Q2 2024 Cleveland-Cliffs Inc Earnings Call

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Darrell: Good morning, ladies and gentlemen. My name is Darrell, and I am your conference facilitator today. I would like to welcome everyone to Cleveland Clip 2nd quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise after the speaker's remarks. There will be a question and answer session.

Daryl: Good morning, ladies and gentlemen. My name is Daryl, and I am your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs' second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Daryl: Good morning, ladies and gentlemen. My name is Daryl, and I am your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs' second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

Daryl: After the speaker's remarks, there will be a question and answer session. The company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially.

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

Unknown Executive: The company reminds you that certain comments made on today's call 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 risk and uncertainties that could cause actual results to differ materially. Important factors that could cause results a different materially are set forth and reports on forms 10-K and 10-Q and news releases filed with the SEC, which are available on the company's website. Today's conference call is also available in being broadcast on Cleveland Clip.com.

Speaker Change: The company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking within the safe harbor protections of the Private Securities Litigation Reform Act of 1995.

Speaker Change: Although the company believes that its forward looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially.

Speaker Change: Important factors that could cause results to differ materially are set forth in reports on Forms 10-K and 10-Q and news releases filed with the SEC, which are available on the company's website.

Speaker Change: Today's conference call is also available and being broadcast on clevelandcliffs.com. At the conclusion of the call, it will be archived on the website and available for replay.

Unknown Executive: At the conclusion of the call, it will be archived on the website and available for replay.

Unknown Executive: 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 yesterday at this time.

Celso L. Goncalves: 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 yesterday. At this time, I would like to introduce Celso Goncalves, Executive Vice President and Chief Financial Officer.

Celso Goncalves: I would like to introduce SELSO, Gonzavis, Executive Vice President and Chief Financial Officer.

Celso L. Goncalves: Hey, good morning, everyone. In Q2, we generated strong cash flow of $362 million, driven by higher shipments, lower costs, and continued success in managing working capital and finished inventory levels. We allocated 65% of that free cash flow in Q2 toward reducing net debt by $237 million, bringing our net debt balance down to $3.4 billion. We used the remaining 35% of that free cash flow from the quarter, or $125 million, toward buybacks, reducing our share count by another 7.5 million shares. Our diluted share count is now at 474 million shares, down by nearly 20 percent from as high as 585 million shares three years ago.

Celso Goncalves: Hey, good morning, everyone. In Q2, we generated strong cash flow of $362 million driven by higher shipment, lower cost, and continued success in managing working capital and finished inventory levels. We allocated 65% of that free cash flow in Q2 toward reducing net debt by $237 million. Bringing our net debt balance down to $3.4 billion. We used the remaining 35% of that free cash flow from the quarter, or $125 million, toward buybacks, reducing our share count by another 7.5 million shares. Our diluted share count is now at 474 million shares, down by nearly 20% from as high as 585 million shares three years ago.

Celso L. Goncalves: Hey, good morning, everyone. In Q2, we generated strong cash flow of $362 million, driven by higher shipments, lower costs, and continued success in managing working capital and finished inventory levels.

Speaker Change: We allocated 65% of that free cash flow in Q2 toward reducing net debt by $237 million, bringing our net debt balance down to $3.4 billion.

Speaker Change: We use the remaining 35% of that free cash flow from the quarter, or $125 million, toward buybacks, reducing our share count by another 7.5 million shares.

Speaker Change: Our diluted share count is now at 474 million shares, down by nearly 20% from as high as 585 million shares three years ago.

Celso L. Goncalves: Notwithstanding the lower-than-expected realized pricing in Q2, we generated adjusted EBITDA of $323 million, supported by the cost improvements we foreshadowed on last quarter's conference call. Importantly, our shipments were up sequentially back to the 4 million ton level, despite the weaker demand environment that we and other North American steel companies experienced throughout the quarter. Continued resilient demand for steel from our clients in the automotive sector, coupled with weak demand from service centers and other buyers of commercial grades, resulted in a richer sales mix than expected. As a result, the impact of lower index pricing led to a $50 decline in average selling price quarter over quarter.

Celso Goncalves: Now, with standing the lower than expected, realize pricing in Q2, we generated a just at EBITDA of $323 million, supported by the cost improvements we foreshadowed on last quarter's conference call.

Speaker Change: Notwithstanding the lower-than-expected realized pricing in Q2, we generated adjusted EBITDA of $323 million, supported by the cost improvements we foreshadowed on last quarter's conference call.

Celso Goncalves: Importantly, our shipments were up sequentially back to the 4 million ton level, despite the weaker demand environment that we and other North American steel companies experienced throughout the court.

Speaker Change: Importantly, our shipments were up sequentially back to the 4 million ton level, despite the weaker demand environment that we and other North American steel companies experienced throughout the quarter.

Celso Goncalves: Officer. Continue to resilient demand for steel from our clients in the automotive sector, coupled with weak demand from service centers and other buyers of commercial grades, resulted in a richer sales mix than expected. As a result, the impact of lower index pricing led to a $50 decline in average selling price quarter over quarter. Our operating and overhead costs continue to come down, and our guidance of $30 per ton in year-over-year cost reduction remains on track. You can already see this in our casual statement, as replacing higher cost inventory with lower cost inventory during the quarter drove the majority of the working capital benefit in Q2.

Speaker Change: Continued resilient demand for steel from our clients in the automotive sector, coupled with weak demand from service centers and other buyers of commercial grades, resulted in a richer sales mix than expected.

Speaker Change: As a result, the impact of lower index pricing led to a $50 decline in average selling price quarter over quarter.

Celso L. Goncalves: Our operating and overhead costs continue to come down, and our guidance of $30 per ton and year-over-year cost reduction remains on track. You can already see this in our cash flow statement, as replacing higher cost inventory with lower cost inventory during the quarter drove the majority of the working capital benefit increase. This cost reduction is primarily a function of lower coal costs making their way through inventory and lower iron ore costs from our mines. We expect another $30 per ton cost reduction from Q2 to Q3. This will help to partially offset the impact of low prices for spot sales captured by the index.

Speaker Change: Our operating and overhead costs continue to come down, and our guidance of $30 per ton in year-over-year cost reduction remains on track.

Speaker Change: You can already see this in our cash flow statement, as replacing higher cost inventory with lower cost inventory during the quarter drove the majority of the working capital benefit in Q2.

Celso Goncalves: This cost reduction is primarily a function of lower coal costs making their way through inventory and lower iron ore costs from our minds. We expect another $30 per ton cost reduction from Q2 to Q3. This will help to partially offset the impact of low prices for spot sales captured by the indexes. The free cash flow we generated in Q2 was largely driven by a working capital benefit. We have systematically and consistently reduced our finished steel inventory over the past two years, from 3.4 million tons at the start of 2022, down to 2.4 million tons currently.

Speaker Change: This cost reduction is primarily a function of lower coal costs making their way through inventory and lower iron ore costs from our mines.

Speaker Change: We expect another $30 per ton cost reduction from Q2 to Q3.

Speaker Change: This will help to partially offset the impact of low prices for spot sales captured by the indexes.

Celso L. Goncalves: The free cash flow we generated in Q2 was largely driven by a working capital benefit. We have systematically and consistently reduced our finished steel inventory over the past two years, from 3.4 million tons at the start of 2022 down to 2.4 million tons currently. It was a great effort from our commercial and operations teams to achieve this, and there's even more opportunity to unlock more cash from inventory going forward. We were also able to reduce our CapEx budget for the year by $25 million, as certain projects came in under budget.

Speaker Change: The free cash flow we generated in Q2 was largely driven by a working capital benefit.

Speaker Change: We have systematically and consistently reduced our finished steel inventory over the past two years from 3.4 million tons at the start of 2022 down to 2.4 million tons currently. It was a great effort from our commercial and operations teams to achieve this.

Celso Goncalves: It was a great effort from our commercial and operations teams to achieve this, and there's even more opportunity to unlock more cash from inventory going forward. We were also able to reduce our CapEx budget for the year by $25 million, as certain projects have come in under budget. We will remain lean on CapEx even with our flagship Middle-town project spend starting up next year.

Speaker Change: and there's even more opportunity to unlock more cash from inventory going forward.

Speaker Change: We were also able to reduce our CapEx budget for the year by $25 million, as certain projects have come in under budget.

Celso L. Goncalves: We will remain lean on CapEx, even with our flagship Middletown project spending starting up next year. As a result of all these factors, we have proven that we can deliver great cash flow to our shareholders, even in down-cycle pricing environments. Our SG&A expense was down a lot in Q2, a nearly $50 million reduction from the same period one year ago.

Speaker Change: We will remain lean on CapEx, even with our flagship Middletown project spend starting up next year.

Celso Goncalves: As a result of all these factors, we have proven that we can deliver great cash flow to our shareholders even in down cycle pricing environments. Our SG&A expense was down a lot in Q2, a nearly $50 million reduction from the same period one year ago. The weak steel pricing environment has forced us to sharpen our pencils on all fronts when it comes to costs. And we are pleased with what we have accomplished so far, both at the operational and overhead level. These efforts will continue during the second half of the year.

Speaker Change: As a result of all these factors, we have proven that we can deliver great cash flow to our shareholders, even in down-cycle pricing environments.

Speaker Change: Our SG&A expense was down a lot in Q2, a nearly $50 million reduction from the same period one year ago.

Celso L. Goncalves: The weak steel price environment has forced us to sharpen our pencils on all fronts when it comes to costs, and we are pleased with what we have accomplished so far, both at the operational and overhead levels. These efforts will continue during the second half of the year. We're doing all the right things to achieve our target of improving our annual through-the-cycle EBITDA by over $600 million. In order to get there, and regardless of the steel pricing environment, we keep ourselves committed to our five key priorities now and going forward. These priorities are as follows:

Speaker Change: The week's field pricing environment has forced us to sharpen our pencils on all fronts when it comes to costs, and we are pleased with what we have accomplished so far, both at the operational and overhead level. These efforts will continue during the second half of the year.

Celso Goncalves: We're doing all the right things to achieve our target of improving our annual through the cycle EBITDAB by over $600 million.

Speaker Change: We're doing all the right things to achieve our target of improving our annual through-the-cycle EBITDA by over $600 million. In order to get there, and regardless of the steel pricing environment, we keep ourselves committed to our five key priorities now and going forward.

Celso Goncalves: In order to get there and regardless of the steel pricing environment, we keep ourselves committed to our five key priorities now and going forward. These priorities are as follows. Number one: reduce costs. We remain on track to meet our 2024 target, with that momentum ultimately carrying us further to further reductions in 2025. Number two, maximizing cash flow from automotive. We have the largest and most profitable automotive steel franchise in the Western Hemisphere. The reliable and consistent margins we achieve an automotive from fixed prices allow us to continue to generate free cash flow in any spot market down cycle, particularly in a strong market for automotive.

