Ferroglobe (GSM) CEO, Marco Levi on Q2 2022 Results - Earnings Call Transcript

Ferroglobe Plc (NASDAQ:GSM) Q2 2022 Earnings Conference Call August 16, 2022 8:30 AM ET

Company Participants

Marco Levi - Chief Executive Officer

Beatriz Garcia-Cos - Chief Financial Officer

Benjamin Crespy - Chief Operating Officer

Benoist Ollivier - Chief Technology and Innovation Officer

Gaurav Mehta - Executive Vice President, Investor Relations

Conference Call Participants

Martin Englert - Seaport Research Partners

Brian DiRubbio - Baird

Thomas Murphy - Odeon Capital Group

Gregory Bennett - Morgan Stanley

Michael Lam - Jemekk Capital Management

Operator

Good morning ladies and gentlemen and welcome to Ferroglobe’s second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded.

I would now like to turn the call over to Gaurav Mehta, Ferroglobe’s President of North America, and Executive Vice President of Corporate Strategies, Technology and Investor Relations. You may begin.

Gaurav Mehta

Good morning everyone and thank you for joining Ferroglobe’s second quarter 2022 conference call. Joining me today are Marco Levi, our Chief Executive Officer, Beatriz Garcia-Cos, our Chief Financial Officer, and Benoist Ollivier, our Chief Technology and Innovation Officer.

Before we get started with some prepared remarks, I’m going to read a brief statement. Please turn to Slide 2 at this time.

Statements made by management during this conference call that are forward-looking are based on current expectations. Risk factors that could cause actual results to differ materially from those forward-looking statements can be found in Ferroglobe’s most recent SEC filings and exhibits to those filings, which are available on our webpage, www.ferroglobe.com.

In addition, this discussion includes references to EBITDA, adjusted EBITDA, adjusted gross debt, net debt, and adjusted diluted earnings per share, which are non-IFRS measures. Reconciliation of these non-IFRS measures may be found in our most recent SEC filings.

At this time, I would like to turn the call over to our CEO, Marco Levi. Slide 4, please.

Marco Levi

Good morning or good afternoon everyone. Today I’m really thrilled to present our second quarter results, which set a new company record in terms of our quarterly revenues, adjusted EBITDA, margins, profitability, and net debt level. In fact, the second quarter marks the sixth consecutive quarter dating back to Q4 2020 where we have consistently improved our performance in areas such as sales and adjusted EBITDA. Please keep in mind that adjusted EBITDA was negative in 2019 when this management team took over.

I am extremely proud that we have been able to deliver adjusted EBITDA improvement in nine out of the last 10 quarters despite challenges posed by COVID, the energy crisis, and most recently the Russia-Ukraine conflict. These stellar quarterly results are a reflection of the strong performance across our portfolio of products coupled with the ongoing focus on cost rate actions, improved operational flexibility, and quicker response to capitalize on market opportunities.

We have been pretty clear on our priorities and I am pleased that we are delivering on all fronts. In fact, we are excited to be over-delivering in some areas; for example, we continue to uncover new pockets of value. During our investor day a few weeks back, we announced our revised target of $225 million of run rate EBITDA benefit from the various transformation areas. Specific to the second quarter, our revenues increased 18% to $841 million and we achieved adjusted EBITDA of $303 million, an increase of 26% over the prior quarter. Our adjusted EBITDA margin further improved by 234 basis points to 36%, and our earnings per share on a fully diluted basis was positive $0.98, a 23% increase over $0.80 per diluted share we delivered last quarter.

Moreover, we continue to improve our cash generation. As a result, our net debt at June 30 was $194 million, the lowest in the company’s history. With the acceleration in cash generation, we repurchased some of our senior notes due in the quarter and subsequently closed on the redemption of our 9% super senior notes in July. Overall, our business continues to perform well across the portfolio.

We are vigilant that the macro environment continues to remain uncertain with high inflation and the continued energy crisis posing inherent headwinds. We expect to generate solid cash flows into the second half of the year despite these lingering headwinds.

