Ternium S.A. (NYSE:TX) Q1 2023 Earnings Call Transcript

Ternium S.A. (NYSE:TX) Q1 2023 Earnings Call Transcript April 26, 2023

Ternium S.A. beats earnings expectations. Reported EPS is $1.91, expectations were $0.94.

Operator: Ladies and gentlemen, thank you for standing by. And welcome to the Ternium First Quarter 2023 Results Call. I would now like to turn the call over to Sebastian Marti. Please go ahead.

Sebastian Marti: Good morning. And thank you for joining us today. My name is Sebastian Marti and I am Ternium’s Global Investor Relations and Compliance Senior Director. Ternium released yesterday its financial results for the first quarter of 2023. This call is complementary to that presentation. Joining me today are Ternium’s Chief Executive Officer, Maximo Vedoya; and the Company’s Chief Financial Officer, Pablo Brizzio, who will discuss Ternium’s business environment and performance. After the conclusion of our prepared remarks there will be a Q&A session. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied.

Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on Page 2, in today’s webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I’ll turn the call over to Mr. Vedoya.

Maximo Vedoya: Thank you, Sebastian. And good morning to everyone and thank you for your participation in today’s conference call. Ternium recorded a good set of results in the first quarter of 2023 with an EBITDA $0.5 billion. This is equivalent to $166 per ton and to a 14% margin. We also have had a healthy cash generation with free cash flow of $414 million in the quarter. Further on, Pablo will go more in depth on our performance in the first quarter. Let’s review you the business environment in our main markets beginning with Mexico, apparent steel demand in the Mexican market remains healthy. In the commercial market, our restocking in the value chain which began in the fourth quarter of last year continue into the first quarter of this year and we are not seeing signs of it finalizing yet.

In the industrial markets, we are seeing steady steel demand with less volatility than what we see in the commercial market. The auto industry supply chain disruptions eased significantly and most OEMs plan to increase production. On the other hand, manufacturing industries driven by US housing market like white goods and HVAC industries are currently softer. We are increasing our market share, especially in the automotive industry, as the certification process of new products from the new hot rolling mill in Pesquería advances. As an example, in the first quarter of 2023, we shipped 2.1 million tons in the Mexican market. This is 0.5 million tons more than what we shipped in the first quarter of 2022, when the hot rolling mill was in the first stage of the startup.

This is an increase of more than 30%, and we expect shipments to continue growing this market in the second quarter. In addition, the downstream projects currently under development at this facility will enable us to complement this new capacity and go deeper into new value added products to offer to the market. Since our previous conference call, we have also been making progress in our upstream project. This is the new slab mill we announced in February. Although, we are not ready to disclose its exact location yet, we are very close to do it so. Something that has been lately calling investor attention is the increasing re-assuring trend in the region. This is due to the need of closer and more reliable supply chains to serve end market.

Mexico is a beneficiary of this dynamic as a result of its many advantages, its membership to the USMCA. It has an exception experience and technical qualified labor force. And it offers shorter lead terms and lower transportation costs to end markets. And this is being reflected in demand for real estate in the country. According to the Mexican Association of Industrial Parks, the industrial real estate sector has a national occupancy rate of 97%. If we just measure this in the north of the country, the availability rate is even lower at 1% or 99% of occupancy rate. As an example, one of the latest and highest profile investment announcements is Tesla’s new factory in Mexico, which will be built in Monterey, our hometown. Let me now make some comments about Argentina, our second largest market with 18% of total shipments.

Our business in Argentina continues to do relatively well, although there is a considerable level of uncertainty in this market. Argentina suffers from a very strong drought this year that is adversely affecting grain export revenue and consequently Argentina’s central bank hard currency reserve. This, coupled with a high inflation level and a significantly unstable macroeconomic environment, is expected to impact economic activity and steel demand in the country during the second half of 2023. I would like now to make a brief comment about our recent announcement regarding the increase in Ternium’s participation in Usiminas Control Group. Ternium has had a participation in Usiminas since 2012 when it joined Nippon Steel and Previdência Usiminas in Usiminas Control Group.

