Tim Flanagan - Executive Vice President, Chief Financial Officer and Treasurer Lourenco Goncalves - Chairman, President and Chief Executive Officer.

Lucas Pipes - FBR Capital Markets Seth Rosenfeld - Jefferies Matthew Fields - Bank of America Novid Rassouli - Cowen and Company Piyush Sood - Morgan Stanley Nic Jarmoszuk - Stifel Brett Levy - Seelaus & Company.

Good morning, ladies and gentlemen. My name is Jody and I am your conference facilitator today. I would like to welcome everyone to Cleveland-Cliffs’ 2017 Third 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.

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, some 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 within the SEC, which are available on the company website. Today’s conference call is also available and being broadcast at cleveland-cliffs.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 Tim Flanagan, Executive Vice President, Chief Financial Officer and Treasurer. Please go ahead..

Thanks, Jody and thanks everyone for joining us this morning. I will start the call with some remarks on the quarter before turning it over to Lourenco for his comments. Starting off, our third quarter total company adjusted EBITDA was $154 million, a 149% increase over the prior year quarter.

Through 9 months of this year, we have already generated more EBITDA than we did in all four quarters for 2016 and 2015. Adjusted EBITDA from our core business, USIO was $174 million, another multiyear high, reflecting healthier than expected sales volumes and strong cash margins of $30 per long ton.

Revenue per long ton came down about $6 from Q2 as a result of unfavorable customer mix, timing impacts on contracts, higher benchmark freight and lower full year estimates on IRR and HRC prices. Despite these negative drivers on price, quarterly realizations of $91 per long ton still represent a $17 improvement from Q3 of 2016.

From a cost standpoint, as we guided to in the previous quarter, we are tracking to the higher end of the $55 to $60 guidance range on a full year basis. As such, we reported Q3 cash cost of $61 per long ton putting us at the $60 mark year-to-date.

The rising cost relative to the prior year is driven by increased maintenance and repair expenses, employee-related costs and energy rates. Increases in these areas are why we give arrangement providing cost guidance. At this time, we earned a stable position at the higher end of the range.

As such, we expect cash costs to remain at approximately $60 in the fourth quarter. As for APIO, adjusted EBITDA for the third quarter was $5 million, which was an improvement from our second quarter results.

However, despite the higher average IODEX, increased operational costs, a stronger IT dollar, heavily discounted realizations relative to flat and reduced volumes drove weaker year-over-year performance for this business. Moving to overhead, we showed a 21% year-over-year improvement in SG&A expense, which was down $25 million in the quarter.

Driven by both external lower services spend and reduced incentive compensation inclusive of the 2016 union bonus. On the CapEx front, we spent $30 million total in Q3 primarily related to any capital at our USIO operations, with about $5 million spent towards the HBI project. As previously discussed, the major spending on HBI will begin in 2018.

Now, for the capital structure, in August, we completed a successful refinancing of our 8.25% first lien secured notes due in 2020, making those bonds hold while replacing them with the 5.75% unsecured notes due 2025.

To recap our progress at a high level, less than 9 months ago, we had three layers of high coupon secured debt and a maturity tower of nearly $1.7 billion looming in 2020. Post this most recent transaction and in less than a year, we have reduced that 2020 maturity power by almost $1.5 billion.

It now sits at just about $200 million with all of the previous tower being retired outright or pushed out 5 years into lower interest notes. In addition, we have vastly simplified our capital structure leaving us with much more financial flexibility to navigate the always cyclical commodity environment.

And of course, our annualized interest expense which at one point hovered around $230 million has been reduced to just $96 million per year. As for outlook, over the past year plus, we have provided multiple EBITDA calculations based on certain iron ore and hot-rolled coil price scenarios.

We believe that providing these data points in the fashion and given the investment community, a better picture of our sensitivity to movements in these two indices.

As we have made clear from the outset, this methodology does not necessarily reflect our views on pricing is rather just an illustrative view on expected performance based on where pricing sits.

This comes with a requirement of having to hold all other business related assumptions constant, but unfortunately changes in these assumptions can cloud the sensitivity impact of changing commodity prices. This is especially the case this late in the year.

Because based on the 12-month average nature of our pricing formulas, changes to these other assumptions will affect our outlook more than changes to iron major and HRC prices.

For example, some assumptions that have shifted over the past quarter, include those related to USIO customer nominations and the related sales mix, the Aussie dollars exchange rate, APIO revenue discounting and the U.S. and Asia-Pacific operating cost rates. None of these changes were directly related to commodity prices.

As such, it no longer makes sense to provide an estimated full year calculation, because it skews the real sensitivities. Based on our year-to-date results as well as having over 80% of the year’s worth of commodity price data, we feel we have provided sufficient data points for investors to model our future performance.

