Good morning, ladies and gentlemen. My name is Christina and I'm your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs 2019 Fourth Quarter and Full Year 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 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 factors that could cause results to differ materially is set forth in reports on forms 10-K and 10-Q and the news release 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 regular Regulation G purposes can be found in the earnings release, which was published this morning. At this time, I would like to introduce Lorenzo Goncalves, Chairman, President and Chief Executive Officer.

Thank you, Christina, and good morning, everyone. I appreciate you all joining on what should be our last call as a standalone iron ore company. After the closing of our acquisition of AK Steel, Cleveland-Cliffs will be a steel and iron ore company. We are very excited with this unique transaction and looking forward to all of the benefits that will come with controlling their ore fields and HBI feedstock as well as these two products including flat rolled quiros of stainless and carbon steel and highly engineered manufactured parts for the automotive industry. Over the past several weeks, we have come away captivated by the untapped potential that clearly exists for a case new assets and very impressed by the quality of the people on the ground. The opportunity ahead of us is actually bigger than what we first envisioned. Before I lay out why, I will start with an update of where we stand with regards to our closing time line. As you could probably gather with this call being moved up by one week, we are progressing remarkably well on all of our necessary checkpoints to close the transaction. Thanks to a great combined effort from both Cleveland-Cliffs and AK Steel's transaction teams as well as our outside counsel Jones Day. We received regulatory approval from the United States on January 22nd, Canadian approval on February 12th and expect to receive Mexican approval by February 27th. In addition, our S-4 registration statement went effective on February 4th, allowing us to set our special shareholder meeting date of March 10th, with the transaction closed following soon thereafter on March 13th. Our dealings with AK Steel over the last several weeks gave us the conviction that Cleveland-Cliffs and AK Steel have a lot in common and are both very…

Thanks, Lorenzo, and good morning to everyone listening today. Cliffs concluded 2019 with fourth quarter adjusted EBITDA of $111 million and full year adjusted EBITDA of $525 million. This represented an industry best 28% EBITDA margin, even after dealing with precipitous drops in both steel pricing and pellet premiums during the year. Most notably, our cash flow generated from operations continues on a positive upward six-year trend. Net cash from operating activities was $563 million in 2019, compared to $478 million last year and our highest since 2013. Our mining and pelletizing segments quarterly EBITDA of $153 million was driven by 5.8 million long tons of shipments, including 400,000 tons of intercompany sales. This put us at 19.4 million long tons of sales for the full year, roughly in line with our previous guidance. Our pellet price realization of $90 per long ton in the fourth quarter was negatively affected by the volatility in hot-rolled steel prices and pellet premiums that we saw during the back half of the year. That caused us to record an unfavorable revenue true-up adjustment in the fourth quarter. The true-up was primarily a function of having to revalue our entire year sales at the full year averages for HRC, pellet premium and IODEX, negatively impacting our Q4 rate. After all of that, our full year revenue rate was $100 per long ton, which came in at the midpoint of the spot price guiding range that we've provided last quarter. Cash costs for the fourth quarter were $64 per long ton, which also put us right in the midpoint of our full year guidance range of $64.50 per long ton. As for CapEx, we are now through our peak year spend of $656 million and expect to see roughly half that amount in 2020, as…

Thanks, Keith. With both the upcoming completion of the AK Steel acquisition in the Toledo HBI plant coming online. 2020 will be the most transformational year in our 173 year history. We are very excited to welcome our new customers, Nucor David J. Joseph, Steel Dynamics, OmniSource Big River Steel, Northstar, Blue school and several others to a list of clients as they acquired a massive tonnage of HBI for the burden of their electric car furnaces. In the meantime, we will need our shareholder support to make the acquisition of AK Steel by Cleveland-Cliffs a reality. To those Cliffs shareholders of record as of January 31 listening on today's call, you should have already received the necessary materials to vote for the transaction. Your vote is necessary and I appreciate your support. As you know I'm a big shareholder of Cleveland-Cliffs myself, one that has bought several million dollars' worth of CLF stock in the open market and never sold a single share except for offsetting taxes before the shares become mine. Speaking as a shareholder and to all of our shareholders, I believe the acquisition of AK Steel under my guidance with the leadership of our management team and with the addition of key players from the AK Steel management team is the optimal path to maximize the value of our CLF shares. If you have any questions about the rationale for the deal or how to vote please feel free to reach out to us using the contact information provided in your materials or on our website. One more time your vote is important. And I look forward to receive your affirmative vote on or before March 10. With that I will turn it back to Christina to direct Q&A.

