Steel Dynamics Inc (STLD) 2010 Q3 法說會逐字稿

Good day everyone and welcome to today's Steel Dynamics' third quarter earnings conference call.

Today's conference is being recorded.

Joining us today are Keith Busse, Chairman and Chief Executive Officer, Richard Teets, Executive Vice President of Steel Dynamics Incorporated and President and Chief Operating Officer of Steel Operations, Mark Millett, Executive Vice President of Steel Dynamics Incorporated and President and Chief Operating Officer of OmniSource Corporation, Gary Heasley, Executive Vice President of Steel Dynamics Incorporated and President of New Millenium Building Systems, Theresa Wagler, Executive Vice President and Chief Financial Officer of Steel Dynamics Incorporated and Fred Warner, Investor Relations Manager.

For opening remarks, I will now turn the call over to Mr.

Keith Busse.

Please go ahead, sir.

Actually we're going to turn it over to Fred Warner to start with.

Welcome to the Steel Dynamics third quarter 2010 conference call.

This call is being webcast live October 19, 2010, from Fort Wayne, Indiana.

Later today, you will be able to replay the call from our website or download the call as a podcast.

During today's call, our management will be making some statements that are forward-looking.

All statements regarding anticipated future results or expectations are intended to be forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

Such statements, which by their nature are predictive and are not statements of historical fact, are often preceded by such words as, believe, anticipate, estimate, expect or other conditional words.

These statements are not intended as guarantees of future performance.

We caution that actual future events and results may differ materially from such forward-looking statements or projections that may be made today.

Some factors that could cause actual results to differ include general economic conditions, governmental policies, monetary or fiscal, industrial production levels, changes in market supply and demand for our products, foreign imports, conditions in the credit market, the price and availability of scrap and other raw materials, equipment performance or failures or litigation outcomes.

You may find additional information concerning a variety of factors and risks that could cause actual results to differ materially from today's forward-looking statements.

Refer to sections entitled, Forward-looking Statements and Risk Factors in our most recent annual report on Form 10-K and in our quarterly reports on Form 10-Q as well as in other reports we file from time to time with the Securities and Exchange Commission.

These reports are publicly available on the SEC website www.SEC.gov and on our website www.SteelDynamics.com.

Now to begin today's call we will hear from the Chairman and Chief Executive Officer, Keith Busse.

Good morning, ladies and gentlemen, it is good to have you with us today.

As you can see, we had earnings in the third quarter $19 million, a little weaker quarter certainly than the second quarter.

But within the range of $0.05 to $0.10 as we guided and as reported by most parties right on top of the consensus of $0.09.

In the second paragraph, we talk a lot about our net sales and would note that they were 3% lower than the second quarter of 2010 yet shipments as you go on and read in that paragraph were 4% higher than the second quarter, which implies that prices were lower overall and given what happened in metals universe at least as applied during the quarter thought -- we thought ourselves in a margin squeeze.

On a year-to-date basis, I wanted to point out that net income of $133 million compares to a loss of $35 million for the first nine months of 2009, a significant positive change.

Operating income was $218 million versus $41 million in the first nine months of 2009.

In the next paragraph, we talk about the markets a little bit and the third quarter steel volume remained relatively flat or while it remained flat, the decline in selling prices mainly sheet steel outpaced the decline in scrap prices.

That's true as the average selling prices were down $47 to $782 from $829.

And average scrap cost only decreased $23 a ton.

As a result of reduced margins, operating income for the segment fell to $88 million in the third quarter.

In our metals recycling business, shipments were about flat but income was -- operating income was $22 million, down from the $25 million in the second quarter.

Actually better results than we had anticipated sort of early in the month when we gave our guidance.

I think the -- the earnings for metals recycling segment was really injured by kind of an upside down July.

We really had a fairly good August and a fairly good September in recycling but we really had a pretty lousy July.

I think most people anticipated that scrap prices would be up $40 in July and they were actually down $40.

So that -- that hurt our performance rather dramatically in that particular month of the quarter.

Mike mentioned that not having talked to Mark, my outlook for scrap which you know was down some $40 on primes and $25 or so on $30 on cut grades is probably flat for the remainder of the quarter.

I don't see a lot of movement and I don't see a lot of demand response out there either.

So I don't think scrap is probably going to move a lot.

Prices in the steel business have moved down, but so have our scrap costs.

It should not result in any margin loss at least as we move forward.

I am pleased to report that New Millenium's operating losses narrowed in the third quarter to less than $500,000 to the prior quarter's $5 million.

We are getting stronger in fabrication and in time given the fact that we are now west of the Mississippi river with three operating installations or soon to be operating installations, we will have a national presence in fabrication.

And I think the value to people to construct on a more national scope if you will.

So things are moving in the right direction there even though demand in the nonres segment of our universe remains rather anemic at this point in time.

But not having the second largest competitor around any longer certainly will help -- be helpful to everyone engaged in the fabrication of steel bar joists, trusses and girders.

The Nugget start up progressed -- it says well in the third quarter with production increasing.

Not a monumental.

I mean by percentage it was a large increase, in terms of real tons delivered not such a big deal yet.

As you read, the overall activity and productivity continues to be hampered by equipment availability and refractory issues.

I think we solved a lot of problems.

Mark will talk about that during the quarter.

We are having a very, very good October actually.

But unfortunately there's still another problem remains like in the furnace environment which we will have to take them, the facility down for a couple of weeks in November and to deal with.

Hopefully that will be the last time we have to deal with activity in that arena.

The impact of Mesabi Nugget start up operations were relatively flat at $12 million for the quarter.

During the quarter, increased steel shipments for long-term flats combined with weaker flat roll volume resulted in a change in product mix causing flat roll shipments to decline from 64% of our total steel universe to 60%.

Engineered bar products achieved record production levels and had a very, very strong third quarter.

Their backlogs remain very healthy, backlogs for flat roll products have declined.

In the first week of October, order entry was at about 60% of capacity yet rebounded in the second week to 100% of capacity.

It is kind of a mixed bag out there, folks.

It is catch as catch can in a very sloppy market and it has been that way with fits and starts throughout the entire year.

I do believe the economy will probably stay in the malaise that it is in for some time although slow progress is being made.

I think it is -- I don't think we are in danger of a double dip.

But an extended malaise if you will.

But I think it is just getting marginally better with fits and starts along the way.

So I see 2011 being a better year in my mind than certainly 2010.

One of the more notable things that we have put out press releases on is the approval of SDI's rail products by all the nation's leading railroads including class two railroads or second tier railroads, short lines if you will.

And I think we are going to be in a lot better position to on a very steady state basis to be able to -- to deliver product as required by the nation's railroads both cut to link product and welded product for that matter.

