Good morning, ladies and gentlemen. My name is May, and I’m your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs’ Fourth Quarter and Full-Year 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a 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. 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 website. Today's conference call is also available and being broadcast at cleveland-cliffs.com. At the conclusion of the call, it will be archived on the website and available for replay. The company will also discuss results excluding certain special items. Reconciliation for Regulation G purposes can be found in the earnings release, which was published this morning. At this time, I would like to introduce Lourenco Goncalves, Chairman, President and Chief Executive Officer.

Thank you, May, and good morning to everyone on the call. Life at Cleveland-Cliffs has been intense, and we have a number of developments to discuss today. We completed the acquisition of ArcelorMittal USA on December 9, 2020. A couple of weeks earlier, we completed the construction and began operating our direct reduction plant in Toledo, Ohio. We have also, once again, put our financial expertise to good use and took advantage of opportunities presented by the capital markets to improve our balance sheet. And last but not least, we have recently announced our public commitment to aggressively reduce our greenhouse gas emissions by 25% by 2030. I will begin with the most transformational theme, the acquisition of ArcelorMittal U.S., including the totality of I/N Tek and I/N Kote, which ArcelorMittal previously shared ownership with Nippon Steel. The very first point I would like to make is the most important part of the acquisition, and that is the people that are now working for Cleveland-Cliffs. I could not be more pleased with the buy-in we have received from the workforce previously working for ArcelorMittal. Not just from the leadership team, but also from the employees on the shop floor. If there is a single reason why we are doing so well as we integrate the new assets to our existing footprint, it is the buy-in from these new Cleveland-Cliffs employees. That came with the normal support and help coming from the employees that were here before, including the ones that joined Cliffs from AK Steel. It’s fair to say that the entire workforce, which includes our union partners, all recognize that Cleveland-Cliffs’ unique business model is now the envy of the steel industry, and they seem to be proud of that. We are too; ideas without strategy are nothing, and strategy without execution is irrelevant. But one can only execute if the people involved believe and buy in. Our great workforce, integrated and unified under a common strategy and disciplined execution, is the reason for our success. To our entire team, thank you all very much. Our competitive advantage is also predicated on a few things. We operate the entire production flow from the extraction of iron ore out of the ground all the way to the manufacturing of complex auto parts and components. Said another way, Cleveland-Cliffs has reinvented the meaning of the word integrated, as in integrated steel mill. The word now includes mines, pellet plants, direct reduction, blast furnaces, DOFs DAFs, ALDs, hot strip mills, plate mills, cold rolling mills, electrolytic thinning lines, hot dip galvanizing lines, electrogalvanizing lines, cold and hot stamping, precision welding, laser manufacturing, and complex tooling. All these resources give Cleveland-Cliffs full control over costs and quality and result in having a tangible competitive advantage over our competitors. Also, as we process in our downstream facilities, the steel produced by other companies, we have a window into what others are actually capable or not capable to do in automotive. Such insights were a determining factor in guiding our decision to acquire AM USA. The assets we acquired from AM USA are complementary to the ones we already had from AK Steel, and that will save us from spending a significant amount in CapEx to make the AK Steel assets able to produce certain grades that we can produce in Indiana Harbor or Cleveland works. For those interested in who is gaining market share from whom in the steel business, let me remind you of one thing: one year ago, Cleveland-Cliffs was producing and selling zero tons of steel, and we are now, one year later, the largest flat-rolled steel company in North America. That is a pretty sizable gain in market share, I believe. Even more importantly, in comparing what we have at Cleveland-Cliffs with what we see from others, we feel extremely comfortable that our leadership position in automotive is very solid. The acquisition of AM USA elevated our participation in automotive to five million tons per year. On top of that, we also supply 1.5 million tons of automotive-grade blast to ArcelorMittal Nippon Steel in Calvert, Alabama. Even with increasing tons from 3 million to 5 million, we actually reduced our percentage of participation in the auto sector from 70% as AK Steel standalone to 40% as the combined Cleveland-Cliffs, allowing us to benefit faster from higher market prices for steel. We also supply 100% of our iron ore needs in-house, and that is extremely important. The steelmaking assets we acquired both from AM USA and from AK might have been historically at a competitive disadvantage on that regard due to having to purchase pellets from us. But now, the advantage is kept all within Cleveland-Cliffs. Another point to consider. Unlike the scrap-based nonunion shops, we do not pay our employees based on tons produced. They