Q4 2019 Earnings Call

February 27, 2020

And I'm your conference facilitator today, I would like to welcome everyone to Cleveland Cliffs, 2019 fourth quarter and full year conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

Operator: I'm your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs 2019 Q4 and full year conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. The company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially.

The company remind you that certain comments made on today's call will include predictive statements that are intended to be made as forward looking.

Within the Safe Harbor protections of the private Securities Litigation Reform Act of 1995, although the company believes that its forward looking statements are based on reasonable assumptions such statements are subject to risks and uncertainties that could cause actual results to differ materially imports.

Operator: Important factors that could cause results to differ materially are set forth in reports on Forms 10-K and 10-Q, and the news release filed with the SEC, which are available on the company website. Today's conference call is also available and being broadcast at cleveland-cliffs.com. At the conclusion of the call, it will be archived on the website and available for replay. The company will also discuss results, excluding certain special items. Reconciliation for regular Regulation G purposes can be found in the earnings release, which was published this morning. At this time, I would like to introduce Lourenco Goncalves, Chairman, President, and Chief Executive Officer.

Actors that could cause results to differ materially set forth in reports on forms 10-K, and 10-Q and a news release files with the FCC, which are available on the company website. Today's conference call is also available.

And being broadcast Cleveland Dash cliffs Dot com.

At the conclusion of the call it will be archived on the website and available for replay the company will also discuss results.

Excluding certain special items reconciliation for regular.

Regulation G purposes can be found in the earnings release, which was published this morning at this time I would like to introduce Lorenzo comes all those chairman President and Chief Executive Officer.

Thank you Christina.

Lourenco Goncalves: Thank you, Christina. Good morning, everyone. I appreciate you all joining on what should be our last call as a standalone iron ore company. After the closing of our acquisition of AK Steel, Cleveland-Cliffs will be a steel and iron ore company. We are very excited with this unique transaction and looking forward to all of the benefits that will come with controlling the iron ore pellets and HBI feedstock, as well as the steel products, including flat-rolled coils of stainless, and carbon steel and highly engineered manufactured parts for the automotive industry. Over the past several weeks, we have come away captivated by the untapped potential that clearly exists for AK Steel assets, and very impressed by the quality of the people on the ground. The opportunity ahead of us is actually bigger than what we first envisioned.

Morning, everyone.

I appreciate all joining me on what should be our last call and I stand alone.

The company.

After the quality of our acquisition all AK steel.

Please will be a steel and Iraq War company.

We are very excited when these unique transaction.

And looking forward and wall off the benefits that we will come when controlling the are off balance and H.B. I feedstock.

As well as the steel product, including.

Oh coils of stainless and carbon steel and highly engineered manufactured barge for the automotive industry.

Over the past several weeks, we have come away captivated by the ONTAP infotainment that clearly exists for AK you assets.

I'm very impressed by the quality you often people on the grounds.

The opportunity ahead of us is actually bigger than what we force infusion.

Before I lay out why.

Lourenco Goncalves: Before I lay out why, I will start with an update of where we stand with regards to our closing timeline. As you could probably gather, with this call being moved up by one week, we are progressing remarkably well on all of our necessary checkpoints to close the transaction. Thanks to a great combined effort from both Cleveland-Cliffs and AK Steel's transaction teams, as well as our outside counsel, Jones Day. We received regulatory approval from the United States on 22 January, Canadian approval on 12 February, and expect to receive Mexican approval by 27 February. In addition, our S-4 registration statement went effective on 4 February, allowing us to set our special shareholder meeting date of 10 March, with a transaction close following soon thereafter on 13 March.

I will start with an update of where we stand with regards to our goals the timeline.

As you can probably went to school being moved up by one week.

We are progressing remarkably well on all of our necessary checkpoints to close that transaction.

Thanks to a great combined effort from Bose, Cleveland cliffs, and AK Steel's transaction teams.

As well as our outside Counsel Jones day.

We received regulatory approval from the United States on January 22nd.

Got it easier approval on February 12.

And expects to receive Mexican approval by February 27.

In addition.

Our S. Four registration statement went effective on February four.

Allowing us to set our special shareholder meeting date of March Dan We know transaction close following soon thereafter on March 13.

Our dealings with AK steel over the last several weeks.

Lourenco Goncalves: Our dealings with AK Steel over the last several weeks gave us the conviction that Cleveland-Cliffs and AK Steel have a lot in common, and are both very different from the other companies and the vast majority of companies out there. Similarly to Cliffs, AK Steel has not saved money by skipping necessary maintenance. That would, over time, make equipment and products a lot worse. Not the case with Cliffs, not the case with AK Steel. Also, both AK and Cliffs rely on the North American market and should thrive with the strong economy we currently have and will continue to have here in the United States. Differently from the vast majority of companies these days, our businesses do not depend on China.

Gave us the conviction that Cleveland cliffs and eight games do you have a lot in Colm.

And both very different from the data companies and the vast majority of companies out there.

Similarly to cliffs AK steel has not saved money by skipping necessary madness.

That would over time, maybe equipment and product a lot worse not the games with cliffs not vicky's, we de Casey.

Also both 8-K includes rely on the North America market.

Yes, sure thrive witnessed strong economy, you currently have ever we'll continue to have here in the United States.

Differently from the vast majority of companies these days.

Our businesses do not depend on China.

With that we see show up in case you.

Lourenco Goncalves: With the acquisition of AK Steel, Cleveland-Cliffs becomes the most relevant supplier of steel to the automotive industry in the United States, fully integrated from iron ore on the ground to auto parts, as a tier one supplier of finished parts used in the assembly line of the car manufacturers. The pro forma numbers show that even before we account for synergies and cost-cutting actions, the new Cliffs commands the highest EBITDA margin among all steel companies in North America, and that includes all integrated mills and not least, on day one, we are resolving for good, the AK Steel balance sheet issue. With that, we will be running a company with a four-year window of no maturities, and managing the business from a position of financial strength.

Cleveland cliffs becomes the most relevant supplier of steel, but the automotive industry in United States fully integrated from Iraq War on the ground to auto parts as a tier one supplier of finished parts used in the assembly line.

Oh, the care car manufacturers.

The pro forma numbers show that even before we account for synergies and cost cutting actions.

The new cliffs command the highest EBITDA margin.

Always do companies in North America, and that includes always degrees and views and Oh, Yeah, you steelmakers.

Last but not least.

On day, one we are resulting for good day AK steel balance sheet issue.

With that we're running a company with a four year window or no maturities and managing the business from a position or financial strength.

AK steel serves their high end markets that prefers stability prices.

Lourenco Goncalves: AK Steel serves the high-end markets that prefer stability in prices, with the biggest concentration of automotive share among all steel mills in our industry. This relatively stable revenue stream does not mirror its cost structure, which varies a lot more, particularly due to the variations within the price of iron ore. By marrying our two businesses, we can mitigate this intra-year volatility with a combination of stable costs and prices, while providing the new company with a level of margin predictability that's not common in the metals and mining world. There are 2 other US integrated steelmakers who control, totally or partially, their iron ore supply, but neither have the same level of penetration in the automotive market, and they both have a lot more exposure to spot steel prices. The rationale for the deal was explained in our announcement on 3 December 2019.

With the biggest concentration automotive share among all the steel mills in our industry.

He is relatively stable revenue stream does not mirror its cost structure, which varies a lot more particularly due to the variations within the price over and war.

By marrying our two businesses.

We can mitigate these intra year volatility when the combination of stable costs and prices, while providing the new company with a level margin predictability, that's not home in the metals and mining world.

There are two other U.S. integrate into steel makers, who control totally or partially there are more supply.

But neither have the same level penetration in the automotive markets.

And they both have a lot more exposure to was bought is steel prices.

The rationale for the deal was explained in our announcement on December Threerd 2019.

Upon the completion of our acquisition of AK steel.

Lourenco Goncalves: Upon the completion of our acquisition of AK Steel, the commodity indices that investors use as a proxy for Cliffs performance, will be a lot less influential, as our revenues will be far more in our control. We understand that EAF mills continue to grab market share from the so-called high-cost blast furnace producers. This being said, treating all integrated steel producers as if they were all the same, is not a good simplification. In fact, there is a massive disparity among different integrated mills. As far as EAFs are concerned, some serious technological limitations exist in the types of steel that each EAF mill can or is willing to produce. The vast majority of the sophisticated steel products that AK Steel supplies are not just something any steel mill is capable of making. That's one of the important reasons...

Commodity increases that investors use as a proxy for cliffs performance will be a lot less inflation.

As our revenues will be far more in our control.

We understand that yeah, Muse continued to grab market share from this so-called high cost blast furnace producers.

That being said treating all integrated to steel producers as if they were all the same is not a good simplification.

In fact, there is a massive disparity among different integrated mills.

Also as far as yes are concerned.

Some serious technological limitations exist in the types of steel that each he asked me you can or is willing to produce.

The vast majority of the sophisticated these two products that AK steel supplies.

Our not just something any still view is capable of Mickey.

That's one of the important.

This do industry in countries with meaningful automotive manufacturing power, such as Japan, Germany, France, and South Korea.