Before we move on, I want to highlight a positive development relating to our energy costs, specifically in France. While we have fixed energy prices in France this year, in May we received notification from our energy provider that the French government decided to increase the relative portion of RN, which lowers our realized cost of energy, and we received a net benefit of approximately $31 million this quarter. Approximately $20 million of this impact was realized in our P&L this quarter with the remaining amount being capitalized as inventory which will be realized later in the year. To be clear, this is not a one-off benefit. We anticipate a comparable adjustment to our energy cost in France for the second half of the year as well.

Additionally, our fixed price contract in France provides some insulation from the current drought and potentially other factors. In the event there is a shortage of power, we also benefit from our unique ability to quickly modulate production and redirect power back to the grid at an attractive rate, albeit reducing output.

Moving to Slide 5, let’s talk about silicon. Our silicon metal business had another strong quarter on the back of solid supply-demand fundamentals. The index pricing in the U.S., Europe dropped during the quarter by different levels. The U.S. index held rather flat through May before seeing a decline in June; nonetheless, the U.S. end of Q2 was pricing above $8,700 per ton and has held flat since.

In Europe, the index actually increased until early June, reaching €4,800 per ton before ending the quarter just over €4,000 per ton. Overall, we remain encouraged with the pricing environment and need to put these pricing levels into perspective relative to historical levels. After reaching unprecedented levels at the end of 2021, the pace of decline this year has been much lower than what was initially expected by CRU, which is positive for our results. Furthermore, given our exposure to index-based pricing, we are getting the benefit of higher realized prices; in other words, the higher pricing average in Q2 would positively impact us during the third quarter.

Our shipments increased to approximately 63,000 tons during the quarter. This was in part attributable to strong demand as well as the re-start of the second furnace at the Selma facility during the quarter.

In terms of end market demand, the chemical side continues to be the strongest across our core geographies. The aluminum sector continues to face headwinds from higher energy prices in Europe as well as continued supply chain disruption adversely impacting auto demand. Initially, we were hopeful for some recovery on the automotive side during the back half of the year. Given the continued uncertainty around energy and the current macro picture riddled with higher interest rates, we are not factoring in any further recovery in the auto end market for this year. I will come back to some interesting developments on the photovoltaic later in today’s presentation.

Overall, we saw a significant improvement in the contribution from silicon metal. Silicon metal revenues increased 15.7% with adjusted EBITDA increased by 15.5%. Margins for this part of the business improved further, reaching 49.2% in Q2.

On the cost side, we benefited from the decrease in energy cost in France, as detailed on the slide. While our average realized cost of energy in Spain improved quarter over quarter, the volatility continues. Just last week, the energy prices were back above $300 per megawatt hour. We are seeing companies along the entire value chain approach the back half of the year with more caution. While there are pockets of demand for action, we are seeing the supply-demand tension holding, supporting favorable pricing levels. Once again, most of our sales for this part of the business are in this space and will benefit from the strong Q2 pricing levels.

Slide 6, please. Let’s talk about silicon-based alloys.

The silicon-based alloy product category was the stronger performer during the quarter. Our sales grew 11.5% while adjusted EBITDA for this product category grew 23.9% during the quarter, resulting in adjusted EBITDA margins of 41.1%. Sales volumes were flat quarter-over-quarter but we did realize an 11.3% pricing improvement which was primarily the result of the Russia-Ukraine conflict. Demand for our silicon-based alloys was strong across the U.S., Europe and South Africa during the quarter. In fact, we could have probably sold higher volumes but with Spain operating at minimal load, our total shipments were flat quarter-over-quarter.

Looking into the back half of the year, we think our customers will be purchasing with greater caution as still capacity, particularly in Europe, is being curtailed. Overall, we will continue to drive our strategy to orient this portfolio of products to our higher margin specialty products and towards higher priced foundry products.

