Algoma Steel Group, Inc. Q1 FY2025 earnings call

• Safety is a core value; lost time injury performance improved in fiscal 2024 and continues. - Completed remaining upgrades related to plate mill modernization; plate shipments in first quarter were ~61,000 tons. - EAF project is approaching commissioning of Unit 1 in calendar fourth quarter; cumulative investment reached $611 million. - Balance sheet is strong with $493 million cash and over $800 million total liquidity after USD 350 million notes offering. - Results reflected tough steel market conditions with lower volumes and realized prices, but focused on operating existing facilities safely and advancing EAF project.

Steel revenue in the first quarter was $597 million, down 20.8% versus the prior year period. Shipments were 503,000 net tons, down 11.6% versus the prior year quarter. Adjusted EBITDA was $37.7 million, reflecting an adjusted EBITDA margin of 5.8% and cash generated from operating activities of $12.5 million. Cash at quarter end was $493 million, and there was $351 million availability under the revolving credit facility. Steel revenue contribution: Steel revenue was the main segment, with a 20.8% year-over-year decline in absolute terms, and it contributed significantly to the overall revenue picture.

• Expect fiscal second quarter plate production to be close to 90,000 tons as they ramp towards annual run rate capacity of over 650,000 net tons. - EAF production expected by end of calendar first quarter of next year, ramping towards shipping capacity of ~3 million tons per year. - Results for the quarter were in line with previously disclosed guidance for shipments and adjusted EBITDA.

• Risk of budget overrun on time and material contracts related to EAF project construction. - Near-term pricing weakness in steel markets poses a risk to earnings performance.

Q: Could you help us understand the duplicate costs during the hybrid phase of EAF and what unit economics look like once full EAF operation?

A: During hybrid phase, per ton cost will come down as volume increases. When fully on EAF, it will be scrap plus $200 to $220 on a full cost perspective. Fixed costs will be similar during hybrid phase as people are already trained.

Q: How is the reduction in headcount going to be achieved and are there sizable transition costs?

A: Most impactful headcount reduction will be when blast furnace and coke ovens are no longer operated. Smaller adjustments in supporting departments. Cost of reduction is well laid out in CBAs with good visibility.

Q: What's the risk of going over budget for the remaining $25 million of contracts?

A: There's a small risk with time and material contracts as consuming more time or materials could lead to overrun, but the team is focused on placing contracts within budget.

Q: How should we think about the ramp-up of plate production in the rest of the year?

A: Second quarter expects 90,000 tons. There's a small maintenance outage in the mill affecting next quarter's production. Market is soft, but production capabilities are good.

Q: What percentage of plate volume goes into the U.S. market?

A: About 30% on average throughout the year.

Q: How should we think about near-term shipments?

A: Shipments will be directionally higher as operations are performing well, but facing soft market conditions.

Q: Will the NCIB be used and how is it tied to capital allocation?

A: NCIB gives flexibility to return capital to shareholders, but mindful of liquidity position and strategic transformation.

Q: How do we think about the valuation based on production baseline?

A: Building to be a 3 million plus finished goods steel company with EAF, valuation is low currently and will increase as EAF is completed.

Q: What about tax benefits from turning on the EAF?

A: There are capital cost allowances, and cash taxes will be lower due to accelerated depreciation in Canada.

Q: Update on status of power line with public utility commission?

A: Expect final determination from Ontario Energy Board of PUCs leave to construct application at end of August or early September. Completion of power line in 2027 will enable full EAF production.