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Ferroglobe PLC (GSM) Q2 2021 Earnings Call Transcript

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Ferroglobe PLC (NASDAQ:GSM)
Q2 2021 Earnings Call
Aug 24, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to Ferroglobe’s second-quarter 2021 earnings call. [Operator instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Beatriz Garcia-Cos, Ferroglobe’s chief financial officer. You may begin.

Beatriz Garcia-CosChief Financial Officer

Good morning, everyone, and thank you for joining Ferroglobe’s second-quarter 2021 earnings conference call. Joining me today are Marco Levi, our chief executive officer; Benoist Ollivier, Ferroglobe’s chief operating officer and deputy chief executive officer; Gaurav Mehta, our transformation director and EVP of strategy and investor relations; and Jorge Lavin, group controller. Before we get started with some prepared remarks, I’m going to read a brief statement. Please turn to Slide 2 at this time.

Statements raised by management during this conference call that are forward-looking are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Ferroglobe’s most recent SEC filings and the exhibits to those filings, which are available on our web page, www.ferroglobe.com. In addition, this discussion includes reference to EBITDA, adjusted EBITDA, gross debt, net debt and adjusted diluted earnings per share, which are non-IFRS measures. Reconciliation of these non-IFRS measures may be found in our most recent SEC filings.

Next slide, please. During today’s call, we will first review the highlights for the second quarter, as well as our business and operating environment. Then I will provide some additional details on our financial performance and key drivers behind our results. And finally, we will provide an update on the execution of our strategic plan.

At this time, I would now like to turn the call over to Marco Levi, our chief executive officer. Next slide, please.

Marco LeviChief Executive Officer

Thank you, Beatriz, and welcome to our second-quarter 2021 earnings call. We recognize that we are toward the end of summer and appreciate everyone carving out some time to participate on today’s call. This quarter marks an important inflection point for Ferroglobe and its turnaround. Since my joining of the company, one of the top priorities has been the return to profitability.

I’m pleased to report that we have delivered a positive net profit during the second quarter, and our expectation is that we will continue to build on this momentum in the near future. Overall, we are beginning to see an acceleration of our financial performance. Our top line is benefiting from robust market conditions across all our key products, which are translating into higher demand and stronger pricing despite having the lingering impact of fixed-priced contracts, which are significantly below current spot levels. The rolling off of a portion of these lower-priced contracts during the back half of the year further supports the acceleration in our performance.

On the demand side, we now expect this momentum to continue for the remainder of the year. Customers across the chemical, aluminum and steel sectors are signaling strong demand into next year, and we remain in active discussions to meet their needs for the remainder of 2021 and are even engaged in discussions for 2022 with some larger customers, well ahead of the typical negotiation season. The cost side of the equation continues to present an area of challenge. On the one hand, we are successfully executing numerous initiatives underlining the strategic plan focused on driving down production and corporate average costs.

On the other hand, we faced some cost pressures which are limiting our full potential. During the quarter, we were challenged by significantly higher energy costs in Spain, inflationary pressures in certain raw materials and idling costs in France. Furthermore, from a cash perspective, we had some onetime nonrecurring outflows relating to the purchase of CO2 rights previously sold in 2020 and financing-related costs. We remain extremely focused on cost management and seek to drive margin expansion as we stabilize the cost side of the equation and put the nonrecurring items behind us.

With regards to the financing, I need to acknowledge the hard work and contributions of our employees, our board, our investors and our advisors. This has been a long journey, and the aligning of the various components of the financing was certainly not an easy task. The successful closing of the financing, coupled with a strong market backdrop, sets the stage for an exciting back half of the year. We have several important initiatives tied to the strategic plan to complete, and the financing provides the resources and the flexibility to execute these initiatives.

At the midpoint of the year, I’m pleased that we remain on course delivered turnaround. We are systematically reconfiguring how we operate this business to ensure long-term competitiveness across the cycle and the recovery in value creation. This quarter’s financial results further validate the plan and overall execution, and we remain confident in the ability to accelerate our performance in the second half of this pivotal year. Moving ahead to Slide 6, please.

Second-quarter sales were $418.5 million, up 15.8% from the prior quarter, predominantly driven by higher average realized selling prices. During the quarter, our total volumes across all products were up 2.8%. We realized the benefit from the gradual ramp-up in silicon metal and silicon-based alloys, while manganese alloys volume was adversely impacted by higher production cost in Spain, where we had to manage our production levels, as well as being faced with some constraints in procuring manganese ore. We had strong improvement in our adjusted EBITDA.

