Empresas Copec SA
SGO:COPEC
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Earnings Call Analysis
Q4-2023 Analysis
Empresas Copec SA
Empresas Copec held its fourth-quarter 2023 earnings conference, sharing insightful revelations about the company's performance and strategic maneuvers. Highlights included commentary on recovery trends within the Forestry sector, a nod toward financial resilience with EBITDA improvements, and discussions of ESG achievements. Notably, Empresas Copec showcased its adaptability and foresight by announcing significant asset sales and investments reflective of a commitment to sustainability.
The period marked a turning point with the commencement of recovery as the Forestry sector showcased a rise in prices and a trend towards unit cost normalization, leading to a higher EBITDA quarter-on-quarter. However, when compared to the prior year, EBITDA saw a decrease due to price drops and the higher costs associated with MAPA startup. Earnings were buoyed by positive revaluations of biological assets and insurance compensation, with a reported EBITDA of $636 million, up by 4.5% Q-on-Q, and net income swinging to $166 million from a previous loss.
Empresas Copec demonstrated financial resilience with a minor uptick in EBITDA margin from Q3 to Q4 of 2023, although still trailing the robust margins of 2022. The company's net financial debt to EBITDA ratio observed a decrease, improving from 4x to 3.9x by year-end. Management highlighted an ongoing strategy to address significant debt maturities due in 2024.
A robust ESG framework has earned Empresas Copec commendable accolades, including the S&P Sustainability Yearbook inclusion and an eighth consecutive presence on the Dow Jones Sustainability Index. Further cementing its reputation, the company was recognized for the fifth consecutive year as one of the top three firms for corporate governance in Chile. These accolades underscore Empresas Copec's dedication to sustainable progress and ethical business practices.
The company finalized pulp negotiations in China, maintaining stable prices while fully allocating volumes for March. Empresas Copec plans to amplify production with MAPA reaching near full capacity in 2024, projecting a significant sales increase of 800,000 tons over 2023. Meanwhile, the Energy segment remains subject to economic activity fluctuations, with volumes expected to stabilize and a reduction in the inventory revaluation impact, which was marginally negative in Q4 2023.
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Good morning, everyone, and welcome to Empresas Copec's Fourth Quarter '23 Results Conference Call. Today's presentation and the fourth quarter '23 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, depend 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 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.
Thank you very much. Hello, everyone, and thank you for joining us in this session where we will be going through the financial results reported by Empresas Copec last week for the fourth quarter 2023 and taking some questions that may come from you at the end of the presentation.
For those purposes, I'm joined here today by people from our Investor Relations department, led by Cristian Palacios and also people from Arauco's Finance department led by Gianfranco Truffello. They will be helping us out in [ taking ] your questions at the end of the presentation. Please feel free to send your questions through the chat -- platform chat whenever you wish and we will be taking them at the end of the presentation.
So having said all that, let me start [ briefing ] through the presentation that you can see on screen. Let me briefly refer to the major highlights that took place and reflect the quarter that we're reporting. This is a quarter where we began to see a recovery. We expect the [ loans ] that we have seen in the first few quarters of the year 2023. We recorded a higher EBITDA quarter-on-quarter, and this is explained basically with a recovery in the Forestry sector, driven by prices and also by costs. In Forestry, saw higher prices all across the board [ over all products ]. And together with that, we began to see a gradual trend towards normalizing our unit costs that had been extremely high during the rest of the year, essentially because of the MAPA starting up.
Year-on-year, however, we still see a reduced EBITDA, and that has to do with the drop in prices that we can see in all segments and also with the higher costs that we have been reporting because of the start of MAPA. Non-operationally speaking, we also saw some positive effects stemming essentially from a positive revaluation of biological assets and also from some compensations related to insurance.
In the Energy segment, we also saw a higher EBITDA compared to both the preceding quarter and also the quarter in 2022 that has to do essentially with higher margins, which in turn stem from more positive inventory revaluation and also a more positive industrial margin Q-on-Q.
In terms of developments and projects, Arauco announced during the quarter an agreement with Klabin in Brazil in order to go ahead with the sale of Forestry assets for a total of almost $1.2 billion. And we also completed the first year of operations of MAPA Arauco's [ slide ] 3, with a total production of 802,000 tons during 2023.
In relation to ESG, as usual, we have several [ biological assets ] here, that we continue to develop these dimensions of the business, which are now totally integrated into business decisions. We made it into the S&P Sustainability Yearbook and also into the Dow Jones Sustainability Index [ which stays ] for several years in a row. Our subsidiary company, Copec -- paying $200 million green loan for investment into energy transition. And finally, Copec as well announced its venture into 2 other companies with an investment into sustainable fuels and also an agreement for battery exchange stations.
Let me go into the numbers. We recorded an EBITDA of $636 million, which is up 4.5% Q-on-Q, however, still down with respect to the quarter last year. In terms of net income, we are recovering from the loss that we recorded in third quarter of 2023 and recorded net income of $166 million. EBITDA has been, as you can see in the graph there, of course, at levels which are much lower than the very interesting levels that we reported at some point during 2022 during the beginning, first half of 2022. But we are beginning to show recovery with respect to the loss that we recorded by mid-2023. So positive trend with respect to the immediately preceding quarters.