I think we are in pretty good shape and I know there has been some very, very positive comments about the micro structure of SDI's rail product as opposed to our competition.

So we are feeling pretty good about that.

We have produced rail as you know in Columbia City.

That's where we also make beams and the beam market continues to be rather anemic and weak.

Made a little progress in that area, but certainly not sufficient to deliver the kind of earnings that that facility has demonstrated that it is capable of delivering.

So we are ways away from that event if you will.

Looking forward into the fourth quarter, we believe that margin improvement in the latter stages of the quarter is possible and could result in a slightly stronger fourth quarter but as we have in the past, we will provide guidance in early December about where we see our specific outlook for the quarter.

With that, with those comments I will conclude and turn it over to Mr.

Millett who's prepared to tell you about metals recycling business, the Mesabi Nugget, Iron Dynamics, and subject material such as that.

Mark?

Thanks, Keith.

Good morning, everybody.

Relative to the metals recycling platform, our operations had a -- as Keith suggested a very mixed quarter.

August results essentially balanced or offset a July loss, resulting from strong downward movement in July's ferrous pricing and the associated margin squeeze thereon.

However, the team had an excellent September.

We achieved strong shipping volumes in both ferrous and nonferrous material.

The nonferrous group had a particularly good month as they were able to push up and expand their metal margins appreciably.

Quarter-over-quarter, operating expenses remained relatively flat.

Ferrous volumes edged up slightly to 1.4 million tons, nonferrous volumes increased more, they increased 8% to 257 million pounds.

And as Keith suggested our operating incomes for OmniSource decreased from the $25 million in the second quarter to $22 million and that's principally the lowest ferrous margins in July.

At Iron Dynamics, they posted another consistent solid quarter.

They shipped 45,000 metric tons of liquid pig iron and 12,000 tons of HBI over to the Butler flat-roll mill and it continues to be an integral part of the recent productivity gains at Butler.

So the team did well there.

Regarding Mesabi Nugget, again, for pioneering effort, I guess it started to progress well.

Obviously not as well as we'd like to see.

Shipments rose 30% to 24,600 metric tons.

The Nuggets are achieving 97% metallic FE with a size content ranging from 4% to 5%.

It is now being regularly consumed at both the Butler flat-roll mill and engineered by-products at Pittsboro.

Recent performance has confirmed our confidence in the process itself with extended periods of operations in excess of 60% and interim periods in excess of 85% of its anticipated capacity.

However, as with most pioneering efforts, these high productivity levels have exposed further equipment and refractory limitations that are hampering our equipment up time and productivity.

Solutions are in hand, they should be affected during the fourth quarter and will likely include a three-week shut down at November for refractory work on the rotary (inaudible).

However, earnings projection is anticipated to be similar to that of Q2 and Q3.

Financial performance there continues to be impacted obviously by the divergence of iron concentrate and pig iron market pricing and the securing of permit to mine remains a critical issue to us.

We have actually been enthused quite recently by renewed energy demonstrated by the Minnesota State Environmental Agencies in concluding the permitting process and anticipate a permit issuance later in 2011.

Thanks, Mark.

Dick, we are going to turn it over to you.

All right.

Thank you, Keith.

Good morning, everyone.

I would like to go over a few additional comments about each of the steel operations facilities to what Keith has already mentioned.

At Butler, we are operating approximately at 85% with a three to four weeks backlog on hot-rolled and cold-rolled products.

Backlog is naturally extended by the value-added products.

The team has successfully completed all of their items on the maintenance list during their annual maintenance outage earlier this month and are ready for any pick up in the order entry rate.

Last week, we actually had the best order rate in over two months but only time will tell if it is sustainable.

We anticipate a slow and steady improvement in sales occurring due to low inventories and decent shipping rates to the manufacturing sectors.

Those end users are automotive, appliance, pipe and tube and the agriculture markets.

The techs are running in the 55% to 60% level with lead times really only dependent upon substrate availability.

Without wanting to jinx the tech team, I would like to say and congratulate them for them being on the path to a best safety performance ever for the year.

Columbia City, as Keith mentioned, continues to deal with the weakest of all of our markets.

They are operating at 35% to 40%, and our present rated capacity which is actually approximately 50% of the historical levels.

The current rate is being lower because of the added condition of our second rolling mill there.

The great news at Columbia City, as Keith mentioned, is that we now have continued to gain acceptance in the standard strength rail market and we believe we have captured 10% to 12% of that market and expect that trend to continue in the coming months.

Our 240-foot rail sections have been met with overwhelming enthusiasm by the mainstream railroad industry.

Additionally our rail-to-rail shipments have been growing because 240-foot sections are welded on our shop, utilizing the most modern equipment and practices.

Pittsboro continues to make the most of an excellent backlog.

Two months during the third quarter, the teams actually accomplished a 50/50 performance, that means they cast 50,000 tons, rolled 50,000 and shipped 50,000.

This has only been accomplished two times prior in the plant's history.

It was also the best quarter ever for rolling, shipping and SBQ tons shipped performances and actually the melt shop would also have set a record for quarterly production had they not lost four and a half days due to a EAS duct failure.

Congratulations to everyone on those efforts.

During October, Pittsboro had a refractory failure in the reheat furnace resulting in the annual maintenance outage being pulled ahead for the rolling-mill.

Both repairs and capital projects were accomplished, with the projects being focused on debottlenecking the bundling and handling areas.

The melt shop will have its outage as planned this month.

This three and a half day outage is mainly for the completion of the installation of a new ladle crane.

Other work scheduled for completions are routine maintenance requirements.

Roanoke is running the melt shop five days a week and rolling mills six days a week currently.

The production in shipments has been hampered in the short-term by the downward scrap pricing pressure.

This discourages customers from placing orders until the last minute and then they depend on mill inventory for immediate shipments.

Roanoke has recently begun participating in the bill and export business as appropriate sales terms present themselves.

There are no major outages planned for the Roanoke plant, as repairs and improvements can be accomplished within the existing schedule of production.

At Steel West Virginia, sales have continued to improve in truck, trailer and forklift markets, as well as other special section markets such as railroad splice bars, off highway equipment and solar projects.

This results in a full book and a solid backlog for Steel West Virginia.

I'm proud to report that the melt shop performance continues to improve resulting in improved and increased yield and quality and due to initiatives in those areas.

These improvements will continue as several capital projects are slated for completion during the November annual maintenance outage.

These projects include a new EAF pulpit, new caster oscillators, a new scrap charging crane and EAS lance assembling equipment for both of the furnaces.

Keith?

Thank you, Dick.

