Steel Dynamics, Inc. (STLD) Q3 2013 Earnings Report, Transcript and Summary

Good day, and welcome to the Steel Dynamics Third Quarter 2013 Earnings Conference Call. [Operator Instructions] Please be advised this call is being recorded today, October 17, 2013, and your participation implies consent to our recording this call. If you do not agree to these terms, simply disconnect. At this time, I would like to turn the conference over to Marlene Owen, Director of Investor Relations. Please go ahead.

Thank you, Melissa. Good morning, everyone, and welcome to Steel Dynamics Third Quarter 2013 Earnings Conference Call. As a reminder, today's conference is being recorded and will be available on the company's website for replay later today. Leading the call today are Mark Millett, President and Chief Executive Officer of Steel Dynamics; and Theresa Wagler, Executive Vice President and Chief Financial Officer. We also have the company's operating platform leaders, including Dick Teets, President and Chief Operating Officer for our Steel Operations; Russ Rinn, President and Chief Operating Officer for our Metals Recycling Operations; and Chris Graham, Vice President, Steel Dynamics, and President for our Fabrication Operations. Please be advised that certain comments made today may involve forward-looking statements that, by their nature, are predictive. These are intended to be covered by the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995. Such statements, however, speak only as of this date, today, October 17, 2013, and involve risks and uncertainties related to our metals business or to general business and economic conditions, which may cause actual results to turn out differently. More detailed information about such risks and uncertainties may be found at the Investor Center Advisory Information tab on our Steel Dynamics website, in our Form 10-K Annual Report under the captions Forward-Looking Statements and Risk Factors, or as applicable in subsequently filed Forms 10-Q filed with the Securities and Exchange Commission. For opening remarks, I'm pleased to turn the call over to Mark.

Well, thanks, Marlene. Good morning, everybody, and again, thanks for joining us for today's call. We plan to discuss our third quarter results and then share our view of the steel industry, along with some potential earnings catalysts that lay ahead for Steel Dynamics that I would hope surely differentiate us from our peers and continue to grow shareholder value. Before I turn the call over to Theresa for her summary comments regarding the financial results for the quarter, I'd like to mention regretfully so the sudden passing of one of our directors, Jim Trethewey. Although on the board for just a year, he was a highly constructive contributor and a loyal friend of our company. He will be missed and our thoughts and prayers are with his family. And that being said, Theresa?

Thank you, Mark. Good morning, everyone. For the third quarter of 2013, our net income was $57 million or $0.25 per diluted share. This was at the upper range of our earnings guidance of between $0.21 and $0.26. Net sales of $1.9 billion were up 6% from the second quarter of the year and comparative consolidated operating income increased $44 million or 64%, and our consolidated gross margin percentage increased 211 basis points compared to the second quarter of the year. The improved performance was from our steel operations. As a result of the overall higher shipments, coupled with increased sheet steel selling value, operating income from our steel operations increased $61 million or 69%. Steel metal margins increased in the third quarter as our average overall quarterly steel price per ton shipped increased $13 while the cost of scrap used in our furnaces decreased $5. Overall operating income per ton shipped for the steel operations increased from $59 in the second quarter of this year to $96 in the third quarter, a 63% increase. Although there was improvement in all of our steel operations, excluding the special-bar -- excuse me, excluding special shapes business, improved sheet profitability drove our results. Comparatively, operating income from our metals recycling operations, or OmniSource standalone decreased $5 million for the second quarter, resulting in third quarter 2013 profitability of $11 million. During the quarter, ferrous volumes increased 10%, but metal spread contracted 19%. In contrast, on the nonferrous side, volumes improved 4% while metal spread remained flat when compared to the second quarter. Directionally, fabrication continues to be our bright spot, which is a positive sign for the nonresidential construction markets. Record-level shipments increased 18% in the quarter compared to second quarter results and operating income, although it's a smaller number compared to our other segments, improved more than 40%, making our sixth consecutive quarter profitability since the severe downturn in nonresidential construction. Gross interest expense in the quarter was $32 million, comparable to the sequential quarter but significantly less than the $42 million recorded in the prior year third quarter, over 23% reduction from a year ago. This is a significant benefit derived from our refinancing activities during the past year. We're very pleased with the execution of these initiatives. We've created even greater long-term strength and sustainability in our capital structure due to debt reduction of approximately $275 million, the extension of our debt maturity profile and a meaningful reduction in interest burden. Our third quarter effective tax rate was 39.3%, and our year-to-date effective tax rate was 37.8%. Based on current expectations, our full year effective tax rate is expected to be close to 38%. Moving to cash flow. Cash flow generation from operations produced $183 million of funding during the third quarter 2013, substantially higher than sequential second quarter results of $33 million. In addition, increased profitability of $28 million in the quarter, working capital items generated $62 million in operating cash flow. This is compared to a $61 million usage in the second quarter of the year. We currently don't expect significant working capital movement during the remainder of 2013. As of September 30, our liquidity totaled $1.5 billion, an increase of $126 million from June 30. This amount includes available cash of $370 million and a benefit of a $1.1 billion revolving credit facility, which currently has no outstanding borrowing. Our credit metrics remain strong and well within our covenant requirements. Total debt is $2.1 billion with minimal secured [ph] borrowings totaling less than 15% of our outstanding balances. Our net debt was $1.7 billion. Our trailing 12-month adjusted EBITDA was $637 million, resulting in net debt to trailing adjusted EBITDA of 2.8x, which is well below our preferred 3-cycle maximum of 3x. Capital investments in the quarter totaled $52 million. Of that, $34 million related to our steel operations, primarily for the continuation of the engineered special bar quality rolling mill expansion and the addition of premium rail capabilities. Both projects are on schedule to be commissioned before the end of 2013. Depreciation in the quarter totaled $49 million and fourth quarter 2013 capital investments and depreciation are expected to be very similar to those recorded in the third quarter. Current maturities of long-term debt were $335 million at September 30, primarily comprised of $287.5 million of convertible senior notes that mature in 2014. 16.7 million shares underlie the convertible notes with conversion price of $17.17. We're comfortable with the timing of the maturity and believe we have many options available to us, including partial or forward payment with available cash if the notes remained unconverted, along with various other refinancing alternatives. The strength of our balance sheet is derived from our low-cost, highly variable operating platforms, which provide robust through cycle cash flow generation. Our strong, resilient capital structure has the flexibility to both sustain current operations and support future growth. This includes, for those of you who track our steel shipments for the Flat Roll by product, in the third quarter, we had hot rolled shipments of 295,000 tons; pickles and oil shipments of 117,000 tons; cold-rolled shipments, 26,000 tons; hot-rolled galvanized shipments of 127,000 tons; cold-rolled galvanized shipments of 52,000 tons; painted product shipments of 105,000 tons, which you'll note is significantly higher than in past quarters; and Galvalume shipments of 19,000 tons, for a total of 741,000 tons. Mark?

