Q3 2024 Algoma Steel Group Inc Earnings Call

[music].

Operator: www. AlgomaSteel.com Hello and welcome to today's conference call to discuss Algoma Steel's fiscal third quarter 2024 financial results. My name is Paul, and I'm your operator for today. At this time, I'd like to hand the call over to Mike Moraka, Treasurer and Investor Relations Officer for Algoma. Maraca.

Hello, and welcome to day to todays conference call to discuss Algoma steels fiscal third quarter 2024 financial results. My name is Paul and I'm Your operator for today's call.

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

Mike Marocca: Good morning, everyone, and welcome to Algoma Steel Grp Inc's third quarter fiscal 2024 earnings conference call. Leading today's call are Michael Garcia, our Chief Executive Officer, and Rajat Marwah, 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 Steel's corporate website at www.algoma.com. 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. However, actual results may differ materially from statements made today. In addition, our financial statements are prepared in accordance with IFRS, which differs from U.S. GAAP, and our discussion today includes references to certain non-IFRS financial measures.

Good morning, everyone and welcome to Algoma Steel Group, Inc. Third quarter fiscal 2024 earnings Conference call, leading today's call are Michael Garcia, Our Chief Executive Officer, and Ratchet, Milwaukee, 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 our Goldman steals corporate web site at Www Dot Algoma Doc calls.

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.

Mission, our financial statements are prepared in accordance with EIOPA, which differs from the U S. GAAP and our discussion today include references to certain non <unk> financial measures.

Mike Marocca: 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 also to refer to the risks and assumptions outlined in Algoma Steel's third quarter fiscal 2024 management discussion and analysis. Please note that our financial statements are prepared using the U.S. dollar as our functional currency and the Canadian dollar as our presentation currency.

Last evening, we posted an earnings presentation to accompany today's prepared remarks.

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 also to refer to the risks and assumptions outlined in Algoma steel Algoma steel third quarter fiscal 2024 management discussion and analysis.

Please note that our financial statements are prepared using the U S dollar as their functional currency and the Canadian dollar as your presentation correctly, our fiscal year runs from April to.

Mike Marocca: Our fiscal year runs from April 1st to March 31st, and our financial statements have been prepared for the three and nine months ended December 31st, 2023. 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. Thank you, Mike.

As of March 31, and our financial statements have been prepared for the three and nine months ended December 31st 2023.

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 answer session.

I'll now turn the call over to our Chief Executive Officer, Michael Garcia Mike.

Thank you Mike Good morning, and thank you for joining us to discuss our fiscal third quarter results.

Michael Dennis Garcia: Good morning, and thank you for joining us to discuss our fiscal third quarter results. As is customary, I'll start by highlighting our top priority, the safety of our employees. At Algoma, we uphold an unwavering commitment to safety, which has resulted in a notable improvement in lost-time injury performance year-to-date. While our site remains abuzz with activity, it's crucial to underscore the significance of safety, particularly as our EAF project progresses with increasing contractor involvement. We remain steadfast in our pursuit of a zero workplace.

As is customary I'll start by highlighting our top priority the safety of our employees.

Goldman we uphold our unwavering commitment to safety.

Has resulted in a notable improvement a lost time injury performance year to date.

While our site remains bustling with activity, it's crucial to underscore the significant safety, particularly dark yeah, Yeah project progresses with increase in contractor involvement.

We remain steadfast in our pursuit of Daryl workplace injuries.

Michael Dennis Garcia: Next, I'll cover key events and milestones during our fiscal third quarter and subsequent to its end, as well as give an update on progress at our transformative EAF project. I will then turn the call over to Rajat for a deeper dive into the numbers and a discussion of our strong liquidity and balance sheet before closing with an update on market conditions. There are a few important things I would like to get across on this call. Our long-term strategy remains unchanged and on track to successfully execute the transition to being one of North America's greenest producers of steel. Our results for the quarter were comfortably in line with our expectations.

Next I'll cover key events and milestones during our fiscal third quarter and subsequent to attack as well as give an update on progress in our transformative project.

I will then turn the call over to Roger for a deeper dive into the numbers and the discussion of our strong liquidity and balance sheet before closing with an update on market conditions.

There are a few important thing I would like to get across on this call.

Our long term strategy remains unchanged and on track to successfully execute the transition to being one of north Americas greenest producers of steel.

Our results for the quarter were comfortably in line with our expectations.

Michael Dennis Garcia: Our facilities are back online with a goal of reaching full production as quickly and safely as possible, following the coke making utility structure. And finally, the outlook for our end markets calls for an improvement in pricing relative to calendar year 2022. Now, let me give you some additional color on those key themes.

Our facilities are back online with the goal of reaching full production as quickly and safely as possible following the coke, making utility structure collapse.

And finally, the outlook for our end market calls for an improvement in pricing relative to calendar year 2023.

Now let me give you some additional color on those key themes.

Michael Dennis Garcia: Our results for the fiscal 3rd quarter of 2024 were in line with our previously disclosed guidance on both shipments and adjusted EBIT, and we achieved year-over-year improvements in nearly all of our key metrics. As a reminder, our fiscal third quarter included major seasonal maintenance, which was completed as planned ahead of the winter months due to the lagging nature of our older books. Realized pricing in the quarters did not yet reflect the run-up in markets around the end of the UAW strike.

Our results for the fiscal third quarter of 2024 were in line with our previously disclosed guidance on both shipments and adjusted EBITDA and we achieved year over year improvements in nearly all of our key metrics.

As a reminder, our fiscal third quarter included major seasonal maintenance, which was completed as planned ahead of the winter months due.

