Good morning, everyone, and welcome to United States Steel Corporation's Third Quarter 2020 Earnings Conference Call and Webcast. As a reminder, today's call is being recorded. I'll now hand the call over to Kevin Lewis, Vice President of Investor Relations and Corporate FP&A. Please go ahead.

Great. Thank you, and good morning. We appreciate your continued interest in U.S. Steel and welcome you to our third quarter earnings call. On the call with me this morning will be U.S. Steel President and CEO, Dave Burritt; Senior Vice President and CFO, Christie Breves; and Senior Vice President and Chief Strategy and Development Officer, Rich Fruehauf. After the close of business yesterday, we posted our earnings release and earnings presentation under the Investors section of our website. On today's call, we will walk through via webcast select slides and our third quarter results. The link and slides for today's call can also be found on our website. But before we start, let me remind you that some information provided during this call may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties as described in our SEC filings, and actual future results may vary materially. Forward-looking statements in the press release that we issued yesterday, along with our remarks today, are made as of today, and we undertake no duty to update them as actual events unfold. I would now like to turn the conference call over to U.S. Steel President and CEO, Dave Burritt and he'll begin today's presentation on Slide 4.

Thank you, Kevin. Good morning, everyone, thank you for being a part of today's call and for your interest in U.S. Steel. The third quarter has improved to be a quarter of continued optimism. We have a lot to update you on about our optimism and progress before we open the line to your questions. Today also marks the one-year anniversary of our initial investment in Big River Steel with tremendous progress to report. We'll get into more detail about that tremendous progress we've made together. But I want to take a moment now to thank the U.S. Steel and Big River teams for their collaboration, for making the first Generation 3 advanced high-strength steel at a mini mill and for creating an unmatched customer value proposition. The Best of Both teams have been through an unpredictable and unprecedented year, making their accomplishments that much more impressive. So thank you to the U.S. Steel and Big River Steel teams of innovators for making the first GEN3 advanced high-strength steel at a mini mill and for creating an unmatched customer value proposition, we can't get to the future fast enough to deliver the value, our Best of Both customers demand and our stockholders deserve. There are three main messages I'd like you to take away from our prepared remarks. Let's get started with number one. First, we are optimistic as the market recovery has continued into the fourth quarter. We believe market strength will continue through the first quarter of 2021 based on our stronger order book and customer collaborations. We believe market conditions can last and are confident about our performance for the rest of the year. Second, we are seeing the significant improvements from the rapid response to COVID-19 in Flat-Rolled and U.S. Steel Europe, as we generated free cash flow in the third quarter. We're optimistic we will generate further improvements in the fourth quarter, which Christie will talk about later. And third, we're optimistic about the continued execution of our world competitive Best of Both strategy. Throughout 2020, we have been not only able to complete significant milestones of our Best of Both strategy but also reaffirm our optimism about the future by delivering unmatched process and product innovation for our customers. Let's start with more about our Best of Both strategy execution on Slide 5. We continue to operate at industry-leading Days Away from Work safety performance, and are on track to improve on last year's record setting performance. We remain vigilant in our COVID-19 protocol, including emphasizing face coverings, physical distancing, and good personal hygiene to stop the spread of the virus. Next, in addition, the actions we took earlier this year to fortify the balance sheet, we have delivered significant cash improvement in the third quarter. We generated cash from operations of $210 million, primarily from the release of working capital. We generated free cash flow of $76 million and we've increased liquidity by over $200 million in the third quarter and ended the quarter with nearly $1.7 billion of cash after reducing our ABL borrowing by about $900 million. While navigating 2020, we also executed critical agreements related to the monetization of our iron ore of about $100 million before year-end. We also remain focused on delivering on our $200 million fixed costs reduction goal, which is ahead of schedule. I want to spend the last few minutes on this slide, celebrating our most recent Best of Both accomplishments. Earlier this month, we completed a major milestone of our Best of Both strategy, the successful startup of our electric arc furnace at Fairfield, Alabama. As part of the startup process, the U.S. Steel EAF team at our Fairfield operation spent time with the Big River Steel team to learn EAF best practices to ensure a safe and efficient startup. The new EAF and collaboration with Big River Steel are two proof points of our Best of Both strategy and ways we can provide value to our customers. The completion of our EAF delivers on our commitment to add sustainable steel making capability to our footprint while driving significant cost reductions. For our customers, we will be more agile and nimble to deliver the steel they require to meet their specific needs. When you combine the EAF with our proprietary grades of premium connections, we are confident that U.S. Steel offers a unique value proposition to our customers. Congratulations to the Fairfield team on this important achievement. And thank you for completing the project