Ferroglobe PLC

NASDAQ:GSM

Earnings Call Analysis

Ferroglobe's Strategic Growth & Market Outlook

Ferroglobe has markedly improved its financial position, with adjusted EBITDA rising from $33 million in 2020 to $860 million in 2022, and is on track to achieve a 2023 guidance of $270 million to $300 million. The company has halved its gross debt from $473 million in 2019 to $237 million. This turnaround stemmed from efficiency initiatives and a shift towards high-margin specialty products. Eyeing a lead in the silicon metal market, particularly for solar and electric vehicle batteries, Ferroglobe acquired a South Carolina quartz mine to bolster production and meet rising demand. Ferroglobe's integrated operations and strategic partnerships position the company to capitalize on growing demand, driven by legislation like the Inflation Reduction Act and efforts towards greener energy. However, current product prices are subdued, reflecting short-term market challenges.

Significant financial turnaround achieved while navigating a challenging market

Since the leadership change almost four years ago, Ferroglobe has undergone a transformative phase, revamping its business and operations to optimize costs and drive growth. The company achieved a substantial increase in adjusted EBITDA, from $33 million in 2020 to $860 million in 2022, despite facing weak demand and market pricing for five consecutive quarters amidst macroeconomic uncertainties. The gross debt was nearly halved from $473 million to $237 million.

Strategically positioned for growth in solar and EV markets

Ferroglobe is now focusing on becoming a leader in the silicon metal industry, targeting the rapidly growing end markets of solar energy and electric vehicle (EV) batteries. They have secured a critical resource by acquiring a high-quality quartz mine in South Carolina, which will support their U.S. silicon metal plants for at least ten years. The anticipated structural shortage of silicon metal in North America in the coming years underscores the strategic nature of this acquisition.

Targeting market leadership and navigating global industry dynamics

The company aims for market leadership in the value-added silicon metal sector and is adjusting its strategies in response to global market conditions such as China's reduction of graphite exports. With a strong worldwide distribution network, Ferroglobe is well-positioned to navigate these changes, including leveraging long-term power purchase agreements (PPAs) in Spain to enhance production efficiency.

Acknowledging near-term challenges while focusing on long-term opportunities

Despite the positive long-term outlook due to favorable market trends and legislative actions, Ferroglobe acknowledges the current softened demand and pricing pressures in the industry. Notwithstanding these headwinds, the company remains attentive to the significant future growth opportunities, especially driven by increasing silicon content in batteries.

Capital allocation policy to optimize debt structure and support growth

Ferroglobe has decided to implement a capital allocation policy with details to be announced in the first quarter of 2024. This move is intended to optimize the company's debt structure while supporting its growth strategies in the challenging market conditions. The company is evaluating options, including either paying down the remaining bonds or reaching an agreement with the current bondholders.

Detailed financial performance and outlook analysis

Ferroglobe's revenue in Q3 was $199 million for silicon metal, showing a modest increase from Q2, but faced a 10% price drop impacting adjusted EBITDA. For silicon-based and manganese-based alloys, Q3 revenues were down 14% and 25% respectively from the prior quarter. The company anticipates a weaker fourth quarter relative to Q3 in terms of adjusted EBITDA. Additionally, raw materials and energy consumption costs improved, notably benefiting from energy agreements in France.

Cash flow and debt management commentary

Cash from operations was negative $9 million in Q3 versus a positive $24 million in Q2, impacted by working capital changes. Gross debt significantly reduced to a company record low, while an incremental net debt was attributed to increased working capital requirements. Noncash items and energy benefits are anticipated to benefit cash positions going forward.

Price and market liquidity perspectives for the upcoming year

Ferroglobe continues to balance contracted and spot volume sales and expects pricing to adjust quarterly based on indices. With costs closely reflecting industry norms, the company predicts that prices should eventually increase in 2024. The company is also optimistic about improving its sales position in Asia.

Investments in production efficiency and future guidance plans

The company highlighted significant capital expenditure over the past two years that has improved plant operations and reliability. Ferroglobe is planning to continue providing annual EBITDA guidance after internally reviewing their business plans and discussing with the board.

