Stelco Holdings Inc

TSX:STLC

Earnings Call Transcript 2020-Q4

[Operator]

Good morning. My name is Colin, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Conference Call regarding Stelco's Fourth Quarter results for 2020. [Operator Instructions] Thank you.Mr. Harris, you may begin your conference.

[Trevor Harris, Vice President of Corporate Affairs]

Good morning, everyone, and welcome to Stelco's quarterly earnings conference call. Speaking on the call today to discuss both our fourth quarter and annual results for 2020 will be Alan Kestenbaum, our Executive Chairman and Chief Executive Officer; and Paul Scherzer, our Chief Financial Officer. Yesterday, after the market closed, we issued a press release overviewing Stelco's financial results for the fourth quarter and the full year of 2020. This press release, along with the company's financial statements and management's discussion and analysis have been posted on SEDAR and on our Investor Relations website, investors.stelco.com. We have provided a link to the presentation referenced on today's call on our website as well.I'd like to inform everyone that comments made on today's call may contain forward-looking statements, which involve assumptions, which have inherent risks and uncertainties. Actual results may differ materially from the statements made today so do not place undue reliance upon them. Stelco management disclaims any obligation to update forward-looking statements, except as required by law. With that in mind, I would ask everyone on today's call to read the legal disclaimers on Page 2 of the accompanying earnings presentation and also to refer to the risks and assumptions outlined in Stelco's public disclosures. In particular, the full year 2020 Management's Discussion and Analysis sections relating to forward-looking information and risks and uncertainties, as well as our filings with the securities commissions in Canada. The Appendix of our presentation and the non-IFRS performance measures and review of non-IFRS measures of our MD&A provide definitions and reconciliations of the non-IFRS measures that we will use today.Please also note that all dollar figures referred to in today's call will be in Canadian dollars, unless otherwise noted.Following today's prepared remarks, Alan and Paul will be taking questions. To maximize efficiency, we would ask that all participants who would like to ask a question please limit themselves to one question and one follow-up before requeuing.With that, I would now like to turn the call over to Alan.

[Alan Kestenbaum, CEO & Executive Chairman]

