Empresas Copec SA
SGO:COPEC
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Earnings Call Analysis
Q2-2024 Analysis
Empresas Copec SA
This quarter, Empresas Copec demonstrated a solid financial performance. The company reported an EBITDA of $768 million, a 78% increase compared to the same quarter last year. However, this was a slight decrease from the $844 million recorded in the previous quarter. Net income also showed an uptick, reaching $288 million this quarter, slightly higher than the first quarter of 2024. The net-debt-to-EBITDA ratio improved, now standing at 3x, down from a peak of 4x in Q3 2023.
Forestry was a standout segment for Empresas Copec this quarter, with an EBITDA of $421 million, compared to $164 million in the same quarter last year. This surge was driven by higher prices, increased volumes, and lower costs, primarily due to enhanced production at MAPA. However, a scheduled maintenance in Q1 2024 led to a short-term drop in production and increased unit costs.
In the energy sector, Copec recorded an EBITDA of CLP 236 billion, up from CLP 134 billion in Q2 2023, though slightly down from Q1 2024. This growth was fueled by stronger margins, particularly in industrial segments, and less negative inventory revaluation effects. Terpel’s EBITDA also improved significantly to COP 454 billion from COP 220 billion one year ago, benefiting from enhanced performance in lubricants and improved logistics, despite a decline in overall volumes. Additionally, Abastible showed promising results with a 12.5% increase in EBITDA year-on-year due to higher volumes and better margins.
Empresas Copec made strategic moves this quarter with its subsidiary Abastible acquiring Gasib, a leading liquid gas distributor in Spain and Portugal, for EUR 275 million. This acquisition boosts Abastible’s physical sales by approximately 40%. Additionally, Terpel divested its gas station operations in Ecuador and Peru, securing around $64 million. These moves align with the company's strategy of continually optimizing its asset portfolio for better profitability and growth.
The company continued to make strides in its ESG efforts. Copec signed an agreement to develop a large battery energy storage system in northern Chile, linked to its solar generation assets. This move underscores the company's commitment to renewable energy. Abastible is also venturing into green hydrogen projects for fertilizer production, marking another step towards sustainability. Arauco completed its sustainable bond projects totaling approximately $500 million and renewed its Forestry Stewardship Council certification, highlighting its commitment to responsible forestry management.
The company faced some operational challenges this quarter due to scheduled maintenance and logistical disruptions, such as port strikes affecting shipment schedules. These factors contributed to the short-term fluctuations in production and costs. However, the overall outlook remains positive, with expected improvements in production efficiency and continued strong demand in key markets such as North America and Europe. The pulp market, especially in China, is anticipated to be more volatile, but the company remains optimistic about stable demand and manageable inventory levels.
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Good morning, everyone, and welcome to Empresas Copec's Second Quarter '24 Results Conference Call.. Today's presentation and the second quarter '24 earnings release are available on the company's Investor Relations website, investor.empresascopec.cl.
Before we begin, I would like to remind you that this presentation may include market outlooks and forward-looking statements, which are based on the beliefs and assumptions of Empresas Copec's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depends on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Empresas Copec and could cause results to differ materially from those expressed in such forward-looking statements.
This presentation contains certain performance measures that have been adjusted with the respect to IFRS definitions, such as EBITDA.
[Operator Instructions]
I will now turn the call over to Mr. Rodrigo Huidobro, Chief Financial Officer of Empresas Copec. Please go ahead, sir.
Hello, everyone. Welcome. Thank you for joining us today. We will be going through the presentation where we'll be having a look at the results for the second quarter of 2024. I will begin the presentation by myself, and I will be joined in the second part of the presentation by Mr. Cristian Palacios, Director of Investor Relations; and Mr. Gianfranco Truffello, CFO of Arauco. They will be helping us out in addressing the questions you might have. Feel free to begin posting your questions right away or at any moment throughout the presentation through the chat that is available on the Zoom platform.
So having said all that, let me start by taking a look at the most important results and highlights of the quarter.
We have here the EBITDA which is $768 million, which means an increase year-on-year. But however, a slight decrease Q-on-Q, we will enter into the regions in a moment. In essence, we have an improved performance in both Forestry and Energy with respect to the quarter last year.
In Forestry, we had EBITDA increasing year-on-year on the back of higher volumes and lower costs and also higher prices. Volumes and costs essentially have to do with increased production at MAPA. However, we have a decrease with respect to the immediately preceding quarter with respect to 1Q '24, and that has to do with a decreased production essentially at MAPA because of our scheduled maintenance. Also with some delays in shipments that brought up, which stemmed from some port strikes that we had to face during the quarter.