During the past 11 years, Ternium and Nippon Steel have shared Usiminas management on an equal footing without either partner having the ability to impose decision on the other. On March 30, we agree with our Control Group partners to take on different roles. We will have a more direct involvement in Usiminas management and the implementation of its strategy, while Nippon Steel will maintain a say in all key decisions outside the ordinary course of business and will continue contributing their technology expertise to the company. Ternium is Latin America’s largest flat steel producer and has a proven track record of successfully managing steel assets in the region. This put us in a perfect position to assume, after more than a decade in the company, a leadership position in Usiminas.

To put this change into action, Nippon Steel agreed to sell to Ternium and our affiliate Pinheiro, a portion of its participation in Usiminas Control Group, as well as to make some changes to the shareholders agreement. We will appoint the CEO, a majority of the other members of the Board of Officers, and a majority of the board. Nippon Steel and Previdência Usiminas will retain one officer each. As for next steps, first we are going to need the approval of CADE, Brazil’s antitrust Authority, to be able to close the transaction. Until we have received CADE’s approval for the transaction, we cannot go further into our plans to Usiminas. Because of this, I hope you understand we won’t be able to add in the Q&A section much more information on the matter than we have already disclosed.

Turning now to ESC topics, we are proud to have been recognized last week as sustainability champions by World Steel for the fifth year in a row. This industry recognition demonstrates that we are on the right track in our efforts to make our operations more sustainable. One of the things I’m very proud of is that we are launching the construction of a new technical school in Santa Cruz, Brazil, near our Ternium lab facility. For this, we plan to leverage on the experience of staying with our technical school in Pesquería, Mexico. This technical school, the one of Pesquería, which is now on the 7th year of successful operation, was launched to educate high school students from our community using innovative technique, teaching methods and the latest technology in both classrooms and laboratories.

The results of these initiatives have been remarkable. These students, all of which receive scholarships, comes from underprivileged communities where the opportunity to assist to high school is very rare. Today, more than 50% of graduates from this school are going through their university studies. We expect Brazil’s new technical school to bring technical education with the latest learning tools and technology to close to 600 students with the start of classes in the first quarter of 2025. Over the years, the company has developed educational programs covering the entire school cycle from elementary to postgraduate levels, helping children and youngsters fulfill their potential and become acting contributors to society. We believe that Ternium industrial project can only be sustainable if the communities where we operate grow alongside the company and education plays a key role in this and overall.

Let me now make some final comments to close my prepared remarks. Even though there continue to be uncertainty regarding the macroenvironment during the second half of the year, I am confident Ternium will have a good performance in 2023. With our latest investments, we have put the company in a strong competitive position and there is more to come with the upstream and downstream project under development, We believe Ternium will have ample opportunity to grow its business in the following years and we are ready to take advantage of these opportunities. On the other hand, as you have heard us say many times in the past, we have always been committed to Brazil. This is one of the largest steel markets in Americas and we believe it will offer many opportunities to grow our business in the future.

In this respect, we are very excited with the change in Usiminas Control Group. I believe our recent agreement with Nippon Steel will give us our renew days from which to contribute to Usiminas success benefiting all of Usiminas stakeholders. Okay, Pablo, you can now go ahead with your presentation on Ternium’s performance in the first quarter.

Pablo Brizzio: Thanks Maximo and good morning to everybody and thanks again for participating in our conference call. Let’s review more in detailed Ternium performance in the first quarter and our guidance for the second quarter. We will start on page 3 of the webcast presentation with Ternium’s EBITDA and net income. As anticipated, EBITDA, EBITDA margin and EBITDA per ton improved sequentially in the first quarter of the year, leading to earnings per ADS of $1.91 in the period. Margins in the first quarter approached the company usual range, mostly as a result of cost deflation as lower price raw material continue flowing through the company’s inventories. Looking forward, we expect the company’s EBITDA to increase in the second quarter of this year on higher shipments ton margins.

