And the clients are not doing that in Mexico anymore, at least not to a major scale. On the other hand, we still have the importation of transformers into this country. And I was discussed in that situation yesterday with Secretary, Jennifer Granholm about the risk we are taking when we import transformer. Among other things, we don’t even know what’s inside the transformer when you import the entire transformers. So, we need to stop that and that’s financial security reasons. So we will continue to work with the Biden administration. And whoever is the President after the election, we will continue to work on that. We need to stop importing transformers. We can’t allow that to happen. We need to build more transformers in the United States.
The good thing is that our dialogue with these clients that produce transformers in the United States is fantastic. We are working on a solution for Wilton that will resolve a lot of the situation with the transformers, will allow us to produce more gold. We have spare capacity with minor investments, we can increase 50% to 70% or throughput in bottle just to produce more gold, grain-oriented the electrical steels for transformers. So we want to put up a new factory in Wilton, West Virginia using our workforce there to produce transformations. We can co-invest, we can just support with the steel. We can do whatever it takes, but we need to increase the throughput and the availability of transformers for the supply chain, mainly in USA transformers and hopefully with the union workers.
That’s what we are working on, and we believe we’re going to be successful.
Phil Gibbs: Thank you so much.
Lourenco Goncalves: Thank you.
Operator: Our next question is from the line of Alex Hacking with Citi. Please proceed with your question.
Alex Hacking: Yeah, morning Lourenco and Celso. Just coming back to the DOE awards. It sounds like the negotiations there are somewhat of a formality, and you’re very confident that that money will be awarded is that assumption. Am I correct in that assumption? And then what would be the timing there, the expected timing of when those awards would be confirmed? Thank you.
Lourenco Goncalves: Good morning, Alex. I don’t believe it’s a formality because they are asking a lot of good questions, and we are providing with what we believe a lot of good answers. And the timeframe for the negotiation or the discussions over whatever you call is basically, we are going to use the rest of this year to finalize this negotiation. But we are fairly confident that we’re going to be successful. But I don’t think it’s a formality. I believe that they are doing a good job. They are doing the due diligence that they need to do. At the end of the day, they are going to be giving us $575 million, $500 million for Middletown and $75 million for [indiscernible], so it’s a lot of money. And it’s at the end of the day, tax payer’s money and we take this very seriously.
But it’s not a formality. We are doing the work. And in the process, the most important part that in the process, we are having the ability to educate the government on what we do. Instead of having them only reading what is in the trade press or in the report from research analysts, they are learning from the ones they really know what they’re talking about.
Alex Hacking: Okay. Thanks.
Lourenco Goncalves: Yeah, that includes you in the ground that don’t know what you’re talking about. You’re right about that. But that’s just me, you know me Alex. So yes, what’s next?
Alex Hacking: What’s next? Let’s say the money wasn’t awarded. It sounds like for whatever reason, it sounds like the economics of the electric melt furnace would be compelling even without the award. But is that a project that you would still move ahead with in that circumstance? Or you can’t really say it’s until you reach that point?
Lourenco Goncalves: Alex, I’m very confident that I will get the money. And we, of course, run the projections with and without. But with the money coming from the DOE, it’s a no-brainer. It’s a very, very compelling case of return on investment, it’s money well spent. It’s a real game changer. We are going to be reducing our costs to produce the same ton of liquid steel by more than $250 per ton. That’s super significant. So we want that project. And, yes, the ROI without the grant is still okay, but the ROI with the grant is unbelievable. And I believe that so far, based on what Cleveland-Cliffs is doing in terms of, among other things, working together with the government and working together with our workforce, we deserve to get the money.
Alex Hacking: And I guess just finally, I mean you mentioned that the $250 number earlier. I mean is that really like the direct savings from shifting the technology because that would obviously provide a massive uplift, right, in EBITDA per ton.