In terms of energy, we saw increased EBITDA year-on-year that has to do basically with favorable margins, including the industrial margin and less unfavorable inventory effects, both at Copec and at Terpel. In the case of our Abastible we see an increased EBITDA on the back of higher volumes.
In relation to projects and other interest in milestones that we saw during the quarter, we saw us still entering into an agreement with the Spanish Company Cepsa in order to acquire Cepsa's operation in liquid gas in Spain and Portugal, very interesting operation of which -- for which we will be giving some further detail. We went ahead with the successful board placement at the parent company level. Arauco announced new OSB capacity in the south of Chile. Terpel went ahead with the sale of gas station operations in Peru and Ecuador. And finally, the Forestry asset sale in Brazil was completed by Arauco.
In terms of ESG, we continue to make significant progress across the board in all divisions. Copec has signed an agreement to build a huge storage facility for energy, a Battery Energy System in the north of Chile in relation to Granja Solar, which has the solar generation assets that have been acquired in the previous quarter.
Copec Voltex goes ahead with a new electrical bus terminal this time the south of Chile. Abastible has signed an agreement for a small hydrogen project. And Arauco has fulfilled all the requirements in terms of projects to be able to make up the volume issued -- the total funds issued through the sustainable bond last year.
EBITDA is up to $768 million, which is up 78% with respect to comparable quarter last year, however 9% down with respect to immediately preceding quarter. This is mainly driven by pulp EBITDA. Pulp is up to $320 million, which compares very favorably with the first quarter 2020 -- the second quarter of 2023. As a matter of fact, it's a 218% increase on that EBITDA generation. Copec, Abastible, are still [indiscernible] and the wood product division, all of them recording healthy EBITDAs, and we will go into the details further on.
In terms of leverage, we continue to go down 3x EBITDA. So net-debt-to-EBITDA is now at 3x. And in terms of the CapEx, we are at a figure which is very close to half of that we had projected for the year as a whole.
In a historical context, you can see that EBITDA is significantly up with respect to the second quarter '23, which was $432 million. That was the bottom of our EBITDA generation last year. And EBITDA at $768 million this quarter is a little down with respect to the $844 million that we recorded last quarter. Net income with a similar behavior, up with respect to -- significantly with respect to the second quarter '23 but this is also slightly up with respect to the first quarter '24, $288 million net income recorded this quarter.
You can see there our net-debt-to-EBITDA, which continues to go down. We reached a maximum of 4x in the third quarter 2023. That has gone gradually down to the current 3x. This is basically driven by a stronger EBITDA generation and now it leaves us within our preferred range, which we have defined as 2x to 3x. So now we are within our sweet spot in terms of net debt to EBITDA. This should continue to go down as we continue to replace in terms of moving averages, we continue to replace quarters of low EBITDA generation by quarters of increased EBITDA generation.
Our maturities or debt maturities are shown there. We have a well-balanced schedule for the years to come and also a very comfortable cash position.
Our financial ratios are also shown better, and we have seen a gradual increase in return on capital employed, driven basically by the operational improvements that we will talk about and also a very healthy EBITDA margin this quarter and the preceding quarter.
Now we'll take a look at each business division, starting out with Forestry. In the case of Forestry, we recorded EBITDA of $421 million, which compares very favorably with the $164 million recorded in the second quarter. That is driven essentially by pulp as listed before, and that has to do with higher prices, but also with higher volumes and lower costs, essentially spanning both of those factors stemming from increased production at MAPA.
In terms of nonoperating income, we also have some significant effects, the most important of them having to do with some insurance compensations that we received in the second quarter '23, which is, of course, not there anymore. That was a one-time effect that we recorded in the second quarter last year and also with a decreased valuation of biological assets this quarter when compared with the second quarter last year.
Some more detail regarding pulp. You can see there that our costs with respect to the second quarter '23 have been going down significantly. The highest or the most significant drop has happened in bleached hardwood, and that has to do essentially with the fact that the operating rate at MAPA has been much higher than last year. In the case of the comparison against the first quarter '24, we see some increases in costs, and that has to do essentially with the fact that we had several scheduled maintenances that took place during this quarter and of course, hurt production and make unit cost go up.
In terms of net sales and prices, you can see there that both of them increased quite significantly with respect to the quarter last year. So price going up 10%, volumes going up by close to 20%. Prices continue to increase with respect to the first quarter this year. However, volumes go down, sales volume go down essentially because of maintenance schedules but also because of the delays stemming from logistical disruptions, which are essentially strikes, imports that we had to face.
Pulp EBITDA, as you can see on the bottom right corner, there is upto $320 million which is a significant improvement on the second quarter 2023.