safely in a truly extraordinary environment. And thank you to the Big River team for your support with EAF number one. This month also marks another major milestone. The one-year anniversary of our initial investment in Big River Steel, which we will discuss starting on Slide 6. We couldn't be more excited about the progress made to-date, but this shouldn't surprise anyone. We are combining Big River Steel, which has the most advanced mini mill technology in the country with U.S. Steel’s outstanding R&D team. And the results have been remarkable. We have successfully trialed and are beginning the qualification process on 11 U.S. Steel proprietary steel grades made at Big River. Take for an instance, for instance, our proprietary grades at Generation 3 advanced high-strength steel, not only have we successfully trialed these grades of steel, but we are in the qualification stage with OEMs to produce the GEN3 substrate for some of our most demanding applications. We are producing grades of steel, many didn't think possible at all through a mini mill, let alone in the first year of a partnership. This makes for a winning solution for our customers. We can provide grades of steel once thought possible only from the integrated process. Now Big River is doing it with U.S. Steel through an EAF. This will create unmatched value and differentiation for our customers while ultimately providing the green steels our customers demand to achieve through their low carbon goals. Let me repeat this, in case I wasn't clear enough. Generation 3 grades of steel substrate made at a mini mill, possible today. That's right a mini mill working with an integrated mill has GEN3 steel capability. This isn't a hypothetical or a long-term goal. This is a fact, and we're moving ahead with qualification so that our highly valued auto OEMs can use XG3 sourced at Big River in their next-generation of vehicles. As Slide 7 shows, we are delivering on the Big River value proposition, including collaborating on 11 different steel grades that are going through the qualification process. Not bad for one year of working together. At the completion of Big River’s Phase 2 expansion, Big River will produce over 3 million tons of sustainable steel at the only lead gold certified steel making facility. This offering of green steels will meet the growing customer demand for sustainable steel in pursuit of climate change and decarbonisation targets. The Phase 2 expansion is also two months ahead of schedule, thanks to superior project management from the Big River team. Slide 8. Just a few of the benefits of the expansion underway. Big River is near completion of the Phase 2 expansion and will unlock significant value as they reach full production. This will drive substantial operating leverage and efficiency that should go straight to the bottom line. We are confident that exceptional management and operating team at Big River Steel will ramp production efficiently and safely, so that we can continue to leverage significant progress we are making together. This brings me to my second point I mentioned earlier. We are optimistic about the recovery that has been underway for the past several months. Slide 9, summarizes why we are confident. We believe today's market demand is sustainable and will continue into next year. As vacations, movies, concerts and dining out have been replaced by vehicle and appliance sales and home improvement projects, we have continued to see a noticeable increase in steel demand. This is supported by the September durable goods report released on Tuesday, which increased by 1.9%, compared with August report, while exceeding expectations of up to 0.5%. Steel customers across our end markets are reporting both strong demand and low inventories. Take automotive OEMs, for example, low interest rates and the COVID induce change in spending patterns has led to more vehicle purchases and improved forecast in demand in 2021. Meanwhile, strong demand today will limit restocking opportunities which will support future steel production. We are seeing this across other U.S. steel end markets such as appliance and packaging. Additionally service center industry data suggests today's inventories are unsustainably low. Service centers are likely to prioritize restocking inventories while they balance increased customer demand. Improved demand is also supported by current steel industry statistics, utilization rates in the industry are back to 70% in the U.S. after bottoming near 50% in the spring. Flat-Rolled utilization is likely even higher, near 80%, as demand for these products has exceeded long products and plate demand. These stats are further reinforced in current industry lead times for hot-rolled coil now extended past eight weeks. These industry statistics plus our current order book and customer collaborations give us confidence that today's customer activity should continue into next year. To be sure we are prepared for the continued strong demand expected this winter. We are analyzing timing around restarting our Keetac iron ore pellet facility. The incremental iron ore production will de-risk our current blast furnace configuration, so we have the right inventory to meet customer demand while the locks are closed on the Great Lakes. Before I pass it to Christie to talk about how the actions we've taken this year generated better than expected results. Let me provide an update on our capital spending and strategic projects on Slide 10. First our CapEx budget for 2020 remains unchanged at about $750 million. For 2021, we currently expect capital spending to be approximately $675 million. We believe this is right portfolio of projects for 2021, as we continue to execute our best of both strategy. The growing confidence in the sustainability of customer activity gives us the confidence to resume key strategic investments in our best of both strategy in a cash smart way. Now I'll hand it over to Christie to discuss our third quarter performance and additional color for the rest of the year.