Lourenco Goncalves: The steel industry in countries with meaningful automotive manufacturing power, such as Japan, Germany, France, and South Korea, is completely dominated by blast furnaces. These blast furnaces are operated by a handful of well-run and properly capitalized companies, such as Nippon Steel, ArcelorMittal, and POSCO, among a few others. In the world of highly sophisticated steels for the automotive industry, well-operated, integrated mills prevail by a large margin. Automotive and blast furnaces, good blast furnaces, I mean, go together. There's a small group of high-end steel producers in the world, that have all three necessary strengths to be part of this select group. One, the technological capability. Two, the R&D resources, and three, the staying power of a strong balance sheet.

It's completely dominated by blast furnaces.

This blast furnaces are operated by a handful of well run aim properly capitalized companies such as Nippon steel Arcelormittal and Posco.

Among a few others.

In the world of highly sophisticated excuse for the automotive industry.

Well operated integrated Muse prevail by a large margin.

Automotive and blast furnaces cones blast furnace I mean.

Altogether.

There's a small group of high yen to steel producers in the world that have all three necessary strengths to be part of new select group.

One the technological capability.

True they are R&D resources.

Mm three d. staying power awfully strong balance sheet.

While the legacy AK steel has only two of the three.

Lourenco Goncalves: While the legacy AK Steel has only two of the three, the new Cleveland-Cliffs will have all three strengths, and therefore, belongs in this very select group of the steelmakers. The importance of AK Steel as a well-established supplier of the automotive industry, is even more relevant at this time, when we approach a very interesting inflection point in the North American market for cars and trucks. We find ourselves in the very early moments of a transformational change from the use of combustion engines in passenger vehicles, to that of electric-powered cars and trucks. Right now, electric vehicles still make up a very small percentage of cars on the road, with Tesla being a star and an undeniable reality as the first company to show a presence in the market for EVs.

The new Cleveland cliffs, we will have all three strength.

And therefore belongs in these very select group of consumers.

The importance of AK steel as a well established supplier of the automotive industry is even more relevant at this time. When we approach are very interesting inflection point in the north American market for cars and trucks.

We find ourselves in the very early moments of a transformational change proto use of combustion engines in passenger vehicles to that have entered powered cars and trucks.

Right now electrical electric vehicles is still make up a very small percentage of cars on the road with Tesla being a star and an undeniable reality as the first company to show a presence in the market for E. These.

However.

Lourenco Goncalves: However, as several other car manufacturers catch up with the market and get ready to introduce new models of electric vehicles over the next few years, particularly in our favorable American market, supported by low interest rates and full employment, a vertically integrated and downstream-oriented Cliffs AK Steel will benefit from the trend. With AK Steel's unique technical expertise, we are the best positioned company to supply what's needed for this change of the fleet, from traditional combustion engines to EVs. AK Steel produce the most sophisticated products, including engineered parts to the automotive industry as a tier 1 supplier in highly automated facilities, operated by Precision Partners in several strategic located plants in the US, Canada, and Mexico. Going forward, we will leverage and increase our downstream businesses, and AK Tube and Precision Partners will be core to our business and to our commercial strategy.

As several other car manufacturers catch up with the market.

And get ready to introduce new models off electric vehicles over the next few years.

Particularly in our favorite favorable America market supported by low interest rates and full employment.

Vertically integrated and downstream oriented clips AK steel will benefit from the trends.

We did AK steel's unique technical expertise, we are the best positioned the company to supply what's needed for this change of the fleet from traditional combustion engines two weeks.

AK steel produced the most sophisticated products, including engineered parts to the automotive industry as a tier one supplier a highly automated facilities operated by precision partners in several is strategically located plant in the west.

Canada and Mexico.

Going forward, we will leverage and increase our downstream businesses and 8-K, two and precision partners will be core to our business into our commercial strategy.

We at Cleveland cliffs, our broad driven.

Lourenco Goncalves: We at Cleveland-Cliffs are profit-driven, and we have proved our good commercial execution through very successful contract renegotiations with our pellet clients, in some cases surprising the outsiders with our ability to succeed. By improving the utilization of our unique R&D resources in a more commercially focused way, the new Cliffs AK can and will provide the advanced steel solutions needed by the car manufacturers to produce electric vehicles for the mass market. These car manufacturers are well-established, long-term clients of AK Steel, and some of them have contacted us at Cleveland-Cliffs during the last several weeks to express their support to our transaction and their willingness to do business with a stronger entity, as a combined Cliffs AK Steel will be.

And we have proved our good commercial execution through very successful contract renegotiations with our pellet clients in some cases surprising the outsiders with our ability to succeed.

[noise] by improving the utilization of our unique r. and D. resources.

I am more commercially focused way.

The new play of CK.

Can and will provide the advanced industrial solutions needed by the car manufacturers to produce OLED vehicles for the mass market.

This car manufacturers are well established long term clients of AK steel.

And some of them have contacted us at Cleveland cliffs during the last several weeks to express their support to our transaction and their willingness to do business with a stronger entity as a combined the cliffs AK steel will be.

With the balance sheet relief, we will provide for this standalone a case do.

Lourenco Goncalves: With the balance sheet relief we will provide to the standalone AK Steel, this rare window of opportunity in the market for cars and trucks, can and will be explored to our benefit. That, of course, would never happen had Cleveland-Cliffs and AK Steel stayed put as two separate companies. This example just scratches the surface of what we are prepared to do as a combined entity, while achieving and maintaining a strong financial profile for a well-capitalized Cliffs AK Steel. We have already executed a successful exchange offer that strips the relevant covenants from AK Steel bonds, providing us with a great deal of uniformity and flexibility in our capital structure. We have also arranged and put in place a new $2 billion asset-based loan for the combined entity.

These rare window of opportunity the market for cars and trucks can and will be export to our benefits.

That of course or never happen and Cleveland cliffs, and AK steel stayed put as two separate companies.

These example, just scratching the surface of what we are prepared to do as a combined entity, while achieving and maintaining a strong financial profile for a well capitalized cliffs AK steel.

We have already executed.

Successful exchange offer that strips that relevant covenants pro AK steel bonds, providing us with a great deal of uniformity and flexibility in our capital structure.

We have also arranged and put in place our new $2 billion asset based loan for the combined entity.

Our new Aimia will provide us with substantial liquidity add with an easy way to pay down debt weekly and with low prepayment penalty.

Lourenco Goncalves: Our new ABL will provide us with substantial liquidity, with an easy way to pay down debt quickly and with no prepayment penalty. Last but not least, subjected to market and other customary conditions, in the near term, we will be refinancing AK's 2020 and 2023 bonds. With all that, at closing on 13 March, the new combined company should have a much stronger financial profile than the current AK Steel, including the nice and comfortable no maturity window going forward for years, that we currently enjoy as a standalone Cleveland-Cliffs. I will be able to go into much more details once the deal is closed, including our operational plans, synergy achievement progress, and footprint optimization initiatives. Until then, our combined teams will continue planning and setting the stage for our takeover on day 1.

Last but not least subjected to market than other customary conditions in the near term will be refinancing a case 2020 and 2023 bonds.

With all that Eric closing on March 13, the new combined company should have a much stronger financial profile. There the current AK steel, including the nice and comfortable low maturity to window going forward for eight years that we currently enjoy.

Droid as a standalone Cleveland cliffs.

I will be able to going to much more details once the deal with schools, including our operational plans synergy achievement progress and footprint optimization initiatives.

Lourenco Goncalves: le to go into much more details once the deal is closed, including our operational plans, synergy achievement progress, and footprint optimization initiatives. Until then, our combined teams will continue planning and setting the stage for our takeover on day 1.

Until then our combined teams will continue planning and setting the stage four hour takeover on day one.

For now our mining and Pelletizing business remains steady and reliable as always.

Lourenco Goncalves: For now, our mining and pelletizing business remains steady and reliable, as always. One of the other benefits of the AK Steel transaction is that we now control our own destiny with our pellet supply, and have picked up a lot of optionality as a supplier of iron ore products. We have roughly 85% of our pellets order book secured through 2026. For the remaining 15% of pellet production, we have several options. We can either extend third-party contracts, sell DR-grade pellets, or leverage the AK Steel blast furnace footprint to sell merchant pig iron. We will only make that decision later, and we will do it in a way that allow us to maximize the profitability we enjoy from the unique position we have in the iron ore pellets and HBI markets.

One of the other benefits of day case to transaction is that we now control our own destiny Windoor pellet supply and have picked up a lot of optionality as a supplier of iron ore products.

We have roughly 85% of pellets order book secured through 2026.

For the remaining 50% of both production we have several options, we can either extend third part contracts.

Sales here, great pellets or leveraged AK steel blast furnace footprint to sell merchant be guy.

We will only make that decision later.

And we'll do it in a way that allow us to maximize the profitability. We enjoy from the unique position we have in the iron ore pellets and Hbr markets.

This flexibility with our balance was made possible primarily because of the construction of our Hbr plant.

Lourenco Goncalves: This flexibility with our pellets was made possible primarily because of the construction of our HBI plant. Within a few months, we will be producing and selling Hot Briquetted Iron. I confirm right now, we will start up our HBI plant in June of 2020, and expect to generate healthy EBITDA and healthy free cash flow from our Toledo operation is still in 2020. We also expect to achieve our nameplate 1.9 million metric tons of HBI in 2021, which will be the first full calendar year of operation of our Toledo plant. In advance of our startup, technical and commercial activities are well underway with our new electric arc furnace clients. With a high 3% carbon content, Cliffs HBI is a differentiated premium product, several steps above the low carbon HBI and DRI commonly produced.