Due to the lagging nature of our order book.

Realized pricing in the quarter did not yet reflect the run up in markets around the end of the UAW strike.

Michael Dennis Garcia: That stronger pricing is expected to begin benefiting our financial results in the fiscal fourth quarter, which unfortunately will be largely offset by impacts related to the outage caused by the incident at our coke making plant that I will discuss in more detail shortly. Our fiscal third quarter is typically a busy one in terms of seasonal maintenance, and this year was no exception. In totality, the work was completed as planned.

That stronger pricing is expected to begin benefiting our financial results in the fiscal fourth quarter, which unfortunately will be largely offset by impacts related to the outage caused by the incident at our coke, making plant that I will discuss in more detail shortly.

Our fiscal third quarter is typically a busy one in terms of seasonal maintenance and this year was no exception.

In totality. The work was completed as planned we also built seasonal inventories per our normal practice going into the end of the calendar year.

Michael Dennis Garcia: We also built seasonal inventories per our normal practice going into the end of the calendar year. During the quarter, we made additional progress on phase two of our plate mill modernization project, including bringing the inline shear online and wrapping up its production through the end of the year. We expect higher production levels of plate going forward, which will allow us to capture market opportunities and to build inventory ahead of the planned outages for the implementation of the final pieces of the modernization project. As a reminder, we have split the originally planned 40-day outage into two shorter duration outages with the first outage scheduled in April and the second outage planned for late in calendar year 2024 to align with other planned maintenance activities, providing some efficiencies on downtime.

During the quarter, we made additional progress on phase two of our plate mill modernization project.

Including bringing the inline share online and ramping up its production through the end of the year.

We expect higher production levels of plate going forward, which will allow us to capture market opportunities and to build inventory ahead of the planned outages for the implementation of the final pieces of the modernization project.

As a reminder, we have split the originally planned 40 day outage into two shorter duration of outages with the first outage scheduled in April and the second outage planned for late calendar year 2024 to align with other planned maintenance activities, providing some efficiencies on downtime.

Michael Dennis Garcia: Next, I'd like to update you on the progress during the quarter on our transformational electric arc, or EAF, project. The EAF will ultimately increase our throughput capacity by roughly a third from 2.8 million tons per year of liquid steel making capacity by conventional means today to 3.7 million tons employing dual furnaces upon completion. The higher output will match our expanded downstream finishing capacity as we increase capacity at our plate. We will improve our overall product mix and lower our carbon emissions by approximately 70% when fully operational. Considering the makeup of our power supply when we switch to EAF operations, we expect to be one of the greenest producers of steel in North America. During the quarter, cumulative investment in the EAF project reached $510 million.

Next I'd like to update you on the progress during the quarter on our transformational electric arc R. E F project.

<unk> will ultimately increase our throughput capacity by roughly a third from $2 8 million tons per year of liquid steelmaking capacity by conventional means today.

The $3 7 million tonnes, implying dual furnaces upon completion, the higher output will match, our expanded downstream, finishing capacity as we increase capacity at our plate mill will improve overall product mix and lower our carbon emissions by approximately 70% when fully operational when factor.

In the makeup of our power supply when we switched the AF operations, we expect to be one of the greenest producers of steel in North America.

During the quarter cumulative investment in the EDF project reached $510 million to date, we have committed contracts totaling approximately $750 million with approximately 7% tied to time and material contracts, while the balance is fixed price in nature.

Michael Dennis Garcia: To date, we have committed contracts totaling approximately $750 million, with approximately 7% tied to time and material contracts, while the balance is fixed price in nature. We expect to contract the majority of the remaining project elements by the end of the current quarter. This will significantly de-risk the EAF project budget as we progress towards our expected commissioning in late calendar year 2024. As a reminder, our startup plan continues to include normal production from our existing steelmaking facility while ramping up steel production from our EAFs in calendar year 2025, followed by a complete switch to EAF production. Before I hand it over to Rajat, let me give you an update on our operations. As we previously disclosed on January 20th and January 23rd, there was an incident at our coke making plant that involved the collapse of a structure supporting a utilities pipeline. Thankfully, there were no injuries, but the event did impact several utilities that serve as coke batteries and other facilities throughout the steelworks.

We expect to contract the majority of the remaining project elements by the end of the current quarter.

This will significantly Derisk the project budget as we progress towards our expected commissioning in late calendar year 2024.

As a reminder, our startup plan continues to include normal production pardon from our existing steelmaking facility, while ramping up steel production from our Eas in calendar year 2025.

Followed by a complete switch to a production.

Before I hand, it over to Roger Let me give you an update on our operations currently.

As we previously disclosed on January 20th and January 23rd There was an incident at our Coke, making plant that involved the collapse of a structure supporting utilities piping thankfully there were no injuries, but the event did impact several utilities that service the coke batteries and other facilities throughout the steelworks.

Both making operations were suspended at the time of the incident and we were able to stabilize heat to all three batteries and resumed partial coke production within 72 hours of the incident.

When factoring in Coke inventories on hand.

<unk> ability of third party Coke and our partial production capabilities, we are able to satisfy all of our steelmaking raw material input needs. While at the same time pursuing a permanent repair plan for the plant.

Michael Dennis Garcia: Both making operations were suspended at the time of the incident, and we were able to stabilize heat in all three batteries and resume partial coke production within 72 hours of the incident. When factory and coke inventories are on hand, the availability of third-party coke, and our partial production capabilities, we are able to satisfy all of our steelmaking raw materials while at the same time pursuing a permanent repair plan for the plant. As we also disclosed previously at the time of the incident, we temporarily suspended blast furnace operations for safety. The blast furnace experienced operational challenges upon its initial restart due to unforeseen impacts related to the piping collapse.

