Q4 2020 Cleveland-Cliffs Inc Earnings Call
And then.
And.
[music].
Good morning, Ladies and gentlemen, my name is May and I am Your conference facilitator today, I would like to welcome everyone to Cleveland cliffs fourth quarter and full year 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a quirk.
<unk> and answer session the company and 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 could differ materially important factors that could cause results to differ materially are set forth and reports on forms 10-K and 10-Q.
And I'll be level on the company website today's conference call is also available and day and beating but.
Cash at Cleveland Dash cliffs Dot com and 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 regulation G purposes.
It can be found in the earnings release, which was published this morning at this time I would like to enter this Lorenzo Gonsalves, Chairman, President and Chief Executive Officer.
Thank you, Matt and good.
Good morning to everyone on the call.
Why is that.
Thanks, Dan.
And we have a number of developments to discuss the day.
We completed the acquisition of Arcelormittal USA on December nine 2000 and brain.
And a couple of weeks earlier.
And the construction and began operating our direct reduction plan and Toledo, Ohio.
We have also one more time.
Financial expertise to good use and took advantage of opportunities presented by the capital markets.
Our balance sheet.
And last but not least we have recently announced our public commitment to aggressively reduce our greenhouse gas emissions 25 per cent by 2003rd.
I will begin with the most transformational.
The acquisition of Arcelormittal, USA, including the totality of eye and Tech and I and quotes which Arcelormittal previously shared ownership with Nippon steel.
The very first point I would like to make.
Is the most important part of the acquisition.
And that's the people.
They're now working for Cleveland cliffs.
I could not be more pleased with the buy in and we have received from the work force.
And those would be working for us a log deal.
Not just from the leadership team but.
And also from the employees at the shop floor.
If there is a simple reason why we are doing so well.
And we integrate the new assets.
And our existing footprint.
That's the buy in from this new Cleveland cliffs employees.
GAAP game also with the enormous support and the help there.
And from the employees that were with US before Inc.
And there was that joining cliffs AK steel.
It's fair to say that the entire workforce and that's good.
And our Union partners.
All recognize that Cleveland cliffs unique business model is now the M D C.
And industry and they seem to be proud of that.
We are too.
Ideas, we adopt a strategy or.
Nothing and.
And the strategy without execution is irrelevant.
But one thing only execute if the people involved believe and buy in.
Our Greek workforce integrated and unified under a common strategy.
And disciplined execution.
The reason why we have been so successful.
Through our entire team.
Thank you all very much.
[laughter].
Our competitive advantage and also predicated on a few things.
We operate the entire production flow from.
And the extraction of iron and wore out of the ground all the way.
Manufacturing of complex outdoor parts and components.
Said another way.
Cleveland cliffs has reinvented the meaning of the word integrated.
The integrated steel mills.
The award now includes mines.
Lance <unk>.
The reduction.
Blast furnaces.
Oh apps.
Yeah Yeah.
Oh Jeez Hot strip Mills Blake.
Blake use cold Rolling Mills and.
And that's related to any lines Hot dip galvanizing line.
And that's where galvanizing lines.
Cold and hot stamping precision welding.
And does their manufacturing and complex Julie.
All of these resources give Cleveland cliffs full control.
On cost and quality and results and cliffs heavy and tangible competitive advantage over our competitors.
Also as we process in our downstream facilities.
Steel produced by other companies.
We have a window and what others are actually capable or not capable to do in automotive.
Such insight was a determinant factor and guiding our decision to acquire and USA.
The assets, we acquired from a M. USA are complementary to the ones we already had.
AK steel.
And that will save us.
And spending a significant amount and capex to make the AK steel assets able to produce certain grades that we can produce and.
Indiana Harbor or Cleveland works.
Well the ones I'd like to talk about who is gaining market share from and.
And the steel business.
Let me remind you one thing.
One year ago Cleveland.
Cleveland cliffs, western reducing and belly.
Zero tons of steel.
And right now.
One year later.
The largest split roles and steel company in North America.
There's a really sizable gain market share.
I believe.
Even more importantly, Inc.
And comparing what we have.
And Cleveland cliffs.
What we see from others.
I'm extremely comfortable that our leadership position in auto.
Motive and very solid.
The acquisition of a M and USA, Inc.
And our participation and automotive.
5 million tons per year.
On top of that we also supply one 5 million tons of automotive grade labs.
Arcelormittal Nippon steel and Calvert, Alabama.
Even with increasing tours from three to 5 million.
We actually reduced our percentage of participation and the auto sector.
And from 70% at AK steel and stand alone 240% and.
And by and Cleveland cliffs.
Yes.
Benefit faster.
From higher market prices for steel.
[laughter].
We also supply 100% of our iron ore needs and house and that's extremely important.
They still make assets we acquired.
Both from a M USA and from 8-K.
Might have been historically and a competitive advantage on that regard.
Due to having to purchase pellets from us.
But now that Ventas has kept all with them.
