Earnings Call: Q1 2021

Apr 22, 2021

Good morning, ladies and gentlemen. My name is Amy, and I will be your conference facilitator today. I would like to welcome everyone to the Cleveland Cliffs First 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 letter intended to be made as forward looking within the Safe Harbor protections for the Private Securities Litigation Reform Act of 1995. Although the company believes that its forward looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially. Important factors that could cause results to differ materially are set forth in reports on Forms 10 ks and 10 Q and news releases filed with the SEC, Sea, which are available on the company website. Today's conference call is also available and being broadcast at clevelandcliffs.com. Call. At the conclusion of the call, it will be archived on the website and available for replay. The company will also discuss results including certain specialty items. Reconciliation for regulation sheet purposes can be found in the earnings release, which was published this morning. Call. At this time, I would like to introduce Cliffs' Executive Vice President and Chief Financial Officer, Keith Kose. Please go ahead. Thanks, Amy, and call. Good morning, everyone. Going right into our results, our first quarter adjusted EBITDA of 513000000 call represented a 79% increase over last quarter, reflecting our 1st full quarter results from the former AM USA assets, call as well as stronger steel pricing offset by reduced third party pellet sales due to the annual maintenance of the Great Lakes locks. Call. In the steelmaking segment, we sold 4,100,000 net tons of steel products, which included 28% hot rolled, 18% cold rolled call and 33% coated with the remaining 21% consisting of stainless, electrical, plate, slab and rail. This mix is generally in line with what we expect to see going forward. Our aggregate average selling price of $900 per ton call. In Q1, it's certainly the low point for the year in our forecast and is lower than our Q4 2020 average call solely because of the different mix associated with the former AM USA plants. On the cost side, our performance came in as expected. Call. Relative to last year, we are seeing decreases in costs for coke and coal, as well as benefits from decreasing scrap use quarter and higher productivity from using our HBI products in house. This has been offset by higher prices for scrap, call. Alloys and Natural Gas. We also saw higher labor costs due to increased profit sharing. DD and A was 217,000,000 quarter and we expect about $840,000,000 on a full year basis now that purchase price accounting has been further refined. Quarter. An important moving piece this year in our cost structure will be iron ore costs. We certainly benefit on the former AM USA side from transferring pellets cost. But during the first and second quarters, we are working through the pellet inventory previously purchased from Legacy Cleveland Cliffs. Call. These pellets were purchased at a margin prior to the acquisition and therefore the higher cost runs through our income statement in 2021 quarter. And the resulting impact is not included in the add back for inventory step up. This short term anomaly had a negative impact quarter of approximately $50,000,000 and will be a $40,000,000 headwind in Q2. After that, the impact will be negligible, call, creating nearly a $100,000,000 EBITDA tailwind going forward in comparison to the first half of twenty twenty one. We experienced the same anomaly in 2020 as a result of the AK acquisition. As for synergies, We have already identified and set in motion $100,000,000 in cost synergies from the AM USA acquisition, some of which will take effect later this year. We are well positioned to reach our target of $150,000,000 of annual run rate savings by the end of this year for a total of $310,000,000 from the 2 combined acquisitions. Call. As far as cash flow, Q1 contains several previously discussed one time items that will not recur going forward. Call. As was contemplated in the acquisition of AM USA, we had a significant investment in working capital of nearly $650,000,000 during the quarter due call. First to the completion of the unwind of the ArcelorMittal AR factoring agreement, as well as other acquisition related cash impacts. We are now completely done with this and receivables have been rebuilt. 2nd, we saw a working capital build related to receivables corresponding to the rising steel price environment. Also, we made our deferred pension contribution call related to the CARES Act of $118,000,000 in January. With the passage of the most recent stimulus bill and the extended amortization feature, quarter. Future cash pension contributions will be reduced by an average of $40,000,000 per year over the next 7 years. Call. For the remaining three quarters of this year, we will be generating record levels of free cash flow. In future years, call. We expect certain cash outflow items to be lower than in 2021. Sustaining CapEx will be approximately $525,000,000 annually. Call. Interest expense will be lower due to reduced debt and pension contributions will also be lower without deferral payments and with the new stimulus benefit. Call. In addition, working capital impacts will likely revert to neutral over time, unlike the large build we project this year. Call. Upon releasing our Q4 earnings, we guided to a substantial EBITDA improvement from Q1 to Q2. And by the end of March, quarter. We had enough pricing visibility to disclose a $1,200,000,000 adjusted EBITDA guide for Q2. Quarter. The increase from the Q1 is driven primarily by pricing, offset by higher incentive compensation quarter and profit sharing and higher raw material pricing for scrap and alloys. On the liquidity side, we currently have $200,000,000 