Strategic quartz mine acquisition and operational flexibility

Ferroglobe's $15 million investment in a quartz mine in South Carolina is not only projected to yield cost reductions but also ensures security in quartz supply, a key raw material. Improved quality compared to their Alabama mine will enable them to use the new mine's quartz for silicon production and the Alabama mine for ferrosilicon production, providing strategic operating flexibility.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to Ferroglobe's Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference call may be recorded. I would now like to turn the call over to Alex Rotonen, Ferroglobe's Vice President of Investor Relations. You may begin.

[Alex Rotonen, executive]

Thanks, Sandra. Good morning, everyone, and thank you for joining Ferroglobe's Third Quarter 2023 Conference Call. Joining me today are Marco Levi, our Chief Executive Officer; and Beatriz GarcÃa-Cos, our Chief Financial Officer. Before we get started with some prepared remarks, I'm going to read a brief statement. Please turn to Slide #2 at this time. Statements made by management during this conference call that are forward-looking are based on current expectations. 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 website at ferroglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, adjusted gross debt, net debt and adjusted diluted earnings per share, among other non-IFRS measures. Reconciliation of non-IFRS measures may be found in our most recent SEC filings. At this time, I would like to turn the call over to Marco Levi, our Chief Executive Officer. Next slide, please.

[Marco Levi, executive]

