DEF 14A: Cleveland-Cliffs Reports Strong 2023 Performance, Focuses on Shareholder Returns and Decarbonization

Cleveland-Cliffs generated substantial free cash flow in 2023, enabling debt reduction and increased capital returns to shareholders while advancing lower-carbon steel solutions.

Summary

• Cleveland-Cliffs had an outstanding year in 2023, generating over $1.6 billion in free cash flow and reducing net debt to $2.9 billion.
• The company delivered record shipments to the automotive industry and total shipments of 16.4 million tons.
• Cleveland-Cliffs began implementing the CLIFFS H surcharge for lower carbon steel and is recognized for decarbonization performance by the DOE.
• The company is ahead of the rest of the world in using proven technologies that make blast furnace steel the cleanest in the world, including using iron ore pellets, natural gas injection, HBI, and now hydrogen.
• The Annual Meeting of Shareholders will be held on May 16, 2024, to elect directors, approve executive compensation, and ratify the appointment of Deloitte & Touche LLP as the independent auditor.
• The Board recommends voting for all director nominees, the advisory vote on executive compensation, and the ratification of the auditor.
• Shareholders are encouraged to engage with the company and provide feedback on compensation and governance matters.
• The company's executive compensation program is designed to align with shareholder interests and reward performance.
• The company donated approximately $7.5 million to local communities, including the Foundation matching nearly $550,000 in total employee donations.

Sentiment

Score: 9

Explanation: The document expresses a highly positive sentiment due to the company's strong financial performance, debt reduction, shareholder returns, and commitment to sustainability. The CEO's high share ownership further reinforces confidence in the company's future.

Positives

• Strong free cash flow generation allows for debt reduction and shareholder returns.
• Record shipments indicate healthy demand and efficient operations.
• Implementation of CLIFFS H surcharge demonstrates leadership in lower carbon steel production.
• Recognition by the DOE highlights commitment to decarbonization.
• High union membership and focus on safety contribute to a positive work environment.
• The company's Total Reportable Incident Rate (including contractors) was 1.22 per 200,000 hours worked, which is an improved trend.
• The company's integrated mill GHG emissions intensity is 28% below the global average.

Risks

• Forward-looking statements are subject to uncertainties and factors that may cause actual results to differ materially.
• The company's greenhouse gas (GHG) reduction plans and goals are not an indication that these statements are necessarily material to investors or required to be disclosed in filings with the SEC.
• Historical, current and forward-looking GHG-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change in the future.

Future Outlook

The company aims to return more capital to shareholders while pursuing value-enhancing M&A opportunities and driving reductions in its carbon footprint.

Management Comments

• 2023 was an outstanding year for Cleveland-Cliffs.
• We now have the flexibility to return more capital to our shareholders, while pursuing value-enhancing M&A opportunities.
• We are well positioned to support good-paying, middle class jobs for our workers, develop critical solutions for our customers, advance lower-carbon steel solutions and, as a direct consequence of all that, reward our shareholders.

Industry Context

The American steel industry is seen as a vital component in the transition to a low-carbon economy, and Cleveland-Cliffs is positioning itself as a leader in sustainable steel solutions.

Comparison to Industry Standards

• Cleveland-Cliffs has demonstrated how far ahead we are in ironmaking and steelmaking, when compared against Europe, Japan, China or South Korea, among all others.
• The company's integrated mill GHG emissions intensity is 28% below the global average.
• Mr. Goncalves has achieved over 44 times share ownership compared to base salary, reflecting not only share awards, but significant after-tax open-market purchases as well, demonstrating further alignment with long-term shareholder interests.
• His share ownership represents more than 1% of outstanding Company shares, which is significantly above the average of certain peer company chief executive officers.

Related Party Transactions

• Mr. Celso Goncalves, our Executive Vice President, Chief Financial Officer (CFO), is the son of Mr. Lourenco Goncalves, our Chairman, President and CEO, both of whom are NEOs.
• Certain of our subsidiaries have contracted on an arms length basis for work with Morgan Engineering Systems, Inc. (Morgan Engineering), which is a company owned by Mr. Mark Fedor. Mr. Mark Fedor is the brother of Mr. Terry Fedor, who serves as our Executive Vice President, Operations.

Stakeholder Impact

• Shareholders will benefit from increased capital returns and long-term value creation.
• Employees will benefit from good-paying, middle-class jobs and a safe work environment.
• Customers will benefit from critical solutions and lower-carbon steel options.
• Communities will benefit from charitable giving and engagement.

Next Steps

• Shareholders to vote on director elections, executive compensation, and auditor ratification at the Annual Meeting on May 16, 2024.
• The company plans to announce interim and long-term GHG reduction goals with intention to announce new targets in connection with our annual sustainability report in April 2024.

Key Dates

Keywords

Cleveland-Cliffs, steel, shareholders, compensation, decarbonization, ESG, HBI, CLIFFS H, hydrogen, shipments, debt, governance, sustainability