And please.
Another point to consider.
And frankly from the scrap based non union shops.
We do not see our employees based on tons produced.
They do that.
We don't.
So a lot there's other steel producers our business model does not prioritize the production of pumps.
And we are not in the pursuit of capacity utilization EBIT.
We will prioritize we prioritize value over volume.
We'll prioritize we prioritize delivering on time and we accommodate the demands of our clients.
Particularly automotive clients.
We enter 2021 are applying to the newly acquired assets.
Same methodology, we applied to AK steel in 2020, and that will bring new assets to the same high level of deliberate performance. We have established at AK steel since we implemented our way of doing business last year.
Our clients know that.
And appreciate the changes and improvements we have been England.
Our assets optimization process is off to a great start as well.
We have already started moving slabs and coils and between the form 8-K, and form a and facilities to reduce logistics costs and to improve our customers' delivery requirements.
And this is material movement continues to be optimized standard.
And this should increase over time.
With that and several other initiatives, we are well underway to reach our synergy target of $150 million by the end of day here.
Net onto our total Eagle point.
We are delighted to have completed construction of the most modern direct reduction.
And plant and the world.
And to begin production of H B.
Late last year.
Those who have been following us are well aware of the value proposition is free.
And the brink's to both Cleveland cliffs and to the entire industry.
Our natural gas base H b.
He is not only a cost competitive premium alternative to imported pig iron and script.
We will also reduce scope through greenhouse gas emissions in our industry as a whole.
Additionally.
Once hydrogen becomes up using up to 30% of hydrogen as a partial replacement for natural gas with no equipment modification needs and.
Up to 70%.
With minor modifications, which would even further reduce emissions from the baseline.
We are progressing through our plan is ramp up period.
And through a cold winter and making the appropriate adjustments to bring the plant up to its full production level by the second quarter.
We are currently making H b I exclusively for our own internal use and we will start to ship product from third party customers later in March.
The timing of the startup of our HDI plant is extraordinarily positive for us with our views and scarcity of the math and you start up in the United States.
Okay.
And we will.
And have more biased towards the thing scrap.
Good point.
For H B.
And good for Cleveland cliffs.
We are also benefiting from a favorable favorable steel price environment.
This is particularly true seems to Europe and.
And U S C.
This acquisition has given us more exposure.
Product HRC prices and then when we only owned AK steel with a case outside the percentage of fixed price automotive contract sales and the product mix.
With our very relevant position as a player and the newly consolidated U S. Domestic market, we are taking a disciplined approach to supply.
We will continue to manage our customers needs and to not restart capacity on a whim.
Just to add tonnage with the spot market.
That would not be good for anyone.
Including clicks business and our workforce.
As I said.
We don't pay our people based on tons per day with the practice that had infected this industry.
We left the order book guide, our production and lifts.
Right now the order book and a good place.
And for consumer goods.
As well as from the stainless new clients and.
Service Center and generally.
Demand from automotive remains strong.
And also Oems continue to struggle to keep up with the resilient consumer demand.
So far.
We have seen only minor short term demand impact raw widely publicized C.
Shortage all of which.
And we have been told by our automotive clients.
B made up for greedy.
In the meantime, we have been selling more steel to select service centers and manufacturing clients outside the automotive sector and enhancing.
Just select price because they are increasing their business with Cleveland cliffs accompany that.
Very accustomed with producing high quality and delivering on time.
And also very good for us because we are accelerating the benefit from higher steel market price.
Had our annual contract renewals with our automotive play.
The value over volume and philosophy also guide.
Our near term production decisions.
And thats been publicized.
And we'll be taking our.
Middletown facility down.
45 day maintenance outage will do some work inside the blast furnace, but not a full rely.
In order to continue to meet strong customer demand we have restarted.
Waller Cleveland number number six blast wounds to make up for the lost mid hotel redemption.
Once Middletown comes back we will have another maintenance outage at Indiana Harbor number set.
We currently have 10 blast furnace and all.
And our portfolio and are keeping between six and eight points and simultaneous operation.
At any given time, we will probably have some maintenance to per foot.
We will manage all of these assets appropriate.
We don't have any and shop for false with all our customers.
While also not flooding the market with.
Then all of our volume is a simple philosophy that will carry on into the future and.
And it's why you're not going to hear me talk about capacity utilization or ease and market share except in automotive, but just because our lives.
And the ship position or just one segment is to walk.
Only a small light of the recent steel price run up.
It really impacted our fourth quarter adjusted EBITDA performance of $286 million.
Due to how contract prices work.
And usually applied lagging mechanism.
And the fact.
We only control the fourth quarter of 2000 and branches.
Cash not benefits and improve.
From this strong prices just yet.
And as a result, our EBITDA performance will.
Dramatically improve and the first quarter of 2020.
In addition, we can confidently say that the second quarter will look even better as rising prices become further reflected hvis shipments pick up pace.
And external pellet sales pick up with the reopening of the great Lakes.
