Good morning, ladies and gentlemen. My name is Donna, and I am your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs Third Quarter 2021 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 Form 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 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 this morning. At this time, I would like to introduce Lourenco Goncalves, Chairman, President and CEO. Please go ahead.

Thanks, Donna, and good morning, everyone. Though many of those listening today know him already, I'm pleased to introduce on this call our new Executive Vice President and Chief Financial Officer, Celso Goncalves. In his previous role as Senior Vice President of Finance and Treasurer here at Cleveland-Cliffs, Celso was instrumental to our business and financial transformation. Over the past five years, he has led all of our capital structure efforts, being the key person behind the execution and financing for our transformation of acquisitions and managed our liquidity through the pandemic. Prior to Cliffs, Celso had a very successful career as an investment banker, first at Jefferies and then at Deutsche Bank. Also, if you couldn't tell by his last name, Celso is my son. During the last several years, Keith Koci and I have been preparing Celso for this job. With Keith now in charge of our new business unit, as President of Cleveland-Cliffs Services, we could not have a better or more prepared professional to lead our financial organization. With that, I will turn it over to Celso.

Thank you, and good morning, everyone. I am humbled by the opportunity to serve as Cliffs' CFO, fully aware of not only our rich 174-year legacy, but also our position of immense influence as the largest flat-rolled steel producer in the United States. I also fully expect that given my family name and the high standards set by our CEO, the expectations for me will be even greater than for anyone else in this seat. I am prepared to deliver. With those introductory remarks aside, I will jump right into our third quarter results. We reported another quarter of record revenues of $6 billion, record net income of $1.3 billion, and record adjusted EBITDA of over $1.9 billion, ahead of the guidance we recently set of $1.8 billion. Our 42% quarter-over-quarter growth in adjusted EBITDA was primarily driven by continued price increases on our index linked and spot shipments. These sharp increases on the revenue side were only partially offset by gradual increases on the cost side, including for labor and natural gas and additional repairs and maintenance. Most notably, the realign of Indiana Harbor No. 7, the largest blast furnace in North America. And even though it was clearly a one-timer, we did not add back to EBITDA the vaccination bonus payment of $45 million that was awarded and paid out to our workforce under our very successful vaccination incentive bonus program, which resulted in over 75% of our workforce fully vaccinated against COVID-19. In the Steelmaking segment, we sold 4.2 million net tons of steel products with a mix of 32% hot rolled, 18% cold rolled, and 31% coated steel, with the remaining 19% consisting of stainless, electrical, plate, slab, and rail. Our automotive percentage of revenue was 20% compared to 33% just two quarters ago, clearly reflecting the reduced volumes and the legacy annual prices from that sector, both of which should dramatically improve next year. We expect the trends on pricing and cost in Q3 to carry over into Q4 with higher prices from both index-linked contracts and some of our repriced automotive contracts, offset by similar cost impacts we experienced in Q3. Shipments will likely be lighter in Q4 due primarily to seasonality in lower automotive shipments. Offsetting this, we will be moving up to the fourth quarter some planned maintenance outages originally scheduled for next year, including the Dearborn hot end and both blast furnaces at Burns Harbor, along with a few other associated rolling and finishing facilities. These outages are being accelerated to this year in anticipation of a strong automotive recovery in 2022. All these events considered, our fourth quarter production should be reduced by approximately 300,000 net tons compared to the third quarter. Our free cash flow generation came in at $1.3 billion for the quarter, slightly lower than our original guidance due to slow demand pull from automotive, leaving more inventory to close out the quarter than we expected. The remaining outage period at IH7, as well as the additional outages we scheduled for the fourth quarter, should allow us to reduce these inventory levels during Q4. This free cash flow generated during Q3 was returned entirely to shareholders in the form of a stock buyback executed via the complete redemption of our $58 million common share equivalent preferred stock. With only one quarter's worth of free cash flow, we completely redeemed our preferred shares. I will note that because of the weighted average calculation and the fact that the prefs were outstanding during a portion of Q3, the full $58 million share reduction is not baked into our Q3 EPS just yet and we will see a further reduction of diluted share count in the fourth quarter. With the prefs now completely out of the way, we have resumed our aggressive debt reduction activities. In only the last three weeks since the end of Q3, we have already generated approximately $500 million in free cash flow and have allocated all of it towards debt repayment under the ABL. Upon closing of the FPT acquisition next month, all excess free cash flow will continue to be allocated towards further debt reduction. By next quarter, our LTM adjusted EBITDA should exceed our overall net debt balance, resulting in less than one turn of overall net leverage for the foreseeable future at any reasonable HRC pricing assumption going forward. Because of our strong profitability this year, at some point in the fourth quarter, we will have utilized the majority of our tax NOL balance leading to an expected Q4 cash tax rate of around 10%. Prior to the acquisitions of AK Steel and AMUSA, we once expected to be utilizing these NOLs for several more years, but the significantly higher profit generation following the acquisitions will result in the consumption of the majority of the $2.5 billion NOL balance within a year of closing the December 2020 transaction. Even with the additional cash tax outflow and payments related to the CARES Act FICA deferrals from last year to this year, free cash flow should remain remarkably healthy in Q4. The $775 million price of the previously announced acquisition of FPT is equivalent to less than two months of our free cash flow generation. Wrapping up, the financial position of the Company is on stronger footing today than it has been during my entire time here at Cliffs, and the trend should continue into Q4 and 2022. The fixed price contract business we have with high-end clients, such as the automotive OEMs, gives us significant downside protection if spot prices trend lower. Therefore, even under the current bearish futures curve for HRC, our average selling price should be much higher next year than it has been this year, leading to the expectation of another year of outstanding EBITDA, cash flow generation, and debt reduction in 2022. With that, I'll turn it back to Lourenco.

