Steel Dynamics, Inc. (STLD) Q4 2012 Earnings Report, Transcript and Summary

Marlene Owen Mark D. Millett - Co-Founder, Chief Executive Officer, President and Executive Director Theresa E. Wagler - Chief Financial Officer and Executive Vice President Richard P. Teets - Co-Founder, President of Steel Operations, Chief Operating Officer of Steel Operations and Executive Director Russel B. Rinn - Executive Vice President of Metals Recycling, Chief Operating officer of Omnisource Corporation and President of Omnisource Corporation Robert S. Walters Gary E. Heasley - Executive Vice President of Business Development and President of New Millennium Building Systems

Michelle Applebaum - Steel Market Intelligence Inc Evan L. Kurtz - Morgan Stanley, Research Division Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research Luke Folta - Jefferies & Company, Inc., Research Division David Adam Katz - JP Morgan Chase & Co, Research Division Mark L. Parr - KeyBanc Capital Markets Inc., Research Division Sohail Tharani - Goldman Sachs Group Inc., Research Division Timna Tanners - BofA Merrill Lynch, Research Division Arun S. Viswanathan - Longbow Research LLC Timothy P. Hayes - Davenport & Company, LLC, Research Division Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division Michael F. Gambardella - JP Morgan Chase & Co, Research Division David Gagliano - Barclays Capital, Research Division John Charles Tumazos - John Tumazos Very Independent Research, LLC David A. Lipschitz - Credit Agricole Securities (USA) Inc., Research Division Brian Yu - Citigroup Inc, Research Division Charles A. Bradford - Bradford Research, Inc. Charles Bradford

Good day, and welcome to the Steel Dynamics' Fourth Quarter and Full Year 2012 Financial Results Conference Call. [Operator Instructions] Please be advised that this call is being recorded today, January 29, 2013, and your participation implies consent to our recording this call. If you do not agree with these terms, simply disconnect. At this time, I would like to turn the conference over to Marlene Owen, Director of Investor Relations at Steel Dynamics, Inc. Please go ahead.

Thank you, Rob. Good morning, everyone. My name is Marlene Owen, and I am the Director of Investor Relations at Steel Dynamics. We want to welcome you to Steel Dynamics' Fourth Quarter and Full Year 2012 Earnings Conference Call. As a reminder, today's call is being recorded and will be available on the company's website for a replay later today. We will start the call with introductory remarks and commentary on our fourth quarter and full year 2012 financial results, including the number of highlights relative to our markets from Steel Dynamics' President and CEO, Mark Millett. Next, Theresa Wagler, Executive Vice President and Chief Financial Officer for Steel Dynamics, Inc. will provide additional financial details for the fourth quarter 2012 and full year 2012 period and comment on a few financial matters. Following Mark's and Theresa's prepared remarks, we'll be happy to take your questions. In addition to Mark and Theresa, also joining me for today's call are the company's platform Executive Vice President, including Dick Teets, President and Chief Operating Officer for our steel operations; Russ Rinn, President and Chief Operating Officer for our metals recycling operations; and Gary Heasley, Business Development and President of our fabrication operations. Please be advised that certain comments made today may involve forward-looking statements that by their nature are predictive. These are intended to be covered by the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995. Such statements, however, speak only as of this date today, January 29, 2013, and involve risks and uncertainties related to our metals business or to general business and economic conditions, which may cause actual results to turn out differently. More detailed information about such risks and uncertainties may be found at the Investor Center Advisory Information tab on our Steel Dynamics website, in our Form 10-K annual report under the captions Forward-Looking Statements and Risk Factors or, as applicable, in subsequently filed Form 10-Qs filed with the SEC. Now for opening remarks, I'm pleased to turn the call over to Mark Millett.