do that; we don't. Unlike these other steel producers, our business model does not prioritize the production of tons, and we are not in pursuit of capacity utilization either. We prioritize value over volume. We prioritize delivering on time and accommodating the demands of our clients, particularly automotive clients. In 2021, we are applying to the newly acquired assets the same methodology we applied to AK Steel in 2020. That will bring the new assets to the same high level of delivery performance we have established at AK Steel since we implemented our way of doing business last year. Our clients know that and appreciate the changes and improvements we have been implementing. Our asset optimization process is off to a great start as well. We have already started moving slabs and coils between the former AK and AM facilities to reduce logistics costs and to improve our customers' delivery requirements. This material movement continues to be optimized, and we should increase over time. With that and several other initiatives, we are well on our way to reach our synergy target of $150 million by the end of this year. Next, on to our Toledo plant. We are delighted to have completed construction of the most modern direct reduction plant in the world and to begin production of HBI late last year. Those who have been following us are well aware of the value proposition this product brings to both Cleveland-Cliffs and to the entire industry. Our natural gas-based HBI is not only a cost-competitive premium alternative to imported iron and scrap but will also reduce scope two greenhouse gas emissions in our industry as a whole. Additionally, once hydrogen becomes commercially available, our plant is already capable of using up to 30% of hydrogen as a partial replacement for natural gas with no equipment modification needs and up to 70% with minor modifications, which would further reduce emissions from the baseline. We are progressing through our planned ramp-up period, steering through a cold winter and making the appropriate adjustments to bring the plant up to its full production level by the second quarter. We are currently making HBI exclusively for our own internal use, and we will start to ship product to third-party customers later in March. The timing of the startup of the HBI plant is extraordinarily positive for us with the obvious scarcity of domestic prime scrap in the marketplace. This scarcity of scrap should only grow as new EAFs start up in the United States, and we will have more bias for the same scrap, good for our HBI and good for Cleveland-Cliffs. We are also benefiting from a favorable steel price environment. This is particularly true since we acquired AM USA. This acquisition has given us more exposure to spot HRC prices than when we only owned AK Steel, which had an outsized percentage of fixed price automotive contract sales in the product mix. With our relevant position as a player in the newly consolidated U.S. domestic market, we are taking a disciplined approach to supply. We will continue to manage our customer needs and will not restart capacity on a whim just to add tonnage to the spot market. That would not be good for anyone, including Cliffs' business and our workforce. As I said, we don't pay our people based on tons produced, a practice that has impacted this industry. We let our order book guide our production levels. Right now, the order book is in a good place, particularly for consumer goods as well as from stainless steel clients and service centers in general. Demand from automotive remains strong and auto OEMs continue to struggle to keep up with resilient consumer demand. So far, we have seen only minor short-term demand impact from a widely publicized chip shortage, all of which, as we have been told by our automotive clients, will be made up for during the year. In the meantime, we have been selling more steel to select service centers and manufacturing clients outside the automotive sector, enhancing our presence with these clients. This is a very positive demand development for these select clients because they are increasing their business with Cleveland-Cliffs, a company that is very accustomed to producing high-quality steel and delivering on time, and also very good for us, as we are accelerating the benefit from higher steel market prices ahead of annual contract renewals with automotive clients. The value over volume philosophy also guides our near-term production decisions. As has been publicized, we will be taking our Middletown facility down for a 45-day maintenance outage to do some work inside the blast furnace, but not a complete reliance. In order to continue to meet our strong customer demand, we have restarted the smaller Cleveland number six blast furnace to make up for the lost Middletown production. Once Middletown comes back, we will have another maintenance outage at Indiana Harbor number seven. We currently have 10 blast furnaces in our portfolio and are keeping between six and eight operational simultaneously. At any given time, we probably have some maintenance to perform. We will manage all of these assets appropriately, without having any shortfalls with our customers, while also not flooding the market with steel. Value over volume is a simple philosophy that we will carry into the future, and it is why you are not going to hear me talk about capacity utilization or even market share, except in automotive, solely because our leadership position in this segment is still strong. The most like recent steel price run-up positively impacted our fourth quarter adjusted EBITDA performance of $286 million. Due