A brief discussion on the major factors that affected the pulp markets during the second quarter '24. In general, the market was stable and cautious. A slight increase in global stocks, but not significant. In China, the market was also stable. Customers or clients had some difficulties passing through the increases in prices to their [ fine ] customers, to the paper customers. And therefore, that rolled out about some decrease in operating rates in the case of some mills. Prices show the interesting increases at the beginning of the quarter but stabilized towards the end of the quarter.
Inventories have moved a bit, but stable in general. Europe on this slide has shown quite a strong performance during the year as a whole, particularly during this quarter it began with a very strong performance, very strong demand. However, it started to stabilize along the quarter, essentially driven by printing and writing. Tissue was strong all along the quarter. Softwood were also for and also continue to be affected by some supply disruptions. The solid pulp was well balanced and stable in general.
Our production, in particular, dropped during the second quarter '24 by 15% approx, and that was driven essentially by scheduled maintenance. In particular Arauco's line 3, which is MAPA decreased by 25% during the quarter with respect to the preceding quarter.
You can see there are some data showing at this point in time during the second quarter, a healthy demand, growing by 4.1% on a world level. and also levels of inventories that are pretty much in line with historic leverages, lower than historic leverage in the key softwood.
What we are seeing and what we're expecting in the case of pulp, the market in China has been with a lot of volatility, is expected to be more challenging.
Consumption showing some weakness. Oil production has increased at a local level that has caused some differential between local prices and import prices. And all this, of course, is placing some downward pressure in local prices in China. As a matter of fact, you can see the evolution of Arauco's net prices in Thailand. You can see that both the solid pulp and softwood are very stable throughout June.
In the case of hardwood, we have seen some more volatility. And as a matter of fact, we didn't close any deals during June. That is why the price there is blank. But in general, Chinese market is becoming more volatile and they are also being harder to close.
In the case of Europe, it has probably a very strong year in general. However, lately, it has become more stable. And in general, buyers and sellers are showing more caution. Demand could eventually decrease because of lower consumption, and there's a price pressure, a downward price pressure as well because of the differential prices with China and also because of the fact that new supply is coming in and is expected to increase during the quarter because of 2 new mills, which are beginning to run.
Moving on to our wood products division. It's a healthy EBITDA. As a matter of fact, it's slightly higher than last quarter, still lower than last year, but we are showing a rebound with respect to the first quarter of 2024, that is driven essentially by costs. Lower costs have meant increased margins. We are seeing general lower prices in the case of panel with respect to last quarter, stable volumes. And in the case of solid wood, we are seeing slightly higher prices but decreased volumes.
So in general, this is a division that, as we've mentioned before, has gone down significantly for the -- from the highest it showed in 2021 and 2022, which were historical peaky -- historical peaks but continues to generate EBITDA at levels which are very close to the average historical levels, still very healthy EBITDA generation.
In general, we see stability in markets. Our most important market is North America, representing more than 50% of our sales. We see some potential for improvement in MDF. Prices could stabilize during the rest of the quarter.
In the case of particle board, we are seeing supply restrictions from other producers and other countries, so that could eventually boost prices. The manufactured products also are seeing some supply restrictions and logistical difficulties of [indiscernible]. So that may also bring about some price increases in the North American market. And in the case of plywood we are also seeing that positive evolution might come.
In the case of South and Central America, Brazil is our most important market. In general, we are seeing positive developments there. But a note of caution because the depreciation of the real is giving way or could eventually give way to increase exports, which might hurt our other markets.
Chile has been a little uncertain with weak activity in the case of important clients such as those coming from the industries of construction and retail. Argentina loss improved with respect to last quarter. We think that it might have touched bottom last quarter and things might be improved in the second part of the year.
The other markets are less important for Arauco. However, in general, we are seeing similar trends having to do with a weaker demand in Asia, stability in Europe. And in general, around the world, prices could be boosted by the fact that many producers are facing logistical difficulties. So supply restrictions in general around -- that's it for the pulp division.
We will move on to Energy now. Energy had a very interesting quarter. We can see Copec on screen there. EBITDA duration by Copec was up to CLP 236 billion, which compares very well with the CLP 134 billion, which were recorded in the second quarter '23. It's a little bit down, however, with respect to the EBITDA generated in the first quarter of '24. In the year-to-year comparison, we see stronger margins, including industrial margins very significantly and also a less unfavorable inventory revaluation effects.
Lubricants is a segment that has been doing very well, both in Chile and Colombia, and we are seeing an increased EBITDA generation from that particular segment. In terms of volumes, we are seeing a drop in the industrial channel, which is much more volatile and has to do with some customers that are entering or leaving the market or some operations, some bids, which are either won or lost by Copec. So that it's usually a much more volatile segment. So an increase in industrial volumes, but offset to some extent by an increase in the gas station channel in Chile.
