Good morning, ladies and gentlemen. My name is Sherry, and I am your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs Full Year and Fourth 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 protection of the Private Securities Litigation Reform Act of 1995. Although the Company believes 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 on Forms 10-K and 10-Q of the news releases filed with the SEC, which are available on the Company’s website. Today’s conference call is also available and being broadcast at clevelandcliffs.com. At the conclusion of today’s call, it will be archived on the website and available for replay. The Company will also discuss certain results, excluding certain special items. Reconciliation for Regulation G purposes could be found in the earnings release, which was published this morning. At this time, I would like to introduce Celso Goncalves, Executive Vice President and Chief Financial Officer.

Thank you, Sherry, and thanks to everyone for joining us this morning. Let me start by highlighting some of our full year financial accomplishments in 2021. Our revenues of $20.4 billion, net income of $3 billion, adjusted EBITDA of $5.3 billion, and free cash flow of $2.1 billion were all-time annual records in our Company’s history. The M&A consolidation that we executed in 2020 was a huge driver of the industry market conditions that led to the outstanding annual results that we achieved in 2021. With this record annual profitability, we put the cash we generated to good use. We reinvested in our business, acquired the leading prime scrap processor in North America, deleveraged our balance sheet and reduced our diluted share count by 10% last year. Looking ahead, with another year of considerable and predictable free cash flow in front of us, we have further accretive uses of capital already underway in 2022, including the $1 billion share repurchase authorization that we announced this morning. Just to give you an idea of how 2022 is going so far, on a year-over-year basis, we have already generated more adjusted EBITDA in January of 2022 alone than we did in the entire first quarter of 2021. Now, focusing back on our Q4 2021 results. Last quarter, we generated adjusted EBITDA of $1.5 billion on 3.4 million tons of steel shipments, the second best quarterly performance in our company’s history, only behind the previous quarter’s $1.9 billion adjusted EBITDA on 4.2 million tons shipped. The main driver of this quarter-over-quarter decline in EBITDA from Q3 to Q4 was the shipment reduction. As we all know, automotive production remained light in Q4 of 2021 relative to normalized levels, particularly during the period between Thanksgiving and the end of the year, when the COVID Omicron variant began to spread around the world. Additionally, service centers and distributors pulled even less tons than usual during this already typically weak period in late November and December. Remaining steadfast in our disciplined supply strategy, and based on this rebound we expected and are already seeing from our automotive clients this year, we elected to move up several operational maintenance outages originally planned for 2022 into the fourth quarter of 2021. These actions reduced our sequential quarter-over-quarter steel production by 675,000 crude tons in Q4, ultimately also impacting our unit costs. Partially offsetting the volume and cost impacts were higher selling prices in Q4, which rose by approximately $90 per ton from $1,334 to our highest level of the year of $1,423 per net ton. This is also only an early indication of the success we have achieved in renewing our fixed price sales contracts as only a portion of our contract renewals were already in place during Q4 of 2021. Remember, the majority of our renewals were not in place until January 1st of 2022. As this year progresses, the selling prices we report every quarter going forward will continue to demonstrate the successful renewal of these fixed-price contracts, and that will be even more evident if the index HRC price continues to drop. For context, if we applied the contracts we have in place now in 2022 to the fourth quarter of 2021, holding all else constant, our Q4 2021 adjusted EBITDA would have been nearly $500 million higher. This level of fixed contracts is the key differentiator in favor of Cleveland-Cliffs relative to all other steelmakers in the United States and gives us significant visibility into our cash flows for 2022. Despite the lower shipments and additional inventory build, we generated $900 million of free cash flow in Q4 of 2021. Of this $900 million, we used $761 million to acquire FPT and used the remaining $150 million or so to pay down debt. So, in other words, with only one quarter’s worth of free cash flow, we were able to pay for a meaningful acquisition and still had enough cash flow left over in the quarter to pay down some debt. Now, speaking of our debt, we have already accomplished a lot more than we originally expected in terms of improving our leverage. We keep a close eye on our overall debt levels on a dollar basis, but we also look at our overall leverage on a total debt to last 12 months adjusted EBITDA basis. With total debt and LTM adjusted EBITDA at essentially the same level, at the end of 2021, we are at a total leverage of only 1 time. By next quarter, our LTM adjusted EBITDA will likely be even higher, which will continue to further reduce our overall leverage metrics. As a reminder, our leverage was over 4 times in 2019, pre-COVID and before our transformation. While overall leverage is in great shape, we will continue to simplify our capital structure by paying down debt, replacing existing bonds with cheaper ones and extending debt maturities. The significant free cash flow we anticipate in 2022 should allow us to pursue the dual goals of repurchasing shares and reducing debt. We have already redeemed our convertible notes in 2022 and several other tranches of our bonds become callable this year at pre-negotiated prices, including the two tranches of secured notes we issued in 2020. We fully intend to redeem or refinance these notes at some point in 2022. As expected, last year, we built a substantial amount of working capital, which should be worked down throughout this year. Given this increased collateral base, we were able to take advantage of these asset levels and upsize our ABL facility last quarter, increasing our available liquidity by $1 billion to our current level of $2.6 billion. On another very important note on the balance sheet, our net pension and OPEB liabilities saw a $1 billion reduction during Q4, primarily due to actuarial gains and strong asset performance, leading to a $1.3 billion or nearly 30% net reduction during 2021. Also importantly, in the rising rate environment that we are in today, we have meaningful potential for further pension and OPEB liability reductions. Just for reference going forward, for every 50 basis-point increase in our discount rate, our expected liabilities would decline by about $500 million, all things equal. Looking ahead, even under today’s pessimistic HRC futures curve, we would expect higher overall average selling prices in 2022 than we saw in 2021 when HRC averaged $1,600 per ton. On the cost side, we expect to see increases related to energy and materials, with the largest annual change in coal and coke. Countering this, we have been offsetting our coke usage by increasing the usage of HBI in our blast furnaces and increasing the percentage of scrap in the charge of our BOS. Our CapEx budget for this year is $800 million to $900 million, an increase from the previous year, primarily due to additional reliability and environmental projects, inflation, and the reline of one of our Cleveland blast furnaces, which will be out for over 100 days during Q1 and Q2. Full year DD&A should be about $900 million. Exclusive of one-time items, our 2022 SG&A expense should be around $520 million, which includes higher wages and also $40 million of FPT overhead. Now that we have effectively exhausted our tax NOLs, our cash tax rate should be in the 15% to 20% range, with our book tax rate at 21%. With that, I will turn it over to our CEO, Lourenco Goncalves.

