Cleveland-Cliffs Aktie

Good morning, ladies and gentlemen. My name is Kevin, and I'm your conference facilitator today. I'd like to welcome everyone to Cleveland-Cliffs First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's prepared 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 are set forth in reports on Form 10-K and 10-Q and news releases 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 Regulation G purposes can be found in the earnings release, which was published this morning. At this time, I'd like to introduce Lorenzo Goncalves, Chairman, President and Chief Executive Officer.

Thank you, Kevin, and good morning, everyone. The first quarter of 2026 was the beginning of a sustained improvement progression that will continue through the rest of the year. While Q1 results could be better and they would be better. if not for a couple of one-timers, we can see the clear signs of a positive trend for me.

Among these one-timers, the impact of the spiking on energy cost was the most relevant to Q1 results. Now to the good news. Our order book is full and the automotive OEMs are booking more and more steel from Cliffs. Production schedules are tight and lead times have moved out. Historically, Pricing changes took about a month to flow through our realized numbers.

Today, the lag is closer to 2 months. In practical terms, -- that means the pricing strength visible in the market today will increasingly show up in our results as we move through the year, quarter by quarter. That combination, strong backlogs, disciplined production and visibility is what a healthy steel market looks like.

The extended lead times allow us to optimize production schedules in our mills, improving our overall efficiency, productivity and costs. This market strength is driven by what is happening on the trade front, steel imports into the United States are at their lowest levels, since 2009. By now, it's clear that Section 232 works, the melted and poured mandate works and the enforcement works.

Along those lines, we are very encouraged by the recent changes in how derivative product tariffs are being enforced. Distribution transformers were added, which is exactly the right outcome. The Trump administration has given the domestic steel industry what we needed and have been asking for. Union jobs are being protected. -- domestic supply chains are more resilient and mills are running at higher utilization with real predictability.

The 1 piece still missing is Canada. There's a robust domestic market in Canada for our Canadian subsidiary, Stelco to sell steel into, but the Canadian market is still oversupplied with steel from countries that are no longer able to dump their excess capacity into the United States. Because of that, they dump steel in Canada. That said, we are confident that Canada will ultimately get to the right place and enhance its own national security defenses against the negative impact of foreign steel causing the destruction of Canadian companies.

We truly believe the Canadian government is honest about defending Canadian jobs in Canadian steel workers. We fully expect that Fortress North America can be and will be implemented by Canada because that's totally within their own power. Canada does not depend on anyone else to do so and Canadian jobs are the ones at stake. The national security base for steel tariffs is being validated in real time. The war activity in Iran has disrupted global freight lanes, driven up energy prices and destabilized metal supply chains.

Imported steel is now not only subject to tariffs, it is structurally more expensive due to transportation costs, energy volatility and geopolitical risk. And while this global uncertainty is exposing weaknesses elsewhere, it is strengthening the position of domestic steel producers like Cleveland-Cliffs.

Nowhere is that more evident than in aluminum. The aluminum industry has been hit repeatedly, fares power shortages, curtailments, geopolitical disruption and customers have taken notice of all that. Automotive OEMs are prioritizing supply certainty, total cost and safety. Our Cliffs Steel delivers all of that without the fragility embedded in aluminum supply chains.

In my long career in this business, I have never seen so much momentum and substituting aluminum with steel. And automotive is not the only place, where the shift from aluminum to steel is occurring. Building products, appliances and truck trailer sectors have been recently gravitating toward more steel use as well.

As we advance the use of our Cliffs steel, being formed in equipment previously utilized exclusive for aluminum, Cliffs has demonstrated to our clients with real-life results, the most potential benefit to market share gains from aluminum. We are also pleased to inform all of our stakeholders that in February, Cleveland-Cliffs received from our clients, Toyota, the Toyota Quality Excellence Award.

Toyota does not hand out quality excellence awards lightly. Their standards are amongst the strictest in the world winning that award is confirmation that our processes, consistency, execution and our overall quality are at the highest level for Toyota's high standards. That strength has drawn attention from companies outside the United States. When we last spoke, we expected to achieve during the second quarter, a mutually satisfactory transaction with POSCO in accordance with the memorandum of understanding signed by both companies last year.

This goal remains achievable, but the currency disruption in the Middle East and its impact in the country of South Korea have not helped accelerates the conclusion of our ongoing discussions. That said, our engagement with Post is active, and we still believe a deal can be completed within this time frame or slight later.

Our Department of Energy-funded projects, we -- on this side, we continue to make solid progress. The Butler Works electrical steel expansion project is moving along as planned and remains on schedule for 2028 completion. Similarly, our Middletown Works project has received a clear affirmation that the project will proceed once the updated scope is finally approved, and we are now in the final stages of completing that work.

The revised scope of the project reflects a modern blast furnace configuration that position in Middletown among the most energy efficient in the world. Taken together, the Butler and Middleton projects underscore our disciplined approach to modernization, investing in critical infrastructure in a way that strength domestic still making improves efficiency and supports long-term competitiveness.

At the same time, we are continuing the footprint optimization actions we began last year. At Burns Harbor, we are idling our smaller plate mill as we have successfully been able to consolidate all capabilities of the 110-inch mill into the 160-inch mill. This removes an inefficient line, improved utilization at the efficient 160-inch mill and strengthen our cost performance without sacrificing any capability.

We are also idling the Gary plate finishing line, which is no longer needed. There will be no loss in overall steel production or layoffs, as we will backfill those roles in areas where we have seen rate attrition. We expect that these operational changes, coupled with the positive momentum, we have been currently seen in the plate market should enhance our earnings from the plate business.

On rare earth, we continue to analyze our potential on these critical minerals. That said, economics hedge on domestic refinement capability. And today, that infrastructure is extremely limited in the United States. Refinement is capital-intensive and not something we intend to pursue ourselves. If and when, viable domestic refinement infrastructure becomes available either through government-supported projects or third-party investments, we see ourselves well positioned to take advantage of the opportunity.

We have also partnered with a leading and prominent AI provider to help us take a meaningful step forward in how we run the interface between operations and commercial, particularly by embedding AI into our production planning and order entry processes. Their platform allows us to use machine learning models across our internal data to anticipate constraints optimizing sequencing and making better decisions in real time rather than after the fact.

Our people are good, but it's impossible to perfect these processes with humans running Excel spreadsheets. This initiative will ultimately move us from human experience-driven planning toward a new and enhanced AI-assisted decision-making system that scales with the complexity of our operations. We expect to make a full announcement on our AI initiative, including the name of our partner in the next few weeks.

One important milestone we will navigate in the coming months is the renegotiation of our labor agreement with United Steelworkers. Our employers are the backbone of this company and their skills, commitment and pride in what they produce are critical to our success. In our evolving and increasing in capital-intensive industry, we must ensure that the structure of our labor agreement supports competitiveness, flexibility and long-term sustainability.

We approach these discussions with respect and realism with the goal of reaching an agreement that rewards our workforce, while strengthening the company's ability to invest growth and remain a strong employer for the kings to come. This process represents a meaningful opportunity for both Cleveland-Cliffs management team and our union workforce to demonstrate the depth and the strength of our partnership and we will not disappoint anyone.

With that, I'll turn it over to our CFO, Celso Gonsalves, to go over our financial results.

Thank you. Good morning, everyone. Our adjusted EBITDA in the quarter was $95 million, a $274 million increase from a year ago due primarily to increased pricing. Starting with the top line. First quarter shipments totaled just over 4.1 million tons, which represents a recovery of more than 300,000 tons sequentially. That improvement was driven by better demand conditions across spot and trade channels and by a more stable operating cadence coming out of the fourth quarter.

We were still impacted by weather-related disruptions, but volume strengthened as the quarter progressed. Shipments should increase further into Q2 as this trend continues. That volume recovery is critical because of the fixed cost nature of our business. Every incremental ton we produce and ship has a disproportionate impact on margins. The operating leverage embedded in integrated steelmaking remains substantial.

Pricing also moved in the right direction. Average selling prices increased by $68 per ton from a year ago and sequentially by $55 per ton during the quarter, reflecting improving market conditions and better automotive pool. This came in slightly below our original estimate as contractual lags were longer than anticipated based on customers ordering at MAX levels.

As mentioned earlier by Lorenzo, what used to be roughly a 1-month realization lag has effectively extended to closer to 2 months as our order book has filled and schedules have stretched. That means price strength visible today will show up more fully in Q2 and Q3 results. In the U.S., about 45% of our sales are linked to the commodity HRC price. The remainder are under fixed price arrangements like in automotive or linked to other indices like we have with plate.

In Canada, effectively all shipments are sold on a spot price basis, but that price has completely disconnected with the U.S. price. Historically, pricing in Canada was effectively in line with pricing in the U.S. But in today's market, the Canadian selling price is at a 40% discount to U.S. pricing. This is still margin positive for Stelco, but well below what this entity would have generated historically in this type of pricing environment.

On the cost side, the most visible pressure in the quarter came from energy and the impact of the extreme cold weather we felt here in the Midwest during the winter. We lock in most of our natural gas purchases for the following month, 3 days before the start of each month. The day that gas was locked for the month of February was the highest price in 3 years and it very shortly thereafter came back down to historical levels.

This piece of the energy spike was known at the time of our last call and was partially offset by hedges, but we also felt an immense impact from the run-up in electricity and industrial gases. We have 3 EAF facilities and 2 integrated facilities in the unregulated states of Ohio and Pennsylvania. And when prices jump like they did during the cold weather months, we feel a direct impact.

All factors considered, the energy spike drove an $80 million negative impact to EBITDA in Q1 relative to historical expectations. Since then, natural gas and electricity prices have normalized, but we've seen other cost pressures emerge. The cost of fuel, for example, has impacted mining costs at our iron ore pelletizing operations, and scrap has continued to grind higher as well.

Combining these with the impacts of some scheduled outages in Q2, our Q2 cost should tick up another $15 per ton higher before falling meaningfully in the back half of the year. We will update our cost expectations on a quarterly basis. All of our other full year expectations, including volume, CapEx and SG&A remain in line with prior guidance.

SG&A has been a clear area of success for us, while earnings have been under pressure. Even after acquiring Stelco in the fourth quarter of 2024, which naturally added to SG&A, we've been operating at essentially an all-time low on a quarterly basis since becoming a steel company after factoring in noncash amortization that is added back to EBITDA.

This is good evidence of our cost discipline even after absorbing the impact of acquisitions and normal inflationary pressures. The result is a leaner overhead cost base that positions us well as operating conditions improve and underscores our ability to trim fat and capture synergies.

Turning to cash flow. First quarter free cash flow was negative as expected, primarily due to working capital timing. Our first and third quarters are always heavier cash use periods due to the coupon schedule of our high-yield bonds. Accounts receivable increased during the quarter as shipments accelerated into March. This along with higher pricing compared to the prior quarter is a recipe for a large receivable build, but the evidence is clearly there for a major cash collection quarter in Q2.

Combining this higher collection with higher EBITDA, sets us up for a return to meaningful positive free cash flow in Q2. From both an EBITDA and cash flow standpoint, Q2 should be our best quarter in nearly 2 years. And that is -- and that will be the quarter where we have a number of outages across the footprint. Because of this, our full shipment and cost potential will not be on full display until Q3, which is an outage light quarter.

Q3 will give us maximum operating leverage on volumes and pricing and is where you should expect to see the earnings power of this business become much more apparent. If the steel price curve holds constant, the improvement from Q2 to Q3 will be even better than the sequential improvement from Q1 to Q2.

Our job right now is to run reliable operations and let the strong market we're in, take care of the rest. Our outlook on improving leverage position remains firmly supported by the expectations for strong free cash flow generation over the balance of the year, along with the completion of multiple real estate transactions currently in process.

Our $425 million cash received expectation from idle property sales remains on target, with 2 more properties going under contract since we last spoke. As we translate earnings into cash, and close on these asset sales, we expect to further strengthen the balance sheet and continue making progress towards our longer-term leverage objectives while maintaining the flexibility to operate the business from a position of strength.

We're also pleased to have come out of the most cash-intensive use periods at Cliffs, still with liquidity above $3 billion. I will now turn it back to Lorenzo for his closing remarks.

Thanks, Celso. In closing, -- what's fundamentally different today is that trade enforcement is working. Our customers are engaged and our order book is full. This company spent the last couple of years fixing what needed to be fixed. That work is largely behind us. The footprint has been rightsized and we finally have the platform to perform and deliver.

From here, the focus is on execution, running reliable operations, serving customers at the highest level, generating cash and allowing the strength of this market to flow through the income statement. With that, I will turn it over to Kevin for questions.

[Operator Instructions] Our first question today is coming from Carlos De Alba from Morgan Stanley.

The first 1 is maybe. Celso, could you comment what are the price expectations in terms of changes quarter-on-quarter for the first -- for the second quarter Obviously, with the lag moving, maybe this has changed versus what we had expected. So any quarter would be great.

And then in the release, you mentioned that you stopped -- you finally ended the shipping material on the Metal slab contract in the first quarter. Can you give us a color as to how many tons did you ship in the first quarter for that contract? And/or what is the impact on EBITDA that you calculate you suffer from steel basically shipping a few months after officially the agreement was ended?

