Algoma Steel Group Q1 2025 Earnings Report

Algoma Steel Group EPS Results

• Actual EPS: -$0.05
• Consensus EPS: -$0.09
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: N/A

Algoma Steel Group Revenue Results

• Actual Revenue: $475.44 million
• Expected Revenue: $444.32 million
• Beat/Miss: Beat by +$31.12 million
• YoY Revenue Growth: N/A

Algoma Steel Group Announcement Details

• Quarter: Q1 2025
• Date: 8/13/2024
• Time: N/A
• Conference Call Date: Wednesday, August 14, 2024
• Conference Call Time: 11:00AM ET

Algoma Steel Group (NASDAQ:ASTL) is a North American steel producer headquartered in Sault Ste. Marie, Ontario. The company operates a modern electric arc furnace (EAF) complex and an integrated rolling mill, enabling it to transform scrap and direct reduced iron into a wide range of steel products. Algoma Steel Group returned to public markets in 2021 with listings on both the Toronto Stock Exchange and the Nasdaq under the symbol ASTL.

Founded in 1901 as Algoma Steel Corporation, the company grew to become one of Canada’s leading steelmakers before undergoing restructuring in the early 2000s. Following a period of restructuring and modernization, Algoma Steel Group has invested in advanced steelmaking technology, environmental controls and downstream processing capabilities. These investments support the company’s commitment to sustainability and to meeting the evolving specifications of its customers.

Algoma Steel Group produces a diverse portfolio of flat-rolled products, including hot-rolled plate, pickled and oiled sheet, galvanized, galvanealed and painted steel coils. These products serve key end markets such as automotive, construction, energy, rail and machinery. With an emphasis on quality, traceability and on-time delivery, Algoma Steel Group supplies customers across Canada, the United States and select export markets.

Algoma Steel Group Q1 2025 Earnings Call Transcript

Key Takeaways

• Algoma delivered Q1 fiscal 2025 results in line with guidance, but reported a year-over-year decline in shipments (–11.6%) and realized prices (–10.4%), leading to lower revenues and adjusted EBITDA amid soft steel markets.
• The company bolstered its liquidity by issuing US$350 M senior secured notes in April, ending the quarter with ~C$493 M of cash and over C$845 M of total available liquidity to fund operations and its EAF project.
• The transformative Electric Arc Furnace (EAF) project is now >90% fixed-price contracted, with C$611 M invested to date, and is on track to begin commissioning Unit 1 in calendar Q4 2024, significantly de-risking budget and schedule.
• Algoma completed the plate mill modernization in Q1, producing ~61,000 tons of plate, targeting ~90,000 tons in Q2 and an annual run rate capacity of >650,000 tons, positioning the company to exit the wide coil market and improve margins through a more favorable product mix.
• Final regulatory approval from the Ontario Energy Board for a new transmission line is expected in late Q3 2024, which upon completion in 2027 will enable up to 3 Mt of annual EAF steel production and support further carbon and cost reduction goals.

Presentation

[Operator]

A brief question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded. I would now like to turn the call over to Michael Moraca, Vice President, Corporate Development and Treasurer. Thank you, Michael. You may begin.

[Michael Moraca, VP of Corporate Development and Treasurer at Algoma Steel Group Inc]

Good morning, everyone, and welcome to Algoma Steel Group Inc's First Quarter Fiscal 2025 Earnings Conference Call. Leading today's call are Michael Garcia, our Chief Executive Officer, and Rajat Marwah, our Chief Financial Officer. As a reminder, this call is being recorded and will be made available for replay later today in the investor section of Algoma Steel's website. I would like to remind you that comments made on today's call may contain forward-looking statements within the meanings of applicable securities laws, which involve assumptions and inherent risks and uncertainties. Actual results may differ materially from statements made today. In addition, our financial statements are prepared in accordance with IFRS, which differs from US GAAP, and our discussion today includes references to certain non-IFRS financial measures. Last evening, we posted an earnings presentation to accompany today's prepared remarks.