Thanks, Marlene. Good morning, everyone, and I'd like to also thank you for joining us this morning not only to discuss Q4's results last year but also to talk about our near-term earnings catalysts that we further -- that will further differentiate us from our peers, we believe, increase our value-added product portfolio and strengthen our earnings potential going forward. As I've mentioned before, in challenging times, I think true character becomes apparent. I absolutely believe that. And I also believe that the challenging times we've experienced, both in our industry and the overall global economy, have been met with increased character by the excellent team of Steel Dynamics employees throughout our organization. The industry continues to navigate through many cycles with a frequency which does not appear to be slowing down. Yet in spite of those ebbs and flows, I am pleased to report again, we continue to perform at the top of our peer group, maintaining our low-cost, highly competitive position. But before we jump into the discussion of our financial results there, I want to pause to commend our team for their safety record last year. Even though our performance has always been better than industry standards, we strived for 0 incidents throughout our organization. And in 2012, we made significant improvement, thanks to the dedication of every one of our employees. At our Jacksonville and Minnesota nugget, the teams there worked for the second year in a row with a 0-lost workdays. They were joined in 2012 by Steel of West Virginia, which also had no lost workdays in the year. The teams at our engineered bar division and The Techs each had only 1 loss workday for the year. OmniSource's Michigan division had 0 recordable injuries in 2012, an incredible turnaround for the folks up there. And 4 of our 6 teams in our fabrication platform finished the year with 0-lost workdays, Butler, Galvalume, Lake City and Hope, Arkansas. Our employees' safety and welfare are and will continue to be our highest priority. Our company-wide goal, as I said, is 0 incidents, and we have made good progress toward that goal in 2012. So congratulations to the team for doing a job well done and safely. As you know, 2012 was a tough year for business as global economic conditions remained difficult. And it's -- I don't have to tell you all, in America, the U.S. gross domestic product was weak, consumer confidence waned, we're at angst over U.S. elections that churned the political landscape and further fueled uncertainty and China's growth tool [ph]. But nonetheless, our talented team was up to the task, and we believe there are reasons for optimism in 2013 and in the years ahead. There appears in our mind to be sustainable upward momentum in residential construction, consistent ABI data would suggest nonresidential construction will follow as is typically the case. A lot of companies have significant cash positions that need to be invested, and I think companies are recognizing the effectiveness and efficiency of the American workplace and reassuring that manufacturing is also taking place. And then perhaps longer term and probably most important, inexpensive shale gas will make the U.S. energy long, providing a tremendous incentive for investment and for job growth. We at SDI will be the beneficiaries of the associated economic growth as we leverage our latent production capacity and furthermore, we have several growth projects that are being implemented in 2013 that will provide increased earnings potential specific to Steel Dynamics. And turning to our financial results, during the fourth quarter, we saw financial improvement in both our steel and metals recycling platforms and saw a slight decline in the profitability of our fabrication operations, as decreased volumes met with flat pricing. We reported net income of $61 million or $0.27 per diluted share on net sales of $1.7 billion for the fourth quarter of 2012. This is meaningfully above the $0.06 reported in the third quarter of the year and the $0.14 reported in the fourth quarter of 2011. As we stated, the fourth quarter of 2012 benefited from the positive tax adjustment that increased earnings by $0.07 per diluted share. Nonetheless, it's a phenomenal performance by all, by the teams. From an annual perspective, 2012 revenues and general volumes were only moderately less than 2011 results. However, operating income declined $194 million or 33%. The majority of the decline was related to compressed steel margins as operating income for the segment declined 24% year-over-year. Steel conversion costs stayed fairly steady to down, and the culprit was metal spread compression, which we defined as the difference between average pricing and the cost of ferrous scrap, our primary raw material. Average 2012 steel prices per ton shipped declined $66, while average ferrous scrap consumed for production only declined $32 a ton. During the quarter, operating income from our steel operations increased $8 million or 7% as overall steel demand slightly improved, with increased shipments of 4%. The increased volume from our sheet operations more than offset decreased long product shipments led by declines at our Roanoke bar division. During October, our Flat Roll division had incredible order entry rates, and we believe this was customer reaction to annex price increases and an expectation that raw material prices were also on the uptick. Operating income per ton shipped for steel operations increased slightly from $80 in the third quarter to $82 this quarter. Increased volume and improved product mix more than offset compressed metal margins. Average fourth quarter steel pricing declined $25 per ton in the quarter or about 3%, whereas the cost of scrap used in our furnaces production only declined $9 per ton. Our steel mills operated at 80% utilization rate during the fourth quarter, slightly improved from the third quarter, but not back to the 84% achieved during the first half of the year. Automotive and manufacturing sectors remain strong, but transportation and heavy equipment softened as over exuberant build rates early in the year resulted in oversupply. The energy sector also came under pressure as low natural gas prices impacted drilling rates. Even though end markets remain mixed, we believe there's additional momentum that could be seen in 2013 related to both the automotive and manufacturing sectors, and if the current administration embraces the exploration of the extensive U.S. energy reserves, we could also see several other sectors starting to improve. Our steel operations continue to outperform our industry peers throughout the market cycle. The team delivers best-in-class results by maintaining their laser focus on being the lowest-cost producer out there with a commitment to exceed our customers' highest expectations. The domestic metals recycling industry experienced a volatile year, driven by changes in both export and domestic mill demand fluctuations. Like everyone else, we were impacted by compressed margins throughout the year. However, our metals recycling business finished 2012 with a strong fourth quarter. Our operating income increased 56% from the third quarter. Despite lower volumes in the quarter, profitability improved as both ferrous and nonferrous metal spread expanded. Increased copper margins provided the most significant improvement, driven by increased global copper prices related to the improved demand from China. We also took advantage of a strong December 1 market as late in the quarter, we could see that the typical market strength of January would be challenged. And so the strong upward ferrous price movement generally seen in January or February due to cold weather and associated decreased supply, scrap flow remained good, while export activity decreased and steel mill demand remains stable. During 2012, in metals recycling, we implemented several initiatives to offset some of the macro supply and demand dynamics that continued to hinder the metals recycling market. We opened additional retail yards to increase flow of higher-margin material, and we focused on the reduction of our cost structure. In the first quarter of 2013, we planned to commission new technology to recover even more nonferrous materials from our shredding operations to reduce yield loss and to increase margins. As we said, the metals recycling business was quite a rollercoaster ride throughout 2012, and it's unlikely we will see that volatility subside in a meaningful way during 2013. However, as is typical for us, we're taking deliberate actions to mitigate the impact market volatility has on our business performance at least to the degree we can. The team is doing a good job thinking outside the proverbial box, and I'm expecting to see positive results from their innovative ideas. One of the key aspects of our success over the years has been controlling our costs as far into the supply chain as possible coupled with innovative and effective approaches to execution. We said that our pioneering efforts in Minnesota will provide SDI with a captive source of iron, eliminating dependence on foreign pig iron markets, and they have. Even though we pushed a small amount of third-party pig iron this past year, production at both our Minnesota operations and Iron Dynamics could have fully supported our steel production requirements. Of note, IDI achieved record volumes of liquid pig iron in 2012 supporting the phenomenal production efficiency of our Flat Roll division. During our last call, we indicated that we had begun a 6-week outage to the nugget facility to set groundwork for future upgrades expected to be made in the first half of 2013; upgrades to increase productivity and to improve product quality. As planned, operations resumed in November, and a restart has gone reasonably well. We've already seen significant improvements in product quality. We currently anticipate implementing the remaining advancements in the second quarter of 2013. Operations began at our iron concentrate facility in September, again, as planned; and the startup has progressed nicely. As a primary raw material for our iron nugget facility, this is a pivotal achievement in lowering the raw material input cost of iron nuggets. The cost of internally sourced iron concentrate will be less than $50 per metric ton compared to current market price iron concentrate that is selling on the spot market today in excess of $140 per metric ton. If pig iron prices remain steady, we anticipate the losses associated with our Minnesota operations for the first quarter of 2013 to be similar to the those recorded this past quarter, as the plant depletes existing higher-priced third-party iron concentrate inventory. If production ramps up throughout the year as anticipated, we would hope and expect the losses to decrease and hope to be at breakeven by year end. Moving on to fabrication. We are pleased to report a third consecutive profitable quarter with operating income of $9.50. The changes we made earlier in the year are yielding efficiencies and improved productivity. For the first time in 3 years, the business achieved positive full year operating income of $2.1 million in earnings. The nonresidential construction market is still challenging. We see selected areas in the U.S. that indicate signs of market improvement. The ABI index has remained above the 50 threshold for 5 consecutive months, a positive indicator for future building activity. 2012 volumes grew through gains in market share as the team continued to win new customers and broaden their geographic footprint. We remain focused on customer service and cost containment. Our first facilities and their operating teams are ready to execute as market opportunities present themselves. And we are poised to take full advantage when the construction recovery begins with our national presence, supported by 425,000 tons of capacity and the team's unrelenting drive. The company continues to drive towards maximizing opportunities to effectively and efficiently perform through the cycle to maintain a sustainable differentiation from our peers. Our operating and EBITDA margins continue to be best in class. As my mother [ph] used to say, proof is in the pudding; the proof is in our results. During this past year, we ended new markets, gained market share, we introduced new product capabilities, we became iron self-sufficient, we implemented our low-cost iron concentrate solution, we further improved and will continue to improve our Mills Recycling cost structure, we made strides to further solidify our balance sheet and we identified and initiated several growth projects to increase future earnings. I believe our superior operating and financial performance clearly demonstrates the sustainability of our business model. In keeping with the entrepreneurial spirit that flows throughout the company, we will continue to assess opportunities for growth, whether in new products, new technologies or new business lines. The focus is toward not only top line revenue growth, but growth that will enhance and provide consistency to margins and provide our shareholders with returns that demonstrate our commitment to making Steel Dynamics the preferred investment decision. We are squarely focused on positioning the company for long-term growth, and there are a number of earnings catalysts that I would suggest are compelling. Many of these we mentioned before. Our steelmaking capacity was expanded to 7.4 million tons, and we've yet to fully realize the benefit. We've not had a steel-consuming economy in which to leverage that capacity thus far. We're expanding the capacity and product offerings of our special-bar-quality operations, and that is on all the key success drivers: Product and market diversification, customer dedication, increased margins and great return on capital. We expect to have this additional capacity operating before the end of 2013. The SBQ expansion will also allow for greater utilization of our Structural and Rail division because they will supply semi-finished steel for the SBQ expansion. They will grow our rail production capability to include premium head-hardened rail, again, providing value-added product and market diversification, customer dedication and enhanced margins. We expect to have this capability as we enter 2014. Minnesota operations, as we said, will benefit from our own lower-cost iron concentrate. And after further equipment modifications are complete, we expect to achieve increased productivity. These are a few of many initiatives that have the potential to be appreciable earnings drivers. Again, we're focused on the long-term growth of our company, and I know and I'm confident we have a superior team that can deliver. And with that, I'll pass the call over to Theresa for further comments on our financial results. Theresa?