During Q2, our adjusted EBITDA was $34.1 million, which is an improvement of 54.5% from the prior quarter. During the quarter, we returned to profitability. The net profit for the quarter was $0.7 million, compared to a loss of $68.5 million in the previous quarter. Our operating cash flow increased 107% from $18.3 million in Q1 to $37.8 million in Q2.

And despite some significant onetime cash payments, we returned to positive net cash flow of $21.6 million during the quarter. Overall, Q2 was marked by improvement in our top line, coupled with improved fixed cost absorption across our operating footprint. During the quarter, we experienced some increase in the cost of key inputs. However, the largest single jump has been energy prices in Europe, particularly in Spain, where the market price of energy has increased from approximately EUR 50 per megawatt hour in Q1 to approximately EUR 80 per megawatt hour in Q2.

For the sake of clarity, these are references to the spot prices. Despite the increase in our top line and the restart of some previously noted capacity, our working capital marginally increased by $0.6 million quarter over quarter. The continued emphasis on operational efficiency and financial discipline is translating into improvement of working capital even as the business ramps up. The net debt increased by $23.7 million during the quarter as a result of the first tranche of the new senior secured debt financing being funded in Q2.

We ended the quarter with net debt of $358 million. Please note that these are our quarter-end figures and do not reflect the pro forma impact of the incremental $20 million on the senior secured financing tranche, which closed in July. And finally, our cash balance increased by $22.1 million, ending the quarter at $106 million. We are proud of these results, but feel there is significant room for improvement due to the added benefit of our previously announced capacity restarts and the gradual price increases we are anticipating.

Furthermore, we have now passed the point of incurring significant one-off expenses tied to specific transactions. All in all, these factors should contribute to an acceleration of our financial results and a return to stronger margins. Next slide, please. Turning first to silicon metal on Slide 7.

Ferroglobe’s realized average selling price for silicon metal was $2,347 per metal ton in Q2, an improvement of 2.7% versus the prior quarter. The index or spot pricing evolution in the U.S. increased by approximately 19% during the quarter, while the European spot index increased by 9% during the same period. At the end of Q2, we have approximately 65% of our silicon metal business contracted, excluding the JV volumes.

Please keep in mind that many of these conducted volumes were at fixed prices, which were negotiated at the end of 2020 when the pricing environment was drastically different, and our average realized prices will not reflect the same pace of momentum reflected in the index until these contracts roll off at the end of the year. The volume trend chart on the top right Slide 7 shows a 9.9% increase in silicon metal shipments over the previous quarter and approximately 67,300 tons. This is partially attributable to some incremental volume following the start of one furnace the Sabon, Spain facility and one furnace in Marseille, France during the quarter. EBITDA from our silicon business improved from $14.8 million in Q1 to $17.8 million in Q2.

Pricing and volumes contributed favorably while significantly higher energy costs in Spain and higher inputs in U.S. more than offset the improvement in our fixed cost of absorption. Overall, the supply demand picture for silicon metal continues to be the best we have seen in years. On the chemical side, our customers continue to see strong demand for everyday consumer goods, as well as the benefit of new residential and nonresidential construction supporting the demand for silicon.

The demand has been surpassed our customers’ all earlier expectations for the year and has created a good tension in the marketplace going into next year. On the aluminum side, the pickup in activity is largely driven by the recovery in the refilling of the automotive supply chain in both North America and Europe. However, the recovery in auto manufacturing is negatively impacted by the semiconductor chip shortage. We expect the demand on the aluminum side will continue to grow as the industry seeks to meet the backlog of demand.

Sales into the photovoltaic market, which was predominantly in North America, is also showing some positive signs for the first time in years. With the emphasis on renewable energy and the need to secure value chain domestically, the new administration is focused on ensuring the viability of this sector domestically. We will continue to monitor the developments but are hopeful of recovering sales going into this end market in the coming years, which would further extend the demand surge. In addition to strong demand, bottlenecks in raw material sourcing and logistics have created additional barriers globally, limiting supply and further supporting the higher-price environment.

Given this backdrop, we feel good about the overall supply demand trends for the remainder of the year. As previously noted, we have started one furnace at Sabon in Q1 and another furnace in Marseille in May. At the moment, we have not made any firm plans for additional capacity restarts and continue to assess the situation. A combination of our index-based contracts, which gets reset quarterly, as well the renegotiated volumes, particularly with the capacity restarts, provide an attractive opportunity to capitalize on the broader trends.

