Lourenco Goncalves - Chairman of the Board, President, CEO, Principal Executive Officer Kelly Tompkins - Chief Financial Officer, Executive Vice President.

Aldo Mazzaferro - Macquarie Michael Gambardella - JPMorgan Kevin Cohen - Imperial Capital Brian Yu - Citi Nathan Littlewood - Credit Suisse Jeremy Sussman - Clarkson Jorge Beristain - Deutsche Bank Evan Kurtz - Morgan Stanley Timna Tanners - Bank of America Gordon Johnson - Wolfe Research.

Good morning, ladies and gentlemen. My name is Shannon, and I am your conference facilitator today. I would like to welcome everyone to the Cliffs Natural Resources 2015 First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

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

Thanks, Shannon. Thanks to everyone for joining us this morning. Before we start, I would like to introduce our new Executive Vice President and Chief Financial Officer, Kelly Tompkins. Many of the participants on the call today already know Kelly from Cliffs or from his previous experience as CFO of another publicly traded company.

Since my first day at Cliffs, Kelly has been my most valuable player and second in command.

With Kelly's moved to the CFO spot, Cliffs missed move to Kelly's previous position as Head of Business Development and the reduction of one executive level position in our organization charge, I feel very comfortable, we have the right players in the right positions to execute our USIO-centric strategy.

With that, I will now turn it over to Kelly Tompkins for the financial overview portion of today's call..

Thank you, Lourenco, and thanks to everyone for joining us on this morning's call. As I take the helm as Cliffs' CFO, I do so very mindful of the challenges ahead of us.

Cliffs has show resiliency throughout its long history and now that we are strategically focused and fully aligned our financial and operating priorities, I am very confident we will manage through the current cycle.

With that, let me remind 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 Forms 10-K and 10-Q and news releases filed with the SEC, which are available on our website. Today’s conference call is also available and being broadcast at cliffsnaturalresources.com.

At the conclusion of the call, it will be archived on the website and available for replay. We will also discuss our results excluding certain special items, reconciliation for Reg-G purposes can be found in our earnings release, which was published after market yesterday.

In addition, to briefly reviewing the results of our first quarter financial performance, I will briefly recap our recently completed refinancing efforts. Beginning with the first quarter results, including coal, we achieved revenue of $574 million and adjusted EBITDA of $94 million.

Despite significant decreases in pricing for iron ore, steel and metallurgical coal, we were able to generate positive EBITDA from all of our businesses.

In the face of a tough macro environment, we have and will continue to respond aggressively by taking cost out of the business, methodically allocating capital, aligning corporate overhead with the changing of our business and pushing to further reduce expenses wherever possible.

Across all three of our reporting business segments, we achieved strong results for the quarter. In USIO, we generated $105 million of adjusted EBITDA. During the quarter, the USIO business achieved a realized price of $93 per ton.

As expected, the blast furnace pallets we produce and deliver to our domestic clients and our long-term customer contracts continue to provide us with pricing stability in an otherwise volatile global iron ore market with a spot price for sinter feeds that recently hit 10-year lows.

Also as a point of clarification, it was also noted in last year's first quarter in both, Q1 of this year and last year, our cash production costs were higher than our cash costs of goods sold. This is primarily due to inventory effects.

Because our production costs are typically higher in Q1 due to seasonality, the product that we sell is at a lower cost than what we currently are producing at and that difference comes through in a non-cash production line as inventory effects. This amount should return to positive levels as we progress in the second half of the year.

Asia-Pacific iron ore, we were able to generate $6 million of adjusted EBITDA even with the extremely depressed seaborne pricing environment and a much lower realized pricing in the quarter of $43 per ton, APIO was still profitable in Q1.

As seaborne iron or pricing has declined sales margins at APIO has tightened which will have and continue to address with a relentless push to cut costs.

Given the updated costs guidance that we provided last night, our objective will continue to be keeping this asset cash flow positive in what will likely be a depressed near-term pricing environment.

Finally, our North American coal business outperformed in the first quarter reporting $6 million in adjusted EBITDA, this is a direct consequence of a very successful cost-cutting plan implemented in our coal mines as well as the execution by our commercial team to sell the low vol.

met coal produced in both Pinnacle and Oak Grove for the best prices we can get taking advantage of the highest quality of our product.

Nevertheless, North America coal's realized price of $71 per ton shows that met coal prices remain under pressure which means cost discipline must remain a priority, so we continue achieving our EBITDA neutral objective for these operations.

Let me remind everyone that while we reported coal in our earnings release, the business is now considered from an accounting standpoint to be non-core, non-strategic in an asset the company expects to sell.

Accordingly, all current and historical North America coal operating segment results are now included in the company's financial statements, but classified within discontinued operations. In effect, going forward, our coal group's financial results will be reflected in the discontinued operations' line of the P&L.

That said; let me be very clear that we are not shutting down these operations. We will continue operating these mines throughout the sale process, which is well underway.

Let us now turn to our capital expenditures and SG&A expenses during the first quarter, including our coal operations, capital spending dropped to $16 million for this quarter, an 85% reduction when compared to last year's first quarter.

Looking ahead, we are further reducing our capital expenditure budge range to $125 million, representing a $25 million reduction from our previous guidance. Our first quarter SG&A expenses were $29 million, down 22% from the prior year first quarter expense of $38 million.

We continue to reduce staffing, minimize the use of outside services and consolidate office space at our corporate headquarters. During the first quarter, we further reduced our corporate headcount by 25%. Our peak headcount for the corporate office was 338 people; we are now operating with 139 people at our corporate office.

Our updated SG&A outlook for 2015 is now $120 million, down from our previous expectation of $140 million. We will continue to adjust our overall SG&A expense to make sure it matches our U.S. iron ore strategy and operating footprint. A significant undertaking during the first quarter was the successful refinancing of the company.

We established three overarching goals for the refinancing.

First, we wanted to capture available market discounts on our various bonds to reduce our net debt by capturing some of the discount on our bonds with secured note exchange offers, we were able to reduce our net debt by $130 million, well above our original expectation when we launched the exchange.

This discount capture from the exchange offers in addition to the $70 million of discount that we captured through open market repurchases executed during December and January, gave us a total of over $200 million in proceeds from debt extinguishment in a four-month period.

At the end of the quarter, we had net debt of $2.5 million compared to $2.9 million of net debt at the end of the first quarter of 2014.

The results of these debt reduction efforts are reflected on the balance sheet, and as we transition out of the cash consuming season for our USIO business, we expect to continue to reduce our net debt by increasing available cash balances.

Our second goal is to remove the owners' financial covenants previously tied to our old revolving credit facility by replacing it with the new asset-based lending facility, because ABL was substantially on our borrowing base of working capital, the size of the facility is smaller than the size of our previous revolver.

That said, our larger revolver geared to a far different irrelevant growth strategy in the past burdened with restrictive covenants is not as valuable as a flexible ABL that we can more readily access to enhance our available cash.

The benefit of eliminating the revolver-based covenants, which were major source of unneeded management distraction for the last two years was a key accomplishment.

At the end of the first quarter and as of today, we have nothing drawn on the ADL facility, despite the first and second quarter challenges from a liquidity perspective due to the seasonality of our US iron ore business.