Thank you, Celso, and good morning, everyone. Our first full calendar year as the new Cleveland-Cliffs was an absolute success, and we could not have accomplished all the great results we were able to achieve without the hard work and commitment of our 26,000 employees, approximately 20,000 represented by the USW, the UAW, the Machinists and other unions. We believe in manufacturing in the United States and in good-paying middle-class jobs. We really appreciate the work of each one of our employees and the unions representing them. We could not have done all that without you. As great as 2021 was for Cleveland-Cliffs, we would have done even better if the automotive industry had resolved its supply chain problems. The shortage of microchips cut their opportunity to build 80 million cars or more in 2021. And the automotive sector ended the year with a much smaller, 30 million units. When we at Cleveland-Cliffs realized in the third quarter of 2021 that our automotive clients were still not performing up to the level that they were guiding us to build inventories for them, we then made the decision to move up to Q4 some important maintenance jobs originally scheduled for the first four months of 2022. That decision, albeit correct, has clearly impacted our Q4 results. Now, with the first month of 2022 behind us, we are starting to see improved deliveries to our automotive clients. While it is just a one-month data point, deliveries to automotive clients in January were stronger than each of the previous three months, October, November, and December. And our adjusted EBITDA in January was a solid $588 million. Furthermore, as the microchip shortage improves during 2022, the automotive companies will need a lot more steel this year than in 2021. This still comes primarily from Cleveland-Cliffs. We are, by a huge margin, the largest supplier of steel to the automotive industry in the United States. Let’s make this abundantly clear to our investors. There is no other steel company, integrated or minimill in the U.S. or more broadly in North America capable of supplying all the specs and all the tonnage we supply to the American automotive industry. Cleveland-Cliffs already has all the equipment and technological capabilities that other companies are only now spending several billions of dollars to try to replicate by building new melt shops and new galvanizing lines. We typically sell 5 million tons of steel directly to automotive manufacturers and also sell another 2 million to 3 million tons through intermediaries. Put another way, almost half of our steel sales end up in automotive functions. Another interesting fact, even though we have not deliberately tried to grow our automotive market share in 2021, we have actually increased our market share through tons resourced by our clients. While the clients do not tell us why they are taking the order away from another steel company and reassigning this specific item to Cleveland-Cliffs, we can only assume that these other steel companies are not meeting the automotive industry’s high standards. That’s probably why these competitors have to invest several billions of dollars to play catch-up. Cleveland-Cliffs does not have to spend this type of money and will not. With our CapEx needs in 2022 relatively low and strong confidence in our cash flows, we are very comfortable putting in place the $1 billion share buyback program just announced. Another differentiating big feature of our way of doing business is the predictable pricing model that we have in place with automotive, tinplate, and some select clients in other sectors as well. This feature eliminates the worst cancer in our industry, which is self-inflicted volatility. Going forward, we will work with more clients to move sales under this model. Real clients don’t need indexes. They need reliable suppliers and fair prices. We currently sell about 45% of our volumes under annual fixed price contracts, by far the highest in our industry, and we want this number to continue to grow. The harm caused by the volatility of steel pricing is most damaging for smaller service centers, who live off their inventory values. Ironically, these same folks are the ones who create volatility in the first place, panic buying, double and triple ordering when supply is tight, and then halting purchases altogether when inventories are temporarily adequate, perpetuating a never-ending cyclicality. We are convinced that it is in everyone’s best interest to limit volatility in our industry. And that’s not only desirable but also feasible. That’s why we are moving away from sales to smaller players, further concentrating on the larger clients, which already make up the vast majority of our sales. At this point, all important clients of Cleveland-Cliffs are being offered index-free deals to continue to do business with us. Marrying stable costs with stable prices up and down the supply chain can create a much healthier business environment for steel in the United States. Another ongoing important matter for the future of Cleveland-Cliffs is our commitment to