[Operator Instructions] Your first question comes from Lucas Pipes from B. Riley FBR. Your line is open.

Hey good morning everybody. Congratulations Lourenco and team on the continued progress on HBI and moving so quickly on completing the AKS acquisition. Lourenco, I wanted to start out with some higher level questions. So, first on AKS, you mentioned the long-term strategy and the commercial opportunities there. But are there pieces of the AKS portfolio that might be less relevant that could be candidates for monetization? Any thoughts on that would be appreciated. And then reading through the S-4 it appears this marriage started with a date about Ashland. And I don't think you mentioned Ashland in your prepared remarks. Could you maybe update us on the thoughts on that asset? And then lastly I appreciate your comments regarding the EV revolution in your prepared remarks. Folks don't typically think about steel in the context of EV. Kind of what are your thoughts there? What products feed into that market and transition specifically? And what do you think the impact will be to AKS longer-term there? So appreciate all the color on those kind of three questions.

Okay Lucas. That's a lot to show. But let's try to get it done. First of all the thoughts on assets. But I'll be very careful in terms of what I can and I cannot talk about because there are a few things in the M&A regulations and some touching the law in terms of kind of jumping provisions that I'm not in charge of the company yet. So we are working on preparing a plan. And of course we have a plan. But in a general way without being specific on anything the assets that are not going to be part of the core and there are some that are not going to be part of the core will be monetized. We did that with the Cliffs. That was a lot more difficult, a lot more complicated, a lot more specific in terms of potential buyers. With AK we have a few things that actually we're receiving reverse inquiries in terms of -- without soliciting anything. They're coming here and they are calling in and making proposal on doing this and doing that. We are listening to everybody. And we are taking our own plan to paper. And on day 1, we will start to execute. So you should expect that noncore assets will be taken care of and monetized to the best of our ability. That's the first. As far as Ashland look we were developing a market for HBI. We're doing extremely well. We are done now. We are -- we believe that our commercial efforts and our technical efforts came to fruition. We are very pleased. I gave names of clients that are going to be buying massive tonnage of HBI from us. And I did not -- by the way I did not mention AK…

I really appreciate all the color Lourenco. It's never enough. I'll keep it really short for my second question. A breakdown of capital expenditures in 2020, you may have mentioned that it in your prepared remarks, but if you could just reiterate it if in case I missed it. I would appreciate it. Thank you.

No problem Lucas, we're -- 2020 we're -- the range we provided $350 million to $400 million breaks down. HBI's going to be -- or Toledo's going to be $270 million to $290 million to complete, virtually all of that will happen in the first six months. Sustaining CapEx for Cliffs, $70 million to $90 million somewhere in there. And roughly $20 million of capitalized interest during the year to complete the Toledo plant. So that's the breakdown.

Okay. I appreciate it very much and continued best of luck. Thank you.

Thanks, Lucas.

Your next question comes from Alex Hacking from Citi. Your line is open.

Hi, good morning and thanks for the time. I just wanted to follow-up with a question on the HBI. You said you've made a lot of commercial headway there and congratulations on the success and it sounds like you have all the offtake -- or a lot of the offtake already sorted out. But I'm curious on the pricing. Can you give us any color if possible on the pricing structure in terms of what type of contracts that you'll be entering into? Will that kind of be in terms of duration? And then also in terms of the pricing mechanism for the HBI, will it be linked to indexes in any way? And how often will the prices reset? So any color there would be very helpful. Thank you.