Thanks, Celso. Very few companies can show the magnitude of growth Cleveland-Cliffs has delivered during the last couple of years. We were a $2 billion revenue Company in 2019, became a $5.3 billion revenue Company in 2020, and expect to be a $20 billion plus Company in 2021. All of this growth was achieved while preserving and enhancing our profitability as demonstrated by our Q3 numbers of $1.9 billion of adjusted EBITDA and $6 billion in revenues for an EBITDA margin of 32%. These numbers have come primarily from the 55% of our business that is linked to an index price, with a smaller contribution from the fixed price contracts that were signed before the market price recovered all last year. In the fourth quarter, these will begin to change. Even more so, starting next year when the bulk of our annual fixed contracts for automotive, as well as appliances, stainless, electricals used, plate and tin plates, all reprice at significantly higher levels. That should protect our profitability into next year, even assuming the spot prices go down next year. This being said, we do not believe we will see steel spot prices returning back to historical low levels, and the main reason for that is prime scrap. Prime scrap is what electrical furnace mills, old ones or brand new, need to produce flat rolled steel. We have seen a looming shortage of this type of scrap coming for several years, which partially motivated our $1 billion investment in our direct reduction plans four years ago. We were planning to supply HBI to EAF mini mills and that was in the past, but not anymore. At this time and going forward, we also plan to use more prime scrap ourselves in our BOFs. That will allow us to stretch our hot metal without building new production capacity. Building new capacity is a common mistake the steel industry insists on making time and time again. Cleveland-Cliffs is different, and we are not going to add capacity ourselves. But we are definitely observing what others do and we act accordingly. With that in mind, a few days ago, we announced the acquisition of FPT. While the majority of scrap companies that were looked at had a prime scrap mix of 10% to 15%, FPT stood out with an outside 50% of prime scraps in their mix. FPT is actually one of the largest processors of prime scrap in the country, representing 15% of the entire merchant market in the U.S. Prime scrap is a byproduct of manufacturing, including automotive, and Cleveland-Cliffs is the largest supplier of steel to this automotive and other flat-rolled consuming manufacturers. As such, we can offer a compelling proposition for their scrap update, keeping the lifecycle of our steel in a closed loop between Cleveland-Cliffs and the OEM. Furthermore, the main theme for this new industry is decarbonization, and melting clean, low impurity scrap is a good way to reduce carbon emissions. That applies to both EAFs and BOFs. The BOF is often overlooked as a user of scrap, but in our footprint, it's actually where we consume the most. The use of higher amounts of scrap in the BOF boosts liquid steel output for the same amount of hot metal, which is what we call the liquid pig iron from the blast furnace. So the more scrap we use in the BOF, the less coke is needed in the blast furnace per ton of crude steel produced. With ample access to our own prime scrap, we can optimize our productivity with a higher scrap charge while significantly reducing our carbon emissions. On top of that, during the last 50 years, the supply of prime scrap in the U.S. has been steadily shrinking. We expect that half a century trend to continue as yields continue to improve, and unfortunately, China continues to dominate manufacturing. Finally, all of the new flat-rolled capacity coming online in the U.S. is from the EAF side, which means that demand for prime scrap and metallics will continue to increase. That is very conservatively another 9 million tons or 40% growth in demand for these products over the next four years. With our decision to use our HBI internally at Cleveland-Cliffs and primarily in our blast furnaces, there's a zero response in supply to this massive growth in demand for prime scrap and metallics coming from the EAFs. Pig iron may be the most likely alternative, but the CO2 emissions that come attached to pig iron, whether imported or made in North America, effectively create a negative impact on the Scope 3 emissions associated with these EAFs. In that regard, we fully expect that in the not-so-distant future, Scope 3 emissions will have to be reported as much as our Scope 1 and 2 already are reported today. That would create a level playing field for all the steel makers, integrated and EAFs. Moving forward, this is a good opportunity to remind everyone that no other steel Company in