Thank you, Alex, and good morning, good day, and good evening to everyone. Thanks for joining us on the call today. We appreciate your interest in Ferroglobe. Since I joined Ferroglobe almost 4 years ago, we have focused on revamping the business and operations by optimizing the cost structure, improving the balance sheet and positioning the company for growth. During this time, we increased adjusted EBITDA from $33 million in 2020 to $860 million in 2022. And we are on track to meet our 2023 guidance of $270 million to $300 million in a period of extremely weak demand decline in market pricing for 5 quarters in a row, coupled with unprecedented macro uncertainty. In addition, we reduced our gross debt from $473 million at the end of 2019, the same level of $237 million, significantly strengthening our balance sheet and approaching the target that we indicated more than a year ago. The dramatic improvement in performance has been the result of our cost-cutting efforts and various initiatives focused on improving efficiencies and driving sales productivity, such as focusing on higher-margin specialty products, which has ultimately made us more competitive in the marketplace. Also, we continue emphasizing continuous improvement and further cost reductions. The initial optimization phase of our plan is essentially complete, and our leverage objective has been reached. We are now focused on positioning the company to lead the silicon metal industry in addressing the solar and the ethical vehicle battery market, which we believe represents an enormous opportunity for Ferroglobe. Recent legislation in the U.S. and Europe has provided incentives to increase onshoring, which will further benefit Ferroglobe with its strong presence in these regions and worldwide production capabilities. At the same time, we are looking to maximize the value of our manganese and silicon-based oil businesses. On primary requirement to produce advanced silicon metal, that is needed for these growth end market applications is access to high-quality quartz. To ensure access to reliable supply, we recently completed the acquisition of a high-quality courts mine located in South Carolina. This quartz supply will support our silicon metal production plants in the U.S. as we position the company to benefit from the secular growth in solar and EV batteries. The South Carolina mine has on our production capacity of roughly 300,000 tonnes with an expected reserve life of at least 10 years. Our current cost mine in Alabama has annual capacity of about $200,000 with approximately 3 years of mine life remaining. We expect to be at the new mine in the second half of 2024. Not only will this increase our self-reliance on coat for our current needs. But also for the coming years, civic metal demand in U.S. is expected to grow significantly. In fact, we believe that North America will have a structural shortage of silicon metal in the next 2, 3 years. Our total investment is expected to be around $15 million, including $11 million for the property, plus an additional $4 million for infrastructure, mainly rail access, a processing facility and a load out. We anticipate the cost structure to be favorable, approximately 10%, 15% lower than the current cost in our Alabama mine and its proximity to our operations secures the long-term competitiveness of our U.S. footprint. One of Ferroglobe's key differentiators is our backward integration, where we have access to critical materials needed for the production of our products. In addition, to the quartz mine just purchased in South Carolina, we also have other mines supporting our production facilities around the world, ensuring that we have access to high-quality quartz. In Europe, we have the cerebral courts mine in Spain, which supplies primarily to Spain and France. We have right to operate this mine until 2038. And in South Africa, we have several core mines supplying our operations there. Overall, our mine supply over 70% of our internal needs, a key competitive advantage in managing our costs and ensuring reliable ability of this key raw material. Having a stable supply of high-quality quartz is essentially addressing the solar and EV battery market, which we expect to be a significant long-term opportunity for the company. In batteries, high purity silicon provides significant advantages over in battery anodes, such as increasing battery capacity and reducing charging time. As the percentage of silicon content in the next-generation batteries continues to increase, we expect to see a dramatic increase in demand for high-quality score. In line with our focus on solar and EV batteries, we continue to actively develop partnerships and alliances, to position us to maximize our participation in these growth opportunities. These prospective partnerships are aligned with our strategic vision and seek to enhance our capabilities within our core areas of expertise. Our focus with these partnerships is to further enhance our position in developing our silicon metal that is used in advanced oil battery markets, including vertical integration, further advancing the technologies or using different approaches in our production process that improves our decarbonization initiatives. Our objective in securing these partnerships is to enhance our market leadership in the value-added silicon metal sector. One recent development toward paying attention to relates to China, the largest graphite exporter, which recently announced that its curbing exports of certain graphite material used in batteries, coping upward pressure on graphite and log prices. We believe this restrictive action by China will accelerate the shift towards increased use of silicon in alts, especially in light of its superior foreman. In solar, we are positioned in Ferroglobe to be the leading provider of silicon used in solar panels. Given worldwide effort to transition to green energy, we expect significant demand in solar for years to come. Our opportunity in solar is amplified by increasing on showing trends in North America and Europe to expand local supply of these critical materials. Recent legislation, including the inflation Reduction Act, the Chip and the European grain initiatives, we drive significant demand in this market. Ferroglobe's market leadership and worldwide distribution potion us to benefit from these trends. In our ongoing efforts to access a stable supply of power in Spain, we signed an additional PPA that locks in an increased portion of energy for the coming years. This agreement is a term of 3.5 years and became effective on November 1. This PPA, combined with 2 we signed last quarter are expected to allow us to produce higher volumes in Spain to serve our customers during the winter months when our facilities in France are idle. Our facilities in North America continued to benefit from favorable U.S. policies. In September, Parkinson bill was introduced in the U.S. 8 to enact a 35% tariff on imports of Russian and on silicon. we believe this is a very positive trend for the American industry and employees, showing the U.S. commitment to increase reliance on friendly supply chain participants. While we are excited about the long-term outlook, the near-term visibility remains so bad. Prices for our products continue to be weak and the money remains subdued. Recently, there has been commentary from various market participants cheating weakness in the solar NEV end market. Higher interest rates have negatively impacted demand for electric vehicles and recent commentary from auto manufacturers to indicate a very competitive market with increased pricing pressure. While there is currently a weakness in this market, we are focused on the significant long-term opportunities. Battery markets, sorry, is expected to be driven more by the increasing content of silicon in the And less by short-term supply-demand imbalances. The solar opportunity is expected to be driven by increased government incentives and the focus on onshoring the supply of silicon metal, a critical material for solar cells production. Our integrated asset footprint, combined with favorable long-term market trends and support the U.S. and European legislative actions, paying a drive future for fall future in the coming years. I am very pleased with our operations of how our operations have been performing in the third quarter. We are executing at a high level in nearly all our locations as evidenced by the fact that our plant efficiency is at highest level in 30 years. The efficiency of our furnaces is very strong, and we are navigating with the energy landscape sessionally well in all regions with the exception of Spain as we modulate production based on advances energy prices. This was made possible by the efficient management of our capital expenditures over the past couple of years. After an extensive evaluation, we have made a decision to implement a capital allocation policy and plan to announce details of our capital return in the first quarter of 2024. At the same time, we are reiterating our 2023 guidance of $270 million to $300 million. We are not immune to the current soft market conditions and anticipate the fourth quarter adjusted EBITDA to come in below the first quarter results. Next slide, please. Telecom metal revenue was $199 million in Q3, up from $185 million in Q2, an increase of 2% adjusted EBITDA for this segment remaining strong, down only 2% from the prior quarter. Volumes increased 13% over the prior quarter to approximately 57,000 tons, driven by strong shipments in North America. Our average realized price for silicon metal sales decreased by 10% compared to the previous quarter, driven by lower index pricing in U.S. and Europe. This price decline negatively impacted adjusted EBITDA by $19 million. We continue to benefit from our energy agreement in France and in direct CO2, which together contributed roughly half of the cost benefits with lower material costs being the next largest contributing factor, primarily coal. As for silicon metal outlook, the market continues to show muted demand and the lack of liquidity due to macroeconomic uncertainty affecting both the chemical and the aluminum sector. While we are positive about long-term opportunities for silicon metal, we expect demand to remain weak in the near term, particularly in Western markets. This weakness is partially offset by our expansion into new markets, such as Asia, where we have started actively participating in their solar value chain. Next slide, please. Telecom-based alloys revenue was $115 million in Q2, down from $133 million, a decrease of 14%, primarily driven by weaker prices. Adjusted EBITDA for Q3 was $25 million, down 20% from the prior quarter. Sales volumes declined by 6% for [Indiscernible] 46,000 tons and average realized pricing was down 8% over the same period, negatively impacting EBITDA by $10 million. Relative to the prior quarter, silicon alloys benefited from lower raw material costs, which was the largest contributor to cost improvement. The silicon alloy segment was adversely affected by the weak steel sector in U.S. and Europe, partially offset by the strong specialty thereon sales into the electrical steel market. In addition, our sales into divest segments such as foundries have been more resilient. Next slide, please. Turning now to manganese-based Alloys. Manganese-based alloys revenue was $59 million in Q3, down 25% over the prior quarter. Adjusted EBITDA for Q3 was $11 million, up from $1 million in the prior quarter. Sales volumes were down 10% over the prior quarter, negatively impacting adjusted EBITDA by $0.3 million, while average realized pricing was down 16% on the same period, which negatively impacted EBITDA by $11 million. This was offset by higher energy and CO2 compensation in France and lower manganese ore prices. The end markets primarily still remain under pressure with a lack of visibility in 2024. Within the Construction segment, we expect incremental improvement in the first half of next year as a result of a seasonal uptick in demand. Now I would like to turn the call over to Beatriz GarcÃa-Cos, our CFO, to review the financial results in more detail. Beatriz?