Within a few months, we'll be producing and selling hot Briquetted art.

As I confirm right now.

We will start up our Hbr plant in June of 2020.

And expects to generate healthy EBITDA and healthy free cash flow from our two hid operation is due in 2020.

We also expect to achieve our nameplate 1.9 million metric tons of H.B. I in 2021, which will be the first full calendar year of operation of our two legal plants.

In advance of or a startup.

Thank you Nicole and commercial activities are well underway.

With our new electric arc furnace clients.

With a high 3% carbone content grips H.B. I.

The differentiated premium product.

Several steps of both the low carbon wage b. I am here I come only produced.

In fact, our H.B. I is a direct replacement for imported peak.

Lourenco Goncalves: In fact, our HBI is a direct replacement for imported pig iron. Also, very importantly, our Toledo plant is exclusively supplied with uniform pellets feedstock from a single source, our North Shore Mine, which is a defining factor to allow for a stable operation and a very homogeneous product. With that, I'm pleased to inform that based on actual ongoing commercial activity, Cliffs HBI will be sold not only in our natural market within the Great Lakes, Indiana, Ohio, Kentucky, Illinois, among other states, but also to electric arc furnace plants located in states further south, such as Mississippi and Arkansas. Between the Toledo HBI plant and the upgrade of the North Shore Mine to produce DR-grade pellets, Cleveland-Cliffs has spent more than $1 billion to develop a new use for taconite iron ore from the Minnesota Iron Range.

Also very importantly, our Toledo plant is exclusively supplied with uniform pellets feedstock pro our single source, our Northshore mine.

We deserve defining vector to allow for a stable operation and a very on with GE news product.

With that I'm pleased to informed that based on actual ongoing commercial activity.

Let me I will be sold not only in our natural market within the Great Lakes, Indiana, Ohio can tacky, Illinois, among other states, but also to the Alaska pointless plants located in states partner sauce, such as Mississippi.

And Arkansas.

Between the two leverage H.B. I plan and the upgrade of the Northshore mine to produce do you have rig belts.

We will end cliffs has spend more than $1 billion to develop a new use for taconite Our award from the Minnesota Iron range.

There's meaningful investment has generated more than 150, new full time high paying jobs in Toledo, and broad are very relevant economic benefits to both Minnesota and or higher.

Lourenco Goncalves: This meaningful investment has generated more than 150 new, full-time, high-paying jobs in Toledo, and brought a very relevant economic benefit to both Minnesota and Ohio, including approximately 1,650 construction jobs in both states during the last couple of years. We are very excited that we are just a few months away from starting replacing Russian and Ukrainian pig iron with our Made in USA HBI, to the benefit of our new EAF clients, our employees, our shareholders, and the economy of Toledo and Northwest Ohio. On that note, I would like to invite our CFO, Keith Koci, to discuss our Q4 and full year 2019 results.

The including approximately 1650 construction jobs in both states during the last couple of years.

We are very excited that we are just a few months away from starting replacing Russian Andrew Cranium pig iron with our made in USA hbr.

To the benefit of our new you have clients.

Our employees, our shareholders and the economy of Toledo and northwest, Ohio.

On that note I'd like to invite our CFO. Please go see will discuss our fourth quarter and full year 2019 results.

Thanks, Lorenzo and good morning, everyone listening today.

Keith Koci: Thanks, Lourenco, good morning to everyone listening today. Cliffs concluded 2019 with Q4 adjusted EBITDA of $111 million, and full year adjusted EBITDA of $525 million. This represented an industry-best 28% EBITDA margin, even after dealing with precipitous drops in both steel pricing and pellet premiums during the year. Most notably, our cash flow generated from operations continues on a positive, upward 6-year trend. Net cash from operating activities was $563 million in 2019, compared to $478 million last year, and our highest since 2013. Our mining and pelletizing segments quarterly EBITDA of $153 million, was driven by 5.8 million long tons of shipments, including 400,000 tons of intercompany sales.

Cliffs concluded 29 team with fourth quarter, adjusted EBITDA of $111 million and full year adjusted EBITDA of $525 million.

This represented an industry best 28% EBITDA margin, even after dealing with precipitous drops in both steel pricing and pellet premiums during the year.

Most notably our cash flow generated from operations continues on a positive upward six year trend.

Net cash from operating activities was $563 million in 2019 compared to $478 million last year and our highest since 2013.

Our mining and Palletizing segment's quarterly EBITDA of $153 million was driven by 5.8 million long tons of shipments, including 400000 tons of intercompany sales. This put us at 19.4 million long terms of sales for the full year roughly in line with our previous guidance.

Keith Koci: This put us at 19.4 million long tons of sales for the full year, roughly in line with our previous guidance. Our pellet price realization of $90 per long ton in Q4 was negatively affected by the volatility in hot-rolled steel prices and pellet premiums that we saw during the back half of the year. That caused us to record an unfavorable revenue true-up adjustment in Q4. The true-up was primarily a function of having to revalue our entire year's sales at the full year averages for HRC, pellet premium, and IODEX, negatively impacting our Q4 rate. After all of that, our full year revenue rate was $100 per long ton, which came in at the midpoint of the spot price guiding range that we provided last quarter.

Our pellet price realization of $90 per long ton in the fourth quarter was negatively affected by the volatility and hot rolled steel prices and pellet premiums that we saw during the back half of the year.

That caused us to record and unfavorable revenue true up adjustment in the fourth quarter.

The true up was primarily a function of having to revalue our entire year sales at the full year averages for HRC pellet premium and IODEX negatively impacting our Q4 rate.

After all that our full year revenue rate was $100 prolong ton, which came in at the midpoint of the spot price guiding range that we provided last quarter.

Cash costs for the fourth quarter was $64 per long term, which also put us right in the midpoint of our full year guidance range of 64 50 prolong turn.

Keith Koci: Cash costs for the Q4 was $64 per long ton, which also put us right in the midpoint of our full year guidance range of $64.50 per long ton. As for CapEx, we are now through our peak year spend of $656 million, and expect to see roughly half that amount in 2020, as we wrap up the construction of the HBI plant in Toledo. On the finance side, we are grateful to end such a heavy spending year, maintaining a healthy liquidity position, including $350 million in cash and an untapped revolver. With our reduction in capital spend, cash needs in 2020 will be much lighter.

As for Capex, we're now through our peak year spend of $656 million and expect to see roughly half that amount in 2020, as we wrap up the construction of the H.B. I plant in Toledo.

On the finance side, we are grateful to end, such a heavy spending year, maintaining a healthy liquidity position, including $350 million in cash and an untapped revolver.

With a reduction in capital spend cash needs in 2020 will be much lighter.

Along with reduced Hbr construction costs, we will no longer have the $45 million minority interest payment that we were contracted to pay in each of the last three years.

Keith Koci: Along with reduced HBI construction costs, we will no longer have the $45 million minority interest payment that we were contracted to pay in each of the last three years. Finally, we still have our steady flow of tax refunds continuing with another $60 million expected in the middle of this year, and two refunds of $30 million in each of the next two years. In 2020, we expect to sell between 20 and 20.5 million long tons of pellets, including approximately 1.5 million long tons of DR-grade pellets to be delivered to our HBI plants. Due to the additional pellet tonnage produced last year that is currently in inventory, we also have flexibility to increase beyond that sales amount in 2020 should demand warrant.

And finally, we still have our steady flow of tax refunds, continuing with another $60 million expected in the middle of this year.

And to refunds of 30 million.

In each of the next two years.

In 2020, we expect to sell between 20, and 20.5 million long tons of pellets, including approximately 1.5 million long tons of D.R. grade pellets to be delivered to our H.B. I plant.

Due to the additional pellet tonnage produced last year that is currently in inventory. We also have flexibility to increase beyond that sales amount in 2020 should demand warrant.

For full year guidance on Eclipse Standalone basis, we have provided an expected 2020, adjusted EBITDA range of $550 million to $575 million.

Keith Koci: For full year guidance on a Cliffs stand-alone basis, we have provided an expected 2020 adjusted EBITDA range of $550 to $575 million. In order to maintain consistency, we have used roughly the same forecast and pricing assumptions that have been put forth in other publicly filed documents, using analysis that was developed last November. I would also flag that as HRC prices have come down, our revenue rates have become slightly less sensitive to movements in iron ore prices and pellet premiums due to the nature of our pricing formulas. Both our revenue sensitivities and our EBITDA guidance range will not be relevant after we complete the acquisition of AK Steel, and as such, will be de-emphasized by us going forward.

In order to maintain consistency we have used roughly the same forecast in pricing assumptions that have been put forth in other publicly filed documents using analysis that was developed last November.

I would also flag that as HRC prices have come down our revenue rates have become slightly less sensitive to movements in iron ore prices and pellet premiums due to the nature of our pricing formulas.

Both our revenue sensitivities and our EBITDA guidance range will not be relevant after we complete the acquisition of AK steel and as such we will be de emphasized by us going forward.

Nevertheless, while we're still Standalone business I should note that we are now at a point, where the Atlantic pellet premium sits below the cost of pellet conversion for most players in this market and we've already seen supply begin to come out of the market.

