Cleveland-Cliffs Inc.

Good morning, ladies and gentlemen. My name is Kevin, and I'm your conference facilitator today. I'd like to welcome everyone to Cleveland Cliffs' full year and fourth quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll 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 risk factors that could cause results to differ materially are set forth in reports on Forms 10-K and 10-Q and news releases filed with the SEC which are available on the company website. Today's conference call is also available and being broadcast at clevelandcliffs.com. At the conclusion of the call, it will be archived on the website and available for replay. The company will also discuss results excluding certain special items. Reconciliation for Regulation G purposes can be found in the earnings release, which was published yesterday. At this time, I'd like to introduce Lorenzo Gonzalez, Chairman, President, and Chief Executive Officer. Please go ahead, sir.

Thank you, Kevin, and good morning, everyone. 2024 is in the rearview mirror, and we have great potential for a strong 2025 right in front of us. Our order book has picked up substantially over the past months, and still pricing is back on the rise. Less than a month ago, our lead times for hot-rolled steel were three weeks. As of today, they are seven weeks. Order book and lead times are our most important forward-looking indicators, and they are both in their strongest position in nearly a year. In 2024, demand for steel was the weakest we have seen since 2010, other than during the temporary collapse caused by COVID-19 in early 2020. The second half of last year was especially bad, with the steel demand from the automotive sector slowing down, construction activity lagging, and industrial production taking a hit. This led to the idle of our C6 blast furnace at Cleveland Works last quarter. A lot of this weak demand environment was a function of unnatural market factors at play. Among these factors, interest rates kept at very high levels by the Federal Reserve negatively impacted our service center customers' ability to buy steel from us. And of course, trade distortions enabled by foreign countries supporting steel overproduction continue to be a major problem. Regarding trade, the steel industry has been dealing with unfair competition from foreign producers for decades. We have always been very vocal in calling out each one of the problems, particularly the dumping of artificially cheap steel into the US market subsidies that foreign governments hand out with abandon to their steel producers, currency manipulation, weak environmental regulations or lack of enforcement, and insufficient or non-existing punishment for bad actors who manipulate the global market. With the Trump administration in office, action is being taken. And we are starting to see positive signs ahead of us. We at Cleveland Cliffs appreciate the recently announced 25% tariffs on steel imports from all countries. These tariffs are critical to addressing the problem. And we thank the Trump administration to have the courage to implement these tariffs. While the United States continues to be in a net short position on steel, the biggest exporters of steel into the U.S. are all guilty of overcapacity and overproduction. To make matters worse, these foreign overproducers of steel are all more carbon intensive than each one of the U.S. steelmakers, meaning that they overproduce steel and CO2. and then put this steel on a vessel that emits even more CO2. Cleveland Cliffs is not dependent on imported inputs, and we do not rely on foreign supply chains that can be disrupted overnight. The tariffs will penalize the foreign competitors who have been playing by a different set of rules while strengthening the domestic producers who actually invest in American workers, American manufacturing, and American supply chains. The trade angle isn't just important for steel, but for finished goods as well. For the first time in history, 2024 was the year when sales of imported cars in the United States surpassed sales of domestically made vehicles. Let me repeat this point one more time. In 2024, the number of imported cars sold to consumers was higher than the number of domestic produced cars sold in the United States. That is exactly why tariffs and a strong industrial policy are necessary to protect and strengthen the American manufacturing base instead of letting it continue to erode. We also appreciate that the recent tariff announcement includes downstream products containing steel. And that should benefit our clients in automotive and in other sectors. The tariffs will also benefit our newly acquired Stelco. That's right. Despite what some might assume, the best financial year for Stelco in the previous decade was 2018, when 25% tariffs on Canadian steel imports were in place. Stelco sells more than half of its output in Canada, and we compete with other Canadian suppliers who send the material into the United States. The Canadian steel market pricing reflects the U.S. market pricing, so any resulting rise in pricing will