At the end of the 2016 Q4 CC, Goncalves made a cryptic statement forshawdowing the near future (at least it was cryptic to me); i.e.
Minute 67:00…. The problem is when one is small and behaves like someone is big because sometimes the small guy will be stopping in the rail track and a freight train like Cliff will come and pass over them. That’s happening right now in the United States Pellet market between Cliffs and US Steel. Unfortunately time is up and you are going discuss that in the next chapter in three months.
I’m guessing that Goncalves is referring to US Steel’s plans to reopen the KeeTac pellet mine convoluted with the ungoing saga of Essar Global’s efforts to merge Stelco and Algoma into a new Canadian steel company via its Ontario Steel Investment Ltd subsidiary. Both of these topics were addressed obliquely in the Q&A of the CC (see footnotes below).
I would appreciate a correction should anyone have a clearer idea of what Goncalves his talking about.
The drama seems to be centered on the prospect that if Essar Global is successful, CLF will terminate its current contract with Algoma (1.4M tons). The Algoma/Steelco combination would then need KeeTac pellets, the implication being that other potential users of KeeTac pellets would lose their supply and would need to come to CLF (but I don’t know what other users Goncalves might be referring to).
Footnotes:
CC Minute 42:34 (KeeTac discussion)
Michael Gambardella, JP Morgan… Could you give us your thoughts, how you feel, US Steel, the restart of KeeTac impacts you longer term; I know you’re sold out this year.
Lourenco Goncalves, CLF CEO… That’s a good question, about KeeTac. First of all, let me take one step back and think about why KeeTac shut down in the first place. KeeTac was a supplier of two US Steel mills, one was Fairfield, the other was Granite City. Fairfield shut with the assumption that they would replace their blast furnaces with EAF and therefore they would not be using pellets anymore, they would be using scrap so Fairfield was never a player to be brought back to support KeeTac. But Granite City was idled more than a year ago (I don’t recall how long ago, but a long time ago) and they never said that they would shut down for good, so it was easy to assume that KeeTac would be supplying Granite City once Granity City comes back into operation. This being said, we heard the announcement of KeeTac coming back and we did not hear the announcement of Granite City coming back yet. While I fully believe Granite City will come back because …. it is mathematical impossibily to have the output of KeeTac allocated without having Granite City in operation.
I also try to understand where US Steel is going to sell their pellets because certainly not to Arcelor Mittal because I know the contracts we have put in place. Certainly not to AK Steel Dearborn because I also know the contracts we have in place. And then I have to guess. I guess they are not selling to AK Steel Millertown because AK Steel Millertown is very happy with our pellets and they don’t seem to be the type of steel makers that replace good pellets with bad pellets like Algoma did when they did not have an option back in 2015 when I blew up the contract with Algoma and they had no option other than going to US Steel. So, once I re-enacted the contract with Algoma, Algoma came back running and they would have given me 100% business. I elected not to take it because on top of KeeTac, US Steel also has an equity position in Tilden and an equity position at Hibbing, so I tried to make sure that I know where those pellets are going. So by keeping Algoma only occupying a portion, I pretty much defined that the Tilden portion of the equity position that US Steel has in our mine would go where it belongs (and it goes to Algoma).
So, it is a big interesting question for you to ask US Steel: Where in Hell are you putting your pellets? Because the numbers don’t close. And, one last thing on that: If US Steel brings back KeeTac, when US Steel brings back KeeTac, and I got to believe that that’s what they are looking for because the US Steel CEO is very vocal about a level playing field and if a level playing field will be implemented in the United States he said that he is going to bring back 10,000 jobs to US Steel. So, I’m watching that, I’m watching that. So, when Granite City comes back to operation these clients that are buying pellets from US Steel right now will have to find a new supplier, and guess who is the supplier, it is Cliff’s, and of course that will come with a price because among other things, I am a guy with a great memory.
CC Minute 47:22 (Algoma discussion)
Evan Kurtz, Morgan Stanley… I just wanted to ask a couple questions, maybe one following up some of the last commentary there on Algoma. I know that they are in the midst of a restructuring and USW is now talking about or threatening a strike … what’s kind of your view of how that situation might play out and is that a risk to you and how much of that 19 is committed to Algoma at this point?
Goncalves… We re-enacted the old contract and the old contract covered for 1.5 million tons, and we signed an addition that was for 900,000 tons. So the total for Jan 1 through Dec 31 is 2.4 million tons. This being said, the union, the USW at Algoma, they are trying to get what they feel is fair and I’m not going to give you any position on that. But at the end of the day, they know what is feasible, they know what’s real, they know what’s true, and they know what’s a lie. And, sanity will come back. The judge, the monitor, all the parties involved will end up realizing, and I think that we are pretty much there, that the best course of action is moving on and fixing what needs to be fixed and getting a new owner and working with Cliffs to continue to make that mill a strong mill. I feel that there is room for Algoma, that there is a future for the Algoma workers, but they need the right ownership. I’m not going to deal with Essar. I put very clear to the court and the court approved. That thing was a difficult point to make and we made it. It’s approved and its behind us. I have the right to terminate that contract if Essar comes back as owner of that facility.
AI