In terms of gas station volumes, as I said, this increased 1.2% year-on-year. Industry however, has gone down with a drop of 11% in volumes. Market share, very stable at 58.5% as of the last data we have. Terpel recorded quite an interesting quarter with an EBITDA of COP 454 billion, which compares well with the COP 220 billion generated in the second quarter '23. In spite of volumes going down, and we see volumes going down essentially in Colombia, having to do a lot with aviation and industrial sector and Panama having to do to a large extent by the mining sector in Panama.
However, as I said, EBITDA generation has gone up, and this is where about basically by a less unfavorable inventory revaluation effect. Together, and in this case, it's very patent, very clear and improved performance in Lubricants. Remember that some years ago, we acquired the operations in Lubricants from ExxonMobil in Colombia, Ecuador and Peru and those operations, in particular, have been doing very well. And we've also achieved some logistical improvements at Terpel which have given way to reduce distribution costs. In the case of Abastible we've seen an improved EBITDA with CLP 45 billion for the quarter compared with CLP 40 billion for the second quarter '23. This is caused essentially by better volumes. We've seen volumes increasing all across the board in all countries and also, in some cases, an improved margin.
Some more detail there country by country. Look, we can go -- you can go deeper into this detailed country by country. But again, as a general fact, you can see that the bulk segment in general has shown increased volumes. In the case of the Bottled segments, we are also seeing higher volumes in most countries and higher margins with the exception of Chile, where we have seen an increased competition, therefore margins in Bottled segments hurt to some extent. But all in all, a very healthy performance of Abastible with an improved EBITDA year-on-year.
Let's talk a bit about our other investments. And let me focus on 2 things here. I mentioned, as we always do of Cumbres Andinas, which is Mina Justa, we saw EBITDA generation for the company as a whole for 100% of the company. Remember that we own 40% of these companies. So it's not consolidated in our financial statements. But for the company as a whole, we saw an EBITDA generation in the quarter of $158 million which is down with respect to the $204 million that we recorded in the second quarter of '23, that is explained by lower sales, which stem from a lower production and also higher cash costs.
We had expected both of these things to happen, so a lower production and higher cash costs, these 2 things stem from the fact that we are now operating in a part of the mine that has a lower grade than that where we operated last year. So this will be going on during this year, and we expect this to be reverted as we come back into higher-grade areas and that will begin to happen during next year. So during this year, we should see a reversion of these trends and production gradually going up again and cash costs gradually going down, again, all other fixed equal force.
Second thing, I would like to comment is Metrogas where we saw a very interesting increase in the net income that we recorded from Metrogas. We also have approximately a 40% stake in Metrogas, so it is not consolidated -- so we record a net income and equity income coming from Metrogas. It has to do with operational improvement, but also to a great extent with the revision of provisions, some of them in relation to a judicial issue that is going on in Argentina with a transporting company that used to transport gas from Argentina and thus judicial process Metrogas is facing and where Metrogas received the good news that the court had ruled in favor of Metrogas. So there's a revision of the legal provision that was previously recorded in Metrogas.
The other companies are quite stable with not a lot to comment during this quarter. That's it for the results of this quarter. We'll take your questions if you have later on.
And in terms of the highlights of most important developments in the quarter, let me start by pointing out that Abastible signed an agreement in order to acquire the LPG subsidiary company of Cepsa, Spanish company. So this company is called Gasib. It's a liquefied gas distributor in Spain and Portugal. Total price to be paid is EUR 275 million. This is a very interesting move for Abastible. Abastible is going to take hold of the company, which sells around 250,000 tons of liquefied gas in Spain and Portugal, which means approximately a 40% increase in physical sales for Abastible. It is a company that is much more efficient than Abastible in terms of logistics and automation. And as a result of that, margins are significantly higher than in the case of Abastible. So a very efficient operation with attractive margins.
We expect an interesting profitability of this operation, especially when adjusted by risk. And also, we see this move as a quite interesting strategic feat because Abastible is moving into a market that is 10 or 15 years ahead of the Latam in terms of energy transition and therefore, will be exposed to this type of market, and we'll be able to learn a lot and develop capabilities that will afterwards help us to pass through best practices, to Latam in order to face energy transition in the local geographies in Latam.
So all in all, a very interesting acquisition, good company, important growth for Abastible. Abastible enters the top 10 distributors of LPG in the world with this operation. Interesting expected profitability and returns of the operation adjusted by risk, especially and a very good strategic fit in terms of being exposed to energy transition and being able to replicate best practices afterwards in Latam and partner with some local players in a more developed markets such as the Spanish and Portuguese one.
Second thing to highlight is that Empresas Copec, the parent company level issued local bonds for a total of approximately $50 million, at a total rate at a rate of 3.9% plus inflation, which means that we recorded lowest spread in the year for corporate issuances. So very interesting bond placement there by the parent company.