Thanks, Dave. Good morning, everyone. Thank you for joining us. I'll begin on Slide 11. Our quarter-over-quarter performance highlights the improvement we're seeing across the business, as we significantly improved our Flat-Rolled EBITDA and turned EBITDA positive in U.S. Steel in Europe. Our ability to respond quickly and cost effectively to customer demand created significant operating leverage. Adjusted EBITDA for the third quarter was a loss of $49 million compared to the second quarter loss of $264 million. We outperformed our third quarter guidance of adjusted EBITDA loss of $100 million, as a result of better than expected Flat-Rolled segment performance. Strong operational performance, cost management and higher shipments were tailwinds in our Flat-Rolled segment. This helped to offset the lower prices flowing through our Flat-Rolled results, primarily from quarterly and monthly contracts that still reflected lower index prices. Prices that have cents increased nearly $250 per ton from August lows. In Europe, we returned to positive EBITDA and generated 8% EBITDA margin. Lower costs across all major spend categories drove positive EBITDA in the third quarter. Tubular results continue to be impacted by a difficult commercial environment. We have streamlined operations to our Fairfield facility, as we center our operations around our recently completed EAF at Fairfield. Looking at cash, we delivered on our commitment to keep the business resilient by releasing over $250 million of working capital. We are also executing on our 2020 CapEx. For the quarter, we generated $76 million of free cash flow, a dramatic improvement and clear result of our continued enterprise focus on cash and cost management. We ended the quarter with nearly $2.9 billion of liquidity, including approximately $1.7 billion of cash. Looking ahead, we expect higher steel selling prices to flow-through our monthly and quarterly Flat-Rolled contracts and expect volumes to be similar to the third quarter. As a reminder historically, approximately 40% of our Flat-Rolled order book is on annual contracts and is not subject to fluctuations in spot selling prices. We are pleased with the continued focus on cost and cash management at our European operations and the ramp of our tubular EAF will provide further opportunities for cost reduction in that segment. To summarize, we reported better than expected third quarter results and are optimistic about our future performance. As we looked at 2021, we will maintain a clear focus on liquidity, as we resemble key investments in our best of both strategy. Dave, back to you.

Thank you, Christie. Let's turn to Slide 12. Before we move to Q&A, let me summarize the key takeaways from today's call. We are optimistic about the recovery that has continued into the fourth quarter. We are optimistic that the actions we've taken are translating into improved results. And we are optimistic about the continued execution of our world competitive best of both strategy. Kevin, let's move to Q&A.

Thank you, Dave. We ask that you each please limit yourself to one question and a follow-up. So everyone has the opportunity to ask a question. Operator, can you please queue the line for questions?

Thank you. [Operator Instructions] Our first question is from the line of Karl Blunden with Goldman Sachs. Please proceed with your question.

Good morning and thanks for the time. Just wanted to speak first a bit about the CapEx control, I think the 2021 number was significantly lower than what many had expected, including ourselves. Is there a way to quantify how much incremental earnings power is being pushed back a bit with that CapEx coming down? How much of that is deferral versus efficiencies that you've found?

Thanks, Karl. And I'm sure that question or type of question like that is on everybody's mind. I'm going to make a few comments and then Christie, I'll ask you to further the dialogue here. And just want to make sure everybody understands what we're doing with this CapEx. We're allocating capital to our best assets and building in the optionality and the flexibility, so that we can deliver the most value on that CapEx spend. And I think you all know this, but it's safety and the environment first, and then the second thing is transitioning to the best of both strategy and we'll pull the trigger on that, when we can, I’d like to say – I'd like to do that yesterday on Big River, but we'll have to see how things unfold. We have quite a bit of time before we actually have to make that decision, but we feel good about the relationship with Big River. And then lastly, it's about managing the cash and liquidity and making sure that we stage gate this capital for optimum value creation. Now, obviously in this last pandemic year, we did a lot of raising cash and we had some in-determinant delays and other priorities, like the endless caster on the hot strip mill and things like that. But as we get this upturn, we should be able to start pulling those things into 2021 and stage that – gate that appropriately and we built some of that into the $675 million that we talked about. So Christie, maybe a little bit more.

Okay, Dave. I'll make a few more comments on our 2021 CapEx plan. As we said earlier, our 2021 CapEx forecast is approximately $675 million in total. And it does include some resumed spending on our strategic projects. For the base business, we're currently expecting to allocate $415 million of capital and the rest will be on our strategic projects. So on those strategic projects, let me give you a few details on that. The endless casting and rolling project, we plan to resume equipment purchases and expect to draw on our export credit agency agreement for that. So this will allow us to continue building the equipment as we monitor the right time to fully resume the project. The endless casting and rolling project delivers differentiated steel solutions for our customers, including advanced high strength substrate. And so it's really important that we continue to progress, but at a cash smart pace. And for this project, we're looking to spend approximately $150 million of capital next year on this project. At Gary Works, we plan to leverage the flexibility that we built in to our execution plan to invest about $80 million on the hot strip mill capability upgrades in conjunction with some of the planned outages that we have for next year. So these investments will further differentiate this highly capable asset and it'll ensure that we meet our customer demands for high quality steels and that includes heavy-gauge line pipe and the substrate for advanced high strength steels. The remaining strategic spin is carry over from 2020. So looking at next year, we believe the 2021 capital budget supports our customers today with both safe and reliable operations and it supports the continued execution of our best of both strategy.

