Earnings Call Transcript
Ferroglobe PLC (GSM)
Earnings Call Transcript - GSM Q4 2021
Operator, Operator
Good morning, everyone, and thank you for joining Ferroglobe’s Fourth Quarter and Full Year 2021 Conference Call. Joining us today are Marco Levi, our Chief Executive Officer; Beatriz García-Cos, our Chief Financial Officer; and Benoist Ollivier, our Chief Operating Officer and Deputy CEO. 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 the exhibits to those filings, which are available on our web page, www.ferroglobe.com. In addition, the discussion today includes references to EBITDA, adjusted EBITDA, adjusted gross debt, net debt, adjusted earnings – diluted earnings per share, which are all non-IFRS measures. Reconciliations of these non-IFRS measures may be found in our most recent SEC filings. Next slide, please. On today’s call, we will first review the business highlights for the fourth quarter and full year. We will then also give you a perspective on our operating environment and provide an update on the status of our transformation plan. Then we’ll provide you an update on our financial performance and key drivers behind our results. And finally, we’re going to provide a trading update before opening the line up for some Q&A. At this time, I would like to turn the call over to Marco Levi, our CEO.
Marco Levi, CEO
Thank you, Gaurav, and good morning, and good afternoon, everyone. I am really excited to present our quarterly results, which demonstrate the acceleration in earnings potential that we have been anticipating and which caps off an important year for Ferroglobe. Overall, the acceleration in our performance in Q4 is supported by strong fundamentals across all three product categories, which will further fuel performance in 2022. Moreover, the tightness in the marketplace resulting from robust demand, coupled with flat to declining supply as a result of an unprecedented increase in the index pricing for our products, primarily silicon and ferrosilicon. During the quarter and the full year, we realized only a partial benefit from this run-up in prices, particularly in silicon metal due to the fixed price nature of most of these contracts. However, with the top contracts expiring at the end of 2021, we will have increased exposure towards index-based contracts, resulting in higher pricing which will drive an increase in margins and revenues. In our silicon-based alloys portfolio, we realized the benefit much quicker given the nature of these contracts and shorter lags. And in manganese alloys, the spread is holding at very healthy levels with support from the steel industry, which is still recovering to pre-COVID levels of production. While the broader market provides an exciting backdrop, we remain focused on the areas which are in our control. This is primarily related to our value creation areas identified as part of our turnaround plan. 2021 marked the first year of the execution phase of the plan. We have surpassed our targets and have a great deal of momentum continuing into 2022. In aggregate, 2021 marked an important year for Ferroglobe, with several critical accomplishments. We refinanced our debt and de-risked our balance sheet by extending maturities. We successfully raised capital to navigate a turbulent time and to fund our turnaround plan. In addition, we started addressing gaps in the business, improved processes, and drove cost reductions. All of this was done with the goal of making the company more competitive with stronger results throughout the cycle. During the quarter, our realized average selling prices were 19% higher in our core product categories. Furthermore, our shipments increased 14% to just over 220,000 tons across our three core product categories. This resulted in top-line growth of 33% to $570 million, which is our highest quarterly sales since 2018. And we also had a record-setting adjusted EBITDA of $92.8 million, which is a 147% increase relative to the third quarter. Despite continued high energy costs in Spain and inflationary impacts on raw materials, we improved EBITDA margins from 8.8% in Q3 to 16.3% in Q4. This was driven by a combination of top-line growth, coupled with improved utilization of our asset base; reallocation of orders to optimize economics; stronger operational performance at the furnace level; and continued cost-cutting efforts. And finally, we returned to positive free cash flow during the quarter, generating $40 million. For the full year, our sales were just under $1.8 billion, with adjusted EBITDA of $187 million. While full-year 2021 financials show a significant improvement over the prior year, we expect to see continued acceleration, and our contracts have reset at the beginning of the year, reflecting the benefit of higher pricing. Furthermore, we had a number of one-off nonrecurring expenses, which had a considerable adverse impact on our cash flow. With these factors behind us, we