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spk02: Greetings. Welcome to the Algoma Steel Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Michael Marocca, Treasurer and Investor Relations Officer. You may begin.
spk03: Good morning, everyone, and welcome to Algoma Steel Group, Inc.' 's third quarter fiscal 2022 earnings conference call. Leading today's call are Michael McQuaid, our chief executive officer, and Rajat Marwa, our chief financial officer. As a reminder, this call is being recorded and will be made available for replay later today in the investors section of Algoma Steel's corporate website at www.algoma.com. I would like to remind you that comments made on today's call may contain forward-looking statements within the meaning 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 were 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. The slides for today's call can be found in the investor section of our corporate website. With that in mind, I would ask everyone on today's call to read the legal disclaimer on slide two of the accompanying earnings presentation and to also refer to the risks and assumptions outlined in Algoma Steel's third quarter fiscal 2022 management's discussion and analysis. Please note that our financial statements are prepared using the U.S. 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 three and nine months ended December 31st, 2021. 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. I will now turn the call over to our Chief Executive Officer, Mike McQuaid. Mike. Thank you, Mike.
spk07: Good morning. Welcome, and thank you for joining Algoma's earnings call for our third fiscal quarter ended December 31st, 2021, our second quarterly earnings call since returning to public markets. I will start my comments, as always, by addressing what truly matters most to us, the safety of our employees. At Algoma Steel, we believe in safety without compromise and our continued focus has resulted in substantial improvement over the last decade in our lost time injury frequency rate. I'm proud to say the calendar year 2021 was one of Algoma's safest years ever. Safety performance is our top priority at Algoma and I commend our entire team for their collective success and continued diligence as we relentlessly pursue our goal of achieving zero workplace injuries. Before getting into the specifics of our strong results for the quarter, I'd like to spend a few minutes discussing the remarkable transformation underway, how it positions Algoma in today's North American steel industry, and how it will shape our path forward. We are laser-focused on creating long-term value for our shareholders through a combination of prudent financial management transformative capital investment, and safe and efficient operations of our facilities. Still markets are cyclical and pricing can be highly volatile, as evidenced by what we have seen over the last several quarters. Prudent financial management means focusing on cash that we have, not cash that we expect to realize at some point in the future. Too much work has gone into putting us in the enviable balance sheet position we are in today. With the cash we had on hand at the quarter end and the $420 million of financing commitments we obtained from the Canadian government, construction of our transformative EAF project is underway. Our primary focus is preserving our ability to bring the EAF facility into production on time and on budget. a facility which is designed to modernize and expand our steelmaking capacity while lowering our carbon intensity and enhancing long-term stakeholder value. Let me give you a quick reminder of why we are so excited about the EAF project. The project entails dual furnaces that are designed for a combined annual raw steel production throughput of 3.7 million tons, matching our downstream finishing capacity while lowering our carbon emissions by approximately 70% when fully operational. This level of CO2 reduction would represent 11% of the federal and 100% of the provincial 2030 targets for industrial emitters as set forth under the Paris Accord. We expect the two EAFs to come online in 2024 following a 30-month construction phase This will be followed by a transition away from blast furnace steel production as increased power supply becomes available from the grid with the support of the provincial government. The project will fundamentally transform who we are and how we operate, positioning the company as a next-generation steelmaker focused on sustainability and poised to be successful across all phases of the steel market cycle. Construction of the facility and bringing it online over the next 30 months is expected to be achieved without disrupting production in our current facilities as we continue to safely operate in and benefit from today's favorable steel pricing environment. Later in the presentation, we will dive deeper into our capital allocation framework and how we see it evolving over time. But before that, I will pass it over to Rajat to go over the quarter's record financial results.
