Cleveland-Cliffs Inc (NYSE:CLF) Q2 2019 Earnings Conference Call - Final Transcript

Jul 19, 2019 • 09:00 am ET

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Cleveland-Cliffs Inc (NYSE:CLF) Q2 2019 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] Your first question comes from Lucas Pipes with B. Riley FBR. Your line is open.

Analyst
Lucas Pipes

Hey, good morning, everyone, and congratulations on another very good quarter.

Executive
Lourenco Goncalves

Thanks, Lucas. Good morning.

Analyst
Lucas Pipes

Good morning. Lorenzo, I first wanted to ask on the CapEx side. So there were a couple of moving pieces you mentioned the lower contingency of 13 % versus the 20% previously. But then you increase this year. Well, I mean, the way I understood it maintaining the total CapEx guidance for the project. Could you just kind of walk us through it? What are we expect? What should we expect? What 2020 in terms of capital spending? And where would we see the benefit of the lower contingency? Thank you.

Executive
Lourenco Goncalves

Okay, Lucas. Thanks. Lucas, the budget continues to be $830 million, and we are actually giving a few good news -- we're delivering a few number of good news regarding the project. First, we are now less than a year away from a conclusion. With that, with the fact that we anticipate at least two months, the conclusion of the projects and startup of the plan. It's time to allocate conditions based on our best estimate at this point, we don't need the entire 20% that we have been working with since the beginning of the project only 13%. So if you calculate the number, it would be something like $110 million on top of the $830 million that we're talking out.

And the effect that we're spending more this year than we previously anticipate this is very easy to understand. We are spending money this year that we're supposed to spend only next year. So things that were in January or February of next year and now in December, November, October of this year. So we need to bring up -- this expenses up front because we are ahead of schedule. So that's the difference in 2019 CapEx. And as far as 2020 EBITDA balance, though quality -- the $830 million plus, the contingency -- as the number for completion, no matter if you do a little more in 2019 or a little less in 2020, we're still doing the same thing. So that's the entire story.

Analyst
Lucas Pipes

Got it. Okay. That's helpful. Thank you for that. And then the 26% IRR, does that include any of the benefit that you would capture on the Mining and Pelletizing side? So you mentioned you're going to tighten the pellet market as well. And then I see opportunity for higher prices when you sell intercompany versus some of the contracts you have out there. Would that benefit be captured in the 26% IRR?

Executive
Lourenco Goncalves

Yeah, thanks for asking the clarification. And the answer is no. We are considering the 26% -- we are calculating the 26% IRR after being for the DR-grade pellets that you are delivering from NorthShore to Toledo at market price. If you include the benefit of the production of DR-grade pellet [Indecipherable] and you account for the