Q1 2025 Algoma Steel Group Inc Earnings Call
Rajat Marwah: and Michael Garcia, Rajat Marwah, Rajat Marwah, Rajat
Rajat Marwah: Music
I: Michael Garcia, Lucas Pipes, Ian Gillies, Michael Moraca
Speaker Change: Greetings and welcome to the Algoma Steel Group Fiscal First Quarter 2025 Earnings Conference Call.
Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A brief question and answer session will follow the formal presentation. As a reminder, this call is being recorded. I would now like to turn the call over to Michael Moraca, Vice President, Corporate Development, and Treasurer. Thank you, Michael. You may begin.
Speaker Change: At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A brief question and answer session will follow the formal presentation.
Speaker Change: As a reminder, this call is being recorded. I would now like to turn the call over to Michael Moraca, Vice President, Corporate Development and Treasurer. Thank you, Michael. You may begin.
Michael Moraca: Good morning, everyone, and welcome to Algoma Steel Group Inc.'s first quarter fiscal 2025 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 investor section of Algoma Steel's website. 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 US GAAP, and our discussion today includes references to certain non-IFRS financial measures.
Michael Moraca: Good morning everyone and welcome to Algoma Steel Group Inc.'s first quarter fiscal 2025 earnings conference call.
Speaker Change: 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 Investor section of Algoma Steel's website.
Speaker Change: I would like to remind you that comments made on today's call may contain forward-looking statements within the meanings of applicable securities laws, which involve assumptions and inherent risks and uncertainties.
Speaker Change: Actual results may differ materially from statements made today. In addition, our financial statements are prepared in accordance with IFRS, which differs from US GAAP, and our discussion today includes references to certain non-IFRS financial measures.
Michael Moraca: 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 2 of the accompanying earnings presentation and also to refer to the risks and assumptions outlined in Algoma Steel's first quarter fiscal 2025 management's discussion and analysis. Please note that our financial statements are prepared using the US dollar as their functional currency and the Canadian dollar as their presentation currency.
Speaker Change: Last evening we posted an earnings presentation to accompany today's prepared remarks.
Speaker Change: The slides for today's call can be found in the investors section of our corporate website.
Speaker Change: With that in mind, I would ask everyone on today's call to read the legal disclaimers on slide 2 of the accompanying earnings presentation, and also to refer to the risks and assumptions outlined in Algoma Steel's 1st Quarter Fiscal 2025 Management's Discussion and Analysis.
Speaker Change: 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.
Michael Moraca: Our fiscal year runs from April 1st to March 31st, and our financial statements have been prepared for the quarters ended June 30th, 2024 and June 30th, 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 over the call to our Chief Executive Officer, Michael Garcia. Thank you, Mike.
Speaker Change: Our fiscal year runs from April 1st to March 31st and our financial statements have been prepared for the quarters ended June 30th, 2024 and June 30th, 2023.
Speaker Change: 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 over the call to our Chief Executive Officer, Michael Garcia. Mike?
Michael Garcia: Good morning, and thank you for joining us to discuss our fiscal first quarter 2025 results. Ensuring the safety of our employees remains a core value and top priority for our company. This unwavering commitment led to significant improvements in our lost time injury performance during fiscal 2024, with continued focus into the current fiscal year. Our focus on safety is more crucial than ever, as our site continues to be a hub of activity with the EAF Project Advancement. This dedication is further emphasized in Algoma's 2nd Annual ESG Report, released this past Monday, which delves into a wide range of topics across the spectrum of environmental, social, and governance in greater detail.
Speaker Change: Thank you, Mike. Good morning and thank you for joining us to discuss our fiscal first quarter 2025 results.
Speaker Change: and sharing the safety of our employees remains a core value and top priority for our company.
Speaker Change: This unwavering commitment led to significant improvements in our lost time injury performance during fiscal 2024, with continued focus into the current fiscal year.
Speaker Change: Our focus on safety is more crucial than ever as our site continues to be a hub of activity with the EAF project advancing.
Speaker Change: This dedication is further emphasized in Algoma's second annual ESG report, released this past Monday.
Speaker Change: which delves into a wide range of topics across the spectrum of environmental, social, and governance in greater detail.
Michael Garcia: The report highlights our ongoing efforts not only in maintaining safety standards but also in advancing our broader ESG commitment, reinforcing our role as a leader in sustainable and responsible business practice. Next, I'll cover the key events and milestones during our fiscal first quarter, as well as give an update on the progress of 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 Martyx. First, our results for the quarter reflected overall conditions in steel markets, resulting in lower volumes and realized prices. Shipment volumes were also softer, reflecting the planned outage at our plate and strip facility in April.
Speaker Change: The report highlights our ongoing efforts not only in maintaining safety standards, but also in advancing our broader ESG commitments.
Speaker Change: reinforcing our role as a leader in sustainable and responsible business practices.
Speaker Change: Next I'll cover the key events and milestones during our fiscal first quarter, as well as give an update on the progress at our transformative EAF project.
Speaker Change: 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.
Speaker Change: There are a few important themes I would like to get across on this call.
Rajat Marwah: First, our results for the quarter reflected overall conditions in steel markets, resulting in lower volumes and realized prices.
Rajat Marwah: Shipment volumes were also softer, reflecting the planned outage at our plate and strip facility in April .
Michael Garcia: We prioritize plate production coming out of the outage and expect that we will continue to ramp up volumes over the next several quarters. Second, our balance sheet and liquidity are strong, having been bolstered by our U.S. $350 million notes offering in April, leaving us with cash at quarter end of almost $500 million and total liquidity of over $800 million. We are well funded to complete our EAF project. And finally, the EAF project is approaching a truly exciting milestone, nearing the planned beginning of commissioning of Unit 1 in our calendar fourth quarter.
Rajat Marwah: We prioritize plate production coming out of the outage and expect that we will continue to ramp up volumes over the next several quarters.
Speaker Change: Second, our balance sheet and liquidity are strong. Having been bolstered by our US $350 million notes offering in April.