Thank you, Mark. Good morning, everyone. During 2012, our consolidated gross margin percentage decreased 178 days [indiscernible] caused by margin compression within our steel and mills recycling operations. Macro inventory conditions did not allow for a repeat of the historically high flat-rolled and ferrous recycled margins that we achieved during the first half of 2011. As Mark mentioned, our earnings per diluted share for the fourth quarter was $0.27, above our earlier guidance of between $0.18 and $0.22, as earnings from both our sheet and metals recycling operations were better than we originally expected. Additionally, our actual fourth quarter effective tax rate was considerably lower than previous quarters at 13.8%, including noncontrolling interest. The lower rate was caused by certain favorable adjustments and our reserves for unrecognized tax benefit. These changes were based on new information that we gathered in the fourth quarter. Excluding these adjustments, our quarterly effective tax rate was actually 39.5%. The positive impact of these tax adjustments on fourth quarter earnings were $0.07 per diluted share. In comparison to the third quarter of 2012, revenues were relatively flat at $1.7 billion. Nonetheless, our consolidated pretax income improved from $7 million to $54 million. However, the third quarter did include 2 unique charges related to both impairment and refinancing items, that when combined, reduced third quarter's pretax earnings by about $34 million. We also saw a change in our unrealized hedging position, which resulted in a $9.8 million gain recorded in the fourth quarter compared to a $9.3 million loss in the third quarter for our Mills Recycling operation. When we compare the fourth quarter of 2012 to the same period of 2011, our gross margin percentage improved 194 basis points despite lower volumes and mix -- excuse me, despite lower revenues and mix volumes. Our pretax income improved 56% based on those operational improvement and reduced interest expense. Our operating income per ton shipped for steel operations remain consistent at $82, resulting in basically unchanged operating income from our steel operations, while metals recycling improved $10 million. Gross interest expense for the year was $160 million compared to $179 million in 2011. This is a reduction of 10%. We're very pleased with the execution of our refinancing initiative completed during 2012. We refinanced over $1 billion of debt, just less than 1/2 of our outstanding balances, effectively extending and laddering out our maturities while reducing our overall effective rate. Near-term maturities are very manageable. We only have $30 million due in 2013 and $318 million due in 2014. We also reduced our interest burden from 7.5% at the end of 2011 to 6.4% at the end of this year, over a 100-basis-point improvement. And based on our refinanced capital structure and prevailing interest rates, we would expect interest expense for 2013 to decline another $20 million as compared to 2012. We also took the opportunity to repay $178 million of debt with available cash. We create even greater long-term strength and flexibility in our capital structure due to the repayment of a portion of the debt which we indicated we would do through the extension of our debt maturity profile and through the reduction of our interest burden. And cash flow generation remained incredibly strong. Cash flow from operations provided $446 million of funding during 2012; almost half was generated in the fourth quarter alone. For the year, working capital changes were fairly neutral, requiring about $18 million. However, in the fourth quarter, it provided $89 million in funding. Customer receivables declined during the quarter. Our annual 2012 capital investments totaled $224 million. Just over 35% of these investments were for the construction of our completed iron concentrate and copper rod facility, 28% from metals recycling and 25% from steel operations. Full year depreciation was $180 million, and amortization of intangible assets $36 million. I know some of you, for modeling purposes, like to understand what depreciation may be for the coming year. Current estimates would be in the range of $190 million to $200 million for depreciation and around $30 million for amortization of intangible assets. In spite of capital investments of $224 million, debt reduction of $178 million and dividend payment for shareholders $88 million, our total cash and short-term investments only decreased $68 million. We ended the year with cash of over $400 million. We also still have full benefit of our $1.1 billion revolving credit facility which had no outstanding borrowings at the end of the year. Combined, we provide $1.5 billion of available funds. Cash -- strong cash flow generation during this challenging environment is a continued testament to our low-cost, highly variable cost structure and diversed value-added product portfolio. Our credit metrics also continue to be strong. At the end of the year, total debt was $2.2 billion with minimal secured borrowings; actually, just less than 15%. Our net debt, defined as total debt less cash and short-term investments, was $1.8 billion, resulting in net debt to trailing adjusted EBITDA of 2.9x. If trailing EBITDA is adjusted for the full year 2012 refinancing charges of approximately $38 million, our average net leverage would actually be 2.7x. Worth noting, our long-term preference is to maintain that leverage below 3x, which we are doing. Our current estimate for 2013 capital investment is in the range of $200 million to $225 million. We consider over 70% of these projects to be growth-oriented or projects that are intended to increase capacity, efficiency and margin in future periods. Some of the more significant items this year include approximately $60 million of remaining capital to be invested for the SBQ expansion, just over $25 million for the installation of equipment to allow for premium rail production, about $15 million for the completion of 2 nonferrous recovery systems and just over $10 million for the completion of our flat-rolled leveling mine. As true for each year, capital investments go through considerable scrutiny before they receive final approval. This initial estimate may include projects that in the end just don't meet our expectations for a return or aren't in line with cash flow and liquidity expectations. Looking forward, our current 2013 capital allocation plan includes continuing to invest in existing operation to optimize capacity and margin, reducing a portion of our outstanding debt while maintaining sufficient liquidity for growth and providing cash for dividends to our shareholders. Our balance sheet is strong. We believe the framework for robust cash flow generation, coupled with our strong, resilient capital structure has the flexibility to not only sustain current operations, but to support future growth. Thank you. Now I'll pass the call back over to Mark.

Thanks, Theresa. And before we open the call to take your questions, I would like to thank firstly all our customers for your faith and support over the years and recently. And hopefully, we will continue to earn your business each and every day, and thank our employees for their continued hard work and dedication and to remind them to work safely, again, each and every day. So now Rob, we'd like to open the call for any questions you may have of me or Dick, Russ, Gary and Theresa.

[Operator Instructions] Our first question is from the line of Michelle Applebaum with Steel Market Intelligence.

I don't know if you guys ganged up and did this on purpose, all reporting the same day, but I want you to know that we're writing longer and more critical notes. So the plan didn't work, if the plan was to hit us. But this is a nice -- this a real nice quarter. I'm just wondering in terms of outlook, you talked about potential for macros. In terms of what your competitors have said today, it looks like AK expects a significant increase; Nucor expects level operating performance, but a reversal of LIFO; and U.S. Steel is looking for near breakeven on their flat-rolled. So we've gotten some kind of specific general guidance. Do you want to give us anything a little bit more meaty than your macro?

I don't want to speak for our competitors. I guess as we see the current market climate or the environment, I think it's generally positive from our perspective. We're operating in a backdrop of appreciating global pricing on the sheet side, which I think will help subdue import pressures, not going to eliminate it, but it's going to keep it under containment for the time being despite global overcapacity. And obviously, all pricing is appreciating, and I think in combination, there could be some market support from those drivers, either our customer has the typically reasonable optimism I think exists, supply chain inventories remain relatively tight, automotive remains incredibly robust, I think. Manufacturing in online is robust, and the PMI index in December popped up or moved up. And I think lead times, given the order entry rate over the last couple of weeks, 3 weeks, have moved that. I think -- and Dick can probably speak to it more than I, but the order input rate or order rate in our sheet mill has been very, very robust for the last 2 weeks. And engineered bar products has been pretty good too today, yes?

Correct.

So I think, generally, it's a positive outlook.

Great. I wanted to ask you in terms of the construction market. There's -- obviously, residential is past the inflection point. And the ABI has hit 5 months in a row of over 50 now for the fourth time in the last 4 years. If it hits over 50 this month, it'll be the first time of 6 months since '07. But it hasn't done that yet. So the fingers are crossed. Do you see the normal lead lag between res and non-res, if people have been talking about that a little bit more now that res has clearly established?

Dick?

I don't think it's going to be the normal anymore. I just think there's going to be a stretch to it because I think many of the developers are more cautious. There's still a lot of vacancies as you drive around your local communities. And so I think it's going to be slightly extended rather than the normal that we've seen in the past personally.

Okay. And can you talk about...

I do think talking nonresidential, Michelle, aside from just the stats, the rental cost going up and the inventory coming down and greater housing starts, albeit coming from a lower level, I think we're actually seeing it in our order book. It's not just a matter of numbers. I think sheet mill in particular has seen some benefits there.

In non-res? Did you say in res?

Residential. And again, that's -- in my mind, that's where it all starts. To Dick's point, nonresidential tends to lag 6 months anyway, maybe 9 months in this cycle.

Some people are saying it's going to lag longer because there's more -- there's more building of new developments, there's more finishing of old developments, and it's the infrastructure that goes with the new housing and development that usually tips the non-res pickup. So that's why I was asking about what your thoughts on the lead lag were.

And obviously, we've got a lot of latent capacity there for when it does recover, but we have also taken steps as we mentioned. The fact that our structural mill will be supplying blimps [ph] and bullets to the SBQ expansion and the onset of premium rail, no matter how long it takes, we believe the structural mill will change significantly over the next 12 to 18 months.

Yes. Okay, that's great. Can I ask one more? You talked about the benefit of product mix in the quarter. I mean clearly, you had expanding margins when metal margins were going in the other direction. Can you talk about -- and you said that, that was in part due to mix as well as greater volume. Is there -- can you talk about what is more profitable in your mix? And then is there any consistency from one quarter to the next about what is more profitable in your mix? Or is it all becoming quite random?

