Q3 2020 Cleveland-Cliffs Inc Earnings Call
[music].
Good morning, Ladies and gentlemen, my name is Michelle and I Am Your conference facilitator today I'd like to welcome everyone to the Cleveland Clinic, <unk> third quarter 2020 earnings Conference call.
All lines have been placed on mute to prevent any background noise. After the speakers 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 I spoke with 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 date.
They are subject to risks and uncertainties that could cause actual results to differ materially.
Important factors that could cause results to differ materially are set forth in reports on forms 10-K, and 10-Q and news releases styles with the S. C, which are available on the company website. Today's conference call is also available and being broadcast at Cleveland Gosh clutch Dot com.
At the conclusion of the call it will be archived on the web site.
Site and available for replay the company will also discuss results excluding certain special items reconciliation for regulation G purposes can be found in the earnings release, which was published this morning at this time I would like to introduce not wrenches consultants, Chairman President and Chief Executive Officer. Please.
Go ahead.
[music].
Good morning, everyone.
On today's call.
Our third quarter results are very well.
Oh, yes.
Yes, all of our company.
And apologies good coffee me all the time the actions we took during the second quarter two brief.
To prepare all operations.
And our even stories for the record well bore me Mark.
The mood in the industry.
We were significantly affected in Q2.
I'd unprecedented shuts down that.
That leads Walt.
Well said.
The extended period of time, well Morton and we.
Conversely, the sharp recovery no promoted reduction starting in the second most of you pre made abundantly clear.
The real player.
Well, the motive and who are the ones that are less relevant.
Yes or no.
Or not relevant Oh.
With that our Q3 numbers speak for themselves.
The $126 million in adjusted EBITDA.
Represents an over 200 million boes recovery from future.
During the most challenging days off the pandemic, we went on bill.
We prepared our operation.
Wendy uptick in demand.
Absolutely.
And our client would be back asking for just in time.
Our work in refrigeration for and I head off.
I'm sick or restart.
Jay was excellent you're baking costs for form we showed in Q3 as well.
Sizable working capital release that contributed Walworth Wow.
If you look at all the free cash flow generation for the quarter.
We used this cash flow to pay down debt.
See our NPL balance.
Hi.
$50 million you three.
C suite cool they can't resist during March we had good or.
HM.
$800 million.
400 Needham though.
As we have stated before our number one priority with free cash flow you and we will.
And we will continue to be be.
Pay down debt.
And with the robot Giftables anticipate for the coming years, we should be able to continue to consistently de lever.
Our good third quarter results were negatively affected by lower the usual shipment pace.
At the beginning of the quarter work equally in July.
Well elevated idle for reflecting our board.
Our board Northshore and then you know.
You'll be down you do your part of Q3.
As such shipments that not healthy for me and I.
Yeah, I know cost base.
Our financial performance continued to improve.
Progress toward the end of <unk>.
With that we expect schools in 2020 or not I know.
Strong fourth quarter results.
As we approach the end of 2014.
Our strong performance not relevant.
Relevant thing we look forward to.
Before the end of the year.
That's cool well in our acquisition of substantially all the operations.
Arcelormittal USA.
Our third quarter results are.
Switching off the power.
The power of.
<unk>.
Volume and new loosen up fixed costs.
Yes.
Diseases and it isn't a guard.
This deal we will only help us improve our profitability.
It has been a little less than a month.
Yes, we made our announcement.
And in that short period of time, our leasing at Rome.
More excited about the potential for music Oh, this asset under one roof.
The combined footprints of legacy Cleveland.
Okay, you and Arcelormittal USA are you maker's dream.
When it comes to both quality and cost efficiencies.
We are preparing for a boost transition and to hit the ground running yes.
As soon as the deals cool.
Nowadays people talk a lot and good.
About technologies.
I cannot think of any thing more technologically advanced and Dan Leaser, using exposes who are more on the ground no mines, the Michigan and Minnesota.
And then Andy with.
Parts and components manufactured our at our <unk> Recision Park.
Using robotic operating equipment.
And delivered just in time to our automotive glass.
Yep.
Definitely do add more.
Add more.
Oh Wow.
Right.
Grown our taconite mine wall.
Wow its state of the art Hot dip galvanizing line.
Important at downstream into our fully automated manufacturing facilities for automotive for.
We fully recognize the responsibility that comes with becoming the largest flat rolled steel maker in North America.
Going back five years ago, but Mike.
My criticism of the responsible behavior.
Of the major iron ore mined.
I have long been a proponent of value over volume approach.
Under my watch.