in cash quarter and $1,600,000,000 of availability under our current credit facility. Our ABL debt balance is currently $1,600,000,000 call and we expect to have this paid off by the end of the year. Our pay down of this instrument will come penalty free and every dollar that is reduced in ABL debt call will be added to our liquidity. In closing, we find ourselves well positioned to take advantage quarter. Call. Based on what we are seeing in the market, we believe our estimates supporting $4,000,000,000 of adjusted EBITDA for the year are conservative quarter relative to today's forward curve. And now I'll turn it over to Lorenzo. Thank you, Keith, call. Good morning to everyone. I will start my prepared remarks reminding our investors call. That this Q1 of 2021, which we are currently reporting results, was the very first full quarter for following the closing of the acquisition of AM USA on December 9, 2020. And it was an immensely successful quarter for our integration, culture change and clearly our profitability. Our attitudes towards commercial and steel pricing call is the main reason behind the massive numbers we are showing for the quarter and guiding for the balance of the year, call. Including $513,000,000 of EBITDA in Q1, dollars 1,200,000,000 EBITDA next quarter and $4,000,000,000 EBITDA for 2021. The steel industry is capital intensive Quarter. And return on invested capital is necessary. If we lose track of that, call. We would not be able to address issues like equipment reliability, workplace safety or the environment. Call. We are not greedy. We are realistic. That's why steel prices are where they are, and that call. We will continue going forward. Right now, the American consumers are consuming, call. And they are consuming a lot. Stimulus money provided to the majority of the population is being redirected right back into the Economy. And that's great for flat rolled steel producers like Cleveland Cliffs. Call. This money is being spent on consumer goods like HVAC and appliance and cars, call. Evidenced by the skyrocketing out of SAR in March, the so called experts that won't predict call. The demise of the domestic steel industry has been proven completely wrong. Call. When Cleveland Cliffs bought AK Steel and AM's USA or when the COVID recovery begun, call. They had an easy window of opportunity to fix their failed disease. Unfortunately, call. Their addiction to negativity is apparently the only thing that they care about. Call. These folks just don't want to see our industry thrive, and they clearly don't care call about the well paying middle class jobs we generate and sustain in the United States. Call. For the record, from our approximate years, the median yearly pay of call. Our 25,000 Cleveland Cliffs employees is $102,000 call. And we're hiring because we're growing. Make no mistake, we are adding jobs. Call. Since December 9, 2020, we have already added 710 new employees to our workforce. Call. As we always do at Cleveland Cliffs, we are putting our money where our mouth is call. And bringing back the America that we love with a vibrant manufacturing sector, a thriving middle class call and with opportunities for all people that believe in education and hard work. Call. The main factors supporting this new way of doing the steel business are the following. Call. 1st, industry consolidation. Prior to our acquisitions of AK Steel and AM USA, quarter. They were both buying iron ore pellets from Cleveland Cliffs under take or pay type of contracts. As a result, call. Their top concern was filling up their steel order book so they could satisfy their purchase requirements with us. Call. And in many cases, that involved being aggressive on pricing their end product, so they could move material. Call. We and the business we acquired are no longer burdened by this, which leads me to number 2, call. A more disciplined supply approach. As I have stated in the past, we can be flexible with our production call and can walk away from bad deals, automotive, contract, spot or otherwise, much more easily. Call. This industry has been plagued in the past by volume for volume sake. Call. But with our transformative acquisitions, we have all started to see rationality in the marketplace. Call. And don't forget, the U. S. Dominates the world in environmental performance. Call. Of all the world's CO2 emissions from the steel industry, the U. S. Comprises quarter. Just 2%, while China is responsible for 64%. Call. We have also the lowest CO2 emissions per ton of steel produced among the 9 largest steelmaking nations. Call. Due to both the prevalence of EAF production and the massive use call of pellets in black furnaces. This leads me to my final factor, the one that will drive quarter. Mid cycle hot rolled coil pricing higher for the long term, the scarcity of prime scrap. EAFs make up more than 70% of steel production in our country. Call. This U. S. Reality is unique among all major steel making countries. EAFs call. Have long taken advantage of the large pool of scrap here in our country. However, with all the new capacity call. Coming from the EAF side of the business, their scrap feedstock has become a stretched out of short term. Quarter. In order to make flat roll products in EAFs, you need prime scrap and metallics, quarter, both of which actually originate from the integrated route. On top of that, manufacturers call. The United States is a net exporter of scrap, but it is also a net importer of prime Scrap. Combine that with China's growing needs for imported scrap, which will outpace their own generation call. In the near term, the U. S. EAFs have a big problem. Obsolete and lower grades of scrap call. We will likely be okay as higher prices incentivize collection, but that's not the case for prime scrap. Quarter. Lower