[Michael Moraca, VP of Corporate Development and Treasurer at Algoma Steel Group Inc]

The slides for today's call can be found in the Investors section of our corporate website. With that in mind, I would ask everyone on today's call to read the legal disclaimers on slide two of the accompanying earnings presentation, and to also to refer to the risks and assumptions outlined in Algoma Steel's First Quarter Fiscal 2025 Management's Discussion and Analysis. Please note that our financial statements are prepared using the US dollar as our functional currency and the Canadian dollar as our presentation currency. Our fiscal year runs from April 1st to March 31st, and our financial statements have been prepared for the quarters ended June 30th, 2024, and June 30th, 2023. Please note, all amounts referred to on today's call are in Canadian dollars, unless otherwise noted. Following our prepared remarks, we will conduct a question-and-answer session.

[Michael Moraca, VP of Corporate Development and Treasurer at Algoma Steel Group Inc]

I will now turn over the call to our Chief Executive Officer, Michael Garcia. Mike?

[Michael Garcia, CEO at Algoma Steel Group Inc]

Thank you, Mike. Good morning, and thank you for joining us to discuss our fiscal first quarter 2025 results. Ensuring the safety of our employees remains a core value and top priority for our company. This unwavering commitment led to significant improvements in our lost time injury performance during fiscal 2024, with continued focus into the current fiscal year. Our focus on safety is more crucial than ever, as our site continues to be a hub of activity with the EAF project advancing. This dedication is further emphasized in Algoma's second annual ESG report, released this past Monday, which delves into a wide range of topics across the spectrum of environmental, social, and governance in greater detail.

[Michael Garcia, CEO at Algoma Steel Group Inc]

The report highlights our ongoing efforts, not only in maintaining safety standards, but also in advancing our broader ESG commitments, reinforcing our role as a leader in sustainable and responsible business practices. Next, I'll cover the key events and milestones during our fiscal first quarter, as well as give an update on the progress at our transformative EAF project. I will then turn the call over to Rajat for a deeper dive into the numbers and a discussion of our strong liquidity and balance sheet before closing with an update on market conditions. There are a few important themes I would like to get across on this call. First, our results for the quarter reflected overall conditions in steel markets, resulting in lower volumes and realized prices. Shipment volumes were also softer, reflecting the planned outage at our plate and strip facility in April.

[Michael Garcia, CEO at Algoma Steel Group Inc]

We prioritized plate production coming out of the outage and expect that we will continue to ramp up volumes over the next several quarters. Second, our balance sheet and liquidity are strong, having been bolstered by our $350 million notes offering in April, leaving us with cash at quarter end of almost CAD 500 million and total liquidity of over CAD 800 million. We are well-funded to complete our EAF project. And finally, the EAF project is approaching a truly exciting milestone, nearing the planned beginning of commissioning of Unit One in our calendar fourth quarter. Every day that goes by de-risks the project and brings us another step closer to being one of the greenest producers of steel in North America. Now, let me give you some additional color on those key themes.

[Michael Garcia, CEO at Algoma Steel Group Inc]

Our results for fiscal first quarter of 2025 were in line with our previously disclosed guidance for both shipments and Adjusted EBITDA. They reflected a continuation of the challenging market conditions we have seen this year in steel pricing. We are laser-focused on ensuring the safe operation of our existing legacy facilities, some of which are over 70 years old, as we make the transition to EAF steel making. All told, the combination of lower shipments and softer realized steel prices led to an overall decline in revenues, Adjusted EBITDA and cash flow generation versus the prior year period. As discussed on our last call, during the quarter, we successfully completed substantially all of the remaining upgrades related to the modernization of our plate mill.

[Michael Garcia, CEO at Algoma Steel Group Inc]

This upgrade involved installing new equipment across the facility that has enhanced product quality and is resulting in a steady ramp to higher plate shipments. Despite the facility being offline for three weeks, our plate shipments in the first fiscal quarter of 2025 were approximately 61,000 tons. The second phase of our two-part Plate Mill modernization project originally called for a final multi-week outage later this year. However, our team was able to accelerate additional work during this outage, so that the vast majority of the modernization project at the facility is now substantially complete. We expect any remaining items to be addressed with other planned maintenance activities over the coming year.

[Michael Garcia, CEO at Algoma Steel Group Inc]

We expect our fiscal second quarter plate production to be close to 90,000 tons, as we execute a steady ramp over the balance of the fiscal year towards our expected annual run rate capacity of over 650,000 net tons. With our previously announced exit from the wide coil market during our 2025 fiscal year, we will be in position to prioritize plate production and sales, taking advantages of our position as Canada's only discrete producer of plate products. This should result in a more favorable product mix that is expected to drive meaningful margin enhancement. With the maintenance outages on the blast furnace and the plate mill upgrade complete, our operations are running normally, and we continue to expect solid production levels in the second half of calendar 2024.