Flips has never been.
And we will never be.
Yep.
By just stupid or volume for volume sake.
We will continue to manage our business is the most quality focus and cost it.
<unk> cost efficient way.
All these ricci for real value and return on invested capital.
For now.
Through the regulatory approvals of our transaction.
And we'll certainly have more.
Once we have closed the acquisition of Arcelormittal USA in a couple of months.
I'm not a piece of excitement as we approach the end of the year.
Yeah, Let me start up of our state of the art direct reduction plan in Toledo, Ohio.
We have completed all construction and installation and.
And we have now entered.
The final stage of commissioning the plant.
At this time, we are pleased to inform you.
We look forward to it started producing H.B. I in a few more weeks.
Our regional plan to become a merchant seller of H.B. I remain the same.
However, with our AG you existing footprint and.
And then also the acquisition of Arcelormittal USA.
We plan to redirect a relevant portion of <unk> production <unk> He hows utilisation.
In our Oh, yeah.
Yep and blast furnace.
Nevertheless, we should just do you have a meaningful Donna GFY <unk> available to sell select midday meal flying.
Well, yes.
She shops this project is well known.
Our 3% carbon content H.B. I.
Top call it metallic feed stock we.
Without the securities that come with scrap.
And without the complete disregard.
Total mental compliance embedded in important the garden from.
The usual source.
Russia and in Brazil.
The Mets validation in Kabul content or H.B. I have very similar to that for the garden. That's a number of American Yeah Big Your company.
Import duties.
To the tune of 5 million metric tons per year.
However, our direct reduction process use pellets at speeds thought instead off.
Do you see there and now.
And natural gas as productive instead of coke or sharp will make.
Making our H.B. I much more environmentally friendly Dan for the Guy.
Our H.B. I also has a superior logistics advantage over the board that he got.
We will deliver hbr for clients in sync with their consumption rate.
And we doubt Newport did you gardens.
That's great color component.
Or moved by month lead times.
Why would you use all Ritchie <unk> E.
The house.
Legal and cliffs.
Our own yeah gaps.
We also use up forshaw for each be I, you know a blast furnace.
We grew our partners for the PBT reduce coke rate.
<unk> costs associated to go consumption in.
Very importantly to reduce.
To reduce carbon emissions.
Equally irrelevant.
Mhm cliffs is a buyer of threat.
Valerie <unk> may also be used in our own view all web.
Esculent reduce.
To reduce our scrap costs every time the cost.
This graph, we buy in the market.
Just a price.
Yeah.
Thanks, <unk> not happy sign any long term contracts with our H.B. I client.
We were able to keep all these optionality.
To the benefit of Cleveland lives and to the benefit of certain so that yeah. They used to companies with which we have been working for several months and.
And which will soon you start receiving our hbr.
Said another way we.
We expect our H.B. I will become as earlier next year in 2021 up positive differentiating factor between our own blast furnaces and the blast furnaces or other integrated you still views with no access reach beyond.
As well.
Was it the differentiating factor between the meals that to be our plans for each.
And the other.
Back to our third quarter results I'd like to highlight a few items.
But starting with the 80% increase in flat rolled volumes grew 1.1 million Paul.
The increase was almost entirely driven by the automotive Buck.
Which made up 73% of our sales.
I will repeat.
73% of ourselves.
This number was 63% in 2018 and 66% in 2019.
Now, 73% in Q3 of 2000.
It's based off.
The able to produce all types of material world from wouldn't fly.
Particularly exposed bar.
As you all know our subsidiary company AK steel has been supplying exposed parts.
Automotive industry for a long long time and from several different locations.
And due to our equipment and our technological capabilities.
Yeah, that's really natural for us to produce their high end, but to you.
We don't need to go out of our way to do it.
It also helps to be able to deliver material on time every day.
To provide sequans sitting on technological support from our new state of the Art R&D Center.
And to be able to produce parts and components in house.
In sum we or.
We already are.
Others are trying really hard to get through.
Our prediction around the effects of the pandemic on increased automotive that have come to fruition.
Well, Chris what age air.
Air travel and.
Right Sherri are no longer considered safe.
Like most woman.
He said private car ownership is growing.
When traveling by car is trendy again or you do videos and Tim.
The U.S. output motives seasonally adjusted annual rate increase from 8.6 million units in April to 16.4 million units in September.
Even while we sales remain down 30%.
The recorded and car serious consumer driven and shows no signs to end anytime soon.
As it also follows People's migration from concentrated metro areas.
Suburban living.
We are working closely with our automotive client, who keep up with this increased demand and to help replenish their inventory.