Moving to Slide 7, please, let’s talk about manganese alloys now.

This part of our portfolio has been impacted by the conflict as Ukraine is a major supplier of manganese alloys into Europe. As we entered the second quarter, we quickly picked up on the uncertainty that was present given the conflict, and we quickly ramped up production to capitalize on the situation. During the quarter, we had a 29% increase in shipments to approximately 97,000 tons. Likewise, we continued to get some pricing appreciation with the average realized price increasing 3.2% during Q2. Overall, our sales increased 33% while adjusted EBITDA grew 61.4% to $32.9 million. Margin expanded by 300 basis points to 17.1%.

Looking ahead, we expect volumes to revert back towards recent historical levels. Many steel customers certainly voiced caution during their recent quarterly calls. This sentiment coupled with continued higher energy prices and other input costs puts us in a more prudent state, hence we will manage the asset portfolio responsibly. Overall, a strong performance by all three product categories.

Now I would like to turn the call to Gaurav Mehta due to connectivity issues with my CFO, Beatriz Cos.

Gaurav Mehta

Thank you Marco and good morning and good afternoon all.

Beatriz Garcia-Cos

I think I can talk. Can you hear me?

Gaurav Mehta

Yes, please go ahead, Beatriz.

Beatriz Garcia-Cos

Yes, okay. Thank you very much. I solved the connection.

Marco Levi

You can go, Beatriz.

Beatriz Garcia-Cos

Thank you Marco, and good morning or good afternoon all. Please turn to the income statement on Slide 9.

During the quarter, our top line grew by 80% to a record $841 million, driven by strong revenue across all our product categories. Silicon metal and manganese based alloys experienced volume growth over the first quarter while stronger pricing in silicon based and manganese based alloys contributed to higher revenues. Cost management has been a priority, and during the quarter we continued to drive cost improvement despite high inflationary pressures and higher energy costs in Spain. As a result, our cost of sales improved to 44% from 48% in Q1.

Operationally, the plants ran well through the quarter with minimal disruptions. Keep in mind that we are constantly re-prioritizing our capital spend this year, and so far this appears to be working quite well. After reporting record adjusted EBITDA margins of 33.7% in Q1, our Q2 adjusted EBITDA margins improved further to 36.1%, up 234 basis points over the prior record quarter. Our diluted earnings per share increased to $0.98 in Q2, up 33% over the $0.80 reported in Q1.

Next slide, please.

Our adjusted EBITDA increased by $62 million during the quarter to $303 million. The largest driver of this was the growth in volumes contributing approximately $50 million and to a lesser extent the improvement in pricing in some product areas which contributed $13.4 million.

On the cost side, we faced inflationary pressures across a number of key inputs such as electrodes, [indiscernible] and coal. That said, we were able to offset most of these increases with the positive energy adjustment in France, which net back approximately $13 million in Q2. As mentioned earlier, we will continue to benefit from this contract through the second half of 2022.

During Q2, the overall impact of energy prices in Spain was positive $5.7 million on a quarter-over-quarter basis as our average realized cost of energy in Spain improved by approximately 15%. We continue to face a lot of volatility in energy prices in Spain into the current quarter.

Slide 11, please.

Our strong performance in Q2 drove a significant increase in our cash balance to $307 million, up $131 million from the prior quarter. With improvement in our cash balance, our net debt was $194 million at quarter end, which implies a net leverage ratio of 0.16. Our gross debt balance was $500 million at quarter end, which remains relatively high compared to our $200 million standard. Significant de-leveraging of gross debt remains a top priority for us.

The value of our assets totaled $1.9 billion, out of which the book value of equity was $637 million. We have set a target for working capital as a percentage of sales at 21%. During the second quarter, we were slightly below this level at 24%.

Slide 12, please.

