Algoma Steel (ASTL) 3 Nov 232024 Q2 Earnings call transcript

Greetings. Welcome to Algoma Steel Group Inc. Fiscal Second Quarter 2024 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I'll now turn the conference over to your host, Mike Moraca, Treasurer and Investor Relations Officer.

You may begin.

welcome Steel and Inc. everyone, morning, to Group, Algoma Good

Chief Leading Earnings are Officer; Second our XXXX Call. and Officer. today's Marwah, Executive Quarter Fiscal Chief Conference call our Michael Rajat Financial Garcia,

available Steel's this you call forward-looking that to the recorded be today As a at for of www.algoma.com. I is later Algoma reminder, and replay statements section laws, comments remind risks within website meaning may made and on results securities assumptions being today's will made of corporate Investors from today. Actual like which uncertainties. in contain would involve materially statements inherent call and applicable differ the may made

the references today's call and to accompanying the Algoma financial from on dollar are as The U.S. the presentation Second financial found section measures. Last in to of IFRS, statements our earnings to assumptions in in prepared evening, our which XXXX we would addition, posted Investors on presentation Fiscal using corporate Discussion U.S. and currency and accordance functional I to that remarks. in our legal website. Canadian differs Management's and note our the Quarter financial can and risks prepared currency. X refer an earnings accompany Slide also Steel's today's with call be disclaimers outlined mind, Analysis. Please prepared to read the the everyone includes statements With dollar our as our ask that certain In GAAP, presentation slides non-IFRS are today today's for of discussion

X XXXX. note, in to today's have financial March to ended all amounts XX, unless September been are XX, Our our Please fiscal year X months April call dollars prepared noted. the for X runs otherwise statements referred Canadian on and from and

Chief will question-and-answer a Garcia. Officer, over the turn call we will to prepared our session. I now Executive remarks, our Michael Following conduct Mike?

quarter results. to joining Mike. second our thank you discuss morning, fiscal and Thank for Good us you,

the I most, the Algoma, always, continued what all lost we over we improvement frequency and of will attention in decade. truly the transformation matters lost without progressing employees. As to by on past and believe focus the same want to has dedication want emphasize At safety team our enter no compromise, as we bring for significant our hours remarks capital XXX,XXX to continue our months. safety, project working a we safety of addressing largest time the commend injury winter safety especially project. I time our the EAF with our importance in to injuries rate Furthermore, to in date begin the led my of history, and as

continue We relentlessly injuries. pursue workplace work to will as X goal of we our diligently achieving

well the a conditions. progress Next, its Rajat update subsequent as to transformative balance turn numbers for the I'll key dive milestones our before our an during a over quarter and end cover deeper the call update on and liquidity discussion then of sheet with market strong closing into our and on project. to EAF of you second events fiscal and as will I

where with against auto and performance disclosed the U.S. of a various quarter previously strike both reflect Our making line These at steel guidance results the demand markets, for were solid challenging fiscal facilities adjusted in and in second backdrop XXXX operational shipments UAW pricing. for recently results EBITDA. resolved our impacted

modernization Phase and plate the shear. of including X progress inline mill of project, testing our on continued During we quarter, commissioning the

this steps and phase. implementation budget. The Originally, team the build production further derisk project modernization opportunities final has ramp the the planned and allow days. outage detailed end the opportunities up the shear month ahead of worked planned year. us this higher through through plate and had of the market to spanning expect to outages to inventory later we of This on be implementation will one We for to production to the the of online XX level capture phase identified

days, However, the of commissioning on while we expect have XX outages identified will we advantages risk. to splitting base which impact the shorter our X customer outages mitigate also to up into reducing duration

first the much April next outages planned We outage scheduled on outage align year second customers. calendar over production increase later course will and still The volume our further the in will be less same with in be impact advantages. the year our for to with the the expect in of maintenance of year providing