flow directly to Stelco as well. on top of the benefit we're seeing from the weakening Canadian dollar. It has now been nearly four months of our ownership of Stelco. I will remind everyone that our acquisition process and review by the DOJ went through seamlessly. The operational transition has been smooth. Lake Erie Works remains best in class from a cost structure standpoint. A large portion of our expected synergies have already been set in motion, and we are identifying more ways to maximize value from the combination. The best example is directing order flow to maximize all of our mill strengths. This means we can load Lake Erie with the grades they make best and transition some of the more sophisticated grades and orders to our US mills. The value we have found here will likely represent most of the remaining synergies. We expect to have the $120 million in synergies set in motion before the end of this year. As for the current state of play at Cliffs in general, we continue to manage costs, optimize operations, and maintain our financial flexibility. We have been through cycles before. We know exactly what to do. We continue to enjoy full support from our investors, and we proved that once again with the recently issued senior unsecured notes, a deal that was oversubscribed and was priced in a few hours after launching. And as we have already explained, the market is certainly pointing in our favor. The first step is the tightening of the scrap market. We have been saying for years that the continued push toward EIFs would force scrap prices higher. That's exactly what's happening now. Prime scrap supply is inelastic, and demand keeps growing. In just two months, we have seen prime prices move up $70 per graustone. Cleveland Cliffs is sitting exactly where we need to be. Our iron ore-based operations give us cost stability, quality consistency, and supply security. This is a long-term advantage that will only get stronger over time. Our order book is in a much stronger position to start 2025 with a significant uptick in demand. The improvements in automotive have been especially encouraging, with increased volumes from both existing and new programs. We are seeing our best pull rates since early last year, a clear sign that we are recovering market share from the competitors that gave away price. These competitors can't win on quality or service, so they gave away the farm on pricing and are now struggling to deliver on performance. No matter how much competition tries to low ball pricing in this market, quality and delivery performance always win in the long term. This positive trend, combined with better demand in other core segments, puts us in a great position for the year ahead. After spending the entire second half of 2024 With sub $700 HRC pricing, we are finally starting to see the long overdue bounce. And we're now even better equipped to ride this upside than before with Stelco and its primarily non-automotive book of business in the mix, resulting in a smaller percentage of fixed price contracts for our total Cleveland Cliffs business as a whole. And let's not forget about safety. We had an outstanding safety record in 2024, and that is the direct result of our great relationship with our workforce. We take safety seriously, and the unions do too. We reported a full year, 2024, total reportable incident rate or number of injuries per 200,000 hours worked of 0% And unlike some other companies in this industry, we count everyone inside our fence line. Employees, contractors, everyone. Finally, before turning it over to Celso to go through our financial results, I will quickly address a topic I'm sure many of you want to hear about. Given ongoing litigation, will not be taking questions regarding US Steel or Nippon Steel today. But our position is well known, and our conviction has never changed. We have been steadfast in our opinion that US Steel's announced sale to Nippon Steel would never close. I said that in December 2023, then in 2024, and I'm repeating that in 2025. Just go back to our conference call transcripts and public statements, and you'll see that we have been correctly predicting this outcome for over a year. The reality is that the deal has been blocked by the United States of America on serious national security concerns that cannot be mitigated. The CFIUS Committee rightfully recognized this and specifically noted that allowing Nippon Steel, a company fully financed by the Japanese banking system and their near zero interest rates, to become a major domestic player in the US would negatively impact the future of the entire American steel industry. And that would affect multiple states of the union in the Midwest and beyond. President Trump has said a number of times that Nippon Steel is an unacceptable buyer for a majority stake in US Steel. That said, no situation is so bad that it cannot become a lot worse. For Nippon Steel, it's time to pack and go before their epic M&A disaster becomes a serious diplomatic issue. As President Trump says, Let's see what happens. With that, I'll turn the call over to Celso.