Gary?

Thanks, Keith.

Demand for joists and deck were up slightly in the first half, gave most of that back in July and August which were off from 2009 levels fairly significantly for booking.

Now we are looking at 2010 at about the same level of demand that we had in 2009, which is dramatically off from the average over the past ten years, about 50% off that average.

Some months are up, some months are down.

So we are expected to see a bit more bumping along at this level before we begin to see slow, steady growth, which we think will happen starting in the second half of 2011.

With what we saw in August and July, we believe that September -- that the early part of 2011 is going to be a little less robust than we hoped for, but we're still confident that 2011 is going to be better than 2010.

All things seem to be pointing that way.

Prices and spreads improved over the quarter and that gave us the opportunity to improve earnings.

The facilities in Ohio and South Carolina that we (inaudible) in '08 continue to cost -- incur some cost related to depreciation charges, insurance, property taxes other minimum charges.

Those totalled about $298,000 in the quarter.

That left us with an operating loss from the three operating plants of $196,000.

But for August and September we generated an operating profit, so hats off to the folks at New Millenium who worked very, very hard to try to win in what are very difficult market conditions.

As Keith mentioned, on October 4, we acquired the joist operations formerly owned by Commercial Metals, that involves seven locations, four of which are going to be idled.

We only acquired the equipment not the real estate, three of which we will be operating as Keith mentioned, Hope, Arkansas, Juarez, Mexico and Sela, Nevada the us a nationwide reach that many of our customers told us that we needed to have in order to really serve them properly.

In the time that we have now as we get ready to start up, we are in the process of relocating equipment from idle facilities to those that will be operated to make sure we have got the optimum configuration at every plant we'll run, and that we are prepared to operate those plants to the highest level of productivity we can achieve.

With the newly acquired facilities, we are going to be bringing on staff very slowly.

We are going to staff up just at the level we believe we can support with the backlog and we'll only grow that team and the related capacity as the backlogs tell us that we can profitably support additional hiring.

Now with the four plants coming down and the two that we idled in '08 and '09, that's six joist plants that have been taken out of operation in these last couple of years.

With those six closures, capacity in the industry is now much more in line with demand although there's still excess capacity out there and it wouldn't surprise me if the less efficient plants need to make some tough decisions.

But as construction activity begins to grow the next few years, we will be extremely well positioned to take advantage of that and to generate great returns on the three plants we have had historically and the three new ones we are starting up now.

Keith?

Thanks, Gary.

We are now going to hear from Theresa Wagler, our CFO.

By the way, ladies and gentlemen, it is Theresa's 40th birthday.

There are black balloons all over her office.

But she is still a youngster.

Theresa?

I am not sure how to follow that.

Thank you.

I'd like to point out everyone has talked a little bit about the operational impact from the segment.

But I would point out that even with the challenging third quarter, our year-to-date gross margin percentage improved almost 3% in comparison to last year, and our operating margin actually improved over 5%.

During the quarter, we also increased our liquidity from $1.1 billion to $1.2 billion, which represents our cash on hand plus our availability under our $924 million revolving credit facility.

Our net debt also decreased $69 million during the quarter, as cash flow from operations with $89 million during the third quarter, and it was $92 million during the entire first half of the year, as we required quite significant amount of working capital growth during the second quarter of the year.

The third quarter working capital draw was fairly flat.

We would expect the same in the fourth quarter.

In early October, we received the remainder of our expected state and federal income tax refunds of $11.7 million.

This resulted in a total refund during 2010 of $102 million.

You will have noted that our third quarter effective tax rate before excluding noncontrolling interest increased to 50.4% from 36.9% recorded during the first half of the year.

This was related to an increase in our estimated effective annual rate.

The required cumulative catch up which was recorded in the third quarter totaled about $3.5 million and this impacted the results by about $0.02 per diluted share.

Our leverage ratio of total debt to EBITDA was 3.7 times at September 30, and our first lean leverage was 0.04 times.

During the third quarter, our capital expenditures totalled $24 million.

Depreciation was $44 million and capitalized interest, related to those projects was $1 million.

Our outlook related to the fourth quarter depreciation and amortization remains at between $55 million and $60 million.

Our estimated 2010 full year capital investment, if you include the acquisition of the joist assets that Gary spoke of earlier, will be about $150 million.

I know many of you would like to know about 2011.

We actually go through our detailed planning here in October and November so we will comment on 2011 during our first quarter conference call.

Net interest expense during the quarter was slightly higher than the second quarter due to the decrease in our capitalized interest.

Gross interest expense was 43 -- excuse me, was $45.3 million with an effective rate of 7.3%.

We had 217 million shares of common stock outstanding at September 30.

In addition we had 16.4 million shares underlying our convertible securities and 6.9 million of outstanding stock options.

Of those 6.9 million of outstanding options, 1.3 million were actually dilutive during the quarter.

Our expectations for the fourth quarter would be to have average outstanding shares at equivalents of about $235 million or excuse me 235 million shares.

I know many of you would like to have the break down of our flat roll shipments for the quarter.

So I will give those to you now.

Our hot-roll shipments were 246,000.

Our pickled shipments were 71,000.

Our cold-roll shipments 46,000, hot-roll galvanized 101,000.

Cold-roll galvanized, 64,000.

Painted product 79,000 and our Galvalume was 15,000.

Keith?

Thanks, Theresa.

Karen, we'll now open it up to the Q&A component of the call.

Thank you.

(Operator Instructions).

We will take our first question from Timna Tanners with UBS.

Good morning and happy birthday, Theresa.

Thank you.

I wanted to draw down a little more on the guidance, please.

Because the point about margin expansion makes sense that steel prices are holding up and if you haven't yet started to see an increase in scrap like we are starting to hear.

But it seems like there has been a lot of slippage lately in the steel price especially in flat rolled.

So can you comment on that and then again with the volumes seems like we are hearing a lot of weakness lately in volumes, certainly the utilization has slipped.

If you can give us some more clarity.

This is Keith.

I think that volume will continue to be from an order entry perspective eradic.

I think we were a little out of the market for a while and that's why order entry in the latter part of August and early part of September suffered.

You are correct in that pricing has come down.

It has not come down I think to the advertised arena.

I think we probably are approaching new bottoms again.

I think the economy is going to continue to be in a malaise.

I think inventory is -- it is almost comical how we report if inventory is up and down.

They are so anemic and so weak, that any real movement in demand would shatter them.

But the economy is what it is and as I have said it will continue to have positive momentum with fits and starts.

It really is in a malaise.