Thank you, Trevor, and good morning to everyone. I appreciate everybody taking the time this morning to join us for a discussion around what has been a truly remarkable year for Stelco. The past 12 months have been truly unprecedented in the history of this company. And as I talk to you today, we are now positioned to take Stelco to new heights and leverage our position as the low-cost leader in the North American steel industry.To begin the discussion today, I would like to take a minute to highlight some of the strategic objectives we have accomplished. When we acquired this company, just a short 3.5 years ago, we set out on a very ambitious agenda that by 2020, we would restore Stelco to its historic place as a North American steel industry leader from the perspective of costs, quality and reliability and give Stelco the necessary tools to be profitable through all phases of the market cycle.Our strategic objectives this year, including securing a long-term competitive supply of critical raw materials, specifically iron ore, the Minntac deal, an objective we completed in the second quarter of 2020. In October, we saw the successful execution of the most complex and important part of the $600 million in strategic capital investments made since 2017, the blast furnace upgrade project, which created the only smart blast furnace in North America. As a result of this project, since November our team has repeatedly broken daily and weekly production records as we capitalized on the increased potential that this bold and strategic investment has afforded our business.As promised, we have also built on investments that have enabled us to expand our product mix and grow in the important and higher value-added markets. As a result, we have increased our participation in high value-added markets, including the advanced and ultra-high strength steel markets as supported by our investment in state of the art technologies in our cold-rolled and coated division. These products represented 22% of Stelco shipments in 2020, a high watermark since we arrived in Stelco in mid-2017 and is reflective of our team's ability to deploy our tactical flexibility model and pursue the highest available returns at every phase of the market cycle. We anticipate further shipment growth in these higher-margin markets in 2021.In addition to these achievements, I also want to point out that we remain committed to being leaders in the industry as it relates to ESG matters. This commitment is perhaps best evidenced by our partnership with DTE Energy Services to construct and operate an electricity cogeneration facility that will reduce our emissions further, reduce our costs and increase our energy reliability once commissioned next year.While we have executed $600 million in strategic capital investments, we have also paid out more than $350 million of dividends, all out of free cash flow, and remain one of the only public steel companies in North America to not have had to access the debt or equity markets. This is what happens when management, which in our case owns more than 15% of the equity in your company, is fully aligned with its shareholders. Alignment with you is what has enabled Stelco to achieve what I have just described, and alignment with you is one of the reasons that Stelco had the highest total shareholder return in 2020 of any steel company in North America. That same alignment is what has motivated us to decide to reinstate the quarterly dividend of $0.10 per share, and most importantly, that alignment is what drives us to continue delivering on our promises to you, our fellow shareholders, and drives us once again to strive to deliver again in 2021 the best TSR for our shareholders.Going forward, we see a very exciting opportunity for Stelco. In the early 2000s, electric arc furnaces, or EAF, as they are known, fuel production accounted for approximately half of all steel production in North America. Today, that share of production dominates and stands at roughly 2/3 of all steel production in North America. Over the last couple of years, the industry has been -- has seen several additional expansions to EAF production capacity, combined with planned rationalization of integrated steelmaking. However, notwithstanding the growth in EAF production, there has not been a corresponding growth in availability of scrap steel, the primary raw material required for this method of steel production. Increasing upward pressure on scrap steel availability has created a growing demand for a reliable source of alternative iron units. In response to this, we recently commissioned North America's only integrated pig iron caster, which will perfectly complement our strategic investments to date and allow us to opportunistically capitalize on this growing market. This situation is just beginning and will become even more acute as China, which previously prohibited imports of scrap has now begun to import steel scrap from North America in response to their own shortages as they expand their own EAF production.Moreover, Paul will share with you a dramatic slide with you this morning. When you look at our overall average production cost of all products, which includes hot-rolled, cold-rolled and galvanized, our implied average production cost in Q4 -- by the way, a quarter where because of the blast furnace start-up in October was really only operating at 2/3 of capacity. Still, the average production cost of all products are lower, I am repeating lower, than the cost of busheling steel scrap. Think of the magnitude of this accomplishment when you consider that the EAF producers drive the steel price based on their cost of scrap plus yield loss, which, of course, grows as fuel scrap prices go higher, and conversion costs.I won't run the math for you, but consider the implications of that fact in a world where scrap demand exceeds supply, about the earnings and cash flow generation potential of our company. Our end markets such as auto, construction and appliances are very strong, and we expect they will continue to improve as the broader economy and our key market segments continue to grow and diversify. Now even the energy markets are just beginning to recover, a key end market that has been virtually nonexistent during this recovery. Our customers report to us that their inventories remain low and their end market demand is strong.In addition to the opportunities I have already mentioned, Stelco is positioned to capitalize on emerging opportunities, in particular, in the electric vehicle market, with increased capacity to produce a full suite of products in response to the demands of that growing market. We are excited to be working with participants in that sector as they evaluate their steel requirements and their supply chain needs.It would be easy for us to sit back and enjoy the ride of this extraordinary time. But this is not what we do. We will now turn our focus and energy towards new and creative ways to build our company and drive shareholder value significantly higher.At this time, I would like to ask our CFO, Paul Scherzer, to provide some comments specific to our financial performance.

[Paul D. Scherzer, Chief Financial Officer]