to how contract prices work, which usually applies lagging mechanisms, and the fact that we only controlled the AM USA assets for the last 23 days toward the end of the year, our steel profitability in the fourth quarter of 2020 has not fully benefited from these strong prices yet. As a result, our EBITDA performance will dramatically improve in the first quarter of 2021. In addition, we can confidently say that the second quarter will look even better than the first quarter, this very good first quarter that we are currently in, as rising prices become further reflected, HBI shipments pick up pace, and external pellet sales increase with the reopening of the Great Lakes. This current steel pricing environment has also highlighted the competitive advantages of our unique business model. As we all know, EAF uses scrap as their primary feedstock. The price for a ton of scrap in the Midwest has almost doubled from where it was a little over a year ago. Meanwhile, the cost of our primary iron feedstock, iron ore pellets we produce ourselves out of our own mine, has basically remained the same for the past five years. Because of this, Cliffs has actually been your proverbial low-cost producer. To make it clear, this is not even a tie I care to have, because there is so much more to making steel than a low production cost. You cannot reach safety first if you are obsessed with tons per employee. You can't invest capital to protect the environment if you are governed by your production cost number. And you will not pay your workforce well if cash cost is your main metric. This is actually a capital-intensive industry, and we must work to generate a return on invested capital and not for bragging rights based on a questionable and not always true low-cost position. Hopefully, this current environment is a lesson on the blanket statements made comparing cost positions, and we can put that subject to rest for good. As I said, we don't believe this current scrap dynamic will be short-lived. China has publicly stated its target of doubling EAF capacity from 100 million metric tons to 200 million metric tons over the next five years. The increase alone is bigger than the size of our entire domestic steel industry and will require a lot of scrap. By 2025, China will be producing 2.5 to three times more steel via the EAF route than the United States. However, to move from where they are today to the level that they plan to be, China does not have the infrastructure in place to collect and deliver all that scrap, and the void will be filled by imported scrap into China. That will come in large part from the United States, which has, by far, the largest and most mature scrap infrastructure in the world. This is something we at Cleveland-Cliffs predicted several years ago and is one of the reasons why we built our direct reduction plant. With the already very large existing EAF capacity in the United States, the new EAF furnaces being built by the domestic mills here in the U.S., and the massive new EAF capacity coming online in China, all competing for the same amount of available scrap. We at Cleveland-Cliffs feel very comfortable with the powerful company we have built and with our self-sufficient business model. The capital structure underlying this best-in-class business model was improved once again two weeks ago. As you may recall, last April, at the beginning of the pandemic, when the automotive industry was out of operations, we issued a tranche of high-yield secured bonds as insurance capital. Now that business conditions have normalized, we sought to reduce the outstanding amount of these secured notes as much as possible. The only method to achieve that was by using the 35% equity cost provision from the indenture of the notice. The sole focus of issuing the small number of 20 million shares was to use this clawback provision and retire the maximum amount possible of these high coupon notes without paying a make-whole panel. This coincided with a block sale of about half of ArcelorMittal's CLF common shares that they received as part of the payment we made to them when we acquired AM USA. These secondary shares were already outstanding and had no impact on share count. We also successfully placed $1 billion of unsecured notes, with the lowest coupons we have ever achieved as a high-yield issuer, respectively, 4.625% and 4.875% for 8- and 10-year issues. These outstanding coupons and the same-day deal price execution, after spending just a few hours in the market, are a clear and unequivocal demonstration of the leveraged finance market support for our business model, strategy, and execution. And at the end of the day, with this capital markets activity, we replaced secured debt with unsecured debt, lowered interest expense, cleared our maturity runway entirely all the way to 2025, and further improved our liquidity by using a portion for ABL repayment. Finally, in January, we publicly announced our commitment to reduce greenhouse gas emissions by 25% by the year 2030, covering both Scope One and Scope Two emissions. While we have transformed as a business, we will continue to operate Cleveland-Cliffs in the same environmentally responsible manner we have always done. Climate change is one of the most important issues impacting our industry and our plants. Our commitment includes using more natural gas to reduce our iron ore as we do in our direct reduction plant producing HBI, implementing clean energy and carbon capture technologies, and becoming more transparent in disclosing our products. With that, I will turn it over to Keith Koci before giving my final remarks. Keith.