strategic Turning other initiatives. to

discretion. quarter. made an to U.S. our We option on a ore extension a We access. year sole covered, iron to furnace anticipate securing purchase to existing have and contract, significant needed the ore X-year giving electric existing progress contract make supply now third material are we iron arc for steelmaking the certainty transition uninterrupted volumes the extending By our signed of during with our fully with inputs raw key us at Steel

contract coal our double XXXX. and pricing this XXXX coking expected low calendar the is down we needs material be have settled in to front, calendar On raw digits for

visibility to agreement of needs our So signed improve the few next positioning continue coking for given year, coal better the solidified union ore especially impacted the as due weakness. quarters, to the strike iron inputs recent have and next years contracts labor to from XXXX, X-year calendar for we our our margins, the us last and cost for into several certainty for expand prices our steel contract created structure

customers. coil as around reflective hot-rolled the inventory days, X,XXX We low USD are for prices hovered forward ton pent-up at demand and optimistic per of in recent have levels certain

the on our This by roughly today like ultimately million capacity transformational project. throughput of I'd our quarter X.X a on X/X, tons per from Next, at means X.X upon mill. year as you progress output increase to will we downstream our furnaces increase expanded conventional finishing EAF during update employing to tons The by plate our throughput capacity steelmaking EAF match will liquid dual million our higher completion. capacity

in makeup lowering simultaneously fully mix of of to EAF our power North while switch the be product steel approximately we operations, our of one carbon we America. overall supply when the improve emissions factoring will XX% expect greenest to when in by this Importantly, producers operational. When

in the During EAF our or our cost the of expected budget. midpoint cumulative of total quarter, reached $XXX project XX% million project at project the investment

We project meaningful under of of cost. And since uncontracted quarter of have made contract. is end approximately expected total as securing budget portions XX% today, progress the project

end adjustments, that to total months subject demonstrates and of calendar the project amount to out to X% remainder vast commissioning the project contract of progress of expect contracted We the This important only the of fixed terms. derisking the budget by the the price is it start point March of we now, late is time meaning XXXX. Furthermore, as significant material towards over EAF is majority XXXX. in past several as under the of

plan complete production. I include normal steelmaking while switch continues our ramping start-up EAF a As XXXX, facility reminder, followed production spoke steel to production earlier up by calendar existing the in to for our steelmaking, about from for EAFs a power. from our one coal And of the and EAF inputs is to you important secure successful think most iron efforts about ore operations. inputs our when existing our

tons amount already hot and utilizing from metal running further we at electric this of run on-site a phase means provide our power we million to opportunistically, our to Ste. which our have X.X rate for EAF execution relying forward. for employees impact current on deliver normally of installed, new once operate the generation capacity. In system accelerate driving in and furnace, an required local power assurance million and an the infrastructure operational requirements and the for without made, to upgrades shipments the current received on-site furnaces substantially blast blast project, simultaneously facilities derisking when provides can whose while to can project. again like issuance progress EAF power of upside our exciting been of previously, thank power the All the continues and has the long-term cable for EAF in quarter results in As to line X.X our existing without as assessment on run government's power run the unit our would to utilize arc end, our our the Sault to either regional safely which Marie of cost the needed the is council all Ontario our a financial work availability EAF. It's the the accelerates. I'd announcement all, grid. of mentioned we EAF Also, solid quarter, power subsequent furnace of time second plant. current XXX project We we order further significant

call to the Rajat? our the our over for to the over Rajat funding Now details will on give and go expenditures. capital more of pass quarter financial expected I results

and morning, Thanks, call. all thank Mike. for you joining Good the

from generated revolving finished facility undrawn, with $XX quarter of and liquidity excess adjusted million, million. XX.X%. included million. of unrestricted an results operating $XX.X Cash USD of million credit second of Our total the EBITDA which activities million XXX in representing EBITDA margin $XXX our We reflects $XXX.X quarter cash, remains was adjusted