spk08: Thanks, Mike. Good morning, and thank you for joining the call. Our fiscal third quarter results once again displayed the impressive cash generating potential of Algoma. I'll remind you again that all numbers are expressed in Canadian dollars, unless otherwise noted. Our quarterly results were highlighted by net income of $123 million, adjusted EBITDA of $457 million, which reflected and adjusted EBITDA margin of 43%, and cash generated from operating activities of $318 million that was achieved despite building traditional seasonal inventories of raw materials. We finished the quarter with $588 million of cash, and full availability under our revolving credit facility. Furthermore, we transformed our balance sheet during the quarter by fully repaying all $358 million of outstanding senior secured long-term debt. As a result, the only remaining long-term debt on our balance sheet is in the form of government loans linked to our capital projects. Diving into the key drivers of our performance, We shipped 553,000 net tons in the quarter, down 6% sequentially, but up 1% as compared to the prior year quarter. As we previously announced, our shipments were lower than we had expected due to various issues outside of our operations, including increased holiday shutdown by customers, logistical supply chain constraints, and COVID-related challenges. This resulted in an increase in steel inventory levels in the quarter that we are expected to ship in the first half of calendar 22 and at their previously agreed upon prices. Net sales realization average, 1,827 per ton, up 15% sequentially and up 161% versus the prior year period. The increase reflects the positive impact of our contract order book as higher lag prices flow through our revenue. This resulted in steel revenue of $1.01 billion in the quarter, up 8% sequentially, and up 163% versus the same quarter of last year. On the cost side, Algoma's cost of goods sold averaged $9.46 per ton in the quarter, an increase of approximately 10% sequentially and 46% over the prior year quarter. This main driver of the increase includes commodity price increases for selected raw material prices, increased employee-based profit sharing as a result of our historical performance, and higher SG&E costs related to our public listing. All in all, the third fiscal quarter marked our second consecutive record levels of adjusted EBITDA. a historical milestone for Algoma. It was a testimony to the dedication and hard work of the entire Algoma team, what we were able to accomplish in a year's time. Moving from near break-even adjusted EBITDA levels just 12 months ago to generating over $1.34 billion in calendar 2021. As a result, we are pleased to announce that our board of directors have approved the determination of earn-out adjusted EBITDA for the calendar year ended December 31, 2021, which surpassed the required $900 million to trigger a full earn-out event, resulting in the issuance of 37.5 million common shares to the eligible earn-out right holders and management. We expect the non-management shares to be issued within approximately five business days. I'll now turn it back to Mike to provide further color or current market conditions and to dive deeper into our balanced and disciplined approach to capital allocation. Mike.
spk07: Thanks, Rajat. Looking at the state of the North American steel market today, we are clearly seeing pricing levels off from the highs of just a few months ago. However, prices still remain historically higher today. than any point prior to 2021 and approximately double mid-cycle pricing. We expect pricing to find a near-term equilibrium and we remain optimistic about where that level should shake out. This is supported by the fundamentals we see in the market and in our order book. We have a diverse customer base that provides selling opportunities across Canada and the U.S., traditionally servicing as many as 150 customers in a calendar year. We strategically target a higher percentage of contract sales and currently sell approximately 65% of our steel on contract. These volume commitments provide stability to our order book and operations, and the lagging price mechanics help to smooth some of the volatility experienced when prices shift up or down quickly. We sell a wide range of offerings that include plate products, which currently enjoy a price premium of over $685 US per ton, as compared to hot roll coil. We've always maintained that investments in our plate mill should serve us well, given we are Canada's only producer and heat treater of discrete plate products. Our modernization project remains on track, and we recently completed the assembly of our new hot leveler and commissioned our automated 3D surface inspection unit, which is designed to further enhance our capabilities. We look forward to completing this project during the balance of calendar 2022. We have a number of reasons to be optimistic that the near and intermediate term pricing will settle at attractive levels. These potential positive factors include underlying strong demands from the automotive sector, and other steel intensive industries and supply factors relating to imports. We are well positioned to benefit from these favorable market conditions operationally, even as we execute the development and construction of the EAF project, providing a real one-two punch of long-term value creation to our shareholders. Now let me talk a little bit more about our capital allocation policy. Our primary focus is on delivering that long-term shareholder value by utilizing prudent financial discipline and operational excellence to ensure our ability to execute our EAF project, ushering in the next phase in our company's history. In the meantime, the steps we have taken to strengthen the balance sheet and to position our operations to benefit from strong market pricing have also afforded us the opportunity to initiate a five cent US per share regular quarterly dividend. Finally, we have initiated a normal course issuer bid program that gives us the flexibility to be opportunistic and allow for the purchase of our shares in the open market from time to time. It's exciting to have reached a point in our history where we can produce attractive results from existing operations develop and build transformative new assets, initiate a dividend, and considering repurchasing our shares from time to time. Quite a change from where we were just a few short quarters ago. We will continuously reevaluate our capital allocation policy with the Board as we expect to be a significant generator of free cash over the longer term. That being said, I will reiterate that our focus is to live within our means, not spend money we do not yet have. So in conclusion, our fiscal third quarter included achieving a number of major milestones in our 120-year history, including our return to public markets, the retirement of our senior secured debt, the decision to proceed with our transformative EAF development project, achievement of historically strong financial results, and a continued legacy of safety for our employees. We now enter a phase centered on new project development and construction with the dual EAF facilities, a generational investment designed to forever change how steel is manufactured in Sault Ste. Marie, and that Algoma is well capitalized and positioned to execute. Our team is focused both operationally and financially on this critical investment to make our business greener, more competitive, and more resilient. We expect this transformation will create a compelling value proposition for all of our stakeholders. Thank you very much for your continued interest in Algoma Steel. We very much look forward to what the future holds. At this point, we would be happy to take your questions. Operator, please give the instructions for the Q&A session.