[Beatriz García-Cos Muntañola, executive]

Thank you, Marco. Please turn to Slide 9 for a review of the income statement. Sales in the third quarter declined approximately 9% from $456 million in the prior quarter to $470 million. The decline in Q3 was primarily due to good pricing and lower volumes in our silicon alloy and manganese alloy segment. [Indiscernible] higher volumes in silicon metal. Silicon metal volumes was up 13% over the prior quarter. The increase in volumes in Q3 was primarily due to stronger shipments in North America, while declines in silicon alloys and manganese alloys were a result of weak end markets, particularly steel, average realized pricing lower across all product categories as a result of continued price decline in index prices. Raw materials and energy consumption costs improved during the third quarter to $196 million, down from $229 million in the prior quarter or 47% of sales versus 50%, respectively. This improvement was driven primarily by our energy agreement in France. The energy agreement provides a benefit of approximately $56 million in the third quarter. We expect an additional benefit in the fourth quarter. In addition, raw materials, primarily coal benefited from lower prices in the third quarter. Staff costs through the third quarter increased to $84 million, up from $75 million in the second quarter. Operating profit in the third quarter was $75 million versus $63 million in the second quarter. Operating margins were 18% in Q3, up from 14% in the prior quarter. Net finance expenses in the third quarter were $9 million, up from $1 million in the prior quarter. The increase over the prior quarter was a result of the call premium related to the $150 million partial reduction of senior notes and the accounting impact. In addition, in the second quarter, with an ontime tap of accrued interest of one of our government loans. We expect net financial expenses to decrease going forward, consistent with the significant reduction of our gross debt. Next slide, please. Our adjusted EBITDA in the third quarter was $104 million versus $106 million in the second quarter. Adjusted EBITDA margins increased to 25% in the third quarter, up from 23% in the second quarter. Overall, volumes provide a benefit of $8 million, primarily driven by higher volumes in silicon metal, which increased 13% over the prior quarter, partially offset by volume declines, tars and manganese allows, which declined by 6% and 10%, respectively. Prices in the third quarter were weak across the board with the overall average realized price declining 11%. Weakened markets with pricing pressures across our 3 segments results in a negative impact of $37 million on our EBITDA. Costs had a positive impact on adjusted EBITDA in the third quarter versus the second quarter, primarily driven by our energy revenue in France as well as lower raw material costs, primarily call. Next slide, please. We ended the third quarter with a cash balance of $166 million, down from $353 million in the second quarter. This decline reflects the redemption of the $150 million of the $9.375 senior secured notes during the third quarter. This retention will save the company approximately $14 million in annual interest costs. As a result of the retribution, total adjusted gross debt declined to $237 million, down from $400 million in the second quarter. This is a record low for Ferroglobe. Net debt increased to $71 million, up from $37 million primarily to increase working capital. Next slide, please. During the third quarter, cash used by operations was $9 million versus $24 million of cash generated in Q2. The primary factors impacting our cash flow includes a $51 million impact from working capital and noncash items of $44 million. These noncash items, more energy benefits are expected to boost our cash position in the first quarter of 2024. CapEX in the third quarter was $19 million versus $23 million in the prior quarter. Lastly, cash flow from financing activities in the third quarter was negative $171 million versus positive $19 million in the second quarter. The negative cash flow from financing activities was a result of the bond redemption and associated premium core. Next slide, please. At this time, I will turn the call back over to Marco.