We ended Q2 with an all-time high cash balance of $307 million. If we layer in our new undrawn ABL, the liquidity was over $400 million at quarter end. Our net debt was also at the lowest point in company history at $194 million. The gross debt amount of $500 million reflects the $90 million of open market repurchases of our 9.375% senior notes during the quarter but does not reflect the successful redemption of the $60 million of 9% super senior notes which occurred only in July.

Next slide, please.

During Q2, we generated record operating cash flow of $165 million, a significant jump from $66 million in Q1. It’s also the third consecutive quarter of positive operating cash flow. Our strong operating cash flow was driven by reverse earnings partially offset with cash consumption for working capital of $91 million, which is meaningfully lower than the $168 million cash consumption for working capital in Q1.

During the quarter, the actual cash impact of our capex spend was $13.7 million, up from $9.1 million in Q1. The actual capital expense for the first half totaled approximately $31 million, with the cash impact being $23 million. We are maintaining our capex target for the year at $75 million. Please keep in mind that the timing of the actual cash flow impact of the capex spend may differ from the balance sheet impact. In the second quarter, our net cash flow was $136 million and free cash flow totaled $151 million. Going forward, we are focused on keeping our working capital around the 21% of sales level.

Slide 14, please.

In addition to the record financial results, we successfully executed a number of initiatives aimed at strengthening our balance sheet. For some time, we discussed adding back an asset-based revolver which was part of our capital structure prior to the 2021 refinancing. On June 30, we announced a new $100 million facility which bolsters our liquidity by leveraging our accounts receivable and inventory in North America. The new facility was undrawn at closing and bears an attractive rate base of SOFR plus a spread of 150 to 175 basis points. In addition to the de-leverage of debt, we also seek to lower our cost of capital, and this is an initial step.

In terms of de-leveraging, we repurchased approximately $90 million of face value of the 9.375 senior notes in the open market during the month of June at an average price of $101, and subsequent to quarter end, we successfully redeemed the entire $60 million of our 9% super senior notes in July, further supporting our priorities in terms of gross debt reduction. As we generate strong cash flows and lower our quantum of debt and cost of capital, the great profile of our company is improving. In fact, Moody’s credit agency upgraded the corporate family rating to B3 in June and upgraded the 9.375 senior notes due in 2025 to B3 in August. This is a testament to the work we are doing and the execution of our plan.

Overall, the momentum continues to build. We are proud of our achievements and feel the company is in a great position to thrive.

At this time, I’ll turn the call back over to Marco for a few updates on a few noteworthy corporate matters.

Marco Levi

Thank you Beatriz. Now turning to Slide 16, please.

As you have just heard, there is a lot to be excited about us. You see the trajectory of our financial performance. Beyond the record results, we have also made some tremendous advancements in other areas, some of which I would like to highlight.

During our recent investor day, we stressed the significance of our transformation plan in terms of the value creation, but also with regards to the capabilities we are developing. As we have now passed the 18 month mark in the execution phase of this plan, we are advancing at a faster pace than anticipated but more importantly, we are identifying new pockets of value throughout the organization. As a result, we revised our run rate target to $225 million, up from the initial target of $180 million by 2024.

We have also discussed our inaugural ESG report on recent calls, and I am proud to announce that report has been published last month. If you have not already seen it, please visit our corporate website and look under Sustainability for the full report. Ferroglobe is 100% committee to ESG and this is an important milestone in the journey for our company. I would like to thank our organization for their dedication in this critical area and continued hard work as we transition from the planning to execution phase to reach our targets.

On the product innovation side, we are moving forward each day, recognizing the criticality of silicon metals for energy transition. We recently announced the milestone of industrial production of up to 99.995% purity silicon at our plant in Montricher. The nominal capacity is 1,500 tons per year. This is based on a proprietary technology which is very cost effective and environmentally friendly as it doesn’t use any chemical stream and has a very high processing yield. We also commissioned and started up the first micrometallic milling facility in our Ferroglobe Innovation Center in Spain in Sabón. Here, the nominal capacity is 300 tons per year and we designed it to offer maximum flexibility while ensuring high purity levels in order to tailor solutions for our customers.