look forward to building on the momentum from Q4. Step by step, we continue to strengthen the company at the core and improve our overall competitiveness to best serve our customers. The value of our unique product portfolio and platform is particularly exciting against the backdrop of emerging trends such as the focus on short-term supply chains and customer behaviors influenced by ESG. We are entering 2022 with a strong order book, a turnaround plan that is expected to drive further efficiency and cost improvements, and an integrated approach to operation. Overall, we are confident that Ferroglobe is well-positioned to drive accelerated growth and improved margins in 2022. Moving ahead to Slide 6, please. During the quarter, index price for silicon metal in the United States and Europe exhibited significant increases with reference prices in the U.S. increasing by approximately 160%, ending the year just above $10,000 per ton. And in Europe, pricing peaked at €8,100 intra-quarter and ended the year close to €6,100, representing a 53% increase over the quarter. A combination of continued end market strength, particularly in chemicals, coupled with expectations of meaningful capacity curtailments in China during the final months of the year, served as a catalyst for the price increase. Beyond the cutbacks, there are other factors such as financial and environmental reforms, increasing raw material and energy costs, logistical issues, and higher labor costs, which are feeding into higher production costs for Chinese silicon. As the floor price within China increases, it will have a positive effect on European and U.S. indexes. Ferroglobe’s realized average selling price for silicon metal increased by 19% to $2,944 per metric ton. Excluding the volumes sold to the joint venture, the average realized prices improved by 23% during the quarter. To reiterate, our high weighting towards fixed price contracts limited the upside throughout 2021. Overall shipments volumes increased by 3% to approximately 63,700 tons. Shipments during the quarter were constrained due to some operational issues and temporary production loss at our Beverly, Ohio facility where a crane collapse stopped production at two furnaces for a few weeks as well as further curtailments in Spain to address rising energy costs. At the end of November, we announced the temporary idling of one furnace at our Sabon facility, which has an annual capacity of approximately 13,500 tons. EBITDA from the silicon metal business improved over 200% to $32.5 million. The ability to sell greater volumes at market prices had the greatest impact in the quarter-over-quarter improvement. The total cost impact was negative $9.1 million during the quarter. Increases in energy costs had an adverse net impact of $9.9 million on the silicon business. In Spain alone, the impact was negative $7.7 million. We have provided additional details around the cost drivers, both positive and negative in our press release and presentation slides for everyone’s reference. Looking ahead in 2022, there is a lot to be excited about. We recently restarted one of the two furnaces at our Selma facility in Alabama and have the temporary idle capacity in Spain, which can be restarted rather quickly. With strong end market support, we believe prices will remain at a healthy level throughout 2022. We see the chemical side of the business remaining strong as end markets such as consumer goods and medical applications continue to drive demand. There have been some signs of caution in the aluminum sector as a result of increasing operating costs due to energy pricing in Europe. Furthermore, the auto end market continues to be impacted by the lingering shortage of semiconductor chips, which in turn impacts the demand for silicon-containing aluminum alloys. This may reverse in the second half of the year. Finally, we continue to see increasing signs of recovery in the solar sector, which offers an attractive market for stronger growth, specifically with the renewed focus on energy generation in the Western world. At the moment, approximately 70% of our forecasted non-JV volumes have been contracted. Of this portion, approximately 85% of the volume is subject to index-based pricing, while the remaining 15% is at fixed pricing. Beyond the contracted volumes, there is approximately 15% of our overall volumes where we have commitments, but the pricing has not been set on all these volumes. Lastly, the remaining 15% is spot business. As a reminder, our joint venture volumes are priced using a cost-plus formula. Overall, customers seem to have procured their material needs for the better part of the first half of 2022. We will soon enter into discussions for Q3 deliveries for the freely negotiated part of our book. Also worth noting is that we have entered into key multiyear contracts, which provides the company protection and flexibility in the future. Overall, we view