[Marco Levi, executive]

Thank you, Beatriz. Moving to the corporate update on Slide 14, please. As we already discussed during the call, the strategic acquisition of high-quality quartz mine ensures that we remain self-sufficient in North America, enabling us to take advantage of the significant solar and EV battery growth in the coming years. We completed an additional long-term PPA in Spain to enable us to reduce cost and increase production in Spain. We are actively looking to add more PPAs. We are pleased to receive continued government and live support in the U.S., highlighted by the recent introduction of the U.S. Senate bill to enact a 35% tariff on imported PureSilicon from Russia and Belarus. Also the inclusion of silicon as a critical material as discussed last quarter, is to to benefit us going forward as it encourages local supply chain development. In January of this year, we reached an agreement to divest the Catoca property in France to Swiss Steel Group. Last week on October 31, the transaction was officially completed. This is the final step in the original footprint optimization process that we started 3 years ago. Through our innovation and technological advancement, we are able to produce high-quality silicon, which has enabled us to expand our market opportunity into the advanced technological portion of the silicon metal business. In line with this strategy, we recently added a new large global customer, increasing our presence in Asia. Finally, we provide more details about our capital allocation policy on our first quarter earnings call in February.

[Operator]

We will now start the question-and-answer session.[Operato's Instructions]We will now take the first question from the line of Lucas Pipes from B. Riley Securities.

[Lucas Pipes, analyst]

Thank you so much, operator. Good morning, everyone, and congratulations on good results and what I understand is a tough environment. Marco, Beatriz, my first question is on the capital allocation point. Marco, if I heard you right, just there at the end, you expect to provide details on the fourth quarter results update call in February. And I wondered, can you maybe share this time kind of what are some of the key items you're still looking to address but determine, I assume, with the Board, too, between now and then?

[Marco Levi, executive]

Well, absolutely. We believe that it is the right time to implement a prudent capital allocation policy. Our balance sheet is much stronger than it was in the past. Our gross debt is pretty close to the $200 million that we mentioned several times. We are in a difficult market conditions, but we are extremely confident on our medium and long-term opportunities. So we really think is the right time to implement this policy. This implies, of course, 2 scenarios, either we paid down the remaining bonds or we got an agreement with the current bondholders. But we are going to do 1 of the 2, and we are going to finalize our policy by February. I think it's February 22 to date, when we are going to disclose our policy, which is going to be in place, I expect starting second quarter of next year.

[Lucas Pipes, analyst]

That's helpful. And so in terms of paying down the bonds, is part of the dynamic here that you had some working capital uses during Q3 and that maybe cash flow is going to improve between now and then that you have more flexibility to just pay those bonds down as an alternative to an agreement?

[Marco Levi, executive]

Let me tell you, and then I will allow Beatriz to elaborate on that. But in a nutshell, we are going to be -- we are in a healthy position. We are going to be in a healthier position in the first quarter. And we think that when you consider the balance of the cash that we have available, the cash that we have on to generate releasing working capital. We are going to be in a good position either to pay completely down the bonds or to pay most of this part and still have the right level of cash to run the company.