Celso L. Goncalves: Number 1, reduce costs. We remain on track to meet our 2024 target, with that momentum ultimately carrying us to further reductions in 2025. Number two, maximizing cash flow from automotive. We have the largest and most profitable automotive steel franchise in the Western Hemisphere. The reliable and consistent margins we achieve in the automotive industry from fixed prices allow us to continue to generate free cash flow in any spot market down cycle, particularly in a strong market for automotive.

Speaker Change: These priorities are as follows. Number one, reduce costs. We remain on track to meet our 2024 target with that momentum ultimately carrying us to further reductions in 2025.

Speaker Change: Number two, maximizing cash flow from automotive. We have the largest and most profitable automotive steel franchise in the Western Hemisphere.

Speaker Change: The reliable and consistent margins we achieve in automotive from fixed prices allow us to continue to generate free cash flow in any spot market down cycle, particularly in a strong market for automotive.

Celso L. Goncalves: Progress on value-enhancing projects, which, once online, will be game-changers for both our cost structure and environmental focus. We continue to advance our major projects in partnership with the U.S. Department of Energy at Middletown, Ohio, and Butler, PA, along with our state-of-the-art transformer plant in Weirton, West Virginia, announced yesterday. Number four, capital allocation.

Celso Goncalves: Number three, progress on value enhancing projects, which once online will be a game changers for both our cost structure and environmental footprint. We continue to advance our major projects in partnership with the U.S. Department of Energy at Middletown, Ohio, and Butler, PA, along with our state-of-the-art transformer plant, and we're in West Virginia now.

Speaker Change: 3. Progress on value-enhancing projects, which, once online, will be game-changers for both our cost structure and environmental footprint.

Speaker Change: We continue to advance our major projects in partnership with the U.S. Department of Energy at Middletown, Ohio and Butler, PA, along with our state-of-the-art transformer plant in Weirton, West Virginia announced yesterday.

Celso Goncalves: yesterday. Number four, capital allocation.

Celso L. Goncalves: The structure of the Stelco deal will provide us with several prepayable options to quickly deleverage as we reprioritize cash accumulation and debt repayment, and Number 5, Opportunistic M&A. At this time, Cliffs is laser focused on closing the Stelco deal as soon as possible and getting to work on growing the value of the combined enterprise. As we have always done, we never let a weak market go to waste in identifying M&A targets and organic growth opportunities to improve our business. The North American flat-rolled steel market remains fragmented.

Celso Goncalves: The structure of the Stelco deal will provide several prepable options to quickly deliver as we reprioritize cash accumulation and debt repayment. And number five, opportunistic emanate. At this time, Cliffs is laser-focused on closing the Stelco deal as soon as possible and getting to work on growing the value of the combined enterprise. As we have always done, we never let a weak market go to waste in identifying emanate targets and organic growth opportunities to improve our business. The North American flat-rolled steel market remains fragmented. Lorenzo spoke last week about the industrial logic of the Stelco acquisition.

Speaker Change: 4. Capital Allocation. The structure of the Stelco deal will provide us several prepayable options to quickly deleverage as we reprioritize cash accumulation and debt repayment.

Speaker Change: 5. Opportunistic M&A. At this time, Cliffs is laser-focused on closing the Stelco deal as soon as possible and getting to work on growing the value of the combined enterprise.

Speaker Change: As we have always done, we never let a weak market go to waste in identifying M&A targets and organic growth opportunities to improve our business. The North American flat-rolled steel market remains fragmented.

Celso L. Goncalves: Lorenzo spoke last week about the industrial logic of the Stelco acquisition. And from a financial standpoint, the transaction is meaningfully accretive to earnings, significantly improves our profit margins, and the financing strategy uses a combination of cash and stock that implies a pro forma leverage level that is lower than when we acquired AK Steel and ArcelorMittal USA. We'll be funding a portion of the acquisition with immediately prepayable debt instruments, which will give us the opportunity to delever right away with that enhanced free cash flow we pick up from it. With that, I'll turn the call over to Lorenzo. Thank you.

Celso Goncalves: And from a financial standpoint, the transaction is meaningfully accretive to earnings, significantly improves our profit margins, and the financing strategy uses a combination of cash and stock that implies a pro forma leverage level that is lower than when we acquired AK Steel in our slow-middle USA. We'll be funding a portion of the acquisition with immediately prepable debt instruments, which will give us the opportunity to deliver right away with that enhanced pre-catchable we pick up from Stelco.

Speaker Change: Lorenzo spoke last week about the industrial logic of the Stelco acquisition.

Lorenzo: And from a financial standpoint, the transaction is meaningfully accretive to earnings, significantly improves our profit margins, and the financing strategy uses a combination of cash and stock that implies a pro forma leverage level that is lower than when we acquired AK Steel and ArcelorMittal USA.

Lorenzo: We'll be funding a portion of the acquisition with immediately prepayable debt instruments, which will give us the opportunity to delever right away with that enhanced free cash flow we pick up from Stelco.

Lorenzo: With that, I'll turn the call over to Lorenzo. Thank you, Silas. And good morning, everyone. This plus quarter was a great illustration that no matter how the market is doing, we are always in pursuit of opportunities to better ourselves. On our call last week, I spoke in great detail about the merits and logic of our acquisition of Stelco, and I will not repeat myself today. The transcript and recording of last week's call are available on our website for those who may have missed it. Today, I will focus on the actions we have taken since our announcement last Monday.

Lorenzo: Thank you, Celso, and good morning, everyone. This past quarter was a great illustration that no matter how the market is doing, we are always in pursuit of opportunities to better ourselves. On our call last week, I spoke in great detail about the merits and logic of our acquisition of Stelco, and I will not repeat myself today. The transcript and recording of last week's call are available on our website for those who may have missed them.

Lorenzo: With that, I'll turn the call over to Lorenzo.

Lorenzo: Thank you Celso and good morning everyone. This past quarter was a great illustration that no matter how the market is doing, we are always in pursuit of opportunities to better ourselves.

Lorenzo: On our call last week, I spoke in great detail about the merits and logic of our acquisition of Stelco, and I will not repeat myself today.

Lorenzo: The transcript and recording of last week's call are available on our website for those who may have missed it.

Lorenzo: Today, I will focus on the actions we have taken since our announcement last Monday. We have engaged in discussions with all key stakeholders, including local union leadership. To all the USW representatives and steelworkers of Stelco, we can't wait to start working with you soon. We have also been able to have constant conversations with political leadership at the provincial and federal level to advance a quick resolution and a quick closing. And we are grateful for the warm welcome we have encountered from everyone in Canada.

Lorenzo: Today, I will focus on the actions we have taken since our announcement last Monday.

Lorenzo: We have engaged in discussions with all key stakeholders, including local union leadership. To all the USW-represented steel workers of Stelco, we can't wait to start working with you soon. We have also been able and constant conversations with political leadership at the provincial and federal level to advance a quick resolution and a quick closing. And we are grateful for the warm welcome we have encountered from everyone in Canada. It's clear to us that all key stakeholders recognize the net benefit we will provide to the province of Ontario and to Canada. Ontario is a great place to do business, and we are convinced that the acquisition of Stelco by Cleveland Cliffs will further improve the natural connection and the healthy partnership between Canada and the United States.

Lorenzo: We have engaged in discussions with all key stakeholders, including local union leadership.

Speaker Change: To all the USW-represented steelworkers of Stelco, we can't wait to start working with you soon.

Speaker Change: We have also been able...

Speaker Change: and constant conversations with political leadership at the provincial and federal level to advance a quick resolution and a quick closing, and we are grateful for the warm welcome we have encountered from everyone in Canada.

Lorenzo: It's clear to us that all key stakeholders recognize the net benefit we will provide to the province of Ontario and to Canada. Ontario is a great place to do business, and we are convinced that the acquisition of Stelco by Cleveland-Cliffs will further improve the natural connection and the healthy partnership between Canada and the United States. Allan Kastenbaum and his team have made significant and relevant investments to set Stelco up for future success.

Speaker Change: It's clear to us that all key stakeholders recognize the net benefit we will provide to the province of Ontario and to Canada.

Speaker Change: Ontario is a great place to do business, and we are convinced that the acquisition of Stelco by Cleveland-Cliffs will further improve the natural connection and the healthy partnership between Canada and the United States.

Lorenzo: All in cast and ball and team have made significant and relevant investments to set Stelco up for future success. The blast fund is reliant just a couple years ago and the co-plant upgrades, including a brand new 115 megawatts co-generation power plant fueled by captured and reutilized blast funds gas, have made Lake Eerie Works a very efficient steel plant, operating at a benchmark level in CO2 emissions. By now, is Martin Vestor's know that efficient blessed furnaces are not going away. The technology is superior now and will gain an even greater advantage in flat road steel production as more and more AFs are built in fight over a shrinking pile of prime scrap.

Allan Kastenbaum: Allan Kastenbaum and team have made significant and relevant investments to set Stelco up for future success.

Lorenzo: The blast furnace reliance just a couple years ago, and the coal plant upgrades, including a brand new 115 megawatts cogeneration power plant filled by captured and reutilized blast furnace gas, have made Lake Erie Works a very efficient steel plant, operating at a benchmark level in CO2 emissions. By now, smart investors know that efficient blast furnaces are not going away.

Speaker Change: The blast furnace reliant just a couple years ago.

Speaker Change: and the co-plant upgrades, including a brand-new 115-megawatt co-generation power plant fueled by captured and reutilized blast furnace gas.

Speaker Change: have made Lake Erie Works a very efficient steel plant, operating at a benchmark level in CO2 emissions.

Speaker Change: By now, smart investors know that efficient blast furnaces are not going away.

Lorenzo: The technology is superior now and will gain an even greater advantage in flat-rolled steel production as more and more EAFs are built and compete over a shrinking pile of prime scrap. As the steel market improves, as it always does, Estelco will demonstrate its great potential. For reference, in 2021, Stelco generated over $1.5 billion US dollars in EBITDA, with over 50% EBITDA margin, 5-0, 50% EBITDA margin. The market was not giving them the rightful credit back then. And it still was not.

Speaker Change: The technology is superior now and will gain an even greater advantage in flat-rolled steel production as more and more EAFs are built and fight over a shrinking pile of prime scrap.

Lorenzo: Stelco will demonstrate its great potential. For reference, in 2021, Stelco generated over $1.5 billion US dollars in EBDA with over 50% EBDA margin, 50% EBDA margin. The market was not given then the right for credit back then and still was not prior to our purchase. Stelco has a favorable cost structure. It throws off robust free cash flow even in pricing environments like the one we are in right now. In user demand for flat road products, buying large is still pretty healthy. Yet certain service centers are drawing down inventory to below basement levels and not buying at low replacement costs.

Speaker Change: As the steel market improves, as it always does, Stelco will demonstrate its great potential.

Speaker Change: For reference, in 2021, Stelco generated over 1.5 billion U.S. dollars in EBITDA, with over 50% EBITDA margins, 5-0, 50% EBITDA margins.

Speaker Change: The market was not giving them the rightful credit back then, and it still was not prior to our purchase.