North America has more capabilities, in modern ones, by the way, than Cleveland-Cliffs when it comes to producing flat-rolled steel. That's particularly true regarding automotive. People tend to confuse old plant names, like Indiana Harbor, Cleveland Works, or Burns Harbor, with old plants. In fact, old plant names actually carry pre-modern state-of-the-art equipment. For example, our hot-dip galvanizing line at Rockport Works was built in the 90s. It is 80 inches wide, and that is 6 foot, 8 inches wide, or 2032 millimeters, and for our metric system person, more than 2 meters wide. There's no other facility on the continent that can produce what we make there. The same is true for the six-footers at Tek and Kote in New Carlisle, Indiana, and Columbus, Ohio. Also, our advanced high-strength steel capabilities at Cleveland Works are second to none and the automotive OEMs know that. Our pickling line tandem cold mill and galvanizing lines in Dearborn, Michigan, by the way, another six-quarters specialized in exposed furnace, were both built in 2011. Say that one more time: Dearborn Works was built by Ford Motor Company in the early part of the 20th century. But PLTCM and the hot-dip galvanizing line are only 10 years old. Our level of technological sophistication and our ability to produce all kinds of automotive flat-rolled products, including stainless steel, are the reason why Cleveland-Cliffs is by far the biggest supplier of automotive steel in this country. A couple of our competitors will be spending billions of dollars and working very hard to build capacity during the next three years. We don't need to because we already have the capabilities we need. That's why Cleveland-Cliffs supplies two and a half times more steel to the automotive industry than the second largest supplier or more than the second plus the third combined. Another important accomplishment during the quarter was the consistent performance of our direct reduction plant in Toledo. The plant continues to operate above nominal capacity and to exceed our expectations, not only on production but also in quality and cost. Case in point, our all-in cash cost of HBI in Q3 was $187 per net ton, a number much better than the cost projected when we first approved the construction of the plant a few years ago. This figure is also much better than the price our competitors pay for both prime scrap and imported pig iron. Also, differently from our original plan, HBI sales to outside EAF mills are not significant and may be discontinued completely very soon. We actually had already decided to use the majority of our HBI in our blast furnaces, not even in our own EAFs. That allows us to improve much better cost and productivity while improving our coke rates and reducing our CO2 emissions. Also, as a consequence of our HBI using our blast furnaces, we have already idled the coke batteries at Middletown Works, as that coke is not needed at this time. Another operational change we started to implement in the third quarter involves our Minorca mine and pellet plant, which we acquired as part of the ArcelorMittal U.S. acquisition. Based on our tests, we will soon be shifting our DR-grade pellets production away from Northshore and into Minorca, where we will not have to deal with the unreasonable royalty structure at Northshore. As we plan to no longer sell pellets to third parties in the coming years, Northshore will become a swing operation, which will keep idle every time we decide to do so. In any event, we'll continue to be able to feed our Toledo plants with a consistent feed of DR-grade pellets, but from Minorca and not from Northshore. As Celso explained earlier, we continue to generate plenty of cash and should see a meaningful reduction in debt during the fourth quarter, even after paying for the FPT acquisition. Based on our expected EBITDA for this year, our full-year leverage is already at a very comfortable level of less than one-time EBITDA. With the new sales contracts we have already signed, our ability to continue to pay down debt is even stronger than what we announced last quarter. Wrapping up, I want to send a special thank you to our workforce for making another record quarter possible. The $45 million that we paid in vaccination bonuses this quarter was by far our best use of cash. And we are pleased that we reached above 75% vaccination rates across our entire footprint, beating by a large margin the percentage of vaccinated local population in all communities we operate. We are keeping our workforce safe, healthy, and compensating them to do so. Soon, we look forward to welcoming another 600 Cliffs employees from the FPT acquisition. We can't wait to bring them into our Company and our way of doing business. I will now turn it over to Donna for Q&A.

