Good morning, ladies and gentlemen. My name is Denise and I am your conference facilitator today. I would like to welcome everyone to the Cleveland-Cliffs’ 2019 First Quarter 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 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 the reports on Forms 10-K and 10-Q and 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 cleveland-cliffs.com. At the conclusion of the call, it will be available for replay on the website. The company will also discuss results excluding certain special items. Reconciliation for Regulation G purposes can be found in the earnings release, which was published this morning. At this time, I would like to introduce Lourenco Goncalves, Chairman, President and Chief Executive Officer.

Thank you, Denise, and thanks to everyone for joining us this morning. Before we start, I would like to introduce our new Chief Financial Officer, Keith Koci. Keith worked with me for 10 years, for the 10 years I ran Metals USA. He was Director of Budgeting in 2003. At the time, we listed the Metals USA on the NASDAQ and became the Controller of the company shortly after. At the time we took the company private in 2005, Keith was promoted to Executive Vice President, Business Development, in charge of M&A and CapEx. With Keith in that capacity, we made several very successful acquisitions, which were properly integrated into our then Metals USA way of doing business. He was also very instrumental to me when we IPOed Metals USA in 2010 and listed the company on the New York Stock Exchange. And he was my most valuable player when we sold the Metals USA to another publicly traded company, Reliance Steel & Aluminum in 2013. Keith has stayed with Reliance Steel as CFO of Metals USA until earlier this year, when I invited him to relocate to Cleveland and join me here at Cleveland-Cliffs. With the conclusion of the construction of our HBI plant number one in Toledo coming soon and with the several different alternatives related to future growth, we are currently considering for this great company, I could not have a better CFO here at Cleveland-Cliffs. So with that, I'll turn it over to Keith Koci for the financial overview portion of this call. Keith?

Thank you, Lourenco and good morning to all of you listening in on today's call. After about two and a half months as Chief Financial Officer of Cleveland-Cliffs, it's hard to contain my excitement about the potential for this company. Coming from a long career in the dog eat dog service center world, I have a huge appreciation for the competitive advantages we have in our company, as suppliers of customized feedstock for the American steel industry. With our unique geographical position inside The Great Lakes, as well as the premium market, we will carve out in the EAF space as suppliers of HBI, our future is extremely bright, and I am thrilled to be a part of it. That said, I will begin my remarks with an overview of the quarter before kicking it back to Lourenco for his comments. As all of our investors should be aware, our first quarter will always be the lightest quarter for our pellet business due to the annual closure of the Soo Locks, where most of our volumes pass through on their way to our customers in the lower Great Lakes. This fact limits shipments for the majority of the quarter to rail deliveries, which typically have among the lowest net back realizations in our portfolio. As such, our Q1 total company adjusted EBITDA of $21 million represents a small fraction of what we anticipate generating for the full year. First quarter mining and pelletizing sales of 1.6 million long tons were in line with last year and outperformed our own expectations due to better than expected performance by our rail carriers and also due to our ability to deliver extra vessels in the quarter. With the locks now open, even as considerable levels of ice remain on the lakes through this…

Thanks, Keith. Throughout my nearly five year tenure as CEO of Cleveland-Cliffs, I have always tried to be several steps ahead of the pack, working out our strategy maneuvers two or three years in advance. Instead of following the herd mentality, so prevalent among pretty much all the players in this industry, I have elected to use my own perspective on the business, not to hire consultants, and to predict what will happen using our own internal resources. We use it to our advantage and we act accordingly. Let me list a few examples for you. First example. Knowing for a fact that we would not go bankrupt, while almost the entire market disagreed with that and some investors shorted our bond allows us to buy back a lot of our bonds sent on the dollar, particularly during the first couple of years of my tenure as Cliffs’ CEO. By doing so, we paid down a huge amount of our debt very quickly and effectively. I cannot thank enough the folks shorting our bonds at that time. They provide us with a fantastic shortcut, pun intended, to save this company. The cheap bonds we’re able to buy in the open market enhances our ability to reduce our debt loads. That was accomplished a lot faster than we would be able to do, if this so called investors were not shorting our bonds. I call these folks, good short. Second example. We predict the demise of the top executives of the major iron ore mining companies due to their incredible ability to destroy shareholder value, during the time that they were all trying to outperform each other as the lowest cost producer of iron ore in the world. There was a time also known as the Australian Brazilian championships of the…

[Operator Instructions] Your first question comes from Matthew Fields with Bank of America Merrill Lynch.