ESG. That was evident with our purchase of FPT, the national leader in prime scrap, which was completed in the fourth quarter. The integration of FPT has gone remarkably well, and we are grateful for the buy-in of the 600 employees of FPT that are now employees of Cleveland-Cliffs. Since closing the deal on November 18, we have made substantial moves, securing a number of additional sources of prime scrap offtake, most notably the largest automotive stamping plant in the country. This particular stamping plant alone generates more than 150,000 tons of prime scrap per year. Our agreement replaced an incumbent scrap company, which has been servicing this stamping plant for decades, even before this scrap company was acquired by a minimill several years ago. Our deal was made possible with a compelling proposition. This automotive manufacturer buys the steel primarily from Cleveland-Cliffs, and now we can feed their scrap directly back to our steelmaking shops. This is not just recycling steel. It’s a real closed loop. A closed loop is a key piece of our automotive clients’ environmental strategy as well as a key piece of our own environmental strategy at Cleveland-Cliffs. On the carbon emission side, we continue to lower our usage of coal and coke by increasing the utilization of HBI as a significant part of the burden in our blast furnaces. While our flagship direct reduction plant in Toledo was originally built to supply third parties EAFs with HPI, this HBI is now being exclusively used in-house within Cleveland-Cliffs. The vast majority in our blast furnaces play a central role in lowering both our coke rate and our CO2 emissions. Furthermore, we are currently working with Linde, our largest supplier of industrial gases to implement the utilization of hydrogen in Toledo. As you may know, our state-of-the-art direct reduction plant was originally designed and built with the possibility of using up to 70% of hydrogen in the mix as reductant gas. We expect to report on the usage of hydrogen and the production of the first hydrogen reduced HBI in 2022. The same goes for our iron ore pellets, another key competitive advantage we have and a driver of lower emissions relative to foreign competition that uses primarily sinter feed ore in their blast furnaces. Going forward, we will be limiting the tonnage of iron ore pellets we sell to third parties. Iron ore is a finite resource, and the time and cost it takes to get permits and extend the life of mine is incredibly cumbersome. In addition, iron ore pellets are Scope 1 emissions for Cleveland-Cliffs, but they are Scope 3 emissions for the clients we sell them to. Unfortunately, the Scope 3 emissions are not accounted for, not counted in anyone’s reduction targets, and surprisingly, at least for now, no one really seems to care about Scope 3 emissions; therefore, producing fewer tons of pellets automatically reduces our Scope 1 emissions. And that’s good enough for us, at least until Scope 3 becomes a topic of concern. Also, with the use of additional scrap in our BOFs, our iron ore needs are not as high as before, and we no longer need to run our mines throughout. When determining where to adjust production, our first look is at our cost structure because we are now able to produce DR-grade pellets at Minorca and mainly due to the ridiculous royalty structure we have in place with the Mesabi Trust. We will be idling all production at our Northshore mine, starting in the spring, carrying through at least to the fall period and maybe beyond. At Northshore, there will be no production, no shipments, no royalty payments. We also acknowledge that our strategy to stretch hot metal by adding increased amounts of scrap to the BOFs is working extremely well. With more scrap in the BOFs, we need fewer tons of hot metal to produce the same tonnage of liquid steel. As a consequence, the Northshore idle could go longer than currently planned. As another consequence of our strategy of hot metal stretching, we have dramatically lowered our needs for coke and coal. We already announced last quarter that we idled our coke burning at Middletown. Now that our coke needs have been reduced even more, in the second quarter of 2022, we will also permanently close our Mountain State Carbon coal plant. This action will not only further improve our carbon footprint but will also save us approximately $400 million in CapEx originally planned for this facility over the next few years. Even though jobs are going to be eliminated at Mountain State Carbon, we have enough job openings at other nearby Cleveland-Cliffs facilities. And we can ensure all good employees will have other employment opportunities within our company. On that note, the last piece of our environmental strategy relates to how we operate our 8 blast furnaces. Our held presence in highly specified automotive-grade materials, particularly exposed parts, necessitates the use of blast furnaces. EAFs continue to be unable to demonstrate that they can compete and produce the entire spectrum of specs demanded by the car manufacturers. Numbers don’t lie. That’s