As the seasonal Great Lakes freeze comes to an end, cash receipts will be stronger and intend to manage the business for the remainder of the year without tapping our ABL. Finally, our third goal is to complement our ABL-based liquidity by putting additional cash on the balance sheet.

Despite a very difficult debt market for the mining industry, we successfully completed a first lien note offering that netted us nearly $500 million in cash.

With this new cash on our balance sheet, we have not needed to draw on the ABL even with about $240 million of net working capital usage in the first quarter when there were essentially no shipments on the Great Lakes.

With this three-step refinancing completed and the beginning of the Great Lakes shipping season a pause, we are very comfortable with our current liquidity position, but we will continue to monitor it closely as industry conditions dictate.

As Cliffs' CFO, I can assure you my eye will be looking forward to next winter when cash flows are naturally tight and preserving liquidity is a must. With that, I will turn the call back over to Lourenco for his prepared remarks..

Thanks, Kelly, and thanks to everyone joining the call this morning. Since we took office in August last year and implemented a new USIO-centered strategy, we have been executing with discipline and making progress on all fronts. Among the several steps taken, the most relevant one was the CCAA filing by the Bloom Lake Group.

Had we not stopped the bleeding at Bloom Lake, this Q1 conference call would certainly be a lot different. The CCAA process has so far developed very smooth and even predictable way.

All of the expected disagreements, lawsuits, drags of lawsuits and general statements from creditors of the Bloom Lake entities are being addressed within the scope of the process under the supervision of the monitor and ultimately subject to the power of the court. The main highlights of this CCAA process are the following.

Claims from the creditors of the Bloom Lake entities have been staged as part of the court process. Unfavorable contracts, including the take or pay rail contract have been disclaimed. The sale of assets has been approved by the court and the process is well underway.

The Bloom Lake Group currently has a cash balance of about $45 million and their average expected outflow per week is only a little over $1 million.

Additionally, with the stay period going through the end of July, and with the majority of the proceeds of the recently announced sale of the Chromite assets going to fund the CCAA process, we maintain our expectation that no additional finance will be needed.

Last, but not least, we confirm our previous statement that we do not anticipate any Cliffs' exposure to the Bloom Lake creditors throughout the entire CCAA process. Our liability exposure number for such creditors, which was estimated to be $650 million to $700 million pre-CCAA is indeed a zero.

Kelly and I will be more than happy to clarify any questions you still have regarding CCAA. Moving to our USIO business, we achieved a 38% EBITDA margin in the first quarter, driven by contract structure and a value-added product that we sell. Our pallet business in the U.S. continues to prove its reliable profitability.

Despite the irrationality low prices imposed by two Australian majors to the seaborne trade of iron ore finds our USIO business realized price of $93 per ton in the first quarter. Now, why is that? First, we sell custom made blast furnace-ready pallets, not sinter feed fines.

Second, due to the lack of existence of sintering plants available in the United States and obvious environmental restrictions, sinter feed fines cannot be sold in the U.S. market. Third, Cliffs has in place and in full force long-term contracts that substantially protect us from pricing volatility.

None of this contracts will expire in the next seven quarters and we expect to renew the two contracts expiring in December 2016 and January 2017 with good terms for both, Cliffs and the client, and way ahead of expiration date, in what is always a cost heavy quarter due to weather conditions and increased major maintenance spend, we saw USIO Q1 cash production costs decrease 20% $65 per ton compared to $80 per ton in last year's first quarter.

Also important, CapEx spend in the USIO during the quarter was only $8 million. Going forward, we have revised our 2015 sales tonnage guidance to 20.5 million tons from 22 million tons originally and adjust our production accordingly.

Even though this seasonally prove itself too conservative, in light of recent news surrounding other Great Lakes pallet producers and also because we expect a stronger still business for our clients in the second half of the year, we believe it is prudent to adopt our cautious attitude at this time.

Despite the reduction in production tonnage, we are aggressively managing costs and are maintaining our previously guided cost expectations. Holding costs with lower volumes is always difficult, but just as the sales margins on our contracts are not all equal, all production tonnage is not create either.

We have the ability to idle some higher cost reduction that we will offset some of the lost fixed cost leverage. We also continue to optimize our operating and maintenance practices as well as further reducing manpower and driving cost out of or three main energy components, electricity, natural gas and diesel fuel.

In sum, our USIO team under Terry Fedor's leadership is comprised of accomplished group of very experienced general managers and operators and they have succeeded on every challenge I have given them so far. I have full confidence that this one will be no different.

Again, as we maintain our unit cost guidance with the overall better customer mix from our remaining U.S. sales tons, and other cost reduction initiatives, we expect a neutral to positive impact of this production reduction on our profitability.

As unfairly traded imports ultimately solidified [ph] and the steel production normalize for our clients, we will bring back our pallet production and adjust our sales volume guidance accordingly.

Separately and very importantly, we continue to develop various entry options for the electric arc furnace market, near-term we are we are focused on securing a trial order for DR pallets to confirm under actual operating conditions what we have already demonstrated in a smaller best price.

As a market leader in value-added iron ore pallets, these will open up a new opportunity for us to diversify our product mix and add new customers to USIO beyond the traditional blast furnace clienteles. Now, let's discuss our Asia-Pacific iron ore business.

In the first quarter, we reported cash production costs of $37 per ton, a 28% reduction from last year's first quarter and a 14% sequential reduction from Q4 2014. Since I started with Cliffs, the APIO business achieved cash production cost per ton of $53 per ton in Q3, $43 in Q4 and $37 in Q1.

With our very limited CapEx requirements of less than $1 per ton through the rest of APIO's mine life. We believe, we have been operating in the same breakeven zip code as the two Australian majors, when we add there very little cash cost to their very high CapEx needs.

As one of the two Australian majors has already demonstrated with the recently announced postponement of a big CapEx investment, the two Australian majors we will have to make a decision in the next few quarters, give up their massive CapEx deployment due to lack of funds or allow our ore prices to increase in order to generate the funds they need for CapEx deployment while how price the products is a difficult decision made by management the deployment of billions of dollars is a board decision and board members are usually cautious about the decisions they make and the consequence of those decisions.

In the long run, when real metrics come back to play like return on invested capital or return on assets, the story can be a lot different, especially in a country like Australia, which is so dependent on how well or how badly the natural resources are taking care of.

If I were a board member of either one of two Australian iron ore majors, I would really think hard a lot more about the consequence of what they have been enabling their respective companies to do so far and how they will proceed going forward. Similarly, the Brazilian major Vale, will have to make the same decision as its two Australian peers.

If iron ore prices do not increase, it may not have the money for its multibillion-dollar, 90 million ton per year expansion.

In sum, none of the three majors can continue to support their massive CapEx needs without allowing iron ore price to increase and if they still decide to keep iron ore prices artificially low as they had been doing so far, they are advertized massive capacity increases will not materialize due to insufficient cash flow generation.

In the meantime, Cliffs continues to optimize the APIO operation and we continue to improve our cost position. One of the products we are implementing the right now is the idling of one of our three pits. Our Koolyanobbing mine in Australia formally operated out of three pits, Koolyanobbing, Mount Jackson and Windarling.

