Earnings Call Transcript - GSM Q3 2021

Operator, Operator

Good morning, ladies and gentlemen, and welcome to Ferroglobe's Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference call may be recorded. I would now like to turn the call over to Beatriz García-Cos, Ferroglobe's Chief Financial Officer. You may begin.

Beatriz García-Cos, CFO

Good morning, everyone, and thank you for joining Ferroglobe's Third Quarter 2021 earnings conference call. Joining me today are Marco Levi, our Chief Executive Officer; Benoit Olivier, Ferroglobe's Chief Operating Officer and Deputy Chief Executive Officer; Gaurav Mehta, our Transformation Director and EVP of Strategy and Investor Relations; and Jorge Lavin, Group Controller. Before we get started with some prepared remarks, I am going to read a brief statement. Please now turn to Slide 2. The statements raised 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 exhibits to those filings, which are available on our webpage www.ferroglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, 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. Next slide please. During today's call, we will first review the highlights for the third quarter as well as our business and operating environment. Then I will provide some additional details on our financial performance and key drivers behind our results. And finally, we will provide an update on the execution of our strategic plan. At this time, I would now like to turn the call over to Marco Levi, our Chief Executive Officer. Next slide, please.

Marco Levi, CEO

Thank you, Beatriz, and welcome to our third quarter 2021 earnings call. I hope that my voice supports me during this call. Otherwise, I will hand over part of my presentation to Mr. Mehta. This is certainly a unique time for our company and for the broader industry. The sharp and unexpected recovery in demand across our end markets which started in the fourth quarter 2020 continued throughout this year. In fact, global demand is base supply driving the index to unprecedented levels in products such as silicon metal and reached multi-year high levels across our alloys. For example, the latest index pricing for European silicon metal has been at an all-time high at €8,100 per ton last week, up from around €1,700 per ton just one year ago, an increase of approximately 375%. I am pleased to report that we are seeing fundamentals remain extremely favorable for a sustained pricing environment throughout 2022. On the demand side, our customers across the chemical, aluminum, and steel sectors are signaling healthy demand into next year. On the supply side, we expect the tightness particularly in silicon metal to continue. The trend of lower net exports out of China continues to benefit Western producers. As a result, we announced the start of our Selma, Alabama facility in the United States, which is strategically located to benefit from the growth in the region. Current market dynamics set the stage for a significant improvement in our earnings. At the beginning of 2022, however, our Q3 performance remained constrained due to the position of our order book, which is heavily weighted towards fixed price contracts. Nonetheless, the limited price increase realized across the portfolio compared to the movement in the index was enough to offset drastically higher energy costs in Spain, higher input costs, and operational and supply chain disruptions. We're also pushing vigorously on the strategic turnaround plan, which is helping to offset some inflationary pressures and also helping to create the foundation for a stronger Ferroglobe. Overall, we are not surprised by the factors impacting our cost. The energy situation in Spain was an issue last quarter, and we've continued to have an impact through the year-end. What surprised us is the pace and the level at which the market price for energy in Spain has shot up. To provide some perspective, the market food price in Spain averaged €45 per megawatt hour in Q1, €72 in Q2, and €118 in Q3. Once again, these are the average quarterly prices and do not fully highlight the peak inter-quarter pricing, which was €189 in Q3. We are currently pushing several alternatives to mitigate this problem. We are reviewing term sheets for PPA with strategic and financial counterparties, covering a portion of our 2022 energy needs in Spain. We're also working on solutions with our customers to pass through these costs in the wake of this unprecedented situation. As we rebound from the depths of where this company has recently been, we're engaging and strengthening our relationship with customers. As cash generation accelerates, we have focused on reinvesting in our asset base to ensure efficiency and competitiveness. Additionally, we need to recognize the efforts of our workforce during this challenging period. The changes we are driving throughout the company are an important part of the new Ferroglobe. My first objective continues to be the strengthening of the company, and I think we are making progress. At this stage, it is critical that we fully capitalize on the near-term opportunities, and we must not compromise on the execution of our turnaround plan in order to ensure cost competitiveness in a sustained manner. I can confirm that at the stage we are recovering market