We included financial and previous our have calls, on mentioned in strategic our our discipline. in direction, focus

to loans maintained the projects through leverage in sheet liquidity and our We manage with to our profile only balance debt market ample of form structured long-term linked have the with government low a capital up period. XXX,XXX to capital in performance prior our quarter. year now XX.X% the tons quarter, the compared initiatives. I'll and fluctuations in as into shipped complete our the drivers dive of We net the key very

occurring is to expected, and our continue our as vessel Our annual plate run and reline. including operations seasonal maintenance strip steelmaking normal well,

a this production As normal XX,XXX XX,XXX reminder, tons. to typically reduces seasonal by maintenance

coil the relative driven continued softer quarter. Net fiscal down we from during period. quarter, primarily as levels ton, demand, would fiscal significant versus second projects the market compared third overall to durable prior hot-rolled goods. $X,XXX quarter decrease pricing particularly reflects resilient spending lower sales to versus in the As and be to on to Plate our realizations averaged prior the enjoy a year infrastructure a sequentially per quarter. expect the by conditions The X.X% premium year result, production

versus million, quarter year, XX.X% we are quarter calendar of share installation. Steel beyond of a the than were discrete reflecting totaled revenue plate by up result offset and tons we average more in per As mill of the the the quarter increase in only in mill last in look as ton from Canada, that to forward the same steel. new plate a realization fourth the shipments incremental lower and $XXX.X the the reminder,

year averaged the volumes. sold period versus ton X.X% year prior impact On products The $X,XXX the include of to decrease steel $XX.X per of period. for million approximately volumes, the prior of steel purchased products costs prior in the and X% of to various coke. Cash quarter, use cost a increased gas cost Algoma's the higher utility the operations compared down quarter, natural raw of quarter the inputs, main higher the sold totaled million positive materials and lower including attributed drivers year Versus from side, prior were related in flow period. $XX.X the cost versus to our

the inventories quarter build $XXX.X seasonal normal to at end the Our X.X% were quarter up during patterns. due million,

further during at expect in calendar build to as first the the We quarter. calendar release this year ahead first of to fourth do weighted XXXX, inventories the point half towards inventories in typically of the we and quarter winter heavily calendar

Now plans I'd EAF for our like the funding on project. to additional provide color

remains of we As project cost, the million. the had $XXX the million the spent. $XXX previously of noted, the our to outlook Through or to $XXX million of leaving for be XX% total million quarter, end range the $XXX total of expected cost in spent

sources well are our at look expected expenditures. we positioned when for We today those

available year. million, $XXX $XXX fiscal capacity call working Combined, balance and the Garcia Mike cash drawing of this and have the to the over comments. to the fourth following cash remaining We that, generated requirement XX% this of approximately quarter complete another fiscal on for to coming from turn of Mike? in be the our of loan in project. With $XX approximately capital closing federal expected coming excess exceeds down I'll hand with million million capital SIF back the on

Thank you, Rajat.

American Capacity shipments third were state do We this lower hot-rolled weighed and down. at current are the North of inventories quarter North of fiscal planned American meaningfully to as in several on on felt. result outages prices mills calendar index about in market, across the market. a a reality and was Looking drawn concerns our distributors XX% account as as curtailed quarter, and lower impact maintenance strike of coil expect at the the EBITDA the steel UAW the approximately the fell prices

rapidly as few Looking in which moved pricing out, over been and have to curve the seen will reached upside settlements fourth quarter. last we provide pricing labor climb has further the $X,XXX have forward days, fiscal per near ton, significant higher,

realizations. significant a the high, price our to as benefit plate premium that by to products continues which supported pricing turn also are average We plate fact overall demonstrate in demand remains continues for