Thanks, Christie. So Karl, in a nutshell here, what we're doing is, we are allocating towards the best of both transitioning in that process as we get into next year and we talk with you next time at the end of January, we'll have more color on that as we transition to the future, but we are building in a lot of optionality and flexibility.

That's very helpful. I think it sounds like it aligns with Big River being the number one priority for the business. Just – probably more granular item on the $150 million of Mon Valley CapEx, you do indicate that it'll come from the export credit agreement to some extent, is there a way to kind of give us a frame how much can be funded that way versus coming from cash? I think that's important for the liquidity picture.

Sure, Karl; this is Kevin. I would expect us to be able to leverage the export credit agency financing we have in place for immaterial amounts of the $150 million that we just described as Christie just walked through. So I think order of magnitude, call it somewhere between a little bit – more than $150 million of availability on that facility.

Okay. Thanks very much.

Thank you. Our next question is from the line of Seth Rosenfeld with Exane BNP. Please proceed with your question.

Good morning. Thank you for taking our questions today. If I can ask a question on balance sheet and cash generation fees, obviously the very strong cash generation in Q3 with driven principally by working capital. I remember at the time of Q2 results, you've guided to a second half release of 250 and have achieved all of that in the third quarter. What should we expect for the fourth quarter in terms of working capital performance? Is there need for transaction reinvestment going forward as volumes continue to recover? I'll start there please.

Yes, thanks for that. And I think you all know that we spend a lot of time on this cash management, in fact, reward structures are based upon the cash conversion cycle time. So Christie and her team actually look at cash each and every day. And again, as I said the incentives for our employees, a short-term incentive pay across the whole company is focused on this portion. And we'll continue to make sure that we keep pushing on cash, but I think Kevin, you had some more on that.

Sure, Dave. A really great point, and Seth, to your question, I think we are going to continue to be hypervigilant, when it comes to managing all things related to cash, but especially working capital and inventory levels that are respected facilities. The first goal is obviously always to be able to support our customers in an increasing demand environment, obviously that is ever more important. So we'll continue to look at the order book, see how orders are coming in. I wouldn't expect us to have to build a material amount of inventory that flows through working capital. So I think for purposes of the fourth quarter, we're going to make sure we're well positioned to support what we believe will be a strong year into 2021. But don't expect any significant need for cash in the fourth quarter to build inventory, to support that expected increased demand.

Okay. Thank you very much. So I suppose that's guiding from being more neutral on a quarterly basis, is that correct?

I think that's a good approximation.

Fine. And a separate question please on Europe. Obviously in Q3, you've benefited from – it looks like an FX translation of benefit and also electricity compensation rebate. Can you quantify those and comment on the recurrence of those? Thank you very much.

Sure, Seth. On the electricity rebate, that's something that came in specifically for the third quarter, so you're absolutely correct in calling that out as a non-recurring event moving forward. That's about a $10 million impact in the third quarter that we wouldn't expect to occur into the fourth quarter. And then if you look at the bridge chart 2Q over 3Q that we provided in our summary earnings materials. The other category is largely reflective of the FX benefits that we had in the third quarter. So that should help you to think about the size of the one-time impacts or FX driven impacts in the quarter. But I would say looking forward for Europe as Christie described in her remarks, we continue to be extremely impressed with the cost and cash management of that business. So we'll look to continue to build, the positive momentum and expect that segment to continue to perform well in the near future.

Thank you. Our next question is from the line of Chris Terry with Deutsche Bank. Please proceed with your question.

Hi, David and Christie. I just wanted to ask a little bit more about key tech. So you’re restarting just wanted to be clear that's really to do with managing your raw material inventory through the winter period, as I understand it. Just wanted to check that's not related to HSE now at 700 and anything that might restart on the block Venice side? Thank you.

Thanks for the question, Chris. Yes, what we're doing is making sure we have the inventory levels through the winter months, how the locks close up. So this is clearly an inventory related, we've had some good success with the seaborne market in terms of selling the pellets and things like this, but this decision that if we make it, we’ll be to make sure that we get through the winter months, it's clearly inventory related – tied with our customers.

