Good morning, everyone, and welcome to Ferroglobe's Third Quarter 2022 Earnings Call. This conference call is being recorded. I would now like to turn the call over to Anis Barodawalla, Ferroglobe's Vice President of Investor Relations and Corporate Strategy. You may begin.

Thank you. Good morning, everyone, and thank you for joining Ferroglobe's Third Quarter 2022 Conference Call. Joining me today here is Javier López Madrid, our Executive Chairman; Beatriz García-Cos, our Chief Financial Officer; Benjamin Crespy, our Chief Operating Officer; Benoist Ollivier, our Chief Technology and Innovation Officer and Deputy CEO; and Craig Arnold, our Chief Commercial Officer; Marco Levi, our Chief Executive Officer, is on the call but will not be speaking as he has laryngitis. 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 these forward-looking statements can be found in Ferroglobe's most recent SEC filings and the exhibits to those filings, which are available on our web page, ferroglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, adjusted EBITDA margin, working capital, adjusted gross debt, net debt, adjusted net profit 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 now like to turn the call over to Javier López Madrid, our Executive Chairman. Slide 4, please.

Good morning or good afternoon, everyone. After a record second quarter, we reported solid results in Q3 despite a challenging market environment. During the third quarter, market prices for each of our product groups declined from record levels in the previous quarter. Higher and volatile energy costs in Europe continue to persist. During the third quarter, we actively managed our global asset footprint by reducing operations in higher-cost regions like Spain and reallocating volumes to other geographies. Higher raw material costs negatively affected our margins, too. Last month, in line with our new strategy, we announced the restart of our Polokwane plant in South Africa, which will start up in November and is ramping up according to plan and on budget. This facility will provide up to 50,000 tons of high-quality and cost-competitive silicon metal capacity on an annualized basis, out of which 35,000 tons will be produced in 2023 and give us the flexibility to supply it globally. During the third quarter, we continued to execute on our primary financial objectives by deleveraging the balance sheet. During the quarter, we redeemed our $60 million, 9% super senior secured notes due 2025. We continue to progress on our transformation plan with our incremental EBITDA run rate objective of $225 million, which we expect to achieve by 2024, enabling us to be a stronger and more resilient company. Specific to the third quarter, our revenues declined 29% from record levels in Q2 to $593 million, and our adjusted EBITDA declined by 39% to $185 million. Our adjusted EBITDA margin was 31% in Q3 compared to a record margin of 36% in the prior quarter. Our adjusted EBITDA was the third highest in the company's history, and our EBITDA margin was significantly higher than in any prior years. This is a direct result of successfully implementing our strategic plan over the last two years. Our earnings per share was $0.52 compared with $0.90 per share that we delivered last quarter. Our cash balance at the end of the third quarter was $237 million down from $307 million last quarter. The decline in cash was primarily driven by the repayment of the reverse $60 million super senior notes. Our total cash balance, combined with our undrawn facilities, provides total liquidity of $337 million, giving us ample flexibility to execute our business plan. Our net debt of $194 million was flat versus the prior quarter, which is the lowest level in the company's recent history. Overall, the third quarter highlights our ability to perform in a very volatile and challenging market environment. In addition, as part of our corporate update, we will provide details on specific actions being taken to actively manage our operational footprint. Moving ahead to Slide 5, please. Silicon metal revenues were $264 million in Q3, down 26% from the prior quarter. Our silicon metal business was down as a result of a challenging market environment, primarily impacting volume, which declined to 50,545 metric tons, down 20% from the prior quarter. This had a negative impact on our EBITDA of approximately $43 million. During the third quarter, we have seen European aluminum producers curtailing production by 50% due to unsustainable energy prices causing a decline in demand for silicon metal and negatively impacting our market price. The aluminum sector continues to be adversely impacted by weaker auto demand. In contrast, silicon specialty grades continue to be the strongest contributor to our portfolio. The average realized price of our silicon metal sale was down 7.6% over the prior quarter, resulting in a negative impact to EBITDA of $11.1 million. Excluding GB shipments, average prices were down 4.7%. It's important to note that we outperformed the market where index prices in the U.S. and Europe were down 18% and 22%, respectively, over the prior quarter. Prices in Q3 in the EU have stabilized over EUR 3,600 per metric ton, while U.S. spot prices declined to USD 7,000 per metric ton. Since the end of Q3, U.S. index prices have further declined to USD 6,700 per metric ton, while EU index has held at the referred EUR 3,600 per metric ton. While adjusted EBITDA contribution for silicon metal of $130 million was down from last quarter record level, it remains strong compared to prior years. Adjusted EBITDA margins for the segment were robust at 43%. To put this in perspective, silicon metal adjusted EBITDA margin for 2019 and 2020 before we began to implement our plan were in the single digits. Costs from silicon metal negatively impacted adjusted EBITDA by $8 million driven by higher raw material costs, particularly coal and energy, which impacted costs by $6.4 million and $1.4 million, respectively. Slide 6, please. Silicon-based alloys revenue was $170 million in Q3, down 24% over the prior quarter. Adjusted EBITDA for Q3 was $60 million, down 39% from the second quarter. Sales volume declined 15% over the prior quarter, negatively impacting EBITDA by $10 million, while average realized pricing was down 11% over the same period, negatively impacting EBITDA by $26 million. Costs had a slight negative impact of $1.3 million driven by higher coal prices in Europe. Adjusted EBITDA margin for silicon-based alloys was 33% in Q3. While down from the previous two quarters, Q3 was the third highest in the company's history and significantly higher than the 2021 level. Lower demand for silicon-based alloys was driven by the summer slowdown as well as weakness in end markets, particularly construction. In addition, as a result of higher energy prices in Europe, there were capacity closures among various steel producers, driving a decline in demand for silicon-based alloys. Benefiting our margin was our strategy to focus on higher margin specialty and foundry product, which enabled us to improve margins compared to commodity silicon alloys. Low visibility of steel demand persists and is pushing customers towards depleting inventories. Moving to Slide 7, please. On manganese alloys, manganese base alloys revenues were $98 million in the third quarter, down 49% from the prior quarter. Sales volumes declined 37% over the prior quarter, negatively impacting adjusted EBITDA by $10 million, while average realized pricing was down 20% over the same period, negatively impacting EBITDA by $32 million. This volume decline in the third quarter was partially impacted by a normally high demand in the second quarter as customers focused on securing supply, which enabled us to sell at higher prices. Cost was favorable primarily due to positive one-off mark-to-market adjustment related to the earnout provision of $25 million. Late in the second quarter, we purchased manganese ore reacting to a shortage of supply in the market. In response to significant changes in market conditions, including shutdown of European steel producers, we slowed down our production, and we expect to hold manganese ore longer and convert manganese-based alloys in line with demand. Overall, our sales for this segment declined 49% from the prior quarter while adjusted EBITDA declined by 55%, and our adjusted EBITDA margin declined to 51% from 71%. Capacity closures among various steel producers in Europe and weakening end market have negatively impacted demand. We continue to actively monitor this market and manage our production accordingly. I would now like to turn the call over to Beatriz García-Cos, our Chief Financial Officer, to review the financial results in more detail.