As we also disclosed previously at the time of the incident, we temporarily suspended blast furnace operations for safety reasons. The blast furnace experienced operational challenges upon initial restart due to unforeseen impacts related to the piping collapse all necessary repairs to the blast furnace has been completed.

And the furnaces gradually being brought back online.

Usable hot metal is expected to be produced within the next seven days with a return to full production anticipated within the next two weeks.

Most importantly, we will undertake these recovery efforts with the safety of our employees and our community at the forefront.

While doing this we continued to advance the project on schedule.

I'd like to once again, thank all of our employees for their hard work dedication and professionalism.

Rajat: All necessary repairs to the blast furnace have been completed, and the furnace is gradually being brought back online. Usable hot metals are expected to be produced within the next seven days, with the return to full production anticipated within the next two weeks. Most importantly, we will undertake these recovery efforts with the safety of our employees and our community at the forefront. Meanwhile, while doing this, we will continue to advance the EAF project on schedule. I'd like to once again thank all of our employees for their hard work, dedication, and professionalism. Now, I will pass the call over to Roger to go over our financial results for the quarter. Thanks, Mike. Good morning, and thank you all for joining the call. As a reminder, all numbers are expressed in Canadian dollars unless otherwise noted.

Now I will pass the call over to Roger to go over our financial results for the quarter was it.

Thanks, Mike.

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

As a reminder, all numbers are expressed in Canadian dollars unless otherwise noted.

We shipped 516000 tons in the quarter up 12, 6% as compared to the prior year period.

Okay, then strip operations ran well in the quarter.

Even as we completed our normal seasonal maintenance, including our analytics team making vessels.

Net sales realization of extensive benign, but down three 3%, whereas the priority appeared.

The decrease versus the prior year levels, primarily reflect somewhat softer market conditions in the quarter.

In particular.

Lower prices is something from the UAW strike and due to the lagging nature of an order book.

Please pricing continued to enjoy a significant premium relative Coca Cola quiet during the quarter.

Driven by resilient demand, particularly from spending on infrastructure projects in Europe.

Rajat: We shipped 516,000 tons in the quarter, up 12.6% as compared to the prior year. Our plate and strip operations ran well in the quarter, even as we completed a normal seasonal maintenance program, including our annual steelmaking vessels. Net sales realization averaged 1079 per turn, down 3.3% versus the prior year. The decrease versus the prior year level primarily reflects somewhat softer market conditions in the quarter.

Revenue in the quarter totaled $556 9 million up eight 8% versus the same quarter of last year, reflecting the increase in shipments more than offset lower average.

<unk> like on upstream.

On the cost side, although mass costs become upstream thoughts on average 10 27 in the quarter down 11, 2% Western society yet either.

The decrease versus the prior year is primarily attributable to favorable leverage on higher volumes.

This resulted in adjusted EBITDA in the quarter of negative $1 million and adjusted EBITDA margin of negative 2%.

Rajat: In particular, the residual lower prices resulting from the UAW strike and due to the lagging nature of our audit. Plate pricing continued to enjoy a significant premium relative to hot roll coils during the quarter, driven by resilient demand, particularly from spending on infrastructure projects and durable goods. Steel revenue in the quarter totaled $556.9 million, up 8.8% versus the same quarter of last year, reflecting the increase in shipments that more than offset lower average realizations per ton. On the cost side, Algoma's cost per ton of steel products sold averaged $10.27 in the quarter, down 11.2% versus the prior year. The decrease versus the prior year period is primarily attributable to favorable leverage on higher This resulted in adjusted EBITDA in the quarter of negative 1 million and an adjusted EBITDA margin of negative 0.2%, an improvement from negative 35.9 million and negative 6.3% in the year of OPW. Cash used in operations totaled $47.4 million for the quarter compared to a use of $128.6 million in the prior year.

An improvement from negative $35 9 million from negative six 2% and but yet it will be there.

Cash used in operations totaled $47 4 million for the quarter compared to a use of $128 6 million in the priority of Peter.

But inventory that the quarter range, what 800, maybe $6 6 million up seven 8% during the quarter due to normal seasonal patterns.

Okay.

We would typically expect to lilly's inventories in the first half of calendar 'twenty going forward has.

Heavily weighted towards the first calendar quarter, but the impact of the Coke, making plant incident will result in higher levels of inventory inputs like orange, causing delay.

The laying some of that going to stay there and went to their needs.

Looking prospectively, we do expect the fourth fiscal quarter, we experienced an extended hired if it got worse since of course fiscal quarter.

Earnings performance, along definitely be impacted by the production outage related to video continues to collapse.

Also we expect the incident to impact production and shipments are more than things.

Roughly 120000 tons 250000 deaths.

It should be noted that can go muck Daddy standard in children's coverage that was in <unk>.

To protect the company at times like these.

Including business interruption insurance.

Rajat: Our inventories at the quarter end were $886.6 million, up 7.8% during the quarter due to normal seasonal build patterns ahead of winter. We would typically expect to release inventories in the first half of calendar 2024, heavily weighted towards the first calendar quarter, but the impact of the coke making plant incident will result in higher levels of inventory for inputs like ore and coal, delaying some of that anticipated inventory. Looking prospectively, we do expect the fourth fiscal quarter to experience directionally higher EBITDA versus the third fiscal quarter. Earnings performance will obviously be impacted by the production outage related to the utility structure collapse.

Have begun the process of submitting claims under our policy for covered losses, and he told them that just us and advise us what onsite insourcing.

