are convinced and we’re working hard on the cost reduction. Anything not just in numbers of higher volatility, controlling costs is a regular practice in the company. We think that quarter-on-quarter and most probably we also expect a significant cost reduction for 2013, particularly regards we expect a reduction in process of the (inaudible) material that I’ve just mentioned we’ve seen this in the drop in the price of scrap, decrease in the type of coal and all of that should impact the company positively. In addition to all of the work that we continuously do to reduce costs in the company.

As Martinez and Daniel mentioned, the market is not easy but with all of those measures the company will start to see a rally in its EBITDA and a recovery of margins and we expect the company’s debt level to remain at what we believe is an acceptable level for the company once the company has grown the number of investments.

We don’t focus on maintaining our debt level. We are not going to do anything that will hurt the company or that will substantially leverage the company in the coming years. Thank you.

Operator

We are now closing the questions and answer session. I would like to turn the call back to Mr. David Salama, CSN’s Executive Investor Relations Officer for his closing remarks. Mr. Salama, please.

David Salama

I would just like to thank you all for joining us in this conference call. I would like to say that CSN IR team is available to answer any further questions that you might have or questions that you cannot have an opportunity to ask. Thank you very much and have a good day. Thank you.

Operator

Thank you. This concludes today’s CSN’s earnings conference call. You may disconnect your lines at this time. Have a good day.

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