Carlos, that's Lorenzo here. Let me answer the slab first and then Celso address the previous portion of your question. We had a tale of shipments on these labs. That is not tonnage-wise, is not really meaningful, but it's still a drag. It was 175,000 tons of slabs that are still in the tail end of shipments.

But it's over. It's done. And now they do not have any labs from us. ArcelorMittal covered is on their own devices and gaming led from other sources other than Cleveland-Cliffs. Celso, please take the...

Sure. Carlos. Yes, let me give you some general guidance on Q2. As I mentioned, Costs are going to tick up a little bit from Q1 to Q2. But the way to think about it is Q1 was much better than Q4. Q2 is going to be much better than Q1 and Q3 should be much better than Q2. From a shipment standpoint, Q2 shipments are expected to improve from Q1 and remain above that 4.1 million tonne mark.

The trends that we're seeing here in Q1 are expected to continue into Q2. Automotive shipments are expected to increase after reaching the highest level in almost 2 years during Q1, and that's going to get even better in Q2. Selling prices are expected to be up about $60 a ton from Q1 to Q2. We expect to see the same kind of benefits we saw in Q1 related to pricing.

The monthly quarterly and spot pricing are all up Canadian pricing is improving. As we mentioned, the final slab shipments to cover are not on -- we posted a slide deck in our presentation. You can see sort of the updated contract mix -- so right now, it's about 43% on a fixed full year price with the resets throughout the year. 23% is linked to month like indexes. 7% is on a quarter lag indices. 12% is U.S. spot and 15% is Stelco spot.

So that should give you a view on mix. We talked about pricing. We talked about costs and we talk about shipments. So I think with that, you should have enough for Q2 and then Q3 should get even better from there.

next question today is coming from Nick Giles from B. Riley Securities. .

Yes. Thank you, operator. So you built working capital in 1Q that's somewhat expected. But to what extent could we see that unwind in 2Q? And can you just describe if or how you'll need to further build just to meet the increasing demand, higher shipments later in the year?

Nick. Yes. So the Q1 build of working capital, about $130 million was primarily driven by AR as pricing continued to rise in March. Shipments were strong and it was offset by a reduction in inventory. As we look towards Q2, you should see a slight release in working capital as we further reduce inventory. That's the way to think about it.

Got it. And then just on POSCO, at this point of the negotiations, do you feel that there are certain aspects of any deal that are already decided? Or is there really still active dialogue around different structures? Any color there would be great.

Let me take that one, Nick. I think what -- the biggest change that happened between when we first start talking to POSCO and now is the outside of the negotiation between us and POSCO, the world surrounding us changed a lot. Remember, when we were first approached by POSCO, we were in a price environment that was a lot weaker demand was a lot weaker in the United States.

And POSCO was coming with a proposal of bringing businesses from Korean companies to be reestablished or established from the first place in the United States in the short term because the the [ new ], the Hyundai [ milk ] in Louisiana is a long-term proposition at best. It's not a short-term thing that can resolve things right away. So we would be their lifelines.

That said, the situation in South Korea changed a lot. Even though I'm not by any stretch in possession of any information -- internal information about South Korea, it's clear that things are a lot more complicated for all Asian countries, including South Korea right now, than they were 2 or 3 years ago. And that's the lag.

On the other hand, from our side here in the United States, markets be prices are stronger. Automotive OEMs are producing more cars in the United States, and they rely on Cliffs to build those cars in the United States. It's not like they want us to supply steel to Mexico because they will use our steel to produce parts in Mexico and then bring back to the United States. They want to do it in the United States.

And we do have the capacity right now, idle available, not so much it anymore because we're getting more and more and more orders from the auto OEMs. So our situation is getting better. And that is changing our perception on how this deal should be taken care of. We are still engaged, we're still talking. We still like each other. We still want to deal that is accretive for our shareholders.

And I assume that they want the same thing for their site. Let's see what happened next. But we are -- by any stretch, we are no longer in a hurry. We are not before. We are a lot less in a hurry now. I hope I gave you the overall picture. If not, please go ahead and ask a follow-up question, Nick.

And that's great. I really appreciate that perspective and give you best of luck.

Next question is coming from Martin Englert from Seaport Research Partners.

Hello. Good morning, everyone. question on unit cash costs, if you could touch on your exposure to diesel through the upstream mining operations and implications on unit cash costs. And if there's any hedging activity that we should take into consideration there.

Yes. Martin, yes, we're seeing some impact. Diesel is a meaningful cost component of the mining operations. We don't hedge diesel anymore. We hedge natural gas, primarily 50% of our exposure, but since we became a steel company, we don't hedge diesel anymore. So the impact -- the annual impact on kind of truck and rail services overall is about a $50 million annual impact on mining costs, which is about $6 per ton.

Okay. And then net...

Consume about 25 million gallons per year of diesel.

And the natural gas component in the mining operations, that's around like 8%, 10% of overall natural gas for the company?

The natural gas associated with mining specifically is about 20%.

Okay. And then within auto, can you touch on the degree that you're seeing a shift back towards steel from aluminum, if any yet? And if it's meaningful volume, when this might be occurring is this something that might be happening after summer shutdowns in automotive or anything like that? I'd be curious on more color if you have any to share.

Yes. It's happening as we speak. And it's -- I don't have tonnage from the top of my head here, but it's meaningful for the fact that once you break the dam it goes because lets us [ to a car ] that we are now in this -- I can't give you, of course, names or details. But we are supplying the tenders that used to be aluminum vendors and now our steel vendors.

Then they need to rethink a bunch of riveting operations and the type of welding and things like that. That's a difficult part, and we are beyond that part. So now instead of not having aluminum, they have steel -- so the engineering departments of these OEMs. And by the way, I'm not talking about any 1 specific, but it's happening across the -- the board in terms of all OEMs we serve and we serve them all.

They now see how feasible it is to step still even using the previous equipment that they had to stamp aluminum. And it's easy to assemble the changes are not meaningful and they do have the material instead of not having the material. So it's happening. It's growing -- and we are already seeing the opportunity to run lines that we are not running before. We brought back the EGL line -- the electrogalvanizing line at new Carlile. There was do for a long time. So we are seeing all that happening as we speak. So it will be an ongoing process as the year progresses.

And presumably with gravitation back towards that might move your auto mix a little bit and to more favorable mix/margin overall for the steelmaking business. Is a fair assumption?

Well, the automotive business continues to be a profitable business for us. The fixed prices are not by any stretch detrimental to our profitability. So we just need to get more tons, and that's exactly what not only just the substitution of aluminum [ distis ] bringing. But the fact that the clients are a lot less excited about cost, cost, cost and then they are seeing the the beauty about reliability, quality, the material that they can count on and things like that.

So it's back to basics. Back to the important factors that were in place before every single OEM decided that they would be like Tesla and they would produce only electric vehicles. And that ship has say then left a very bad experience with all OEMs -- at that point, everybody was focused on costs. And that's when the less prepared competitors started to participate in automotive more than they should -- and that's being fixed and that is being corrected. So that's what we're seeing right now.

Our next question is coming from Nick Cash from Goldman Sachs.

Lorenzo and also I guess my first question is on the slab contract. Last quarter, we were talking about, I think, about a $500 million increase in EBITDA when prices were at around $90 million. with prices where they are today, I think back of the envelope math gets you about $100 million in revenue higher. Is that all operating leverage and are conversion costs sticky? Or is that not the way to think about?

Yes. Sorry, it was a little hard to hear your audio, but I think we captured your question around the slab math. But yes, it sounds like your math is reasonable. There are some offsets on scrap pricing, energy costs and things of the like. But I think your assumptions are in line.

Awesome. I appreciate that. And then just 1 quick follow-up, hopefully, you can hear me. got it for another 15% increase per ton in cost in 2Q due to higher scrap and fuel for, I think, a drop-off in 3Q, '26. What gives you confidence in that drop off? And I guess where does that kind of put you for full year guidance on cost increase or decrease per ton, if you can give that color.

Yes. So you got to remember that Q2 is a big outage quarter. So pricing -- I'm sorry, costs naturally would tick up on a per ton basis due to the outages. And then Q3 is a very outage light quarter. So inventory from the high-cost period has sort of worked down into the subsequent quarters. And then we're continuing to see automotive volume ramping. Every unit is running at higher utilization. So as that materializes into Q3, that's when you're going to see the benefit of the cost dilution.

Your next question is coming from Albert Realini from Jefferies.

Would you be able to just walk us through some of the break costs or just any broader economics if a scenario where the possible opportunity were or not materialize? I just -- I know you had mentioned previously some of the larger-scale asset sales like Toledo and certain FPT assets would be off the table while discussions with POSCO were ongoing. So just kind of wondering how you think about Wayne continued discussions with POSCO versus the ability to go out to the market with some of these higher valued assets in the current strong steel price environment?

Yes. Look, we can't try to create hypothetical scenarios here to the costs come home. But I don't think it's productive because, for example, right now, yes, you're right. The HBI sale, I'm not considering anymore. And it started because -- at least for now. It started because of the discussions with POSCO. But right now, HBI stretched my ability to produce hot metal and helps me increase production.

You saw that shipments were higher, production was higher and Q2 shipments will be higher and production will be higher. And HBI is helping us get there. because we loaded the HBI in blast furnaces, for example. And we also use them in our EAFs. We still have 3, EAFs. So it's not like it's a burden. It's a positive. And we are discussing here cash flow, and we are going to continue to generate cash flow grow cash flow, you're going to start seeing that happen in Q2.

So that's why I don't like playing a hypothetical scenarios. Things continue to be the way they are shaping up right now, and shipments continue to go more toward the 16.5 million to 17 million tons for the year. We're going to need the HBI to get there. And that will be very, very accretive to the company. So we like cash flow generated by operations. and we will continue to pursue that. All the rest is hypothetical that there is no real meaning on trying to speculate.

Next question is coming from Lawson Winder from Bank of America Securities.

Thank you, operator, good morning, Lourenco and also, it's nice to hear from you both. And it's nice to see the solid Q-over-Q EBITDA improvement. If I could just drill down a little bit on some of the discussion we've already had on the unit cost guidance for -- so just thinking through the different moving parts, we're adding back $80 million from the onetime energy spike. That's about $1,950 per ton at 4.1 million tons. And then there's an additional $15 million. So net, we're getting about a $35 million gross increase in cost Q2 to Q1.

I mean pushback, if you think that's the wrong way of thinking about it. But if you could just kind of walk me through what the different pieces are, I think you mentioned $6 per ton for diesel, but there's obviously some other pieces there. Could you just help us think through those components?

Yes. Sure. Lawson, I appreciate the comments. So let me drill down here. We saw these production issues in Q1 from kind of onetime extreme weather and energy-related issues. And some of that, there's a little bit of carryover from that high energy cost via just the inventory carryover.

And then further to that, into Q2, you also have a richer product mix as we continue to improve on automotive. So we're seeing some impact -- there's carryover impact from Q1 to Q2. You have the outages in Q2 and you have a richer mix in Q2. And then we're starting to see some of the impact from the kind of the war-related costs related to diesel and freight and things like that. So that sort of explains why Q2 costs are ticking up a little bit higher by $15 a ton.

And then when you get to Q3, the cost benefit a lot from improved utilization, lower outages, lower energy costs, continued asset optimization, lower coal pricing, and a lot of reduced repair and maintenance costs. So while Q2 ticks up from Q1, Q2 -- Q3 should tick down meaningfully from Q2. So that's the cadence of the sequence of events as we look forward for the next couple of quarters.

Okay. Yes, that helps. And is that the correct assumption that you're effectively also getting a Q2 quarter-over-quarter $80 million tailwind in EBITDA from the reduction of those onetime energy costs, so something like $1,950 per short ton benefit?

Yes. I mean it's not really 1 to 1. It's not like -- like I said, some of that carries over and gets carried through the inventory costs. So it's not like -- I can't tell you that you just remove that entirely quarter-over-quarter?

But you should remove for Q1 -- you should remove for Q1. That's what you should do because that should not happen, would not have happened without the external factors, and that's real. We use our procedure to buy the stock that we buy in the market, hedging the same way we always hedge it. We did everything by the book and we are unlucky things happen.

And I'm sure we are not the only 1 that we're unlucky. Let's see how others will report as we go. But the fact of the matter is that it hurt and it hurt badly. Q1 was supposed to be better without that. That's why we point out because it's a real number that we can pinpoint and show. But going forward, yes, there is inventory impact and things like that. But on the other hand, we're going to get a lot more value-added material from automotive. We are acting on other things that we will offset. So it's very difficult to identify like that, but it was very easy to identify Q1. That's why we point out in our press release.

Okay. That's very helpful. And then if I could just ask very quickly on the land sales. I appreciate that predicting the precise timing of those can't be easy. But are they still all expected to close in 2026?

Yes. Yes, we are very confident that the counterparts are acting to get their problems solved and their financing in place. We continue to sign enforceable contracts. So we have 2 more in the quarter. So all going -- all these deals are going very well.

Our next question today is a follow-up from Carlos De Alba from Morgan Stanley.

