Cliffs signals operational independence at Q3 earnings call

Company says it has made its stance 'very clear' to Posco; talks continue

Q3 profit turnaround sends share price up 16%

Investment terms still unresolved more than a year after MOU signing

Posco Group Chairman Jang In-hwa and Cleveland-Cliffs CEO Lourenco Goncalves pose for a commemorative photo. [Cleveland-Cliffs]
Posco Group Chairman Jang In-hwa and Cleveland-Cliffs CEO Lourenco Goncalves pose for a commemorative photo. [Cleveland-Cliffs]

Posco's North America investment project appears to be hitting turbulence. Cleveland-Cliffs, the US steelmaker that has been in investment talks with Posco for more than a year, has again signaled its intent to operate independently, saying it has no need for outside technical assistance.

Celso Goncalves, president and chief financial officer of Cleveland-Cliffs, said Monday (local time) during the company's third-quarter earnings conference call that the company is "very confident in our ability to run this business as an independent company" and that it does not need technical help from outside parties to properly serve its automotive customers and grain-oriented electrical steel customers.

He added that the same holds even more clearly for customers with relatively lower technical requirements, and said the company has communicated that position "very clearly" to Posco in the ongoing negotiations.

The remarks are notable because they show Cliffs asserting its own technological capabilities and operational independence in the middle of partnership discussions with Posco. While the two companies are still in talks, Cliffs made clear it believes it can retain and serve its existing customers without any technical support from Posco.

Cliffs has not, however, rejected cooperation with Posco outright. Goncalves said discussions with Posco are still ongoing and directed observers to a disclosure Posco Holdings filed with the US Securities and Exchange Commission on Sept. 30 for details on the current state of negotiations.

In that filing, Posco Holdings said it had signed an MOU with Cleveland-Cliffs as part of its overseas localization strategy to expand in the high-margin US market, and that the two sides are discussing the business structure and investment scale. "No specific decisions have been made to date," the filing said.

Posco Group head of management planning Shin Sung-won (fifth from left) and Cleveland-Cliffs CFO Celso Goncalves (sixth from left) pose with officials from both companies at a strategic partnership MOU signing ceremony held at Posco Center in Daechi-dong, Seoul, in September last year. [Cleveland-Cliffs]
Posco Group head of management planning Shin Sung-won (fifth from left) and Cleveland-Cliffs CFO Celso Goncalves (sixth from left) pose with officials from both companies at a strategic partnership MOU signing ceremony held at Posco Center in Daechi-dong, Seoul, in September last year. [Cleveland-Cliffs]

The two companies have been unable to finalize specific investment terms for more than a year since signing an MOU for a strategic partnership on Sept. 17 last year. Cliffs had originally announced the partnership with Posco in October last year, expecting to sign a definitive agreement in the fourth quarter of last year or the first quarter of this year and close the deal within the year.

But negotiations have stretched beyond that original timeline. At the first-quarter earnings call in April, Cliffs CEO Lourenco Goncalves cited rising US steel prices and a recovery in automotive demand and said the company was "no longer in a hurry."

The latest remarks go a step further, emphasizing technological independence. The significance is heightened by the fact that automotive steel sheet and grain-oriented electrical steel are high-value products in which Posco itself is competitive, making the comments more than a simple expression of technical confidence.

Strong earnings results underpin that confidence. Cliffs reported third-quarter sales of $5.6 billion, up about 19 percent from a year earlier and about 8 percent from the previous quarter's $5.2 billion. Net profit came in at $165 million, a turnaround from a net loss of $234 million in the same period last year. Adjusted EBITDA jumped to $612 million — roughly 4.3 times the year-earlier figure of $143 million and more than double the prior quarter's $286 million.

Markets responded immediately. Cliffs shares closed Monday (local time) on the New York Stock Exchange up 16.34 percent at $14.10, after the company posted an earnings surprise with adjusted earnings per share of $0.28, beating the consensus estimate of $0.22.

The outlook is also positive. Cliffs projected adjusted EBITDA of about $715 million in the fourth quarter and said it expects the figure to exceed $4 billion next year, supported by reduced import volumes stemming from US steel import regulations, higher product prices and new customer contracts.

The backdrop to Posco's pursuit of a Cliffs partnership is the US steel tariff barrier. With the US imposing 50 percent tariffs on imported steel, Posco's strategy is to secure local production and supply chains to expand business with its existing automotive steel customers. Cliffs, for its part, has been looking to the partnership for investment and enhanced business competitiveness.

Separately, Posco is also participating alongside Hyundai Steel in the construction of an electric arc furnace-based integrated steel mill in Louisiana. Posco has invested $582 million for a 20 percent stake in the project, which held a groundbreaking ceremony at the site last month. The mill is designed to produce 2.7 million tons annually, with commercial production targeted for 2029.


kwater@heraldcorp.com