Algoma Steel Group Inc. Q2 FY2026 earnings call

Safety and Transformation Progress

• Safety remains a top priority amid the intense activity of the company's EAF transition, with disciplined safety performance from employee teams
• Q2 2026 was the first full quarter with all liquid steel production sourced entirely from the new EAF platform, completing the retirement of the company's 100+ year-old legacy integrated blast furnace operations
• The first EAF unit is operating 24/7, with quality metrics achieved across a broad range of plate and hot-roll coil grades
• Construction of the second EAF unit is nearly complete, with critical equipment commissioning and testing underway; first steel production from Unit 2 is expected in Q3 2026
• Once fully ramped, the facility will have 3.7 million tons of annual raw steel production capacity and reduce annual carbon emissions by approximately 70% from pre-EAF levels

Market and Competitive Position

• As Canada's only producer of discrete plate, the company holds a unique competitive position, with healthy demand from infrastructure, construction, and defense end markets
• The 50% U.S. Section 232 tariff on Canadian steel imports remains a core structural headwind, leading the company to intentionally reduce U.S.-bound shipments; direct tariff costs fell to $18.7 million CAD in Q2 from $64.1 million CAD in Q2 2025
• The Canadian domestic market faces supply pressure and lower coil pricing relative to U.S. benchmarks due to domestic oversupply, reinforcing the value of the plate-first, Canada-centric strategic pivot

Strategic Initiatives

• Rochelle Algoma Defense, the joint venture formed in April 2026 with Canadian defense manufacturer Rochelle, is developing a Canadian Center of Excellence for Ballistic Steel Production with full fabrication, forming, welding, and machining capabilities, positioning Algoma as a key pillar of Canada's defense and industrial supply chain
• The binding MOU with Hanwha Ocean for the Canadian Patrol Submarine Program has been suspended after the Government of Canada selected TKMS as the preferred bidder, but the company's strategic plan to develop structural steel beam production remains unchanged, and it continues to engage with governments on this project

Financial Performance

• Positive adjusted EBITDA of $13.8 million CAD was in line with prior guidance, including a $45 million CAD final insurance settlement for the 2024 utility corridor collapse (closing out the $145 million CAD total recovery net of deductibles) and a $54.7 million CAD capacity utilization adjustment for legacy excess fixed costs
• Total available liquidity at quarter-end was approximately $437 million CAD, consisting of $62.6 million CAD cash, $206.7 million CAD unused revolving credit availability, and $168 million CAD available under LETL facilities
• $124.5 million CAD was drawn from LETL facilities in the quarter to support operations and EAF transition completion

Algoma Steel reports consolidated revenue of $267.5 million CAD for Q2 2026, down from $589.7 million CAD in the prior year quarter. Total steel revenue was $247 million CAD. Total shipments reached 181,000 tons, a decline from 472,000 tons in Q2 2025 driven by the transition to EAF-only production and the company's Canada-centric plate-first strategy. Plate shipments hit a record 125,000 tons in the quarter, up from 116,000 tons in Q1 2026, accounting for approximately 69% of total Q2 2026 shipments. Average net sales realization across all products rose 20.2% year-over-year to $1,361 per ton, driven by the high-margin plate mix improvement. Adjusted EBITDA was $13.8 million CAD (5.2% margin), compared to a $32.4 million CAD adjusted EBITDA loss (-5.5% margin) in Q2 2025. Excluding the $45 million CAD insurance settlement and $54.7 million CAD capacity utilization adjustment, core results improved $33 million sequentially from Q1 2026. Net loss for the quarter was $96 million CAD, an improvement from a $110.6 million CAD net loss in the prior year quarter.