Welcome and congrats Keith. Two things for me. One, Lourenco, thanks for the discussion of the iron ore market. Just something that's been surprising to us and just want to get your thoughts on. Obviously, IODEX has reacted quite strongly to the Vale tragedy. Why do you think the Atlantic pellet premium has not reacted a little stronger? It's been kind of hovering in the $66, $67 per ton range.

Thanks for the question, Matt. Look, first of all, the biggest company affected by the Atlantic pellet premium is Vale, because Vale is the biggest supplier of pellet or was at least, still is, even with the massive reduction that they provoked in the marketplace, they still are the biggest suppliers of pellets in the international market by a lot less, but is still the biggest. And Vale was leading the negotiations of the pellet premium, the individuals at Vale that were leading the negotiation of the pellet premium, we spent a lot of time moving the goalposts from the 62% iron content to the 65% iron content. A lot of time was spent with that specific portion of the negotiation. And when that discussion was done or close to be done or exhausted, because they could not get a consensus. But anyway, it was what it was at that time, 65 was replacing 62, then came the catastrophe at Córrego do Feijão, and the same folks that are negotiating had the responsibility for that thing. And they started to have to respond to lawyers and prosecutors and having their houses being raided by federal police in Brazil. And they had a few other things to get concerned about and the pellet premium got abandoned. That's the reason. So I believe that the new Vale CEO one day will take over and we'll finish what they never finished. That's the status of things. It’s coming? That's Vale be focused again.

Okay, thanks. And then one more, just kind of interesting in terms of the history lesson you like to give, you left out a little bit about, in 2015, when you were doing your secured bonds, people often thought about how ArcelorMittal would not renegotiate with you and they would squeeze you and put you out of business. And now it seems like in the next couple of years, with the shortage of long tons in the basin, there might be another dynamic to a weaker blast furnace. Can you just talk about the puts and takes of essentially losing a major customer, potentially if there's not enough tons versus giving a break to keep a kind of a valued customer kind of ongoing in your portfolio?

Well, first of all, we never had this discussion with ArcelorMittal. We never threatened each other. Our relationship was always very respectable both ways. We always treated them with the importance that they have for us. And I believe that ArcelorMittal, particularly ArcelorMittal USA always treats us with the same level of respect. We heard a lot of that in our participation in conference from investors, some analysts, but I never heard from the horse's mouth, because if I had heard from the horse's mouth, the outcome of that negotiation was probably very different. So this being said, the outcome was outcome that had to happen. They had a massive need of pellets, two quarters that they were expiring and we were an able supplier to continue to supply them with no disruptions. We developed the new pellet for them, the must have pellet to invest money at the United. And life is good, we still have 8 few years to go. So if you are implying that ArcelorMittal might be at risk of losing the pellet supply, I would like to remind you that we still have eight years of a good contract going for both of us. The contract is binding on both sides. So they have their supply guarantee that we have our resources allocated for them. So there is nothing to be concerned about.

I was talking about a different supplier who has a contract that's near term expiration that…

With whom?

With AK Steel in 2023?

Oh yes, the AK Steel has a portion, AK Steel has a portion of the contract expiring by 2020, so does Algoma in Canada. So, there are others, so does ArcelorMittal Dofasco in Canada for a portion of their needs that they buy from us. So these are the three main contract situations that we have defined by 2020. And other than Algoma that pretty much make or break for the other two, it's a portion that's not really the major portion. So I don't see any big issues for AK Steel for that matter. History tells that our relationship with AK Steel continues to be very good. And all things being equal, I don't see a reason for AK Steel to be treated as if they were at risk. Did I answer your question or am still dodging your question?

No, that's a great answer.

[Operator Instructions] Your next question comes from Curt Woodworth with Credit Suisse.