Lorenzo: Prior to our push, Telco has a favorable cost structure. It throws off robust free cash flow, even in pricing environments like the one we are in right now. And user demand for flat rolled products, by and large, is still pretty healthy. Yet, certain service centers are drawing down inventory to below the basement level and not buying at a low replacement cost. Big mistake.

Speaker Change: Telco has a favorable cost structure. It throws off robust free cash flow, even in pricing environments like the one we are in right now.

Speaker Change: And user demand for flat-rolled products, by and large, is still pretty healthy, yet certain service centers are drawing down inventory to below basement levels and not buying at low replacement costs.

Lorenzo: Big mistake. By the time our acquisition closed later this year, I expected the market to be a lot more rational and a lot more favorable to Cliffs, boosted by the addition of Stelco to our footprint. Back in August of 2020, we could not move hot roads even at $444 per net. Then, within four months, we are back above $1,000 per net. I'm not saying that this is an exact parallel, but it shows that as long as the demand is there, which is, things tend to look ugliest right before a sharp snapback. It's clear to me that we just need one small catalyst, whether that be a rate cut, certainty around the presidential election, trade enforcement, or something going for a scene right now.

Lorenzo: By the time our acquisition closes later this year, I expect the market will be a lot more rational and a lot more favorable to Cliffs, boosted by the addition of Stelco to our footprint. Back in August of 2020, we could not move hot roads even at $444 per Neptune. Then, within four months, we're back above $1,000 per net ton. I'm not saying that this is an exact parallel. But it shows that as long as the demand is there, which it is, things tend to look ugliest right before a sharp snapback.

Speaker Change: Big mistake.

Speaker Change: By the time our acquisitions close later this year, I expect the market will be a lot more rational and a lot more favorable to Cliffs, boosted by the addition of Stelco to our footprint.

Speaker Change: Back in August of 2020, we could not move Hot Road even at $444 per net ton.

Speaker Change: Then, within four months, we're back above $1,000 per net ton.

Speaker Change: I'm not saying that this is an exact parallel, but it shows that as long as the demand is there, which it is, things tend to look ugliest right before a sharp snap back.

Lorenzo: It's clear to me that we just need one small catalyst. Whether there will be a rate cut, or certainty around the presidential election. Trade Enforcement or, Something I'm foreseeing right now, and that will ignite the rebound. One issue pending resolution is max. Mexico continues to be a major problem in the market. Mexico has long taken advantage of good-faith trade agreements with the United States, such as NAFTA and its successor, USMCA. Mexico's bad behavior has become even more egregious in recent years.

Speaker Change: It's clear to me that we just need one small catalyst.

Speaker Change: Whether that be a rate cut, certainty around the presidential election, trade enforcement, or something unforeseen right now.

Lorenzo: And that will ignite the rebound. When you should pay in resolution is Mexico. Mexico continues to be a major problem in the marketplace. Mexico has long taken advantage of good-faced trade agreements with the United States, such as NAFTA and its successor, USMCA. Mexico's bad behavior has become even more egregious in recent years. We commend the US government for the recent imposition of tariffs on steel-trans shipped through Mexico, which is a particularly serious issue for flat-roll decisions. For too long, Mexico has enabled countries like China, Japan, South Korea, Brazil, and several others to get away with dumping steel into our domestic markets using Mexico as a respect to that. By the next reassessment of the trade agreement in 2026, regardless of being Kamala Harris, the president of the United States, or Donald J.

Speaker Change: And that will ignite the rebound.

Speaker Change: One issue pending resolution is Mexico.

Speaker Change: Mexico continues to be a major problem in the marketplace.

Speaker Change: Mexico has long taken advantage of good faith trade agreements with the United States, such as NAFTA and its successor, USMCA.

Speaker Change: Mexico's bad behavior has become even more egregious.

Lorenzo: We commend the U.S. government for the recent imposition of tariffs on steel transshipments through Mexico, which is a particularly serious issue for flat-rolled... For too long, Mexico has enabled countries like China, Japan, South Korea, Brazil, and several others to get away with dumping steel into our domestic markets, using Mexico as a transshipment ground with little or no value added. It's great to see action being taken, but we need a lot more.

Speaker Change: in recent years.

Speaker Change: We commend the U.S. government for the recent imposition of tariffs on steel transshipment through Mexico, which is a particularly serious issue for flat-rolled steel.

Speaker Change: For too long, Mexico has enabled countries like China

Speaker Change: Japan, South Korea, Brazil, and several others to get away with dumping steel into our domestic markets using Mexico as a transshipment ground with little or no value added.

Speaker Change: It's great to see action being taken, but we need a lot more.

Lorenzo: We fully expect that by the next reassessment of the trade agreement in 2026, regardless of whether Kamala Harris is the President of the United States or Donald J. Trump is the President of the United States, Mexico will be forced out of the USMCA by the United States and Canada.

Speaker Change: We fully expect that by the next reassessment of the trade agreement in 2026,

Speaker Change: Regardless of being Kamala Harris, the President of the United States, or Donald J. Trump, the President of the United States, Mexico will be forced out of the USMCA by the United States and Canada.

Lorenzo: Trump, the President of the United States, Mexico will be forced out of the USMCA by the United States and Canada. Cleveland-Cliffs continues to do well in the areas of specialized value-edged steels, namely automotive grade, stainless, and electrical steels. These three businesses are all performing nicely for us, especially since automotive sales and production levels remain at multi-year highs. The commodity in this index-linked side of the business is the final piece of the puzzle, and we're confident that the steel core acquisition will help us there. I want to shine a particularly light on our growth, grain-oriented electrical steels business that supplies the electrical transformer markets.

Lorenzo: Cleveland-Cliffs continues to do well in the areas of specialized value-added steels, namely automotive-grade, stainless, and electrical steel. These three businesses are all performing nicely for us, especially since automotive sales and production levels remain at multi-year highs. The commodity, index-linked side of the business is the final piece of the puzzle, and we're confident that the Stelco acquisition will help us there. I want to shine a particular light on our gross, grain-oriented electrical steels business, which supplies the electrical transformer market. Electrical steel is just 2% of our total shipment volume but was 15% of our total EBITDA in Q2.

Speaker Change: Cleveland-Cliffs continues to do well in the areas of specialized value-added steels, namely automotive-grade stainless and electrical steels.

Speaker Change: These three businesses are all performing nicely for us, especially since automotive sales and production levels remain at multi-year highs.

Speaker Change: The commodity, index-linked side of the business, is the final piece of the puzzle, and we're confident that the Stelco acquisition will help us there.

Speaker Change: I want to shine a particular light on our gross, grain-oriented electrical steels business that supplies the electrical transformer market.

Lorenzo: Electrical steel is just 2% of our total shipment volume, but was 15% of our total EBITDA in Q2. We are in the midst of an extreme shortage of transformers in this country. We have the ability to produce more goals to meet these additional needs, but our current customer base is constrained in other areas of the supply chain and by lack of labor. For more than a year, we have been asking our goals customers how we can help them improve their production levels. The one thing they always point to that holds them back is labor. The production of transformers is an incredibly labor-intensive process.

Speaker Change: Electrical steel is just 2% of our total shipment volume, but was 15% of our total EBITDA in Q2.

Lorenzo: We are in the midst of an extreme shortage of transformers in this country. We have the ability to produce more goals to meet these additional needs. But our current customer base is constrained in other areas of the supply chain and by a lack of labor. For more than a year, we have been asking our Gold customers how we can help them improve their production levels. The one thing they always point to that holds them back is labor.

Speaker Change: We are in the midst of an extreme shortage of transformers in this country.

Speaker Change: We have the ability to produce more goals to meet these additional needs, but our current customer base is constrained in other areas of the supply chain and by lack of labor.

Speaker Change: For more than a year, we have been asking our GOLD customers how we can help them improve their production levels.

Lorenzo: The production of transformers is an incredibly labor-intensive process. This is where we took two separate problems and created a solution. As you may recall, due to the incomprehensible action taken by the International Trade Commission rejecting the imposition of the tariffs recommended by the Department of Commerce on unfairly traded tinplate imports, we had to take our Weirton, West Virginia tin mill down earlier this year.

Speaker Change: The one thing they always point to that holds them back is labor.

Speaker Change: The production of transformers is an incredibly labor-intensive process.

Lorenzo: This is where we took two separate problems and created a solution. As you may recall, due to the incomprehensible action taken by the International Trade Commission, rejecting the imposition of the tariffs recommended by the Department of Commerce on unfairly traded, template imports, we had to take our Weirton, West Virginia, team you down earlier this year. Why we were able to relocate over 100 of the impacted workers, we still had a large pool of more than 600 USW represented, highly skilled manufacturing professionals eager to get back to work. With our Wyrton plant, only about 70 miles away from our Butler-Pensivenia, Ghost Production Facility, we had a great solution.

Speaker Change: This is where we took two separate problems and created a solution.

Speaker Change: As you may recall,

Speaker Change: due to the incomprehensible action taken by the International Trade Commission.

Speaker Change: Rejecting the imposition of the tariffs recommended by the Department of Commerce.

Speaker Change: On unfairly traded tinplate imports, we had to take our Weirton, West Virginia tin mill down earlier this year.

Lorenzo: While we were able to relocate over 100 of the impacted workers, we still had a large pool of more than 600 USW-represented, highly skilled manufacturing professionals eager to get back to work. With our Wilton plant only about 70 miles away from our Butler, Pennsylvania, ghost production facility, we had a great solution. By building our own transformer plant, we accomplish the goals of increasing demand for our products, moving into supplying transformers to a very undersupplied and high-margin market for transformers, and with that, bringing approximately 600 employees back to work.

Speaker Change: While we were able to relocate over 100 of the impacted workers, we still had a large pool of more than 600 USW-represented, highly skilled manufacturing professionals eager to get back to work.

Speaker Change: With our Wheaton plant only about 70 miles away from our Butler, Pennsylvania, ghost production facility, we had a great solution.

Lorenzo: By building our own transformer plant, we accomplished the goals of increasing demand for our goals, moving into supply, supplying transformers to a very undersupplied and high-margy market for transformers, and with that, bringing approximately 600 employees back to work. We are incredibly grateful for the state of West Virginia for recognizing the opportunity right away and for putting their full support behind us. We will receive one-third of the total product costs of $150 million US dollars to repurpose the plant in the form of a $50 million grant from the state, with a net investment by Cliffs of $100 million.

Speaker Change: By building our own transformer plant, we accomplish the goals of increasing demand for our goals.

Speaker Change: Moving into supplying transformers to a very undersupplied and high-margin market for transformers and, with that, bringing approximately 600 employees back to work.

Lorenzo: We are incredibly grateful for the state of West Virginia, for recognizing the opportunity right away and for putting their full support behind us. We will receive one-third of the total project cost of $150 million U.S. dollars to repurpose the plant in the form of a $50 million grant from the state, with a net investment by Cliffs of $100 million. With the ongoing trend of electrification and the growing adoption of electricity-heavy artificial intelligence, I can't think of a better business move than the production of electrical transformers, particularly high-demand, pad-mounted transformers that currently sell for $10,000 a piece for a single phase, up to $300,000 a piece for a larger three-phase unit.