Yeah listen closely with them because they killed all protection.

We expect to have more details on this front in coming months.

From a working capital perspective.

I had mentioned on a previous call that we expect to release, a total of $150 million by the end of fiscal 2025.

With approximately $100 million of working capital go down.

Fourth fiscal quarter of 2024.

On account of the Coke, making no cookies structure collapse and the related operational outages, you expect or at least 70% less than what he is going to be expected.

In the fourth fiscal quarter.

This timing issue is that you cannot releasing the balance over the subsequent quarters and we still expect other leaves approximately 150 million or to speed up.

I would like to provide a creation of our funding plans for the project.

As previously noted our outlook for total cost of the project remains in the range of intermittent 25 million to 875 million.

Rajat: All told, we expect the incident to impact production and shipments for more than three years, totaling roughly 120,000 tons to 150,000. It should be noted that Algoma carries standard insurance coverage that is intended to protect the company at times like these, including business interruption. We have begun the process of submitting claims under our policy for covered losses, and children's adjusters and advisors who were on site in Sussembra. We are working closely with them to secure our protection. We expect to have more details on this front in the coming weeks. From a working capital perspective, we had mentioned on a previous call that we expect to release a total of $150 million by the end of fiscal 2020, with approximately $100 million of working capital drawdown in the fourth fiscal quarter of 2021. On account of the coke making utility structure collapse and the related operational outages, we expect to release 70% less than originally expected amount in the fourth fiscal quarter.

Towards the end of the quarter.

Spent 510 million or 60% of the expected total.

Leaving $340 million investment in a moment.

Yeah, well positioned today and we look at our expected sources for those expenditures over the course of 2024.

We have structured our balance sheet such as the only long term debt is in the form of Goldman colon linked to our capital projects.

Allowing us to maintain a very low leverage profile.

But the ample liquidity of nearly 400 million at quarter thing to manage who market fluctuation and complete our capital initiatives yes.

We have cash on hand of nearly 95 million another $76 million available capacity on our second sits alone and approximately $150 million of cash to be generated from working down excess working capital in the months that come.

Combined.

Pretty much as we expected capital requirements to complete the project.

Lighting artisan it good one this transfer has made this project as planned.

I'd now like to turn the call back to our CEO, Michael Garcia for closing comments Mike.

Thank you Roger.

Looking at the state of the North American steel market Hot rolled coil index prices move dramatically higher in October as a settlement and the UAW strike became apparent and steel consumers rush to replenish their inventory needs.

Rajat: This timing issue will result in us releasing the balance over the subsequent quarters, and we still expect to release approximately $150 million over the next. I would like to provide a recap of our funding plans for the year project. As previously noted, our outlook for the total cost of the project remains in the range of $825 million to $875 million. Though by the end of the quarter, we had spent 510 million, or 60% of the expected total.

Over the calendar fourth quarter pricing moved from the mid 600 range to touch nearly $1100 per net ton by the end of the year.

So far in 2024 has come in with index prices dropping by approximately $50 and futures falling into the mid $800 per ton U S average for the balance of 2024.

Rajat: Needing 340 million in investment, we are well positioned today when we look at our expected sources for those expenditures over the course of 2025. We have structured our balance sheets such that the only long-term debt we carry is in the form of government loans linked to our capital projects, allowing us to maintain a very low leverage profile, and an example liquidity of nearly 400 million at quarter end to manage through market fluctuations and complete our capital initiative. We have cash on hand of nearly $95 million, another $76 million of available capacity on our federal SIP loan, and approximately $150 million of cash to be generated from working down excess working capital in the months ahead. Combined, this roughly matches the expected capital requirements to complete the project, highlighting our ability to advance this transformative project at lightning speed. I'd now like to turn the call back to our CEO, Michael Garcia, for closing comments. Mike.

Falloff from yearend highs these prices still represent a meaningful improvement from levels seen during much of 2023.

As Roger mentioned we.

We are also supported by the fact that plate pricing continues to demonstrate a significant premium as overall demand for plate products remains high.

This in turn continues to benefit our average price realizations, especially as we ramp up operations in our plate mill.

'twenty 'twenty four will be an important year in the story of Algoma as we continue to execute work towards the commissioning of our transformative EIF project.

This will usher in the next phase of our company that define the future of Algoma provides the foundation for long term value creation for our stakeholders and solidifies our leadership position at the forefront of Green steel production in North America.

Thank you very much for your continued interest in Algoma steel at this point, we'd be happy to take your questions. Operator, Please give the instructions for the Q&A session.

Thank you we will now be conducting 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 in the question queue.

Michael Dennis Garcia: Thank you, Rudget. Looking at the state of the North American steel market, hot-rolled coil index prices moved dramatically higher in October as a settlement in the UAW strike became apparent, and steel consumers rushed to replenish their inventory needs. Over the calendar fourth quarter, pricing moved from the mid $600 range to touch nearly $1,100 per net ton by the end of the year. However, pricing so far in 2024 has come in with index prices dropping by approximately $50 and futures falling into the mid $800 per ton U.S. average for the balance of 2024. While off from year-end highs, these prices still represent a meaningful improvement from levels seen during much of 2020. As Rajat mentioned, we are also supported by the fact that plate pricing continues to demonstrate a significant premium as overall demand for plate products remains high.

Press Star two if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Yes.

Okay.

Thank you. Our first question is from David Ocampo with core Mark Securities. Please proceed with your question.

Thanks for taking my questions. My first one is just on a bigger picture question I guess when you look to 2025.