Speaker Change: leaving us with cash at quarter end of almost 500 million and total liquidity of over 800 million. We are well funded to complete our EAF project.
Speaker Change: And finally, the EAF project is approaching a truly exciting milestone.
Speaker Change: nearing the planned beginning of commissioning of Unit 1 in our calendar fourth quarter.
Michael Garcia: Every day that goes by de-risks the project and brings us another step closer to being one of the greenest producers of steel in North America. Now, let me give you some additional color on those key themes.
Speaker Change: Every day that goes by de-risks the project and brings us another step closer to being one of the greenest producers of steel in North America.
Speaker Change: Now let me give you some additional color on those key themes.
Michael Garcia: Our results for the fiscal first quarter of 2025 were in line with our previously disclosed guidance for both shipments and adjusted EBITDA. They also reflected a continuation of the challenging market conditions we have seen this year in steel prices. We are laser focused on ensuring the safe operation of our existing legacy facilities, some of which are over 70 years old, as we make the transition to EAF steelmaking. All told, the combination of lower shipments and softer realized steel prices led to an overall decline in revenue, adjusted EBITDA, and cash flow generation versus the prior year period.
Speaker Change: Our results for fiscal first quarter of 2025 were in line with our previously disclosed guidance for both shipments and adjusted EBITDA. They reflected a continuation of the challenging market conditions we have seen this year in steel pricing.
Speaker Change: We are laser focused on ensuring the safe operation of our existing legacy facilities, some of which are over 70 years old, as we make the transition to EAF steelmaking.
Speaker Change: All told, the combination of lower shipments and softer realized steel prices led to an overall decline in revenues.
Speaker Change: Adjusted EBITDA and cash flow generation versus the prior year period.
Michael Garcia: As discussed on our last call, during the quarter, we successfully completed substantially all of the remaining upgrades related to the modernization of our plates. This upgrade involved installing new equipment across the facility that has enhanced product quality and is resulting in a steady ramp to higher plate shifts. Despite the facility being offline for three weeks, our plate shipments in the first fiscal quarter of 2025 were approximately 61,000 tons. The second phase of our two-part plate mill modernization project originally called for a final multi-week outage later this year.
Speaker Change: As discussed on our last call, during the quarter we successfully completed substantially all of the remaining upgrades related to the modernization of our plate mill.
Speaker Change: This upgrade involved installing new equipment across the facility that has enhanced product quality and is resulting in a steady ramp to higher plate shipments.
Speaker Change: Despite the facility being offline for three weeks, our plate shipments in the first fiscal quarter of 2025 were approximately 61,000 tons.
Speaker Change: The second phase of our two-part plate mill modernization project originally called for a final multi-week outage later this year.
Michael Garcia: However, our team was able to accelerate additional work during this outage so that the vast majority of the modernization project at the facility is now substantially complete. We expect any remaining items to be addressed with other planned maintenance activities over the coming year. We expect our fiscal second-quarter plate production to be close to 90,000 tons as we execute a steady ramp over the balance of the fiscal year towards our expected annual run rate capacity of over 650,000 net tons.
Speaker Change: However, our team was able to accelerate additional work during this outage so that the vast majority of the modernization project at the facility is now substantially complete.
Speaker Change: We expect any remaining items to be addressed with other planned maintenance activities over the coming year.
Speaker Change: We expect our fiscal second quarter plate production to be close to 90,000 tons as we execute a steady ramp over the balance of the fiscal year towards our expected annual run rate capacity of over 650,000 net tons.
Michael Garcia: With our previously announced exit from the wide-coil market during our 2025 fiscal year, we will be in position to prioritize plate production and sales, taking advantage of our position as Canada's only discrete producer of plate products. This should result in a more favorable product mix that is expected to drive meaningful margin enhancement.
Speaker Change: With our previously announced exit from the wide coil market during our 2025 fiscal year, we will be in position to prioritize plate production and sales, taking advantages of our position as Canada's only discrete producer of plate products.
Speaker Change: This should result in a more favorable product mix that is expected to drive meaningful margin enhancement.
Michael Garcia: With the maintenance outages on the blast furnace and the plate mill upgrade complete, our operations are running normally, and we continue to expect solid production levels in the second half of calendar 2024. In April, we completed a US $350 million note offering which bolstered our liquidity position as we enter the homestretch of our EAF project construction. Cash on hand at Quarter-In was almost half a billion dollars, and when combined with our undrawn credit facility, gives us great flexibility and security to execute our strategic growth strategy. Now, let me give you an update on our progress during the quarter on our electric arc furnace project. This is a truly exciting time in Sault Ste.
Speaker Change: With the maintenance outages on the blast furnace and the plate mill upgrade complete, our operations are running normally, and we continue to expect solid production levels in the second half of calendar 2024.
Speaker Change: In April , we completed a U.S. $350 million note offering, which bolstered our liquidity position substantially as we enter the home stretch of our EAF project construction.
Speaker Change: Cash on hand at quarter end was almost half a billion dollars and when combined with our undrawn credit facility gives us great flexibility and security to execute our strategic growth strategy.
Speaker Change: Now let me give you an update on our progress during the quarter on our electric art furnace project.
Michael Garcia: Marie, as we continue to see the skyline change at the site of the EAF, with the exterior sheeting closing the building in anticipation of commissioning activities commencing by the end of this year, with EAS Steel Production expected by the end of the calendar first quarter of next year. We will begin the ramp toward a shipping capacity of approximately 3 million tons per year. During the quarter, cumulative investment in the EAF project reached $611 million.
Speaker Change: This is a truly exciting time and sustainability as we continue to see the skyline change at the site of the EAS, with the exterior sheeting closing the building and anticipation of commissioning activities commencing by the end of this year.
Speaker Change: with EAS Steel Production, expected by the end of the calendar first quarter of next year. We will begin the ramp towards a shipping capacity of approximately 3 million tons per year.
Speaker Change: During the quarter, cumulative investment in the EAF project reached $611 million.