Speaker Change: We are incredibly grateful for the State of West Virginia for recognizing the opportunity right away and for putting their full support behind us.

Speaker Change: We will receive one-third of the total project cost of $150 million to repurpose the plant in the form of a $50 million grant from the state.

Lorenzo: With the ongoing trend on electrification and the growing adoption of electricity-heavy artificial intelligence, I can't think of a better business move than the production of electrical transformers, particularly high demand, bad-mounted transformers that currently sell for $10,000 a piece for a single phase up to $300,000 a piece for a larger three-phase unit. We expect the plant to come online in the first half of 2026. The building and the basic infrastructure are in place, and it is a matter of ordering and installing equipment. In the meantime, we will be bringing in the house the proper expertise to make this one the most efficient plant in the world, made in the USA by union workers, with the cost advantage of controlling the steel input.

Speaker Change: with a net investment by Cliffs of $100 million.

Speaker Change: With the ongoing trend on electrification and the growing adoption of electricity-heavy artificial intelligence, I can't think of a better business.

Speaker Change: Move, then, the production of electrical transformers, particularly high-demand, pad-mounted transformers that currently sell for $10,000 a piece for a single phase, up to $300,000 a piece for a larger three-phase unit.

Lorenzo: We expect the plans to come online in the first half of 2026. The building and the basic infrastructure are in place, and it is a matter of ordering and installing equipment. In the meantime, we will be bringing in the house the proper expertise to make this one the most efficient plant in the world, made in the U.S.A. by union workers, with the cost advantage of controlling the steel input.

Speaker Change: We expect the plant to come online in the first half of 2026.

Speaker Change: The building and the basic infrastructure are in place, and it is a matter of ordering and installing equipment.

Speaker Change: In the meantime, we will be bringing

Speaker Change: In the house, the proper expertise to make this one the most efficient plant in the world. Made in the USA by union workers.

Lorenzo: We thank Governor Jean Justice and his team for working with us on this important project. We will make West Virginia proud.

Lorenzo: We thank Governor Gene Justice and his team for working with us on this important project. We will make West Virginia proud. Furthermore, during the quarter, we announced new carbon emissions targets. This came after achieving our previous 25% reduction target eight years ahead of schedule. I will repeat, eight years ahead of schedule. We are now committed to reduce scope 1 and 2 greenhouse gas emissions by another 30% by 2035 from our 2023 baseline, with a long-term target aligned with the Paris Agreement's 1.5 degrees Celsius scenario. This reduction will be driven primarily by our projects at Middletown, Ohio, and Butler, Pennsylvania, each one developed in cooperation with and with financial support from the U.S. Department of Energy.

Speaker Change: with the cost advantage of controlling the steel input.

Speaker Change: We thank Governor Jim Justice and his team for working with us on this important project. We will make West Virginia proud.

Lorenzo: Furthermore, during the quarter, we announced new carbon emissions targets. This came after achieving our previous 25% reduction target eight years ahead of schedule. I repeat, eight years ahead of schedule. We are now committed to reduce scope 1 and 2 greenhouse gas emissions by another 30% by 2035. From our 2023 baseline, with a long-term target aligned with the pair's agreements, 1.5 degrees Celsius scenario. This reduction will be driven primarily by our products at Middletown, Ohio, and Butler, Pennsylvania, each one developed in cooperation with and with financial support from the U.S. Department of Energy. As we have discussed, these types of products do not just provide very significant environmental benefits, but also enable substantial cost benefits, particularly the one at Middletown Works.

Speaker Change: Furthermore, during the quarter, we announced new carbon emissions targets.

Speaker Change: This came after achieving our previous 25% reduction target eight years ahead of schedule. I will repeat, eight years ahead of schedule.

Speaker Change: We are now committed to reduce scope 1 and 2 greenhouse gas emissions by another 30% by 2035.

Speaker Change: from our 2023 baseline, with a long-term target aligned with the Paris Agreement's 1.5 degrees Celsius scenario.

Speaker Change: This reduction will be driven primarily by our projects at Middletown, Ohio, and Butler, Pennsylvania, each one developed in cooperation with and with financial support from the U.S. Department of Energy.

Lorenzo: As we have discussed, these types of projects do not just provide very significant environmental benefits but also enable substantial cost benefits, particularly the one at Middletown Works. Business environments like the one we have been through lead to earnings that do not reflect our full potential. That said, our investors can take comfort that Current Cliffs is by no means a finished product. The seeds we have planted during the first half of 2024 are setting the stage for a much more efficient, diversified, and competitive company in the near future.

Speaker Change: As we have discussed, these types of projects do not just provide very significant environmental benefits, but also enable substantial cost benefits, particularly the one at Middletown Works.

Lorenzo: Business environments like the one we have been through lead to earnings that do not reflect our full potential. That said, our investors can take comfort that current clips is by no means a finished product. The seeds we have planted during the first half of 2024 are set in the stage for a much more efficient, diversified, and competitive company in the near future. Just in the last six months, we have announced two high-value, accretive capital products with federal government support. Advanced further downstream with the construction of a transformer plant, this one with the state legislature and the state government support.

Speaker Change: Business environments like the one we have been through lead to earnings that do not reflect our full potential.

Speaker Change: That said, our investors can take comfort that Current Cliffs is by no means a finished product.

Speaker Change: The seeds we have planted during the first half of 2024 are setting the stage for a much more efficient, diversified, and competitive company in the near future.

Lorenzo: Just in the last six months, we have announced two high-value accretive capital projects with federal government support, advanced further downstream with the construction of a transformer plant, this one with state legislature and state government support, and announced the acquisition of Stelco, the lowest-cost roll cost flat road producer on the North American continent. The benefits of these initiatives, compounded over time, will be immense. The great work we have done on improving our balance sheet over the past two years has allowed us to put all of these initiatives in motion.

Speaker Change: Just in the last six months, we have announced two high-value accretive capital projects with federal government support.

Speaker Change: advanced further downstream with the construction of a transformer plant, this one with state legislature and state government support, and announced the acquisition of Stelco, the lowest-cost rolled transformer.

Lorenzo: And announced the acquisition of Stelco, the lowest cost-rolled, flat-rolled producer on the North American continent. The benefits of these initiatives compounded over time will be immense. The great work we have done on improving our balance sheet over the past two years has allowed us to put all of these initiatives in motion. As I approach my 10th year anniversary as CEO of Cliffs in a few weeks on August 7th, I am as energized as ever about our prospects as a company. For Cleveland Cliffs, the best is yet to come.

Speaker Change: flat-rolled producer on the North American continent.

Speaker Change: The benefits of these initiatives, compounded over time, will be immense.

Speaker Change: The great work we have done on improving our balance sheet over the past two years has allowed us to put all of these initiatives in motion.

Lorenzo: As I approach my 10th year anniversary as CEO of Cliffs in a few weeks on August 7th, I am as energized as ever about our prospects as a company. For Cleveland-Cliffs, the best is yet to come. With that, I will turn it over to Daryl for Q&A.

Speaker Change: As I approach my 10th year anniversary as CEO of Cliffs in a few weeks on August 7th,

Speaker Change: I am as energized as ever about our prospects as a company.

Darrell: With that, I will turn it over to Daryl for Q&A.

Speaker Change: For Cleveland-Cliffs, the best is yet to come.

Speaker Change: With that, I will turn it over to Daryl for Q&A.

Darrell: Thank you.

Daryl: Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. One moment, please, while we poll for your question. Our first questions come from the line of Lucas Pipes with B. Reilly Securities. Please proceed with your questions.

Unknown Executive: At this time, we will conduct a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is on the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys. One moment, please. What will be poll for your questions?

Daryl: Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Daryl: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions.

Lucas Pipes: Our first question has come from the line of Lucas Pipes with B. Riley Securities. Please proceed with your questions.

Speaker Change: Our first questions come from the line of Lucas Pipes with B. Riley Securities. Please proceed with your questions.

Lucas Pipes: Thank you very much, Operator. Good morning, everyone, and good job on the quarter and outlook. Lorenzo, I wanted to ask about the transformer opportunity, and I wondered if you could maybe speak to the payback on the investment and the technical and human capital requirements to make the successful. Thank you very much.

Lucas Nathaniel Pipes: Thank you very much, Operator. Good morning, everyone, and good job on the quarter and outlook. Lorenzo, I wanted to ask about the transformer opportunity, and I wondered if you could maybe speak to the payback on the investment and the technical and human capital requirements to make this successful. Thank you very much.

Lucas Nathaniel Pipes: Thank you very much, Operator. Good morning, everyone, and good job on the quarter and outlook.

Lucas Nathaniel Pipes: Lorenzo, I wanted to ask about the Transformer opportunity, and I wondered if you could maybe speak to the payback on the investment and the technical and human capital requirements to make this successful. Thank you very much.

Lorenzo: Yeah, good morning, Lucas. This opportunity is unique for Cleveland-Cliffs. Thank you very much.

Lorenzo: Good morning, Lucas. This opportunity is unique for Cleveland Cliffs to fold. One because we are the sole producer of grain-oriented electrical stills in the United States. So that gives us a confidence on the cost of the material that is spring relevance to taking to consideration. That's the first question. The second one is that this is a business that even when you don't control your feedstock, if it don't, margins are extremely high. So even if we assume the same set of circumstances, treating the plant as a separate entity, they are not going to get any advantage on the feedstock.

Lorenzo: Yeah, good morning Lucas. This opportunity is unique for Cleveland-Cliffs.

Lorenzo: Two-fold.

Lorenzo: One, because we are the sole producer of grain-oriented electrical steels in the United States, so that gives us a confidence on the cost of the material that is pretty relevant to take into consideration.

Lorenzo: That's the first one. The second one is that this is a business that, even when you don't control your feedstock, if the margins are extremely high, so even if we assume the same set of circumstances treating the plant as a separate entity, so they are not going to get any advantage on the feedstock, otherwise it would be robbing Peter to pay Paul to some extent. We can imagine an EBITDA contribution that will be extremely high.

Speaker Change: That's the first one.

Speaker Change: The second one is that this is a business that even when you don't control your feedstock, even the margins are extremely high.

Speaker Change: So, even if we assume the same set of circumstances, treating the plant as a separate entity, so they are not going to get any advantage.

Lorenzo: And as it would be robbing Peter to pay for some extent, we will get envisioned maybe that contribution that will be extremely high. We are talking about a plant that can generate 30 to 40%, maybe done margin, quarter in quarter house. So it's extremely, extremely positive. Maybe that contribution for the company will be in the range of $75 to $100 million annually. And therefore, the payback is less than two years. The other thing that can't be neglected, and it's probably the reason why our great clients are not able to jump in and do themselves is because we have a unique situation in Lithuania, West Virginia because we have 600, literally, 650 employees ready to go over there.

Speaker Change: on the feedstock. Otherwise, it would be robbing Peter to pay Paul for some extent. We can envision

Speaker Change: ABDA contribution, that will be extremely high. We are talking about a plant that can generate 30 to 40% ABDA margin.

