Algoma Steel Group Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights: - Safety: Maintained strong safety performance, prioritizing workforce health during EAF transformation. - Trade Disruptions: U.S. 50% tariffs closed the market, driving lower shipments and higher costs; pivoted go-to-market strategy. - Liquidity: Secured $500 million in government support and expanded USD 375 million ABL facility, extending liquidity runway. - EAF Project: Continued progress with Unit 1, achieving stable performance; cumulative investment at $910 million, expecting final cost ~$987 million. - Strategic Pivot: Accelerating EAF transformation, focusing on domestic products to reduce cash burn; repositioning as premium Canadian supplier of specialized steel products aligned with national priorities.

Segment Performance: In the third quarter, plate shipments totaled approximately 97,000 tons, roughly in line with the prior quarter despite a planned 2-week outage. Steel revenue was $473 million, down 12.2% versus the prior year period. Adjusted EBITDA was a loss of $87.1 million. Tariffs expense totaled $90 million. Cost per ton of steel products sold averaged $1,282, up 24.2% versus the prior year period. Plate prices enjoyed a premium relative to hot-rolled coils during the quarter. Net loss in the third quarter was $485.1 million, driven primarily by a $503 million noncash impairment loss. Shipments were 419,000 net tons, a decline of 12.7% versus the prior year quarter.

Guidance: - Accelerating EAF transition to full production earlier than originally planned to better handle current environment. - Expecting significant inventory drawdown starting Q4 2025 and accelerating through 2026 as transitioning to EAF supply chain. - Anticipating EBITDA breakeven in volumes once EAF transition is complete, with plate side making money while coil remains challenging due to tariffs and market conditions. - Expecting insurance proceeds of $30-50 million more, significant working capital release over $100 million, and tax refunds from incurred losses.

Risks: - Trade uncertainty with ongoing 50% tariffs in the U.S. impacting market viability. - Macroeconomic uncertainty compounding headwinds in the steel industry. - Operational risks associated with accelerating EAF transformation and potential execution challenges. - Impairment risks due to market capitalization below net asset carrying value and tariff impacts.

Q: In the event of continued 50% tariffs, outline production profile in 2026 and EBITDA breakeven.

A: Mike Garcia and Rajat Marwah discussed accelerating EAF transition to full production a year early, expecting to reach EBITDA breakeven in volumes once transition is complete with plate side profitable and coil challenging.

Q: Plate production down sequentially, expect rise?

A: Rajat Marwah noted reorienting demand and maintenance days as factors, expecting production to rise.

Q: Capital infusions, insurance, grants, taxes?

A: Michael Moraca mentioned ~$30-50 million more in insurance proceeds, over $100 million working capital release, and tax refunds from losses.

Q: Canadian market implications of trade barriers, positive implications?

A: Michael Garcia stated interest from various sectors in Algoma's capabilities, but trade barriers need further strengthening; positive visibility in nation-building agenda.

Q: Incremental plate demand from initiatives?

A: Michael Garcia mentioned hard to give specific number, but bullish on plate prospects with multiple projects needed.