Okay. And then my second question on Big River. I wondered if you could give an update on how long you think ramp up of size two might take and what the product qualification of the substrates, the auto sector? How long that might take as well? And then just any lightest thoughts on how you're thinking about the potential reminder of that asset that you tied on? Thank you.

Yes. Thanks for that question as well, and Rich, I'll turn it to you in a moment here. But as I said before, Big River Steel, they clearly exceeded our expectations. And when we talk with Dave Stickler and his team, one of the things they say about the Phase 2 ramp up, and their favorite words are on budget and ahead of schedule. And they're certainly demonstrating that going a couple months faster than I think even they expected they could do it. So we're very pleased with the progress that they're having there. And as I said in my opening remarks the work on GEN3 is clearly impressive. And answering an earlier question, as far as the timing of getting to the future faster, as I said, I'd like to have done that yesterday. And I think I said that on the last call, but we have to see how things go and as long as we're making progress, we feel very, very optimistic that we're going to be able to exercise that option at the appropriate time in the future. Rich, maybe something else here.

Sure, Dave, thanks. And I think Chris asked, how long will it take for them to ramp up Phase 2. My – our expectation would be that they're very experienced in startup, they did on Phase 1, so we would expect Phase 2 as well to be ramped up relatively quickly. Obviously they're finishing ahead of schedule, the completion of the construction. So I think everything is, excuse me, pointing to a positive direction as far as Phase 2a coming online as soon as possible. I mean, this is a very experienced team, this is their core competency building and starting and running mini mills. So we have a lot of faith that they'll get that done as quickly as possible. As far as the qualifications, those are processes that can vary from customer-to-customer, from OEM-to-OEM, but we're very optimistic that we should hopefully have some results in 2021 for 2021 platforms.

They're really extraordinary of course building mini mills and then – as well as operating mini mills and we saw that firsthand with our EAF number one in Alabama, where they were generous with their training and, help as we launched first arc here recently. So we had their folks come in and provide some coaching and guidance, and our folks went to visit them. So, it's really been a great collaborative effort. So we expect them to stay at their word as the way they work, which is on budget and ahead of schedule and I expect that to be the same, ramping up safely and making sure that, we get the volumes necessary to run that facility extraordinary well, they've demonstrated they can do it so far, I don't know why that would change.

Thank you. Our next question is from the line of David Gagliano with BMO Capital Markets. Please proceed with your question.

Great. Thanks for taking my questions. Just one quick follow-up from the previous commentary on the Mon Valley project, after that $150 million spend in 2021, how much is left – how much CapEx is left to complete that project beyond 2021. And what's the timing on that incremental CapEx?

So David, I’ll address your first question around remaining capital, and then maybe we can let Rich talk a little bit about how we think about we proceed from here, given some of the other considerations with that project. But first and foremost, we think about what's been spent so far, including the $150 million that we plan to spend next year. I would think order of magnitude, the remaining spend would be somewhere between $1 billion and $1.2 billion for the remainder of the project. But as Dave and Christie both talked about in their remarks, we feel comfortable and confident that if we can proceed with the equipment purchases, especially given we have financing to support the vast majority of that in 2021, that'll put us in a good position to have the equipment in hand and give us some optionality and flexibility, but maybe I'll let Rich talk about the optionality and flexibility and how we think about proceeding from there.

Yes, sure. Thanks Kevin. So with respect to Mon Valley and project icon, there are a number of permits that are required to proceed. We're pursuing those as fast as we can, obviously there've been some impacts from COVID on some of the critical path permits. So we continue to try to work and get those in place, but that's obviously a stage gating item as we think about the CapEx spend for Mon Valley and why we need to be nimble and maintain optionality.

Okay. Is it – from a modeling perspective, should we assume that the majority of that incremental spend is in 2022 or spread evenly between 2022 and 2023?

I think what I would say David is that for 2021, $150 million is the right number we're going to leverage the ECA financing that we have, and we will choose the appropriate time what market conditions support it when the cash flow generation of the business support it, when cash and liquidity support it to move forward with the resumed groundbreaking and construction of the facility. But for now we're focusing our attention on the equipment, getting it continue to be built out and leveraging the ECA to make as a cash smart approach to proceeding with endless casting and rolling.

I think that's well said, Kevin, the key word in all of this is really the optionality. So we can decide to put it in Mon Valley, we can decide to put it somewhere else. We have a lot of flexibility to decide where this goes and when we pull the trigger on all of these things. So we'll have to see how COVID-19 moves forward. And we have to see how the permitting process works. We're going to make sure that we take care of our customers, and we're going to put the equipment in place to make sure we deliver the most value keeping – making sure the employees are taken care of, as well as the stockholder. So again, the key word here is optionality. We're going to keep the flexibility and we're going to make sure that we have this endless casting and rolling put in place at the appropriate time.