[Michael Garcia, CEO at Algoma Steel Group Inc]

In April, we completed a $350 million note offering, which bolstered our liquidity position substantially as we enter the home stretch of our EAF project construction. Cash on hand at quarter end was almost CAD 500 million, and when combined with our undrawn credit facility, gives us great flexibility and security to execute our strategic growth strategy. Now, let me give you an update on our progress during the quarter on our electric arc furnace project. This is a truly exciting time in Sault Ste. Marie, as we continue to see the skyline change at the site of the EAF, with the exterior sheathing closing the building in anticipation of commissioning activities commencing by the end of this year.

[Michael Garcia, CEO at Algoma Steel Group Inc]

With EAF steel production expected by the end of the calendar first quarter of next year, we will begin to ramp towards a shipping capacity of approximately 3 million tons per year. During the quarter, cumulative investment in the EAF project reached CAD 611 million. To date, we have committed contracts totaling approximately CAD 850 million, with over 90% tied to fixed price contracts. Progress to date on both the construction of the project and the contracted portion of work yet to be completed, has significantly de-risked the project budget. We expect that all remaining contracted work will be settled during the current quarter. As a reminder, our startup plan continues to include normal production from our existing steelmaking facility, while ramping up steel production from our EAFs in calendar 2025, followed by a complete switch to EAF production.

[Michael Garcia, CEO at Algoma Steel Group Inc]

In summary, in very tough market conditions, we focused on what was within our control in the quarter, operating our existing facilities safely, completing the important upgrades at our Plate Mill, and advancing the EAF project on schedule and on budget. Near-term pricing weakness can't dampen our excitement for what's happening at our company, and the huge step forward it represents for Algoma Steel and our community. I'd like to once again thank all our employees for their hard work, dedication, and professionalism. Now, I will pass the call over to Rajat to go over our financial results for the quarter. Rajat?

[Rajat Marwah, CFO at Algoma Steel Group Inc]

Thanks, Mike. Good morning, and thank you all for joining the call. As a reminder, all numbers are expressed in Canadian dollars, unless otherwise noted. Our first quarter results included adjusted EBITDA of CAD 37.7 million, which reflects an adjusted EBITDA margin of 5.8%, and cash generated from operating activities of CAD 12.5 million. We finished the quarter with a strong balance sheet, including CAD 493 million of cash and availability of CAD 351 million under our revolving credit facility. Now, let me dive into the key drivers of our performance. Steel revenue of CAD 597 million in the quarter, down 20.8% versus the prior year period. We shipped 503,000 net tons in the quarter, down 11.6% versus the prior year quarter.

[Rajat Marwah, CFO at Algoma Steel Group Inc]

The decrease in shipments was largely attributable to the planned maintenance outage at our plate and strip facility, as we work to complete the final stages of our plate mill modernization project. Net sales realization averaged CAD 1,187 per ton, down 10.4% versus the prior year period. The decrease versus the prior year level reflects weaker market conditions, partially offset by improvement in our value-added product mix as a proportion of steel sales. On the cost side, Algoma's cost per ton of steel products sold averaged CAD 1,069 in the quarter, up 12.5% versus the prior year period. The main drivers of the increase versus the prior year period include lower volume, the cost of replacing internally produced coke with purchased coke, and higher natural gas.

[Rajat Marwah, CFO at Algoma Steel Group Inc]

Cash flow from operations totaled CAD 12.5 million for the quarter, as compared to CAD 163.9 million in the prior year period. The main drivers of the decrease in cash flow in the quarter was lower operating income. Inventories at the quarter end were CAD 800 million, down modestly from CAD 808 million at the end of the 2024 fiscal year. We remain focused on driving down working capital levels and continue to expect a release of at least CAD 100 million in fiscal 2025. Next, I'll remind you of the financing activity we completed in early April. Our wholly-owned subsidiary, ASI, issued an aggregate CAD 350 million of 9.8% senior secured second lien notes due April 2029.