Good morning, everyone. Moving on to our results for Q4 and full year 2024, our financial performance last year, particularly in the fourth quarter, reflected the difficult market conditions that Lorenzo described. For the fourth quarter, we posted an $81 million adjusted EBITDA loss, which was primarily the result of weaker automotive demand and the impact of lagged pricing. Direct shipments to automotive in the fourth quarter were our lowest since the pandemic, and commodity pricing for the last six months of 2024 was the lowest six-month stretch since 2020. Given that over 90 percent of our shipments are impacted by either automotive pull rates or commodity steel pricing, these multi-year lows drove a negative impact in Q4. Fortunately, both of these situations have already begun to improve here into 2025 compared to 2024. just like things improved quickly in 2021 relative to 2020 a few years ago. As Lorenzo detailed, the automotive order book has been remarkably healthy to start 2025, due in large part to market share recovery and commodity steel prices rapidly on the rise. As a result, we view the fourth quarter of 2024 as the trough in our quarterly profitability as we gear up for a much improved 2025. To be clear, with the inclusion of Stelco, for every $100 increase in the HRC price on an annual basis, our yearly revenue would increase roughly $1 billion, all things equal. And after factoring changes in profit sharing and historical scrap correlations, this $1 billion impact would largely flow directly down to EBITDA. So if you hold all things equal and look to the HRC curve right now for 2025, you can pretty easily calculate a vastly improved adjusted EBITDA and cash flow for 2025, especially after adding another 2.6 million tons from our Canadian operations. Total shipments in Q4 were 3.8 million tons, which was lower than Q3 due to the continued idling of the C6 furnace, seasonally weaker demand, and only having Stelco for two months of the quarter. Though the C6 furnace remains idled, our Q1 shipment level should improve back above the 4 million ton mark again due to improved demand, better utilizations at our U.S. mills, and having Stelco for a full quarter. Q4 price realization of $976 per net ton looked like a sharp fall of $70 per net ton from the previous quarter, but this was mostly driven by the incorporation of Stelco and their lower-priced mix. The inclusion of Stelco into our results obviously helped lower our weighted average unit cost with a reduction of roughly $15 per net ton compared to the prior quarter. Even though we weren't operating at full capacity with the C6 furnace down, we continued to reduce costs across the board. At this time last year, we guided that our unit steel costs would be down $30 per ton year over year. This is exactly what we accomplished, even in the face of all the headwinds we saw in 2024. Now, with Stelco in the mix, we expect our average cost to decline another $40 per net ton in 2025. The cost advantage at Stelco was well documented, and the recent weakening in the Canadian dollar has only fortified that advantage even further. It's not just on the operational side either. Looking at our SG&A for 2024, we were down nearly $100 million, or 16% from the prior year, due primarily to lower incentive compensation. From a balance sheet perspective, We remain in a remarkably healthy liquidity position following our latest capital raise, where we replaced secure ABL borrowings with long-term unsecured notes. As of today, we sit here with $3 billion in liquidity, and all of our secured debt capacity remains intact. Following the acquisition and the cash use in the fourth quarter, our leverage sits above our 2.5 times target on a net debt to EBITDA basis. And as we have done historically, that pivots us directly into debt reduction mode, If you look at Cliff's recent history, we have a proven track record of levering up to make strategic acquisitions and subsequently paying down debt quickly. AK Steel, AMUSA, and then FPT. It was the same story each time. It will be the same story with Stelco. We will use 100% of our free cash flow going forward toward debt reduction until that target is reached. The hurdle is not even quite as high this time either. Compared to where we stood after completing the AK and AMUSA acquisitions, our leverage is actually already in much better position. On top of that, at the time of those acquisitions, our net pension and OPEB liabilities were north of $4 billion. Those liabilities have been nearly eliminated, down by 90% from over $4 billion down to only $400 million as of the end of 2024. Q4 was a rather heavy period of cash use, both from the weak results as well as the buildup of inventory and the release of payables. This inventory build in Q4 is primarily a result of raw materials, particularly iron ore pellets, a situation that we'll be able to rectify here in 2025. This build sets us up well to rapidly respond to the improved demand we are seeing thus far this year. We will also have much lower capital expenditures in 2025 on a pro forma basis, particularly from a sustaining standpoint, as we have completed our major reinvestment cycle. Fortunately, as a single mill operation, the Stelco assets were very well capitalized, and we do not have any catch-up CapEx requirements like we did following the AMUSA acquisition, for example. Our total CapEx is expected to be $700 million in 2025 compared to $800 million in 2024 when you include Stelco. 2024 represented the cyclical world that we all know as a steel company. I believe in the midst of our weakening results with our focus on cost control, and our strategic M&A with Stelco, we positioned ourselves very well for a significantly improved 2025, especially as the wider market improves. I'll now turn the call back over to Lorenzo for his closing statement.