Super, great. Thanks, Theresa. I'd like to begin with safety, which is a key strategic focus and the highest priority for myself, the management team, along with each and every employee. We strive towards 0 incidents, absolutely no accidents whatsoever. And in many of our locations, we have continued to make progress towards that goal. 87 of our locations were incident-free in the third quarter, and many have not incurred a single incident this whole year. Notably, Steel of West Virginia has worked over 2.1 million man hours without a loss time accident, and I commend the team there. Our performance continues to exceed industry averages and we continue to improve, I commend the dedication of our teams toward excellence. But while this is the case, tragically, we still lost one of our members of the SDI family this summer. Our thoughts and prayers continue to be with his family. An occurrence such as this drives even greater conviction and resolve toward our goal. Safety is our highest priority. It will remain so as there is nothing more important than the safety and welfare of each and every member of the SDI family. Shifting our focus toward the macro environment. From my perspective, anyway, the economy remains weaker than it needs to be to support a robust, sustainable recovery, and we continue to be subject to political headwinds. The increased consumer confidence portrayed through the third quarter is tempered somewhat under the cloud of the government shutdown and the fear that the U.S. government may experience a financial default. But nonetheless, I believe the current economic climate gives reason for restrained optimism, as third quarter GDP should have expanded and many of the macro market indicators, such as the PMI, ISM, ABI and housing starts continue to show positive directional momentum, supporting increased steel consumption and continued demand growth. Recent growth forecasts for the automotive market indicate a 16 million unit build rate for 2013, growing to 16.5 million units for 2014 and as high as 17.3 million for 2015. Construction spending, albeit still low, continues to improve, up over 6% so far for 2013. The homebuilding sector remains upbeat, supporting continued sustainability in the residential construction market, which is a crucial component of a sustainable economic recovery. Although there's been some noise in this arena with July and August housing starts that are falling slowly, as compared to June, the general trend has been up. The hesitations could've been related to rising mortgage rates, but this unto itself has not curbed continued growth in past economic recoveries. Residential construction activity remains materially improved over 2012, with the August housing starts 19% up year-over-year. On the nonresidential front, the API again reported above the 15% mark in August, depicting expansion in the last 11 of 12 months. But more important than the pure economic indicators, which bode well for the recovery of the construction markets and steel consumption in general, is our order book since this is what truly defines where the market is going for us. Increased demand for construction-related steel products is clearly visible in our order backlogs. Our third quarter structural steel shipments were at the highest levels since the third quarter of 2008, and fabrication shipments were at record levels as we have broadened our geographic presence. Similarly in Flat Roll, order rate for residential-related end products, such as raised garage door panel and HVAC, have seen material improvement. For the sheet market in general, the increased demand coincided with capacity shortfalls, and although steel sheet imports increased during the quarter, their impact was significantly less than the market expected. The resulting demand strength, combined with tight supply chain inventories, have aided for an appreciation of the U.S. Flat Roll pricing through the quarter. I believe the increased demand for construction-related steel products should be sustainable. As many companies hold significant cash positions, which coupled with the historically low interest rate environment we enjoy today should lead to fixed asset investment. Longer term, the availability of an expensive shale gas, there's a potential to make U.S. energy law, providing a tremendous incentive for fixed asset investment and associated job growth, a catalyst to increase steel-related consumption. We will be the beneficiaries of the associated growth, as we lever our latent production capacity. Since 2008, we've expanded capacity and though we've been shipping at record levels, market conditions have prevented us from levering our full production capability. As nonresidential construction demand strengthens, all of our operating platforms can benefit. In 2013, we have approximately 1.5 million tons of steel capacity that will not be utilized due to these market conditions. And of that amount, about 55% of the tons are correlated with the nonresidential construction market. As domestic steel mill utilization improves, demand for ferrous scrap will follow, bringing benefit to our metals recycling operations. And similarly, we have over 150,000 tons of additional fabrication capacity, which is directly tied to nonresidential construction demand. In aggregate, I believe we have greater leverage to the recovering construction sector than most. Focusing on steel operations. Demand for our sheet and structural steel products improved in the quarter, with utilization increasing from 83% in the second quarter to 89%, materially above the 78% recorded throughout the industry, which I think is a testament to our talented teams and our broad product portfolio. Flat Roll shipments improved, particularly for galvanized and painted products. Metal management -- metal margins expanded as average sheet pricing increased in the quarter. Notably, our Flat Roll division is on target to set an annual production record in 2013. In fact, during the third quarter, the team already achieved its goal on a trailing 12-month basis, by producing over 3 million tons, an absolute milestone for a North American-based Electric Arc Furnace Flat Roll mill. Congratulations to the team, each and every one of them. Our Structural and Rail division's utilization rate continued to improve, achieving 70% in the third quarter, as structural steel shipments improved. Utilization was 5% higher than the sequential quarter and 16% over the third quarter of 2012. This may moderate some in Q4 due to the annual week-long outage taking place in October and some seasonality impact to structural volume. On the rail front, rail shipments are on track to hit over 200,000 tons for the year, well above our earlier expectations. The domestic metals recycling industry experienced another volatile quarter. Decreased profitability was the result of declines in both ferrous volume and metal spread. Ferrous scrap supply outstripped demand early in the quarter from reduced steel mill utilization and overall reduced scrap export activity. Although profitability from our Midwest locations improved slightly in the quarter, the weak, obsolete scrap environment through the quarter, along with continued overcapacity of shredding operations in the Southeast, resulted in earnings deterioration now. Moving to fabrication. The momentum continues to be strong as the team exploits the benefit of our national footprint to make market inroads. We are headed into the traditionally soft winter months, but remain encouraged. We saw strengthening in both our inquiry rate and most importantly, order activity in the quarter. And the team continues to gain market share while also improving operating efficiency at our new startup locations. Our pioneering efforts in Minnesota continue to make steady progress. Production rates and plant availability achieved current expectations, confirming the plant's ability to produce in excess of 30,000 tons per month. Our primary focus is to now decrease the overall cost structure. As we increased the rate of production, however, the product yield unexpectedly deteriorated. We took a 3-week average toward the end of September for maintenance and some equipment modifications and restarted the plant in early October, and that restart has gone reasonably well. We believe we will achieve further cost reductions throughout the remainder of this year, but given current expectations in cost structure and pig iron market pricing that is lower than earlier estimates, we believe it will be difficult to achieve a monthly pretax breakeven run rate before the end of the year, but should approach a monthly cash breakeven. Much has been accomplished and the significant opportunities for yield improvement and cost reduction have been identified, but much work is yet to be done. Relative to our other iron operation, Iron Dynamics, they achieved a new record quarterly production of 65,000 metric tons of liquid iron. My congratulations to the team for their outstanding performance, and their contribution to the Flat Roll division's productivity cannot be overlooked. Likewise, their contribution to our resource sustainability efforts is important, as they obtain 100% of their iron needs through recycling steel mill waste both sides [ph]. A reflection of our entrepreneurial culture, we continually work to create opportunities rather than just wait for the market dynamics to improve. Several organic growth products have been implemented this year that will provide increased earnings potential specific to Steel Dynamics. And to recap 2 of the larger and more impactful projects, the Engineered Bar division is adding 325,000 tons of rolling mill production capacity, the high precision, smaller diameter bars that will broaden our product portfolio. This project will make our facility the largest single-site supplier of engineered and SBQ bar in North America with an annual production capacity of 950,000 tons. The project is on schedule and is expected to be commissioned in the fourth quarter this year with no material interruption of our current operations. We're also excited about adding premium rail production capability at our Structural and Rail division, an additional avenue to increase the mill's production utilization through the cycle as we further diversify our value-added product portfolio and broaden the markets in which we serve. We will have the capability to produce in excess of 300,000 tons of standard strength and premium rail for the North America's railroad industry. The product will provide exceptional customer value, adding the capability for 320-foot road lengths that can be further welded into 1,600-foot lengths, some quarter of a mile, which significantly reduces the installation time and track maintenance costs for the rail customer. Testing material has been enthusiastic received by several of the major domestic railroads. And based on recent investment plans announced by the major North American rail consumers, we believe the domestic rail market could grow meaningfully in the coming years. Our new rail capability is positioning us to become North America's preeminent rail manufacturer for quality, straightness and dimensional control. We plan to commission the premium rail production equipment by the end of this year, with product testing through the first quarter of '14. We continue to drive towards maximizing opportunities to effectively and efficiently perform through the cycle. We maintain a sustainable differentiated business. We believe our superior operating and financial performance clearly demonstrates the sustainability of our business model, whether in good or challenging times. In keeping with the entrepreneurial spirit that flows throughout the company, we will continue to assess opportunities for growth, whether in new products, new technologies or new business lines. We are focused on providing exceptional value to our customers, committing to the highest levels of quality and timeliness and as importantly, to partnering with them to deliver what they need today, as well as anticipate the needs for the future. The focus is toward not only top line revenue growth, but growth that will enhance and provide consistency to our margins that will provide our shareholders with the returns that demonstrate our commitment, making Steel Dynamics the preferred investment decision. The passion and spirit of our employees continue to drive us to excellence and to outperform our peers both operationally and financially, while maintaining our low-cost, highly competitive position. I thank each and every one of them for their continued hard work and dedication. And to remind them, guys, always be safe, both at work and at home. And so with that, I will open the call for questions for either myself or for the leadership team.