Thank you, Javier, and good morning or good afternoon, all. Please turn to the income statement on Slide 9. Revenue for the third quarter was $593 million, down 29% from the second quarter due to volume declines and lower prices from record levels in the prior quarter across all our product categories. Raw material and energy consumption declined 23% from the second quarter, resulting in the raw materials and energy consumption as a percentage of sales increasing 4% from the prior quarter to 48%. While up from Q2, raw materials and energy consumption as a percentage of sales are down significantly from prior years. Other operating expenses declined 40% versus the prior quarter to 30% of revenues versus 16% in the second quarter. The improvement in other operating expense was due to lower consulting fees, credit and the mark-to-market adjustment related to the earnout provision for the manganese-based alloys product group. Adjusted EBITDA in the third quarter was $185 million, down from a record adjusted EBITDA reported in the prior quarter of $303 million. Adjusted EBITDA margin was 31%, down from 36% in the prior quarter. Our earnings per share was $0.52 in Q3 compared with $0.98 reported in Q2. Next slide, please. Volume and price were the biggest contributors to our adjusted EBITDA, declining from $303 million in the second quarter to $185 million in the third quarter. Lower volumes across all three segments combined with price decline negatively impacted adjusted EBITDA by $180 million. Costs were favorable by $50 million mainly due to the positive impact of $25 million from the earn-out accrual, partially offset by higher raw materials and energy costs of $10 million. During Q3, the overall impact of energy prices in Spain was unfavorable $2.8 million quarter-over-quarter, and our average realized unit cost of energy in Spain increased by approximately 11%. We continue to actively manage our global footprint to cope with volatility on energy prices. Slide 11, please. We end Q3 with a cash balance of $237 million, down from $307 million in the second quarter. If we layer in our new undrawn ABL, the liquidity was over $337 million at quarter end. Cash was used to pay down $60 million in debt, $20 million in interest expenses and $10 million related to CO2 purchases. The remaining balance was primarily used to reduce our outstanding factoring debt. Our net debt remains at the lowest point in company history at $194 million, flat versus the prior quarter. The gross debt was $431 million at the end of Q3, down from $500 million in the prior quarter. The decline reflects the successful redemption of the $60 million of 9% super senior notes. One of our top priorities continues to be deploying our cash flow to further deleverage the balance sheet. Next slide, please. The value of our assets totaled $1.9 billion at the end of Q3, and our equity book value was $700 million. We have set a target for working capital as a percentage of sales at 21%. During the third quarter, we were above this level at 30%. The above working capital was driven by an increase in raw materials and finished goods, which will support our plan over the winter period. We expect progressively decline over time in the coming months. Slide 13, please. During Q3, we generated $55 million in operating cash flow, I repeat, $55 million versus a record level of $165 million in the prior quarter. It is the fourth consecutive quarter of positive cash flow. Our operating cash flow was driven by robust earnings, partially offset by cash consumption for working capital of around $87 million. During the quarter, we spent $50 million in CapEx versus $40 million in the prior quarter. At the end of Q3, we have spent $46 million in CapEx. We continue to expect our CapEx for the year to be on plan around $75 million. Please keep in mind that the timing of the actual cash flow impact of the CapEx expense may differ from the balance sheet impact. In the third quarter, our cash balance declined by $69 million, mainly driven by the debt repayment and working capital investment. Free cash flow during the quarter was positive, $40 million. Our goal remains to keep working capital around 21% of sales across the cycle. Next slide, please, Slide 14. As we generate strong cash flows and lower our quantum of debt and cost of capital, the credit profile of our company is improving. In August, Moody's upgraded the 9.375% senior notes due in 2025 to B3. This is a testament to the work we are doing and the execution of our plan. Through the third quarter, we were able to successfully manage through a demanding quarter, highlighting the structural improvements we have made to the company over the past two years. At this time, I will turn the call back over to Javier Lopez Madrid for a few updates and sum up mostly corporate matters.

