Algoma Steel Group, Inc. Q2 FY2025 earnings call

• Relentless focus on employee safety led to improved lost time injury performance.
• Solid operational performance in the quarter despite challenging global steel market conditions.
• Strong balance sheet with cash at quarter-end over $450 million and total liquidity of $800 million.
• EAF project in the busiest phase with nearly 500 specialized trades contractors on-site, critical equipment installation underway, and commissioning activities set to start by year-end.
• Plate shipments increased sequentially, with plans to ramp up plate production towards an annual run rate capacity of over 650,000 net tons.
• Completed contracting for remaining components of the EAF project, with over 90% of contracts fixed-price.

In the second quarter of fiscal 2025, Algoma Steel's plate shipments were approximately 73,000 tons, up from 61,000 tons in the first quarter. Steel revenue was $539 million, down 19% versus the prior year period. Adjusted EBITDA was $4 million, with an adjusted EBITDA margin of 0.6%, including net insurance proceeds of approximately $28 million. Cash generated from operating activities totaled $25.4 million. Inventories at quarter-end were $793 million, down modestly from the prior year. Plate production was in line with expectations, and the company aimed to rebuild strategic inventories while growing market share.

• Results for the second quarter were in line with previously disclosed guidance for shipments and adjusted EBITDA.
• Plan to continue ramping up plate production over the balance of the fiscal year towards an annual run rate capacity of over 650,000 net tons.
• EAF project on track for commissioning activities to start by year-end and first steel production by end of calendar first quarter 2025.
• Expected margin enhancement from improved product mix due to completed modernization of plate production.

• Challenging market conditions with continued soft steel pricing and uncertain demand.
• Potential delays in the EAF project commissioning or construction.
• Insurance recovery process for property damage and business interruption claims remains ongoing and could be delayed.
• Dilution risk from warrants, with potential one-third dilution if callable at $18.

Q: Could you talk about what's driving the working capital build given the EAF start?

A: The EAF startup will begin in March, with no significant buildup for EAF-specific material. Buildup for blast furnace and coke is managed, with expected working capital release of at least $100 million by March and further release upon transition to full EAF production.

Q: Could you comment on timing and total insurance proceeds remaining, and Ministry of Environment program proceeds?

A: On insurance, over $60 million in property damage recovery expected, with balance received by March or next quarter. For the Ministry of Environment program, recovery for 2022 taxes expected in the following year with a two-year lag.

Q: How does cost per ton trend over the next couple of quarters as you start using more own coking coal?

A: Cost per ton is expected to trend slightly lower over the next year, with variable costs like coal pricing expected to decrease. Cost per ton is likely to hover within a couple of percentage points, with no substantial drop or increase immediately.