the main reason why all the major steel suppliers located in countries with a strong presence of automotive manufacturing like Japan, South Korea, Europe, and here in the United States are not minimills operating areas. They are all integrated steel mills with blast furnaces and BOFs. Cleveland-Cliffs is the one here in the United States. And we do not use sinter; we use only pellets and HBI in our blast furnaces, enabling us to establish the new world benchmark in low coke rates and low emissions. This is particularly relevant when our automotive clients, with a worldwide presence, compare Cleveland-Cliffs against their other well-known automotive steel suppliers from countries like Japan, South Korea, Germany, Austria, Belgium, or France, among others. Our full control over the entire supply chain from pellets to HBI to prime scrap creates a huge differentiation in favor of Cleveland-Cliffs, one that is impossible to replicate in Asia or Europe. That said, we also produce a lot of steel that goes to less quality-intensive end users. A blast furnace reline is a CapEx-heavy undertaking, albeit totally expected in our multiyear projections. Under this evaluation process, we also take into consideration other upgrades to the upstream hot end as well as the capital related to extending the life of mine of our iron ore mines. With all that, in some cases, the capital requirements of a new EAF compared to the avoidance of reinvesting in a blast furnace reline and its associated supply chain could come out close to a wash, particularly because we at Cleveland-Cliffs already have the rolling and coating capabilities in place. If and when that happens, the wash or better, we might consider an EAF as a replacement to a blast furnace reline in the future. One final piece on the environmental to note. Of all CO2 emissions generated in the United States, the emissions related to the production of steel represent just 1% of the total. One more time, just 1%. This number is 15% in China and 7% worldwide. But here in the United States, it is just 1%. The steel industry in the United States is the most environmentally friendly in the entire world. Meanwhile, transportation, particularly affected by automotive tailpipe emissions, is responsible for 29%, while energy is responsible for another 25%. This is where the importance of steel made in the USA is most significant as our very small emissions footprint, again, just 1%. We will play a critical role in improving the emissions of these two sectors, which combined are responsible for more than 50% of all CO2 emissions in the United States. For one, Cleveland-Cliffs has been prepared for the transition from ICE to electric vehicles long before EV's rapid adoption. And we have the right steels necessary to meet the automotive industry target of 50% EV adoption by 2030. On the energy side, we need more renewables like solar and wind, and both are steel intensive. Cliffs is the only producer in the United States of the electrical steels needed for the modernization of the electrical grid, which received $65 billion in funding under the recently passed Infrastructure Bill. Our non-oriented electrical steels, we call NOES, are used for motors in both hybrids and BEVs. The Infrastructure Bill also includes another $7.5 billion earmarked for charging stations for electric vehicles. Each charger uses approximately 50 pounds of GOES, grain-oriented electrical steel, and we are talking about 0.5 million of charging stations, plus the equivalent amount of transformers to tie down these charging stations into the grid. With all that, and no other producer of GOES or NOES in North America other than Cleveland-Cliffs, in 2022, we have a more than full order book for electrical steels. And that’s just the beginning of the EV revolution, which will certainly progress between now and 2030. With all we at Cleveland-Cliffs are doing related to carbon emissions, I can’t believe so many companies are being given a free pass by the investment community, despite not doing much more than just saying they will be carbon-neutral by 2050. What I have just laid out here are real, concrete, undeniable measures to reduce emissions, and we are implementing them all company-wide at Cleveland-Cliffs. We will continue to be able to track our progress in 2022, 2023, 2030, and beyond. And we will watch how much others will actually do here in the United States and abroad. The future, and specifically, 2022, is clearly bright for Cleveland-Cliffs. Underlying demand remains strong, infrastructure-related spending has started, particularly regarding electrical steels. And the chip shortage affecting the automotive industry has begun to ease, leading to meaningful pent-up demand for cars and trucks. That should benefit Cleveland-Cliffs a lot more than any other steel company in the United States. In the meantime, we will take full advantage of the market’s lack of appreciation or lack of understanding of our business by buying back our stock, all to the benefit of our loyal shareholders. I will now turn it over to the operator for Q&A.