[Operator Instructions] Our first question comes from the line of Michelle Applebaum with Michelle Applebaum Research.

I have 2 questions. The first question is -- well, you can answer them in whichever order you want. I'd like to get kind of an enumeration of the organic growth initiatives again in terms of the impact and the timing, okay, including any startup issues that might happen. And then the second question is the other side of the same equation, which is the -- I'd like some -- a little bit more color on the laggards. I'm not going to say the names. And what kind of action plan you might have to either control what you can control or any macro things that might be happening to improve those businesses?

Your second question, Michelle, did I hear laggards?

Laggards, yes. I don't want to say Mesabi Nugget out loud. I don't want to be the first one to break drop, but I guess I am.

Yes, no worries, go ahead. Theresa, do you want to answer the first one?

Yes, sure. So from the project perspective, the largest one that we have right now is the Engineered Bar Products expansion. It's a $76 million investment, and it will be commissioned and starting up before the end of 2013. The expectations are that based on margins that we have today that, that payback period is less than 2 years. We don't expect any interruption with our current operations in our Engineered Bar Products as it's just an addition of a second rolling mill. From the second project that we have is the $26 million rail project, and that's to bring on the premium capability. It's expected to be commissioned by the end of – or to start up and start commissioning before the end of 2013 as well. It will have a slower ramp up, potentially, to be able to enter into the premium rail market, but we expect that volume to ramp up in 2014 through 2015 to eventually reach the – in excess of 300,000 tons of both standard and premium rail. That payback is expected to be in a 2-year timeframe as well. We also have latent capacity that we have excess of 1.5 million tons of steel capacity that we're not using today. And so that, as the construction markets come back on, we would expect to start to utilize into 2014, in addition to that. And we also have a small project that we've not talked about very much, it's a leveling line at our Flat Roll division. It's a $19 million project, and that actually is operating now.

That's correct. Just started up last week.

And we expect to have some additional hot rolled shipments, not a large magnitude, but some additional shipments that come from that because we'll have a better-quality product, and I think we expect maybe that to have some impact, slight impact, in the fourth quarter of this year.

That's correct.

Those are...

And just volume -- and the leveling line is just to add volume?

What's happened is that we need to do some corrections with some of the products that we have.

Yes, on the lighter gauge product, that means it has the capability of almost 0.5 million tons a year, but that's not -- we don't have that need. It's really for a product that is a very light gauge, below about 55%, that right now, the hit of it has more edge wave than some of our customers would like. And so it has the opportunity to take that shape correction mode. And so we will be selling product that we currently aren't selling. So the magnitude of it remains to be seen.

Interesting, okay. And then in terms of the underperforming businesses...

The challenges that you note – I would hate for the conversation about Mesabi Nugget and perhaps the Omni Southeast should detract away from the phenomenal job the team is doing elsewhere in the company and also the earnings catalyst, as Theresa mentioned. But that being said, I think through the quarter, we've seen further gains in specific production rate and plant availability. It's increased our confidence that the monthly production can be sustained – or could be sustained next year at a 30,000-plus ton a month rate. Unfortunately, as we've increased the feed rate or the throughput rate, we've seen an unexpected deterioration of yield, and the cost – that's producing a cost structure that is a little higher than we anticipated. And we've identified, I think, several opportunities for that yield improvement. We've identified several opportunities for further cost reduction on the reductant side and binder and those sorts of things on the raw material fronts. And this will obviously be the focus for the next few months. And again, I think the team has accomplished a lot and continues to complete the plan that we put in. We developed the plan back in August of 2012 and to date, they have hit every hurdle. And now we have the last hurdle to break through, and that's reaching a monthly cash breakeven by end of the year. And we've said for a couple of quarters that we would perhaps detail the cost structure in a little more detail. And I think just to calibrate that, at a 30,000-ton a month rate, and based on current pig iron transfer price, which is transferring at $380 a ton currently, that will -- the impact of that from Minnesota will have a breakeven effect on a consolidated basis. So that calibrates where we think we are immediately. Again, lot of work to be done, we've got to hit those rates and improve our cost structure. We still believe -- sorry, but we still believe that -- go on.

I was going to push back -- pull back to the SBQ. I just needed one clarification. Your assumptions on the 2-year payback, does that assume any benefit from a fuller product line on your existing mix? Or is that just looking at the new incremental?

It's only incremental. And actually, the whole justification is such that we only plan to operate the new line half of the time with 2 crews, and so it's a very conservative justification.

Okay, great. Yes, sorry to interrupt you, Mark, but I wanted to get back to the upside. Okay, so there is room, potentially, for that kind of -- the kind of returns could be higher?

Sure.

Our next question comes from the line of Brett Levy with Jefferies.

Can you talk about the Pittsboro expansion? Obviously, you're bringing on a second rolling mill and some new capacity. Can you talk about the timeframe you see to fill that up? And what's the level of interest you feel you're taking market share, that kind of thing, sort of, as this comes online here? How much of the new capacity is spoken for and how long do you think you get -- it takes to get all the way up to that 950 number?