spk02: At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 pull for questions. Our first question is from David Gagliano with BMO Capital Markets. Please proceed with your question.
spk06: Hi, good morning. Thanks for taking my questions. I'll start with what is probably the obvious question. We noticed there's no near-term outlet commentary in this earnings release presentation and in the MD&A and in your prepared remarks this quarter. So I was wondering if you could just provide us some thoughts around the current quarter, given that we're kind of halfway there. given the lags in pricing, given the challenges on volumes and the buyer strike that we're hearing about from the distributors. Can you give us a sense as to what your thinking is regarding volumes and lagged pricing if available? Thanks.
spk07: Good morning, David. So I want to start. We are reverting to industry practices with guidance that will come later in the quarter. What we are trying to do is strive to minimize the uncertainty that the volatility of the sector brings to guidance estimates. As you point out, pricing with our lagging contracts is reasonably well understood and modeled. It's really the volume that remains a variable, and with more than half the quarter left to go, and the near-term supply chain issues that are being experienced We felt that it was imperative that our guidance be provided in a manner that it can instill confidence in what we say.
spk06: Okay, so typically seasonally, this is a fairly meaningful rebound from a volume perspective, you know, considering these headwinds in the near term. Is it reasonable to assume that there will still be a recovery in volumes, albeit muted, versus a typical recovery on a quarter-over-quarter basis?
spk07: I think that's fair. We had provided guidance around the new year that there was production that didn't make its way into the marketplace in our fiscal Q3, and it is available in subsequent quarters. Our fourth fiscal quarter, the winter period, is typically a time when we don't take major outages. So again, our production is reasonably high. So you've got a couple of very positive supply side factors. It's really the demand side that's really evolving day to day with things like the blockades at the bridges connecting Windsor and Detroit.
spk06: Okay, understood. And then just I'll get off this issue real quick, but one other piece to this. Can you give a sense of the amount of volume that was deferred into this current quarter versus last quarter, and when was that volume, just from a timeline perspective, priced?
spk08: Yeah, David, this is Rajat. So the volume we built uh, you know, roughly around 40,000 tons, uh, in the, in the last quarter, which will flow through in the first six months. And, uh, it was priced in, uh, in the previous quarter, uh, which was December quarter. So that's, that's how the pricing will move into, uh, for those 40,000 that will be shipped.
spk06: Okay. And that, okay, perfect. That's helpful. Now just switching gears on the buyback. Um, uh, obviously you went the NCIB route, which, uh, Caps the total amount of potential buybacks, I think it does, kind of 5%. Is there thought being given to additional repurchases as we move through the year via different routes?
spk07: So you're absolutely right. The normal course issuer bid, the size is prescribed by legislation. What it does do is provide us the flexibility to use cash over the next year, and that's after we've earned it. and after we've protected the completion of the electric arc for buying our own stock. That investment decision, and along with any others, will be weighed against other available opportunities that will ultimately increase shareholder value. I direct you to slide number eight of our presentation. And while I'm proud of what our team has accomplished in the last three years, there's still more opportunities to put more building blocks, if you like, in place that will result in long-term sustainable value for our shareholders. You know, investing to take further advantage of our strengths, investing in the opportunities that would be accretive to the value proposition, investing to shore up any identified weaknesses, or investing to mitigate the threats to our business. So all of those investment decisions including additional opportunities to do things with the shares, will be evaluated through the lens of what creates the greatest long-term value for our shareholders.
spk06: Okay. And as we've seen some other public companies with this quote-unquote good problem to have go through this process, there has been some companies that have provided ranges of sort of distribution after capital requirements, sort of a range of free cash flow targeted to be distributed to shareholders over time. If Algoma were to provide that kind of information, what would a reasonable range be for that kind of approach or expectation be for Algoma?