grade scrap is good for rebar, but it's not good or not enough call for the production of more sophisticated flat rolled steel products. This scarcity points to significantly higher quarter. Meanwhile, we at Cleveland Cliffs will continue to enjoy call. The steady cost structure of our iron feedstock, our own 100% internally sourced pellets with decades of iron ore reserves ahead and our in house production of HBI call fed by our own mine and pellet plant. We formulated this view in 2016, call. And that has been the driving force behind our strategy for the past 5 years, including the construction quarter. Our HBI plant and our 2 transformational acquisitions executed last year. Call. It is actually interesting to see other companies getting to the same conclusion 5 years later. At the time, Cleveland Cliffs quarter. Our direct reduction plan call. Have had a remarkable past few months since the start up in December of 2020 call and has already exceeded our expectations thus far on HBI production and shipments. Call. We produced 120,000 tons of briquettes in the month of March and call. We expect to reach our annual run rate of 1,900,000 tons this quarter. Call. While we have already shipped some HBI tonnage to select outside clients and at very good prices, call. We have thus far used most of the product internally at our own EIFs, blast furnaces and DOS quarter. As planned, operational results have been above our own expectations call in all times of internal usage of our HBI. Particularly at our EAFs, call. HBI currently makes up between 20% 30% of their mail. More importantly, our call. HBI has effectively eliminated our need to buy prime scrap. We only need to buy lower grades call at this point, substantially lowering our cost structure. It has also lowered call. Our greenhouse gases emissions and improved our iron and chrome yields. Call. The original intention for the Toledo Direct Reduction Plant when Cleveland Cliffs was just another company call was to exclusively sell HBI to 3rd parties, but that dynamic has changed quarter with our 2 acquisitions of last year. Given our expectations for the scrap market, our HBI call is an incredibly important Cleveland Cliffs internal resource and differentiating factor, both now quarter. This is why I'm happy we did not sign long term contracts to quarter. I did not need them to build the plant. I don't have them now, call. And I don't want long term supply contracts going forward. For the record, call. The consistent performance we get out of our HPI in all of our plants, both in quality and environmental, call is one of the most positive factors differentiating Cleveland Cliffs from the rest of our competitors, call, both integrated and mini mills. On the steel operation side, things have been progressing nicely. Call. Our Middletown outage was a success. We completed the blast furnace repair in less than 14 days, call. And the BOF vessel maintenance was finished ahead of schedule, and we do not have any major outages scheduled in Q2. Call. We are focused on getting steel out of the door. Despite all we hear about supply shortage call of electronic parts and other components in automotive, we really have not seen quarter. We have been running our coating lines at full capacity call. In response to outstanding demand and are restarting our Columbus coatings galvanizing line. Call. That will increase our output of galvanized products starting in this second quarter, and we will call. Our clients take care of their own high demand. For the small amount call. We have been able to divert that substrate to higher quarter. We completed all of our April 1 automotive contract renewals call with nice price increases and plan to continue to see significant improvement in these margins call going forward. All of our actions support immense cash flow generation for this year and beyond, call. And that cash will be used to pay down debt. Under our latest forecast, we expect to generate call. A record level of free cash flow in the last 9 months of 2021, which will put us at a figure quarter of less than one time EBITDA leverage by the end of the year. With that, call. I'll turn it over to Amy for Q and A. Star. Your first question today comes from the line of Lucas Pipes with B. Riley Securities. Please proceed with your question. Call. Hey, good morning, Lorenzo and team. Good morning, Lucas. Congratulations on the continued success. Thank you. Call. On prior calls, Lorenzo, and just now, in fact, there have been discussions about auto supply agreements and what you call. Could do or what it could allow for in terms of improved value capture on your part. And I appreciate that this is call. A little bit of a delicate matter, but I wanted to ask in what ways, if any, these relationships continue to evolve? Call. Lucas, the relationship is great because it's a relationship built on co dependence. Call. They depend on us and we depend on them. The good news is that since we acquired AM USA, our quarter. Percentage of automotive business in the overall business dropped dramatically. Call. So even though automotive is still important, it's not a make or break like it was for AK Steel call when AK Steel was a standalone company. Another thing is that the real competition for the more quarter. The AK Steel and Cleveland Cliffs owned AK Steel for a loan for almost a year. Call. The only real competition was AL USA. So now we own both. Call. So the automotive clients, they have already realized that. And they are no longer negotiating with a vendor. Call. They're negotiating with a supplier that treats them with a lot of respect and demands respect in retrospect. Call. So we are doing great. We haven't had to shut down any clients yet in contract negotiations. Call. But every time they think about playing hardball, they