CLEVELAND-CLIFFS INC. Q3 FY2024 earnings call

• Lourenco Goncalves highlighted the company's positioning to benefit from pro-steel views of presidential candidates and the successful close of the Stelco acquisition, which is expected to average up the overall EBITDA margin.
• Q3 results were impacted by weaker steel demand and pricing, but cost performance was strong with unit costs reduced by over $40 per ton.
• CapEx guidance for 2025 is $600 million ex-Stelco, the lowest standalone CapEx since 2020, driven by reduced needs across the footprint and updated spend estimates on strategic projects.
• Strategic projects at Middletown, Butler, and Weirton are progressing; Phase 1 funding approvals received for Middletown and Butler, and equipment ordered for Weirton's transformer plant.
• Workforce safety metrics in 2024 are the best in the steel industry, and 1,800 USW members in Canada were added.

In Q3, Cleveland-Cliffs had an adjusted EBITDA of $124 million on 3.8 million tons of shipments. The standalone Cliffs is primarily automotive-focused, while Stelco, the acquired company, is non-automotive. The acquisition of Stelco is expected to improve the overall EBITDA margin of Cleveland-Cliffs. Stelco operates with a lower fixed cost and nimble operation, serving non-automotive end users and service centers, and its cost advantages (currency, iron ore cost, plant layout, health care, and power costs) enhance the overall cost structure of Cleveland-Cliffs.

• Expect a strong 2025 driven by falling interest rates, election certainty, import economics, and manufacturing onshoring.
• CapEx for 2025 is guided at $600 million ex-Stelco, with lower need for automotive-related spending due to changes in automotive client strategies.
• The Stelco acquisition is EPS accretive and credit positive, with anticipation of strong Q1 volume and automotive business improving as clients start placing orders post-election.
• Expect $120 million of cost synergies from Stelco within the first year, with potential for higher numbers in future calls.

• High interest rates impacting consumer and business spending, which affects steel demand.
• Potential for dumping from foreign-owned companies inside the US, which could disrupt the domestic steel market.
• Uncertainty in the automotive industry's transition to electric vehicles, affecting Cliffs' automotive-focused business.

Q: Lucas Pipes asked about Q4 volume, price, and cost expectations.

A: Lourenco and Celso discussed Q4 volume expecting to pick up post-election, average selling price similar to Q3 on a standalone basis, and cost details including shipment levels and mix.

Q: Lawson Winder asked about Q4 cost savings and auto contracts.

A: Celso said Q3 cost savings were remarkable but Q4 would not see the same magnitude, and Lourenco discussed auto contract pricing and the impact of foreign-owned companies dumping.

Q: Carlos De Alba asked about 2025 prices, coal costs, and cost initiatives.

A: Lourenco and Celso talked about automotive contract pricing, $70 million lower coal costs in 2025, and ongoing cost reduction initiatives.

Q: William Peterson asked about market environment and infrastructure.

A: Lourenco discussed high interest rates impacting consumer spending and infrastructure projects being delayed due to red tape and high financing costs.

Q: Chris LaFemina asked about blast furnace 6 and synergies.

A: Lourenco and Celso discussed bringing blast furnace 6 back online with demand recovery and confidence in $120 million synergies from Stelco within the first year.

Q: Philip Gibbs asked about Stelco synergies and large-scale projects.

A: Lourenco and Celso talked about $120 million synergies being conservative and grant money received for Middletown and Butler projects.