Yes. It's basically a follow-on precisely on the last question, Lawson. So you have received $70 million already this year on asset sales. So should we expect you have any color on the cadence of the remaining, what is it, EUR 350 million in proceeds throughout the year or just this year is the expectation, but no further details from that.

Let's put $50 million in Q2 and $100 million in Q3, with the remainder in Q4.

Our next question today is coming from Timna Tanners from Wells Fargo.

I wanted to ask a little bit about the mix, if I could. Have plate market is really strong. And I just wanted to get a little more color on why the actions you took in -- if -- just talk about how that keeps your capability similar despite some of the closures?

And then similarly, Stanson Electrical down year-over-year? And I thought Electrical was sold out for a couple of years. So just a bit more color on those products would be great.p

On plate, we shut down a bill that was basically taking care of 1 client and associated with the Q&T line that is inside Garyworks that doesn't belong to Cliffs. So the logistics was not very enticing. So all the rest remains the same. So what you said about the plate market is right. But we are talking about 1 specific client that was used in the 110 and the Q&T line at Garworks. So that's that -- so we could reconsolidate that and do another way. So there is nothing wrong with that because the 160 is now -- the 160-inch mill is now fully utilized. So that's all good we played.

As far as electrical still we got to differentiate grain-oriented electrical steels that there is only 1 company that produced in the United States that's Cliffs, and oriented electrical steel that we have ourselves and a cup of Bs that are not producing very good material, but they are trying. But on the other hand, the biggest utilization of non-oriented electrical steel is electric vehicles.

So good luck with that for the ones that made investments to produce non-oriented electrical steels. As far as grain-oriented electrical steels, we are the ones not only the ones that produce but the ones that are growing production with our project in Butler. I hope I answered your question, Tim.

We ran have our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you very much. Have a great day. Bye now.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Good morning, ladies and gentlemen. I'm your conference facilitator today, Kevin. And I'd like to welcome everyone to Cleveland-Cliffs Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]

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 are set forth in reports on Form 10-K and 10-Q and news releases filed with the SEC, which are available on the company's website. Today's conference call is also available and being broadcast on 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 Regulation G purposes can be found in the earnings release, which was published this morning.

At this time, I'd like to introduce Lourenco Goncalvez, Chairman, President and Chief Executive Officer.

Thank you, Kevin, and good morning, everyone. After several years of no real actions taken to reverse the systematic destruction of the American industrial bases, we finally saw in 2025, a federal administration that values the importance of preserving and growing American manufacturing. That said, in 2025, throughout the entire year, we were still exposed to a lot of steel imports, poisoning our domestic market, creating a demand gap that negatively impacted our steel shipments and asset utilization. In response to these challenging conditions, we made difficult decisions on shutting down assets that are dragging us down. Also, in 2025, we terminated our index-based lab supply contract with ArcelorMittal. The contract became very onerous in its final year when the Brazilian slab price index unnaturally separated from the U.S. finished steel prices. The factors that waited on our performance in 2025 were well-known and addressable. As we entered 2026, these problems have either been resolved or are clearly improving. We have already secured more business from our automotive clients, and that will show throughout 2026 as the OEMs reassure production back to the United States.

Also very important, at the end of 2025, the Canadian Government has finally made a move to restricting imported steel into Canada, and that has created positive momentum in 2026 for our Canadian subsidiary Stelco. Our robust order book is the best confirmation that the business environment has already started to improve. Section 232 tariffs at 50% are, of course, a leading driver of this impact. We are seeing the benefit of melted import requirements in driving demand for domestically produced steel. A lot of the new galvanizing capacity in the U.S. has come online and taking share from imports, reducing the amount of hot-rolled availability in the marketplace. We have been able to use the melting capacity previously allocated through orders of low-margin slabs to few orders of higher-margin flat-rolled products. That said, due to melted import requirements, we anticipate continued demand for our domestically produced labs. We remain open to being a domestic's lab supplier to those in need of domestic labs as long as we can agree on a pricing construct that makes sense.

With all these positive influence, the spot steel price is sitting at a 2-year high. Later in the recent cold weather stretch across the Midwest, scrap prices and electricity prices have continued to grind higher, which has increased the cost structure of the mini mills to a greater level than our own. This has given us a cost advantage as we generate a lot of our own power and use much less scrap. Even with our sizable fixed price automotive footprint, because of our vertically integrated nature and the also significant size of our nonautomotive customer base [indiscernible] profitability is more impacted by spot steel prices than any other company in our industry. Said another way, when hot-rolled coil prices rally, we at Cleveland-Cliffs benefit. Automotive is still our core end market. And when domestic production levels of car, trucks and SUVs remain weak for an extended period, the impact on us is unavoidable. Vehicle production in the United States was down in 2025 for the third consecutive year. But with this new era of policy-driven reshoring, the return to pre-COVID levels of vehicle production in the United States is inevitable. Throughout 2025, we geared up for this inevitability by signing multiyear fixed price contracts with all major OEM customers. These agreements increased our market share and secure the high-margin business that will flow through in 2026. We have the installed capacity available right now. Cliffs does not need to build new plants. Unfortunately, the transition to Cliffs Steel from the previous suppliers is not instantaneous. It takes some time before we see the full impact of these changeovers, but we will see it in 2026. The expected combination of these market share gains with an increased domestic production of vehicles will be a massive gain for our throughput, efficient -- efficiency, costs and ultimately, profits.

One more time, differently from our competitors currently building new steel plants or announcing plans to build steel plants, Cleveland-Cliffs has production capacity available right now. Again, Cliffs does not need to build plants to be ready in 2028, 2029 or 2030. The incremental volume demanded by the automotive industry can and will be absorbed by our existing footprint. That volume carries attractive incremental margins. And thanks to our multi-year fixed price contracts with all major automotive OEMs, there will be no pressure on the price of cars to consumers in the U.S. that could even remotely be attributed to the price of Cliffs Steel. Another example of the progress we continue to demonstrate in automotive is our successful replacement of aluminum with steel using aluminum forming equipment. Our Cliffs steel is now stepped into exposed automotive components using existing forming equipment on a production scale basis. This Cleveland-Cliffs development demonstrates that the changeover from aluminum to steel can be easily done without requiring new tooling or capital investment from the customer. That significantly lowers the barrier to adoption and expand the addressable market for our Cliffs steel products, particularly as the aluminum supply chain has suffered severe disruption with a succession of fire events, clearly exposing its weakness more than ever before.

Cleveland-Cliffs is seeing a clear path to replace aluminum with made in U.S.A. steel in major applications. We operate in a market that companies from around the world are spending billions of dollars to enter. We are already here. We already have the assets. We already have the workforce as manufacturing activity in the United States continues to record Cleveland-Cliffs is the best positioned to benefit without requiring massive capital investments.

I want to drill down on another factor that impacted our 2025 performance, and that was the change in dynamics in the Canadian steel market. For the last several years, even under the previous tariff regime, pricing in the Canadian market moved the intend with the U.S. market. We acquired this Stelco on November 1, 2024, four days before President Trump's election and immediately took Stelco out of the U.S. market, redirecting Stelco's output 100% to the Canadian market. This was not driven by policy change, but rather our conviction on what's in the best interest for our shareholders and our employees on both sides of the border. Even the all surprising change in Canada relations with the U.S. should not have affected this strategy at all, but that's not how it played out. All of a sudden, Canada became a dumping ground for producers trying to avoid U.S. tariffs; and downstream Canadian manufacturing was negatively impacted as well. Canadian pricing decoupled from U.S. pricing. Until recently, the Canadian Government insisted on doing nothing about this unsustainable situation preferring to watch its steel industry flounder for the sake of globalism.

After raising the alarm louder and louder, we finally saw the Canadian government come around late in the fourth quarter of 2025. While still insufficient and limited in scope, the restrictions implemented were at least able to stop the bleeding. As a result, we have seen Canadian pricing and shipments improved in the last month. Prior to our acquisition, Stelco was a low price exporter into the U.S. and the highly disruptive one, by the way. When you look at the big picture, what our acquisition has done to transform and improve the U.S. marketplace more than justifies and supports a return on our $2.5 billion purchase price of Stelco.

In the fourth quarter, we revealed that our memorandum of understanding partner was POSCO, Korea's largest steelmaker, and the world's third largest steel maker outside of China. The partnership with Cliffs, we will allow POSCO to support and grow its established U.S. customer base while ensuring that its products meet U.S. contrarian melted import requirements. Our collaboration represents a model of how allies can deep industrial cooperation under fair and transparent trade principles. And it aligns with U.S. policy goals to strengthen domestic industry and attract foreign investment. POSCO continues to conduct due diligence as part of our recently announced strategic partnership, both parties are focused on structuring a transaction that is highly accretive and strategically compelling for each company. The duration of these negotiations reflects the seriousness and potential scale of the opportunity. We are targeting signing a definitive agreement in the first half of 2026. This remains the #1 strategic priority for both Cleveland-Cliffs and POSCO, and engagement between the teams is active and ongoing.

Our MOU is nonbinding, and we will only move forward on ratifying our partnership if the collaboration is accretive to Cliffs shareholders.

I would like to conclude my remarks congratulating our employees for our remarkable safety record. In 2025, we achieved the lowest total recordable incident rate since Cleveland-Cliffs became a steel producer 6 years ago. Our TRIR, including contractors, which is unusual in our industry, we include contractors, our TRIR was 0.8 per 200,000 hours worked. That represents a 43% improvement compared with 2021, which was our first full year operating as an integrated steelmaker. This is a direct outcome of how we manage and operate in contrast with how the predecessors used to do with the same people and the same plants. Safety performance at this level requires discipline, consistency and leadership at every site. We have room for improvement, but the amount of progress we have seen in safety results since forming this new iteration of Cliffs 6 years ago is truly remarkable.

I will now turn it over to our CFO, Celso Goncalves, for his remarks.

Good morning. Total shipments in Q4 were 3.8 million tons, which was slightly lower than Q3 due to heavier-than-usual seasonal impacts. Looking forward, Q1 shipment levels should improve back to the 4 million-ton level again, driven by improved demand and less maintenance time at our mills. My expectation for full year 2026 shipment level is in the 16.5 million- to 17 million-ton range, an improvement from 2025 as we run our mills at higher utilizations. Q4 price realization of $993 per net ton fell by around $40 per net ton as the lagging indices on spot prices declined. Automotive volume fell and SLA prices became even more disconnected. Since these factors are largely behind us, I expect a substantial improvement in realized prices starting in Q1 of 2026, an increase of approximately $60 per ton from Q4 of 2025. As pricing continues to grind higher and assuming this trend continues, we will likely see even further increases in this price as the year progresses. On the operations side, 2025 represented our third straight year of unit cost reductions, with another $40 per ton reduced last year. The much needed rationalization of our footprint and reduction of around 3,300 employees last year was a big part of that. We have further momentum heading into 2026 as we locked in coal contracts that generate over $100 million of savings year-over-year and an expectation of much higher utilizations, both in melt and in our finishing operations. Combining this with some partial offsets in utilities and labor costs, we expect unit cost to decline again for a fourth straight year, down another $10 per ton in 2026. On an apples-to-apples basis with 2025, the reduction is even greater as we are also selling a richer mix this year without slabs, making the year-over-year reduction even more impressive. With that said, for the first quarter of 2026, the recent spike in utilities costs and change in mix will likely push costs up temporarily before normalizing into Q2. As a reminder, we generally hedge 50% of our natural gas exposure are looking forward 1 year. On CapEx, we had a record low year in 2025 in capital expenditures as a steel company, with only $561 million spent. 2026 total CapEx is projected to be around $700 million, reflecting more normalized maintenance capital as well as some prework and a coke plant upgrade ahead of the Burns Harbor furnace reline plan for 2027.

Annual pension and OPEB cash obligations continue to decline. With the HRC curve where it is and automotive volumes ultimately returning, I expect to return back to healthy cash flow generation in 2026, all of which will be used to pay down debt. Asset sale processes continue and they should bring us more cash proceeds throughout the year. We have already closed the sale of FPT Florida, and we are under contract to sell several idled properties with agreements in principle for the majority of the rest. My expectation of the $425 million in total proceeds from these sales remains intact. Some of the larger asset sale processes remain in a holding pattern while the POSCO talks remain ongoing, but we have several options out there that we are evaluating. One major success we had in 2025 was balance sheet management, particularly in the fourth quarter. From a pure dollar perspective, our leverage remains too elevated for my liking, but the shape and format of our debt structure gives us incredible runway and flexibility. After the refinancing that we completed in 2025, our nearest bond maturity is now in 2029, and all of our outstanding bonds are unsecured. Our ABL draw is the lowest it has been since the Stelco acquisition, and our total liquidity to end 2025 was $3.3 billion.

The focus this year is on generating EBITDA and cash flow. I feel much better about where we are today versus where we were 12 months ago. Looking ahead, our order book is solid, demand is improving, lead times are going out Prices are rising, costs are still coming down, tariffs are in place, the slab contract is gone, manufacturing is coming back. Unemployment is low, rate cuts are here, tax refunds are coming, Stelco is contributing, autos are looking to replace aluminum with steel, POSCO is collaborating, our employees are incentivized and our operations and commercial teams are working together towards the same goal to maximize profitability in 2026.