And lastly, an update on our trade case. At this time, the silicon metal trade cases against Bosnia and Herzegovina, Iceland, Malaysia and Kazakhstan have all concluded. Overall, within the final determinations for the successful outcome to ensure an even playing field. Both on the U.S.

Department of Commerce and the International Trade Commission sides, we achieved pretty much the best results we could. Even in the case of Malaysia, while we would have liked a higher final margin, we did obtain a significant ramp increase from the preliminary rate to the final rate. While trade cases are not a core pillar of our competitive strategy. The results from this trade action have enforced importance of taking action to assure that all global market participants compete on even terms, which is critical to protect our workforce and assets.

Next slide, please. Turning to silicon-based alloys on Slide 8. During the quarter, the average selling price increased by 9.9% to $1,830 per metric tons, up from $1,665 per metric ton in the first quarter. During the quarter, we realized a 5.9% increase in sales volumes.

Sales volumes of silicon-based alloys were approximately 65,200 metric tons in Q2, about 4,200 tons higher than the prior quarter. Our silicon-based alloys are going into steel market, which has shown strong demand in the first half of the year. What started off as a recovery in demand to pre-COVID levels for steel has now accelerated due to the various infrastructure programs and construction build globally supporting continued strength in this end market. Most of the quarterly improvement in this part of our product portfolio is driven by the ferrosilicon business, which had a strong pickup in volume, as well as pricing during the quarter.

Foundry is also benefiting from the strength of the auto market. EBITDA for our silicon-based alloys business was positively impacted by prices and volumes, but offset by higher costs resulting in adjusted EBITDA of $12.8 million in Q2, up from $10.1 million in Q1. During the quarter, there was an adverse impact of approximately $7 million from higher energy cost in Spain, as well as some material inflation. Additionally, with the idling of some capacity in France, in line with our ongoing restructuring plans, we had a lower fixed cost absorption, which negatively impacted the results by $1.6 million.

Next slide, please. Turning now to manganese-based alloys. During the quarter, the average selling price increased by 20.5% to $1,414 per metric ton. However, the quarter was adversely impacted by lower shipments, which were down 5.9% relatively to the previous quarter.

The decrease in volumes during the quarter was primarily due to management of our operating times of the Spanish plans given the high energy costs. Furthermore, our previously stated plans to restart Mo I Rana were also delayed with production commencing only in July. Despite these challenges, EBITDA from this business was up over 50%, contributing $15.7 millions in Q2 versus $10 millions in the first quarter. The increase in pricing more than offset the cost pressure from energy and higher ore cost as the spread remained above historical high.

I would now like to turn the call to Beatriz to review the financial results in more detail.

Beatriz Garcia-CosChief Financial Officer

Thank you, Marco. Beginning with Slide 11, I will touch on a few specific line items on our income statement. Sales of $418 million during Q2 were 15.8% higher than the $361 million of sales in the prior quarter. This increase in sales was driven by an 11% increase in average realized prices and 2.8% increase in shipments across our portfolio.

During the quarter, our gross margin improved to 36%, up from 31% in the prior quarter. This is due to top-line growth, as well as continued cost efficiency efforts. The increase in other operating income by approximately $35 million is due to the accounting treatment relating to the CO2 emission rights. This represents the current view of the 2021 free allocated allowance of CO2 rights in Europe.

This is partially offset in other operating expenses, resulting in a minimal impact on our P&L. With regards to staff costs, Q2 marks a return to more normalized level as we had some one-off provisions relating to the restructuring in Europe. Operating expenses totaling $93.2 million was higher than the previous quarter, mainly because of the recognition of the 2021 CO2 emissions rights. The increase in activity has a reclassification to conform group presentation.

We have reported EBITDA of $31.9 million in Q2, a significant improvement versus a negative $18.9 million in Q1. When accounting for the onetime cost related to the implementation of the strategic plan, the adjusted EBITDA was positive $34.1 million. And lastly, it is worth reiterating, our return to positive net profit of $0.7 million during the quarter. Next slide, please.

Quarter over quarter, we did have a 55% increase in our adjusted EBITDA from $22.1 million in Q1 to $34.1 million in Q2. The improvement in our average realized selling price had the single largest impact, contributing $36.4 million. Additionally, strong demand result in increased volumes, which contribute an additional $2.7 million. Partially offsetting these factors was the adverse impact on cost by $27.2 million.