This current steel pricing.
[noise] environment.
And so a highlighted the competitive advantages.
And our unique business model.
As we all know Eas use of scrap.
Our primary feedstock.
The price per ethanol bushnell and scrap and the Midwest.
Almost doubled from.
And where it was.
A little over a year ago.
Meanwhile, the cost of our primary iron feedstock.
And or pellets, we produce ourselves out of our own minds.
Basically the same as it has been for the past five years.
Because of this cliffs has actually been your proverbial low cost per user.
And we'll make it clear is not even and that type I characterize.
Because there is so much more to make me still been a low production cost.
You cannot reach safety first.
Who are obsessed.
With tons per employee.
You cant invest capital to protect the environment and if you are governed by your production cost.
And you will not see your workforce well if cash cost.
And may metric.
This is actually a capital intensive industry.
And we must work to generate return on them.
GAAP.
And not for bragging rights.
Based on a questionable and not always true.
Low cost position.
Hopefully this current environment is a lesson on the Blue States.
Maybe compare and cost position and we can put that subject to Rex.
Great.
Okay.
With me and said we don't believe this current scrap dynamic will be short lived.
China has publicly stated their targets.
And I believe a air capacity from.
100 million metric tons to 200 million metric tons over the next five years.
The increase alone is bigger than the size of our entire domestic steel industry.
And will require a lot of scrap.
By 2025, China will be producing two and half from three times more steel.
Yeah.
Route and to United States.
However.
Moving from where they are two day to day.
A level that they plan to be.
China does not have the infrastructure in place to collect and deliver all that scrap.
And the void will be fueled by imported scrap into China.
Definitely you'll come in large part from the United States, which has by far.
The largest and most mature with scrap infrastructure in the world.
This is something we at Cleveland cliffs predicted several years ago and <unk>.
One of the reasons why we built our direct from reduction plan.
With their already very large existing yes capacity and United States.
The new furnaces being built by the domestic mills here in the U S.
And the massive new.
Capacity coming online in China.
All fighting for the same amount of scrap available.
We at Cleveland cliffs.
Very comfortable with the powerful company we have built.
And with ourselves and you shouldn't see metallic.
Business model.
The capital structure underlying is best in class business model was improved once again two weeks ago.
And you may recall.
April and the beginning of the pandemic when the automotive industry was out of operation.
We should have a tranche of high coupon secured bonds.
And Catherine.
Now that business conditions have normalized.
We sought to reduce the outstanding amount of the secured notes as much as possible.
And the only method to achieve that was by using the 35% equity claw provision from the inventor of the notes.
The sole purpose of issuing day small number of 20 million shares was to use this clawback provision and.
And retire the maximum amount possible.
And the high coupon notes.
Without.
C a make whole penalty.
This coincides with a block sale of above half.
Arcelor minerals E L F common share that they receive as part of the payments, we make to them when we acquired a M C.
The secondary shares were already upstate and had no impact on share count.
We also successfully placed.
$1 billion of unsecured notes.
The lowest coupons, we have ever achieved.
High yield issuer, respectively, four six to five per cent and 4.87 and 5% four eight and 10 year.
This outstanding coupons.
And the same day deal price execution.
Execution.
After spending just a few hours and the market are.
And our Goodyear and unequivocal demonstration of the leveraged finance markets support.
And our business model and strategies and execution.
And at the end of day day with this capital markets activity, we replaced securities that we don't secured debt.
Lowered interest expense.
Cleared our maturity to run away entirely all the way through 2025.
And further improved our liquidity by using a portion for ADL repayment.
Finally in January we put.
When we announced our commitment to reduce greenhouse gas emissions by 25 per cent y ear 2003rd.
Rover and boats and scope, one and scope two emissions.
While we have transformed the business.
We will continue to upgrade and Cleveland cliffs on the thing environmentally responsible manner, we have always done.
Climate change and is one of the most important issues impacting our industry and our plant.
Our commitment includes using more natural gas to reduce our iron ore as well.
And our direct reduction and Brent producing H b.
Implementing clean energy and carbon capture and technologist and becoming more transparency on disclosing our product our product.
With that I'll turn it over to Keith Koci reported giving my final remarks.
Thanks Lorenzo.
Before I get into the specific results that were foreshadow with our pre announcement a month ago I will first discuss our new business segmentation.
You saw in today's release that we are now split into four segments.
But the bulk of the operational and commercial activity will take place and our steelmaking segment.
A foundation for this is driven by how the management team views our business.
The strategic rationale behind our two major acquisitions was two four and one large and competitive.
Fully integrated steel company, which is exactly what this segment represents.
This segment captures affected effectively all of the production activity that begins at our mine sites and.
Including our pellet plants and other raw materials operations and ends with our steel and finishing plants.
Product sold from this segment include slabs Hot.
Cold rolled and coated galvanized stainless and electrical Tin-plate place rail forgings pellets and H b.