share from key customers, and we are focused on our ability to convert these opportunities into faster cash generation, higher margins, and where attractive, trying to negotiate longer-term contracts. I will touch a bit more about the current negotiation season, but let's first review the third-quarter results. Moving to Slide 6, please. Our third quarter results were impacted by several factors, some of which were one-off, limiting our ability to benefit from the strong market conditions this quarter. Index prices continued to increase across the product portfolio during Q3 on the heels of strong demand. On the production side, we faced some outages and logistical issues constraining shipments. Total sales increased 3% over the prior year quarter to $429 million. On the cost side, energy had the single largest impact, costing us an increment of $19 million during the quarter, with inputs such as coal and coke facing inflationary pressures. Furthermore, we faced some one-off issues at few facilities, which constrained our production. Operational challenges, coupled with some inbound supply chain and outbound logistics bottlenecks, adversely impacted costs during the quarter. Our adjusted EBITDA increased 10% over the prior year quarter to $37.6 million. For the quarter, we had a net loss of $97.6 million, primarily due to a non-recurring accounting impact. This accounting charge relates to the refinancing costs specific to the senior notes, resulting in a financial expense of $90.8 million. This charge relates to the accounting of the aggregate fees, expenses, and equity, which were issued as part of the overall costs. Beatriz will elaborate a little more on that. During the quarter, we consumed some cash, ending the quarter with a cash balance of $95 million. Operating cash flow in particular was negative by $35 million as a result of an investment in working capital to support our strong near-term demand. As we think about Q4, we expect the revenues to increase, driven by the recovery in volumes and continued improvement in selling prices. And while some cost pressures will continue, the top line growth is expected to outweigh these costs, resulting in continued recovery of our EBITDA and margin expansions. The acceleration of cash generation originally expected for 2021 will be limited due to increasing costs. As we get the benefit of the new prices, at the beginning of January, we expect operating cash generation to improve. With regard to 2022, the order book is shaping up favorably. To date, we have approximately 35% of our overall sales contracted. We are currently negotiating a number of other sizable contracts which we anticipate to close shortly. With this contract, approximately 70% of our order book will be booked. In 2021, we had higher waiting towards fixed prices, which constrained our upside. In 2022, we will have more market exposure due to a higher waiting towards index-based contracts. Additionally, we are building more protections into our contracts in this cycle. Next slide please. Turning first to silicon metal on Slide 7. On the volume side, we had an 8% decrease in silicon metal shipments to approximately 61,700 metric tons, somewhat back to the levels realized in Q1. Earlier this year, we announced plans to restart the furnace at the Sabón facility in Spain and another furnace at our manganese facility in France as the demand picture strengthened. With the start of these two furnaces, our production volumes in Q2 increased relatively to Q1. During Q3, we decided to idle the same furnace at Sabón due to the sharp rise in energy prices. These resulted in lower total silicon production during the quarter. Outside of Spain, we had planned maintenance outages at alloy West Virginia facility, which further limited our production. The maintenance work has since been completed and this facility is fully operational. As a result of these developments, we expect volume in silicon metal to increase in Q4 as well as a continuous step-up in prices. We have recently signed a very attractive contract supporting the decision to once again restart the furnace at Sabón. On the pricing side, however, realized pricing increased to $2,467 per metric ton in Q3, up 5% from the prior quarter. During the quarter, approximately two-thirds of silicon metal sales excluding the joint venture volumes were contracted. Of this contracted portion, 90% were under fixed price contracts. And our average realized prices do not reflect the same pace of movement reflected in the index. The index prices in the United States and Europe on the top left of the slide show a parabolic movement in prices toward the quarter, and that has continued in the fourth quarter. The current spot prices are over $9,500 per ton in the U.S. and €8,100 in Europe. EBITDA from our silicon business declined from $13.7 million in Q2 to $11.4 million in Q3. On the cost side, we faced a few challenges, which contributed to a negative impact of $8.3 million. The most significant driver was higher energy cost in Spain, which adversely impacted Q3 by $4 million. Beyond energy, there have been some cost inflation and sourcing challenges in other materials, such as coal forcing us to seek for alternatives. In the absence of optimal raw material mix, we have seen a negative impact