I see and just keep days sales outstanding.
Nine year low.
The inventory situation is even more dramatic for the truck and as to the market.
Which by the way account for about 83% of all our sales for motive clay.
After their initial restarts see me the Oems did not really hit their stride poised to ordering standpoint until mid August.
So our 1.1 million don't ship in volume, we still reflect.
I'll use black for the first half of the third quarter.
That said, our client had been doing well.
Yeah.
This trend has also been evident.
In our downstream business.
Particularly with precision partners.
Who's the staffing capabilities are in high demand.
In sum.
As we are very pleased with the timing of our acquisition of AK steel.
And our current role.
Automotive bucket.
We're also excited with the acquisition of Arcelormittal USA.
Going forward, we intend for the high margin automotive space.
To remain our core commercial.
On the money in Palatine side.
Our better than anticipated cost reduction.
And the strong iron ore prices in the international market, where the reasons for our good Q3 results for our legacy.
The pricing indexes that act as a proxy for this business and the volatility associated with this index that have always been a double edge. This war.
Making predictability of our cash flows a difficult thing.
Well the Arcelormittal USA with each of these complete we should be able to secure the how's demand for 90% of our pellet output he can.
Significantly reducing the unpredictable influence of commodity price.
The one index that same adult most is the pellet green, which has been contaminated beyond repair by competent players in the market.
Once the acquisition of Arcelormittal USA goals. This particular index will be meaning less to our results and that's a good thing.
Regardless after the closing of the acquisition of Arcelormittal USA, our legacy business will be it's critical as ever or outperform you should continue to provide us a competitive that.
Competitive advantage in the form of high quality He house.
Cost to me.
As a combined company, we will continue and truly emphasized our commitment to sustainable you still make.
We are a relevant player in the most environmentally friendly we skew industry in the world.
America Miscue industry.
We see our integrated steel plants with bell.
Soon also with natural gas regions Hbr.
Going forward, we plan to provide enhanced disclosures on our carbon emission reductions and overall you borrow mental performance through our Opcone sustainability reports.
With that I will turn it over to Pete go see before my closing remarks, Steve Hooley.
Thanks Lorenzo.
As you noted our dramatic 208 million dollar quarter over quarter improvement in adjusted EBITDA was driven by increased steel shipments to the higher margin automotive business better cost to increase.
Production volumes and reduced idle costs and also driven by increased pellet prices.
After excluding $22 million in one time items, such as acquisition costs severance and inventory step up amortization our earnings per share was in positive territory for the first time this year.
In the steel manufacturing segment.
Automotive carbon shipments increased to 164% to 667000 tons compared to 253000 tons in the second quarter driving the bulk of the improvement in our flat rolled volumes there's no.
As noted on our last call, we expect fourth quarter shipments declined even further.
And look similar to what was shipped by AK steel in last years fourth quarter.
On the cost side.
Temporary idle costs in this segment were $39 million, we should be reduced to less than 10 million in the fourth quarter.
Also over time.
Of our total SGN a of approximately 60 million in the quarter.
37 million of that flow through this segment.
With most of the remainder running through corporate.
As for money until the timing.
Sales volumes of 4.9 million long terms came in as planned and we are.
Expect to see an increase of about 10% into the fourth quarter as furnaces stock up ahead of the winter months.
Pricing for long term of $98 were supported by higher IODEX.
Partially offset by lower HRC average and lower pellet premiums.
At current commodity prices, we would expect to see an increase in this rate in Q4 due primarily to the recent run up in HRC.
Our cost per ton improved quarter over quarter due to reduced idle costs.
And with all of our minds back in operation.
We should see more normalized levels in Q4.
Margin eliminations for the third quarter were 29 million, which was.
Which we expect to look similar in the fourth quarter as we restock pellets at AK steel ahead of the winter months.
This amount should that normalized to close to breakeven throughout next year absent the impact of the Arcelormittal USA acquisition.
On the Capex side over and.
Over $96 million in capital spend during the quarter about.
About 46 million was related to the H.B. I plant and about 14 million. It was capitalized interest with the remainder in sustaining capital.
We expect another 125 million in Capex spend for the remainder of the year lowering our full year expectation from approximately 535 million to $500 million.
Our immense level of free cash flow generated during the quarter boosted our total liquidity to $1.2 billion between our cash and maybe ill it'd be liability.
Along with improved performance across the board, we saw favorable working capital changes of 187 million during the quarter.
Due to the recovery in business levels, we have seen.