Our first question is from Lucas Pipes with B. Riley Securities.

Hey. Good morning, everyone. And congratulations on a really terrific 2021.

Thanks, Lucas. I appreciate it.

Lourenco and Celso, I wanted to ask you a bit about the capital structure going forward. When I go back to the second quarter 2021 conference call, you mentioned a net debt zero sometime next year. So, this year, I kind of interpret it as an absolute target on the leverage side. And today’s prepared remarks sounded more that you’re aiming for relative leverage targets, EBITDA versus net debt and the like. How should investors think about this going forward?

Yes, Lucas. First of all, aiming for zero net debt isn’t a realistic target for any company because there are many factors outside our control, such as interest rates and refinancing options. The only way to ensure starting with no debt is through bankruptcy, which is not something we at Cleveland-Cliffs considered in 2014, and we proved that decision was correct. In 2022, I spent $1.3 billion to buy out ArcelorMittal, using cash instead of stock, and also purchased FPT for $775 million, which ultimately came to $761 million. This means over $2 billion in cash has been essential for our future. Regarding emissions reduction, it’s important to note that we achieve this not by constructing electric arc furnaces but by melting scrap instead of large amounts of iron with high carbon content. FPT plays a crucial role in this process. We’ve completed the construction of our HBI plant as well. We've been using our cash effectively in the business and consistently paying down our debt, including in Q4. We will keep working on reducing our debt. Although our cash usage may have postponed reaching zero net debt, we will get there eventually, but there’s no specific target for 2021 or 2022. We will achieve it when the time is right. A company with 1 times leverage is considered quite healthy, and even those skeptical of our revenue and cash flow projections for 2022 must recognize that if our EBITDA is around $2.5 billion or $3 billion, a 2 times leverage is still healthy. Based on the renegotiation of our sales contracts, our cash flow generation should keep us at or below this 1 times leverage. That's the approach we’re taking at the company, grounded in reality. I’ll let Celso add a few more points. Go ahead, Celso.

Yes. Hey. Thanks, Lucas. Yes, just to put it another way, right? If you look at our EBITDA in 2020, it was like $350 million. And then today, we just reported 2021 adjusted EBITDA of $5.3 billion, right? So, when we saw that we were accomplishing a lot of deleveraging just by that significant increase in EBITDA, it allows us to be aggressive with the redemption of the preferreds and the acquisition of FPT. So that net debt zero target became less relevant. So, I think that’s the way to look at it. And as I mentioned, on a total debt to LTM EBITDA basis, we’re at 1 time. As I stated, our January EBITDA alone in 2022 is going to be higher than our Q1 of ‘21. So if you roll forward that LTM EBITDA, our leverage metric is only going to get better on that basis. But going forward, we’re still going to be proactive in terms of cleaning up the capital structure. As you know, we have those two bonds, two tranches of secured notes. Both of those are callable this year. There’s another tranche that’s callable, and one of the unsecured is also callable this year. We’ve already redeemed the converts. So, there’s going to be continual fine-tuning of the capital structure, but we are looking at it more of a leverage metric basis as opposed to a total net debt target.

Yes, Lucas, not to beat the dead horse until hell freezes over, but just to make sure that we are on the same page, we started talking after the acquisition about synergies. And there are targets of synergies, the number for synergies and things like that. I haven’t received a question about synergies in a long time. Do you know why? Because more than the numbers of the synergies, more than the 150 or 310 after we acquired ArcelorMittal, target numbers for synergies, we changed the industry completely, 100%. We created the basis for everybody here in the United States to make a lot of money, even the analysts recognize that without our actions on consolidating this industry, no steel mill, no service center and several others throughout the entire supply chain would have made money as we all made money in 2022. So, for you guys that are listening to this call with these guided names, you are welcome. I got you that. So, that was the biggest synergy that we implemented, not just for ourselves but for the entire steel industry. So, we are going to continue to manage this company that lives better than anybody else in this business, period, full stop. No more questions about net debt zero, things like that, I’m not bound for this.