Approximately, half of this impact is attributable to the higher energy rates in Spain, which impact the quarter by $40 million. Additionally, we have been impacted by the raw material inflation on select inputs. The biggest contributors are manganese ore and coke in Spain, France and Norway, which accounts for $7.1 million, as well as lower fixed cost absorption in France, which impact the results by $1.6 million. In addition to this, we also had a different mix of products in silica fume and byproducts, representing a decrease of approximately $2 million when compared to the previous quarter and the impact of an accrual of sales, which adversely impact the quarter by approximately $1 million.

Slide 13, please. Turning now to Slide 13. I will review our balance sheet in greater detail. At the end of the quarter, our cash and restricted cash balance was $106 million, up from $84 million in Q1.

Total available cash increased from $78 million in Q1 to $100 million in Q2. Total assets were approximately $1.4 billion at the end of Q2, an increase of $107 million over the prior balance at year-end due to the allowance of CO2 rights and the capitalization of deferred financing fees. The gross debt at quarter end was $464 million, up from $418 million. During the quarter, we raised $40 million of the $60 million of new super senior secured financing.

Additionally, we had the impact of the interest accrual under the prior senior notes. Please note that the additional financings, which closed in July are not reflected in these Q2 balances. Net debt increased to $358 million, up from $334 million in Q1. Despite an increase in our overall activity, our working capital remained flat quarter over quarter.

Overall, we continue to manage our working capital as part of the broader strategic plan. We have introduced new tracking tools for inventories of raw materials and finished goods with the goal of optimizing this level through the cycle. As such, we are defining key metrics related to working capital on the basis of tracking it as a percentage of sales. Next slide, please.

During the second quarter, we had a significant increase in our operating cash flow, which improved from $18.3 million in Q1 to $37.8 million. Unlike the prior quarter, the increase in operating cash flow is primarily driven by the improvement in reported EBITDA, while the cash impact from working capital remains relatively flat. Cash flow from investing activities was negative $43.5 million and is primarily attributable to the CO2 rights. And finally, cash from financing activities contribute $27 million.

While we raised $40 million, there was $11 million in debt issuing cost and $2.3 million ascribed for the interest payment relating to the reduced loan. Overall, this quarter marked a return to positive net cash flow, totaling $21.6 million. Next slide. On July 30, we announced the occurrence of the transaction effective date under the lockup agreement dated March 27, which marks the completion of the financing process.

As part of the transaction, 98.588% of the prior 9 3/8% senior noteholders exchanged into the new 9 3/8% senior secured notes. The new notes push out the maturity from 2022 to 2025, mitigating the risk of any material near-term maturities. Since we did not get 100% participation in the exchange, there is a small stub amount of approximately $5 million of the notes which will need to be repaid in March 2022. Additionally, we received $40 million in aggregate proceeds from the issuance of ordinary shares.

Following the equity issuance, our share count is now approximately 187 million shares. And finally, we closed on fund the remaining $20 million of the $60 million of new super senior notes. Overall, we feel this is a good outcome for the company. The ongoing support by existing investors, as well as new investors certainly reinforces the broader confidence in our turnaround plan and execution.

And with the new financing now in place, we have the resources to complete a few critical initiatives of the plan, as well as maintain flexibility to run our operations. Once again, we thank all the parties involved for their hard work and contribution in what was a complex transaction. At this time, I would like to turn the call back over to Marco who will provide an update on the strategic plan.

Marco LeviChief Executive Officer

Thank you, Beatriz. Now turning to Slide 17. In terms of our strategic plan, we remain on track to meeting our financial targets set this year. Underlying the various value-creation areas are over 450 individual initiatives.

As you can appreciate of the project of this size, there are areas where we are surpassing our targets for the first half of the year and other areas that are lagging. Overall, on the EBITDA side, we have captured $16.5 millions of benefit for the specific initiatives, representing 30% of our $55 million target saving for the year, as well as 99% of our $49 million working capital target. On the cost saving time, it is worth reiterating that the savings are not expected to phase in linearly throughout the year. In other words, the 30% of the target we have captured through the first half is right in line with our expectations as the benefit of many of the — some larger initiatives is weighted toward the back half of the year.

In terms of some noteworthy milestones for the quarter, let’s start with footprint optimization. In Spain, the consultation period has successfully concluded with the agreement with the legal representation on the workers and communication around the collective dismissal to the label authority. At this stage, all employee business and letters have been issued, and most of the employees affected have already left the company. In France, the process is longer, and we continue to have constructive discussions with the worker council.