Thanks, Alan, and good morning, everyone.We have just brought our business through an exceptional period of strategic investment with a few key projects still remaining on the horizon. As I approach the end of my first year with the company, one that has been filled with challenges that were largely unforeseen by anyone, I'm impressed by the resilience of our employees, by the ability of our business to grow through this period and mostly by the skill demonstrated by our team in delivering on the bold commitments made at the start of 2020.As Alan pointed out, but which bears repeating, throughout this period of strategic investment, we have remained focused on preserving the strength of our balance sheet and maintaining a positive cash position. This focus, combined with management's strong alignment with our shareholders, which is unique in our industry, has made us one of the only publicly traded steel companies in North America that did not have to access the debt or equity capital markets last year to support its business or its investment plans. This achievement is notable, not just due to the economic climate we have been in throughout the past year, but even more so because our business will not be burdened by restrictive debt covenants as we unlock the full potential of our assets and continue to grow our business organically, benefiting all of our shareholders on an undiluted basis.Certainly, we saw some of this opportunity begin to materialize in the fourth quarter as steel markets improved, and our average selling price rose to $728 per net ton, levels we have not seen since the second quarter of 2019, but not even close to where the market is currently with hot-rolled coil, which is our lowest priced product, close to $1,500 per net ton. The higher price realizations in the quarter helped to offset the reduced shipments we experienced, primarily resulting from the blast furnace upgrade project.Entering 2021, we certainly see opportunity to fully capitalize on the benefits attributable to our investments. In that regard, we are projecting an increase in shipments of more than 35% in the first quarter as markets continue to improve, and our production lead times allow us to realize these increased price levels. As I noted last quarter, we believe that we elected to take our blast furnace outage at a very opportunistic time due to the erosion of price levels during that period. Today, our decision seems even more timely as we are now positioned to leverage record levels of steel production in a robust market with prices that have continued their sharp upward trajectory through the first quarter of 2021.With production levels reflecting the increase we expected from a blast furnace upgrade and with increased tactical flexibility to divert higher volumes of hot metal into downstream steel products or into pig iron, now that we have completed the commissioning of our new pig caster, we feel we are very well positioned to pursue higher-margin sales as market opportunities arise and to return that benefit to our shareholders. In that regard, and as a result of the financial flexibility our operations and balance sheet afford, we are pleased to reinstate our quarterly dividend of $0.10 per share. Our management team has always taken great pride in being able to return value to our shareholders through dividends, and I'm pleased that we find our business in a robust position following our capital investment programs and are once again able to resume these payments.I do want to highlight that on the cost side, despite a quarter which included the restart of our steelmaking operations, we have already realized many of the cost benefits of our blast furnace upgrade, as evidenced by our strong adjusted EBITDA of $123 per net ton in Q4. That is an improvement of 108% over the second quarter of 2020, which was the last period of full production prior to commencing our blast furnace upgrade project.The $60 million of adjusted EBITDA we generated in the past quarter was our best financial performance for the 2020 fiscal year. However, considering the considerable cost improvements we anticipate materializing from our investments, combined with the realization of higher prices, we expect to significantly exceed that level in the first quarter of 2021. As Alan pointed out, and as you could see on Page 4 of the presentation posted to our website, the forward market for scrap, which is the primary raw material for many steel producers, is currently above our fourth quarter implied average cost of production. Combined with where steel prices have moved to, our earnings power is exceptional.The 2020 year was unprecedented on many levels. We have all faced a number of challenges that could not have been anticipated, but our business is strong. We have built a foundation for success over the past year, and I, along with Alan and the rest of our management team, am excited for what the future holds. As we start the 2021 year, we will stay true to our core strategy. We will maintain a strong balance sheet. We will seek opportunities for growth. We will utilize our tactical flexibility model to adapt to the market environment, and we will always focus on delivering the highest possible returns for our shareholders.Thank you for taking the time today to join our call.

[Trevor Harris, Vice President of Corporate Affairs]

Thank you, Alan and Paul. That concludes our prepared remarks. I would now like to turn the call back over to the operator for questions and answers. Operator?

[Operator]

Thank you. [Operator Instructions] Your first question comes from David Gagliano from BMO Capital Markets.

[David Francis Gagliano, Co]

I know there's a question limit. I have a series of questions and then I've got some others, but I'll get back into queue after that. But just -- I think it would help us if you could give us a bit of a framework around the outlook. Obviously, prices have had a huge run, and it doesn't look like it's reflected yet in the results fully. So I just want to ask a few questions to get to that point as well as the unit cost side. So on pricing, given the lags and the move higher that we've seen, in our math, it's perfectly reasonable to expect at least on average prices, at least a CAD 300 per-ton increase in the first quarter. Does that seem reasonable to you?

[Alan Kestenbaum, CEO & Executive Chairman]

Yes. I mean the -- we've been operating. If you think about it, David, if you follow the pricing, like a lot of steel mills, we've been operating on about a 3-month lag because of lead times, which is a good thing. You want lead times to be out. I think a lot of the customers looked at the market, saw markets start moving higher and we're a little bit shy about making commitments -- especially Q4 is typically a time then then doesn't happen. And that created a situation as buyers started to buy, the lead times went out. And so yes, you're looking at lags.And like right now, we're selling into May right now. So I mean you're looking now at the forward curve showing over $1,200 a ton, and you convert that into Canadian, and you're at CAD 1,500 a ton. I mean those prices will start appearing in the May timeframe.

