Algoma Steel Group Inc. Q2 FY2025 earnings call

• Relentless focus on employee safety with improved lost time injury performance. - Construction of EAF project at peak activity; commitment to workplace safety remains vital. - Fiscal second quarter 2025 results in line with previously disclosed guidance for shipments and adjusted EBITDA, despite challenging steel market conditions. - Plate shipments increased from first quarter, production in line with expectations; grew market share and rebuilt strategic inventories. - EAF project in busiest phase, critical equipment installation underway, commissioning activities to commence by end of calendar year, on track for first steel production by end of calendar first quarter next year. - Contracted substantially all remaining work on EAF project, expect to finish within 5% of most recent budget guidance. - Eligible for Ontario's Ministry of the Environment Conservation and Parks Emissions Performance Program, expecting reimbursement for carbon taxes paid since 2022. - Strong balance sheet with $452 million cash and $348 million available under revolving credit facility, total liquidity ~$800 million.

In the second quarter of fiscal 2025, steel revenue was $539 million, down 19% versus the prior year period. Steel shipments were 520,000 net tons, down 5.2% versus the prior year quarter. Adjusted EBITDA was $4 million, reflecting an adjusted EBITDA margin of 0.6%. Cash generated from operating activities totaled $25.4 million. Inventories at quarter-end were $793 million, down modestly from the prior year end. Plate shipments in the second fiscal quarter were approximately 73,000 tons, up from 61,000 tons in the first quarter.

• Plan to continue ramping up plate production over the balance of the fiscal year towards expected annual run rate capacity of over 650,000 net tons. - Expect post-election steel prices to gain ground. - EAF project on track for commissioning by end of calendar year and first steel production by end of calendar first quarter next year, with steady-state shipping capacity of ~3 million tons per year when both furnaces are running, 35% higher than current production levels.

• Lengthy process for insurance recovery, with property damage recovery expected by end of March or into June quarter. - Market conditions remain challenging with soft demand and economic factors weighing on customers' buying behavior. - Dilution from warrants callable at $18, with modeling indicating one-third dilution at $18 strike price.

Q: Could you talk more about what's driving the working capital build being lower than recent past?

A: EAF startup starts at end of March, not building much material specifically for EAF; managing blast furnace and coke inventory; buildup normally around $150 million by December from March to December, expected to be lower, with ~$100 million release by March and another $100 million when transition complete.

Q: Could you comment on the timing and total insurance proceeds remaining?

A: On property damage, loss is ~$120-$130 million, expecting to recover more than 50%, with balance received between current quarter and next, most probably in the March quarter; on carbon program, recovery has a two-year lag, applied for 2022, expected to receive in current or early next year.

Q: How to think about maximum dilution from warrants?

A: At $18 strike price, it's one-third dilution as it's callable, not the whole difference, with accounting following rules but modeling showing one-third dilution at $18.

Q: Any thought on slowing plate ramp given market oversaturation?

A: Not destabilizing market by chasing plate business; rebuilding strategic inventories, refilling strategic stocks for automotive program and high-demand plate grades/sizes, taking advantage of slow time to finish modernization work on thinner grade material.

Q: Is there much left that could change in EAF updated budget?

A: Substantially all contracted work is in place, less than 10% of budgeted work operating under time and material, tracking well, confident budget will end up south of the 5% number referenced.

Q: How may cost per ton trend over next couple of quarters?

A: Cost will trend slightly lower over next year, with variable side commodity pricing coming down; first calendar quarter cost slightly higher due to winter, but overall cost expected to come down as production increases with EAF stabilization.