Good morning, Alex. The HBI product is being sold to clients that have a way of doing business. I have been saying that forever. I have been saying that before we built the HBI plant. We have to respect the way the clients do business. We can't try to impose a new way of doing business before entering a market. So these folks buy in short-term. They buy per order. These orders are more loosely agreed upon in terms of tonnage for the quarter, and price is set on a monthly basis. The biggest reference for price for us will be the price of pig iron, adjusted for the value we used that our HBI -- I mean, pig iron delivered to the client, of course. It's not pig iron F.O.B. Tubarao Brazil or F.O.B. Ponta da Madeira or F.O.B. some port in Europe. Now delivered to the United States, delivered to the site and adjust for the values. Remember, pig iron has 4.5% carbon. We're going to have 3% carbon. It's close, but it's not there. So we're going to generate a little less heat. We have a little more gain because we are low silica, but we are not zero silica. On the other hand, we have a very high metallization. So there are a lot of gives and takes that will be defined by the values, but the values will be developed after. The client is really using their product. So we are going to have six months or seven months between June and December of 2020 to be adjusting these parameters. But by and large, we are set, we are happy, and we are going to continue to develop this business that way. It will be very profitable for us. The payback, the IRR that I promised, when we first started, will be easily built.

Okay, thanks. That’s very helpful. Thanks for the time and good luck.

Thank you.

Your next question is from Seth Rosenfeld from Exane B&P. Your line is open.

Good morning. Thank you for taking the questions. If I can touch on two points, first, on HBI and then secondly on Ashland, please. When it comes to HBI and the CapEx budget, your release talked about the CapEx being, I think, fast tracked the development being fast tracked in Q4, obviously, on track for ramp-up before the end of H1. When it comes to CapEx, my understanding was that the 2020 CapEx budget was closer to $300 million, implying that we're looking at $50 million, $100 million above that. What are the moving parts in that? Keith, thank you for the color earlier but is HBI CapEx one of those elements, or is there actually an increase in expected budget there? And then secondly, please, when it comes to pig iron at Ashland. Your comments about market research pointing to a metallics market well supplied based on just your own HBI. It seems run counter to what we heard from you back in December at the time of the deal announcement when Ashland growth seemed to be one of the key incremental growth drivers for the story. Just to clarify, what's changed from that time? Is this a new market research you completed after the acquisition was announced, or was it always in line with your expectations going back to December? Thank you.

Well, first of all, let's set the record straight here. You said that HBI throughout the world, particularly here in the United States, is a widow maker. So my wife is still married. So I'm still alive. So remember, when you said that, that HBI was a widow maker because HBI generates budget overruns and people can't complete construction on time? Remember that, Seth?

I do and I'm glad your wife is not a widow.

So I'm right here. So our HBI is on time. Our HBI is actually ahead of schedule and our HBI's on budget. So we are good with that. Second, the fluctuation the numbers for CapEx and just carry over from last year things that for one reason or another we did not pay last year because if you can pay later we'll later, we don't pay earlier. So that's pretty much a rule of thumb when you're building something. If everything goes on time and you are not being forced to deploy the capital. Earlier you can deploy the capital later why not to do it. So it's just a move from one year to another. As far as Ashland that's what due diligence is for. Where are doing due diligence, we are really deep diving deep into AK Steel. We are as far as public information is concerned, we did not hear too much from AK in public conference calls and things like that, a lot of the automotive business. We heard a lot about the balance sheet. We heard a lot about their bonds that were not refinanced. We heard a lot about patient. But we didn't hear a lot their business. And when we start digging into their business that business is phenomenal. Their technical capabilities are immense. And I would have to produce pig iron to support as EAF our vessel. I'm going to support as HBI so I'm not denying the importance of EAFs. So there is no conflict with previous statements just that due diligence showed that a real potential for the ongoing for the existing AK business, particularly in what related to automotive. It's extremely impressive. Our first Investors Day for AK Steel will be done at the research and development center of AK Steel in Middletown, Ohio and I'm sure you're going to be there Seth. You're going to be surprised as other research analysts will as well. So there is no conflict. It's just due diligence. That's what – why companies do due diligence when they're acquiring other companies to really learn what they are getting into. So we realized that we're getting into something a lot bigger and a lot more relevant and a lot more important in terms of return to the shareholders than just producing pig iron to the marketplace out of Ashland. I'm not saying that's not going to come I'll just say that this was now way behind in the scale of priorities.