Michael Garcia: To date, we have committed contracts totaling approximately $850 million, with over 90% tied to fixed price contracts. Progress to date on both the construction of the project and the contracted portion of work yet to be completed has significantly de-risked the project budget. We expect that all remaining contracted work will be settled during the current quarter. As a reminder, our startup plan continues to include normal production from our existing steelmaking facility while ramping up steel production from our EAS in calendar 2025, followed by a complete switch to EAS production.
Speaker Change: Today, we have committed contracts totaling approximately 850 million with over 90% tied to fixed price contracts.
Speaker Change: Progress to date on both the construction of the project and the contracted portion of work yet to be completed has significantly de-risked the project budget.
Speaker Change: We expect that all remaining contracted work will be settled during the current quarter.
Speaker Change: 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 2025, followed by a complete switch to EAF production.
Michael Garcia: In summary, in very tough market conditions, we focused on what was within our control in the quarter, operating our existing facilities safely, completing the important upgrades at our plate mill, and advancing the EAF project on schedule and on budget. Near-term pricing weakness can't dampen our excitement for what's happening at our company and the huge step forward it represents for Algoma Steel and our community. I'd like to once again thank all our employees for their hard work, dedication, and professionalism. Now, I will pass the call over to Rajat to go over our financial results for the quarter. Thanks, Mike.
Speaker Change: In summary, in very tough market conditions we focused on what was within our control in the quarter. Operating our existing facilities safely, completing the important upgrades at our plate mill, and advancing the EAS project on schedule and on budget.
Speaker Change: Near-term pricing weakness can't dampen our excitement for what's happening at our company and the huge step forward it represents for Algoma Steel and our community.
Speaker Change: I'd like to once again thank all our employees for their hard work, dedication, and professionalism.
Speaker Change: Now I will pass the call over to Rajat to go over our financial results for the quarter. Rajat.
Rajat Marwah: Good morning, and thank you all for joining the call. As a reminder, all numbers are expressed in Canadian dollars unless otherwise noted. Our first quarter results included adjusted a bit of 37.7 million, which reflects an adjusted a bit of margin of 5.8 percent, and cash generated from operating activities of 12.5 million. We finished the quarter with a strong balance sheet, including $493 million of cash and availability of $351 million under our revolving credit facility. Now, let me dive into the key drivers of our Steel revenue of $5.97 million in the quarter, down 20.8% versus the prior year period.
Rajat Marwah: Thanks, Mike, good morning and thank you all for joining the Pauls.
Rajat Marwah: As a reminder, all numbers are expressed in Canadian dollars unless otherwise noted.
Rajat Marwah: A first quarter results included adjusted a bit of 37.7 million which reflects an adjusted a bit of margin of 5.8% and cash generated from operating activities of 12.5 million.
Rajat Marwah: We finished a quarter with a strong balance sheet, including $493 million of cash and availability of $351 million under our revolving credit facility.
Rajat Marwah: Now, let me dive into the key drivers of our performance.
Rajat Marwah: Still revenue of 597 million in the quarter down 20.8% versus the priority of period.
Rajat Marwah: We shipped 503,000 net tons in the quarter, down 11.6% versus the prior year quarter. The decline in decrees and shipments was largely attributable to the planned maintenance outage at our plate and strip facility as we work to complete the final stages of our plate mill modernization projects. Net sales realization averaged $1187 per ton, down 10.4% versus the prior year period. The decrease versus the prior year level reflects weaker market conditions partially offset by improvement in a value-added product mix as a proportion of steel sales.
Rajat Marwah: The ship 503,000 net turns in the quarter down 11.6% versus the priori of the quarter.
Rajat Marwah: The degrees and shipments was largely attributable to the planned maintenance outage at a plate and strip facility as we work to complete the final stages of our plate mill modernization project.
Rajat Marwah: Let's say it's Realization, average 1187 per ton, down 10.4% versus the prior year period.
Rajat Marwah: The decrease versus the prior year level reflects weaker market conditions, partially offset by improvement in a value added product mix as a proportion of steel sales.
Rajat Marwah: On the coastside, Algoma's cost per ton of steel product sold averaged 1069 in the quarter, up 12.5% versus the prior year period. The main drivers of the increase versus the prior year period include lower volume, the cost of replacing internally produced coke with purchased coke, and higher natural gas. Cash flow from operations totaled $12.5 million for the quarter, as compared to $163.9 million in the prior year period. The main driver of the decrease in cash flow in the quarter was lower operating income.
Rajat Marwah: On the cost side, Algoma's cost per ton of steel products sold averaged 1069 in the quarter, up 12.5% versus the prior year period.
Rajat Marwah: The main drivers of the increase versus the prior year period include lower volume, the cost of replacing internally produced coke with purchased coke, and higher natural gas.
Rajat Marwah: Casflow from Operation Total 12.5 million for the quarter has compared to 163.9 million in the prior year period.
Rajat Marwah: The main drivers of the decrease in cash flow in the quarter was lower operating income.
Rajat Marwah: Inventories at the quarter end were $800 million, down modestly from $808 million at the end of the 2024 fiscal year. We remain focused on driving downworking capital levels and continue to expect a release of at least 100 million in fiscal 2025. Next, I'll remind you of the financing activity we completed in early April. Our wholly owned subsidiary ESI issued an aggregated US $350 million of $9.8 billion.
Rajat Marwah: Inventories at the quarter end were $800 million, down modestly from $808 million at the end of the 2024 fiscal year. We remain focused on driving down working capital levels and continue to expect a release of at least $100 million in fiscal 2025.
Rajat Marwah: Next, I'll remind you of the financing activity we completed in early April.
Rajat Marwah: Our wholly owned subsidiary ESI issued an aggregated US $350 million of 9 1⁄8 senior secured second lien notes.
Rajat Marwah: Senior Secured, Secondly, Note, due April 2029. This move enhances the strength and flexibility of our balance sheet and reflects the positive view that credit investors have of our company and their confidence in our strategic direction and financial stability. All told, the company had cash of $4.93 million and unused availability under the revolving credit facility of $351 million, representing approximately $845 million of liquidity, plus approximately $45 million available on a strategic innovation fund loan supporting the EF project.