The main variations of EBITDA are shown on screen. Copec has a positive margin with respect to what we recorded in the end of 2022 and this, as I said before, comes essentially from higher commercial margins and also a positive inventory revaluation. That is offset to some extent by -- or more than offset really by dropping Arauco which has to do, as we said, with lower prices when compared to the fourth quarter of 2022 and also higher costs.
To the right-hand side, you can see the composition of EBITDA, and this is pretty much in line with historical averages, possibly with a high representation for the Energy sector since Arauco has shown the decreased EBITDA during this year. So -- but anyhow, Arauco, Copec and Abastible explaining more than 90% of the total EBITDA as usual.
Net income is shown on screen here. [indiscernible] as I said before and the main variations are shown to the left-hand side coming from Copec with a better operational results and also the recording of the net income corresponding to the sale of Mapco, which finally took place, was closed during the fourth quarter of 2023. Arauco in turn shows interesting nonoperational effects, which essentially have to do with revaluation of biological assets and also insurance compensation.
Moving into more details for the consolidated income statement. You can see here that we ended up with a net income of $166 million, an increase with respect to the comparable quarter last year to comparable quarter in 2022, $175 million of increase in net income, and that has to do with an increase in nonoperating income essentially, once again, having to do with revaluation of biological assets, insurance compensation, and also with some nonrecurring effects related to write-offs specifically of assets in Argentina that took place during the fourth quarter of 2022 and that are not here during the fourth quarter of 2023. So that's part of the increase, all of that offset by some unfavorable exchange rate differences.
The operating level, once again, Forestry division growing slightly down because of lower prices and higher costs, but offset to a certain extent by the Energy division, where Copec has recorded a higher margin related to commercial positive trends and also to favorable inventory revaluation. Together with that, we recorded a gain for discontinued operations, which is the final result of the sale of Mapco, $72 million, as shown in the consolidated income statement. And this is -- this has to do with the closing of the transaction that we had previously announced.
Finally, some income taxes that increased with respect to the comparable quarter last year recorded in year 2022, and that has to do with some deferred taxes that are shown in relation to the classification of Arauco [ forestry ] in Brazil as available for sale.
Financial ratios are shown on screen. We can see that net financial debt to EBITDA went up gradually during 2023, up to a high point of 4x, and we started to reverse that by the fourth quarter of 2023. So a good trend in the last part of the year, coming down from 4x to 3.9x, that has to do essentially with lower net debt in the later part of the year. EBITDA margin went up slightly with respect to the third quarter 2023, but still lower than the levels that we recorded in 2022 for revisions that we already have specified.
And in terms of debt maturities, we continue to have a debt that is distributed during several years. However, we are facing some important maturities during the year 2024, so we're already preparing ourselves to pay those maturities with different strategies.
Now moving on to some further details regarding each of the divisions. Let me go into Forestry first, where Arauco recorded an EBITDA of $309 million which is, of course, lower than the $408 million recorded in the fourth quarter of 2022, but represents recovery with respect to the figures that Arauco attains in the second and third quarters of 2023, and also the trend is a good trend. You can see in the graph down there with EBITDA increasing over the last 3 quarters.
The drivers for EBITDA going down with respect to 2022 are essentially a drop in pulp panels and sawn timber prices. So all across the board, we see lower prices. In the case of panel specifically, we see lower volumes, but that is offset by higher volumes in pulp and sawn timber, higher volumes in pulp, of course, coming from MAPA, the Line 3 operation, and finally, increased unit selling costs in hardwood and that has to do essentially with the ramp-up of MAPA. So costs gradually beginning to normalize, but still not at the long-term level because what MAPA is in the fourth quarter still ramping up.
In nonoperating terms, we got insurance payment for Valdivia and Constitucion mills, and also a positive asset revaluation effect in the last part of the year. Offsetting that, we had higher exchange rate differences essentially coming from Argentina having to do with a strong depreciation of the Argentinian peso that took place during the last part of the year in Argentina. That hurt, of course, our assets that are nominated in Argentinian pesos.
Together with that, we saw financial expenses that went up in all of our divisions, but specifically in the Forestry sector, and that has to do essentially with higher rates, but also with the fact that up until 2022, we were still capitalizing interest related to the construction of MAPA, not anymore, of course. Higher taxes coming essentially from the reclassification of Forestry assets in Brazil to the line of assets held for sale.
In pulp; we saw Q-on-Q EBITDA going up. You can see EBITDA as reported by Arauco, you can see that EBITDA went up from $144 million in 3Q to $272 million in 4Q. So a significant recovery in EBITDA coming from Pulp, which has to do essentially with higher prices and also with lower costs. You can see there that costs for the different fibers went down, which is especially notable in the case of Bleached hardwood, which has to do with the ramp up of MAPA. Year-on-year, we still see lower prices, of course, and also higher costs. Therefore, EBITDA is still down with respect for -- with 4Q 2022 in Pulp. Volumes have gone considerably up with respect to the fourth quarter '22, 55%, 56% up, and that has to do with new operations at Line 3.