I think order entry will be okay for the remainder of the quarter with pricing being off from fourth quarter with pricing being off from the third quarter levels, and I do believe that the pricing -- fallen pricing at least from our perspective in terms of raw numbers may end up being less than where scrap is taking us later in the quarter.

You have to remember what we melded in October is what we had on hand in, essentially in September.

But I think the scrap costs will be better and I think most of the margin loss early in the quarter will be we flat rolled, I think you can see some recovery.

I don't think they'll be much margin loss and may be added margin in certain other arenas.

So we are not making it specific prediction, we think that earnings could be up slightly that is current prognostication.

If they are better than that, we'll report that to you in December.

If they are slightly worse than that, we'll report that to you as well.

But, I certainly believe they are going to be positive and certainly not negative.

But at this point in time, given the weakness in backlog, its just hard to reach out and predict it.

But I do think the fourth quarter will be slightly improved over the third at this point in time.

Scrap will be -- I don't know Mark may think it will end up weaker.

I will let him comment on that.

I think it will probably end up about the same, not too much change there.

We really hope to have a little better result in the Mesabi Nugget, but may not.

It may end up being the same level of losses given sort of we hope one final round of repairs to the furnace but they did demonstrate some awfully good momentum here in October.

Fabrication will probably be marginally better than what it was but not a whole lot or it could be the same or it could be worse by a little, but it is not going to be a material event one way or another.

I hope I have answered your question.

Definitely.

Just to follow up with one more, just taking a step back and maybe philosophically as we look at the flat-rolled market, with more supply coming on, some scrap base, some not.

And we look at the global market for scrap may be improving into next year, is there any concern that we could see a break down in the correlation between scrap and steel prices further?

And see just further disability for the margin or the scrap price to be passed through?

How do you think about scrap availability and margin sustenance, I guess, into that environment next year?

I think you're going to see Europe continue to be a fairly significant exporter of recycled metallics, United States volume won't change a lot it may get a little better.

The real offshore demand is probably going to come from Turkey in fits and starts rather than Asia.

I think Japan is still a net exporter.

I think you are going to see with China's industrial production having grown significantly over time, they're going to start to generate a lot more scrap and in a time even obsolete scrap will be in greater supply.

So China will kind of be probably, just in the market not on the market but more dependent iron ore resources than scrap.

I don't see the relationship between scrap pricing and steel pricing disconnecting.

There's never going to be a perfect chart out there.

But I think it is essentially going to be a relationship between the two that has existed for some time.

I don't think there's going to be a complete break down or positive improvement in one direction or another significant.

Okay.

Great thanks, Keith.

(Operator Instructions).

Next we will go to Michelle Applebaum with Steel Market Intelligence.

Hi, I didn't hear you mention -- nice quarter by the way.

I didn't hear you mention anything about the details about a new flat rolled mill.

Could you give us some idea of what you're looking for and what the time frame would be?

Not a lot has changed.

I think we said we would be in a position to present the concept of any new mill and what it is going to look like and the technological configuration of it and the product capibility complete with the market the study associated to the markets we intend to serve to our Board later this year.

We have a Board Meeting in November and we also have one in February, so it could be at either time that we are going to discuss that in great depth and have more to report on.

But a lot of people I know worry about added capacity but what if you could understand the capability of the mill as proposed, it is going to be capable of reaching markets today that we don't even have an opportunity to quote whether they're on the hot-rolled side of the street or on the cold-rolled side of the street.

So I think it is fairly significant configuration.

It is not huge in terms of volume.

I guess every million tons counts but it is contemplated to be around 1.7 million tons of capability or in that arena.

If it is less it could provide some product to the techs which gives it a natural jump start or head start but also gets us into product markets that we are not servicing today or don't have the opportunity to service it.

We don't really want to expand on that too much deeper but I am not terribly worried about placing that volume in the market and having the resources to drive success.

We still tend to think it would be even carrying a new capital load, a significantly profitable facility which should only gets stronger in time as you shed over the course of ten years or so or 12 years, much of the capital charge effect of any new project.

I don't think it would require significant financing.

I think most of it could be financed internally out of earnings in the next couple of years essentially.

What does that mean?

We probably would retire some debt in the meantime.

We may have to take on some additional debt at time goes along, but I don't think our debt load would significantly change, it would even have potential to actually drop two years from now by a few hundred million dollars and have a brand new bill completely paid for on earnings which certainly increases the equity base of the Company, without increasing the debt load which puts us at a much better leverage position than we are today.

So those decisions are really yet to come and the presentations have not been made.

Okay, in terms of when you are saying you are going to reach products in markets you are not in now, should I presume that that means it might replace or displace either imports or perhaps some of these hanging on mills that are currently shuttered and for sale, may never be sold or opened if you are starting up this new mill is that sort of how things will work out?

It will impact all of the above naturally, and we do have some capacity in this country that is certainly not cost effective or from a location not even market effective.

And people that own those assets will be responsible for those decisions in the due course of time.

I think --this mill would be market positioned well if it goes forward.

And I think the markets it would serve would impact domestic production as well as imported product.

It would just give us an opportunity in markets we don't have today -- or a capability, more specifically, in markets we don't have today.

And can you tell me -- just one more question on this and then I will go back into the queue.

Can you give me an idea of what the equilibrium hot rolled price you would be assuming, Theresa, you would need to have to make this project a go?

Michelle, I don't think that -- to make the project a go, to Keith's point earlier, we're still looking at models to present to the Board and different working scenarios and such, I don't think that's something we want to comment on today.

I think its more margin based anyway than pricing based.

We have done the costs process that we have in our mini mill environment in relation to market prices, yields it in, really depressed economic times a little different answer but in not so depressed economic times is a rather consistent margin and that margin would make that mill, I think, very profitable.

Okay.

Can I ask one more?

Sure.

Okay.

The MSCI stuff came out yesterday, and I was kind of stunned to see that the shipping levels for every product on the list hit a post recession high whether it is September, October, November of '08 but every product hit a high.

And I was surprised to see the service center shipments to customers doing as well.

Is that consistent with what you are seeing in the marketplace?

It is consistent with what's being reported by the people we have talked to.

Most of them are relatively significant suppliers to the industry.

Most service centers are seeing marginal improvement and feel good about their business and obviously that makes us feel very good about the future although all of us would like to see demand increase at a higher rate of speed.

But unfortunately in this probably kind of political environment we are in, people are sitting on their hands and waiting for outcomes and solutions to the things that ail the nation, if you will.

That's great.

Also, most of that inventory increase was stainless, that was kind of shocking, so the inventories were actually maintained at a constant level, so I was surprised to see that.

Well, that goes on my comment about how fragile what's on the shelf is, I mean if there was any substantial momentum, although I don't think the market is going to be up 33% tomorrow morning on an average, you wouldn't have enough product to supply it.

