U.S. markets closed
  • S&P 500

    3,298.46
    +51.87 (+1.60%)
     
  • Dow 30

    27,173.96
    +358.56 (+1.34%)
     
  • Nasdaq

    10,913.56
    +241.26 (+2.26%)
     
  • Russell 2000

    1,474.91
    +23.09 (+1.59%)
     
  • Crude Oil

    40.04
    -0.27 (-0.67%)
     
  • Gold

    1,864.30
    -12.60 (-0.67%)
     
  • Silver

    22.99
    -0.21 (-0.91%)
     
  • EUR/USD

    1.1639
    -0.0037 (-0.31%)
     
  • 10-Yr Bond

    0.6590
    -0.0070 (-1.05%)
     
  • GBP/USD

    1.2744
    -0.0007 (-0.06%)
     
  • USD/JPY

    105.5590
    +0.1570 (+0.15%)
     
  • BTC-USD

    10,708.09
    +11.10 (+0.10%)
     
  • CMC Crypto 200

    230.19
    +12.36 (+5.67%)
     
  • FTSE 100

    5,842.67
    +19.89 (+0.34%)
     
  • Nikkei 225

    23,204.62
    +116.82 (+0.51%)
     

Edited Transcript of GCC.MX earnings conference call or presentation 29-Jul-20 3:00pm GMT

Q2 2020 Grupo Cementos de Chihuahua SAB de CV Earnings Call

Jul 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Grupo Cementos de Chihuahua SAB de CV earnings conference call or presentation Wednesday, July 29, 2020 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Héctor Enrique Escalante Ochoa

Grupo Cementos de Chihuahua, S.A.B. de C.V. - CEO & Alternate Proprietary Director

* Luis Carlos Arias Laso

Grupo Cementos de Chihuahua, S.A.B. de C.V. - Director of Administration & Finance

* Ricardo Martínez

Grupo Cementos de Chihuahua, S.A.B. de C.V. - Head of IR

================================================================================

Conference Call Participants

================================================================================

* Adrian E. Huerta

JPMorgan Chase & Co, Research Division - Senior Analyst

* Alejandro Chavelas

Crédit Suisse AG, Research Division - Research Analyst

* Coleman Lee Clyde

HSBC, Research Division - Analyst, Global Consumer and Luxury Brands

* Eric Neguelouart

BofA Merrill Lynch, Research Division - Research Analyst

* Francisco Suarez

Scotiabank Global Banking and Markets, Research Division - Associate Director of LatAm Utilities

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and welcome to GCC's 2020 Second Quarter Earnings Call. Before we begin, I would like to remind you that this call is being recorded. (Operator Instructions)

Please note that a slide deck will accompany GCC's earnings results webcast. The link is available on the company's website at gcc.com within the Investor Relations section. There will be an opportunity for you to ask questions at the end of today's presentation.

At this time, I would like to turn the call over to Ricardo Martínez, Head of Investor Relations. Please go ahead.

--------------------------------------------------------------------------------

Ricardo Martínez, Grupo Cementos de Chihuahua, S.A.B. de C.V. - Head of IR [2]

--------------------------------------------------------------------------------

Thank you, operator. Good morning, everyone, and thank you for joining GCC's earnings call. With me today are Enrique Escalante, our Chief Executive Officer; and Luis Carlos Arias, our Chief Financial Officer.

As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent filings with the Mexican Stock Exchange.

As seen on Slide 2, our forward-looking statements provide information about risk factors, including the effects related to COVID-19 that could affect our financial results. There is significant uncertainty about the duration and anticipated effects of the pandemic. GCC's outlook could change. The effects on the company's business and its results are our best estimates based on the information available today.

Let me now turn the call over to Enrique.

--------------------------------------------------------------------------------

Héctor Enrique Escalante Ochoa, Grupo Cementos de Chihuahua, S.A.B. de C.V. - CEO & Alternate Proprietary Director [3]

--------------------------------------------------------------------------------

Thank you, Ricardo, and good morning, everyone. First off, on behalf of all of us at GCC, we hope that each of you, your loved ones, colleagues and friends are safe and healthy. Our thoughts go out to all those impacted by COVID-19 and in (inaudible) suffered by racial injustice across the U.S. We are committed to the health and safety of our workforce, especially the effect of the pandemic as well as greater quality, diversity and inclusion in our company and in our communities.