Lourenco will be elaborating on some of these factors in his remarks. So with that, I will turn it over to him..

Thank you, Tim and thanks to everyone for joining us this morning. Before I get into the discussion of the items that Tim mentioned, I would like to highlight a few events that made this quarter another busy one for us. First, in August, we returned to our historical name of Cleveland-Cliffs.

Our company was in business under the name Cleveland-Cliffs for over 100 years starting in 1891 before changing to Cliffs Natural Resources in 2008.

The name Cliffs Natural Resources represented a misguidance of a management team and a Board of Directors focused on diversification into different products and new geographies, ignoring what the true strength of this great company actually is.

Now in our 170th anniversary and with the company focused on protecting our core business and expanding the Great Lakes customer base to the EAFs, the name change back to our real name was the logical next step.

Cleveland-Cliffs is synonymous with both the high-quality iron units we provide to the Great Lakes distributors and the pioneering approach that reshaped this business in the 1950s by introducing customized pellets to the marketplace. This pioneer mentality is exactly what we need with HBI as the shift in steel-making methodologies in the U.S.

from blast furnaces to electrical furnaces is something that we cannot simply ignore. Also along these lines, the other major event for Cliffs during the quarter was the purchase of the minority interest in our Tilden Mine from U.S. Steel Corporation for $105 million.

This acquisition adds to 1.2 million long tons of pellet production capacity to our portfolio as well as 55 million long tons of ore reserves.

Given the supply contracts we have in place in the United States and the strong margins we command, this acquisition made complete sense not only from a pure value standpoint, but also for what it does to further enhance our market position.

As expanding our pellet production capacity became a priority with the need to supply our new HBI facility in Ohio, we looked at the possibility of organically growing within our current portfolio. After rigorous study, it became clear that organic growth would be a more expensive alternative.

We therefore opted to add the tons from a mine and pellet plant fully operational and very well-managed by ourselves in a risk-free transaction.

The newly acquired production capacity gives us the flexibility to meet not only the pellet needs of our blast furnace customers, but also the DR grade pellets needs of our own HBI facility coming online in 2020. Starting in 2018, we will have our annual capacity in the United States increased to 20 million long tons of pellets.

I am also very pleased that this transaction gives us 100% ownership of both of our mines in Michigan, a state that has been a great place to do business and has been so friendly and so accommodating to Cleveland-Cliffs. Now, moving on to our operations and updated outlook. As Tim mentioned, 2017 has been a great year for Cliffs thus far.

Adjusted EBITDA in just three quarters has already passed the entire last year. That has been taken care of and we are now a company leveraged at 2.5x EBITDA. That’s a far different company from the one I found here 3 years ago. However, during the third quarter, we had a few events that will negatively affect our fourth quarter.

First, late in the third quarter and somewhat unexpectedly, we were informed of a significant downward revision in their fourth quarter pellet nomination by a long-term contract customer.

While we partially offset the volume impact on Cliffs by exporting some pellets, this unforeseen event will not only reduce our fourth quarter expected sales volume, but will negatively affect mix as well.

Because of the well-known logistics disadvantage embedded in selling pellets to the seaborne market, the all-in margins on the export sales are not as good as when we sell pellets within the Great Lakes.

Taking into account the lower commodity prices we have seen since last month, lower realizations from replacement sales and also higher freight rates we have a negative impact on our U.S. realizations that should show in Q4.

That said, we do not expect any residual impact in 2018 assuming nominations returned to normal, to which we have every indication they will.

This client nomination reduction came in light of a domestic steel environment where imports have climbed back up, vastly enabled by the lack of decisive action largely announced but never implemented by the Trump White House. However, as we transition to 2018, imported steel should no longer be as much of a problem in the U.S.

domestic market, largely due to the measures recently implemented by the Chinese government, which significantly restrict their own steel output.

With domestic steel consumption in China pretty much unabated and production restrictions in place, it is not reasonable to expect that the Chinese will continue to be able to flood the international market with cheap steel.

As of now, an already narrow spread between the prices of foreign and domestic hot-rolled steel, the surging price of other inputs like graphite electrodes for the EAFs and blast furnaces recently announced steel price increases by several domestic mills and also a potential restock at higher prices ahead of the deadline for the Section 232 report in mid-January, the market looks to be heading into 2018 in a different direction than our customers’ reduced nominations for the fourth quarter of ‘17 might suggest.

As for the second major item impacting outlook, we have seen costs rise year-over-year in the United States and in Australia. USIO costs have been negatively impacted by higher profit sharing paid to our workforce, higher energy rates and higher maintenance costs. We have also produced more DR grade pellets than in our original plan.