In terms of our credit rating, we were confirmed in our BBB international rating and AA local rating by both Fitch and S&P, in both cases with stable perspective. So good news also on the credit quality front.
Arauco has completed the acquisition that was previously around the sale of assets, forestry assets in Brazil for a total of approximately $1.2 billion; the net income which is to be recorded for this acquisition, that is going to be recorded in the third quarter this year is around $170 million and the net cash that is injected to Arauco after taxes and following this operation is very close to $1 billion. So a very interesting and useful cash injection for Arauco from this forestry sale operation.
Some additional piece of news for Arauco. Arauco has announced that it would adapt a [ prior ] facility in the south of Chile and complement it with new equipment in order to turn it into an OSB manufacturing line in Chile. The total investment involved is around $90 million and the product OSB is a very interesting product for the construction segment because of its versatility and efficiency in construction. So very important operation there with the modernization of the mill by Arauco corporates in the new region in the south of Chile.
Terpel went ahead with an asset sale. This involves the gas station operations, both in Ecuador and Peru. This works in small operations, limited possibilities for growth there, very reduced margin, very competitive markets, which been taking a toll on the margins and profitability of the operations there and definitely work more in the hands of third parties that may consolidate these operations. So this gas station operations were sold. Total amount is around $64 million and it's important to know that Terpel will be holding on to those assets to which carries out its most profitable operations in both in Peru and Ecuador, which are essentially lubricants and also sales of fuel to the Bulk segment.
So once again, we are covering on with our philosophy of permanently reviewing and revisiting our portfolio of assets in order to find the best owner and see if the assets may eventually be worth more in the hands of certain third parties. So interesting sales here by Terpel.
Several developments also in ESG as we have become used to show quarter by quarter. Copec signed an agreement with Transelec in order for Transelec to build a battery storage energy facility in the north of Chile, for a total capacity of energy storage of 420-megawatt hour. This is going to be linked to Granja Solar, the solar generation assets that Copec had announced in the previous quarter, which, of course, makes a lot of sense, since it gives stability to the potential electricity and power injection by Granja Solar acne. So once again, making further moves into the energy generation segment through renewals.
Copec Voltex, which is the brand for electromobility is also making progress. It announced a new -- a further terminal for buses, this time in the south of Chile in the Biobio region. Abastible has signed an agreement to develop a small green hydrogen projects to be built for the production of fertilizers.
Arauco has renewed its audit for the Forestry Stewardship Council certification, which is a very important certification in terms of sustainable management of forests. So this is always an important milestone for Arauco. It's an internationally recognized certification for the sustainable management performance.
And finally, Arauco reported the total fulfillment of projects associated with the sustainable bond issuances amounting to approximately $500 million. So the sustainable bond issued by Arauco has already completed the users in terms of sustainable projects that are assigned to that particular bond.
With that, we have finished reviewing what we have prepared for you. I will invite Franco and Cristian to join us in the second part of the presentation, and we welcome you to pose your questions through Q&A chat that has been available in the Zoom platform. So let's wait for Cristian, Gianfranco and your questions. Thank you very much.
[Operator Instructions]
Thank you for attending this webcast. I'm going to start with your first question comes from Marcio Farid at Goldman Sachs. Rodrigo, how should we think about Mina Justa potential extension?If you can comment also on the [indiscernible] acquisition in Europe from Abastible and is the internationalization a new trend?
Yes. Thanks, Marcio, for your question. Thank you, Cristian. Yes, as we've said in previous calls, Mina Justa has a project, which is called Mina Justa underground or Subterránea, which involves an expansion of the mine with a total increase, which is expected at 500,000 tonnes approx for the life of mine. This would imply a 5-year increase in the life of mine. The project is soon to be presented potentially during this year to the Board for final approval. It should involve a CapEx of around $400 million. So that's what we have so far. And we will be giving more info when the project and if the project is approved, which should happen by the end of this year.
In relation to your second question, which is seamless acquisition of Cepsa in Spain and Portugal. Yes, as I said in the presentation, this is a very attractive acquisition which has, as drivers essentially a very good profitability, which we expect from the acquisition, a financial profitability which should be very attractive when you consider the very low risk of this business. This is a company that as I said, should mean an increase in physical sales for Abastible for around 250,000 tonnes per year, which is a 14% increase in total volume for Abastible. But at the same time, it's a much more efficient operation than the other countries where Abastible operates because of logistical efficiency and automation in general. And therefore, margins are much more attractive than margins at the other Abastible operations. So that's one thing. The company holds around 16% of the total market and it's the largest player in the nonregulated segment of the market. So that's it.