[Beatriz García-Cos Muntañola, executive]

Yes. Maybe just look to add on that point. I think the overall that what we plan to do in February, we are thinking in a nominal dividend and maybe an opportunistic share buyback, right? But as Marco said, we will provide more details on our policy in February. And over time, we have been repeatedly saying, we expect share buybacks to be larger than dividends if our shares continue to be under valuated as the year today.

[Lucas Pipes, analyst]

I want to touch on another theme. And that is the market environment and your contract process. So if I understand correctly, you're in the market with your customers, you negotiate offtake commitments. There might be ceilings, there might be floors. I understand that kind of the always lag to spot prices. But in the current environment, how are those conversations going? What visibility do you have on the volume side on the price side for 2024 at this stage?

[Marco Levi, executive]

This is about the question, look at -- let me say that clearly, will come from 5 quarters. We're in the market. We have seen index deterioration and for most of the products, weakening demand. Maybe with the exception of silicon metal that I think was particularly low in the first quarter of this year based on what we could see. We don't see the current market conditions improving short term in the coming couple of quarters. But we expect further improvement of demand and as a consequence of pricing in the second half of the year. The -- we are fully involved in the contract negotiations for next year. Our overall balance between contacted all units -- spot volumes has not changed of more or less 50-50, 50% contract, 50% in the open market. In silicon, when you exclude the joint venture volumes, the contracts over 51% in the quarterly contract 12%, the 6 months compared 24%. So there is very little left for the spot business, which tells you that the liquidity is not there and liquidity index for us in the West is mainly aluminum. In ferrosilicon, 68% is contracted like in manganese alloys. At the end, most of the volume goes to goes to steel 24%, 26%, go to quarterly contracts. And yes, the rest is spot business. So this is the current picture. Customers are clearly extremely cautious in committing volumes, but we have already closed the contracts with most of our large accounts.

[Lucas Pipes, analyst]

And just a follow-up in terms of price. Is it right to think that it is floating with various lags, but you're not locked in to lower prices for next year due to the fact that prices are lower today when you've closed some of these negotiations?

[Marco Levi, executive]

You're right, Lucas, we are still recommetal, we are still -- the contracts are based on index and get adjusted quarterly. So this is why I mentioned that the -- we expect the last quarter being weaker than Q3, same fate for ferrosilicon and manganese alloys. So the prices are under pressure, but when you look at the different value centers, when you look at the cost of ferro materials, the energy cals and the transformation costs. Overall, in the industry, prices reflect pretty close to the cost position for most of the players. So I don't think -- and the pressure on coal is still there. The personal energy is still there in a lot of countries. So I expect that sooner later, prices are going to improve during 2024.

[Operator]

Thank you. [Operato's Instructions]. We will now take the next question from the line of Martin Englert from Seaport Research Partners.

[Martin Englert, analyst]

I wanted to discuss silicon metal ASPs. They did remain strong relative to market index prices. Can you discuss the components of this? Is there a bit more of a premium mix? Or is something more favorable about the South Africa volume contribution or something else going on here?

[Marco Levi, executive]

Yes. Martin, as you know, most of the price is linked to our contracts and most of our contracts line in the chemical sector and now in solar sector. So the tire dynamic is dictated mainly by these components, while we are less present, being less present in the spot transactional business. We are less exposed to the more commoditized business, which is aluminum related. So we suffer like anybody else out of the price pressure, but the index effect allows us to enjoy an overall better average price than others.

[Martin Englert, analyst]

Okay. Coming back to order books and what you're seeing volumes and expectations around seasonality when thinking about fourth quarter across the business segments. Can you discuss what you're seeing there and expecting?

[Marco Levi, executive]

In terms of time, I see a similar trend to Q4 of last year and Q1 of this year, we've asked slowing down some of the production in Western Europe already during this quarter, shutting down production in France in the first quarter of next year. In terms of -- this is in terms of operations, in terms of demand, we don't see short any selection of demand, except for a couple of trends that we need to watch which are related to the rebound of partially and expected in the construction business that has been down for a long time. And we need to watch what happens in China, in all the measures that they're taking to integrate the economy. So these 2 things might have a positive impact on overall demand to be seen. At this stage, we are quite conservative on our volume estimates. We are planning for volumes for a volume level that we have seen in the recent quarters.