We expect to invest in working capital in the fourth quarter as well as many contributions to certain pension plans, but still expect a free cash flow positive back half of the year as predicted last quarter, which has been further enhanced by favorable market developments.
In closing the ACA.
The actions we took during the most challenging periods of the pandemic are enabling us to benefit from an improved demand environment and working capital release the role.
The robust recovery, we foreshadowed last quarter is evident in our third quarter results and we expect further improvement in the fourth quarter.
With that I will turn it back to Lorenzo.
Yes, yes.
Before I turn the call over to the operator for questions.
In my view of that as we work to close the Arcelormittal USA acquisition I am.
I am restricted from discussing the anti trust review process or provide any further guidance on our plans for the business and operations to be acquired.
So we are in advanced for you to believe this question is for your lease out.
Outside though.
I am happy that anything deal related or not.
Really we have a lot to be excited about as we approach the amber.
Yeah acceleration accelerating recovery Yelp the mortgage space.
Commission each of our direct reduction plan.
Plan and.
And of course.
Handing cold or for second transformational acquisition in less than a year.
A combination of all three.
Divides us all.
All right.
We need to accomplish our operational and financial goals.
We look forward to continuing to surprise, everyone, who the upside on what we're willing to do and.
And capable of doing with this great company with.
With that I will turn it over to Michelle for culinary.
At this time if anybody has a question. Please press star one on your telephone keypad.
And not as sharp one on your telephone keypad. Your first question comes from Lucas pipes. Your line is open.
Hey, good morning, Lorenzo and great job this quarter.
I wanted to more.
Good morning.
I wanted to start out with a big picture question. This week, we have heard from some of your peers about their desire to grow their auto volumes over the coming years and as the market leader are you concerned about a loss of share or Conversely would you say that there's even an opportunity for you to work together with these peers as you supply them.
But the metallic's that they need to penetrate these other markets would really appreciate your thoughts. Thank you.
Yes.
That's a great question.
Again, we are like I said in my prepared remarks.
We are supplying more than $3 billion was 3.5 million tones to automotive to date.
The acquisition of Arcelormittal, USA or because they will increase dramatically does not so.
So we are already a big supplier locomotive and will become a bigger supply growth.
Others are coming and trying to grow market share rightfully so totally understandable they need their talents will have metallic's for some will go on having a balanced for everybody.
Competitive process, let's see who is going to pay that.
The price to be an environmentally compliant so.
Supplier the delta more to the industry and who are the ones that really serious when pig iron from Brazil.
Importing the pollution from these two countries into the United States, let's see for how long.
He is that going to tolerate this type of bad behavior. So there's a lot of things in play at this point they.
They important things that automotive supply rely on.
Relationship quality on time delivery capability era.
Indeed capabilities to support future.
Developments.
All of these things that we have been great long long answer to before.
Andrew two before that enhance it as we acquired Arcelormittal USA, so it'll be a need they're seeing I think the seat and it's a dynamic market.
As a rule for all the good players we are going to provide the stock to the ones that werent to play a 11 environmental compliance way, we'll be glad to compete in a level playing field, we hate that competition, but we cheer good competition, that's with me.
They're very helpful events, and just to follow up on this you mentioned that won't be kind of enough metallic's for everyone.
In light of that have there been maybe increased increase specifically as it relates to two pig iron obviously, there just been Ashland into past now you have the broader portfolio.
Central assets to choose from as it relates to take on any any any updated thoughts on on on that.
Yeah look.
We are after the acquisition of Arcelormittal USA, because we're going to have a total pin less ones.
And to do have three.
And of the three that we have one is down is Ashley so.
So we are going to be by assets that have.
Other blast furnace Thats, our dollar I know.
Yes, probably in a better position to reduce the guy.
And when we decide to do so.
Yeah, we're going to do it or not to be seen.
I'm not going to be producing the guy who.
Who competes against the big Iron from countries that food that's for sure that's present.
Oh, yes, the value propositions, there will produce but don't forget we went to have some hbr because not all age.
So.
We plan to use for sure Hbr for our own yes, we plan to for sure music where are all that we are.
We are not going to sell we are who blast furnace company, where we are going to be build your words with access to this feedstock and that being said, we will have a lot of things we like to sell stock.
You start to see how the market behaves and then we'll make a decision regarding.
Very very helpful. Thank you Lorenzo and then really quickly just switching topics I wondered if you might be able to shed some light on potential proceeds from asset sales.
Should we be thinking tens of millions of dollars to one hundreds of millions of dollars of potential cash proceeds any.
Any any color would be appreciated. Thank you I'll, let you answer that he's please go ahead.