Lorenzo: We are talking about a plant that can generate 30 to 40% EBITDA margin, quarter in, quarter out. So it's extremely, extremely positive. The EBITDA contribution for the company will be in the range of $75 to $100 million annually, and therefore the payback is less than two years.

Speaker Change: quarter in, quarter out. So it's extremely, extremely positive. The bid-doc contribution for the company will be in the range of $75 to $100 million annually. And therefore, the payback is less than two years.

Lorenzo: The other thing that can't be neglected, and it's probably the reason why our great clients are not able to jump in and do it themselves, is because we have a unique situation in Weirton, West Virginia, because we have 600, literally 600, 650 employees ready to go over there. My goal of announcing this plant right away is because I don't want them to move out of Weirton. If they go away, then I lose that. And this. Many women at Wheaton want to stay there.

Speaker Change: The other thing that can't be neglected

Speaker Change: And it's probably the reason why our great clients are not able.

Speaker Change: to jump in and do themselves.

Speaker Change: is because we have a unique situation here at West Virginia because we have

Speaker Change: 600, literally 600, 650 employees ready to go over there. My, my, my, my goal of announcing this plant right away is because I don't want them to move out of Wheaton.

Lorenzo: My goal of announcing this plant right away is because I don't want them to move out of winter. If they go away, then I lose that. And this men and women at Lithuania want to stay there. And therefore, Lithuania is a unique location to produce transformers. We are in the process of selecting who will be our technological partner. But it's going to be one of our clients, that's for sure. And this morning I received an unsolicited bond from a friend of mine that CEO of a big utility company. So it's 40 yen. So this will be a big success story.

Speaker Change: If they go away, then I lose that.

Speaker Change: Man and women at Wilson, they want to stay there.

Lorenzo: Therefore, Wheaton is a unique location to produce transformers. We are in the process of selecting who will be our technological partner, but it's going to be one of our clients, that's for sure. And we have, this morning I received a non-solicited inbound from a friend of mine that's the CEO of a big utility company, so it's pouring in. So this will be a big success story. I will tell you one more thing about that, Lucas.

Speaker Change: Therefore, Wheaton is a unique location.

Speaker Change: to produce transformers.

Speaker Change: We are

Speaker Change: Thank you very much.

Speaker Change: Big utility company, so it's four in, so this will be a big success story. I'll tell you one more thing about that, Lucas.

Lorenzo: I will tell you all more things about that, Lucas. This is not going to be our first plant, but it's not going to be our last. After we are in this business, we'll probably continue to grow because there's so much pent up demand on transformers that we're going to be able to do that. And that will also increase employment in both Pennsylvania and our butterworks facility. Because we have capacity. We just don't have demand to date. So I'm going to create demand by having our own production.

Lorenzo: This is not going to be our, this is our first plant, but it's not going to be our last. We, after we are in this business, we'll probably continue to grow because there's so much pent-up demand for transformers that we're going to be able to do that. And that will also increase employment in butter Pennsylvania, in our butter works facility. Because we have capacity; we just don't have demand today. So we're going to create demand by having our own product.

Lucas Nathaniel Pipes: This is not going to be our first plant, but it's not going to be our last.

Lucas Nathaniel Pipes: After we are in this business, we will probably continue to grow.

Lucas Nathaniel Pipes: Because there's so much.

Lucas Nathaniel Pipes: The pent-up demand on transformers, that we're going to be able to do that. And that will also increase employment in both the Pennsylvania and our Butterworth facility.

Lucas Nathaniel Pipes: Because we have capacity.

Lucas Nathaniel Pipes: We just don't have demand today, so we're going to create demand by having our own production.

Lucas Pipes: Lorenzo, this is great to hear and super helpful. Thank you for that. Celso, you mentioned in your remarks continued cost reductions into 2025. And I wondered if you could maybe elaborate on some of the items that could lead to continued cost reductions. And maybe a little bit more near term for Q3, Q4. Could you speak to your volume outlook? And the quality makes in what this might mean for pricing realizations. Thank you very much. much. Yeah, sure. Hey, Lucas. Yeah, as it relates to costs, you know, looking forward to next quarter, you know, we expect costs to be down another $30 a ton.

Celso L. Goncalves: Lorenzo, this is great to hear and super helpful. Thank you for that. Celso, you mentioned in your remarks continued cost reductions into 2025, and I wondered if you could maybe elaborate on some of the items that could lead to continued cost reductions and, maybe, a little bit more near term, for Q3, Q4, could you speak to your volume outlook and the quality mix and what this might mean for pricing realizations? Thank you very much.

Lucas Nathaniel Pipes: Lorenzo, this is great to hear and super helpful. Thank you for that.

Celso: Celso, you mentioned in your remarks continued cost reductions into 2025. And I wondered if you could maybe elaborate on some of the items that could lead to continued cost reductions.

Speaker Change: Thank you very much.

Celso L. Goncalves: Yeah, sure. Hey, Lucas.

Celso: Yeah, sure. Hey, Lucas. Yeah, as it relates to costs, you know, looking forward to next quarter, you know, we expect costs to be down another $30 a ton.

Celso Goncalves: You know, as we work through some of this higher cost inventory, you know, and the drivers for that are going to be, you know, continued impact from, from lower call contracts, lower cost from, from iron ore, lower scrap prices, and also the mix, which will be kind of more service-centered driven going into next quarter. So that's what's going to drive the cost benefits here from Q2 to Q3. And then, obviously, we're maintaining our cost guidance for the full year as well. So we continue cost improvements throughout the year. As it relates to volumes, you know, we're happy that we're able to go back to the kind of the 4 million ton level, you know, from Q1 to Q2.

Speaker Change: as we work through some of this higher cost inventory. You know, and the drivers for that are gonna be, you know, continued impact from lower coal contracts, lower costs from iron ore, lower scrap prices, and also the mix.

Celso: which will be kind of more service center driven going into next quarter. So that's what's going to drive the cost benefits here from Q2 to Q3.

Celso: And then obviously we're maintaining our cost guidance for the full year as well, so we see continued cost improvements throughout the year.

Celso L. Goncalves: Yeah, as it relates to costs, you know, looking forward to next quarter, we expect costs to be down another $30 a ton from Q2 to Q5. And then obviously, we're maintaining our cost guidance for the full year as well, so we should see continued cost improvements throughout the year. As it relates to volumes, we're happy that we were able to go back to the 4 million ton level from Q1 to Q2, and we expect that to continue into Q3, so we're convinced that we are able to maintain at least that 4 million ton level.

Celso: As it relates to volumes, we're happy that we're able to go back to the 4 million ton level from Q1 to Q2, and we expect that to continue into Q3.

Lorenzo: And we expect that to continue into Q3. So, you know, we're very convinced that we are able to maintain, at least, that 4 million ton level. Lucas, it's Lorenzo here. Let me ask you something, and that is also valid for other research analysis.

Celso: We're convinced that we are able to maintain at least that 4 million ton level.

Lorenzo: Lucas, Lorenzo here. Let me ask you something, and this is also valid for other research analysts. I'd like you guys to educate the investors about the fact that an acquisition like Stelco is not an acquisition that will encumber the company with more debt to the point that we're going to be paying more and then be drawing more on our ABL or issuing debt to face the expense of the acquisition and not getting anything back. Please talk about the accretion of this deal. Stelco is extremely profitable, and it will be even more profitable under our control. We are going to let them run.

Lorenzo: Lucas, Lorenzo here. Let me ask you something, and that is also valid for other research analysts. I would like you guys to educate the investors.

Lorenzo: I would like you guys to educate the investors about the fact that an acquisition like Stelko is not an acquisition that will encompass the company with more debt to the point that we're going to be paying more, and then be drawing more on our AVL or issuing that to face the expense of their acquisition. And not getting anything back, please talk about the accretion of this deal. Stelko is extremely profitable, and it'll be even more profitable under our control. We are going to let them run; it'll be at separate entities as full volumes of this year.

Speaker Change: about the fact that an acquisition like Stelco...

Speaker Change: is not an acquisition that will encumber the company with more debt to the point that we're going to be paying more and then be drawing more on our ABL or issuing debt to to to

Speaker Change: to face the expense of the acquisition and not getting anything back. Please talk about the accretion of this deal.

Speaker Change: Stelco is extremely profitable, and it will be even more profitable under our control.

Lorenzo: It will be a separate entity, a full-blown subsidiary. They will run their own thing. We're going to have controls over commerce and finance, and that's pretty much it. And all the rest will be great. Synergies will be cool for us. Down here, this side of the lake, we're going to deploy some good orders that are now transitioning to Canada. So we're going to supply from there because Canada to Canada is simpler than the United States to Canada, things like that.

Speaker Change: We are going to let them run. It will be a separate entity, a full loan subsidiary. They will run their own thing. We're going to have controls over commercial and finance, and that's pretty much it.

Lorenzo: They will run their own thing. We're going to have controls over commercial and finance, and that's pretty much it. And all the rest will be great. Synagies will be cooked for us. Don't here, decide of the lakes. We're going to deploy some good orders that are now transitioning to Canada. We're going to supply from there because Canada to Canada is simpler than United States to Canada. Things like that. Buying large, it's extremely critical. And investors tend to focus on one side of the thing, and not on the big picture. This is a great acquisition that will be a game changer.

Speaker Change: And all the rest will be great. Synergies will be cooked for us down here at this side of the lakes.

Speaker Change: We are going to deploy some good orders that are now transitioning to Canada. We're going to supply from there because Canada to Canada is simpler than United States to Canada, things like that. But by and large, it's extremely accretive.

Lorenzo: But by and large, it's extremely critical, and investors tend to focus on one side of the thing and not on the big picture. This is a great acquisition that will be a game changer. As much as AK Steel was a big game changer, transforming Cliffs Mining Company into Cliffs Steel Company, and after AK Steel, the ArcelorMittal USA acquisition, that transformed us into a big player in the United States. So the big picture is good.

Speaker Change: And investors tend to focus on one side of the thing and not on the big picture.

Lorenzo: As much as AK Steel was a big game changer, transforming Cliff's mining company into Cliff's two companies, and AKs, after AK Steel, there's a lot of middle USA acquisition that will transform this in a big player in the United States. So, big picture is good. Cliff's was a two billion dollars in revenue company, not too long ago. Now we're in the two billion dollars range of revenues. That's a lot of growth. And it's a lot of potential to explore on behalf of the shareholders. So, research analyst, please educate the investors on that, because it's very easy to only see the bad part, but that's how we miss the big picture; you miss the positives.

Speaker Change: This is a great acquisition that will be a game-changer, as much as AK Steel was a big game-changer transforming cliffs.

Speaker Change: a mining company into Cliff's Steel Company, and after AK Steel, the ArcelorMittal USA acquisition, that transformed us in a big player in the United States. So big picture is good.