Thank you. Ladies and gentlemen, the floor is now open for questions. Our first question is coming from Michael Glick of JPMorgan. Please go ahead.

Morning, and nice print. On the contract side, I was wondering if you could give us a bit more color there. I know you probably can't get into the quantitatives and to the extent you can, that would be great. But qualitatively, what are you seeing now in contract negotiations versus the old dynamic and how much of your contract book is still open? And when you talk about higher average prices next year, just wanted to be clear for the non-fixed business, sounds like you're using recurrent HRC strip.

Thank you, Michael, for the compliments. In the automotive sector, Cleveland-Cliffs supplies around 5 million tons of steel. Since each car uses about 1 ton of steel, we're discussing a market that is currently below 15 million tons. To simplify, let's say it is 15 million tons. Our supply represents one-third of that market, which is significant, though less than when we owned AK Steel. Now that we are Cleveland-Cliffs and have combined our operations, the automotive sector's contribution to our overall mix has reduced. We're renewing contracts one by one and have completed a considerable number, but there are still more to go. It's important to note that as we renew each contract, the process becomes more complex. We are not looking to increase our automotive supply further, and in ongoing negotiations, we aren't just pushing for higher prices but also securing larger volumes. While I can't provide a specific tonnage figure for future automotive supplies, we will eventually be selective. Additionally, I want to clarify that when we partner with a car manufacturer, we intend to supply everything from the most complex parts to simpler components. The microchip shortage has highlighted how even small parts can pose significant challenges for manufacturers. Overall, we are following our plan, and both we and the car manufacturers are conducting ourselves very professionally. I believe we will be fine in the end. That's all I can share for now.

And then could you talk maybe about what you're seeing on the input cost side? I mean, you are obviously well integrated on metallics and coke. But I'm curious what else you're seeing in terms of alloy and materials and the like, and any supply chain issues you're focused on mitigating from a procurement perspective?

Yes. Look, supply chain issues are a reality. One of the most important parts of the new Cleveland-Cliffs is the logistics business. It sits under Keith Koci and is headed by Executive Vice President of Logistics, Chris Cebula. We've designed the Company this way because we anticipated that we would have to do a lot of work specifically on that. We are not suffering. We just need to work very hard to make sure that we have the trucks, we have the rail cars, and we have access to everything that we need in a timely fashion. Just case in point, we just concluded the repair of Indiana Harbor Number 7. It's a big beast. We started the day we planned it, and we finished 24 hours ahead of schedule. And everything came in a timely way, and we didn't have any problems with parts and things that were involved in the repair. So yeah, it's there, but it's like the current way of doing business, and we are not losing any sleep over that. As far as costs, we hedge a lot of things and we have the financial expertise to do a good job on that, so we're not exposed. Celso has been doing this for a while and he continues to do so. So I don't have anything specific to report on that front, Michael.

Okay. Great. Thank you.

Thanks, Michael.

Thank you. Our next question is coming from Lucas Pipes of B. Riley Securities. Please go ahead.

Good morning, everyone. Lourenco and team, congratulations on the strong quarter and outlook. And Celso, congratulations to you as well, specifically. Lourenco, I really appreciated your prepared remarks on metallics and how that market is continuing to evolve. And on that, I wanted to ask you about how you see the spread between prime scrap and HRC over the coming years? I would really appreciate your perspective on that. Thank you.

Thanks, Lucas. First, I want to clarify that the term "spread" isn't something I typically use. We aren't just melting scrap; we are steelmakers. Our operations start with producing pellets, which fully meet our needs. We also produce a significant amount of hot briquetted iron (HBI) from these pellets. It's important to have access to iron ore; otherwise, plant capacities can sit unused, as seen with several Midrex and other supplier plants in the Middle East that currently have no access to direct reduction-grade pellets. We don’t face that issue. However, I don't focus on the concept of spread, but I can discuss the real factors affecting it. One key factor is prime scrap, which originates from manufacturing, predominantly located in China now, unlike the United States of the past. Our goal is to restore a robust manufacturing sector, but we aren't there yet. As a result, we lack support from the manufacturing base, which means we are stable but not growing. Increasing consumption without a corresponding increase in supply will likely lead to higher prices for prime scrap. To secure more of this crucial prime scrap for our operations in basic oxygen furnaces (BOFs), we acquired a top company that provides access to prime scrap. For those reliant on prime scrap, conditions could worsen as Cleveland-Cliffs aims to acquire as much prime scrap as possible. Moreover, most prime scrap generated in the U.S. comes from the automotive sector and is derived from our steel, creating a true closed-loop system where we reclaim our scrap. Currently, we are experiencing shortages and rising prices in prime scrap, which will influence how we approach the market. Regarding hot-rolled prices, the behavior of service centers plays a significant role. It’s surprising to see how often these centers undermine themselves despite relying on the value of their inventory. Having previously been a CEO of a service center company, I’ve witnessed firsthand the challenges they face. They tend to provide negative commentary while hesitating to purchase, only to later request materials. This behavior has led to increased prices. If service centers were more adept at inventory management, it could stabilize the market, but my attempts to convey this message have been ongoing without much success. Ultimately, the direction of hot-rolled prices will depend on the actions of service centers, but we are managing the scrap component effectively.

Super.

I don’t know if I covered everything you’d like to know, but that's my take on this difference between hot-rolled and prime scrap.

I appreciated your comments, especially about the circular loop. I have a quick follow-up question on that. If I remember correctly, you have about 15% FTP at approximately 15% share of prime scrap. What is your ultimate goal regarding market share? Can you elaborate on that?