We are confident that we can conclude the negotiation process in Q4. On the centralized purchasing, we continue to find opportunities as the company adapts to the new way of operating. What started out as a focus primarily on consumables is also expanding in scope to include the potential purchasing of raw materials and evaluation of energy contracts in a more efficient and impactful manner than our historical practice. Overall, we saw some positive results from new tenders launched during the quarter and conducted new product-specific studies, which give us confidence that we will continue to drive cost savings in this area well beyond our initial estimates.

Commercial excellence has also been a strong contributor this year. A combination of improved market analytics, customer relationship building, improved customer service and more disciplined decision-making are all translating into strong contribution in this area. The strongest validation of the changes we are driving in this area is the positive feedback from customers who are actively engaging with us with regards to strategic collaborations. As we go back to basics and continue to develop best practices, we will not only see a noticeable impact on the top line, but tremendous improvement in our ability to make operational decisions, optimization of our supply chain and working capital.

On the other side, we faced some delays in monetizing new operational excellence initiatives given few operational disruptions at specific facilities. For example, at our Bridgeport facility in U.S., we had electrode issues, which resulted in a deterioration in our technical performance during the quarter. Since the key technical metrics plan is tied directly to the operations, any disruption of the facility has an adverse impact on the technical performance and cost savings captured from this work stream. In fact, the way we measure success is cumulative.

So some savings captured in Q1 were reversed in Q2. At the moment, our plan is to fully reinitiate the key technical matters program in Q3. And lastly, on working capital, the tremendous effort on establishing metrics and processes to manage our inventories, coupled with strong market demand for the first half of the year, result in nearly $49 millions of improvement on a rolling 12-month basis on top of our goal for the year. In general, we track working capital as a percentage of sales to assess the relative improvement as the business ramps up.

Overall, we are pleased with the transformation of the company. However, the financial results only tell a portion of the story. We have discussed the need to drive a new culture centered on One Ferroglobe mindset to driving excellence in all areas of the company. While this certainly doesn’t happen overnight, I’m proud of the progress we’re making each day to drive change throughout the organization.

I remain confident in our team’s ability to deliver on the various targets we have set for the year and look forward to updating you on our journey through this forum and others. At this time, I will ask the operator to please open the line for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] And our first question comes with Patrick Chatkupt with Rubric Capital. Your line is open.

Patrick ChatkuptRubric Capital — Analyst

Thank you. In the second quarter, how much were the onetime CO2 costs embedded in adjusted EBITDA related to the repurchase of the 2020 credits you previously sold? And given you’ve completed the repurchase of the CO2 credits, going forward, should we expect net CO2 cost to be a roughly zero impact to your adjusted EBITDA?

Beatriz Garcia-CosChief Financial Officer

Thank you, Patrick. As we have been discussing, the accounting impact on our financial statements over the past few quarters has reflect the unique situation relating to our prior sales of credit in 2020 and then the subsequent repurchase of those credits. So I certainly appreciate your question to clarify these points. First of all, let me begin by highlighting that our quarterly results during the first half of 2021 have been adversely impacted by these repurchases and the P&L results are certainly diluted due to these one-off charges, which are now behind of us.

And to your first question very specifically, in Q2, we had an $8 million charge relating to the mark-to-market impact for CO2 units, which we have accrued for in Q1. So the mark-to-market impact is due to the fact that the market cost of the corresponding unit increased from the end of Q1 to the time of actual purchase in Q2. As you will recall, we have a similar charge of $8.8 millions in Q1. With regards to the second part of your question, what could be the cost in our P&L going forward, I think we will not have any mark-to-market expenses relating to the CO2 going forward significant as all the CO2 repurchases are completed in Q2, yes? So that’s the point number one.

And let me just highlight a couple of other points on CO2, maybe, although I already answered your 2 points, is that beyond the P&L, there was a catch-up impact of $41 millions during Q2 as we purchased the remaining balance of the rights, right? So hopefully, this answers your question. I can elaborate more on CO2, but I think I replied to the point to your two comments, Patrick.

Patrick ChatkuptRubric Capital — Analyst

Great. And so to follow up then. So to normalize your second-quarter operating performance, we should add back the onetime CO2 cost of $8 million and the France idle cost of $1.6 million, correct? 

Beatriz Garcia-CosChief Financial Officer

Right. That’s the right way. That’s the right way to read it.

Patrick ChatkuptRubric Capital — Analyst

Got it. And then, could you give any more color on just the silicon metal market dynamics and pricing outlook into the second half and into next year? 