on our overall operational efficiencies driving an increase in production costs. Regarding the Selma facility restart, our current plan is for one furnace to be restarted by year-end and the second furnace to restart in late Q1 2022. End market demand remains strong. Currently, we're in negotiation season for 2022 contracts. In silicon metal, we have close to having approximately 80% of our volumes contracted. All the contracted volumes, approximately 30% is at fixed price. Next slide, please. Turning to silicon-based alloys on Slide 8. During the quarter, our average selling price increased by 9% to approximately $1,990 per metric ton, up from $1,850 per metric ton in the second quarter. Our silicon based volumes were down about 14% to just under 55,900 tons. The approximately 9,000 tons decrease across the silicon based portfolio is primarily attributable to ferrosilicon and foundry to a lesser extent. We missed approximately 5,000 tons due to operational and logistical issues. In South Africa, there were shipment delays as a result of congestion at the Port of Durban and logistical challenges in procuring large container bases. Additionally, at our Bridgeport, Alabama facility, we had planned downtime for maintenance plus unexpected operational issues, which kept the plant down for several extra days. Similarly, at our eMalahleni facility in South Africa, another planned maintenance outage took longer than expected. In addition to the operational disturbances, we had approximately 2,000 tons that customers asked to delay into the fourth quarter due to a seasonal slowdown during this summer period. EBITDA for our silicon based alloys business was positively impacted by prices, but offset by volumes and higher costs. Resulting adjusted EBITDA was $8.4 million in Q3, down from $11.4 million in Q2. In terms of that $10.5 million cost impact, approximately $6 million is attributable to higher energy costs in Spain. Cost inflation in coal and charcoal resulted in $1 million in wire cost and also impacted performance by another $1 million. Lastly, operations disruptions at Bridgeport and eMalahleni resulted in a fixed cost assumption impacting the results by $2.5 million. Looking ahead to Q4, we feel despite our portfolio is positioned for a strong recovery relative to Q3, with volumes that customers pushed from Q3 to Q4, as well as the incremental volume contribution from the furnaces that had operational issues. On the pricing side, keeping in mind that ferrosilicon generally has either one or three months of pricing index. Ferrosilicon index in the U.S. and Europe are up 40% and 55% respectively since the end of Q3. Overall, steel demands remain robust and we are just getting back to pre-COVID levels. Keep in mind that the steel produced is managed their order books is very fluid. So while there might be some slowdown from time to time, the demand for the metal has not changed. In fact, many of our larger customers have been looking at multi-year deals in light of the current environment. With regard to calcium silicon, the trade case in Europe was favorably concluded in early October. There are now anti-dumping duties against Chinese producers up to 50.6%. At the moment, these trade protections are in place until April 2023. Considering ferrosilicon, taking into account the size of our contracts, which we anticipate to close soon, 55% of our expected production for 2022 would be contracted. On this portion, about 20% of our contracted volume is at fixed pricing. Next slide, overall, manganese based alloys was the strongest part of our portfolio in the third quarter. Despite the strong increasing EBITDA this quarter, this segment was impacted by the same seasonal slowdown in steel demand, as well as curtailments in Spain due to energy costs. Volumes increased 12% to approximately 76,500 tons, with the incremental production from the furnace restart at Mo I Rana in Norway. In an effort to optimize our energy costs, we shifted from our contracted tons from Spain to Norway during this quarter. Additionally, we were able to capitalize on opportunities as competitors faced operational and logistical challenges on their end, mainly in Southeast Asia. During the quarter, the average selling price increased by 11% to approximately $1,575 per metric ton. EBITDA from this business was up over 40%, contributing $22.5 million in Q3 versus $15.7 million in the second quarter. The increase in pricing more than offset the cost pressure from energy and iron ore costs. We've realized further improvement to our spread, which is the delta between the alloy and steel price. We expect the price to continue into the fourth quarter as the index for silicon ferrous manganese has increased. The end market demand for manganese and alloys remain solid, particularly on the construction and machinery end-market. Given the near-term demand outlook for Q4, we decided to replenish and build some inventories in manganese and alloys during Q3. For the manganese business, we are targeting to have approximately 60% of our volumes contracted, as we finalize the current arm of negotiation for 2022. Today, the majority of the competitive volume is indexed based pricing. I would now like to turn the call over to Beatriz to review the financial results in more detail. Beatriz?