We will analyze this in more detail in the coming slides. Let’s move now to our achievements performance on page 4. In Mexico, Ternium steel shipments reached a new all-time high of 2.1 million tons in the first quarter of 2023 as Maximo already explained. Shipments were not only higher than what we had last year, but also, they improved 10% sequentially against last quarter of last year, reflecting Ternium increased market share in this dynamic market. The sequential volume increase in Mexico in the first quarter was mostly offset by lower volumes in the Southern Region and other market. In the Southern Region, shipments decreased 8%, mainly as a result of a seasonally weaker demand in Argentina, which we currently expect will normalize somewhat in the second quarter of 2023.

In our market, the sequential decrease in steel shipments was mostly due to a lower volume of slab shipped into third parties as the company further the integration of its Brazilian slab facility with the downstream facilities in Mexico. In the next page, number 5, you can see that combining these developments, consolidated shipments in the first quarter were 3.1 million tons. Based on that has already been discussed, we expect consolidated achievements to increase in the second quarter of this year, mainly reflected higher volumes in Mexico and somewhat in the Southern Region. Revenue per ton remained relatively stable in the first quarter, despite the increase in spot steel prices in the USMCA region. This was mainly due to the negative effect of lower prices on the contract in Mexico in this quarter, which reset prices with a lag and by lower realized prices in the Southern Region.

In the second quarter, contract steel prices are expected to sequentially reset at higher levels. This positive development, coupled with the healthy spot prices, expected to lead to a higher consolidated revenue per ton in the second quarter. Moving on the next page, let’s review now the main drivers behind the sequential changes in EBITDA and net income. The chart on top shows that the improvement in EBITDA in the first quarter was mostly the result of a lower cost per ton, achievements and revenue per ton remain relatively unchanged. The decrease in cost was mainly due to a lower priced purchased land and raw materials acquired during the second half of 2022 that continue flowing through the company’s inventories in the first quarter of this year.

To a lesser extent, cost per ton also decreased as a result of lower energy cost, as natural gas price decreased. Looking forward, Ternium expect adjusted EBITDA to increase sequentially in the second quarter as consolidated achievement and revenue per ton increased and cost per ton deflate a little further. The chart on the bottom shows that the sequential increase in net income was driven mainly by higher operating result and to a lesser extent, better income tax results. In the first quarter of this year, tax results include a deferred tax gain and Ternium’s Mexican subsidiary in connection with the 7% appreciation of the Mexican peso against the US dollar in the period. Let’s review now on page 7, Ternium cash flow performance and balance sheet.

Cash flow from operations in the first quarter of the year was $612 million including a working capital release of $218 million. Looking forward, we expect working capital to increase in the second quarter in sync with higher steel production shipments and prices. Free cash flow in the first quarter was $414 million after CapEx of close to $200 million. This drove Ternium net cash position to $3 billion by the end of March. The CapEx level is expected to continue increasing in the coming quarters as Ternium announced its downstream project in Pesquería and the other projects were announced in North America. With this, we conclude our prepared remarks. Thanks a lot for your attention. And now we can go to take any question that you may have.

Please operator proceed with the Q&A session.

Q&A Session

Operator: Our first question comes from the line of Caio Greiner from BTG Pactual.

Caio Greiner: Hello. Good morning, everyone. Thank you. My first question on your North American operations. So wanted to explore a little bit more on demand, so demand conditions in North America still seeming quite strong in the short term, as you guys pointed out, so the auto industry remains strong since some supply chain restocking it. And you guys mentioned that the second quarter is still expected to be even stronger volumes wise. So I just wanted to explore a little bit more on the outlook for the second half of the year. Should we expect earnings volume to continue rising going forward? I mean do you still believe that steel demand could be sustained at current levels for the entire year. Are there any pressure points that you guys, see?

And if you guys are working with an estimated volumes increase for the year in the Mexico market that you could share with us, that would also be helpful. And my second question on the Usiminas transaction, I know that you guys said that there’s probably little that you can share with us at this point, but just wanted to see that. Is there any initial remark that you can, they can add to Maximo’s comments? So just wanted to see if you guys can share what are turning plans for the asset from this acquisition? Are there any priorities in the short and medium term? Are there any lowering fruit that you guys see that could be addressed in the short term? And then I also wanted to understand if you could eventually see Ternium further increasing its stake ahead, maybe even consolidating the assets down the road, anything that you can share with us regarding this Usiminas transaction that will be helpful.