Thanks, Lourenco. Before I get into the specific results that were foreshadowed with our pre-announcement a month ago, I will first discuss our new business segmentation. You saw in today's release that we are now split into four segments, but the bulk of the operational and commercial activity will take place in our Steelmaking segment. The foundation for this is driven by how the management team views our business. The strategic rationale behind our two major acquisitions was to form one large and competitive, fully integrated steel company, which is exactly what this segment represents. This segment captures effectively all of the production activity that begins at our mine sites, including our pellet plants and other raw materials operations, and ends with our steel and finishing plants. Products sold for this segment include slabs, hot rolled, cold rolled, coated, galvanized, stainless, electrical, tinplate, plates, rail, forgings, pellets, and HBI. Our downstream units will remain as separate segments due to the different commercial nature of these businesses, though they remain an important piece of our integrated entity. Because of this reporting change, we will not have any significant noticeable intersegment eliminations going forward other than the small impact from the finished steel sold to our downstream segments resulting in a much smoother and cleaner model. As for our results, our fourth quarter adjusted EBITDA of 286 million represented a 127% increase over last quarter and a 158% increase over last year's fourth quarter. The sequential increase was driven by the following: increased steel shipments, higher prices, better costs due to increased production volumes, reduced idle costs, the stub period contribution from the AM USA assets, and increased third-party pellet prices. In the Steelmaking segment, of our 1.9 million net tons of shipments, we shipped 1.25 million net tons from the AK side and picked up the remaining 600,000 from our 23 days of ownership of AM USA. We expect to more than double this amount in the first quarter with total shipments of approximately four million net tons. You will notice our average net selling price declined in the fourth quarter compared with the prior quarter, which was purely related to mix. The AM USA assets we acquired do not sell stainless or electrical steels, which carry a much higher average selling price, bringing the overall average down. Our shipments during the quarter were 44% coated, 22% hot rolled, 18% cold rolled, and 16% other steel, which includes stainless, electrical, slabs, plate, and rail. Third-party pellet sales during the fourth quarter were about 2.0 million long tons, which consists of approximately 1.6 million long tons sold to AM USA prior to the acquisition date. Going forward, our external pellet sales volume should be three million to four million long tons per year, with the remainder of our output being used internally by our blast furnaces and direct reduction facility. Our steel supply contracts are roughly 45% annual fixed price with resets throughout the year and 55% HRC index-linked. That latter piece further breaks down to about 40% on pricing lag, split between monthly and quarterly, with the remaining 15% on a spot basis that currently have lead times up to three months for hot-rolled and four months for cold-rolled and coated products. As Lourenco noted, given this structure and the short stub period for the new AM USA acquisition, the recent run-up in steel prices should accelerate in our results in the first quarter and continue its advancement into the second quarter. When we completed the AM USA acquisition, we upsized our ABL facility from $2 billion to $3.5 billion, which is currently more than fully supported by our inventory and receivable balances. This has provided us with a sizable liquidity balance of $2.6 billion as of this week, of which approximately $850 million is earmarked for bond redemptions set to take place in March related to the capital markets transactions we completed earlier in February. Most of the other significant changes to our balance sheet, like PP&E and goodwill, are attributable to standard acquisition accounting. As for cash flow, our fourth quarter was impacted primarily by changes in working capital, most notably receivables and inventory. Because of the factoring arrangement AM USA had in place prior to the acquisition that was terminated at closing, we began rebuilding the receivable balance in December, which was factored into our valuation for the acquisition. We will continue to build working capital in the first quarter, after which it will normalize and become a source of cash for the remainder of the year. Our fourth quarter capital expenditures of $147 million took into account spending for the AM USA assets during the last 23 days of the year and included $61 million related to the Toledo plant, where we have about $60 million in runout spend going into 2021. This is included in our $600 million to $650 million capital budget for 2021, which includes about $500 million in sustaining CapEx as well as other small projects such as the new Precision Partners plant in Tennessee, walking beam furnaces at Burns Harbor, and the Powerhouse at Cleveland Works. In closing, with the completion of our two transformative acquisitions and the recent capital structure activity we completed two weeks ago, the company is on solid financial ground with no cash taxes to pay and manageable CapEx, interest, and post-employment obligations. We are primed to generate significant free cash throughout 2021. We will use this excess free cash flow to continue to reduce our debt balance, and we will have ample opportunity to do so in the current market environment. And now I will turn it back to Lourenco for his closing remarks.

