Operator: Good day and thank you for standing by, and welcome to the Schnitzer Steel Second Quarter 2021 Earnings Results Call and Webcast. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to turn the call over to your speaker, Michael Bennett, Investor Relations. You may begin.

Michael Bennett: Thank you, and good morning. I'm Michael Bennett, the Company's Senior Director of Investor Relations. I am happy to welcome you to Schnitzer Steel's earnings presentation for the second quarter of fiscal year 2021. In addition to today's audio comments, we have issued our press release and posted a set of slides, both of which you can access on our website at schnitzersteel.com or schn.com.

Tamara Lundgren: Thank you, Michael.

Good morning, everyone. In preparing for our earnings call this morning, I took a look back at our announcement a year ago. My remarks last year centered on our designation as an essential business and part of the nation's critical infrastructure, which enabled us to operate continuously throughout the pandemic. I discussed the health and safety protocols we were deploying and the support we were providing to our communities and health workers. I noted at the time that there was no playbook for how to deal with the COVID-19 pandemic, but that there was a long legacy at our company of facing challenges head on, navigating through the toughest of times and doing what's right to protect our people, serve our customers, support our suppliers and help our communities.

A year later, I am happy to report that the operational and financial results that we will discuss today are Schnitzer's best results in over a decade. They would not have been possible without all our employees from our frontline workers to those who have been working remotely, living our core values of safety, sustainability and integrity. Our success is the direct result of how they have embraced these values, and their performance reflects the collaboration, innovation and resilience that define our culture and our company. So let's now turn to Slide 4 to get started. Ensuring the health and safety of our employees and all who visit our sites is our top priority.

On the health front, we are continuing to follow all CDC guidelines. These include social distancing, wearing face coverings, frequently washing our hands and wiping down high-touch areas. We are actively communicating with our employees regarding resources we can provide in support of their physical and mental well-being.

Richard Peach: Thank you, Tamara, and good morning. I'll begin with an update on our advanced metal recovery technology initiative.

Strong progress on our rollout continues. And as Tamara just mentioned, we commissioned two major new plants since the end of the second quarter. One is on the West Coast, a primary nonferrous recovery system that is integrated with a shredding operation. We will use this new system to recover Zorba which continues aluminum, Zurich, which contains stainless and insulated copper wire. The other system that's being commissioned is an advanced aluminum separation system in the Southeastern U.S.

that will cover our East Coast operations. This new system will give us the capability to convert Zorba into a variety of higher-value products, including twitch, which contains a higher percentage of aluminum as well as stainless, brass and zinc. Construction is in process on an additional primary nonferrous recovery system on the East Coast and also on an advanced copper separation system in the west that will primarily recover refinery-grade copper. As part of our technology initiative, we also have five other systems currently in the permitting or engineering phases. Subject to no further COVID-related or other delays, we are now targeting completion of the rollout of our installations by the end of the first quarter of fiscal '22 and after production ramp-up, to be fully operational on all of our new systems by the end of the second quarter of that fiscal year.

On an annual basis, our shredding process currently creates approximately 250 million pounds of nonferrous products. We expect our new technology will enable us to increase recovery of metal and to provide optionality to create a range of higher-value products. Based on our current volumes and after we complete the rollout, we expect our nonferrous from shredding to increase by 20% to 300 million pounds per annum. We now expect the total capital investment for our new advanced metal recovery technology to be $105 million. Of this amount, we have spent approximately $60 million including $19 million in the first half of fiscal '21.

In the balance of fiscal '21, we expect to spend an additional $30 million and then the remaining $15 million in the first quarter of fiscal '22.

Tamara Lundgren: Thank you, Richard. Our strong second quarter results reflect the resiliency of our operations and the agility of our team in leveraging positive market conditions while delivering on our operational and strategic initiatives. We have a strong balance sheet with low net leverage and interest expense, a strong track record of delivering positive through-the-cycle operating cash flows and ability to invest in the growth and productivity of our company and an uninterrupted record of returning capital to our shareholders through our dividend. Our performance for the quarter can be attributed to the steps we have taken over the past several years and steps which are currently underway to continually improve our business performance with the projected benefits from our advanced metal recovery projects.