So as far as he was talking about asset sales Lucas.
Yes, well right at this point in time, and we were really well.
We're not contemplating anything along those lines what were buying and what we have now is all consider to be core.
For for what we want to do going forward. So.
If anything were to come up and become non core we would do exactly what we've done in the past, which would just be.
You pay downs pay down the JBL, but we really don't have anything on the horizon and it's premature to speculate on.
Asset base were.
Very happy with what we see so far and I wouldn't anticipate any significant if at all any any divestitures.
Very helpful Lorenz.
Lorenzo keep really appreciate it then.
Keep up the great work. Thank you.
Thanks Lucas.
Your next question will come from Seth Rosenfeld Your line is open.
I learned when Keith Thank you for taking our question today.
If I can start I'm pleased with the question on the outlook for your steel sales to automotive customers. Obviously this time last year, the AK businesses under different management and up the steel market was under quite a bit of threats back. Then today you are in control of these assets and the feel mark much better shape can you walk us through.
How you view the outlook for automotive contract negotiations going forward I know you touched on in the past that's certainly an area of focus for us being paid for the value of your customers.
What would you expect it feasible I guess going into Twentytwenty one please.
Well Seth.
Contract negotiations with Yeltsin border clients is an ongoing thing.
We don't have a date that you can reach will be resettled contract. So you would have been negotiate off course.
I think that we are renegotiating as we speak.
Are easier to renegotiate then.
That we negotiated a month or two months or three months ago.
Because the market.
Quoted.
Back to draw up a lot.
A lot more constructive than there were one or two or three months.
So that's pretty much as much color I would give.
I'm not going to go further than that because that would involve.
The schools in the.
Things that they're not really.
The things that we like to the schools.
Okay great.
If I can ask the second question. Please on on H.B. I. Thank you for the color on the ramp up in Q4 and also the customer mix that you're targeting.
Can you give us an updated sense of the ramp up schedule as you expect volumes to hit full capacity over what time horizon. Please and if we can expect if you're going to speak of going into 2021. When do you expect at particular portion of those to be used internally already first target third party sales.
Yeah, we are approaching production right now 'cause commission is happening as we speak so.
So we will start producing.
One, 1.8% carbon which the first rather that we are going to produce.
All of the 1.8%.
Brother to be consumed the house.
And this would be for a couple of a couple of months.
As we start.
Next year will be already transitioning from 1.8% copper to the 3% government. That's the brothers that would like within the marketplace. So.
So we should start having profit for clients at the beginning of the second quarter, that's what's your anticipated and by the way so.
You have been pushing toward all you will have pointed to don't have glimpse. It now you understand.
Now you understand it was by design and it was all done based on the plan.
We were able to buy a case you are able to agree on a deal with Arcelormittal USA. So apparently we can cut contract every time, who won every time, we would decide to do so.
At this time around we like the transaction on the nature of the market. That's why we kept all these ups and that was before us I hope now that.
Everything is clear you were able to connect the dots.
Why we didnt have the long term.
Yes.
Thank you and just one final question. Please if I had an accounting question on the upcoming Mattel transaction.
Obviously, there was some confusion that having the deal announcement on the different a pension accounting between yourselves and Mattel and be in the 1.5 billion or 3.1 billion to pension liability when the deal closes in Q4 can you confirm how you expect to account for the pension liability would it be closer to mid told reported 3.1.
To the economic value that you reported a 1.5 please.
Well first of all there's no huge on debt.
These are different.
Approached with the same thing that's abundantly clear, but lets keep to explain a little bit on that Keith. Please yeah sure sure so and learns imagined yet it's really a it's the accounting valuation which is as we all know is done on a pre tax basis and done done consistently and applied for the accounting rules.
Comparability amongst companies and then of course, we used an economic approach to you know to to arrive at the value of the equity of am USA. So.
As far as what we would expect if it all else being equal if all assumptions that were put into the accounting numbers that any of you.
I say.
I suppose all those assumptions remain the same that we're going to get the same accounting result that they got and you know that that was a you know roughly $3 billion liability on the balance sheet and then you have an offsetting you know $700 million plus deferred tax asset on the on the asset side of the balance sheet. So you know it's.
You know, it's a it's two different purposes, and but we would expect a really to come out in accord.
In accordance with GAAP with a similar outcome.
The important thing is that that not to try to two to two to find something that doesn't exist.
This transaction involves two parties, that's a very sophisticated deal makers.
The middle East and ourselves.
Give us credit for that so we know what we are doing we understand the numbers and they do too and it's a clear win win.