spk07: David, it's a great question and I just think it's premature at this point in time. Again, our principles are to spend cash that we have appreciate that you're looking for some guidance with respect to what distribution might be of that future cash. And it's really, as I say, premature, given that we'll evaluate the opportunities to look through building on our strengths and advancing some opportunities, as I said in the answer to the previous question. So premature to provide any kind of split in terms of cash allocation for any of those buckets until we see the But the guiding principle will be to create long-term value for our shareholders, whichever path provides the greatest return.
spk06: Okay, helpful. I completely understand the constraints at this stage, and don't shoot the messenger in terms of me asking the questions. Part of the job. In terms of the CapEx, can you give us a sense for 2022 calendar year or for the next 12 months, CapEx, and then also have there been any changes to the – you know, the capital spending needs for the, you know, for the EAF project overall and or for the, you know, for the plate modernization project?
spk08: Yeah, so the CAPEX, you know, other than EAF, including a plate modernization will be in the, let's say, 100 to 120 million Canadian range. And that's pretty much in line with what we have been saying in our roadshow presentations. Our maintenance capex will continue to be in the $60-odd million range, and then comes the plate mill modernization capex that we are spending next year. So that will be overall from EAF capex perspective and even plate mill. There is no substantial change from what we have declared in the past.
spk06: Okay, last piece for me, just to clarify, the $100 million to $120 million, is that a fiscal year 2022 CapEx? Is that what that is?
spk08: No, it will be for next year, which includes the plate mill modernization. So we are taking the plate mill modernization for next year, so it will be for next fiscal, let's say.
spk06: Next fiscal, sorry. Got it. Understood. All right. Thank you.
spk02: Our next question is from David Ocampa with Cormac Securities. Please proceed with your question.
spk04: Good morning, everyone. I just wanted to follow up on David's question about potential shareholder returns, but maybe approach it a different way. Is there a minimum cash balance that you guys would like to keep on your balance sheet, and then we can do the modeling and figure out what the potential returns could look like?
spk07: So David, the way I looked at it as we approached or evaluated the December 31st, we looked at our cash balance on hand. We then looked at the requirement to complete the electric arc, factoring in the government financing that is available to us. Also took in two additional factors, a cushion that would really address the volatility that we see in the steel market. and then also looking at the volatility that occurs or the seasonal volatility associated with our working capital and worked from there. So as we go through each and every month and each and every quarter, we'll continue to evaluate what's left to spend to facilitate the electric arc implementation, see where we are in that seasonal working capital position, and make sure that there is cash on hand as well that allows us to really protect ourselves through the volatility of the steel sector.
spk04: That makes a lot of sense. You touched a little bit about plate prices being around $600 higher than sheet. With that in mind, should we think about your plate products following a similar pattern as your overall business for 65% is contracted, 35% is spot. Should we see you guys participate in the appreciation of plate prices here?
spk08: Yep. So our contract order book for plate is a little bit different. It will be roughly 50-50 from contract versus spot perspective. So we should see that flowing through, and from monthly to quarterly, you can take high-level the same split, and it should flow into the books accordingly.
spk04: Raj, the contracted portion of that, does it follow kind of a similar breakdown, quarterly lag, monthly lag, and then a fixed annual rate?
spk08: Yeah. And normally those plates are not fixed price, so it will be monthly and quarterly, so no fixed pricing.
spk04: Perfect. And then I guess with everything we're hearing with labor shortages and availability for parts, how comfortable are you guys still with that 30-month construction timeline for your EAF mills? And I guess can you remind us if there's any leeway there in terms of cost overruns on the $700 million number?
spk07: So two parts to that question and answer is that the 30-month construction phase does have a critical path with some buffer built into it on the front end. So we still remain confident in delivering that project by really the second calendar quarter of 2024. And there was a significant growth cost buffer put into it as well. The remaining pieces that have yet to be contracted, the buffer now represents more than about 25% of the overall cost. So we think there is sufficient lead time buffer as well as financial buffer to bring that project in on time and on budget at this point.
spk04: Okay, perfect. That's it for me.
spk02: Thank you, Deb. Our next question is from Anup Prehar with AIDS Capital. Please proceed with your question.
spk01: Good morning. Just a couple of questions for me. First of all, given the volatility we've seen on the HRC side, I wonder if you might give us a bit of your interpretation as to what's driving that volatility and how you see that playing out over the next couple of quarters.