Thank you, Beatriz. Now turning to Slide 16, please. I want to highlight a positive development relating to our energy costs, specifically in France for 2023. While we have competitive energy prices in France in 2022, we have successfully negotiated for next year, a favorable contract to reduce exposure to volatile energy markets. This allows us to get similar energy rates compared to 2022. However, the contract contains higher prices during the first quarter, which will be managed by idling production in France during that quarter and supplying our clients in Europe from lower-cost facilities such as Polokwane and Becancour, which have begun Ferroglobe global plants. While the environment is challenging due to lower global demand and volatile energy prices in Europe, we are successfully managing our business to maintain high margins and profitability. This is the result of a transformation plan that we have been implementing for the last two years to optimize our revenues and effectively manage our costs, making our business more efficient overall. We continue to manage our business with the focus of using our cash flow to further strengthen our balance sheet by continuing to reduce leverage. Longer term, we're focused on growing our silicon metal business and expanding even more into specialized high-growth markets to drive overall growth for the company. In that respect, we're moving forward each day, capitalizing silicon metal as a critical material to the energy transition. We're taking advantage of our technological expertise developing solar and advanced application materials over the last 15 years, and we believe we are ahead of the pack. As a direct result, we're now ramping up industrial-scale production of 3N and 4N purity liquid silicon in our Puertollano facility in Spain. Our high-purity silicon will supply advanced technology solutions and, in particular, engineering materials for the fast-growing lithium-ion battery market. Moreover, we are in advanced discussions with leading silicon carbon composite producers, and we're entering into joint development agreements across the EV value chain. Silicon metal is expected to be key to the green energy transition driven by growth in electric vehicle demand, energy storage solutions, and solar, providing us with exponential growth opportunities. Once again, a tremendous number of things are going on that excite us about the future. We have said from the beginning that it was going to be a slow, steady, and purposeful journey focused on transformation, value recovery, and value creation. Today's solid earnings should be viewed as a firm validation of our team and our plan. There's a lot more work that is left 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.

And your first question comes from Lucas Pipes from B. Riley Securities.

My first question is on the inventory build in the third quarter. You touched on it a little bit in the prepared remarks. It sounds like there were some tactical reasons to build inventory here ahead of the winter. I would like you to maybe elaborate on that. And then also, is this a sign of potentially declining margins in Q4 and Q1 with higher costs flowing through the P&L? If you could comment on that as well, I would appreciate all that color.

Thank you, Lucas, for your question. This is Beatriz. Yes, it's true that working capital consumption has been increasing. The main reasons are as follows. So on the manganese ore side, we built up inventory due to changes in the macro environment, in particular, on the European steel producers' shutdown. And on the other side as well, in response to the curtailment of our Spanish operations. Also, in response to our French winter stoppage, as you mentioned, we had to build some inventories in silicon and ferrosilicon to account for the winter shutdown. As a result, we have hedged our position in electrodes and coal. And as well, please remember that we are ramping up our plant in Polokwane, and this has been taking some of the working capital consumption.

That's very helpful. So in terms of returning the ratio of inventory to sales that you mentioned, Beatriz, what's the timing of that? Should we expect sizable release already in Q4? Or do you think that the ratio will normalize into Q1 2023?

Thank you, Martin. I think for the reasons that we mentioned, particularly the winter stoppage, naturally, our inventory is going to be depleting. So, because of that, we expect to go back to normalized levels in the coming months.

That's helpful. And then two...

They have been responding to market demand, and yes, we have a surplus of manganese ore that will be processed in the upcoming months based on demand. We have two sources: finished products and a tactical supply of coal, electrodes, and manganese ore that will be converted into manganese alloys in the coming months as demand dictates, particularly since we halted production in Spain.

Got it. On the order approval of the new strategy, can you maybe shed a little bit more color on what the strategy entails? I assume it's mostly about the silicon metal powders and high-end products and pursuing that market in a measured way but would really appreciate additional color on that, Board-approved plan.

Thank you, Lucas. Certainly, silicon metal is central to our business, and a significant part of our strategic plan focuses on developing specialty and high-value products. Benoist, our Chief Technology Officer, is here and can provide more detailed insights into our current efforts in this area. Benoist?

Thank you. Our growth strategy focuses on developing high-purity silicon for advanced applications, particularly batteries. We expect the market for silicon in advanced applications and batteries to grow at an annual rate of 30%. A significant increase is expected in 2025 when gigafactories in the U.S., Europe, and Canada reach full production, requiring substantial raw material quantities. In line with our roadmap, we are investing in our technology to prepare for this rapid market expansion. A key advantage is our ability to utilize the technology we've developed over the past 15 years in solar, and we believe our metallurgical route technology offers three main benefits over other silicon options for batteries: it is cost-effective, has lower capital expenditure requirements, and allows for modularity with faster ramp-up dynamics.

