BlueScope Steel Limited (BSL) Earnings Call Transcript & Summary

Welcome to BlueScope North America, and specifically, welcome to Delta, Ohio and North Star BlueScope Steel. It's a pleasure to have you guys here. And as I said last night, for those that were there, this is exciting for us. We've got a lot to show you today and tomorrow. There's a lot of ground to cover. I'm going to spend the least amount of time that I can up here because you guys see enough of me. This is about you seeing Kristie and her team in the facility. So you're not going to see much of me, but that's the intent of the day. So just a couple of housekeeping things. Facilities are out left, you'll bump into the men's locker room for the boys. If you go left again, you'll then find men's and ladies' facilities. It's okay to use the men's locker room. That's fine for the boys. So out left and left, we've got coffee. So many varieties of coffee up there, cinnamon coffee, Nicaraguan coffee, you can get whatever you want at the back. We've also got some breakfast there and feel free to get up and go and grab something during the session, if you like. That's okay. I know the service wasn't amazing at the restaurant this morning. We caught them on the hop of it. So some missed out, but feel free to help yourself to some breakfast. And then later today, we'll get out on site, which is a really important part of this opportunity. We've got a whole bunch of boots over there, lots of PPE up the back. Jeff will come and talk to us and give us a safety briefing at that stage. So I won't spend any time on a safety briefing now. We'll do a safety briefing before we go on site both here at the mill, this afternoon at the recycling facility and then at the coating lines tomorrow. So this is being recorded. So we'll run through the process and recorded so we can put it up on the website and those that couldn't be here can see it. So it's being recorded. So what we might do is just run through the presentations. They're not super data-heavy. We'll then get to some Q&A breaks where you guys will have an opportunity to ask any questions of any of the team. We're well represented here today. Kristie, of course, and members of her team are here, so we can cover off any of the questions. And then after lunch and the two are here, we'll head across to recycling, which is literally just across the road. Do a walk around the recycling site and then have the opportunity for Q&A there again. So that's how we're going to run today. And as I said, delighted to have you all here. Did I miss anything, Gibsey? I think that's all of the -- good. Okay. We've got all of the information covered. So I'll do a quick overview. I'm going to hand over to Kristie. She'll then do an overview of North America. Conrad's here will talk about North Star. And then we'll have morning to Q&A and then get to do a walk around, which will be fantastic and some lunch. So perhaps just a little bit from a BlueScope perspective. And many of you guys have seen this before. And this is why -- sorry, the one thing I did forget to mention is we will also give you an envelope with the tickets for the baseball tonight. The baseball is a walk from the hotel, Mark and Gibsey did it on the weekend and assured me it's doable. So we're going to walk through the baseball. We should be back at the hotel about 5. And then the baseball kicks off at about 6. And you'll have tickets in your envelope to a seat in the stands and the dining area, which we've got booked out, so you can go and have something to eat and some of the drinks. So you've got options tonight. And it looks like it's going to be an amazing night to be at the baseball. So we'll hand those out during the day. So BlueScope, when you guys know this story, we consider ourselves a different kind of steel company. Very much purpose-led an enormous focus on sustainability, and I'll touch a little bit on the New Zealand announcement in a few slides, a really exciting step forward for us from a climate and sustainability perspective. We've got a suite, we think of very high-quality assets, and you're going to see one of the very best in the steel industry in North America today. There's no question about that. Lots of work around our technology, branding and channels and introducing that here and tomorrow when we're at Middletown with John and his team, you'll get an update on just what's going on in our thinking around how we're going to introduce a packaged and branded offer into the market in the painting space, a very strong balance sheet and financial disciplines and really getting -- trying to get that balance right between returns to shareholders, investing in long-term sustainable growth in the organization and you are sitting in part of that investment in the long-term growth. And you'll see that later today and tomorrow, of course, with our coatings business. Our purpose, which rolled out during COVID, it was a project that we felt was important to run as we went into COVID. I've got to say surprise me, the impact it's had inside the organization. It's very much become a calling card for our people. They're rallying around it. It's resonated within the organization, and it works beautifully with the bond, which, of course, was first written down on a piece of paper when we spun out as a stand-alone company back in 2002. Our strategy hasn't changed, but within the broad framework of the strategy piece, mean lots and lots of different work going on, transforming the organization, whether that's digital. And you'll see some of that today, fascinating to see a new slab caster identical to the original slab caster built some 20 years later and the advances in sensors and monitoring that goes on in that technology. But equally, what's interesting is the work the team have done here, for example, around the slab caster, where the original equipment manufacturer said to us when they came back, you shouldn't be able to do that with that caster. I mean, what you guys are doing, it's not designed to do. It was never built to be at that level of capacity. So the incremental improvements that continue to happen in the business as we transform, whether it's digital, whether it's continuous improvement, it's a fundamental part of what we're trying to do in the organization. Kristie and her team very focused around the customer and the customer experience in North America as well. Continuing to grow the business. Again, we're going to show you firsthand over the next 48 hours, the growth strategy here in North America. But equally, work for us to do in the ASEAN footprint. We're seeing better results in the second half, specifically out of Thailand. Thailand is having a good run. It's a business, and I had a conversation with a couple of you last night. It's a business that we are asked about occasionally in terms of is it really worth the effort. I continue to be excited about the ASEAN business whenever I go there and see what's going on. The opportunity, I still believe is massive. It's not a huge drain on the organization in terms of management time or distraction, which has been raised with me before. I think the potential in the ASEAN business remains there's an execution component on our part where we need to improve, but also some of the macro, particularly post-COVID, the China restart, which is stalled having an impact on that business. But the conditions and the signs there are more positive in the second half. And I think fundamentally, the strategy for us to continue to hold that suite of assets and take advantage of the growth and the opportunities that we see, not just in ASEAN, but in India and China as well remains a key part of our thinking. In Australia and New Zealand, less about nonorganic growth, more about organic growth, continued growth in share of COLORBOND and COLORSTEEL across the 2 markets, continued growth in residential steel framing, which we're excited about, that underpins an investment in MCL 7, which we're in the final stages of doing the review on because we expect to see a significant growth in volume in residential steel framing as we go forward, and continuing to deliver a safe workplace and a strong balance sheet and returns to shareholders. So very much a consistent approach from a strategy perspective but below the water, lots of moving parts. And you will see, as I said, the growth component from a North American perspective, up close over the next 1.5 days. Sustainability continuing to grow in importance in the business. I think yesterday's Sunday's announcement in New Zealand is a very important step for us, both in New Zealand but also for the organization. These are the major areas that we're focusing on from a safety -- from a sustainability perspective. And clearly, climate action continues to be at the forefront. There's been a lot of work going in the last 4 or 5 months, in particular, the safeguard mechanism in Australia, the announcement that we made in New Zealand on Sunday. So there's a lot going on inside the organization, we continue to try and work out how best to communicate that with you guys and how to keep you informed of the work that's going on inside the organization. We're not sprukers, so you won't see us making outlandish comments or commitments or statements what we tend the approach we take on this, and we'll continue to take is, is talk to you guys honestly and pragmatically about the opportunities that we see, but also the risks and constraints that come with some of the technologies, particularly from a climate perspective. So we'll be as open and transparent with you guys as we can be, but it might not necessarily be a sexy or outlandish and some of the other statements you might see from other players in the market. But it's our best guess based on a fairly significant commitment in resources and time and people and expertise and experience on what we see the path forward from a sustainability and a climate perspective, in particular, is. And perhaps touching on New Zealand, that leads us in New Zealand. This is a fantastic announcement and opportunity for the New Zealand business. Very much in underpinned by the enablers that we talked about when we put our Climate Action report out just a couple of years ago now. We've been able to make this step forward in New Zealand because the enablers that we've talked about to help with decarbonization in steelmaking are in place. So New Zealand is blessed, of course, with enormous renewable resources and power. It's also firmed renewable power. So that was certainly an opportunity for us. The market in New Zealand exports currently about 500,000 tonnes of scrap a year. So we saw that as an opportunity. So two of the major enablers we've talked about in terms of our 2050 aspiration firmed renewable, affordable energy. It's not the cheapest energy, I might say, but in relative terms in the market in New Zealand, it's an affordable energy. It's renewable, it's firmed. We have access to the required quantity and quality of scrap, we believe. And that's afforded us the opportunity given the modular nature of the steelmaking process in New Zealand, the kilns and the melters to look at taking 50% of our iron sands, coal, thermal coal, steel production out and replacing it with electric arc furnace scrap melt. We'll take out our [ BRM ] or our steelmaking facility install an electric arc furnace and mix our iron from iron sands production and the melted scrap in the EAF to come up with the steel make requirements for the New Zealand market. So a fabulous opportunity. We know how to run electric arc furnaces. You're going to see 3 of them today. So this is an expertise and capability we have inside the organization. We don't see that as a major risk. There's some technical and technology issues around the mixing of scrap and [indiscernible] that we're working hard on and looking at other facilities in China, in Europe who are currently using this technology. So it's not bleeding edge technology by any stretch of the imagination. But a significant reduction for the business in terms of the carbon that's emitted, about $300 million, the New Zealand GIDI fund, which is effectively the fund of ETS dollars they've been accumulating, investing in this to the tune of $140 million. There's been some accusations in some of the press about corporate welfare or corporate benefits. This program is set up in New Zealand for exactly this purpose to work with the industry to decarbonize. We'll take 800,000 tonnes of carbon out of the process as one of the ministers said yesterday, that's equivalent to 330,000 cars, which is all of the cars in Christchurch to visualize it. They effectively said you wouldn't need a car in Christchurch. So a significant reduction in emissions from the facility and a really important step for us, I think, in terms of our plans for 2030, our aspirations for 2050, a very important step for New Zealand, both our business and the country, but also a really important part of the BlueScope climate and sustainability story. So something we're very excited about. This is real. It's not a pilot plant. It's not a project. It's not an aspiration. It is subject to some final approvals and feasibility, but the team are working very hard on that, and we expect to be up and operating by 2026. So a very exciting day on Sunday. The New Zealand government were very, very keen on this project because of the scale of it. There's nothing else in New Zealand of anything like this scale. So a fantastic opportunity for us. We have a diverse and high-quality suite of assets, an interesting geographical but also sector mix, as you guys know, largely building and construction now almost 50% of our earnings coming from the North American business, and that will grow on the investments that we've made. And I think just as you spend the next few days in North America, something that continues to impress me and excite me about the North American market. The amount of investment that's occurring in this economy, the scale of this economy, the investment that's going to come from the IRA, renewable energy infrastructure spend. All of that, I think, is a positive from a steel industry perspective. The consolidation that we've seen in the market here and the more rational behavior that's occurring in the market and the forward-looking demand outlook, all of the renewable energy spend in North America is still intensive. Everyone I talk to and listen to talks about more steel going forward. Mike Henry quoted just last week in Barcelona, a significant requirement for additional steelmaking going forward. Yes, we need to decarbonize and we have a challenge in that space. But I think the fundamental outlook or the base outlook for steel, particularly in North America, is very positive, and that gives us continued confidence to invest here. So look, we're well positioned, we think, to take advantage of some of those longer-term trends, the underlying demand, some of the shifts in how people are living, regional living, et cetera, the steel intensity that comes with renewable energy investment and of course, the China. China continuing to manage its steel production levels. I will touch on, and you'll see later today and tomorrow in particular, some of the branding process, some very exciting work that we think will allow us to bring a packaged and branded offer as a painted solution into the North American market. Mark, did you want to say anything from a financial perspective?