With that, I'll turn the call back over to Lourenco for his closing remarks.

Thank you, Celso. 2025 was about fixing what needed to be fixed, making tough but necessary decisions and positioning Cleveland-Cliffs for sustainable performance in a fundamentally improved market. Those actions are now largely behind us. As we move through 2026, we are operating with a linear footprint, a stronger order book improving price realization, declining unit costs and a clear line of sight to higher utilization and cash generation.

With that, I'll turn it over to Kevin for the Q&A.

[Operator Instructions] Our first question today is coming from Carlos De Alba from Morgan Stanley.

My first question is on the benefit that you expect on the cancellation of the slab contract this year, given the running prices that we have seen, can you maybe update us as to how much EBITDA more or less or any other form of benefit that you expect to see from these contracts expiring? And then maybe we can -- just on CapEx beyond 2026, given the relining that you expect on 2027, how much should we pencil in give or take for CapEx in 2027.

Yes. Carlos, I will answer the question on the slabs. And I will let also talk about the CapEx one. As far as these slabs, when we sold -- I'm sorry, when we acquired ArcelorMittal U.S.A. from ArcelorMittal. We had that slab contract, the last item that we had to negotiate. And it was more about duration than pricing formula because pricing formula was based on the international price of slabs and referencing the Brazilian is land prices just because Brazil was by far the largest exporter of slabs at the time. So -- and for 4 of the 5 years, the contract to work it. And then on the fifth year, magically, the separation between the price of slabs and the price of hot band turned that contract into a diaster. And we try to negotiate the contract, but we were unsuccessful because short-term gains for them were more important than the long-term relationship. So I'm fine with that. So I took it like a big boy, and now they don't have [indiscernible] anymore. So good luck on running their business here in the United States without having melted imported slabs made in Cleveland-Cliffs, not made in somewhere else. Somewhere else, does not know what they are doing. We know what we are doing. So they don't have these slabs anymore. And if I can put a number on the the gain, the EBITDA number by itself is to the order of $500 million just by replacing these slabs with higher margin. That's a very high-level number and should be even more than that. But $500 million is a good number to to start thinking about the gain of not heavy. And that's just a benefit on us, not the fact that competition for automotive business became automatically weaker when you don't make our slabs available to our competitor.

I'll let Celso answer the other one on CapEx.

Sorry, maybe before we move to Celso, please. Quick question on when should we expect to see the beginning of this, around EUR 500 million improvement in EBITDA already in Q1, or is it more Q2?

Yes. Look, we are already selling the material in Q1, yes. So -- but of course, you know how these things work, the cost flow through inventory, and you're going to see more impact in Q2 than in Q1 and then more impact in Q3 than in Q2, but that's our projection for the year.

Yes. Carlos, if you think about it, right, the HRC price is $9.70 or so and the slab price was like $4.85. So it's a pretty immediate improvement in terms of revenue at the current price, it's like a $700 million improvement in revenue at current market prices. And then you consider call it, $150 million increase in conversion cost to roll the slabs. That's the way to think about it on a full year basis for 2026. Yes, and then as it relates to CapEx, as I mentioned, 2025 was a record low at $5.65. We had dramatically reduced spend at Stelco. We had CapEx avoidance related to idle facilities and asset optimization and things like that. 2026 will be more normalized, that $700 million. Call it, more normalized maintenance spend and some prework and pre-spend related to the Burns Harbor reline in 2027. And then beyond '27, it goes to, call it, $900 in 2017 and then back down to $700 in 2028. And the only reason that $27 goes to $900 is largely because of that blast furnace realign at Burns Harbor.

Your next question is coming from Nick Giles from B. Riley Securities.

Lourenco, you outlined the capacity you have today and attract incremental margins on what I heard is uncontracted volumes. So you've layered in some multiyear agreements, but I was wondering if you could give us a sense for how much open capacity that is, what could still be contracted and similar to Carlos questions, just any sensitivity from an EBITDA perspective.

Yes. Look, we have downstream capacity in pretty much every single location that we operate in. Just to give you an idea, let me take a simple example, single-line galvanizing line we have in Columbus, Ohio. That was one of the first assets that were got in the -- were cut the attention for POSCO. We run that line at less than 300,000 tons a year. That line has a capacity of 450,000 tons a year. We can produce all kinds of exposed parts of it there. But we don't run at full capacity because the OEMs don't produce cars in the United States as much as they should. They produce in Mexico, they import from Korea, the import from other places, and that's what kind of queues our automotive business. And it has been abundantly clear since day 1 of the Trump administration. The directive is to produce cars in the United States, not importing cash from Korea and putting a stamp of an American OEM on top of that. It's still a Korean car. It's not an American car. It's not a generated American jobs. So that's what queues our capacity utilization. We need this maybe, let's say, automotive production in order to utilize our capacity. What I just explained with numbers for Columbus, Ohio. I can do the same thing for Rockport, Indiana, for other downstream facilities like what we call, New Carlyle, Indiana, the used to call [indiscernible] under previous ownership. We we have a lot of capacity to deploy. And it's a matter of just moving from commodity type, which, by the way, now is extremely profitable to a more specialized type of steel that it's typical Cleveland-Cliffs type of capability or forte in terms of the technology. By the way, we have the technology. We are a well-known and well recognized supplier of automotive still in the international scale. And we knew that all along. Now we have the agreement of POSCO on that. So there is nothing that we need to learn from POSCO how to do stuff. We know how to do stuff. We just don't have the orders. But now we're going to have it.

I really appreciate all that detail. My second question was really just around the outlook, particularly here in 1Q, HRC has obviously risen dramatically. So can you just help us set expectations around ASP and costs and maybe just [indiscernible]

Yes. I'll have Celso handle that for you.

Yes. Hi, Nick, let me give you guys some general guidance for Q1 and the rest of 2026. So for Q1, shipments should return back to that 4 million-ton mark, and that's largely driven by improved demand, both in the U.S. and Canada. Q1 auto shipments are expected to improve back to the, call it, Q3 of '25 levels or better. As I mentioned, ASP is expected to be up $60 a ton in Q1. And all that pricing that negatively impacted Q4 is now positive for Q1. The monthly lag, the quarter lags and the spot pricing are all up. Canadian pricing is also improving. We talked about the end of the slab contract and the automotive volumes increasing is also a benefit. The way that we calculate ASP has changed slightly. So let me give you guys the new kind of guidelines for that. Given the expiration of the slab contract and the increased automotive volume. The way to think about it going forward is around 35% to 40% is on a fixed full year price with resets throughout the year, obviously. And then 25% of the volumes are on a CRE month lag, 10% is on a CRU quarter lag. And then the balance, call it, 25% to 30% is the spot and other, including the Stelco volumes. So that's the way to think about ASP going forward. Costs in Q1 will likely be up around $20 a ton before normalizing into Q2. But as I mentioned earlier, on a full year basis, the cost from '25 to '26 on a full year basis is expected to decline $10 per ton with further even with adjustments for richer mix and the expiration of the slab contract. So on an apples-to-apples basis, the cost will be down even more, but should be down around $10 per ton with the current construct. I think with that, you should have everything you need for -- to get a sense for Q1 and the full year 2026.

Next question is coming from Lawson Winder from Bank of America.

If I could ask on POSCO, like I think there's no question that it is serious and potentially transformational for Cliffs. I was just curious, you made the remark that POSCO is still continuing their due diligence Cleveland-Cliffs completed its due diligence on POSCO?

Look, yes, that's correct, number one. Number two, keep in mind, Lawson, they came to us. We did not look for them. So that's a very important point to consider. So that shows that we feel like they need us probably much more than we need them. That's my view. That said, we are proud of our negotiation and our conversation and our potential partnership. One thing to keep in mind, our Cleveland-Cliffs Board of Directors will not approve any deal that's not accretive to our shareholders. So that's what we're working on. Forming a partnership with POSCO is our #1 strategic priority at this point. And based on what they say to us, that's the same thing for POSCO. We believe that we would be able to provide to POSCO, the ability to [indiscernible] trade and rig requirements, particularly melted import into the United States in the short term, what they need, absolutely need. They will not be able to sell here without complying with that requirement, that thing is not going to change. It's clear at this point. And this is a market that everybody wants to be in. And we are the only possibility for any company that is outside of the border of the United States to be inside the border of the United States. So POSCO is in the pole position in a very comfortable position to have a partnership with us. We absolutely love working with them, and they seem to like work with us. Now it's a matter of finalizing an agreement that's accretive to both Cliffs and POSCO, what should not be difficult to accomplish.

That was very helpful. If I could ask 1 following question. Just on the aluminum opportunity, I mean, I think it's really intriguing. Could you maybe frame that up for us in terms of the size of the opportunity to take share from aluminum in terms of tonnages. And then what would be the time line to achieve those tonnages?

Yes. Look, this was the type of thing that we have been have been asking for an opportunity to prove ourselves to our clients. And for some reason, they were committed to keep the status quo in place until they are no longer because it's not just the ones that use massive amounts of aluminum. That's obvious. That's absolutely obvious. We can't rely on supply chain of aluminum that very weak in the United States, and they proved that by having a succession of fires in the same plant in a space of 40 days or 45 days. And also truly dependent from aluminum produced abroad, knowing that Canada is another country like they like to say, we are not a 51st state, yes. We agree with that. It's outside of the border of the United States, it's another country. Yes. So that's why they are subject to Section 232 and will continue to be because they are another country. So aluminum from Canada is not a strategic solution for the supply chain. And then we proved our point that stamping aluminum or stamping steel for the type of steel that we Cleveland-Cliffs produce is the same thing. And we prove that at this point with few different OEMs, and they know what they need to do, and we are ready for them. Timing is on their control, not my control. We are ready. We proved that. We are getting orders at a production scale basis. And this should only be growing and the potential, the potential of the size of aluminum utilized. The best-selling vehicle in the United States has a lot of aluminum in the outside. We are starting to produce parts for that vehicle. So I can tell you without triggering any problems with my clients.

Our next questions coming from Alex Hacking from Ciber line.

Can you maybe [ Juan Brag ] on earnings Stelco has been for the past few quarters, and that kind of by proxy, how much potential upside there is as Canadian markets turn around. And just for context, we're looking at a Canadian publicly traded peer that's guiding to losing over $250 a ton of EBITDA in 4Q. I assume Stelco is doing better than that, but yes, anything you could do to help quantify that?

Yes. Alex, it's Celso. We don't break down EBITDA by mill, but obviously, Stelco was disappointing in 2025, as you can imagine. But the good news is that they're a contributor now. We've seen a lot of improvement recently that will lead to significant EBITDA increase in 2026. And if you think of the big picture on a net basis, even though they haven't been contributing to the bottom line, it has kind of changed the dynamics of the market and has helped our U.S. business. And that's only going to be amplified here as HRC pricing in the U.S. has found some footing at a higher level. So you can't really think of Stelco as a standalone. We're happy with the asset. We're happy with the people. They have -- we have great people that work for us at Stelco, but you have to think of the business as a whole. And going forward, they're going to be a much bigger contributor to the big picture.

Yes. Alex, Lourenco here. Let me add a little bit more on the Stelco comparison with with a competitor. The competitor had the same business model still selling to the United States. And we bought Stelco to do one thing that the competitor is ever willing to do, changing their business model to sell into Canada. And we did, like I said in my prepared remarks, a few days before Trump President Trump was elected, let alone, President Trump was in office, and let alone, President Trump implementing Section 232 tariffs in April. So we did that in November. So we were way ahead of the game in terms of how to reposition Stelco. Another thing that we took from Stelco that we did not have before is made in Canada coke in our coke better over there, which is a U.S. MC compliant feedstock. So that was a benefit for us. And that benefit will continue to be in place. The other thing is that if we had not had all the imports from the United States being redirected to Canada and have the Canadian board accepting that as normal course of business would have had a completely different 2025. It took us almost one entire year to convince the Canadian government that was completely unsustainable situation. And we finally -- they finally made a move. Move was a lot smaller than the move that we would like them to make, but that was enough for us to see a completely different dynamics in the domestic market in Canada. So the comparison between stock and the comparator, it's not a good comparison. Got to be Stelco for Cleveland, Stelco for Cliffs going forward. And the Stelco for Cliffs in 2025 was not as good as we envisioned basically because domestic Canadian prices went down due to the avalanche of imports into Canada. That has been put on hold. That has changed, and we will have a completely different 2026 because of that.

I guess just following up how much better can 2026 look? Like on the price side, where do you think Canadian prices should be with a new tariff policy versus where they are title.

Yes. As also said, we don't break down still results into our results. So we do not disclose that. But it's easy to see that based on how bad 2025 was and used the competitors as they referenced for that specific point, you'll see that there will be a 19-day. They will be a contributor and that will be a significant contributor to Cliff's results.

Next question today is coming from Albert Realini from Jefferies.

So just, Celso, I think you kind of alluded to it a bit, but the $425 million in total proceeds that are potentially under contract closure and agreement. I think you had said that doesn't include some of the larger skill assets. And I think you had mentioned that those would be on hold until anything with POSCO were to be finalized. So I guess what I'm asking is that total amount of proceeds from the asset sales could be a lot higher, and then timing would be until anything with POSCO would be finalized. Is that my understanding correct?