Right now, I'd tell you that it's somewhat random. We don't have the luxury to pick and choose when the economy is better. We do a lot more of the -- having that scheduling opportunity and the picking and choosing. But as of right now, it's random is the name of the game.

Typically, Michelle, banned stream -- painted products, those products tend to have a higher margin than perhaps hot-rolled coil for sure. And I think the greatest benefit that we have compared to a lot of our peers is the diversification that Dick and his team have created in Butler, gives us huge advantages in these banned [ph] cycles. I think our utilization rate for Butler in the fourth quarter was probably -- I don't know what, I didn't calculate. It was probably 90%, 95% of air bags. And when you only need to get a little bit of hot ban, a little bit of cold-rolled car, a little bit of calcium, a little bit of pail, a little of each product and we can pick our market niches to have higher margin. And the end result is the mill is running our utilization rate higher than our peers, and our average selling value will be higher also.

Our next question is from the line of Evan Kurtz with Morgan Stanley.

I was wondering if we could talk a little bit about Mesabi. Maybe first off, could you give us a little bit of guidance on how many tons you think you could actually produce out of the facility in 2013?

Well, as I said, coming out of the shutdown, the startup went okay. I think from a product-quality standpoint, it's been significant. I mean, there's been a dramatic change, and the guys at Electric Arc Furnace shop in Butler have been incredibly appreciative and have been applauding the product quality. So that was good. Productivity has been a little disappointing, in all honesty. We've been around about 20,000 tons -- 20,000 metric tons a month in November, December, and we'll probably finish January in around about that same number. Few issues still impacted a little bit from some mechanical problems. The cold weather has impacted us, although, we've suffered a lot less downtime than last winter, and I've learned some lessons. Operating in minus 30 degrees is just an experience. My hats off to the guys up there actually. But that's cost us a couple of days in January. So we are, I guess, slowly progressing up the production curve. We've been having periods of good production, 1,000, 1,200 ton a day. So if you extrapolate that out, and as I think I mentioned in our last call, we can see a production rate of 300,000, 350,000 tons a year as being achievable with the facility as is. But that's not going to happen immediately, and we see that slowly ramping up through 2013. We've got to take a shutdown here in the spring to make some more mechanical changes and install some auction enrichment equipment. We certainly need to get the efficiency, the thermal efficiency in the rotary-hearth furnace to get to the 400,000, 450,000 tons. And we won't know that for sure until we installed that equipment.

Understood. Okay. And then on the iron ore input side, are you at below $50 a ton now with Magnetation or is that something you're still ramping to get to?

We are not at the absolute design capacity today. We have and are achieving on a daily basis. The throughput is at the rate of capacity, but the recovery is less than what we design it for. And that's just matter of commissioning and starting up the ball mill. We commissioned the ball mill, I think, late December or early this month, and that should give us that additional recovery. So Dave and his team have done, in my mind, a phenomenal job in horrendous weather; and that plant, that startup, is going incredibly well. And we anticipate no problems getting the volume, and the cost structure is as expected if not better.

Great. And then just an idea, I mean you mentioned that iron ore price is currently about $140 a ton. What is roughly the value of the inventory that's flowing through in the first quarter on a per ton basis? Is most of that bought at the beginning of last year?

Right. It's probably closer to the 120-ish, 125 range.

Okay. Great. And maybe just one other question on scrap, curious to hear your thoughts on the Feb scrap pricing and also wondering if Mississippi River levels have been impacting the market at all.

Well, Russ is the only one in the leadership team that has a crystal ball. So Russ?

I think Mississippi River certainly has had some impact. It's prevented flows out of the upper Midwest Chicago in particular. So it has added some additional pressure on the markets in the Midwest. But again, I think we should look at the scrap pricing trends, where it's going to go. It's going to follow the order books and steel mills. And I think as those steel mills and foundries business picks up, certainly, there's going to be pressure on the pricing to move it up. But at this point, it's just been kind of steady. I think Mark characterized it well when he said it was an awful year last year. I think we're -- are expecting something very similar this year.

Our next question is from the line of Brett Levy with Jefferies. Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research: Guys, you gave part of the answer to the capacity utilization question. And the total answer, you said Butler was at 90%. As you sort of go through heat, maybe even rail, each of the different assets, do you have a rough utilization rate for the quarter?

I believe we gave the utilization rate for the quarter. It was what, 80%?

80%.

Yes, it was 80%. Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research: Right. And I'm asking sort of by business unit.

Well, it's fairly easy. The production, because we don't build inventory to a great extent, if you just take each of the shipments and you look down a quarterly basis what the capacity of each of the divisions, you can come up with that. And our capacities are actually in the presentation that's found in the Internet that you... Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research: Okay. I'll do the math on that one. As you guys look at the Pittsboro expansion, are you guys continuing to take market share as you sort of roll out this capacity? Do you anticipate there'll be any sort of pressure on pricing as Pittsboro is rolling out? Or are you encountering just favorable swings in terms of your market share?

Well, that capacity won't be added until the third and fourth quarter of this year. And so there's no impact right now. We've been out addressing the different quality requirements and certifications to get that business. And of course, there is always opportunity that applies some pressure when you attempt to gain the business. But it's going to be what it's going to be. And so we believe that the customers, I think, would be favoring us with the business that they give us with the larger parts. Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research: And as you guys add head hardening on the rail mill, can you guys sort of talk about what target volumes are as head hardening is implemented over the course of 2013 and into '14?

We -- Brett, we're targeting total rail sales somewhere between 300,000 to 350,000 tons a year. And I think it's not a matter of the capacity of the mill. The capacity of the mill might be more than that. But when we get into that business -- well, we are on that business on the standard rail side, but we want to maintain a commitment to the railroads. We don't want to slip in and slip out of the rail business depending on the vagaries of the structural arena. So we're targeting a solid 300,000 to 350,000 tons a rail. Again, as Dick said, that's being installed later this year. It's not going to really start ramping up on the head-hardened side until 2014. So I wouldn't expect that volume, that level of volume until probably 2015 or thereabouts. In 2012, our total rail shipments, I believe, were 147?

144,000.

144,000 tons. Again, that's all standard rail. Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research: And nothing major in the M&A pipeline as far as you guys can sort of consider?

Well, if we would, we wouldn't talk about it probably, Brett. Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research: Okay. I got it.

Sure. Just one comment on the -- that comes to mind on the SBQ expansion, we're focused there on what, 3 5/8? In that diameter? That makes up about 50%, 55% of the SBQ market, which typically can be 8 million to 10 million tons. So we feel gaining a market share of 300,000, 350,000 tons in that 4.5 million ton arena should not be a massive, massive undertaking given the loyalty and support we have from our customer base and the quality, the level of our product down there.

Our next question is from the line of Luke Folta of Jefferies. Luke Folta - Jefferies & Company, Inc., Research Division: First -- I have 3 quick ones, if I could. Firstly, you had some pretty dramatic shipment trends in the fourth quarter, both on the flat-rolled side and for SBQ. And it would seem to me that stocking trends probably played a factor there. I wanted to get a sense in the first quarter so far what you're seeing as far as order entry relative to fourth quarter shipment levels? I imagine SBQ probably had a big destock that may or may not be seen in the first quarter. It seems like by the strength of your flat-rolled, there was probably some prebuy ahead of the price increases. Just trying to get some color around that.

Well, I think in both cases, there was some prebuy. But I would tell you that we're pleasantly -- we're pleased with the continuation of the order intake in both those arenas. And the shipments are not -- the orders that we're taking are not for a long-term backlog but for product shipments. And so neither one is -- we didn't -- we weren't robbing Peter to pay Paul. We weren't taking orders in December to ship that were really for January consumption. They were I think taking -- they were concerned about price increases and so forth, but it really wasn't a real wild "stock up at the end of the year" type of ride. Luke Folta - Jefferies & Company, Inc., Research Division: Okay, so something like -- at Butler, something in the vicinity of where fourth quarter levels were is a reasonable outcome you think for the first quarter at this point?