Our downstream units will remain as separate segments due to the different commercial nature of these businesses.
And they remain an important piece of our integrated entity.
Because of this reporting change we will not have any significant noticeable inter segment eliminations going forward.
Other than the small impact from the finished steel sold to our downstream segments, resulting in a much smoother and cleaner model.
As for our results are.
Our fourth quarter adjusted EBITDA of $286 million represented 127% increase over last quarter.
And the 158% increase over last year's fourth quarter.
The sequential increase was driven by the following <unk>.
Increased steel shipments higher prices.
Better cost due to increased production volumes and reduced idle costs. The stub period contribution from the AAM USA assets.
And increased third party pellet prices.
And the steelmaking segment.
Of our $1 9 million net tons of shipments.
125 million net tons from the 8-K side and picked up the remaining 600000 from our 23 days of ownership and I am USA.
We expect to more than double this amount and the first quarter with total shipments of approximately 4 million net tons.
You'll notice our average net selling price declined and the fourth quarter compared with the prior quarter, which was purely related to mix.
The AWAC assets, we acquired did not show stainless or electrical steels, which carry a much higher average selling price.
And the overall average down.
Our shipments during the quarter.
And 44% coated.
22% Hot rolled.
18% cold rolled and 16% other steel, which includes stainless and electrical slabs plate and rail.
And third party pellet sales during the fourth quarter were about 2 million long tons, which consists of approximately $1 6 million long tons sold and USA prior to the acquisition date.
Going forward, our external pellet sales volume should be three to 4 million long tons per year.
With the remainder of our output being used internally by our blast furnaces and direct reduction facility.
Our steel supply contracts are roughly 45% annual fixed price with resets throughout the year.
And 55% HRC index linked.
That latter piece further breaks down to about 40% on pricing lag split between monthly and quarterly with the remaining 15% on a spot basis that currently have lead times up to three months for hot rolled and four months for cold rolled and coated products and.
Surrender and noted given the structure and the short stub period for the new Am USA acquisition and the recent run up and steel prices should accelerate and our results and the first quarter and continue its advancement into the second quarter.
When we completed the AAM USA acquisition, we Upsized, our ABL facility from 2 billion to $3 5 billion, which is currently more than fully supported by our inventory and receivable balances.
This has provided us with a sizable liquidity balance of $2 6 billion as of this week.
Of which approximately $850 million is earmarked for bond redemptions and set to take place in March related to the capital markets transactions, we completed earlier in February.
Most of the other significant changes to our balance sheet.
Peony and goodwill are attributable to standard acquisition accounting.
As for cash flow, our fourth quarter was impacted primarily by changes in working capital, most notably receivables and inventory.
Because of the factoring arrangement and USA had in place prior to the acquisition that was terminated and closing we began rebuilding the receivable balance and December.
Which was factored into our valuation for the acquisition.
We will continue to build working capital and the first quarter after which it will then normalize and become a source of cash for the remainder of the year.
Our fourth quarter capital expenditures of 147 million took into account spending for the M. USA assets. During the last 23 days per year and included $61 million related to the Toledo plant, where we have about $60 million and run out spend going into 2021.
This is included in our $600 million to $650 million capital budget for 'twenty one.
Which includes about $500 million and sustaining capex as well and other small projects such as a new precision partners plant in Tennessee.
Walking beam furnaces at Burns Harbor and.
And the powerhouse of Cleveland works.
In closing with the completion of our two transformative acquisitions and the recent capital structure activity, we completed two weeks ago.
The company is on solid financial ground.
With no cash taxes to paid and manageable capex interest.
Employment obligations we.
We are primed to generate significant free cash throughout 2021.
We will use this excess free cash flow to continue to reduce our debt balance.
And we will have ample opportunity to do so and the current market environment.
And now I will turn it back from Lorenzo for his closing remarks.
Yeah.
Thanks Keith.
What a year 2000 per and who was.
And what a phenomenal company we have formed during 2010.
Rather than panic during the most challenging days I'll say and then.
We went on the offensive.
And took advantage of the amazing opportunities out there to improve not only ourselves, but also to change for good.
They steal business environment and United States.
And the new by the administration and starts to work toward infrastructure manufacturing Inc.
Total mental responsibility and good day Middle class Union jobs, we.
We believe we have just view the perfect perfect company to thrive in these challenging times.
We are ready to make a mark on the industry with $1 25000 employees.
All ruling and the same direction.
And we can't wait and show you.
What we can accomplish.
With that I will turn it over to make or.
And women.
Thank you for a reminder to ask a question you will need to press star one on your telephone and let me can I get a question press the pound key please standby, while we compile looking at net loss time.
And we have our first question from Seth Rosenfeld from Exane. Your line is now open.
Good morning, Thank you for taking our questions. If I can kick off please with a few questions on the integration of the <unk> assets I'm wondering if you can give us a bit of color I guess, what perhaps surprised you most about the assets post acquisition.