Yes. So Albert, so the $425 million, that's the totality of all of kind of our idle plants that we're marketing. And there's interest across the board for all of them. We've received $60 million so far, but we're in discussions to sell the rest, and that would add up to the $425 million. Beyond that, we have the larger assets that we could sell that there's been some interest around specifically Toledo HBI and FPT assets. So that would be in addition to the $425 million. Now we put these larger asset sales on hold, given POSCO's interest in our business. They're looking across our entire footprint. So we don't want to jeopardize the POSCO opportunity, which is much bigger, but for whatever reason, if the POSCO opportunity were to not materialize, we could pick up where we left off on the larger asset sales. And we've had some meaningful interest in those as well. So that would be in addition to the $425 million correct.

Albert, just a slight correction. Celso said in the discussion, some of the discussions are already signed contracts. So we are beyond a little beyond the just discussions. We have contracts in place and it's a matter of going between a binding contract and a sale agreement that -- at closing. So it's -- these transactions are real. It's a matter of time for closing. So like we have done so far, we do want that already close.

We reach end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you very much, and you guys enjoy 2026 as much as Cleveland-Cliffs will. I appreciate your interest in our company. Thanks a lot. Bye now.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Good morning, ladies and gentlemen. My name is Donna, and I am your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs Third Quarter 202 Earnings Conference Call. [Operator Instructions] 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 are set forth in the reports on Forms 10-K and 10-Q and news releases filed with the SEC, which are available on the company 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 Regulation G purposes can be found on the earnings release, which was published this morning.

At this time, I would like to introduce Lourenco Goncalves, Chairman, President and Chief Executive Officer.

Thank you, Donna, and good morning, everyone. Our third quarter results were a clear indication that a significant rebound in domestic steel demand has started, and the automotive sector is leading the way.

It's now widely accepted and understood that tariffs are here to stay, particularly the Section 232 tariffs on steel, autos and derivative products. These tariffs are not a negotiating tool, and the only effective way to avoid tariffs is manufacturing in the United States.

With all that, third quarter was our best auto steel shipment quarter since the first quarter of 2024. That's a very encouraging sign for what's coming in 2026 and beyond.

Over the past quarter, Cleveland-Cliffs was able to lock in 2 or 3-year agreements with all major automotive OEMs, covering higher sales volumes and favorable pricing through 2027 or 2028. These are not small renewals. These agreements represent strategic commitments to domestic steel sourcing by the most relevant auto OEMs.

Many of these customers have told us directly that they want to reduce their exposure to tariffs and to foreign volatility. They want stability and resilient supply chains. With a total of 9 automotive-grade galvanized steel plants, 5 of them designed to produce exposed parts in all specs and with, Cliffs is the natural partner for the car manufacturers expanding production in the United States.

President Trump's trade agenda has steel and automotive as part of its core. These two sectors are not just economically relevant, they are fundamental to national security. Rebuilding this strength is essential to sustain America's industrial independence and to improve our national defense readiness.

The same industrial base that builds advanced vehicles and powertrains for civilian use, supported by domestic steel production can also provide the engineering capability, supply chain depth and logistics expertise required to support the American military. There is no question that the resurgence of the U.S. auto sector supported by domestic steel is a matter of great urgency.

While other steel companies are still building or promising to build new capacity to be ready in 2028, 2029 or later, Cliffs is ready for 2026. Our state-of-the-art automotive-grade galvanized steel plants, Spartan and Dearborn in Michigan, Middletown, Cleveland and Columbus in Ohio and Rockport, Indiana Harbor, Burns Harbor and New Carlisle in Indiana; are all up and running.

Cliffs has plenty of capacity right now. And the multiyear contracts we have signed with our automotive clients should give us the demand we need to make all these plants work at full capacity and at full employment levels.

This quarter also reminded the automotive OEMs, while steel, and Cliffs steel, in particular; is irreplaceable. When light weighting became a major trend several years ago, some automakers jumped on the aluminum bandwagon, chasing immaterial and expensive light weighting gains while ignoring very meaningful technological advances in the production of high-strength steels and more importantly, the enormous supply chain risks they were assuming.

A huge fire at the nation's largest automotive aluminum-producing mill this past quarter revealed the fragility of that shift. Vehicle models that were years ago moved away from steel and towards aluminum are suffering the most.

The silver lining is that switching back to steel is now under serious consideration by the most affected OEMs. Recent trials of conforming parts with our steel using equipment originally designed for aluminum are showing very promising results. This is a huge win for America-made steel and a validation of everything we have been saying for years.

Domestic steelmaking, and particularly Cliffs steel, is the backbone of the American automotive supply chain. We fully expect that aluminum's participation in the automotive space will continue to shrink, with Cliffs being the biggest beneficiary of the trend.

The resurgence of U.S. manufacturing, enabled and support by the Trump administration, has made Cliffs very attractive to a number of major global steel producers. These steelmakers supply steel within their respective countries to important clients, and these clients are now moving production to the United States. Exporting steel into the U.S. is no longer a viable option for these foreign steel companies. Like they are still consuming customers, these folks need a physical presence in the United States.

Cliffs is a fully integrated steel company, starting from mining iron ore and going all the way downstream to the production of high-end finished products, and that is all based in the United States. These foreign interest in Cliffs is fully aligned with President Trump's agenda of strengthening America's industrial base and attracting foreign investments.

With all that, a few months ago, we were approached by a major global steelmaker, who wants to leverage our footprint in the United States to enable a smooth onboarding for their downstream industrial clients moving production from their country of origin to the United States.

During the third quarter, we entered into a memorandum of understanding with this global steelmaker, and we expect to make a formal announcement in the next few months. I will not take any questions on this subject today.

Separately, we have made excellent progress selling profits that no longer fit into our production footprint. I am pleased to report that we are under contract or agreements in principle for 8 of these sites with a combined total value of $425 million. The proceeds of these sales will go directly towards debt reduction.

As for our larger operational asset sales process run by JPMorgan, this is currently being deprioritized, given the comprehensiveness of our MOU with the global steelmaker. We are not quite pencils down on this process that advancing our negotiations under our MOU is now our top priority.

While our U.S. business is on a clear path to recovery, we completed on November 1, our first year of ownership of the Canadian steel company Stelco. The picture in Canada remains disappointing. Roughly 9% of our total sales come from Stelco in Canada, and that market continues to lag our expectations.

There's only one cause to the problem. The Canadian government has been completely unwilling to act against [ dump ] steel into Canada. Important steel penetration into the Canadian market stands at a ridiculous and absurd 65%. The Canadian government could easily resolve the problem by replicating what the United States has done under Section 232, impose meaningful tariffs, close loopholes and enforce implementation of these antidumping countermeasures.

With other regions of the globe moving in the right direction, even the European Union has recently tightened its quota and tariff regime, Canada stands alone in doing nothing. A bailout loan as the one given by the Canadian government and the province of Ontario to Algoma, one of our Canadian competitors, is not a fix for the problem.

Trying to weaken Section 232 in the United States, just to bring back Canadian steel into the American market, is even worse. Stelco under our ownership does not want to and should not depend on selling steel into the United States for its survival. Stelco could thrive exclusively by selling steel in Canada.

While I confess my inability to convince the several Canadian government officials I regularly speak with, I continue to expect Prime Minister Carney to make a move in the right direction. Let's see how long it takes or if I would need to be more persuasive.

Meanwhile, the U.S. government continues to grow as our partner. During the quarter, we were awarded a 5-year $400 million fixed-price contract by the Defense Logistics Agency of the U.S. Department of War. This contract covers up to 53,000 net tons of grain-oriented electrical steel, which the U.S. government intends to store for national security purposes.

The award underscores Cliff's position as the only U.S. producer capable of supplying this critical material GOES, grain-oriented electrical steel, further reinforcing the strategic importance of our electrical steels to the nation's defense and energy infrastructure.

Also, we recently learned that our 2 projects receiving grants from the Department of Energy at Middletown, Ohio and Butler, Pennsylvania were not included on the constellation list that ended more than 200 other projects. As such, we will proceed with the bottle project on schedule, and we will also continue to work with the DOE on the new scoping of the Middletown project, which is critically important as that blast furnace will be relied in the next 4 to 5 years.

Last but not least, the growing strategic value of rare earth elements has prompted us to revise this potential within our mining portfolio. We view this effort as both an opportunity and as our responsibility. Comprehensive reviews of our ore bodies and tailings basins have identified 2 sites, one in Minnesota and one in Michigan, where geological surveys show evidence of rare earth mineralization.

We continue to assess our potential on both sides. Advancing this initiative with position Cleveland Cliffs is squarely within the nation's pursuit of critical material self-sufficiency. We believe Americas industrial foundation must never depend on China or any other foreign sources for essential minerals. Cleveland-Cliffs is committed to contributing to our independence from foreign powers on critical materials.

With that, I will turn to our CFO, Celso Goncalves for his remarks.

Thank you, and good morning, everyone. Our third quarter results were driven by steady operational execution and much better-than-expected pricing, supported by automotive strength. Our adjusted EBITDA in the quarter improved to $143 million, a 52% increase over the prior quarter, driven by margin expansion from higher realized prices and improved mix.

Our steel shipment volumes were 4 million tons in the quarter, a reduction from the prior quarter as a function of summer slowdowns and our continued discipline in the broader market.

Fortunately, as a result, our mix shifted favorably toward automotive, which drove our average selling price to $1,032 per net ton, up $17 per net ton over the prior quarter. This improvement in price is entirely driven by automotive shipments moving from 26% to 30% share and coated volumes moving from 27% to 29% share.

On the cost side, we continue to deliver great results as our unit costs adjusted to the much richer automotive mix. Our continued cost performance was almost entirely driven by the footprint optimization activities we announced earlier this year and have fully implemented at this point. The third quarter was the first full quarter, we operated with these operational efficiencies in place, and our projected annual savings of $300 million from these maneuvers remain on track.

We also continue to take further action to reduce both SG&A run rate and capital expenditure budgets. Our CapEx budget for 2025 is now $525 million, down from our original expectation to begin the year of $700 million. This is reflective of dramatically reduced spend at Stelco as well as the now-changing DOE projects at Middletown.

In addition, full year SG&A expectation is now down to $550 million from our original expectation to begin the year of $625 million. These savings are reflective of overhead and incentive pay cost cuts in response to weaker demand conditions.

Another upcoming item to highlight is the December 9 expiration of our onerous slab contract. For the past 5 years, we've been bound by a contract that valued imported slabs using the now irrelevant Brazilian slab index. That index no longer reflects the real cost or value of American steel, much less the value of our automotive-grade slabs produced at Indiana Harbor.

With the contract expiring, we will reclaim that production internally using our melted and port slabs to serve growing automotive demand.

This past quarter, we also took advantage of the strong high-yield market and refinanced the entirety of our remaining bonds maturing in 2027, leaving us with a runway of more than 3 years with no upcoming bond maturities. Our next bond maturity is not until March of 2029, and those notes can be redeemed at par starting in March of next year. Together with the outstanding balance on the ABL, we have plenty of prepayable debt to pay down with the incoming proceeds of property asset sales and future free cash flow.

Our gross debt amount remains elevated, but we will have ample opportunity to pay it down over the coming quarters. That said, the composition of our debt and maturity runway leaves us with plenty of flexibility going forward.

The primary end markets that we serve, transportation, manufacturing and construction; have been experiencing recession-like conditions over the past 12 months. We have navigated this with our operational improvements, footprint optimizations and reductions in overhead and capital costs.

The construction and general manufacturing sectors still remain relatively weak. But if history is any guide, those sectors will follow the trajectory of the automotive sector, which is now tracing upward. We have finally started to see a bit of restocking activity in the distributor and end-user markets, an indication that the new tariff reality for those buyers is setting in.

The signs of a real recovery are forming, and we need consistent demand and stable policy to keep it going. Once these policy changes give us the demand boost that we need, the foundation that we have laid with these operational improvements will propel us further to amplify EBITDA and cash flow.

With that, I'll now turn it back to Lourenco for his closing remarks.

Thanks, Celso. Q3 showed the first clear signs that the tide is beginning to turn. Automotive is rebounding, our cost actions are working, and trade policy is delivering measurable results.

But we are not declaring victory yet, we can and will do better. Our onerous slab contract will soon go away. Our automotive volumes will continue to increase, and we will finish what we have started. That includes the execution of the final agreement and the beginning of the work, which will follow our transformational memorandum of understanding with our major global steelmaker partner.

With that, I will turn it back to Donna for questions.

[Operator Instructions] Our first question today is coming from Nick Giles of B. Riley Securities.

Cliffs has been a national champion in the U.S. metals and mining industry for over a century. So it's really good to see you taking the initiative on the rare earth side. My question is really how quickly could you produce products in this vertical? And could you look to be a vertically integrated producer? Would you look for a partner?

Thanks, Nick, for the question. Look, we have the opportunity to develop the mining, assuming that all these original studies will play out as we expect. And we'll go from there.

It's very clear that the U.S. government is very quickly realizing the importance of having an industry for this type of minerals inside the borders of the United States. And that's also, in my opinion, an opportunity for cooperation with Canada, another unexplored opportunity that we can develop with our northern neighbor. So there are several ways to go with this thing.