spk07: Good morning, Anup. Thanks for that question. Certainly the volatility is not new to the steel sector. It's actually self-perpetuating in many cases. Prices have hit unprecedented highs or hot roll coil was three times or plus or minus the midpoint of the cycle. Certainly hit a peak and even today remain above the previous highs. that were likely in the August of 2008 kind of timeframe. A significant amount of the customer base and supply chain in North America are those that carry inventory and the indexed pricing that exists in the marketplace actually drives the pricing mechanism and the demand mechanism. So during periods where prices are anticipated to fall, Those that inventory pull back on the orders, and that just perpetuates a reduced demand, so the supply-demand gets out of balance until there's a, we'll call it an equilibrium that is struck. Where that is, is really anybody's guess. I think what's more important is that we still believe that there is very, very strong fundamentals, demand-supply fundamentals within the North American market. that will support a strong steel sector for a period of time now.
spk01: With the spread between plate and HRC being what it is right now, I guess approaching $700, are you seeing customers substituting out of plate into HRC? And to what extent is that even viable?
spk07: No, I think they're two very distinct markets and very different applications. So I don't see customers substituting in and out
spk01: Okay. All right. And in the MD&A, I noticed when you were talking about the plate mill modernization, it looks like the first phase has slipped a little bit. I mean, I think we were talking about March initially, and now we're sort of pushing that back to May, June. Can you tell us a little bit about what's going on there in terms of that slippage?
spk07: It was a supply chain issue for some of the parts. It's also a more conducive environment from an environmental climate standpoint, I should say, here in Sault Ste. Marie. And back last fall, we wanted to make sure that we could execute, make sure that everything was here on time. And given the market and the pricing, it made sense for us to move it by four to six weeks. Okay.
spk01: And just a last question. Given your comments on increasing input costs, is it reasonable to assume that our unit costs for Q4 will be higher on a sequential basis?
spk08: So... That, it will not. It should start trending down. And as I alluded to last time as well, that we do see a lag on the iron ore pricing flowing through the cost. It's normally a six-month lag. So we, you know, with the price of iron ore dropping to below index, dropping to below $100 and now coming back to $150, We should see that fluctuation flowing through our cost in the fourth quarter and then getting into the second calendar quarter, which is first fiscal of next year. So we should see our cost stabilizing, trending in the right direction. There definitely is inflationary pressure on other elements of cost, whether it's alloys, whether it's gas, power. How that plays out is to be seen, but from major raw material cost perspective, that is what we will see. The only other point I'll make, which I said last time, that coal year-over-year will be higher. It's around $100 per ton higher year-over-year, and that will flow through cost this year from April onwards when we start getting new coal supplies into Susameri.
spk01: Okay, so just so I understand, some puts and takes, but for Q4 on a sequential basis, our costs should be coming down and moving in the right direction. Is that a fair statement? Yeah. Okay, great. Thank you.
spk02: Our next question is from Kirk Lutke with Imperial Capital. Please proceed with your question.
spk05: Hello, everyone. Can you hear me? We can, Kirk. Good morning. Great. Well, congratulations on the quarter, and thanks for the call. Just a couple follow-ups. On the guidance, you mentioned that input costs will be coming down sequentially. That's super helpful. Thank you. And you also mentioned that pricing for the March quarter is already well-known. I just want to confirm, everything else being equal, realize pricing should be up sequentially, correct?
spk08: So I think you should look at from... from the construct of pricing perspective. So we do have the quarterly lagging contracts, which definitely will be up when you look at quarter over quarter because they are flowing from last quarter. When you go into the monthly contracts, they depend on last month's settlement. So as price starts falling in January and into February, they will be impacting the pricing on the monthly contracts. And as far as spot is concerned, which is roughly 35% to 40% of our business, the lead times have gone down. I mean, they're four weeks or lower, mostly on the HRC front. So that's how it will get constructed. Plate, on the other hand, is different. It will move in the opposite direction, where the contracts will be lower than the spot, and the spot will be filling up at higher pricing. That's how it will move. Once you do it, it will end up with the number. You're not giving any guidance as such, but that's how it will move.
spk05: Okay, a lot of moving pieces there. Okay, I'll try to back into something. I appreciate the color. And I just... With respect to the EAF, that's helpful that you've got those buffers built in. Is there a milestone that we should, or the next milestone that we should have on our calendars, what we should be thinking about happening by a certain point in time in order to remain on track?