Beatriz García-Cos, CFO

Thank you, Marco. Beginning with Slide 11, I'll touch on a few specific line items on our income statement. Sales of $429 million during Q3 were 3% higher than the $418 million of sales in the prior quarter, due to higher pricing across our portfolio of products. During the product category review, Marco highlighted several underlying factors related to energy and inflationary pressures impacting the quarterly results. These factors contributed to higher cost of sales adversely impacting our gross margin during the quarter to 31% in Q3, down from 36% in the prior quarter. The decrease in other operating income and other operating expenses this quarter is primarily attributable to the accounting treatment related to the CO2 emissions rise. In Q2, we had the impact of the mark-to-market adjustment for the CO2 rights we were repurchasing in the open market. As a reminder, these repurchases concluded in Q2. In Q3, we had a decrease in the mark-to-market adjustments by $10 million related to the 2021 allocation for CO2 credits. These credits are booked at a fair value at a grant date with zero net impact in our P&L. During the quarter, we approved $3.2 million for CO2 volume which we would need to purchase to address our deficit for 2021, with a cash impact in 2022. With regards to costs, the Q3 results were impacted by $10 million for the partial release of the restructuring provision based on the latest discussions in Europe. Reported EBITDA was $35.2 million in Q3, a 10% increase versus the $31.9 million in Q2. When accounting for the one-time costs relating to the implementation of the strategic plan, the adjusted EBITDA was $37.6 million. Lastly, with the completion of the refinancing during the quarter, there were several one-time items that we accounted for relating to the senior notes. Since the exchange of the senior notes is considered extinguishment from an accounting perspective, our one-off financial expense of $90.8 million was booked in Q3. This includes $31.7 million in advisory fees, $40.6 million which was a value for the equity given to the bondholders, $11 million in underwriting fees, and $7.5 million of accounting related charges. The net impact of this is reflected in this quarter's P&L. Including these one-time expenses results in a net loss of $97.6 million for the quarter. Slide 12 please. Adjusted EBITDA increased 10.3% over the prior quarter as a result of higher prices, partially offset by lower volumes and higher costs. The $22.7 million impact from costs is attributable to several factors primarily energy. During the quarter, we saw a significant ramp-up in energy prices, particularly in Spain. This cost consists of factors that are one time in nature, as well as that will linger in coming quarters. The commodity impact of energy cost in Q3 was $19 million, of which $15 million was attributable to Spain. As Marco commented earlier, we anticipate energy prices in Spain to be a lingering headwind in Q4. The key is to mitigate this risk with some combinations of PPAs, as well as cost-plus operations with customers. We are pursuing both alternatives. The energy business has been impacted by inflationary pressures on selected inputs such as coal, charcoal, and costs. Collectively, this input cost increase accounts for $2.6 million in terms of cost impact. At the moment, we are seeking ways to mitigate this going forward. For example, in the case of coal, we are evaluating the ramp-up of our coal mine in the United States for potential export to our European facilities. Lastly, we have an adverse impact of $4.5 million, resulting from lower fixed cost absorption. This is the collective result of operational maintenance downtown, both planned and unplanned. Next slide please. Turning now to Slide 13, I will reveal our balance sheet in greater detail. At the end of the quarter, our cash and restricted cash balance was $95 million, down from $106 million in Q2. Total available cash decreased to $89 million in Q3 from $100 million in Q2. The consumption of cash during the quarter is primarily attributable to an increase of $62 million in working capital, driven primarily by a $44.7 million increase in inventories given low level of stock through the quarter at the all-four quarter outlook. We decided to invest in replenishing our stock level. The growth rate at quarter end was $499 million, up from $464 million. During the quarter, we raised the remaining $30 million of the new super senior secured financing. Additionally, we have the impact of the interest accrual of both the senior and super senior notes. Net debt increased to $404 million up from $658 million in Q2. Next slide please. Given the investment in working capital, our operating cash flows turned negative for the quarter, resulting in a total cash flow of approximately negative $34.7 million. Cash from investing activities was $8.2 million and is primarily attributable to the capital expenditures during the quarter. Finally, cash flow from investing and financing was positive at $32.0 million due to the incremental proceeds from the equity and super senior debt additions. Overall, our net cash flow during the quarter was negative $10.9 million with free cash flow of negative $42.9 million. Next slide please. On October 6, 2021, we entered into an Equity Distribution Agreement, enabling the Company to issue up to $100 million through an at-the-market offering until June 2024. For the sake of clarity, we are not obliged to issue any shares under this program should we elect not to. As we just reviewed, our available cash procedures at the end of Q3 was at the low end of the cash required to run our operations. If the business is expected to generate cash in the near-term, we would not typically raise cash as previously mentioned. However, in the intermediate term, there are a number of positive developments which could potentially yield the need for cash. On the other hand, we have attractive growth opportunities in our investing and working capital as the restart of Selma. As such, we need to ensure sufficient capital for these types of opportunities, while maintaining a cash base level to run the business. Additionally, we have some lingering uncertainties, such as the power costs in Spain, which has been consuming significant cash the past few quarters. Our rationale for putting this program in place is to quickly access capital if and when it is absolutely needed. Since the inception of the program, we have issued a total of 186,000 shares for the net proceeds of approximately $1.4 million. Our intent was to raise approximately $10 million. However, we were able to free up and generate cash through our operations through a few successful measures to satisfy our needs. At this time, I would turn the call over to Marco to comment on our strategic plan.