should know that at the start side of the table, there is someone that loves call. So far so good. That's very helpful. Thank you, Lorenzo. And then call. It's Earth Day today and President Biden, President Xi has been outbidding each other with announcements on carbon reductions. And you quarter. I've spent quite a bit of time talking about this larger context in your prepared remarks, but I wondered call. Could you maybe go back on some of the details to what extent our carbon reductions in the U. S. By 2,030, for example, Risk or an Opportunity for the U. S. And then of course, you've always had great perspectives on what's going on in China and the implications for global steel and iron ore markets. Call. And of course, this has major impacts for you as well. And so kind of wrapping it all together, if you could include that call. Those thoughts and your response as well, I would really appreciate it. Thank you. Yes, it's a lot to pack in an answer for you, but call. I will try to summarize this the best I can. First of all, I believe that the fact that President Biden call. Retaking the U. S. Leadership in this environmental conversation is call. A very welcome move, and it's overdue. I have been hearing way too much from countries and companies call. That don't have anything to say, but they are saying anyway. The United States can say a lot. Call. We have the most stringent and the most serious laws and regulations regarding environmental throughout the entire world. Quarter. And in order to operate in the United States, you need to comply with them day in and day out. That's the start. Call. The other thing that I love about what President Biden is doing is that he established a deadline for the quarter. Reduction of 50% in 2030. In 2030, it's around the corner. I hate when I see companies call. Say that they are for companies and countries and whoever say that there will be carbon neutral by 2,050 or in the case quarter. There is only one certainty about 2,060. All of us that are in this call will be dead. That's the only call. Certainly, that we have that 40 years down the road, I don't think that we have too many 20, 25 years old in the call. They hide in basements and they hide behind keyboards. They don't come to call to learn. Call. So anyway, so for the 30s 40s, if we're not dead, we're very good at that time. That's the only certainty that we have. Quarter. But 2030 is around the corner. So it's good that Brian is talking about 2030. And he's putting a target of 50% reduction call from 2,005, and that's a good point to start. If you look at our environmental commitments, call. We are talking about 30% reduction in 2,030, call. Taking as of this case in 2017, we haven't checked yet to 2,005 because this announcement came this morning. But I believe that we're already there. Call. So that's good for us because we did not start counting 2,005, we're counting 2017. That was the beginning of the HBI plan call. When we start building HBI. Going forward in our business, the data will start to be realistic, call. And we are going to start to see things the way they are. China is responsible for 64% of greenhouse gas emissions call. From the steel business, the United States is responsible for 2%. Here in the United States, we have excellent performance from all EAFs call from the many mills from our EAS at Cleveland Cliffs and also from blast furnaces that are all call. Our Middletown blast furnace has a performance that is very similar to an EIF. Call. Our Dearborn Glass First, we're looking to just look into the number because of the cogen arrangement that we have with Dearborn Energy DEI. We have numbers that are below the EAFs. So that's the other thing that needs to be picked. Our blast furnace in Dearborn is not better than on EAF. It's just the way things are quarter. And there are things in Jabbour and they are not being accounted for as well as there are things in EAFs that are not being accounted for. For example, the usage of important pig iron because important pig iron goes against scope 3 and everything that's being reported is scope 1 and scope call. So we are going long story short. With the involvement of President Biden and President Xi, call. Things will start to be more in the real side of the world in terms of being discussed between academics and call. And people that are starting to sell consulting services and reality will sink in and reality will prevail. The Cleveland Cliffs is reality. Call. Very, very helpful. Thank you, Lorenzo. I have more questions, but I want to be respectful of everyone. So I'll turn it over. Thank you and call. Your next question comes from the line of Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question. Hey, Lorenzo. Good morning. Hey, Emma. I am also behind my keyboard here, but not in the basement. So quarter. I've got that going for me, which is nice. CapEx this year, Lorenzo, any update on that? Question. I'll let Keith handle that. Look, when I'm talking about the kids behind Chipotle, certainly I'm not talking about 2 kids. All right. Go ahead. Yes, maybe Phil. No, we're still looking at around $650,000,000 for the current That's our forecast. I think last time we talked about $600,000,000 to $650,000,000 We're at the high end of that range now. We're at 6 call. Okay. And then do you have with Middletown restarted, do you have an expectation for higher steel volumes in the second quarter? Call. That's a good question because that will allow me to say something that it's a bad association. Call. When we do an outage of blast furnace like Middletown, that's a major risk. We prepare for that. So we never had quarter. Any lower throughput because of the 14 days than Middletown, 13 days and a half, quarter. Middletown blast furnace was down because we had enough blast. We had