Rajat Marwah: Dua April 20, 29. This move enhanced the strength and flexibility of a balance sheet, and reflects the positive view that credit investors have of our company and their confidence in our strategic direction and financial stability.
Speaker Change: All told the company had cash of $0.93 million and unused availability under the revolving credit facility of $3.51 million, representing approximately $845 million of liquidity, plus approximately $45 million available on a strategic innovation fund loan supporting the EF project.
Rajat Marwah: One additional note on the insurance recovery related to the coke-making corridor collapse in January. We continue to work closely with our insurance providers and adjusters as they complete their assessments, while claims of this nature require a detailed adjudication process. We have made progress on the property damage component and expect to receive an advance payment of $25 million in the current court proceeding as we work through the balance of both the business interruption and property damage.
Speaker Change: 1 additional note on the insurance recovery related to the coke making corridor collapse in January.
Speaker Change: The continued to work closely with our insurance providers and adjusters as they complete their assessments.
Speaker Change: While claims of this nature require a detailed adjudication process, we've made progress on the property damage component and expect to receive an advance payment of 25 million in the current quarter.
Speaker Change: as we work through the balance of both the business interruption and property damage claim.
Rajat Marwah: Now I'll turn the call back to Mike Garcia, our CEO, for closing remarks. Thanks, Rajat. Looking at the state of the North American steel market, prices have generally weakened through spring and into the summer. While prices have shown signs of stabilizing somewhat since late July, we do expect that these prices will generate headwinds on earnings performance over the near term. Software market conditions in the last few months reflect ample spot supply, short lead times, economic uncertainty, and cautious buying during the typically slower summer buying season.
Speaker Change: Now I will turn the call back to Michael Garcia CEO for closing remarks.
Michael Garcia: Thanks Rajat.
Michael Garcia: Looking at the state of the North American steel market, prices have generally weakened through the spring and into the summer.
Speaker Change: While prices have shown signs of stabilizing somewhat since late July, we do expect that these prices will generate headwinds on earnings performance over the near term.
Speaker Change: Software Market Conditions, the last few months, reflect ample spot supply, short lead times economic uncertainty and cautious buying during the typically slower summer buying season.
Michael Garcia: As we wait for these headwinds to abate, we will continue to focus on what we can control, operating our facilities safely, and positioning ourselves to best capture market opportunities as they arise. We have been on this journey to bring electric arc furnace steelmaking to Sault Ste. Marie for close to five years.
Speaker Change: As we wait for these headwinds to abate, we will continue to focus on what we can control, operating our facilities safely and positioning ourselves to best capture market opportunities as they arise.
Speaker Change: We have been on this journey to bring electric arc furnace steel making to Sault Ste. Marie for close to five years. Our entire company is energized as we approach this major milestone.
Michael Garcia: Our entire company is energized as we approach this major milestone. In the months ahead, we will continue to relentlessly focus on the safe operation of our existing facilities while executing the commissioning of our transformative EAF project. Our strategic vision and undertaking this endeavor is expected to unlock significant shareholder value while delivering some of the greenest steel in North America. Thank you very much for your continued interest in Algoma Steel. At this point, we would be happy to take your question. Operator, please give the instructions for the Q&A session. Thank you.
Speaker Change: In the months ahead, we will continue to relentlessly focus on the safe operation of our existing facilities while executing the commissioning of our transformative EAF project.
Speaker Change: Our strategic vision in undertaking this endeavor is expected to unlock significant shareholder value while delivering some of the greenest steel in North America.
Speaker Change: 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.
Operator: We're now conducting our quick Q&A session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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.
Speaker Change: Thank you very much.
Speaker Change: Thank you. We'll now be keeping our quote to an A session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone when the gate your line is in the question queue. You may press star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Operator: One moment, please, Mollie Paul, for questions. Thank you. Our first question is from David Ocampo with Cormac Securities. Please proceed with your question. Thanks for taking my questions.
Speaker Change: Thank you very much for watching this video.
Speaker Change: Thank you, our first question is from David Ocampo with Coremax Securities. Please Thank you for saving your question.
David Ocampo: Maybe the first one here for Rajat, you know, we're getting closer to the EAF coming online. I was wondering if you could help us understand the duplicate costs that you guys will incur during the hybrid phase, and then the second part of the question is, what do unit economics look like once we're a full EAF operator? Is it scrap plus $200 to $220 in conversion costs? I think that's a number you've alluded to in the past, so just hoping that you could refresh us on that. I should have it, and thanks for the question.
David Ocampo: Thanks for taking my questions. Maybe the first one here for Rajat, you know, we're getting closer to the EAF coming online. I was wondering if you could help us understand the duplicate costs that you guys will incur.
David Ocampo: during hybrid phase, and then the second part of the question is, what do unit economics look like once we're a full EAF operator? Is it scrap plus $200 to $220 of conversion costs? I think that's a number you've alluded to in the past, so just hoping that you could refresh us on those metrics.
Rajat Marwah: So, as we transition through the EF, the major cost change that will happen while we are running in the transformator mode is the labor cost from a fixed cost perspective and then the gap, the difference between purchasing scrap or producing hot iron internally. The way we see it is that next year when we start producing from both the furnaces, which is the plus furnace running at its current capacity, and EF adding tons as we ramp up, our cost on a per ton basis will come down because there will be more volume. But on absolute terms, the cost will be on a fixed basis will be very similar.
Speaker Change: Sure David and thanks for the question. So as we as we transition through the EAF, the major cost change that will happen while we are running in the transformative mode.
Speaker Change: is the labor cost from fixed cost perspective and then the gap, the difference between purchasing scrap or producing hot iron internally.
Speaker Change: The way we see it is that next year when we start producing from both the furnaces, which is the PLOS furnace running at their current capacity and EF adding tons,
Speaker Change: as we ramp up.
Speaker Change: are caused on a pertinent basis.
Speaker Change: will come down because there will be more volume.
Speaker Change: but on absolute terms the cost will be on a fixed.