• The $54.7 million CAD capacity utilization adjustment for legacy fixed costs is on track to be fully eliminated by Q4 2026, with transition costs declining meaningfully in line with prior projections
• Q3 2026 shipments are expected to be 10-20% lower than Q2 2026, due to scheduled downtime for EAF Unit 2 commissioning and planned maintenance at the melt shop and power generation plant; Q3 is expected to be the trough shipment quarter of the EAF transition
• Despite lower Q3 volumes, underlying EBITDA performance (excluding capacity utilization adjustment benefits) is expected to continue improving sequentially, as operational and financial benefits of the EAF platform are realized
• Annual run rate production is projected to reach 1.5-2 million tons by 2027, with plate production targeted to grow to 600,000 tons in 2027 from the current run rate of approximately 500,000 tons per year
• No changes to previously communicated production or cost targets; cost improvements are expected to accelerate as production volumes increase post Unit 2 ramp-up, driven by improved fixed cost absorption
• Approximately $200 million CAD in income tax refunds are expected to be received in the remainder of 2026, supporting liquidity
• The company's core near-term financial goal is to reach cash flow break-even as ramp-up completes

• Forward-looking statements involve inherent risks and uncertainties, and actual results may differ materially from management projections, due to factors including market conditions and transition execution
• The 50% U.S. Section 232 tariff on Canadian steel imports remains a persistent structural headwind for the business
• The Canadian domestic steel market faces ongoing oversupply, which keeps coil pricing depressed relative to U.S. benchmarks
• The ramp-up of a large-scale new steelmaking platform is inherently complex, with potential for unforeseen delays or challenges in process stabilization and equipment performance
• The company is involved in ongoing legal proceedings related to certain supply agreements, stemming from the unforeseen extraordinary tariff environment that has changed operating conditions; while management believes it has valid defenses, the outcome of these proceedings is uncertain
• Achieving profitability and cash flow break-even depends on successful ramp-up of production, continued demand growth for plate, and market pricing improvements, which are not guaranteed

Q: Analyst Kaia Jancic asked if the projected 10-20% Q3 volume decline is driven by weak demand/seasonality, or the scheduled maintenance and Unit 2 tie-in work, and requested clarification on plate/sheet mix and expected cost trends for the quarter. / A: CFO Mike Moraca confirmed the volume decline is entirely driven by planned activities: management grouped all required preventative maintenance for the power plant, existing EAF Unit 1, and tie-in work for Unit 2 into Q3 to enter Q4 with both units fully operational. He noted plate output will be slightly lower in Q3 due to plate mill maintenance, with a small corresponding increase in sheet volume. He added that while lower volumes will impact fixed cost absorption, the capacity utilization charge will continue declining, and pricing improvements will offset this, leaving overall costs roughly in line with Q2 levels.

Q: RBC analyst James McGargle asked what production run rate management expects for exit 2026, whether Canadian demand can absorb the higher output especially for sheet, and if cost targets have changed from prior guidance. / A: CEO Rajat Marwah stated the exit 2026 run rate remains on prior guidance of 1.5-2 million tons for 2027, with plate ramping as the top priority. He added that excess sheet volume can be sold into international markets, specifically noting growing European demand for Algoma's low-carbon green steel. CFO Mike Moraca confirmed there are no changes to prior production or cost targets, with the largest expected cost improvement coming from better fixed cost absorption as volumes rise post ramp-up.

Q: Stiefel analyst Ian Gillies asked for a 2027 plate production outlook, and how Algoma will pivot its defense strategy after Hanwha lost the submarine program to TKMS, and whether Algoma can still participate in Canadian defense demand. / A: CEO Rajat Marwah stated management targets 600,000 tons of plate production in 2027, with healthy growing domestic Canadian demand able to absorb this volume. He confirmed the strategic plan to develop structural steel beam production remains unchanged despite the Hanwha MOU suspension. Algoma, as Canada's domestic green steel producer, is already supplying defense plate and is actively engaging with the new preferred bidder TKMS and all Canadian defense programs to supply steel for both the submarine program and related infrastructure projects.

Q: Ian Gillies also asked about future financing plans after LETL facilities are used, whether the company will seek alternative government-backed financing or move to an ABL structure. / A: CFO Mike Moraca noted that near-term liquidity is well supported by the $45 million CAD insurance settlement receivable and $200 million CAD in expected tax refunds coming in 2026. The company's top priority is reaching cash flow break-even by driving down costs and growing revenue, and will only evaluate alternative balance sheet options if needed after achieving that core goal.