Okay. Thank you very much. That’s helpful.

Thank you.

Your next question comes from Nick Jarmoszuk from Stifel. Your line is open

Hi, Lorenzo. Good morning.

Good morning, Nick

A question for you on the EBITDA guidance, does it assume any contribution from the HBI plant in the second half of the year?

Look, here's the thing. Keep in mind that as far as 2021 comes we're going to have 9 million tons of intercompany sales. Don't forget that. So that will change everything in terms of the things that you see in this EBITDA guidance. But I will let Keith Koci to go into the details or share numbers related to that guide.

Right. And as far as the start-up of HBI, we're pretty modest with the back half and we've only put in $30 million of EBITDA coming from HBI in 2020. And it's mainly just due to ramp-up and there's always some additional costs in getting started. The number grows immensely in 2021 as we expect to have a full year running at our nameplate capacity. So we've – we're looking at roughly $200 million of EBITDA generation in 2021. And that's what we've got in our guidance.

Okay. Regarding...

Let me complement one thing about that. As far as 2020, assuming $650 for hot-band in the United States is still a very modest number and should be a number easy to achieve. $90 for IODEX. Well to date $91.10, the IODEX that was posted this morning. So the new normal is unabated. Even Vale was unable to destroy the IODEX. They did destroy the pellet premium, no doubt about that. When you reopen contracts that are set in stone with the clients and you accept clients crying wolf then those premiums go down. The biggest problem is that the biggest victim of this absurdity is Vale. So they are losing tonnage. They are giving away revenue by giving away the pellet premium. So very soon they will need to come to reality. The pellet premium will go up. Like Keith explained for the vast majority of pellet producers in the world the current pellet premium doesn't cover the costs. So they are in trouble. Vale might be okay because of the manipulation of the Brazilian real that's now trading at $1 for BRL 0.37. So it's pretty absurd. So that gives the impression that they have all costs under control but they don't. So they have to play catch-up with the pellet premium very soon. That's why we put a 50 number for our expectation because we believe that will be high.

And Nick one more follow-up to my comment real quick. The $30 million that I quoted does not include the intercompany margin. So, we also recognize then the margin that -- the price that we're charging to ourselves. So, there is an additional margin in the HBI product that would be in the Mining and Pelletizing division. So, it's--

Good point. It serves the profitability of the Metallics division.

That's right.

Yes. Not the profits that we make selling pellets at market price from Northshore to our own units so from Northshore to Toledo. Because we have to do it that way because among other things we'd pay royalties to Mesabi Trust based on market price. So we don't mess with that.

Okay. And with the customers that you mentioned does that fully contract the nameplate capacity of Toledo?

No. What do I mean? If I have awarded for 1.9 million metric tons for 2021? Of course not. Nobody has that. Nobody has that for any product, why should I have for HBI? I don't have ore pellets either. No steel company in the world has more steel. So, why are you asking this question? Are you trying to say that I don't have orders for HBI? Is that what you're implying?

No, I was just curious as to how much of the capacity is contracted?

Everything that we are going to produce at the beginning and it is up to us. If the product is good as we believe the product is and the clients believe that the product is, we are going to have a great business. If the product is like other producers and even one here in the United States in Texas, we will probably have trouble. But we are not them, we are us. We have a single source of pellets coming from Northshore. We know how to deal with iron ore. We have been dealing with iron ore for 173 years so we learned one thing or two. And we also understand how to deal with contract business to supply feedstock to clients. But we are going to be fine Nick. We have the orders and we need to start and then we will go from there.

Okay. And then returning to the pellet discussion. Do you have any thoughts that Vale could be looking to give some sort of discount to their European customers to maintain blast furnace throughput. And then they'll -- once the margins in Europe improve then they'll get a little more aggressive with the pellet premium. Is that -- do you think that's a reasonable way to think about it?