In terms of the Pulp market, you can see that the market improved throughout the quarter. We started from a very weak point in terms of inventory and also in terms of prices, then gradually, this began to normalize. Global inventories dropped gradually. And now you can see in the graph that they are actually at levels that are even below the long-term levels and demand held steady in China and also began to recover quite strongly in Europe. That's been probably the most important change over the last few months.
Europe saw some period of weakness during year 2023, but by the end of the year returned to recover very strongly and cost prices in Europe and also in China, to some extent, start picking up from the very depressed levels at what [indiscernible]. In terms of dissolving prices, the average prices increased during the year for dissolving. And in terms of production, you can see in the graph through down in the page to the left-hand side, you can see that we reached almost 300,000 tons at Line 3 MAPA operation, 300,000. So this is gradually increasing and gradually approaching full capacity.
Regarding the outlook for Pulp, we have seen a stable situation in terms of prices. You can see that prices are quite stable around $650 in the case of hardwood and between $90 and $100 more than that in the case of softwood. We have seen demand stabilizing in China after the Chinese New Year and paper mills gradually restarting operations. The European market continuing to improve, so still very strong demand in the European market with potentially some further price increases there. So all in all, for the time being, we see stability and good trends in Europe.
In terms of wood products, we have seen very interesting movement here. We went down from the very high levels that we reported in the years, and years following the pandemic. We came to levels of around [ $300 million or ] even more. We have the numbers even more per quarter, and this has dropped to these levels that we are seeing now, which are between [ $130 million and $150 million ] and which are clearly more in line with what we've seen historically in this division. So once again, $138 million pretty much in line with historical levels. And we should see, for the time being, we are seeing stability in this levels of EBITDA going forward. No significant movement here either in volumes or prices. Slight drop in volume sales in panels during the last quarter when compared with the final quarter of 2022.
Going to our main markets here. North America is getting to approximately 50% of total revenues. In general, we see stability here. Some markets are more promising than others. In the case of MDF, it's a little challenging because producers have significant stocks. Supply is quite abundant there, but we could see [ a gradual ] increase in recovering demand in the first half of 2024. In particle board, we see a similar situation. However, with less stock in the hands of producers and therefore, less challenging than MDF. We are expecting stability here and volumes eventually reaching full capacity as the year advances.
In remanufactured products, we could see a slight improvement, essentially due to seasonality. And in plywood, we are seeing stability with a balanced market in North America. Housing starts at a level which is not clearly below the long-term average for this index. So we could eventually see also recovery there.
Our next most important market is Latin America, which represents almost 40% of our sales. In the case of Brazil, it has been a challenging market for many years, some overcapacity there. However, we are seeing some interesting trends there with a potential room for improvement there and eventually construction picking up a bit with the decrease in interest rates.
In Chile, we are seeing uncertainty in economic terms. Some areas of the economy such as construction, which are linked to this Panel segment and Wood segment are a little weak, and therefore, still uncertain how the Panel marketing which is going to evolve. We are seeing, on the other side, some interesting trends be in the home improvement. So some uncertainty in Chile regarding the [ evolution ].
In Argentina, it has been challenging because of the high inflation. It has been hard to keep up with inflation in prices in order to stick to our levels when measured in U.S. dollars. However, we still see a positive outlook for MDF particularly. In case of PB, we are seeing an environment that is more challenging. The other markets, Asia and Europe are much less relevant in terms of our exposure to them. However, we do not see a stable situation there as well. So in general, across the Board, stability for wood products with some positive signals in some markets on some specific products.
Moving on to Energy. We are seeing -- in general stability, Copec recorded an EBITDA when measured in the functional currency in this business, which is local Chilean pesos. We saw an EBITDA of CLP 244 billion, which compares very positively with the CLP 195 billion that we recorded at the end of 2022. So it's a good EBITDA level when measured in historical terms. You can see the graph there. And this has been driven essentially by higher gross margin, also -- and improved inventory revaluation in Chile, in particular, and also an improved commercial margin in Chile, together with an increase in volumes and margins of lubricant in Terpel.
Lubricants is doing very well in Colombia, Peru and Ecuador. The fruits of our acquisition of [indiscernible] assets back in [ 2018 ], approximately are beginning to show. They were interrupted during the pandemic, but now we're beginning to see good results of this lubricant segments in Terpel. Volumes have been weak when compared with the last quarter last year. However, we saw a recovery in volumes with respect to the third quarter 2023. Stable in general, but to some extent, affected by the economic situation, which is a little weak in Chile and Colombia. In Terpel, we saw unfavorable inventory revaluation effect and also a low industrial margin in Chile.