[Rajat Marwah, CFO at Algoma Steel Group Inc]

This move enhanced the strength and flexibility of our balance sheet and reflects the positive view that credit investors have of our company and their confidence in our strategic direction and financial stability. All told, the company had cash of CAD 493 million and unused availability under the revolving credit facility of CAD 351 million, representing approximately CAD 845 million of liquidity, plus approximately CAD 45 million available on our Strategic Innovation Fund loan supporting the EAF project. One additional note on the insurance recovery related to the coke-making corridor collapse in January. We continue to work closely with our insurance providers and adjusters as they complete their assessments.

[Rajat Marwah, CFO at Algoma Steel Group Inc]

While claims of this nature require a detailed adjudication process, we've made progress on the property damage component and expect to receive an advance payment of CAD 25 million in the current quarter as we work through the balance of both the business interruption and property damage claim. Now I'll turn the call back to Mike Garcia, our CEO, for closing remarks.

[Michael Garcia, CEO at Algoma Steel Group Inc]

Thanks, Rajat. Looking at the state of the North American steel market, prices have generally weakened through the spring and into the summer. While prices have shown signs of stabilizing somewhat since late July, we do expect that these prices will generate headwinds on earnings performance over the near term. Softer market conditions the last few months reflect ample spot supply, short lead times, economic uncertainty, and cautious buying during the typically slower summer buying season. As we wait for these headwinds to abate, we will continue to focus on what we can control, operating our facilities safely and positioning ourselves to best capture market opportunities as they arise. We have been on this journey to bring electric arc furnace steelmaking to Sault Ste. Marie for close to five years. Our entire company is energized as we approach this major milestone.

[Michael Garcia, CEO at Algoma Steel Group Inc]

In the months ahead, we will continue to relentlessly focus on the safe operation of our existing facilities while executing the commissioning of our transformative EAF project. Our strategic vision in undertaking this endeavor is expected to unlock significant shareholder value while delivering some of the greenest steel in North America. Thank you very much for your continued interest in Algoma Steel. At this point, we would be happy to take your questions. Operator, please give the instructions for the Q&A session.

[Operator]

Thank you. We'll now be conducting our Q&A session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is from David Ocampo with Cormark Securities. Please proceed with your question.

[David Ocampo, Analyst at Cormark Securities]

Thanks for taking my questions. Maybe the first one here for Rajat. You know, we're getting closer to the EAF coming online. I was wondering if you could help us understand the duplicate costs that you guys will incur during hybrid phase. And then the second part of the question is, what do unit economics look like once we're a full EAF operator? Is it scrap plus CAD 200-CAD 220 a conversion cost? I think that's a number you've alluded to in the past, so just hoping that you could refresh us on those metrics.

[Rajat Marwah, CFO at Algoma Steel Group Inc]

Sure, David, and thanks for the question. So as we transition through the EAF, the major cost change that will happen while we are running in the transformative mode is the labor cost from fixed cost perspective. And then the gap, the difference between, you know, purchasing scrap or producing hot iron internally. The way we see it is that next year, when we start producing from both the furnaces, which is the blast furnace running at their current capacity and EAF adding tons, as we ramp up, our cost on a per ton basis will come down because there will be more volume. But on absolute terms, the cost will be, on a fixed basis, very similar. Variable will vary based on, based on some of the index contracts that we have in scrap purchase.

[Rajat Marwah, CFO at Algoma Steel Group Inc]

But on a fixed cost basis, it will be very similar to what we have right now, because the number of people that we need to run the furnace is already in the current cost. As you're seeing, they are here, they are getting trained, they are writing SOPs, and so on and so forth. So, so our cost will, on a per ton basis, will come down as we start producing more and shipping more during the transformative period. When we get to the stage where we shut down the blast furnace and get into only electric arc furnace, there will be substantial savings on the fixed cost side as people will go out to match with the operational capabilities. We will look at scrap plus CAD 200-CAD 220 in the very similar range, as I mentioned earlier, from our full cost perspective.

[David Ocampo, Analyst at Cormark Securities]

Okay, and I think if we're thinking about the reduction in headcount, I think it was close to 1,000 employees, if I'm not mistaken. Can you update us on how that's gonna be achieved? Or is there gonna be sizable transition costs as it relates to reducing your headcount?