Despite the high margin nature of our DR grade sales, the production of DR grade pellets as we do today negatively affects overall production.

The impact on productivity will go away once the upgrade of our Northshore facility is completed, a project that we will start next year and will be completed in 2019, well ahead of the startup of our Ohio HBI facility in mid-2020.

All being said responsible and transparent publicly traded companies such as Cleveland-Cliffs producing some of the best pellets in the world in a safe and environmentally compliant manner may eventually face increased costs and that’s business as usual.

Costs in our APIO business have been hurt by a rising Aussie dollar since operating costs in Australia are denominated in the local currency and upward or downward moves in the exchange rate will either hurt or help us there, all other things being equal.

Combine the FX impact with some operational tweaks we have made to reflect market conditions, our Australian cash cost range has been moved up by $2 per metric ton on a full year basis. The third piece impacting our updated outlook in Asia-Pacific is Asia-Pacific revenue realizations.

Not to my surprise, China has started to really fight pollution as we have said several times that they would do. With that, the preference of the Chinese buyers for higher Fe content, 62% and above is very clear by now.

The Chinese government’s mandate to cut steel capacity ahead of the winter months has been well-publicized, but their demand for higher Fe content ore has not been totally understood by the Australians, let alone acted upon.

In the meantime, Vale from Brazil has already improved its pricing realizations in the seaborne market by drastically reducing their offers of lower quality ores and by replacing these high-polluting ores with higher Fe contents in the field, mainly from S11D.

While the Brazilians sell their 67% Fe content ore at a very good price with a huge premium over the 62% benchmark price, the Australian major suppliers continue to offer massive tonnages of 58% or lower Fe content ore, which they continue to sell by conceding huge discounts to the buyers.

Unfortunately, our APIO sales are also affected by these market discounts even though the tonnage Cliffs produces in Australia is not relevant when compared to, as a reference, 40 SKUs tonnage. Our Fe content is not much better than theirs as we currently have only about 58% Fe content in our fines and in our lump ore.

And while we see some limited benefit from improved lump premiums, the negative impact of market discounts to low Fe content has been the most important factor playing against us.

All being considered, for now, our decision is to continue to produce at APIO until we reach the end of life of mine as long as we continue to achieve breakeven EBITDA or above as we have been doing so far. So with all of these factors updated within the forecast, our Q4 will likely be softer than originally expected.

However, this short-term negative impact should last only one quarter. Next year’s sales forecasts remains intact and the first half of 2018 should be a strong one.

The steel production restrictions recently implemented in China should remain in place for an extended period of time, long enough to affect the steel buyers’ perception that there is always an endless source of dirty cheap steel coming from that country nonstop.

As we have always said, once the Chinese start to control pollution, one of their most unfair competitive advantages goes away. That’s what’s happening right now in China. In sum, Q1 2018 should bring a much more rationale business environment in the United States for our clients and as a consequence, for Cleveland-Cliffs.

Last but not least, since the last time we spoke, we have made a great deal of progress on HBI. We have lined up commitments from numerous third-party providers and begun staffing a team of some of our most talented internal employees along with more expertise from the outside.

The ample time we have until groundbreaking has given the Cliffs and Midrex teams the opportunity to perfect the construction plan. As for demand, we are excited with the amount of inquiries and demonstrations of interest we have received from potential customers.

As we fully anticipated, current users of imported pig iron and HBI are excited to be able to switch to Cleveland-Cliffs as their domestic source of high-quality iron units that are custom-made and much closer geographically.

We have also been approached by a number of partner candidates who would like to take a potential equity position in our HBI project. Given the confidential nature of our discussions, we are not able to give you too many details at this time.

We are working through these discussions as we speak with the goal to create a structure that makes sense for each of these potential partners. Given the variety of candidates we are speaking with, we have been dealing with a diversity of priorities and intentions.

I look forward to continuing to keep everyone updated each quarter on the status of everything related to the HBI project, including, of course, the outcome of our discussions with potential equity partners. To wrap up, 2017 has been a good year thus far and 2018 is shaping up to be another good one.

The market and customer demand will continue to fluctuate both for better and worse and we are pleased to have our balance sheet in the type of shape that can handle pretty much anything the world throws at us. This is precisely why debt reduction has been our top priority for so long.

As we move forward, we will be able to handle any obstacle that comes our way, just as we have done during the last 3 years as well as throughout the entire history of Cleveland-Cliffs. With that, I will turn it back to the operator for Q&A..

[Operator Instructions] Your first question comes from the line of Lucas Pipes of FBR Capital Markets. Your line is open..