These volumes are not big, but keep in mind that the economics on these volumes are much higher. More importantly, the momentum is building with more customers expressing interest, so we will continue to increase volumes steadily. Our goal is to continue to grow our capacity in agreement with our customers in all high end markets. Furthermore on the energy transition story, we are seeing that the energy crisis has renewed focus on the photovoltaic industry and we think these trends present a tremendous opportunity for Ferroglobe.

Given the growing interest by governments to explore an end-to-end local solar value chain, we signed an MOU with a longstanding customer, REC Silicon. Through the MOU, we are committing our U.S. asset base to produce high purity silicon metal for REC aimed at jointly establishing a low carbon, traceable U.S.-based solar supply chain.

Now we recognize that there are many factors at play here, especially as it relates to new government policies; but the fact that these types of topics are on top of government agendas is very promising for the future demand of our core products. Once again, a tremendous amount of things going on that causes us to get excited about the future.

I had faith from the beginning that this was going to be a slow and steady journey focused on transformation, value recovery and value creation. Today’s record earnings should be viewed as firm validation in our team and our plan. Our outperformance is not only due to market conditions but the actions that we have been driving for nearly two years now. There is a lot more work to be done and we remain committed to reaching our goals while navigating a period of uncertainty as the macro picture evolves.

At this time, I’ll ask the Operator to please open the line for questions.

Question-and-Answer Session

Operator

[Operator instructions]

Your first question today comes from Martin Englert from Seaport Research Partners. Please go ahead, your line is open.

Martin Englert

Hello, good afternoon everyone.

Marco Levi

Hi Martin.

Martin Englert

Hello. Can you provide any update regarding power contracts in Spain, and then for France as well into next year? Will France continue to benefit from the government program in 2023 as it is in second half?

Marco Levi

Okay, let me start from France and then our new COO, Benjamin Crespy, probably can elaborate a little bit more.

As you know, Martin, we have a contract in France on energy that runs through 2022. In this contract, there are two components, one is fixed and the other one is a variable market component. What happened is at the end of May 2022, the French government decided to increase the fixed part, called RN, from 100 to 120 terawatts for 2022 in order to reduce exposure to the spot market for residential and high energy intensive industries. As a result, we have received €29.5 million benefit in France, like mentioned in my report.

Post 2022, we have entered in a new two-year contract with the local supplier based on the same two components. This contract will allow us to leverage our flexibility, minimize our exposure to spot markets, and give some visibility on the evolving energy costs. I have to underline that today, the relative weighting for 2023 - 2025 between fixed and variable has not been finalized yet.

Benjamin, anything else you want to add on that?

Benjamin Crespy

I think you covered it pretty well, Marco.

Marco Levi

Okay. Martin, are you satisfied about France?

Martin Englert

Yes, so it sounds like there is going to be a renewed contract in place post 2022, no visibility if the government is going to extend or how those relative weightings between fixed and variable will shake out just yet. Is that correct?

Marco Levi

Correct.

Martin Englert

Got it, and how are things progressing in Spain?

Marco Levi

Yes, in Spain it’s a little bit more complicated, not that France is easy. In Spain, first of all, I mentioned that we had a lower cost of energy in the second quarter - this is why we ran our assets at Spain at a decent rate in the second quarter. We had a cost of $209 per megawatt hour versus $252 in the first quarter. What happened in the second quarter is also the Spanish government took some measures to cap the gas price between €40 and €50 level, but these measures have not been effective, meaning that they have slightly reduced our cost of energy but the cost of energy yesterday was above €300 per megawatt in Spain, and this tells me that the measures that have been taken have not been effective.

We are still working hard on having PPAs in place as of January 2023. We have term sheets on the table which are under negotiation, but we have not finalized any negotiation yet for PPA payment.

Martin Englert

Okay, thank you for all the detail on that. Maybe taking a step back and looking across the cost per ton on the segments here, just what are the expectations for sequential changes to the degree that you have visibility in 3Q versus 2Q?