I think the reasonable way to think about that that too many people getting trained on the job -- on the job training at Vale. As soon as they learn the business that they'll start to charge the clients what they need to charge. But it is for Vale to resolve -- to the Board members of Vale to resolve. It's a Vale thing. And Vale, at this point, has other things to resolve. They have a few people going to jail. It's a mess out there. So, I don't know, you got to ask them.

All right. That's all I had. Thank you.

Thank you.

Your last question comes from James Finnerty from Citigroup. Your line is open, please go ahead.

Hi, thanks for taking the question. Just on the AKS that you intend to refinance the 2021s and 2023s. Will the 2021s be unsecured and guaranteed like the 2025s and 2027s?

Look as you know being a bond analyst, I can't talk about that right now. So, we will announce this deal at the right time. We have a track record of doing these types of transactions and doing the transaction right. Looking back check the last five and a half years, we have plenty of comparables just here within Cleveland-Cliffs, but I can't show my hand right now. And I will not disclose that at this point. But we are set. We're good, stay tuned.

Okay. And the timing is still to be determined. So, it could happen in conjunction with the closing of the transaction or it could happen afterwards. Is that still true?

I said that's all going to be done by day one. I mean we're going to hit the ground running. We are going to be done. Remember, we already stripped the covenants of the AK bonds, check the box. We already arranged the ABL, so check the box. So, the last piece missing is the bonds. So, we are going to take care of that. And when we land there, we're going to have a four-year window of opportunity to work and get AK Steel refocused on commercial, refocus on developing steel and more important than anything, charging the clients a price that will be proper for the type of technology that is embedded in the steel that we produce.

Great. Thank you very much. That was very helpful.

Thanks, James.

And your final question comes from Tyler Kenyon from Cowen. Your line is open.

Hey. Good morning. Thanks for squeezing me in. So you've given us some stand-alone EBITDA guidance based on some commodity price inputs for Cliffs. Wondering if you could provide a little bit more detail on the embedded pellet volumes, cash costs and perhaps SG&A assumptions within that $550 million to $575 million range?

Keith, do you want to take that?

Yes. I mean, the standalone -- I mean, SG&A, kind of, similar year-over-year. Cash cost of production up roughly 3%. Mainly product mix is a big part of it, because we'll be producing a lot more DR-grade pellet, the DR-grade pellet cost more to produce. But you also see some of the additional maintenance cost in the year. You'll see some higher costs at Tilden stripping, because we've extended the life of the mine, as you'll see soon as we disclosed in our 10-K. And then the natural increase in labor cost each year. So you'll see a little bit of increase there. What was the other factor?

At today's prices we need probably $1.50 increase, something like that. Less than $2.

Okay, great. And then anything just on volume assumptions for third-party pellet sales?

Volume will be in the 20 million to 20.5 million tons range.

And any sense you could provide us just on how much will be going to HBI in terms of inventory build?

No inventory build; we already built the inventory. So we don't have any more inventory build to do. Actually, in 2020, we are considering that we're going to be moving only 1.5 million to 1.8 million tons of pellets, because it will be a ramp-up year. And starting 2021 we're going to go in a steady state it's -- to produce 1.9 million metric tons of HBI. We are going to need 2.8 million tons of pellets moving into Toledo. But that will be 2021 and beyond.

Okay. Thank you.

Thank you, Tyler. Christina?

There are no further questions at this time. Do you have any closing comments today?

Just to wish everybody a great Thursday. Keep paying attention. We are moving fast. We are doing everything we have to do. We are excited about the transaction. We're excited about HBI. We're excited that we have a transformational event that will change Cleveland-Cliffs going forward and we will guarantee that this company will be here for the next 50 to 100 years. We are pleased with what we have done. We appreciate the support of our shareholders. So far the votes coming in are massively in favor of the transaction. We appreciate each one of the retail investors and the institutional investors that continue to demonstrate every day their support to our strategic moves. We are together. I am one of you. I'm a big shareholder of this company. My family will be involved with this company for two or three generations going down. So that's how we see this business. There is no short-term thing here. We're working for us, shareholders of this company. Thank you very much and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.