Well, so far, we're only 3 weeks into the quarter, but... Luke Folta - Jefferies & Company, Inc., Research Division: Sure. Okay. And then just on the SBQ side, I mean the SBQ shipments, they were some of the lowest levels we've seen since '09. So I mean, are we seeing any sort of pick up at this point in the first quarter?

I think in SBQ, we're always -- we, across the board, and as I read from others too that the order intake in SBQ has been seasonally good across the board. And so that's good for all of us. Luke Folta - Jefferies & Company, Inc., Research Division: All right. And then just on Mesabi, with the iron ore prices stepping down quite a bit for you -- iron ore costs, I should say, with Magnetation, can you give us a sense -- I mean, with that in mind and with your outlook for utilizations to ramp over the course of the year, I'm surprised we are expected to hit some sort of profit by the end of the year. So I was just curious if could just give us what you think breakeven utilization is with your now reduced concentrate cost.

I think if we are -- it all depends on transferred price, obviously. But I think, as we said in the past, we are hopeful that we'll be in that breakeven posture by year end, and I think that is at a production rate of roughly 325,000 tons on an annualized basis. Theresa? Something like that. Luke Folta - Jefferies & Company, Inc., Research Division: Okay. Just lastly, quickly, we're hearing from some folks that electrode prices might be stepping down pretty meaningfully in 2013. I just wanted to understand if that was going to be any benefit for you for the year?

That's just a small number in our total. I can't even comment on it. We don't even talk about it at the general managers meetings. It won't be significant anymore [ph].

Our next question is from the line of Dave Katz with JPMorgan. David Adam Katz - JP Morgan Chase & Co, Research Division: Going back to the iron savings, so I know that eventually you're looking for 350,000 tons a year with the $90 per ton savings, that sounds like a potential $32 million of savings. But it really sounds like this year, overall, might just be a breakeven. Is that the right way to think about it?

I think that the first part of it is correct in the way you think about it as it really -- when you get to that, Mark talked about getting to 350,000 tons under our current configuration. But we still believe that there's the ability to get to the 450,000 tons after we make some changes in the second quarter, and we just can't tell yet. So that first part is true for the environment we're in right now. As we go through the year, because the first quarter we're using the higher-priced inventory and then we're actually ramping up and we need to take the items in the second quarter, I think 2013 is still a developing year for Mesabi. So even though we expect to get to breakeven rate, on a monthly basis towards the end of the year, that won't result in a breakeven year. David Adam Katz - JP Morgan Chase & Co, Research Division: Okay, understood. And then coming back to Engineered Bar Products, with the understanding that things are looking a little better, still from I guess the 6 quarters starting first quarter of 2011, there was kind of a consistently strong rate that was around 150,000 per quarter. And it's definitely been below that last 2 quarters. When you look at the inventory of your customers, what do you think it would take to get back to that level?

Well, we're not back there. I'm not trying to give any indication that we're running strong and full, that I can't tell you what it's going to take. Again, we take advantage of our schedule, we run our large furnaces at off-peak hours and so forth. We are using things we've done well with combining products into efficient cash. We're pleasantly surprised that with the orders we've taken, the sequences, and we're doing the things we've learned and practiced over the past few years in trying to continue those in varying efficiencies and the like. And so we continue to do well even in a downturn, but I don't want to imply that everything is great and rosy. That's why when we said our aggregated operating rate is 80%, we're not full. And so I don't want that to be implied. And I can't tell you what it's going to take to get there. David Adam Katz - JP Morgan Chase & Co, Research Division: Okay. So then I'll ask it a different way. When you speak with your customers and you're seeing that play change in the order rate, which perhaps indicates an inflection, is it an indication for them that that's due to an end of destocking or rather an increase in demand from their ultimate customer?

I think it's a newfound consumption rate by the end users that there was a -- that the consumption rate -- inventories has been flushed and have been cleaned. I talked to a large off-road equipment manufacturer who was actually here calling on our OmniSource group and I said, "Hey, what's going out there?" And he said, "Well, I had to make 2 budgets, one with a much more upside potential and one with a little bit more realism that it's not going to get much better than it was last year." And he said, "It's just more ho-hum. And he said, "I honestly believe that's what it's going to be for a bit more continuation within that 2013." So I think it's a realization that that's the level, and that's not the consumption rate that they were forecasting and that they were running at in the past few years when things were going great. So I think it's a little bit more of the ho-hum, that things are what they are. And without a real break in construction projects worldwide, it's not going to run at a humming rate.

Our next question is from the line of Mark Parr of KeyBanc.

The -- I wanted to just ask a question because based on a word you guys used, transfer pricing. And the -- so I mean as far as how we're going to see the Magnetation material at that savings, it may not necessarily come through Mesabi Nuggets. It comes through the Magnetation joint venture. Is that where it will show up?

No. Actually, what we've started doing purposely, Mark, is talking about our Minnesota operations. And when we talk about Minnesota operations, that includes 3 entities: It includes the nugget facility, Mesabi Nugget; it includes our mining resources, which is the Magnetation joint venture; and it includes Mesabi Mining, which is our wholly-owned entity. Right now, that value would be extracted at the Mesabi Mining, which we own 100% of. So when we report it to you, it'll all show up in the same area.

Okay. All right. That's helpful. And Mark, looking at some of these other releases this morning, you've got -- you got some mixed signals. I think U.S. Steel is suggesting that their flat-rolled business in the first quarter is going to be weaker from a profit perspective, but volume will be up a bit. I think AK has come out and said they expect an improved result, i.e. a smaller loss or maybe -- I don't know if there's profits in their mind yet, but at least moving in a different direction than U.S. Steel. Nucor has also suggested that 1Q will be weaker than 4Q. Can you -- do you have enough color that you could give us any, at least directionally, which way you think the earnings momentum is going to be in the first quarter?

Well, asking Russ this morning and his crystal ball to tell me what the scrap pricing would be doing in the next 3 months, I'd be able to tell you. Obviously, we're spread business, as you know, Mark, and it's wholly dependent on where scrap moves over the next couple of months, to be honest.

I've been hearing that scrap could be down $20 in February. Is that anywhere close to what you guys would be seeing?

Mark, I think it's going to be -- I think we'd characterize it as a soft sideways, which is -- which could be down $10, could be up $10. I think a lot of this is going to depend on the available -- or the utilization rate of the mills, what their order books look like. Again, if our mills are the indication. Certainly, they haven't deteriorated. So again, I think scrap is there. Weather has not been a real factor as of yet, although, we're not done with the month yet. So I think we'll have to see where it goes. So I think at this point, we're looking at it mostly sideways.

Our next question is from the line of Sal Tharani with Goldman Sachs.

A couple of questions on the raw material side or the input side. First of all, Theresa, this -- in your income statement, the loss attributable to noncontrolling interest of $5.5 million, is that all towards Magnetation joint venture?

Those losses are a combination of the copper rod mill and the Minnesota operations, which includes the Magnetation.

Okay. Is that like a bigger -- what is the bigger chunk in there from -- or is it equally divided?

[indiscernible]

Pardon me?

The biggest amount is from Minnesota.

Okay. And that will be mostly Magnetation because mine is -- or is mine also these lower losses in mine at the moment...

No, most of that would be a Mesabi Nugget.

Okay. I want to ask you something. I'm looking at -- and I just wanted to understand this the way you report, which -- first of all, thanks for making it more and more granular every quarter. You have a metal recycling and resources P&L and also the metal recycling, which is more OmniSource. And if I look at 2012, operating income for metal recycling was $72.5 million, while the metal recycling in Ferrous Resources was a loss of $11.7 million. And the operating income of metal recycling does not even include a hedging gain, which is about $3.6 million. But that's about $84 million swing, and Mesabi Nugget was only a $40 million loss, $10 million a quarter you're taking. So I was just wondering that other $40-plus million, $40 million to $45 million, is that Magnetation and others in there? Or what would that be? Or IDI maybe in there, mostly?

Well, the one thing to recognize is your $40 million that you're saying from the Minnesota operation is actually a net of tax number and you're comparing that to operating income, so you're going to have to make that number pretax. So you're more looking at -- even if you just use that 40% tax rate, which it wasn't that, you're looking at $65 million, $67 million from an operating perspective for the losses related to Minnesota.