Needless to say, the full capacity of the -- of that mill is almost 100% of it is being -- can be taken from others. Very little of it is already ours. We have not been rolling very much small bar product because we did not have a precision mill in line. We could roll the small product before, but we didn't have the necessary mechanical equipment in line to hold the tolerances that some of our competition did, and therefore, we basically avoided rolling those products. Now we will have the capability of providing the very best product that anyone can provide. And so therefore, we will be out after all the very critical components. We've already been grooming our customers to expect the products available and have had dialogues. We've, again, started the process of, I guess, soliciting the grades, and we're well on our way to attempting to fill it up. Some of the larger products on that size may come from existing stuff we do, and it'll just free up a little bit of capacity on our existing mill. Some of the blooms, we will be shipping down, ultimately, maybe 10,000 tons a month or so from Columbia City. And so Columbia City's melt shop is working with the melt shop from Pittsboro to understand what the expectations would be. And so far -- so the whole gamut of people who are going to be playing in that field are already being exercised.

Yes, just to quantify that market, the 3.625. The 3.625 diameter dam [ph] is roughly 50% or so of the whole SBQ, engineered bar market, which typically is 8 million to 10 million tons. So we're looking for 325,000 tons out of 4 million, 4.5 million ton market. So it's not a massive bite of the apple. And Dick and Gary and his team have positioned the mill incredibly well. They've got exceptional quality, perhaps equal to, if not the best in America today. Our on-time delivery is phenomenal. And I think there's a focus on engineered solutions and the relationships they have with the current suppliers is second to none. So you put all that together, you've got the largest single-site source of SBQ and Engineered Bar Products in the country, which also brings a lot of logistics value to the customer. So we're actually very excited. It's -- the steel industry is a challenging environment, but I think Dick and the team have done a great job positioning that mill for success.

And just one last note that Gary and the team there have not ignored the requirements of testing out, finishing and testing and so forth. And therefore, they've completed the project with all the necessary tools to deliver the full scope and the gamut of products required for, whether it be forging or any of the tough requirements that the customer might demand.

All right. Second question relates to the new head-hardened rail, or the premium quality rail, talk a little bit about the ramp-up there. And then, and this is just something maybe I should know, isn't there sort of a good argument that all rail should be premium rail, and that it would last longer and that sort of thing? Is there going to be sort of some transfer of market share kind of from you to you, as you bring on this premium rail?

Well, I think the answer to the last question is the easiest to say. And it's that transfer from standard rail to premium has been going on for years, back when we built the structural mill, and I -- we have the capabilities to roll rail into it. Percentages of head-hardened rail was probably 25% or so. And now, it probably exceeded 50%, and it continues to grow. But there's a cost premium, and so therefore, like anything, people make choices. And the reason it's growing it's is because of the cost of taking rail lines out of service for the time necessary to replace the rail and to grind the rail for maintenance purposes. And so each railroad has their own thresholds of acceptable cost and they want to make those decisions. So will all applications move to head-hardened eventually? I sort of doubt it, but more will continue to go that way. Now that being said, what's our startup? Our startup, this is mostly mechanical equipment, and so the startup of the equipment isn't necessarily complicated and so forth. It's movement, physical movement, and then just the associated interlocks and speed control and the like. What we've tried to do is be conservative in our statements because this is brand-new technology. This is being developed by us, and therefore, it's – there's nobody else out there we can walk to or call and say, "Hey, why can't we get this exactly right?" This is some of the most critical product that SDI will be supplying to any market with high liability, and therefore, it's not going to be delivered to a customer with anything but the most thorough of testing and acceptances by ourselves, by our customers and by third-party testing agencies. So we have tried to be resistant to being cheerleaders and yelling at the top of our lungs. The first quarter, you're going to see the impacts. The tonnages, I think, we've tried to say will be coming out of the equipment, and we will be putting it into standard rail applications as we do our testing, and we're going to minimize the yield losses and try to minimize any of the impacts to our bottom line. But there won't be an immediate revenue gain to the head-hardened product line until second quarter and later. But we're going to develop it as soon as we can. So it's not like a piece of equipment that we need to learn how to physically move the equipment through it, or the product through it, it's pretty simple. It's the process technology of making the product right and how deep does the head-hardening go, and can you make it each and every time you make the chemistry, and is the chemistry valving heat after heat after heat along the full length of the 320-foot bar, inch by inch and so forth. And so all the way around the head and around the -- all the way to the flange and so forth. So it's a complicated product, and we will make sure it's right.

Yes, just to add. I think -- I actually attended the AREMA symposium or exposition, or whatever, here a few weeks ago, and it was incredible, the enthusiasm level of the major railroads and -- well, the mining railroads, for that matter, had for our potential entry into the market. They have lacked good options in the past. And I think Dick and Russ [ph] have positioned the company well there. Technically, the stripping rate of rail this year is going to exceed 200,000 tons, which is higher than our earlier expectations, which I think is a testament to their excitement and our future ability there. The market began to calibrate its, typically, 800,000 to 1.3 million tons through thick and thin. And if you look at the CapEx spending announced by the major railroads for huge infrastructure improvements, given the shale gas and oil phenomenon that's going on, the projection is about 1.5 million to 1.6 million tons a year in sort of 2016 to 2017-ish. So I think we're in a great position to leverage that expansion of the market.

Our next question comes from the line of Sal Tharani with Goldman Sachs.

I have 2 questions. One on my fabri and one on the utilization rate. On the fabri nugget, can you tell us what was your current cash loss was in the third quarter?

Sal, I don't have that with me. I would just suggest that from a consolidated perspective, the number we keep talking about is the impact to consolidated SDI, and that's because of the complexity of the joint ventures in Minnesota. And, again, that loss was $10.6 million. I don't have the cash loss available, my apologies.

Okay. That's fine. And also, Mark, you mentioned that you are transferring the transfer cost for pig iron, you're using $380 per ton. I thought that price at NOLA is right now $400 plus, so won't it be – should be higher or you think that's the right number?

We just have a slight discount to the mill. And also, it takes into account a slight difference in transportation cost from NOLA to Butler versus Minnesota to Butler.

Got you. Okay. On the utilization rate, when I look at the math -- do the math of your 89% utilization rate and look at what the shipment was, I just can't come to that 1.5 million tons of latent capacity you mentioned. I was just wondering, are you using -- are you including, first of all, tech in that utilization rate or not? And is there something else we are missing in this utilization rate?

We're using the capacity -- it's in the investor presentation now, but we're using a Flat Roll capacity of 3 million tons; a structural rail capacity of 1.8 million; engineered, currently, still at the 625,000; Roanoke is at, I believe, 650,000; Steel of West Virginia is at 350,000; and then the techs around 1 million. So we include that 1 million tons from the tech.

Got you. And one more thing on the utilization rate, Mark, did you mention that the structural mill rate is 70%?

Yes.

The structural mill in the third quarter ran at 70%, yes.

Okay. Are you already shipping rounds to Pittsboro ahead of the finishing of construction, or you haven't yet shipped that?