Yes. So just on the financial framework. So this is not news to many of the team here, and this is something we've had in place for quite some time and really guides how we want to manage the business from a financial perspective, balance sheet perspective and capital allocation perspective. So there's really 3 pillars, and that's focusing on generating returns in excess of our cost of capital, so really focusing on cash flow generation, really important, I guess, in a cyclical industry like we operate in, and really gives us then the flexibility to invest further in the business, maintaining a robust capital structure. Again, given the nature of the cyclical nature of the steel industry, something we focus very closely on. You would have seen we have a balance sheet target kind of mid- to long term of $400 million of net debt. You would have seen in December, we're carrying a bit more capacity at the moment. That's quite deliberate given we are in the midst and entering a relatively heavy capital phase, including around the potential relining of #6, that's quite intentional. And the idea is to maintain a strong balance sheet to help provide the flexibility to reinvest in the operations and continue to grow the business. And the third element around the disciplined approach to capital allocation. So again, this is critical to how we think about balancing return to shareholders and further investment in the business. We'll continue to invest in safe and reliable operations and including around our decarbonization goals in New Zealand. The New Zealand opportunity is a great example of that. And then really, it's about then what is that surplus capital that we generate and where do we deploy that both in terms of growing the business further and balancing that with shareholder returns. So obviously, at the moment, we're targeting the 50% per share annual dividend. That's what we're trying to maintain, and we think we can maintain that through the cycle. The interim now we're back in the tax payable position in Australia. We're now franking that dividend, which is a bit of a mixed blessing, obviously. And then really, the balance is around topping that up with the buybacks. We're targeting a combination of the dividend and the buyback to return greater than 50% of our free cash flow back to shareholders. So really, that is how we try to manage that balance between returns to shareholders and reinvesting in the business for growth. So Mark, I'll hand back to you.

Sure. Thank you. We pulled this together, I guess, very topical in terms of us being here, but we pull this together just to give a better history of our involvement and commitment to the North American market. And as you can see, we've been in the U.S. for quite some time 1996 with the joint venture with cargo and the business has continued to grow. So that backdrop that I talked about earlier in terms of the positive demand outlook given the investment profile of IRA renewable energy infrastructure, again, gives us confidence to continue to think about North America as a growth opportunity for BlueScope. It's a large business now, 26 sites, nearly $9 billion worth of revenue, as I said, 48% of our EBIT. So it's a large business, 3.3 million tonnes of steel make. And Kristie and Pat, recently retired, had been focused not only on growing our business here in North America, but also building a capable and experienced team, and you will see most of the team over the next day or so. Conrad will talk to you shortly about North Star. After Kristie's introduction. Hector, who has worked at North Star for some time is now running recycling for us. Sue running the Buildings business, you'll see tomorrow. John Kuzdal, who's joined us. John worked with us as part of the M&A team when we decided to pursue the coating assets as it turned out -- turns out. John had previously managed the coatings assets. He took a decision to step down when it was acquired by the private equity group that we then acquired the assets from John was known to us. He had worked with Pat, 5 years ago at Steelscape. So he's a very experienced industry executive, and we were delighted to not only use him as part of the M&A team, but to engage him as the General Manager, the CEO, President of that business post the acquisition. So we've got now someone running that business who knows that business intimately as well, and Matt running our properties group. So you'll see the management team that Kristie's putting together and has been building over the last year or so over the next day as they tell you the story. So I'm going to stop there and hand over to Kristie, and she'll give you an overview of BlueScope North America, and then we'll get into Conrad's session, and we'll get time for some Q&A. So again, welcome. It's lucky to have you guys here. Thank you.

Thank you, Mark. Yes. Welcome. It's -- we're delighted to have you here, and I know the teams are really excited to host you over the next couple of days. So it's a great opportunity for you to get out and visit the site and operations and see some of the products we make. As Mark said, I only recently started in this role in February behind Pat, but have been with BlueScope for 22 years. I joined as BlueScope publicly listed, and have worked in different parts of the businesses and in sort of corporate global roles with the HSC people, more of a HSE people background. But delighted to be here and working off the back of the work that Pat had done with the acquisitions. It's all been really about bringing those newer businesses together, the more established businesses, building out a really highly talented, diverse team to really take us forward on our growth journey. So as Mark showed you, we've got the overarching BlueScope Transform, Grow, Deliver strategy and the U.S. is really a critical part of that, particularly in the growth theme. And that's really reflective of the recent investments that we've made, obviously, in the expansion of North Star, which you'll see today, and the newly acquired BlueScope recycling materials business and the coated assets. We're also further enhancing that value by really leveraging the capabilities that BlueScope Recycling brings and working with North Star around their value and use model so that we can really optimize the raw material sourcing and usage mix. So you'll hear Conrad and Hector actually talk to that in quite a lot of detail. That's a really important strategy and how we grow security of supply. And in addition, obviously, introducing the leading coated and painted assets and brands, and Mark has already alluded to introducing John, who you'll meet on Wednesday. And that's really how we introduce single bill to transform the business model where we see a demand growing with that offer as well as introducing the branded products for differentiation. So really excited to share some of the progress that the team is making in that regard. And obviously, beyond that, continuing to look for further opportunities to grow and integrate. We see a number of key trends and many of these you'll be familiar with through your own research and analysis, but real key trends that see the U.S. being a great place to make and sell steel. So on the supply side, industry consolidation and capacity rationalization, which is helping improve the industry structure. And Conrad has got a really good slide on that, that you'll see shortly. Combined with new EAF production and the shift to that side of manufacturing or steel processing, which does put pressure on the tighter raw material side of things, but rational behavior driving the supply discipline with a U.S. domestic focus. On the demand side, lots of investment. And again, Mark has covered that through the Inflation Reduction Act and the other legislative pieces that are really driving a lot of investment, manufacturing, reshoring post-COVID and then obviously, the build-out of energy transition in e-commerce, which, as you can see there, we think that BlueScope is well positioned to take advantage of our asset base and our exposure to those trends. So in terms of the end-use segments, the key ones, obviously, here are automotive, construction and manufacturing that are relevant to BlueScope in the nonresidential construction space, we have exposure across all of our U.S. businesses. We see recovery in the nonresidential sector to continue, and that's through leveraging the support of the positive legislative policies, e-commerce demand continuing to drive warehousing, logistics and data centers, which is good for our preengineered buildings and our BlueScope Properties groups. From an automotive expected, automotive sector, we expect to see recovery post-COVID and the semiconductor tube shortages. Despite stretched budgets, we're seeing still a solid backlog of demand and continued preference for SUVs and that shift to EVs remaining still intensive. North Star has an exposure, obviously, to the automotive industry through the components and frames and chassis that they produce. And whilst we're small, we are the preferred supplier in the industry and have consistent full utilization. And then direct exposure to manufacturing, which we see continued growth, and then that sort of supports the growth in the indirect or the non-resi construction side as well. So it really paints a picture that's favorable demand outlook for steel in the U.S. We expect stable, flat steel growth driven by normal GDP growth and new segment demand dynamics and the support of legislative initiatives that we've referred to. And whilst the legislation is positive, we also acknowledge that it does have more of a direct impact on some of the long products such as rebar, structural and wire, but it certainly does flow through and support the flat product side as well. And in short, we see the U.S. to continue to need and modestly grow its steel demand, which is forecasted to grow by 1.3%. So following the recent acquisitions, as Mark said, we now have 26 sites, and we feel we've got a fantastic footprint across the U.S. BlueScope Recycling and North Star located in the key demand area for hot-rolled coil with half U.S. steel consumed and a significant amount of scrap generated within a 300-mile radius from here. The West Coast exposure through Steelscape and ASC. And as you know, that's part of the Nippon Steel Corporation joint venture. So through the Building segment's area. And then we have now a national footprint for paintings and through our buildings business as well, operating across the 3 time zones. So really enabling greater exposure to a wider customer base. And then this is just showing our footprint and how that presence across the value chain, each with their competitive advantages within that. And I think really, what we've been doing as a team is now laying that out and saying, well, now how do we capitalize on the synergies and the opportunities that now exist between those businesses where they do exist, and really trying to leverage on our capabilities so that we can work together and achieve those incremental benefits. And then if we overlay that the footprint, all of the key data and trends and demand, this has really helped inform our North American strategy. you'll see there's our vision, the enablers. And then we really have 3 key strategic pillars, if you like. So the first one on the left here is about securing North Star as a leading low-cost sustainable steel producer. And as we go through the business presentations, we're going to do a deep dive into those strategic initiatives. So Conrad will be expanding on that component of the strategic plan. The second part is really building our national premium branded coated and painted product offering. So again, you'll hear more about single bill and what that actually means moving from a toll process into a single bill offer as well as introducing a COLORBOND product brand here in the U.S. So we'll expand further on that piece on Wednesday. And then the third pillar is about being a leading downstream player and exploring further growth options. So Sue and her business are doing a whole lot of work on segmentation and a whole lot on data insights in terms of new markets and where they're trying to optimize and play within their business and also doing a whole lot of work around an accelerator at the moment where we've invited some startups to help us think through the design of green buildings from a sustainability perspective. So some really exciting work happening in that part of the business. And it's really seeking how do we actually drive that transformation across the full business. So now we have this footprint. So we've been doing work as well to enable our regional model. So as we think about -- as we've taken on the acquisitions, we've had to provide a lot of capabilities and shared services. So we're taking all of the back-end office pieces under a project called [ Palaquin ] and that's really trying to optimize. So we've got a strong foundation to support those businesses through finance transformation, HR transformation and IT, and as we grow, that enables us to be far more agile and nimble to be able to continue to serve and take on those businesses from a growth perspective. So lots of work happening in that regard as well. And an enormous amount of work just getting the voice of the customer into this from a customer experience perspective. You see a lot of the businesses have a dashboard of digital programs and automation programs. We will be looking at increasing or upgrading the customer portals and involving our customers with their insights so that we can help improve that experience and visibility of information and data. And all of this really translates into our growth road map. So here, we're just sort of showing the composition of the businesses by their streams and effectively what we're currently executing on. And I kind of use the framework of mobilized, perform and growth. So we've really mobilized a lot of the new businesses. A lot of new capability that you'll see that's being curated and built into each of the business units and then obviously, building the North American leadership team across that. So that's sort of the mobilized piece. Now it's really execution and excellence in execution and really making sure that our newly acquired businesses are performing and delivering. And then obviously, the growth engine and some of the initiatives that those businesses as well as executing on are actually continuing to focus on. So you'll hear Hector talk about the work that he has underway to grow out that recycling capacity and the sophistication around the actual processing and the reclamation of obsolete scrap and how then that fits into the supply into North Star and the hope to grow that. So that's in that first box. But we're also considering further value chain integration opportunities. So we're really in the early stages of reviewing potential cold rolling and metallic coating capacity in around North Star as well. So that's sort of what we're focused on going forward. So plenty of opportunity, largest geography and market and a lot of really wonderful work happening in each of the businesses. So in summary, there is a lot of work in play. I think we're really focused on digital and automation. We feel that making investments in that is really critical to being -- helping with operational efficiency and reliability and the customer and importantly, the employee experience. We've also been doing a lot of work on maintaining our core focus on health, safety and environment. So you'll see with the acquisitions they've been investing a lot to help drive safety improvements and drive the BlueScope safety culture so that we can bring them into the BlueScope foundations and our values. We're really harnessing the strength of the organization culture. We have fantastic diversity in the businesses. You'll see a lot of women within the operations context, and we will continue to keep growing our diversity, equity and inclusion focus. On a sustainability front, I have Gretta Stephens and her team coming here in July, August to work with the team. We think we have a very good story to tell. I mean North Star has a very good low carbon footprint. We have the recycling business. In Sue's business, we're looking at energy, embodied energy within buildings. So it's about how do we fill out and how do we build out our sustainability story and our sustainability strategy that underpins our overarching strategic themes. And as I said, we're also focusing on the customer and really partnering with the communities in which we operate. So here at North Star, they just do -- looking at [indiscernible] back there, but an enormous amount of really sort of heartfelt activities within the community. And that's really important to us wherever we operate across our business. So at a high level, that was really just to set context so that you can start to get into the business presentations. I think you're going to really enjoy learning provided an overview with each business unit, but then what sort of their key focus areas are. And so with that said, I'm delighted to hand to Conrad. Conrad Winkler joined us in the last 12 months, and I'll hand to you to do your own personal introduction, but yes, we'll hand over and get stuck into the North Star presentation. Thank you.