Rajat Marwah: The variable cost will vary based on some of the index contracts that we have and scrap purchase. But on a fixed cost basis, it will be very similar to what we have right now because the number of people that we need to run the furnace is already in the current cost. As you can see, they are here, they are getting trained, they are writing SOPs, and so on and so forth.
Speaker Change: Basis would be very similar variable will vary based on
Speaker Change: based on some of the index contracts that we have in scrap purchase.
Speaker Change: but on a fixed cost basis it will be very similar to what we have right now because the number of people that we need to run the furnace is already in.
Speaker Change: the current cost as you're seeing they're here, they're getting trained, they're writing SOPs and so and so forth. So, our cost will, on a certain basis, will come down as we start producing more and shipping more during the transformative period and when we get to the stage where
Michael Garcia: So our cost will, on a per ton basis, come down as we start producing more and shipping more during the transformative period, and when we get to the stage where we shut down the blast furnace and get into only the electric arc furnace, there will be substantial savings on the fixed cost side as people will go out to match the operational capabilities. We will look at scrap plus 200 to 220 in a very similar range as I mentioned earlier from our full cost perspective.
Speaker Change: where we shut down the blast one is and get into.
Speaker Change: Only electric arc furnace there will be substantial savings on the fixed cost side as people will go out.
Speaker Change: to match with the operational capabilities. We will look at SCRAP plus 200 to 220 in the very similar range as I as I mentioned earlier from our full cost perspective.
Michael Garcia: Okay, and I think if we're thinking about the reduction in headcount, I think it was close to 1000 employees, if I'm not mistaken, can you update us on how that's going to be achieved? Or are there going to be sizable transition costs as it relates to reducing headcount? Hi David, this is Mike.
Speaker Change: Okay, and I think if we're thinking about the reduction in headcount, I think it was close to a thousand employees if I'm not mistaken. Can you update us on how that's going to be achieved or is it going to be sizable transition costs of the relates reducing your headcount?
Michael Garcia: Yeah, I mean, the most impactful savings or changes that will happen from a head count perspective will be when we no longer operate our Coke Ovens. There will be some smaller adjustments in some of the supporting departments, such as maintenance and some of the infrastructure support departments, but your head count number is about right from an execution standpoint. It's relatively straightforward when you no longer run an asset or a department. It's well laid out, and in the CBA, what happens to those employees as they leave the company? They retain some recall rights within the collective bargaining unit for a period of time, and the cost of making that Ted Count reduction is pretty well laid out in the CBAs, and we have good visibility into it.
Speaker Change: Hi, David. This is Mike. Yeah, I mean, the the most impactful savings or part.
Speaker Change: changes that will happen from a head count perspective will be when we no longer are operating our blast furnace and...
Speaker Change: and Coke ovens. There'll be some smaller adjustments on some of the supporting departments, such as maintenance and some of the infrastructure support departments.
Speaker Change: but your headcount number is about right and from a from a execution standpoint
Speaker Change: It's relatively straightforward when you no longer run an asset or a department that
Speaker Change: It's well laid out in the CBA, what happens to those employees as they lead the company. They retain some recall rights within the collective bargaining unit for a period of time and the...
Speaker Change: the cost of making that head count reduction is pretty well laid out in the CBAs and we have good visibility to it.
Michael Garcia: Okay, that's all for then. Michael, while I have you, just on the $25 million that's left to contract, what's the risk that you guys potentially go over budget? Just wanted to know what the worst-case scenario would look like, either in order of magnitude or even what could go wrong.
Speaker Change: Okay, that's all for then.
Speaker Change: Michael, while I have you, just on the $25 million that's left to contract, what's the risk that you guys potentially go over budget? Just wanted to know what the worst case scenario would look like, either order of magnitude or even what could go wrong.
Michael Garcia: Sure, yeah, so we've made commitments and put contracts in place representing 850 million Canadians, and our goal and expectation is to place the remaining commitments and contracts needed for completion of the project within the remaining range of the budget, which is $25 million. We've got a small number of contracts to place that will complete the installation of the facility. All the equipment is already on site. Everything is going into place where it's a pretty heavy, busy time in terms of the project construction installation. The exterior of the building is largely complete.
Michael: Sure, so we've made commitments and put contracts in place representing 850 million Canadians.
Speaker Change: and our goal and expectation is to place the remaining commitments and contracts needed for completion of the project within the remaining range of the budget, which is 25 million.
Speaker Change: We've got a small number of contracts to place that will complete the installation of the...
Speaker Change: and Construction of the Facility, all the equipment is already on site, you know, everything is going into place where the...
Speaker Change: pretty heavy, busy time in terms of
Speaker Change: The project construction and installation, the building is, the exterior of the building is largely complete. The tie-in to the adjacent
Speaker Change: operations is largely complete.
Speaker Change: Transformers in the first E-A-F.
Speaker Change: are in place. Those are nine transformers because it's the Q1 technology. The cranes are being, many of the cranes are already being commissioned as we speak. So the intention of the team is to...
Speaker Change: Get those last installation and construction contracts placed within the budget. We have about less than 10% of the total budget is...
Speaker Change: and commitments are, or contracts are time and material. So there's always a little bit of risk in execution of time and material contracts that
Speaker Change: If you consume more time or more materials, then you will have the risk of a budget overrun. So we're managing that very closely, and that's one of the things that the project team is.
Michael Garcia: So I think at this point, you know, we're in the homestretch of the project. We're focused on execution.
Speaker Change: So I think at this point, you know, we're
Speaker Change: We're in the home stretch of the project. We're focused on execution. We're focused on placing these last bit of contracts for the installation and construction.
Michael Garcia: We're focused on placing these last bit of contracts for the installation and construction, and our intention is to finish it within that 875 number. So, it's hard to put a measure on the risk, but we're focused very closely on finishing this project at 875 Canadian. Okay, it sounds like the time and material are tracking in line with your expectations so far, is that correct? Yes, yeah. And we brought in a project coordinator, LS Don, to help us with the management of that time and material piece, as well as the overall scheduling and pacing of all the different construction and installation activities going on throughout the project site. And they've been on board for, you know, over a year and a half, so... They've been a great addition to the team.