You guys are always discussed being a hybrid operator, either tilting towards being a pure play E F or throwing in a little bit of your blast furnace there.

When you think about the issues that that just happened at the Koch facility and and and even the blast furnace that does that change your tune on what you guys. Ultimately decide for 2025 or is it just going to come down to cost I'm curious on your thoughts there.

Hi, David This is Mike.

Yeah, I think that right now our plan still remains to operate in 2025 in a hybrid mode.

Michael Dennis Garcia: This, in turn, continues to benefit our average price realizations, especially as we ramp up operations on our plate. 2024 will be an important year in the story of Algoma as we continue to execute work towards the commissioning of our transformative EAF project. This will usher in the next phase of our company that defines the future of Algoma, provides the foundation for long-term value creation for our stakeholders, and solidifies our leadership position at the forefront of green steel production in North America. Thank you very much for your continued interest in Algoma Steel. At this point, we would be happy to take your questions. Operator, please give the instructions for the Q&A session.

That's been the plan for some time as well as.

We think it makes the right financial sense as well and obviously financials will continue to keep a very close eye on that.

Given the incident this.

In the past two weeks, we will have to understand the state of the asset to make sure we're comfortable with the asset integrity of both the blast furnace, which.

We pay a lot of attention to and it features very prominently on our our asset integrity and asset reliability plan, but as well as the.

The coke ovens, but assuming nothing significantly changes in either one of those.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. Confirmation, Tom Mulniquet, your line is in. You may press star 2 if you'd like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

That gives our analysis, we feel comfortable with our current plan.

Got it and it may be early days and maybe this one's for vision on it but how should we be thinking about the cost structure. When you guys are hybrid operator or is it cost plus type model or just.

Operator: One moment, please, while we poll for questions. Thank you. Our first question is from David Ocampo with Cormark Securities. Please proceed with your question. Thank you for taking my questions, but my first one is just a bigger picture question.

I'm just curious what the added cost will be with the dual cost structure due to manufacturing process.

Hi, David.

The best way to look at it is that we will be.

Michael Dennis Garcia: I guess when you look to 2025, you guys have always discussed being a hybrid operator and either tilting towards being a pure play EAF or throwing in a little bit of your blast furnace there. When you think about the issues that just happened at the Koch facility and even the blast furnace, does that change your tune on what you guys ultimately decide for 2025, or is it just going to come down to cost? I'm curious about your thoughts there. Hi David, this is Mike.

We will be operating.

And additional facility, which is the electric arc facility N and as we indicated in the past it probably will caddie Hunter.

100 200.

40 people more.

From combining perspective, which is which of which could come to a fixed fixed cost and that's most of it becomes a variable in the form of youth.

Using metal in the electric arc furnace will use them better.

Michael Dennis Garcia: Yeah, I think that right now our plan still remains to operate in 2025 in a hybrid mode. That's been the plan for some time, as well. We think it makes the right financial sense as well.

Through the blast furnace, so so as far as the added fixed cost is concerned it's a it's that and Andy and the maintenance costs will not be much as it is as it is in your new asset. So we don't expect it to be substantially higher than as we go through it it definitely will be hired as the transitioning in.

Rajat: Obviously, financials will continue to keep a very close eye on that. Given the incident in the past two weeks, we'll have to understand the state of the assets and make sure we're comfortable with the asset integrity of both the blast furnace, which we pay a lot of attention to, and it features very prominently on our asset integrity and asset reliability plan, but also the coke ovens. Assuming nothing significantly changes in either one of those perspectives or analyses, we feel comfortable with our current plan. Got it.

And as is the LTE transition and start shutting down the facilities and start reducing the fixed cost on those facilities the cost will start coming down.

Got it and lots of them from me Rich you gave some capital plans are at least as it relates to the Eas I was hoping you could get to square up the total capex for this year broken down by maintenance.

Rajat: It may be early days, and maybe this one's for Rajat, but how should we be thinking about the cost structure when you guys are the hybrid operator? Is it, you know, a cost plus type model, or, you know, just curious what the added cost will be with a dual cost structure or dual manufacturing process? Hi David, the best way to look at it is that you know we will be operating an additional facility, which is the electric arc facility, and as we indicated in the past, it probably will carry, you know, 100, 200 and 40 people more from a manning perspective, which becomes your fixed cost. And the rest, most of it becomes variable in the form of using metal in the electric arc furnace or using metal through the blast furnace.

Modernization and then layering on the half on top of that.

So when you see this year, you're talking about 2020 slate Cisco.

I guess 24 calendar.

20 full calendar, so yeah pretty much.

Should be should be in line so it should be oh.

Roughly.

250.

50 odd million dollars on.

Yes that will be spending from Capex perspective, and this is gross capex.

Not.

Not met.

And then b there'll be spending on our maintenance. It's it's roughly 100 at 100 $220 million on our maintenance Capex.

Rajat: So as far as the added fixed cost is concerned, it is that, and the maintenance cost will not be much as it is a new asset. So we don't expect it to be substantially higher as we go through it. It definitely will be higher as we are transitioning, and as we transition and start shutting down the facilities and start reducing the fixed costs on those facilities, the cost will start coming down. Lots of premieres, you gave some capital plans, at least as it relates to the EAF. I was hoping you could square up the total capex for this year broken down by maintenance, the plate modernization, and then layering on the EAF on top of that. So when you say this year, you're talking about 2025 fiscal. I guess 24 calendar. 24 calendar.

We will be spending so that's that's your that's your total bill.

There is some placement capex that will be spent in the first quarter.

And a little bit later on.

To complete the complete the play per project.

But that's that's how the Capex will run a bit is the money spent on recovery of the coke batteries, which.