spk07: Tough question to answer. If you look at the Gantt chart, there are literally hundreds upon hundreds of line items. What we are doing is we are putting out press releases and the like, when the major milestones are achieved. You've seen the letting of the contracts for equipment to Daniele. You've seen the transformer contract being let to PTI, GE for the upgrade of our LSP. The next thing I would anticipate would be contracts associated with the buildings. We continue to prepare the site, drive piles, So there's no one major. If you were looking for the next one, it would be around picking our partner for the erection of the buildings.
spk05: Okay. When do you expect to announce that?
spk07: That will be within a week or two would be my best guess. Our procurement guys are working on it in contracts, but that would be a reasonable expectation.
spk05: That seems like a pretty low-risk approach.
spk07: milestone it is with the point being though is that it's a rather significant component of the cost and again would make the the available contingency that much stronger if you like for the remaining parts of the construction got it okay great I appreciate it and then and then lastly with respect to the earn out shares I think I heard you say
spk05: the 37.5 million shares will be issued in the next five days?
spk08: Yeah, it will be the portion of the non-management shares, which will be less than that, 35.9 million roughly. Those shares will be issued in the next five days.
spk05: Fantastic. Great. And then lastly, will the buyback program be in place by then?
spk08: Yeah, it takes, you know, to get all the processes done with TSX. You know, NASDAQ is not as complicated, but with TSX and stuff, it takes a couple of weeks. So we should have it done, you know, once the on-out shares are issued.
spk05: Okay, so it will be in place so that you can, whatever happens, you can respond. Correct. Great. I appreciate it. Thank you, guys. Thank you.
spk02: Thank you. Our next question is from David Gagliano with BMO Capital Markets. Please proceed with your question.
spk06: Hi. Sorry, just a quick follow-up. You gave us the CapEx earlier on everything other than the EAF for fiscal year 2023. I think you said it was $100 million to $120 million. I believe that's right. What's the expected CapEx for the EAF project in fiscal year 2023?
spk08: You know, I can give you a range, a little bigger range, as we are going through the process right now of getting into contracts on structural and other areas. So, you know, let's say on a net cash outflow basis, assuming that we'll get some portion of the government money in, it should be, you know, anywhere from, let's say, $160 to $220 million outflow. dollars, in Canadian dollars. So it's a bigger range that I'm giving you, but, you know, there are a lot of things that's on the go, so difficult to pinpoint, but it will be in that range.
spk06: Okay, and what does that 160 to 220 assume for the government funding portion?
spk08: Oh, this is net of it. So this assumes that I have taken government funding in. So the CAPEX, overall CAPEX will be, you know, in the spending will be in the $300 to $400 million range. And we'll get some government funding and the balance will be the cash going out of the company.
spk06: Okay. And just on the government funding, and I apologize if this has already been addressed, I Can you remind me again, are there any restrictions, when you start to tap into that government funding, are there caps or any kind of restrictions regarding capital returns to shareholders? And if so, what are they?
spk07: There are. It relates to the portion from the infrastructure bank. And there are two distinct phases. During the construction phase, and this is the government looking to ensure our ability to complete the project, Capital allocations, there's a one-third clawback on the availability. We would ultimately draw, but it becomes funds that are secured and on completion would require repayment at that point. So consider during the construction phase one-third of distributions to effectively reduce the availability of the government financing.
spk06: Okay, that's helpful. Thanks. And on this government funding, I guess it implies $140, $180 million or something like that's being tapped into, I think, based on the rough ranges that you gave. Obviously, we don't know. But rough ranges. Within that mix, $140, $180, what's the breakdown? Can you break down? I know there's two buckets. Is this going to come from one of the two or both the buckets? Or we don't know yet.
spk08: It's a combination of both the buckets. So that's how it is right now, and, you know, based on how the spending goes. And the other thing is on the capital allocation, you know, if there are changes in the capital allocation as we go along, there will be changes in the money that we'll be drawing from the government. So specifically the 220, as Mike mentioned, on the CIB, the infrastructure bank, So the $220 million is subject to clawback or restriction. So that will fluctuate as capital allocation plans are developed over the years.
spk06: Okay, that's helpful. Thank you.
spk02: We have reached the end of the question and answer session, and I will now turn the call over to Mike McQuaid for closing remarks.
spk07: Well, listen, thanks again for your participation in our third quarter fiscal 2022 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 fourth quarter results later this year. Please stay safe, and we'll talk to you soon. Thank you.
spk08: Thank you, guys.
spk02: This concludes today's conference, and you may disconnect your lines at this time.
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