On today's call, I will discuss these and the drivers of our performance this past quarter. Luis Carlos, our CFO, will review GCC's financial results, and then we will -- he will turn the call back to me for closing remarks. After that, we will take your questions.

Turning to Slide #3, please. We delivered strong operational results for the second quarter of 2020. GCC had solid bottom line growth and our EBITDA margins reflected the successful execution of cost and expenses reduction planned throughout GCC. Sales increased by 1% for the quarter and 5% year-to-date, despite the well-known slowdown of the world's economy is facing now.

As reported in our quarterly results released yesterday, our Q2 2020 results in the U.S. were driven by solid demand and strong shipments while benefiting from easier comparisons. As a reminder, result in the first half of 2019 were impacted by several onetime expenses and by an unusually wet spring and floods in most of our U.S. markets. However, the second half of 2019 recovered with strong volumes. So we will have easy comparables for the first half and a more challenging comparable for the second half of this year. In Mexico, as expected, second quarter results were negatively impacted because most of our customers remain closed in compliance with the national lockdown.

Let me now provide a more detailed review of our business main drivers, starting in the U.S., I will then review GCC's Mexico operations. Please turn to Slide 4. As you know, in the U.S., construction was deemed an essential industry. As a result, our sales for the second quarter in the U.S. increased 9%. Cement and ready-mix volumes rose 4% and 17%, respectively. These volumes were supported by hitting the start of the construction season, riding the construction industry tailwinds with natural inertia from many projects in the pipeline that already started and a relatively good weather.

In El Paso, Texas, infrastructure projects continue to be the main growth driver. Strong quarterly consumption from the big Air Force based project generated favorable margins. Regarding the Permian Basin in West Texas, we saw pressure on prices in this market beginning last year. This was magnified by the COVID-19 including a decrease in oil demand and sharp drop in oil prices. Consequently, oil well cement volumes have declined around 50% with some signs of stabilization at the end of the quarter supported by the recent oil price recovery. Some customers comment, they feel the market has reached the bottom line, and they expect a slow recovery, more importantly, towards the fourth quarter of this year.

Consequently, we decided to temporarily idle 1 of the 2 kilns in our Odessa, Texas, cement plant and have stopped supplementary shipments of oil well cement from the plant in Chihuahua, Mexico, and Tijeras, New Mexico. As I have mentioned in previous calls, oil well cement accounted for only 9% of GCC's 2019 (sic) [2020] total cement 0volumes.

On Slide 5, in Colorado, we continue to see a strong, stable performance with high levels of activity from public infrastructure projects. The single-family residential segment shows signs of reaching the inflection point as families look for more space.

Turning to our Midwest operations. The wind farm construction sector in South Dakota and Iowa was the strong driver for demand in the quarter. We have a considerable number of ongoing projects, and we continue bidding on new projects for 2021. A strong demand for renewable energy and remaining tax credits will continue to fuel this segment for the foreseeable future. To supplement the increasing demand in the Twin Cities area, we are opening a second GCC cement terminal. Complementing our current terminal in the south part of town, the new one will be located north of Minneapolis. This new terminal will allow us to increase cement shipment from the recently expanded cement plant in Rapid City, South Dakota. This will leverage our distribution network and expand our market presence in the north side of the city, which we are currently unable to cover well due to traffic congestion difficulties in the Twin Cities.

In terms of pricing, as we have previously announced, the effective date of the price increase was postponed from first April 1 to June 1, a total delay of 60 days. The price increase is currently in place. In some markets, we experienced a little pushback to the increase, but we successfully increased between $4 and $6 per short ton across all of our markets, except in oil well cement.

On Slide 6, in mid-March, in order to support our long-standing oil well customers, we offered a temporary $10 per ton price reduction. Given the ongoing challenges in that market, we decided to extend the discount until the fall. By then, our customers expect to have better clarity on the implications of economies reopening and the impact on oil demand. Insight for the 2021 should include the OPEC+ production agreement and the overall macro conditions. Our expectations would be to eliminate the discount in the fourth quarter of this year.