Thank you very much.

Maximo Vedoya: Thank you very much, Caio. Let me start with the first question and demand. Yes, you’re right. We are going to increase probably shipments in the second Q of this year. I think this is mainly because commercial market, as I said, is still in the restocking process. In Mexico and in the US also we are gaining market share and industrial market, it’s stable. So I think the second Q is fine. What is going to happen the second half of the year? We are still seeing a demand that is robust. We are not seeing things that can change the demand we are seeing today. There are, as I said, some sectors, especially the ones that are affected by housing, that they are softening, but in a degree that is not very relevant. And we are seeing other things happening in the market that will probably increase the demand.

The re-assuring that I’m speaking, you are seeing that everywhere in the north of Mexico and a part of that reassuring comes from our own customers that are increasing their capacity so they will consume much more steel and new customers that are coming from the region. They are bringing production probably or mainly from Asia. So there is a trend that is going forward where customers are starting to consume industrial customers more steel because they are increasing the capacity they have in the region. I think that the only impact or negative impact is more the macroeconomic impact of what is going to happen with this increase in the interest rate and if this tightening will bring a so called recession in the US. I mean we have been speaking of this for some quarters now and every time we speak it seems that it is delayed the recession in the US.

Our customers today are working with outlook that they expect a softening but they don’t expect a huge recession. But nevertheless I want to emphasize that there is uncertainty and the uncertainty it’s coming from the increase in the interest rate and how this is going to affect all our industrial customers. As I said today, we are only seeing some problems or some softening in the house market. And that’s it. But I hope with this I can give you a little bit of what was the outlook demand, Caio. The second question I think it’s about Usiminas if I understand well.

Caio Greiner: Yes, on Usiminas transaction. So I was just wondering if you guys can share with us any initial plan, any short term or maybe going on adjustments investment short term that you could eventually you would see trading further increasing its stake in the company.

Maximo Vedoya: Yes, well you’re right. It’s a very good question. Caio. But as I mentioned in prepared remarks, I prefer not to elaborate a lot on the future plans for Usiminas before CADE grants its approval to the transaction. I mean, as Ternium you know, we are committed to the develop of Usiminas and I believe and we believe that the agree changes in the control group will benefit Usiminas and all its stakeholders. On the other side, you know that Brazil is very important market for Ternium and we have always been committed or excited of having this opportunity. And we will have a lot of work to do but again, once the CADE approved the transaction. My opinion is that there is a significant potential in Usiminas and we believe and our partner also believe that we have the capacity to unlock that potential to be honest, Usiminas has good assets.

Mining assets, Ipatinga and Cubatão, capable people and many opportunities to develop. On the other hand, also you have enormous challenge or a big challenge like the realigning of the blast furnace. Number three, the investments in the Coking facilities further development of the sustainability strategy, analyzing indeed all the mining operations that in the medium term has to do an investment and also to improve the competitive situation or competitiveness situation in order to regain market share that has lost in the last year. And again, I think that Ternium, once the operation is approved, taking a leadership position in Usiminas is going to help with all of these. I think that’s what I can comment on the subject, Caio.

Caio Greiner: That’s very helpful, Maximo. Thank you very much. Just actually having a follow up on the previous question. Can you guys share with –

Maximo Vedoya: Can speak, Caio, sorry, can you speak a little bit closer to the mic because we are hearing very low.

Caio Greiner: Okay. Can you hear me better now?

Maximo Vedoya: Yes, that’s perfect.

Caio Greiner: Okay, so just to follow up on the previous question, so thank you very much on the color on Usiminas, just on the shipments question, can you maybe share with us your estimate for volumes increases for Mexican operation for 2023 versus 2022? Can you share an idea of what you guys are working with in Ternium for the Mexican operation?