I mean the rather fragile levels of inventory sitting on the shelves, their there today intended to service demand as it exists.

Right, right.

Okay, that's great.

Well, thanks.

I will go back in the queue.

Thank you.

For the next question we will go to Luke Folta with Longbow Research.

Morning guys.

Morning, how are you.

I'm doing quite well, thank you very much, how are you guys?

Well.

Quick question on your -- I just wanted to dig in a bit more on the steel side of the business, it looks like you guys reported about 75,000 tons higher shipments quarter-on-quarter and you had said that metal spreads were down about $24 a ton.

If I do the math, looking at metal spread on a total dollar basis, it looks like spreads are actually up quarter-over-quarter and EBIT looks like it was down about $45 million after intangibles.

So I am just trying to understand, is there-- Of course that's all excluding the tax.

Is there something else in the cost structure that had moved up quarter-on-quarter?

No.

Luke, I'm sorry, I am going to have to step through your logic because spreads definitely were compressed second quarter to third quarter, so I'll have to look at the calculation that you had to back into that --

Yes.

It above the line.

Its not below the line.

That's what I am saying you have got $24 million--excuse me $24 per ton less spread and you multiply that by total over 75,000 tons more shipments.

If you looked at the total dollar amount that you have earned total revenues minus total scrap costs at least in my calculation that has gone up quarter-over-quarter.

So I am just trying to understand it seems like to me--I know that tax was negative contributor sequentially but it seems to me like there was some other costs in the quarter that may have increased?

We haven't done your math as Theresa said.

But the spreads are definitely down.

We had let me look at the data sheet on the tonnage.

The tonnage shipped was total shipments combined were 1.3 million.

I don't have a calculator (inaudible)--of $24--

I don't want to make--you don't have to go through all of the math on the phone.

I just -- but as far as you know, there was no other extraordinary costs items in the quarter that have gone up sequentially?

Plenty of times volume is off a little bit, your other costs convert are certainly going to go up per ton.

It doesn't mean there--you are spending more, it just means you have existing cost structures in place both variable and fixed related to a lower level of production which would yield a higher cost per ton.

I wish I had brought my calculator but the margins were up $24 times -- They're off $30 some million.

But you had higher shipments.

They are still off $30 some million when you look at the gross profit volumes.

Quarter-over-quarter, it was off more than $31 million.

I think that's your point.

Okay.

The difference is the operations operating income, second quarter, third quarter was $46 million, but that's inclusive of the tax and he's trying to back out the tax, and the thing is we're not looking at the steel segment that way.

So I am sure that I can help you off line but right now with the information we have in front of us to back out the taxes is a little bit difficult.

Okay.

Alright.

And second question, your on the fabrication operations do you have a sense of how much new capacity these recent acquisitions will give you?

And secondly, will the-- all of the steel for those operations be shipped internally?

Luke, it will come in bits and pieces, we are not going to start them up, all of them will have three physical line capability in the end.

Times the number of shifts you want to run them.

So you would have, generally you would have run over first or second shift.

So you would have six shifts worth of production in each plant times three plants.

It will not start off that way.

It will start with a lot of them having two lines running and each of the others having one line running and we'll grow it from there.

Gary?

That's right, Keith.

We will start out again, very modestly, putting in the first crew at each of the three plants will give us maybe 33,000 tons, 35,000 tons incremental capacity across those, those markets for markets from Arkansas all the way over to California, and as we add crews over time, that capacity will grow dramatically, if the market gives us the reason to build those teams.

I think what is significant about all of this, as Gary commented on, we bought actually seven facilities minus the property for $17 million about $2.5 million per piece of property or all of the equipment related to it and four of them go away permanently.

They will never be reconstituted in any form with the equipment gone.

So given the two we have shuttered we shut on top of our other assets, I think we are geographically well dispersed and I think to Gary's point, they are six lines no longer in service in the country.

And I think that's going to bode well for everyone in the fabrication business.

The only two entities capable of servicing demand on a national scope would be [DeMore] and SDI at this point in time, and the others are more appreciable guys, but the elimination of this capacity in the end helps everyone.

Now, we understand its a rather bleak market at the time, but this is when you prepare yourself for future activity to increase in the ZIP code and I think it will in time, might take a year or two, but I think, we will be as well positioned as anybody.

As you can imagine, you have got some excellent equipment coming out of these facilities and going into the existing ones.

I can't imagine them being inferior to any fabricating asset anywhere in the world.

So I think from a cost structure perspective we are going to be in awefully good shape and as we march forward in that business.

Okay.

If I could ask one more, just on the quarter, can you give us a feel for how much the real shipments were at Columbia City and then, also maybe on a more normal basis, what you think that could be on a go forward run rate?

Thank you.

I don't know what you mean by the real shipments.

Let me --

Rail.

Oh, rail shipments.

We had about 19, almost 20,000 tons of rail shipments in the third quarter and I would tell you that our fourth quarter projections are to double what we've shipped year-to-date, at Columbia City.

So we're in a growth mode there.

That's very, very significant.

I think the other thing, Luke, that's significant to note is in that pioneering effort which really got underway earlier in the year and hit its crescendo you might say in the second and third quarters, there was a lot of steel bent up and recoated to become as cost effective and as productive as we are today.

And that should not reoccur as we move forward.

Okay.

Thanks a lot for the color there, guys, sorry to make you break out the calculator.

Next we will go to Brett Levy with Jefferies and Company.

Just to refine the rail question, what is year-to-date in terms of rail shipments and did you just say you will double that in the fourth quarter?

Yes, rail shipments just over 30,000 tons year-to-date, and we look to end the year with over 60,000 tons.

Yes for rail.

You are saying you are going to produce in the last quarter, the same amount of tonnage as you produced the first three quarters.

Yes, sir.

Got it.

Okay but not double that, just the in the last quarter, you --

Last 60 we produced 30,000 in three quarters and we will produce an additional 30,000, hope to do even better than that in the fourth quarter which will in effect double where we are at on a year-to-date basis from this moment in time forward.

Correct.

Got it.

Then there's probably a logical point where 240-foot rail just takes market share from 40 or 60 foot lengths and I think some people have estimated you get to 30% market share, of that sort of million ton a year market, some time soon, do you guys have a target date for that.

Let be careful.

Half of the market of a million tons is head hardening material.

And we have not qualified ourselves with head hardening material, its Arema class one.

That's the other half of the market.

And we expect to penetrate that half rather significantly.

Hopefully 40% to 50% in time.

But we have new technology that we are developing in the head hardening arena and we have yet to crest that hill if you will.