Marco Levi

Yes, you are right - to the degree of visibility. I would say alloys will stay flat quarter over quarter, both manganese and silicon-based alloys overall, while silicon will have a cost increase between 3% and 5%.

Martin Englert

Thank you for that detail there. Given spot prices have been declining somewhat across the metals basket, there is some partial delay given the lagging contracts, but any updated thoughts on the ASPs across the businesses Q-on-Q here into 3Q?

Marco Levi

Yes, of course. It is true that the pricing overall is coming down across the portfolio, but I have to say that it’s going down at a much slower pace than what we expected, I would say all across our portfolio, also because we were coming from extraordinary price levels at the end of 2021.

Being specific by product, if you look at silicon metal, the market today is very liquid, especially in North America but the index is holding in the U.S., while in Europe the prices have started eroding but then I would say they have sort of stabilized. In China, which is always a reference, yesterday we got the news that prices were going substantially up due to some lack of capacity in some of the Chinese regions, so I will say volatility is the rule of the game but we are still counting in silicon prices which are profitable.

Switching to ferro silicon, or silicon alloys, during the quarter prices increased mainly due to the impact of the Russia-Ukraine conflict. I must say that we didn’t see too much of an effect in the U.S. We expected some shortage of ferro silicon in the U.S. from Russia that has not occurred in Q2. Price overall in Europe is under pressure mainly due to increased Chinese exports. Due to the slowdown in China, we have seen all cross the portfolio an increase of exported Chinese products.

Concerning manganese alloys, there have been two key factors on pricing: one, of course, the war, we’ve reduced exports outside of Ukraine; but then the market has become very attractive during the quarter for the Indian producers, who have penetrated the European market at a level that has never been seen before with a negative impact, a substantial negative impact on pricing. At the same time, the cost is going down because manganese ore is significantly going down.

Martin Englert

Okay, so some modest headwinds, I think that weren’t wholly unexpected given how high some of the prices were, but there is still a substantial book of business that was based on 2Q lagging index spot prices that will kind of carry over into the 3Q order book--

Marco Levi

Yes, I forgot to underline this, but this is well known that we have these index prices, so whatever you see for Q2 gets applied in Q3.

Martin Englert

Okay, that’s very helpful, thank you.

Maybe one last one, if I could, on working capital, which has been managed well within the targets, but looking at 3Q and just more broadly over the back half of the year, do you anticipate a release? What could you say about the potential magnitude of a capital release here?

Marco Levi

Yes, we expect a release of working capital in Q3 which is going to be a key contributor to our estimated positive cash flow in Q3.

Martin Englert

Okay, thank you for all that, and congratulations on navigating the environment, the good results, and progress in de-risking the balance sheet.

Marco Levi

Thank you Martin.

Operator

Thank you. We will now go to our next question. Please stand by.

Your next question comes from the line of Brian DiRubbio from Baird. Please go ahead, your line is open.

Brian DiRubbio

Good afternoon Marco and Beatriz.

Marco Levi

Good afternoon Brian.

Brian DiRubbio

Two questions for you. First Beatriz, on the goal of reducing debt to $200 million gross, obviously the second lien notes are callable today but at a high price, so my question is what is your sense of timing on achieving that goal?

Beatriz Garcia-Cos

Yes, I think this quarter, we have been starting working towards this goal, Brian, so we did a couple of things. First, we reduced--we repurchased [indiscernible] $90 million of the senior notes, and on the other side we, as a subsequent event, we repurchased or redeemed the full super senior, right, so you will see the impact not--you have not been seeing the impact in Q2 but you will see that, you will see the impact in Q3.