Thank you very much, Lourenco. That was clear. I wanted to ask a bit on the cost side. So, you maintained a disciplined approach here in Q4, and there was some fixed cost absorption on the back of that. So, I’d assume that will get better in Q1 and throughout the year 2022, but then there are some inflationary pressures, of course. So, I wondered if you could put some color around that and how you take these various drivers into account when you think about costs in 2022 versus '21?

Yes, let me give you an overview, and then Celso can provide additional details. In Q4, we noticed that our automotive industry clients began to place more orders and indicated that the microchip shortage was being resolved, leading us to produce based on their feedback. However, that situation did not fully develop. We had been cautious about this since the end of Q3, and then early Q4 confirmed our concerns. I faced two options: to react like some companies, particularly those from Canada, who entered our market aggressively, driving prices down in a panic, or to anticipate that the automotive sector would eventually resolve their microchip issues and act accordingly. We chose to limit our volumes knowing it might hurt us in the short term, but this approach is part of our capital management and production discipline, which we prioritize even when it’s often not practiced by others. This has led to increased costs per ton since producing less lifts those costs. A specific item that significantly impacts us is the rise in coke and coal prices. However, we have been mitigating this by substantially reducing our coke usage through HBI, which we uniquely have for our blast furnaces. Consequently, while the cost per ton for coke is higher, our overall consumption is significantly lower, which is beneficial for us. Celso, do you have any additional comments on this matter?

No. I mean, I think maybe just to put some numbers to it, Lucas. The coal and coke increase is probably even less than you’re expecting. It’s high, but it’s only about 40% year-over-year going into 2022. But on an overall cost basis, even with that 40% baked into it, we’re only seeing a total overall average increase of, call it, 10% on our costs. So, I think that’s a good way to look at it. And as Lourenco mentioned, we’re decreasing that coke rate, which is helping offset some of this large increase.

Our next question is from Michael Glick with JP Morgan.

Hey. Good morning. Your contract mix comments were pretty interesting. You talked about moving beyond that 45% level. How high is the level you want to get to?

Look, we believe that real clients should have contracts to lock tonnage and price. We don’t believe that we need any indexes. Indexes are good to protect the job of the purchasing managers because they go back to their bosses and say, well, I’ve got a deal with CRU. Okay. So whatever CRU goes, dictate the destiny of the cash flows of the companies. I don’t agree with that. You’ve got to take ownership of what you do. Do you believe in stability or not? You want stability or not or you want just to preserve your job and look good in front of your boss? So, I don’t believe that we should have the index at all, completely, but I am realistic. So, I believe my percentage that’s pretty higher than anyone else in the industry is already higher than anyone else in the industry. And we’ll continue to make it bigger. I want the smaller guys to buy from the big guys instead of trying to buy from the mills because they don’t have the wherewithal to import when things are not 100% the way they told their bosses. So, I want to go fixed because indexes are cancer and need to be eradicated.

Understood. Just on the buyback, can you walk us through the drivers of that decision? And do you view it as more kind of opportunistic or systematic in nature, which I guess, is another way of asking how aggressive will you be with it?

It depends. Buying back stock is a measure against poor decisions. You don’t repurchase shares simply because you think a company should do so. Our focus should be on returning money to shareholders, but stock buybacks provide a tax-efficient way to benefit long-term investors rather than letting them be vulnerable to those who lack understanding. We are still sometimes referred to as an iron ore company, which is outdated. It’s frustrating that people are making investment decisions without recognizing our current business model. Stock buybacks are a response to that. If the market offers us the opportunity for free shares, we will take it since we don’t have major capital expenditures like other companies. Our capital expenditure for 2022 is projected to be around $800 million to $900 million, and it will decrease in the future. We have the cash flows available for stock buybacks, and that will depend on how foolish the market acts, which will influence how aggressive we become.

Our next question is from Carlos De Alba with Morgan Stanley.

Yes. Sorry, I was muted. Good morning, everyone, especially Lourenco and Celso. I have a follow-up question regarding your last comment. What is your stance on dividends? Your cash flow generation seems strong based on your comments and expectations for prices and volumes. While share buybacks are beneficial, it seems you might have the capacity for both. Do you have any particular views on dividends? Is it the tax implications that concern you, or do you prefer to focus solely on share buybacks? Additionally, I have another question regarding end markets, if I may?