So only half of the market is available to us at the moment.

Then just to follow up on that, what do you think the timetable is to perfect your head hardening technology?

In all honestly, that's measured in probably years, because, we have yet -- we are just looking at the technologies, we are exploring what we currently have, what we currently have in place from a capability standpoint.

We are still walking into the standard strength rail and we are not going to jeopardize that performance by rushing into that head hardening world.

Last question, Keith, your thoughts on scrap prices in 2011?

Well, it has been historically that they will probably improve in the first quarter, its the winter months when the flows are down, it would be my hope that they don't get the cart so damn far ahead of the horse this time.

Scrap prices literally got out of control in my opinion, in the first quarter, and we paid for it all year long, and they have been coming back.

I hope that where we go is more orderly, but I think it will probably increase in first quarter as they normally do they will probably come down and late second quarter, and into the third quarter, and probably go back up in forth.

So, its hard to say I imagine scrap will finish higher next year than it finished this year and I am pretty confident steel pricing will too.

How much yet, remains to be seen for everyone.

Thanks very much, guys.

And happy birthday, Theresa.

Just going back to your comment, I think that the most important thing to be looking at obviously is the spread between product pricing and scrap, and I think it would be our estimation that it is going to expand next year from where it is today.

Thanks, much.

For our next question we will hear from Brian Yu with Citi.

Great.

Thank you.

My question is regarding the Mesabi Nugget and you have given your guidance for the fourth quarter looks like losses are going to be sequentially about the same, so this would imply you kind of push back your prior target for break even on a run rate basis by year end and I was wondering if you could provide an updated thought on when that project would break even and also what percent of the production process do you think you have successfully troubleshooted here?

I will let Mark answer most of that.

You are right.

We won't hit a break even by the end of the year, at least I don't contemplate we will.

One month doesn't make a battle even if we win the battle in December, so to speak.

But I do think with some of the final fixes, the production rate that Mark has been able to achieve in October, if sustainable, could shove you a long way in the direction of stemming the losses, and that would not be insignificant as you look at next year in terms of how many pennies per share that is.

Mark, do you want to comment a little more?

We would hope to have a kind of a break even month perhaps in the first quarter of next year and again it depends on how successful our modifications are.

The -- again I want to emphasize the actual process we have a lot of confidence in and it is just a matter of breaking through and overcoming some of these mechanical refractory issues.

Relative to standard shelf life capacity or whatever, we operated up until a couple of days ago within about 60% of our rated capacity consistently this month, and we have had many interim periods where we're at 85% to 95%.

It is purely getting the equipment bugs worked out, it is a pioneering asset, we have a sort of scale up on the pilot facility, certainly not going as quick as we'd like it to go, but I think we got every confidence that it is going to get there.

Brian, it reminds me a lot of 1989, 1990 in Crockersville.

I mean that took a solid year to work through pioneering efforts with that new technology and this is the same kind of exciting break through technology that's going to have a very happy landing in the end.

But it is not a six month deal and we are solving each of the problems systematically as we go forward.

Okay.

And then really, the longer term objective here is to get your own line permitted so that you can bring down the cost structure more and that's when you will see the returns begin to contribute to the bottom line?

I think that's exactly right.

Okay.

Mark said we are starting to see rays of sunshine now in the permitting and that doesn't mean it will speed up terribly but it won't delay another two years anyway and he hopes to have a permit in hand late next year.

Alright.

Then just a last question switching topics a little bit, I want to get your thoughts on that new TK mill in Alabama just to see if you are hearing anything indirect competition and would you attribute any of the recent flat roll weakness to perhaps TK trying to build market share?

I think what happens to any new entry into a market, is the clients tend to be satisfied with their suppliers, especially where demand is shorter than supply.

And any time somebody tries to break into markets, the only tool in the end-- I mean you can shout about your quality all day and all night but in the end the tool especially in a depressed market is going to be price.

People aren't going to let you into their house unless you show them something.

Unfortunately that's probably what has been happening, it's probably had a recent toll on pricing.

But in time they will be assimilated into the market and hopefully not be perhaps as impactful as the new start up would be when it is grappling for business or struggling with the initial production kind of thing.

So, I think things will settle down -- I believe we are at the bottom of another new cycle in the market and I think there's -- there are brighter days ahead.

I wish we just have a more significant increase in demand and I think it is getting better and better and better.

But we are all impatient people and it is a little too slow for all of us.

Great, I appreciate your thoughts, Thanks.

Our next question comes from Michael Gambardella with JPMorgan.

Yes.

Good morning.

Morning, Mike.

A couple of questions.

First on the potential for exports, back in May the consensus on the market was that the dollar was going to go to parity with the Euro and quite the opposite happened, we're at $1.38.

What are your exports now and do you think you have some opportunities to increase exports going forward?

I think the industry does, Mike.

I'm not so sure we're the best position guy.

We will continue to export blooms and SPU and as Dick mentioned, perhaps billets out of Roanoke but Butler is not really in a position to be an exporter, but that's not a bad thing if other people are export successful, then perhaps we'll have a little more success with the domestic market collectively.

And then in terms of nonresidential construction activity, are you seeing any glimmers of hope for any kind of improvement?

Only those that you hear from architects and engineers but not necessarily in terms of backlogs or order entry.

Margins as Gary has mentioned have improved but the strength of the backlogs certainly has not.

Okay.

Last question, in terms of the potential for a new flat-roll mill, is that predicated on getting Mesabi Nugget up and running at capacity?

It would be a factor I think.

It is probably not an absolute requirement but I think you want to feel good about your ability to supply high grade or raw materials to the facility.

Okay.

With that facility would you anticipate that facility's product being produced with a much higher level of scrap substitute or Mesabi Nugget, BRI, whatever you want to call it?

I personally would see it that way because of the markets it is intended to serve.

And I would think that where we might be successful at dedicating our first battery to Butler, you're dedicating it to a facility that produces 3 million tons, or potentially even better in a strong market.

This one would not be as large, it would be half as many tons, so if you had an entire new battery dedicated to that, in the course of time, it would be a higher percentage of a virgin material going into the electric furnaces.

Okay.

Great.

Thank you.

Next we will hear from [Feil Savani] with Goldman Sachs.

Good morning.

Keith, you had mentioned in the press release and also in the comments about a little bit better long product market, can you give us a little detail, is this the products you are in?

Or is the general market is up and how do you reconcile with the weakness at the New Millenium which you are still facing?

Well I think as Dick said there's taking from the smallest going forward, there's some additional strength in specialty--in the specialty steel arena, special shapes that we are experiencing West Virginia, Roanoke is kind of a niche producer, it is -- some people feel very good about buying from our competition, and others don't.