Lorenzo: Cliffs was a $2 billion-a-year company not too long ago. Now we're in the $20 to $22 billion range of revenues. That's a lot of growth. And there's a lot of potential to explore on behalf of the shareholders. So research analysts, please educate the investors on that.

Speaker Change: Cliffs was a $2 billion in revenues company not too long ago. Now we're in the $20 to $22 billion range of revenues.

Speaker Change: That's a lot of growth and it's a lot of potential explored on behalf of the shareholders.

Speaker Change: So, research outlets, please.

Lorenzo: Because it's very easy to only see the bad parts. But that's how we miss out on what was missing when Cliffs acquired AK and then acquired ArcelorMittal USA.

Speaker Change: Educate the investors on that, because it's very easy to only see the bad part, but that's how we miss.

Lorenzo: That's what you was missing when Cliff's acquired AK, and then acquired. That's the only way we will say, and nobody saw what we were doing only after the fact. After the fact is easy; the difficult part is not.

Speaker Change: The big picture, you miss the positives. That's what was missing when Cliffs acquired AK and then acquired ArcelorMittal USA, and nobody saw what we were doing only after the fact. After the fact is easy. The difficult part is now.

Lorenzo: And nobody saw what we were doing until after the fact. After the fact is easy. The difficult part is now.

Lucas Pipes: The Renzoite, I think you, you and your team have done a great job on the M&A front and growing both organically and organically, so well-known. Thank you so much, Lucas. Thank you.

Lorenzo: Lorenzo, I think you and your team have done a great job on the M&A front and growing both organically and inorganically. So, well done. Thank you so much, Lucas.

Speaker Change: Lorenzo, I think you and your team have done a great job on the M&A front and growing both organically and inorganically, so well noted.

Lawson Winder: Thank you. Our next question has come from the line of Lawson Winder with Bank of America Securities. Please proceed with your question.

Lawson Winder: Our next question is coming from a lot of the Lawson Winder with Bank of America Securities. Please proceed with your questions. Hey, thank you very much, Operator. Hello, Lorenzo, and team. Good morning, and thank you for the update.

Lorenzo: Thank you so much, Lucas.

Speaker Change: Thank you. Our next question has come from the line of Lawson Winder with Bank of America Securities. Please proceed with your questions.

Lawson Winder: Hey, thank you very much, Operator. Hello, Lorenzo and team. Good morning, and thank you for the update. After your comments today, I wanted to ask, if I might, about your goal to improve cash flow from the auto business. Could you perhaps give us some additional color on what are some of the measures that you intend to take to improve that cash flow in the auto business?

Lawson Winder: Hey, thank you very much, Operator. Hello, Lorenzo and team. Good morning, and thank you for the update.

Lorenzo: After the, the, your comments today, I wanted to ask if I might on your, goal to improve cash flow from auto and, and could you perhaps give us some additional color on, what are some of the measures that you intend to take to improve that cash flow in the auto business? Good morning, Lawson. I look at automotive; buying large is a market that we like. It's a market that we try. It's a market that we do a lot more for the clients than the clients, by, in general, recognized. But with all this being said, it's a great business.

Lawson Winder: After your comments today, I wanted to ask, if I might, on your goal to improve cash flow from auto. And could you perhaps give us some additional color on what are some of the measures that you intend to take to improve that cash flow in the auto business?

Lorenzo: Good morning, Lawson. Look, the automotive market, by and large, is a market that we like. It's a market in which we thrive. It's a market in which we do a lot more for the clients than the clients, in general, recognize. But with all this being said, it's a great business.

Lawson Winder: Good morning, Lawson. Look, automotive, by and large, is a market that we like.

Speaker Change: It's a market that we thrive. It's a market that we do a lot more for the clients than the clients in general recognize. But with all this being said, it's a great business. It provides a stability in times of crisis.

Lorenzo: It provides an instability in times of... [inaudible] I made a small investment just to increase a little bit our non-oriented electrical steel. Supply Automotive, as they were moving toward electric vehicles, small to increase a little bit the tonnage that we supply, which I believe was just enough. So you know what? They kept saying that they would go all in with electric vehicles. Now they're all getting egg on their feet.

Lorenzo: It provides a stability in times of extreme stress, like the ones we are in right now. And help us, the predictable, what other companies are not at this point. I'll give an example. I did a, a, a, a, a small investment, just to increase a little bit, our, no, he entered the lead cost use to supply automotive. As they, they were moving toward electric vehicles. It's small to increase a little bit the tonnage that we supply, which I believe was just enough. So you know what they kept saying that would go all in with electric vehicles.

Speaker Change: Extreme stress like the ones we are in right now.

Speaker Change: and help us be predictable what other companies are not at this point. I'll give an example.

Speaker Change: I made a small investment just to increase a little bit our non-oriented electric steel to supply automotive.

Speaker Change: as they were moving toward electric vehicles.

Speaker Change: to increase a little bit the tonnage that we supply, which I believe was just enough.

Lorenzo: Now they're all getting egg on their face. All of them are having to walk back their promises on selling electric vehicles, only electric vehicles, and no more combustion engine vehicles. And by the time we made our announcement. And by the time that now the, the about fish is coming for all the big guys, all the, the, the, the big common factors. We saw one company put it 200,000 tons of, no, he entered the lead cost to capacity. And another one announcing a 150,000 tons of, no, he entered the lead cost to capacity. Good luck, you both.

Speaker Change: But you know what, they kept saying that it would go all in with electric vehicles. Now they're all getting egg on their face.

Lorenzo: All of them, I have to walk back their promises of selling electric vehicles, only electric vehicles, and no more combustion engine vehicles. But by the time we made our announcement, And by the time that the turning point is coming for all the big guys, all the big car manufacturers, we saw one company putting 200,000 tons of no-oriented electrical steel capacity on the market, and another one announcing 150,000 tons of no-oriented electric steel capacity. Good luck to you both. In our case, my investment in those will have the... pivot back to goals and produce more transformers. You can have it.

Speaker Change: All of them I have to walk back.

Speaker Change: There are promises on selling electric vehicles, only electric vehicles, and no more combustion engine vehicles. But by the time we made our announcement...

Speaker Change: And by the time that now the about face is coming for all the big guys, all the big car manufacturers.

Speaker Change: We saw one company put in 200,000 tons of non-oriented electrical steel capacity, and another one announcing 150,000 tons of non-oriented electrical steel capacity. Good luck, you both.

Lorenzo: In our case, my investment in those, we will have the pivot back to goals and produce more transformers. You can have it. I don't care; I'm not going to fight price on those. That would be stupid for the much more level of electric vehicles that are coming our way. So, we are proactive. We tend to believe in our own idea of the business. And we will not, we will never go here at Cleveland Cliffs to the last shiny thing that everybody follows. So, that's why we are resilient. And that's why we continue to, to, to progress.

Speaker Change: In our case, my investment in those will help me pivot back to goals and produce more transformers. You can have it.

Lorenzo: I don't care; I'm not going to fight price on those. That would be stupid for the much smaller level of electric vehicles that are coming our way. So, we are proactive, and we tend to believe in our own reading of the business, and we will never go here at Cleveland-Cliffs to the last shiny thing that everybody follows. So that's why we are resilient, and that's why we will continue to progress. I'll let Celso say a little bit more from the financial side of how we treat automobiles. Yeah, Lawson.

Speaker Change: I don't care. I'm not going to fight price on those. That would be stupid for the much smaller level of electric vehicles that are coming our way.

Speaker Change: So, we are proactive, we tend to believe in our own reading of the business, and we will never go here at Cleveland-Cliffs to the last shining thing that everybody follows.

Speaker Change: So, that's why we are resilient, and that's why we will continue to progress. I'll let Celso say a little bit more from the financial side on how we treat automotive.

Celso Goncalves: I'll let's also, say a little bit more from the financial side on how we treat automotive. Yeah, Lawson, so the idea is to maximize cash flow from the automotive business. You know, we are the largest automotive steel franchise in the continent, and that's going to continue, but we don't have to be everything to everyone. So we're being a lot more selective in terms of the auto customers that we serve. You know, the ones that only care about price, we're being a lot more careful in the business that we do with them. You know, we can produce and supply the most sophisticated grades, but we need to make a return on that investment.

Celso L. Goncalves: Yeah, Lawson, so the idea is to maximize cash flow from the automotive business. We are the largest automotive steel franchise in the continent, and that's going to continue, but we don't have to be everything to everyone. So we're being a lot more selective in terms of the car customers that we serve. The ones that only care about price, we're being a lot more careful in the business that we do with them.

Celso: Yeah, Lawson, so the idea is to, you know, maximize cash flow from the automotive business. You know, we are the largest...

Celso: Automotive Steel Franchise in the continent, and that's going to continue, but we don't have to be everything to everyone. So we're being a lot more selective in terms of the auto customers that we serve.

Celso: You know, the ones that only care about price, we're being a lot more careful in the business that we do with them. You know, we can produce and supply the most sophisticated grades, but we need to make a return on that investment.

Celso L. Goncalves: We can produce and supply the most sophisticated grades, but we need to make a return on that investment. So the customers that aren't willing to pay the price that we command can go and find supply elsewhere, because we're going to continue to have this automotive franchise, but it has to be a cash-flowing part of our company.

Celso Goncalves: So the customers that aren't willing to pay the price that we command, you know, can go and find supply elsewhere because we're going to continue to have this automotive franchise, but it has to be a cash flowing part of our company. And you're doing a lot, so we have already started that if you notice, automotive this quarter was only 30% of business.

Celso: So the customers that aren't willing to pay the price that we command, you know, can go and find supply elsewhere because we're going to continue to have this automotive franchise but it has to be a cash flowing part of our company.

Celso L. Goncalves: And Lawson, we have already started that. If you notice, the automotive business this quarter was only 30% of the GCC. It's probably one of our laws, if not their laws, for the last several quarters. So we are being selective.

Celso: And Lawson, we have already started that. If you notice, automotive this quarter was only 30% of the business.

Lawson Winder: Probably one of our lowest, if you're not the lowest, the last several quarters. So we are being selective. Yeah, that was very well noted. Thank you for those comments.

Celso: It's probably one of our lowest, if not the lowest.

Lawson Winder: Yeah, that was very well noted. Thank you for those comments.

Celso: The last several quarters. So we are being selective.

Celso Goncalves: And because, so perhaps get your thoughts on realized pricing, heading into Q3, so just based on your estimated mix, lagged into contracts and the current spot price, you know, what we're thinking about for a realized pricing range for the third quarter. Yeah, so we feel like we're in a place right now, lesson that, you know, we're in the bottom of a cycle and things could change very quickly here this quarter. So it doesn't make sense for us to guide to specific ASP at this point. You know, you can look at all the factors that you can look at, you know, in terms of the monthly lags and the quarterly lags, and you can kind of get an idea.

Speaker Change: Yeah, that was very well noted. Thank you for those comments. And you can also perhaps get your thoughts on realized pricing heading into Q3. So just based on your estimated mix, lagged index contracts, and the current spot price.

