Algoma Steel Group Inc. Q3 FY2024 earnings call

• Safety: Uphold unwavering commitment to safety, with improved lost time injury performance year-to-date.
• Fiscal Q3 Results: Results in line with previously disclosed guidance on shipments and adjusted EBITDA, with year-over-year improvements in key metrics. Seasonal maintenance completed as planned.
• Plate Mill Modernization: Made progress on Phase II, with in-line share online and ramping up production. Expect higher plate production to capture market opportunities.
• EAF Project: Cumulative investment reached CAD 510 million. Expected to increase throughput capacity by roughly a third, improve product mix, and lower carbon emissions by ~70%. Commissions expected in late 2024.
• Coke Plant Incident: Structure collapse led to suspension of coke making and temporary blast furnace shutdown. Repairs completed, blast furnace to return to full production within two weeks.

In the fiscal third quarter of 2024, Algoma Steels shipped 516,000 tons, up 12.6% compared to the prior year period. Steel revenue totaled CAD 556.9 million, up 8.8% versus the same quarter of last year. Net sales realization averaged CAD 1,079 per ton, down 3.3% versus the prior year period. Cost per ton of steel products sold averaged CAD 10.07, down 11.2% y-o-y. Adjusted EBITDA in the quarter was negative CAD 1 million with an adjusted EBITDA margin of negative 0.2%, an improvement from negative CAD 35.9 million and negative 6.3% in the year ago period.

• Fiscal Q4 expected to have directionally higher EBITDA versus Q3, but impacted by production outage from coke plant incident, expected to affect 120,000-150,000 tons.
• Working capital release adjusted due to incident, still expect to release CAD 150 million over time.
• EAF project investment: 60% of CAD 825-875 million spent, remaining CAD 340 million to be funded from cash, available capacity, and working capital.

• Operational risks from coke plant structure collapse impacting production and shipments.
• Uncertainties related to asset integrity of blast furnace and coke ovens post-incident.
• Market fluctuations affecting pricing and sales.

Q: On 2025 plans as a hybrid operator, how does the coke plant incident affect the plan?

A: Plan remains to operate hybrid, will assess asset integrity of blast furnace and coke ovens but comfortable with current plan assuming no significant changes.

Q: How to think about cost structure as a hybrid operator?

A: Additional fixed cost of ~100-140 people for electric arc facility, rest mostly variable. Costs will come down as facilities are transitioned and fixed costs reduced.

Q: CapEx breakdown for 2024 calendar?

A: Roughly CAD250 million gross CapEx, ~CAD100-120 million on maintenance, with plate mill CapEx and coke battery recovery costs included.

Q: Shipments reference for Q4 relative to 120k-150k impact?

A: Typically average ~550k tons per quarter, can start from there.

Q: Pricing assumptions for 2024?

A: Driven by future curves and infrastructure/durables demand, expecting stronger pricing than 2023.

Q: OpEx impact and long-term costs from coke incident?

A: Repair costs expected ~CAD20-30 million, aim to return to pre-incident coke production levels, no long-term additional costs expected post-repair.