The money belongs to the shareholders, Carlos. Our shareholders are mostly institutional investors, who generally prefer buybacks over dividends due to their tax efficiency. Retail investors tend to favor dividends. One day, when everyone recognizes Cleveland-Cliffs as the primary supplier of automotive steel in the United States, they will understand that we are crucial to the electric vehicle revolution, which is essential for reducing emissions. Cleveland-Cliffs provides all the steel needed for cars, including electrical steel for engines, transformers, and charging stations. We are foundational to this significant market change. When retail investors grasp that being serious about ESG means investing in Cleveland-Cliffs stock, then I might reconsider. Until then, I believe dividends are beneficial for retail, while buybacks favor institutional investors, who currently make up our core base. Some of them still need to realize that we are no longer just an iron ore company, but we will get there.

Fair enough. And then on end markets, I mean you clearly made a disciplined decision in the fourth quarter, and that had to do with your expectation that volumes in the auto sector will improve this year. Any comments there? What are you hearing from those customers? And then, with about 25% to 30%, say, of your sales going to infrastructure and manufacturing markets, how much would you say you have leverage to the Infrastructure Bill? You mentioned the energy sector, obviously, but more broadly, how much do you see the exposure of Cliffs to the Infrastructure Bill? Maybe it’s something that is underappreciated by the entire market?

Yes. Let’s focus on the part of the Infrastructure Bill that I mentioned earlier, which is $72.5 billion specifically for electric vehicles, broken down into $65 billion for improving the electrical grid and $7.5 billion for charging stations, which directly benefits us. We are currently the only producers of grain-oriented electrical steels used in transformers. Additionally, we are the sole producers of non-oriented electrical steels for engines. Our position as the largest supplier of automotive steel is significant. We've consistently ranked high in supplying the automotive industry. Given the ongoing changes, including model updates and material re-specifications for new electric vehicles launching in 2024 and 2025, we work with all the major manufacturers and are well-acquainted with these trends. The upcoming Infrastructure Bill greatly supports us. Moreover, as I noted earlier, in the wind and solar sectors, which consume substantial amounts of plate and galvanized steel, we have a strong production capacity. While these segments are important, our core strength remains in automotive. Although the auto industry has faced challenges and didn’t meet its potential last year, we have sufficient inventory prepared for them, which will soon convert into cash, as production is not needed for what is already available. Overall, we are in a solid position.

Our next question is from Emily Chieng with Goldman Sachs.

My first one is just around your comment earlier about thinking about an EAF as a potential replacement to a blast furnace reline in the future. Perhaps could you give us a sense as to what’s the timeline on this analysis, and perhaps timeline to action being taken here?

Yes. Good morning, Emily. I hope you understand that our environmental strategy is not focused on electric arc furnaces. My goal is to support efforts that significantly reduce emissions. Transportation accounts for 29% of the total CO2 emissions in the United States, while the steel industry only contributes 1%. Therefore, shutting down the entire steel industry would only decrease emissions by that same 1%, which does not help the environment significantly. It's important for firms, especially those eager to profit from ESG, to grasp this reality. Even if the steel industry were to be completely shut down, the overall emissions reduction would be negligible. Conversely, transitioning an entire fleet of combustion engine vehicles to electric vehicles could reduce emissions by 29%. This is why we actively support car manufacturers in this shift, as it truly impacts emissions. It also presents an opportunity for firms like Goldman Sachs to profit while contributing positively to the environment. I encourage Goldman Sachs to engage with ESG initiatives in a meaningful way, tackling real issues rather than jumping on trends. As for electric arc furnaces, relying solely on blast furnaces can be very costly. I have completed all my automotive-related work, so I don't have plans to make additional investments in galvanizing lines. We already have various galvanizing lines and other capabilities for automotive applications, but we also produce hot band, cold rolled, and galvanized steel for different uses, which don't require the same strict specifications. Instead of investing in re-lining a blast furnace, we can consider building electric arc furnaces to process scrap, and we have plenty of scrap since we own a scrap company. However, I cannot predict when this will happen; it's certainly not in 2022, and I don't believe it will be in 2023 either. That puts us in a different position compared to others committing significant funds just to reach our current state. It's an interesting approach, and I look forward to seeing how it develops. My leverage is decreasing, which is a positive sign.

Understood. That makes sense. And my follow-up is just around your 2022 average selling prices. I appreciate the mark-to-market update there. It sounds like you made some good progress with the recontracting there. Just curious as to if you can share what percentage of contracts still remain outstanding for renegotiation still? I’ll leave it at that. Thank you.