enough hot pan. We had enough P and O. We had enough cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, cold, hard. Call. We have enough everything as far as work in process to keep all the lines full and all deliveries in shape. Call. And then Jose, Balboreso, the clients are complaining that they are not receiving steel. Yes, these are the clients call. That way, Hawk Bend was 440. They could have loaded the truck. They could have put their warehouses call through the roof because you can't get much better than that. Actually, we should have never been call. Even close to that, and we never will again. And that's Cleveland Cliffs telling you, Phil. So call. They didn't do it because they were waiting for another $10, $20, $30 to drop to then be opportunistic. Call. So they are basically collecting what they planted for. And we are taking good care of some of them. Some call. Some others were not taking care because they don't believe that they don't they really even belong because we don't need all this opportunistic players in the marketplace. They just distort, destroy, complicate, gossip, talk on the phone, call. Send fake information, do everything that we've already done in the marketplace. What we need in this business is stability. Call. What we need in this place is profitability. There is no real company in this 4 months of 2021, that it's a real company that's complaining about higher prices. Do you know why? Call. Because they are all making money. There is only one way for the supply chain to be profitable is to have prices call. At a level that makes sense. This is a capital intensive industry field. We need to have return on invested capital. Call. Without return on invested capital, we can't do anything. We can't pay dividends to shareholders. We can't pay down debt. We can't do anything. Call. So that's what we're working for. We are doing our mandate. We are doing our job. We are working on behalf of the shareholders of Quarter. So essentially, what you're saying is that call. Your volume should be reasonably stable, perhaps maybe up a little bit, maybe down a little bit, but kind of within this range. But call. The automotive supply chain certainly is a big part of your business. It's a big part of the Industry here domestically. I think we just want a better view, if you could, in terms of what's going on. I mean, obviously, there are shutdowns that are taking place, but quarter. Are customers still taking steel on the prospects of ramping up in the back half of the year? Were your shipments down? Do you expect them down in the Q2 and ramping back up again? It's just tough to know from our seat what's actually happening on just the volume side. Thanks, Lorenzo. Yes. Phil, we supply pretty much everything to everyone call. Because of our size, we supply rough numbers, 4,500,000 tons a year call of carbon steel and another 500,000 tons a year of stainless. So all in, we supply 5,000,000 tons Quarter. And I will be honest with you. I haven't seen a real impact on the shortages. Call. Yes. We can have a week that we are delivering a little less to customer A plants, XYZ. Call. But then the next week that plant catches up. And then another plant for another OEM slows down because they don't have call. They're cheap though because they don't have rock or because they don't have foam, but they will catch up and then we catch up with them. Call. And in the meantime, Phil, we have been able to take better care of spot orders for the good Service Centers, and we are being able to increase our prices. I don't know if you know, but this morning, hot rolled prices call. We reported about $1400 per net ton, and we are cutting deals way above $1500 per net ton. Quarter. So we're in good shape, and that's fantastic. And this trend will continue. So there is no real impact call. From our standpoint as a supplier, and I'm really talking about across the board quarter. Big one could be a not so big one, but pretty much everybody is taking care of their own respective businesses, And we are supplying them. So no impact on us. As far as producing more, producing less, we're going to sell NeoMar. Why do I say that? Call. We are bringing back Columbus Groupings, and that's more galvanized in the marketplace. But that's just galvanized. So other than that, we are producing at call. And then I'd say, Paul, but Indira Argo 3 is not in operation and Exelent is not in operation. Call. Yes. They are out of operation for a long time and they will never come back, neither Ashland nor Indiana Harbor 3. They're done. Call. They're not going to come back. They are not part of the future. And we are producing more hot metal call. Because we are using HBI, as Jean Angelo said, we are using HBI in Dearborn. We are using HBI in Little Town. So quarter. That's what we're doing and we will continue to produce more, increase productivity, increase throughput and not bring any glass runs back. Call. Thanks very much. Thank you. Your next question today comes from the line of Matthew Fields with Bank of America. Please proceed with your question. Quarter. Congratulations on the great success this quarter and the continued momentum. Now that you've been in the you are still in middle assets for 4 or 5 months now. Just wondering if you've sort of taken a review and seeing if there's any kind of major projects that you might need to do in the next quarter, whether it's some of the older plants like Steelton, the Kanshaken Plate Mill, Burns Harbor or any of the coke batteries. Call. Yes. Look, we are yes, we have learned the assets during due diligence, and now we are really Into the assets for a few months, and we believe we know them extremely well. We compare quarter. The overall status of the assets at a level that is not the same level that we found call. This being