Marco Levi, CEO

Thank you, Beatriz. Now turning to Slide 17 please. One of the broader market sentiment and pricing environment tends to be a major focus these days. I want to start the importance of our execution of the strategic plan. This is the foundation on which we would turn around the company and position it to deliver strong results for the cycle. We're pushing forward on initiatives touching various aspects of the company, challenging the norm, and seeking to adopt the best practices. This contract business underscores the importance of the changes we're driving with the company. For our commercial excellence initiatives, we're better prepared to have constructive engagement with our customers. We continue to incorporate the new products into the pipeline and enter our centralized procurement structure including global coordination and negotiation of our energy contracts. On the operational side, our efforts and a new culture of excellence on the plant floor are driving improved efficiency and helping offset some inflationary pressure. We had an important development during the quarter in the footprint optimization. On Monday, we signed agreements with the French government relating to the restructuring process. Under the agreement, Ferroglobe will receive support from the government for a project to strengthen its competitiveness across the five manufacturing sites that will continue to operate in France. Specifically, Ferroglobe facility would remain operational with a clear plan to modernize the facilities and improve its cost position. This facility would also benefit from a new commercial agreement with a long-standing customer. As planned in the initial project proposing March 2021, the Chateau-Feuillet facility will stop production, and the custom silicone production capability would be transferred to the next level. We are encouraged by this outcome as it would minimize the social impact while ensuring a stronger operational footprint in France. Overall, during the third quarter, we have achieved 58% of our cost savings targets for 2021. Lastly, on working capital, we have achieved our third cash lease of $49 million. Please keep in mind that this initiative is tracking on a rolling 12-month basis to adjust for seasonal swings. Furthermore, we're tracking working capital as a percentage of sales to assess the relative improvement as the business ramps up. Given the developments in France, the scope of our footprint optimization is working in our favor. Despite these changes, we remain confident to deliver our $55 million EBITDA target for 2021. At this time, I will ask the operator to please open the line for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Your first question is from David Rosen from Rubric Capital. Please go ahead.