Celso Goncalves: Exactly right. An apples to apples comparison
Celso Goncalves: Exactly right. Because I’m a metallurgist, I like technology. It would be so easy to shut down blast furnaces and BOFs and put TAFs and not be able to produce all kinds of steel that are produced today and producing massive unemployment. Europe is doing that. The UK is doing that. When I was — when I had a conversation with in Minister of the Economy of Slovakia, he said that there was £600 million granted money for Košice just to shut down the blast furnace and replace with the EAFs. And I said, do you move that two-thirds of your – your personnel will be let go? So yes, unfortunately, that’s the consequence of decarbonizing. Mr. Minister, you don’t know what you’re talking about, with all due respect.
So we’ve got to see the big picture. We got to understand where cost is. If you believe that cost is safe by cutting $20 per ton today and $30 per ton tomorrow, you end up with what we created here in the United States. And then you decimate and steel industry that was the envy of the world, four years ago, and you create China. And then you realize that China is an enemy to be beating. And yes, so we got to see the big picture and it takes a lot of education and a lot of technology and a lot of engineering to do things the way we are doing here at Cleveland-Cliffs. We are very happy that we found a willing counterparty in several cabinet members of the Biden administration, and we are happy with that.
Alex Hacking: Okay. Thanks. Best of luck.
Celso Goncalves: Thank you. Same to you.
Operator: Thank you. Our next question is from the line of Tristan Gresser with BNP Parabas. Please proceed with your question.
Tristan Gresser: Yes. Hi, good morning and thank you for taking my questions. Just maybe a follow-up on the decarbonization project. Can you please maybe split the gross CapEx elements of the project in Middletown and give us a sense on not on a net CapEx basis, but on a gross basis, what the normalized CapEx would look like 2024, 2025, 2026, 2027. Would it be close to 1.2 billion? That’s my first question.
Lourenco Goncalves: Yes. I’ll let Celso take that. Celso, please.
Celso Goncalves: Yes, sure. Hey, Tristan, like I said, there’s no impact to CapEx from these DOE projects in 2024, just to be abundantly clear, everything starts in 2025. And if you want to break that down, in 2025, the Cliffs portion of the Middletown spend is about $250 million. And the total CapEx related to everything is about $985 million. So, that’s why I said in 2025, we don’t even crack above the $1 billion market. And then when you go to 2026, Middletown steps up to about $400 million and the total goes to about $1.2 million. So, that’s the breakdown for the next couple of years.
Tristan Gresser: All right. That’s helpful. And that’s a net number, right, the $1.2 billion, so removing the reline and the grant.
Celso Goncalves: Correct. Yes.
Tristan Gresser: All right. And then the second question, should we think as Middleton project as the way forward for the rest of the footprint, given the carbon benefits you mentioned that can translate into selling premiums, but also the cost benefits. I think you mentioned in the past that there was a next reline at Burns Harbor in 2026. So, basically, it doesn’t make sense to gradually convert your BF footprint to this kind of this PRI melting unit setups. And if that’s the case, would more funding be available should you decide to go this way?
Celso Goncalves: Yes, it’s a very good question. But let’s go piece by piece on where my cost savings are, the numbers that I just gave to you. The biggest problem for us in Middletown is our very punitive contract that we have with SunCoke. That contract is absolutely horrible. And our cost of coke in Middletown is one of the reasons why we started studying this project in the first place. So, that situation is going to change no matter what. We are not going to be keeping ourselves penalized by SunCoke with that horrible contract that we have. So, for Middletown, the numbers are the numbers I mentioned to you. And we are going to go in that direction coming high we’re. I’m going to get the grant. But the project there is our response to the contract we have with SunCoke.
When we go to a company like — to a plant like, for example, Burns Harbor, the switch is not as clear as that because we have been improving a lot our ability to produce coke at a reasonable cost. Burns Harbor is because of that — among other things, but because of that, mainly — it’s our lowest cost production plant in the entire footprint. So, I don’t see us going to Burns Harbor so quickly. But of course, the new configuration that we are implementing in Middletown will be our first in the company like we did with our plant — our direct reduction plant in Toledo. And with that, we were able to now easily go to Middletown with a new direct reduction plant because we know we dominate the technology. So, it’s a first, I don’t know, if we are going to continue in their route but there’s a possibility and we have our priorities in terms of who would be next and who will be next, if that’s the case.