this as a very important and favorable development for the company. Turning to silicon-based alloys on Slide 7. The index price of ferrosilicon had a strong run in Q4 as the market remained very tight driven by continued steel production recovery in Europe and North America and low inventory levels throughout the value chain. In the United States, index pricing for 75% silicon-contained ferrosilicon increased approximately 60%, while the price in Europe increased approximately 40%. During the quarter, the average selling price of our silicon-based alloys portfolio, which consists of ferrosilicon, foundry products, and calcium silicon, increased by 39% to $2,770 per ton. On a relative basis, the realized increase for ferrosilicon was even higher. This is partially attributable to the weighting of our higher-margin specialty grades as well as a portion of our contracts being reset with one month lag. During the quarter, sales volumes increased by 8%. Sales volumes of silicon-based alloys were at 61,000 metric tons in Q4, about 4,200 tons higher than the prior quarter. We saw steady demand from our customers in the U.S. and Europe. Furthermore, our foundry sales also improved slightly on the back of gradual recovery across the global automotive end market. Our silicon-based alloys business saw a significant jump in EBITDA during the quarter, positively impacted by prices and to a lesser extent, volumes. Some details underlining the negative $2.5 million of net impact can be found in our release and accompanying slides. When we discuss silicon-based alloys from the perspective of expected volumes for 2022, approximately 65% is ascribed to ferrosilicon, 30% to foundry and 5% to calcium silicon. For ferrosilicon, approximately 65% of our expected volumes for 2022 are now contracted. About 90% of these volumes are subject to index prices, while the remaining 10% is at fixed prices. On the total expected volumes, approximately 25% has been committed and the remaining 10% is subject to spot sales. Once again, with the visibility we currently have, we feel good about volumes and pricing through the first half of the year. Next slide, please. Turning now to manganese-based alloys. During the quarter, the average selling price increased by 9% on a blended basis to $1,720 per ton, up from $1,574 per metric ton in the third quarter of 2021. The ferromanganese business had a 6% increase in realized prices, while realized silicon manganese pricing was 13% higher. Shipments during the fourth quarter were up 27%, an increase of approximately 20,500 tons over the previous quarter. Of the 97,000 tons sold, there was an even split between ferromanganese and silicon manganese. As you recall, the company was building inventory of manganese alloys in Q3 in anticipation for this demand pick-up as steel producers delayed some shipments during the summer months. During the quarter, we temporarily curtailed some capacity in Spain due to the high energy costs and reallocated those sales to our facilities in Norway and France. The EBITDA contribution from our manganese-based alloys segment was $28.6 million in Q4 versus positive $22.5 million in the third quarter. Volumes and pricing positively impacted the quarterly results by $6.5 million and $12.7 million respectively. On the cost side, there was an adverse net impact for the quarter of $30 million. Overall, the manganese portfolio continues to benefit from favorable spreads, and we expect this to continue into the first half of 2022. Approximately 60% of our expected 2022 volumes are contracted. Next slide, please. The turnaround plan has been a critical driver to our success in 2021. It was the cornerstone of the refinancing process we underwent in 2021 as it gave various stakeholders confidence in our ability to turnaround the company. Furthermore, the plan was designed to generate cost savings, which gave us the means to navigate a difficult stretch, and the financial targets are sized to de-risk this company through the cycle. Our target for the first year of the execution of the plan was $55 million of a linear contribution from cost savings and commercial excellence and $49 million of working capital benefits. We ended 2021 capturing $58 million EBITDA benefit from cost savings and commercial excellence and $70 million of working capital improvement, significantly outperforming our target. On a go-forward basis, we look to build on this momentum and will continue to feed the pipeline with new initiatives. Our goal is to have a run rate of $140 million by the end of 2022. I’m really proud of our organization for driving change at all levels in reaching these targets. We are knocking down walls and rebuilding the business from the ground up to the aim of optimizing to maximize the platform. There is a lot of work left to be done, but our first year results certainly motivate us to keep going. 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.