Except for the oil well cement, our market segments in the U.S. are performing much better than expected. In infrastructure, several projects accelerated during the quarter as lockdown significantly reduced traffic. This allows contractors to move more quickly on some roads and bridge projects. In addition, most of these projects are already funded by the DOTs throughout the end of this year.

Our backlog continues to be encouraging with several sizable industrial projects, including Amazon's distribution centers in El Paso, Texas, Albuquerque, New Mexico and Sioux, South Dakota.

Our cement shipments remain strong to the point that with the additional infrastructure projects, we practically made up the shortfall felt from the oil well market. We have not seen any relevant award cancellation so far. As of today, we are still above last year's level.

Turning to our Mexico operations on Slide 7. Even though the Mexican government deemed the cement industry essential, most of our primary customers were not. Mining, construction and housing were all forced to shut down operations in April and May. That led to a 21% decrease in sales in Mexico in the second quarter. Cement and ready-mix volumes declined by 7% and 24%, respectively.

At the same time, the depreciation of the Mexican peso against the U.S. dollar reduced Mexico sales by around USD 12 million. On June 1, those segments were allowed to reinitiate operations, and we have seen a stable return in cement volumes across our market. The self-construction segment has been very resilient. Quarantine and work from home triggered construction projects, which increased our sales of bag cement.

Finally, regarding our sustainability strategy on Slide 8. As an active member of the Global Cement and Concrete Association, GCCA, this year, we are going to reach an important milestone by reducing net CO2 emissions by 9%. We remain on track to reach our 2030 target of reducing net CO2 emissions by 22%. Part of our strategic plan to reach this goal is sourcing 25% of our thermal energy are consumed from alternative fuels, enabling us to reduce the usage of conventional fossil fuels.

In line with our ESG goals, at GCC, we foster transparency and disclosure. 2020 will be our first year to participate in the SAM Corporate Sustainability Assessment, which is an annual evaluation of company's sustainability practices and performance. The SAM evaluation is now part of Standard & Poor's Global and has become the basis for numerous S&P ESG indices and has been one of the foremost global sustainability benchmarks. Results will be publicly available at the end of this year and will be a turning point for GCC to track our disclosure and performance in the adoption of ESG global best practice.

We released our annual sustainability report in April. It is available on our website. I would like to share some of the key highlights with you. For the second consecutive year, the Pueblo Cement plant earned EPA’s ENERGY STAR certification with one of the high scores in the cement industry. Also, GCC entered into long-term agreement with renewable energy providers to supply 20% of Mexico electric consumption and 100% of the electricity at the Odessa Cement plant. In 2019, more than 9% of fossil fuels were substituted for alternative fuels.

GCC joined Innovandi, a newly formed GCCA Research Network to ensure that we are on the leading edge of innovation, benefiting from global research and actions for a sustainable future. We received a great place to work designation for the first time in the U.S. and increased our ranking in Mexico to 14. 2019 was also GCC's 15th consecutive year being recognized as a social responsible company awarded by the Mexican Center for Philanthropy. As you can see, sustainability is an integral element of our business strategy. Thus, we will continue combating climate change throughout our organization.

Thank you for your attention. I will now turn the call over to Luis Carlos to review the quarter's financial results.

--------------------------------------------------------------------------------

Luis Carlos Arias Laso, Grupo Cementos de Chihuahua, S.A.B. de C.V. - Director of Administration & Finance [4]

--------------------------------------------------------------------------------

Thank you, Enrique, and good morning, everyone. While we do not expect the pandemic, we were convinced GCC enters these challenging times in a very solid financial position. Regardless, GCC quickly deployed a comprehensive plan to reduce costs and expenses. Our employees found ways to do more with less, while abiding by new safety protocols and standards. We see that our plan is bearing fruit ahead of schedule. From the $15 million in annual savings announced last quarter, we have already achieved around $11.5 million. Furthermore, we have identified an additional $5 million, totaling $20 million in savings, plus a referral in CapEx of around $25 million. We do more with less efficiently, while we look for a perfect balance between short-term profitability and long-term value creation, all without compromising any of our operations, our employee safety or taking unnecessary risks. We are evaluating how much of these savings are sustainable in the future, aiming to permanently maintain as much as feasibly possible. We will keep you informed in the coming conference calls.