We solidifies operational value Algoma markets. and and that much of discipline we forefront ability in this our creation the our of the the maintaining provides to our our phase for in next Steel. questions. Operator, will defines stakeholders volatility our the the excellence will of your project, take At you primary for green session. financial production very at continued execute give point, Algoma, our happy relentlessly interest America. Thank your North leadership prudent in focus of ushering our instructions position ensure of of end regardless steel This maintain would in EAF to please company long-term Q&A the be for future

comes the our first David question Securities. And from with line of [Operator Ocampo Instructions] Cormark

annual that here Rajat. on your guys iron new think have year? one first raw ore you kind material contract, and your buys we've peak materials And that raw of is prices? how for do trend should I guess hit next you into Based your for my

Yes.

for -- the I index for definitely, fluctuates. see it So you comes know coal, how how down don't and

affects that But running. cost should you're future. would have now coming the I materials as utilities, gas, that months in to we should the next as right primarily winter on X the some of see down that raw that we power Normally, So contracts right some year. other down we have extent high through. goes coming into challenges, go start But cost based natural say

through can much a guess expect just just look how an the inventory saw quarters? quarter. begins your the elevated. mean, I uptick unlock how product just materials they're next unwind? Okay. cash walk to Can us you a levels, actually still raw at finished I several little And those And in if bit or we to with I take Rajat. you, then They in sticking

Sure.

when is should and I payable And end, March March they in we same at or capital, year. capital. in March we'll build March, to next inventories then go say working $XXX and around and normally you it So this on and other during hand. release release March, But then some in the typical do December -- we'll to the is end side hand working we includes as million it look

you'll the And there that should following year. another million see So in is see $XX-odd happening. then that we

as material $XXX this that had -- I down. primarily It's are we have the will taking a little well inventories, a run as we longer that million little So take is which which should coming see raw longer, to mentioned side. earlier bit and down, on

WIP the On perspective, goods from But tonnage a cost as some should should optimization finished comes see down, we improving. and we happening. that side, see

when the better at hold or contracts take before one, XX% pricing we to be time, of it done And this set saw it. last you strike then the around this it. strike could conditions? whoever you the on. But UAW Got Was my wants your annual for post least resolution typically typically that that out much

Mike. this is David,

I happening happened think throughout. now. still It's it's

the it's on really customer and of we definitely But kind specific the time to of speaking. happen on the cusp historical continuing as depends strike, the it it frame. began we're but So

the question of with next comes Capital Our Katja Markets. BMO from line Jancic

First, the maybe side. on plate

that they I actually your U.S. prices, prices Can are seems are think market? elevated, you we're environment of a you seeing talk and U.S. you peers environment demand environment but in one a Canada? you announced and mentioned healthy into the the it the how different is that that seeing in selling has are that the what reducing much more, demand And softening. bit remains

is This Katja. Mike. Thanks,

It's again, reflected in of book majority the business, the Canada for up of opened think between still robust split seeing which So we're -- plate is as it's pretty and week, business. U.S. a XX-XX remains think Canada. this our the a still large it and I of bit when And our roughly demand you plate actually spread, in

market tower of in. sure we're others. that some segment more wind cancellation segments little a not I'm that's maybe there's projects, the a but plate of you saw than that under pressure I think the bit are the

plate relatively feel still that confident about book is. Is we and where helpful? of business our So the spread

yes. No, production And lower the how just should given some they on that's maybe super side, level about this think puts ton? there? takes Okay, quarter, helpful. higher? that Should then and be is going be -- cost cost to near-term we Or are what per of

Katja, will of because it volume. Yes. be higher just the

coming or less say, for continue, let's which quarter, gas the least, natural look costs puts when So the more Utilities takes are that with you at on higher is pricing. pressure or might is impact. very and definitely and at power the quarters, will similar. wall some Other coming

that's the normal So the because you outages out summer to still quarter then after and levels pressure play and how normal much get have start utility then situation. the quarter will production you out you back where next into getting are getting the into months

that's So of next see over playing couple quarters. out the we how cost the

with line Our Ian Stifel. next the comes question Gillies from of

respect the impacted shear Or that line correctly, and to this some quarter, it misreading that's the With think am past done volumes? there if being supposed sort of Has I sounds it's mill was plate delay ongoing. be recall I there some at situation? to the been point modernization still new and like I installed, during