And the important thing is that the geographical location would be good for both. We can do it inside the United States, we can do it in Canada because we're very close across the point, across the Great Lakes. So it's very easy to work within the United States or with Canada. But these are the two options I see going forward.

Maybe just as a follow-up, I mean, what resources have you brought in to date to explore the opportunity? And when is kind of the first mile marker in terms of a potential product mix or any economics? Should we be thinking about something early next year? I appreciate any color.

Look, we identified two sites that have the most promising. We are working with the geologists to assess whether these deposits could become commercially viable. That's where we're at. And don't forget, as you said, we are a mining company. So this is not new territory for us. We understand mining into these land more than anyone because we have been doing for a long, long time.

And we will see how we go from there. But that's a potential that we will not let go without putting a lot of effort and a lot of ingenuity into getting this done inside the United States or in partnership with Canada that has experienced in mining. There is not so rare elements that are called rare earths.

Our next question is coming from Mike Harris of Goldman Sachs. Mr. Harris, please make sure your phone is not on mute.

We'll move on to the next question. The next question is coming from Lawson Winder of Bank of America.

Could I ask just about your decision to deprioritize the asset sale process? How has that process gone to date? And then, has there been any interest? And if so, in what assets?

Look, like I said, the process, we did not stop by any stretch. Actually, we closed on a portion of the sale of FPT during the [ weekend ]. So we have -- during the course, we have a signed contract. I misspoke. It's not a closing yet, but it will be a short closing.

And the portion that we sold on FPT is not even a site that we explore for our own EBITDA. So it doesn't change at all, the EBITDA that we generate from FPT. So we're very pleased that we had more than one part interested on that specific portion of the of FPT, including the Florida assets. And we are very excited with the opportunity to continue to sell the remaining portions of FPT as we go.

The other asset, Lawson, that we are considering selling would be our direct reduction plant in Toledo, Ohio because as you might conclude on your own, but I will reiterate here, we have no interest in building a flat-rolled mini mill ourselves. I was keeping that HBI plant to supply Big River in case we had the opportunity to acquire U.S. Steel, which did not play out.

So as we did not acquire Big River through the acquisition of [ U.S. Steel ], I don't see any specific and strategic value of keeping direct reduction plant producing HBI with a strict goal of supplying flat-rolled mini mill producing more of a high-end type of flat rolled products. That's not my problem anymore.

So we still have a lot of interest in that specific plant. But this discussion with the MOU and the subsequent work that we are doing with our partner is showing that we might be doing other things with that plant, which I will not elaborate at this point.

So I'm kind of still considering alternatives, but I'm deprioritizing that because the MOU trumps, no pun intended, the opportunity of selling itself as a stand-alone unit, the Toledo plant.

Okay. Understood. That's very clear. If I could just follow up on your comment on FTP, should we be looking for some sort of announcement on that sale of a portion or partnership?

I just made it. We are under agreement to sell the Florida assets to SA Recycling. So that's the deal. So it's out. I just said it to you.

Can you provide any detail on economics at this point? Or is it too early?

No.

Okay...

But it's good. And if you apply a multiple to a site that generates zero EBITDA, you can pick one. So it doesn't change the economics of the rest. That's the importance of this sale. That's why I'm disclosing.

That was an asset that from me was always completely relevant because I'm not going to put a mini mill in Florida to produce rebar or anything else. So that was not a site that was interested from the get go. It came as a an addendum to what I was really interested in having the real FPT, the FPT around Detroit and our own prime scrap. And that's completely preserved.

And there are other companies, more than one actually interested in acquiring the rest. And they both have the same thing in common. They don't want Florida. So we moved Florida. But we are not going to review the number, but the number is extremely good, and you'll see liquidity going forward. But you got to wait because this is just a signed agreement, it's not closed yet, so we can't disclose the number.

The next question is coming from Phil Gibbs of KeyBanc Capital Markets.

Question is on the auto contracts. Did any of the new contracts kick in during this quarter or do any of the new contracts kick in during the fourth quarter?

Yes. We have some kicking in October 1. I'm simplify when I'm saying 2026 because it's a short quarter. Fourth quarter, particularly in automotive, is not a quarter that we are excited about because we know we're going to have shutdowns through the end of the year. That's normal course.

Sometimes we have -- I'm not sure about this year because they are really busy, but it's normal course for them to shut down around Thanksgiving as well. But we are going to see a lot of activity coming from these contracts as the year turns to 2026.

So we're super excited with everything that's happening with General Motors, Ford, Stellantis with this big announcement of $13 billion, bringing back the plants that we were, by far, the largest supplier.

So all these things are coming to us. At this point, we have Ford, we have Hyundai, you have Honda. We have Toyota in North America. These are all happening. And the good thing, Phil, is that the car manufacturers finally realize that it's not a good thing to wait and wait and wait and seeing that the Trump administration is not changing their tune.

I think Secretary Lutnick was very clear when he said, the United States will be first in producing automobiles. Canada can be second. So that shows resolve. So I'd like to see that, and that helps us in terms of getting our business moving in the right direction. So we are good.

And then just a follow-up on the cost side. What does the guidance imply for further unit cost reductions in the fourth quarter? And should we expect any more momentum in the first part of '26?

I'll let Celso handle this one. Please, Celso.

Yes, sure. Phil, if you look at the cost performance in Q3, adjusted for the increased automotive mix, we still expect costs to be down $50 a ton year-over-year when adjusted for this mix.

You can see in our track record achieving cost reductions dating back to 2023. We achieved an $80 a ton cost reduction in '23. We were down another $30 a ton in '24. And then now in '25, our unit costs are still expected to be down $50 a ton. So we're not changing the guide there.

Just as it relates to other Q4 kind of talking points and general guidance that I can give you, shipments should be similar as Q3, around 4 million tons. You have to consider seasonality with the holidays offsetting improved demand. Auto shipments are expected to be similar. And then in terms of pricing, you probably have all the pieces that you need to calculate the ASP for Q4. So relative to Q3, Q4 costs should be relatively similar to Q3.

Our next question is coming from Carlos De Alba of Morgan Stanley.

Just on -- following up on the auto contracts, and -- can you maybe give us some comments on the volume growth in implicit in these new agreements and potentially an indication of how much pricing may be moving up or down or staying flat? Definitely a very important piece of the business going forward.

Look, directionally, these contracts will generate a lot more margin for us, including margin per ton. And that's all I can share at this point with you. These are good contracts. But we realized one thing, Carlos, that probably has been missed throughout this entire conversation. And I'm trying to -- in my prepared remarks, I'm now using your question, so thanks for the question.

I will try to explain a little bit about what Cleveland-Cliffs really is in terms of the automotive industry.

We hear a lot about market share in automotive, gaining market share, losing market share. Let's understand one thing. Cleveland-Cliffs has so much more capacity to produce the steels that the automotive industry needs in comparison with any other supplier or any other one of the supplier of automotive steel, that is not even a topic of conversation talking about market share, about these type of things.

We have 5 plants, plants that are ready to supply a lot more exposed parts than we are supplying right now, not because we lost market share, but because the car manufacturers, who are producing cars in places like Mexico, Canada, South Korea, and I'm talking about American car companies; even in Japan, American car companies. So that's the absurd of the entire thing. And that was being corrected.

So as they are being compelled, in the lack of a better term, to produce cars in North America, in certain cases like Stellantis, they are coming to senses and coming back to the reality that North America is their main market and Cliffs is their main supplier; we are seeing the business coming back and coming back extremely stronger.

Just to give one set of numbers for you today. Columbus [ Coates ], it's one galvanizing line ready for extra_wide exposed parts that produce today something between 280,000 and 300,000 tons a year. The line itself is able as is to produce 450,000 tons, just by putting more throughput through the line, and that is coming.

And the site itself is perfect to double in terms of the capacity in that specific side because we have room to put another line side-by-side with the existing one to double from 450,000 to 900,000 tons. That's in a single site, and we don't need to invest to put the new line because we have idle capacity in Dearborn. The downstream Dearborn is the most modern galvanized steel plant in the world that was built in 2013 by Severstal and acquired by AK Steel, and then we acquired AK Steel. So Dearborn is ready for more.

Middletown, same thing. Rockport, Rockport needs to be visited. It's all robotic, it's all automated. It has been like that for at least another 1 or 1.5 decades. So it's there. And New Carlisle that used to be called I/N Tek and I/N Kote by Inland and Nippon Steel long ago, is pretty modern and pretty well equipped to produce not only a hot-dip galvanized and galvan mill, but also electrogalvanized as well as Middletown.

So we have -- and that's just exposed. If you go to nonexposed high end, no exposure, we have Cleveland, is the -- Cleveland Works is the most technologically advanced mill to produce high-strength alloys for the structure of cars here in the United States, and we have been doing that, but we have capacity for more. So that's prevalent everywhere. Indiana Harbor, Burns Harbor our joint venture with [ Worthington Steel ] is [ working ] same thing.

So that's 9 plants ready to grow as this or adding capacity as needed in the next 3, 4, 5, 6 years. So this movement that was initiated by President Trump, that will percolate for the next 5, maybe 10 years; will be all supported by Cleveland-Cliffs. And I'm explaining to you the capacity.

So I'm not going to go into this little details on how much more the contract or this and that. These things are coming out as a wave of new business that we are ready to take right now.

Sorry for the long answer. It was a good question. I decided to use it to explain details that probably are not well understood. But I hope after I made that explanation, at least generate more questions that will keep us helping clarify the subject.

Great. And then talking about the other opportunity that just came off for Cliffs on the rare earths space, are there any details or early details that you have in terms of the type of mineralization, rare earths mineralization that you may have? What type of minerals potentially you could be producing? And also, is there a timetable for a feasibility or prefeasibility study or preliminary economic analysis -- assessment, sorry?

I don't think that I want to talk about [ dysprosium ] or terbium or cerium or [ lanthanum ] or neodymium or praseodymium in this call. But I am a chemistry person. So I would love to, but I don't think that would be a good thing for us today, Carlos. Let's take this offline and let's discuss.

The important thing is that they are there. We found them there. And we want to make it viable. We really believe that we have potential there, and that will be good for Michigan, for the upper Peninsula primarily. And there's even one site in Minnesota that we would go. Minnesota is not very friendly to us, but we still investigate there. But we definitely will start in Michigan in the upper peninsula because we love the upper peninsula.

Our next question is coming from Mike Harris of Goldman Sachs.

Okay. Let's try this again. Hopefully, you can hear me this time.

Very well, Mike.

Just wanted to follow up on the electrical steel award that you highlighted, and just to kind of help us, how should we think about that? Is that more of a kind of a onetime opportunity? Or is this like the first of [ CDEC ]?

It's a onetime opportunity, Mike, but it's a multiyear onetime opportunity. The U.S. government, Department of War made the decision to putting storage, a safety reserve, strategic inventory of this type of materials that we produce. So we are going to build that inventory together with the Department of War.

And we are very proud of this partnership. It's extremely good in terms of economic terms. And in -- the long-term viability, of course, we're going to prioritize that because it's national security. And it will take years to finish.

And this probably is this first move into a direction that it's clear that the Trump administration is taking in terms of protecting the country with strategic inventories of things that could be under attack in a moment that's not very peaceful in the world.

So it's all good, and we are proud of our partnership with the U.S. government and particularly with this specific deal.

Okay. Okay. That helps. And then just a follow-up to it, and Celso, I think, just a few minutes ago, someone asked a question around the cost reduction, and you kind of pointed out the track record.

And I guess I was just curious what we're witnessing here, is that just you guys now have an opportunity to take out maybe stranded costs from the acquisitions? Or are we seeing the benefits from, I don't know, some process improvement or technological advances? Just kind of help understand -- help me understand what we're witnessing with the cost reduction effort here.

Yes. Sure, Mike. Yes, I think over time, we've been proactive in terms of optimizing the footprint. We became a steel company in 2020, if you remember. We acquired AK Steel, we closed that deal on March 13 to 2020 in the middle of the pandemic. And then we doubled down, and we acquired the ArcelorMittal USA assets in the same year closed in December 9 of that year.

And for the subsequent years thereafter, we became a major steel company sort of overnight, and it took time to optimize the footprint. It came with a lot of assets. Many of them were very good, some of them weren't so great. So over the last few years, we've been prioritizing optimizing the operations across all of our assets. And that's what's really driven the accomplishment on the cost side. And this year was really the completion of those efforts.

Thank you. That brings us to the end of today's question-and-answer session. I'd like to thank everyone for their participation today. You may disconnect your lines and log off at this time. Enjoy the rest of your day.

Good morning, ladies and gentlemen. My name is Rob, and I'm your conference facilitator today. I would like to welcome everyone to the Cleveland-Cliffs Second Quarter 2025 Earnings Conference Call. [Operator Instructions]

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 with 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 as -- such statements are subject to risks and uncertainties that could also cause actual results to differ materially.

Important factors that could cause results to differ materially are set forth in reports on Forms 10-K and 10-Q and news releases filed with the SEC, which are available on the company's website. Today's conference call is also available and being broadcast at 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 Regulation G purposes can be found in the earnings release, which was published this morning.