said, everything that we need to do with those assets has already been contemplated in the CapEx numbers call that we released with these results. And today, during the call, Keith Koussi talked about. Call. So there is nothing really major to be for us to be expecting. And all these ones that you mentioned specifically Great business. We love doing business from Coatesville and Coaxaca with the military. That's the thing that call. We used to do a lot of business in my medals USA time. We reconnected with call. The Pentagon and our relationship is perfect. We will continue to grow this business. Buenasco Plate call. It's the best performer of plate out there as said by the clients. So the clients appreciate call. We are taking care of business in place better than the competition. And that's what the clients say. I don't know if they're saying something different to my competition, but that's what they're saying to our guys in plate out of quarter. Bonjour Plate that also includes Kerry Plate. So the Stilton is a business that's a very niche business. As long as you price it right, call. You make a lot of money over there. The EIS there, long story HBI, we are no longer buying scrap over there. We are making a normal saving even. We sell HBI for the 3rd party clients quarter. Very high margin, very good profitable business, but we are making more money by replacing scrap in steel call. And don't buy prime scrap in the marketplace using our HBI because the savings in costs are better than the margin that we make selling HBI, and we are denying service to the competition. So it's all perfect. So all good, Matt. I don't know what call. That's helpful. And then I probably I know this is like not that important to the way you run your business, but a lot of folks in my world quarter. With steel prices or the steel environment or they just juke way behind, is it something that you actively call. Can focus on or is it just they'll come around when they come around and get you out of that CCC rating, which seems kind of absurd at this point? Call. Look, I also noticed that, and Keith and Sosa as well. Call. That's why in the last deal, I did not use S and P. I used moods and fish. Call. I'm not saying that moods and fish are much better, but I'm just saying that S and P is just horrible. So call. They're just they're blind and they don't get it. So I don't know. You've got to ask them call. If that day the brain is working, they might give you an answer at their life. They will just receive your email reply the next day. Call. Yes, fair enough. Let me do a follow-up with you, Matt. Call. When will be the day that high yield investors will allow you to do a deal without having a rating? Call. Because you guys all know that these folks don't know anything. So why investors like to see the rating out there? Call. I price my deals at a different level of my rates. I price my deals at yields that don't match my rates, call. But I still need to print a rate. I mean, I go with a B and I price below double B plus So call. You know that, man. You have been following us for a long, long time. Well, I think the high yield investors are sometimes smarter than the rating agencies. I believe so, too. Call. But they are not quite enough to do it all the freaking reasons. So anyway. Lastly, you've been right about a lot of things, but I hope you're wrong about one thing and I'd like to live past 77 if that's okay with you. I'm sorry, say it again. Call. You've been right about a lot of things, but I hope you're wrong about we're all dead in 2,060 because I'd really like to make it past 77. Call. Yes. Look, I will start free for you today. I'm in 'seventy three and I feel that I'm already working in overtime. Thanks a lot, Lorenzo. Good luck to that. Thanks a lot. Your next question today comes from the line of Seth Bosevensfield, Vaccine. Please proceed with your question. Good morning, Lorenzo and Keith. Call. A couple of questions, please, starting out on decarbonization, then another one on working capital, please. On decarbonization, obviously, you spoke call. Quite significantly about the progress the U. S. Market has made in cutting carbon emissions, especially versus peers in Asia. Wondering for Cliffs asset mix in particular, call. How you view that progressing over the medium term of the HBI, a very big positive here. Do you see opportunity to Expand HBI or expand your EAS capacity in order to reduce your parlorin footprint further, maybe over what timeframe that might be considered? Call. Yes. I see what we're doing, Sondat. Okay. Is there a level of deleveraging after quarter. Large CapEx Investments are motivated by real need, not by availability of capital. So Keep in mind, when I started building the HPI plant at the time with a budget of $700,000,000 call. To produce 1,600,000 metric tons of HPI, that was a massive investment call for Legacy Cleveland Cliffs. And we made it anyway because that was the right thing to do. Call. If I had not done that, today, I would be announcing an HBI plant. Call. And people would be telling me, congratulations, Lorenzo. You are thinking ahead. You are thinking about building an HPI plant. Call. Yes, it will be something really good for the environment. Guess what? Remember that plant that you said that was a window maker that nobody can finish on time and call. It's you said that. We finished on time. We finished on budget. We increased the size. Instead of spending $700,000,000 we spent $1,000,000,000 call. And now we have it, and now it's ours, and now we're using. And we are decarbonizing. In Europe, where you live, call. People are talking a lot about decarbonizing. When talking about hydrogen, the technology is not there. They are talking about break technologies that not even the universities know where they are