Q2 2023 Algoma Steel Group Inc Earnings Call

November 8, 2022

[music].

Good day and welcome to today's conference call to discuss our Goldman still fiscal second quarter 2023 financial results. My name is Latanya and I'm your operator for today's call.

At this time I'd like to turn to hand, the call over to Mike Maraca, Treasurer, and Investor Relations Officer for Algoma. Mr. Muraoka. Please go ahead Sir.

Good morning, everyone and welcome to Algoma Steel Group Inc's earnings Conference call for the fiscal second quarter ended September 32022.

Leading today's call are Michael Garcia, our Chief Executive Officer, and Rajiv <unk>, our Chief Financial Officer.

As a reminder, this call is being recorded and will be made available for replay later today in the investors section of Algoma steals corporate web site at Www Dot Algoma dotcom.

I would like to remind you that comments made on today's call may contain forward looking statements within the meaning of applicable securities laws, which involve assumptions and inherent risks and uncertainties.

Actual results may differ materially from statements made today in.

In addition, our financial statements are prepared in accordance with I F. R. S, which differs from U S. GAAP and our discussion today includes references to certain non <unk> financial measures.

Last evening, we posted an earnings presentation to accompany today's prepared remarks, the slides for today's call can be found in the investors section of our corporate website with that in mind I would ask everyone on today's call to read the legal disclaimers on slide two of the accompanying earnings presentation and to also refer to the risks and assumptions outlined in Algoma steels final.

Actual statements and management's discussion and analysis for the full year ended March 31 2022.

Please note that our financial statements are prepared using the U S dollar as their functional currency and the Canadian dollar is their presentation currency our fiscal year runs from April one to March 31, and our financial statements have been prepared for the three months ended September 32022.

Please note all amounts referred to on today's call are in Canadian dollars unless otherwise noted following our prepared remarks, we will conduct a question and answer session. I will now turn the call over to our Chief Executive Officer, Michael Garcia Mike.

Thank you Mike.

Good morning, and thank you for joining us today.

I will start my comments as we always do by addressing what truly matters most to us the safety of our employees.

Algoma, we believe in safety without compromise and our continued focus has resulted in substantial improvement over the last decade, and our lost time injury frequency rate.

That said we are focused on continued diligence as we relentlessly pursue our goal of achieving zero workplace injuries.

I'll cover events and milestones during the quarter and subsequent to its and I will then turn the call over to <unk> for a deeper dive into the numbers before closing with thoughts on the current state of steel markets.

Our performance in the fiscal second quarter was not up to the standards, we strive to achieve at Algoma.

It included a number of operational challenges, which we disclosed last month, including commissioning challenges at the plate mill.

A fire at one of our two coal conveyors co.

Covid related labor availability issues at our direct strip production complex.

As well as overall steel price softness in the market.

We are taking actions to get our operations on stronger footing and improved performance specifically.

We are addressing the operational challenges themselves. So we can return to full operating capacity.

We continue to focus on cost control and working capital efficiency.

To maximize margins and cash flow.

We are maintaining our pace of investment in our Eas project to dramatically transform algoma driving enhanced capability and long term sustainability.

And most importantly, we continue to focus on safe operations for our employees, our customers and the communities we serve.

During the quarter, we continued the commissioning of phase one of our plate mill modernization project.

Working through automation upgrades that will improve the quality and capability of candidates only discrete plate mill.

These automation challenges continue as we are outfitting our legacy plate mill with modern next generation process controls.

Mechanically all upgrades are complete and the remaining work is centered on the it side related to automation.

During the quarter, both our technical and business leaders visited the vendors facilities in Europe and met with their senior executive team here in Sault Saint Marie to advance the plans for completing the commissioning and applying our learnings to phase II of the project.

These efforts will continue in the calendar fourth quarter, and we believe the plate mill will remain around 80% utilization range until completion in early 2023.

The second phase of the plate Mill modernization project is currently scheduled to begin in the middle of next calendar year.

We will be mindful of market conditions and other operational factors when we make the final decision to commence.