Thanks, Keith. What a year 2020 was. And what a phenomenal company we have formed during 2020. Rather than panic during the most challenging days of the pandemic, we went on the offensive and took advantage of the amazing opportunities out there to improve not only ourselves but also to change for good the steel business environment in the United States. As the new Biden administration starts to work towards infrastructure, manufacturing, environmental responsibility, and good-paying middle-class union jobs, we believe we have just built the perfect company to thrive in these challenging times that we are in. We are ready to make our mark on the industry with our 25,000 employees all rowing in the same direction, and we can't wait to show you what we can accomplish. With that, I will turn it over to May for Q&A.

Thank you, sir. We have our first question from Seth Rosenfeld from Exane. Your line is now open.

Good morning. Thanks for taking our questions. If I can kick off, please, with a few questions on the integration of ArcelorMittal assets. I'm wondering if you can give us a bit of color, I guess, in terms of what perhaps surprised you most about the asset post-acquisition. How comfortable are you with asset quality? Is there any need to invest more CapEx going forward that you should flag at this stage? And we understand that a lot of what happened in late 2020 were a number of challenges at their delivery performance. What do you think can be done in order to improve that and really bring that up to policy you have been able to do within AK? Thank you.

Good morning, Seth. The asset quality of ArcelorMittal is a notch below the asset quality that we found at AK Steel, but that’s way above the industry average. I did not see any massive concerted efforts to reduce the reported costs that are calling other companies during the last several years happening at ArcelorMittal USA. This being said, it was clear that some more maintenance CapEx should have been spent, at least, at the very least in the last one or two years, so we are going to have to play a little catch-up, but this is all reflected in the numbers that we are anticipating. So nothing to be worried about. Long story short, even though it’s not like AK Steel where we found equipment pretty much in good shape, the equipment at ArcelorMittal is not at the same page, but I cannot call them bad. The money involved to bring them up to speed, which we have already started spending, by the way, is not anything to be worried about. As far as delivering performance, keep in mind one thing. The same people that are complaining about delivery performance now are the ones that when hot rolled prices were $440, they were not buying because they were waiting for prices to go further down. Don't forget that. Now hot rolled prices are above $1,200, and we are doing everything we can to take good care of these clients. But there are clients and clients and clients. We are taking care of the ones that deserve priority first, and the ones that don't deserve as much second. We are also serving the other with the amount of availability that we have left. And that is the nature of the beast. We are not going to overcrowd the market just to see these clients walking away from us with absolutely no concern if things change. And things change in this business unless we do as much as we can to keep things the way they are.

Thank you. That is very clear. If I can ask a separate question, I think you touched on this just now. But how do you think about serving your customers from a volume perspective? I think in the past, at the time of the AK acquisition, you were very vocal in saying you weren't going to increase production in the case of just chasing after high prices. Today, it looks like demand is also very strong. Before I talk about that shortage, how would you classify different customers? Is it an issue that you are prioritizing the contract auto customers over distributors and traders? At what point would those latter customers become more attractive to you?

Look, it’s very difficult to compare, Seth, in a company like us, because one year ago, we were just ourselves. Six months ago, we were basically AK Steel. AK Steel was a 70-plus percent automotive supplier. So the rest of the market was not really a matter of concern, because it was marginal. Now we are 40% supply of automotive. So we have 60% for the rest of the market. The good news is that our way of doing business, because we came from a Cleveland-Cliffs and AK Steel background, is to supply on time, to deliver just in time, and to take care of the customers' needs. So we do that naturally. We had one excellent moment of fixing automotive inventories when we were going through the horrible three months at the beginning of the pandemic when automotive shutdown, and we fixed our inventory. We are doing the same right now with the ArcelorMittal assets. A little help we are getting from the chip manufacturers who are not delivering the chip to automotive. And by the way, it was the same as automotive shutdown; the chip manufacturers had to generate returns to their investors and they started selling to other people and other industries. And now they are coming back to the automotive. Like I mentioned in my prepared remarks, things will be fixed during the year. But our way of doing business and systems we have in place, the people that are running commercial, just to let you know, are basically the same people that were running commercial for AK Steel. Our production planning is geared toward delivering on time. Even though it is far from perfect at this point, it is a lot better than our competition. And in this race, you don't need to be the fastest lap all the time, but we absolutely need to do better than the competition. So we know exactly what the competition can do, and we are doing better, which is why we are gaining market share.