Speaker Change: And our intention is to finish it within that 875
Speaker Change: number, so it's hard to put a measure on the risk, but we're focused very closely on finishing this project at 875 Canadian.
Speaker Change: Okay, it sounds like the time and materials is tracking in line with your expectations so far. Is that correct?
Speaker Change: Yes, yeah.
L.S. Don: And we brought in a project coordinator, L.S. Don, to help us with the management of that time and material piece, as well as the overall scheduling and pacing of all the different construction and installation activities.
L.S. Don: going on throughout the project site. And they've been on board for over a year and a half, so they've been a great addition to the team.
David Ocampo: Okay, that's perfect. That's all the questions I had for you guys. Thanks so much.
Operator: Thanks, David. Thank you. Our next question is from Katja Jancic with BMO Capital Markets. Please proceed with your question. Hi, thank you for taking my questions. Maybe starting on the plate ramp up.
Speaker Change: Okay, that's perfect. That's all the questions I had for you guys. Thanks so much.
David Ocampo: Thanks, David.
Speaker Change: Thank you. Our next question is from Katya Jancic with BMO Capital Markets. Please proceed with your question.
Katja Jancic: So second quarter you expect 90,000 tons. How should we think about the ramp-up for the rest of the year? Well, I think from a production standpoint and capability standpoint, we feel really good about where we are. The mill came out of the April outage, I think it was a 22-day outage. The mill came up very smoothly from that outage.
Katya Jancic: Hi, thank you for taking my questions. Maybe starting on the plate ramp-up.
Katya Jancic: So second quarter you expect 90,000 tons. How should we think about the ramp-up in the rest of the year?
Speaker Change: Well, I think from a production standpoint and capability standpoint, we feel really good about where we are. The mill came out of the April outage, I think it was a 22-day outage.
Speaker Change: The mill came up very smoothly from that outage. We're really delighted with the capabilities and the performance of the mill. We're still working on some of the
Michael Garcia: We're really delighted with the capabilities and the performance of the mill. We're still working on some of the shear line pacing to make sure that the shear line is performing well, but that's not a limitation to our actual shipments or production because we have not yet shut down the gas cutting line. So from a production standpoint, we are really happy about where we're sitting. I think the main challenge right now, frankly, is the market.
Speaker Change: shear line pacing to make sure that the shear line is performing well but that's not a limitation to our actual shipments or or production because we we have not yet shut down the gas cutting line so from a production standpoint we are
Speaker Change: real
Speaker Change: happy about where we're sitting. I think the main challenge right now frankly is the market. You know we're in a soft market and the commercial team although we're getting great
Michael Garcia: We're in a soft market, and the commercial team, although we're getting great reception for the quality of our plate and the delivery performance of our plate mill, demand is not necessarily robust right now. There's still a $300 plus spread on plate pricing versus coil, so we feel good about that. But we're facing a little bit of a soft market right now.
Speaker Change: on the quality of our plate and the delivery performance of our plate mill.
Speaker Change: Demand is not necessarily robust right now. There's still a $300 plus spread on plate pricing versus coil so we feel good about that but
Michael Garcia: So I think that our current expectation for that 90,000 ton quarter is in place, and the ramp up for the end of the year will probably be a little bit lower in the next quarter after this current quarter because we are taking a small maintenance outage in the mill. So that's the way we're seeing our plate business right now. And can you remind us how much of your plate volume goes into the U.S. market? About 30 percent.
Speaker Change: We're facing a little bit of a soft market right now. So I think that our current expectation for that 90,000 ton quarter
Speaker Change: is in place and ramp up for the end of the year. We'll probably be a little bit lower in the next quarter after this current quarter because we are taking a small maintenance outage in the mill.
Speaker Change: So that's the way we're seeing our plate business right now.
Speaker Change: And can you remind us how much of your plate volume goes into the U.S. market?
Michael Garcia: And that, you know, that's not strictly 30% month after month but around 30% throughout the whole year. And then maybe, you know, like you mentioned initially, the pricing environment is soft. We're currently in a seasonally slower demand period. How should we think about near-term shipments in total? Last quarter, in part, you were impacted by the plate, maintenance, or upgrade. What about this quarter? How should we think about shipments? Yeah, Katja, thank you. I think they'll be directionally higher.
Speaker Change: About 30%.
Speaker Change: and that you know that's not
Speaker Change: Strictly 30% month after month, but around 30% throughout the whole year
Speaker Change: And then maybe, you know, like you mentioned initially, pricing environment is soft. We're currently in the seasonally slower demand period.
Speaker Change: How should we think about near-term shipments in total? Last quarter, in part, you were impacted by the plate maintenance or upgrade. What about this quarter? How should we think about shipments?
Speaker Change: Yeah, I got you. Thank you. I think they'll be directionally higher.
Michael Garcia: The operations are performing well. The commercial team is working hard to keep our customers supplied. I think that we don't see any near-term catalysts for increased pricing over the balance of the year, and that's probably going to be the same around demand, but it'll certainly be directly higher in the quarter to come.
Speaker Change: The operations are performing well. The commercial team is working hard to keep our customers supplied. I think that we don't see.
Speaker Change: Um...
Speaker Change: We know where pricing is right now. I don't see any near-term
Speaker Change: catalyst for increased pricing over the balance of the year, and that's probably going to be the same around
Speaker Change: demand, but it'll certainly be directionally higher in in the quarter to come and you know, this is a time during the current market environment where you know, we're focused on completing the
Speaker Change: The EAF project and we have all the liquidity we need even in the current market conditions to complete the project on time and on budget.
Speaker Change: And maybe if I just may one last one, you announced that you're relaunching then the NCIB. Will this, would you be willing to use some of the available liquidity given that it's pretty large right now or is this going to be tied more to free cash flow generation?