At our direct strip production complex or DSP sea production was lower than expected for the quarter.

Our community was not immune to the impacts of Covid and during the quarter, we experienced a concentrated outbreak which impacted the SPC.

We are implementing various measures to address labor availability, including cross training more employees to better handle and absenteeism event.

In August we experienced a fire at one of the coal conveyors that supplies two of our three coke batteries. Fortunately no. One was injured all repairs are complete and we are operating the coke ovens at capacity.

The fire negatively impacted our ability to produce coke internally during the quarter.

Forcing us to buy a third party product, which unfavorably impacted cost and profitability.

As we face those operational challenges. We also had to deal with what has been a volatile overall market for steel and for raw material inputs, which impacted realized prices and costs.

Our consolidated results included shipments of 435000 tonnes revs.

Revenues of $599 million and adjusted EBITDA of $83 million.

During the quarter, we continued to advance construction of our transformative electric arc furnace project.

Which remains on budget and on time for our planned 2024 startup.

We completed the next phase of our capital allocation program with a U S $400 million substantial issuer bid, which resulted in the successful repurchase of 41 million shares or almost 28% of our issued and outstanding shares at the time of announcement.

Following completion of the <unk>.

We were able to resume activity under our normal course issuer bid or NCI.

During the quarter, we repurchased one 5 million additional shares and as of September 30th Algoma has approximately 104 million common shares issued and outstanding.

Early in the quarter, we reached agreements with both local chapters of the United Steelworkers that represent our hourly technical and frontline supervisory employees.

We are pleased that these five year agreements provide the company labor stability throughout our transformation to electric arc steelmaking.

Now I will pass the call over to our Chief Financial Officer, Rajiv Marwa to go over the financial results for the quarter closing with some thoughts on the markets.

Sure.

Thanks, Mike Good morning, and thank you all for joining the call.

Our fiscal second quarter results.

While challenging for the operational reasons, Mike alluded too came in line with our guidance for shipments and EBITA.

I'll remind you again that all numbers are expressed in Canadian dollars unless otherwise noted.

However, our functional currency is the U S dollar.

During the quarter, the Canadian dollar weakened materially, which impacts balance sheet comparisons quarter over quarter.

Yeah.

For the quarter net income was $87 million.

36 cents per diluted share.

Baird to 288 million and $4.02 per diluted share in the prior year quarter.

But the decline attributable to market conditions as well as the operational factors, we are working to resolve.

In addition, the quarter was impacted by a onetime charge, resulting in increased pension and post employment benefit expenses.

The one time charge was due to the extension of indexation for the contract period related to the ratification of new collective bargaining agreement with our unionized employees.

The only long term debt on our balance sheet continues to be in the form of government loans linked to other capital projects.

We finished the quarter with $465 million of unrestricted cash and remain undrawn on our revolving credit facility. So even after funding.

<unk> $400 million.

Our balance sheet remains strong.

Now, let me dive into the key drivers of our performance.

We shipped 435000 tonnes in the quarter.

<unk> 25, 9% as compared to the prior year quarter.

As we previously disclosed delays experienced during the commissioning of our placement modernization project with the largest impact on shipments.

In addition volume through our DSP was adversely impacted by production shortfalls arising from Covid link workforce availability events.

Net sales realization averaged $12 66 per ton down 26% versus the prior year period.

The decrease primarily reflect softening market conditions during the quarter.

This resulted in steel revenue of $552 million in the quarter down 41, 1% versus the same quarter of last year.

On the cost side I'll go months cost of goods sold average <unk> 33 per ton in the quarter.

Up 27% over the prior year period.

The main drivers of this increase includes the replacement of internally produce coke with logistical.

As a result of the conveyor fire and then increase in the purchase price of many of our key input.

<unk> natural gas alloys and scrap.

Adjusted EBITDA for the quarter was $83 million in line with our previously guided range.

Compared to $431 million in the year ago quarter.

When we consider the operational impacts in the quarter, namely the plate mill conveyor outage and the SPC labor issues.

Estimate that as a $130 million drag on EBITDA.

Off back roughly 60%.