Regarding the nonrecurrent effects, we also had one very important effect in this particular quarter, which is the sale of Mapco. What we see here is the effect recorded by the Copec's subsidiary, $162 billion. Not all of that was recorded at the parent company level. So you won't see all of that in our consolidated statement. And that has to do with the fact that part of the result comes from foreign exchange equity reserves that were reclassified into the net income of the subsidiary company. But according to accounting rules, we do not do that at the parent company level because the functional currency of the parent company is the U.S. dollar. So the result of the parent company level is lower. We saw it a couple of slides ago, approximately $72 million at the parent company, but the whole CLP 162 billion in the subsidiary company.
In terms of market share and operationally speaking, Copec has shown stability at 58.2% market share as of November 2023, which is pretty much in line with the historic level. So not a lot of movement there, not a lot of news there. The fuel volumes are doing okay with respect to the third quarter, but a little lower than the fourth quarter 2022. And this is driven by the [ Industrial ] Channel dropping 1.9% and the Gas Stations decreasing 0.5%. This has to do essentially with a high base of comparison during the pandemic, we did very well in terms of volumes. However, this is -- we are seeing that this has weakened a little bit because of the drop from those very high levels and also in relation to the economic activity.
In general, and speaking of the outlook for this market, we are seeing stability, as usual. You know that this is a stable market in general. It's driven by the growth of volumes essentially. Commercial margins tend to be very stable when measured in local currency. However, we had lagged a little bit behind in terms of commercial markets because of the very high inflations that we had seen during the previous years. We are gradually starting to normalize those margin levels, gradually beginning to keep up with inflation. Inflation is getting to more reasonable levels now in Chile and Colombia, and therefore, margins are gradually beginning to keep up with those new levels of inflation.
We do, however, some elements of volatility here, as we always say, having to do with the revaluation of inventories, which in turn has to do with the ups and downs of oil markets and also having to do with industrial margins, which are very volatile for several reasons, among them volume and clients that enter and go out of the market. But all in all, we could see stable commercial margins going forward. Volumes, as we saw are potentially affected by the ups and downs in economic activity. And we continue to believe that we have a very good competitive position in Chile, which is based on customer preference and also on a very good network positioning and locations of our gas stations essentially.
Let me move to Terpel. Terpel, as is shown on screen, with an EBITDA level of COP 378 billion, which compares positively with the fourth quarter 2022, but negatively with the third quarter 2023, which was the highest EBITDA that Terpel has ever recorded and had to do with a very substantial effect of inventory revaluation that took place during the third quarter 2023. But still a good EBITDA when measured in historical terms.
The increase with respect to 2022 is explained partially by an increase of margins and volumes in lubricants, as we said before, doing well in that segment in particular, offset to some extent by an unfavorable inventory revaluation in the case of Colombia and Panama, basically. Liquid fuels have decreased a bit, 4% all in all. And this is explained by a drop in Colombia, essentially having to do with a weaker economic activity, but also with some specific factors affecting some of the industries in which Terpel distributes fuels. Aviation, for example, have seen some players leaving the market, and therefore, that explains part of the drop in volumes in Colombia.
Panama has also been affected by specific factors taken place during the second part of the year. Social [ unrest ] import, as explained part of the drop in volumes in Panama. And together with that, the situation in the Panama Canal as well has affected volumes going to the bunkering business, of course. As in terms of nonoperating income, and as we have seen across the board, we are seeing increased financial costs having to do with inflation and also with increased rates.
Let us move to Abastible. This is our LPG division. As you can see in the evolution of EBITDA there, it compares very well, CLP 35 billion compares very well with the figure recorded in the fourth quarter '22. However, there's a decrease when compared with the third quarter of '23, which has to do essentially with seasonality. The second and third quarter each year are the highest in terms EBITDA, usually recorded the highest EBITDA for LPG, basically [ the temperature ] of the winter season in our most important market, which is Chile.
The trend is positive, though, the long-term trend is positive. We have seen LPG volumes and margins recover gradually from the situation that hit the business during 2021 and -- in the beginning of [ 2021 ]. Essentially, when propane prices globally were very high, and that was basically caused volumes to be reduced and also final commercial margins to be reduced because of this very high international prices of propane. That trend has gradually been reverted and we are gradually beginning to trend towards a more normal level of EBITDA [indiscernible]. Together with that, we have seen a good situation in general in terms of volumes all across all geographies, in Chile, Colombia, Peru and Ecuador, in general doing very well.
Some more details here. Chile in the case of margins, we have seen basically a very good situation for the bulk segment. And also in the case of volumes for the bulk segment, explained by new clients that have been permanently coming in and also with the specific situation of some particular industries. In the case of Colombia, some drop -- a slight drop in volume starting to do again with a slightly weaker economic situation in general in Colombia. However, margins trending up because of this propane prices going down internationally, as I said before. Peru has performed very well in both channels, bulk and bottled. Bulk channel [ hit ] to a certain extent over the last few quarters by a particular situation in the poultry industry, which is a very strong improvement in terms of LPG consumption. But in general, the trend is very positive for gas, which is our division in the Peruvian market. And Ecuador in general, with a good performance of the bulk segment related to diesel substitution essentially.