going. And the ones that are talking about exception probably for call. Archila Middle, that they really do what they really know what they're talking about. Everybody else are fighting for against bankruptcy, call. Dealing with lenders that go bankrupt, deal with banks in Switzerland that go down when they release results, it's a freaking mess call. In Europe, as far as environmental, the person running the show in environmental in Europe is a call. That's 18 years old. Here, it's a 63 years old guy that has been doing this for 41 years. Call. If you guys start paying more attention, you'd be better off. What else do you need to know about the carbonization? Call. Okay. That's very clear. One more question, please, on shorter term cash flow, please. Working capital, obviously, significant investment in Q1. Can you give us a sense looking ahead into Q2, whether or not you think that given the cyclicality and price strength, there's need for incremental working capital investment call. Or have you already been able to get investment levels stable going into the Q2 of the year? Yes, Keesha, I'll answer that. Sure. So call. We will see a little more build here in Q2. Prices our selling prices continue to go up. Therefore, our receivables are going to Club. So I think embedded in our numbers $200,000,000 to $300,000,000 of working capital build on receivables in Q2 and then stable call. It's very clear. Thank you. Call. Your next question comes from the line of Sean Wondrack with Deutsche Bank. Please proceed with your question. Hey guys, good morning and congratulations. Good morning John. Thanks. This free cash flow guidance is a far cry from the guidance we got in April 2020. Call. It's amazing to see this now. It totally backs up the buyback that you did back at that time. I'm just thinking, when you look at the $4,000,000,000 of EBITDA, quarter. I'm assuming that prices hold up. Dollars 650,000,000 of CapEx, this is sort of implying quarter. Billions of free cash flow. Is that right? Are there other puts and takes like working capital? Or am I reading the guidance correctly there? Thank you. You are reading it extremely correctly. We are talking about $2,300,000,000 of free cash. Call. That's correct. You are reading right. And it will be all applied to pay down debt. And call. And when we get to the end of the year, we're going to be below one time leverage. And guess what, I will continue to pay down debt. Call. We want to be debt free. Yes, I want to be debt free call. Because you know what, I don't know if one day you're going to have another COVID. I don't know what's going to happen next. What I know is that if I have my footprint producing 17,000,000 tons of steel a year, call. Producing $4,000,000,000 plus of EBITDA a year, debt free, call. I'm good. Great. Now that's it's really impressive at this stage in the game. And when we think about that, I think quarter. You have roughly $1,600,000,000 on your ABL right now. Aside from basically applying debt reduction there, call. Do you expect to permanently repay any other debt or do you think you'll just refi it and maybe take out the secured debt as the time comes? Quarter. No, we are going to start paying tranches in cash instead of We have the plan laid out completely between now and the end of 2022 on what tranches we're going to take and when, call. And we're going to take them all down with cash. They're not going to do not even need a rating from the rating. That will be The part that I really miss. Well, yes. Well, your bonds are pricing like you're a single B anyway. So call. I think people get the picture here. But thank you very much for answering my question. John, what I would like to have from the rating is, you know what, call. They need to start giving me one rating, LG. That's it. Instead of the A, B, C, SG and A rating, that's what the investors want to see. They give them money all the time. As we price it up, 200 to 2.50 basis points below competition all the time. Right, quarter. This is all very helpful. I appreciate it. Thank you very much and good luck going forward. Appreciate it, Sean. Your next question comes from the line of Karl Blunden with Goldman Sachs. Please proceed with your question. Thank you. Good morning, guys. Congrats on the strong results and guidance. Call. This might be an extension of that question, but you have quite a bit of debt now. You've got a lot cash flow once that debt comes down, you have to make decisions with your cash flow. Where what do you think you would prioritize as you go into kind of 'twenty two and 'twenty three time frame based on where you see ability to get economic returns or potentially quarter. Do shareholders want to see a line of sight to return, whether it's dividends or share buybacks? Just be interested in your thoughts on that? Call. Yes, all of the above, all of the above. This is a good problem to have, and we will address when we get there. Call. We will not commit with anything right now other than paying down debt. Every single dollar that we pay down call. On the debt, for the same enterprise value goes to the other side, goes to the equity. And the stock price will start to appreciate. Call. We are in a moment here in the United States in which the economy is booming, the consumer is consuming, like I said in my prepared remarks. Call. We are selling everything we want, and the stock price should continue to appreciate. It's time for real investors to start to lose money call to where companies are making money. I don't know in the tech side what's call. I still have a hard time believing that Uber, for example, is a tech company, a cat company that doesn't have employees. The Explore Contractors. So anyway, the real companies, the ones that generate jobs, the ones that Create middle class consumption, the