Keith Koci: Nevertheless, while we are still a stand-alone business, I should note that we are now at a point where the Atlantic pellet premium sits below the cost of pellet conversion for most players in this market, and we have already seen supply begin to come out of the market. On top of that, currently, the Chinese pellet premium is actually higher than the Atlantic. A pretty rare occurrence and often a signal that the Atlantic premium is too low and likely to rise. For Q1 2020, as always, we are in the middle of restricted shipping on the Great Lakes, forcing us to limit most deliveries to rail only. Q1 should represent only 3% to 5% of our full-year revenues on a Cliffs stand-alone basis.

On top of that currently the Chinese pellet premium is actually higher than the Atlantic.

A pretty rare occurrence and often a signal that the Atlantic premium is too low and likely to rise.

For the first quarter 2020, as always we are in the middle of restricted shipping on the great lakes, forcing us to limit most deliveries to rail only.

Q1 should represent only 3% to 5% of our full year revenues on a cliff stand alone basis.

Assuming we close on our expected date of March 13th.

Keith Koci: Assuming we close on our expected date of 13 March, our next quarter's results would reflect AK's results only for those last 18 days of the month. We may see a small prorated influence from AK's earnings during Q1, but would not see the full benefit of their earnings in our results until Q2. With that, I will turn to Lorenzo for his final remarks.

Our next quarter's results will reflect a case results only for those last 18 days of the month.

So we may see a small prorated influence from AK is earnings during Q1, but would not see the full benefit of their earnings in our results until the second quarter.

With that I will turn to Lorenzo for his final remarks.

Thanks Pete.

Lourenco Goncalves: Thanks, Keith. With both the upcoming completion of the AK Steel acquisition and the Toledo HBI plant coming online, 2020 will be the most transformational year in our 173-year history. We are very excited to welcome our new customers, Nucor, David J. Joseph, Steel Dynamics, OmniSource, Big River Steel, North Star BlueScope, and several others, to our list of clients as they acquire a massive tonnage of HBI for the burden of their electric arc furnaces. In the meantime, we will need our shareholders' support to make the acquisition of AK Steel by Cleveland-Cliffs a reality. To those Cliffs shareholders of record as of 31 January, listening on today's call, you should have already received the necessary materials to vote for the transaction. Your vote is necessary, and I appreciate your support.

With both the upcoming completion of the case do acquisition.

And the Toledo take VI plant coming online.

2020 will be the most transformational year.

In our 173 year history.

We are very excited to welcome our new customers Nucor.

David J., Joseph Steel dynamics, Omnisource Big River steel.

Northstar Blue School.

And several others.

Our lease of clients as they acquired a method tonnage or hbr for the burden of their electric arc furnaces.

In the meantime will need our shareholder support.

To make the acquisition of AK steel by Cleveland cliffs.

Reality.

To those with shareholders of record as of January 30, Onest listening on todays call you should have already received the necessary materials to vote for the transaction.

Your vote is necessary.

And I appreciate your support.

As you know I'm, a big shareholder of Cleveland cliffs myself.

Lourenco Goncalves: As you know, I'm a big shareholder of Cleveland-Cliffs myself, one that has bought several million dollars worth of CLF stock in the open market and never sold a single share, except for offsetting taxes before the shares become mine. Speaking as a shareholder and to all of our shareholders, I believe the acquisition of AK Steel under my guidance, with the leadership of my management team, and with the addition of key players from the AK Steel management team, is the optimal path to maximize the value of our CLF shares. If you have any questions about the rationale for the deal or how to vote, please feel free to reach out to us using the contact information provided in your materials or on our website. One more time, your vote is important, and I look forward to receive your affirmative vote on or before March 10.

One that has bought several million dollars worth of CLS stock in the open market and never sold a single share except for upset indexes before this year's become mine.

Speaking as a shareholder and to all of our shareholders.

I believe the acquisition opaque casteel.

Under my guidance.

With the leadership of by management team and we the addition of key players from the AK steel management team.

Is the optimal path to maximize the value of our CLS shares.

If you have any questions about the rationale for the deal or how to vote.

I just feel free to reach out to us using their contact information provided in your materials or on our website.

One more time your vote is important.

And I look forward to receive youre affirmative vote.

On before March 10th.

With that I'll turn it back to Christina to direct queuing it.

Lourenco Goncalves: With that, I'll turn it back to Christina to direct Q&A.

Thank you at this time, if he would like to ask a question. Please press Star then one on your telephone keypad Navistar one on your telephone keypad to ask a question.

Operator: Thank you. At this time, if you would like to ask a question, please press star, then one on your telephone keypad. That is star one on your telephone keypad to ask a question. Your first question comes from Lucas Pipes from B. Riley FBR. Your line is open.

Your first question comes from Lucas pipes.

The Riley FBR your line is open.

Hey, good morning, everybody.

Lucas Pipes: Hey, good morning, everybody.

Lourenco Goncalves: Good morning, Lucas.

Lucas Pipes: Congratulations, Lourenco and team, on the continued progress on HBI and moving so quickly on completing the AKS acquisition. Lourenco, I wanted to start out with some higher level questions. First, on AKS, you mentioned the long-term strategy and the commercial opportunities there, but other pieces of the AKS portfolio that might be less relevant, that could be candidates for monetization, any thoughts on that would be appreciated. Then, reading through the S-4, it appears this marriage started with a date about Ashland, and I don't think you mentioned Ashland in your prepared remarks. Could you maybe update us on the thoughts on that asset? Lastly, appreciate your comments regarding the EV revolution in your prepared remarks.

Hello, Congratulations Lorenzo and team on the continued progress on H.B. I and moving so quickly on completing that eight Ks acquisition.

Lorenzo <unk> I wanted to start out with some higher level of questions. So first on on AK is you mentioned the long term strategy and the commercial opportunities there, but other pieces of the eight ks portfolio that might be less relevant that could be candidates Vermont.

It does Asian, any any any thoughts on that would be appreciated and then reading through the S. Four.

It appears this.

Marriage started with the data about Ashland and I don't I don't think you mentioned Ashland in your prepared remarks could you maybe update us on the thoughts on that asset and then that then lastly, Ah appreciate your comments regarding the revolution in your prepared remarks.

Lucas Pipes: Folks don't typically think about steel in the context of EV, kind of what, what are your thoughts there? What, what products feed into that market and transition specifically, and what do you think the impact will be to AKS longer term there? Appreciate all the color on those kind of 3 questions.

Folks don't typically think about steel in the context of ABB kind of what are your thoughts there what what what product.

Feed into that market and transition specifically.

And what do you think the impact will be two to eight ks longer term there so.

I appreciate all other color on those kind of three questions.

Okay. Lucas that's a lot of I look forward to true up let's try to two who get it done first of all their thoughts on that well be very careful in terms of what they can and I cannot talk about because there are few.

Lourenco Goncalves: Okay, Lucas. That's a lot of, a lot to, to chew, but let's try to, to, to, to get it done. First of all, the thoughts on assets. We'll be very careful in terms of what I can and I cannot talk about. Because there are a few things in the, in the, the, the M&A regulations, and some touching the law in terms of gun-jumping provisions, that I, I, I'm not in charge of the company yet. We are working on preparing a plan, and of course we have plans. In a general way, without being specific on anything, the assets that we are not going to be part of the core, and there are some that are not going to be part of the core, will be monetized. We did that with the Cliffs.

Things in there.

In the M&A regulations and the some 30 the law in terms of going jumping provisions that I I am not each of the company yet so we're working on Burberry Atlanta and of course, we have plans.

But in a general way without being specific on anything.

The assets that we are not going to be part of the core and our song.

They're not going to be part of the core well be monetized, we did that with eclipse that was a lot more difficult a lot more complicated a lot more specific in terms of Ah Ah potential buyers with AK, we have a few things that.

Lourenco Goncalves: That was a lot more difficult, a lot more complicated, a lot more specific in terms of potential buyers. With AK, we have a few things that actually we're re-receiving reverse inquiries in terms of without us soliciting anything, they're coming here, and they are calling in and making proposals on doing this and doing that. We are listening to everybody, and we are taking our own plan to paper, and on day one, we will start to execute. You should expect that no core assets will be taken care of and monetized to the best of our ability. That's the first. As far as Ashland, look, we were developing a market for HBI. We're doing extremely well. We are, we, we are done now.

Actually where is receiving reverse inquiries in terms of without the sold is the anything they're coming here and they are calling in and making proposals on doing it isn't doing that we listen to everybody and we're taking our own a plan to paper and add on day, one will start waves acute.

So you should expect that noncore assets will be taken care off and monetize the vessel of our ability.

That's the part as part of that.

Look we were developing a market for H.B. I.

We're doing extremely well, we'll wait until we're done now we are we believe that's our commercial efforts and our technical effort.

Lourenco Goncalves: We believe that our commercial efforts and our technical efforts came to fruition. We are very pleased. I gave names of clients that are going to be buying massive tonnage of HBI from us, and I did not, by the way, I did not mention AK Steel, because.

Came to fruition, we're very pleased I gave names of clients that are going to be buying massive donna dropping to the iPhone us and ER.

I didn't by the way I did not mention AK steel because a we are.

Lucas Pipes: Mm-hmm.