How comfortable are you with asset quality is there any need to invest more capex going forward. He should flag at this stage and we understand that a lot of what happened in late 2020 or a number of challenges at their delivery performance. What do you think can be done in order to improve that and really bring them up the policy and been able to do with an 8-K.
Got it.
Good morning, Seth.
Net qualities of Arcelormittal.
If a notch below.
And the asset quality that we found that they can't.
But that's the way and bold.
And the average of the industry.
Uh huh.
Not any.
Massive.
A concerted effort to reduce.
The reported and the cost.
Probably not in the company during the last several years.
And yet Arcelormittal USA.
He said it was clear that.
Some.
More maintenance Capex.
And then spend and.
Yeah.
And when.
And or two years. So we are going to have to play a little catch up but this is all.
Reflected and the numbers that we are anticipating so nothing to be worried about long story short.
Even though it's not like we feel that we found.
Equipment and pretty much in good shape.
And I guess Arcelormittal is not the same day, but I cannot call them that.
And the money evolved to bring them up and see which.
We have already started spending by the way.
Not anything to be.
Worried about as far as delivering performance.
Keep in mind one thing.
The people that.
Complain.
Above delivered performance now.
The ones that win hot rolled price were 440 day, we're not buying because they were waiting for price to go further down.
And it now.
Now hot rolled prices are above.
<unk> hundred volts.
And you're absolutely everything we can to take good care of their clients.
But there are clients and clients and clients.
Taking care of their wants and deserves.
And that don't deserve that my background and.
And we also serve the other.
And the the amount of availability.
And that's the nature of the day, we're not going to over.
Overcrowd the market.
The C. This clients walking away from those with absolutely no concern if things change and.
And as changes this business unless we would do.
As Mike has a chance and keep things the way they are and that's exactly what we're doing.
And so our short we're working for.
One hour, so little interest and our employees to for our shareholders.
Three for our bondholders and we will take care of the clients and different.
And give us very clear if I can ask a separate question I think you've touched on and that's just now but how do you think about serving your customer from a volume perspective, I think and the path is a kind of a cashless and you were very vocal and thank you weren't going to increase production and the case of just chasing after high prices today. It looks like demand is also.
So very strong and people are talking about that shortage.
How would you classify different customers and issue that you're prioritizing the contract auto customers over and distributors and traders and at what.
Point would those latter customers become more attractive to you.
Look it's very difficult to compare set and a company like us because you know one year ago, we're just iron ore.
Six months ago, we are.
Based on the 18th.
And they can share was up 70 plus percent automotive.
Supply.
For the rest of the market to us and I really.
And matter of concern because it was marginal.
Now we are at 40% supplier of automotive and so we have a 60% of for the rest of the market. The good news that our way of business because we came from.
Cleveland cliffs and AK steel background is to supply on time and still deliver just in time.
Take care of the customers needs. So we do that metric.
We had one excellent and.
Our momentum.
<unk> automotive inventories when we were going through the horrible three months and.
And the pandemic when automotive shutdowns.
And we fixed our inventories.
We're doing the thing right now we've asked a lot of middle assets and a little bit of help you're getting from that.
And the manufacturers that are not delivering the chip to automotive and.
And by the way it was the same thing goes from would've shut down and it seems like the fact that both generate returns were there any vessels and de stocking and so that's why other people and other industries and now theyre coming back to the automotive and like I mentioned in my prepared remarks, Singles' day, but our way upstream business there.
Systems, we have and place the people that are running commercial sense.
No I basically the people that were running commercial floor income.
So that's not the full per.
Our for.
Production planning is geared toward delivering on time.
Sure.
Even though it's far from perfect at this point.
And it's better than our competition and interest race and you don't need to be.
Uh huh.
Deep into the two day.
Fastest lap all the time, but we absolutely need to do better than the competition.
Exactly what the competition can do.
And we're doing better than the competition, that's why we're gaining market share.
We're still avoid given that.
And to improve our delivery performance at both the competition and that's what the.
Okay.
Perfect. Thank you.
Okay.
We have our next question is from Lucas pipes from B Riley Securities. Your line is now open.
Hey, good morning, everyone and.
Congratulations on a tremendous year.
Thanks will.
Lorenzo and.
And Keith.
And I go through the historical results for CLS.
And Arcelormittal USA.
And I add and synergies I shake out at and EBITDA call it and the kind of high $2 billion range.
<unk> market Inc.
But then steel pricing during the prior market peaks was much lower than it is today. So I wondered if there is a perspective on your earnings power and the current market environment.
And you wouldn't be able to share and thank you very much.
Okay.
Okay look and we're now going to discuss model.
And investors call, but just Directionally guide with true and how things work.
Sure.
And contract prices with automotive day stay in place for a year.
So whatever we need.
Bruce Yeager during the pandemic when the automotive clients who are not.
And operating.
And in place.
What renegotiate them in December when the there are back but.
And still with a lot of ice car from the time that they were not in operation and place Filadelfo Board and portion will lag.