ones that generate the ability to move the economy. Investors need to take notice call. Because we are making money, and we are starting to trade at multiples that are absolutely absurd, absolutely ridiculous. Call. And this thing is not going to stay there forever. What we'll continue to do, we'll continue to move numbers from the debt side call. Yes, I mean, it makes sense. I think there is an argument to be made that North America, the US Steel market has Matured or developed pretty quickly to be a healthier environment. When you think about call. The option set that you have is inorganic growth part of the equation as well. Are there maybe it's not immediate because you're integrating quarter. A pretty large investment, but are there other opportunities like that to become bigger or more efficient? Yes. I would never rule out anything, call. But it takes true to dance. When I acquired AK Steel, I went there to buy a furnace and saw the opportunity to buy a company. Call. When that company was acquired, the opportunity to buy AM USA showed up for us and we acted call. Very swiftly. So we will not rule out anything, but we are always in the lookout for more call. We believe that our way of doing business is good. Our culture is good. Call. The people that came from both NK Steel and AM USA, they are happy they are with us. We pay people well. Call. We don't take advantage of people, we don't explore people, and that's the most important thing we have. Call. So it creates a lot of momentum when we acquire a company because we don't go in and fire half of call. The employees and say we are saving costs. We are doing the opposite. We are hiring people. We are eliminating over time. So we are creating a workforce of people that really love to work for Cleveland Cliffs. So yes, yes, there's a real possibility call. That will continue to do things, but I have no targets at this point. And usually, when I have a target, I act so fast that call. Between one call and another, we're going to have something and I have nothing to do in the horizon right now. My focus is 100%, call. 100% on paying down debt and eliminating debt and creating equity. And then the numbers have no other place to go call. That's what I'm doing right now. Thanks for the time. I appreciate it. Call. Your next question comes from the line of Emily Chen with Goldman Sachs. Please proceed with your question. Congratulations on an excellent quarter. Call. Apologies if I missed this earlier, but I remember, I think from the last call, you previously outlined a plan to keep 6 to 8 Blast Furnaces online at any given time. It certainly looks like there's not much scheduled for 2Q, which makes sense given where prices are. But maybe, Juan, I'd love to get your views on how long you think this supply tightness will ultimately last? And if you can point to any sort of utilization rates you'd to be running for the remainder of the year. Look, Emily, we have 10 blast furnaces call. So the 10 plus points are, let's go 1 by 1. We have one in Ashland that's dead. So take it out. We have one in Middletown call. We have one in Tierra Boy that's running. We have in the other harbor 7, it's the biggest Quarter in North America, it's running. We have Indiana Harbor 4, that's smaller, it's running. Call. We have Indiana Harbor 3, that's dead. It's not going to come back ever. We have 2 in Boenning Harbor, C and D, and we have 2 in Cleveland, 56, call. So 1, 2, 3, 4, 5, 6, 7, 8, that's it. I said 6 to 8 to call. Because I was discussing the truth that we will never come back. When I say never, I'm saying never. Quarter. Oh, but everybody wants to produce pig iron to sell pig iron, no. So please forget about that. Not you call. So it's not going to happen. Now we are no longer a supplier for a competitor. So I'm not going to supply them with pig iron. Call. So are they for sale? No. So that's not going to happen. They are under my control. They are not going to be supply call. And nobody will buy those for us to produce pig eye. So we have 8 blast furnace that are all running right now. I say call. 6 and 8, between 6 and 8, because at any given time, I could have 1 in retail like I have in Midtown for 14 days call. Well, maybe 2, but the rule of thumb will be 8. Also, if you understood what I was saying during my prepared remarks, call. We are using HBI in a glass furnace. That's the most sophisticated use of HBI. That's actually why they sell things put their plant in Texas call. To supply their furnaces in Austria. So the difference that we put a plant in Toledo to supply blast furnaces in the Great Lakes was a lot cheaper, a lot simpler, call. So anyway, so that's what we are doing. So we're increasing the throughput with our 8 furnaces. We also have, that people forget, 4 years that are running at capacity and a little bit above capacity. And they are Stilton, they are Butler, they are Goldsville call. So we are running at the capacity market supports, and we will continue to do exactly that. Call. So we are not going to overproduce stainless steel for class that don't exist. We are not going to produce call. Electrical Steel Store Park for Price. So that's the company. So these are the ones that are at the very hot end call. When it goes down the flow and it goes through the hot strip mill and through call. The weekly line and through the galvanizing lines, and then things become so more complicated, but the furnace doesn't define quarter. That's what I'm trying to say. Got it. That's very helpful. Thank you. Thank you. Question. And there are no further questions in queue at this time. I turn the call back to the presenters for any closing remarks. Thank you very much for your interest call. Quarter. And this concludes today's conference call. Thank you for your participation. You may now disconnect.