Lourenco, I wanted to get your take on the announcement from the union agreement with Bedrock which as you know is 50% owner to acquirer or not acquirer, but to restart at the point or pellet plan which I know you guys used to own. That would seem to imply that there would be more pellet coming into the market, if obviously restarted, do you have -- can you provide some views around that, obviously, you know the asset very well.

Yeah, we know the asset very well, we shut it down. And we shut it down because that asset, at the time, we shut it down, was totally hopeless. And the announcement of the Union didn't -- was not really confirmed by Stelco. So I haven't seen Stelco announcing that they are going to invest hundreds of millions of dollars to bring the point to our pellet placed back to operation. They will need to spend a lot of money over there. It was a lot more money that I was willing to spend in order to keep that thing operating. But, pointing for me was irrelevant, was useless and was an asset that we did not want to handle. It's a high cost profile in Canada, no access to natural gas, operates in a different fuel basis. And it's very far away from the consumption side, the Great Lakes, making for a voyage that's pretty complicated. You have to come down there, down the river to get the pellet here inside the lakes. With all this being said, I don't sell to Stelco. So for me, it’s not a problem. There was a supply to Stelco, should be thinking about, I just give you the answer based on my knowledge of that asset that for me was totally absolutely useless. Did I answer your question or you need more color?

Yeah, no, no, that's helpful. Thank you. And then just a follow-up?

But I could give you the color of the roof, the color of the roof there is brown with the holes, so we need to start putting a new roof over there because it has been raining and there is noise inside that pellet going for a long, long time. That’s the extra color I can give to you.

Yeah. I appreciate it. And then I guess on HBI, can you, I guess, talk to commercial discussions you're having at this point. I mean, clearly, by spending a little capital to get more capacity, you feel very good about uptake. And then in your prepared remarks, you talked about other growth project potential. I mean, do you envision, given your superior crystal ball that there would be potential for a second HBI plant. And can you just talk to kind of your commercial discussions at this point in time?

Look, we are not going to talk about second HBI plant until we have the first HBI plan up and running and IRR accomplished and money in the bank. Remember, capital allocation is an exercise of optionality. At this point in time, the best IRR that I can get in this company is not building our second HBI plant, is buying back my stock. It's obvious that, if the market continues to deny value to our equity, the market in the stock exchange every day, I'm going to continue to buy back stock. And the domestic US market will starve for metallics. They will beg for me to build a second HBI plant and the second HBI plant is not going to happen. Because it's -- again, it's an exercise of optionality and allocation of capital. Our second best use of capital right now would be paydown debt. And we proved that every quarter, it’s not just speech. Remember, we bought $124 million of stock in Q1, and we bought back $10 million of debt. So it's hard for me to tell you that buying back debt and buying back stock is at par, they're not. Buying back stock is a lot more rewarding for the company right now than buying back bonds. HBI next, while we have one in the making. And you know well Curt, I like shortages. It's good to start with a shortage. So HBI number 1 is reality, we are gearing up to start to deliver great pellets to Toledo. But we are not in a hurry to build HBI number two.

Yeah, I agree. And congrats to the great start to the year.

Your next question comes from Phil Gibbs with KeyBanc Markets.

Lourenco, curious, I think you mentioned in your prepared remarks about various growth options that you had for the company, just curious if you could provide a little bit more color behind what you're thinking there, given you've got a lot on your plate right now with DRI, excuse me, HBI.

Yeah. HBI is DRI brick asset. So calling it DRI, if you call my HBI DRI, my HBI will tell, yes, how can I help you? So DRI and HBI are the same guy. But any way, you're talking about the various growth options that we have going forward, if I can disclose a little more color, little more detail. The answer is no. None of those are ripe for disclosure right now. You're going to have to take my word, they exist and we’re studying, that's all I can tell you right now.

Okay. And then what will it take to I guess make a decision one way or another on Empire? I think you were looking at a feasibility study as the last call.

The feasibility study has been concluded. The only thing that it takes would be to secure a long term take or pay guaranteed contract at a minimum price with a client. That would lock the IRR of Empire to our benefit. In the past, not too long ago, I was accepting, even if some blast furnace would come and pony up with some equity. And I would give a minority position to these blast furnaces to participate in the restart of Empire. Well, at this point, I changed my mind. No equity. At this point, if someone wants the pellets that we can produce, we would be able to produce at Empire 3.2 million, 3.3 million tons a year very easily after removing a few layers of overburden, they will have to commit with a long term take or pay contract to assure their long term survival and to assure that you would get a phenomenal IRR out of Empire. Other than that, the taconite they have in the Upper Peninsula in Michigan will stay on the ground.