Actually the verdict of the market is just that.
Announcement of the deal there.
This block that appreciate the most in order to space the space goods and the second is empty.
So the market has spoke.
And so there is no such thing all mittal pulls the one on cliffs or Oh. Please wolves, one form itself no. That's not the case, let me talk was actually though arcelormittal will stay.
As a meaningful shareholder of good at least for a while.
And so there is no such a thing and I hope you understand there's no win win we adults someone boozy. So you also.
At least from my perspective, when north you're doing Andrew Lu.
Where we're going so who is going to be the one losing for us to win but between cliffs and arcelormittal. The two participants in this transaction.
It's always win and we are both very well aware of the numbers and the impact on valuation.
Accounting is a different story, how would you pay for how we meet our.
Meet our financial commitments, it's very well known the schools and I have been doing this together for more than 15 years.
That's clear thank you very much.
All right Okay.
Our next question comes from matching fields from Bank of America. Your line is open.
Hey, Lorenzo hockey.
Hi, Matt This is Matt.
Maybe just a housekeeping one first so appreciate the guidance you gave on cash flow working capital you know Doug.
You know dovetailing with the comments from last quarter, where you said 100 million working capital positive, but it implies an $85 million roughly give back in fourth quarter, which you kind of alluded to.
Along with with pension contribution can you just give us a little clarity on that the sort of quantum of those two cash items with yeah.
Yeah.
Oh I'm sorry.
We're looking at about a 50 million dollar, yes 50 million.
$50 million pension payment, that's really do love January 2nd, but it'll get because because it's a federal holiday we'll have to make it on December 31 that gets pulled back in.
You know and as far as the inventory and working capital potential build in a few in the fourth quarter. It remains to be seen how that is I mean in a normal fourth quarter, we might see that build because we're putting some pellets in front of the 8-K furnaces and were and you might see in a normal year, you might see the Oems slowed down a little bit in December but there are some.
Indications that not all Oems are going to slow down so.
Well, we are seeing there is a bit of a chance for a built in Q4. It's also possible that that number can be close to zero, if the Oems pull consistently all the way through through the holidays, we will probably not build much in the way of inventory in Q4.
Okay, Great that's very helpful and then.
Great progress paying down the a the B L understand you want to keep that opened to help fund the.
Equity portion and the working capital deficiency for Arcelormittal U.S. transaction, but what's the what the trade off in your mind between paying down a b L and sort of buying back sort of.
Sort of discounted bonds in the marketplace.
Good point.
Beth look single buyback bonds.
At the discount in the market right now I think that this this ship is sale.
This was an opportunity to took advantage in 2015 2016.
And and few times after that but this was when we had a big.
Oh opinions in the market that groups, who would not survive so that was really.
A deep discount that would really.
Make the transaction on very.
Yes, it's interesting transaction for us at this point in time, and we'll see that to be honest with you. So you have all bonds really three D.
Very strong and okay, Mike I didnt quite a tranche here and there, but not really meaningful from the big scheme of things. So there are other wasting scheme that cats, and we will be addressing at the right time.
But buying bonds since on the dollar that's not something that would be available for us at this point I don't think so everybody understands that we are a company that we will continue to grow and dog wants to do very well at par.
That's a fair point, we wrote a couple of things about maybe need PON potentially selling their stake in that those Indiana Jvs you as part of the overall our slower transaction those two Indiana joint ventures that it can you comment on that at all.
I cannot beyond what's in the public disclosures the answer is no.
We have that complete you square adult and what I have to be born above that it's in the press release that we we did but we.
We are a respect for fully a wiki for Nucor steel too.
Uhhuh manifest their position and we will act accordingly.
Okay.
And then you know just.
A comment you made earlier, which I thought was kind of interesting you know you talked about the transaction is being win win but when you have when when somebody loses.
You know maybe you could just sort of talk about how you see the industry evolving and sort of winners and losers as a result of your transaction with with Arcelor.
I I will talk about the winners.
Google and cliffs and beautiful.
Alright looser endpoint.
Time will tell.
Yeah, they are out there.
And.
They now have competition because.
It was before.
So more die on their own some others were just flying above the.
The rayva.
For the only got two or die on their own, but they're all and for the well I've got to our flying with local conditions have competition, but.
But you know the good ones will survive the bad ones or not.
And we'll see.
Alright, thanks, very much appreciate it and good luck.
Closing the transaction.
Thanks, Matt Thanks, Matt.
Your next question will come from C.L. King Your line is open.
Hi, good morning.
Why don't you.