Thanks, Kristie.

Got that. Yes, that should...

All right. Yes. I'm Conrad Winkler. Really happy to be here. I'm thrilled to be a part of North Star BlueScope. North Star has a reputation as being the best steelmaker in the industry. That's what I've heard for many years in the steel industry. And when I had a chance to come here, I was thrilled and still am. But what I didn't realize, I did know that the culture here was something really special. And I knew that this was a business that kept utilized when others were not. And I knew that the customers love the place. But what I didn't fully really appreciate is just how great this formation of this North America leadership team with Kristie and with John Kuzdal and with Sue Stark and others you are going to meet along the way with Hector, just what a pleasure that group is to work with. And this is a really strong capable team that can do some great things. So really, I think that hopefully, the discussion of North Star will be great, but also I'm sure that the other pieces will really pull it all together for you as to what BlueScope is doing here. Okay, so I came here from EVRAZ North America. So I ran their steel business for a number of years. And that's given me a chance to really contrast the experience I'm having here with that and hopefully give you a sense of why we're different and better than other steel producers. A few things. First of all, let's see, when I came here, I -- first thing I did was spend time with the operations team start to learn the people here. But the next thing I did is I went out and talked to customers. And I can tell you what a contrast, thinking of contrast, I'm showing up with customers and asking them, hey, what are the issues that we need to fix? What can we do better? How can we serve you better? And customers' reaction is, well, first of all, it is consistent. 100% customers said this. You guys are doing great. We love the quality of your steel and we love your on-time delivery, and don't screw it up. I mean that was kind of -- that was the sort of message that we got. And what a contrast from, hey, let me tell you about this quality problem or this delivery miss, none of that. And so our efforts with our customers really become forward-looking. What can we -- what's the next thing we can do for you? Next, I just was going to talk briefly about the culture, when Jeff has his ops meeting every day, and the first thing we do is we talk about safety. And a typical day yesterday, I said it in the meeting I skipped today so that I could be here. But someone was walking along and their shirt got caught on an anchor bolt as they're walking by. It just got caught. [indiscernible] a little bit. And so what happened? Well, typical place you might say someone detaches their shirt and keeps walking along, right? That would be one option. Another would be detaches their shirt and then calls some supervisor and says, "Hey, there's something sticking out here." Which never makes it on anyone's priority list. So the problem never gets actually resolved. The third would be calling a maintenance person and saying, come fix it. Another might be, "Hey, I'm going to go ask my supervisor if I can have a little bit of time to go work on this." But none of that happens here. Person just went out, ground down the anchor bolt after making sure it didn't have any other use and life goes on. And same with there was a hydraulic leak in the hot strip mill, a minor hydraulic leak and same thing. Someone went out. Saw that there was a little bit of oil leaking, fixed the leak, checked first, did the proper lockouts to make that happen. What didn't happen. There was no discussion from that team member about, "Oh, I have to ask the team leader for permission for it. Oh, I need to spend an hour to go get my parts for it. Oh, I need to get -- just gets on the radio and grabs a couple of people who he or she knows well, gets the problem resolved." And that's how we operate. And that's why when you look at this operation and when you walk around and you see that we've got roughly just a little over 500 people intending to make 3 million tons of steel a year. Just why does that work so well? And what are some elements of that culture that are so special. Next, just the ramp-up. With that culture in mind and with the great work really that the team did, including Pat Fine and a bunch of really capable project managers from Australia plus the operations team here, all working together. And for those of you who are tracking the steel industry in the United States closely, I could ask how many have seen a project like this go through the middle of a pandemic with a ramp-up plan that is on schedule and instead of being at $700 million like originally planned, we're coming in at $735 million. And you can compare and contrast that with any project in the steel industry, and I've never seen anything like it. And that's the kind of capability this team has, and we're really excited to show off the expansion. Hopefully, it's just thrilling to you as it is to me every time we walk out there. So with that, we're also happy to be a significant financial contributor and getting back to all that discussion of the customer, people say, well, why is it that you're operating almost consistently at 100% utilization and the rest of the industry doesn't and it just comes back to our customers. It's that relationship we have with them and the way we work with them. And quite frankly, the way they work with us as well. Talking a little bit about our strategy, and Kristie showed this slide, and I'll just -- ours in particular. First of all, we're very focused on maximizing our capacity and then taking that next step after this to expand beyond. So right now, we're shooting for this 850,000 metric ton addition of volume, which is going extremely well. That's a major focus of ours. And then next, after that, our next area will be debottlenecking the place and taking it one step further, which we're just as excited about as we are. And already, a lot of our attention is starting to shift towards, okay, how do we take the next step? Next, it's really about raw material. So most of our biggest cost by far is scrap and pig iron. And our focus right now in those next couple of bullets is how do we get the most out of the scrap, pig iron or based metallics that are out there. And so what we've really done now is taking this to a different level with the acquisitions of Metal X and Mill Iron that -- with the business that Hector leads around recycling and working together between BRM and North Star to create competitive advantage and lower our cost. And that ability transcends what happens with all the different raw material inputs because our ability says, if one is costing more or one is less and on a yielded basis, our goal is to be able to build that cheapest mix. Next, it's really about preserving the performance-oriented culture. As -- for better or worse, our team members here really act like they own the place. And how hard do you have to work to get to the point where people care so deeply about the place that they act like they're owners. And so when they start seeing, I mean us adding headcount, for example, even in IT or something like that, our team members, they say things like, "Hey, I heard we added another IT person. Are we sure that's a good idea given the cost impact of that?" I mean that's the kind of culture and attitude. People act like they own the place and we really want to. Sometimes you wonder, hey, why is someone talking to me about IT who's working on caster operations because they really care about this business, and they want to make sure that it continues to be as low cost and as effective as it has been. We're working to transform our business through our work on our raw materials and digital. We want to deliver the growth that's planned and then deliver that next step of growth after that and deliver that connectivity with the coated products business that we're all hoping comes about. And then the other part of it is really continuing to -- continuing the culture and continuing to have everyone here feel like they own the place even though we've added 100 new -- more than 100 new faces here, we want them to have that same kind of culture. And I -- just to add to it, we're really working on evolving our safety program. With our culture, we've got the ability to do things that not every company can do that is, and this is BlueScope wide in terms of safety, is that the safety cultures, it's there throughout the business. And all the basics of safety, we don't -- our focus on safety isn't how do we enforce rules. Our focus on safety is how do we take it to the next level? How do we get our team members thinking about the things that are out there that are potentially the most dangerous in us fixing those long before there's ever an injury or a risk of injury. So much less reactive, much more forward thinking. So actually, many of you met last night, and she'll be here this afternoon and tonight so she would do this, and I'll do my best to cover for her. As Mark quoted her last night, she said that coming to North Star is like dying and going to steel heaven. And it's really -- it is really a terrific experience with our customer visits. Just to talk about that a little bit more. Within Jacobson, which is kind of the main survey in the steel industry, we're always -- we've been at the top of that for 10, 15 years plan on keeping it that way. I thought I'd give another example of -- or 2 of why the customers seem to value us so much and why we're so focused on our customers. So it's not just that our on-time delivery is better and then our quality is better. It actually translates into real economics for our customers. So what our customers tell me is things like we've measured it and the yield that we get in our manufacturing process is better with your steel than it is with your competitors. Your on-time delivery enables us to reduce our total inventory picture. Because we know that when we're ordering from you, we don't have to have 3 different backup -- we don't need to have tons of backup coils. We know we're going to get it from you on time, and that pulls their inventory down. So it's really valued by them. But also, as I mentioned, we also look forward. So if you think about the Kristie was talking about our customer-facing portal and some of the things we've got -- obviously, like everyone, we've got work to do to improve it. But at the same time, what our customers say is when I ask them, hey, how can we make it better. They say, "Look, Conrad, I take screenshots of your portal and I send it to your competitors and ask them why they can't do it." And the reason our portal is good is because we really listen and work with those customers. So we built a portal that's very simple, that gives the customers all the things they need. Then we took it one step further and we built an unattended kiosk out here, where truck drivers can come in, basically scan their QR code and go pick up a coil and leave. And so if you think about if we're doing, say, 10,000, 12,000 tonnes a day. What is that? That's 250 to 300 trucks a day coming in and out of here. And you may have noticed when you walked in the long lineup of trucks, you didn't because there's never a lineup of trucks because each truck can schedule their exact pickup time, and they come in and we're turning them around generally within 20 minutes, which is in the steel industry, outrageous, really. I mean it's really fast. So they come in, the coil gets loaded on their truck, they strap it down and they're out. So that gives you kind of an idea of why our customer is important and why they value it. Next, I thought, why don't I talk about the economics in our local customer base. This is a huge number -- a huge amount of our volume that's delivered right next door. I mean it's a quick trip. If you think about that from a truck or shipping standpoint. We have a set of relationships with -- we use a lot of different shippers, truck drivers, but there are about 5 different companies we use. They're able to make multiple trips a day with our coils because we get them in and out fast. And that customer base is basically within 300 miles. And that's a huge competitive advantage. Not only that, as Hector is going to tell you, most of our scraps nearby to. So the total economic picture is a good one. And what does all this mean? We've got some differentiated capabilities. We have some differentiated economics. We're really excited about what we can do going forward. And that's why we're going to stay highly utilized. Just trying to think of how to describe some of this, and I decided I think it's basically a good business. Look, it's got a positive trajectory and there's a lot of room for the low-cost producers within the business. So first of all, on the left, you can see industry consolidation, it helps. It helps a lot. The other piece of it, though, is that within the production mix, everyone's heard there's the shift from EAF to blast furnace. But if you look at that shift in that 54 million-ton production, there's still a lot of room there as a lower-cost producer or sometimes the low-cost producer, we like to think there's a lot of room still for growth of those who have the better assets, the assets that renew year after year that are extremely well run, where we can deliver to customers that are nearby who we respect and who respect us. So again, it's a good business with a positive trajectory and a lot of room for growth. Yes, the other thing that I would point out before is just -- and some here have heard me say this, so I apologize for the repetition, but steel tourism does not work, I mean, basically. And that's where this whole concept, we think of competition, we think of it in a very regional way. And so with that in mind, our team did a nice job putting together what that supply-demand balance and outlook looks like. And it's -- as I said, it's not just the fact that there's a cost associated with different -- with being close, but it's also just the way that our customers can operate in terms of their overhead structure, their inventory. And for many of our customers, actually a significant percentage of our steel, they pick up themselves. So they've got their own local trucking and they want to make those runs themselves. And that's an advantage that if they decide that they want to buy steel from the Southeastern United States, how does that actually work? Well, they're -- now we're in a totally different cost structure for those customers. So we think of it as a local region when we think of our competition. So not that it doesn't matter that there's new electric arc furnaces going in and new competitors, of course, we're impacted by that, and we're paying close attention to it. But at the same time, our business is local. I wanted to kick it over. Jeff, actually, you're up next. And Jeff can tell us a little bit about this expansion progress. I know based on dinner last night, there was a lot of questions about how it's going. And Jeff's going to answer some of those and probably not all of those questions, though. Over to you, Jeff.