We will take our next question. The question comes from the line of Martin Englert from Seaport Research Partners.

I wanted to discuss the French power contracts and how to consider volume changes for next year. It appears that the government's request was to either halt production on the French assets or significantly reduce it during the winter months or the first quarter of 2023. After that, you are allowed to increase production based on market demand for the remaining quarters of 2023. If you consider this approach, they will ensure your fixed energy price aligns with your future contract in 2023 compared to the previous one. Is this the correct way to understand it, or is there something different?

Yes. It is slightly different because it's a fixed agreement. It's a fixed agreement that we have reached with EDF, but maybe Benjamin you can add the specifics to Martin.

Yes. Thank you, Martin. It's Benjamin speaking. Generally, we have entered into a three-year contract with an energy provider starting in 2023. For this year, we are taking measures in winter in France. By adjusting our operations during winter, we aim to maintain energy costs in 2023 at levels similar to 2022, which enhances our competitiveness. However, regarding volume, it is too early to discuss overall volumes for 2023, as we are currently in our contracting period and working through our forecasting and budgeting for the year. Additionally, we will move our annual plant maintenance shutdown to the first quarter, which is one strategy to mitigate volume impact. As previously mentioned, we will leverage our global platform, particularly Polokwane and Becancour, to balance production with demand.

So no sense. I mean, with the South Africa restart and you're looking, I think, that's supposed to add, what, 30,000, 35,000 tons for next year. But no sense on, I guess, if we think about before the restart was announced and after what the net volume gain or constant might be from that, given that there will be some downtime during the winter months.

Maybe, Craig?

Yes. To support what Benjamin mentioned, we are planning to adjust our assets and accelerate some of the maintenance this quarter, which aligns well with the startup of the Polokwane facility in South Africa and its role in supporting the global franchise. Overall, on a year-over-year basis, the impact will be about the same because, as you noted earlier in your comments or question, when we operate throughout the rest of the year after the French winter, we will be able to push the entire franchise a bit harder in France.

Okay. Understood. So kind of comparable from a volume perspective year-on-year, remainder of the year, that's when we'll see more opportunity for net gains of constant based on the demand environment. Okay. And essentially thinking about the cost per megawatt going into the French assets, a comparable level as to what it was with the legacy contract, yes.

That's correct.

Okay. Understood. So we discussed the South Africa restart maybe in a little bit more detail. And where the volumes are going to be going, maybe a split between the Middle East and North American market and the euro market. And I imagine based on modulating the production in France, that will probably evolve a bit as we move through '23.

I believe Polokwane is our most adaptable asset on the platform. It can serve various markets, and as those markets change and new opportunities arise, we will adjust the volume and our allocation accordingly. I'll let Craig provide insights on the market side, but Polokwane truly is a versatile platform that can reach most regions worldwide.

Yes. As we plan to market the Polokwane assets, which have been emphasized as a global asset originally aimed at the high-performance polysilicon sector targeting the Asia Pacific, we expect to restart operations in the coming quarters. Our intention is to serve various regions, including Asia, the Middle East, Europe, and the U.S. While I can't disclose specific details about the contracts at this time, as we ramp up the three furnace operations in the upcoming quarters, we will be able to provide more insights and updates on the performance of those assets in those markets.

Okay, I understand. That's helpful. When considering its position on the cost curve, taking into account contracts and other factors, I believe this facility has traditionally been a lower-cost producer. Will it continue to be in that position once it is restarted?

Yes, that's correct.

Just for modeling purposes and considering the South Africa restart, if we take a step back and look at the transition from 2021 to 2022, the company shifted away from fixed annual contract prices specifically for silicon metal. This represented a relatively minor portion of the contract structure in 2022. Is this expected to stay the same in 2023, or should we anticipate a greater proportion of fixed annual price silicon metal contracts in 2023 compared to 2022?