Oh Lorenzo on the company the the iron ore pricing in Threeq, you was was strong pretty pretty consistent with the first half of the year.
Obviously iron ore prices and more.
We're we're good and hot roll prices towards the end of the quarter clearly got better.
Were were you taking any true up positively or negatively in the third quarter because clearly.
The HRC true up number came given the recovery.
Well have equally yes actually feel yeah. The interest became kind of late in the quarter. So there really wasn't probably as it was actually had an offsetting impact on on the rate for the quarter. The IODEX is what ran earlier in the quarter and gave US a positive true we always true up every quarter, we're required to do so.
And the net true up for Q3 was was up I think a revenue roughly $10 million to $20 million.
Affecting rate.
Not not in a tremendous way, but it but it had an impact on rate.
Based on the pricing, we're seeing right now in commodity pricing, we could see a minor small true up again in Q4, but it's we're only Rowley.
Four weeks into the quarter, we'll see how the rest of the quarter plays out.
Okay. So a few bucks a ton positive.
True up in Threeq you in.
Yeah, I think you said pricing a little bit above the fourth excuse me a little bit above the third quarter and the fourth is all right that's right.
Commodity prices stay where they are today and run run even for the rest of the year, we wouldn't get another small increase in rate for the fourth quarter.
Okay terrific and.
The idling costs that you were who are carrying when you said those are.
I think you said those are lapsing right and in the fourth quarter for that the mining side and then we're almost through through.
Through a big slug, it at AK <unk>.
That's correct that's right.
We're done what we're left with is about 10 million in the quarter for the steel and manufacturing side and that's really just a normal level that has nothing to do with volume has nothing to do with co redemption, you're going to get $10 million in any quarter, just due to routine maintenance. So you can effectively say, it's done and in Q4, but theres theres always a little bit for us.
Just routine scheduled maintenance from time to time half a day here quarter day, there that kind of thing that kind of thing.
And then last question Lorenzo.
H.B. I want it gets up and running given your position I think theres some water access there from what I remember.
Is there an ability to get a material into into Canada pretty easily if you need to do that.
We don't see the reason for that.
We we.
Our old locations, we have consumption and the clients they have been working with us and I would not be schools any new clients. So just mentioned one that because.
He has mentioned problems and external dynamics as being working with us for some time steel dynamics will get hbr. So.
So I think we are going to consume everything in the United States.
Okay. Thanks, very much great work.
Sure.
Thanks, Phil.
Next question will come from Alex Hacking your line is open.
Yeah, Thanks, Lorenzo and Keith I, just want to follow up on the H.B. I, maybe I missed it but have you quantified the volume that you're gonna take internally.
What's a the metal scores that we bought him what the volume of H.B. I doubt you would consume internally.
Yes look.
We.
True true need to have a number right now I would say that we are going to have active.
Well 1 million to 1.1 million tons to sell to the market.
So the balance would be consumed in time.
Okay perfect. Thank you and then after that at the very least because you know 1.90, a nominal capacity so.
So I'm anticipating you.
Using turned up.
Pretty big chunk, but we still have a lot of it so.
Okay. Thanks, and then I just want to follow up around your comments around.
Yes, the environmental credentials of your automotive steel I mean, your point is well taken that you know your age FBI product is significant environmental advantages over imported pig iron but.
But as you know I mean is your assertion that Keith when we look at the whole you know scope one scope to emissions profile of your automotive steel.
It would be superior to that of D.A.F. automotive steel. Thanks.
Well, let's take.
Where did talk school too.
Thats correct furnaces in general and we say that because we have the electric arc furnaces and after we acquire Sullivan Tal will double the number of units that we have from two to four so we are very familiar with that we Brian we buy electricity from the grid.
And the grid into United States.
He is not.
Agreed that.
He is on solar or or wind or even nuclear.
It's basically natural gas and we do a lot of old school.
From a cool.
So that's where scope true for electricity and Thats good for us.
That's correct for us by the electorate.
So we by June two broad usage.
And when you use natural gas.
We are not going to be using hydrogen anytime soon in direct reduction or blast furnace is not here not in Europe, not in China, not in Japan, not anywhere just because the technology is still doesn't exist.
So our plan.
Natural gas they.
We'll be.
The state of the art when we.
When we start to from the environmental standpoint, as well when do we start producing very slow.
So I think we're very well situated to.
Compete with all blast furnaces, because we use pellets.
We.
We'll be using AI and therefore, we will be reducing.
Great when you reduce cool great because you know the H guys already reduced so don't you Cook to reduce you only need could produce.
He.