Because Windarling is higher Street rater and thus higher costs status in the portfolio, mining out of this pit has been discontinued and the operation is now concentrated on the remaining two pits Kooly and Mount Jackson. This will deliver us further savings on resources and has already led to a nearly 20% reduction on our fly-in fly-out workforce.

In addition, we have completely eliminated all exploration activity. We are confident that these actions will maintain Cliffs APIO as an EBITDA generator and as a free cash flow generator, not even considering any additional benefit we may see from the always helpful Australian dollar exchange rates.

Finally, let us discuss our North American coal business. As Kelly noted earlier, we will continue to operate the business during the sales process, but due to the accounting treatment as an asset held for sale, this will be the last quarter that we will be reporting and commenting on coal as a business segment.

In the fourth quarter, North American coal achieved $6 million of EBITDA, which is a lot better than our EBITDA-neutral goal. Our operational team under Dave Webb's leadership continues to deliver impressive cost cutting results quarter-over-quarter. Until our sales finalize, we will continue to do all we can to operate safely and profitably.

At this time, I would like to commend that North American coal operational and commercial team for all their exceptional efforts in doing whatever it takes to keep this business achieving remarkable results to the point of attracting the interest of potential buyers.

In conclusion, we are focused on executing our strategic plan, which will enable Cliffs to weather the current business climate and emerge from the cycle as a stronger company. I continue to be impressed by the team's ability to deliver year-over-year cost savings during a challenging business environment.

Looking ahead, we will continue to be focused on cost cutting, asset optimization, debt reduction and the sale of non-core assets as well as the conclusion of the CCAA process in Canada. We have really covered a lot on this call already, and Kelly and I very much look forward to answering any questions you may have.

With that I will turn it over to the operator to direct the Q&A part of the call. Shannon..

Thank you. [Operator Instructions] Your first question comes from the line of Michael Gambardella of JPMorgan. Your line is now open..

Yes. Good morning, Lourenco..

Good morning, Michael..

I just want to say before I ask my question, I guess, I wanted to say congratulations on all the hard work in making all these tough decisions that are under your control.

I know there is a lot of uncontrollable factors that have been going against you, but I applaud you for all your efforts to cut costs, make the hard decisions like up in Canada and so forth, so congratulations and great work so far..

Thank you very much. Appreciate your kind words..

My question is you know with the seaborne price plummeting for the last year or so, the silver lining I think of lower seaborne prices, is that you know a number of people were projecting that there would be increases in U.S.

iron ore capacity to compete against you and I would think with these low prices that all of those people are fallen by the wayside whether it is US Steel, Essar now Magnetation, which looks like may seize operation, soon. With that elimination of supply that some people had expected AK Steel may need some more iron ore for their U.S.

operations, ArcelorMittal, who had expected to get some material from Essar may need more and more iron ore from, because the alternative as everyone knows - display is just cost prohibitive with $30 per ton freight rate on a $55 product.

When you are approaching some of these contracts that are coming up at the end of next year how do you balance trying to get a better price because you know the premium that these people have to pay to go through the same St. Lawrence Seaway, and keeping them somewhat happy..

Again, thanks for your great comments and I appreciate your support and encouragement. Michael, believe or not, we have a lot more control over things that people say they do not control. You gave me a lot of things here to work with. To answer your question about the context, but me start bringing back things to the right size.

People talk a lot about the world being flooded with iron ore. That is a true statement that at this point, but the biggest problem for iron ore price at this point is not even the fact that the world is being flooded with iron ore.

It is the fact that the market and the press and the investors are being flooded with that information about the expansion plan of three companies and these three companies are Rio Tinto, BHP and Vale.

The current prices of iron ore fine sinter feed in the seaborne market are being depressed at this point not by the fact that these guys produce a lot of iron ore sinter feed, but by the fact that they are saying that they will produce a lot more, so we will have for example just to give you a good number, easy one to understand, you have Vale saying, we produced 310 million tons a year, but I am going to 460, so that is another 40 SKU on top of what they have right now.

You have currently Rio Tinto producing something like 250 billion tons, but saying that they are going to produce 360. That is two Roy Hills on top of the existing production.

You have Roy Hill producing nothing, because Roy Hill - they are just the landlord of Rio Tinto, but saying that starting September, we are going we are going to add 55 billion tons to the trade, so these news are the ones that are destroying the future view of iron ore sinter feed fines in the world, but we have to see this thing in the contest of how these things are being played.

Especially, Rio Tinto and BHP more Rio Tinto than BHP, they are playing the game of scaring everybody else, and some people are getting really scared, some others are not. Some others are acting.

I put myself in Cliffs, in the side of the one that take these things as face value that's it is what it is, so this important marketing is doomed, is cursed a place not to be in. I can't wait to get out of Australia.

That is the bottom-line, because I already shutdown completely in Canada and soon as soon as I get to the end of life of mine in Australia, I am out of here. Now by shutting down Windarling, I am going to expedite that by a year, so instead of four-and-a-half years and three-and-a-half years of life of mine left in Australia.

I can't wait to get out of this important trade and let the Australians take that horrible business on their own hands. Another point to consider is that there is not enough CapEx for these guys to do what they are doing other than current cash flow generation.

I really would like to see analysis on that, where is the money coming from for the massive deployment that's necessary for BHP, Rio Tinto and Vale. Serra Sul, the S11D project alone, we are talking of something like $20 billion. The do not have that money, period, full stop. They are scrambling to make [ph] right now at Vale.

I am a Brazilian guy as you know. I know what's going on there, a lot more than they believe, so they can talk a good gain, but the reality is completely different.

Long story short these big projects are not coming, when the rubber meets the road, you are going to see a lot more of this BHP decisions of postponing the debottlenecking project and this and that just to say $600 million, now these are millions, so they are starting to counting the money. That is a good thing.

How long it will take for everyone to perceive the game, I do not know. I am in the business of clarifying that as much as I can, because it is affecting me. I could care less about that, but it is affecting Cliffs. We are having to reduce our footprint in Australia, because of that.

I know that the Western Australian government is not happy with the way they are handling their natural resources over there, so there is a lot going on and a lot can change between now and then in next year for example. As far as the United States, look, US Steel, you mentioned the US Steel. I have never seen US Steel as a competitor.

US Steel is steel maker, they are integrated backwards and they have upstream pallet production. They produce a good product. US Steel has been affected by on fairly trade the imports of United States. I hope this thing subsides and US Steel recovers their business and goes back to produce pallets in Minnesota, they are big player in the region.

We look forward to see US Steel coming back at full force and full capacity. They are not a competitor of Cliffs Natural Resources. I do understand AK Steel's investment in Magnetation. They were left by the old Cliffs' management and board unattended. They were left under rain.

When they needed Cliffs badly, Cliffs turned their back to AK Steel and put there and ignore saying, my growth strategy is all about growing the seaborne market.

I do not care about the United States, I do not care about AK Steel, so I even understand not only their investment with Magnetation, especially those crazy high iron ore prices of the time, but I even understand their reluctance in coming back to Cliffs and develop a solution together.

They know that we will be here when they need us if they need us when they need us. If they never come back, I have a plan to take care of cliffs without growing the business with integrated mills.

I came to the Cliffs and we [ph] entire board with the support of their shareholders because we had a plan to growth this business to what is the funds [ph] business. The funds in this country is 60% of steel production integrated is only 40%, so we are just tapering to the smaller portion of the business. I am going to the bigger portion.