Hey, good morning everybody..

Good morning, Lucas..

So, Lourenco, I wanted to follow-up on some of your last points regarding HBI and your negotiations with partners.

I understand the nature of that process, but what I wanted to follow-up on is can you state unequivocally that you are going to have a partner at this point in time?.

No. It takes two to dance. It takes two to dance. We cannot state anything until it’s done, Lucas. On the other hand, if your concerns are related to cash flow generation, we’ll be generating cash flow in 2018, in 2019.

At this point, based on what we are anticipating, we are going to have cash flow to contribute to the partnership so much so that even with the more likely than not possibility of having equity partners, we are going definitely to keep a majority position in that project. So I can’t give you assurance of anything at this point.

The only assurance is that we are fully committed to come to a design and an agreement with not one but more than one equity partner in a way that is good for everybody. But we’re not done yet so there is no way I can do what you asked me to do..

Okay. No, that’s fair. That’s helpful perspective. And then I wanted to just follow-up a little bit more on the near-term outlook for the USIO business. You mentioned you are going to ship more tons into the export market due to that change in customer designation.

I wondered what sort of volumes should we be thinking about? And then, on an apples-to-apples basis with how you report USIO revenues, where would you put the netback price for the export market?.

Before doing apples-to-apples, I would be concerned because apples rot and pellets do not. So that’s the very first thing. So the pellets that we are not selling to these specific clients in Q4 are going to be there. As long as we don’t give them away, they are going to be there for – in Q1.

So make no mistake, Lucas, exporting pellets from the Great Lakes into the seaboard market is a fool’s business.

You are basically giving away your logistic advantage to supply a market that should be yours just to give that margin to the logistics handlers, to the traders, to the end users at the other side of the world and increasing handling and deteriorating your product before it goes inside the blast furnace, fool’s business. So we have the contracts.

We have this business in the United States. You might remember when people would come to me and say that company A or company B would be low on pellets and I used to say, so what. And I continue to say, so what. So, this being said, we export some pellets to clients that are long-term, well established clients in Asia, but that’s pretty much it.

I’m not going to go full blown exporting pellets because I will tell you one more time to make sure you got that, exporting pallets from the Great Lakes is fool’s business. So I’m not going to do that. So there are two options for Q1.

For the clients that canceled their nomination, that reduced their nomination in Q4, will come back hungry because their inventory is really low or their competitors that are also our clients will come back hungrier because that will be the translation that they got these clients’ business.

So we will be happy to sell these pellets here in the domestic market to the client that reduced their nomination or to their competitors. So are we going to be hurt in Q4? Yes, but I envision a very good Q1 and we are not going to export pellets massively..

Okay. And then maybe one last one to switch topics over to APIO, I think you mentioned in your prepared remarks that it’s got to be EBITDA breakeven. And in the past, you were very quick to act on nonperforming assets.

So let’s say, hypothetically, IODEX prices continue to deteriorate over the fourth quarter and the discounts that you mentioned continue unabated, how quickly would you pull the cord?.

Look, as you have mentioned, you are answering the question – your own question. So I act when I need to act. I don’t really think too long and I’m not here to lose money. I am here to make money. So we know how much we have in liabilities to close the business. We also know about obligations that we need to fulfill as we operate.

The longer we operate there, the lower these obligations will be when the end comes. We operate one more year it will be a lot lower. We operate another 2 years, it will be largely irrelevant. But we need to be EBITDA positive.

I don’t know if you used to follow Metals USA when I was running – during the 10 years as I was running Metals USA, but APIO for now – for me is like my old building products division at Metals USA. It’s going to be an EBITDA zero. I will make you guys forget about it.

The underlying problem over there is that I have a peer over there, a competitor over there that’s 13x our size in Australia giving their stuff away.

And I can’t avoid that if – look, if they decide that the price discounts will continue to increase, the only thing I know is that the discounts will not get to 100% where, at that point, no matter how low their costs are, they will be giving their stuff away. So that’s the problem we have there.

So they will dictate their fate of what’s going on with that or how fast we’re going to pull the plug in APIO. You guys should never consider, going forward, Cleveland-Cliffs as a player in the Asia-Pacific market. We are just running the thing to generate positive EBITDA. As long as they continue to generate EBITDA, we will be fine and so far so good.

We generated in Q1 – because of the high price of the commodity, underlying price of the iron ore, we generated $53 million of EBITDA over there. Then, in Q2, we generated $3 million.

That’s a change from one quarter to another, $53 million to $3 million and then we generated $4.9 million which is better than $3 million, but it’s still really low, but so far so good. Check the box, APIO is still alive, but it’s not something that we will count on.