At this time, I would like to introduce Lourenco Goncalves, Chairman, President and Chief Executive Officer.

Thank you, Rob, and good morning, everyone. Our adjusted EBITDA in Q2 showed an improvement of $271 million from the prior quarter. We achieved higher shipment volume targets. And as a result, we improved our operational efficiency and lowered our production costs. Our recently announced footprint optimization initiatives are underway, as planned, and you will see their impact in the second half of this year. We are laser focused on cost-cutting and steel sales, and that's the way we will continue to execute going forward.

Section 232 is steel tariffs implemented on March 12 at a level of 25% and increased to 50% on June 4, have played a significant role in supporting the domestic steel industry. Foreigners competing unfairly will do whatever they can to get into our great American domestic market. They pay their workers a lot less than we pay our American workers. They receive direct subsidies from their governments, and they do not have to comply with the stringent environmental standards and loss we have in place in the United States. So far, there is no indication that the Section 232 tariffs will be used as a bargaining chip by the Trump administration as leverage in trade deals with other countries. We appreciate that and fully expect that the administration will keep in place and enforce this Section 232 tariffs.

If the United States really wants to continue to have a strong domestic steel industry, proper enforcement of the Section 232 tariffs is absolutely necessary with no exceptions or exemptions allowed. The import data that has been published thus far, makes it very clear that the 232 tariffs are having a positive impact, not just on steel, but also on the automotive sector. Both flat-rolled steel imports and light vehicle imports hit multiyear lows in April. The Trump administration has prioritized 2 sectors is steel and automotive that are critical to the strengths of our economy to the resilience of our supply chains and 2 United States National Security. Cliffs sits right there at the intersection of both sectors is still in automotive.

The place where imported steel remains a huge problem in Canada. We understand why the U.S. has a 50% tariff on imported steel from Canada, and that's fine. We are keeping all Stelco still in Canada, and we are doing that by design. Since we acquired Stelco in November of last year and not now as a result of the tariffs implemented in 2025. It's well known that the United States is a net importer of steel. What's not as well known is that Canada is also a net importer of steel. So just like the U.S. used to be prior to President Trump, Canada is still being taking advantage of by all foreign producers Friends and falls, all dumping steel into the Canadian market, friends and folks.

The Canadian government latest attempt to stop unfair trade is insufficient. It only covers 70% still imports into Canada because of the insistence on allowing free trade agreement countries, the so-called FDA friends to continue to use Canada as their outlet for overproduction. Our message is very clear and easy to understand. If Prime Minister Carney and his cabinet really want to have a steel industry in Canada they should put in place significant trade protections. Then they will have a strong domestic steel industry in Canada able to support a vibrant domestic Canadian markets.

We are doing just that here in the United States, and it's working. The strategic protection leads to reinvestment, full employment and long-term viability. Our Canadian employees need more action, real action from Prime Minister Carney. Now on the top of automotive. The most relevant issue to be attacked and resolved is enhancing the consumers' ability to finance the purchase of a vehicle. Despite no signs of tariffs, reigniting inflation, the Federal Reserve continues to keep interest rates unnecessarily high.

After making home buying unattractive with very expensive mortgages. The fabs in action on cutting interest rates is now an impediment to car buyers. Once Chairman, [ Jerome Powell ] is gone, and that's not a matter of when, not if. And as soon as interest rates come down by 50 or 75 basis points. The automotive sector will take off again. Demand is there. But this Fed Chairman will not act. So we need a new Fed Chairman appointed as soon as possible. At Cleveland Cliffs, even with the growth we have been seeing in our tonnage delivered to the sector, we still have underutilized automotive steel capacity.

With the OEMs continuing to bring back production to the United States and with consumer-friendly interest rates, the automotive sector will thrive. Cliffs is ready for that. We can ramp up quickly and our capabilities, quality and customer service are well known by all OEMs. Cliffs is in a unique position to support the upcoming resurgency in American vehicle production. Right now, not in 3 or 5 years. Other relevant news in trade enforcement is the very important 50% tariff that will go into place on Brazilian pig iron, starting August 1. Cleveland-Cliffs does not rely on imported pig iron at all. We have our own hot breaded iron facility in Toledo, Ohio, but several of our EAF competitors do rely on important pig iron. We are vertically integrated and we use American iron ore and American Coal and American Natural Gas as feedstock, all produced right here in the United States of America, employing American workers.

There is no justification to exempt imported pig iron from tariffs as it is just to create an artificial cost advantage to benefit some players to the debt rent of others. That would be equivalent to allowing imported steel into our markets just because [indiscernible] steel is cheaper the domestic producer steel or allowing for imported cars made in China to be dumped into the United States just because Chinese cars are cheaper. Cliff's vertical integrated business model differentiates us from the rest of the industry by being completely independent from important feedstock. The EAF mini mills rightfully so do not support any exemptions for imported steel. And as a matter of coherence, they should not ask for exempting from tariffs, imported pig iron from Brazil or from any other country.

In Q2, we also had some exciting news for our stainless steel business. Our smaller but consistently profitable stainless business is one of our best-kept secrets. During the quarter, we completely and commissioned a $150 million investment in our bright annealing line at our Coshocton Works plant in Ohio. Bright annealed stainless is a premium stainless steel product for high-end automotive and critical appliances application. If you think about the bright train surrounding a car window or the inner drum of a washer and dryer, that's what we make there. With this investment, which should generate a quick return on invested capital, we are dramatically improving the quality and productivity of this critical product that our customers rely upon Cleveland-Cliffs for.

Finally, let me briefly touch on the shifting competitive landscape in the domestic steel market. The United States remains the most desirable market for steel. Nippon Steel's entry into our market and their astonishing high investment promises highlight the strength and appeal of the opportunities here. Nippon nearly $29 billion total investment proves something we have said all along, fully integrated mining, billetizing, blast furnace, BOF production is necessary, particularly in a country like the United States that already has more than 70% EAF-based steel making. If that was not the case, Nippon Steel would have just built a big number of new EAF mini mills in the United States for a much lesser investment and would not have purchased a primarily integrated steelmaker. They see the value in blast furnaces just as we at Cleveland-Cliffs do. through their recently acquired and now third tier subsidiary, U.S. Steel, Tokyo-based Nippon Steel is now an active participant within the American market. This effect and effect creates a new level of optionality for other market participants Cleveland-Cliffs included, among several possible outcomes for an investment in Cliffs becomes an attractive opportunity for other foreign entities, particularly due to our unique position as a major supplier to the automotive sector and of electrical steels.

With that, I will turn it over to Celso.

Thank you. Q2 results were largely driven by better realized pricing, cost reductions and record shipments. Volumes of 4.3 million tons represented a 150,000 ton increase from the prior quarter and allowed us to run our mills more efficiently. We had previously expected a slight unit cost increase quarter-over-quarter. But with the solid operating performance, we actually recorded a $15 per ton unit cost decrease. Average selling price of $1,015 per ton represented a $35 per ton increase from the prior quarter, driven primarily by higher index pricing, and partially offset by lower slab and plate pricing. Stelco pricing was relatively flat. After the Arceler slab agreement expires in December, assuming today's pricing and demand environment, we should get another $125 million per quarter in EBITDA boost.

From a cash flow perspective, inventory reductions, particularly in raw materials like iron ore and coke, served as a meaningful source of cash in Q2. The acquisition of Stelco came with the benefit of being able to use excess coke production out of Hamilton in our U.S. mills. Delco's pricing has been hampered by the excessive imported steel penetration in Canada, but the value of being able to use Hamilton Coke has been the biggest driver of us reaching our cost synergy target. As a result, we were able to let one of our third-party coke supply contracts expire on June 30, reducing our need to purchase Coke externally. We have another coke contract expiring at the end of this year that we will no longer need either.

Our ability to source more coke internally in and of itself has already made Stelco a valuable contributor for the combined company. And this will be further bolstered once the next coal contract expires. On top of that, based on current market dynamics, we expect even lower coal prices for 2026. Our balance sheet remains well positioned as a result of Q2 and future working capital reductions. We ended the quarter with $2.7 billion of liquidity and no near-term maturities. Net debt remains manageable and is soon to be on a downward trajectory. Our capital allocation priorities remain clear: use excess free cash flow to pay down debt and reach our leverage target. This is the history of my 9 years at Cliffs. We lever up to make necessary acquisitions and we use the resulting free cash flow to pay down debt quickly.

Potential noncore asset sales could also accelerate debt reduction. We have now engaged JPMorgan as our adviser and launched sell-side processes to explore the potential sale of certain noncore operating assets. These selected assets could represent billions of dollars of value, and we will only sell these assets if the sum of the parts valuation unlocks trapped value for Cleveland-Cliffs shareholders. In addition to these noncore operating assets, we are also receiving inbound interest in some of our recently idled facilities, which could also sell for cash. These sites, particularly Riverdale, Tilton and Conshohocken are all uniquely positioned geographically and have what data center developers are looking for, access to power and water with the infrastructure already in place. While these properties are idled, if opportunities don't arise that justify restarting, they have good value and the amount of interest we have received in these properties so far is reflective of this.

If we're successful in executing any sales, the cash proceeds will go directly to debt reduction. We also took actions during the quarter to lower both our SG&A run rate and capital expenditure budget. Our full year 2025 expectations for these items were reduced by a combined $50 million. These were proactive surgical reductions based on our newly tightened footprint. Our overhead structure is now leaner, and we're getting more out of every dollar we spend. Our steel unit cost reduction target of $50 per ton remains firmly on track. This cost reduction pace, combined with healthy HRC pricing is expected to support growing EBITDA generation in the coming quarters. Operational discipline, capital prudence and free cash flow generation remain our top financial priorities. We're confident that these principles will continue to guide us to even better results in the coming quarters.

With that, I'll turn it over to Lourenco for his closing remarks.

Thanks, Celso. We showed the strong improvements in pricing, costs and sales volumes in Q2. Going forward, the macro trends are aligning in our favor. With that, the second half of 2025 is shaping up to be much better than the first half. I will now turn it back to Rob for Q&A.

[Operator Instructions] Our first question comes from the line of Nick Giles with B. Riley Securities.

Good to see the cost reductions come through in 2Q. And so I just was wondering how should we think about cadence of cost reductions from here? How much of a sequential change could we ultimately see in 3Q? And then as curious, just wanted to get your thoughts on working capital considerations.

Yes, sure. Nick, happy to provide some general guidance for Q3. For Q2, quarter-over-quarter, costs were down $15 a ton versus our expectations to be up $5 per ton. So we're happy to get the cost reduction going here in this quarter. Looking ahead to next quarter, we expect cost to be down another, call it, $20 per ton from Q2 to Q3 with even further reductions in costs in Q4. Q3 costs were originally expected to be down more than $20 per ton, but some of the cost reductions were pulled forward into Q2, a trade-off that we're happy to take. The asset optimization initiatives that we've been talking about are in motion, and you can see that here already with the Q2 reductions. And we expect Q3 to also benefit from similar shipment levels as Q2. As it relates to the full year, we still expect costs to be down that $50 per ton in 2025 relative to 2024. And that's largely driven by the optimization of our footprint, reduction of fixed costs, reduced overhead and improved efficiencies and a favorable cost mix as well.

I appreciate that detail. My second question, I was wondering if you could remind us how we should start to think about CapEx expectations in 2027. I believe you do have a reline next year. So curious what kind of puts and takes we should have in mind, particularly some of the alterations at Middletown?

Yes, I'll take that, Nick. Look, first of all, we don't have a reline next year. Our next reliance 2027. So there's no relying, no CapEx related to reliance in 2026. As far as Middletown, the original project that we had there was basically replacing the blast furnace 2 EMF and the direct reduction line. And that line would be supported by hydrogen instead of natural gas. That was the end game of that project in Middletown. The very first thing it's clear by now that we will not have availability of hydrogen. So there is no point in pursuing something that we know for sure that's not going to happen. So it's not like that project was canceled by the DOE because it was not. We informed the DOE that we would not be pursuing that project. What generates a very good conversation with the current DOE or current team of the Department of Energy on revamping that project in a way that we preserve and enhance middle town, using beautiful coke, beautiful natural gas, our America iron ore from Minnesota, keeping the flagship Middletown works as our flagship facility supplying automotive steels and making our blast furnace operate fully under AI. So that's what we have in scope right now, and we're working with the DOE and I have been -- I'm giving you as much details that I can share at this very moment.

Next question comes from the line of Mike Harris with Goldman Sachs.

Just a question around free cash flow. You have expectations that EBITDA continues to improve and you have the cost reductions well underway. So how should we think about free cash flow generation in the second half and maybe speak to expectations of that being positive? And how sustainable that would be?

Yes, sure. Mike, it's Celso here. Starting with Q2 free cash flow. We had a cash outflow of $67 million for the quarter, and that was largely driven by a meaningful release in working capital as we reduced inventory dramatically. Going forward, we should release even more working capital in the second half of this year. And we've shown our ability to generate robust free cash flow in the past. If you look back in prior years, we've averaged over $1 billion of free cash flow each year since our transformation. So the potential for free cash flow generation is meaningful. And we see some tailwinds and sustained support from pricing, that could accelerate pretty fast. And as we go into an environment where we're generating free cash flow, as we've been saying, we're going to use all of that to pay down debt. So you could see the deleveraging happened very quickly.