[David Francis Gagliano, Co]

Okay. And you are signing volumes at CAD 1,500 a ton for delivery out in May. Is that correct?

[Alan Kestenbaum, CEO & Executive Chairman]

Yes. Yes.

[David Francis Gagliano, Co]

Okay. Great. That's very helpful. Switching on the cost side, just obviously, very impressive improvement in unit costs, especially considering the low volumes, we've got a 35% increase in volumes in the first quarter. Typically, that means with fixed cost absorption issues or opportunities, there's usually a meaningful decline in unit cost with that kind of increase in volumes, especially now with annual [met coal] contracts, I believe, being lower heading into the first quarter. Are there other offsets that we need to think about here on the unit cost side that would mitigate that decline sequentially?

[Alan Kestenbaum, CEO & Executive Chairman]

I mean you're right. That's exactly right. The one thing I would say on cost is, of course, we do use a little bit of steel scrap, but the amazing thing is higher steel scrap prices is great news for us because in our case we're impacted 15% as opposed to 115% from our competitors when you take into account the yield loss of about 15% that an EAF producer has to absorb. So it's pretty remarkable. And so the answer is, basically, that will be offset, as you said, by the absorption of fixed costs. So yes, it's -- we modeled this company and built this company, we've been talking about this for a few years about getting to this place, and we did it, and here we are.

[David Francis Gagliano, Co]

Okay. That's helpful, Alan. And then just not to -- I'm going to put you on the spot a little bit here. So we've got 2 theses here on EBITDA per ton. And obviously, we started out with $123 this quarter. We just probably added $300 at least on the price side and then costs probably down. Is there any reason we should expect -- we shouldn't expect EBITDA margins per ton of at least $450 to $500 in the first quarter and then going higher from there into the second quarter given the lags in pricing?

[Alan Kestenbaum, CEO & Executive Chairman]

I've said I expect that, yes. We expect that. And it's, again, pretty remarkable as you start moving into Q2, it gets much higher than that.

[Operator]

Your next question comes from Michael Doumet from Scotiabank.

[Michael Doumet, Analyst]

So first question, just wondering if you can provide us with the monthly production cadence through Q4 or what production levels we're exiting Q4? Just trying to get a sense for when the company will reach nameplate capacity?

[Alan Kestenbaum, CEO & Executive Chairman]

I don't have off hand. Maybe Paul has it for October, November. I can tell you in December, we reached that cadence. We had over 250,000 tons of production in December, which was probably above our capacity. But we are at that cadence right now. We achieved it already in the latter half of November, achieving daily production records at all parts of the operation, continuing to make new records through January. So we've been there since December, and we're rolling along right now.

[Michael Doumet, Analyst]

Nicely done. Okay. And then just on the second, I guess, an unrelated follow-up on the commodity swaps. Just wondering if you can provide additional color as to why the company entered those swaps in Q3 and maybe increase them into Q4? And should we expect the company to use hedging instruments going forward as part of the overall strategy? And I guess, a final follow-up. But specifically, were there any additional swaps entered into in Q1?

[Alan Kestenbaum, CEO & Executive Chairman]

Well, so the answer is the Q1 swaps are reflected in this quarter's adjusted -- sorry, an unadjusted number that included the forward impact from forward swaps as well. Have not entered into more swaps since then. And you've got to look at the swaps also as a fantastic thing. We enter -- we hedged like 15% of our output, which means we're basically long 85%. So we love having a loss attributed to those hedges because it means we're making a fortune on the unhedged piece. We are very biased to the long side right now. We believe prices are probably going to continue to go up. And I explained why. I explained why, on basis of what's going on in the scrap market and how the market is -- fundamentally works in that way.And so the swaps are something that we have used from time to time to lock in profits. And those are decisions that people make either by making actual fixed sales or hedge sales. We made the decision to make some hedges on at that time as prices started to get up, move up into the $700, $800, $900, $1,000 a ton, and they continue to go up. And so we look at these hedges as a fantastic thing because the more we get -- we have an adjustment due to the hedges, it means we're making just as much on the [physical] side and, of course, being substantially long. That's a great thing.

[Operator]

Your next question comes from David Ocampo from Cormark.