All right. Again, I met some of you last night. I'm Jeff Joldrichsen, Vice President of Operations. I've been with North Star for over 27 years. So I got a lot of experience with this mill and this industry. So I got blessed or whatever you want to call it, I got to commission the original and I get to do it again. So I guess I'm a little glutton for punishment. Ramp-up wise, best way I can -- probably a good analogy is, it's going as we expected. You think about what we had to do, we built this plant, while we were operating the brownfield at full utilization. We had COVID. We have a 100 new employees who never saw a steel mill before. And we haven't missed a beat. So how is that? That's a credit to my team. We have a very good core group of people that do very great things everyday and you'll get to see them here in a little bit. And by doing that, we are able to build this ramp-up. And one, at the same point -- and Conrad mentioned, this is about making sure our customers are happy. It's not just making steel and going, we're making a bunch of garbage, we can't -- customers don't like it. It's making sure that customer liked our new product coming off a new line and verifying all that and that all has worked as we expected. So real credit to the team, building to design, the commissioning and now we're ramping up. So we did add a third EAF, 2 more ladle furnaces, a second caster, a new tunnel furnace and a shuttle furnace. And you'll see all that today. We started really on the ramp up in August and we're seeing some very positive benefits. And we're having our teething pains that we're working through as well. And -- but we're having a lot more positives than I'd say the other way, which is really good. And you see the numbers there. We are just -- everyday, we're finding something new, we're finding a new challenge and we're addressing it and fixing it and making it better. And we're seeing some big numbers come out of this facility. So for me, I just see a real positive for the future. So debottlenecking project, I have to give myself a little bit of credit here. This slide was done in 2018, before we put any shovel in the ground and I haven't changed, I think, a couple of things and that's it. As I said, I must know a little bit about doing this process. So what do we have to do? We are working on that now. You will see some things today that are part of the deep bottlenecking project that we're already addressing. We see -- every day, we're going, okay, we could have did this better or faster. What have we got to add? And we're already in that process. So when you look at some of those issues, again, ladle isle flows, it's about getting ladles churned quicker. The LMF treatments faster, how we keep our slab temperatures better for our hot mill, how we transfer the bar. There are some hot mill upgrades we're looking at and as well as the down coiler. So all the stuff that we thought were an issue. And I don't want to say issue isn't bad but an opportunity for us to make better, is still going on and we're doing that today. And we'll continue to do that here in the next several years because we see the upside, which will obviously make North Star a huge producer of steel in the Midwest. I just look forward to taking out, I can do a lot better when I take out and show you all this and tell you -- that's [indiscernible] boxes.

We're fortunate to have Jeff here. And we're also -- as Jeff mentioned, it's -- in addition to the culture, the capabilities here are pretty different, too. If I could just mention within that ops, maintenance, engineering team, I would say just even though our total head count is extremely low here, we have capabilities within that headcount that I haven't seen in another steel mill. I would estimate compared to other steel mills that we probably have 3 or 4 times the number of high-quality controls engineers, for example, than a typical steel plant. And it means that the things that Jeff is talking about, the improvements that we run into every day, whereas for some folks who don't have that kind of capability for every issue they have, they're calling up the suppliers to come help them. And for us, as we run into those issues, they're addressing them real time. I mean -- there are so many examples of it. You'll see these -- the shuttle furnace going back and forth. And one idea that the team had was, well, what if when we're only running single cast, we've got all this extra shuttle furnace space, maybe we could back some slabs up into the shuttle furnace and hold them there if we have a problem for a few minutes to change out a roll in the hot strip mill. And so -- now that's a really cool idea and went out there and it was done. I mean they were actively moving and like, how did you get that done so fast? These control engineers are -- they're that capable. The maintenance team -- why is it that the quality is good. It's not because of good attitude alone, it's because we really keep the equipment running extremely well all the time. I mean, that's the focus of the team. So thanks, Jeff and thanks to the whole team here. Applying some of those same principles to raw material. So first of all, on scrap, our focus right now is -- Hector is going to get into this, the acquisition of MetalX, these are really differentiated scrap businesses that we've got with the special capabilities already to basically be able to replace a lot of our prime scrap with obsolete scrap. And so that's a huge portion of our focus but it's not just that. It's optimizing day-to-day, month-to-month based on what's happening in the market in terms of price. If prime scrap goes way up in price, we can react to that by increasing obsolete and other ore-based metallics to make up for that mix. And we do that, we'll talk a little bit with an AI-based approach that enables that. From a pig iron standpoint, we've really -- we've diversified our supply base with some of the changes that have gone on there so that we're -- we have a secure supply but also we've reduced our requirement for pig iron and that gives us a lot of flexibility. And then in terms of DRI and HBI, we currently get DRI and HBI into the system and we're looking at how to increase that volume that we're getting. And what are the options for us to get DRI and HBI, more of it into our system to give us more flexibility to save more money. So just as a case study, we've launched this project, we call it Value in use. And essentially, what we've got now with the fact that we can work so closely between BRM, the recycling business and the steel business, we've basically got 3 models operating at once. One is actually, the AI-based piece is within the steel mill, actually choosing what goes into the bucket based on optimizing cost and optimizing the residuals. And then the second piece of it is, how the recycling business and the steel business work together to coordinate the buying. And the third piece is really focused on the recycling business. All 3 of these being able to pull off the same data set in order to really optimize what that buy is so that we can get every bit of cost out that is possible while still maintaining outstanding quality. When we did that, we used our -- some subject matter experts, also we've got a great digital team from Australia that came in and helped us develop some of those models. And then now we're actually hiring some of those capabilities here in the U.S. to directly support us as well as the list of projects that we've got a backlog on has grown and grown. So just in terms of how to think about as one models the business, how to think a little bit about our formula for spread, we just thought we'd update you with how we're thinking of spread now and how it's changed. So you'll see on the hot-rolled coil pricing, that we're now saying that -- we're assigning 75% of it on a 1-month lag to CRU with a 1-month lag. And then 25% of it is other types of contracts tied to something else, whether it's fixed price or longer lags or things like that. And then on the raw materials side, the change that you'd see here is that we've shifted to a leaner pig mix. So we're using less pig iron now and so we wanted to reflect that in our spread modeling. And then I was going to kick it over to Kristin Malosh to talk a little bit about what we're doing from a community, safety, HR. She leads our HR. She leads our safety, she leads environment. And she's been with us -- she also comes from another steel company but about 5 years ago. And brings a lot of power to a lot of the things we're working on. I was just going to touch on one before I handed it off to her. If you look at our greenhouse gas footprint and Kristin, in addition to being safety and HR is an environmental engineer by education as well. We are already -- obviously, as an electric arc furnace, we have a very low greenhouse gas footprint. I think we're something like around [ 0.5 ], little bit below that, which is similar to other electric arc furnaces. But we're also supplied within our area here largely with nuclear power and we have the credits associated with that nuclear power. So if you think of our greenhouse gas footprint, you can kind of divide by 2. And that's the kind of range compared to other EAFs, that's where we sit. So right now, one of the things that we're working hard on is, we've got some customers who would like a carbon-neutral steel product and we can provide that to them. And we can do so in a cost advantaged way, which we're very excited about. Now over to Kristin.