Yes, we still have two contracts to finalize, but we've completed nine, which is a positive outcome. It was more challenging at the start when none were finalized and eleven were still pending. Now, with nine completed and two remaining, I'm feeling good about our progress. Let's consider that all nine we've renegotiated have been accepted. If one of the two remaining contracts does not accept the renegotiation, we might help expedite their resolution of the chip shortage, depending on the client's size. If they can't source steel from us, they won't be able to get it anywhere else. I anticipate more microchips becoming available in the market for our clients. However, this point is still theoretical. I believe the two remaining contracts are welcome to renegotiate at this stage. We're going to be fine, and everything is looking positive. Moving forward, we will shift from just-in-case to just-in-time inventory management, and we will not continue to carry inventory for them without charge. We can discuss this further in our next conference call in two months, which isn’t too far off.

Our next question is from Seth Rosenfeld with BNP Paribas Exane.

Good afternoon. Thank you for taking our questions today. Congrats on a good set of results. If I can kick off please with a question on volumes. I guess for the full year, particularly for Q1, give us a little bit of sense of to what extent we should expect a recovery after what was a very good supply discipline back in Q4? I guess I’m trying to understand the balance that you’re pointing to a recovering in auto demand, which I think we haven’t heard from all of your peers as of yet. Is that strong enough to offset what appears to be continued weak demand amongst distributors? How do we think about the mix for volumes, I guess, for Q1 and then going ahead to Q2, please?

Good afternoon, Seth. It's great to have you back. We haven't heard from you in a while. I hope fatherhood is treating you well and everything is going smoothly. Regarding the volumes, our service center clients typically don't purchase much. Having worked in a service center for ten years, I understand their mindset. Historically, they don't tend to buy much between Thanksgiving and the end of the year, so this was expected. However, this time around, much of the earlier buying was done under pressure. They over-ordered and had more students than they wanted. Nonetheless, demand remains strong. The inventories they have are being reduced, and they will be returning for more. As I mentioned, demand is solid, and we can expect their direct demand to return soon. Therefore, volumes for Q2, Q3, and Q4 should be fine. We anticipate finishing this year with volumes roughly in line with 2021, maybe slightly higher or lower, which is a good benchmark to consider. So, don't assume that Q4 sets a new standard; it doesn't. I hope that addresses your question. If not, feel free to ask a follow-up.

No, I think that’s great. Just to clarify, I guess, it sounds like Q1 perhaps still a bit on the light side, but Q2 to Q4, better confidence on volumes. Am I understanding that correctly?

Yes. Yes, Q1 volume should be higher than Q4. That’s probably the most relevant takeaway at this point.

And a separate question, please, with regards to DRI. Your Toledo plant has been a very good success so far. So congrats on that. When we think about the business going forward, I believe your strategy to charge in your blast furnaces has been very good on the decarbonization side. Given the scale of your blast furnace capacity at present, do you have enough DRI input or interest in growing DRI for the blast furnaces? And I guess, longer term, you’ve now brought up an EAF expansion several years out; is DRI part of that mix?

At this point, we are consuming approximately 1.7 million tons of HBI in our blast furnace and around 300,000 tons in our electric arc furnaces. We currently have electric arc furnaces, and if we add more in the future, we will have increased access to scrap due to FPT continually sourcing new supplies, including prime scrap from closed-loop systems with our automotive clients. Therefore, we do not anticipate needing more HBI. We can be selective and reserve our HBI for the blast furnaces while using a portion in the electric arc furnaces. Even with additional electric arc furnaces, we plan to grow them using scrap rather than HBI, as these furnaces will cater to lower specifications. Using scrap in electric arc furnaces is the most environmentally-friendly method for producing rebar because it results in very low emissions. The process is straightforward: melting scrap to produce rebar. Complications arise when moving up the value chain to flat rolled products, which require pig iron from regions that may not always be reliable. Having a strategy that depends on sources like Ukraine or Russia for materials can be challenging. The future will be interesting to observe as this is not a short-term business but a long-term one, and my strategy spans multiple years. You mentioned concerns about long-term contracts for selling HBI, but I haven't sold any HBI to others.

Zero.

So, your concerns were totally unnecessary. You lost. It leads for no reason.

I think we’re done. Thank you for being with us today. We are going to be back in two months. That’s the shortest link between Q1 and Q2. I can’t wait to be talking to you about other things. We addressed a lot today. But we are going to be talking a lot more in Q2. ESG is a very important thing; we are addressing; making money is a very important thing; we are making; returning cash to the shareholders is very important; we are doing, we continue to do. Based on that, we’ll continue to pay down debt. A one-time leverage company with this strong position in the marketplace is a gift. If the gift is given to me, we use the buyback. Have a good rest of your day and a great weekend. We’ll talk soon. Bye now. Thank you. This does conclude today’s conference. You may disconnect your lines at this time. And thank you for your participation.