Algoma Steel Group Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Safety: Committed to employee safety, with improvements in lost time injury performance. Hired Erin Oliver as Vice President of Health and Safety.
• Operational Challenges: Fiscal Q4 impacted by coke-making utility structure collapse and blast furnace outage, resulting in ~150,000 tons of lost production. Subsequent to quarter-end, plate mill modernization project was completed, with plate production expected to increase.
• EAF Project: Cumulative investment in the EAF project reached CAD563 million. Progress has derisked the project budget, with transition to EAF expected to improve product mix and reduce carbon emissions by ~70%.
• Market Conditions: North American steel prices volatile, but plate pricing remains strong. Focus on operating facilities safely and advancing the EAF project on schedule and budget.

Segment Performance

• Fourth Quarter 2024: Adjusted EBITDA was CAD41.5 million with a margin of 6.7%, and cash generated from operating activities was CAD121.2 million. Shipments were 451,000 tons (down 21.1% year-over-year). Net sales realization averaged CAD1,260 per ton (up 18.2% year-over-year). Steel revenue was CAD568 million (down 6.7% year-over-year). Cost per ton of steel products sold averaged CAD1,182 (up 20.1% year-over-year).
• Full Year 2024: Shipped 2.1 million tons (up 4.1% year-over-year). Net sales realization averaged CAD1,220 per ton (down 4.1% year-over-year). Steel revenue was CAD2.5 billion (relatively flat year-over-year). Cost per ton of steel products sold averaged CAD1,018 (up 1.5% year-over-year). Adjusted EBITDA was CAD313 million (11.2% margin) compared to CAD452 million (16.3% margin) in fiscal 2023. Cash flow from operating activities was CAD295 million (up from CAD177 million in fiscal 2023).

Guidance

• Fiscal Q1 2025: Expect solid adjusted EBITDA in the range of CAD30 million to CAD40 million and total steel shipments of 500,000 to 510,000 tons.
• EAF Start-up: EAFs to begin producing steel in calendar Q1 2025, with ramp-up through 2025.
• CapEx: Fiscal 2025 CapEx expected to include ~CAD100 million to CAD120 million for maintenance and ~CAD250 million to CAD270 million for the EAF, with coke oven-related CapEx offset by insurance recoveries.

Risks

• Operational: Potential weather delays, labor disruptions could affect EAF project schedule and budget; a small portion of work is time and materials, which could exceed placeholders.
• Insurance Recoveries: Timing and amount of insurance recoveries from the coke-making corridor collapse are uncertain.

Question and Answer

Q: Shipments for the June quarter and lower volumes attribution A: Lower volumes are mainly due to the plate mill outage and ramp-up; typically, 50,000-60,000 tons are lost, but the plate mill recovered some losses.

Q: CapEx recovery from insurance providers A: Insurance recoveries are expected for coke oven and blast furnace issues, but the timing and amount are still to be determined.

Q: EAF project cost risks and upside A: The project is substantially derisked, but there's a small risk of time and materials exceeding placeholders; potential for efficiencies and remaining contracts to award.

Q: Scrap strategy for the EAF A: A joint venture with Triple M Metals is operational, sourcing scrap for ongoing operations, with large-scale sourcing in later 2025.

Q: Plate mill ramp and market share A: The commercial team is engaging with customers to grow market share, leveraging improved plate quality and delivery.

Q: Fiscal 2025 CapEx and EAF stabilization A: Fiscal 2025 CapEx includes maintenance and EAF; the EAF will start producing in 2025 Q1, with ramp-up through the year while current assets run at full production.