They do a good job of servicing the market from a product quality and service perspective.

There no better than the other fellow on price, I am sure, but they are no worse either but at the same time, I think keeping them at their operating rate is a very strong possibility.

You have already heard that we are going to see more strength, we think in SPQ margin.

I think we will see a little more strength in structural, it won't be significant with most of the increase in volume coming from greater rail success, and then work to the the flat roll market where we are not bumping along at a bad rate as relation to our competition in terms of our operating rate.

But we would like to be at 100% all the time, and with demand I think steadily improving we will get there.

But it is -- it is going to be a fits and starts kind of environment (inaudible).

Okay.

Also, Gary, on the joists on the products where, at some point, I believe, late last year, early this year where the price of joists were actually below the cost of steel.

Is that change -- has there been a positive spread in these products?

That has changed now.

The prices have come up and that's the comment I made earlier about margins being better.

Clearly, pricing is not at that level anymore.

The price is still very come competitive market, and certainly in the east as much as in the west, there's still excess supply, we have done a lot to cut our costs, making us alot more efficient and reducing every dollar of costs we can, which has really helped us get over the hump on spreads here.

So, pricing is better, and the cost structure is better and together that's how we have managed to hit an operating income two months in a row here.

Do you think that the three plants you are going to open will be profitable from the very beginning or it will take your time to make them profitable?

I think it will take a little time as we build the backlog but given the cost structure with we think we are going to have it shouldn't be too long but the really--the major contributors is going to take some amount of increase in nonresidential construction activity.

So we are looking at that probably more toward the latter half of '11.

This is a more long-term investment that we think over time is going to pay great dividend, but we are going to have be pretty careful about how we bring it up and make sure that we have the backlog in place before we put on the personnel to grow capacity.

And last question, on rail, Keith you mentioned in your comments, cut the length products for rail, do you -- are you selling these in shorter lengths also?

I thought that you were making 240-foot lengths only.

We are selling them in shorter lengths also which hampers our volume metric, capability because the railroads just haven't got there.

It takes time to change people's modus operandi, operating methodologies and order entry patterns and also their ability to deal with shorter product and longer product going into their own weld facilities or those under contract.

And in time that will change because there are significant advantages to the railroads to deal with 240s rather than 40s, cost of welding, that many more welds is much greater and the cost of inspecting them in the field is that much greater.

So I think it is positively seen by the railroads, but not knowing whether or not we would ever get there and having the only facility that could do it and the weld shops that they deal with not being able to do it I think requires them to go out into their own facilities and those under contract and force change to occur in terms of length.

And if they can do that, the length that they could made on the entry side that is, they can do that I think that 240s will grow in popularity and our productivity will grow.

Have any of the class one or class two rail companies bought 240s yet?

I think the answer is yes.

Well, they only buy it through our weld plant because they don't have any means and we just keep the saying, there's not one other weld plant, because there's no other producers in North America that manufacture anything greater than 80-foot.

Just about every facility loads and unloads or unloads off of the incoming trains with a fork truck and they cannot lift anything significantly greater than the 80-foot lengths.

So with us, as Keith said, we are designed to make 240s and take them right to our weld plant and weld them,whereas when we are servicing other people's weld plants we are forced to cut them into 80-foot and there is also a market that we are serving that's 39 foot which is a traditional marketplace and we have just approved the $17.5 million to help de-bottleneck that processing capability at Columbia City, so that we are more effecient when we are producing the shorter lengths which are being ordered by the railroads because that's their habit and as Keith said, it takes time to change.

But no, one buys the 240s just to take them out and track, and drop them off because they need a mini rail train for that.

80-foot lengths stay on one car and that's the standard way they handle them today but we have had discussions, and we are hoping to change the standard practices within the industry.

Thank you very much.

Charles Bradford with Affiliated Research Group has our next question.

Good morning.

Can we talk a bit about the iron ore supply going into the Mesabi Nugget plant, are you getting that currently spot or contracted?

We have been hearing about lower iron ore prices in the market in the fourth quarter.

Are you seeing the same kind of thing?

We have the different sources along with just a quite a large inventory that we are carrying through to next year.

And its a mix of current spot pricing and discounted pricing.

Okay.

If you get the permits as you hope, by the end of next year, and I have talked to some of the Minnesota state people, they seem to be of a mind of trying to move it along, they talk about you being tied up with the [polymath ]situation, but if you get the permits by the end of next year, when would you be mining your own product and have it into the Mesabi Nugget plant?

We would hope within eight months of getting the permit.

Thank you.

Now we will go to John Tumazons with John Tumazons Very Independent Research.

Good morning.

Good morning.

Steel imports have been over 2 million tons a month for the last six months of AISID into August.

What has been, Chuck?

Steel imports.

Okay.

Given that most of your business is relatively close to your Indiana larger mills, does this have any direct impact on your business or do you think it is indirectly relevant as even a semifinished volume going into California steel for example as some impact on the US market?

I think the impacts is more indirect, John and thank you for talking about the semi finished and slabs and all of that as part of that 2 million tons.

So I think the imported materials put into play by service centers and OEMs is actually significantly down as you know and probably going to stay down.

It is not going to change coming into semi-finished coming into California or slap requirements by others.

But I think the impact of that material semi finished and slaps is more of an indirect thing.

Does it matter enoughto your business to make you wonder in retrospect if prices would be better off $10 or $20 lower in retrospect earlier this year and having fended off some of that foreign supply.

I don't think so.

I think the market has a keen sense in the information age of where it is at whether it is east coast, west coast, midwest, and the -- pricing that exists in one neck of the woods tends to be responded to rather rapidly in the other neck of the woods.

So I don't think there's a lot of sheltering going on there.

Keith, with the foreign coastal supply impact where you site your next sheet mill?

Would the foreign --

Would import competition influence your next endeavor and for example, might you locate in an import dominated region as an opportunity?

Well, I was just going to say, I think it is the opposite, we would have probably a negative impact on imports our presence and that's a positive event, although it just does allows us to serve other markets who are not currently powerful in or don't have the capability to serve.

Thank you.

Mark Parr with KeyBanc has the next question.

Hi Keith, can you hear me?

Yes, I can, Mark.

Good morning.

Good morning.

I have a couple of questions, if I could.

First, could you talk at all about the kinds of spreads that you're seeing on rail products compared to spreads on beans and the other products within Columbia City?

I would tell you it is really hard to get your hands around that.

We know product pricing one in relation to one another, the input costs aren't a heck of a lot different, and spreads are difficult subject when you running at very low operating rates we're running at today.