Lourenco Goncalves: We are concentrating the effort on HBI to outside clients at this moment. We are not even planning to use our HBI within AK Steel at the very beginning. Just to give you an idea how hot is the HBI product in the marketplace right now. Back to Ashland. I, I started Ashland, I started to be interested in Ashland because I was seeing the high level of interest for our HBI. It would be, of, in my opinion, an opportunity to create an expansion in this metallics market and develop Ashland as a producer of pig iron for the marketplace. However, when I start doing that, we have to do market analysis.

Concentrated effort on it right to outside clients at this moment, so we're not even planning to use our H.B. I within it keeps due at the very beginning.

So just to give an idea how a hot is the H.B. I promise in the marketplace right now, but back to actually I started ashland or start to be interest in Ashland, because our seeing the idea of high level underscore our age.

So it wouldn't be a a remote or an opportunity to create a an expansion in this metallics market and develop at.

As a producer pig iron for the marketplace well however, when they start doing that would have to do market analysis entering to market analysis, you realize that there is only so much better yes can't get too.

Lourenco Goncalves: As we do market analysis, you realize that there is only so much that the EAFs can get to before they get into a ceiling that they can't pass. If they can't produce certain types of products, then you cannot, in all fairness, to continue to supply them with metallics, because they will not need it, and they have other alternatives that might be more economically viable for this intelligent EAFs, and they will not be buying pig iron just because pig iron might be available. In other words, they will, they, meaning the EAFs, will not be producing exposed parts for automotive if they, if they have the pig iron available, because that's not the restriction to produce exposed parts.

Before they get into a ceiling that they can't pass as Dan if they can produce certain types of products then you cannot.

In the old friend is to continue to supply the weakness Dallas, because they will not need it and they have other alternatives that might be more economically viable for news intelligent, yes, and they will not be buying the arent just because we got it might be available in other words Dave.

Okay and gave me the yes, we will not be fruit juicy exposed part for automotive if they if they are.

Yeah, I have about pig iron feel good thats not their restriction to produce exposed parch.

Lourenco Goncalves: a point with our HBI that we are pretty much optimizing the market for EAFs. So will Ashland happen? At this point, I do not know. I do not believe so, because we are going to first and foremost, maximize AK Steel capabilities. Because when I realized that the EAFs would not be able to get there, I also realized that there was an untapped potential with AK assets that I could develop. Even more important, some other integrated producers that have a traditional history of producing the products for the automotive market are walking away. They are going backwards. So they are going from a car to a bicycle. So let them do that. I am good with that

We we we really.

Realize that.

We are getting to a 0.3, though hbr that were pretty much optimizes the market for yes, and so.

We will actually didn't happen at this point I don't know I don't believe so because we are going through so first and foremost maximize AK steel capability, because when I realize that they you yeah, absolutely not be able to get there.

I also realized that the there was an untapped potential when they care assets that could develop even more important somebody integrated producers that have a traditionally the history well producing the broader for the automotive market walking away, they're going backwards.

So there are going from pro for work hard to a bicycle so that didn't do that I'm. Good with that way case do you have the R&D capability has that that can go cup abuse as it patterns as the broad scale I think clients. So we only need to improve is commercially.

Lourenco Goncalves: AK Steel has the R&D capability, has the technical capability, has the patents, has the products, has the clients. We only need to improve it commercially, besides the balance sheet, that will be done before we land there on 13 March. That's our forte. That's what we do for a living, 39 years and 6 months in this business. Ashland, at this point, is in the back burner. I don't believe the market needs Ashland. The market definitely needs our HBI, but I'm not sure if they need Ashland. That I'm gonna do everything I can for the market not to need Ashland, because I'm going to grow the business of AK Steel. You also mentioned the electric vehicle revolution. I agree with your terminology. It's a revolution. Even more important, it's a steel revolution.

Besides the balance sheet that there will be done before we we landed on March 13.

So and that's how a four day, that's what we before leaving 39 years in six months and just good so Ashland at this point isn't the backward.

I don't believe the market means ashland their market definitely needs our hbr.

But I'm not sure if they need dashing than that I want to do everything I can follow Mark I'd love to these ashleigh because I went to grow the business off with AK steel.

You also mentioned that Villa electric vehicle brutal Moshe I agree with your terminology, it's a revolution.

More importantly into still Revolution remember the Tesla.

Lourenco Goncalves: Remember, the Tesla S was all aluminum. The Tesla Model 3, the evolution of the Tesla, and the Tesla that you see on the street, is all steel. There's a potential towards steel as well. Finally, the traditional car manufacturers are now at a point that they realize that Tesla is for real and the EV is for real. They're all jumping into this thing. Guess what? They are all clients of AK Steel. We are going to be developing EVs and materials for EVs inside our R&D center in Middletown, Ohio. Actually, we are going to start this right away. It's coming. AK Steel will be a big beneficiary. When you see companies like Volkswagen, Volkswagen CEO saying, Tesla is... To, to his executives, Tesla is, is real.

Yes was all aluminum.

That's a threex the evolution of the data.

And that has led to shield the street.

Yes, Oh steel.

So there's a potential.

Towards steel as well.

And finally, the traditional car manufacturers.

Our now at a point.

They realize that Tesla is for real NBV is for real so they're all jumpy and for this thing.

And I guess, what they are all clients of vacation.

So we're going to be developing.

Hey, these materials for disease.

Side, our R&D center.

Middletown, Ohio.

And actually we are going to start is right away.

So it's got me AK steel will be a big beneficiary and when you see companies like both Bagger Volkswagen CEO same definitely is due to his executives deadly viewers real if you don't believe you don't belong to both rang at this point.

Lourenco Goncalves: If you don't believe, you don't belong to Volkswagen at this point." That, that means something. General Motors is coming with a bunch of EVs. Ford is going toward that. There's a company producing trucks called Rivian, producing trucks in Illinois. They are a huge client of AK Steel. We're going to continue to support their development. There's a lot coming in this thing. Here in the United States, we are going to be pretty much, I, I would not say alone, because we have ArcelorMittal USA, also participate in the marketplace. I think that they're gonna have a lot of business for, for us, Cleveland-Cliffs and AK combined, and our big client, ArcelorMittal USA. We're good in both sides, in the auto side and in the pellet side.

That means something general motors is coming.

So a bunch of TV.

Board is going toward that.

The company producing trucks for the review producing trucks in Illinois.

Yeah.

Huge client or vacation you are going to continue to support their development. So there's a lot KMI and this thing and here in United States, we ever to be pretty much.

Oh, I would say alone because we have arcelormittal USA.

Also participate in the marketplace, but I think that they're going to have a lot of this important for us.

We will improve thinking combined and I'll be glad arcelormittal USA, so I wouldn't on both sides indelible outside and in the ability.

Sorry for my my answer was too long, but are you get the three very interesting in a very provocative points to talk about.

Lourenco Goncalves: If my, my answer is too long, but you gave me three very interesting and very provocative points to talk about.

Hi, I really appreciate all the color around so it's it's never enough I'll I'll keep it really short for my second question.

[Analyst] (B. Riley FBR): I really appreciate all the color, Lorenzo. It's, it's never enough. I'll, I'll keep it really short for my second question. A breakdown of capital expenditures in 2020. Keith, you may have mentioned it in your prepared remarks, but if, if you could just-

Lucas Pipes: I really appreciate all the color, Lorenzo. It's, it's never enough. I'll, I'll keep it really short for my second question. A breakdown of capital expenditures in 2020. Keith, you may have mentioned it in your prepared remarks, but if, if you could just-

Breakdown of capital expenditures in 2020, Keith you May have mentioned that in your prepared remarks, but if you could just to reiterate it. That's the case I missed that I would appreciate it. Thank you yeah no no problem. Lucas were 2020 were the range. We provide a 350 to 400 million breaks down H.B. I'm going to be or Toledo is gonna be 207.

Keith Koci: Sure.

[Analyst] (B. Riley FBR): Reiterate it, just in case I missed it, I would appreciate it. Thank you.

Lucas Pipes: Reiterate it, just in case I missed it, I would appreciate it. Thank you.

Keith Koci: Yeah. No, no problem, Lucas. We're 2020, we're the range we provided, $350 to $400 million, breaks down. HBI is gonna be, or Toledo is gonna be $270 to $290 million to complete. Virtually, you know, all of that will happen in the first six months. Sustaining CapEx for Cliffs, $70 to $90 million, somewhere in there, and roughly $20 million of capitalized interest during the year.

The 290 million to complete virtually all of that what will happen in the first six months.

Sustaining capex for for cliffs, 70 to 90 million somewhere in there and roughly 20 million of capitalized interest during the year.

[Analyst] (B. Riley FBR): Mm-hmm.

Lucas Pipes: Mm-hmm.

Keith Koci: To complete the Toledo plant. So that-

The Toledo plant.

Huh.

That's the breakdown.

[Analyst] (B. Riley FBR): Okay.

Lucas Pipes: Okay.

Keith Koci: That's the breakdown.

I appreciate it very much and a continued best of luck. Thank you.

[Analyst] (B. Riley FBR): I appreciate it very much, and continued best of luck. Thank you.

Lucas Pipes: I appreciate it very much, and continued best of luck. Thank you.

Thanks Lucas.

Keith Koci: Thanks, Lucas.

Your next question comes from Alex Hacking from Citi. Your line is open.

Operator: Your next question comes from Alex Hacking, from Citi. Your line is open.