Yes. Thanks, Martin. Thanks for the question. Fixed price contracts are almost a thing of the past at the moment. So we hardly have any fixed price contracts. Certainly, it would not be wise if you're in a fixed price contract mechanism during today's volatility because going out there and trying to embed all that volatility in one single fixed price at a higher price is not something that a consumer would lock itself into. The strategies we've chosen right now are multiyear strategies and have a combination between market-related and other aspects into that. So yes, we're very happy to have retired all of our fixed price contracts.

Okay, that's helpful. I'm going to revisit the working capital question, and I noticed that the 21% target was significantly exceeded. You mentioned the reasons for this in a previous follow-up question, which I understand. However, I'm curious about the timing of when we can expect to reach that 21% of sales target. Will this occur after the Q1 results are reported or in Q2 or Q3?

Thank you, Martin, for your question. Let me take a step back. The increase in our percentage can be attributed to several factors. First, there has been a buildup of manganese ore due to shifts in the macro environment and the closure of operations by European steel producers, which has led us to scale back our operations in Spain. Secondly, we need to consider the impact of the winter stoppage in France. Thirdly, the volatility from the conflict between Russia and Ukraine has prompted us to purchase additional electrodes and coal. Additionally, we are currently ramping up activities in Polokwane, which requires investment in working capital. With that said, I anticipate that we will see a normalization of this level of working capital in the coming months.

I'm sorry, could you just repeat the very last part that you said, kind of you expected this level of working capital to...

Yes. Sorry, in the next coming months.

In my opinion, I think that's a three-month or shorter timeframe. Or am I mistaken about that?

We're going to be hitting the target, yes, maybe between Q1 and Q2 for sure.

Okay. Okay. Let me pivot. I wanted to get your thoughts on the recent greenfield projects that broke ground since the last quarter in the U.S. for silicon metal and that you called out in the press release targeting growth for your silicon metal business. It looks like there may be a new entrant pushing forward in the U.S. But yes, any high-level thoughts from your perspective there?

Yes, Martin, thank you for your question. Regarding the greenfield projects in the U.S. and other announced initiatives, we have experienced a positive response, which supports a bullish outlook for silicon metal moving forward. We have highlighted the new market dynamics, including reshoring and the energy transition, which are expected to positively influence silicone demand in the western world over the coming years. We anticipate significant growth in this sector. Consequently, there have been announcements about production, though it will take some time to see the results. This is very encouraging. We were somewhat surprised by the scale of the investment, estimated between $300 million and $400 million, although we don't have exact figures. From what we've gathered, this investment aims to establish a capacity of 60,000 tons for Phase 1. To put this into perspective, Ferroglobe has a global silicon metal capacity exceeding 300,000 tons, along with a flexible global asset footprint that provides insight into our own valuation potential. Benjamin, perhaps you could offer some additional perspective on the greenfield and brownfield projects and asset management that could further illuminate what I have just shared.

Yes, Javier, and thank you, Martin, for the question. So I think silicon supply can be expanding through multiple routes, right? And the CapEx intensity of those options is very different. If you talk about shrinkable capacity, furnace conversion, plant reactivation, brownfield or greenfield, the CapEx intensity of all those options is very different. And I think as an integrated company, we are able to have quickly capacity by reactivating assets, and the cost of that is maybe 50x less than the cost of a greenfield. And that's what we have been doing. That's what we are doing now in Polokwane, and that’s what we've been doing earlier this year in Selma. I think on top of that, if our global footprint is a source of competitive advantage, providing a secure integrated supply of critical inputs like quartz, coal, and electrodes. And I think that's significant when you are a producer, those access to those critical inputs is not that easy. And I think another advantage is the proximity to market.