[Michael Garcia, CEO at Algoma Steel Group Inc]

Hi, David, this is Mike. Yeah, I mean, the most impactful savings or changes that will happen from a headcount perspective will be when we no longer are operating our blast furnace and coke ovens. There'll be some smaller adjustments on some of the supporting departments, such as maintenance and some of the infrastructure support departments. But your headcount number is about right. And from an execution standpoint, you know, it's relatively straightforward when you no longer run an asset or a department that you know, it's well laid out in the CBA. What happens to those employees as they leave the company, they retain some recall rights within the collective bargaining unit for a period of time. And the cost of making that headcount reduction is pretty well laid out in the CBAs, and we have good visibility to it.

[David Ocampo, Analyst at Cormark Securities]

Okay. That's helpful. Then, Mike, while I have you, just on the CAD 25 million that's left to contract, what's the risk that you guys potentially go over budget? Just wanted to know what the worst case scenario would look like, either order of magnitude or even what could go wrong.

[Michael Garcia, CEO at Algoma Steel Group Inc]

Sure. Yeah, so we've made commitments and put contracts in place, representing CAD 850 million. And our goal and expectation is to place the remaining commitments and contracts needed for completion of the project, within the remaining range of the budget, which is CAD 25 million. We've got a small number of contracts to place, that will complete kind of the installation and construction of the facility. All the equipment is already on site. You know, everything's going into place. We're at a pretty heavy busy time in terms of the project construction and installation. The exterior of the building is largely complete. The tie-in to the adjacent operations is largely complete.

[Michael Garcia, CEO at Algoma Steel Group Inc]

The transformers in the first EAF furnace are in place. Those are 9 transformers because it's the Q-One technology. Many of the cranes are already being commissioned as we speak. So the intention of the team is to get those last installation and construction contracts placed within the budget. We have about less than 10% of the total budget is, and commitments are or contracts are time and materials. So there's always a little bit of risk in execution of time and material contracts that, you know, if, if you don't, if you consume more time or more materials, then you will have the risk of a budget overrun.

[Michael Garcia, CEO at Algoma Steel Group Inc]

So we're managing that very closely, and that's one of the things that the project team is focused on. Again, that's probably within the scope of the entire budget, that's CAD 60 million to maybe CAD 70 million of the total cost, so the risk is on that number. So I think at this point, you know, we're in the home stretch of the project. We're focused on execution. We're focused on placing these last bit of contracts for the installation and construction. And our intention is to finish it within that 875 number. So it's hard to put a measure on the risk, but we're focused very closely on finishing this project at CAD 875.

[David Ocampo, Analyst at Cormark Securities]

Okay, it sounds like the time and materials is tracking in line with your expectations so far. Is that correct?

[Michael Garcia, CEO at Algoma Steel Group Inc]

Yes. Yeah. We brought in a project coordinator, EllisDon, to help us with the management of that time and material piece, as well as the overall scheduling and pacing of all the different construction and installation activities going on throughout the project site. And they've been on board for, you know, over a year and a half, so, they've been a great addition to the team.

[David Ocampo, Analyst at Cormark Securities]

Okay. That's perfect. That's all the questions I had for you guys. Thanks so much.

[Michael Garcia, CEO at Algoma Steel Group Inc]

Thanks, David.

[Operator]

Thank you. Our next question is from Katja Jancic, with BMO Capital Markets. Please proceed with your question.

[Katja Jancic, Analyst at BMO Capital Markets]

Hi, thank you for taking my questions. Maybe starting on the plate ramp up. So second quarter, you expect 90,000 tons. How should we think about the ramp up in the rest of the year?

[Michael Garcia, CEO at Algoma Steel Group Inc]

Well, I think from a production standpoint and capability standpoint, we feel really good about where we are. The mill came out of the April outage, I think it was a 22-day outage. The mill came up very smoothly from that outage. We're really delighted with the capabilities and the performance of the mill. We're still working on some of the shear line pacing to make sure that the shear line is performing well, but that's not a limitation to our actual shipments or production, because we have not yet shut down the gas cutting line. So, from a production standpoint, we are real happy about where we're sitting.