Which definitely will form part of the whole analysis.

Longer than children's but that's that that would be an addition.

Got it okay. Thanks, so much I'll hand, the call over.

Okay.

Thank you. Our next question Mr. Carter Johnson with BMO capital markets. Please proceed with your question.

Rajat: So yeah, pretty much should be in line. So it should be, you know, roughly $250 odd million dollars on EAF that we'll be spending from a CapEx perspective, and this is gross CapEx, not net. And then we will be spending on our maintenance, it's roughly 100 to $120 million on our maintenance CapEx that we will be spending. So that's your total.

Hi, Thank you for taking my questions first just to confirm you expect EBITDA to be higher sequentially in <unk>.

That's correct.

And that's mostly going to be driven by pricing or is there any cost.

Puts and takes there.

Is it mostly will be pricing cost will be pretty similar.

Rajat: Now there is some Platenil CAPEX that will be spent in the first quarter and a little bit later on to complete the Platenil project. And that's how the CAPEX will run. There is money spent on recovery of the coke batteries, which definitely will form part of the whole analysis that we are doing along with insurance, but that will be in addition. Got it. Thanks so much. I'll hand the call over.

Now from variable cost perspective fixed cost depending on the volume definitely will be higher, but it's mostly coming from right.

And then this currently assumes three weeks of lost production right.

Yeah.

The 1200 50000 tonnes so.

Our production and shipment.

And maybe just on the blast furnace at close to needing a full re line is there a risk that that complicates the restart.

Rajat: Thank you. Our next question is from Kaksha Janssen. BMO, please proceed with your. Hi, thank you for taking my questions. First, just to confirm, you expect EBITDA to be higher sequentially in 4Q? That's correct. And that's mostly going to be driven by pricing, or is there any cost? Puts and takes there.

Hi, Katja this is Mike.

No not really I think the.

The blast furnace disruption.

Hmm.

Was more related to the utility service incident.

Rajat: It will mostly be pricing. Cost will be pretty similar, and, and you know, from a variable cost perspective, fixed cost, depending on the volume, definitely will be higher, but it's mostly coming from price. And this currently assumes three weeks of lost production, right? Yeah, roughly 120 to 150,000 tons of production and shipbuilding. And maybe just on the blast furnace, it's close to needing a full reline. Is there a risk that that complicates the restart? Hi Katja, this is Mike. No, not really.

Coke, making.

We've restarted it and are slowly bringing it back to two good to good metal I don't think that.

Yes.

At the time since the last re line is really a factor into the.

The incident that happened or.

The state that will get it back to once we're making good metal.

Does that help.

Yes, Thank you I'll hop back into the queue.

Thank you. Our next question is from Ian Myles with Stifel. Please proceed with your question.

Michael Dennis Garcia: I think the blast furnace disruption was more related to the utility service incident at Cokemaking. We've restarted it and are slowly bringing it back to good metal. I don't think that the time since the last reline is really a factor in the incident that happened or the state that we'll get it back to once we're making good metal. Does that help? Yeah, thank you. I'll hop back into the queue.

Morning, everyone.

Hey, good morning, Ian.

Just to reconfirm on the working capital numbers you provided.

Were you, suggesting that for fiscal year 'twenty four it will be call. It a $40 million to $50 million release, and then in fiscal year 'twenty five.

Operator: Thank you. Our next question is from Ian Giles with Stiefels. Please proceed with your question. Good morning, everyone.

We're looking at another at a $100 million release.

Yes.

Okay and.

And the follow on from that question is does that contemplate.

Operator: Morning Ian. Just to reconfirm on the working capital numbers you provided, were you suggesting that for fiscal year 24, there will be, call it, a $40-$50 million release, and then in fiscal year 25, we're looking at another $100 million release? Yep. And the follow-on from that question is, does that contemplate incurrence of or investing in additional working capital ahead of the EAF ramp? Because I presume you're gonna have to start buying scrap ahead of startup and commissioning at year-end. Yep, it does.

Incurrence of are investing in additional working capital ahead of the a F ramp because I presume you're going to have to start buying.

Scrap ahead of startup and commissioning at year end.

Yes, it does and just for context, we are we will be buying scrap but not much as we are.

Not much but end of this year as we are ramping up.

Rajat: And just for context, we will be buying scrap but not much by the end of this year as we are ramping up. It probably will be more in the following year as we buy more. And at that point in time, our iron ore and coal inventory will go down substantially as well. So, yes, it does consider whatever we will buy for the ramp-up. And we'll still be reducing that $100 million or $150 million total by the end of the year. Rajat, given some of the, I guess, timing differences now with spending in relation to the EAF and the use of the credit facility, is there anything within the government loans you have right now that prevents the incurrence of additional debt or anything like that that could limit your availability? No, there are buckets or baskets which are available that we can use if we have to tap the credit market.

It probably will be more in the following year.

As we buy in at that point in time.

Iron ore and coal inventories will go down.

Substantially as well so so yes, it does consider whatever whatever we will buy for the ramp up.

And we'd still be reducing that one.

$100 million.

150 in total by next year.

Okay.

And Richard given some of I guess, the timing differences now with spending in relation to the E F and the use of the credit facility is there anything within the government loans you have right now that prevents the incurrence of additional debt or anything like that that could limit your availability.

Oh no. There are there are buckets or baskets with general ratable that weekend, if he has to stop the.

That market we can.

Okay.

Rajat: Okay. And then I suppose as we start looking into the remainder of this year, and as we think about the timing of the capital costs for the EAF, is that an update you'll provide with your typical guidance that you provide in the early part of April, or will that be provided at a later date, do you think? We're not sure what you mean by capital costs E&A.