In our fiscal second quarter results.

And the remaining 40% is expected to impact fiscal third quarter results due to the flow through of higher production costs into inventory.

From a cash flow perspective cash flow from operating activity was a use of $66 million in the quarter.

Impaired to the cash generation of $380 million in the year ago quarter.

The main drivers include lower adjusted EBITA, and a significant use of working capital in the quarter.

Both raw material and work in progress inventory rose.

On account of lower production volume and shipments.

We will continue to use working capital through the third fiscal quarter.

Z to see contracted volumes of raw material ahead of the winter period, and expect to hold higher than normal inventories through the end of the calendar year, which will gradually be released in 2023.

We finished the quarter with $465 million of cash and cash equivalents on the balance sheet.

As an update to Es project spending.

As I mentioned on the previous call.

Approximately 8% of the spending occurred in the prior fiscal year.

Approximately 60% is expected to be spent in fiscal 2023.

And the balance of the spending.

Occurring after 2023.

Up to the end of the September quarter, we have spent approximately $163 million on the <unk> project.

Looking at the project in totality, approximately 62% has been contracted with fixed price commitments, but the balance of 38% still to be contracted.

Beyond the progress made on the ear project, we are pleased to compete on <unk> during the quarter.

In addition to the SAP.

We remain active in returning capital to shareholders on multiple fronts, including our normal quarterly dividend.

And tour in CIB.

Our cash position and ample liquidity help us in periods of volatility supporting us through the cycle, while also allowing us towards the ones a strategic capital initiatives and transformation.

I would now like to turn the call back to Mike for a market update and closing remarks.

Mike.

Thanks Richard.

Looking at the state of the North American steel market today pricing has been steadily declining for much of the year.

Is that were reached in March around the start of the Ukraine War quickly reversed and prices have tested various support levels through the summer and into the fall.

Steel industry as well as our customers continue to face challenges related to inflation and interest rates supply chain issues and recessionary fears.

However, our underlying order book supported by a significant portion of contract sales will keep demand for our products consistent with our expectations, including sales to the automotive construction.

Oil and gas and other steel intensive industries.

Additionally, global price dynamics and trade measures reduced the attractiveness of our market for imports.

We continue to focus on improving operational reliability and we are currently executing a number of planned seasonal maintenance activities.

Head of the fourth fiscal quarter winter period.

For the fiscal third quarter, we expect sequentially higher shipments tempered by planned maintenance activities and lower production at our plate and strip facility.

As we complete phase one commissioning.

Coupled with current steel pricing, we expect reduced net sales realizations impacting margins for our products.

While there remains uncertainty the published forward curve for hot rolled coil currently shows prices rising modestly from now through next summer, albeit at levels well below what we have realized the last few quarters.

With this backdrop, our primary focus remains on prudent financial discipline, returning to full operating capability and execution of our Eas project.

<unk> in the next era for our company that provides the foundation for long term value creation for our stakeholders.

While the market remains challenging and we are completing our plate mill commissioning my view is consistent with the boards and that we expect to be a significant generator of free cash over the longer term.

Which supports our transformation journey, including our two main capital improvement programs. The second phase of the plate mill modernization and the Eas.

We are focused on putting the operational challenges, we have faced behind us to ensure safe reliable efficient production at our existing facilities, while we advance the AAF project.

Thank you very much for your continued interest in Algoma steel, we look forward to what the future holds at this point, we would be happy to take your questions. Operator, Please give the instructions for the Q&A session.

Thank you we will now conduct a question and answer session if you'd like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is there any question queue.

You May press Star two if you will.

Like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys once again Thats star one at this time, one moment, while we poll for our first question.

Our first question comes from David Ocampo with <unk> Securities. Please proceed.

Thank you.

Mike you called out.

40%.

$30 million negative impact should be realized in the upcoming quarter, but I was wondering if you could break it down by the operational issues that you guys are facing so the plate mill modernization the Coke operations and then the labor availability.

Sure David we prepared some some more detailed information on that salt pass it over to Richard.

And he can walk you through that in a little bit more detail.