Beatriz García-Cos, CFO
Thank you, Marco. I will begin by reviewing the income statement in Slide 11. Sales of approximately $570 million during Q4 were 33% higher than the $429 million of sales in the prior quarter. We ended 2021 with sales of approximately $1.8 billion, up 55% over the prior year. The improvement in our top-line was the result of an increase in both our shipments and average realized price across the portfolio. During the quarter, our cost of sales as a percentage of sales was 65%, down from 69% in the prior quarter. The lingering impact of higher energy costs, particularly in Spain, and inflationary headwinds in our raw materials were offset by a combination of top-line growth and our cost-cutting efforts at the facility and corporate levels. For the full year, we had a cost of sales as a percentage of sales of 67%. Operating income increased by 26% during the quarter. The approximately $8 million increase is attributable to a mark-to-market adjustment of the fair value of our CO2 credits. There is an offsetting decrease of approximately $8 million in our operating expense line related to the bank-to-market adjustment to the CO2 accrual. Staff costs increased by 43% in Q4. Please keep in mind that in Q3, we had a partial release of the accrual related to ongoing asset restructuring in Europe. The Q4 figure reflects the accrual and adjustment of bonuses and the long-term incentive plan. Operating profit in Q4 was $64.9 million, up 446% from the $11.3 million realized in Q3. During the full year 2021, our operating profit was $40.4 million compared to an operating loss of $184.4 million during the full year 2020. The net financial expense was $12.4 million during the fourth quarter, reverting back to more normalized levels. When you compare it quarter-over-quarter, keep in mind that the Q3 expense had the accounting effect of the refinancing, which yields a significantly higher number. The net profit was positive $65.1 million in Q4 compared to a net loss of $97.6 million in Q3. For the full year, we had a net loss of $103 million, which compares to a net loss of $250 million in 2020. Next slide, please. Quarter-over-quarter, we had a significant increase of 147% in our adjusted EBITDA to $92.8 million, with the adjusted EBITDA margin nearly doubling to 16%. As Marco discussed earlier, we had positive contributions from both shipments and realized pricing, which combined contributed $97.7 million. On the cost side, energy had an adverse impact of $26 million. The impact of energy in Spain alone was $25.9 million in Q4, partially offset by improvements in North America and South Africa. The impact of CO2 accrual was over $5.5 million with silicon metal and manganese alloys having an adverse impact, which is partially offset by a positive impact from silicon-based alloys. The general increase in raw materials had an impact of $4.1 million, while the annual accounting impact from pension plans in France had a positive contribution of $3.9 million. Staff costs at our corporate offices increased by $10.5 million, with approximately $8 million of this attributable to the staff cost increase described in our prior slide, and additionally, there is approximately $2 million of accrual for bid-related costs. Next slide, please, Slide 13. For the full year, adjusted EBITDA improved from $32.5 million in 2020 to $186.6 million in 2021. The most significant factor impacting this swing was a 28.8% increase in average selling price across core products. Costs were evenly impacted by higher energy price of $111.2 million, $90.6 million of which is related to Spain. Additionally, higher raw material prices impacted by $53.3 million; higher fixed costs in materials and logistics had an adverse impact of $19.9 million, and higher costs due to increased production of byproducts and unexpected material, resulting in a cost of $15.3 million. We are extremely focused on our corporate expenses, working on both discretionary and non-discretionary spending. Approximately $8 million of the site to bonus accrual and an incremental $2 million is related to audit costs. During 2020, we had a number of nonrecurring items, including the release of several accruals and provisions. Collectively, this impacted the year-over-year adjusted EBITDA by $21 million. Next slide, please. Turning now to Slide 14. I will review our balance sheet in greater detail. Total cash increased by approximately $21 million to $117 million as of December 31, 2021. Our unrestricted cash balance was approximately $114 million, up from $89 million in the prior quarter. Total assets were approximately $1.5 billion at year-end 2021, which was $105 million higher than the prior year quarter, mainly because of our quarterly profit. Adjusted gross debt increased marginally with a year-end balance of approximately $508 million while our net debt balance decreased to $391 million. Please note that these figures are year-end balances and do not include the recently announced SEPI loan in Spain. While our relative leverage ratios continue to improve, we are focused on deleveraging the balance sheet as cash generation from the business begins to accelerate. Ferroglobe’s working capital increased by approximately $69 million during the fourth quarter. This is primarily attributable to an increase in accounts receivables in line with our top-line growth. Next slide, please. While we have provided on the quarterly details for 2021 on this slide, let me first bring your attention to the Q4 2021 figures. Our cash flow from operating