Okay, great. And then just switching gears, my other follow-up question on the 40% of annual contracts for 2021. I was wondering if you could provide an update on the negotiations, the auto producers for 2021, and also if you can speak about your 2021 met coal contracts and costs there as well. And then the third part of that question the $51 million improvement in overall maintenance and outage costs in this quarter, obviously, I'm guessing a big chunk of that was with a ramped up production rates, but should we expect outage costs to hold that lower level moving forward, given these restarts or is there anything upcoming on the maintenance side that we need to be thinking about that would move that quarterly bridge in one direction or the other over the next few quarters? That was my last question.

Yes. Sure David. Let me work backwards on your questions here. And I'll let Dave speak a little bit about negotiations with customers here at the end. But related to maintenance and outage, I think that from a maintenance and sustaining CapEx perspective, we continue to be extremely diligent to understand the maintenance and outages that are required in a given year to support our customers. So as you heard from Dave, our focus remains on safety, environmental and reliability related projects. So we'll put those at the top of the list from a priority perspective. And we'll be disappointed and prudent how we proceed and other types of investments, but nothing probably material in the fourth quarter or for next year, if we think about big maintenance and outage costs. On the coal side of things, we'll have some more information for you probably on our next call, probably a little bit too early to get into the details now. But maybe I'll let Dave then conclude with where we are with customers.

Yes. Thanks. I guess the annual contract negotiations in this market environment, frankly, they're going very well. I think the most important thing that we need to keep in mind is when it comes to discussions with our customers, we make sure that we present them with the U.S. deal value proposition, and we're actively engaged with those customers on the critical issues that are most important to them. And of course, there's always the price, but there's the quality. And for us now, it's the innovation with certainly our Best of Both strategy and the successes that we're having early on with Big River steel. And the core service really matters a lot, just to name a few of those things. For us, we're moving up the food chain and so we're having – we're showing very good win rates with the new platforms and in the strategic markets where we want to compete and compete well. We're able to show that we have a differentiated value proposition. And of course, I think everybody knows this when you're dealing with customers. The most important thing is to listen to them, have the dialogues with them, understand their goals and their targets and how you fit into their future. And the closer you get to the customer and the better you understand where they're headed. I think it's better for everybody. And I think you probably saw our announcement, we have now clear irrefutable focus with Chief Commercial Officer that we got from outside the steel industry, and we feel greatly, Ken Jaycox is off to a great start and understanding the customer base and we're expecting to bring some greater customer intimacy and focus, making us more customer-centric organization moving forward.

Thank you. Our next question is from the line of Nick Jarmoszuk with Stifel. Please proceed with your next question.

Hi, good morning. Question on the Fairfield, EAF. In the earnings presentation, it says savings on seamless are $90 per ton. Can you give us a sense for what the gross cost savings are from that?

Yes, Nick. So, I mean, that's obviously going to have some volume dependency to it, but let me unpack the $90 per ton a bit for you so you’ll have some context. And then when we size the opportunity to reduce in-sourced rounds cost compared to externally sourced rounds, I mean, we're one of the big drivers was kind of just a transportation and logistics component to the cost structure of having externally sourced rounds. So our belief is that obviously the energy market is challenged, which may lead to lower levels of utilization at that EAF initially, but we think we can be cost competitive on a per unit rounds costs, which would be much lower than our externally sourced pellet, especially taking into consideration the freight savings we would have getting what was once a third-party supply round to our facility versus having that on campus at Fairfield. So, probably more to come, we'll see how the EAF ramps, how the tubular business boost forward. But we're pretty confident that $90 per ton is achievable across a pretty wide range of utilization level at the electric arc furnace. So a good opportunity for our tubular business to achieve some significant structural cost savings.

So in terms of the savings is going to be flowing through the Tubular segment?

That's correct.

And of the shipments, can you give us a sense for how much of that business is seamless?

Sure. So as we discussed on previous calls, we had indefinitely idled our Lone Star operations with our sole welded pipe facility. So as we look at the third quarter shipment volumes, we're about a 92% mix of seamless in the third quarter. And we would expect that to continue to increase to a higher percentage of seamless mix as we focus and consolidate our operations in the Fairfield.

Thank you. Our next question is from the line of Timna Tanners with Bank of America. Please proceed with your question.

Yes. Hey, good morning and happy Friday. Wanted to first off, congratulate you on starting up the new EAF and ask you about that. Second, but my first question was regarding the Flat-Rolled market into the fourth quarter. And if we think about the mix, given that hot-rolled is up to almost $700 a ton, it's had a big move, but with automotive recovering so sharply, I've heard that you're really busy with automotive contracts, which aren't as tied to the spot market. So just trying to get the sense of your mix in the short-term, keeping in mind, of course, your long-term, you've laid out. And along the same lines, can you just tell us why the configuration remains as it is given the very strong demand and Gary Works with the blast furnace there, what you would think that that might be a target to restart soon. So I just wanted to ask about that again. Thanks.

