CLEVELAND-CLIFFS INC. Q1 FY2025 earnings call

Lourenco's Remarks

• First quarter results were unacceptable due to underperforming non-core assets and lagged impact of low steel prices. Implemented Section 232 tariffs are necessary. Addressed three issues: underperformance in automotive end markets, loss-making non-core operations, and disadvantageous slab supply contract with ArcelorMittal/Nippon Steel Calvert.
• For automotive, Cliffs is positioned to benefit from reshoring efforts, with expectations of $250M to $500M annual EBITDA benefit from automotive by late 2025/2026.
• Idled loss-making operations: Minorca and Hibbing Taconite mines, Dearborn Hot End, Steelton, Conshohocken, and Riverdale, aiming for $300M+ annual savings.
• Slab supply contract with ArcelorMittal set to expire in 2025, expecting ~$500M annualized EBITDA benefit in 2026.
• Stelco acquisition repositioned to serve Canadian market, freeing US mills for more business.
• DOE-supported projects at Middletown and Butler: Middletown scope likely altered, Butler project remains accretive.

Celso's Remarks

• Q1 reflected lagged pricing and non-core asset underperformance. Expect EBITDA improvement in second half of 2025 and reset higher in 2026. Reduced 2025 CapEx to $625M and SG&A to $600M. Liquidity remains healthy with ~$3B available liquidity and $3.3B secured capacity. Interest in asset divestitures due to unsolicited inbound offers.

In the first quarter, Cleveland-Cliffs reported an adjusted EBITDA loss of $174 million. Total shipments were 4.14 million tons, consistent with guidance. Q1 price realization was $980 per net ton, slightly improved from Q4 but still affected by lower realizations in plate and cold roll. The inclusion of Stelco helped manage weighted average unit costs, but underperformance of non-core assets led to a $15 per ton increase in unit costs.

• Reduced 2025 CapEx from $700M to $625M and SG&A from $625M to $600M.
• Expect EBITDA improvement in second half of 2025 due to improved pricing and idling of loss-making assets, with full impact felt in 2026.
• Anticipate significant CapEx reductions in 2026 and beyond as DOE project negotiations progress.
• For every $100 increase in HRC price, yearly revenue increases ~$1B, with impact flowing to EBITDA.

• Unfairly priced foreign steel competition despite Section 232 tariffs, affecting domestic steel pricing.
• Disruptions in DOE-supported projects due to policy changes.
• EAF mini mills not facing same tariff rules as other importers, creating an uneven playing field.
• Uncertainty in automotive production reshoring progress and its impact on steel demand.

Q: About the $300 million savings timing and additional actions.

A: Celso said savings start materializing in the second half of 2025, with details on specific assets contributing, like ~$125M from Cleveland-Dearborn switch and ~$90M-$100M from Riverdale fixed costs.

Q: Impact of steel tariffs on Stelco synergies.

A: Lourenco said Section 232 tariffs consolidate existing strategy, no change in game plan for Stelco in Canada, though broader Canada tariffs impacted clients temporarily but are temporary.

Q: Quarterly bridge of ASP and cost.

A: Celso said cost should be up ~$5 per ton from Q1 to Q2, but ASP should be up ~$40 per ton, driven by better lag contracts and spot pricing.

Q: Asset sales, debt covenants, magnitude.

A: Celso said covenants are springing, unsolicited inbound interest in non-core assets, with cash from sales used for debt reduction, and potential value from sales in several billion dollars.

Q: Weirton project and GOES demand.

A: Lourenco said GOES demand is strong, Weirton location is sacred for Cliffs, partner may build plant elsewhere but Cliffs will supply grain-oriented electrical steels.

Q: Exit costs and CapEx for blast furnace relines.

A: Celso said near-term cash charges related to idles are minimal, with non-cash charges in Q2, and blast furnace relines to continue with next one in 2027.

Q: DOE projects CapEx and Section 232 impact.

A: Celso said DOE projects CapEx will be lower, Lourenco discussed aggressive foreign steel imports despite Section 232 tariffs, citing examples like Vietnam and Japan dumping steel.