activities returned to positive territory contributing $21.7 million. In the quarter, despite an increase in working capital. Cash flow from investing activities was negative $7.5 million, which is attributable to a planned increase in CapEx expense. And lastly, cash flow from financing activities was positive $7.4 million for the quarter. The increase in overall activity enabled us to sell more invoices into the accounts receivable factoring facility in Europe. Free cash flow for the quarter was $14.2 million. For the full year 2021, our cash from operations was negative $1.3 million, primarily due to the investment in working capital of $171 million. The negative $24 million of cash flow from investing activities relates to capital expenditures incurred in our plans. Finally, cash flow from financing activities was $10.5 million for the year. Despite the comprehensive financing completed in 2021, the cash impact to reflect on the interest cost and fees associated with the debt and equity financings. Free cash flow for the year was negative $25.2 million. Next slide. On February 16, we announced that the Spanish fund for supporting strategic companies has approved a €34.5 million loan. These loans are part of the SEPI fund intended to provide assistance to non-financial companies operating in strategically important sectors within Spain in the wake of the pandemic. The loans are funded using a dual tranche structure and are expected to be funded around the end of Q1. €17.25 million matures in February 2025 and €17.25 million matures in June 2025. €16.9 million of the loan carries a fixed interest rate of 2% per annum. Interest on the remaining €17.6 million is calculated as IBOR plus a spread of 2.5% in the first year, 3.5% in the second and third years, and 5% in the fourth year, plus an additional 1% payable if the result before taxes of the beneficiary is positive. At this time, I’ll turn the call back to Marco.
Marco Levi, CEO
Thank you, Beatriz. Referring now to the trading update on Slide 18. Ferroglobe does not regularly provide quarterly or annual guidance, nor does it plan on doing so in the future. Given the unprecedented pricing environment and particularly the reset of our silicon metal contract, there have been questions around the implications on our financials. In order to provide some clarity given the unique circumstances, we want to take this opportunity to comment on a few dynamics we are currently encountering and provide this one-time estimated number for January. Our unaudited adjusted EBITDA is estimated at approximately $74 million for the month of January 2022. During January, the top-line benefit is largely attributable to the robust pricing environment across the product portfolio in Q4, which impacts all our index-based contracts in Q1. As a reminder, our index-based silicon metal contracts are reset on a quarterly basis and are tied to the prior quarter’s average index pricing. For ferrosilicon, the majority of our annual ferrosilicon contracts are index-based. While most of these are recalculated on a quarterly basis, some have a month lag. Lastly, for our manganese alloys portfolio, the majority of business gets repriced on a quarterly basis. Therefore, our top-line will evolve with the market plus the inherent lag in our industry. On the cost side, we continue to be challenged by higher energy costs and the inflationary impact on selected inputs. Overall, we have margin expansion during the month of January relative to Q4 levels. Looking beyond January, we continue to face pressures from energy and inflation. Additionally, our business inherently exposes us to new risks tied to geopolitical, regulatory, and natural events. The heartbreaking developments in Ukraine over the past week are being monitored very closely as Russia, Ukraine, and the broader CIS region are important to the silicon, ferroalloys, and manganese alloys industry. The conflict has already had an immediate impact in driving oil and global energy prices higher. This has important implications for our business and the continued exposure we have in Spain. Beyond energy, there is a direct link to Russia and Ukraine relating to specific inputs we procure such as metcoke, anthracite, magnesium, and electrodes. Ferroglobe will continue to comply with all international sanctions against Russia and Russian entities abroad. The inability to source materials from the region can have an impact on our ability to continue certain operations. Russia and Ukraine are significant producers of our products and depend on the export market. Hence, we are monitoring the implications on deliveries. In the near term, should there be inherent obstacles posed by the conflict leading to difficulty for producers to meet their obligations, we can expect some tightness in the market. Lastly, we are monitoring the additional impact of this conflict on global supply chains, which were already under pressure. Management continually tracks developments in the Ukraine conflict and is committed to actively managing our response to potential disruptions to the business but cannot provide assurance that the conflict in Ukraine or other ongoing headwinds will not have a material adverse impact on our business operations and financial results. Broadly, investors should also consider the risk factors and other disclosures in our annual reports on Form 20-F and other filings with the U.S. Securities and Exchange Commission. With that update, I will turn the call over to the operator and open the line for questions.