Lawson Winder: And you can also perhaps get your thoughts on realized pricing heading into Q3. So, just based on your estimated mix, lagged index contracts, and the current spot price, what should we be thinking about for a realized pricing range for the third quarter?

Speaker Change: What should we be thinking about for a realized pricing range for the third quarter?

Celso L. Goncalves: Yeah, so we feel like we're in a place right now, Lawson, that we're in the bottom of a cycle, and things could change very quickly this quarter. So it doesn't make sense for us to guide to a specific ASP at this point. You know, you can look at all the factors that you can look at, you know, in terms of the monthly lags and the quarterly lags, and you can kind of get an idea. But we feel like we're overdue for a sharp bounce back. So that's why we're not guiding to ASPs at this point. Okay.

Speaker Change: Yeah, so we feel like we're in a place right now, Lawson, that, you know, we're in the bottom of a cycle and things could change very quickly here this quarter, so it doesn't make sense for us to guide to a specific ASP at this point.

Speaker Change: You know, you can look at all the factors that you can look at, you know, in terms of the monthly lags and the quarterly lags, and you can kind of get an idea, but, you know, we feel like we're overdue for a sharp bounce back, so that's why we're not guiding to ASPs at this point.

Celso Goncalves: But, you know, we feel like we're overdue for a sharp bounce back, so that's why we're not guiding to ASP at this point. Okay, that's fair. Thank you both very much. Thank you.

Lawson Winder: Okay, that's fair. Thank you both very much.

Speaker Change: Okay, that's fair. Thank you both very much.

Carlos De Alba: Thank you. Our next questions come from the line of Carlos de Aba with Morgan Stanley. Please proceed with your questions. Thank you.

Carlos Alba: Our next question is coming from the line of Carlos de Ava with Morgan Stanley.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next questions come from the line of Carlos de Aba with Morgan Stanley . Please proceed with your questions.

Carlos Alba: Please proceed with your questions. Yeah, thank you. Good morning. I'm sorry, I'm sorry.

Carlos De Alba: Good morning, Celso and Lorenzo. Just a question, maybe for Celso. Could you please provide a little bit more details on the breakdown of the return idle expenses adjustment that was added back to EBITDA? We have got some questions about that line. And also, if this is the last adjustment, we should expect something also to come through in the third quarter.

Celso Goncalves: Just a question, maybe on for sale, so could you probably be more details on the breakdown of the word done idle expenses adjustment that was added back to EBDA? We have gotten some questions about that line. And also, if this is the last adjustment, we should expect something also to come through in the third quarter. Yeah, sure. So, hey Carlos. So, you're to date it's about 217 million; 40 million of that was in Q2. And these charges related to the idle are, you know, employee-related costs, sub pay, health care, severance, asset retirement obligations, things like that, PP&E impairment, inventory repairment, and stuff like that.

Speaker Change: Yeah, thank you. Good morning.

Speaker Change: Celso and Lorenzo. Just a question maybe on...

Speaker Change: for Celso. Celso, could you provide a little bit more details on the breakdown of the return idle expenses adjustment that was added back to EBITDA? We have gotten some

Speaker Change: Some questions about that line and also if this is the last adjustment or we should expect something also to come through in the third quarter.

Celso L. Goncalves: Yeah, sure. So, hey, Carlos.

Celso: Yeah, sure. So, hey, Carlos. So, year-to-date, it's about $217 million. $40 million of that was in Q2. And these charges related to the EIDL are, you know, employee-related costs, subpay, health care, severance.

Celso L. Goncalves: So, year-to-date, it's about $217 million. $40 million of that was in Q2. And these charges related to the EIDL are, you know, employee-related costs, subpay, health care, severance, asset retirement obligations, things like that, PP&E impairment, inventory repair, and stuff like that. We pulled forward a majority of the Q3 and Q4 charges into Q2. So, the remaining charges are pretty minimal. Q3 is only about a million bucks, and Q4 is about the same.

Speaker Change: Asset Retirement Obligations, things like that, PP&E Impairment, Inventory Repairment, and stuff like that. We pulled forward a majority of the Q3 and Q4 charges into Q2. So the remaining charges are pretty minimal. Q3 is only about a million bucks and Q4 is about the same.

Celso Goncalves: We pulled forward a majority of the Q3 and Q4 charges into Q2. So, the remaining charges are pretty minimal. Q3 is only about a million bucks, and Q4 is about the same.

Carlos De Alba: All right, that's that's good. Thank you very much. And then another question is just on opportunistic M&A, where with the acquisition or planned acquisition of Stelco, where does that leave your appetite for further expanding your flat roll presence in the US given that now with the integration of Stelco hopefully taking place in the coming quarters and that would give you a greater market share and potentially a little bit more of an issue if you try to acquire something else in North America? Yeah.

Carlos Alba: All right, that's the thank you very much.

Carlos Alba: And then another question is just on the opportunistic M&A. With the acquisition or plan acquisition of the Celco, what does that leave your appetite for further expanding your floral presence in the U.S., given that now, with the integration of the Celco, hopefully taking place in the coming quarters, that would give you a greater market share and potentially a little bit more of an issue if you try to acquire something else in North America. Yeah, just for the record, I don't believe that the acquisition of Celco gives me any more problem to acquire anything else, because Estelco is basically a player on the hot roll market to the little bit of a carbonized in the sport market as well, supplying a number of customers that are not our customers currently, so it's not like we are buying into a space that we're occupied.

Speaker Change: All right, that's good. Thank you very much. And then another question is just on the opportunistic M&A.

Speaker Change: with the acquisition or planned acquisition of Stelco, where does that leave your appetite for further expanding your floral presence in the U.S.? Given that now with the.

Speaker Change: and the integration of Stelco hopefully taking place in the coming quarters, that would give you a greater market share and potentially a little bit more of an issue if you try to acquire something else in North America.

Lorenzo: Yeah, just for the record, I don't believe that the acquisition of Stelco gives me any more problems when I acquire anything else because Stelco is... Basically, a player in the hot road market with a little bit of, [inaudible] Hot Rods in the Generic Market, and Galvanized for Commercial Applications. So we are not really, and this is something that we are ready to explain to the DOJ here in the United We know how to do that. We did it with the AK.

Speaker Change: Yeah, just for the record, I don't believe that the acquisition of Stelco gives me any more problem to acquire anything else, because Stelco is...

Speaker Change: Basically, a player on the hot-rolled market with a little bit...

Speaker Change: of a Calvinized in the sport market as well, supplying a number of customers that are not our customers currently, so it's not like we are buying into a space that we're occupied.

Lorenzo: So we're expanding into a market and into products, because a hot roll for a space-fight application or a galvanized for automotive, we're completely different from a hot roll in the generic market and a galvanized for commercial applications. So we are not really, and this is something that we are ready to explain to the DOJ here in the United States. We know how to do that. We did that with the DK with it; that was easy because there's a mining company acquire a steel company, but we also did that. When we acquired our solar mill, we would say that was a much more complicated, because then we had overlap; in this case we don't have overlap.

Speaker Change: So, we are expanding into a market and into products because a hot road for a specified application or galvanized for automotive are completely different from hot roads in the generic market and galvanized for commercial applications.

Speaker Change: So, we are not really, and this is something that we are ready to explain to the DOJ here in the United States.

Lorenzo: We did that; that was easy, because it was a mining company acquiring a steel company. But we also did that when we acquired ArcelorMittal USA. That was much more complicated, because then we had overlap. So people talk a lot about these things, but they really don't understand how the process works with geogenics.

Speaker Change: We know how to do that. We did that with the UK, we did that, that was easy because it was a mining company, a steel company. But we also did that when we acquired ArcelorMittal USA, that was much more complicated because then we had overlap. In this case, we don't have overlap.

Lorenzo: So people talk a lot about these things, but they really don't understand how the process works with the DOJ. For example, you made a very conditional acquisition; this acquisition will go through. I'm not hearing a lot of this. I'm talking to the top guys in Canada; they are on board, they are excited. So we are going to have this, including fast. We don't stay with things open forever. We don't leave out of an artificial price, stock price that was only motivated by my offer. You know what I'm talking about. I made an offer, and now they trade at the price I made the offer.

Speaker Change: So, people talk a lot about these things, but they really don't understand how the process works with the DOJ.

Lorenzo: For example, you made a very conditional acquisition; this acquisition will go through; I'm not hiring lobbyists. I'm talking to the top guys in Canada; they are on board, they are excited. So we are going to have this thing closing fast. We don't stay with things open forever. We don't leave out an artificial price, the stock price, that was only motivated by my offer. You know what I'm talking about.

Speaker Change: For example, you made a very conditional acquisition. This acquisition will go through. I'm not hiring lobbyists.

Speaker Change: I'm talking to the top guys in Canada, they are on board, they are excited, so we are going to have this thing closing fast.

Speaker Change: We don't stay with things open forever. We don't leave out of an artificial price, stock price, that was only motivated by my offer.

Lorenzo: I made an offer, and now they are trading at the price I made the offer. They don't trade about the other offer, the offer that was offered to Japan. Good luck hiring Mike Pompeo. Mike Pompeo is damaged goods. Mike Pompeo is not the Vice President for Donald Trump; it's J.D. Vance.

Speaker Change: You know what I'm talking about.

Lorenzo: They don't trade about the other offer, the offer that was offered to Japan.

Speaker Change: I made an offer and now they trade at the price I made the offer. They don't trade about the other offer, the offer that was offered to Japan.

Lorenzo: Good luck hiring Mike Pompeo. Mike Pompeo is damaged goods. Mike Pompeo is not the vice president for Donald Trump; it's JDVans. So let's pay attention to the big picture, guys. My deal with steel crews who close fast. I appreciate the support from Premier Doug Ford, the province of Ontario, and we're going to have as a result of this acquisition. A much stronger and a much more resilient partnership between the two real partners. And the two real partners there are the United States and Canada. I have already started talking to Canada about Mexico. So July 1, 2021, is coming, and it will be a bad day for Mexico.

Speaker Change: Good luck hiring Mike Pompeo. Mike Pompeo is damaged goods.

Lorenzo: So let's pay attention to the big picture, guys. My deal would still close with Close Fest. I appreciate the support from Premier Doug Ford of the province of Ontario, and we're going to have, as a result of this acquisition, a much stronger and much more resilient partnership between the two real partners. And the two real partners are the United States and Canada. I have already started talking to Canada about Mexico. So July 1, 2026 is coming, and it will be a bad day for Mexico. We are going to take Mexico out of the USMCA, and this acquisition plays into that.

Speaker Change: Mike Pompeo is not the Vice President for Donald Trump, it's J.D. Vance.

Speaker Change: So let's pay attention to the big picture, guys. My deal would still close, it'll close fast.

Speaker Change: I appreciate the support from Premier Doug Ford of the province of Ontario, and we're going to have, as a result...

Speaker Change: of this acquisition are much more.

Speaker Change: A much stronger and a much more resilient partnership between the two real partners. And the two real partners are the United States and Canada. I have already started talking to Canada about Mexico.