Turning to Slide 11. For the second quarter, consolidated net sales increased by 1%. This was mainly driven by the increase in cement and concrete volumes in the U.S., which were somewhat offset by Mexico's results in both businesses. Additionally, the Mexican peso depreciated against the U.S. dollar reducing Mexico sales by around $11 million. Excluding the FX effect, consolidated net sales will have increased by 6%.

On Slide 12, cost of sales as a percentage of revenues decreased 5 percentage points to 68%, mainly reflecting favorable barrel cost and production expenses, better cement prices in Mexico and concrete prices in the U.S., lower freight costs due to lower cement shipments to the Permian region, operating leverage, the execution of the cost and expense reduction plan as well as the absence of 2019 onetime expenses associated with the Rapid City plant and purchased cement and coal. This was partially offset by a lower share of higher margin contribution sales in Mexico.

Selling, general and administrative expenses as a percentage of sales decreased 1 percentage point to 8% in the quarter, mainly due to the depreciation of the Mexican peso relative to the U.S. dollar and the execution of the cost and expense reduction initiatives.

As a result, as we go straight on Slide 13, EBITDA increased 15% in the quarter with a 420 basis point margin expansion, climbing to 33.7% at the end of the quarter and 30% EBITDA margin for the first half of the year.

Turning to Slide 14. Net financial expenses fell 24% in the quarter due to a decrease in financial expenses, resulting from lower interest rates on the variable portion of GCC's debt, which were partially offset by a higher debt balance resulting from drawing one of our revolving credit lines. Income tax by contrast increased $6 million year-on-year due to a higher income before taxes, partially offset by a higher share of U.S. pretax income in the consolidated results, which carries a lower income tax rate. As a result of these factors and with benefits of strong operating and financial results, earnings per share and consolidated net income increased 32% to $33 million in this quarter and 71% to $49 million year-to-date.

Moving to our cash generation on Slide 15. Free cash flow was $35 million in the second quarter of 2020 compared to negative $15 million in 2019. This was mainly driven by increased EBITDA generation after operating leases, lower interest expenses and cash taxes, decreased maintenance CapEx and more efficient use of working capital. In light of this, I will point out the improvement made in controlling payables, receivables and inventories. Based on last 12 month sales, we reduced days in net working capital from 77 (sic) [70] to 64 but a total reduction of 13 days in the first half of this year.

Turning to our balance sheet. We ended the first half of 2020 with $422 million in cash and equivalents, including $50 million withdrawn from our revolving credit lines in April. Please note that as of June 2020, our net debt-to-EBITDA ratio dropped to 0.96x, placing our balance sheet as one of the strongest and healthy in our industry.

During our Annual General Shareholder meeting in April, an annual dividend payment of MXN 0.94 per share was declared. Yesterday, the Board of Directors approved paying 50% of it on August 7. The payment date from the remaining dividend will be set based on the cash flow evolution of the company. For the second year in a row, the dividend payment increased by 15%.

Finally, during terms of uncertainty as well as entering a global financial downturn, cash is king. Our strong balance sheet without significant short-term maturities is most valuable during these times. Therefore, we will continue executing our clear and prudent capital allocation strategy, maintaining liquidity as one of our top priorities.

With that, I will now give the call back to Enrique for his closing remarks.

--------------------------------------------------------------------------------

Héctor Enrique Escalante Ochoa, Grupo Cementos de Chihuahua, S.A.B. de C.V. - CEO & Alternate Proprietary Director [5]

--------------------------------------------------------------------------------

Thank you, Luis Carlos. Without a doubt, a lot has changed during this first 6 months of 2020. I couldn't be more proud of how every one at GCC has reacted and responded to these unprecedented times. We believe we were the first in our market to respond and enact strict health and safety protocols. In early March, we instituted a COVID task force that immediately banned travel and quickly move to skeleton crews and working from home as well as social distancing and other protocols. We increased our cleaning schedules and protective equipment requirements. I firmly believe that these measures have kept our teammates safe and healthy. Even as economies reopen, we have not dropped our guard. Contrary to other businesses, we maintain a strict adherence to our protocols, and they will remain in place as long as necessary. We will always err on the conservative side to protect the health and lives of our employees and their families.