Perfect. Thank you.

Thanks.

We have our next question from Lucas Pipes from B. Riley Securities. Your line is now open.

Hey, good morning, everyone, and congratulations on a tremendous year.

Thanks, Lucas.

Lourenco and Keith, when I go through the historical results for CLF, AKS, and ArcelorMittal USA, and I add in synergies, I shake out at EBITDA, call it, in the high $2 billion range for prior market peaks. But then steel pricing during these prior market peaks was much lower than it is today. So I wondered if there is a perspective on your earnings power in the current market environment that you would be able to share. Thank you very much.

Okay. Look, we are not going to discuss modeling in investors' calls, but just to directionally guide you through how things work. Contract prices with automotive stay in place for a year. So whatever we negotiated during the pandemic when the automotive clients were not even operating stayed in place. What we negotiated in December when they were back, but still with a lot of scars from the time that they were not in operation, stays in place. So the automotive portion will lag in terms of spot price performance that you see reported in the market every day. That is kind of one side that we can call bad news, but not bad news. Otherwise, not every single company out there would be trying to desperately grow their participation in automotive. It is a net positive. But as far as pricing, it lags what you see in the marketplace. The good news is that with the acquisition of the assets from ArcelorMittal USA, we increased our tonnage in general, and we also increased our tonnage to automotive, but we dramatically increased our tonnage to other clients. And for these other clients, even though steel is not a real spot transaction, it is a lot closer and a lot faster to materialize the gain. I said in my prepared remarks, we are now down to 40%, mid-38% participation in automotive. So that means that we have a lot more in the market for HVAC and appliances and hot band and stuff like that. So we are selling more in the market, and we are anticipating and accelerating the realization of this higher price. Of course, it is beneficial to operate in a pricing environment in which hot-rolled is above $1,200 per ton and IODEX is $174 per long ton.

I appreciate that. And then I wanted to follow up on the value over volume strategy. Typically, we think of integrated steelmakers and integrated suppliers more like base load given the fixed cost nature of the business. My question is, how should we think about volume more broadly? I think you mentioned six to eight furnaces running typically. Could you translate that into a normalized volume run rate? And then, if at all, would you adopt the strategy to a new market environment, for example, continue the capacity additions or the administration taking another look at Section 232 tariffs? Thank you.

Yes. Look, we are not very concerned about what the government is going to do or not do on the regulatory environment, because President Biden has been very clear that he is not going to give away the farm to anyone. That is all one needs to know. So if outsiders are expecting that China-level rewrite, they are off to a very bad start because that is not going to happen. The new USDR that we will expect to be doing well today in our theory is from trade. She understands and is good, as good as or on the same line as the port of ambassador. There is no such thing as a massive change in the approach to international trade. They need to beef up the details and the Section 232, and no Section 232. That is a separate feature. We just can't allow foreigners to control the supply of things that are super relevant to our business. Even the CEO of Ford said this morning, I read on CNBC, that they can't continue to work with materials, important materials for batteries, if they are going to produce a massive amount of electric vehicles. That is good news because we are the producer of knowing yet at the ESCOs for batteries here in the United States. Everything is shaping up extremely well for our business. Value over volume is also the fact that we acquired ArcelorMittal USA, now we don't need to spend millions and millions of dollars to upgrade our hot strip in Middletown to produce stuff that we already can at Cleveland or at Indiana Harbor. Those are savings that we are going to have. So that is value over volume. We are not going to produce more tons just to create a situation that we will have more out there in the marketplace, and we will start to see price deteriorating. We will do our part to protect price, and that is the right thing to do from the return on capital investment standpoint. We are not going to bring money out of the blue in order to do all the improvements that we need to make in the next 10-20 years to transform the steel business into a real green business. It is feasible, and it is possible; the first step in our company has been taken, because we have the most modern and the only plant in the world that can use hydrogen as of today. We are ready for that, just waiting for the hydrogen. That is not our business. So as soon as it is available, over the fence, we will take it because our plant is ready. We are investing real money; we invested $1 billion in that plant. That is not something that you can do if you are not generating profit. So it is value; it is not volume. It is volume only if the volume comes with value. If it doesn't come with value, we are not trying to sell steel to the ones that were waiting for prices when they were $440. They are waiting for lower prices to buy; we don't want to deal with these people. We hope that they continue to wait.