The second part of the attractiveness of the acquisition comes from the strategic feet. As I said before, this is a market that is 10 or 20 years ahead of LatAm in terms of energy transition, and that should give us still an exposure to trends, new technologies that are being used in that market and that could be eventually transferred to the local LatAm markets where Abastible operates. So a very good strategic fit in order to prepare ourselves and in order to find potential partners in the size, of course, of this market in order to replicate those best practices in the local markets here.
As a matter of fact, Abastible is entering a commercial agreement with Cepsa in order to buy liquid gas from Cepsa's refineries for a long period of time. So that could eventually open up alternatives for different associations with these or other players in the market in Spain and therefore, to bring those technologies and formats to the local markets. So in general, we will be giving some more information when and if the acquisition finally closes, which should happen after all the permits are issued, and that should be in 2 or 3 years' month time frame.
And following on the same [indiscernible] asked about the multiple for the acquisition can to give some color.
We have agreed not to give any further info up until the time when the transaction is closed. So we'll get back to you then with some more information.
Thank you, Rodrigo. I have [indiscernible]. Rodrigo, can you provide some figures for CapEx for 2025 and could we expect close to 2024 level of $1.7 billion?
Well, not yet. We're working on that. As we've said before, we have a maintenance CapEx -- base CapEx of around $900 million, potentially $1 billion of maintenance. On top of that, we will have CapEx related to whatever projects are finally approved. But for the time being, we do have to see that [indiscernible] going ahead. So there will be some remaining CapEx on stack [indiscernible]. We will have some CapEx related to new LED, which is the OSB mill that Arauco has just announced in the south of Chile. And a lot of the CapEx for the next year, which will depend on what finally happens with Sucuriú with the potential approval of Sucuriú, which could eventually take place by the end of this year. Maybe Gianfranco you would like to give some more color on the potential investment in Sucuriú?
Yes, of course, I mean in our case, the CapEx for 2025 and mostly also to '26 and '27 will depend on the rental approval of the Sucuriú project, which is a project that would be $3.5 billion, $4 billion. So that's a big decision that we need to take until the end of the year. And if it's a project if it's approved probably most of the CapEx will come 2026 and '27. A small portion will come at the beginning of the project.
Right now, we are doing earthworks in the site. So that takes some CapEx and we are already in the planting program that we are planting about 50,000 [indiscernible] a year. So that's taken some CapEx that we are going to do anyway. But the big effect at CapEx will depend on the approval. So we will have a figure for 2025 once we have approval of the award of the project. If it's not -- project is not approved, probably the CapEx will be about $1 billion, something I don't know, case, the maintenance CapEx is about $700 million, $800 million. And on top of that, we have the project of the OSB mill already approved and the [indiscernible] mill in our, let say, strategic growth plan that will be accomplished during 2025.
Thank you, Gianfranco. Still on forestry. After this deep price drop over the last weeks, how many customers have already come back to the market? Looking ahead, how much further down you think can pulp prices go? On one hand, we have [indiscernible] volume in the market. But on the other hand, we have very low inventories in the chain and seasonally stronger demand next month. So how do you reconcile these moving parts?
Well, it's very difficult to predict in the pulp market. Of course, there has been a price drop in the last 1 or 2 weeks, we are in the low season of demand also in China. And negotiations are done at this moment. I mean, we are negotiating and closing some volumes, but I don't have exciting information because it's currently happening in there, in Asia. So -- but I see customers going back to buy.
And in terms of where the price would go, we really don't know. I think that the bottom should be higher than the last cycle than the last year because the costs are high. And also the inventory in the chain is lower than it was last year. The only difference is that we have some mills from the in the case of [indiscernible], which we expect the other to come lower than the end of the year. And we have this mill in China given volumes and increasing the local supply of pulp. That's the only difference. But I think that the volumes should not be as low as it was last year, but things are going on at this moment. The decisions have been done, and we'll have to wait until [indiscernible].
And on the same line, can you describe on your cost expectations along the next quarter in forestry? Do you expect any material impact for maintenance in the second half of the year?
Not really because, I mean, most of the annual stoppage of the [ pulp mix ] were done in the second quarter. So we don't have a big maintenance coming out in the rest of the year. So we should have more production and less cost for maintenance. So we should see lower unitary cost of production in all the type of fiber. That's what we expect, of course, depends on the production volume of the rest of the year, but we should expect higher production and lower [indiscernible].
Yes. I have a couple of questions, Marcio Farid at Goldman Sachs and [indiscernible] at LarrainVial asking about some quarter for September negotiations next year.
It's very difficult, we are negotiating always [indiscernible]. So it's very difficult to predict. We are focused on now closing volume for this month. It's far away September. When you wait to see what happens with the current negotiation to what to expect to [indiscernible].