Hey, David.

I think the most most important question for the.

For the quarter end.

It's easy from business perspective, but.

You know, it's one which.

Where the accounting accounting created it creates a lot of complexity to this so I'll try and simplify it as much as possible.

So the $130 million is the total impact.

Clause of the three events that happened during the quarter during the second quarter and the three big events, where the plate mill.

Commissioning delays the coal fire and SPC in the order of impact.

And the order is roughly 50% of that impact is due to the plate mill commissioning.

Roughly 30% is.

Because of the Coke conveyor fire and 20% is for the SPC.

The labor labor shortage.

Cause of Covid.

So that's that's the person page now as far as the impact between the two quarters is concerned.

Going one by one.

On the on the plate mill side.

We started operating at 80%, but the.

Some of the impact of the plate mill is flowing into inventories and infecting the cost for the third quarter.

And it's it's it's roughly around 70 30 split 70% of the cost is getting absorbed in the second quarter and 30% is going into the into.

Into the following quarter and it's just the way.

The the higher cost of inventory based on production gets trapped into inventories and that moves into the following quarter. So again accounting.

50% of the impact is the total impact because of that quarter issues, but the.

30% of it flows into the following quarters on the Coke batteries.

I think that has the biggest overflow into the following quarter, just because we had a lot of inventory of Coke that we had already contracted for the year, which we were using and we had to buy additional coke on the spot market at higher pricing, which flows through.

Inventory of Coke and also flows through.

Higher cost of steel.

Produce based on the strong purchased Coke so that has the biggest impact, it's roughly 20%, 80%, 20% and the.

In the second quarter, and 80% moving into the into the following quarter, which is the third quarter.

And on the SPC.

We see most of the impact in the.

In the second quarter, nothing moving into the following quarter because most of the impact was mid quarter. It.

It does not affect inventory.

A lot. So so in short our 50 30 20 is the ratio of impact for the <unk>.

And the way it flows from one to the other is plate mill is roughly 70 30.

Batteries is 20.

And DSP, 600%.

Good.

That's very helpful commentary, there and then.

On the inventory side of it I think you you sit down in your remarks that it would stay elevated and it does look even if you exclude FX that it's probably $250 million to $300 million above normal levels.

So how should we think about that release into fiscal 'twenty. Four should we expect that full 200 or 250 to be released kind of in equal proportions.

Throughout the quarters.

So I think.

You should see it releasing from.

From first fiscal quarter onwards.

The normal release between.

In the first calendar quarter, which is our fourth fiscal will happen.

Because we will be building again more in December and then we'll be releasing it in the balance release will come in the first and the second quarter of next year.

Uh huh.

From an inventory perspective.

So that's how it'll flow we've also built some.

Raw material and some web as well as we are as we have shipped as we shipped less.

We have.

We have some developed which which we will also release over the next couple of quarters. So your point is right. It will get released in.

In the first and the second fiscal quarter of next year.

More so as compared to compared to what we have seen in the bust.

And is there any risk on the work in progress there just given the softness that we're seeing in the marketplace today.

No I think we.

We should not anomaly we buy.

Buy slabs from outside to to fill up the work that we have.

One.

Production facility to some extent.

And whatever we have.

To replace stack. So we don't we don't see much of a risk.

Get that released over the next couple of quarters.

And then last one for me on on your fixed annual contracts I think 10% is on an annual basis.

Are those discussions going with customers do they actually believe you know that.

The futures curve is.

It is actually in contango on their negotiating around that are or are you looking for pretty steep discounts relative to where we are.

Yeah I think.

We're right in the middle of several.

Negotiations for our contracted customers.

David and I think.

Each one of them kind of has their own particular order book to fill and then they oftentimes no.

The pricing our pricing expectations in their own order book and they're looking to secure.

Contracted supply of their raw materials that they need and we haven't faced a huge amount of <unk>.

Pressure or.

Or.

Our expectations that.

We would need to be talking of pricing levels.

Lot lower than they are now although I think everybody that we speak to has some.

Expectation that there's going to be a recession or recessionary conditions next year, but.