Operator, Operator
Thank you. The first question comes from Martin Englert from Seaport Research. Please go ahead with your question.
Martin Englert, Analyst
Hi, good afternoon everyone.
Marco Levi, CEO
Hi, Martin.
Martin Englert, Analyst
On the electricity costs across Europe, can you provide an update regarding Spain and potential move to a longer-term PPA agreement? Or do you feel that those prospects may have diminished given the ongoing conflict? And maybe just a broader update across some of the other countries as well, France and Norway.
Marco Levi, CEO
Yes, we’ll start by providing some qualitative comments first. Looking at Spain, the cost of energy has been extremely volatile. If you look at the evolution in the market in the second half of last year, it moved from a level of €50, €60 per megawatt touching the €400 per megawatt ballpark. Then if you readjusted down, and due to the recent unfortunate events, the price bumped up north of €340 per megawatts. In terms of the market, we live in an extremely volatile market, and we need to keep on addressing the issue on how to operate our plants. Concerning PPAs, we have been actively looking at opportunities. There are definitely small opportunities available in 2022 for the second half, but they are small. While there are broader opportunities for 2023 onwards. This is pretty much the situation. Looking at the other countries, we are covered by contracts for energy in all the other major geographies where we operate like France, the United States, and South Africa. So this is why I have stressed the situation in Spain, sorry.
Martin Englert, Analyst
Okay. Thank you for that detail there. Looking across silicon metals, silicon alloys, and manganese, there were some positive surprises in the fourth quarter volumes, at least versus what I had modeled there. But taking into account your augmented regional capacity in 2022, how should we think about volumes across the business segments here?
Marco Levi, CEO
Yes. I think you should – well, first of all, the comment that I want to make is that in quarter four excluding the incident in Beverly and the capacity adjustments in Spain, our assets have been more reliable than in quarter four. Overall, looking at the volume projections for 2022, they would be rather flat across the various value centers. The only exception is related to the additional volumes that we’re going to produce in Selma, which are silicon-related. Another observation that might be useful – you noticed the stream of manganese alloys in quarter four. But this has been heavily impacted, as I said, by more than 20,000 tons of orders that have been shifted from quarter three to quarter four. So you can consider the quarterly volumes of manganese alloys around 75,000 tons per quarter.
Martin Englert, Analyst
Thank you for that. And more specifically, maybe on silicon metal with the puts and takes of some ramping capacity here in Selma and the augmented capacity in Spain. On a forward basis net-net, does that look like something like 60,000, 65,000 per quarter as we move through 2022?
Marco Levi, CEO
You are correct. You’re right on the spot.
Martin Englert, Analyst
Okay. Got it. Thank you for that. One other one, if I could. Given the situation in Ukraine, Russia, can you talk in a little bit more detail about the puts and takes covering the upstream input supply, some of the risks there, and the potential implications on the alloy prices? I know you covered some of this in the prepared remarks and release, but any more detail that you can provide is helpful. Thank you.