That reduce the need for Coke you are reducing that you booked walk through our reducing C. When you reduce C youre, reducing the generational huge oh.
That's that's how they could be I think worth.
On the other hand, yes.
Not only have electrodes, that's our graphite graphite, but.
But there you have injected or to reduce your Q.
And that's why our age we'll have 3% because our.
Ah, yes, let's back for its clients asking for higher travel content, we can produce less.
But the electorate.
The electorate percent Soviet 3%, if that's what the client wants.
So when when it comes for sure I have not seen that much of an advantage between the current eas injectable to generating seal drew and blast was that well to date already use pellets and Don will be using it. So it will be a brief.
Interesting thing to see.
Even more important.
Matt this to market the 70%, yes, 30% less players feel left.
And all together.
Thousand $98 million.
China alone has 10% off 1 billion, India, Yes, that's 100 meter.
Well he a half wasn't solutia, China will not would not people moved house.
However, China has 90% blast furnaces and all the blast furnace at our center.
And third season.
So 900 million tonnes of steel chime I produced under the worst possible scenario.
Nevertheless.
The minor the major miners in Australia, and Brazil, BHP, Rio Tinto Fortescue Valley. They all have targets for school three.
Targets for school Threed.
And there is scope three emissions are all almost all in China.
So how come the equipment for China, China, Kip, good, except Japan, but China look good.
That's cool three in there and you should just because they are scope.
For them I am not going to happen. So there's a lot of conversation long story short.
There's a lot of conversation, but very little action on this environmental thing. The good news is that you start to 2021 month 2013, not 2000, and if not 2006 I'm talking 2021, that's next year revenue.
It will be usage, we are in it's now a blip.
Then 2020 to 22033, then he 2034 when you get to 2030, we're going to be doing this for 10 years. So we are going.
So we're gonna have you re ahead when others were that I hope.
I hope you got that.
But it's got to two condensate and not a very good question, but the company said the answer than that.
In a few minutes.
I appreciate your fourth Lorenzo and I I take your point, it's a very nuanced discussion with a lot of assets and not easy to come down. So thank you.
Thank you.
And our final question for today will come from Karl Blunden from Goldman Sachs. Your line is open.
Hi, good morning, Thanks for the time I guess, some things that have changed and collect when we spoke to I guess, a month or two ago isn't that steel markets looking stronger operating progress, it's pretty clear in Threeq your results.
Maybe some some thought and and you'll have some decisions that you can make regarding cash deployment and optimal leverage over time just be interested in your thoughts about what what the right level of leverage for the business is gonna be including as legacy liabilities as you as you ramp up the combined company.
Yeah, we'll call everything we do in this company.
Is geared toward reducing the leverage even the arcelormittal transaction deleverage because.
<unk> didn't think about that.
As to the acquisition were 4.3 times less.
The leverage after the acquisition because we are using stock and because of that you structure up the acquisition, we're going to be 3.6 times.
That was when we announced now we announced the results you already paid down.
They yell and since we announced the acquisition will be Kate we have paid did they yell you hop the 800 meter to 400 meter who continue to de lever.
And it did not generate show you all.
He deployed to pay down debt.
So there is no set will use there is no, but what you could do deals.
Good that we're not going to do anything we're going to pay down debt.
And we're going to continue to protect equip method to Capex and all all these things are taking into consideration, but they use of excess cash flow to all both award.
Reducing debt. So you should expect us to give you a little three very soon and then we'll go from there. So the next targets to bring leverage below three times.
All right that that's helpful. Maybe this is too specific but when you think about it.
The trade offs between secured and unsecured debt price expenses flexibility around covenants and so on is there.
You know guideposts, we should we should think about in terms of what your priority is there.
Yeah, we had another great thing that we are acquiring together with the Arcelormittal assets we are.
Improving dramatically dramatically our secured capacity.
We are also trading in a in a in a in a trend that will allow us to issue unsecured debt.
Usually at the end at a very low coupon. So all things considered we are in the right spot in terms of continuing to use our all of our expertise in the debt markets and to continue to make the right moves in terms of.
Improving our capital structure and reducing our leverage.
That's very helpful. Thanks very much.
Thank you.
We have no further questions. Thank you I turn the call back over to the presenters for closing remarks.
Oh, Thank you very much for our research in Cleveland cliffs.
Next time, we see will be a bigger company and we are very excited.
Very much looking forward to speak with you after the acquisition of Arcelormittal USA equals taken so much and have a great rest of the week Bye now.
Thank you everyone. This concludes today's conference call you may now disconnect.