Speaker Change: So, July 1st, 2026 is coming and it will be a bad day for Mexico. We are going to take Mexico out of the USMCA.

Lorenzo: We're going to take Mexico out of the WSMCA. And this acquisition plays on that.

Carlos De Alba: I hope you understand the big picture. Yeah, no, definitely. And just so, at this point, it is placed completely out of the US Steel potential.

Speaker Change: And this acquisition plays on that.

Speaker Change: All right. Yeah, no, definitely. And just so at this point is placed completely out of the US Steel potential

Lorenzo: Look, the President of the United States said loud and clear that the United States, too, will be American-owned and American-operated. That doesn't include anybody from Japan, particularly when the head executive said that he likes to wait for the election because after the election, the USW will have no leverage. Think about that. UFOs in Japan. You've come to the right state. After insulting the President of the United States, we insult the President of the U.S. W. After the election, The U.S.W.

Speaker Change: Acquisition.

Speaker Change: Look, the President of the United States said loud and clear that the United States still

Speaker Change: will be American-owned and American-operated.

Speaker Change: That doesn't include anybody from Japan, particularly when the head executive said that he likes to wait for the election because after the election, the USW will have no leverage.

Speaker Change: Think about that.

Speaker Change: You are from Japan. You come to the United States.

Speaker Change: After insulting the President of the United States, we insult the President of the USW. After the election,

Lorenzo: has no leverage. There's a part of me that actually wants that deal to close, because it will be fun to watch. The relationship between Nippon Steel and the U.S.W.

Speaker Change: The U.S.W. has no leverage.

Speaker Change: There's a part of me that actually wants that deal to close because it will be fun to watch the relationship between Nippon Steel and the USW.

Lorenzo: But unfortunately, I can't let it go. And for my price, which is now in the 20s, we can have a deal. Are you negotiating with me? I'm giving you my price, $29.00.

Speaker Change: But, unfortunately, I can't let it go. And for my price that's now in the 20s, we can have a deal.

Speaker Change: Are you negotiating with me? I'm giving you my price. Twenty-nine.

Carlos De Alba: Thank you very much. Good luck, guys. Thank you.

Philip Ross Gibbs: Thank you. Our next questions come from the line of Phil Gibbs with KeyBank Capital Markets. Please proceed with your question.

Speaker Change: Thank you very much. Good luck, guys.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next questions come from the line of Phil Gibbs with KeyBank Capital Markets. Please proceed with your questions.

Philip Ross Gibbs: Hey Phil. Good morning, Phil.

Philip Ross Gibbs: Hey, good morning.

Philip Ross Gibbs: Laurenzo, I'm just curious about what needs to be done to get the planet Weirton ready for commissioning for the transformers. How long does it take to get the equipment? And then on the CapEx side, I would assume you guys will put that on the 25 budget given you took down the range of the ship.

Philip Ross Gibbs: Good morning, Phil.

Philip Ross Gibbs: Lorenzo, I'm just curious on what needs to be done to get the planet weird and ready for commissioning for the Transformers. How long does it take to get the equipment? And then on the CapEx side, I would assume you guys will put that in the 25 budget given you took down the range this year.

Lorenzo: Yeah, look, we are not going to have any deployment other than the money that will come from the state of West Virginia. So actually, we don't plan to spend all the $50 million this year that we got from West Virginia. Keep in mind, lots of things that need to be done when you build a plant are already done over there. We are using a warehouse that's actually a big building, a big industrial building, a strong building that needs no repair. It's just a matter of adapting the building, the empty building, because it's a warehouse, to house the equipment. And that's what we are going to do. The building has...

Speaker Change: Yeah, Luca, we are not going to have any deployment.

Speaker Change: Other than the deployment of capital this year, other than the money that will come from the state of West Virginia. So actually, we don't plan to expend all the $50 million this year that we got from West Virginia.

Speaker Change: Keep in mind, lots of things that need to be done when you build a plant are already done over there.

Speaker Change: We are using a warehouse that's actually a big building, a big industrial building, a strong building that needs no repair. It's just a matter of adapting the building, the empty building because it's a warehouse, to house equipment. And that's what we are going to do. The building has...

Lorenzo: Floor, Walls, Roof, Owing Group, Shape, Utilities, water supply, gas, everything that we need is there. So it's a matter of placing orders to get the equipment, installing the equipment, and keeping going. I'm aiming for a startup in the first half of 2026. But just because I haven't spoken with the equipment suppliers, which I will be doing, my day has only 24 hours, like everybody else

Speaker Change: Thank you very much.

Speaker Change: to get the equipment, install the equipment, and keep going.

Speaker Change: I'm aiming for a start-up on the first half of 2026, but just because I haven't...

Speaker Change: [inaudible]

Lorenzo: Now that we are done with the acquisition, the announcement of the acquisition of Stelco, the announcement of West Virginia, and the quarter results, I'm going to be focused on bringing these orders to the forefront and expediting them all. And I will make sure that they understand that I will be a long-term customer of this equipment because this will be the first plant, not the last. So I believe that there is a chance that we can start this plant before the end of 2025.

Speaker Change: And the quarter results, I'm going to be focused on bringing these orders to the forefront and expediting them all, and I will make sure that they understand that I will be a long-term customer of this equipment, because this will be the first plant, not the last.

Speaker Change: So, I believe that there is a shot that we can start this plant before the end of 2025.

Lorenzo: So it will be another one that will be a home run in terms of the deployment of capital. And, by the way, I am also going to talk to the Department of Energy. If you notice, we didn't even have time to negotiate some type of grant from the DOE. But I'm sure that my dear friend, Secretary Jennifer Greenhalgh, will be more than happy to sit down with me and see if the federal government can help. So we're in good shape.

Speaker Change: So, it will be another one that will be a home run in terms of the deployment of capital. And by the way,

Speaker Change: I'm going to also talk to the Department of Energy, if you notice.

Speaker Change: We didn't have even time to negotiate some type of grant from the DOE, but I'm sure that my dear friend, Secretary Jennifer Greenhalm, will be more than happy to sit down with me and see if the federal government can help. So, we're in good shape.

Celso L. Goncalves: Thank you, and then just have a follow-up. Operating expenses were down very strongly versus the first quarter and very strongly versus the second quarter last year. So just curious where these savings came from, given your strong production, and should we expect operating expenses to return to some of the levels that we'd seen in the prior quarters once pricing and profit recover? Thank you.

Speaker Change: Thank you, and then just have a follow-up. Operating expenses were down very strongly versus the first quarter and very strongly versus the second quarter last year, so just curious where these savings came from, given your strong production.

Speaker Change: And should we expect operating expenses to return to some of the levels that we'd seen in the prior quarters once pricing and profit recover? Thank you.

Celso L. Goncalves: Yeah, I mean, I think we covered this a little bit, but, you know, we're sharpening our pencils on pretty much everything, Phil, both operating and overhead. So you saw the progress we made on operating costs driven from, you know, lower coal, lower iron ore, and lower scrap and things like that. But we also, you know, have been managing SG&A very carefully here, given the pricing environment that we're facing. We expect that this momentum will continue into the second half of the year on all fronts.

Speaker Change: Yeah, I mean, I think we covered this a little bit, but, you know, we're sharpening our pencils on pretty much everything, Phil, you know, both operating and overhead.

Speaker Change: So you saw, you know, the progress we made on operating costs driven from, you know, lower coal, lower iron ore, and lower scrap and things like that. But we also, you know, have been managing SG&A very carefully here, given the pricing environment that we're facing.

Speaker Change: We expect that this momentum continues into the second half of the year on all fronts.

Speaker Change: Thank you.

Lorenzo: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Lorenzo Goncalves for a closing remarks.

Speaker Change: Thank you. We have reached...

Speaker Change: We have reached the end of our question and answer session. I would now like to turn the floor back over to Lorenzo Goncalves for closing remarks.

Lorenzo: Thank you, everybody, for being with us on this call. It's a very exciting time. I feel like we are back to the COVID year, when everybody believed that after a horrible quarter in terms of pricing, everything would be a lot worse in the next. My gut tells me that things are about to turn.

Celso L. Goncalves: Thank you everybody for being with us in this call. It's a very exciting time. I feel like we are back.

Speaker Change: In the COVID year, when everybody believed that after a horrible quarter in terms of pricing, everything would be a lot worse in the next.

Lorenzo: And once again, these buyers that will be chit-chatting at a conference very soon about how good the low prices are and how smart they are because they keep pushing prices down, they are setting themselves up for a big surprise. So prices will start to go up as soon as we see the very minimal spark that will allow prices to go up. We will do this on behalf of our employees, our shareholders, and ourselves, and our country. Because we can't allow this business to continue to be treated like that here in the United States.

Speaker Change: My gut tells me that things are about to turn.

Speaker Change: And once again, these buyers that will be chit-chatting in a conference very soon about how good low prices are and how smart they are because they keep pushing prices down, we are setting themselves up for a big surprise.

Speaker Change: So prices will be starting to go up as soon as we see the very minimal spark that will allow prices to go up.

Speaker Change: We will do this on behalf of our employees, our shareholders, and ourselves, and our country. Because we can't allow this business to continue to be treated like that here in the United States.

Lorenzo: We deploy a lot of capital. We need a return on that capital. And we need investors to flock to our sector because that's the sector to support everything that they talk about on TV every day, particularly AI. There is no AI without people like us, without people like the workers in Butler, Zanesville, Ohio, Butler, Pennsylvania, and Wilton, West Virginia. We are the ones making these talkative people on TV be able to talk about stuff that they don't have a clue about. AI is basically computing power. And computing power is basically electricity through wires. And you can't move electricity through wires without electrical transformers.

Speaker Change: We need to deploy a lot of capital, we need to return on capital, and we need investors to flock to our...

Speaker Change: to our sector, because that's the sector to support everything that they talk on TV every day, particularly AI. There is no AI without people like us, without people like the workers in Butler, Zanesville, Ohio, Butler, Pennsylvania, and Weirton, West Virginia.

Speaker Change: We are the ones making these talkative people on TV be able to talk about stuff that they don't have a clue.

Speaker Change: Basically, computing power, and computing power is basically electricity through the wires.

Lorenzo: That's our next focus, a high-margin business. We are the sole supplier of goals. All these investments that were announced were in NOES.

Speaker Change: And you can't move electricity through the wires without electrical transformers. That's our next.

Speaker Change: Focus, high-margin business, we are the sole supplier of goals. All these investments that were announced were in NOEs, and NOEs is not goals. NOEs is NOEs, goals is goals. We produce both, but we are the only ones.

Lorenzo: And NOES is not goals. NOES is NOES. Goals is goals. We produce both, but we are the only one. So Goals is ours. Thank you so much, and have a great week. Bye now.

Speaker Change: So goals is ours. Goals is Cleveland-Cliffs. Thank you so much and have a great week. Bye now.

Lorenzo: Thank you.

Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Unknown Executive: This doesn't include today's teleconference. We appreciate your participation. You may disconnect your lines at this time.

Speaker Change: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Unknown Executive: Enjoy the rest of your day.