Okay so the rest will be mostly divided between Magnetation and IDI? Or IDI will be in there also, is that correct?

Correct. The other thing that's in there is IDI, which is a small amount and Magnetation.

Okay. And one last question. Mark, when I look at the path from $10 million, a quarter loss to a breakeven by the end of this year or later part of this year, obviously, raw material input costs, which is iron ore, will play a role. You lost less about $40 million post-tax or $65 million less a post-tax on 170,000 ton shipment that's about $382 a ton. Iron ore is just going to contribute $75, $80 based on $125 market price you're paying. So $125 minus $55, your cost of $50, your cost [ph]. I was just wondering the rest of this stuff is coming from efficiency and improvement. I mean do you expect this -- the Mesabi to be running pretty heavily by the end of this year to get to that kind of saving that you breakeven by the end of this year?

Yes. Obviously, at the impact or the start curve at this moment in time is very steep. And so it doesn't take a huge increase in volume to have an appreciable impact on your cost per ton.

Our next question is from the line of Timna Tanners of Bank of America.

So not to pick on you, I was already going to ask this question after Sal started. But I just wanted to actually offer you a chance to kind of remind us why Mesabi is the right technology for Steel Dynamics. Really, you could have walked away from it like we've seen with other scrap upstate technologies like high smelter or others. You could adopt a different one. Can you just give us a high-level reminder of why Mesabi is so compelling for you and why it's the right alternative?

Well, I think from our perspective, we still see the potential to get to the volume capacity if we were not to be optimistic or not to see the potential there, perhaps we will have a different opinion today. But again, the quality of the material is excellent, and we feel like we get the volume to where it should be. The cost structure should be competitive. And when you look at all these different materials, whether you look at DRI, whether you look at Mesabi or whether you look at Iron Dynamics, whether you look at scrap, whether you look at the blast furnace roof, there are a lot of variables and a lot of assumptions that come to play. We still feel that Mesabi Nugget will be competitive certainly against integrated mills that have market-based ore as a raw material.

How do you compare it to what we're hearing about DRI?

DRI? The DRI facility utilizing captive, and I emphasize captive ore and $4 per dekatherm gas, that there are very few technologies out there that will beat that.

Okay. Switching gears, if I could, just the other question I wanted to hone in on is, you talk a lot about improving nonresidential construction as an opportunity to deploy the mills at full utilization and also about using gas, about the greater manufacturing in this country because of cheap natural gas. Are those just things that you're modeling? Are you seeing any of that yet? And then if you talk about cheap gas benefits, I don't know how to quantify the steel that would go into, say, a chemical processing plant or some of those other opportunities. Can you help us with that?

I think it's more macro than that, Timna. I think the shale gas or just having gas at $4 and some would say hey, long term, gas will perhaps come out at $5 through the cycle. When you compare that with Europe, it probably -- there's probably around $8, $10, $11 a dekatherm; you have Asia probably $10, $15. I mean that gives an incredible, incredible incentive to invest in this country. And it's not the specific consumption of steel units in building a chemical plant. It's the fact that it has the opportunity to truly change the economy of America. And we'll be the beneficiary thereof through manufacturing and oil and energy and transportation, all those things.

Our next question is from Arun Viswanathan with Longbow Research.

So I just had a question on recycling, looks like there was some pretty good performance in the quarter. How do you see that, I guess, playing out sequentially over the next couple of quarters and why?

Arun, anytime we can get a market that rises in the quarter, I think recycling has got a pretty good chance of doing well, which is what happened in the third quarter. We had fairly significant price increases throughout the quarter. I think as we go into the first quarter here, those look like they've played out. So I think we're looking at more of a flat market. So again, I think we won't get the benefit of those market swings upwards to that degree. I think on the other side, if you look at the nonferrous, and that market seems to have firmed somewhat, although we do have Chinese New Year coming up which generally has 10 puts of data over nonferrous. So I would -- I think what we're looking at, at that this point is a very similar year like 2012 where it's going to be -- where scrap is going to be traded largely in the range. It's not going to have the big spikes up and down, or if they do, they're going to reverse themselves very quickly.

Okay. And similarly, I guess, on the natural resources side, it is helpful that you guys kind of broke it out from recycling within the segment. And what's the path to, I guess, profitability from a timeline perspective? And are there any roadblocks to achieving that?

Well, the primary thing that's affecting the metals recycling and ferrous resources segment really is the Minnesota operation. And so much of what we've talked about on the call are already that past to profitability. That's what's going to cause the segment to become more profitable, as well as some of the initiatives we're taking in metals recycling, even though Russ mentioned that the year in the volatility or pricing perspective could be very similar to 2012. There's other things that we're doing to enhance margins that are outside of the market arena, such as some of the nonferrous recovery systems and some the cost reduction initiatives that we're taking in certain areas as well. So there's a lot of things that we're implementing in 2013 that should cause that to improve.

Okay. And the last question I had was on construction and flat-rolled. I guess as Michelle said, we are seeing some improvement in ABI and so on. Do you believe that non-res trends would ultimately translate to stronger construction market in the second half? What are your customers telling you? And is that a fair assumption?

Well, all I can tell you is that we still have some galvanizing capacity that services mostly the construction market. And that I don't see that being filled up in the summertime or in the fall. So I don't really believe -- I know and I understand what trends do and what they send the messages for and so forth. But I think we're still a long way away from recognizing a healthy, non-res and residential construction market.

Our next question is from the line of Tim Hayes with Davenport & Company. Timothy P. Hayes - Davenport & Company, LLC, Research Division: Just a couple of housekeeping items. Did you give the operating income for OmniSource in the quarter?

Yes, the operating income for OmniSource for this quarter was $25.8 million. Timothy P. Hayes - Davenport & Company, LLC, Research Division: And does that include the $9.8 million mark-to-market gain?

That's correct. Timothy P. Hayes - Davenport & Company, LLC, Research Division: And then quickly, the shipments for the steel ops by the categories is the hot-rolled, pig iron ore, et cetera. You got those?

I do. For the fourth quarter Flat Roll shipment, we had 300,000 tons of hot-rolled, 92,000 tons of P&O, 37,000 tons of cold-rolled, 117,000 tons of hot-rolled galvanized, 53,000 tons of cold-rolled galvanized, 97,000 tons of painted and finally 18,000 tons of Galvalume.

Our next question is from the line of Tony Rizzuto with Dahlman Rose. Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: I just got a couple of quick questions here. How far out now are your lead times at Butler? And how does that compare to lead times before the latest price hike announcements?

Well, we don't really talk about backlogs that much anymore almost across the board, but we look at what our cash uses are scheduled at, and we continue to have 2 cash use schedule. And so if I sit out a couple of weeks, again, we've got our painted products that are sold out, out in the margin and so forth. So -- and again, the hot bands, we got -- we probably got some spots and -- in the beginning of February, that we're open and so forth. But the value-added products, we're filling up at the end of February and into March already. So again, we don't really think of it as a backlog like that, that much. We look at it from a where do we schedule the cash use for. Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: Okay. And Dick, that -- so that, what, is it about 3 to 5 weeks on average type of level?

Yes. I would guess that what would it translate to. Yes, sir. Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: And there's been -- have there been discernible changes though since the latest -- I mean you guys indicated that maybe it was a little prebuy -- pre-hike buying that was maybe going on a little bit?

Yes, I think that will translate to. Yes, sir. Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: And have there been discernable changes, though, since the latest -- I mean, you guys indicated that maybe it was a little pre-hike buying that was maybe going on a little bit?

It was a little bit, that's true. Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: Okay, okay. And as far as the -- just a couple of other things here, I think, Mark, you mentioned, your response on earlier question about the M&A and it was kind of an open-ended response that you made. Strategically, though, should we think about any M&A activity? Would it be most likely more bolt-on for you guys rather than transformational in terms of magnitude?