Well, Sal, I don't -- we don't ship -- we don't make rounds. So I'm not sure.

You're talking about blooms?

Yes, yes, I'm sorry, blooms, are you going to ship blooms from structural mill to...

We're not shipping any from Columbia City. And we won't ship any until there's a need. I mean, again, the charge from me to Pittsboro is take as few as you can because we don't want to make any transportation company rich. So their charge is to continue to service themselves until they can't, and they're going to be charged with always maximizing the utilization of their own melt shop.

Okay. Because I thought that...

Yes, the increase, the 70% utilization, Sal, I guess where you're getting that, it wasn't inflated by bloom shipments from internal transfer. It all came from increased wide-flange business.

Great. That's what I actually wanted to reach at. And also, I thought that you were going to ship some blooms over there eventually, and that would help you utilize the structural mill more than what it is being utilized right now?

That's certainly the intent. We wouldn't envision Pittsboro being able to facilitate all its needs for some time. But as Dick said, in a year or so, the intent is for them to drive their own ability internally and not make a trucking company or the railroads rich.

Yes, our margins for next year show toward end of the year Columbia City is starting to supply some blooms to Pittsboro. And Columbia City apparently does sell some blooms to Steel of West Virginia as our Roanoke plant sells some blooms to Steel of West Virginia.

If you think of the additional need of 350,000 tons of blooms, again, I think it's safe to say that there's a material matter of that will be moving from Columbia City for the foreseeable future, though.

Our next question comes from the line of Luke Folta with Jefferies.

My first question, just on the current market situation, so there's been some things that have helped out on the supply side, some other mill outages, and it looks like the distributors have destocked a bit, and I understand that's probably having a positive impact on your ability to perhaps get pricing. But I wanted to dig deeper on the demand side. It seems like all year we've been fairly stable, strong auto and weakness in a number of other areas. But when you look at the most recent few months in the MSCI data, it looks like we're starting to climb out of that. And I'm just curious to if you have any comments on whether you think we're at a potential inflection point in terms of end-user demand pickup or maybe restocking or something like that at the user level?

Well, again, for us, market wise, on the street side of our business, automotive has been very, very strong for us. Manufacturing is good. Again, optimism, great optimism, actually, at least from my personal perspective is created from the increase in residential order profile that we're seeing in HVAC and raised garage door panels, that sort of thing, because that obviously is the basis of a good sound economic recovery eventually. The automotive manufacturing is flowing through in our SBQ mill. It's seeing better order activity, it's certainly rebounded from the second half of last year. And engineered bar ran at around about 82% utilization for the quarter. So things are good there. Steel of West Virginia is the beneficiary of still a strong transportation market out there. Freight is moving. The truck trailer fleet age is pretty old, so that needs to be replaced, and we'll, I think, in at least our minds, continue that strength for a couple of years, yes. Roanoke in the merchant shapes, a little sort of sideways, a lot of competition there. And again, quarter-over-quarter utilization was, I think, pretty -- actually, it went up a few points. But again, kind of steady, but yes, tough on the margin front. And again, with optimism, the structural mill is definitely seeing some benefit here. Wide flange business was up. Rail was off slightly, quarter-over-quarter, I think it may have been a little seasonal. Dick, yes?

Yes. Because like right now, we're already into the 2014 season and hence, the shipments will be up in the fourth quarter versus the third quarter, but third quarter is usually a lag from insulation going to other well plants.

Yes. The thing to drill into the essence of your question, I think inventories, MSCI data has bounced around a little bit, but we see inventories still being incredibly tight through the supply chain. And as I've said in the past, I think, perhaps we're closer to an inflection point than most people think. That being said, it's not going to happen the next few weeks. I mean, we're projecting just a continued slow incremental improvement in the demand picture.

Okay. All right. And then just a follow-up, as you look at uses of cash going forward, you're going to be wrapping up work at -- for the SBQ mill and some of the rail stuff. What -- I mean, do you see the potential for meaningful projects next year?

I think, as Theresa mentioned, our cash flow from operations is incredibly strong at $180 million, $185 million. You back off CapEx, it's still $130 million or so, which is, I think, an admirable position to be and a credit to the team. And we paid down, over the last, well, I guess, 12 months or so, we paid down about $275 million in debt. That's improved our interest payment position by some $30 million or so going forward. And I think the team feels we should continue to pay down a little more in that vein and help our leverage some. We also saw an increase on our dividends by about 10%. I think that was well-founded, and I think we would like to see a solid sort of future dividend profile going forward. Share buybacks wouldn't be -- although we continue to frequently look at that, that's not a preferred use of our cash right now, because we think we have further organic growth to get done. And over the next year or so, companies are looking at the asset portfolios, and I think there's going to be some realignment, and there may be some acquisition activity, don't know. But we certainly want to maintain our sort of gunpowder, i.e., a solid financial foundation for doing what, I think, we've shown in the past, and that's growth.

Luke, to answer your question specifically, maintenance capital for all our operations to keep things in pristine conditions tends to be around $85 million or $90 million per year. So you at least have that base level of capital investment next year. And then even when we model internally, we never really look at capital investments of less than $100 million per year because there's always some sort of investment. But we're in the process of going through a detailed projects analysis now. We'll be able to talk more about 2014 capital investments probably in January.

Okay. Just I was just trying to get a sense of is the prospect of doing something like $1 billion plus new mill that you've talked about in the past, is that even in the thinking for 2014 of announcing or doing something like that?

That's not on the radar screen. All opportunities are on the radar screen. That is a dull sort of blinking dot, and obviously, we assess all the opportunities as we go along.

Our next question comes from the line of Evan Kurtz with Morgan Stanley.

Just wanted to get a sense of what you're seeing on flat rolled hikes that are out there, been out there for about 3 weeks. How's customer acceptance been going, reactions, that sort of thing?

Well, as you read, there's been an upward pressure, and we are responding in kind. Needless to say, I think the market is always pushing back, but people recognize that the economy continues to improve a little bit. Demand-supply remain in balance. You see the imports. Level of imports have increased a little bit in painted and galvanized, and we continually watch that. So it's – you can interpret it.

Have you seen any sort of noticeable change in lead times since the announcement?

Well, our lead times for hot roll are 4 weeks out, which is something that we tend to control. We don't allow the market to control that. We want to make sure that we can sort of leverage or exploit any of the upward tick in pricing or at least maximize that opportunity. So typically, our hot roll core lead time is 4 weeks out, and it's solid right now at that level. And our value-added products are further out than that.

Almost through the end of the year on value added right now.

Yes. So I would, I guess, encapsulate it that the hikes have certainly stabilized the market, it certainly has appreciated price over the last couple of months for sure. And at least, our order books are robust.

Great. And maybe something -- a similar question on SBQ. I think we've seen some destocking, some weakness in SBQ pricing through a lot of this year. Are you starting to feel that we're bottoming out now?

Yes, we're negotiating right now prices for the first quarter of '14. And of course, we're always under pressure, like anytime. But we're trying to hold the line and extend the current pricing. But we'll see where it all falls out, that's our position is that things are still good, and we'd like to see it extend where it's at.