This 15% share is part of the Company we acquired. However, we are actively talking to our clients about taking their scrap back. Our offer is attractive because we want to recycle their scrap, which helps ensure they get what they need in terms of chemical composition. Additionally, since scrap is not my main source of raw materials, I can propose paying them more for their scrap than they currently receive. This is beneficial for both the business and the clients. I believe we can increase this percentage from 15% to a higher figure. How much higher, I can't say, but it will definitely be larger.

Super helpful. Thank you. Thank you, Lourenco. Changing topics. You bought back a lot of stock during the quarter. You commented on the exhaustion of the NOLs. I remember my corporate finance one-on-one class kind of makes debt incrementally more attractive. How do you think about buybacks here, especially where the stock is trading? Really appreciate your perspective on that.

Yeah. Look, what we did with the preferred was really take advantage of a very unique situation. Stock buybacks are always a double-edged sword, even though they are a very tax-efficient way to return money to shareholders, it's also an invitation to bring the stock price down in the next cycle no matter if the cycle is one week, one month, or one quarter, and it happened again. I don't have really a one-size-fits-all opinion on share buybacks. I want to reward the shareholders. I'm a big shareholder myself. I bought stock of this Company in the open market close to 20 times, I think 17 times or something like that, since I came to the Company 7 years ago. I'm a shareholder myself. So I like shareholder-friendly actions even because I'm a shareholder myself. This being said, I'm not going to commit to share buybacks or things like that because things evolve. I believe that what we're doing for the shareholders is so much better, so much bigger, and so much more efficient than just saying a meager dividend or doing share buyback that will compromise our cash position that doesn't really matter. At the end of the day, what Company can say, two years ago I was $2 billion in revenue. Now, I'm $21 billion in revenue. Two years ago, I was making $50 million, give or take, $100 million EBITDA per quarter. Now, I'm making $1.9 billion of EBITDA a quarter. So very few. You’ve got to be intact. You've got to be an advertisement. You're going to be producing yoga pants in order to do that. We're doing that with steel, with manufacturing. So we're changing our business completely. Shareholders are rewarded if they understand that and play along. Thanks, Lucas.

Thanks, Lucas.

Thank you. Our next question is coming from Emily Chieng of Goldman Sachs. Please go ahead.

Good morning, Lourenco and Celso. My first question is around the prime scrap or HBI usage that you mentioned in your blast furnaces. Maybe can you discuss a little bit about how much less coke you can use here if you increase that higher-quality raw material input? And then perhaps, is there a rule of thumb to think about what the percentage increase in volumes you could potentially save from using more prime scraps there?

We primarily use HBI in blast furnaces and exclusively use prime scrap in BOFs. Just to clarify, HBI used in blast furnaces is pre-reduced iron. Unlike pellets or sinter used in China, which contribute to pollution and global warming, we use pellets in the U.S. Pellets make blast furnaces more environmentally friendly. When you load pellets, you're loading Fe2O3, which is an oxide. Coke is then used to reduce Fe2O3, removing the oxygen to create metallic iron. When we load a significant amount of HBI, we load more metallic iron instead of Fe2O3, which means less coke is needed for reduction. Currently, our coke rate is around 20%, and we plan to continue to lower it. Indiana Harbor 7, the largest blast furnace in North America, hasn't utilized much HBI yet because it was nearing the end of its life, but now that it is newly operational, we expect it to adopt HBI, further reducing our coal and coke consumption. We're still gathering data since Indiana Harbor resumed operations on October 14, and I will share more information in our next conference call regarding HBI usage and consumption in other blast furnaces. Are you following so far? Now, I will move on to the BOF discussion.

Yep.

In the BOF, we are utilizing prime scrap, which is the exact type of steel we aim to produce. The process is straightforward since we only need to melt it. When we incorporate scrap, it's similar to melting like the EAF melt scrap; we also melt scrap in the BOFs, but we use a higher proportion of prime scrap, resulting in more melting. As we melt more, we require less tonnage of hot melt, which is the pig iron derived from the blast furnace for the BOFs. This means we can produce the same tonnage with less pig iron, leading to increased yield. By stretching the pig iron to generate the same volume of steel, we consume less pig iron and coke. This results in a significant reduction in coal and coke usage, and subsequently, lower emissions since both coke and coal generate CO2 when combined with oxygen. These emissions are what we aim to minimize.

Thanks. That was a good chemistry lesson. Maybe my second question there is just coming back to the average selling prices that you alluded to being higher next year. Can you remind us really quickly what percentage of your book is contracted at fixed prices? And then in your discussions, your contract renegotiations, any changes to sort of length of contract and appetite for floating versus fixed contracts going forward?

Yeah. Look, just cause you mentioned my chemistry lesson, now I'm compelled to give you a little bit of an accounting lesson. Your number of your share count in your first model was wrong. That's why your EPS number was wrong. So please go ahead and fix that, Emily. As far as my percentage of fixed quarter, it's around 45%.