Hi, good morning, and thanks for the time I just wanted to follow up with a question on the H.B. I know you've you said you've made.

Alex Hacking: Hi, good morning, and thanks for the time. I just wanted to follow up with a question on the HBI. You know, you've, you said you've made a lot of commercial headway there, and congratulations on the success, and it sounds like you have all the offtake there, or a lot of the offtake already sorted out. I'm curious on the pricing. Can you give us any color, if possible, on the pricing structure in terms of what type of contracts that you'll be entering into? Will they kind of be... In terms of duration, and then also in terms of the pricing mechanism for the HBI, will it be linked to indexes in any way, and how often will the prices reset? Any color there will be very helpful.

A lot of commercial headway, there and congratulations on on on the successes.

It sounds like you have all the offtake that a lot of the authority sorted out well I'm curious on the pricing.

Can you give us any color if possible on.

The pricing structure in terms of what type of contracts that you'll be entering into will they kind of be.

In terms of duration.

And also in terms of the pricing mechanism for the H.B. I wouldn't be linked to MSCI indexes in anyway, and then how often lower prices reset so any color there will be very helpful. Thank you.

Alex Hacking: Thank you.

A good morning, Alex the they should be I brought it is being sold.

Lourenco Goncalves: Good morning, Alex. The HBI product is being sold to clients that have a way of doing business. I've been saying that forever. I've been saying that before we built the HBI plant. We have to respect the way the clients do business. We can't try to impose a new way of doing business before entering a market. These folks buy in short term, they buy per order. These orders are more loosely agreed upon in terms of tonnage for the quarter, and price is set on a monthly basis. The biggest reference for price for us would be the price of pig iron, adjusted for the value we use that our HBI, I mean, pig iron delivered to the client, of course.

Two clients that have a way of doing business I think you say that for ever.

At least saying that before we built the H.B. I plants, we have to respect the way that glad to do business, we get a tried to impose a new way of doing business before entering a market.

So this books by in short term they buy a per order is orders are more loosely a reasonable in terms of tonnage for the quarter and price is setting up mostly be.

The biggest reference for price for us it would be the price would be guy.

Adjusted for their value, we use that our hbr I mean pig iron delivered to the client of course, but big idle or.

Lourenco Goncalves: Not pig iron, FOB Tubarão, Brazil, or FOB Ponta da Madeira, or FOB some port in Europe. No. Delivered to the United States, delivered to the site. Just for the value-in-use, remember, pig iron has 4.5% carbon. We're gonna have 3% carbon. It's close, but it's not there. We're gonna generate a little less heat. We have a little more gangue, because we are low silica, but we are not zero silica. On the other hand, we have a very high metallization. There are a lot of gives and takes that will be defined by the value-in-use, but the value-in-use will be developed after the client is really using the product.

Fob to borrow on Brazil were fob both of them idea or Fob Some board in Europe now deliver to the United States delivered to the can decide.

And I just for the values.

Remember the Guy has 4.5% travel, but what I have 3% carbon school, but not there we're going to generate a little less heat we have a little more gag because we are well suited for but we're not zero silica.

Although they had we have about very high the television. So a lot of gives and takes that will be defined by their values, but the values will be developed after the client is really using the product. So we are what I have six months.

Lourenco Goncalves: We are gonna have 6 months, or 7 months, between June and December 2020, to be adjusting these parameters. By and large, we are set, we are happy, and we are going to continue to develop this business that way. It will be very profitable for us. The payback, the IRR that I promised will be when we first started, will be easily the people.

Or seven months.

During June ended December of 2000 way to me I, just didn't just barometers, but by and large we are set we are happy and do you are going to a continued to develop this business that way it will be very profitable for us if they back they are that I promise we will be.

The when we first started will be easily the people.

Okay. Thanks, that's very helpful. Thank for the time and good luck.

Alex Hacking: Okay, thanks. That, that's very helpful. Thanks for the time, and good luck.

Lourenco Goncalves: Thank you.

Your next question is from Seth Rosenfeld from Exane BNP. Your line is open.

Operator: Your next question is from Seth Rosenfeld, from Exane BNP. Your line is open.

Good morning, Thank you for taking the questions.

Seth Rosenfeld: Good morning. Thank you for taking the question. If I can touch on two points, first on HBI, and then secondly, on Ashland, please. When it comes to HBI and the CapEx budget, your release talked about the CapEx being, I think, fast-tracked, or development being fast-tracked in Q4, obviously on track for ramp up, before the end of H1. When it comes to CapEx, my understanding was the 2020 CapEx budget was closer to $300 million, implying that we're looking $50 million, $100 million above that. What are the moving parts in that, Keith? Thank you for the color earlier, but is HBI CapEx one of those elements? What direction increase in expected budget there?

I can touch on two points person H.B., Alright, and then secondly on Haslam. Please when it comes H.B. I and the Capex budget, you released talked about the Capex being I think that's like a development big bounced back in Q4, I'm, obviously on track for ramp up before the end of each one when it comes to Capex My understanding was that the 20 coming up.

Well it was closer to 300 million, implying that we're looking to 200 million bucks above that wasn't moving parts and not keep thinking the color earlier it each back capex one of the settlement, what's actually increasing the budget there and then secondly, please when it comes to pig iron ASLAN.

Seth Rosenfeld: Then secondly, please, when it comes to pig iron and Ashland, your comments about market research pointing to a metallics market, well-supplied based on just your own HBI, seems to run counter to what we heard from you back in December, at the time of the deal announcement, when Ashland growth seemed to be one of the key incremental growth drivers for the story. Just to clarify, what's changed in that time? Is this new market research you completed after the acquisition was announced, or was this always in line with your expectations going back to December? Thank you.

Your comments about market research pointing to a metallic market well supply because I just wanted to be high.

Seems run counter to what we heard me back in December the time that deal now.

When asked about growth seems to be what are the key incremental growth drivers for the story.

Just to clarify what's changed in that time is this new market research you completed after the acquisition with announced or was always inline with expectations going back to December. Thank you.

Well first of all that set the record stake here, you said that H.B. I.

Lourenco Goncalves: Well, first of all, let's set the record straight here. You said that HBI, throughout the world, particularly here in the United States, is a widow maker. My wife is still married, so I'm still alive. Remember when you said that, that HBI was a widow maker? Because HBI generates budget overruns, and people can't complete construction on time. Remember that, Seth?

Throughout the world, particularly here in the latter stages that we bought me.

So my wife Insteel Baird.

Well I'm just do a lot.

Well remember, who said that that H.B. I was always Omega because H.B. I generates but its overruns and people can complete construction on time remember that sat.

I do and I'm glad you're right, there's not a window.

Seth Rosenfeld: I do, and I'm glad your wife is not a widow.

Lourenco Goncalves: I'm right here. Our HBI is on time. Our HBI is actually ahead of schedule, and our HBI is on budget, so we are good with that. Second, the fluctuation, the numbers for CapEx are just carry, carryovers from last year. Things that, for one reason or another, we did not pay last year, because if you can pay later, we'll pay later, we don't pay earlier. That's pretty much the rule of thumb when you are building something. If everything goes on time and you are not being forced to deploy the capital earlier, if you can deploy the capital later, why not to do it? It's just a move from one year to another. As far as Ashland, that's what due diligence is for.

So I'm, Brian So <unk>.

Our H.B. I guess on buying houses beyond is actually ahead of schedule and already can be eyes on budget.

So we agreed with that.

Secondly, the fluctuations the numbers for Capex interest carry a carrying over from last years thinks that the for one reason or another we did not pay last year, because I forget if they make their real estate later, we compete earlier, so that's pretty much or a rule of thumb when you're building something if everything goes on.

And you are not being forced into to deploy the capital.

Earlier, if we can deploy the capital were later why not to do it. So it's just a move from one year to another.

As far as Ashland.

That's what due diligence for.

Lourenco Goncalves: When we are doing due diligence, we are really deep, diving deep into AK Steel. We are. As far as public information is concerned, we did not hear too much from AK in public conference calls and things like that. A lot of their automotive business, we heard a lot about their balance sheet, we heard a lot about their bonds that were not refinanced. We, we, we heard a lot about pensions, but we didn't hear a lot their business. When we start digging into their business, their business is phenomenal. Their technical capabilities are immense, and I would have to produce pig iron to support EAFs out of Ashland. I'm going to support EAFs out of HBI, so I, I'm not denying the importance of EAFs, so there is no conflict with previous statements.

Well doing due diligence were really deep.

Diving deep into AK steel.

We oh in the <unk>.

Yes public information is concerned.

We did not here too much from PK in public conference calls and things like that I'll walk up their automotive me a this we heard a lot about their balance sheet. We heard a lot about the bonds that are not refinance who we heard a lot about Asia, but we don't hear a lot their business.

And really start digging into that business.

This is phenomenal.

Yeah technical capabilities are immense.

And I would have to produce big guy to support yes.

All of it.

I'm going to support yes out of each day I thought I have not been nine the importance of D.A.S.. So there's no hopefully to with pretty good statements.

Just had to do it just shows that's a real potential for their.