Okay. And maybe just one final one. In your conversations, I believe, you've mentioned that the industry might see some M&A activity in the space next year. What were you thinking there? Does that have something to do with the spin of the SBQ assets, or is there something else that you see going on?

No. I guess I was just suggesting that a lot of companies out there are -- I think have publicly indicated their assessment of their portfolios and where their core assets may or may not be and there may be opportunities that come up. But again, we've got no -- nothing on the radar screen that we'd want to share with you.

Our next question comes from the line of Timna Tanners with Bank of America.

Wanted to just ask a few quick questions to try to get a little bit more of a read into the fourth quarter and beyond. You mentioned the paint line improvement, so really wanted some more detail on what's happening there. Similarly, we heard that there was an outage, I think, on the rolling side at Butler, so wanted to know a little bit more about kind of when that happened or what that might mean. And then, I think those were the 2 big ones. But just to the extent you could talk a bit more about the downstream and what you're seeing there would be helpful please.

Yes. As you know, Timna, we tend not to guide until sort of the latter part of the middle of the quarter and prefer to retain that philosophy. But I think it would be reasonable to expect some seasonality in some sectors of our business. And we do have outages at -- typical scheduled maintenance outages of our sheet mill at Butler. And...

We just took a 4-day high planned [ph] outage out in Butler. And during the same, we rebuilt the #1 galvanizing line furnace at Butler. We also rebuilt the Galvalume part [ph] down at Jeffersonville. We'll be taking a 1-week shutdown at a metal tech, it will a week down at -- also in Pittsburgh, we'll be taking Christmas week down at NexTech and we haven't decided yet when Galvatech will go down. But we try to plan these around the mix that we have on the books at the time. We, again, look at what the opportunities are. Some of it are fluctuations in the shipments. Actually, when you look at painted products or galvanized, actually can be accommodated or explained through even just gauge. So as the order book changes, whether it be building products or others, it's really just sometimes the thickness of the steel. So it's not really availability or such. We are doing an upgrade of the galvanizing line at Jeffersonville, adding, I think, another 150 feet per minute speed increase to it, and increasing the capability of the cleaning section and few other things. So that, in the future, will show an increase. But nothing of significance has occurred on -- from a capabilities perspective on any of our coating lines here recently.

And certainly don't want to overemphasize, these are typical of our typical fourth quarter. [indiscernible] taken, these outages, and you're going to see a typical little bit of a seasonality.

Sure. I didn't mean to imply I wanted a Q4 outlook as much just wanted to know, for example, specifically, on the coated products, is that a sustainable increase? There's -- that's a high-margin product, so just trying to get a sense there. And then on the leveling line, what might that add per ton or how do we think about that?

Well, we think that the product value improvement is about $10 a ton, and we think that's a fair value to be asked for. And so that's what we're taking to the street. And time will tell how much of it we sell, because it makes our product dead flat. And it's a great product, especially, as light as we go, we go below 1/40,000 of an inch, and that's a very nice product you actually substitute, in some cases, for cold-rolled.

It's pretty unique, that product, really.

It has strength in cases.

Our next question comes from the line of Dave Gagliano with Barclays.

Just a really quick question. On the utilization rate, the 89% in the third quarter, Sal covered some of this earlier. I just wanted to pick your brain a bit on annual utilization rates, how high can that go, given downtime, et cetera, during the course of a year?

Well, I'm not one big on the use of the utilization rate because as an engineer, I'd say you can never get under [indiscernible], but again, like you run a galvanizing line, you can -- when you add zinc, it becomes over 100%, depends on where you take your yield loss. If you -- with us, with the reversing mill, do you cut your heavy head and tail off, you take it at the temper mill, you take it at the galv line. I mean, I'm being sort of being a little sarcastic but these are all truths. And so in theory, as an engineer, you usually say about 93%, you start with your yield all the way through the system. But then, when do you raise it, we said -- I think, we said 600-and-whatever-20 thousand tons at Pittsboro, and yet we know we have more than that in melt because as we run the -- add the second rolling mill, we will be supplying some of that cast product out of the existing melt shop. So therefore, really depends on what the order book currently is and if we have a lot more large bar rather than medium bars, heck, we'll do more than -- theoretically, you could do more than the annualized 620,000 tons, just at Pittsboro. So there is no -- I'm not trying to give you the runaround, I'm just trying to tell you honestly that's an answer that I can't even give you because it can exceeded, over 100%, all depends on mix. I mean just as I said earlier, just trying to gauge of the steel, in the flat rolled world, you can exceed 100%. And you say, yahoo, man, it was a great times but you might even have some more downtime and still have a great performance looking at the tons grow.

So just to try and clarify, over the course of a 2-year period, 1- to 2-year period, that number can be over 100% for 2 years, that 89% can be over 100%?

I would tell you no. I mean, just the law of averages comes back. I would tell you we'd like to see -- probably, it would probably end up being in the low 90s. Because we want leaner [ph] capacity, we would report a number that it would reflect an appropriate...

To be clear -- let me jump in for a second because you're...

I'm too much of an engineer.

You're an engineer. So from the perspective of the actual volume, let's forget about utilization, but from the volume, we can hit that volume that we report. We report volume with the techs of I think 7.4 million or 7.5 million tons. We think that we can hit that mission level. But to this point, if we start hitting it, just like the flat rolled, one point in time, we said the capacity was 2.4 million tons. Well, today, we get capacity of 3 million tons, maybe even...

More than that.

A little higher than that.

Our goal is more.

When you talk about utilization rate, it gets a little bit more difficult. But from just pure volume, we can hit -- we would be able to produce and sell that volume on an annual basis. Clear?

It's very clear. Okay. So sorry, I'm just doing some quick math. So what you're saying is the 1.5 million, is this -- well, I'm trying to clarify. Can 1.59 million tons annualized, can that grow to more than 7.1 million tons over the next 2 years, excluding all the other products that are happening, excluding but just that 1.59 million, apples to apples, can that consistently be more than 7.15 million tons, which is 100% of that number over the course of a year?

It can be, because our total capacity – you're just annualizing a quarter.

Correct. Right. Exactly. I'm annual -- I'm maxing it out at 100% and annualizing it.

Correct. But our capacity that we believe we can produce in solid year with appropriate markets is actually 7.4 million tons if you include the operations from the techs. So I would say that's a true statement that, that is possible. Now you obviously [indiscernible] line.

Our next question comes from the line of Brian Yu with Citi.

The first question is, just on the premium rail, just a bit of a follow-up but can you just remind us how does purchasing work typically with the rail company? So let's say that the testing goes well in the first quarter of next year, when they start placing orders, how much visibility would you have? Like do you typically place it enough for you to deliver into for a couple quarters, a few quarters?

You're asking about how railroads purchase their rail? Is that what the question was?

Yes, exactly. I'm just trying to get a sense in terms of how much premium rail, when we might know how much premium rail you would ship next year, assuming all the product testing goes well in the first quarter?