And finally, in terms of results going -- moving on to our other investments. The most important among these is by far Cumbres Andinas, the owner of Mina Justa in Peru to [ copper ] mine in Peru. Mina Justa recorded at EBITDA for the quarter, that was $213 million a little bit below the $252 million that we recorded in the fourth quarter 2022. That has to do with an increased level of costs and also a decreased level of physical sales when compared with the third quarter, the Q-on-Q comparison a decreased level of physical sales. But in general, with respect to the fourth quarter 2022, we see higher costs, which relate to a lower grade of the mineral that is being treated at this point in time according to the mining plan.
We could see this increased levels of costs for some additional quarters, and that has to do strictly with the part of the mine that we are exploring right now, according to the mining plan. So we could see levels of [ 1.6 ] for the following or approximately [ 1.6 ] for the following few quarters. But in the long run, we should revert to the [ 1.4 ] that we have communicated as our long-term cost level. So once again, strictly because of the part that we are mining right now, we saw increased levels of cost, we could see a slightly reduced production as well in some quarters for the same reason, but we should quickly revert to the production and the cash cost that we have indicated historically.
All in all, however, a very good performance from Mina Justa with an EBITDA of more than $200 million in the quarter. We have 40% of this, just to remind you, 40% stake in Mina Justa as shareholders. So this is not consolidated in our balance sheet nor [ EBITDA ].
Our other investments are quite stable. As usual, Sonacol, the Fishing division has slightly made progress in operational terms. EBITDA has been gradually going up in the Fishing division. And our Natural Gas divisions are, as usual, quite stable.
Moving on to the highlights of the quarter in terms of milestones achieved. We communicated through our Arauco. Arauco issued an essential fact where it communicated the agreement with Klabin for the sale of approximately 85,000 useful hectares of forest lands and plantations in Brazil. These are plantations that are, in general, very close for Klabin operation. They do not have to do at all with our [ Sucuriu ] project. They are located essentially in the Parana state of Brazil. So it makes a lot of sense for Klabin, given the type that operations are very close in that region.
The total price agreed was [ $1.160 ] billion. This is subject to usual adjustments in this kind of transactions. And as of now, we estimate that the positive effect in Arauco result could be around $130 million after taxes.
MAPA completes Line 3 of Arauco, completes the first year of operations, as expected, a year in which Arauco has been ramping up operations at MAPA. The total production reach during the year was 802,000 tons, pretty much in line with -- where Arauco has announced at the beginning of the year, and very satisfactory in terms of quality achieved as well. So MAPA startup ramping up, going well.
Moving on to ESG. As usual, several developments here. Copec, the subsidiary company Copec, closed a green loan for $200 million, which will be devoted specifically for energy transition, and this has to do with some investments that have already taken place over the last few years, and that will be taken place over the next 2 quarters and that are related to our ventures in electromobility, solar panels and batteries essentially. So Copec Voltex, which is at mobility; Flux Solar, which is our solar panel venture; and also Ampere Energy, which is our battery and intelligent energy management division, all of them are going to be received and have been receiving over the last 3 years, part of these proceeds from the green loan.
In conjunction with that, Copec has announced some further ventures into alternative energies through the Copec venture capital. It went ahead with a small investment in a company called Ineratec. This is a German company that has developed a technology for producing synthetic fuels or sustainable fuel, starting from renewable carbon-neutral energies and from CO2. So this is very interesting for Copec. Copec could eventually distribute this type of fuels have mixed them with conventional fuels. And this type of fuels is very attractive essentially for those industries that cannot be easily electrified such as Aviation or sea transportation and other industries of that type.
Additionally, Copec entered into an agreement with a Taiwanese company, product company called Gogoro. This is a business model where battery exchange stations are installed in the network of gas stations of the conventional fuels companies in order to replace batteries for motorcycle specifically. So this should greatly reduce the charging times. There will be no charging times, just replacement times for motorcycles.
Santiago through Copec and Bogota through Terpel are planned as the first cities in Latin America to have access to this type our business model with this battery exchange station.
In relation to the awards and indexes, we did it again into the Dow Jones Sustainability Index for the eighth year in a row. And we also made it into the S&P Sustainability Yearbook, which is a very thorough process driven by S&P, where more than 9,000 companies worldwide are analyzed. So very good achievements here with this recognitions of these 2 very well reputed companies.
Arauco has received award, Zero Waste award. This has been in recognition of the cultural change that Arauco has carried forward in its companies in relation to circular recurrent. So very good progress here and in line with Arauco's goal to achieve zero waste by 2030. This is a very good recognition that Arauco got during the quarter.
And finally, and once again, we, Empresas Copec was awarded the La Voz del Mercado award, a very important price that is given in Chile by EY, the Santiago Stock Exchange and Institute of Directors in Chile to those companies showing the best corporate governance. And once again, and for the fifth year in a row, we were highlighted as one of the 3 Chilean firms with the best corporate governance. So very satisfied with this recognition, which was the result of a survey that was realized and was carried forward among more than 370 board members, investors, analysts and other experts. Together with that, we also came out with a very good position in the Merco ranking, another well-reputed ranking in Chile.