Marco LeviChief Executive Officer

Yeah, Patrick, this is Marco speaking. I will address this question. The silicon market has been booming in terms of demand since Quarter 4 last year, and demand has been robust all this year, and we see it in this way also for next year. And combined with strong demand, pricing has been extremely robust.

If you go back to my comments on the index pricing, index pricing showed that pricing is very solid and is further developing as we speak. The point for us is that while last year having about 70% of our business on fixed yearly price in silicon metal, we had the benefit because prices really went to record-low levels below, let’s say, EUR 1,500 per metric ton in Europe, while we had prices close to EUR 2,000 this year. We had the opposite effect on this large portion of our silicon metal as we have about 25% of our volume which is between spot and index. And this part of the business keeps on improving during the year in line with the index improvement. 

Patrick ChatkuptRubric Capital — Analyst

OK, great. Thanks.

Marco LeviChief Executive Officer

Maybe an additional comment is that, last year, we had the benefit. This year, we are penalized on fixed pricing. Next year, we will be rewarded because the current price level is much more attractive than the current contract price.

Operator

Thank you. And your next question comes from John Rolfe with Crescent Rock Capital. Your line is open.

Unknown speaker

Yes, my question has actually already been answered. Thank you.

Operator

Our next question comes from John Segrich with Clear Sky. Your line is open.

John SegrichCleark Sky Advisers — Analyst

Yes, hi, guys. Look, there’s been a lot of discussion about the sourcing of silicon metal. In particular, the U.S. has banned imports from Hoshine.

Most of the major polysilicon producers, WACKER and everyone, all are buying from Hoshine. So have you started to see much more interest in procuring silicon metal from yourselves so that they can meet their requirements to be able to bring solar into the United States?

Marco LeviChief Executive Officer

Well, at the moment, we are talking about only words about that. We don’t have official volume requests. But there are strong indications that demand in U.S. will be up already next year due to solar demand.

We are — being one of the leaders in the Western world, we are in contact with all the customers that you have mentioned. And I wanna underline that one key request of the main customers is secure volume for the foreseeable future even on the long term in particular in the U.S.

Operator

Thank you. Our next question comes from Brian DiRubbio with Baird. Your line is open.

Brian DiRubbioBaird — Analyst

Good morning, Marco. Good morning, Beatriz. A few questions for you. Can you just remind us what your capex spend is gonna be for 2021? And what are you still thinking for 2022? 

Marco LeviChief Executive Officer

Yeah, our capex plan — capex spending for this year is $40 millions, and we are now running the budgeting exercise for 2022. But like we declared in the past, we are aiming in combination with improvement of the results of the company to get to a level of $75 millions per year. 

Brian DiRubbioBaird — Analyst

OK. And then, as it relates to silicon metal, you mentioned that having fixed prices helped you in 2020, hurting you in 2021. Do you foresee your customers maybe looking to index more going into 2022, given some of the volatility we’ve been seeing in raw material prices?

Marco LeviChief Executive Officer

Well, we have started negotiations already for 2022. I want to emphasize that the focus is more on security of supply, and we are — with some customers, you are right. We are evaluating different kind of price mechanisms with maybe part of the volume on fixed and part of the volume on index. But none of these new deals has been closed yet.

Brian DiRubbioBaird — Analyst

OK, that’s great. I’m trying to get a sense — and I know you don’t want to negotiate or show your hand on pricing, but can you give us any sense of what percentage of your raw materials or your products represent as a percentage of your customers’ prices? Sir, is that a fair way to think about it? And if you look at steel aluminum costs, I mean, our prices, those have gone up pretty sharply this year. Do you generally see silicon metals sort of matching those price increases that they’re seeing in their products? Do you see getting a little bit better pricing or a little bit worse versus what their end products have done? Can you help us with that correlation?

Marco LeviChief Executive Officer

Well, we haven’t made this correlation. But when you look at our downstream businesses, all of them have dramatically improved in terms of results. When you look at the big chemical players with their silicon business or all the steel industry, all of them have improved significant their results during the year. So pricing has been very, very robust.

Brian DiRubbioBaird — Analyst

OK, that’s helpful. And I missed this when you were speaking about it before, but could you just repeat what the impact from the shipping delays you had on the manganese-based alloys? How much that was in terms of volumes and possibly EBITDA?