It's very helpful. And if I could ask just one more strategic question. Lot of the iron alternative projects over the last few years have not gone as planned from a profit perspective or a cost perspective or from a reliability perspective, so if you could give us some perspective or comfort around why your startup will be different and what gives you the confidence that the assets will deliver what you believe they will, thanks.

Can I mention the projects that we’re talking about, because these all first.

Let's just say the other HBI or DRI equivalent projects that have happened in the last five years?

Well, there's a huge, big, huge, enormous difference between our projects and other projects. You're probably talking about best opinion, right? You got to say it, you got to be courageous. Are those the ones you are comparing to?

Those might be the ones. Yes.

So, I will assume they are. You are just not courageous enough to say that we're bashing just opinion, but that's okay with me. So the biggest difference between our projects and the -- not the biggest, but the one clear difference between our project and the local project [indiscernible] is that we supply, we produce and supply our own feedstock, and almost genius feedstock, high quality feedstock is key for a reactor, no matter if it's a blast furnace, if it is a DR – a direct reduction reactor to operate its booth. That's the very first thing. Well, our feedstock will be produced at Northshore, our pellet plant, coming from pellet, our mine, we have been supplying this, producing this feedstock, improving the quality of this year great pellets day in and day out. We supplied a lot to Nucor in Trinidad and they loved the pellets, the pellets performed extremely well at Nucor in Trinidad. By the way, they have no problems in Trinidad to speak off. We are not either the sole supplier, we're not even the major supplier, we're just one supplier, but they run extremely well when they have good feedstock. On the other hand, we hear information that for periods of time, best opine in Corpus Christi Texas was feeding their mid racks plant that's very similar to ours with [indiscernible] not even blast furnace pellet that would be an enormous downgrades over DR grade pellets, which DR grade pellets generate BR grade or downgrade and compares with a single source pellet from a reliable producer of pellets like Cleveland-Cliffs. So you go one step down when you are buying DR grade pellets from the entire market because at the very least, even if you get good stuff, you're going to get good stuff from different sources and the good stuff from one supplier is different from the good stuff from the other supplier, which is different from the good stuff from the third supplier, but then you go one step down, when you can find DR grade pellet and by the way, it has been happening a lot in the marketplace to Samarco, let alone now, with Samarco and [indiscernible] so they can find the upgrade. So the next step, blast furnace pellet, the next step down is [indiscernible] not too long ago. So do get the idea, the idea, so we are going to supply single source Northshore, our pellets, the pellets that we have been improving and I thank Nucor for allowing me to develop a very good DR great pellet. When we develop together with Nucor in Trinidad.

Sounds like the continuity of supply and the proximity to your mind is really what is a nice comfort factor.

Proximity has nothing to do with, I haven't said a word about proximity. I was talking about standard deviation. Remember when we were in school statistics, narrow standard deviation makes the process to go smooth. So on top of narrow standard deviation, I just said today in my prepared remarks that our DR grade pellets will have 67.2% iron content and 2% silica. So they are not low silica content, they are 2%. And, the iron content is not high, it’s 67.2. So we know exactly what we're doing as far as feedstock. That's why the blast furnaces that use our pellets, they get addicted to our pellets. That's why the DR, the direct reduction operators that get our pellets, they get addicted to our pellets. The problem is that we like that too. And we're going to give total preference to ourselves. So we're not going to start up our first HBI plant and give it a try. We are going to start up the new benchmark for HBI facilities in the world, Midrex is learning. And as we start to operate, they will learn a lot more, as long as I allow them to learn. I don't know that if they will qualify at that time to continue to learn. But so far, so good. They will learn a lot as soon as we start. Very humble assessment of our first HBI client, as you can see.

The next question comes from [indiscernible] from Jefferies.