Thank you. Mr. [indiscernible] power force economics, how the lease works? When you say you have 70% of land by now, is it planted land or only land to be planted?
I mean you know that in Brazil, foreigner cannot control a rural land. So we have like about 40,000 hectares of land that we acquired before the interpretation of the law. So that is hold by us 40,000 hectares planted already. And the rest, we have been doing different strategies like, for example, doing branding of the land, long term leases for 15, 20 years. That you rent a land and you plant the trees in the forest. We have some joint ventures also with some funds over there. And the 70% is the one that we have already planted. Of course, we have more land available for planting, but we are planting every month in the land that we have available.
So demand is not a restriction right now to replace the land that we have. And so we are in a good track. So our [indiscernible] was to be in like 70% to 80% before the approval of the project. And we are there already then. Of course, during the construction, we will continue planting and we'll have as far as the cycle forest prepared for production, hopefully at the end of 2027, beginning of '28. So everything is going according to plan and had good experiences where we automated planning there, that's why I got...
[indiscernible], what is the level of leverage that would you feel comfortable to start the construction on Sucuriú and then are you eventually open to develop the project with a partner?
Well, at this point, we are focusing on developing our Sucuriú project, that's objective. In the case of leverage, normally, and we have the experience of doing this kind of projects in Montes del Plata and also in the MAPA project, you -- during the construction, you reach a pick of leverage and you're supposed to go down to normal levels when the mill is producing. So we expect to be in a good level for the broader project because of the sale of forest that we did and also for the operational results this year. So we probably will be below 3x at the end of the year.
And of course, the leverage during project will depend on the financing of the project. And that has to be defined already depending on the size of the product, everything. So we'll decide how many -- how much is equity that and the profile and we have to work on that. Of course, our idea always is to preserve the investment grade, and we will define the amount of leverage that we take in order to conserve their investment grade. That's [indiscernible].
Thank you. And Rodrigo, do you estimate that Copec's cash flow under a scenario of short pulp prices going below $600 per tonne would be enough to finance the construction of the project without restocking to a capital increase at Copec level?
Well, that's probably the questions we have to analyze if we go ahead with Sucuriú. It is in our interest that both the company at a consolidated level and once subsidiary companies stick to their respective investment grades. We have a very well-defined financial policy where we have set a target range of indebtedness between 2 and 3x measured on a 5-year average basis, and that is in line with what our S&P and Fitch required for the investment grade. So we have to reconcile both objectives, what is being able to finance the project, and at the same time, stay healthy in terms of credit metrics.
For doing that, we have several sources of funds. You've seen that we -- every now and then, we go -- we have gone around with sale of assets. We have a very strong balance sheet. We had a lot of hidden value in our balance sheet. You saw with sale of assets in Brazil for an amount of more than $1 billion. We have we gone ahead in the past with the sale of some assets in the fuel sector in the U.S., for example. We have announced some years ago that we are interested in selling Sonacol and potentially our stake in Metrogas. Those processes, especially the Sonacol, we still have the interest in going ahead with that process. It was interrupted for a while. But it may now given the liquidity requirements if we go ahead especially, in May now we're back on track.
So all of that has to be evaluated, but the objectives are potentially to, as I said before, to be okay with the objectives of healthy balance sheet situation and being able to finance new investments.
You comment on the sale of assets, you can provide more color on the current situation of Sonacol natural gas sales?
Yes. No, it's what I say. We launched this project some years ago. They were interrupted for several reasons. But bigger assets which we believe may eventually be worth more in the hands of third parties, and that has been a driver for our decisions of sale of assets over the last time.
So we would look again on the possibility of selling those assets, Sonacol is already classified in our balance sheet as asset as disposable for sale. So that's definitely a source of liquidity that we may have in the future, and that would be very we will go ahead with projects has leveraged as Sucuriú. But not only Sonacol or Metrogas, we do have other potential sources of liquidity, sometimes hidden in our balance sheet.
Thank you, Rodrigo. And [indiscernible] , if you can comment if In Copec could consider any [indiscernible] opportunity in there?
We have had a very good experience with our project at Mina Justa during this time when we have contributed to operate Mina Justa, we have developed and enhanced our mining know-how within the company. We have a lot to do in Mina Justa. We still have a lot to do. We've announced this potential expansion in Mina Justa Subterránea, which should take place -- if it's approved by the Board, it should be placed as from next year onwards and after that, we still have a lot to explore at Mina Justa.
When we decide to enter these projects, one of the great attractive factors that we saw in the project -- in the Mina Justa project was the fact that the Mina Justa project as it is right now only uses up between 10% and 15% of the total mining project that is within Mina Justa. So there's still a very strong and large exploration potential. And so there's still a lot to do within Mina Justa. Definitely, we will look at other alternatives in mining and starting with those that we have within the Mina Justa project.