Like everyone, we are trying to figure out what the new normal means so that we can continue to quickly adapt. We are prepared for the changes that this new reality will have in our markets and industry considering the predictability of this crisis, state reductions to it and the shape of the recovery curve. GCC performed quite well during the first half of the year but economists, other business leaders and industry associations foresee a weaker second half of 2020, positively heading into a recession in 2021 in the U.S.

So far this year, government revenues have declined sharply. This trend is expected to continue throughout the pandemic with large state deficits that will require another stimulus package to offset the shortfalls.

Without such a package, budget constraints will take a toll on our industry. U.S. infrastructure is in need of repair. We understand the positive outcome that investing in infrastructure construction projects have on local economies. Therefore, we remain cautiously optimistic that Congress will pass a significant highway bill. However, with the elections just over 3 months away, we're skeptical that the bill will be approved before November. On the other hand, we expect that the FAST Act, which expires in September, will be reauthorized for 1 more year.

In our Mexico division, Chihuahua's fundamentals are strongly tied to the U.S. economy and historically have outperformed Mexico as a whole. Our operations here show more resiliency against the economic downturns. This is mainly supported by private investments. Recent economic data, GDP estimates and the continued pandemic are evolving. We have limited visibility on the quarters ahead. These are some of the reasons why we will continue with proactive measures on cost and expense reductions and a laser-focused cash management.

All things considered high levels of uncertainty prevail. Therefore, our full year guidance remains temporarily suspended, until we have improved visibility on the duration and economic impact of the pandemic. We will provide updates as they become available.

Please bear in mind that for almost 80 years, we have built a strong and resilient business backed by a unique distribution network. We have mastered our operations and are confident in the bold steps we have taken to navigate today's challenges. Once again, our results show that we are on the right path.

Finally, we can (inaudible) thanks to our teams, especially our employees out there in the field who take additional risk in order to operate our plants, terminals and deliver products to our customers. Thank you for that additional effort, and thank you also to our shareholders for the trust you have placed in us. I have full confidence that, like in the past downturns, GCC will weather the storm and will emerge even stronger.

With that, our prepared remarks are concluded. Let me now turn to you for questions.

Operator, please go ahead.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We'll take the first question from Adrian Huerta from JPMorgan.

--------------------------------------------------------------------------------

Adrian E. Huerta, JPMorgan Chase & Co, Research Division - Senior Analyst [2]

--------------------------------------------------------------------------------

Congrats on the good results. Can you share with us how were volumes in the U.S. during the quarter, during the month for April, May and June? And if you can share with us how volumes look for July so far? And then just to clarify on the price increase that you mentioned, did you say the effective one across the country that you ended up, the price increase that you ended up executing was $4 to $6 or just in those markets where it actually stick in, and then there were other markets that you're still holding off that where you face the pushback?

--------------------------------------------------------------------------------

Héctor Enrique Escalante Ochoa, Grupo Cementos de Chihuahua, S.A.B. de C.V. - CEO & Alternate Proprietary Director [3]

--------------------------------------------------------------------------------

Adrian, thank you for your questions. Regarding volumes in the U.S. for April, May and June, they have been increasingly very strongly, very good trend in the quarter in several of these months, I mean even going not only above, I mean, last year, but also above budget. So the trend was very good. And again, I mean, it was, I mean, fueled by all these projects in the pipeline that were already ongoing. Although, we said we're not, obviously, giving any guidance, I can probably tell you that July is looking well. Probably we're not going to reach budget in the month. It's still strong, but it has a slowdown compared to June. And we think that, I mean the third quarter will be, I mean, a decent one and with -- through good volume of business where we don't have a really visibility is starting the fourth quarter. So that's what I can say on that regard.