In terms of spot price performance.
Performance at the C reported and the markets every day.
That's the kind of size up there that we can go bad news bad news.
Otherwise not every single company out there would be trying to desperately who grow their participation and automotive.
It's a net net positive, but as far as pricing.
Legs, what youre seeing and the marketplace.
But the good news is that we definitely mission off.
The assets from Arcelormittal USA, Inc.
And we increased the electronics and general and we also increased our tonnage growth and border, but we.
Dramatically increased our 300 and article.
And so these are the glasses and billing.
Not a real spot transactions.
Closer and all that.
And that's it from.
Materialize the game.
Like I said in my prepared remarks, we are now down from 40%, 38% participation in automotive.
Means that we have a lot more.
And the market.
He and appliances and.
Ooh Hot band and stuff like that where we're selling more and that market and that we are.
<unk>.
And.
And the accelerating their reality, they shop and higher price and.
And of course, it felt lot and use it would work.
And this environment and then.
And with hot rolled and these are both well $100 per Boe for natural and I hope that is the 174 per loan from.
It's a lot and use it so we had good railroad and.
EBITDA that's.
That would be higher than the revenue above the previous year when work group global improves alone very few companies can say that and transform my yearly revenue using my ear and the EBITDA and <unk>.
They are the EBITDA is a little high school.
If you can say that weekend, and we will do that with music.
I appreciate that.
Thank you Lorenzo and then.
I wanted to follow up on the value over volume strategy kind of.
And typically think and integrated steelmakers and integrated clients more.
And a baseload given the fixed cost nature of the business. So from my question is how should we think about.
Volume more broadly I think you mentioned six to eight furnaces running typically can't get could you translate that into and to kind of a normalized volume run rate and then.
And how if at all which you adopt the strategy to let's say a new market environment. For example continued eas and capacity additions or.
His face and we've taken another look at six and 232 cash. Thank you.
Yeah.
We are not very concerned.
About what the government and we will do or not do all the regulatory environment, because president Biden and has been very clear that this is not going to give a weighted the farm to try and that's all one needs to know.
And if outs.
Sizes are expecting that China will have a free ride.
Yeah.
So a very bad stock because that's not going to happen and the new USTR that we will expect them to be doing well today.
And her here.
Uh huh.
It is from the affirm prone to three share.
And defense and she is good as good as or the.
The same line.
But while from vessel go above like high so there's no such a thing as a massive.
Massive change on the approach to international trade.
And this degree of the details and the.
Sector and from pretty true no section.
It's a temporary peak, we just can't allow.
And for it and Theres two control.
And then.
Good day.
Supply of things that are.
Super relevant flow of business, even the CEO of importance and good morning.
And I read on C. M D C.
And that day.
And just continue.
And to work with the materials Inc.
And important materials for batteries and they're going to produce a massive amount of electric vehicle. That's good news because we were able to produce ethanol oriented electrical steel for a bathroom and here into and I still haven't.
Just sticking up extremely well.
Oh.
Value over volume is also the fact that we are part Arcelormittal USA.
And I need to spend millions and millions of dollars to upgrade our hot strip mill down to produce the stock that I already can deliver.
Or at Indiana Harbor.
Our savings that we are going to have out of the bat, we're already enjoying debt. So that's value over volume and I'm not going to produce more phone just too too.
Great exploration that we will have more.
And out there and their marketplace and really start to see price and deteriorating oil price to protect right.
And that's.
Right thing to do from there.
Return on capital investing standpoint, we are not going to free.
And money out of the Blue.
And do all the improvements that we need to make and the next and.
To 20 years and transform their steel business and a real green business and the way it's reasonable it's possible. The first step and our company has been taken because we have the most modern and.
Only plant and the world that kids and hydrogen.
So we are ready for that dissuades them from the hydrogen that's not our business, but as soon.
And once it's available over the fence, we will take our plant is ready. So we are investing real money, we invest $1 billion and that plants. That's not something that we can do you feel and are generating profits and so it's value. It's not volume volume volume volume comes in and value.
It doesn't come.
And with value we are not trying to do.
And so steel to the ones that were waiting for prices and price.
And price were $440 and they are waiting for lower price Goodbye and you don't want a deal and it gives people that we would hope that they continue to be weak.
Lorenzo very much appreciate your perspective, congratulations again and.
Best of luck.
Thank you very much to share smokers.
Next and sell games from Keybanc capital markets. Your line is now open.
Hey, Thanks, good morning.
Good morning, Joe.
Lorenzo and the team you've got.
You've got a handful here.
And then a handful and obviously contracts and the auto and and slab and then you've got a nice big piece of spot business as you as you pointed out.
How should we be thinking about pricing cadence and the and the steelmaking segment.
And as we as we move into the year and just kind of the timing of some of these stuff ups I mean.
And he's got it integrated model. So this is obviously very leverage too.
Pricing at this point and so I think we're just trying to get a feel for.