They're all looking at their own unique positions, which in spite of the expectation of Av.

And economic slowdown they may be sitting with an.

An order book that they feel gives them a lot of clarity with.

With maybe not as much risk as maybe you would expect the overall recessionary period and these are I'm speaking about.

Customers with that are producing either parts in our supply chain or end products that have firm visibility. Obviously, if it's a customer that is a service center and needs to think about the pull on their products that they stock and supply that aren't necessarily tied to contract.

They would be more.

Sensitive too.

Where they think the pricing is going in and an expectation of lower pricing.

Is that helpful.

Yes. It is thanks.

Thanks, guys I'll hop back in the queue.

Yes.

Our next question comes from Anoop <unk> with eight capital. Please proceed.

Yes. Good morning, just a couple of quick questions for me.

Can you tell me please what's the remaining capex for the completion of the plate mill modernization and can you just give me the number net of the government funding place.

The remaining capex will be around.

You know.

$40 million.

That needs to be spent on the on the paper and Thats, mostly the phase II, where work is work is happening.

And Thats net of any government funding.

And so just to be clear, what's a reasonable expectation for your plate mill production volume in fiscal 'twenty four it I know, it's a bit if I'm moving target I just want to make sure.

I'm in the ballpark I was reasonable here.

So we should be we should be at historical levels in any case on fiscal 'twenty four.

The Big question still is on.

On our second phase.

And when we get it done currently it's slated for next year.

And as we have said that.

We will be very cautious and careful about.

Moving on the second phase.

Though most of the work will be done but implement but.

Pulling the trigger and getting all the integration done and automation complete it will be very carefully studied and done because we don't want to lose beyond what is what is normal downtime on that that mill. So.

So that's that's a big wildcard, but if let's say that gets completed in the middle of next year then.

It should be let's say in the June June July period, then.

It will take at least five to five months to start ramp.

Ramping up for higher volume because that upgrade will double the volume that we have currently but reaching that full percentage will take little bit longer.

Okay Alright. Thank you and lastly are you guys still active on the ask UAV.

Yes, we are that program is on and we still are.

Selecta monarch.

Thank you.

Okay.

Our next question comes from Ian Gillies with Stifel. Please proceed.

Good morning, everyone.

Good morning Ann.

Okay.

From what I understand.

Coaching contracts are pricing is typically said in and around this time of year is there any context, you can provide for how youre thinking about that cost item as we head into call. It calendar 2023 and usage there and usage there just given what's transpired over the last couple of quarters and the inventory build.

Sure.

So on the on the <unk>.

Coal and Coke, you're absolutely right. This is normally the period by which.

Most of the contracts et cetera, and.

We've settled out as well and it's a it's flat year over year is where the coal is moving.

And similar very similar is on the on the Coke side.

So year over year long term contracts, which is annual contracts pricing is flat.

And.

That's what we're expecting and whatever whatever shortfall as I mentioned, we had on the.

On the battery fire, we contracted on spot pricing, which was which was definitely higher.

Which we are rolling through in our cost this quarter last quarter and this quarter.

Okay. That's really helpful. Thank you.

With respect to the construction contracts for the Eas. It looks like there was a modest uptick in whats been fixed.

Can you just provide a bit of a reminder of when you think some other chunky items may get fixed year.

Because it would seem maybe some of the costs might be moving in your favor given the deflationary.

Pressures on some of the inputs.

Yes sure so.

Hmm.

We expect.

A big chunk to be done over the next.

Let's say.

Five five to six months, which is let's say towards the end of our fiscal fiscal year.

Yes.

Yeah, and then from a.

From a cost perspective definitely it will help so Mike you have added color on it.

Yes, I would add that we are seeing a.

A competitive environment as we go out to our.

Contractor base and potential.

<unk>.

Our business partners with these with these.

Bids for further pieces in chunks of the major construction and we are.

Seeing an environment, where contractors are eager too.

Put to get the business and bring clarity to their own book of business for next year.

And.

Several of the recent are few of the recent bid packages that we got completed and are nearing completion, we are we're pretty satisfied.