David Rosen, Analyst

Hey, guys. Can I have a few questions? So, the first one is on this ATM usage. So, you mentioned that you were looking to raise $10 million, but you've actually found that capital. So do you intend on accessing this ATM?

Marco Levi, CEO

Thank you for the question, David. Let me give you a little bit of color around that. First of all, the Board and the management team of Ferroglobe put this equity program in place as a flexible option and to be prudent in light of the difficult stretch that the Company has recently gone through on the financial side. For sure, we did not intend to use this tool right away, but during the quarter, we had a number of positive developments, following discussions with our customers, who were looking for product in Q4 and in 2022, and I would say even after 2022. As a result, we decided to invest in working capital. We restarted one furnace in Mo I Rana for manganese alloy. We decided to restart some in the U.S., which clearly require cash, and we have restarted the furnace that we had shut down in Sabón like I mentioned during my speech, on the back of the new profitable contract. So, we're convinced that we have to capitalize on this opportunity and found the working capital to restart Selma. And we wanted to make sure that we had a comfortable level of cash to run our company. Our intent when we made the decision, David, was to raise about $10 million, but we were successful in freeing up cash in the business through pass-through of cost to customers and by collaborating with customers to share some of the startup costs. As a result of these measures, we have minimized the ATM impact to $1.4 million. Just to be clear and answer your question - at the moment, we do not intend to use the equity program of ATM, given our current view on the cash flows of the Company.

David Rosen, Analyst

We have strong confidence in the Company and believe in the strategic and fundamental changes occurring in your markets. As significant investors in the Company, we are willing to provide capital when needed. If you require $10 million, just give us a call, and we will assist. You should have no concerns about access to capital, and I agree that you should avoid using the ATM. So, when you need $10 million, please reach out to me.

Marco Levi, CEO

I appreciate that. The problem is that we are in a situation where we couldn't wait, and we decided to act fast, but what you say, I hear you and I highly appreciate it. Thank you.

David Rosen, Analyst

Okay. The second thing I want to discuss is Spain and some of the mitigation strategies. Can you explain the mitigating items? I understand you now have a contract with Sabón, which seems promising for the additional furnace. Could you outline the process to achieve pass-throughs and your expectations for growth from this quarter to the first quarter of 2022?

Marco Levi, CEO

Yes, let me take it from this point. Energy in Spain has gone up much quicker than expected and it has reached unprecedented levels, right? Prices have been going up far above €200 per megawatt, €300 megawatt, today to €225 per megawatt. This means four or five times the price level of the first quarter of this year. And this year, we had quite a lot of contracts committed with customers where we could have been more surprised. Consequently, we did two things. One, we tried to reallocate production outside those things to supply the same customers. Two, we entered negotiations with customers to implement some temporary price adjustments in order to share the pain with these customers. In some cases, we have been successful; in other cases, we have not. For sure, we have fostered these uncertainties for the new agreements in 2022. So overall, in Q4, based on the elements that I have, the assets in Spain are going to be profitable, while in Q3 they were not profitable. Our measures at least have corrected the profitability of the Spanish footprint.

David Rosen, Analyst

Got it. I just want to be clear. So you said you're going to be profitable in Q4 in Spain versus not profitable in Q3.

Marco Levi, CEO

Yes, slightly profitable. I mean, I'm not - at least compared to the negative result of Q3, I think it’s a significant change.

David Rosen, Analyst

Can you - how much - and what kind of losses did you generate in Spain in the third quarter?

Marco Levi, CEO

Well, we are not prepared to share this number.

David Rosen, Analyst

Okay. But it was a meaningful number?

Marco Levi, CEO

It is a meaningful number. The key correcting factor for Q4 is the new contract with the new customers in Sabón for silicon. This is the key factor because energy impacts much more silicon production than alloys production.