Well, again, I haven't been involved in it for a couple years since I left Columbia City. But I think, towards the middle to the end of the third quarter, if I remember right, is when the inquiries by many of the Class 1 railroads go out and the bids are expected to come in from the rail suppliers and discussions start taking place, and that's when railroads place their expected purchases for the coming year or years. And therefore, that's when you start getting a picture. Now those aren't necessarily guaranteed tonnages but those are the parameters in which the 2 parties are expected to be capable of delivering. And then other factors influence what actually transpires, and higher or lower numbers and changes from head-hardened to standard and so forth can occur. But it's usually by, I would say, by the beginning of the fourth quarter, that picture has become fairly clear as to what the next year will look like.

Okay. That makes sense. So that's why you think you're going to ship maybe [ph] more of this in 2015, because '14 will more or less be like product testing, maybe some sampling. And then, hopefully, you gain some contract wins towards the end of '14 and then deliver more earnestly in '15. Is that the correct way to think about it?

Yes.

Yes.

Then the fixed point, there are contract negotiations going on. I think we're all making some volume commitments for next year. Obviously, there's a lot of spot rail still sold, so it's not as though we are shut out of the market just because we're not going to make a full, full commitment for 2014.

Yes, a lot of our rail right now is – we're at major suppliers like Amtrak and to a lot of the short lines and the regionals and so forth and to the contractors, and we do a lot, we have a large customer base, and most of those are projects. So we did through distributors and direct do quite a bit of work that's going out, even though we don't participate in some of the head-hardened annual bidding. And we didn't have a product, we still bid, put a number out there and say, look, but we have to put qualifier on that should our development not be on time, there has to be an escape clause and we have to work with this. But we truly expect to be a participant by the end of the year.

Got it. And Mark, can I get a follow-up on Mesabi Nugget. So as I see it, you've got 3 variables, the uptime, the production while it's up and then the yield. It seems like you've got that 30,000 ton per month production run rate locked down. And then the uptime, so can you drift the [ph] other part of your uptime in yield in terms of uptime, do you expect any outages in fourth quarter and is that an area where maybe it'll run on more consistent basis as we look at 2014?

Well, we certainly hope it runs on a more consistent basis through the end of the year because we need that consistency to fine tune the process and get that yield improvement. We have been running, can run at an input rate of in excess of 30,000, but because the yield's not there, you don't get the finished product at that same level. We do have it identified, as I said, a lot of opportunities for some gains. And the focus for the team is -- well, it always has been on what they're doing up there, purely on getting the cost structure and shape so that by the end of the year, we'll have a very, very good idea of what the ultimate plant's capability is.

Okay. Do you have any planned downtimes in the fourth quarter?

For Mesabi Nugget, there are no planned -- well, we had one in September, came up, I think, end of the first week or so of October. But there's nothing planned for the rest of the quarter.

Our next question comes from the line of Curt Woodworth with Nomura.

Yes, Mark, I was wondering if you could elaborate on metal spread trends you're seeing within the business? I know that the sheet market, metal spreads obviously expanded this quarter with price appreciation. But what are you seeing in the long product bar and beam market? Are you seeing spreads expand at all with some of the momentum you're seeing on the shipment side?

I think spreads on the structural side tend to be somewhat flat. I don't see any major drivers there. The market has come off its index adjustment every quarter, which I think is a benefit to us all and perhaps we'll see a little benefit there. On the sheet side, obviously, spreads have improved through this past quarter as pricing has accelerated at a higher rate than scrap. Where scrap is going over the next months, I'll let Russ answer that with the caveat that our crystal ball is only about 3 days out.

Maybe not even that far. Well, I mean, scrap market certainly it's firmed up in the last few months, and you get -- seasonality in scrap is when winter comes. And if we have the predicted difficult winter, I think the general direction on scrap is going to be firm to many of us over the next 2, 3 months.

Okay. And then, on Mesabi, just thinking through potential scenarios, if the yield channel just remain and you kind of can't hit the production run rate targets, do you have optionality to sell excess concentrate, third-party, into the market and will you even consider potentially looking to do that as more of a kind of permanent component of that segment for you guys?

I would say, at this point, we still feel there's room for meaningful gains at Mesabi Nugget. That will be seen. Again, as I said earlier, there's a lot of work to do yet. And over the next 2 or 3 months, we're executing the plan that we set for the team. And by the end of the year, we'll know, I think, a lot more clearly as to what the cost structure is and the production capabilities of the plant. At that point in time, I think, we'll assess where we are.

That being said, though, I do believe we have the optionality on the iron concentrate coming from mining resources to be able [indiscernible] want to or do we not.

We'll take note of that as time unravels.

Our next question comes from the line of Phil Gibbs with KeyBanc Capital Markets.

This is Tyler Kenyon filling in for Phil Gibbs. I guess, I'll start on non-res. Could you kind of talk about where geographically you might be seeing pockets of strength or weakness? And is that any different relative to last quarter? And then, I guess, one more on Mesabi. What does cash breakeven equate to on a pretax basis? And kind of at this point, what is a realistic timetable to get to pretax profitability?

Well, I don't want to be redundant on what I already said at Mesabi Nugget, but we will see what that level is hopefully in the next 2, 3 months when they complete the trials on the cost savings and yield improvement opportunities. From a non-res perspective, Chris?

Yes. I think, we still see that the Northeast and the East are the strongest sections of the country. We're not seeing the levels of improvement in the far West or in the Southeast quite yet. We are seeing some life in the Southeast. I'd say that the Western markets have been slowest.

Okay. Great. And then, just one last one for Russ. I mean, I know you've kind of talked about the outlook over the next couple of months for ferrous scrap being a little bit more positive. But what do you see in terms of volume and price specifically as it pertains to East Coast and China exports? I know we've seen some significant movements in currency, especially in the lira and just kind of wanted your thoughts there?

Well, I think, certainly, the big exports off the East Coast is the Turks, and they've been fairly mostly absent since about middle of the second quarter. We've actually seen the exports decline probably -- I think, first half is down 20% from the year before on export basis points and it looks like that's continued, at least into the first couple months of the third quarter, a little bit more activity here in the last month in the quarter of September, and looks like it's going to continue somewhat in October. But I think it was interesting because you look at the euro versus the dollar, and normally, when that rate is $1.35 or $1.34, whatever it is now, generally, that brings the Turks back in. But obviously, their currency against the dollar are -- their currency matches up better against the euro than the dollar at this point, so they're pretty – most of their material is out of Europe. I think it's hard. As China's concerned, big impact on our business with China is really in the nonferrous realm. The green fence construction that they've put in early in the year, our imports early in the year, I think we've all -- the entire industry has begun to adapt to it and I think we're now producing product that is exportable, of all the regulations that they established. And I think you'll see those nonferrous export opportunities grow as we get into the fourth quarter and into the first.

Our next question comes from the line of Nathan Littlewood with Crédit Suisse. Nathan Littlewood - Crédit Suisse AG, Research Division: Listen, I just had a question about your scrap business. You've obviously reported consolidated volumes and an average for the entire business. But I was interested in some of the commentary about there being a difference between the profitability of the Southeast region compared to the Midwest. I'm looking at a map, which I'm sure you're familiar with, of all the OmniSource locations, and it looks to me like there's roughly just as many dots in the Midwest as there is in the Southeast. Can I read that as an indication that the volume is roughly kind of 50-50 between those 2 regions? And second part would be are you able to give us a little bit more color on what the difference in earnings is on margins for each of those 2 regions?

