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Cleveland-Cliffs (CLF) to Receive $575M in DOE Investments

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Cleveland-Cliffs Inc. (CLF - Free Report) recently stated that two of its projects have been selected for award talks for total funding of up to $575 million from the United States Department of Energy ("DOE") to pursue two decarbonization investments at Middletown Works in Ohio and Butler Works in Pennsylvania.

Following successful discussions, these projects will enable significant reductions in greenhouse gas (GHG) emissions across the Cliffs' footprint, as well as efficiencies that will significantly lower operating costs while securing and expanding good-paying Union employment. This funding is made available through the DOE's Industrial Demonstrations Program, which is supported by the Infrastructure Investment and Jobs Act and the Inflation Reduction Act.

If the up to $500 million grant for Middletown Works Direct Reduced Iron (DRI) plant and electric melting furnaces is awarded, CLF will replace its existing blast furnace at its facility in Middletown, OH, with a 2.5mtpa Hydrogen-Ready DRI plant and two 120 MW Electric Melting Furnaces (EMF) to feed molten iron to the existing infrastructure, which includes the BOF, Caster, Hot Strip Mill and various finishing facilities.

Middletown will keep its current raw steel production capability of about 3 million net tons per year but will no longer use coke for iron production. EMF technology is widely established, and it, along with hydrogen injection in blast furnaces, is a favored route for integrated steelmakers around the world to reduce carbon emissions significantly.

The process is expected to reduce carbon emissions intensity considerably, establishing Middletown Works as the world's most advanced, low-GHG-emitting integrated iron and steel complex. The plant will have the option of being powered by natural gas, which would lower current ironmaking carbon intensity by more than 50%, a combination of natural gas and clean hydrogen, or clean hydrogen, which would reduce current ironmaking carbon intensity by more than 90%.

The new facility is expected to cut production costs by roughly $150 per net ton of liquid steel produced, equivalent to a $450 million savings per year relative to the existing configuration.

If the up to $75 million grant for Butler Works is awarded, the company will replace two of its existing natural-gas-fired high-temperature slab reheat furnaces with four electrified induction reheat furnaces. This is expected to bring optimum efficiency to its production of electrical steels, a key element of the electrification of America and the greening of the electrical grid. CLF expects to generate roughly $80 million in cost savings per year and yield improvements following the installation of the new equipment.

Shares of Cleveland-Cliffs have gained 23.3% over the past year compared with a 3.1% rise of its industry.

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The company, on its fourth-quarter call, said that it expects steel shipment of 16.5 million net tons for 2024, up from 16.4 million net tons in 2023. Steel unit costs are predicted to be down by about $30 per net ton, resulting in an adjusted EBITDA benefit of almost $500 million over 2023 levels. Capital expenditures for 2024 are forecast in the range of $675 million to $725 million.

CLF expects adjusted EBITDA to be significantly higher in the first quarter of 2024 than in the fourth quarter of 2023.

Zacks Rank & Key Picks

CLF currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the basic materials space include Denison Mines Corp. (DNN - Free Report) , Carpenter Technology Corporation (CRS - Free Report) and Hawkins, Inc. (HWKN - Free Report) .

Denison Mines carries a Zacks Rank #1 (Strong Buy). DNN beat the Zacks Consensus Estimate in each of the last four quarters, with the average earnings surprise being 300%. The company’s shares have soared 91.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Carpenter Technology currently carries a Zacks Rank #1. CRS beat the Zacks Consensus Estimate in three of the last four quarters while matching it once, with the average earnings surprise being 12.2%. The company’s shares have soared 66.9% in the past year.

The Zacks Consensus Estimate for Hawkins’ current fiscal year earnings is pegged at $3.61 per share, indicating a year-over-year rise of 26.2%. The Zacks Consensus Estimate for HWKN’s current-year earnings has been revised 4.3% upward in the past 30 days. HWKN, a Zacks Rank #2 (Buy) stock, beat the consensus estimate in each of the last four quarters, with the average earnings surprise being 30.6%. The company’s shares have rallied roughly 78.5% in the past year.


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