David Rosen, Analyst

Got it. I'm sorry, go ahead.

Marco Levi, CEO

Yeah. No, I was mentioning just to stress for 2022, first, we are exploring the opportunities to enter into long-term contracts for energy supply. Second, we are discussing with customers within the new contract negotiations about energy cost pass-through, or at least having some hardship clauses in our contracts that basically allow us to get back to the negotiating table with the customer and decide if we continue to supply and negotiate those conditions or pull out of these agreements.

David Rosen, Analyst

So, when you talk about protections, the protections will be around your input costs, but do you also consider putting floors into your contracts? In a strong marketplace with less Chinese competition, there should be some flexibility that could benefit you. I'm curious about what other strategies you're implementing.

Marco Levi, CEO

You are correct, David. Customers are primarily seeking supply security, especially in silicon. Therefore, we are negotiating various contract structures, moving away from fixed yearly pricing and tying prices more to the index. Additionally, we are taking measures to protect ourselves in the event of a market shift, which we do not anticipate in the near future, but given the cyclical nature of the market, it could return to previous levels. We are capitalizing on the current demand to adjust our contract framework. To illustrate, while this year, approximately 70% of our silicon volumes were priced at a fixed yearly rate, next year, that proportion will decrease to only 25% to 50% at different fixed price levels.

Operator, Operator

Your next question is from the line of Brian DiRubbio from Baird. Please go ahead.

Brian DiRubbio, Analyst

Good afternoon, Marco and Beatriz. Just help me understand with all the work that you're doing with Selma, what your CapEx budget is looking like for 2022?

Marco Levi, CEO

What we are doing? Sorry, if I was not clear with my coughing. We start Selma in December. By the end of December, we will start the first furnace and we will start the second furnace by March 2022. The cost to restart Selma when you consider CapEx and working capital is around $50 million.

Brian DiRubbio, Analyst

Okay. And that's for both furnaces starting back up, correct?

Marco Levi, CEO

For both furnaces, yes.

Brian DiRubbio, Analyst

Okay. And just for total CapEx spending in 2022, have you put a budget around that yet?

Marco Levi, CEO

Yes, we are discussing that. Like I mentioned in my speech, we need more CapEx than the amount we have spent in the last two years. I don't have a fixed figure in mind, but I think that it is not going to be different from what we mentioned in the past. So, we need around $75 million per year of CapEx.

Brian DiRubbio, Analyst

Understood. You mentioned in your scripted remarks that you are looking to enter into longer-term contracts with customers. Do you anticipate those to be more index-based versus fixed price?

Marco Levi, CEO

Definitely. The key changes for silicon metal because for alloys we have already index priced in our contracts. And then depending on the products, prices get adjusted either monthly, quarterly, or every two months. But in silicon, we have moved more toward market prices, yes. And there is pricing interest from a lot of customers to move to two to three-year contracts.

Brian DiRubbio, Analyst

Okay, great. I guess just the final question is that, as I think about your global footprint, how is the current freight and logistics situation impacting your ability to move production from one plant into a different market? That becoming more challenging? And are you getting paid for that?

Marco Levi, CEO

You ask a very good question. This topic has kept us quite busy in the first quarter. I mentioned that we slowed down production in Spain at all our facilities in the third quarter, while in the second quarter, we ramped up our operations in France and Norway. By the way, we have six plants in France, not five as I mistakenly stated, plus one where we have production. Ultimately, the rising energy costs in Spain are the key factor in our decision to relocate volumes to our facilities in France and Norway, and we have successfully done that. Regarding South Africa, we discussed the challenges we faced in the supply chain and moving our materials, which negatively affected our ferroalloy sales and resulted in a significant drop in sales in Europe and Asia as well. In the U.S., the situation is much more stable for us from these perspectives.

Brian DiRubbio, Analyst

Got it, I appreciate the additional color. Thank you.

Operator, Operator

And your next question is from indiscernible. Please go ahead.