That's very helpful. Appreciate it.

Did you fix the share count already or not yet?

We will certainly be looking into it.

No, it's wrong. Don't look at it, just fix it. You use the wrong numbers. And you need to fix that because when you use the wrong number in the share count, you calculate the wrong EPS for the same net income. That's a math lesson, not chemistry.

Thanks, Lourenco.

Thank you.

Thank you. Our next question is coming from Carlos De Alba of Morgan Stanley. Please go ahead.

Yes. Hello. Good morning. Thank you very much for taking the question. So in the press release, you alluded to $21 billion in revenues for the year. Basically, that suggests around $6 billion in fourth quarter revenues, which I take is going to come from a combination of slightly lower volumes and higher prices. Could you mention what do you expect for cost and EBITDA given relatively stable revenues in the fourth quarter, implicitly in your comments?

Carlos, you already put all the numbers on the table and now the EBITDA is just a consequence of everything that you have just said, right? You set the revenues, you set how we're going to get there, and yeah, you have it. I'm not changing my guidance at this point because that's another fool's exercise. You change the guidance and you have set yourself up for failure. So I've got that. I'm not changing anything.

All right. Fair enough. Is it fair to say then the price increases that you expect will more than offset the cost pressures?

They will more than offset. They will more than offset. Okay. I'll give a few indications. Our tinplate business, for example, which we have already renegotiated with all the clients, they are increasing between 2021 and 2022 price-wise by 100%. In other words, we're doubling the price of our tinplate because the costs are not increased, not even marginally close. It's a fraction of that. So we're going to have a meaningful, bigger contribution from tinplate. Another one that I will give to electrical steels. Electrical steels have been a problem and were a problem until this year until supply chain problems showed the clients that were eager to import and use dumping grounds in Mexico and dumping grounds in Canada to try to disrupt the transformers markets here in U.S. That proved then to be naked because the same ports that bring goods and gadgets from China, are the ports that bring stuff to the U.S. as far as electrical steels. So we protected the client that are not importing, and we punished the ones that were importing. So we are heading into next year with much higher prices in electrical steels for the book and we're privileging the clients that were with us during the times that others were importing. We're still selling to the ones that were importing, but we're selling to them at a much higher price than they were paying before. So the pricing equation for us has very little to do with this thing of the spot prices of hot-rolled that went down $5 yesterday or went up $2 today. We don't care about that, to be honest with you. We're a contract business type of operation. And we are always looking 12 months ahead. Not necessarily calendar year counts, but the 12 months ahead.

All right. That makes sense and is clear. And talking about imports, how do you see the potential impact if Europe comes out of Section 232 and that is replaced, the 25% import tariff is replaced by a quota system? Is there enough steel in Europe that could come to the US even when China may be reducing exports?

China is cutting back on exports, which is something I haven't said in years. They're doing this as part of their efforts to reduce pollution, which is beneficial for the environment and combatting global warming. However, I find it puzzling that Europe seems to play both sides, unlike countries like Japan and South Korea, which I understand due to their proximity to China. Europe should be more aligned with us rather than trying to maintain a relationship with China. Australia, despite being in a geographically challenging position, seems to grasp this better than Europe does. I consistently tell the Biden administration to be wary of our European allies; they are not truly aligned with us and tend to take advantage of the situation. I'm in favor of implementing a tariff rate quota, provided the quota is fair and that the tariff after the quota is significantly high. If not, we'll firmly express our opposition. It's important to note that out of our 25,000 employees, more than 20,000 are unionized, and the unions share my views. While I don't represent the United Steelworkers or the United Auto Workers directly, I communicate with them frequently. We will be very vocal if the negotiators act in favor of Europe rather than the interests of the U.S. This is one of the few issues that unites this industry and this country, with both Democrats and Republicans recognizing the need to protect ourselves and prevent Europeans from taking advantage of us in negotiations.

All right. And the last question, if I may. How does switching to Minorca help or could help the DRI cash costs, and how much is the royalty component?

It would have to go down a lot because of the royalty component, that in the Northshore is absurdly high. Even with absurdly high costs out of Northshore, you saw the number I reported for the all-in cash cost of HBI of $187 per net ton. So even those are prohibitive, it could be a lot less. And that's why we're moving from the Northshore with a very bad royalty structure to Minorca. That will be big savings in terms of cash cost from the royalty standpoint. But still, even with Northshore, it was $187 per net ton, so we're good, but we can do better. We're always looking for better costs, and that's why we're going to Minorca. By the way, phenomenal plant. Great plant, great equipment, a General Manager that has things under pooled control, around doing a great job leading Minorca integrating into our Cleveland-Cliffs way of doing business. And they are very excited about the opportunity to produce DR-grade pellets that they just started. And also the General Manager of Northshore, Paul Carlson, was the guy that developed the DR-grade pellets for us first as a General Manager of technology, and then as general Manager of Northshore. So he is helping and he will continue to help. I have by Northshore people working to help our Minorca people to move DR-grade pellets from Northshore to Minorca. And we're going to have a much better royalty structure as lower payments for royalties. And I'm going to keep Northshore idle every now and then. That's what we're going to do.