Good answer. Very much appreciate your perspective. Congratulations again and good luck.

Thank you very much. I appreciate it, Lucas.

Next is Phil Gibbs from KeyBanc Capital Markets. Your line is now open.

Good morning. So, Lourenco and team, you have a handful or more than a handful of contracts in auto and slab, and then you have got a nice big piece of spot business, as you pointed out. How should we be thinking about pricing cadence in the Steelmaking segment as we move into the year and just kind of the timing of some of these step-ups? I mean, you have got an integrated model, so this is obviously very leveraged to pricing at this point. I think we are just trying to get a feel for, are we looking for a $50 step-up in price? $100 step-up in price? Something less than that, because some of these contracts don't kick in yet. So just like a magnitude or just a general direction would be helpful.

Yes, directionally, Phil. As far as automotive prices, make no mistake, we should expect prices to continue to increase and step up every time we renegotiate the contracts, not only because we are putting forth these renegotiations but also because this contract flagged when we negotiated last year. We negotiated in a completely different environment. Now the prevalent market prices around the business are a lot more benign to us and to our negotiation than they were one year ago or even six months ago. There is no denying that. So these prices will continue to appreciate. Also, we have a meaningful business now selling slabs to AM and in Calvert, Alabama. That is also a business that will generate good revenue because these automotive-quality slabs support their business over there. So, it is another leg up. HBI is also tied to things that are very expensive these days: iron ore at $1.74 per long ton. This trend, I'm not going to compete with any numbers, but the trend for price realization is up. So I'm not saying that price will go to $1,200, $1,300, or $1,400. That is not what I'm saying. What I am saying is that with the $1,200 that we are seeing right now, we will catch up with this pricing level. Demand is good. That is the most important thing; demand is fantastic.

Thanks, Lourenco, appreciate that. And just a question for Keith on the share count. Obviously, a lot of moving pieces. How do you account for the preferred shares, so just trying to pinpoint what a share count is going to be for Q1 and then also Q2 because I know you had the timing of the offering?

Yes, Phil. So we ended the year with 477 million common shares outstanding. We issued 20 here in February. So that 20 will get averaged out in the first quarter on a pro-rated basis. But for the full year, you can almost count the entire 20 to be in the numbers. Your potential dilution would be the preferred is being carried as mezzanine equity, so you can pretty much count the preferred equivalent of 58 million common that will impact earnings per share. That would apply throughout the year. Depending on where share prices land, for example, using today's share price, the converts would have roughly around a 20 million share dilutive impact as well. If you want to calculate dilution on the converts, that should pretty much get you there. Does that help?

Which is clean ex-converts, it sounds like it is around 570. That is a decent number?

Right. That is correct. Yes.

And then last one for Lourenco, and I will jump off. The HBI project, to your point, very timely. You mentioned you will be shipping to some third-party customers in March. Some of that, I would imagine, is trialing just because you are getting up to speed here pretty quickly. But where do you think you are going to be this year in terms of your mix in the back half in terms of external shipments versus internal consumption?