Okay. Thanks Timna. I think as we look forward into the fourth quarter, we would certainly expect average proceeds to increase. We continue to believe the automotive book of business will remain strong, and we're certainly seeing that. So we'll look to really optimize on mix and pricing outcomes as we balance contractual obligations and fixed price contracts with participating in the spot market. When it comes to the blast furnace at Gary, I mean, I think we've said it many times before we continue to evaluate the order book. We continue to configure the operations to best meet the order book and the needs of our customers. At this point in time, we don't we haven’t made a decision on Gary number four. That's currently not in our restart plans, but we'll continue to evaluate it moving forward. But first and foremost, we're going to take care of our customers. And we'll keep a close eye on the order book and sure we have the melt, we need to support their demand moving forward.

Okay. And then back to tubular again on the new mill. So great startup but I have heard that utilization is pretty low, again, pointing to the weakness in the energy markets you point out. So what is the utilization across tubular if you could just remind us of that. And like you said, the $90 per ton depends on your utilization. So can that EAF be profitable at these levels? And are there other uses of those rounds that you produce perhaps to optimize the facility?

Sure. In the third quarter, we shipped about 60,000 tons of seamless pipe out of the Tubular segment. And as I mentioned, I'd expect that to continue to be an increasingly higher percentage of our total mix in tubular since Fairfield will be our sole operations. So looking forward, we won't comment specifically on where we expect tubular volumes to go, but I would expect us to be able to more fully leverage that EAF, given that we'll be moving towards pretty much 100% mix of seamless pipe in the tubular business. And when it comes to utilization, I mean, I think your question, Timna, really validates why having an electric arc furnace in your footprint is so important. We know that you can run an electric arc furnace at lower levels of utilization. You don't have the inherent inefficiencies or frictional costs of operating some of the integrated assets. So we are confident that we can operate the electric arc furnace at a level of utilization that's cost-effective and expect to see other cost savings related to the in-sourcing of rounds like transportation, which should provide a tailwind for that segment moving forward. So that's where we are currently, we'll keep you updated if our views change, but the current business case is to leverage that furnace for rounds production for internal consumption.

Thank you. Our next question is from the line of John Tumazos with John Tumazos. Please proceed with your question.

Thank you. With the lower CapEx target for next year, do you have a specific target in mind for debt reduction next year with improving steel prices in markets? Or are you teeing off to buy the remaining half of Big River Steel next year? And that's why the CapEx is so restraint.

Well, thanks for that question. Obviously, we have a lot to think about here. And as we think about our balance sheet, what we tried to do, we look in terms of liquidity, the fixed charge ratio and making sure that we have 1.5 times that amount. So we think of liquidity about 1.5 million is the way we think about managing our cash through this next year. And depending upon what we see in terms of customer demand, what we see in terms of cash flows and what we see about the future, we can make the determinations of how much we'll pay off in terms of debt or an effect exercise the option on Big River Steel is a possibility or pursue other capital expenditures. Typically we don't spend a lot of time talking about 2021, but I know in this time, it is very uncertain about what happens with COVID-19 and while it does seem like uncertainty is the word of the day. We go back to the optionality that we have with all this cash that we're carrying. So we can decide what are the best moves that we can make with, again, our top priority of course, be in Big River Steel than the endless caster than the Gary hot strip mill. And then frankly, the Dynamo line in USSK. So those are the priorities in terms of our CapEx and I think Christie is going to add something.

Yes, I'd just say, our top financial priority remains cash and liquidity. And we think strong liquidity and cash flow are extremely important as we continue, not just to make sure we're going to make it through COVID, but also to execute the strategy. As Dave said, we have $2.9 billion of liquidity, $1.7 billion of cash. So we're increasingly optimistic about the improving market conditions. As you know, our debt maturity profile has been extended. We continue to work on our business resiliency planning so that we're prepared and do scenario analysis around the future and what it might hope. So as we move into 2021, we're trying to take a cash model approach to capital as we already talked about. So that we're well positioned to continue to execute our strategy because our strategy is all about delivering more resilient earnings, long-term cash flows through cycle and differentiation on the basis of both cost and capability and as you know, we have several of these strategic projects that are coming online. Our PRO-TEC JV coating line has started. We have the new EAF. So all of this is a line of sight to improve profitability and cash flow, which will help us deleverage in the future.