And then I.

I suppose as we start looking into.

The remainder of this year and as we think about timing of the capital cost for the a F is that an update you'll provide with your typical guidance that you provided in the early early part of April or will that be provided at a later date do you think.

Yeah.

Okay.

Could you.

We're not sure what you mean by bye.

By the capital costs.

Rajat: Well, sorry, just to be clear, you suggested that you think you'll have all the projects secured and the capital costs secured by the end of this calendar quarter, and you typically provide guidance in and around EBITDA for a quarter, call it early the following month, so early April. I was just wondering if, within that release, you think you'll provide an update on the EAF and costs, etc. Thank you. Thank you. Yeah, sure, we will, you know, as we typically do, we will provide where we are on the EF on the capital cost side. Our expectation is that the majority of our costs should be fixed by that time. And we'll definitely provide an update by that time. Okay, thanks very much. I'll turn it back over.

Sorry, just to be clear you had suggested that you think you'll have them every all the projects secured in the capital cost secured by the end of this calendar quarter.

And you typically provide guidance in and around EBITDA for a quarter call. It early the following month. So early April I was just wondering if within that release, you think can provide an update on D E F and cost et cetera.

Yes sure reboot.

As we enter it typically adobe Bill provide.

Yeah.

They'd be out on the on the ear on the capital cost side odd expectation as majority of our cost should be fixed by that time.

And we'll definitely provide an update.

By that time.

Thanks, very much I'll turn it back over.

Rajat: Thanks, Ian. Thank you. Our next question is from Ahmed Shah with Beacon; please proceed with your, Hey guys, just maybe a first follow-up question: what reference point do you suggest we use in terms of shipments for Q4 relative to the 120 to 150K that you guys mentioned? Just because there's a lot of variability here to date on the shipment volume.

Thanks Ian.

Thank you. Our next question is from Amit Shah with Beacon Securities. Please proceed with your question.

Hey, guys just maybe.

First follow up I guess, what my Butlins point.

Point do you suggest we use in terms of shipments for Q4 relative to the one on plumbing to warm 50, K that you guys mentioned.

Just because there's a lot of value ability here to date on on the shipments volume.

Rajat: Yeah, typically, we are at around, you know, 550 as an average for each quarter, so you can start from there. Perfect, that's very helpful. In terms of pricing, I guess you guys said that you expected directionally higher prices throughout calendar 24 compared to calendar 23. Is the driver behind that just the current futures curve, or what assumptions are you driving with this comment?

Yes. So typically we are at around 550 as an average for each quarter. So you can you can start from there.

Perfect. That's that's that's very helpful.

And in terms of a pricing I guess you guys are cute.

So do you expect directionally stronger prices or throw out calendars twenty-four compared to calendar 'twenty.

The driver behind that is just becoming futures curve or what assumptions are you is this.

This his comments.

Yeah, it's a it's actually the future curves that we are that we're seeing that's driving the pricing is the other thing that's definitely driving our expectation for this year is the spending that's happening on the and on the infrastructure and other areas.

Rajat: It's actually the future curves that we are seeing that's driving where pricing is. The other thing that's definitely driving our expectation for this year is the spending that's happening on infrastructure and other areas. The consumption as such or the demand as such has been stable, so we don't expect big changes as such other than the sentimental changes that happen. Also, we are factoring in the cost element, which has kept the lows at a higher number and kept the average, through the cycle pricing, at a higher number as well. So some of those factors are considered, but yes, the futures are also indicating where the price is going.

The consumption is such where the demand as such has been stable. So we.

We don't expect.

Big changes as such other than the sentimental changes that happened and also most of their factoring in the cost.

The cost element, which which has kept the lows at a higher number.

<unk> kept the average.

Through the cycle pricing at a higher number as well so some of those factors.

Are considered but yes. The futures are also indicating where the pricing is green.

Okay. That's that's very helpful. Thanks for that.

Michael Dennis Garcia: Okay, that's helpful. Thanks for that. And last one, I'm not sure if you guys touched on this, but are you guys planning, maybe, as we get closer to the commission or BAF, to just update us on the potential savings and OPEX structure? I mean, it's been a while since I think the last update we had was from the data from the roadshow while you're going public. Just wondering if there is a chance we get an update on around those numbers this year. Yes, this is Mike.

Last one I'm not sure if you guys touched on it but are you guys planning a movie.

As we get closer to the commission will be F. Just update us on that.

Potential savings in Opex.

Sure.

It's been a while since he was the last update we had those from the data from the Roadshow. While you go public. This one there was a chance we get an update around those numbers this year.

Yes, Tom This is Mike <unk> will continue to do that.

Michael Dennis Garcia: We'll continue to do that as we update information and get closer to the commissioning or the commencement of commissioning on the EAF at the end of this year, both on where what our end state will be as well as more information around what the short hybrid period will look like from that perspective. That's that's really helpful. Thanks guys so much. Thank you. Our next question is from Lucas Pipes with B. Reilly. Please proceed with your order. Thank you very much, Operator. Good morning, everyone.

As we update information and get closer to the commissioning of the commencement of commissioning on the a S. At the end of this year.

Both on.

What are what our end state will be as well as.

No more.

Information around what the what the short hybrid period will look like from that perspective.

No.

That's really helpful. So that's also my question.

Thank you. Our next question is from Lucas pipes with B Riley Securities. Please proceed with your question.

Thank you very much operator, good morning, everyone.