Lourenco Goncalves: Just that due diligence showed there's a real potential for the ongoing, for the existing AK business, particularly what, in what's related to automotive. It's extremely impressive. Our first investor's day for AK Steel will be done at the Research and Development center of AK Steel in Middletown, Ohio, and I'm sure you are gonna be there, Seth. You're gonna be surprised, as other research analysts will as well. There's no conflict. It's just due diligence. That's why companies do due diligence when they're acquiring other companies, to really learn the, what they are getting into. We realize that we're getting into something a lot bigger and a lot more relevant and a lot more important in terms of return to the shareholders than just producing pig iron to the marketplace out of Ashland. I'm not saying that's not going to come.

Oh going for the existing 8-K business, particularly well in what is related to automotive.

Extremely impressive.

Our first thing or investors day for AK steel world and at their research and development set that well vacates deal in Middletown, Ohio, and I'm sure you're gonna be there. So you know, but I'm just surprised as other research houses we were as well.

So there's no conflict is just due diligence that's what why companies do due diligence with the acquiring other companies to really learn the what their day into so we realized after getting into something a lot bigger a lot more relevant but a lot more.

Importantly in terms of a return to the shareholders. Then just for just a big on into the marketplace or Bachelor I must say, that's not going to call I'd just say that these was no way behind in the they scale priorities.

Lourenco Goncalves: I'm just saying that this was now way behind in the scale of priorities.

Okay. Thank you very much wishing you best at home.

Seth Rosenfeld: Okay, thank you very much. Wishing you best of health.

Lourenco Goncalves: Thank you.

Thank you.

Your next question comes from Nick Jarmoszuk Suck from Stifel. Your line is open.

Operator: Your next question comes from Nick Jarmoszuk from Stifel. Your line is open.

Hi, learn so good morning.

Nick Jarmoszuk: Hi, Lorenzo. Good morning.

Lourenco Goncalves: Good morning.

Nick Jarmoszuk: Question for you on the EBITDA guidance: Does it assume any contribution from the HBI plant in the second half of the year?

Question for you on the EBITDA guidance does it assume any contribution from the H.B. I plant in the second half of the year.

Nick Jarmoszuk: Question for you on the EBITDA guidance: Does it assume any contribution from the HBI plant in the second half of the year?

Well here's the thing.

Lourenco Goncalves: Look, here's the thing. Keep in mind that as soon as 2021 comes, we're gonna have 9 million tons of intercompany sales. Don't forget that. That will change everything in terms of the things that you see in this, in the guidance. I will let Keith Koci go into the details of the numbers related to that guide.

ER keeping in mind that ER.

Yes were supposedly in one pumps.

We're gonna have not been until hoping to compensate.

Don't forget.

So that will change everything in terms of the things that Ah Ah you see it is in that guidance.

But I will let Keith school, so you're going to do you do well see the numbers related to that Guy right. It is for the Oh, the startup of H.B. I. We you know we were pretty modest with the back half and we've only put in $30 million of EBITDA coming from each me I 2020, its and its mainly just do the ramp up and and.

Keith Koci: Right. As far as the startup of HBI, you know, we're pretty modest with the back half, and we've only put in $30 million of EBITDA coming from HBI in 2020. It's mainly just due to the ramp up, and there's always some additional cost in getting started. The number grows immensely in 2021, as we expect to have a full year running at our nameplate capacity. We're looking at roughly $200 million of EBITDA generation in 2021, and that's what we've got in our guidance.

Theres always theres always some additional cost and getting started.

A number grows immensely in 2021 is we expect to have a full year running running at the at our and our nameplate capacity. So we we've where we're looking at roughly $200 million of EBITDA generation and 2021 and and that's that's what we've got in our guidance.

Okay.

Nick Jarmoszuk: Okay.

Lourenco Goncalves: As far as the... Let me, let me complement one thing about that. As far as 2020, assuming $650 for hot band in the United States is still a very modest number, and should be a number easy to achieve. $90 for IODEX. Well, today is $91.10. The IODEX, the IODEX that was published this morning. The new normal, normal is unabated. Even Vale was unable to destroy the IODEX. They did destroy the pellet premium, no doubt about it. When you reopen contracts that are set in stone with clients, and you accept clients cry wolf, then pellet premiums go down. The, the biggest problem is that the biggest victim of this absurd is Vale. You know, they are losing tonnage.

As part of it.

Lastly, let me complement one thing about it as part of 2020 or so between 650 involved for Ben into nine States is still a very modest number and the from the unknown raising 29 to goals for IODEX well.

Today's bank one both Invensense no that next disposables. This morning. So then you'll know what normal is unabated.

Volume was unable to destroy the IODEX.

Interest right about payment no doubt about when you reopened contracts that are setting stone and clients, Andrew except clients cry wall or debt. So things go down the he is probably the biggest victim opt is absurd involved so.

No there will be fun, its they are giving away revenue by giving away the Philippines.

Lourenco Goncalves: They are giving away revenue by giving away the pellet premium. Very soon they will need to come to reality, and the pellet premium will go up. Like Keith explained, for the vast majority of pellet producers in the world, the current pellet premium doesn't cover the costs, so they are in trouble. Vale might be okay because of the manipulation of the Brazilian real, that's now trading at 1 dollar for 4.37 Brazilian reals, so it's pretty absurd. That currency gives the impression that they have all costs under control, but they don't. They'll have to play catch up with the pellet premium very soon. That's why we put a $50 number for our expectation, because we believe that will be higher.

Very soon there needs to.

Come to reality and the boat finger go up like Keith explained for the vast majority of pellet producers in the world.

Could I don't think doesn't cover the cost so they are in trouble Bobby might be okay, because they manipulation of the Brazilian real that's now trading at $4 in 31.

One $1.44 or a point 37, ryals so to be absurd. So that Chris gives the impression that they have all costs under control, but they dot. So there has to play catch up with the Bellekeno very so.

That's why we put a 50 bucks.

Number four hours speculation because I believe that will be higher.

Keith Koci: Nick, one, one more follow-up to my comment real quick. The $30 million that I quoted does not include the intercompany margin. We also recognize then the margin that the price that we're charging to ourselves. There is an additional margin in the HBI product that would be in the mining and pelletizing division. It's-

Okay, and Nick when one more follow to my comment real quick the the 30 million that I quoted does not include the intercompany margins. So we we also recognized on the margin that I'm a price that we're charging to ourselves. So so there's an additional margin.

In the H.B. I product that so that will they'll be in the mining and Palletizing division. So it's we point at another day the Brooklyn.

Lourenco Goncalves: Good point.

Keith Koci: Add another-

Lourenco Goncalves: The profitability of the pellets division.

That's right yeah, not not the do the problem is that we make selling belt at market price, how northshore duara units. So for a much broader people either because they had to do that way because ER. Among other things would be ROI is to Miss I'll be trust a a home based on my.

Keith Koci: That's right.

Lourenco Goncalves: Yeah. Not, not the profits that we make selling pellets at market price from North Shore to our units, so from North Shore to Toledo. Because we have to do it that way, because among other things, we pay royalties to Mesabi Trust on based on market price, so we don't mess with that.

Good price, so we don't mess with that.

Okay.

Nick Jarmoszuk: Okay. With the customers that you mentioned, does that fully contract the nameplate capacity of Toledo?

With the customers that you mentioned it does that fully contracted the nameplate capacity of Toledo.

No.

Lourenco Goncalves: No. What do you mean? If I have orders for 1.9 billion metric tons for 2021? Of course not. Nobody has that. Nobody has that for any product. Why should I have for HBI? I don't have for pellets either. No steel company in the world asks for steel, so why we're asking this question? Are you trying to say that I don't have orders for HBI? Is that what you are implying?

What do I mean, if I have water for 1.9.

These are battling for supposedly no of course, not nobody had.

Nobody has that for any broad weiser that branch.

Oh I hope tells you that.

Those two companies the world that's 40 steel so why why we're asking this question are you trying to say that I don't have ordered or did you guys that are that you already black.

Nick Jarmoszuk: No, I was just curious as to how much of the capacity is contracted.

No I'm just curious as to how much of the capacity is contracted.

Everything that we're going to produce at the beginning and then it's up to us if their products is good as we believe the product is indeed clients believed that the project is we're going to have a great business.

Lourenco Goncalves: Everything that we are going to produce at the beginning, and then it's up to us. If the product is good, as we believe the product is, and the clients believe that the product is, we are going to have a great business. If the product is like other producers and even one here in the United States and Texas, we'll probably have trouble. We are not them, we are us. We have a single source of pellets coming from North Shore. We know how to deal with iron ore. We have been dealing with iron ore for 173 years, so we learned one thing or two. We also understand how to deal with contract business to supply finished stock to clients. We are going to be fine, Nick.

If the brother is like other.

Producers and even well here in United States indexes.

We'll probably have trouble, but we're not depth. We are bus we have a single source of bills coming for Northshore, we know how to deal with our war, we have been dealing with our war for 473 years or we learned when think are too and we also understand how to deal with.

Contract business to supply into spoke to clients, who you're going to be fine Nick.

We have daughters, and we need restart and never go from there.

Lourenco Goncalves: We have the orders that we need to start, and then we'll go from there.

Okay, and then returning to the pellet discussion on.

Nick Jarmoszuk: Okay. Returning to the pellet discussion, do you have any thoughts that Vale could be looking to give some sort of discount to their European customers to maintain blast furnace throughput, and then they'll once the margins in Europe improve, then they'll get a little more aggressive with the pellet premium? Is that, do you think that's a reasonable way to think about it?