Our growth focus at least this past year and our implementation standpoint into 2013 has been to leverage our existing assets and try to enhance the margin and the utilization of those structural mill. I think the SBQ expansion and the supply from Columbia City, along with the head-hardened rail initiative at Columbia City is going to bode very, very well for that enterprise. And it follows -- excuse me. It follows our focus, sort of our strategic thought that we want to enhance margin but we also want to get a little bit more consistent margin through the cycle. And that's certainly going to help there. But our focus of the past year has been more internal. From a standpoint of M&A activity as we said, we are a growth company and we will look at opportunity. We certainly would not consider getting out of our discipline. Let me speak corporateship [ph] and that needs to be the capability of margin enhancement. Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: That's very helpful. I appreciate that. And then finally, anything new to report in terms of your permit process on the mining side in Minnesota?

Simply, no. That continues to be a very arduous task, and it, unfortunately, changes, I want to say daily, but the restrictions and the direction, the focus of the state agencies there are ever-changing. And so it's tough to hit a moving target, to be honest. But I would suggest that a permit for the brownfield mine is not going to be forthcoming in the next year, 18 months, maybe 2 years. Again, we're very, very fortunate in having the joint venture with Magnetation providing good material. Again, that's not new material. We've already used it. We've been using Magnetation type material for the past year on and off. But that is a -- and it's more than a bridge. The reserves for that facility are substantial, and the technology will be able to provide all the needs from Mesabi Nugget going forward. So the mine, it's not an essential issue to gain that permit but we do feel there's value there, going forward, long term. And hence, we will continue to pursue a permit. Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: Got it. And on that topic, just to further follow it, obviously, it looks like this President and the administration is starting to talk more and more about the carbon tax legislation. I just wonder if you could give us your thoughts about how this might impact your company and maybe some thoughts on manufacturing in this country. And there's been a lot of excitement about the resurgence, if you will, of industrial activity here. But is this -- is it moving in the wrong direction if we start to see this stock rear its ugly head again?

Well, I think it's certainly a distraction for a lot of people. And your guess is as good as mine as to the end result. Yes, it looks right there that some of it is not openly discussed, is that the phenomenal reduction in carbon gasses here on the last year or so by the shale gas phenomenon. Utilities are changing their power generation by a large amount from coal-fired to gas. If you look at the capital expenditures going forward, they're squarely focused on cash generation. And that's -- it's a massive drop in the carbon footprint already. And it seems that the administration and agencies don't want to even recognize that.

Our next question is from Michael Gambardella of JPMorgan. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: Hey, I just wanted to drill down a little bit more on this Minnesota operation. So you're estimating that you're going to be right around breakeven by year-end. And I just want to get some details on how you get there. Because if we're starting with about a $65 million pretax loss for Minnesota, I think I heard you say, for the year, annualized, even if we take the benefit from the concentrate, the maximum benefit of, say, $90 per ton multiplied by the top end of the range, 450,000 tons, we're talking about a benefit or incremental improvement of about $40 million, $41 million. That still leaves us with about a $25 million loss. So is that all going to be picked up on the conversion improving? And what is the conversion cost, what are the conversion costs right now and what do you hope for them to be?

Michael, we've always refrained from talking about conversion cost until we have the facility running closer to design, so that we can speak intelligently about that. And I would say that the principal difference is volume. Now obviously, there's going to be some -- further work on cost compression from maintenance and all those good things. And I think we may have the transfer price appreciating just a hair, but not substantially. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: But if you have a $65 million loss on a concentrate, which you probably won't achieve, you're probably not going to achieve that full $90 per ton, against 450,000 tons by year end, is all of the rest of the benefit to get up to the breakeven just on the conversion cost expectations improving?

Yes. And I think our revelopment [ph] cost is coming off a little bit. As I said, incremental pickup in the transfer price. So together, we -- that's what we predicted. I mean, we may not make it and we may be better than that. But...

Mike, one thing I'd like to point out is, it's not a one-for-one on the amount of conversion that you use to create one nugget. It's more like, what...

Today it's close to 1.7, 1.75.

1.7 to 1.75. So when you're thinking about the incremental benefit, you have to look at the tons of concentrates that are actually needed to produce 1 ton of nugget. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: Just because of the grade, right?

For the grade and just the efficiency of the process, that yield will improve with time, but that's where we are today. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: I mean, what -- could you give us a ballpark what you're paying today for landed pig iron or DRI, or whatever kind of scrap substitute you're buying?

Well, we haven't bought any pig iron recently, but Ryan...

Pig prices are about $405. New Orleans, probably both. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: And then how much would it be to get it up to your mill?

Freight is close to $45, $45, $47.

That's correct. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: So I guess you're looking -- I mean, how would you characterize where you hope to be versus landed pig iron price of like $445?

Price a ton from Mesabi? Michael F. Gambardella - JP Morgan Chase & Co, Research Division: Yes.

Again, we refrain from talking about that.

No, Mike, we still feel comfortable with what we believe the eventual cost structure will be with both all of our Minnesota operations combined. Now we feel it's competitive for us to have it versus buying open market pig iron being subject to vagaries of what those markets are, and whether or not they're available because the weather or whatnot. So we still believe in the process. But as Mark said a couple of times on the call, we do need to see what happens with the changes that we expect to make in the second quarter.

Our next question is from the line of David Gagliano with Barclays.

I just wanted to clarify a couple of things with regards to the first quarter outlook. I heard a couple of different moving parts here with regards to order books improving but potentially some prebuying. So these are very basic questions. But just in general for your steel operations business, could you give us a sense as to volume expectations, overall Q1 versus Q4? Maybe it's a range on a percentage basis or something along those lines. That's my first question.

I think we will still be operating in our 80% range of our utilization of the steel mills. Flat Roll continues to be at the higher end of it. SBQ and rail structure mill like the lower end, our Steel of West Virginia is basically almost fully booked. And Roanoke, their rolling mill has built a little bit of inventory, but their melt shop is not running full because they're not selling any belts on the open market. And so that's about where we are now.

So is the one-word summary there flat sequentially on volumes?

Well, that's just like...

Seasonally. Yes.

Okay. And then my next question was actually related in moving parts on pricing as well. Can you give us a sense directionally on your pricing expectations given where we are in the quarter at this point, overall in steel operations?

A, we don't comment, David, on that. And secondly, again, we're operating in many cycles anymore. And we could tell you one thing tomorrow today and 2 weeks from now, it would be very different. So we would hate to speculate for you.

Okay. And the last question, scrap. Let's assume scrap is flat for the remainder of the quarter. Any reason to expect unit cost to move directionally significantly sequentially in the steel operations?

I guess the one thing that which we do see the -- have consistency and that is our cost structure. I don't think given volumes remained stable, there's nothing on the horizon, I don't believe.

Well, again, I'm, just to throw a couple of plugs in, I'm very proud of the steel operations that we're not spending huge capital moneys, but just about each of the operations have continued to improve their efficiencies, yield, we've had record productions at many of these facilities. And we find our best opportunity for improved performance is by lowering our cost structures. And we continue to make strides there and that's where the best bang for the buck is, is we've been installing smaller pieces of equipment, better utilization on it and on and on. All from safety right on down through quality and yield and efficiency. So I think we'll continue to see good performance even in a weak -- in a not solid book.

Our next question is from the line of John Tumazos. John Tumazos, independent research.

My question is on the recycling market. Over the last several years, scrap and the nonferrous metals prices vary a good deal. Copper is down about $1 from its high. Aluminum and zinc inventories are records. Generally nonferrous is depressed. How do these interactions affect your profitability? Do they manifest themselves in lower scrap flows if multiproduct function like the dismantlement of an automobiles and net residual value? Or do you buy at a lower price? Does it necessarily affect your margins if your margin is spread? How do you look at the complex multivariate function of dismantlement of an automobile or an appliance or some other good with many materials in it?

John, it's a good question. Again, I think in the scrap world, recycling world, in essence, you're a trader. When you're buying, you're selling. So those margins can compress and expand depending on how well you do each side of that function. So again, I'm very proud of our team and their market knowledge and their market anticipation is to where these things are headed. So again, I think as we, particularly in the nonferrous as we buy and sell, certainly, we get some extraction out of the shredders and out of the downstream facilities. But again, those -- they're going to move with the market both on the buy side and the sell side.