Thanks. I'm still wondering if you have a debt reduction target, or you're going to buy Big River or you just want to have a big cash balance on hand is a precaution?

Well, I'm going to continue to let you wonder. We've got a lot of work to do here, we’re going to get through this year and we're going to make sure we make those important strategic choices at the appropriate time.

Thank you.

Thank you. Our next question is from the line of Matthew Fields with Bank of America. Please proceed with your question.

Hey, everyone, just going back to some earlier comments about your Big River starting to roll some of your proprietary grades. Is the Big River substrates starting to rent time, essentially on your rolling lines and some of your JV rolling facilities and finishing facilities like PRO-TEC or anything else?

Yes, we're not going to get into a lot of the details related to that, but if you think about what we're doing with Big River Steel is actually a proprietary process that has a few elements to it. It's the research and development that we have here at U.S. Steel, which frankly, I think it's second to none. We had an incredible team here that's been doing some great work with our customers. And then you marry that up with Big River Steel’s technologically advanced LEED certified flex mill. And then also marry that up with our proprietary finishing processes. So it's basically R&D plus Big River advanced technology LEED certified with our finishing process, with our PRO-TEC operation where we're just actually going through the finishing up on the CGL3. The combination of all of those things position us very well for – and continued development of this Generation 3. And as we said, we had the 11 grades of steel that are well underway. And frankly, I can't believe that the team has been able to move this fast in such a short period of time. So we're not going to tell you what the proprietary process is for all of these things, but there's a whole lot of technical elements that our team has been working very closely together to make it possible.

Yes, this is Rich. I just had one thing to what Dave said, which I think is going to be important as we move forward. Not only can they make those proprietary grades of advanced high-strength steel GEN3 steels at Big River, that's a low carbon footprint facility. So not only is it LEED certified, but when you think about the world we're in today and moving into where carbon emissions, greenhouse gas emissions are increasingly important to our customers, the ability to make those steels at a low carbon footprint facility is going to be an additional value that we can offer to our customer base. So we're really excited about the achievement so far.

Okay. And then as a follow-up to that early in the call, I think Mr. Burritt, you mentioned that you'd like to pull the trigger on Big River yesterday. If you had pulled the trigger yesterday, how would you fund it?

That's great. I also said I'd pulled the trigger yesterday on the last quarterly call as a recall, but you've seen our balance sheet. We've got cash in our balance sheet, so we could certainly do it with that cash.

Okay. Thanks very much. And good luck.

Thank you. Our next question is from the line of Andreas Bokkenheuser with UBS. Please proceed with your question.

Thank you very much. Just a follow-up question on Keetac, you obviously mentioned supply reliability over the winter, which may makes a lot of sense. How should we think about that kind of going into the spring and basically later into next year, I mean, presumably you're not going to shut it back down again. So how do we think about that? What's the strategy there? Are you going to just buy less from outside third parties? And then you read through Granite City, Blast Furnace A, that's basically the question. Thank you very much.

That's another really good question. And we already said that it's inventory related here, but the key piece of course, is who are the customers and what did the customers want. And I think we've been able to demonstrate in a short period of time that the pellets that we make on the range are in high demand. We have been selling on the seaborne market and we've actually picked up a couple of agreements here in North America. So we feel pretty good about that business and the opportunity to actually grow it. But for right now, we have to figure out, does it make sense to go through the – how long we'll keep Keetac open or not, if we have to figure out, does it make sense to do it right now. And obviously, there's some decisions to be made, but it's going to be customer-driven.

Yes. Dave, the only thing I would add to that for some additional context is around the financial implications of the potential decision. The restart costs in and of themselves are not material, less than $10 million, if we choose to move forward with the restart of the Keetac facility. And then not only cost them on the flip side aren't significant either. So we'll continue to be flexible as we evaluate the potential to restart Keetac. And if we decide to go ahead and restart that will also be flexible in how we proceed running that asset into the future. So, as Dave mentioned, it's all about the internal demand. It's about satisfying a third-party customers and we'll make sure we have the footprint as we always do to support the business.

Got it. Thank you very much.

Thank you. And that concludes the Q&A session. I will now turn the presentation back over to our presenters.

Thank you, Dave, would you like to wrap up with some final remarks?

Thanks everyone for your interest in U.S. Steel. And before I sign off, I do want to thank our employees and our customers for their continued support. To our employees, thank you for your continued commitment to safety and delivering for our customer. I know it's been a tough year, but you've rose to the challenge. Thank you so much. Our future is bright. To our customers, thank you for your partnership, as we collaborate to develop winning solutions together. Now let's get back to work safely.

That does conclude the conference call for today. We thank you all for your participation, and we ask that you disconnect your lines. Thank you, and have a great day.