I am going to the late cut [ph] funds business. We are going to produce DI pallets depending on how the deal pallets things span out, we may also pursue the production of DRI.

We are working very closely with the state of Minnesota to put in place their first facility in the state of Minnesota to supply the Midwest mini mills with DI pallets, so we are not sitting still here. We are not just cutting costs, we are not just reducing the size of the footprint. We have a strategy, we have a plan. We are implementing the plan.

How long it will take for us to receive recognition, I do not know. What I know is that, why we do not get recognition, why board holders trade my bond at a discount, I will be there to grab that discount and reduce our net debt.

Why our shareholders are not given any credit in the stock price, I will be always ready to use any cash available that I have to buy back stock and we will continue to pursue every single point in our strategic plan one-by-one, we are not going to be derailed.

My biggest surprise when I got to Cliffs is that this company has a very, very strong management team. It is amazing how badly the board was handling this company. This has been fixed. It was fixed nine months ago since then we have been working hard and we will continue to work. I hope I answered your question.

Do not talk about the stock, because I do not talk about Essar Minnesota, because I do not talk about stocks that do not exist. I only talk about reality.

Any other question Michael?.

No. That is good. Thank you Lourenco for that..

Thanks a lot. Appreciate it..

Your next question comes from the line of Aldo Mazzaferro of Macquarie. Your line is now open..

Good morning, Lourenco and Kelly..

Good morning, Aldo..

Good morning..

Yes. I had two separate questions. First, if could just about DRI for a second, Lourenco. If you had your success in penetrating that market, would you be able to supply at all out of the U.S.

iron ore mining or would you need to expand your mines a little bit?.

Actually, we have a plan here that works supplying DRI out of U.S. iron ore and working out of only four mines instead of five, so we cannot only supply from the USIO, but we can also optimize the footprint in order to further reduce costs while we are doing that..

In your plan going forward, how much volume do you think you would be mining then compared to the $21 million or $22 million you do today? Would it be much higher, a few million tons higher or would it be roughly the same, you think?.

Look, it is very premature to say that, because we do not have enough discussion with the potential buyers of DRI to know the depth of their needs, but you know when we start digging, you will find interesting stuff.

For example, one company that already buys HBI, we are talking about the same thing, HBI in the international market, and I do not know but I believe I would have a serious chance to supply would be case field, because as far as I know, they buy from Venezuela, and Venezuela is not a reliable supplier of absolutely anything.

AK Steel has integrated, they do have funds, so there is a lot of potential, a lot potential so we may be talking initial moment about let us say 5 million tons, but this 5 can become 10 very quickly. Our target of 10 million tons in three years is the 10 million tons of DRI supply is not a crazy, is not impossible..

I like the idea, Lourenco, of the merchants' facility as a very novel idea, but I had a second question too just on your pricing trend. The $93 a ton was very impressive in the first quarter and I am wondering there must be somewhat of a lag effect on what the IODEX is doing in future quarters.

Could you say roughly if iron ore prices were to say bottom out around year, would you think that your selling price stays around the 90 or 85 or so as you get through the middle of the year? What do you think the price outlook would be on in a flat IODEX environment?.

Look, we give in our press release, we give that guidance on the price, so I would refer you to the table that we provided in the press release yesterday, so that is a good guidance.

The fact that will go up 93 in Q1 is just because of the things are not as square as they look on paper, some contracts had lagged, some contracts had carryovers, some of our clients did not take all the tonnage of 2014 contracts and then we got a carryover in Q1, so not that they are ahead of the gain, so it is a mix of a bunch of things, but a good middle of the road guidance is the table that we provided in our press yesterday..

Okay. Thank you.

Any update on the timing of a coal sale?.

We are getting a lot closer than we were last quarter. That's the reason we moved coal to the category of assets held for sale, so we are getting close. We are not done yet, we are negotiating with the multiple buyers at this point.

There is no assurance that any of one we will close before some other analysts say that my credibility is check because I am saying that I will sell coal, so for the record there is no assurance that I will sell coal, but also there is no assurance that you that say that will be alive tomorrow.

You can buy tonight, so nobody knows the future, so we believe we are going to sell. We do believe we are going to sell as we sold Logan County, so we are working. Stay tuned..

Right. Thanks very much Lourenco..

Thank you for being the only research analyst with a buy recommendation on my stock. If there is lot to know history of a CEO, and you know me for close to 17 years now, so I appreciate the vote of confidence on what we are doing here..

It is all you..

Thank you..

Your next question comes from the line of Kevin Cohen of Imperial Capital. Your line is now open..

Good morning, and thanks for taking the questions, very nice quarter overall. I guess, Lourenco, a couple of things. First as it relates to the Mittal contract renewals that you alluded to. You mentioned it would likely be on good terms from the perspective of both, Cliffs and Mittal.

I am just wondering if you could elaborate a little bit on what that might mean for Cliffs, whether it is relative to the first quarter ASP or anything sort of directionally you could allude to on that?.

Thanks, Kevin. I appreciate the kind words. Regarding the two contracts with ArcelorMittal, we are talking about total of close to 10 million tons of pallets. In theory, everything is possible. Everything is possible, though contract cannot be renewed, so we do not have a contract after December 2016.

The contract can be partially renewed, so just half of the tonnage, then the other tonnage will come from somewhere else for some other supply or we can renew the entire contract. We have been supplying this news that are covered by this contract for several decades.

Let's face it, so there is a history for first glitter in Cliffs and the news under denominations. Now, there is a long history between Cliffs Natural Resources and ArcelorMittal, we are partners at [indiscernible]. We own [ph] together among other mines, so we know each other costs extremely well.

We know each other products extremely well, we know how the performance of the pallets go in blast furnace A, B, C, D, E, F, G, we know everything about each other.

When I say with a high degree of conviction that we are going to renew this contract in a way that will be good for Cliffs and good for us ArcelorMittal would say, I am basing my conclusion on what's going on right now and what happened in the last several years, so there is absolutely no indication right now that anyone, including Cliffs or ArcelorMittal would say we will act in an unexpected way even because we all know that even though the world has a lot of sinter feed available, the world does not have a lot of pallets available.

Let alone here in the United States.

Here in the United States, for some years we have been living with the perspective of newcomers, but at the end of the day these newcomers have not materialized yet and as the clock ticks and time goes by the likelihood of this competition to materialize diminishes by the date, so that is pretty much what we have at this point.

I do not know what else to say. The worst case scenario for us, Kevin is that this contract does not get renewed. If this contract does not get renewed, it will be a different ball game for Cliffs Natural Resources, and certainly it will be a different life for ArcelorMittal USA as well.

I do not see at this point, none of us backing the fund on this type of outcome. That is the way I see it. Now, that is an honest assessment, there is no track on that. There is no bad feelings, it is all the way around. Actually, we feel very comfortable with the current management of ArcelorMittal USA and we believe that we worked very well together.

We have Terry Fedor, working. He is my Executive Vice President U.S. Iron Ore.

He used to work for [indiscernible] at the predecessor company of ArcelorMittal and ArcelorMittal, so we have a lot more in common and a lot more goals to pursue together helping each other than trying to take a very meeker [ph] and weightage of this more things here and there.