Phil, we are using our HBI in-house because from the cost standpoint and productivity standpoint, it makes a lot of sense. For example, we are using a lot of HBI in our operations because it saves us on coke, generating less CO2. It is environmentally positive, especially in an area that has historically been very ready to complain, even though they have nothing to complain about at this point even without HBI. We are also using our own EAF because scrap has been extremely expensive in the marketplace. We are delivering HBI to our lower EAF in Pennsylvania, and it has been a very net positive cost-wise. All this being said, we are not going to ignore the potential clients and now competitors that helped us get to where we got. I always keep saying that we would not be here if we were not able to produce the grade pellets. We only developed the ability to produce the grade pellets in Northshore because on day Nucor opened their doors for us to develop the pellets with them in Trinidad. I will be forever thankful to Nucor for that. Of course, Nucor will be the first one receiving HBI from us in March. Followed by Steel Dynamics, not far behind. North Star BlueScope will be next. You asked for numbers. It is very difficult to give a precise number at this point because the nature of this business is transactional. It is a month-to-month negotiation. By design, it’s not that we don’t want to have long-term contracts; we want to have term contracts. That is not how the market works. We play with the market; we don't change the market. We are happy with that because that allows us to use in-house and with a large advantage. But the numbers we are working with internally is that we are going to be selling half to the outside world and using half in-house. That is pretty good guidance for you to use.

Thank you.

Thank you.

We have our final question from Alex Hacking from Citi. Your line is now open.

Good morning, Lourenco and Keith, thanks for the time. I just wanted to start on capital allocation, if I may. I think, Lourenco, you just mentioned maybe you could get to 2.5 times net debt by the end of the year. At what level do you become comfortable with net debt enough to start having a discussion around either ramping up capital returns or making more strategic investments?

Thank you. Alex, look, first of all, I'm comfortable today because it is all planned, and it is all being taken care of. With the latest transaction that we just announced, we again recovered our four-year window with no significant maturities, and that is how we have managed the company forever. The 2.5 times or less at the end of the year is the goal; it is feasible and will be achieved. This year is the year that the entire cash generated by the company, except for the very good and conservative assumptions on CapEx that are not to start any new projects, will be used to pay down debt. We should pay more than $1 billion in debt this year just through cash generation. We don't have any acquisitions on our horizon at this point. This is year has been spent on integrating, perfecting, and improving delivery performance from the AM USA assets, bringing these assets to the same level of delivery performance that we already have from the former AK Steel assets. All these things are in the making and give us a very solid foundation and make us comfortable with how things will be handled this year. So that is pretty much it. As far as returning capital to shareholders, look, I’m convinced that people that invest in Cleveland-Cliffs are not investing for business; they are investing for equity returns. They are investing in their own company at this point, because with all the growth that we demonstrated last year, with all the potential that we have right now in terms of continuing to generate real equity by paying debt and moving the numbers from the debt side to the equity side for the same enterprise value, that is what I should be doing. That is exactly what I'm going to do. So, one year ago when we were talking in this call, I was discussing iron ore. This year, I'm talking about being the leader in flat-rolled steel in North America and making sure that the market behaves, and these prices that we are seeing right now are in good shape for our shareholders to generate return on invested capital. One year from now, we will be talking about the company with very little debt, and then we will talk again. I hope I answered your question. If not, please, let me know.

Thank you. That was great. And let me just follow up on one other question, if I may. Firstly, congratulations on the sustainability goals that you put in place. Do you envisage significant CapEx investments associated with reducing the carbon footprint? Or is it more a series of smaller incremental investments that will enable you to reach your goals?

I'm sorry, what do you mean by meaningful CapEx? Can you repeat?

Sorry, meaningful CapEx associated with fitting your emissions targets, your 2030 targets.

No, the meaningful CapEx that I have to deploy, we already did; it was to put our direct reduction plant in place. That is done. So we are talking about $1 billion in Cleveland; almost $100 million in upgrades in our Northshore mining operation in Silver Bay, Minnesota. We have already invested that massive amount. Everything else will come in incremental events, and they do not demand a lot of CapEx. Also, some of these investments are done and will continue to be done by our partners, like the investment made by others to replace power supply from traditional sources of fuel to brand new, state-of-the-art plants using natural gas. We are moving in the right direction. We are going to continue to introduce HBI in our blast furnaces. And that will continue to reduce our consumption of coal and coke. These investments have an environmental impact, and they are positive for cost. I tend to agree when I hear President Biden talking that environmental compliance can be done while generating good-paying union jobs; I check-mark that, and reducing costs, I check-mark on that as well. The massive amounts of CapEx in all cases are not that relevant, or at the very least, they have already been done.

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect. Have a great day.