All right. Excellent. Thank you very much. All the best in the quarter and next year.

Thanks, Carlos, really appreciate it.

Thank you. Ladies and gentlemen, we're showing time for one final question today. Our final question will be coming from Alex Hacking of Citi. Please go ahead.

Hi, Lourenco. Good morning and Celso.

Alex. Alex. Alex.

Yes. Yes.

Even though Donna already mentioned that would be the last question, I am going to take a question from Tristan and Matthew Fields that I see in the queue. So, please don't disconnect. We have time, sorry.

Okay, sure.

Please.

We appreciate your frankness and direct communication, Lourenco. Looking at your incoming cash, it seems there will be significant free cash flow next quarter and throughout next year. Where do you plan to reinvest in the business to enhance capabilities? You've mentioned not adding capacity, but there are other investment opportunities available. So far, we have seen your investments in raw materials. Are there any major investments you are considering, and what are your thoughts on capital expenditures over the next couple of years? Thank you.

It's a great question. As I mentioned during my prepared remarks, we have modern capabilities to produce high-end steels and maintain an environmentally friendly footprint with pellets, HBI, and reduced coke usage. Therefore, we don't face the large capital expenditure requirements that other companies are discussing. Our capital expenditures will primarily focus on maintaining our current operations, and we anticipate spending between $750 million and $850 million annually moving forward. This amount isn't particularly surprising. Our largest current project is the relining of Cleveland Blast Furnace No. 5, which will be around a $100 million project. This is slightly higher than expected for a furnace of its size, but it's necessary to enable the furnace to process more HBI, utilize more natural gas, and decrease the coke rate, similar to what we have implemented elsewhere. This project is included in the $750 million to $850 million figure I mentioned. Was there anything else in your question that I missed?

No, that answered the question. I guess just one very small follow-up. You've talked about the importance of decarbonization in the steel sector, and I guess what kind of investments are you envisioning Cliffs making over the next few years, in terms of decarbonization? And any thoughts on the most promising technology there? Thank you.

We are the only company I know of, both in the U.S. and internationally, that has invested over $1 billion in decarbonization. This includes $1 billion for our HBI plant and enhancements at Northshore to produce DR-grade pellets sufficient for the plant. At the time of that investment, I did not foresee acquiring Minorca as part of the ArcelorMittal transaction. If I could look into the future, I wouldn't have put in that $100 million when Northshore was the only source for DR-grade pellets. We have effectively allocated $1.1 billion towards decarbonization across these two projects. I am not planning to pursue HBI too, because we no longer need it; we've shifted our strategy. We will not be selling HBI on the market anymore after our last contract ends; all production will be for internal use. We've also shifted our approach and acquired a scrap company. I may consider acquiring additional scrap companies, but I believe our growth can be organic, potentially eliminating the need for further acquisitions. What excites me about FPT is not just their control over prime scrap but also their outstanding management team. We look forward to working with their talented team and the growth potential under Keith Koci, who I have collaborated with for 15 years. Over the last two months, he's quickly become an expert in this market segment. He successfully identified the right opportunity with FPT and worked alongside Celso to finalize the deal in record time, demonstrating excellent performance. We do not plan to acquire scrap companies unless an ideal opportunity arises, as we prefer focusing on organic growth. To summarize, Alex, we do not intend to engage in major projects to build new plants or expand capacity. This mistake has been repeated many times in the industry, and while it's unfortunate to witness, Cleveland-Cliffs will not be making that mistake. Alex?

Yeah. Thank you. Thanks.

All right. I appreciate it. Donna, next one.

Thank you. Our next question is coming from Tristan Gresser of Exane BNP Paribas. Please go ahead.

Yes. Hi. Thanks for taking my questions. First one, a quick one. I may have missed it, but just wanted to clarify the prior full-year '21 EBITDA guidance you provided is still valid.

Still valid, 5.5 billion.

Okay. Thank you.

It will be higher. However, I prefer not to commit to a specific number because once I do, everyone adjusts their expectations, and then I end up missing. If I don’t miss the financial targets, I might overlook something minor in my prepared remarks or my accent might not be perfect. I’m just tired of missing. That’s why I hesitate to update guidance. We provide this information to assist you in modeling, and then you claim, 'They missed against my model.' In reality, your model didn’t align with the actual outcomes. It’s not just you, Tristan; it applies to everyone. We aren’t missing anything. We are doing what is necessary. Your guidance ultimately falls short because of the inaccuracies in your model. Sometimes it’s as simple as the share count. I was discussing this earlier with Emily Chieng—if the metrics are used incorrectly, your EPS calculations will be off, leading to what is labeled as a miss. That’s unreasonable. Please continue, Tristan.