If I were doing your model, plug a bunch of zeros from – on APIO because anything above zero, we did well..

Okay. I will leave it here for now, but Lourenco really appreciate it and good luck..

Thank you so much, Lucas..

Your next question comes from the line of Seth Rosenfeld of Jefferies. Your line is open..

Good morning. Thanks for taking my questions. Couple of questions. Looking at the USIO business please.

Just going back to the reduced domestic offtake, can you just give us a bit – any sense you have on how confident you are that, that customer will return to you in early 2018 and whether or not the logistics align with their competitors to potentially supply them should this kind of client A not return, when will you know for sure on that front? And then secondly, assuming this customer does come back to you, given the expected, I think, 1.5 million ton uptick in your shipments for 2018, how should we expect your customer mix to change year-over-year? Should that 1.5 million tons be more evenly distributed across the various contracts you already have or should there be more of a significant shift in your realized contracts on average?.

First, let me reply to the second one first, because I need to make a correction on your numbers, Seth. It’s not 1.5 million, it’s 1.2 million. That’s the number that we are expecting to add to our total output. So it’s small but it’s relevant that we put the numbers in perspective.

We expect that we are going to continue to supply the client that – our current client of Tilden pellets. We don’t disclose names of clients, but that’s pretty much where these pellets will go and we are excited that we are going to add to a contract that we could not too long ago, with this client.

It’s a very good contract for us and, I believe, a very good contract for the client as well.

On your first question about the – if I am sure that the tonnage that was reduced in nomination by the client will come back in Q1, I think I answered that question during my explanation to the previous question, because I really believe that the tonnage will come back one way or another.

It will come back to Cliffs because the business will be there. The business will be there. These two businesses will be there. More likely than not, the same client will pickup the slack and will be buying to cover for what they don’t have on their inventory right now.

But if not, I am sure that another client of us will pick up the slack and then we will serve them, so one way or another, the answer is yes, to come back to Cleveland-Cliffs..

Thank you. If I can just ask one separate question a follow-up on the HBI development. I know it’s perhaps too early for you to give us real detail on what development partner you would be in final discussions with.

But in the past, I guess you have noted that there are certain red lines, for example, I think you didn’t want a development partner just interested in the discounted offtake agreement in exchange for that equity stake.

Is that still a red line for you, which we think about other considerations when thinking about what sorts of partners you might ultimately tie up with?.

Look, the redline if you – just use your language, the redline was much more in terms of project financed in offtake agreements. One way or another, we are going to have agreements with the clients. And we are not, at this point, discounting anything. We have been in discussions with different types of potential partners, including end-users of HBI.

So everything is possible. We are just trying to cut a deal or a couple of deals that would make sense for us and for the partners and it takes a little time. And time is one thing that we have at this point.

Keep in mind, Seth, that we will only need to start dispersing massive amounts – not massive, but bigger amounts of money related to this project next year. So we are still in 2018, mid-October, we have plenty of time..

Great. Thank you very much..

Thank you..

Your next question comes from the line of Matthew Fields of Bank of America. Your line is open..

Hey, everyone.

Not to harp on the HBI questions, but just sort of – for some guidance, what do you think is the sort of amount of CapEx that’s going to be associated with this project in 2018? I know it’s dependent on who partners with you and to what stake, but can you give us a sort of order of magnitude of 2018 CapEx for it?.

Matt, as you see in our 10-Q, CapEx over the next 12 months will be $270 million and that assumes no financial partner, because I think we are using what we have now and we still do not have a financial partner or financial partners locked up at this point.

So for the next 12 months, $217 million is the number and that is for the unlikely event that we have no partner. At the same topic, we are planning to spend, as far as the HBI project, roughly 35% in 2018, 50% in 2019 and the remainder in 2020. So that’s more or less what we have at this point..

That’s very helpful. Thank you.

And then one more question and I apologize in advance if this sounds too longwinded, but given the few data points, as you mentioned, the really, really high discount between benchmark and low quality iron ore, the fact that whether it’s real or not, Tom Clark says he has secured a 4 million ton annual offtake partner in Asia. St.

Lawrence shipments were up 50% through the first months of 2017. I mean, I think we read that even U.S. Steel was exporting about 100,000 tons a month to Asia.

If China ultimately becomes a buyer of pellets and not finds – or at least not lower cost finds and even Tom Clark can sort of figure out a way to export from the Great Lakes economically, isn’t that a good thing for Cliffs?.

If China becomes a big buyer of pellets, India will be the next Australia and Australia will be the next Fiji, an island that will be dealing with tourism as their main source of income because Australia has no water, Fiji does have, but Australia does not. So I can envision those guys climbing the coconut trees in Australia.