It’s true that there is a journey to get there from the $500 million to the $200 million, and what we plan to do is to do two things. On one side, we’re going to be continuously watching what we can do in terms of repurchase senior notes, the 9.375%, on one side, we are along to do that; and on the other side, you saw that our credit rating has been upgraded lately in June and then in August for our senior notes, so we are exploring opportunities, what is the best moment for us to tap into the debt markets. It all depends on what will be the debt market opportunities, but this is a very, very important target for us, the reduction of the gross debt.

Brian DiRubbio

Understood, that’s helpful. Then I don’t think you’ve ever disclosed this but, given some of the concerns just regarding European manufacturing costs, and understand you’re getting some relief on the energy side, but can you either qualitatively or quantitatively split or provide a split between the profitability from North America versus Europe?

Beatriz Garcia-Cos

Yes, you want to take that one, Marco?

Marco Levi

Well, we do not look at the business in this way and we do not report data split by geography.

Brian DiRubbio

Understood. Appreciate the color, thank you.

Marco Levi

Thank you.

Beatriz Garcia-Cos

Thank you.

Operator

Thank you. Once again, if you would like to ask a question, please star one-one on your telephone keypad. We will now take your next question, and your next question comes from the line of Thomas Murphy, Odeon Capital Group. Please go ahead, your line is open.

Thomas Murphy

Thank you. My question was asked by Brian and was answered, so it was around the timing of getting to that $200 million gross debt number. As I say, that’s been answered, so thank you.

Marco Levi

Thank you anyway, Thomas.

Thomas Murphy

Great quarter, by the way. Great quarter.

Marco Levi

Thank you.

Operator

Thank you. We will now take our next question, and the question comes from Gregory Bennett - apologies - from MS. If you’d just bear with me one second, your line will be open shortly. Gregory, you are now open.

Gregory Bennett

Good afternoon. I’m new to your company but I’ve listened to your investor presentation. The reserve life, you had exponential growth for the use of silicon, and I think that was reflected in the United States and Spain, but how long of a reserve life do you have? Are you going to need to acquire additional reserves in the future?

Marco Levi

This is an excellent question. You refer to quartz reserves. We have very good reserves in Spain. We have very healthy reserves in South Africa. We are looking for new reserves in North America.

Gregory Bennett

Are there assets for sale, or is this something that you would do a greenfield site?

Marco Levi

We are exploring both options.

Gregory Bennett

Okay. You mentioned in your investor day and I think the previous call about South Africa and about possibly bringing that online, but that you wanted long term contracts or commitments. I don’t think you said anything about it today. What’s the status of that today?

Marco Levi

Well, I will keep the surprise for the next quarter - no. The [indiscernible] is the following. The project is proceeding, like we have to start up the plants. At this stage, we keep our commitment to go to the board at the end of September with our recommendation to re-start the plant in terms of timing and amount of furnaces that we are going to re-start.

Gregory Bennett

Okay. NOLs, your net loss carry-forward, it said something in your slide that you were limited.

Marco Levi

Yes.

Gregory Bennett

Is the NOL in Europe or is it in the United States or both, and how much of an NOL do you have to use going forward for building cash?

Marco Levi

Yes, I’ll pass this question to Beatriz.

Beatriz Garcia-Cos

Yes, thank you Marco. It’s true that we have a good stock of NOLs. The main ones are in France and in Spain, and we have a negligible amount to be used in the U.S. in this asset. To your question, of course there is certain limitations on the application of the NOLs in terms of timing and quantum, but we feel confident that we can use the most of them.

Gregory Bennett

And you would use those--is that something that you project might be used over the next five years, or 10 years?

Beatriz Garcia-Cos

Over the next two years.

Gregory Bennett

Over the next two years, you would exhaust all the NOLs?

Beatriz Garcia-Cos

Right, and the bulk would be in 2022.

Gregory Bennett

Okay. For your debt reduction, is it prohibitive for you to call these in? I guess what’s the trigger for the board calling in the 9 3/8ths versus open--you can’t do open market purchases because the market’s rallied and the bonds?