And we're looking for.
You know a 50 dollar step up and price $100 simple from price something less than that because some of these contracts don't kick in yet so.
And just think of magnitude was or just general direction would be would be helpful.
And your excellent.
As far as total more than prices would make no mistake and should expect prices to continue to who step to increase.
And the step ups every time, we renegotiate the contracts not only because we are moving to.
Renegotiation, but also because this contract flag when we negotiated last year renegotiated and a completely different environment and now they are.
Government market prices around the business a lot more benign to us and blower and negotiation than they were a year ago or even six months ago, that's an undeniable truth.
And this prices will continue to appreciate also we have a meaningful business now.
Salaries labs, two of MFS and call with Alabama, and that's also a business that.
Well, Jerry with revenue from these automotive quality labs and supports their business over there where I'm from.
Border.
And it's another leg up and.
And Thats index and the.
International Price Force lab, so that's a good thing and will be a big contribution.
GAAP H B I H B is all average group.
And that's a very expensive these days and iron ore with <unk> that 174 as of mining and the.
It's correct that <unk>.
Expenses and they will become more expensive. So this trend and I'm not going to commit presented number but the trend from prices price.
This realization is up so I'm, not saying that price will go to 12 months.
Not what I'm, saying, what I'm, saying is that with the 12 of them and that we're seeing right. Now we are going to be catching up with this price and level and demand grew desk and most important thing demand is fantastic.
Yeah. The clients are complaining that they have not received and steel.
Remember these folks around Florida campus and they don't they don't want to carry inventories that's weird.
Strange I run a service center company for 10 years guest service.
Service and stuff.
Inventories that's there.
And that's their.
Their business booked position, if a surface that doesn't want to carry inventory he is.
He or she is and the wrong line of business.
That's something else to do it.
Okay, and a competitor of Gamestop, because that will really provide a lot of wealth.
And that person.
He or she isn't that business carry inventories.
Sure.
And complain, but I think on Google product sales.
We are fine with what we have prices aren't going up we are going to be paying down debt very fast.
We have a bull and finish this year with the leverage.
And in terms of.
Debt divided by EBITDA.
And five times or less.
And we will accomplish that.
Thanks, Lorenzo and I appreciate that and and.
Just a question for Keith on.
On the share count obviously, a lot of moving pieces, how do you account for the preferred shares.
So just trying to trying to pinpoint what the share count is going to be for Q1, and then also Q2, because I know you can timing and they offering.
Yeah Phil.
So we ended the year with 477.
And the common shares outstanding.
You shoot 20 here in February so that 'twenty and get averaged out.
And the first quarter.
On a pro rated basis, but for the full year and you can almost the entire 'twenty to be and the numbers.
And your potential dilution would be.
Third the preferred is being carried as mezzanine equity so it'll be.
You can.
Pretty much accounts, the preferred equivalent equivalent to 58 million common and.
That will impact earnings per share and.
And that would pretty much carry throughout the year.
And then.
And depending on where share price is land and I can say for example, using today's share price the converts should have roughly around $20 million.
Share dilutive impact as well if you want to calculate dilution on that on the converge.
And that should pretty much gets you there.
So just clean clean ex converts it sounded like it's around 570 <unk>.
The number.
Yes.
Right that is correct yes.
Okay, and then last one for Lorenzo and I will jump off.
And the H behind project to your point.
Very timely and.
You mentioned you will be shipping to some third party customers and in the March here.
Some of that I would imagine trialing, just because youre getting youre getting up to speed here pretty quickly, but where do you think youre going to be this year in terms of your mix and the back half in terms of external.
External shipments versus internally consume shipments and thanks very much.
We are using our HDI and house because our product.
From a cost standpoint, and productivity standpoint, it makes a lot of sense.
We aren't moving.
A lot of HCI and our Dearborn.
And then.
Two folds.
Net sales.
Sales versus on Coke.
<unk> generates less your true and suddenly.
Momentum is positive, especially in an area that has been historically very.
And.
Very ready to complain even though they have not been per compliant at this point, given we don't think yeah, but.
We are prioritizing via a boring because it's probably our most delegate area and in terms of environmental concerns and so where do that and the second thing is that because.
So a lot of money.
By doing that.
<unk>.
We are happy with that so that's the one location and that various warehouses and our own apps because.
Scrap has been extremely expensive and the marketplace and we have as you know we have a law.
Delivering.
HDI flow.
Sure.
Lower yes, and Pennsylvania, and it has been a very positive.
Net volume and cost wise.
Because we are doing that.
And all of this being said we are not going through.
Ignoring the day.
Potential clients and now.
And our competitors that has helped us GAAP to where we've got.
And keep saying that you would not be here before you were not able to.
Produce Dr grade pellets, and we all day.
Their ability to produce great pellets and Northshore because one day.
Nucor orphan their doors for us.
<unk> developed the pellets and midterm and premium by it and I'll be.