And encouraged by the.

The pricing environment that we're seeing in those are coming in.

In a handful of specific examples they are coming in.

Nicely below the budget number we had in our project now that's not to say that everything is going to be like that but certainly contra.

Contractors that are looking for visibility in their book of work next year.

The same fears around.

Recessions and May have have a general thought about if I don't get this business what other business am I going to get that's out there floating.

Floating around for me to bid on and I think we're benefiting from that from from a cost perspective.

<unk>.

Engagement from potential suppliers as we select the best ones for this project.

Got it.

That's helpful context.

One of the things I did want to clarify the language in the MD&A had changed a little bit around completion of Eas and there was a <unk>.

Comment about finishing mid year, there was another comment about finishing end of year.

Can you just reconfirm that theres been no change to the in service date, and the expected start up or if there has been what is transpiring there.

That's correct, it's still mid year, sorry for the confusion on that.

<unk>.

Yeah, just to add a little more color the bid packages. The final important ones or are getting placed with suppliers and our approaches fixed pricing so unless we come in with a change of.

Scope or a change order.

We feel very comfortable that the we have visibility to the pricing once once the that bid packages awarded.

Bob.

We continue to work very hard on supply chain issues that that we need to be.

<unk> managed.

For a project of this size the only real specific one that that we are.

Working is.

With a certain.

Vendor of cards that.

Rely on on.

Semiconductor chips so.

In one specific instance, theres some cards that go into some of the control.

Panels.

In the melt and the new melt shop.

Those cards are delayed by six months right now so we had to put plans into place to complete all of the other periphery work in those in those panels.

<unk>.

Cabinets get those.

On the boat and shipped to Sue St Maria and installed in the cards will be installed at a later.

At a later date when there when the when the panel or cabinet is here in Sault Saint Mary versus being installed at.

At the vendors construction site now that won't.

<unk>.

Jeopardize the overall critical path and timeline, but we just need to be mindful of where we're doing that and then making sure that.

Almost every day, but at least weekly we are in touch with.

The actual semiconductor supplier to our vendor doing everything we can to make sure that we know exactly when those cards will be delivered.

And we're doing everything we can to make sure nothing slips or if it does slip anything any further.

That we work on mitigation plans and this is the.

Global supply chain issue and the suppliers of these cards.

They've got a global kind of criteria for managing who gets what's coming out of the supply chain based on the first preference is medical.

Devices.

And then things involved with National Defense, and then and there.

Then things involved with more typical industries like are like.

Like ourselves.

Okay. That's once again, that's very helpful and.

If I could just ask one last question with.

With respect to the high voltage power lines at the PUC is going to be installing theres been no change to the disclosure there.

I'm just curious if there's any update to your operational update on how youre thinking about that that key piece of getting the EIF into service and ramped up.

Youre right Theres no no change in that in the.

And the <unk>.

Timeline, it's another critically important piece to how this all.

Comes together.

There is the 230 cave outline that as 11 kilometers long and it's being run from one side of St Marie to the other.

That's in process, that's being done by the <unk>.

The local utility provider.

And everything is on pace.

For that.

The other piece of the the power as the grid power upgrades by by Hydro one.

And we are.

Interfacing with them regularly to help answer their technical concerns come back if they have further technical concerns working through that with them.

<unk>.

That piece, it's not as as.

Is critical because while it would be disappointing that the grid is maybe not as robust as we would like it when we when we first need to start feeding power to the electric arc furnaces. There is.

We've done the analysis and there is enough power here in Sault Saint Marita to run those furnaces.

Also considering all the other electrical use demand that might.

Grow in in the community in the next couple of years.

But at some point when there is unusual maintenance issues or weather events.

It May then call for more internally generated power from ourselves and that's one reason we are upgrading our internal power generation capability with the new GE gas turbines, which are which are on site and being installed.

Got it thanks very much I appreciate that I'll turn the call back over.

Sure.

Our next question comes from Ahmad shape with Beacon Securities. Please proceed.

Hi, guys just a quick one on the.