Yes. Let me just add, Lourenco here. Let me just add a couple of things on that, Mike. Remember that we shut down facilities that were eating in our ability to generate cash. 2 in Pennsylvania and 1 in Illinois, that's behind us. So that's number one. Number 2 is that our model is ready integrated, model is predicated on volume. So more than anything, we need consistent volumes. And the volumes are going away not only through the well-established practice of importing steel into the country, but with the newly developed practice of importing cars into the country. President Trump addressed both with Section 232 tariffs for steel and for cars.

So now the one important steel is no longer well -- in fact, as it was before. Now people would touch important still with a lot of care because they could get burned. And second, car manufacturers are finally waking up for the fact that the uses fastest way to produce more cars into the United States deploying back the installed capacity that's in place already. Just bring more ships to hire more people, produce more cars. Start now. Don't just promise to build plants to produce cars in 5, 6 years. That's not going to fly. Let's produce more cars. Now we're seeing that as we speak. And we are -- we at Cleveland-Cliffs, we are the only ones that have the installed capacity to promote that to happen. So it's happening already, and it will pick up steam as we go. So all these things will point out for higher cash flow generation. And keep in mind, I did not mention anything regarding prices. We depend on volume, we depend on reducing costs and our cost reduction in our integrated model is predicated on have base loads and volumes going through the footprint.

Okay. That's very good color. Appreciate that. And then just, I guess, just as a follow-up, if demand picks back up, how much can this reduce the working capital unwind?

You want to take that, Celso?

Yes, sure. I mean, I think we've sort of talked about it already. When we saw a meaningful inventory reduction here in Q2, and we expect that trend to continue here into Q3 and Q4.

Next question is from the line of Lawson Winder with Bank of America.

Also, you didn't touch on the average selling price expected for Q3 '25. Could you touch on how that's shaping up? And could you also touch on the volume expectation for -- and also, I just wanted to say a nice work on the cost reduction in Q2.

Yes. Sure. Lawson, Yes, look, just to add some more color into Q3. Just generally, we expect to see continued EBITDA improvement from Q2 to Q3. I want to make that very clear. Shipments should be similar in Q3 as they were in Q2 at that 4.3 million ton level. As it relates to average selling price, I think we kind of give you guys the calculus to be able to get to that number. But just to sort of reiterate how the composition works, if you want to take all the pieces and calculate your own ASP from Q2 to Q3. You can do the math. It's about 1/3 fixed on a full year price with resets throughout the year. And then about 20% of our volumes are under CRU month lags, call it, 8% is the slab agreement on a 2-month lag. 5% is CRU with a quarter lag. And about 1/3 is the remainder kind of spot, and that includes the Stelco volumes as well. So I think with that, you should get enough to calculate Q3.

And then on the volumes, could you just give us an idea of how those are shaping up? And then further, I just wanted to ask about the D&A as well into Q3. So there was a step-up -- how is that expected to move on a Q-over-Q basis versus Q2 into Q3?

Yes. Volumes in Q3 should be around the same level as Q2 at that 4.3 million ton level total so call it flat from Q2 to Q3. DD&A stepped up due to accelerated depreciation from the idled facilities, but it should return back to, call it, Q1 levels.

Fantastic. If I could just get your comments. Just 1 final point on Canada, and there is some concern about the economy there slowing down. I'd like to just hear your views on what you're seeing, particularly given that you're selling 100% of your volumes into Canada. I mean, are those concerns justified from what you're seeing from a steel industry point of view? That's all for me.

Lawson. Look, let's clarify. We acquired Stelco and Stelco is the steel company of Canada in November of 2024. So the name is still a company of Canada. So it was not supposed to be the steel company that disrupts the domestic market in the -- great lakes of the United States. So that was the main reason why I bought Stelco because I believe in Canada, the problems that apparently, the Canada, particularly the Canadian politicians, they don't believe in Canada. They believe that Canada needs to be part of Europe. They're not. They believe that Canada depends on the United States. They don't. So they need to wake up and stop being lazy in terms of thinking their country as a satellite of Europe and the United States. Then they attract bad things said to them because it's their own making. They need to grow a pair and understand that Canada is a very good country with a lot of potential with a lot of critical minerals with a lot of things that can make it a powerhouse.

The very first thing they need to tell foreigners get out of my market. Why they have to lock in the import levels of 2024 that basically killed the Canadian steel industry because they can't sell in Canada. At the very moment, that Section 232 hit We, out of Stelco started selling as far as Bridge Columbia because the ones in the Western Canada market realized that could no longer rely on agents to supply steel to them. But then they went back because -- and it's not like just the liberals, the conservatives are doing a horrible job, too. So long story short, Canada can fix themselves. The important amount of steel into Canada that's pre equivalent to the size of the Canadian market. If they stop that, we are done. They are self-sufficient. -- and we're able to supply that market. We proved that. The difference between me and the rest is that I have very little patience to keep repeating the same thing time and time and time and time again. I have repeated enough the normal open.

By the way, Cleveland-Cliffs [indiscernible] Stelco in Canada has a much bigger influence than Cleveland-Cliffs into United States, and we have a lot of influence here. So you should expect good things because I believe there are some politicians in Canada within the government that are waking up and seeing light. And I have a lot of hope in my friends cabinet members of the Carney government. Let's see how Prime Minister Carney will react. He's not a central banker anymore. I don't like central bankers, but now he's a Prime Minister. So time to step up and do what's necessary for Canada. That's what I expect there. I don't know if I answer your question properly also. Are you okay with that?

That was fantastic.

The next question is from the line of Phil Gibbs with KeyBanc Capital Markets.

Lorenzo, can you talk a little bit about automotive volumes the second quarter and how they developed relative to maybe Q1 or the late stages of 2024 where I know the volumes were under pressure.

Actually, if you -- it's the opposite. The volumes are growing. We are seeing all the OEMs producing more cars, announcing more moves into the U.S. stopping importing steel from Asia to feed their plants in Mexico while they are moving the plants from Mexico to the United States. But in the meantime, instead of buying steel from Asia, they are buying still from the United States. We are starting to supply Mexico from the United States with a promise that we are going to supply then here as they grow the production of some models in the United States. We are seeing several announcements of models that used to be built in other places, being moved back to the United States. The biggest example is one of the OEMs used to producing tire cars in South Korea. And important to the United States. And now they have already discontinued the practice and they will start producing the model here in the United States. So as we move into second half, things will be more visible next year will be even more visible. It takes time, but it's already happening and the numbers will start to show.

Thanks, Lourenco. I meant last year, they were under pressure. I meant the recovery happening now. Just curious on the level in terms of how much more you guys can think you can grow that mix looking ahead?

We can grow a lot. I will not give you a number, first because I don't have it, and I don't want to give an inaccurate number. But second, because -- it all depends on how fast these folks will start producing cars. We are seeing even some OEMs that don't really produce a lot of cars here in the United States plan to produce the totality of what they sell in this market in the United States. So I think this will be one of the biggest accomplishments of the Trump administration when we look back in than 4 -- 3 or 4 years into the future. It will be the resurgence of automotive production in the United States. And of course, Cleveland-Cliffs is the only one that's really equipped to support this growth as we speak. Of course, everybody can build as many plants as they want. It's so easy to build, as you know, to build a blast furnace and BOF in this country and so fast. So we should expect that to happen in the next 24 hours. But in the meantime, we are done, we have it. We have the facilities. We have the finishing capabilities. We have all these labs properly approved with the OEMs. So one of our competitors will not have the labs approved very soon, as you know, can to get rid of that lab contract, that was the last thing that I negotiated when I acquired the assets of ArceloMittal, USA. I'm glad I did for only 5 years. So in the 5 years are coming to an end December 9, 2025 at 11:59 p.m. I think I gave you as much color on volume as I could at this point of view.

Arena follow-up for Celso, how much of your overall business is on quarterly, I think I got the rest of the calculations you provided.

Yes. No problem, Phil. It's 5% CRU quarter lagged.

Next questions are from the line of Martin Englert with Seaport Research Partners.

One appreciate the time. On the coke contracts, the June contract that ended was with [indiscernible] for 550,000 tons. And then is the December ending contract was ever for [indiscernible] Is that correct? .

Yes. That's correct. Martin.

Do you have roughly like around the $70 per ton benefit when you produce internal coke versus having to buy external on contract? Or do you have any goal posts for a range on what that benefit looks like?

No, it's bigger than that. North of $100.

Okay. I appreciate it. One quick follow-up. Are you seeing -- you mentioned winning some business in autos in Mexico for contracts? Are you seeing anything in the appliance market outside of the United States because of downstream 232 duties, meaning if they use U.S. steel, then they don't get hit with the duty when importing the appliance.

Yes. It's a different dynamics in the 2 of them. What I was talking about Mexico is that some facilities in Mexico were designed to be the dumping ground of transshipment from places like Korea and Japan and others. So that practice is no longer acceptable. So there's 2 suppliers that used to be the supplier for these facilities in Mexico are now buying in the United States. And that's where we are seeing opportunity in Mexico. We are not super excited about because this is a temporary thing. Don't forget, these plants are not supposed to be in Mexico as opposed to be in the United States. But for now, it's better to sell there instead of allowing steel from Japan to land in Mexico and then the part comes to the United States to fairly compete with our markets. So that was not the spirit of the USMCA, and we are just bringing back what was in paper and people by -- through pushing the envelope, I started toeing the line and then cross the line. So we are fixing that. That's the dynamics with Mexico and the United States.

As far as appliances, actually, we were able to include appliances in Section 232 as well. And that did for appliances exactly what it's doing for automotive. So they are -- the big ones are starting to produce appliances in the United States again. And that's also coherent with the goals that President Trump put in place, and he is following to what he said he would do. So we are seeing more appliance production in the United States we will see more appliances production in the United States, and that will be good not just for Cliffs, so will be good for everybody that produces steel here in the United States.

So broadly speaking, it sounds like when you think about the total market size of fixed annual contracts that there will be a bigger market to participate in looking forward in the coming quarters and the coming year with some of that coming back and also winning business out of the border, correct?

Yes, absolutely. That's a fair state it's a fair conclusion.

Okay. Any considerations when we think about winning more auto market share in fixed contracts in Mexico on mix or that structure there with the contracts are roughly comparable to what you participate in, in the United States.

Very comparable. Very comparable. And the only big difference at this point is freight. -- but freight is negotiable and each case is a different case, and we are negotiating accordingly.

Okay. Appreciate it. And congratulations on the cost performance in the quarter.

Thank you, Martin. Appreciate the questions and good luck at support and know that we are assuming the bit.

Next question is from the line of Alex Hacking with Citi.

Yes. I just have 1 question. Lourenco, in your comments -- you mentioned that foreign investment in Cliffs could be an attractive opportunity. There's a lot of potential range in foreign investment right from minority stakes and assets to buying the whole company. Could you maybe give more color on what kind of transactions that you would potentially explore?

Yes. Look, we are an asset-rich company. And we believe that we are still undervalued at this point that the sum of the parts is a lot more valuable than the company as it trades in the stock exchange. So we are open, and we are at this point in active conversations on a number of noncore assets that could be generating billions of dollars in cash inflow that will be used to pay down debt. Everything else is possible and including carve-outs in our footprint, and then I'm talking about core assets. But of course, I'm not going to speculate, but we are entertaining a lot of inbound interest from different credible potential suite for endeavors that we might or might not take going forward.

Next question is from the line of Carlos De Alba with Morgan Stanley.

So on the cost guidance, sorry, on the cost performance in the quarter, obviously, was better than much better than expected. -- yet the guidance for the year remain at $50 year-on-year decline. Is there -- is this a conservative outlook? And could you potentially perhaps potentially perform better than the $50 decline just in line with what you did in the quarter?

Yes. Carlos, it's Celso. Yes, look, we wanted to be conservative -- and as I stated earlier, we were able to deliver a quarter-over-quarter cost reduction when we initially had an expectation to go up. So some of that has been pulled forward. So that's why we're keeping the same guidance for the full year. But I think there -- your point is a fair point. I think there are opportunities for us to exceed our own expectations, things like scrap and pig iron tariffs are going to have an impact on the market. We have the coal and coke opportunities that we talked about. We're running our mills more full, more efficiently. So all those things could provide tailwinds beyond what we've guided, but we wanted to be conservative and kept the overall guidance for the year flat.

Fair enough. And then -- can you -- like what happened at the end with [indiscernible] Cleveland Cliffs #6. Can you confirm that the urban was idle? Any updates there would be great.

Yes. Cleveland 6 is up and running, and the bone is going down. So we're replacing 1 with the other. That's pretty much it. There's no change. I'm not sure if I understood your

Just wanted to confirm that, Lourenco. So very clear. And then if I may, finally, can you provide any further color on the noncore assets that potentially you could sell?

Yes, they are black, some are blue, some are yellow. That's the color I can give to you.

At this time, I'll turn the floor back to management for closing remarks.

Thank you, everyone. I appreciate talking to you. Have a good day.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.