Michael Garcia: Or is this going to be tied more to free cash flow generation? Well, I think we wanted to reinstate the NCIB to give us the flexibility to do both of those things, to buy, to return capital to shareholders, to buy shares of the company when we think it's a good time to buy. We're mindful of our liquidity position. We need to finish the EAF project and continue to execute on our strategic transformation, but we're always mindful of our capital allocation strategy.
Speaker Change: Well, I think we wanted to reinstate the NCIB to give us the flexibility to do that.
Speaker Change: both of those to to buy to return capital to shareholders to buy
Speaker Change: shares of the company when we think it's a good time to buy.
Speaker Change: Um...
Speaker Change: We're mindful of our liquidity position. We need to finish the EAF project and continue to execute on our strategic transformation, but we're always
Speaker Change: mindful of our capital allocation strategy. So we think the NCIB being in place gives us the flexibility to to pursue that.
Michael Garcia: So we think the NCIB being in place gives us the flexibility to pursue that. Okay, thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. Our next question is from Ian Gillies with Steeple. Please call with your question.
Speaker Change: Okay, thank you.
Speaker Change: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue.
Speaker Change: Our next question is from Ian Gillies with Stiefel. Please proceed with your question.
Ian Gillies: Morning, everyone. Morning, Ian. As you think about using the NJB and whether the stock is expensive or inexpensive, as a baseline, do you think about... production being 2.2 million tonnes, 2.7 million tonnes, or something closer to 3 as a baseline for setting that value of when to figure out whether the stock's inexpensive or not to go and use that? Alright, I'll make it... That's a great question. We are building this company to be a 3 million plus company, 3 million finished goods.
Ian Gillies: Good morning, everyone.
Ian Gillies: Morning, Ian
Speaker Change: As you think about using the NCAB and whether the stock is expensive or inexpensive as a baseline do you think about
Speaker Change: Your production being 2.2 million tons, 2.7 million tons, or something closer to 3 as a baseline for setting that value of when to figure out whether the stock's inexpensive or not to go and use that.
Speaker Change: Well, I mean it.
Speaker Change: That's a great question. I think, you know...
Speaker Change: We are building this company to be a three million plus, three million finished goods
Ian Gillies: Steel Company of Plate and DSPC, and that's the value we are creating, and that's going to be enabled by completing these EAF furnaces and starting them up successfully in 2025 and then reaching 2.4 million tons of EAF production sometime in 2026. We've got the power secured to do that, so there are no limitations from the power, and so that's how we kind of think of the value we're creating and our view of the value of the company.
Speaker Change: steel company of plate and DSPC and that's the value we are creating and that's going to be enabled by completing these EAF furnaces and starting them up successfully in 2025 and then reaching 2.4
Speaker Change: million tons of EAF production sometime in in 2026. We've got the power secured to do that, so there's no limitations from the power.
Speaker Change: And so that's how we kind of think of the value we're creating and our view of the value of the company. Now, we aren't there yet. We've got to complete the project and get it started up. But I think, you know, where we've gotten to...
Speaker Change: over the last five years that we've been on this journey.
Speaker Change: in a really exciting place right now. We'll be making EAS steel in just over six months.
Speaker Change: and again just another comment I think our valuation is is low and it's not
Michael Garcia: It's not a surprise, and it will go up as we complete our EF, and it's reflective of what others, what normal trading levels are. So I think it's pretty clear, but our focus definitely is always on Mike's side completing this project and making sure we have enough money to complete it. As we move into calendar 25, Rajat, can you help us think about some of the tax benefits from turning on the EAF, because I would presume there's a lot of capital cost allowances and the like, so should cash taxes actually be quite low next year or lower? You're absolutely right.
Speaker Change: It's not a surprise, it's a, you know...
Speaker Change: and end.
Speaker Change: It will go up as we complete our EAF and it's reflective in what normally the trading levels are. So I think it's pretty clear, but our focus definitely is always, as Mike said, completing this project and making sure we have enough money to complete it.
Speaker Change: Understood.
Speaker Change: As we move into calendar 25, Rajat, can you help us think about some of the tax benefits from turning on the EAF because I would presume there's a lot of capital cost allowances and the like.
Speaker Change: Should cash taxes in fact be quite low next year or lower?
Rajat Marwah: As we commission and we capitalize, we have accelerated depreciation in Canada, where we can take most of it in two years. So our cash taxes definitely will be lower, and we'll get that advantage over two years or three years, depending upon how the economy is performing. But our taxes will be lower.
Rajat Marwah: You're absolutely right. As we commission and we capitalize, we have accelerated depreciation in Canada where we can take most of it in two years.
Rajat Marwah: Our cash taxes definitely will be lower and we'll get that advantage over two years or three years depending upon how the economy is performing. But our taxes will be lower.
Rajat Marwah: OK. And the last one for me as it pertains to the E.A.F. and Power, is there any sort of detailed update you can provide on the status of where you're at with the Public Utility Commission and getting final approval to build that power line? I thought it was something that was supposed to come through the summer and into the fall.
Rajat Marwah: Okay.
Speaker Change: And the last one for me as it pertains to the EAF and power, is there any sort of detailed update you can provide on the status of where you're at with the Public Utility Commission and getting final approval to build that power line? I thought it was something was supposed to come through the summer, this summer or into the fall.
Michael Garcia: Yes, so we expect the final determination, official approval from the Ontario Energy Board of the PUCs' lead to construct application either at the end of August or early September. You know, all the PUCs, we've been in very close contact with them as they prepared the application with OEB as they're examining it. We've been tracking, you know, there haven't been any, and there haven't been any extra questions from the OEB or interveners that have stepped forward in opposition to the project, but it does take time for the OEB to do a complete examination of the application and issue its positive finding.
Speaker Change: Yes, so we we expect the.
Speaker Change: the final determination, official approval from the Ontario Energy Board of
Speaker Change: PUCs
Speaker Change: leave to construct application either at the end of August or early September.
Speaker Change: You know all the we've been in very close contact with PUC as they prepared the the application with OEB as they're examining it. We've been tracking you know there haven't been any
Speaker Change: There haven't been any extra questions from OEB or intervenors that have stepped forward in opposition to the project, but it does take time for the OEB to do a complete examination of the application and issue their approval.