In regards to pricing, what I said is that effective June 1, we increased from $4 to $6 per short ton in every market where we are, except oil well cement. We did have some very specific and isolated points, some pushback and some competitors. I mean, obviously, reaching out to some of our traditional customers, and we needed to meet those conditions. And in some cases, the price increase was around $2, but these were, I mean, a very few cases. That's why we're not averaging the $6 that we were expecting.

--------------------------------------------------------------------------------

Adrian E. Huerta, JPMorgan Chase & Co, Research Division - Senior Analyst [4]

--------------------------------------------------------------------------------

Okay. And if I may add just a follow-up question, Enrique. You're holding a lot of cash, a little more than $400 million. And it seems like free cash flow will be quite strong this year, even with the deceleration of volumes in the second half. Once we get to 4Q, there's more -- better visibility on what to expect in 2021, et cetera. Should we expect that no later than 4Q of this year, you will be paying down debt and reducing this large cash balance that you have?

--------------------------------------------------------------------------------

Héctor Enrique Escalante Ochoa, Grupo Cementos de Chihuahua, S.A.B. de C.V. - CEO & Alternate Proprietary Director [5]

--------------------------------------------------------------------------------

Adrian, no. Let me say that the GCC strategy remains intact in terms of what we want to do medium and long term. So as you know, we have been preparing for a good opportunity. We're not rushing into that. I mean, now, obviously, because we've been very conservative, I mean given the pandemic. And in the same regard, we're not planning to prepay any debt this year, including the revolving line of credit. So we continue with the tactic short-term of, as Luis Carlos said, cash is king, and we're going to continue to accumulate and maintain all that cash, just again being conservative in case things turn to be, I mean, really difficult in 2021.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

We'll take the next question from Eric Neguelouart.

--------------------------------------------------------------------------------

Eric Neguelouart, BofA Merrill Lynch, Research Division - Research Analyst [7]

--------------------------------------------------------------------------------

So just 1 question from my side. The U.S. business saw a 600 basis point margin increase year-over-year. I don't know if you can give us a breakdown of how much of this comes from cost savings, the South Dakota one-off that's not present this year, your operating leverage? And just to understand how much of this is sustainable during the second half, and what we should expect in terms of margins?

--------------------------------------------------------------------------------

Héctor Enrique Escalante Ochoa, Grupo Cementos de Chihuahua, S.A.B. de C.V. - CEO & Alternate Proprietary Director [8]

--------------------------------------------------------------------------------

Eric, thank you for your questions. I'll address first, I mean, the second part of the question, and then Luis Carlos will give you a breakdown of our margin increase. I think it's very important, and we mentioned it in the conference today that we are analyzing what are these cost savings and expenses we can transform into permanent efficiencies in the company. We don't have a number for that yet. What I can tell you is that my team and I have announced scheduled meetings to start discussing that precisely in August in preparation for our budgeting process in September. So we will give you probably more information about that in the next call.

--------------------------------------------------------------------------------

Luis Carlos Arias Laso, Grupo Cementos de Chihuahua, S.A.B. de C.V. - Director of Administration & Finance [9]

--------------------------------------------------------------------------------

Eric, on the first part of your question, I can summarize that around 100 basis points of the margin expansion comes from higher pricing, a little bit above 100 basis points comes from the onetime expenses that we had last year and the rest of it is the effects of the cost and expenses savings plan and of course, the operating leverage. So that will be the summary.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

And your next question is from Coleman Clyde from HSBC.

--------------------------------------------------------------------------------

Coleman Lee Clyde, HSBC, Research Division - Analyst, Global Consumer and Luxury Brands [11]

--------------------------------------------------------------------------------

I was just wondering if you can maybe give us any color on the volume impact during the quarter on oil well cement? And what your outlook is for the rest of the year on that front?