For example, is your copper less than it was 2 years ago when copper peaked at $462? Or is it coming in just because people just collect the whole automobile or the whole good?

I think the flows are generally stable or not. Again, they'll move -- if we get a big construction market, certainly the demand for copper will go up and the usage of copper will rise and which generate scrap, as an example. So again, I think it's going to flow with the economic trends in general terms.

I think, John, you might be amazed. Obviously, the industrial flow, those folks, the providers are very, very in tune with where the copper market is. And you're not going to hoodwink or take advantage of them. But it's amazing how even the peddler has a good knowledge. So when you're buying a car, a hulk, they're baking that the value is not only of the ferrous component of that hulk, but also the nonferrous. It's incredible how efficient the market is.

Our next question is from the line of David Lipschitz of CLSA. David A. Lipschitz - Credit Agricole Securities (USA) Inc., Research Division: I'll be quick. My question is, it seems like every fourth quarter your metal spread compresses but yet your operating income beats that spread. And you said sort of your conversion costs were kind of flat. So I'm just wondering what's in -- is it a seasonal factor with the fourth quarter? I'm just wondering why that is.

I'm not so sure I've studied it quite that way, and can't tell you, to be honest. David A. Lipschitz - Credit Agricole Securities (USA) Inc., Research Division: Basically, so if you look at like your metal spread each from third to fourth quarter continues to -- has compressed the last 3 years, but your operating profit this year was up $2 a ton in the Flat Roll division. Last year it was up $13, I think, but metal compression was $29 a ton. So you said so the conversion costs were kind of flattish. So I'm just wondering if there's anything else in that number that would cause it to be that way.

Well, actually, if you look from division to division and we don't talk about it in that granularity, but the conversion cost at some of divisions were much lower from different cost initiatives that they serve whether it was less maintenance because of the holidays or whatnot and it did make a difference. So maybe that could be impacted, I guess, every fourth quarter. And we've not looked at it from that form or fashion but say that conversion costs are relatively steady, I think if you look at the impact each mill had, overall conversion costs were lower. David A. Lipschitz - Credit Agricole Securities (USA) Inc., Research Division: Okay. Is that a normal thing for fourth quarter, though, for overall? If you go back over time, is that just with the holidays, less maintenance, things like that?

I'm hesitant to say that it is only because to March 22 [ph] I haven't looked at it from that way but we will. And it could be just because of the holidays if that's the case. But I'll get back to you again. I'm not sure.

Our next question is from the line of Brian Yu of Citi.

And Mark, you've given a lot of information on Mesabi. I just want to make sure that I've got my numbers right here. So currently, it's running at about 240,000 tons annualized run rate. And you're expecting to get up to 325,000 annualized by year end at which point you'll reach breakeven, is that correct?

That would be the hope, yes, the expectation of the team.

Now in terms of the capital improvements, you're going to finish those up in the second quarter. So what else are you anticipating or buffers are you building into your expectations that -- where do we get from here better than breakeven so that this starts to -- on a return on capital? What else can you speak on?

Okay. Volume is the most pivotal thing now that we have a lower raw material input cost. And it's -- as with any pioneering effort, you don't put one in and somebody turn it on and you get that productivity. There's a learning curve. It's just the same, we put in some option enrichment in the -- this past shutdown just to trial certain things ahead of the spring shutdown. And it's a learning curve. I mean, it certainly had an effect of improving the thermal efficiency and we melted all the nuggets on the half and now it's one big plate of iron then. So it's just learning how the new technologies, the new processors behave. So we see just a continued -- well, my hope is a continued ramp-up through the year.

All right. Is there a way to think about how much the process has been troubleshooted thus far?

Again, I used the word I think earlier, disappointing, from a productivity standpoint, because I think the experience, the learning curve from a knowledge -- from a knowledge perspective and a process perspective has been absolutely huge the last 6 months or so. And again, if you look at certain periods of time, we're achieving [indiscernible] in a row. It's a matter of getting that consistent [indiscernible]

Just quickly on the scrap march, we've seen [indiscernible] international demand for U.S. scrap will be stronger than what we've seen thus far. Any color you can share on where you guys are seeing from some of your more traditional volume partners and why they were not seeing scrap price actually move up consistent with the iron ore markets?

Well, I think, Brian, part of it has to do with world demand. I think the Chinese certainly -- the Asians certainly have continued on a relatively static basis. The Turks have been erratic. They are the big consumer on the East Coast [indiscernible]. I think as I look at the exchange rate, the dollar-euro exchange rate, as the dollar continues to weaken, certainly I think that's going wind up making the U.S.-based scrap more affordable for the Turks. And so I would anticipate that their appetite would grow as far as U.S.-based scrap is concerned, as long as that euro stays at $1.34, $1.35. Certainly that makes it scrap attractive.

Our next question is from the line of Charles Bradford of Bradford Research.

First, I'd like to talk for a minute or 2 about your energy usage. I've got a model that's about 6% and 7% of sales in total. Does that make sense?

Yes.

When I try to break...

I'm sorry. Not of sales, but of cost of goods sold.

Okay. When I try to break that down between electricity and natural gas, I guess something like more than 75% being electricity. Does that also make sense?

Yes.

And now an area where I'm having a lot of trouble is the electricity portion. How much of that is coal-based power, how much of it might be nuclear or how much might be gas? Do you have any idea in how that's exchanging?

We don't know that, Chuck. When we go -- when we contract for power, it's faceless. The power company always have a contract. It's regardless of the supply you normally go out without a contract into the market. It's just that at whatever the rate the market supplies, and you could normally tell what department -- you used to be able to tell what you were getting based on the price when natural gas was so expensive relative to nuclear coal. But now with the shale gas, you can't tell that anymore. So it's totally faceless test. We have no idea what electricity generation -- what source of the generation is whether it's coal, nuclear or gas.

Are you seeing any trend towards increased electric cost on some of the -- I keep hearing about the coal as you mentioned being converted to gas? And are some of the solar subsidies affecting what you're paying.

All I can say is that we have had indications from several of our contract suppliers that in the next round of contracts, there will be a -- part of our discussions associated with significant increases to cost that they will be expected to expand for the conversion to natural gas or for the installation of scrubbers for Mercury. And so there were -- we see that and you can also see out a little bit as far as sometimes in the future strips that there are an anticipation of an increase in cost in the futures markets.

Our final question today is from the line of Sal Tharani of Goldman Sachs.

Russ, a quick question. There was a remark made by Mark and I think it's in the press release also that you took some advantage of strong December in the ferrous market. I was just wondering if you can quantify A or B, does it mean that we should expect a little lower volume as we enter the year with a lower volume of inventory on hand? In the first quarter, should we assume a lower volume number?

Sal, I think the inventory chain or the supply chain throughout the inventory, whether it's our yards or [indiscernible] yards or mills is pretty narrow, it's pretty thin. So I think what you're seeing is most of the scrap is being collected is flowing. So I think, again, it's going to be -- it comes down to the order books to the mills and our fabric customers and other customers that [indiscernible] scrap is available out there. I think it's just a matter of what those order books look like. So if the order books remain flat, remain stable, I think we'll have a flat to stable supply of scrap in terms of volume.

Now with the current pricing on scrap, is the flow [indiscernible]

Again, I think certainly there are spots where it does not meet the expectations of the sellers. There's spots where it does not meet the expectation of the buyer. In those cases, there are times when scrap gets held off the market to some degree, but it's not, it's not terrible.

Thank you. That concludes our question-and-answer session. I'd like to turn the call back over to Mr. Millett for any final and closing remarks.

I just wanted to thank you, all, for your patience. It's quite a long call. Thank you for your interest in our company and hopefully, you will continue to support us. To our customers, thank you for your support also. And employees, a big heartfelt thanks from all of us here for your hard work, your dedication, and we implore you to work safely each and every minute out there. Thank you, all. Bye-bye.

Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation. You may now disconnect. Have a great day.