[Martin Englert, analyst]

Could you review your comment on year-to-date EBITDA and then you had specific on fourth quarter, I think, relative to first quarter EBITDA. I just didn't touch that earlier.

[Marco Levi, executive]

I'm not sure I understood your question. We closed the first half of the year at $155 million EBITDA. We had $104 in Q3. So we are at $259. So we feel pretty comfortable to close the year on the I side of our guidance. This is what I can say. If your question comes, I think you asked also about first quarter 2024. We are in the middle of the budgeting process. Of course, we are -- like everybody else, we are facing a lot of challenges, right? Because pricing during this year has been going down. So we need to make our assumptions for next year. And like we already stated in the previous calls, the very favorable impact of the energy contract in France this year will not be, so big next year, due to the fact that market price for energy is lower compared to the beginning of this year. So pricing, we are at the bottom, we are going to have still a very competitive position in France, but less advantaged than this year. On the other side, I think we are looking with a lot of optimism at our increased sales position in Asia of silicon metal. So these are the main factors. The other key positive that I want to mention is that the fact that -- and I already mentioned that in my presentation, is that we have spent CapEx very well in the last 2 years. You know that in the last 2 years, we spent $75 million, $80 million of CapEx versus $30 million, $35 million in the previous couple of years. Well, our plan is what run much better, like I said in my presentation. So we have the opportunity to count on more reliable assets. And this is going to give us much more flexibility in terms of volume allocation.

[Lucas Pipes, analyst]

Appreciate the optionality on the production footprint there. Thanks for highlighting that again. One last one, if I could, you did provide annual EBITDA guidance for this year. Is that something that you've determined internally that you'll provide again for the upcoming year? Or was that a one-off?

[Marco Levi, executive]

Well, we will provide guidance. We haven't decided yet which guidance because we are working, like I said, on the budget revising our business plans, and we will need to discuss with our Board. But I think once you have started giving guidance, you have to continue to give a certain guidance. So we will do that.

[Lucas Pipes, analyst]

Okay. Appreciate it. Congratulations navigating the market and results.

[Operator]

We will now take the next question. From the line of Lucas Pipes from B. Riley Securities.

[Lucas Pipes, analyst]

It's on the court's investment. If I heard you right there in the prepared remarks, it's going to be a total of $50 million. And you mentioned, Marco, I think, 15% cost reductions associated with that. And I assume there are some other strategic benefits. But just in terms of the numbers, in terms of the expected rate of return, is there a range that you could maybe provide for the market would be really helpful to get a feel for that.

[Marco Levi, executive]

Again, when you mentioned $50 million, you were cut. So I want to make sure that I understood your question correctly.

[Alex Rotonen, executive]

It's Alex. What you're asking if the investment of $15 million, it's $15 million, about $11 million.

[Lucas Pipes, analyst]

Yes. Maybe I didn't hear that right. The question is really, first and foremost, about the expected rate of return. On the mine.

[Marco Levi, executive]

I think we need to... We can reel back on the... We were back on this number. But the key point about this mine is security of supply of quartz, the right quality of quartz, $11 million investment plus 4 million to operate the mine and an expected cost for our cut-back integration that is going to be 10%, 15% lower than our current facility. So the -- and there is an enormous advantage in terms of proximity to our plants. Alex, do you want to add something?

[Alex Rotonen, executive]

No, yes, the IRR is clearly -- it's meaningfully above our cost of capital. And I don't know if we ever kind of said where our hurdle rates are. So maybe we'll decide on that. But I don't think we want to disclose it publicly at this time.

[Lucas Pipes, analyst]

I appreciate that. I'll try to find out what costs are and then apply that 15% savings -- but I appreciate I appreciate the color. And then...

[Marco Levi, executive]

It's more than [Indiscernible] 20%, okay?

[Lucas Pipes, analyst]

And final question for me for today. I think you said, Marco, on your prepared remarks, Q4 is going to be above -- sorry, it's going to be below first quarter results. There's still a bit of a range in terms of high end, low end of EBITDA. And I wondered if you could point us to the remaining risk factors between kind of now and year-end. We're almost halfway through the fourth quarter that could push us towards the lower or the higher end of that implied fourth quarter EBITDA range.