Maybe just from a debt perspective, if we could get a sense for your updated thoughts on what you think the debt target is. Obviously, you're set up to have a pretty strong year here. But just over the long run, what do you think the appropriate level of debt is for the company at this point?

Matt, look, you know I have always been working with the 1 billion notional target for us in terms of net debt. We got that a couple of years ago, when we got to 1.3. But we spent 300 million to acquire our minority position from US Steel, our minority position at Empire from Arcelormittal. So we spent $300 million to do that. So we got to the 1 billion. So even though we have these notional targets of 1 billion net debt, we are always looking to do what we have to do in order to enhance the value of the company, in order to protect in the real sense, the shareholders of the company. And that's why we decided to spend money, buying back stock. If we had not expand so far $171 million in net debt since the inception of the buyback programs, we would have another $171 million cash in the bank to say, look, we are now, our net debt is now $171 million less than it is as of today, April 25, 2019. So we deal in a real world, we deal with realities. So the notional target for net debt continues to be 1 billion, but it's not something that I will lose sleep off, if I do the right things for this company and continue to protect the shareholders and I'm not talking about guys that keep their stock for a couple months or a couple of days, I'm talking about guys that are shareholders like me, that put their money in this company and forget about. And actually, these are the shareholders that should buy Cliffs’ stock. This is not a stock for people that go in and out. There's a lot more convenient vehicles for these folks. We are for the ones that understand the dynamics of a business that is long term, that understands that there's only so much of environmental path that the Chinese can get and nobody would question what they are doing. So the day will come that these NGOs and these environmental folks will have to put up or shut up. I mean, they will have to criticize the Chinese or they'll have to confess where these guys get their money from. I bet that this money is coming from sources that are not really great sources. So the Chinese, the environmental, the long term viability of the US steel industry, the high quality of revenues that we have, the long term plan, the strategies that keeps playing out the way we plan. So these are the things, 1 billion notional.

Okay. And just one quick follow up, I guess, more of a housekeeping item, the working capital build, you always sort of use some cash in the first quarter, is a little bigger this quarter, any insight as to whether you get all of that back over the course of the year, just trying to get a sense for the magnitude of the free cash flow. So just any color on working capital would be helpful.

Yeah, this year is more of the same. The outflow in Q1 is related to inventory build. Inventory will be recorded mainly in Q3 and Q4. Receivables and payables are dictated by timing. We proceeded to do what we continue to do in this company and the weather change the cash flow of this business at this point. With HBI, this will change, but that’s the design of this company at this point. I'll take one more question if you have, Denise. Otherwise, it's about time to wrap up. Do we have any questions in the queue?

Yes. Your last question comes from Piyush Sood with Morgan Stanley.

Quick housekeeping question for me. So about 0.5 million tons of intercompany sales to HBI this year, since there won't be third party, we’ll take it out to EBITDA, just wanted to understand that if the shipment is too half rated, or is it primarily in 4Q? And second, how should we think about the same dynamic next year, where you may look to build some inventory of pellet at the HBI side before you start off third party sales of HBI?

You’ve given a lot in one question. So let me see if I was able to memorize everything. The amount of tons that we are going to move to Toledo will be 500,000 tons for this year. And what was the other one about?

And that'll be in the third quarter this year.

Thanks, Keith. What else, Piyush. You gave them too much.

Sorry, so third quarter this year and what about the extras, maybe some inventory build in next year at the HBI site for DRI, sorry, some pellets coming out from Northshore. So should we expect something similar magnitude in maybe 1Q or 2Q?

Yeah, we will continue to direct pellets to Toledo, but that will be on an ongoing basis after we built this brand of 500,000 tons, we feel like we're in good shape, because we're going to start to operate to do the first to commission, the plant and then to do program runs and then hot runs. So and then by mid-year, we will be in operational level. So then it will be an ongoing thing. So this is the biggest thing right now in 2019, 500,000 tons allocated to build the startup inventory.

All right. Thank you very much and we will continue our dialog. Don't forget is the new normal. Iron ore and pellets are in shortage. This will not be fixed soon. Headlines will not save your money. What saves your money is good execution, a good plan and good execution. Let's invest together and make money together. You guys have a great two months. We will talk in two months or three. Thank you. Bye.

This concludes today's conference call. You may now disconnect.