That is the way I see it, but again, this being said, I also understand, why ArcelorMittal, will say in the past embarked in this crazy experience with Essar Minnesota. Cliffs is the reason. Cliffs was the one that led ArcelorMittal, we [ph] down.

Cleveland Cliffs, Cliffs Natural Resources was the one that told ArcelorMittal say that they were not important. They were not the core business. They were not their main clients. They would like to pursue a different strategy to sell iron ore in this important market. I am telling them exactly the opposite.

We replace the board, the shareholders put me here, because I believe in the U.S. iron ore business.

I believe that supporting the clients in the United States is the reason why this business exists, and we are working day-by-day with ArcelorMittal USA to develop the product that will take us to the next 10 years and that is what we are doing at this point..

Then two other really quick financial questions, I know in the past, the company alluded to the desire to capture secondary market discount.

I guess, to the extent you think about where we are today, there has been a nice rally in the bonds, but how do you think about the 2018 at this point? I know that you did do an interview and did alluded to those on March 26, and just kind of where is your head out sort of on those today in the low 80s?.

Look, we continue to pursue debt reduction through liability management exercise. It is one thing that I believe that I brought to this company that I can do a very well, I have done before especially at Metals USA, we took advantage of the opportunities that leverage finance market gave us and we took advantage of that. We bought bonds at a discount.

The 2018, we will be taking care of at the right time. I have not done that. I know you have a different opinion. I respect your opinion as a very knowledgeable high yield person, but we decided not to take care of the 2018 yet, but because we are waiting for the right moment with the right transaction. It is coming. We are not going to ignore the 2018.

We will take care of those bonds..

Then a last question Lourenco, as it relates to tax receivable on the balance sheet, any update in terms of how much cash that should convert into late this year?.

I will let Kelly Tompkins reply that to you, Kevin..

Yes. Thanks..

I think Kevin you would see on the balance sheet reflected about $165 million. We would certainly expect to get that before year-end. We are pushing to get it in mid-to-late Q3, but certainly by Q4, so it is a significant component of our anticipated cash this year..

That's very helpful. Thanks and good luck as always guys..

Thank you so much..

Your next question comes from the line of Brian Yu from Citi. Your line is now open..

Thanks. Lourenco, just on the U.S. If I annualize the first-quarter production, it's coming in about 21.5 million tons. I know you have cut the numbers there.

Can you speak to one, does that mean you are going to have to slow down production? Two, does the volume part relate to customers having revised your nomination or are you taking down numbers in anticipation of that?.

Look, based on, Brian, the information and based on our decision here on the information that they have available and the input that the clients are giving to us. At this point, without putting any optimism into our forecast, I am assuming that none of the blast furnaces that are now shut down, will come back to operation.

With that, we will reduce our output accordingly, so we will be especially in Q2 and Q3, we are going to reduce production. That's for sure. As we speak right now and my guys informing the folks in Michigan, that we are going to take one mine down, so that is the consequence of the current requirements of the clients.

This being said, I do believe that they are being too conservative, but I have to act on the information that I have, so as they revise up, their intentions in terms of production, we will revise ours accordingly and we will be ready, but that's what we have so far.

Did I miss something in your question, Brian?.

No. You did answer it.

Let's say that things improve and we talked about earlier maybe AK in innings of additional tons, how quickly can you turn the volume back up?.

It's quick. We compares would be our pallet plant like ours would react as quickly as for instance steel mill, so we basically can turn on and off very quickly..

Okay.

Can I yield one more question in on reclamation?.

Please..

You called in end-of-life for Australia.

Are there any cash expenses towards the tail end of that? Then a similar question with Bloom Lake, I do not know if there was exited or not we did mention reclamation at Bloom Lake as part of CCAA, so we would that be fully covered too?.

Yes. I will let Kelly answer the reclamation question, but just a clarification based on what you wrote in your report that you said that you believe that we are going to idle APIO. We are not going to idle APIO, okay, Brian? We are going to continue to pursue the cost adding cash cost to CapEx. We are going to pursue BHP and Rio.

If they continue to go down or continue to go down, the difference is that I have no commitment to stay in Australia, and they have the full commitment to stay in Australia, so everything that they do as consequence.

Everything that we will I only do replicate what they are doing, so I would be there worse nightmare, because I know that their game plan is not to shut down Cliffs Koolyanobbing. They could care less about Cliffs' Koolyanobbing, the game plan is to shut down [ph], which they will not be able to accomplish based on what I have seen so far.

What I am saying is that I will be like that parasite that will continue to be there sucking their blood through the very end. We are not going to shutdown APIO. We continue to drive costs down, because we know how to do it, we know how to push the button. Three quarters I am here. That is exactly what I have been doing.

I will drive cost everyone will give us yes this guy knows how to drive cost down. Until everyone say that I will be relentless, so APIO is not going to shutdown. You can continue to say that, but you should know that you are wrong on that. Kelly, please..

Yes.

The other consideration relating to APIO that I alluded to and then I will comment on Bloom Lake, not only the merits of continue to run APIO given the aggressive cost reduction we have already done and we will continue to do is that it also plays into our ABL borrowing capacity as well, so that is a consideration, but absolutely, the focus is running, not idling and at the end of mine life will we will deal whatever reclamation or closure costs would be there.

Certainly, in Bloom Lake reclamation is part of the overall CCAA equation, so just considering that part of the package and liabilities that are being addressed is part of the CCAA process..

Yeah. If you have reclamation, you called end of the mine life now that the three-and-a-half years left. I know you said, just when you get there, but the time line has come in. I am just curious what that might be..

Yes. At this point, we are not in a position to provide that kind of estimate. As we get closer, you will see that kind of detail reflected in our SEC filings, but not at this point..

Okay. Thanks..

Thank you..

Your next question comes from the line of Nathan Littlewood from Credit Suisse. Your line is now open..

Thank you very much. I appreciate the opportunity, guys, and the clarification on APIO just now was certainly useful. I had a couple of questions on USIO pricing. It was my understanding that Essar Algoma had a pre-fixed price last year.

If I remember it was $114 or $117 a ton or ton or something, but they carried over some tons into the beginning of this year. If you were selling tons to Essar Algoma today that would be somewhere in the $50 at ton range, so there is a pretty big difference in the price you realize between the two.

Just wondering if you might be able to help us with what the magnitude of that was in the March quarter numbers?.

Nathan, I do not discuss pricing client-by-client.

The fact that you know our price or you believe you know our price is a matter of a serious concern for me, because this would be a violation of the confidentiality clause of the contract between Cliffs Natural Resources and Essar Algoma, and you just mentioned that you know the price, so you will eventually will be soup in the lawsuit that I am moving against Essar Algoma based on breach of confidentiality, so I am not going to discuss this subject.

What will be your next question..

No problem, fair enough, Lourenco. The other one was just on the embedded guidance. I believe that at least your public disclosure in the past has been fairly clear that the HRC price is the driver of the in line steel contracts that you have with Mittal.

Could you clarify what HRC price is embedded in the current USIO pricing guidance?.

Well, the way we talk about hot-rolled prices, the price was not linked into the any index.