[David Ocampo, Analyst of Institutional Equity Research]

So when I take a look at your numbers, your -- where steel is now and your cost per ton, it does look like you guys are going to generate a ton of free cash flow even if prices taper back a bit. Do you guys have a better sense on how that free cash flow will be distributed to shareholders or otherwise spent?

[Alan Kestenbaum, CEO & Executive Chairman]

So we're just in the cash build mode. We've got everything -- wind at our back right now. First of all, we have the -- we built up inventories during Q4 in anticipation of the freeze during the winter. So that's starting to roll off. So we got all wind at our back right now. We've got significantly higher earnings. We've got a drawdown of working capital. So we've got a lot of cash generation.And our first goal is to build up our liquidity to a nice comfortable level. And beyond that, we're considering all kinds of things. But we're focused on one thing, shareholder returns. As I mentioned in my comments, more than 15% of the shares in this company is owned by the management, the people on this call. And our goal is to get the share price to reflect the great things that we've done in this company.And so whatever decisions we make, whether they're extraordinary dividends, share buybacks or whatever, whatever we decide to do with that cash is something that we will make decisions as we go along. And continuing to look for opportunities. I think I also mentioned during my remarks, we want to grow this company into the next place. It would be too easy to sit back and just watch the money come in. And we think this is going to be something that's going to happen for a very, very long time based on our cost position. But that's not what we're doing. We're going to be looking to take the money, reinvest the money to some degree into things that are going to continue to move the profile into this company into new and exciting positions like we've done to date.But every decision we make is always, how is this going to help the share price in the short-term and the long-term because we recognize that our holders have different hold periods and while you can't make everybody happy, we're always geared towards how do we build shareholder value, and that's how those decisions will be made. We have a history of share buybacks. We have a history of dividends, and we will continue to use those tools as the cash continues to roll in.We haven't mentioned on this call -- no one's asked me yet, but we're still anticipating some really good things to happen with the land. That's additional cash that we expect to come in as we move through the severance process that we've talked about on previous calls. So we're in a position right now where we expect to generate a really significant amount of cash flow, and that's a great place to be. And we'll make those decisions as we go.

[David Ocampo, Analyst of Institutional Equity Research]

And just as a follow-up to the severance process that's going on in Hamilton, can we think of that as a 2021 event? Or is that something that has gotten pushed out to 2022?

[Alan Kestenbaum, CEO & Executive Chairman]

Well, when someone asked me that question in 2019, I said it would be a 2020 event. So it didn't happen. And we're getting there. I do think it's 2021. We're -- all the pieces are lined up. But it's a really large piece of land, and we're going through the engineering questions and things like that, but it's really -- we have tremendous support from the City of Hamilton. They can't wait for this piece of land to get developed into something substantial. One of our people that we're working with described this is the best infill site in the entire Canada and perhaps North America. It's really a remarkable piece of land. And the City wants nothing more than to see this get developed. So we continue to work through some of the engineering questions that they have. But it's all good stuff, and we're hoping that this is a '21 event.

[Operator]

Your next question comes from Alex Jackson from RBC Capital Markets.

[Alexander Jackson, Assistant Vice President]

So obviously, HRC prices are really strong right now, but just kind of curious, under what conditions would it make sense to sell pig iron as opposed to utilizing it to create your sort of finished steel products?

[Alan Kestenbaum, CEO & Executive Chairman]