Marco Levi, CEO
Yes. First of all, talking about the inputs, everybody knows that Russia plays an absolutely critical role in the supply of gas to Europe. You are seeing this immediate reaction of the market to the war. Talking about raw materials, Russia is a big supplier to the industry of electrodes, anthracite, metcoke, and some magnesium as well, which are critical raw materials for our products. The uncertainty is around the supply of these key raw materials in our industry. In particular, there are most of our plants in the United States that run based on carbon electrodes imported from Russia. But we have mitigation actions in place. Since day one, we have identified some mitigation initiatives. As you know, we are back integrated with electrodes produced in China. So, we are increasing our production of electrodes in China to mitigate this specific issue. Another plant which is particularly impacted is our plant in Maurice, France, and we are trying to address the issue of the electrodes by purchasing electrodes in advance and making all the possible creative solutions to get the materials that we have ordered arriving on time. For all the raw materials that I have mentioned before, since day one and even before, we have implemented a mitigation plan to look at alternative supply. Also, due to the improved cash situation of the company, we have been executing plans to buy raw materials in advance to build some stock.
Martin Englert, Analyst
Thanks for the detail. Can you talk about some of the looking further downstream at ferrosilicon, manganese alloys, and some of the regions there? Russia and Ukraine are pretty dominant producers in the region with ferrosilicon maybe around 40-50% of the regional capacity. Manganese alloys in Ukraine, I think it’s over 40%. Russia is also a key exporter of ferrosilicon into the U.S. market there. I guess when you weigh the puts and takes with the risks around the input materials and consumables, but there may be some tightness in the regional and/or traded selling prices for some of these alloys across two of your segments, right?
Marco Levi, CEO
Yes. Absolutely, you’re absolutely right. Russia is a major producer of ferrosilicon, and they also produce silicon. In Ukraine, you have quite a significant production center for ferrosilicon. And manganese alloys, there is clearly uncertainty on the supply of raw materials and growth. By definition, there is uncertainty around the overall supply, particularly out of Ukraine, of these products, but also out of Russia, depending on what’s going to happen with the overall banking system. While the situation is too fresh to make a weighted assessment of the pluses and minuses, our impression is that we will have opportunities in the market. The point is whether we are going to be able to procure all the raw materials to meet these quantities, and let’s not forget the evolution of energy costs and what is going to be the sustainability of our end markets to absorb the cost of energy.
Martin Englert, Analyst
Thanks for all your thoughts there on the incremental color. Congratulations on the record results and navigating the dynamic environment.
Marco Levi, CEO
Thank you, Martin.
Operator, Operator
Thank you. The next question comes from Phill Larson from Mill Street Capital. Please ask your question.
Phill Larson, Analyst
Hi everyone. Yes, congrats on a great quarter and appreciate all the color on the Russian-Ukraine situation. I just had a quick question on the new Spanish loan that’s $35 million. Could you share with us the planned use of proceeds for that?
Beatriz García-Cos, CFO
Yes. Thank you for the question. Beatriz speaking. So, as I mentioned during the call, this is a loan that we received from the Spanish government from a fund called SEPI, which aims to fund strategic companies for Spain. We expect to use the funds to boost our operations in the country.
Phill Larson, Analyst
Okay. I mean do you have any more detail you could share on that? Are you using it to offset the energy costs? Or what specifically will you do with that money?
Beatriz García-Cos, CFO
Well, yes, of course, part of the funds would be used to address our working capital needs in Spain, but not directly linked to the electricity effect, if I may say that.
Operator, Operator
Thank you. The next question comes from the line of David McFadyen from Aegon Asset Management. Please ask your question.
David McFadyen, Analyst
Hi, thanks for the call. Can I just ask a little bit more on the Ukraine-Russia dynamics? You obviously talked about how you’re planning to buy raw materials in advance, etc. But should the situation go on for a long time? Do you have a plan in your head as to how long this could go on before it causes a real issue with lack of access to Russian supplies of raw materials for your business? And in terms of the mitigation plans that you’ve put in place so far, have you got enough mitigants in place to be able to run the business as you’d expect along the lines of the business plan that you put out recently?