Beatriz Garcia-Cos

It is very difficult to hear you, but I will try to answer. We have two tranches of bonds, the super senior that we just recently repurchased, right, and the reason why we did that is because we have the option to buy at par before October 2022. The 9.375% that is the second--the other tranche of bonds, it goes with a call option, but we have the possibility to do open repurchases in the--sorry, to repurchase in the open market to a certain limit of the total quantum of debt, and this is what we have been doing and we will continue to do, and to watch depending of course on the cash level and on the pricing, if this answers your question.

Gregory Bennett

Yes, thank you. The legislation that President Biden is going to sign, I think today, and there’s parts in there, I think when you mentioned your transaction to solar, can you describe how that may benefit you, or does this benefit your end user to stimulate more demand for more silicon in the United States?

Gaurav Mehta

Sorry, your question was around the new legislation?

Gregory Bennett

Yes.

Gaurav Mehta

We certainly feel that it would be helpful, and just to echo some of what Marco was alluding to towards the end of the presentation, there is a number of different initiatives, I think in various stages, and I think a lot of it does center around the mega trends that we’ve been highlighting around energy transition, which is obviously solar, a lot of the work that may help ultimately with EV mobility and then flows back into the work we’re doing in batteries. In general, we think a lot of this legislation is promising for our customer base and end markets.

Gregory Bennett

Okay, thank you very much. Thank you for patience in taking my questions.

Marco Levi

Thank you.

Gaurav Mehta

We’ll take one more participant, please.

Operator

Thank you. We will now take our final question. Please stand by.

Your final question comes from the line of Michael Lam from Jemekk Capital Management. Please go ahead, your line is open.

Michael Lam

Yes, good morning. There’s a company that I’ve been following very recently, called Enovix, which is developing very high percentage silicon content anodes for lithium ion batteries. The company has generated a tremendous amount of excitement because they’ve launched initial commercial products, mostly on smart watches. Is that a customer of yourself in terms of your technology SiMe products, and--it relates to the second question, is I don’t know of anybody else besides your company, given that you are the largest by far outside of China that is actually developing these type of technology SiMe, so it’s a two part question. Are they a customer, and B, who else is doing what you’re trying to do on the technology side?

Marco Levi

Benoist, this is your territory. You want to take this one?

Benoist Ollivier

Yes, so yes, we know Enovix, and Enovix is using a silicon channel but using crystal aggressively oriented silicon, so they are using mono crystals of solar grade silicon. We are not supplying them [indiscernible] with them. This being said, the emergence of Enovix is just reflective of the increased importance of silicon into the anodic world of lithium ion batteries, and we see an emerging--an increasing trend in demand for silicon in the battery, so we are pretty confident that silicon will play a very, very important role as an anodic material in the battery world.

To answer your second question, there’s a lot of companies actually trying to put silicon units in either as a blend in the anode or even working on silicon-rich anodes. I could give a long list of names. We are supplying some of them and we are collaborating with others, but clearly the usage of silicon in the anodes, either as silicon carbon composite or silicon re-channel, is booming and is due to boom.

Michael Lam

Then the same question would be is there any other silicon metal materials companies like yourselves that are supplying this type of silicon? How is your competition in this kind of high technology area of silicon metal?

Benoist Ollivier

There’s rather a limited number of companies able to deliver high purity micronic silicon like we’re doing, so what we see--and this limited number will also be restricted by trends we see in the market of on-shoring the silicon supply in the big markets outside China, which are the U.S. and Europe. Our geographical footprint is clearly a massive advantage, our low carbon footprint is also a massive advantage.

Michael Lam

Okay, thanks for that.

Operator

Thank you. I will hand the call back to Marco for final comments.

Marco Levi

Thank you Sharon. That concludes our second quarter earnings call. Once again, we are excited about the record quarterly results we have reported today. We have a company that is in its best condition since its formation, and we have exciting prospects for the future.

Our goal is to continue to build on this success. We remain focused on growing our profitability and generating cash to help meet our goals. Thanks again for your participation and support.

Operator

Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.