Do you have any thoughts that volley could be looking to give some sort of.

Discount to their European customers to maintain blast furnace throughput to the know once the margins in Europe and prove that know get a little more aggressive with the pellet premium is that do you think that's a reasonable way to think about it I.

Lourenco Goncalves: I think the reasonable way to think about that, that's too many people getting trained on the job, on-the-job training as well. As soon as they learn the business, they will start to charge the clients what they need to charge. It's for Vale to resolve, to the board members of Vale to resolve. It's a Vale thing, you know? Vale, at this point, has other things to resolve. They have a few people going to jail. It's a mess out there, so I don't know.

I think the reserve way to think about that that's for many people getting trained on the drug on the job training as well, that's where they learn to business that do start to China declines what they need to track well, there's four volatile resolved to the board members on volume to resolve itself Bobby thing, though and falling at this point.

Has other things to result.

However, a few people were to jail easy it's a mass okay. So I don't know gosh that.

Tyler Kenyon: Okay.

Nick Jarmoszuk: Okay.

Lourenco Goncalves: You gotta ask them.

Alright, thank you.

Tyler Kenyon: All right. That's all I had. Thank you.

Nick Jarmoszuk: All right. That's all I had. Thank you.

Thank you.

Lourenco Goncalves: Thank you.

Your last question comes from James Finnerty from Citigroup. Your line is open. Please go ahead.

Operator: Your last question comes from James Finnerty from Citigroup. Your line is open. Please go ahead.

Hi, Thanks for taking my question on just on the 8-K S that you intend to refinance the 21 20 threes or will the 20 ones be unsecured and guaranteed like the 20 fives and 20 Sevens.

James Finnerty: Hi, thanks for taking the question. Just on the AKS that you intend to refinance, the 2021s and 2023s, will the 2021s be unsecured and guaranteed like the 2025s and 2027s?

Look I I do know me or how you want to analyst.

Lourenco Goncalves: Look, I, I, as you know, being a, a high yield bond analyst, I can't talk about that right now. We will announce this deal at the right time. We have a, a track record of doing this type of transactions and doing the, the transaction right. Look at that. Check the last five and a half years, you have plenty of comparables just here within Cleveland-Cliffs. I can't show my hand right now, and I will not disclose that at this point. We are set. We are good. Stay tuned.

I can't talk about that right now.

So we will announce these deals right that.

We have a track record of doing this type of transactions and bleed the transaction right.

Looking back check the last five and a half years.

Plenty of compares just here was equivalent good.

But I can't show by hand, right now and I would not disclose that at this point well we have sat there good stay tuned.

Okay, and then in the timing is still to be determines it could happen in conjunction with the closing of the transaction or they happen. Afterwards is that's thing I sound that you're gonna be done, but by the one I mean.

James Finnerty: Okay. Then, and the timing is still to be determined. It could happen in conjunction with the closing of the transaction, or could it happen afterwards? Is that still undetermined?

Lourenco Goncalves: I said that we're gonna be done by, by day one, I mean, we're gonna hit the ground running. We are going to be done. Remember, we already stripped the covenants of the AK bonds. Check the box. We already arranged the ABL, so check the box. The last piece missing is the bonds. We're going to take care of that, and when we land there, we're gonna have a four-year window of opportunity to work and get AK Steel refocused on commercial, refocused on developing steels, and more important than anything, charging the clients a price that will be proper for the type of technology that is embedded in the steel that we produce.

I'm going to hit the ground rent.

We are going to be done remember, we already strip today, it's very covenants or vacate ones check the box.

We already have raised they'd be yeah.

So check the box.

So the last piece missing is the bonds.

So what I'm going to pick we're going to take care of that and Lindsay land. There we're glad for your window of opportunity to work.

And get AK steel.

Refocused on commercial.

Refocus on developing steels and more importantly, the anything charging declines.

Our price that to be a proper or the type of technology. That's embedded in this do that can produce.

Great. Thank you very much that's very helpful.

James Finnerty: Great. Thank you very much. That was very helpful.

Lourenco Goncalves: Thanks, James.

Thanks James.

And your final question comes from Tyler Kenyon from Cowen Your line is open.

Operator: Your final question comes from Tyler Kenyon from Cowen. Your line is open.

Hey, good morning, Thanks for squeezing me in so you've given us standalone EBITDA guidance based on some commodity price input for quick wondering if you could provide a little bit more detail.

Tyler Kenyon: Hey, good morning. Thanks for squeezing me in. You've given us some standalone EBITDA guidance based on some commodity price inputs, for Cliffs. Wondering if you could provide a little bit more detail on the embedded pellet volumes, cash costs, and perhaps SG&A assumptions within that $550 to $575 million range.

On the embedded pellet volumes Cashcall and perhaps that's DNA assumptions within that 550 to 575 million range.

He's going to pick but yeah, I mean, the Standalone I mean yesterday, you kind of similar year over year.

Lourenco Goncalves: James, you want to take that?

Keith Koci: Yeah, I mean, the standalone, I mean, SG&A, kind of, similar year-over-year. Cash cost of production up, up roughly 3%. Mainly, you know, product mix is a big part of it, because we'll be producing a lot more DR-grade pellet. The DR-grade pellet costs more to produce. You'll also see some additional maintenance costs in the year. You'll see some higher costs at Tilden stripping, because we've extended the life of the mine, as you'll, you'll see, as soon as we disclose in our 10-K. And then, and the natural increase in labor costs each year. You'll see a little bit of increase there. What was the other factor?

Cash cost of production up roughly 3%, mainly you know product mix is a big part of it because we'll be producing a lot more D.R. grade pellet than they are great pellet cross border produce.

We also see some additional maintenance cost in the year, you'll see a some higher costs are tilden stripping because we've extended the life for the mine.

You'll see as soon as we disclosed in our 10-K and natural a increase in labor cost was here. So you see a little bit of increase there.

What was the other factor.

Ah at today's prices, we are probably $1.50 cents degrees something like that.

Lourenco Goncalves: At today's prices, we need probably a $1.50 increase, something like that. Less than $2.

Less than two goes okay great.

Tyler Kenyon: Okay, great. Then anything just on, on volume assumptions for third-party pellet sales?

And then anything just on volume assumptions for third party Pellicles.

Oh automobile will be the 20 to 20.5 million tones range.

Lourenco Goncalves: Volume will be in the 20 to 20.5 million tons range.

And frankly could provide us just on on how much will what could go in <unk> in terms of inventory build.

Tyler Kenyon: Any, any sense you could provide us just on, on how much will, will be going to HBI in terms of in-inventory build?

Now inventory built or we already built they said gory. So we don't have any more inventory due to do.

Lourenco Goncalves: No, inventory build, we already built the inventory, so we don't have any more inventory build to do. Actually, in 2020, we are considering that we're gonna be moving only 1.5 to 1.8 million tons of pellets, because it will be a ramp-up year. Starting 2021, we're gonna go in steady state. It's to produce 1.9 million metric tons of HBI, we are gonna need 2.8 million tons of pellets moving into Toledo, but that will be 2021 and beyond.

Actually in 2020, or we are well suited that we're going to be moving all the 1.5 to 1.8. Neither of those are built because to be a ramp up here and are starting to totaled 21, we're going to.

Oh instead of state. It's a for two produced 1.9 million metric tons of Oh of Ah H.B. I, we're going to need $2.8 billion of pellets movie Toby, but there will be 2021 and beyond.

Okay. Thank you.

Tyler Kenyon: Okay, thank you.

Hey, good Tyler.

Lourenco Goncalves: Thank you, Tyler. Christina?

Christina.

There are no further questions there no further questions at this time do you have any closing comments today.

Operator: There are no further questions at this time. Do you have any closing comments today?

Just who wish everybody.

Lourenco Goncalves: Just to wish everybody a great Thursday. Keep post, keep paying attention. We are moving fast and doing everything we have to do. We are excited about the transaction, excited about HBI, and excited that we have a transformational event that will change Cleveland-Cliffs going forward and will guarantee that this company will be here for the next 50 to 100 years. We are pleased with what we have done.... We appreciate the support of our shareholders, and so far, the votes coming in are massively in favor of the transaction. We appreciate each one of the retail investors and the institutional investors that continue to demonstrate every day their support to our strategic moves. We are together. I am one of you. I'm a big shareholder of this company.

I agree.

Thursday.

Uh huh.

Good both good Hey, you pay attention we're moving fast.

We are doing everything we have to do we are excited about the transaction were excited about H.B. I.

Excited that we have a transformational event that didn't change Cleveland cliffs going forward and will guarantee that this company with me here for the next Fifteentwo hundred years, we're pleased with what we have done we appreciate the support of our shareholders.

And so far they did their votes coming in massively in favor of the transaction. We appreciate each one of the retail investors into institutional investors that continues to demonstrate every day, there or support to our strategic moves.

We are together I am one of you I'm a big shareholder This company my family will be evolve with this company for two or three generations going down.

Lourenco Goncalves: My family will be involved with this company for 2 or 3 generations going down. That's how we see this business. There is no short-term thing here. We're working for us, shareholders of this company. Thank you very much, and have a great day.

So that's how we've seen this business there's no short term thing here.

Working for US shareholders on these go thank very much evergreen.

So.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Gentlemen, This concludes today's conference call. Thank you for participating you may now disconnect.

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