Marco Levi, CEO
Yes. You asked a very difficult question, because nobody knows how the situation is going to evolve. Hopefully, I think everybody should hope for as quick as possible resolution of the current situation. But going a little bit more into detail. Overall, we have – talking about our sales, we have no direct business in silicon metal, ferrosilicon, or manganese alloys to this kind of geography. We have minor sales of foundry business only. So on the revenue side, there is no big impact. Talking about raw materials, we buy metcoke. They’re used mainly for manganese production. So metcoke goes mainly to our facilities in Dunkirk and Mo I Rana. We also buy anthracite, which is used for the production of manganese alloys. A large part of our carbon electrodes comes from Russia, particularly to supply the United States. But we have mitigation actions. Since day one, we have identified some mitigation initiatives. As you know, we are back integrated with electrodes produced in China. So, we are increasing our production of electrodes in China to mitigate this specific issue of electrodes. Our plant in France, which is particularly impacted on a short-term basis is located in Maurice and we are trying to address the issue of the electrodes by purchasing electrodes in advance and making all the possible creative solutions to get the materials that we have ordered arriving on time. The raw materials that I mentioned before are being procured from Russia. Mainly, we buy metcoke and anthracite for production. Magnesium, we source approximately 25% of our needs from Russia. Our carbon electrodes and electrode paste also come from there. The Ferroglobe assets that are impacted by these raw materials include those in the United States, which rely on carbon electrodes imported from Russia. The specific plants affected include Beverly, Selma, and Montrocher. Our manganese alloys plant in Dunkirk could also be impacted. The issue of lack of electrodes also impacts plants like Bridgeport and Bécancour and European facilities. We have developed contingency plans for each one of these plants, trying to ensure one, to get the materials that we have ordered as soon as possible at our plants to build some stock and two, we have alternative suppliers. Therefore, we are, of course, moving volumes to alternative suppliers. These are our main two initiatives that we have implemented across these critical raw materials. However, I must add that if the situation lasts for a long time, we need to ensure that we implement as quickly as possible our mitigation plans and increase the supply from alternative geographies.
David McFadyen, Analyst
Thanks. That’s useful. And if from your alternative suppliers, would you still be able to run the business volume level that you operated at in 2021?
Marco Levi, CEO
Yes. I do not have a final assessment of this situation, but that is our objective.
David McFadyen, Analyst
No, I understand to the tough situation that has put everyone to parse out exactly how it might pan out and how long it might take as you saw. No, thanks. I just – the only other thing I would ask you quickly on is, obviously you’ve had puts and takes on urban credit costs, to credit costs. How much – do you have an outlook for that impact on the business for the rest of this year? Obviously, and this has moved around a little bit, but do you have an outlook for whether those prices are going to continue to be elevated how that impacts the business through the next year?
Marco Levi, CEO
Sorry, you are referring to CO2 credits, right?
David McFadyen, Analyst
Yes. Yes.
Benoist Ollivier, COO
Sorry. On CO2 credits, I didn’t properly understand your question.
David McFadyen, Analyst
Just the outlook for the costs of CO2 credits potentially for the business this year view on potential pricing and how that exactly works on how to impact this segment.
Benoist Ollivier, COO
We expect our needs for CO2 credits to increase, meaning we will cover more CO2 credits than last year. That said, the CO2 value is also displaying very high volatility and is impacted by the current prices. Today, it is trading around €66 per ton of CO2. One month ago or a few weeks ago, it was at €95. A few months before, we were at €65. So there’s a very, very strong volatility, which makes your question fairly difficult to answer.
David McFadyen, Analyst
Yes. No, it makes sense. It’s a tricky environment with all these costs. Okay, thanks. Thanks very much.
Benoist Ollivier, COO
Thank you.
Beatriz García-Cos, CFO
Thank you.
Operator, Operator
Thank you. There are no further questions. I would like to hand the conference over to your speaker, Marco Levi, for closing remarks. Please go ahead.
Marco Levi, CEO
Thank you. This concludes our Fourth Quarter and Full Year 2021 Earnings Call. While I am pleased with our accomplishments and performance in 2021, particularly given what this company is coming from, I recognize that there is tremendous more value to unlock. We look to build on the current momentum and expect a significant improvement in the company’s performance in 2022 as we continue to execute on our near-term strategy and aim to create value for all our stakeholders. Thanks again for your participation. We look forward to hearing from you on the next call. Have a great day.