Algoma Steel Group Q3 Earnings Call Highlights

Key Points

• Third-quarter results were pressured by the EAF transition and a power outage: Algoma shipped 144,500 tons, generating C$249.4 million in revenue and a C$13.9 million adjusted EBITDA loss. However, management said underlying performance improved by approximately C$19 million sequentially after adjusting for capacity-utilization costs and a prior-quarter insurance settlement.
• Operations are recovering: Full power-generation capability was restored in September, and EAF Unit Two began commercial production on Oct. 9. Management expects fourth-quarter shipments to increase 25% to 35% as the new furnace ramps up.
• Liquidity remains solid: Algoma ended the quarter with approximately C$428 million in total liquidity, including cash and available credit facilities. The company expects a substantial improvement in underlying fourth-quarter EBITDA and anticipates 2027 production averaging about 1.2 million tons.

Algoma Steel Group NASDAQ: ASTL reported a third-quarter adjusted EBITDA loss of C$13.9 million as shipments fell during its transition to electric arc furnace steelmaking and a power-generation outage, while management said underlying performance improved for a second consecutive quarter.

The company shipped about 144,500 tons during the quarter, down from 181,000 tons in the second quarter and 419,000 tons a year earlier. Revenue totaled C$249.4 million, including C$218.2 million in steel revenue. Algoma said the shipment result was in line with guidance issued Oct. 1 for approximately 145,000 tons.

Chief Executive Officer Rajat Marwah said the quarter represented the low point of the company’s production transition. Production was affected by planned work to connect electric arc furnace, or EAF, Unit Two and by an outage at the Lake Superior Power plant.

Plate Mix and Pricing Supported Results

Algoma shipped 105,000 tons of plate, representing approximately 73% of total shipments. Marwah said plate shipments exceeded the level recorded in the prior-year quarter, although they declined from a record 125,000 tons in the second quarter because of the power outage and scheduled plate mill maintenance.

Average net sales realization rose to C$1,510 per ton, up from C$1,361 per ton in the second quarter and C$1,129 per ton a year earlier. Chief Financial Officer Mike Moraca attributed the increase to higher steel prices and a greater proportion of plate in the company’s shipment mix. The increase was partly offset by a lower proportion of premium plate grades during the outage.

Cost per ton of steel products sold was C$1,492, compared with C$1,411 in the previous quarter. Moraca said the figure reflected lower fixed-cost absorption at reduced production volumes and a higher percentage of plate shipments. The metric excluded C$53.1 million in capacity-utilization costs.

While reported adjusted EBITDA was negative, management emphasized improvement after adjusting for capacity-utilization costs and a C$45 million insurance settlement recognized in the second quarter. On that basis, Moraca said underlying results improved by about C$19 million sequentially despite approximately 20% lower shipment volume.

Power Restored, Second EAF Begins Commercial Production

Algoma temporarily suspended EAF production after one of two turbines at Lake Superior Power detected an abnormal condition and automatically shut down on Aug. 17. The company restarted EAF operations on Aug. 29 through interim operating arrangements with the Independent Electricity System Operator.

On Sept. 30, Algoma commissioned a replacement turbine and restored full generating capability at Lake Superior Power. The company has also exercised an option under an existing service agreement with GE to install a leased turbine while the affected turbine is repaired. Installation is expected to be completed in the fourth quarter without interrupting steelmaking operations, according to Marwah.

Algoma completed first-arc testing of EAF Unit Two before quarter-end and achieved its first commercial steel production from the new furnace on Oct. 9. Marwah said the second unit is now ramping and has been incorporated into the regular production schedule.

Management said the company used the outage period to advance maintenance and commissioning work. Marwah told analysts that scrap procurement has not created issues in the ramp-up, and that the equipment has performed well. The company is learning to operate the two furnaces through alternating, rather than simultaneous, arcing, he said.

Liquidity and Fourth-Quarter Outlook

Operating activities generated C$78.6 million of cash during the quarter, compared with C$79.4 million used in the second quarter. Moraca said the change was largely driven by a release of working capital, including C$163.9 million of income-tax refunds and lower inventories. Algoma subsequently received another C$35 million of income-tax recovery.

Capital expenditures totaled C$67.7 million, including spending on EAF Unit Two and the down payment for the replacement turbine. The turbine’s all-in cost is expected to be about US$35 million, with the remaining balance expected to be financed over four years, Moraca said.

At quarter-end, Algoma had C$152.4 million of cash, C$232.5 million available under its revolving credit facility and C$43.5 million available under LETL facilities, for total liquidity of approximately C$428 million.

For the fourth quarter, Algoma expects shipments to rise 25% to 35% from third-quarter levels, with the increase weighted toward November and December as EAF Unit Two ramps. The company also expects a substantial improvement in underlying EBITDA, excluding any capacity-utilization adjustment.

Looking into 2027, Marwah said Algoma expects average production of roughly 1.2 million tons for the year, with an exit rate of about 1.5 million to 1.6 million tons. He said the company could potentially reach a 1.8 million- to 1.9 million-ton run rate with available power and alternating furnace operations, though the pace of reaching that level remains uncertain.

Algoma also said it reached a confidential negotiated settlement after quarter-end with Haverhill Coke related to historical coke-supply arrangements. The company said it continues to address other legal proceedings related to supply agreements affected by the tariff environment.

About Algoma Steel Group (NASDAQ:ASTL)

Algoma Steel Group Inc is an integrated steel producer headquartered in Sault Ste. Marie, Ontario, Canada. Through its steelmaking and finishing operations, the company produces a range of steel products for customers primarily in Canada and the United States.

Algoma's product portfolio includes hot- and cold-rolled steel sheet, galvanized steel and steel plate. Its products are used in sectors such as automotive manufacturing, construction, energy, transportation, industrial equipment and general manufacturing.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.