Speaker Change: their positive finding. Once that's in place, that kind of starts the activity going for the actual construction, which we believe will be completed in 2027. At that time, we
Speaker Change: When you think about what that completion of the power line here in the community of Sault Ste. Marie will do is We have enough power to make 2.4 million tons of
Speaker Change: EAF steel cold charging 100% without augmenting any hot iron from our blast furnaces.
Michael Garcia: With the completion of that local line in 2027, that'll give us enough power to produce 3 million tons of EAF steel. That would be the combination of the increased grid power available to us and continuing to run our Lake Superior power plant. And then the final stage would be the completion of the grid, the transmission lines in the Ontario province that would allow us to make 3 million tons but without running our captive power plant, which would significantly lower our cost and our carbon emissions profile.
Speaker Change: With the completion of that local line in 2027, that will give us enough power to produce 3 million tons of EAF steel.
Speaker Change: That would be the combination of the increased grid power available to us and continuing to run our Lake Superior power plant. And then the final stage would be the completion of the grid, the transmission lines in the Ontario province.
Speaker Change: That would allow us, again, to make 3 million tons, but without running our captive power plant, which would significantly lower our cost and our carbon emissions profile. So really, we'll be...
Michael Garcia: So really, we'll be at full production based on the amount of steel we can make in our EAS and our downstream once that local power line is complete in 2027. And then after that, the only power changes will just serve to lower our cost and our carbon emissions profile. Understandable, and maybe just a follow-on if I may, so does that mean at some point, perhaps it's a longer-dated item that LSP becomes a potential monetization opportunity to service some extra value?
Speaker Change: We'll be at full production based on the amount of steel we can make in our EAS and our downstream once that local power line...
Speaker Change: is complete in 2027 and then after that, the only power changes will just serve to lower our cost and our carbon emissions profile.
Speaker Change: Understood and maybe just a follow-on if I may, so does that mean at some point perhaps it's a longer dated item that LSP becomes a potential monetization opportunity to service some extra value?
Michael Garcia: I think it will depend on the overall state of the Ontario grid and how the system operator and the OEB view that power plant in terms of does it add grid stability, does it have value from a peeker perspective to ensure available power and to the extent that those discussions will be happening at that time, I think there will be value in maintaining that power plant and having it part of the overall generation footprint in the province to run and to generate 110 megawatts of power when it is needed by the system operator.
Speaker Change: I think so. I think it will depend on the overall state of the Ontario grid.
Speaker Change: and how the...
Speaker Change: the system operator and the OEB.
Speaker Change: view that power plant in terms of, you know, does it add grid stability?
Speaker Change: Does it have value from a peeker perspective to ensure...
Speaker Change: available power and, you know, to the extent that...
Speaker Change: Those discussions will be happening at
Speaker Change: At that time, I think there will be value in maintaining that power plant and having it part of the overall generation footprint in the province, you know, to run and to generate
Speaker Change: 110 megawatts of power when it's needed by the system operator.
Ian Gillies: Understood. Thank you. Thank you very much. I'll turn it back over.
Speaker Change: Understood. Thank you. Thanks very much. I'll turn it back over.
Michael Moraca: Thanks, Ian. Thank you. There are no further questions at this time. I would like to hand the call back over to Michael Moraca for any closing comments. Thank you. Thank you again for your participation in our first quarter fiscal 2025 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 second quarter results, scheduled for November. Thank you very much. Have a good day. This concludes today's conference call. You may now disconnect your lines. Thank you for your participation.
Ian Gillies: Thanks, Ian.
Ian Gillies: Thank you. There are no further questions at this time. I would like to hand the call back over to Michael Moraca for any closing comments.
Michael Moraca: Thank you. Thank you again for your participation in our first quarter fiscal 2025 earnings conference call and for your continued interest in Algoma Steel.
Speaker Change: We look forward to updating you on our results and progress when we report our fiscal second quarter results scheduled for November. Thank you very much. Have a good day.
Speaker Change: This concludes today's conference call. You may now disconnect your lines. Thank you for your participation.
Michael Garcia: And this is a time in the current market environment when we're focused on completing the EAS project, and we have all the liquidity we need, even in the current market conditions, to complete the project on time and on budget. And maybe, if I just may, one last one, you announced that you're relaunching the NCIB. Would you be willing to use some of the available liquidity given that it's pretty large right now?
Michael Garcia: So we're managing that very closely, and that's one of the things that the project team is focused on. Again, that's probably within the scope of the entire budget. That's $60 to maybe $70 million of the total cost, so the risk is on that number.
Operator: 2020. Greetings and welcome to the Algoma Steel Group Fiscal First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Unnamed: Michael Garcia, David Ocampo, Ian Gillies David Ocampo, David Ocampo,...........
Michael Garcia: Once that's in place, that kind of starts the... uh... activity going for the actual construction, which we believe will be completed in twenty twenty seven at that time. When you think about what that completion of the power line here in the community of Sault Ste. Marie will do is we have enough power to make 2.4 million tons of EAF Steel, Cold Charging, 100% without augmenting any hot iron from our glass furnace.
Michael Garcia: The tie-in to the adjacent operations is largely complete. Transformers in the first EAF furnace are in place. Those are nine transformers because it's Q1 technology.
Ian Gillies: We aren't there yet, we've got to complete the project and get it started up, but I think where we've gotten to over the last five years that we've been on this journey, we are in a really exciting place right now, and we'll be making EAS steel in just over six months. Ian, just another comment. I think our evaluation is low, and it's not. It's not a surprise. It's, you know...
Michael Garcia: Many of the cranes are already being commissioned as we speak. The intention of the team is to get those last installation and construction contracts placed within the budget. We have about less than 10% of the total budget in commitments and commitments, our contracts, our time, and materials. So there's always a little bit of risk in the execution of time and material contracts that, you know, if you don't, if you consume more time or more materials, then you will have the risk of a budget overrun.