And the greater emphasis on recycling, together with the continued growth in global EAF steelmaking capacity, and the increased metal intensity of lower carbon-based economies, the future for our business and industry is bright. In closing, I'd like to thank our employees for their excellent performance, which demonstrates why we have continued to be a leader in our communities and the recycling industry for over a century. Thank you for everything that you're doing to remain safe, to keep your families and friends safe and to support your colleagues, your communities, your country and our company. Now operator, let's open the call for questions.

Operator: Our first question comes from Mike Leshock with KeyBanc Capital Markets.

You may proceed with your question.

Michael Leshock: First, I wanted to touch on the volume outlook, specifically with ferrous export volumes. We saw the sequential decline there. What was the primary driver of that decline? And how should we think about those volumes going forward, at least directionally? And then secondly, if you could talk to what you've seen thus far from the Chinese import market, given the import restrictions that were lifted this year? Just what activity have you seen there so far?

Tamara Lundgren: Sure. So on the ferrous volumes, as Richard mentioned, we had three ships that were delayed due to severe weather in February that moved over into Q3, and that was really the driver of the decline in the Q2 volumes.

And in Q3, as you can see, not even putting aside the volume, the extra volumes that are coming over from Q2 the top of end of our range assumes an increase in volumes. Regarding China, we haven't -- and I assume you're talking about ferrous into China. Regarding China, we haven't seen a lot of ferrous imports by China from the U.S. or from the EU. Where they've been taking them in had been from Asia.

And the reason for that, I think, is really due to two issues. One is there are still some significant scrap metal content questions that are outstanding, and there are complex import procedures. But I would expect that those will be resolved because there is demand. There is demand that's underpinned by carbon reduction goals, among other things. So I think that this is just a matter of time.

Michael Leshock: Okay. And on the holding gains of about $10 a ton in the quarter, did that cover the steel business as well? And if so, what was the split there between AMR and steel?

Richard Peach: Michael, it's Richard here. That's our overall average inventory accounting benefit for results, that $10 a ton. As you can see from our outlook, we're predicting similar in the third quarter.

Michael Leshock: Okay.

And on the infrastructure bill, I wanted to get your take on just how you foresee an infrastructure program playing out. If you could talk to the potential impacts to your business given your exposures there that would be helpful?

Tamara Lundgren: Sure. So it's still early on to know what the timing of that will be. But I think that a U.S. infrastructure bill is more a question of when, not if.

And I think that the impact to the scrap business as well as to the steel business will be significant. And I know people are doing a lot of back of the envelope analyses to exactly how many tons could be a part of the demand profile as a result of the infrastructure bill, but I think that you've got to think about it broadly. Yes, there will be definitely an increase in steel usage. And there -- we also project that there will be a significant increase in GDP growth. And those growth drivers have multiplier effects.

They have multiplier effects in terms of jobs, in terms of consumer activity. The more consumer activity that you see, you see more generation of scrap. And then you have to take into account the transition to low-carbon technologies, specifically the commitment on the part of the major auto producers to transition from ICEs to EVs. That in of itself will result in significant demand for new vehicles and probably the encouragement of replacement of existing ICEs. So we see the infrastructure bill as being a long-cycle underlying demand driver for both recycled metals as well as for steel.

Michael Leshock: Got it. That's helpful. And lastly for me, just as we look at the balance sheet, 1x net debt to EBITDA, where do you feel comfortable taking your leverage in the same vein? Do you see any opportunities in the current M&A environment?

Tamara Lundgren: So we don't have a target that we have -- that we've put out there. But clearly, we've got a strong balance sheet with a lot of room to look at both organic and inorganic investments. And we are -- we have been doing that.

We will continue to do that. And I think that with the increasing focus on carbon reduction and the investments that companies need to make, recycling companies as well as steel companies, but in particular, recycling companies, to reduce their environmental footprint, we are leaders in that, and we see opportunities for us as we expect the industry to consolidate.

Operator: And I'm not showing any further questions at this time. I would now like to turn the call back over to Tamara Lundgren for any further remarks.

Tamara Lundgren: Thank you, operator, and thank you, everyone, for your time today.

We look forward to speaking with many of you in the coming days and again in mid-summer when we report our third quarter results. In the interim, stay safe and stay well. Thank you.

Operator: Thank you. Ladies and gentlemen, this concludes today's conference call.

Thank you for participating. You may now disconnect.