Thanks. Good morning, everyone. I'm Kristin. As Conrad mentioned, we just wanted to highlight a few of our health, safety, environment initiatives. And I think if we just go back to -- kind of looking at our purpose and our bond and talking about even the example that Conrad mentioned, our people are our strength. I think the way that we approach the health and safety, really core of our jobs and of our day-to-day focus here, it's really on that personal ownership around safety. And I think the example Conrad gave is quite -- it's one of many, right, that we hear every day. And I like to use the term, if you see something, say something but then you do something about it. And at my previous job, we kind of used that as -- like a slogan. It got printed on a T-shirt even. But here, when I came here, like it doesn't have to get printed on a T-shirt here. It is just ingrained in the way and in the culture and our newer team members quickly kind of feel that, right. That's not that you just tell someone else about the safety concern. You actually own it, right? And I think the 2 examples here where we're talking about these critical risk projects, the picture of the caster turret. So we have this job that the team has to get down inside that caster turret either on a down day or an outage. And they literally had to climb down multiple ladders, carry tools. And we have, right, we introduced these critical risk projects and this was one where we had an amazing group of engineers that looked at that and said, there has to be a better way, right? And they literally took -- so the original design, right? That was a solid shell at the bottom. There was no access door in and out. And they redesigned the current turret on caster 1 and not only that but we were able to build that into how we did caster 2. And so that egress door, in and out, I mean, it's so much better. There's a way to be able to move tools in and out, obviously, just the ergonomics and the way that -- we've just made the job easier. And some of those things like you look at it and you think it seems that simple. But I mean, we -- it's the way the equipment was designed but we're asking our team and they're coming up with those solutions. And that's kind of the -- when we talk about that empowered and engaged team, that's really like a prime example of how that links to our health and safety projects. The other one there you'll see on the turret as well, there's a handrail on top of the heated transfer table. Again, any time we're working at heights, we have 100% tie-off requirement. And so the way that if our team members had to go up and do the job, they would have to use a lanyard and tie off and it was very cumbersome. And we had another group of engineers look at that and just say, there has to be a better way. And really, it's made -- it's improved efficiency, right? It makes that job easier. So it's just a couple of examples that we wanted to share, showing some of the great teamwork and how that's tied to the health and safety improvements. And then I just wanted to touch on one piece under the sustainability. So Conrad already mentioned the carbon-neutral product offering. But the other piece I just wanted to highlight is our water stewardship. So we are honored to be in a very great region of the country here where we have the 5 great lakes. And so it is a very freshwater abundant area but that doesn't mean that we want to be wasteful, right? And this is a very water-intensive process. But we're proud to say, through Project Aristotle, we utilize some technology, it's called ultrafiltration and reverse osmosis and we actually are discharging and using less water now than we were before the project. So the amount of gallons per tonne or per coil tonne has actually decreased. And we have a goal that we actually want to get to a zero liquid discharge, which means we would be right, continually recycling and repurposing the water. And with this technology and again, the teams that are behind that, we think we'll be able to do that.

Thanks. Awesome, Kristin. And yes, we're down to kind of a trickle of water that's discharged and what Kristin didn't mention about that is that, that -- we buy our water and that project paid for itself in, I don't know, Jeff, how many months? 17 months to pay for itself for us to get to near zero discharge of water. So pretty good. And most of our projects around these are not only great for us to do based on our purpose and our bond but they also have a good payback in general. Okay. So Mark, I was going to -- in terms of -- I think next, we were going over to Q&A, I think.

This is Chen from Bank of America. Just a question -- well, 2 questions, please. Just a question on your incremental volume from North Star. In the presentation you mentioned, we'll go to your current customers, which are service centers. Could you please elaborate the opportunity for that incremental volume and the coated business and any plan rather than deliver to your service center and you can have that coated and more value added to improve the margin?

Yes. So let me start with the ability to expand within our current customer base to the 850,000 metric tonne expansion that we're undergoing right now. What we expected when we started and what we're finding is that, that's largely through our current customer base and through our current region. Now we've done some things to expand some of our customer-facing activities in order to get to some customers, largely again in the region that we hadn't been covering. But if you look at the total opportunity, even though we have great relationships with our customers, there's still a very significant share of wallet that we're not covering within our customers, within the region for those service centers. So what we're finding so far and what we expected and what we're seeing is that we're staying largely with our same customer base and largely within our same region to absorb that additional part of the capacity. And then in terms of the actual question of how much coated product volume do we expect, maybe I could turn that over to Mark.

Yes, Chen, the way we're thinking about potentially cold rolling and metal coating is this would be an add to that existing capability that we have within our current customer base. So the model we're now thinking about is, does installing a cold rolling facility and a metal coating line that then feeds the paint lines, one of which you'll see tomorrow, it's about 100 miles from here or so. You'll see that tomorrow, is that -- does that create value for us as well. So we're actually now thinking about it in terms of that additional add in, do we take some of the additional steelmaking capacity from North Star, run it through our own cold roll mill that would be nearby this facility, put it through a metal coating line and then supply it to our paint lines and potentially to other customers as well. So that's the piece of work that's going on around that expansion project right now.

Just a follow-up on that. At the moment for your coating, you are coating other steelmakers' steel, right and then sell to the third party rather than coating your own...

So that's the [ total pricing ]. Yes, effectively, the customer delivers their coil. They specify the paint and the paint color, we paint it and then it sort of then gets shipped out to their delivery point.

It's fascinating. Tomorrow, you'll go into the warehouse. We don't have a coil of our own material. I would say, there's not a coil of our own material in the warehouse. It's all customer-owned material. And this is the single bill model that Kristie is talking about. The market here has developed largely around toll processing model which is very different to what we offer in Australia and other parts of our portfolio where you buy a sheet of COLORBOND as a finished product. And we control the paint technology. We can -- we own the paint technology, we work with the paint suppliers as a provider of paint in the market here in North America, someone goes and buy some steel from someone. You'll see all of them tomorrow, they go to a paint supplier and buy the paint and they come to coil coaters and we put it together for them. This is where we think there's a market opportunity for us to bring a packaged offer and ultimately, a branded packaged offer to the market.

Maybe a second question for the raw material. You mentioned 40%. Why it's 40%? Can you go 70% or 80%.

Yes, we can. I think the answer to that, Chen, is we've said 40%. I know Hector got this question from a few of you last night. That's not a -- excuse the pun, cast iron commitment by any stretch of the imagination. We think that's a number that we're going to achieve, given the assets that we currently have. One thing we don't want to do is change the cost structure that's so important for this business. So in a drive to a 100% capacity coverage, we would need to source scrap from further afield, and that would change the cost position on that. We still buy scrap from OmniSource that's owned by Steel Dynamics, buy scrap from D J Joseph that's owned by Nucor, buy scrap from Ferrous Processing that's owned by Cliffs. So part of this is the benefits that you just saw articulated around Value in use, taking advantage of our ownership of scrap but maintaining that cost position and not forcing ourselves into a position where we're paying too much for our scrap.

[ Kelly ] from JPMorgan. What are the biggest risks to the expansion and debottlenecking at North Star?

See. So in the -- let me talk a little bit about the current expansion. And first of all, in terms of equipment performance side of it and Jeff can correct me if I'm wrong but we really don't see a huge amount of risk left on the equipment performance. We've been able to perform essentially apace and can do so. I think that the -- when you think about this type of expansion, though, it's -- there's a lot of day-to-day things that we're working on all the time and just continuing to upgrade as we run into issues and push the volume higher every day. I don't -- we don't see technical limitations in our equipment or in our operating capability that would prevent us. I think that for us, it's really more for this current expansion, it's just us learning, continuing to learn and train and make minor adjustments. So very, very strong there. Obviously, new equipment, new different types of equipment, you'll see going dual cast versus single cast, there's scheduling and other things that we just have to learn how to do that kind of thing. And those were our biggest risks and quite frankly, I think that the big risks are well behind us right now on the current expansion. On the next level expansion in terms of going from there, we've got more -- I think we've just got more work to do on that before we say we know what that is. But at the same time, Jeff, myself, engineers, we're pretty deep into it. But I think if we know a little bit more and have a little more operating experience, we'll probably be more intelligent about what we think the risks are there.

I'm Megan from Barrenjoey. And just on the raw materials strategy. I'm just keen to understand, I guess, how you're seeing the benefit at the moment from the metal recycling businesses. And I guess just whether or not you're seeing that as a positive difference today versus just buying prime scrap under the previous strategy. And whether or not, I guess, is that something that's sort of already in the numbers and we've seen the benefit? Or will that continue to ramp up over time?

Yes. So first of all, describing what that looks like for us in real terms. So right now, for example, we're able to -- one of the big issues is the residuals within the scrap. So obsolete scrap, you're going to see the shredding of automobiles and the removal of the copper and aluminum and our ability to turn that into a positive nonferrous cash flow stream is really outstanding. And at the same time, not only does that create a revenue stream for us but it also means that the residual levels are more similar to prime scrap. And yet the price differential typically in the industry ranges somewhere between typically $50 to $200 a tonne kind of differential between prime and obsolete scrap. So we can take advantage of that differential. I think right now, the difference is about $40 or $50 a tonne difference on a yielded basis that we can take advantage of by using more obsolete scrap that has those residuals removed than prime. Now we don't have a limitless capacity of that and that's getting back to the 40%. I mean that's part of the -- what Hector is going to take you through in the next couple of days because we might actually take other people's scrap that they've already shredded and get some of that benefit ourselves. And then in terms of how much has been built into future forecasts and the like, I'll kick that over to Mark k Scicluna.

Well, I think -- well, I think in the way to think about it, so where -- the actual investments we made in those 3 sites, we expect to earn a return on capital on those investments just through the profits they generate in their own right, right? So we're still targeting -- so it's an internal sale but that they're still managed as a, I guess, along a stand-alone profitable entity. So that will be generated and that will kind of oscillate through the cycle, through the scrap cycle. Now the last 6 months in the scrap game has been a little tough given the downward price cycle, that's been a little softer. So I don't think the full benefit of that stand-alone return on capital, you're necessarily seeing in the numbers just yet. And then in addition to that, it's really what Conrad was speaking to about, really the synergies between the 2 businesses and optimizing the mix, which is really the second leg. And that will take some time to deliver. So I guess it's a long way of saying the full benefit from those acquisitions is not really in the numbers just yet.

Paul McTaggart from Citi. Building Products group. I mean, this is a [ SMIC ] manufacturing business, been around the steel industry a long time. But I really struggle to see how the Building Products group kind of fits into this model. Properties, yes, property, sorry, Building Properties. And what you're ultimately trying to achieve out of that? I mean, is it about trying to create a market and establish a market? I mean, it's an odd one for me.