What's the -- how does the average price on rail compare to the average price of the rest of the Columbia City portfolio?

I think it is slightly higher.

That's correct, yes.

Slightly being what $50 --

Yes, $50 to $100 -

$50 to $100 higher.

Okay, so that theoretically could be pretty helpful to profitability if you continue to increase the mix of that product going forward, as that mill recovers.

I don't think there's any question it could be helpful, but it is not going to put you back, as I said earlier, to the level of the profitability that facility is at when its fully loaded.

One thing I was curious about, the rail -- the weld facility that you had at Columbia City, what's the capacity of that right now?

I -- Do you have several hundred thousand tons of welding capability built into the site yet?

Yes, we have about 200,000 tons or just slightly more of that and its also expandable, Mark.

Did you hear that, Mark?

Yes, I got that.

That's really helpful.

One thing, another thing I am curious about, Dick you had talked about, how you know it takes a while to for the rail guys to kind of shift around and one of the constraints there was a longer term contract they had the with existing weld shops where they have outsourced that step in the process.

Are these multi-year contracts or are these annual contracts, is this something you can make end roads on in 2011 or do you have to wait until 2013 or 2014 or 2015 before you can really see the market move in your direction, that being the 240-foot to 320-foot sections?

The railroads are needless to say very meticulous in their business dealings, but they don't have multi, multi-year, whether it is investments, relationships that are existent weld shops or appropriate locations, based on where our competitors produce rail or where rail is imported into and nobody is going to just rush off and abandon those relationships that they have.

We will continue to make end roads based on quality and service and so forth.

But we are already quoting it as we have in the past quoted towards annual or semi two-year six month type contracts with the railroad and those are not cast in stone and we're making in roads into those.

Mark, I had one railroad tell me just recently that they were truly excited about our product.

Wanted to buy more from us but they wanted to feel good about our commitment to being in this business, and I assured them that we are here to stay.

As we give them confidence and our capability on our ERL and our willingness to dedicate the kind of time and resources to it, I think they will buy more and more product.

Okay.

But just to -- I was going to make one clarification, Mark on the pricing that we were talking about.

We are talking about where the market is at.

We have been shipping it because of the low volumes and so forth and we have had higher yield issues meaning tough performance in shipping more to the IQ market we will see a significant improvement I was trying to refer to where the market is at, not necessarily always exactly where we are at.

Alright, I appreciate that color.

I had one other question and Keith, I don't know if you have any color on this or not.

But you know given you know some of the -- if you believe the press we are looking at some changes in Washington in the next couple of weeks at least with the upcoming elections.

And along the lines of that, has there been any discussion that you are aware of potentially a new infrastructure bill that is really more focused around job creation that could result in an increase in steel going into our infrastructure for 2011, 2012 and 2013.

I have only heard reference to it, Mark.

I don't know if it is substance at this point in time.

Yes but at least there is some discussion of that that you are aware of.

That I'm aware of, yes.

Okay.

Any -- any particular congressional offices that would be worth contacting to discuss that a little bit further that you could share?

Oh, I don't know.

They're all running for cover.

I don't know how much color you are going to get out of anybody at this point in time.

I think --

Yes, you are not going to get much before the election I know that, that's for sure.

I think we had a -- if we had a box we could check to cast them all out of office that would be the one that most everybody would check probably.

So I think that they're in their fox holes at this point in time.

Okay.

Keith, thanks a lot.

Congratulations on making money in a really tough environment.

Thank you.

We will now take the final question which is a follow up from Michelle Applebaum.

Hi.

It is interesting to hear all of the progress on nuggets, can we go back and talk about what the costs of nuggets are and compare perhaps to a more traditional DRI facility kind of thing, if you were building one from the ground up right now, and then also what the cost of producing nuggets will be at full production versus comparable material that you could buy like pig or DRI in the spot market or in a longer term contractual kind of thing.

And then also, -- well, yes that's kind of just sort of the economics.

I don't think it is worth talking about where we are today, and --

Oh no I don't mean today.

And productivity.

I think that the discussion really centers around where you are going be six to eight months from now with the ore content at our disposal, and that cost structure and the one you will have with your own ore content and that cost structure and if you have to define it at full capacity.

So when we get there.

I will let Mark address that.

Yes, I'm sorry.

I meant at full capacity and I actually meant the question for you, Mark, sorry.

That's okay, I think it is as we have stated in the past, and given our-- when we have been running the facility at the sort of the 80%, 85% capacity level, the consumption numbers, natural gas consumption we have confirmed that it is going to be high expectation.

And so the -- with our own concentrate which we have told you in the past I think would be fully loaded in the $40 to $45 range, that would give you nuggets in the $300 to $325 range.

And current concentrate prices today are at $120 to $140 per ton.

And how does that compare over the cycle to market prices for comparable material?

And how would it compare if you were doing a more traditional way?

Well, $300 a ton is a heck of a lot better than what you can buy it at.

Put it that way.

It probably includes in time profits and mining interests as well.

But, I am not so sure it compares all that favorably to a fully depreciated mining operation that exists on the range today.

But the --

Nothing would compare to that.

If you look at the mining costs and if you just take out the capital fixed costs, a mine today up there is probably getting out of the ground today for about $21 to $23.

To be honest, we're not going to be much different than that.

We will probably be $25 to $26.

It is cash plus; right.

On a depreciated basis, what he is saying to you is if they're at $23, we may be at $26.

We may be $3 more expensive than the existing well refined assets.

And that's --

Depreciation interest, that's where you get up to the $40 to $45.

A lot of the older facilities don't necessarily have the depreciation?

We have --

Not the --

We have only been able to glean their operating cost structure, don't necessarily know whether the mines up there even know what their fully loaded costs are to be honest.

Yes, no it is difficult and you can see some of implicitly in their numbers but it is very difficult.

Okay.

And those are all assuming you're past the break even, you are where you want to be on the production side.

Yes.

What about product capabilities, would we be seeing you be able to expand the products that you offer?

On the flat rolled side and maybe even SBQ because of this or no?

From the standpoint of product capability on sheet and engineered, would have the same basically positive characteristics of the day.

We would take up added productivity perhaps and slightly better quality and continuously feed it through the melt process but it is essentially pig iron.

Got a better yield.

That's correct.

Okay.

Great.

Thank you.

Thank you.

Karen, does that conclude it.

That does conclude our Q&A portion of today's conference.

A long call but a good call and I want to thank everyone for joining us and for your continued support.

To all of our employees that are listening thank you for the wonderful job you have done throughout these very difficult periods.

Until next time, we are signing off.

Once again, that does conclude our conference for today.

Thank you again for your participation.