Operator: Apologies if I missed this, but I wondered if you could maybe provide some color in terms of dollars and cents in regards to the Coke incident and wondered what the OPEX impact this year might be, and then also from a CAPEX side, what will be any additional costs from the incident in the longer term, any kind of long-term costs to consider. Thank you very much. Sure, I'll start with Lucas.

Apologies if I missed this but I wondered if you could maybe.

Provide some some color in terms of dollars and cents in regards to the Coke incident.

Wondering what's the Opex impact this year might be and then also from a capex side.

What what will be any additional costs from the incident in the longer term.

Any any kind of long term cost to consider thank you very much.

Sure I'll start Lucas.

Michael Dennis Garcia: So we've completed the preparation of the repair plan using it both outside engineering and internal resources. So we expect the total repair cost to be in the 20 to $30 million range and should be complete sometime in the April time period. In terms of cost, beyond that, our aim is to do a complete recovery back to full production of the coke batteries. Thankfully, during the incident, none of the three batteries suffered any thermal integrity degradation. We were able to protect the thermal integrity of all three batteries.

So we've completed the.

The preparation of the repair plan.

Using it out both outside engineering and.

Internal resources. So we expect the total repair cost to be in the $20 million to $30 million range.

And should be complete sometime in April.

Time period in terms of cost.

Beyond that our our aim is to.

Do a complete recovery back to full.

Full production of the the Coke batteries.

Thankfully during the incident.

None of the three batteries suffer.

Suffered any any thermal integrity.

Gradation, we were able to protect the thermal integrity of all of all three batteries. So.

Rajat: So once the repair is executed, our goal is to get back to pre-incident coke production levels. Got it. Any any longer term costs that might be associated with this? I think it's, It's too early to say, but the way we've looked at it right now and the work that we are doing, the batteries as such are okay, the valves are okay, so we don't expect much to much degradation there, which is the key from a long-term cost perspective. As far as the corridor is concerned, the piping, that's the cost that we have assessed, which is 20 to 30.

Once the repair is is executed.

Our goal is to get back to pre incident.

Coke production levels.

Got it.

Any any longer term.

Cost that might be associated with this.

Uh huh.

I think it's.

It's too early to say, but we believe the way we've looked at it right now and the work that we're doing the batteries are such are okay. The walls are okay. So we don't expect much too.

Much degradation, there, which is which is the key from long term cost perspective as far as the corridor is concerned the piping.

So that's the cost could be of SaaS, which is 20 to 30, so at high level.

Rajat: So at a high level, we don't think that there will be additional cost, but we'll know more as we start the furnace at full production. And just in added color, during that period, we'd probably be running at 30 to 40 percent of our production and using external code during this quarter. So, and come next quarter, we should get down to our full production level.

We don't think that there'll be additional cost.

But we'll know more as the as he started the furnace to full production and <unk>.

Just an added color during that period, we'd probably be running at 30% to 40% of our production and using external coke during this quarter.

And come next quarter, we should we should get down to <unk>.

Full production levels.

Rajat: Very helpful. Thank you. And I'll turn to a kind of high-level topic and M&A. I saw a very active process in the U.S. with U.S. Steel, and I kind of wondered how you look at the M&A landscape at this time. Is there something that you think strategically could really benefit Algoma, or how do you expect the landscape to evolve, maybe more within Canada? Hi Lucas.

Very helpful. Thank you.

Ill turn to kind of high level top.

Topic on M&A.

So a very active process.

In the U S with U S steel and kind of I'm wondering how you look at the M&A landscape at this at this time is there something.

That you think strategically.

Could could.

Billy benefit Algoma.

Or how do you expect that the landscape for kind of evolve maybe more western Canada, but I appreciate your thoughts. Thank you.

Yeah.

Hi, Lucas.

Well I'm sure it will evolve it's our policy not to not to speculate or comment on on how we're we may be thinking around specific M&A opportunities.

Michael Dennis Garcia: While I'm sure it will evolve, it's our policy not to speculate or comment on how we may be thinking around specific M&A opportunities. But I appreciate the question. Anything that would, strategically, be uniquely beneficial to Algoma, or is it really just focusing on the EAF from your side? Nothing. Yeah, I mean, obviously, our short-term strategic path is clear.

I appreciate the question.

Yeah.

Anything that would strategically.

Maybe be the.

Uniquely beneficial to Algoma.

Or is it really just focus on the Eas.

So from your side nothing.

Yeah, I mean, obviously.

Our short term strategic path is clear, we believe that the ETF brings a tremendous.

Michael Dennis Garcia: We believe that the EAF brings tremendous strategic value to Algoma. We're laser-focused on executing it. We're on time, on budget, and we very much look forward to commissioning at the end of this year. All right. Well, I appreciate that.

Strategic value to to Algoma, where we're laser focused on.

Executing that where we are on time on budget and we very much look forward to commissioning at the end of this year.

Beginning commissioning.

Alright, well.

I appreciate that.

Michael Dennis Garcia: Thank you very much. Thank you. There are no further questions at this time. I'd like to hand the floor back over to Mike Marocca for any closing comments. Well, thank you very much again for your participation in our third quarter fiscal 2024 earnings conference call and your continued interest in Algoma Steel. We look forward to updating you on our results and progress when we report our fiscal fourth quarter results, scheduled for June. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Thank you very much.

Thank you there are no further questions at this time I'd like to hand, the floor back over to Mike Morrow, Morocco for any closing comments.

Well. Thank you very much again for your participation in our third quarter fiscal 2024 earnings conference call and your continued interest in Algoma steel, we look forward to updating you on our results and progress when we report our fiscal fourth quarter results scheduled for June. Thank you.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.