They are based on the actual prices that the clients execute with their clients, so our relationship with this client, and I am not nominating any specific ones, is so open that we have access to their actual hot-rolled prices, realized prices and they are checked and included in the price going forward.

That is the way it works, so of course the indexes are illusively guidance for that, but the actual price is that they practice are much higher than the spot or the index or anything that you may use as a general number for HRC prices..

Yes.

Absolutely, and I was aware of that Lorenzo, but I guess when I look at what AK Steel and US Steel have done recently or reported recently I should say they have obviously got a lot of contracts in their order book and the analysis that we have done suggest that those guys are kind of realizing HRC prices, which might be sort of $50 or $60 above the actual spot price, so eventually the contract price of these customers are selling at is going to have to catch up to kind of spot price reality, and I am just wondering sort of what the embedded expectations are on that curve, be it, either the index price or Mittal's average realized price..

Look, the expectation that prices will continue to go back up, because my expectation is that imported steel is unfairly traded into the United States, will go away and the steel mills AK Steel, included ArcelorMittal, include, the US Steel, included, the Essar Algoma included, we will be able to recover their sales prices to a decent level, because that is just fair and just, so that is my expectation at this point..

Okay. I would certainly agree with that too, but just at the beginning of the year you had talked about I think in embedded assumption of 575 or 580 or somewhere in that neighborhood, I assume that we are a bit lower than that now.

Is it possible to give us that number or is that not something you want to discuss?.

Nathan, we are a bit lower, but at this point we are not trying to provide that detail. You will see further disclosure in our Q, but it is slightly lower than what you embedded in your assumption..

Okay. No problem. Thanks guys. Appreciate it..

Nathan, before you go, just a reminder, you have an EBITDA target for Cliffs Natural Resource for the year of $170 million. In Q1 alone and Q1 is the frozen quarter, is the quarter that we are not shipping, because you can walk between here and your home country in Canada, you know that..

Australia, but yes..

Even with this difficulties, we are able to generate $94 million reasonable in Q1, so now based on your EBITDA target, I am $76 million away from reaching your EBITDA target and I have three quarters to do it just a reminder..

Sure. No problems. We will take another look at the model. Thanks for the feedback, Lourenco..

Yes. Take a look at your price target as well, because you went from 10 to 1, baked into your report the assumption that Cliffs Natural Resource by now would be would be bankrupt, so you were wrong. I am not bankrupt, I am not heading to bankruptcy. Your assumptions are all wrong and the outcome has been bad so far..

Thanks, Lourenco. I appreciate the feedback..

You are very welcome. Your next question comes from the line of Jeremy Sussman from Clarkson. Your line is now open..

Yes. Thank you very much for taking my question. I just have one follow-up on coal.

Lourenco, in terms of Oak Grove and Pinnacle, is this something that you want to sell together or would you consider selling each separately?.

Jeremy, thank you very much for the question, I would take any deal and we have different parties right now and we will disclose that, not all of the ones that are bidding at this point and negotiating with us are buying all the assets altogether. We have different transaction being considered right now.

Our only goal is to optimize the results and get to Cliffs the best you can get..

Thank you very much and sounds like we have something to look forward to soon on that front..

Yes. You are right about that. Thank you. Your next question comes from the line of Jorge Beristain from Deutsche Bank. Your line is now open..

Good morning, Lourenco, and again congrats on a strong quarter. My question really was two-fold. If you could just clarify a little bit what is going on with the unit cost, because you admitted it is hard given lower fixed cost absorption to lower cost, sequentially, but there was some mention about freight costs being lower.

Could you just kind of walk us through how the lower freight costs helped your unit cost, sequentially?.

Directionally, the USIO costs are being cut, because we are working towards improving the utilization of our lower cost operation basis. That is the bottom-line. You guys all know that we one mine that has higher costs and that is implied and five of ores that have this [indiscernible] right now a big hole in the ground.

It is that the end-of-life of mine. We are approaching the end-of-life of the mine. Actually, we are working overtime over there that mine should have been shutdown two years ago. If I were here two years ago, I would have shutdown that mine at the time, I would have not brought that mine back.

It has been a very good operation over the course of a several decades, but it is coming to an end, so we refocusing our operations and refocusing our ability to produce the products that we produce out of four mines instead of five. That is the main thing.

The next big thing is that based on my background as an operator in the steel mill side and I was in the service center side, and tied together with 30 doors extremely deep expense doing more or less the same thing that I have been doing through my entire career, we are working very seriously in expanding maintenance cycles and optimizing the utilization of equipment and changing the practice on the supply chain of spare parts, we are cutting costs in serious things and it goes without saying that we are applying to the salary to workforce at the mine sites, this same logic that we are applying here at the headquarters in Cleveland.

If you are not really doing something that will bring EBITDA to the company, chances are that your position is relevant, so we continue to cut people at the top of the organization in our operations, so our cost targets are achievable, are challenging but very much achievable and I have every single person involved in the effort completely committed to get it done and they know why they are doing that.

On top of that, we have the energy rates that we continue to work very seriously to bring those costs down.

We just finished recently to renegotiate our entire energy electricity situation initiative with extremely helpful work together with the office of the Michigan governor, and I believe we have got an excellent long-term deal, we are back to buying electricity from the Presque Isle with Wisconsin Energy utility supply in the Upper Peninsula.

We also in the mean time, we resolved the problem of the electricity rates in the entire Upper Peninsula even for the households over there, so creating a lot of goodwill within the community and again with invaluable support from governor Snyder, so we are working on all fronts to cut this cost and we will continue to accomplish all of our goals..

Great. Then second question I had was just on the volume outlook. How should we think about the optionality now on the outlook of some of your clients, AK Steel, particularly with the problems of Magnetation.

Is this something that you are already in discussions with them about possibly supplying volumes that they would have otherwise taken in-house, could you comment about that, and if you have the optionality to meet that demand?.

Look, we have so few clients here at Cliffs, at this point that we are always talking to the clients. We have only four. I do not know how much you followed me at Metals, you will say I do not remember any more. I think you did, but you had thousands of clients already. I still used to talk to clients, so here we have only four.

I talk with clients all the time, so we talk about a lot of things, so yes.

We are talking, but does not mean a thing, because it takes two to dance and there's a lot of recent history between AK and Cliffs and we believe that the right things will always happen at the right time, so we are not that an guy [ph], I tend to plan ahead, I tend to execute in a very disciplined way. I always had my own thoughts about Magnetation.

I always understood why AK initiated the Magnetation investment and I can't say that was surprised with the outcome. This being said, if AK will buy these labs, if AK will buy pallets from Timbuktu [ph] Corporation, I have no idea. It is AK's decision.

If they come to Cliffs, they know what they will get and they even know how much they will pay, and they even know how good the quality of our product is, how superior our product is compares not only with their in-house supplier, but with any pallet supplier in the world..

Okay. Thank you..

You are welcome..

Your next question comes from the line of Evan Kurtz from Morgan Stanley. Your line is now open..

Hey, good morning, guys..

Good morning..

I just had a question, if you kind of look at a few years from now, it seems like Cliffs will be the U.S.-only business. It would be involved in one commodity and is much more simpler than the business that you have today and if you got SG&A of about 120 this year.

Where do you think you could go if we kind of look at a few years? What do you think that are sustainable long-term SG&A cost will be for a USIO-only company?.