[Marco Levi, executive]

Well, we are really said we are at $259 million EBITDA year-to-date, we gave a guidance of $270 $300 million. In the first quarter, we are going to operate some of our plans at a lower rate to control inventories. This is not going to be the case for silicon metal in Europe in view of our shutdown in France in the first quarter. The advantage on the energy contract in France is going to be lower in the fourth quarter versus Q2 and Q3. And I wouldn't classify like risk, but is affected quarter 4 is always a slower quarter due to the December month. So this is where we are. And of course, we have an impact on -- related to the weaker index prices across our portfolio in Q3 that are going to impact pricing contract pricing in Q4. These are the main things that I see, I don't know, Beatriz, if you see anything else?

[Operator]

We will now take the next question -- from the line of Greg Venit, shareholder.

[Unknown Shareholder]

Thank you for the great results. The quartz mine that you bought South Carolina, I'm just curious how much competition is there for assets like this? I would think that -- or are these very difficult to find high-quality quartz mine in America?

[Marco Levi, executive]

Well, we've been lucky enough to find it. And probably you referred to a block that I am aware about there. There are some controversial opinions about the opportunity. But -- we are experts in this field. We know what we are doing. When you acquire a mine, you need to make sure that... [Audio Gap]

[Operator]

One moment, please, we're having technical problems. Your conference will resume shortly.

[Marco Levi, executive]

Hello. Yes. Sorry, we had a technical difficulty here. I don't know at which point of my answer was interrupted. But what I say, the quality of the mine in South Carolina, based on the analysis that we have run is far better than the current quality that we have in Alabama in terms of impurities. And as a consequence, we plan to use the court out of this mine starting second half of next year to supply our silicon production and use Alabama to produce ferrosilicon.

[Unknown Shareholder]

Are you facing competition in this market?

[Marco Levi, executive]

So are you referring competition in quartz for quartz mines or for silicon?

[Unknown Shareholder]

I would think that with what's going on in the inflation Reduction Act, that sort of thing that I would invite a lot of competition. But I guess I want to know how strong your the franchise...

[Marco Levi, executive]

Well, this is why we moved pretty fast a few months ago because we expect a significant growth in demand of silicon metal in the United States. And we assessed that our reserves in Alabama were not enough. And we were looking for quartz of a certain quality that we have found in South Carolina. And we have been, I don't know, if faster or whatever than competition, but we have secured the rights of this mine -- on this mine. Yes. quartz is very common, but -- and the point is that it's true that what you said before, quartz is very common, but the right quality of quartz is not necessarily so common everywhere, particularly in the U.S.

[Unknown Shareholder]

Okay. You mentioned in your comments about you closed on a French facility. Did that bring in capital? Or is that future cost savings? I think it was at the end of your presentation.

[Marco Levi, executive]

Yes, yes. No, this is -- we -- a couple of years ago, we decided to stop production at one of our plants in France that was producing ferrosilicon foundry and silicon metal for furnaces in sort of the year. This process in France is always long. And one of the requirements when you operate in France and you stop production at one side, there is a low low floorage that imposes the company, the company will stop production in France to look for a buyer. And we had a long process where we have hundreds of interested buyers. But at the end, and at the end, this process has been finalized on October 31 with the divestiture phenomenal value, I would say, with the divestiture of nominal value of the plant to Swiss Steel.

[Unknown Shareholder]

So are there cost savings going forward or it's everything.

[Marco Levi, executive]

Yes, cost saving going forward because we are not operating this plant anymore, and we have reallocated productions at other sites.

[Unknown Shareholder]

Okay. On your capital allocation that you're going to tell me February for whatever it's worth, pay off all the debt, a base dividend and have your cash flow 50% to a cash dividend and 50% to -- or a buyback of 50% too. Do you have other projects that you want to do that...

[Alex Rotonen, executive]

We will announce the official plan with details in February. So we obviously haven't finalized it. If we had, we would have announced it today on the exact form of that return. So we'll discuss it more in February with details.

[Operator]

Thank you. I would now like to turn the conference back to Marco levi for closing remarks. Thank you.

[Marco Levi, executive]

Thank you. Thank you for the Q&A. That concludes our third quarter 2023 earnings call. Thank you again for your participation. We look forward to hearing from you on the next call. Have a great day.

[Operator]

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