Maximo Vedoya: Well, yes, we have an increase. I think we are going to sustain or increase a little bit the shipments that we have in the first Q. So we are going to repeat those shipments. Second Q is going to be a little bit higher. And third and fourth Q, we are expecting to continue that trend not of increasement but of maintaining. With that I think it’s a 25% or 20 something percent increase in shipments in in year after year. You have to realize that the hot rolling mill is not running almost at full capacity. The new hot rolling ill, I mean, it’s running I think 88% of capacity. So we don’t have a lot of space to increase much more shipments. And we are going through the increase of production in the old mill. So we have some space, but we don’t have a lot of space to increase much more of our shipments.

Operator: Our next question comes from the line of Caio Ribeiro from Bank of America.

Caio Ribeiro: Good morning, everyone. Thank you for the opportunity. So my first question is on your working capital trends going forward. I think there was a big working capital release this quarter, so I just wanted to get some more color on what you expect in the coming quarters. And then secondly on USHRC trends right, after multiple price hikes since late last year, it seems that prices have somewhat stabilized lately and lead times have started to shorten a bit. So I just wanted to see if you could provide some color on what you expect in terms of price trends, particularly in the second half of the year and what you see as a sustainable medium to long term price for USHRC at this point. Thank you.

Maximo Vedoya: Thank you very much, Caio. I start with the second part and I leave working capital to Pablo. Price terms, I mean I didn’t change much my mind about what we discussed the last quarter and several quarters before. I think there is a new floor or a new normal of steel prices. And that normal is much higher than what it was before pre-pandemic values. And we see this with the new bottom prices we had last year and when they arrived at bottom, they started to increase just right after. So I think prices will remain at a stable or a healthy situation for most of the year in my respect, of course, today, as we discussed, prices increase and probably, as you said, they are stabilizing at this price of hot rolled coil.

What, in the second quarter? Probably, but I cannot say it particularly, but probably there’s going to be some adjustment. Again, my reference of prices in the future are always the new normal is around $900 or $1,000. That’s the new 600 that used to be. On the other side, I mean the raw material cost also has decreased, iron ore, carbon, natural gas in our case also so it’s normal that for the second quarter there should be some adjustment. How big is that adjustment? I think it’s not going to depends on other factors that what happens with the macroeconomic activity and the macroeconomic numbers if really there is a recession but that’s going to affect quite a little bit more. If not, I think it’s going to be the same that we are looking with the ups and downs but on a healthy level in the prices.

I hope I answered that question, Caio, at least that’s my thoughts.

Caio Ribeiro: Yes, absolutely. Thank you, Maximo.

Maximo Vedoya: Working capital, Pablo?

Pablo Brizzio: Yes. Hi, Caio, how are you? So going to your question, clearly what we are seeing now is that with the normal movement of shipments especially that we are expecting to see in the North American market, especially in Mexico, are also the growth or small growth that we are expecting also in the Southern Region market there will be a need for further uses of working capital. But not only that, we are also saying that that we are expecting to see some price increases in our pricing comparing the second to the first quarter so pulling all-in-all of course take into consideration was just Maximo mentioned that we have seen some decrease in prices of raw material. We are expected to see somewhat an increase in the level of working capital utilization.

Not that significant because pulling all the things together shouldn’t be that significant. But we will not or our expectation now is not to continue what happened in the last three quarters where we have release, and in some cases, like last quarter of last year, we have a huge release of working capital. Now we think we are entering into a process where we will be recovering a little more working capital until prices and volume adjusted to the new level.

Operator: Our next question comes from the line of Timna Tanners from Wolfe Research.

Timna Tanners: Yes. Hey. Good morning, everyone. My first question is about the elephant in the room, which is AMSA not running. I wanted to ask a few questions first about that. One is hearing reports that it could restart in Q3. Do you think that’s reasonable? Hearing Mexico has the best price in the world for steel, it’s attracting a lot of imports. Do you think those imports are sizable or modest? And do you think that it sounds like you’re saying in the second half you’re going to keep producing irrespective, but I’m just asking about the balance of potentially those imports AMSA restarting. How you think about that actually? Thanks.