Right now, it makes no sense to sell pig iron. The relative profitability of pig iron -- let me just give you an example. I mean, if we went and sold pig iron today, we'd be making about more than $300 a ton. But we make so much more money on steel. So it makes no sense to sell pig iron today.I always tell people, and I've told this to people, pig iron is an incredible opportunity for us from an operational perspective and a profit perspective. And let me explain why. You're always as strong as your weakest link. If you're anticipating some sort of problem downstream that would -- or some maintenance project downstream, you have to dial back to blast furnace. And you get into that mode of [ dial in ] the blast furnace up and down to deal with the consequences of some downstream disruption. The beauty of the pig iron is it lets us constantly run the full -- the blast furnace at full, full production at all times because we know we have that as an outlet. So from a manufacturing perspective, it gives us an outlet to utilize units that get created during circumstances like that. Fortunately, we've not had that.And on the other hand, it's a great offset to profitability when the market gets tight, and they will get tight. Like I mentioned before, in our vie -- and we've quoted this out. And by the way, I mean, we're turning the pig iron market literally on its head. So for example, you go look at the pig iron market today, and it's showing $500 a ton, something in that range, $500, $520, whatever, something like that. Well, I mean, we all know that HRC is today quoted in U.S. over $1,200, which is CAD 1,500. So there's no world where it makes sense for us to make pig iron in that market because we can make so much more money on HRC, and of course even more than that in cold-rolled and galvanized.So what we're doing is we're going to customers now, we're saying, Guys, the market is short. Forget the index in pig iron. We want you to buy this at a discount to HRC that -- and if you want the product, we'll make it for you. We'll make pig iron for you, but we're not going to pass along the delta between pig iron price and HRC to you." We want to capture that, but we're not making pig iron. And that's our value proposition. And whenever -- when I first brought it to customers, they kind of laughed it off, but we're having people come back and talk to us right now and saying, "Hey, could you run a formula for me at some discount to HRC?" And our response is, our formula is the higher of a discount to HRC or the index. It's the higher of those 2. And that's how we're approaching the market. I haven't gotten one single order yet at those terms. But the initial blowups that we got from that proposition are now being met by people asking us for specifics. And I think we're going to change the market of that because of the acute shortage of scrap that's coming, because of the great technical advances that the EAF people have made in getting to advanced steels that require more pure iron units.So we're not there yet, but we're trying to change the market dynamics and how pig iron is priced. The way it's priced right now makes no sense. I do believe we're going to get to a point where the buyers of pig iron are going to realize that they do have to pay us at some discount to HRC or market, whichever is higher, and that's our anticipation. But for now, we're just making flat-rolled steel products.

[Operator]

Your next question comes from Seth Rosenfeld from Exane BNP.

[Seth R. Rosenfeld, Research Analyst]

If I can kick off, please, with the outlook for CapEx. I wonder if you can give us a little bit of color on your expectations for investment cash outflows in '21 and even ahead to '22. In the past, you've talked about the coke oven battery. But wonder if you can help pin down what the expense of that will be in this current year?

[Alan Kestenbaum, CEO & Executive Chairman]

Yes. So I'll be happy to do that. So on the coke oven battery which we're doing right now -- and by the way, when we finish that, we will be reducing our costs even more to a tune of about another $12 per ton production cost once that gets commissioned later on this year. But we're talking in the vicinity of about CAD 100 million for that project. It's in the middle of getting done right now. We have some offsetting amounts coming in from some other programs like [ SIP ] programs and other things. So it's not -- that's not the actual cash impact of that. The net cash impact is actually a bit lower on that project. But in any event, that is the amount for this year.And that's kind of it. That's the end of the major capital program, and then we go back to the mode of maintenance CapEx for the foreseeable future and, of course, look opportunistically at projects that are interesting.

[Seth R. Rosenfeld, Research Analyst]

Okay. Are you able to give a full year budget, including maintenance for fiscal '21, please?

[Paul D. Scherzer, Chief Financial Officer]

Seth, we're probably not going to be that far off where we were last year. To Alan's point, there's an addition in maintenance. There's a number of small pretty accretive projects that we're going to be doing as well as, frankly, given where we are today with margins and really with our improved cost structure to increase capacity, we're making sure that we're really properly spared up, if you will. So just being sure that we're not going to have anything that impedes our ability to produce the tonnage we want to produce from an operating perspective. So I think we'll be around last year's level and then heading really towards that maintenance level on a going-forward basis in the out years.

[Operator]

Your next question comes from Curt Woodworth from Credit Suisse.

[Curtis Rogers Woodworth, Director & Senior Analyst]

Alan, the talk about potential shortages in scrap or this whole view that we're in somewhat of a new normal for high scrap pricing. The pig iron caster kind of gives you nice optionality, but you also theoretically have option value too at Hamilton in terms of converting that facility, blast furnace into maybe a merchant pig iron plant. Is that something that you're contemplating at all? Or can you give us an update on plans for that asset?

[Alan Kestenbaum, CEO & Executive Chairman]

Look, we're always assessing that. We have it there. It's a great tool to have. And so nothing is ever off the drawing board.