Tristan Gresser: All right. That’s very clear. Maybe one final question. Maybe if you can discuss a little bit the situation at Calvert, you have a slab supply agreement. The facility there is ramping up its upstream could go with the second year. So, I think the contract is up for renewal next year, but what are the solution is, let’s say, well, Calvert decide well to go with upstream or some other slab supply? Do you have options? Is that already a topic of discussion or negotiation. So if you could share some thoughts on that, that would be helpful.
Celso Goncalves: Yes. The negotiation has just started. And of course, I’m not going to give you — I can’t give you details of how the negotiation is going. But I will tell you what the outcome will be. We will end up with a much better contract for us or no contract. Either one is good for Cleveland-Cliffs. No contract is good. And a better contract might be good. The contract we have was the last piece of the puzzle for us to close the deal and acquire ArcelorMittal USA, and that was in December of 2020, we closed. So that negotiation happened September 2020. So that was almost four years ago. I knew exactly where I was walking us into. And now it’s the time of expiration. And it’s like any situation with the contract. We prepared Cleveland-Cliffs to be without that contract, we’re going to be okay.
And if that contract improves, we still can work with our friends at ArcelorMittal middle. Otherwise, we continue to be frank, but they’ll have to find slab somewhere else. That’s the deal.
Tristan Gresser: All right. Thank you very much.
Celso Goncalves: Thank you.
Operator: Our next question is from the line of Lawson Winder with Bank of America. Please proceed with your questions.
Lawson Winder : Thanks very much, operator, and also good morning Celso and Lourenco. Thank you for taking my question. I would like to ask about the NOES expansion at Zanesville. Has that started to ship to customers? And how is that ramping up?
Celso Goncalves: The NOES expansion in Zanesville is in operation and mission accomplished. We always believe that we would have more used for non-oriented electrical steels, particularly for motors of electrical vehicles. And we created a modest increase in our capacity by investing relatively small amount of money in CapEx. So we’re good. The project was executed as planned. We are selling oriented electrical steels. We continue develop applications with our — mainly with our automotive clients and we are fine with that and we have no intention to expand beyond what we already have for NOS.
Lawson Winder: Okay. Thank you for that. And can I also ask about the base price as price that you set at $900 per short ton. So I mean the price reporters are still indicating prices in the lower 800s. Are you guys realizing pricing in that $900 per short ton range? And what’s your thinking on pricing over the next month or two?
Lourenco Goncalves: I never give public predictions on price. We announced our price increase and we are working to get that price increase. We are not in an island. In the meantime, that we announced our price increase and everything was actually growing in the right direction. We’re still selling for $900 for that matter. We are. So the answer to your question is, yes. But other clients — I’m sorry, other clients, other competitors came with different price points. And we live in a world of pricing competition particularly in a world that everybody reads every single line that comes out of the trade press. And you just said what you would like to hit. So the prices are 800 and low 800 they will take that to the — like the bio.
But I’m telling you, we’re selling for 900. But is that easy right now to get there? No. It was easier before things that happened during the latter part of the quarter. But these are always — it’s an always changing environment. And at the end of the day, we will see what’s going to happen. And we expect to sell more particularly for Service Centers that are completely depleted in terms of inventory because not buying seems to be the only diet that they can do when they want to lose weight on their inventory. I suggest Monaro or Ozempic, that would be a lot more effective. All right. With that, I think we’re done right, Rob?
Operator: Yes, that’s correct. Would you like to make some closing comments?
Lourenco Goncalves: Done. Mounjaro, Ozempic. You’ll lose weight with that and bear with exercise. But as far as inventory service centers are supposed to carry inventory. For a service center, you don’t carry inventory, you are setting yourself up for a disgrace. So but be my guest. Good luck. Thank you, everybody. I’ll talk to you soon. Bye now.
Operator: Thank you everyone for joining us today. This will conclude today’s call. You may disconnect your lines at this time. Thank you for your participation.