Maximo Vedoya: It’s a very good question, Timna. Thank you very much. I mean I don’t know much of AMSA as probably what you everybody is hearing in the press, but I don’t know if AMSA is going to restart and if it’s restart, it’s going to restart in the third quarter. It’s clearly not going to restart at the level they used to be. I mean, as you know, the blast furnace is down, so that will take probably several years to restart a blast furnace. And imports clearly a big part of the Mexican market, and we are competing with imports, the Mexican and the US Market. But you have to understand that most of our customers are as they are relocating production to the North American market, they are also trying to source more and more from us.

So I do expect a little increase in imports, but I don’t expect that increase is going to affect the ability that we have to ship the program that we have in our programs to be abandoned. So that’s how I can answer that question, Timna. I hope it’s enough.

Timna Tanners: No, that’s great. I appreciate challenging situation. Okay, thanks. And then wanted to ask you if you can remind us about Pesquería’s qualification process and how to think about the mix improving there in terms of timing and magnitude if you could.

Maximo Vedoya: Well, remember, the Pesquería is going to starting really to show the qualification process in this quarter. So part of these 500,000 tons, if you compare the first quarter of 2022 to the first quarter of 2023, there’s not much change in consumption in Mexico, in steel consumption. In fact, 2022 against 2023 the whole year, I think consumption was flat in the country. So you’re complaining two quarters that has the same market or the same yes, in fact, I’m looking to the, and now I remember the name, the World Steel take the SRO, the Short Range Outlook and the consumption in Mexico decreased by 2.8%, 2022 compared to 2021. And there is no, I mean in 2022 was the same. And it’s not going to grow a lot in 2023.

So these increases are more increases in market share. And part of that increases is that after one year in certification, that’s the time it takes. We are increasing much more our shipments to or our market share to the industrial sector, we can expect to have roughly 100 and something 1,000 tons additional in the second quarter of this qualification process. And then it’s going to be a small increase until probably next year when there is the next round of the contracts with the customers, with the annual contract with the customers. So we have a huge increase in this quarter.

Timna Tanners: Okay, great. And I was also asking a bit about margin benefits, so maybe along those lines if you can steer us to where you expect margins. I know in the past sometimes you talk about a normal range of 15% to 20%. Suffice to say, probably be a little higher than Q1. But should we be on the high end of that range or any other color would be great?

Maximo Vedoya: Yes, you’re right. It’s a very good question, Timna, that we usually don’t want to answer. You’re right. We were in the bottom part 14% of margin EBITDA in this quarter. Our normal range we always say is between 15% and 20%. Probably in the next quarter we are going to be in the upper side of that range, most likely a little bit above that. I hope that is enough because we never say that.

Operator: Our next question comes from the line of Thiago Lofiego from Bradesco.

Thiago Lofiego: Thank you. Good morning, gentlemen. Two quick questions. First one, Maximo, can you comment on your slab integration dynamics for the coming quarters? What should we expect on that? And the second question, can you talk a little bit more about Argentina? What’s the outlook for steel demand? If you could quantify for 2023, that would be great. Thank you.

Maximo Vedoya: Thank you, Thiago. And slab integration, as you say. As I always said, it’s going through most of our slabs are going to our own facilities. If you see the numbers of shipments, I think we only ship in this quarter 60,000 tons of slabs. All the other, more than 1 million tons of slabs went to our own consumption, either in Argentina, but mainly in Mexico. So the slab integration is almost 100% today. And that’s one point. Argentina, as I said, second Q, we are still seeing demand, as in the first quarter. I mean it’s healthy demand for steel consumption. Clearly, that’s not what we expect for the rest of the year. And we think that with the variation of the GDP of the decrease, all the consultants are putting in the GDP of Argentina the whole year, probably consumption, steel consumption in Argentina, it’s going to decrease.

It’s very difficult to say the number, but our expectation is between 2% and 3% today. For the whole year, not for the second half. For the whole year.