[Michael Garcia, CEO at Algoma Steel Group Inc]

I think the main challenge right now, frankly, is the market. You know, we're in a soft market, and the commercial team, although we're getting great reception on the quality of our plate and the delivery performance of our plate mill, demand is not necessarily robust right now. There's still a CAD 300+ spread on plate pricing versus coil, so we feel good about that. But, we're facing a little bit of a soft market right now. I think that our current expectation for that 90,000-ton quarter is in place, and ramp up for the end of the year will probably be a little bit lower in the next quarter after this current quarter because we are taking a small maintenance outage in the mill. So that's the way we're seeing our plate business right now.

[Katja Jancic, Analyst at BMO Capital Markets]

Can you remind us how much of your plate volume goes into the U.S. market?

[Michael Garcia, CEO at Algoma Steel Group Inc]

About 30%. That, you know, that's not strictly 30% month after month, but around 30% throughout the whole year.

[Katja Jancic, Analyst at BMO Capital Markets]

And then maybe, you know, like you mentioned initially, pricing environment is soft. We're currently in the seasonally slower demand period. How should we think about near-term shipments in total? Last quarter, in part, you were impacted by the plate, maintenance or upgrade. What about this quarter? How should we think about shipments?

[Michael Garcia, CEO at Algoma Steel Group Inc]

Yeah, Katja, thank you. I think they'll be directionally higher. The operations are performing well. The commercial team is working hard to keep our customers supplied. I think that we know where pricing is right now. I don't see any near-term catalyst for increased pricing over the balance of the year, and that's probably gonna be the same around demand, but it'll certainly be directionally higher in the quarter to come. And, you know, this is a time during the current market environment where, you know, we're focused on completing the EAF project, and we have all the liquidity we need even in the current market conditions, to complete the project on time and on budget.

[Katja Jancic, Analyst at BMO Capital Markets]

Maybe if I just may, one last one. You announced that you're relaunching the NCIB. Will this—Would you be willing to use some of the available liquidity, given that it's pretty large right now, or is this going to be tied more to free cash flow generation?

[Michael Garcia, CEO at Algoma Steel Group Inc]

Well, I think we need to reinstate the NCIB to give us the flexibility to do both of those: to return capital to shareholders, to buy shares of the company when we think it's a good time to buy. We're mindful of our liquidity position. We need to finish the EAF project and continue to execute on our strategic transformation, but we're always mindful of our capital allocation strategy. So we think the NCIB being in place gives us the flexibility to pursue that.

[Katja Jancic, Analyst at BMO Capital Markets]

Okay, thank you.

[Michael Garcia, CEO at Algoma Steel Group Inc]

Mm-hmm.

[Operator]

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Our next question is from Ian Gillies with Stifel. Please proceed with your question.

[Ian Gillies, Managing Director and Equity Research Analyst at Stifel Canada]

Morning, everyone.

[Michael Garcia, CEO at Algoma Steel Group Inc]

Morning, Ian.

[Ian Gillies, Managing Director and Equity Research Analyst at Stifel Canada]

As you think about using the NCIB and whether the stock is expensive or inexpensive, as a baseline, do you think about your production being 2.2 million tons, 2.7 million tons, or something closer to 3, as a baseline for setting that value of when to figure out whether the stock's inexpensive or not to go and use that?

[Michael Garcia, CEO at Algoma Steel Group Inc]

Well, I mean, that's a great question. I think, you know, we are building this company to be a 3 million plus 3 million finished goods steel company of plate and DSPC. And that's the value we are creating, and that's gonna be enabled by completing these EAF furnaces and starting them up successfully in 2025, and then reaching 2.4 million tons of EAF production sometime in 2026. We've got the power secured to do that, so there's no limitations from the power. And so that's how we kinda think of the value we're creating and our view of the value of the company. Now, we aren't there yet.

[Michael Garcia, CEO at Algoma Steel Group Inc]

We've got to complete the project and get it started up. But I think, you know, where we've gotten to over the last five years that we've been on this journey, we are in a really exciting place right now, and we'll be making EAF steel in, you know, another just over six months.

[Rajat Marwah, CFO at Algoma Steel Group Inc]

Ian, just another comment. I think our valuation is low, and it's not a surprise. It's you know, it'll go up as we complete our EAF. And you know, it's reflective in what others—what normally the trading levels are. So I think it's pretty clear, but our focus definitely is always, as Mike said, completing this project and making sure we have enough money to complete it.