--------------------------------------------------------------------------------

Héctor Enrique Escalante Ochoa, Grupo Cementos de Chihuahua, S.A.B. de C.V. - CEO & Alternate Proprietary Director [12]

--------------------------------------------------------------------------------

Well, Luis Carlos looks for the specific numbers, Coleman. Thanks for the question again. And what we can tell you is that, again, I've been in Zoom conference with several of our major customers in the Permian Basin. Most of them comment that -- and they are also public companies, right? So they couldn't give us any guidelines here. But they comment -- they feel they touched bottom already at the end of the quarter, and this is based on the number of rigs working in the area. They think, I mean, we're in the path to recovery, even though it's going to be a slow but permanent recovery and more importantly, are taking shape towards the last quarter of the year.

Now anecdotically, I can tell you that when we acquired the Odessa cement plant, prices were around a little bit above $40 per ton for oil well cement -- I mean, for oil. And pretty soon, we started to see a very -- I mean, a quick recovery on that market on those years. So with the current price, not too far from those levels, I'm confident that next year, we could see, I mean, a steady recovery. Again, not a drastic increase but certainly a recovery. We'll give you the numbers now on the volume.

--------------------------------------------------------------------------------

Luis Carlos Arias Laso, Grupo Cementos de Chihuahua, S.A.B. de C.V. - Director of Administration & Finance [13]

--------------------------------------------------------------------------------

Yes. In terms of volumes of oil well cement in the quarter, they declined around 50% but we did see some sign of stabilization at the end of the quarter.

--------------------------------------------------------------------------------

Coleman Lee Clyde, HSBC, Research Division - Analyst, Global Consumer and Luxury Brands [14]

--------------------------------------------------------------------------------

Very clear. And if I may, just a quick follow-up on the infrastructure side in the U.S., what would the risks be, assuming in a worst just scenario where the FAST Act was not renewed for a year, and we didn't see anything passed until next year. What would you expect the impact could be on fourth quarter volumes. Is that going to be -- are we going to see an immediate fallout? Or what would you expect there?

--------------------------------------------------------------------------------

Héctor Enrique Escalante Ochoa, Grupo Cementos de Chihuahua, S.A.B. de C.V. - CEO & Alternate Proprietary Director [15]

--------------------------------------------------------------------------------

Look, we don't have an estimate for that, Coleman. So we're still, I mean, bidding, in some cases, I mean, the work, I mean, for the year. So that will depend, of course, and if we're successful and if the duties continues -- I mean, running hard or not by the fourth quarter. So it's a little bit, I mean, blurry at this moment to give you a precise number.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

(Operator Instructions) And your next question is from Francisco Suarez with Scotiabank.

--------------------------------------------------------------------------------

Francisco Suarez, Scotiabank Global Banking and Markets, Research Division - Associate Director of LatAm Utilities [17]

--------------------------------------------------------------------------------

Congrats on the results. The question that I have is your energy mix. To what point it might make sense to switch between natural gas and coal? And secondly, on that front, how likely you might be able to extend the tailwinds that we currently see on energy cost on your side, considering that you are integrated in coal?

--------------------------------------------------------------------------------

Héctor Enrique Escalante Ochoa, Grupo Cementos de Chihuahua, S.A.B. de C.V. - CEO & Alternate Proprietary Director [18]

--------------------------------------------------------------------------------

Thank you, Francisco, for your questions. We always, as you know, we have this edge through our coal mine basically with the prices of natural gas, and we're continuously monitoring the levels of the delivered -- I mean, gas at the different plants that we have, and what we call at the tip of the burner in order to make the decision of switching to natural gas or coal. Current levels are more or less, I mean, that breakeven point. For next year, we're planning on running a little bit more gas on some of our plants. Because of the futures of gas that -- the contracts that we have been able to lock in today tell us that, I mean, some of the plants, I mean, are going to be running with a little higher mix of natural gas next year. And that's based on this agreement that we have in place.

What we see is that natural gas is going up in the markets where we source, I mean, the majority of our gas, and this is precisely because of the slowdown in the Permian Basin because a lot of the gas producer is what they call associated gas. So with the slower production of oil, there is also less gas available, so price trends are going up. So -- but again -- I mean, that's the great advantage of us having, I mean, the coal mine, and we are planning to continue operating it in the same way next year. But we're in these levels in which we are able to switch between us back and forth and maintain a constant cost of fuel in our plan.