Operator: Our next our final question comes from the line of Carlos De Alba from MS.

Carlos Alba: Yes, thank you very much. MS is Morgan Stanley for those that don’t know, just initial has . All right, so thank you very much. Good morning, Maximo, Pablo, Sebastian. Just a couple of questions. One is on the cash situation. And you clearly have a very strong balance sheet, $3 billion net cash, but I think about half of that. And I’m not sure if it is on a net cash basis or just the cash that you have in Argentina, but about half of this is in Argentina. Could you talk about the challenges that you may have, the company may have and other corporates may have in Argentina to use that high level of cash in the country, because maybe you are already investing as much as you possibly can. Your assets are in good shape.

The economy is not really expanding and the outlook is uncertain. So you might not be able to invest in growth projects right now at least. So what options do you have to use potentially that cash outside of Argentina? If you could comment on that, it’ll be very interesting. And then the second question is, and I know that this is a lesser part of your business overall, but you do have some mining operations in Mexico and there is a mining law potential change that is now sitting in Senate. What would be if approved as the bill was presented to the Senate? Have you taken a look and have a comment on what the potential impact to your business could be?

Maximo Vedoya: Yes. Carlo, thank you very much for both questions. I start with the second question. You’re right. There is a mining new law that went through the House and now it’s in the Senate. And probably it will be discussed today to be honest. We are not seeing a lot of affection in the mine. The way it went in the House, the mining as it was on the original. I think it has a huge affection to all the mining operations of Mexico, not only ours. But to be honest, there were some discussions, very helpful discussions with the Mexican government. And I think there has been a significant progress in the discussion and in the changes that the House made and the law that the House approved. There are some issues yet, to be honest.

And I think that both the senators and the Mexican government understand these things. There has to be mainly with some technical issues with the use of water. So it’s a very technical position, which I think the government didn’t mean this to be an impediment. So I think there is a goodwill to change and again, there are small changes to be made. So I think that, I don’t see a big issue today with how this is going through. Cash situation in Argentina, Pablo?

Pablo Brizzio: Okay, what a nice question to answer.

Maximo Vedoya: Yes, that’s easy.

Pablo Brizzio: So, well, first of all, you’re right on the situation in Argentina. It’s not easy to do things or to get cash out of the country. And we have a significant level of cash in our Argentina subsidiary, the first thing that you can do, and in fact we have done just this week is paying dividends. So we have just announced on Monday that the company Ternium Argentina, our subsidiary there, will pay a dividend of more than $600 million in kind in bonds. So that is one way to get some money out of Argentina. And in fact, it’s the normal way any company has to do that. Argentina is a company that traditionally pays dividend. Of course, we will not have the time to enter into details because Argentina usually has certain rules but makes things much different from a normal country.

So the process of doing deals in Argentina takes longer and has different steps to be followed. But all-in- all, I think that the most important comment to make is that because of this level of cash that we have Argentina, it was the right moment to utilize part of that cash without having any other investment project to take into consideration to distribute that part of that cash to the shareholders. And the rest of the cash, we continue to work in protecting the cash that we have over there against variations of quotation of the dollar because that our currency, and peso currency and our managing currency is the dollar and protect ourselves against the inflation effect that we are also suffering in the country. So that’s what we are doing right now.

And the company will continue monitoring very closely the situation there and try to react to that. But the best example is what we have just done, which is distribute cash to shareholders outside and in the case of , of course, we will be receiving this cash as part of 62.5% that we have of our subsidiary in Argentina. So that’s what we are doing. And in a complex situation as the one that you are seeing that Argentina is going through.

Maximo Vedoya: Carlos, I hope that clarifies both questions.

Operator: I would now like to turn the call over to Ternium CEO for closing remarks.

Maximo Vedoya: Okay, thank you everybody, for participating and making very good questions as usual. Please feel free to contact us if you have any comments, any additional questions, and we talk all in the next conference call. Thank you very much.

Operator: Thank you, ladies and gentlemen. This does conclude today’s call. Thank you for your participation. You may now disconnect.