No.

commissioning hot much that right commissioning think we we're was exercise. pretty on I before a and what It is had hot this with beginning schedule quarter, project. mentioned was in pretty involved

still then December and production that first so the shear year. of bring next into and in track in on quarter through up more And we consequently normal we're as November

a outages in do are next idea, going you brief flux, you Okay. get you sense if year, the willing be -- what a Or us? may do think as And a quantify on to about And to is happen? That's you that? have volumes be for where bit that depending have would you you post number of still X good good past it helpful. think once

I and Well, in then for us. market building first prior outage XX% increase the think business to important business, from what plate in to XX% -- very segment to aiming we're roll a there. plate it's in a April for is We've the our

times of the some the with of X Phase really We about at the position pieces. and X -- historical now from of kind and customers last had some -- customers. We a project. our time It's recovering are it's the lot challenging plate year our spending start-up of commissioning of with

more So to bit to made of a little in and that performance we the well us. had now But of steadily quality And increased our we've as so as path bring year, improvements capacity believe room it. through handle flow quality build customers with performance recover, we'll promised type require the to as speak. the improvements, promised of we on next we and business the

how one Okay. more. seeing what due this That's HRC And think rise I I right be could it's you to it to do commentary of pertains question helpful. to been your inventories respect a now answer, know is as there to and much being any think run helpful. has but With I is in tied much do customers know think squeeze how in demand? you If weak? it you're just the stronger structurally pretty of from buying I because prices, rebuilt tough would to

first low. at from weeks out I reach the times to a of the couple is more aspect probably tough it months, an that were of which think, days, Lead for early Definitely, aspect tied most there at quite few mills a a the question X were, the Inventories and is significant to weeks, the strike. months people part. positions for Yes, is during is it the X ask. in recovery

the and So been it tied from the UAW I initial concern think of stages a have specific outages to the the recovery strike.

to think, where any and where forward more really beyond now kind I tied be think whether is it going demand will, of fundamental pricing rest activity. economic of it, we're demonstrate will I reaching the further

Lucas line And of Securities. with Riley from the our next comes question Pipes B.

raw margin increase The down? or your back contracts. same, costs on with in annual the XXXX, material to you decline is would in circling expect that. contracts stay first I go the one appreciate annual And would on perspective the on

Sure.

happening. is or remains small margins level price, index-based, contracts the we if are amount get the But it see you lower, mostly higher should And that very see should do optimized. improving the there that's where that see and margins. pricing a on overall, is we because at fixed should So we costs

comes down. most will are pricing margins the year. the be -- so heavily how based of But our moves relatively, cost throughout So index-based, better contracts it's because our on the

can remind us you it. roughly be would Got what versus And fixed percentage floating?

and of normally or -- to we X% We do around our total do around contracts normally XX% fixed and book, so XX%.

is quarterly So floating contracts. the all and X% and on fixed, is balance based monthly

would your And my transition second the the on possible the you remind capital like? is helpful. strategy what is? look mix side Very then expect phase. And the us there any procurement Can you question savings as coke during you transition? What on to

Yes, Lucas.

coke batteries. -- well, we production our in capital internal batteries continue condition. we're the of continue fact running are to they're coke. spend maximize But safe very required maintain critically even short a those So when still operating remains, we we from And to to

always number, gotten forward approach to the the little but our price come we've we future. into past. purchase expect continue market coke that here done And remains try We significantly. But as in the we've recently minimize coke down of same. pretty the we'll to because bit to has go a So benefit externally that of

and production, profit maintain sustaining help? long to We properly. Does have beyond operating the EAF that we're don't final to life spending some -- of required us for still our though have keep them a to but a they batteries, or capital safe even amount transition life

question. XXXX. furnace making the capacity do coke -- in some blast capacity talk potential follow-up of I a does. of blast sorry, have in idling There's It furnace

kind when available can you answered there and before your So more overall, coke that switch buy kind of from more maximize -- I sense a the where that that of on to to more point is makes where just about that tempting would it there's but a merchant merchant question think or needs, coke you the want base? basis. think Is internal you