Okay. That's helpful. It's worth noting that over the past decade, there have been significant capacity reductions in the North American market. One facility exited, and Dow also closed a facility that is still not operational. Overall, the situation may not be drastically different even with a new expansion. Can you provide more details about the high-purity silicon you are producing in Spain? Any insights on applying the knowledge gained from your upgraded metallurgical product that you were previously attempting to market? That effort diminished as the market declined, but it seems you are utilizing some of that expertise now.

Absolutely. And Benoist, maybe you can add a bit.

Yes, I can provide some additional details. The high-purity silicon we are focusing on is of slightly lower purity compared to what is used in solar applications, which allows for significant cost efficiency, particularly since we are adapting our initial process steps into the plants. This integration of high-purity silicon production into our facilities represents one of our key cost advantages. Additionally, we will be pursuing the metallurgical route, as I mentioned earlier, which is the simplest and most efficient path with lower capital expenditure when incorporating silicon into the anodes. Our specific targets include the silicon carbon composites market and SiO producers. We also anticipate that this solution can be tailored for silicon-rich anodes, which serve as one of the alternatives to lithium metal anodes in solid-state batteries.

Maybe, sorry Martin, what is the expected growth for the market going forward on that type of...

So we have had negligible sales in 2022, a few hundred tons in advanced technology and battery. We expect to triple those sales year-on-year and with a marked step up as soon as the gigafactories will actually start consuming. And this is one of the challenges of these developments is to face the huge one-step demand of gigafactories. And that's why we have to ready ourselves now, and we have started preparing ourselves for quite some time now to be prepared for that big step.

You are currently selling volumes this year and will continue to do so into 2025. However, the significant change you are expecting will occur in 2025 when more Western gigafactories will be operational and consuming more. This is the major transition you anticipate.

Correct. It's tripled until then. We triple every year until then. We will triple the volume of our sales until then in 2023 and 2024.

What impact will this have on silicon metal when considering the segment? Specifically, how will this affect the future margin profile and EBITDA margin profile of that business? I understand that these products are quite high margin and high value. Is there a framework we should consider when thinking about traditional silicon metal margins versus what it could look like from 2025 onward with more of this included?

Yes. Thanks, Martin. I mean, of course, with a higher proportion mix tilting towards these specialties, you would certainly see an earnings profile transformation. The way I'd see it is typically, your aluminum sector will take a bit of a knock with the recyclability and the shift of the general industry going towards EVs. But the chemical sector favoring electronics, photovoltaics, these areas are going to take more of a share mix of our portfolio and the greater silicon metal market. So without a doubt, that profile, that earnings profile will change tremendously, as you pointed out.

Okay. All right. Thank you for all the detail and color. Congratulations. I thought that you all did a very nice job but I think it's a tremendously difficult environment in Europe as well as the North American market, maybe to a lesser degree. So congratulations on the results.

We will take our next question. And the question comes from the line of Michael Lam from Jemekk Capital Management.

Yes. Regarding the demand for your products, your auto production has been stable and is increasing. I'm not very familiar with the pace of solar production. However, could you clarify how much of your volume decline in Q3 was due to customer destocking and how much was affected by increased competition from imports?

In the third quarter, we encountered several challenges, including significant global inflation, regional energy issues, and the zero COVID policy. On the supply side, production levels adjusted, aligning with demand, resulting in a more balanced market. The liquidity in those sectors has stabilized. As you noted regarding chemicals, some customers have raised concerns about the economic environment, leading to decreased consumption as they prepare for the end of the year. In response to Martin's earlier question, there has been a rise in demand for premium segments, but it hasn't compensated for the short-term declines we've seen in siloxanes and the aluminum industry. Looking ahead, the chemical sector is expected to be strong and is poised for growth, particularly as demand for solar grade materials increases, which is driving the battery market. However, in the aluminum sector, particularly linked to the automotive industry, we anticipate a prolonged slowdown primarily due to issues that started with semiconductor shortages. We expect further reductions in aluminum production due to soaring energy costs. Nonetheless, in the long term, we foresee a slower growth rate from a high base, especially as the industry shifts towards higher recycling rates and the transition to electric vehicles.

