Algoma Steel Group Inc. Q1 FY2025 earnings call

1. Safety remains a core priority with improved lost time injury performance in fiscal 2024 and ongoing focus. 2. The second annual ESG report was released, highlighting environmental, social, and governance efforts. 3. Key events in the first quarter included progress on the EAF project and completion of most plate mill modernization upgrades. 4. Plate shipments in the first quarter were approximately 61,000 tons, with expectations to ramp up to around 90,000 tons in the second quarter. 5. The EAF project is nearing the start of commissioning in the calendar fourth quarter, with cumulative investment reaching CAD 611 million and over 90% of contracts being fixed price.

In the fiscal first quarter of 2025, Algoma Steel's steel revenue was CAD 597 million, down 20.8% compared to the prior year period. Shipments were 503,000 net tons, a decrease of 11.6% year-over-year. Adjusted EBITDA was CAD 37.7 million, with an adjusted EBITDA margin of 5.8%. Cash generated from operating activities was CAD 12.5 million. The cost per ton of steel products sold averaged CAD 10.69, up 12.5% versus the prior year period.

1. First quarter results were in line with previously disclosed guidance for shipments and adjusted EBITDA. 2. Expect plate production in the second quarter to be close to 90,000 tons and ramp towards an annual run rate capacity of over 650,000 net tons. 3. The EAF project is expected to begin commissioning in the calendar fourth quarter of 2024, with steel production anticipated by the end of the calendar first quarter of 2025.

1. Risk of budget overrun on the EAF project due to time and material contracts. 2. Near-term pricing weakness in the steel market posing headwinds to earnings performance.

Q: What are the duplicate costs during the hybrid phase of the EAF and what do unit economics look like once fully operational?

A: During the hybrid phase, labor cost changes and scrap vs internal production impact costs. Once fully operational, cost per ton is expected to be scrap plus CAD 200 to 220.

Q: How will headcount reduction be achieved and are there transition costs?

A: Headcount reduction will occur when the blast furnace and coke ovens are shut down, with collective bargaining agreements (CBAs) outlining employee dispositions and associated costs.

Q: What is the risk of going over budget for the EAF project?

A: There is a risk with time and material contracts, but the project team is focused on placing remaining contracts within the budget.

Q: What is the expected plate ramp-up in the rest of the year?

A: Second quarter plate production is expected to be close to 90,000 tons, with a small maintenance outage in the mill affecting later quarters.

Q: What percentage of plate volume goes to the U.S. market?

A: Approximately 30% of plate volume goes to the U.S. market.

Q: How should we think about near-term shipments?

A: Shipments are expected to be directionally higher, but pricing remains soft.

Q: Will the NCIB be used and how is it tied to liquidity?

A: The NCIB provides flexibility for capital allocation while being mindful of liquidity needs for completing the EAF project.

Q: What are the tax benefits from turning on the EAF?

A: There are accelerated depreciation benefits in Canada, leading to lower cash taxes.

Q: What is the status of the power line approval for the EAF project?

A: Final determination from the Ontario Energy Board is expected at the end of August or early September, with completion of the power line expected in 2027.