Marco LeviChief Executive Officer

Well, in terms of volumes, we reported in — let me go to the slide so that I don’t give you the wrong number. In manganese-based alloys, our volumes were down 5.9% versus the previous quarter. And this has been a combined effect of not restarting production in Mo I Rana in the second quarter in Norway and about managing our capacity in Spain because of the high energy cost. At the same time, we had some hiccups in the supply of manganese or manganese ore and as a consequence, our volumes dropped 5.9%. 

Brian DiRubbioBaird — Analyst

OK. And I guess, final question for me. You talk about potential new demand from the solar industry. Can you give us any sense if that does come to fruition, will that require the company to build new capacity, either U.S.

or in Europe? 

Marco LeviChief Executive Officer

Well, the — when I look at the current situation, the answer is, yes, this requires new capacity. I wanna remind you that we have an asset idled in the United States in Selma, Alabama that can be restarted. We have even more capacity at another idled asset, always talking about silicon metal, in Polokwane, South Africa. So in case demand rises and new demand from solar comes, particularly in the United States, these are the options.

Of course, there are also — we have some flexibility also related to the fact that some of our furnaces can be converted from ferrosilicon to silicon or vice versa. So we have different options to address our — this potential positive change in demand.

Brian DiRubbioBaird — Analyst

Great. And just last question for me. Beatriz, with the small remaining piece of the old 9 3/8% notes, are you just going to wait for them to mature in March? Or are you — does it just make sense just to call them and get them off the balance sheet now? 

Beatriz Garcia-CosChief Financial Officer

Well, that’s — thank you for the question. I think, for the time being, it’s something that we are in discussion, so I will be able to answer to your question on that front. So I would say that at the latest would be March 2022, let me put it like this. 

Brian DiRubbioBaird — Analyst

Very good. Thanks for the time.

Marco LeviChief Executive Officer

Thank you.

Beatriz Garcia-CosChief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Brian Charles with RW Pressprich. Your line is open.

Brian CharlesR.W. Pressprich & Co. — Analyst

Good morning. Thanks for taking my question, and congratulations on the quarter. I just have a couple of quick questions. One, just so I’m characterizing the silicon metal contracts correctly, I think you said 65% of them are under contract now or 65% of your volume is contracted at the prices negotiated in 2020 that will roll off by year-end 2021.

Does that mean these contracts roll off at the end of 2021? Or will they be rolling off gradually over the second half of the year? 

Marco LeviChief Executive Officer

Thanks for the question. Yeah, probably I was not clear myself. We have 65% of the silicon metal that we trade under contract. And this is basically at fixed price for the year.

So you will see a new price only as of January 1, 2022. On top of it, when you evaluate our silicon metal business, you have to consider that also our volume in joint venture is at fixed price for the year. Does it help? 

Brian CharlesR.W. Pressprich & Co. — Analyst

OK.

Marco LeviChief Executive Officer

You’re right, we have about, like I said, 25% of the volume which is either on quarterly index or on spot price, and this 25% keeps on moving up as we speak.

Brian CharlesR.W. Pressprich & Co. — Analyst

OK, good enough. Thanks. And then, secondly, just sort of housekeeping. I think, in the cash flow summary, you had about $11 million of debt issuance costs.

And I think, in one of your recent filings, you estimated about $38 million of related cash and fees associated with the debt extension and the capital ways. Am I correct then in assuming that about $27 million will be booked in the third quarter? Or am I missing something that might have been booked in the second quarter? 

Beatriz Garcia-CosChief Financial Officer

So you’re right. So we spent $11 millions in Q2 and the remaining up to the $37.5 millions that you — that we mentioned will be incurred in Q3. Let me say that we as well incurred but this is not material part of this cost in Q1 2021 and even a small part in Q4 2020. 

Brian CharlesR.W. Pressprich & Co. — Analyst

OK, good enough. All right. That’s it for me. Thanks.

I appreciate it.

Marco LeviChief Executive Officer

Thank you.

Beatriz Garcia-CosChief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Michael Lam with Janice. Your line is open.

Unknown speaker

Yeah, I wanted to go back to that contract question because in the press release, you say that “it’ll roll off in the back half of the year.” Doesn’t that lead that some contracts roll off before year-end? Because I was just trying to read what’s meant by rolling off during the back half of the year in terms of contracts?

Marco LeviChief Executive Officer

Well, it is related to the fact that — maybe we have not been clear enough on this. You’re right. But it is related to the fact that when we contracted volumes for 2020, customer expectations in terms of demand were much lower than what they are today. And as a consequence, we supply the contracted volume at the agreed fixed price, but the additional volumes come at market.