Yes. Well, let me maybe give a little bit of background. I mean this started 4 or 5 years ago now, where through our builder network, we have opportunities that were being brought to us that our builders, quite frankly, didn't have the balance sheet or the capability to deal with. So it's all warehouse construction pool. It's very tightly managed from a risk perspective. We categorize it, and Matt will talk about this in the next couple of days. There's build-to-demand or build-to-suit, so a couple of categories that we think about. But really what it is, it's an adjacency that's come with the builder network that we have. And what we were trying to achieve is a consistent level of earnings in that space. And the $300 million that we've so far allocated to it, about half of that has been expended. We're expecting -- we use 15% as our measure. Quite frankly, in that business unit, it should be more than a 15% return on funds. So at the moment, rather than having the odd project, which you guys give 0 value to because it's in 1/2 and not the next, we actually want to build a pipeline of work where we get a 15% or 20% return on that invested capital through the adjacency that we get of the builder network. So it's a straight adjacency to that the [ BP&A ] business that we have. So that's the objective. I don't think -- we've never tried to tie it to North Star. So they're totally different. And part of the work that Kristie's got on her plate now is what have been 3 unique stand-alone businesses, we're now rolling up as part of a North American group and trying to understand what the synergies are across the business. But we don't have to have a model in North America that's like Australia or New Zealand, where we're fully vertically integrated. One of the fabulous things about this market is the optionality that we have to get raw material from other producers, have joint ventures, supplier relationships, alliances, et cetera. It doesn't have to be that fully vertically integrated model that you see in Australia or we have in China where the steel is coming out of the coating plant going into Butler, through [indiscernible] and completely aligned. I don't think we're constrained by that here in North America. I think that's one of the exciting opportunities of this market.

Paul Young from Goldman Sachs. A question on the steel market. Fairly interesting, one of the slides you put up, which showed that you think that the flat product market or HRC market will be roughly in [indiscernible] balance by 2025. I think it was based on a sort of modest 1% demand growth. Just curious about, based on that analysis, really, the steel price should sort of track down to marginal cost. Where do you think that the industry's marginal cost would be around 2025? And obviously, assume -- is based on what you think the scrap price will be, based on energy prices, but just curious about your view of that.

I mean I'll take a -- I think that what we're getting at, at the heart of it is the -- really the spreads and whether the cost structure within those spreads have changed in the industry or whether we see a significant change in that marginal cost. I mean I think -- so first of all, we -- that slide we put up was a regional look. It was very local in nature. So it wasn't the total United States or North America picture. It was really focused. And we showed that supply and demand was on balance based on that 1% growth rate and some of the new capacity coming on and also the expectation that some of the capacity comes offline. And of course, some of that new capacity is ours. And then within the way we think about the spreads, kind of going to that other slide in terms of the consolidations, there's essentially I think our expectations of spread, I think, over the last decade or so, spreads have averaged something around $300 per tonne. And for us, if you think about the cost structure of our competitors versus ours, that's a very healthy spread for us. Obviously, we take advantage of the times in which the spreads are significantly more than that. But we see spreads averaging that or more over time, given the overall consolidation of the industry and the supply and demand balance.

That's helpful. And then second question on your 25% of your sales are fixed price. How do we think about those fixed prices for a perspective of do they reset each year? Are they linked to CPI? When will they sit or when do they roll off? Any color around that?

We didn't say 25% were fixed price. What we said there's 25% of the book that is other than a 1-month lag and some of that might be fixed price. But some of it might be quarterly pricing or 6-monthly pricing. So as you would expect in a business like this, you just don't have it all on spot. And even within our 75% spot, it's not -- and I forget the term, Conrad, but it's not like we're just swinging in the breeze for spot month in and month out. There's relationships with customers that we sell to every month that take material from us at a spot price. But in a business like this, you can't have 100% of one model. So all we're really doing is updating there and we know and I'm not the person to be qualified for this conversation or qualify for this conversation. But we have with some of you quite detailed conversations about lags and spreads. And what we're really doing in that slide is just updating some of the more current information given the expansion tonnes and the mix change, particularly with the lower usage of pig to allow you guys to put that into your models. But we're not saying that 25% of the book is fixed price. 25% of the sales are in that other segment and some of that may well be fixed.

Yes. Okay. Now that's helpful. I understand. And the last question for me, just on the expansion or debottlenecking project to [ 3. 4 ], Mark. Still confused about when, I guess, target FID, is there an FID? Did you just -- starting to sort of implement and [indiscernible] and spend that $100 million over time and get to [ 3.4 ]?

Yes. It's not a one project FID. As Jeff explained on his very forward-thinking slide from 2018. We'll need a new down coiler. And when we schedule that in, that would be around a shut because we're going to cut into the existing mill that you'll see when you walk out there today, you got to get the equipment. I mean some of it's ancillary services, we need more capacity in the grinding shop. We grind our own rolls. At the sort of volumes that he's now producing, we can't grind enough rolls. So we need another crane and more grinding capability. So this will be incremental spend over the next, I think, Jeff, you said 2 or 3 years. I would imagine that's -- that will be the profile of the expansion tonnes. It won't be a one-off $730 million, one project solves the problems.

Peter Steyn from Macquarie. Just a quick question on Slide 22, sort of your dispatch volumes in North America and the breakdown of that. Curious around the value perspective there, I would assume that it sort of bends in the direction of nonresidential exposure when you think about it from a value point of view. But in the context of some of the branding conversation and evaluating that downstream opportunity, in the medium to longer term, what will your value then look like? Presumably, one would see more nonresidential, more potentially residential in that mix as a value exposure.

I think that's really where the coated and painted business plays. So as John developed his strategy and we start to come up with branded premium offerings we'll have much more opportunity to go into that nonresidential space. I think with the shift into metal buildings, like 1% converts to about 1,000 tonnes per annum. So there'll be some good branding opportunities to be able to grow out that actual segment through his business.

Yes, you'll see this tomorrow. There's a growing opportunity here played around residential. It's still very small but that's a market that we think there'll be opportunities for us to grow in and that's the sort of growth that Kristie's talking about. That will take some time. We're not expecting that to happen tomorrow. But there's an emerging -- there's growth and an emerging market from a residential perspective. But clearly, in the nonres or the industrial and commercial, that's our current focus and that's where that branded and packaged offer will be targeted initially.

Yes. Yes. [indiscernible] are pretty average [indiscernible]. But I really -- I'm curious how you think about that value split at the moment, so value as opposed to volume. And then where does that go? So if we're -- I'm putting numbers in your mouth but if we're at 60% nonresidential value exposure at the moment, does that go to 3 quarters?

Yes. I mean it's difficult for us to focus. Maybe the other way to think about it is part of the coil coatings acquisition is, it's currently utilized to about 500,000 tonnes in the toll processing model. Our initial thinking at this stage is, there's probably 900,000 or more tonnes of capacity in those 7 lines. So there's another 400,000 tonnes of value-added product we're going to add to that mix. So I can't do the math quickly in my head in terms of what that does to percentage but that's a target segment that we're clearly going after, which we see as the fundamental part of that acquisition. That justification for that asset was that we think we can double the capacity effectively of those assets and move -- maintain our toll processing business but move into that packaged and branded offer with the surplus capacity that we have. So that's probably the other -- that's the way I think about it rather than trying to work out what it means in terms of percentage on the pie chart.

[ Emily Chang ] from Goldman Sachs. I was curious about how you think conversion costs have changed since prepandemic. So everything but scrap, labor, electricity, alloying materials, maintenance and all that.

So yes, I mean, without putting direct numbers on it, clearly, alloys, additives, fluxes, all of that has gone up in price. And so that has -- that clearly has a cost impact. And then labor flows through on some of the external services as well. And then -- but for us, just -- so it's clearly going to have an impact on what those spreads mean. On the other hand, for us, if you think about our expansion, so if we add 850,000 metric tonnes but are able to do so with, say, 100 additional people and then from an energy usage as well and other things, we're going to gain more total efficiencies from that, so our expectation is that in terms of conversion costs, our marginal conversion cost on those net incremental tonnes is quite a bit less, although the alloys, additives and fluxes, that piece of it, obviously, is fully variabilized.

I think part of the pricing dynamic, Emily, that we're seeing in the market is around cost. This is not just a North Star issue. The industry is experiencing this. And I think part of that aggressive reaction to prices when they fell was not only -- we don't like the price at that level but we've got more costs we've got to recover. And I don't think there's any doubt that's part of the pricing dynamic as well.