Fleet modernization project did I catch that right. There's been a capex light capex increased from $120 million to $135 million and if so can you speak to that.

Yeah.

Yes. It is.

That has been.

That increase slight increase $235 million in replacement modernization.

And that's reflective of the.

<unk>.

The delays that has happened on.

On.

On getting the project done.

Which was supposed to be completed earlier than we shifted it to this year and the next one to next year and and.

<unk>.

Also with the with the delays that have happened in the in the commissioning. So so that's.

That's all factored in including the inflationary pressure that we saw so that's all factored into that 135 total.

Perfect. Thanks for that.

If I got you.

So regarding the timeline for phase two.

Is it fair to say that mid next year.

Right now as sort of a soft timeline, depending on how we end up commissioning cruise wanted to see how that all.

That works out for you guys or are.

What are you guys committed to the mid next year.

This too.

Uh huh.

I think it's.

I don't know if soft is the right word, but its flexible depending on.

Our.

Absolute certainty that we understand all of the.

Issues that we dealt with in place in the first phase of the mill modernization.

Uh huh.

And we understand everything that needs to happen beforehand that can greatly mitigate those those the chances of those type of challenges.

Challenges.

Being met while.

We're live and we are waiting and we need to run steel through through the plate mill. So.

There's going to be a point and it's already started but it.

It can't really be complete until everybody that is involved in this and Theres certainly people still involved on the on the actual commissioning.

We need to make sure that we've done a thorough after action view. After action review, if you will understand all of the issues and the root causes and how we can.

Take steps to mitigate to the greatest extent possible all of that offline.

Before we shut down for phase two and then make sure we have.

<unk>.

An oversight function too.

Confirm and ensure that everything we're talking about doing offline is actually happening to the to the level of detail that needs to happen to and then only then will we.

Will.

Hi.

Be convinced then I'll be able to convince my board that we are ready to proceed.

With phase II, but the plan now is is that we can get all that done and all of that level of preparation in order to proceed with phase two at mid year, but if if for any reason, we don't reach that level of comfort and <unk>.

Confidence then then we will Oh, we will not go down as planned and until we're ready.

That's helpful.

Very helpful. Thanks, a lot for that answer and I'll jump back in thank you.

Okay.

Our next question comes from Alexander Jackson with RBC. Please proceed.

Yes, thanks, guys.

Given market conditions with weaker pricing and higher Opex I'm wondering if that's impacted how you're thinking about capital returns and maybe some non essential capital projects or maybe we're not there yet thank you.

Yes.

It's a good question Alexandra.

Because of our.

Fiscal.

Calendar that we're on we begun the annual business planning cycle for our next fiscal year and.

We know that that is.

That involved a lot of scenario planning on kind of the commercial assumptions that that you need to.

Use but certainly.

A very strong and important scenario that we're working on is a is a scenario of continued low price.

Low pricing environment, and low demand and we understand that in those in that type of environment.

<unk>.

Controlling any discretionary cost that you can is critical and we need to make those those decisions.

Mindful of of not just the importance of <unk>.

Being able to do that.

Challenging.

Environment in terms of supply and demand and pricing, but also understanding the consequences of doing that and.

Only doing it.

When it not just when it makes sense not only for the immediate environment, but also the cost where the consequences or not.

So adverse debt.

You wind up making just poor.

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Decisions for the business over the longer term, but.

This business is quite aware of especially rajat, having having to do that in challenging environments and we we have almost a playbook.

So to speak of.

Things that we know we have to be levers that we know we can pull on.

And things that we need to to think about as we go into a changing business environment.

That's helpful. Thanks.

Once again to ask a question Thats star one on your telephone keypad at this time.

There are no further questions in queue at this time I would like to turn the call back over to Mr. Michael Garcia for closing comments.

Okay. Thank you again for your participation in our second quarter fiscal 2023 earnings conference call and for your continued interest in Algoma steel.

We look forward to updating you on our results and progress when we report our fiscal third quarter results early next year.

Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation and have a great day.

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Q2 2023 Algoma Steel Group Inc Earnings Call

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