They have a lot of those over there, because our ore finds seem to feed – our ore finds will be out of fashion in the international market and India will become the next likely supplier.

Another data point for you, Matt, here in North America, there is another place, a lot better, a lot more logistically friendly to the seaboard market to supply iron ore pellet steel to China and another name of the place, Bloom Lake.

In other words, the logistics to send iron ore from Bloom Lake to China are a lot better than the logistics to send iron ore from the deep Great Lakes in Minnesota to China. That’s my view. I have been in this business only 38 years and please do not compare my views on this business. I will stay here.

If I will tell you about iPhones and say that I know iPhones better than Steve Jobs, you would laugh. So go ahead and laugh. Okay, you didn’t laugh, I don’t care, you got the message. Okay..

We got it. Thanks very much, Lourenco..

Thank you..

Your next question comes from the line of Novid Rassouli from Cowen and Company. Your line is open..

Good morning, guys. Just wanted to drill down on USIO price realization a little bit more. So, we saw about a $6 sequential decrease. I was wondering if you guys could breakdown that move into buckets kind of helping us parse the primary drivers of the move lower. That’s my first question..

Good morning, Novid. I will let Tim Flanagan handle this one.

Tim, please?.

customer mix, that we have talked a little bit about, putting some more tons than anticipated out into the export market, higher benchmark freight, freight is a component of all of our customer contracts; timing, while most of our contracts are on the annual average pricing, we do have some store price on a lag here in the U.S.

So, we had a little bit of an impact as a result of timing. And then the last piece certainly is just a slight downward revision of our outlook for IO and HRC. Those four are about even across the board. Mix is probably just maybe $0.50 higher than the others if you split it up evenly..

Got it. That’s very helpful. Thanks. And then just as far as additional details wondering if you can give us additional details on the catalyst for the unexpected reduction in nominations? I’m not sure how much insight you guys have there.

Just trying to get a sense of repeatability of something like this, was it really a one-off, just trying to get a better sense of that?.

Well, we do have the color, but we also have confidential clause in our supplying arrangements with our clients. So, I will have to decline answering about that. As far as the lasting effect – or not lasting effect of that, I think I have already explained but I will do it one more time. Nominations affect inventory on the ground.

Nominations do not affect production. Production in Q4 has been taken care of by inventory debts already in the possession of any client at any given time. So what you are talking here is reducing inventories on the ground, inventories of feedstock.

What’s the picture of demand going into Q1? Well, their steel mills themselves, are saying that they are optimistic. Otherwise, why they would announce price increase of $40 more or less or reestablishing a minimum price for hot-rolled, et cetera. So they are feeling good.

The fact that China is controlling their output, even though I do not believe in 50% cuts in production, by the way, because 50%, Novid, would make China an importer of steel and that’s not the case. So, the math needs to add up, the numbers need to make sense, but they are definitely cutting output, no doubt about that.

So with this output being cut, the well-known whack-a-mole effect of Chinese steel going outside and not only going to the United States, but going to Japan, going to Korea, going to Malaysia, going to Taiwan. And then having all these guys sending steel to the United States has been interrupted.

So, it’s not only the Chinese market itself or the Chinese mills not being able to export, we are already seeing trends going on in the Japanese market, positive trends going on in the Taiwanese market.

Even in the South Korean market, short of a war in the Korean Peninsula or an expansion of the current war that’s going on in the Korean Peninsula to a more of an open combat type of situation. But other than that, the South Korean market is behaving well.

So the lack of Chinese surplus to export and destroy everybody else’s market is real and we are going to be positively affected by that.

On top of that, we are no longer, Novid, seeing the Chinese and we are seeing that even before the undercut in prices, willing to give away their steel because the Chinese, at this point, are no longer looking for strong currency out of a weak currency. They are taking good care of their R&D at this point.

So, the real motivation to export cheap, that’s not competitiveness. It’s the desperate need for hard currency no longer exists in China or has been reduced a lot.

So at this point, when you see real cheap steel in the United States, no matter what kind of tag the coil have, there is one country that the buyers should be concerned about, North Korea, because North Korea absolutely needs strong currency, and they are not going to export saying this coil was made in North Korea.

They will say that the coil is made in some other place, Vietnam, Cambodia, I don’t know. So if you are a steel buyer in the United States, if you are a service center in the United States and you still have access to their cheap steel, you have got to know one thing, that coil could have been produced in North Korea.

And if one day, you receive this, you have two guys in a dark suit and a black tie and a guy shows up at your door saying that they are from the FBI, you have got to believe it, because they don’t like you buying steel from North Korea. So, that’s the reason why I am so confident that 2018 will be a lot better..