Well, we'll get started with BlueScope Recycling and Materials. Before I do that, I'll just give you a brief kind of history about myself. I -- there's a debate of when I joined BlueScope. I think that the most accurate day will be '08 when they acquired Steelscape and I was in Kalama on the paint line there with IMSA. We'll turned in for a short stint and -- so I've been very close to 14, 15 years with BlueScope, pretty -- across paint line, then North Star and now since December of '21, joined BlueScope Recycling and got started with a fairly interesting journey there. As you've seen in the back, we have 3 locations. We produce about 600,000 tonnes today of scrap among the 3 locations. We certainly have a pretty good business model, I would say. It's a brand-new company. So we're trying to integrate and leverage what we got with the acquisition. We got a lot of experienced people and we have the capability to produce good quality, low residual obsolete scrap on all 3 locations. And I think that when we look at our business, that's the key thing that why we are part of BlueScope and where we deliver value. The other piece is, we are just like [indiscernible] North Star, which has allowed us to unlock the potential of a bunch of synergies, not only on the logistics piece and the handling of the -- of all the raw materials but also how we work together to optimize our mix. And that's kind of the big highlights of our operation. We certainly are the initial pillar of our raw material strategy for North America. We source, either via third party, of our own, all the raw materials for North Star, scrap, the iron, HBI, BlueScope Recycling takes care of that. We certainly are focused on enhancing the value of those raw materials. We have our ways to not only improve our own but other third-party scrap and that's what we are leveraging or trying to do with our strategy here and with BlueScope Recycling. I'm going to talk a little bit about the scrap that we handle at BRM and how we do it. We are about, I would say, 20%, 30% clips -- 20% clips and [indiscernible] on chips and bundles. The balance of it is obsolete. Obsolete is the most abundant scrap type in the U.S. When we see the scrap pool in North America, obsolete is where we see the most. We export a big chunk of it to other countries. And I think for us, that's where the focus of BlueScope Recycling is, securing obsolete scrap, beneficiating it, cleaning it and getting it to the right quality, to supply it to the mill. So it's leveraging that and what we're trying to do with -- at BlueScope Recycling. When we look at the U.S. scrap industry and how it's made up and not sure how much familiar you are with it but we do have industrial scrap, which is the prime on the top and that's kind of all the prime -- where the prime comes in. Basically stamping plants, any industrial manufacturing will have a byproduct, which is prime scrap. It's mostly highly competed for. It's mostly sold on contracts, 1-year, 2-year deals, formula-based pricing, heavily, I would say, controlled and monopolized by and fought for by all the scrap companies. And then you have the obsolete. The obsolete is more scrap type that is highly related to population centers. The more people that live in an area, the more obsolete that gets generated, cars, demolition, roads, you get a lot more of it. So for us, as we look into sourcing raw materials for North Star, obsolete is a big source of scrap that is very hard to control. You don't see any long-term agreements, you don't see anyone being able to really monopolize obsolete scrap, whether it's peddlers, whether it's people just dumping it, whether it's demo jobs that occur by multiple companies, is highly fragmented and it's also, I would say, highly competitive but not locked in. So every month, you go and you buy it, which allows us to really be competitive and target a pretty broad amount of sources within our region. On the Rust Belt, we have big population centers, whether it's Detroit and metro areas or Chicago or Cleveland, Columbus, Cincinnati. We have a lot of sources around that allows us to draw all that obsolete. And that's why when we looked at our sourcing of raw materials, we thought about, okay, we don't want to control it all. But obsolete provides us with a huge pool of scrap that we can buy competitively and that with what we're doing at BlueScope Recycling, we can improve the quality of it and leverage our proximity to the mill to maximize the value we can extract for it. And that's basically what we try and do. When you look at all the right side and all the other demolition, small collectors, all that, I would say, is the obsolete route, which it's a lot of intermediaries or so and they all play at different levels. We, as BlueScope Recycling, we're a scrap processor, meaning we can not only collect but we can actually have shredding capabilities to produce low residual scrap versus other yards that can just collect it and then will sell to us. As Mark highlighted, we keep buying from all of our competitors, I would say, on the steel side. So whether it's DJJ or OmniSource, we continue to buy from them in different mechanisms, in different ways. But I think that's part of not only our own benchmark and how competitive and how well we buy but also it's a way to stay in the market and not necessarily put all the eggs in one basket and leverage our business in one direction. We have the flexibility to shift around. And that's why we would say we have a pretty flexible strategy. As you saw and there'll be another graph when I talk about BRM and how we are set up as a business and how we -- our growth plans. Well, we have a big opportunity. We have our largest customer across the street. It needs a lot of scrap. Just to reach in the future, the 40% target, it's a -- we're a long way from it. We have a lot of things that we are doing towards that goal. And today, in the short term, what we've been doing is trying to just leverage what we have, our installed capacity. We did an acquisition and I'll talk briefly about it and you'll get to see a little bit about it as well. But for us, it's, okay, improving the quality of the obsolete. You've probably seen, as you've seen in publications, the U.S. exports 20-some million tonnes of obsolete scrap. I've already highlighted that we have a lot of obsolete scrap in our region. So how do we improve the quality of it, how we measure the quantity of the residuals on it. Those are the things that we are trying to do. And then Conrad highlighted all that non-ferrous that we extract has value. So the more we can capture all that and sell it, we actually recover that value for our business. And so what we're doing for processing capacity, we're installing pre-shredders. A pre-shedder is -- the world describe it is like a large paper shredder. It's a box. You'll see it in the video that we put together. It's a large square-shaped machine, you put a car on the top, and it comes in pieces in the bottom or you put -- whatever you put in there, it shreds it. That increases the throughput of our assets, so we can actually increase the output of our shredder. It reduces wear on the shredder because instead of destroying the car or the shredder, this machine will break it down already in pieces. So you can load it better in the band and it destroys or increases the life of our own shredder parts that are wearable. The shredder is a self-destroying machine. You're putting something there and it's destroying the car but it's destroying itself in the process. So we require to maintain them daily. And pre-shredder will allow us to not only reduce the wear but also increase the throughput and also enhances liberation, which for us is important. Liberation means we separate copper, more copper and more non-metallics out of the metallic piece. So lot of things around that. That project is ongoing. We have them -- we'll have them fairly soon, I would say, probably in the second half of next fiscal year. And then we're also looking at further opportunities for processing and we put a setup to process and clean up scrap, and we have it on the 3 locations. So it's just leveraging that. Another thing that we are looking into is the non-ferrous piece. And the nonferrous piece right now on our Mansfield acquisition, we bought that business with an extensive ability to process non-ferrous. And it's not only -- not only we'll learn from it in terms of the amount of return that we have by selling all the -ferrous but also we've learned about the practices and how it's done and then and now for us it's okay, leveraging what we learned Mansfield, with our 2 locations to get them to that same level of recovery of non-ferrous. And I'll touch on an example towards the end of something we're doing with our existing asset there to maximize it. But the way we see all this advanced processing in the non-ferrous piece and -- is we can -- there's a lot of things we can optimize in terms of robotics, AI or things to improve normally, all the recycling piece, especially the -- when you go about removing copper or non-ferrous, there's a lot of hand picking pieces, you call them pickers or so, they're at the end of the line. So there's robots, there's technologies there to improve that. So we're looking into those. So we expect to leverage technology to improve our, I guess, our efficiencies in separating copper. So the other piece I would probably highlight in our growth and how we look at non-ferrous over the years since I started kind of working closely with scrap companies back in 2010 when I joined North Star, you see businesses that are focused on, like Milliron, which we acquired, that was -- the owner was focusing on paying for the steel and making all the money in the non-ferrous. So he would literally say, okay, all the non-ferrous money is for free and I'm just paying for the steel versus our steel mill, which is, okay, we are going to pay for a full car. Probably, if we can pay it with a non-ferrous, then the steel is for free, to the extent we can do it. But our focus is, we're using, leveraging the non-ferrous component to literally reduce the cost of our input for the mill. And that's kind of the mindset, they're both the same, I guess, it's just a different focus. But for us, it's literally maximizing the value we can extract on non-ferrous so that we can actually lower the cost of the raw material for North Star. The role of supplying BRM, sorry, the scrap to North Star and BRM's role. So Conrad highlighted several things that we're doing. So we're doing things on Value in use. We're doing things on optimizing the mix, the logistics. So for us, it's -- for the mill it's very important to know the mix. When we're making steel and Jeff, and his team of experts in making steel. Well, 10 years ago, it was mostly, in a certain way a guessing game, in the sense that you know the ore-based metallics content of residuals and you're guessing literally the copper and other content of the other raw materials, especially all the obsolete ones. Prime, historically, was fairly low on copper. But as more and more EAF steel is made, that has higher copper level. So actually, you've seen increase of copper content in prime. So the question for us is, okay, so, yes, we have the component or prime. It's getting more competitive. We've got a bunch of obsolete. We don't know what is in it, we can guess. So what this business is trying to do and what we're doing is precisely making sure we can give North Star an accurate reading of the corporate levels, and that's the work we're trying to do. So we can separate and have a higher value and having a higher value scrap allows us to reduce the cost of higher cost or base metallics. So when you look at our supply, well, PR is the highest, it's the most expensive, followed by prime, HBI are kind of around there. And then you'll see obsoletes kind of in the bottom half of our costs. So if we can improve that, we have a competitive advantage, and that's why we're working on it actively. And the -- some other things we've achieved is more visibility. Before, we were buying scrap and we -- the mill had some visibility with what was happening with scrap, but we really need to understand it to the extent we do today. And we are still learning a lot about it. But now we can provide not only visibility of how the flows of the raw materials are in the pricing, but also the recycling business can understand the forward order book of North Star and then what they will need in terms of the qualities and the grades they're going to make, and we can reverse all the way to the sourcing of it, which before the scrap company was acting on its own. They have and not trying to think with the mill in any way. The other thing that we're looking into is inventories. Normally, we hold inventory here. We have the ability right now to flex that inventory and put it on the yard or put it here, avoid double handling and kind of streamline the way the flow and the logistics and all the handling of the raw materials occur versus before, North Star had to do its own and the scrap yard was doing its own. Now it's about I'm going to send a call to Chicago, and I'm going to bring scrap back on that flat bed with some crush cars on top or so on. So there's a lot of opportunities around what can be done in logistics inflow of materials. On this graph, we've shown you and we talked yesterday with some of you, I guess, a little bit of where we started in '22, with about 300,000 tonnes. We're now -- in a year, we've doubled that supply. And we intend to continue that growth path. And we're talking maybe a couple of years more so and so, but we're trying to get to 1 million tonnes of supplied scrap by BRM to North Star, which is, again, is aligned with our strategy in terms of securing supply for North Star, getting that leverage on the -- knowing the content of the copper levels on it. So this is Mansfield, and this video will give you a pretty good overview of the Mansfield operation. And when we tour recycling this afternoon, you're going to see a smaller footprint. I mean, larger and probably in size in the land footprint, but actually in buildings or so, Mansfield has probably doubled the amount of equipment there. but it's all on the nonferrous piece. So you'll see a lot of nonferrous processing in this operation that I'm about to show you. So I'll let you kind of watch it, and then we'll move back. [Presentation]