Yes. They were 120 still has the influence of people and work that is done related to both, APIO that if you are probably to stay for the next three-and-a-half, four years and also North American coal, so we can further reduce these numbers going forward. How much? I do not know at this point, Evan.

I do not have the number here from the top of my head. At the right time, we will inform.

At the right time, you will be able to plug in your model and maybe at that time my numbers will look a little better, because you are the guy that has a low price stock price estimate, but you always have the higher estimate in terms of our profitability, so you challenge me a lot, but I got a modest beat, right? You said that I got a modest beat, modest beat in Q1 is a very good thing in our model like yours that is designed for me to lose, so as much as I permit to beat.

I still beat, so that was not a bad thing..

Okay. We believe it or not I am actually waiting for you Lourenco, so hopefully you continue to do so. A similar question actually on the CapEx side, you have cut pretty significantly here.

How sustainable is that if you go out three years again? Is there are some CapEx that has to come back into the equation to keep those four mines running optimally or some of the other businesses falloff.

How do we think about where that number moves to?.

Look, if we materialize and I fully believe that we will do materialize our production of DRI in Minnesota. If we do that, of course at DRI, a new DRI facility in Minnesota is not baked into our CapEx numbers.

On the other hand, there is more investments that we need to deploy in order to give Northshore the capability to produces DR pallets are not only baked into their number, but they are also being authorized. They are in the process of being deployed, so it is a mix.

At this point, we have our CapEx number that is limited to the footprint that we have and the short-term plan that we have ahead of us.

Of course, as we go bigger into the side [ph] of the business, but I am fully confident that we are going to revise this CapEx numbers up, and all of these numbers will be calculated based on return on assets, return on an investment capital in the right metrics, will not be decision taken based on how our stocks price is doing.

Actually, because if I used the stock price as a reference, I will be in trouble, I cannot buy lunch. I have to sell lunch to buy dinner, but I used the real metrics, we have got to really use the are real returns and the ones that pay off over time, there was that pay off to real investors and that is the way we do business here..

Great. Thanks a lot, Lourenco..

You are welcome..

Your next question comes from the line of Timna Tanners of Bank of America. Your line is now open..

Yes, hey, good morning..

Good morning, Timna..

Gosh, every single question I was going to ask has been addressed and with great answer really thorough details, so I thought that I could just - the only thing I thought might be helpful is really to hear a little bit more on the really nice costs saving in USIO and just making sure we are confident or give them as much details as possible on the sustainability.

If we do forecast longer-term price recovering, should we assume that this costs structure is permanent or there are variables that would have to go up over time? Thanks..

All right, Timna, let me introduce you to a person that you do not know yet. That is Mr. Kelly Tompkins, my second in command.

My most valuable player here at the company and I am extremely happy that I finally have my management team all placed with the players in the right spot, so Kelly, please? Timna Tanners is a research analyst from Bank of America Merrill Lynch..

Nice to meet you. Okay..

Yes. Likewise, but I think we have met on one of my other capacities, Timna..

Okay..

I think, Lourenco talks on some of these earlier. He talked about the maintenance practices that we are implementing and now there has been some question we are just simply deferring maintenance, no, we are improving our maintenance practices, so it is sustainable.

We are continuing to rationalize solid workforce, for example, irrespective of what we might do to idle and taking out rank and file we have been equally disciplined with the management team.

Lourenco talked about the aggressive work we have done on the energy side, so there is a constant pursuit of our operational improvements productivity initiatives and when we reaffirmed our cost guidance for USIO that was not Lourenco and I sitting in a room making that made up ourselves.

This is the operating guys and completed buy end from the top-down to the bottom of the organization, so we feel very confident. As we mentioned before, we have got a very experienced team that knows exactly how to stay out there, so we are very confident. These are sustainable..

Okay. That is helpful.

Then Lourenco I know when I saw you last time, you had just come from the conference in Australia and you are saying that the Australian seem to have a different view than the Chinese about steel production and they were targeting a higher number, but maybe your tone has changed a little bit and you sound a little bit more confident at least that maybe there is change in your view point are going to produce little less.

Can you give us a little bit more color around your change in thinking?.

Sure. I will be glad. In order to deploy massive amounts, billions of dollars of CapEx, you need two things. One is, return on invested capital. Two, our market to sell the products. If you have the return on invested capital, you have a chance. If you have a market for your product, then you will put one plus one together to get a two it will grow.

In the case of the deployment of CapEx from Australia, it is a lot more of a lid [ph] services and empty threats and bad advertisement and they scare the shit out of everybody than anything else. Think about the port bottlenecking of BHP.

They said that they could optimize without the bottlenecking without deploying the money, they said whatever they like to say, but at the end of the day they did only have up $600 million of investment just to go from $270 million for $290 million in 2017, so money talks and others stuff walks, so there is a lot of false story going on over there trying to take big one out of the picture, because he was not part of the original party.

Remember through 2009, iron ore prices were negotiate with the Japanese and then with the Chinese and also with the Europeans.

Based on the benchmark negotiations and the benchmark negotiations used to be more or less like a Vale speaking on behalf of the three with, Europeans and Rio Tinto is speaking on behalf of the three with the Japanese and then the Chinese became bigger and the Chinese said I am not going to fall to Japanese, I am I am going to do my own thing and then Vale Steel negotiated on behalf of the Chinese and then Stern Hu went to jail in 2009.

The guy that was the head of the Rio Tinto office. In Shanghai, he was arrested and accused of taking bribes and he was accused of stealing government secrets or steel company secrets in order to sell positions based on the allocation of iron ore under the benchmark system.

Then the benchmark system was replaced with the IODEX, which is an index that is very easy to move around not by Cliffs, not by [ph] not by Mount Gibson, not by Natural Resources [ph] in Brazil or not by Samarco, but easily manipulated, by Rio Tinto BHP and Vale.

In other words, if one of the three decides that they will sell iron ore this afternoon, $10 a boat the IODEX, with the tonnage that they sell already, they can move the IODEX, so when the board members of these three companies realize that, and I promise you, very few of them if any know that when they realize that that these three companies can move the IODEX around, you are going to see a lot of Monday morning quarter backing going on in these companies and these board members will not have the ability or the courage or the craziness to approved the deployment of billions of dollars just to bury money, good money in a market that can pay any return for their investment of capital.

That is my thesis. My thesis is, that….

Okay..

No. I am okay yet. I am not done yet..

Thank you..

My thesis is that they are strengthening capital expansion that they are not planning to deploy, because I cannot believe. I do believe in stupidity, but I do not believe in stupidity for a long period of time.

Example, Cliffs Natural Resources, here in this company they buried close to $9 billion in debt investments and I am sure that during that time that the previous board was deploying billions and billions of dollars of capital here using as they the only metric the share prices, they were extremely happy and they were tapping each other on the back and telling each other how great they were until the outcome was a disaster, so I do not think that BHP and Rio Tinto or Vale will do the same thing.

I believe that common sense will come back and we are going to start looking at the size of that things really have, so and the size that things really have is Rio Tinto is the bigger supplier of Australia with 200-something million tons and that is pretty it and Vale is the biggest one among all with close to 300 million tons and BHP is a 200 million tons supplier and Fortescue is 125 million tons and Roy Hill may come, may not, maybe be 55, they will come, but maybe 55 or 54 or 25 or and property [ph] will continuing to collect a lot of rights from Rio Tinto, that is good.