<unk> forever.
Good day Nucor for that and of course Newco will be the first one received from HDI from us in March and followed by steel dynamics not far from that and the north probably scoop.
We will be net.
You asked and port numbers, it's very difficult to read.
Give a precise number at this point because you know the nature of it.
And is transactional and some.
Most of the months.
And negotiation and.
By design, it's not that we don't.
And once we have gone from quarters, though we want to have grown and stuff.
And that's not how the market and workflow.
We play with the market if they don't change their market and we are happy with that because that allows us to use and how they're moving a bit.
Advancing but the numbers that we're working with internally.
And that we are going to sell.
Hi, with the outside world and using half.
And that's all.
Free with guidance for two years.
Thank you.
Thank you.
We have our final question from Alex hacking from Citi. Your line is now open.
Good morning, Lorenzo and Keith Thanks for the time.
And I wanted to ask what Alex.
Good morning, and I, just wanted to start and capital allocation if I may.
I think Lorenzo you just mentioned there maybe you could get to two and a half times.
Net debt by the end of the year.
And I want level.
And what level do you become comfortable with net debt enough to start having a discussion around you know either ramping up capital returns or making more strategic investments. Thanks.
Thank you Alex look first of all I'm comfortable today, because it's all planets and its ROE being taken care off and with the latest transaction the latter transaction and that exist.
And now.
We again recorded a four year window with no significant maturities and that's how we and then we have the manage the company for that so the two and a half times or less.
And a day is the goal is feasible and will be achieved D C.
Here is the year that day inside cash generated by the company.
What day.
Very.
Good day, and the conservative assumptions on cutbacks that day.
And not.
And to starve any and all.
We're actually bringing like I explained during the call, bringing some equipment back to our bedroom.
Thanks.
But even with that we feel like we have and not massively paying down debt, we shouldn't take more than a billion dollars and depth.
Just.
With the cash generation.
We don't have any acquisitions and all of our horizon EBIT at this point and easing.
And that.
And people down that we're not going to be continuing to expand and we feel like you should be spent on integrating perfecting and proving delivered performance from day and with the assets, bringing these assets from the same.
And level delivered performance that we already have from the former AK steel assets. All these things zone on the making and gives us very cool.
A piece of bike and makes us very comfortable with how things will be taken care of this year. So that's pretty much it and as far as we've done capital from shareholders look I am convinced that.
People that invest from Cleveland cliffs and on investing for these net.
And for and if they are investing and their own company at this point because with all the growth that we've demonstrated last year with all day.
And so that we have right now in terms of continuing to generate real equity buy.
<unk> death and movie.
The numbers from the debt side.
Besides for the statements of price.
That's what I should be doing and that's exactly what I'm going to be doing so one year ago. When we're talking and this call I'll talk about that and war.
This year I'm talking about being the leader in flat rolled steel and North America, and making sure that the market behaves and the prices that we're seeing right now are in good shape, Inc.
On behalf of our shareholders.
Return on invested capital when you from now we'll be talking about a company with very little of that.
And then I'll bucket them.
I hope I covered your day.
The point of your question from US Please stand.
And you know.
Thank you that was that was great and.
And then let me just follow up on.
One other question if I may so firstly, congratulations on the sustainability goals that you've put in place.
Do you envisage significant capex investments associated with reducing the carbon footprint or is it more a series of smaller incremental investments.
And it will enable I'm, sorry, and more towards several meaningful cut backs.
Got it.
And we want to set up and death, and you repeat sorry, and meaningful capex associated with hitting your.
Your emissions targets here till 2030 targets.
Not really.
The meaningful cut back Capex.
And to deploy.
And you did what supports our direct reduction plan in place.
Yeah. So.
We're talking billions of dollars and yeah.
The Libra and almost $100 million and upgrades from our Northshore.
Mining operation and.
Silver Bay, and Minnesota, So we will have already investing massive amount.
Everything else will come and incremental EBITDA.
And because we're not demand and lower Capex and also some of these investments.
And our billing and we will continue to be done by our partners like the investment.
By the way.
And in.
And the initial ambition and to replace.
Power supply from.
Traditional.
The source of your <unk>.
<unk> youth and.
Two brand new state of the art plant.
Using natural gas. So we are we have there we are moving and there we are going to continue to introduce HBO and our blast furnaces and absolutely continue to reduce our consumption of.
Our goal and.
And Cook so all these things have and environmental impact and the accident year.
Total cost.
I tend to agree when I hear Fred's and finding backing that environmental compliance and be done and it can't be done generating good day union jobs, and check mark that and reducing costs and check on.
And that says well the investments and massive amounts of Capex, and all cases and not that relevant or at the very you have already been done.
That's great. Thanks, Lorenzo and congrats on all the on.
And the transformation of the company last year.
Really appreciate it thanks a lot.
Okay.
Ladies and gentlemen. This concludes today's conference call. Thank you all for participating you may now disconnect have a great day.
[noise].