I have [ Afzal Farooqi ] at Santander. Gianfranco, a couple of questions. Were you able to allocate 100% of July, August volumes if you are carrying excess inventory? That's one. And can you give some color of Chinese [indiscernible] on cash flow?
Well, as I mentioned, negotiations are going on at this moment, so I don't have the information of volumes allocated to customers. So that's been going on for some weeks. And of course, normally August, the current month is done at the more or less at the similar part of the month. So of course, 100% of ours. And so I don't have any details on those acquisitions at this moment, but we are not carrying a lot of inventory. I mean we haven't had to accumulate inventories in Chile, because we were able to ship them, and we are -- I think we're selling. I don't have the definite numbers at this moment right now.
And in terms of cash flow, I don't know if you mean cash flows of Chinese competitors or us, but our cash flows are depending on the mill, but probably -- they are the same for all the markets. But we don't have a special cash flows with China. The only thing is really transportation, but cash flow is similar, and we are very competitive in terms of even at the prices of the market [indiscernible] the price. So we are -- we have good competitive cash flows, especially when we see like I mean what's the very efficient in terms of [indiscernible].
Thank you, Gianfranco. We're going to move to some questions in energy. Rodrigo, if you can cover the impact of inventory revaluation in the field addition in the fuel division in Q2? And how can we see fuel costs evolving in the next quarters?
Yes. Thank you for the question. As we said before, in general, what we see in the fuel segment are margins that are quite stable when measured in local currency in real terms. So inflation adjusted, they tend to be quite stable over time. But definitely, there are some elements of volatility and one of them is inventory revaluation. We did have a negative inventory revaluation effect in the second quarter 2024, but that negative effect was less negative than the quarter, than the comparative quarter last year. So in second Q '23, we had around $20 million of negative effects. In the second quarter, '24, we had around $10 million of negative effect. So yes, that's something to have in mind. In fact, this gives some volatility to margin that is otherwise very stable.
[indiscernible] of Consortium with 2 questions in energy. How do you see fuel volumes of Copec and Terpel in the next years? And secondly, if you can give more detail on the sale of gas stations in a Ecuador and in Peru?
Yes. Well, Copec and Terpel volumes, in general, tend to move very much in line with the local economies. So over time, we've seen them growing at 2% to 3% per year on average, and it's a long-term average. And that will continue to be so probably for some years. What we are beginning to see, but very slightly and it's a very small effect so far, but it should happen at some point, as we've said before, is electromobility gradually penetrating the local markets in LatAm. So still there is small effect, but at some point in time, the fuels market potentially should cease to grow and gradually fade away, but very slowly over time. And this is going to be a slow effect over time in LatAm according to the information that we currently have.
But anyhow, even though this is a long-term effect and very slow for the time being, at Copec, we have made the decision to prepare ourselves in advance for this changing scenario. We are doing many things, as you know. We are trying to position ourselves as leaders in electromobility. We are working in developing other energy areas linked. And under the Copec brand, we are working in developing assets that are related to Copec, complementary to Copec's assets and that may contribute to maintain profitability over time, such as last mile logistics, for example, which is doing very well.
And we are also working in a venture capital fund that allows us to have exposure and to have a stake in different companies that are involved in the areas where we participate in Copec. So this is happening for Copec, and we are also transferring best practices in that regard to Terpel. So this is the way we're going to tackling the advent effect of electromobility over time, which should eventually lead to hurt volumes in fuels, but as I said before, it's going to be long term and very small.
Sorry, you mentioned also the sale of assets in the Ecuador and Peru, that's the last question by Vicente, yes. That's what we sold there was exclusively the gas station operations in Ecuador and Peru. These were very small operations, nonprofitable at the time. Growth was very hard to attain. We decided to sell them because they would be worth more in the hands of other parties. We stuck to, we held on to the operations that are profitable, that are attracting for ourselves, such as lubricants and pulp sales, both in Ecuador and Peru.
But once again, with the philosophy of always looking for the best owner for different assets and always reviewing our portfolio, Terpel has decided to sell those assets. And so we think it's a value-added operation. and we will be permanently looking at sources of liquidity and value generation study from the potential sale of assets.
Thank you for Rodrigo and Gianfranco. There are no more questions. I'll give you back for final words.
Okay. Well, thank you all very much for joining today. We expect to meet sometime during the first 2 weeks of November, potentially for reviewing the results of the third quarter. And in the meantime, please feel free, the lines are open to contact our IR team in case you have any further doubts. Thank you very much.
Thank you. This does conclude today's presentation. You may disconnect now, and have a nice day.