--------------------------------------------------------------------------------

Francisco Suarez, Scotiabank Global Banking and Markets, Research Division - Associate Director of LatAm Utilities [19]

--------------------------------------------------------------------------------

And if I may, another one on the -- on your new terminal that you are adding up in Minneapolis, North Minneapolis. The -- just out of curiosity, how many more terminals do you have now compared to what you guys had 10 years ago, and if that has an a certain advantage to improve your overall utilization rate? And lastly, if that particular terminal that you're adding, does that has a rail connection? Do you foresee to add more ready-mix plans to source that terminal as such.

--------------------------------------------------------------------------------

Héctor Enrique Escalante Ochoa, Grupo Cementos de Chihuahua, S.A.B. de C.V. - CEO & Alternate Proprietary Director [20]

--------------------------------------------------------------------------------

That's a good question, Francisco. And I -- the answer I'm going to give you, I don't have the numbers in front of me, so I cannot substantiate all of them. By memory, I will tell you that from 10 years ago, probably, we have at least 10 more terminals than 10 years ago, at least. And yes, definitely, that has given us, I mean, the opportunity to to optimize, I mean, how we produce in each of the cement plants. Where do we ship from? We are switching products from 1 plant to another, precisely because of this optimization. And of course, we're always backing up 1 plant with another plant through this distribution terminal system. So it has worked very well for us.

In regards to Minneapolis. Yes, we're going to build our second terminal there. As I explained, it's, of course, on the rail, and it will be, I mean, large enough, I mean, to cover all that northern part of the Twin Cities region. We are not integrated into ready-mix company in that market, and we're not planning -- we don't have any plans to do that. So it's just, I mean, serving the ready-mix customers with cement coming from the Rapid City plant.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

And your next question is from Alejandro Chavelas with Crédit Suisse.

--------------------------------------------------------------------------------

Alejandro Chavelas, Crédit Suisse AG, Research Division - Research Analyst [22]

--------------------------------------------------------------------------------

Congratulation on the results. Just could you walk us through the decision to idle the Odessa terminal. Could we see perhaps it being converted to oil well cement eventually? Or what are your thoughts on that from seeing Texas is a (inaudible) market?

--------------------------------------------------------------------------------

Héctor Enrique Escalante Ochoa, Grupo Cementos de Chihuahua, S.A.B. de C.V. - CEO & Alternate Proprietary Director [23]

--------------------------------------------------------------------------------

Thank you, Alejandro, for your question. Very good question and related precisely to the last question about plant optimization. Yes, we have idled, I mean, the Odessa cement plant after a very careful analysis of as a system, what will be, I mean, the best decision. And at this moment, the decision to idle one of the kilns of the plant, I mean, was based on economies of shipments from other parts and from other qualities or class sub-cement into the region.

So the first thing we did is, of course, on stopped shipments from -- for class C cement for oil well from Tijeras and from Chihuahua, and continue running Odessa until, I mean -- the inventory situation was such that we needed to stop the plant. I can tell you that we're planning to start up the plant back again pretty soon in the next week. So that's, again, because of the inventory situation and what we expect to happen in that market.

In respect to the question of producing construction cement, yes, we can produce construction cement at Odessa that was part of the decision. If we should have switch the plant to construction cement or if we should continue shipping from other plants that have a cost advantage in that class of cement and the latter was the decision. But yes, we have the flexibility. And assuming the turndown in the oil well industry would be, I mean, a long-term thing, which we don't believe at this moment, but that plan can be started immediately in construction cement and continue running as part of the system.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

(Operator Instructions) It appears there are no further questions at this time. Mr. Martínez, I'd like to turn the conference back to you for any additional or closing remarks.

--------------------------------------------------------------------------------

Ricardo Martínez, Grupo Cementos de Chihuahua, S.A.B. de C.V. - Head of IR [25]

--------------------------------------------------------------------------------

Thank you for your interest in GCC and for joining us today. We appreciate your questions this morning and look forward to talking with you again in the months ahead. This concludes our conference call, but our team is, of course, available for any follow-up questions you may have. Goodbye, and stay safe.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

This concludes today's call. Thank you for your participation. You may now disconnect.