Nathan, the first question, when we look at the dots, the answer is no, the volumes are not 50-50 there, it's more along the line of 2/3, 1/3, maybe even 3/4, 1/4, significantly more volume in Midwest, and so that is part of the difference. The other part of the difference is, I talked about earlier about the Turks and the export market. With China construction in the East Coast, which is where all that export market flows from, that tonnage that's not going export flowing back in, puts a lot of pressure on the local areas, the closest proximity areas, and I think that's a good part of what they're doing. I will tell you that – I do want to make one quick comment on the Southeast, and I will tell you that the team down there, when you look at them from the performance level this year versus the last couple of years, they have made some marked improvements, they have really done a tremendous job. So again, it's a difference of the geography that they're located in, the types of material they're dealing with. Much less [indiscernible] in the Southeast than we deal with in the Midwest. And so some of this product mix, the large part is the proximity to those export markets, valuable when the export markets are flowing, not so valuable when they're not.

Yes, the Southeast, they've gone through a considerable cost contraction there and done a great job, and the market has certainly not been good to them relative to the Midwest. To emphasize Russ's point on product mix, the Midwest and just in big round numbers, we -- if you look at Omni as a total, we've got 6.5 million tons perhaps of capability, 4.5 million of that is Midwest, 1.5 million of that is Southeast. But the product mix is dramatically different. The Midwest is squarely focused, or its flow anyway is probably 75% premium grades. And if you look at the premium market through the third quarter, it was off a little bit, but it was relatively stable, and that allowed those operations a little bit more flexibility, some greater option to retain their earnings profile. The Southeast operations are principally obsolete scrap, shredded scrap, which as Russ said, incredibly competitive marketplace. You got the export market competing for that flow, and you've got too many shredders competing for that same flow. And if you look at the market price of shredded, it went down substantially through the quarter. So whereas Midwest had more of a stable pricing on a product mix scenario, the Southeast had to fight a downward trend in pricing almost every quarter, which is not good for a scrap organization. Nathan Littlewood - Crédit Suisse AG, Research Division: Sure. That's very clear. So just to clarify though, if we were to take the Southeast assets out of the mix here and just look at the Midwest stuff, was that 3/4 of the tonnage profitable in its own right or is that making a loss as well?

No, it's profitable. Nathan Littlewood - Crédit Suisse AG, Research Division: Okay. The Midwest is profitable and the Southeast is kind of dragging the business unit down?

I don't know if that's necessarily the case. They're earning money, but again, it's much more challenged in the Southeast overall. And so they've had a tough quarter, but again, I would reemphasize where they've come from on the cost containment and the other efforts that they put into it the last year, they've made huge strides.

Our next question comes from the line of Sam Dubinsky with Wells Fargo.

Two quick ones. How much CapEx is being spent on Mesabi Nugget in 2013? And how much is being spent in '14? Then I have a follow-up.

Theresa?

In '13, the CapEx has been a little bit higher and it's not just Mesabi Nugget, but it's what we call Minnesota operations. And so that includes the nugget facility and the concentrate facility. And we just completed or we had some capital raise [ph] at both of those in 2013. So I think the numbers for '13 is maybe $30 million. As it relates to next year, it's a little bit hard to tell. I think the current expectation is that all of Minnesota operations capital next year will be closer to something around $10 million or slightly less. But we'll have to see how the next few months of operations occur to be able to say specifically what that might be.

Okay. Great. And you said you didn't have the exact cost structure for Mesabi Nugget realized yet, but any idea what you think it could be if the operations are running 100% utilized?

As we said, we'll give you that in the January call.

Okay. And then last question, steel fabrications had a good quarter from a shipment perspective. Do you view this as a new level of demand or was there something like an inventory restock that propped the volumes for a quarter?

No. We've seen steady improvement from a low of about -- the joist demand dropped as much to a level of 40% of historical norms. We'd say it's about at 70%, and that's all come gradually, no step changes, and we see continued opportunities for it to grow steadily. That was all natural increase in an improving environment

Our next question comes from the line of Charles Bradford with Bradford Research.

Your major competitor claims to be likely to startup its DRI plant at the end of the year. Presumably, the big impact will be on less imports of Brazilian pig iron. Have you been seeing any panic sales or offers from Brazil? I don't believe you buy much of it, but have they started to come after you to maybe dig in or take some product?

Chuck, we've been out of the import pig iron business for some time, we may have bought an opportunistic [indiscernible] there, but we really don't entertain and don't have a good knowledge of those markets. And we certainly -- I can't remember the last time we bought DRI or HBI from Venezuela or South America. So I can't quantify that. We just follow the flats and the general market news.

That's why I was asking about whether you were seeing offers. I knew you weren't buying it. But presumably, getting 2.5 million tons of more iron units into the market will have some impact on something. The question is, is do you think it'll be more scrap or where?

Well, I think, pig iron price will follow the past and wherever prime pricing is in North America, that's going to position the pig iron market. I think on the scrap side, I think it's a commodity business. Anytime you add supply, it's going to have pressure somewhere. I think longer term, we're quite optimistic, Nucor at 2.5 million tons and voestalpine bringing some to market, albeit a lot of it going to Mexico right now, I think they still have some merchant coming into -- will have some merchant coming into America. But we think that, that will give a little bit of pressure to scrap pricing and stabilize or push it down some, which for us, obviously, is a huge advantage over the integrated mills.

Our next question is a follow-up from Sal Tharani with Goldman Sachs.

Has the LaFarga been profitable so far?

What was the question, Sal?

The LaFarga, the rag mill for copper, has it been profitable so far?

It has not been profitable so far. I would say in the broad scheme of things, it hasn't got much of an impact to our consolidated earnings. The team there continues to increase its market, and I think we are getting to a point where the shipments are going to approach 5 million pounds, right, Russ, in the next couple of months, and that tend to, at least we feel, to be a breakeven point for that facility.

Great. And on the concentrate facility, I'm just wondering if Mesabi is going to run at a lower rate. I was wondering, would you be able to reach the breakeven over there at this low because the cost is very low, certainly? And my guess is your transfer prices, I don't know if you're transferring it at the market price, but when do you think that facility will be profitable or at least breakeven?

Again, it gets a little complex with the movement of materials back and forth between all the divisions up there, but mining resources is certainly profitable already.

That concludes our question-and-answer session. I would like to turn the call back over to Mr. Millett for any final and closing remarks.

Fantastic. Thank you. Well, thank you for those questions. I guess, in closing, just we would all like to thank our employees for their continued hard work, their dedication, their loyalty to our company. We're a family, and all I ask, all we ask, is you be -- continue to be safe each and every day out there. And to the customers on the line and to our shareholders, again, we appreciate and thank you for your support. And with that, from us, have a great day, be safe.

Thank you, ladies and gentlemen. That concludes our conference for today. Thank you for your participation, and have a wonderful day.