Yeah, second question. Maybe on energy. I think your energy mix is 40% natural gas. Have you seen any meaningful increase in energy costs in the quarter? And can you remind us a bit of your procurement strategy for natural gas; do you have any contracts or hedges in place?

We rely heavily on natural gas, which is crucial for us, supporting both our current manufacturing needs and future production. For instance, in our Toledo direct reduction plant, we utilize natural gas primarily as a means to produce hydrogen for ore reduction. The natural gas we use there is reformed gas, essentially hydrogen, with carbon dioxide recycled to maintain temperature. We purchase a significant amount of natural gas, and the cost impact is minimal due to our hedging strategies. Celso, could you elaborate on our natural gas hedging approach?

Yes. Sure. Hey, Tristan. Just to give you some data points. We consume about 190 million MMBtus of natural gas per year across our entire footprint. And very simplistically, our goal is to be half hedged, 50% hedged for the next 12-month period. So we use a number of different instruments to do that. So the impact of the increase in price is pretty muted based on the fact that we have those hedges in place. And I think it's important to note as well that higher natural gas prices tend to lead to more drilling, which helps steel demand in the long run. So we don't see this as a big impact for us going into next year.

That's very informative. My final question is regarding low carbon steel. You explained the competitive advantages over flat-rolled mini-mills, raw materials, and grade capabilities well, but how do you view the efforts of some players in the US to increase market share by selling low carbon steel products? Do you consider this a risk, and what strategies do you have in place to address it? Additionally, what feedback have you received from OEMs on this issue concerning contracts and negotiations?

Well, we sell today 5 million tons like I said, of steel to the automotive. So there's a big opportunity for these folks to grab a lot of market share, even because I believe that 3 million, 5 million tons is excessive. The problem is that when I cut tonnage, I'm not going to cut tonnage a little bit here, a little bit there. I'm going to take one car manufacturer and say to this car manufacturer, "I'm not selling to you anymore." So let's assume that I cut that with one car manufacturer that I sell a million tons, and by the way, I have more than one that I sell a million tons. And that makes us go from five to four. We are still with four, twice as much as the second largest. With four, not with five. With five, we're more than twice. And there is a huge opportunity for this type of steels. Let's put it like that. But the car manufacturer has to do everything with that type of steel. I don't think it's a good proposition. I don't think that they will entertain that. And that's how I do business. They like it, great. They don't like it, be my guest. I will be the next microchips. Do you understand my point, Tristan?

That's helpful. Thanks a lot.

So let's try one more time. You're in London, right? You work out of London, is that correct?

I don't think my location has anything to do with the question, but thanks for the answer.

Your location is a question that I'm asking you. Are we in an undisclosed location? Are you a person that can disclose where you are at? Do you work for our Company that's headquartered in Europe or not? I need to know because I want to give you an explanation on something. I would like to know. Can you share with us?

Yeah, of course. I mean, you asked last time, I'm in Europe.

So you're in Europe. The European car manufacturers have had a long-standing influence over steelmakers, effectively placing them in a subordinate position. However, in the U.S., the largest steel supplier to car manufacturers does not accept this dynamic. This principle is guiding all of our negotiations; we want to be treated as equals. We're not interested in being aggressive, but we refuse to be intimidated or receive empty promises. If we are purchasing steel that is marketed as environmentally compliant, it should be from those who are genuinely reducing emissions and investing substantially in those efforts, as we are, and we expect to be treated fairly. I'm not concerned about these alternative steels we're hearing about. For instance, we are working on carbon capture technology at Indiana Harbor, which has garnered attention as we are the pioneers in this area, and our advancements are applicable across the U.S. and potentially worldwide. Additionally, we are collaborating with a promising startup, Boston Metals, to test their innovative technology in our Burns Harbor plant to see if it can be integrated into steel production, which I strongly believe has the potential for significant advancement. However, breakthrough technologies should not be confused with established ones. It’s unrealistic to claim you can produce 50 million tons of automotive steel relying solely on such new technologies. If that were feasible, Japan, lacking iron ore and coal but possessing numerous blast furnaces, would be doing it, particularly due to their automotive industry with names like Toyota, Honda, Nissan, and Subaru. The same applies to South Korea with Kia and Hyundai. In the U.S., we are familiar with our car manufacturers and know that the largest supplier to them is Cleveland-Cliffs. Not only are we providing environmentally friendly steel, but we are also at the forefront of developing the next generation of steel products. We prefer to share our achievements through formal announcements when we have results, as we believe in hard work over boasting.

I appreciate the answer. Thank you.

Thanks. Operator, we have time for two more questions.

Yes, sir. Do you have any additional or closing comments today?

I already did.