[Ian Gillies, Managing Director and Equity Research Analyst at Stifel Canada]

Understood. As we move into calendar 2025, Rajat, can you help us think about some of the tax benefits from turning on the EAF? 'Cause I would presume there's a lot of capital cost allowances and the like. So should cash taxes, in fact, be quite low next year or lower?

[Rajat Marwah, CFO at Algoma Steel Group Inc]

You're absolutely right. As we commission and we capitalize, we have accelerated depreciation in Canada, where we can take most of it in two years. So our cash taxes definitely will be lower, and we'll get that advantage over two years, or three years, depending upon how the economy is performing. But our taxes will be lower.

[Ian Gillies, Managing Director and Equity Research Analyst at Stifel Canada]

Okay. And then last one for me as it pertains to the EAF and power. Is there any sort of detailed update you can provide on the status of where you're at with the Public Utilities Commission and getting final approval to build that power line? I thought it was something that was supposed to come through the summer, this summer into the fall.

[Michael Garcia, CEO at Algoma Steel Group Inc]

Yes. So we, we expect the, the final determination, official approval from the Ontario Energy Board of PUC's, Leave to Construct application, either at the end of August or early September. You know, all the... We've been in very close contact with, PUC as they prepared the, the application with OEB as, as they're examining it. We, we've been tracking. You know, there haven't been any, any issue, you know, there haven't been any extra questions from OEB or interveners that have, that have stepped forward in, in opposition to the project. So, but it does take time for the OEB to, to do a complete, examination of the application and issue their, their positive, finding.

[Michael Garcia, CEO at Algoma Steel Group Inc]

Once that's in place, that kind of starts the activity going for the actual construction, which we believe will be completed in 2027. At that time, when you think about what that completion of the power line here in the community of Sault Ste. Marie will do, is we have enough power to make 2.4 million tons of EAF steel, cold charging, 100%, without augmenting any hot iron from our blast furnaces. With the completion of that local line in 2027, that'll give us enough power to produce 3 million tons of EAF steel. That would be the combination of the grid, the increased grid power available to us and continuing to run our Lake Superior Power Plant.

[Michael Garcia, CEO at Algoma Steel Group Inc]

And then the final stage would be the completion of the grid, the transmission lines in the Ontario province that would allow us, again, to make 3 million tons, but without running our captive power plant, which would, you know, significantly lower our cost and our carbon emissions profile. So, really, we'll be at full production based on the amount of steel we can make in our EAFs and our downstream once that local power line is complete in 2027. And then after that, the only power changes will just serve to lower our cost and our carbon emissions profile.

[Ian Gillies, Managing Director and Equity Research Analyst at Stifel Canada]

Understood. Maybe just a follow-on, if I may. Does that mean at some point, perhaps it's a longer-dated item, that LSP becomes a potential monetization opportunity to service some extra value?

[Michael Garcia, CEO at Algoma Steel Group Inc]

I think so. I think it'll be... You know, it'll depend on the overall state of the Ontario grid and how the system operator and the OEB view that power plant in terms of, you know, does it add grid stability? Does it have value from a peaker perspective to ensure, you know, available power? And, you know, to the extent that those discussions will be happening at that time, I think there will be value in maintaining that power plant and having it part of the overall generation footprint in the province, you know, to run and to generate 110 MW of power when it's needed by the system operator.

[Ian Gillies, Managing Director and Equity Research Analyst at Stifel Canada]

Understood. Thank you. Thanks very much. I'll turn it back over.

[Michael Garcia, CEO at Algoma Steel Group Inc]

Thanks, Ian.

[Operator]

Thank you. There are no further questions at this time. I would like to hand the call back over to Michael Moraca for any closing comments.

[Michael Garcia, CEO at Algoma Steel Group Inc]

Thank you. Thank you again for your participation in our first quarter fiscal 2025 earnings conference call, and for your continued interest in Algoma Steel. We look forward to updating you on our results and progress when we report our fiscal second quarter results, scheduled for November.

Participants

Executives

• Michael Garcia, CEO
• Michael Moraca, VP of Corporate Development and Treasurer
• Rajat Marwah, CFO

Analysts

• David Ocampo, Analyst at Cormark Securities
• Ian Gillies, Managing Director and Equity Research Analyst at Stifel Canada
• Katja Jancic, Analyst at BMO Capital Markets