Helpful, Lourenco. So, just one last question then, what you said kind of begs the question of what do you think is the disconnect as to why U.S.

Steel prices have not been participating in the move up that we have seen internationally?.

I disagree with the disconnect. I believe that we, here in the United States, we have been always, it’s not a 2017 thing, we have always, always been the price setters for the entire world. And we are now in a situation that we were flooded with unfairly traded steel. We were flooded with massive amounts of dumping steel.

We had only limited success with the trade case that were litigated during the Obama administration. We have service centers in the United States that insist and look for cheap steel, not seeing the big picture that if they kill the golden goose, then they will not have anything they will not even have a business.

Did you know and the fact that there is a national security component that is real, especially in the world of war? And my clients are having to fight all that.

All these bad perceptions, all these bad behaviors, I believe that domestic buyers, particularly service centers in the United States are one of the most relevant culprits of the United States of America being flooded with unfairly traded steel. It takes two to dance.

It’s not just the perpetrator at the other side of the world, it’s also the perpetrator right here inside, disguising as a good guy, disguising as a good client, but these guys over time will be all exposed..

Thanks for taking my questions..

You are very welcome..

Your next question comes from the line of Piyush Sood of Morgan Stanley. Your line is open..

Hi, guys. Thanks for taking the question. After the recent disaster in Puerto Rico, we saw the Jones Act was waived for Puerto Rico for a few days. And in the media, there is some discussion that it should be fully repealed.

So in the very unlikely scenario that it is repealed for all of the U.S., as I said very unlikely, but I just wanted to explore that – how much of that – how much of a freight benefit will it give you if you were, let’s say, shipping to the Gulf Coast?.

You mean the Jones Act, look, the Jones Act is an abberation. And the Jones Act is from the ‘30s or something like that. It was put in place to resolve an issue at that very moment back in – almost 100 years ago or 80 years ago and never fixed. I don’t believe that it will be fixed. Their log is too big.

And at this point in time, it would not be something that I would be spending any time. I have other priorities I have other fish to fry. The transaction is absurd, but this being said, other people should be taking care of that. I don’t spend a second thinking about, Piyush..

Alright. Thank you, Lourenco..

Thank you..

Your next question comes from the line of Nic Jarmoszuk of Stifel. Your line is open..

Good morning, Lourenco..

Good morning, Nic..

A question for you in terms of bringing in a partner, what sort of internal timeline have you set for yourself to identify an equity partner? And then at what point would you decide to go ahead and Cliffs doing it itself with its own balance sheet?.

Look, we don’t have a hard deadline, first and foremost. I have already mentioned how much money we are going to have to spend in the next 12 months. We also know our other needs in terms of CapEx. We also believe – truly believe in the cash flow generation capacity of our USIO business.

We totally understand that we don’t have a business that we can count on at Asia-Pacific but based on the parameters that we put in place to act on APIO, as long as APIO is open, and we will be at a positive EBITDA and cash generation position over there. And then we take all this into consideration.

But I’m not going to create an artificial deadline for ourselves at this point. The investors community should know that I tend not to do anything without fully gauging our possibilities and we will never ever put this company in a position of distress. I’m a big shareholder of the company. I’m a bondholder of the company.

I am extremely involved with the same outcome that shareholders and bondholders are expecting. I am one of those. So that’s probably the most comfort thing that they can hear from me at this point. Other than that, today’s Friday and the weather here in Cleveland is great, so relax and continue to enjoy life.

I’m taking care of your investment in Cliffs, and I have full confidence of my Board and my management team and you should have the same or sell the stock and go buy Bitcoin. You guys know I am a big proponent of that..

And with the CapEx in 2018 for the Toledo plant, can you give us a sense for the breakout quarter-by-quarter?.

I am sorry, say one more time?.

For the Toledo CapEx, could you give us the breakout by quarter?.

Yes, I’ll have Tim Flanagan answer that, Nic..

Yes. As we have guided to previously, about 35% of the total will be in ‘18. There are some spending towards the end of Q1. The vast majority of that 35% is back half of the year weighted. So really, we can do the first two quarters of next year with a minimal amount of HBI spending..

Okay..

And then it’s pretty steady from that point forward throughout the duration of the project..

Okay, that helps. Thank you.

And then last question on APIO, if you were to exit the business sooner than later, could you give us a sense for the cash exit costs?.

Yes. So right now, I mean, as Lourenco stated a couple of times, we will continue to run the business on a positive EBITDA basis, so no plan to exit today. We do have a $20 million reclamation liability recorded. So right now, that’s a known obligation.