[Curtis Rogers Woodworth, Director & Senior Analyst]

And then given the strategic investments you've made in the business, do you feel that it's more likely that you're going to pivot more to an M&A philosophy going forward? Are there any major organic investments that you're evaluating right now? Because it seems like from a free cash flow perspective, you really have a lot of options going forward, both in terms of capital return and M&A.

[Alan Kestenbaum, CEO & Executive Chairman]

We do have a lot of options. Look, M&A, a lot of M&A has occurred in this industry already. There's been a significant amount of consolidation in this industry that has been really very intelligently done by a number of our competitors. You know about them. The whole roll-up of Cliffs, AK Steel, also [indiscernible] is a really good deal, both for Cliffs and for the industry. And the same with U.S. Steel and Big River. There's just been a lot of consolidation that has occurred already.And we just want to be very, very smart about what we do. So who knows, we could -- we have organic projects that we're working on that are super exciting. So there's that side of it. On the M&A front, it's got to be geographically proximate in order to have synergies. So I can't tell you there's a lot of real opportunities there that makes sense for us. Because you need the full complement of assets in order to make those work. And then who knows? I mean, I think we probably represent a phenomenal opportunity for someone to look at acquiring us potentially, just that we have -- we've got a company with no debt. It's a free cash flow generation machine, top of the heap asset capabilities on the auto front, no legacy liabilities on our balance sheet, all sitting in trust, ca lean profile environmentally, most modern facility, integrated facility, in North America.So who knows what happens? Right now, we're going to be focused on cash flow generation, share price. We're going to be focused on organic opportunities they're identifying. We are constantly in conversations with other people on the M&A side. But if we do something M&A, it's going to be something that's going to be really exciting. It's not going to be about trying to just consolidate some additional capacity. It's going to be something that's going to be super exciting, modern, futuristic, things that are going to make this company into something more than what it is today.In my last company, we existed at a time we were known as a silicon producer. And at some point, the solar industry became very, very hot, and we decided that we wanted to be an extremely meaningful participant in the solar industry. And to do that, we strongly invested and succeeded to make upgraded silicon metal to get into futuristic growth opportunities. And that's one of the strategies that we did. And we see things like that could potentially really increase the value of Stelco as a company. So for now, we're focused on things that are going to make sense. A lot of the consolidation has already occurred. And I think to the benefit of our competitors, to the benefit of the industry, to our benefit and everybody else. And we just want to do things that are going to be smart and make our value grow.

[Operator]

We have another question from David Gagliano from BMO Capital Markets.

[David Francis Gagliano, Co]

I just had a sort of a side question on the merchant coke sales in the fourth quarter. If you could just give a sense what the -- I don't know if it was in the MD&A, but the EBITDA contribution was from those sales? I know the sales number was in there, but the EBITDA contribution, please?

[Paul D. Scherzer, Chief Financial Officer]

Yes. We had, Dave -- so we blended together in what we call non-steel sales, which is coke as well as some other byproducts and whatnot. And when you look at that, we had gross profitability was -- the EBITDA contribution was probably about $15 million, maybe a little bit higher on that, so from all of our non-steel sales put together, including that coke.

[Alan Kestenbaum, CEO & Executive Chairman]

Yes. And on that front, it's another business. I mean, so the coke business right now is very, very hot. We're well positioned on the coal side and on the coke side and we're anticipating some additional Q1 sales of coke as well, which is pretty good.

[David Francis Gagliano, Co]

And actually, that was my follow-up. Just in terms of on a forward-looking basis, with the coke battery upgrade, how should we model that EBITDA contribution as we go through the year? If you can give us some guidance on that?

[Alan Kestenbaum, CEO & Executive Chairman]

Well, I mean, I don't think we'll disclose what we did, but we positioned ourselves really, really well at the bottom of the market on coke. And we have more coke than we need even with the project.

[Paul D. Scherzer, Chief Financial Officer]

Yes. And Dave, when you look at that, I mean, we're going to be able to sell the excess coke, get a nice profit. But in the context of our steel sales, it's not going to be anything that stands out.

[Operator]

Ladies and gentlemen, that's all the time we have for questions today. Please proceed.

[Alan Kestenbaum, CEO & Executive Chairman]

Okay. Well, in closing, thank you very much, everybody. These are good times for the company, and we're looking forward to taking what we've got now and taking it to the next level. So thank you very much, and I wish you all a good day.

[Operator]

This concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.