That's it. That's the information we had prepared for you. So having said all that, I would like to open up the floor for the Q&A. As we said before, Cristian will be taking all of the questions that you have post through the chat platform. Your question checked and -- we have in the web platform. And Cristian will be handing over both to Gianfranco and myself in order to answer the questions that you may have.
Please go ahead, Cristian.
Thank you, Rodrigo, and thank you all for joining this webcast. I'm going to start with some questions in Forestry. The first 2 comes from Jens Spiess at Morgan Stanley. Gianfranco, if you could please give some color on your pulp negotiations in China for March and if you have been able to allocate all the volumes.
Yes, we did finalize all the negotiations for China for March. We kept our prices unchanged. So that means [ Eucalyptus ] price for [ 650 ] and [ long ] fiber, [ 745 ] and [ 690 for unbleached ] and we were able to allocate all the volume. So that is for China for March and now it comes the Shanghai Pulp. So there are going to be more talks with clients. But in our case, we have all our volume already sold at the same prices as February.
And secondly, how much incremental volumes do you expect from MAPA in 2024? And if you can provide some guidance in terms of production and shipments versus 2023 basis?
Yes, of course. I mean we produce 800,000 tons in 2023 in Line 3 MAPA and we sold about 700,000 tons. The difference, the [ 100 ] is the stock buildup. That means more or less amount of production, so that is normal. And for 2024, we are planning to go almost to full capacity, a little bit less than [ 1.5 ] because we have a stoppage in May, so that will bring probably 1.45 million tons, something like that.
And so -- and we expect to sell the same amount, more or less because we already have the inventory buildup. So that will mean that our sales will be probably 800,000 tons more than 2023. That's a plan, of course, depends on what happens through the year. But at this moment, the mill is reaching the final stages of ramp-up.
I have some questions from Leonardo Neratika, Bank of America. The first one also in Forestry. Arauco reported some improvements in terms of cash costs, but they are still elevated. So you want to explore what is a more normalized level for cash cost going forward?
Well, as you probably know, 2023 was very difficult, not only for the prices of pulp that went down in the middle of the year, but we had the forest fires. And also we had the ramp-up of MAPA, and we had part of our mills stopped for some months, starting with Constitucion at the beginning of the year. And then Valdivia stopping for 4 months during the year to repair the dryer, okay? Those -- part of that was compensated by the insurance claims. But of course, that's not reflected in the cost. It goes through other income.
So it's not a very good year to compare cash cost. And so we expect that in 2024, we're having more production, we're not going to have [ Licancel ] also, which was stop. We did have probably a normal operation in the mills, the cash cost should go down, and we'll have a more proportion of a more efficient mill, which is MAPA that will bring our cash cost to more normal levels.
I would say it depends on the mill, but our cash cost should be close to $300 more or less. And of course, you have to compare that. We were talking short fiber. Differently from the Brazilians, I mean there's different calculations how they do it and how we do it, but we should be back to normal levels or our planned operating normally, about $300, something like that, cash cost.
Thank you, Gianfranco. I'm going to skip the next one because it was about price negotiations for March, already answered. And Rodrigo on Energy, if you can provide some outlook in terms of volumes for the year and if you can quantify the effect of inventory revaluation in 4Q?
Yes, we briefly commented on that in the presentation. Volumes are very high. It's very difficult to provide an outlook on that. It's usually very related to the [ economic activity ]. We are seeing 2 things. We're seeing a high base of volumes, which took place immediately following the pandemic. And therefore, the base of comparison is very high. And also, we are seeing a slightly decreased economic activity in our main geographies, in Chile and Colombia.
And therefore, as we saw in the last quarter, when compared to the quarter in 2022, we could see a slight drop in volume. But however, we saw a reverse of a trend in the last part of the year when volumes in the fourth quarter increased with respect to the third quarter. So we do not expect volumes to grow very significantly. It could be in line with economic activity should be in line. And therefore, they could -- they should be very stable with no significant variations, either up or down, in general.
The inventory effect is, as you have seen, very volatile. It was very significant during 2022, and it was much less significant during 2023. And as a matter of fact, in the fourth quarter that we have just reported, the total inventory effect was a little negative considering Chile and Colombia, a little negative and somewhere around $10 million to $15 million negative and that compares also negatively with both the preceding quarter and the fourth quarter 2022.
That is also very, very hard to predict because it has to do with the variations in oil prices and the exact level of inventories that we have when those variations take place. So we do not -- we are never very precise on the outlook for that figure. Rather, we just [ talkings ] on communicating the drivers of that effect.
And finally, from Leonardo, if you can comment Rodrigo on Mina Justa, what drove [ C1 ] cash cost increase? And what can we expect for cash cost going forward?
Yes. Well, we briefly touched on that also during the presentation. Cash cost increase was motivated strictly because of the fact that we are now mining a part of the property of the mining property that has lowered rates. And therefore, for the same amount of ore treated, we are yielding less final product. And therefore, cash costs recorded in the [ volume ] were up to [ 1.7 ].