Yes.

think end comes day, of economics. I at the to the down it

we cost, production But you'll externally and it yield good that understanding of when of to get production decision, loss coke transport be tracking have it. prepared act on external including and the to purchase, So coke here. have economics certainly, something changed our buy it that versus significantly the we'll a that's in internal you in aware be and internal

how have And supply-demand quickly be flexible Or you could to can of the you progresses make switch [indiscernible] kind as you that year decision changes? a year? once and

move be we do probably months, we can No, Yes. we It's contract out on to because don't do within for have wait a switch. but that can we we what pretty -- that. We is based in not year quick days, you have our within if have have available then production production, we switch And -- then months. we flexibility our which within to that own we price on to opportunity optimum based offsets a market the can internally. at quickly in the buy and

question next line from our And Securities. of the with Beacon Shaath Ahmad comes

I on to -- and start one a the guys the not both EAF on your you EAFs on project. for maybe connectivity? quick Did Just scenario hybrid plan anymore commissioning that right, the the is going thoughts me given read

No.

recent with running with available completion only and what but that and power study. we cold definitely be the charge wanted EAFs to is current is still the output we today impact able decisions emphasize system we by that will was play, think that to match of mentioned in IESO the and I the our hybrid

of Ontario, there's it the So issued operator conclusions kind on of a nature power been of grid some that. of the and of by impact based demand the understanding full and in our the they've

perspective. have rate advantage augment blast the continue blast the an optionality if of furnaces back still from from total will steel production at want And looks furnaces reduced through we to that and decision our the to amount economics produced. take to run and we blast EAFs to a go the again, our hot economic how furnace However, metal to of that those increase

on a Got little that. it. helpful. maybe very That's related And bit

On higher, number from statement saw but the on a bit big the cash it carbon least the look tax the -- perspective, had doesn't a flow. I at income it an impact like little credits, was

one that's for maybe So Rajat.

we us the go how Just that as walk to through blast furnaces forward, we about should continue operate? think

you Can Ahmad, question? repeat Sorry. the

on to [ because cash your this number I'm flow carbon somewhat was substantial a it payment the from of just Yes. tax while. haven't million. impact in ] potential quarter, seen $XX trying understand in that the I

cash little So cash help maybe us impacted it's bigger. doesn't from it But it a why look perspective, the flow is like explain a bit operating flow.

understand to to get trying just So you [ how ] back X numbers.

Got I thought [ government ] tax. it.

pay carbon year year [ $XX ]. is million goes year, for yes, $XX roughly another and emissions, -- tax roughly so million -- ] price is have next of for the at X% by for this way last carbon So to roughly we we the up look -- on taxes, our and which it [ is XXX,XXX tons

to the accounting how So -- time those the outgoes are you and that's comes based they in, coming cash need and this the of year in math perspective, number on. out which it roughly from an average price a quarter, until pay total the at perspective, September normally the an gets simple still looked out remains each estimates that's come expense and quarter. published and on what tons for the And out happens. XXX,XXX it how we finalized, the on -- total cash estimates perspective in see are out that on is it November. From a that big was cash accounting But

you a volume [ because QX, should small improving? but of we If me. And margins correctly, one expect That's then expect the improve, you dip I last and the beyond very ] in helpful. XXXX margin heard do to fiscal for situation start should

Correct.

to I'll turn question-and-answer over back We have remarks. session. CEO, the end Garcia, Michael reached for closing the of now the call

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

this Thank may disconnect concludes you you today's this at conference, time. lines participation. for your And your and