Quick video of our mental operations. As you saw, it has a lot of nonferrous downstream operations, the shredder here, and the Delta facility doesn't have a lot of that separation. We just go to basic aluminum separation, and you'll see some of that this afternoon. So moving along to the progress on the acquisition. Certainly, it's been a fairly quick time for me. I mean it's been a year and 5 months or so. And back in December of '21, we were starting MetalX, and we had about 20,000 output back at the start. And we had half of the company because we didn't get it all. And so it -- back offices, also we have to ramp up, get all that people there. The good thing is that part of the acquisition, we got a pretty strong operating group. So we've got all the operating groups. So the knowledge and operating the scrap yard was there. People with 30 years of experience in the industry, so very knowledgeable. And so I think that, that was kind of key for the success we've had so far. We got all the commercial people joined us as well. So I think that the key things were there. We had to kind of backfill kind of the rest of the team, so to speak. But -- and also we brought over all their team that was sourcing for North Star since 2010, all the scrap and the pig iron and the HBI. So we kind of put together a fairly good team fairly quickly. And we're not even -- we have just signed the acquisition where we're starting to look into the Mansfield acquisition. So I would say it's been a pretty fast-moving, fast-paced growth, but also very carefully planned because the Mansfield, we did a very thorough due diligence on that asset before we decided to acquire it, and it's been a very successful acquisition so far. We've improved certainly logistics and how we feed scrapping to North Star and improve our knowledge overall. Conrad touched on our VIU project or Value In Use. I think that what I've seen and we not -- we certainly have the benefit that we looked at the industry for years, and we saw the struggles that Nucor and DJJ had. We saw what SDI and OmniSource did to try and blending together steel mill with a scrap company and how to make it work. And it's always not good probably sometimes to be in the bleeding edge where you're trying things. But when you have the ability to -- because we talked to them for years and we talked with Omni and DJJ for years and they always say, "Oh, well, the mill doesn't understand these. The mill has these issues. They don't understand our business." And so having seen what they've done, I think I believe that we're in a very good track to actually get past those initial things and getting -- building out synergies around the teams. And part of this project that Conrad described is actually a very fast-paced product that is bringing the 2 teams together. And they're working together. And I think that, that's going to be the success of BlueScope is leveraging the scrap in the mill knowledge, but also bringing down the walls in providing that transparency in the supply chain fast. We don't want to take years to learn how to work together. We have a very short time, and we're achieving it. And that's where we'll unlock some of that value and knowledge of the scrap industry. Challenges. Well, buying 2 businesses with 2 different systems and family-owned businesses. it's been a challenge. We certainly -- the IT systems are not what we would like to see. They're not on BlueScope standards. We are fastly moving towards implementing. We already selected a solution. It's going to take us probably 1 year, 1.5 years to get the new system in place, but it's going to be a system that runs all locations and brings us kind of together and simplifies the whole IT landscape. So that's been already addressed in -- we are addressing a little bit of the shredder motors. So when we bought the Delta asset, we had 2 motors, the one you'll tour today, and they're in tandem working. And that setup has proven to be quite less reliable than the Mansfield operation has a single AC large motor. So again, we're leveraging the learnings from one company and the other one trying to not transform Mansfield into MetalX, but not neither MetalX into Mansfield, but rather see where we can see the value and unlock the learnings from one business to the other and get together into a new company. And the same is happening with culture, right? We have to push our BlueScope culture, our safety culture into these businesses. And we are -- so we're trying to push our safety culture, the way we address the North Star continuous improvement philosophy in how people are engaged at our North Star operations and trying to have kind of BRM adopt as much as they can from that culture and to make it a very successful shredding operation. One thing that we cannot control is the downward scrap price cycle. As seen last year, second half was pretty challenging. We had actually a price inversion, meaning, the prime scrap price was below the obsolete, which is like the high quality is lower than their lower quality normal scrap. So it was a challenging time. It lasted for 6 months or so. So we weren't expecting that. And it was tough, but I think that our business is -- did fairly well given the challenge. Again, one of the things that we saw is that the nonferrous was fairly stable in all the nonferrous revenues were fairly strong. So it gives again the view of how we can leverage nonferrous to provide some stability when we have a down cycle on the ferrous side. Lastly, before we go into some Q&A, health, safety and environment. And as I said just a moment ago, again, safety is one of the key -- and the key thing for BlueScope. And we have a lot of things we are addressing, and fires is one. You will see in the news, scrap fire here, scrap fire there, we've seen our own couple of fires here and there. Little fires, we control them. But at the end, we're putting infrared detection systems. We're putting things to address fires in the yard. I think that normally, they occur in the fluff, what you saw in the video that it's kind of has foam, has some sort of material that are combustible and sometimes a small piece of metal, pretty hot, falls into that. It actually stays there and kind of over time, you can catch fire, smolders for a little while and then -- and normally, in the course of the day, when you have all the crew, it's not a problem, they'll see it and they'll put it out. Problem is when you shut down on the weekend or so and there's no one at the yard, and that's when those fires can start. Sometimes you have batteries short circuit in the car. It's in a pile of cars, shredded cars. And that's when the fire starts, and you need to address it. So we're addressing fire, which is certainly one important thing. Live and mobile equipment. For many at BlueScope, myself included, at the beginning was when you visit these yards and there was not signage, they're mobile and people interaction was -- you'll see today that it's a highly mobile equipment intensive. So there's really not a lot of path. It's an open operation with a lot of open areas, and there's really no clear path or so for people to walk and [ master ] as well with all the buildings. So there's a lot of work that's been done in terms of putting the right signage, allowing people to -- making people go to man doors instead of overhead doors and putting all the things in place to protect our employees and to make it a safer or the safest place we can make it. We put some guards on our cranes. We put some lights on the forklift. We're trying to put equipment and kind of get it to BlueScope standards. And the way I see it, we have a -- everywhere I turn, we have a lot of opportunities to get into BlueScope. So I think that we'll see that accelerated growth in all the areas because there's a lot of opportunities in low-hanging fruit. And then certainly, I think it will get tougher as we progress. But I want to get to where, okay, it's getting tougher to find those opportunities. Last thing here, I guess, on the reducing the landfill project we had. So when we bought the Delta and the Waterloo locations from MetalX, as I told you, they had limited downstream capabilities so we can separate aluminum, and that's as far as we go. So immediately after acquiring Mansfield with all the downstream operation, we're starting to do -- we did a temporary project and checked what happens if we send what we were sending to waste in Waterloo, send it over there and process it in the downstream. And we did some trials and we saw, okay, we can reduce 100 tonnes of landfill and get about $130,000 out of it or so. So we're -- that was a trial. So we expect to reduce probably 10% of the Waterloo waste, converting it to profit by just -- and this is net of all the transport costs or so. So we're actually looking for ways to improve and reduce our footprint in terms of waste. There will be other opportunities. There's glass. There's plastics. I think we have a long way to look into how to even further reduce that waste stream. But that's a challenge the team has, and we're working on. It's replicating things here at Delta, as we did with the pre-shredders in the motor, looking into the downstream and extracting all that value. And again, it goes along with our sustainability strategy because we are not only recycling the steel and recovering all these nonmetallics. If we can recover also plastics and glass in the future, we can -- we are all together working to make it even a fairly more sustainable operation as we can. So... And I think that's it. So any questions?

Megan from Barrenjoey. Just to focus today on nonferrous. Just seems to be, I guess, a little bit different to what I've heard in the past. So I'm just keen to hear, I guess, how that strategy has evolved. Was nonferrous always sort of the focus when you initially acquired MetalX? Or is it something that has evolved with the second acquisition? And then just speaking just get some, I guess, sort of rough numbers about how we should be thinking about nonferrous volumes as you ramp up the ferrous side of things and expected CapEx for some of those sort of AI and processing investments that were mentioned?

Sure. Well, there were a few questions. So -- and I guess, I'll first talk about the nonferrous piece. When we got into MetalX, it was about the synergies, and we identify and we're progressing with those synergies with the mill and the recycling on the ferrous side. So I would say we need to clean the obsolete, we need to achieve that value, we need to help the mill optimize, and we need to improve all the logistics and material handling around it. So that was our focus and initiative. The MetalX owner did not want to sell the nonferrous operation. He was focused on aluminum and aluminium either. And he was trying to focus and go into that direction. And he had -- he was not willing to sell or wasn't considering selling that, the nonferrous piece. So we evaluated kind of alternatives in terms of, okay, what we wanted was the ferrous. We really didn't want the nonferrous piece as a must to do that transaction. I think that when we acquired Mansfield and we sold all the value in nonferrous, we say, okay, we can leverage this piece as well. And now we -- and he wanted to sell the whole business. So we had to evaluate both ferrous and nonferrous. And now we're focused still on ferrous but we understand and we see the value we can extract on the nonferrous piece. And as I mentioned, while trying to make it, I guess, our ferrous side as low cost as we can by leveraging that nonferrous content. And when we acquired -- also to clarify, when we acquired the MetalX assets, we acquired them with all their operations. So they didn't took equipment out. He just wasn't focused on nonferrous. And the only thing that he is doing for us is selling some of the nonferrous material from the Delta location. So basically, he wanted to stay in the nonferrous business, which he can. He cannot compete with us on the ferrous, but it was not also a fact that he took the nonferrous team. So that was the other thing that you took. But other than that, all the assets and everything remain with the assets that we acquired. So he didn't dismantle, I guess, our operation in terms of assets.

So Megan, perhaps the way to think about it is what we've discovered with Mansfield is the value of the nonferrous. You shred scrap, you're going to get ferrous and nonferrous, right? So it's a byproduct of the process. What Mansfield has demonstrated to us is there's value there. And fair to say they've taken it to the nth degree. We've never seen anything like it anywhere else. So it's been quite a learning for us. So there's now going to be an opportunity for us to think about that, whether it's fluff coming out of Waterloo being sent there or whether we do something here at our other sites. But the way to think about it is it's actually just going to lower the overall feed cost to North Star. So at this stage, we're not going to forecast what nonferrous volumes are. But there's a fantastic synergy opportunity there for us around the nonferrous, which will show itself up in a lower cost of raw material for North Star, but it's probably just a bit early for us to be contemplating whether we're going to talk about nonferrous volumes or not.

Yes. And without giving any numbers, the investments, the capital investments to put nonferrous capabilities, AI, robotics or so is fairly small. So they'll be incremental. So it also is not like we're going to also understand a big chunk. They're just incremental.

Think in $10 million. Something like a $10 million investment. So we're not talking massive capital investments here.

So why own a scrap business in the sense that -- well, strategically, why do you really need to own a scrap business in the sense that -- is it -- are you forced to own a scrap because you're seeing that other steel -- in a perfect world, steel spreads should be a function of steel price and scrap input for electric arc furnace producers. And in that world, you don't really need to own it. So is it because others now have their own scrap businesses and you think that, that spread will no longer be truly representative? And so competitively, you need to be 40% self-sufficient. I'm just trying to get a sense of why you need to own a scrap business. You don't own input business in iron ore in Australia, for example.

Yes. So I mean a couple of points. It is a mix, Paul. I mean, firstly, we don't own iron ore, but if you think about the competitors, we'd be competing with an iron ore and the scale of the big guys, I mean, you're never going to be in the money, right? This is a different business model, very fragmented, much smaller. But you're absolutely right. There was a component that was -- when you -- when we drive for 3.5 minutes across the road to MetalX, shortly, I didn't want someone else owning that asset. I mean it's across the road. There's a rail spur that runs from that facility into North Star. So there's no doubt, part of it was location and protecting our own supply chain and having a play in it. It's why we've been at pains from the start to say we're not looking to set up a stand-alone scrap business here. That's not the objective. But then on top of that were those synergies that Hector's now talking about and that Conrad talked about earlier. The ability for us to focus that business now on what's best for the mill, we think it's very interesting, and there's value there. The nonferrous business is just a bit of a bonus, quite frankly, and our eyes have been opened up to that as we've got into the space. But in a perfect world, do we need to own it? Probably not. We're not operating in a perfect world. Cliffs acquired ferrous processing. We've already got the big guys with DJJ and Omni in the market. Yards that are close to the mill, and we think we can get value out of them as a stand-alone business and synergies on top of that seem to make sense to us. So it was a bit of a mix of logic behind why we stepped into this space. But you're probably right. Perfect world, maybe we don't need it.

Just on the nonferrous, I understand that you're not going to give guidance, and I'm not going to go tomorrow start modeling it really. But I mean, as a sort of benchmark, we look at some of the pure play sort of scrap producers out there like it. They're sort of nonferrous volumes as a percentage of around 5%. Is there any reason why it's any different here?