We expect this to hold on for a while. So most probably during 2024, we will be a little bit above the [ 1.4 ] that we had given out as a long-term figure for the cash cost. Rather, we should be in the vicinity of [ 1.6 ] because of this particular part of the mine that has a lower grade. And together with that, we should also be yielding a lower production. So rather than [ 140 to 150 ] as we did during 2023, we should go slightly down to [ 120, 130 ] during the year 2024 specifically. And then we should go back to the long-term trends, which are a cash cost in the vicinity of 1.4. But that's essentially the driver for the increase in cost during the fourth quarter 2023.
Thank you, Rodrigo. Also, in Mina Justa, if you can provide the status of the new project, [indiscernible] sort of the same. And if you can provide some guidance in terms of production for the next years.
Yes, production, as we said before, is a little down, 2024, but then we should recover following that year. And in terms of Mina Justa [ Superania ], that's a project that we announced last quarter. There are no significant developments to communicate at this point in time that will be up for final approval by the Board during the first half of this year and potentially beginning construction either by the end of 2024 or beginning of 2025.
And that has to do with the project that will involve the CapEx of around $400 million and that will yield an increase in the lifetime of the mine of approximately 5 years and that -- an increase in total production across the lifetime of the mine of approximately 500,000 tons of final products. So interesting projects, should be very interesting because what it does is basically extends the life of the mine and at the same time, allow production to be more stable along the life cycle of the mine. And those 2 factors, of course, turn to attractive profitability for the investment. So this should be up, as I said before, up for final approval during the first few months of this year. And whenever that happens, we'll let you know.
Next one comes from [ Jose Chavarro at Consorcio ]. Gianfranco, if you can comment about the difference in price negotiations between Arauco and [ Suzano ] for March?
Well, I cannot comment about our competitor strategies for pricing. I mean, it's their determination. I mean, in our case, at the moment, we decide our pricing strategy, we thought that the market in China wasn't prepared for an increase in pricing. I mean, we didn't see a lot of room for that. I mean, probably for them, the situation in terms of overselling of their products, inventory is different. And I cannot -- I mean, really comment. I mean, we will see if they are succeeding in putting their volume. And if they do, probably, we're going to be more optimistic for April, but I cannot comment on their decision to increase pricing.
And another one from Vicente, if you can provide an update on [ Sucuriu ] project.
Well, in [ Sucuriu ] we continue working. I mean it's a lot of things to do there. We already made the concept of engineering. We obtained the environmental approval for construction, but we are working on the logistics solution. Yes. We'll continue planting all the year and obtaining the land to plant the trees and we are preparing a feasibility study, doing the basic engineering, negotiating alternatives for terminals.
So it's a lot of things to do and to be prepared to get quotes from the equipment manufacturers and also an estimation of construction in order to have all the data to put in the feasibility study to present to the Board at the end of the year. At that time, we will decide if we are ready to go ahead or not. But we still have the rest of the year, and we are, at this moment, have to schedule and doing all the tasks that we need to do. There's a team working there. And we are happy with the progress, but we still need more inputs for the decision that we'll get at the end of the year.
Thank you, Gianfranco. And this is for Rodrigo. Rodrigo Godoy from Credicorp. If you can provide some color on the CapEx for 2024? And if you can provide some details and breakdown by business?
Yes. We will be, as usual, and as we have traditionally done, we will be communicating on a final figure in our shareholders meeting that is going to be held in April. I can [ nevertheless ] anticipate a range -- the range as it stands currently, is going to be around $1.5 billion to $1.8 billion. And that is made up of maintenance CapEx of around $900 million, and which is in line with our base of assets and that also includes new projects in Forestry and one of them is [ Zitacuaro ] panel mill in Mexico, which is going start construction this year, together with plantations related to [ Sucuriu ] and plantations in other geographies as well. All of that for a total of approximately $500 million or $600 million.
New initiatives in fuel and energy in general for this year outside of the normal investments, we are devoting as usual. $50 million to $70 million approximately for new initiatives in energy transition. And the rest is basically comprised of many smaller projects, which are efficiency projects, related to optimization and cost reduction basically, which are very interesting, very attractive but which can, at the same time, be executed or not according to how the market develops and how the financial situation of the company develops. So that's it. We will be giving out more detail, as I said, in our shareholders meeting in April.
[indiscernible] Capital is asking in relation to the Terpel, what is the company's strategy in this business? And if there are plans to increase or continue to grow the network of convenience stores in -- not only in Colombia, but in other countries?
Yes. Well, Terpel, many of the elements that we envisaged when we initially acquired Terpel many years ago, continue to hold. And so we still see room for improving some elements in Terpel. And actually, what you mentioned in terms of convenience store is one of them, now the penetration of convenience stores in Colombia, and particularly the network of gas stations is much lower than in Chile. So we do have some work to do there.