Yes, and I think one structural concern we need to keep in mind is that we have increased our prices. This will have significant implications for competition in the surrounding marketplace as the percentage of supply fluctuates. The markets will undergo re-pricing, leading to pressure on prices for other products. I don't want to speculate too much, but we should be aware of the speed and certainty of these dynamics, which will determine when each jurisdiction will adapt and how much will be influenced by shifting market conditions. It's essential to be strategic with the data we gather from this. I believe this approach has been beneficial in the areas where we've adjusted our cost structure and production accordingly.

And then last question is just what is the estimated cost of ramping up Polokwane?

Yes, that's correct, Benjamin.

It's Benjamin speaking. I think we cannot be too precise on that matter. What I mentioned earlier is that it's significantly cheaper than a greenfield project, being about 50 times less expensive. That's the extent of detail we can provide, as we prefer not to be overly precise on this issue.

Our global footprint is becoming increasingly valuable as the world experiences some deglobalization. We can restart facilities quickly and affordably, which allows us to respond to market changes and anticipate movements more effectively. Last year, we did this in Selma, Alabama, and in Polokwane. Conversely, we've halted production in Spain and will pause production in France for three months. This flexibility gives us a significant advantage in today's environment.

We will take our next question. The question comes from the line of Lucas Pipes from B. Riley Securities.

I wanted to ask about how volumes are performing so far this quarter and what your expectations are for the fourth quarter considering the current macroeconomic uncertainty. I would appreciate your insights on this matter.

Yes, thanks, Lucas. That I have highlighted a little bit earlier, there are a number of factors that are playing into the marketplace right now, and we've seen this correction on supply and demand. But in general, most of the market is out of summer slowdown. There is a slight but yet cautious order load coming through in quarter four. We see it still playing favorably out according to our expectations. Now the real area that we're sitting at right now is looking at how we commit and how we conclude successfully the remaining part of our negotiations for next year. But of course, I cannot comment too much further on that, but that's driving a lot of the current purchasing posture for fourth quarter.

Okay. And for the expectations today, we expect a modest increase in volumes across the three segments? Is that reasonable? Or can you elaborate on that?

Well, we've made the curtailments in Spain. So essentially, we are operating just with our U.S. assets and part of the Spanish assets, the French assets, and our Norwegian assets. We focused on the successful start-up of South Africa. Argentina also continues to be a good provider to that franchise.

Okay. That's helpful.

We will take our final question. The question comes from the line of Thomas Murphy from Odeon Capital.

Can you hear me?

Yes.

Loud and clear.

Great. My question is probably directed towards Beatriz. Well, first of all, congratulations on the quarter, very good quarter. Beatriz on the Q2 earnings call, you had made a statement that, ideally, over time, you'd like gross debt to get down to $200 million, recognizing that the environment has changed a bit since Q2 and still, though, a very strong Q3. Is that still a target? And if yes, ideally, over what time frame would you hope to achieve it? That's my question.

Thank you, Thomas, for your question. Yes, we reaffirm our target of $200 million in gross debt. As you noted, the interest rate environment is changing. However, we are continuing to build cash, and we are evaluating all options to reduce this gross debt. We believe we will be able to act on this sooner rather than later to reach our target of $200 million. I want to remind you that our goal is to retain the inexpensive debt on our balance sheet. We intend to keep certain government loans while working to eliminate the more expensive debt. While it may have been very costly before, it is true that it may not be as expensive now. We are addressing this, and progress could occur in the next quarter or so.

Thank you. I would like to hand back to the speakers for closing remarks.

Thank you. That concludes our third quarter earnings call. In Q3, we demonstrated our ability to manage through challenging markets to still generate positive operating cash flow and maintain a strong balance sheet. We will continue to focus on improving our operational efficiency and reducing our leverage. We remain focused on rolling our profitability and generating strong earnings throughout the cycle. Thanks again for your participation and support and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please standby.