Unknown speaker

It’s a lower percentage because you create that volume. I see. That’s makes sense. OK.

All right. That’s very clear. Second question is U.S. ferrosilicon prices are now trading at or up to what I’ve recently read has been at a very high premium to Europe and to European prices.

So the question I have is how much of — did you also forward-sell about 65% of ferrosilicon, as well as silicon metal and so it’s under the same kind of price dynamics for this year? And in terms of what I’m reading about critical shortages of FeSi in the U.S., how are — have you had any issues in terms of shipping more FeSi from your other locations to the U.S.? Is the logistics issues that is causing the price premium to be so high and to what extent can you capitalize on that? 

Marco LeviChief Executive Officer

OK. I wanna make sure I captured all your question. You want to know the — how we price ferrosilicon and then supply/demand in the U.S. These are your questions, correct? 

Unknown speaker

Yes, yes. Like, exactly how much of your ferrosilicon is contracted? And second question is, given the price premiums, how are you capitalizing on it? 

Marco LeviChief Executive Officer

Yeah, so for ferrosilicon, we have about 50% of the volume, which is contracted on annual index, which means that we adjust the price either quarterly or monthly, and the rest is freely negotiated, OK? So we are normally a very small percentage, about 5% of the total volume that is on yearly price. In talking about the U.S. for ferrosilicon, we supply our ferrosilicon demand only from Bridgeport. As far as I know, since I have been in charge, we have not supplied the U.S.

from our plants in Europe with ferrosilicon. 

Unknown speaker

OK, OK. And if you don’t mind may I ask another question for the — two questions, please. Is Niagara Falls permanently closed? There’s no chance of reactivating given these high prices? And the second question is more of a technical question. So this is more of a engineering question, if you don’t mind me asking.

But in Metals Bulletin, I was reading about ferrosilicon demand has been strong because of increased use of steel scrap as a warming agent? Does that make any — I don’t understand what Metals Bulletin is talking about there, but could you — if you don’t mind me asking an engineering question as well. Thank you.

Marco LeviChief Executive Officer

No, we will try to answer the engineering question. Sorry, I was distracted by the engineering question. Your first question was?

Unknown speaker

Niagara Falls, is it permanently closed?

Marco LeviChief Executive Officer

Yes. Yes. It’s — Niagara Falls is shutdown forever. While the plant, as I mentioned before, in Selma, Alabama is a plant that can be restarted. 

Unknown speaker

Gotcha. OK. 

Marco LeviChief Executive Officer

Do you want to take the engineering, Benoist?

Benoist OllivierChief Operating Officer and Deputy Chief Executive Officer

I haven’t understood fully the question. So you’re asking —

Unknown speaker

Let me quote the line from Metals Bulletin. Metals Bulletin says ferrosilicon is used as warming agent for steel scrap versus iron ore. That’s what they are saying. And saying that part of the reason why ferrosilicon demand has been stronger has been increased use of scrap steel.

And I don’t understand why that would be. If you can ask an engineering question. But it seems we are esoteric, but I just found it interesting because I read that.

Benoist OllivierChief Operating Officer and Deputy Chief Executive Officer

It’s because the silicon, which is presented as silicon metal in the ferrosilicon will get oxidized and free out some heat when reacting with the steel. So the dissolution of the silicon units into the steel free up energy in the steel and warm it up. So this is correct.

Unknown speaker

OK, thank you very much. That’s all the questions.

Operator

Thank you. And that’s all the questions in the queue. I’d like to turn it back to Marco Levi for closing comments.

Marco LeviChief Executive Officer

Thank you. That concludes our second-quarter earnings call. As I mentioned at the beginning of the call, we entered the year with a clear plan. The financial trend line certainly highlights that things are moving in the right direction despite the onetime charges, which distort our first-half results.

A normalization of our results, along with the strong operating backdrop, is expected to accelerate our performance in the back half of the year. Furthermore, we will continue to work with our customers to ensure strong partnerships and service for the remainder of the year, particularly as we get into the heart of the negotiation season. We remain excited about the future and look forward to speaking with you soon. Thanks, again, for your participation.

Have a great day.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Beatriz Garcia-CosChief Financial Officer

Marco LeviChief Executive Officer

Patrick ChatkuptRubric Capital — Analyst

Unknown speaker

John SegrichCleark Sky Advisers — Analyst

Brian DiRubbioBaird — Analyst

Brian CharlesR.W. Pressprich & Co. — Analyst

Benoist OllivierChief Operating Officer and Deputy Chief Executive Officer

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