And in the particular case of convenience stores, we are -- yes, we are looking at that business segment very [ gently ]. It is a good business segment, Copec in Chile and the Terpel in Colombia have a very good brand positioning. And therefore, it might make sense, and we are beginning to do that, to roll out -- we are doing some pilot projects in order to explore the possibility of rolling out convenience stores outside of the gas station network. We have a few, and they are performing well. And so that's a business development line that makes sense to analyze. And we are certainly going to analyze that and take a look at that. So yes, in both cases, Chile and Colombia.
Terpel is also complementing the previous question in relation to [ Terpel ] strategy. Terpel is also beginning to follow Copec in terms of energy transition. And so many of the initiatives that Copec is doing here in Chile. We are replicating them in Colombia through Terpel and therefore, positioning ourselves as a pioneer in electrical mobility and energy transition.
We have 2 questions from Gabriel Simoes at Goldman Sachs. They were already answered. One regarding cash cost at MAPA and the second on Mina Justa. So I'm going to skip it. [indiscernible] if you can provide some expectations for this year, if Energy sector will continue to offset the Forestry sector?
No, that will depend on their relative evolution of the 2 segments. In Energy, as usual, we expect stability in general, potentially modified by the growth rates that we obtained in that segment. But in general, roughly the same level [ of EBITDA's ] we have recorded over the last few years.
Whereas in Forestry, we could expect some significant variations stemming essentially from the contribution of MAPA of Arauco's Line 3. So -- but as I said, everything will depend on the evolution of prices going forward, cost levels and so on. So it's very hard to tell.
Gianfranco, if you can provide an estimated CapEx per ton regarding [ Sucuriu ]?
Well, that's a good question. I mean, we are doing our initial calculations for like a $3.5 billion investment, but basically on estimations of other projects that have been finalized. But that will only be more real once we start getting quotes from equipment manufacturers. So we -- I cannot tell if that's going to be -- I hope it's going to be lower because that helps into the valuation. But we're working with -- at this point with [ 3.5 as a base ] number for investment, I mean, total investment in construction and equipment.
Sorry. And at least 2.5 million tons plan. So you have to divide that to get an estimate of per tonne investment.
Rosario Achondo at Compass Group is asking for some guidance in terms of net debt to EBITDA for 2024?
Well, at this point, I mean, we expect to be close to 3x probably. That, of course, we're going to depend on pricing. We are using our forecast a conservative approach on pricing for the second semester. At this moment, we could be wrong. But I think that at least especially because of the selling of assets in Brazil, we're going to get a good influx of cash that will help reduce net debt.
And also we will have a better EBITDA that will help improve the leverage. But I think, of course, we will get down. Our initial estimate will be closer to 3x, but it will depend a lot in the evolution of pricing especially for the second half of the year because, I mean, there's some trend going on in terms of the first quarter and probably the second quarter. So the big question mark is what's going to happen in the second half of the year in terms of pricing of pulp.
And Rodrigo, if you can comment the same in terms of leverage, but at the consolidated level, please?
Yes, that will have to be essentially with the evolution of EBITDA, but what Gianfranco says finally holds. So it's going to be [ 3 or 4 ] for the Forestry sector and we should expect the consolidated level to be around [ 2.5 ] or so.
And the last question comes from Alfonso Salazar at Scotiabank. This is for Rodrigo. This Copec reviewing its capital allocation strategy due to the lower EV adoption that is now expected globally?
Well, we do that on a permanent basis. The good thing about the strategy we adopted in order to face the electromobility challenge is that it's very flexible. We acknowledge that there is a strong threat coming from electromobility. It's a structural and transformation of that. So what we have decided to do is start preparing ourselves for a new scenario immediately and are working along several lines.
First of all, we want to position ourselves as leaders in electromobility in our market. Together with that, we are exploring transformational opportunities related to energy, mobility and convenience stores. And also, we're also looking for some ventures that can complement our existing business model in order to transform that business model among them will express or rather initiatives of the sort.
So the final objective is basically to open up options to complement our existing assets and offer new sets of services to our clients, develop skills and capacities and be prepared to grab opportunities as they came along. This scenario is going to be very volatile. It is true that we have received information over the last few years, possibly that may lead us to believe that the transition to electromobility may take a while longer than we initially projected. But we may also receive news in the other sets, and this has been very volatile over time. So our strategy is to open up options basically, be very flexible, be prepared for scaling up in whatever technology turns out to be the winning technology or whatever business model turns out to win the business model.
So the answer is basically, yes. We are prominent to revise in what we are doing to price electromobility, and the way that we are doing it allows us to do so. There will be a lot of trial and error because nobody really knows about the energy market and particularly the car market is going to go. But the way we've done it is to open up these options and be able to scale up whenever the scenario -- whenever we have more clarity on the scenario going forward.
Thank you, Rodrigo. We don't have more questions, so I'll turn it over to the operator.
This concludes the Q&A session. At this time, I would like to turn the floor back to Mr. Rodrigo Huidobro for any closing remarks.
Okay. Thank you all very much for joining us today, and we expect to meet again at the beginning of May for taking a look at the results for the first quarter of 2024. Thank you very much, and have a good afternoon.
Thank you. This concludes today's presentation. You may disconnect now, and have a nice day.