They will naturally go to the direction, because IODEX is an index that can be moved by three companies Vale, BHP and Rio Tinto. If they do not move, the IODEX is because they do not want, but if these three companies do not want to move the IODEX, they are basically taking money away from their shareholders and their board members need to know that.

Did I answer your question?.

Yes. I think so, I just was wondering incrementally it sounds like if things remain difficult you are more convinced that rational behavior given at some rationalized market will prevail.

Is that what you are saying?.

I am convinced that as soon as the board members of the Rio Tinto, BHP and Vale realize that they are enabling their management teams to do something that goes against their shareholders at least one or two or three or five, we will get scared, because their fiduciary doing is associated to that. That is what I believe.

I also believe that ACCC, the antitrust authority is fair competition authority in Australia should be taking a serious look about their behavior already instead of looking about what Mr. A, or Mr. B, or Mr. C said on this or that circumstances, because what people say is not as important as what people do.

I believe that what they are doing is on purpose and I believe that what they are doing is not right and I believe that they are generating a lot of unemployment in Australia and that should have serious consequence for the years to come..

Okay. Thank you for sharing that. That is interesting..

Good. One more question then we are done Shannon..

Your final question then comes from the line of Gordon Johnson from Wolfe Research. Your line is now open..

Lourenco, congratulations on the execution, thus far impressive execution..

Thanks..

I guess the first question is on the rationality of the large iron ore producers. I remember back in 2012, when kind of some of these plans were announced we had heard a lot that a lot of the plans are going to be delayed and indeed these guys executed on the ramp plans.

I guess just given where their cash costs and manufacturing costs are, at least that they are reporting, can you comment on how long you think it will take them to be more rational? Could it be a year? Could it be two years or do you think it will happen sooner? Then secondly, could you comment on your operating cash flow this quarter? It looks like it was the lowest it has ever been.

Is that something that we should expect as a one-time kind of dynamic, was there something maybe that happened this quarter that caused it to be so low versus where your net income was? Thank you..

Everything is related to the cash flow is related to seasonality, Gordon. You have not been in this business long enough and there is lot of things that you do not know. I am looking forward to our deal tomorrow here in Cleveland, when then I really plan to spend time explaining you that Cliffs is not a high cost producer.

We are actually a producer of value added products called pallets, pallets go into blast furnaces and not sinter feed slides that go into sinter plant, but we will talk about that tomorrow.

About the cash flow thing, is all about the seasonality and the Q1 is completely different from Q2 and Q3 and Q4 and even Q2 and Q3 and Q4 are not exactly the same, but there is a lot of seasonality associated to our business. As far as rational behavior, I do not believe in rational behavior.

I really believe in board members when they really it kind of a come to Jesus thing, you know, a moment of truth, when the board member say oh my god what have I been doing, because it has happened here at Cliffs, so it has happened here at Cliffs, but then the guys were so committed with their bad strategy they did not know how to get out of their hole, so I was the guy that helped them out at the end of the day and they went out a lot better than for example their former present CEO of Rio Tinto that was after January of 2013 that left with no [ph] after a write-off of $14 billion, so things in this business, Gordon, they are not exactly the way they look like.

Of course they are big, of course, they have a lot of capacity, but that is not the point, because they always had a lot of capacity, they always were big, but they never really went on rent to basically of terrorize everyone else say, I produce a lot, but I will produce a lot more and that is was pushing prices down.

Prices are not going down because Rio Tinto is big or Vale is big or BHP is big, prices are going down or price are not going down is not because they are doing expansion, because they are in their rights to do that, but prices are going down because they advertise everyday that they are doing the expansion.

It is tactics of scaring everyone else, it is a tactics that plays well for the future markets they are base on the IODEX and that is manipulation of an index.

If it were the LIBOR, people would go to jail, but because it is IODEX, people do not go to jail, but shareholders that realize what is going on they may take action and that is what I am talking about, so when are they going to be rational, when they get scared when are they going to get scared, I do not know.

Did I answer your question?.

That does answer my question. That is very helpful. I guess, one more question if I could, and it goes to the rationality question somewhat.

In Q1 if you look at the big four producers, Rio, Vale, BHP, SMG [ph], their overall production of iron ore was down I think more than a lot of people expected, I think it was down roughly 30 million metric tons, yet iron ore prices fell Q4 to Q1 roughly 12% on average.

I think for the first time since, I think, 1990s in Q1 demand actually for iron ore in China was down, so could it possibly be if demand in China is down this year, which would mark the first time since the 80s that maybe demand is also having an effect on iron ore prices? Thanks again for the questions..

Look, Gordon that is actually my point. You nailed on this one, because demand is down. If demand is down, there is no point in announcing expansions even if you are doing.

If you believe that with your expansions you are going to displace in the future, you are going displace while you call the higher costs producers when you compare bananas-with-banana of course you are not compared with the Cliffs USIO.

We produce pallets here, we will address that tomorrow at dinner, but when you are talking about producers of sinter feed fines, displacing producers of sinter feed fine, and that is exactly what happens, so you are completely right.

Demand is going down, so that is the wrong moment to be trying to create or trying to announces more capacity, because that would have a dilatory effect. On the other hand, it is very minimal announcement that or we are not doing.

We are not deploying this cash flow, we are not doing this thing that was what happen when the BHP in a very sympathetically told everyone that they are not willing for deploy $600 million in CapEx, because that was not the right decision to make, so the only fact that the simple fact that they announced that and iron ore price went up despite of the Chinese demand that is going down, despite of everything that you said, so it is all about perception.

It is not about reality, it is not about what Vale or Rio Tinto or BHP or Fortescue are producing now. The market is okay for what they are producing now. What the markets is not okay is for this things, you know what, and I am going to double this. I am going produce a lot more ore, but China is going down production, I do not care.

I am going flow the China with more products. That is wrong. That is absolutely wrong. It cannot end up well and the consequences will be all paid, all of them will be pay in Australia, so already started, especially in WA, WA is Australia is where the iron ore basically is, so the consequence there are unbearable.

I am not talking about Cliffs' Koolyanobbing. We are small, we are in the paper today, because we changed our fly-in fly-out, because they are no longer exploring Windarling Peak, so we are in the newspaper over there and I gave the number of unemployment there. We are talking down 170 people. Fortescue in the paper as well, they will give the number.

BHP is firing people, Rio Tinto is firing people, so they think there is thinking and I am not talking about the guys that already shutdown like Aereo, or Mount Gibson, like several others, Atlas, so what they are doing with Australia is something that they will be responsible for and they are doing that on purpose.

They are basically terrorizing the market with the prospect of CapEx that at the end of the day will not be deployed.

Do you know why they will not be deployed, because board members are a lot more responsible than CEOs, they are not bullish, they have fiduciary duties and they are responsible for what actions they take, if they do, they will responsible.

All right?.

Very helpful. Thank you..

Thank you, Gordon..

Thank you very much for joining the call and to stay with me for so long. Kelly and I are looking forward to continue our conversation within each of you and we will speak again in three months. Thanks a lot. Bye now..

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