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CEO says new owner will maximize use of Region steel mills: 'Cleveland-Cliffs is coming to the rescue'

CEO says new owner will maximize use of Region steel mills: 'Cleveland-Cliffs is coming to the rescue'

From the 5 stories to know from the weekend: CEO says new owner will maximize use of Region steel mills series

Lourenco Goncalves, who has more than 30 years of experience in the mining and metals sector, had an ambitious plan to strengthen Cleveland-Cliffs, Inc. as an industry leader by consolidating much of the integrated steel production in America when he took over six years ago.

Last week, months after the longtime mining company bought out AK Steel, his plan came to fruition when Cleveland-Cliffs completed an acquisition of most of ArcelorMittal USA's assets. The merger that's been called a "megadeal" and "blockbuster deal" will result in a seismic shift in the domestic steel industry and a historic change of ownership for many of the integrated steel mills along Northwest Indiana's lakeshore.

"It was the plan when I came to Cleveland-Cliffs in 2014," said Goncalves, the chairman, president and CEO, in an interview last week. "It was a multiyear plan that was executed to perfection. It isn't consolidation for consolidation's sake. Consolidation works when you have the right vision and the right strategy. We're stronger with more assets."

After the $1.4 billion acquisition of ArcelorMittal USA closed last week, Cleveland-Cliffs is taking over ArcelorMittal East and West in East Chicago, ArcelorMittal Burns Harbor in Porter County, ArcelorMittal Riverdale just over the state line in Illinois, the I/N Tek and I/N Kote finishing lines in New Carlisle, and ArcelorMittal's Gary heat treat and rolling facilities inside U.S. Steel's Gary Works steel mill.

"We are excited, energized, and fully committed to the area and the state," Goncalves said. "We are fully committed to the assets. We love the assets. We love the business. Our mission will be accomplished with all these assets under our control. We will work with the unions to seize this opportunity and generate wealth."

Though redundancies often take place after big corporate mergers, Cleveland-Cliffs does not plan to lay any workers off at ArcelorMittal USA at this time, Goncalves said.

"When we acquired AK Steel, there were two CEOs, two CFOs and two controllers," he said. "We don't have that in this situation, when dealing with ArcelorMittal USA. Though ArcelorMittal USA is a huge company, there are no duplications of our current business. With the mills in Indiana, we do not expect a reduction in force. That's not going to happen. That's not the way we do business or make our money. The people who do the work in operations and commercial should be prepared for business as usual, but with a new way of doing business to help improve operations."

Cleveland-Cliffs already supplied ArcelorMittal USA's steel mills with iron ore shipped across the Great Lakes under a long-term contract. It will gain efficiencies and cost advantages from a more integrated operation with both raw materials and steel production under one roof, Goncalves said.

"With our integrated footprint, we are self-sufficient with the right cost structure to take care of the business," he said. "We have the technical capacity to take care of the clients. We will be the automotive supplier of choice."

The company is "basically buying its own client" to help bring down operating costs, Goncalves said.

Cleveland-Cliffs supplying iron ore to its own steel mills will solve the problem of high and fluctuating input costs that has bedeviled the American steel industry for years, he said.

"As you know the price of steel is very high," he said. "When steel prices are high, the price of scrap metal and raw materials goes up. But our cost to produce pellets stays the same. Long story short, we have a low cost structure, a friendly cost structure that will limit our variable costs."

Cleveland-Cliffs, a longtime iron ore mine operator that dates back to 1847 and got into steelmaking when it acquired AK Steel in March, plans to boost production at and invest in its new Northwest Indiana mills, Goncalves said.

"We plan maximum utilization of the mills to make high value-added products," he said. "We plan to continue to operate those mills to generate real returns and reinvest. This is very good and comforting for steelworkers. We plan to maximize our return on investment. We don't work for capacity utilization or tons per employee. This is a business that depends on its people and we operate the business to be very inclusive. We have very good relations with the unions, mainly the United Steelworkers in that area but also the United Auto Workers and Machinists. We work for return on investment on our capital."

USW District 7 Director Mike Millsap said the union was looking forward to working with Cleveland-Cliffs, as it was the first company to reach a deal with the union during the last round of contract negotiations, and did not demand any unreasonable concessions.

Goncalves said he intended to "work side by side" with steelworkers.

"We pay people well," Goncalves said. "We are proud of our pay and pay better than competitors. I speak to the union the same way I speak to you. I'm a transparent person."

Cleveland-Cliffs agreed to take on pensions and benefits for retirees. The company also will take a look at community causes ArcelorMittal supported, such as STEM funding for local schools and the Steelworker for the Future job training program.

"We're very involved with the community," he said. "We're good corporate citizens in the communities in which we operate. We'll take a look at their programs and may keep them if they're good programs that work."

The company hopes to be a good environmental steward, Goncalves said. It will take over ArcelorMittal USA operations that had some environmental issues, such as repeated air pollution violations and chemical discharges in Burns Ditch flowing into Lake Michigan, including one that resulted in a major fish kill last August.

"We want to do a good job preserving the environment," he said. "It's trendy now but it's in our DNA and bloodstream. We're proud we don't pollute and preserve the communities in which we operate."

The Cleveland, Ohio-based company hopes to help revive the industrial backbone of the Midwest, Goncalves said. 

"The Midwest was built around the foundation of middle-class jobs and the steel industry had a historical role in that," he said. "Steel is one of the best businesses around. I continue to believe that. Otherwise, China wouldn't have been developing its steel industry for the last 20 years. We want to replicate what's been done before with China and Japan that's kind of been abandoned here. But Cleveland-Cliffs is coming to the rescue for the steel industry. If you live in Indiana, it has to be lot more rewarding from an economical standpoint to work at a steel mill than to drive for Uber."

The deal makes Cleveland-Cliffs the largest flat-rolled steel producer in the United States, which puts it in a good position to serve the automotive industry, he said.

"We feel like we have the best assets in the country under our control," he said. "We're the leading supplier to the automotive industry. With all our facilities we will provide about six million tons of automotive steel, compared to 1.5 million tons for Nucor. We are four times bigger than anyone else. We're going to continue to run those assets to serve the automotive industry and I'm also excited about the military grade plates we can make at Burns Harbor and Gary Plate."

Cleveland-Cliffs will continue to serve core customers like appliance makers.

"We're not going to reinvent the business, but we're going to reemphasize delivering on time, quality, environmental compliance and safety," he said. "We don't have to reinvent what we do but we have to do it a lot better."

The company should be able to produce 17 million to 20 million tons of steel per year, giving it enough size to have a benefit of scale and leverage in negotiations. With the latest wave of consolidation, the American steel industry will end up stronger, Goncalves said.

"You can't have a strong middle class without manufacturing jobs and manufacturing jobs in steelmaking is part of the foundation of the American economy," he said. "It's not the old economy. It's the real economy. We do have to adapt and modernize ourselves, such as so that we're not polluting the air. We have to adapt and improve, but this is the real economy that provides middle class jobs. We are committed to manufacturing in this country. The underlying conditions are strong. The manpower is second to none. Our market is the envy of the world."

Gallery: U.S. Steel's long history in the Region


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Business Reporter

Joseph S. Pete is a Lisagor Award-winning business reporter who covers steel, industry, unions, the ports, retail, banking and more. The Indiana University grad has been with The Times since 2013 and blogs about craft beer, culture and the military.

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