The rest – we have take-or-pays that we will continue to meet kind of minimum volumes on those contracts, but the reclamation is the big one that we got recorded at this point in time..

Okay, alright. Thank you..

Thank you..

Your next question comes from the line of Brett Levy of Seelaus & Company. Your line is open..

Hey, Lourenco, hey, Tim, I think Paul is on the line as well. I know that Toledo, Ohio is not going to be a field of green. You have decided it’s going to be $700 million plant you have spent another $100 plus million to supply it from Tilden. Talk a little bit about kind of your vision 5 to 10 years out about the demand for HBI from Toledo, Ohio.

Obviously, you have got Nucor, Steel Dynamics, American metals, Big River, all these potential guys. But that’s kind of a short list.

Have you gotten a sense from the big potential customers that either are replacing imports or taking automotive market share in the next 5 years to 10 years is going to be able to support, at this point, over $800 million investment 5 to 10 years out as a function of Toledo?.

That’s a very good question. I will try to squeeze an answer in the little time that we have left in this call, but it’s a very good question, Brett. So, let me try. With everything that we have done so far at Cliffs, I could have been sitting here still and taking the victory lap and say, well, we saved Cleveland-Cliffs.

Cleveland-Cliffs is no longer are 14x EBITDA company, it’s a 2.5x EBITDA company, to use language that a very thoughtful bond analyst like yourself use all the time. We have extended the maturities of our debt to a point that we don’t have any short-term concerns. We have long-term very good, very profitable contracts in place in the domestic market.

Nobody else has. That’s why everybody else that talks about or does anything about the pellet business, they have the brilliant idea to export pellets because they don’t have an alternative because the alternative has been taken. We take care of that. So I could be really enjoying life. I’m 59 years old I will be 60 in February.

I have a lot more money than I can use, that’s the reason I buy so much stock with Cliffs’ stock with my after-tax dollars, my hard-earned tax dollars. I have already spent more money, more dollars buying stock in the open market than I have made since I joined Cliffs because I’m investing in this company for the long term.

I’m not investing in this company for next quarter.

I’m investing in this company for the next generation and the next after next because what happens in these two businesses, particularly here in the United States is that, over time, the long-term consumers of steel will look for the balance sheet of the suppliers that will be there in the long term.

And unfortunately, as we saw 15 years, 16 years ago when LTV went down, debt still went down, national steel went down and keep going. Armco went down. All these big names disappeared. Wheeling-Pitt, Wellington disappeared. We are going to probably see another wave in the next 10, 20 years.

So what I know is that the mini mills that started mini, they have nothing else mini at this point. They are enormous. They have strong balance sheet. They are the ones that – for example, the automotive clients we would like to partner with going forward.

And they eventually don’t have the feedstock or they are in the process of having the feedstock but they don’t have full scale. We are enabling them to do that. That’s the type of partnership we are developing with these clients.

And in order to make sure that our move is not only well understood by the outsiders but also, our move is 100% successful, we are starting small. We are starting with 1.6 million tons in a market that, just in the Midwest, already buys 3 million tons. So it’s like stealing from a kid. We are going to take this business with absolutely no problem.

You ask any potential buyer, do you prefer to buy from Cleveland-Cliffs or from Venezuela? The guy will say, Cleveland-Cliffs. And then you go to the other one and say, would you prefer to buy from Russia or from Cleveland-Cliffs? They will say Cleveland-Cliffs.

So that’s the way we are structuring this business, but this business will continue to evolve. They are not going to stop. They will continue to grow. And the good integrated news, we will fight back, we will compete and Cleveland-Cliffs will continue to supply the good and strong integrated mills that we will continue to fight for that great business.

We can supply both. And that’s the way we envision this business going into 5 or, more likely, 10 years. I split between strong blast furnaces with the weaker ones going away and the strong EAFs with the weaker ones going away. And we are going to be supplying both exactly like we did during the ‘90s when we had all those names that I mentioned before.

And then after they were all gone, we did with ISG and Algoma and other names. And now, we are evolving towards the Nucors and Steel Dynamics and Big Rivers and North Star BlueScope, and keep going. And that’s how we are going to take care of business. We are going to be here after you and me, Mr. Levy, will be gone.

Cleveland-Cliffs will be here, supplying a lot of steel, making a lot of money and playing for the next wave because this business will continue to evolve. And one good thing that we’re doing here, we are creating the next generation of management with the same long-term view, the same long-term mentality..

Okay. With that, we will thank you for the time today. We will continue to work hard for you and for ourselves and we will continue to treat the competitors the way they deserve. So you guys have a great weekend and we will talk in 3 months. Bye now..

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