Algoma Steel Group Inc.

Greetings. Welcome to Algoma Steel Group Inc. Fiscal Second Quarter 2024 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'll now turn the conference over to your host, Mike Maraca, the Treasurer and Investor Relations Officer. You may begin.

Good morning, everyone, and welcome to Algoma Steel Group, Inc.' 's second quarter fiscal 2024 earnings conference call. Leading today's call are Michael Garcia, 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 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. 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 slides two of the accompanying earnings presentation and to also refer to the risks and assumptions outlined in Algoma Steel's second quarter fiscal 2024 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 three and six months ended September 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. I will now turn the call over to our Chief Executive Officer, Michael Garcia.

Mike? Thank you, Mike. Good morning, and thank you for joining us to discuss our fiscal second quarter results. As always, I will begin my remarks by addressing what truly matters most, the safety of all of our employees. At Algoma, we believe in safety without compromise, and our continued dedication has led to a significant improvement in our lost time injury frequency rate over the past decade. Furthermore, we bring the same focus and attention to safety as we continue progressing on the largest capital project in our history, our EAF Transformation Project. I want to commend the team for working 420,000 hours with no lost time injuries to date and want to emphasize the importance of safety, especially as we enter the winter months. We will continue to work diligently as we relentlessly pursue our goal of achieving zero workplace injuries. Next, I'll cover key events and milestones during our fiscal second quarter and subsequent to its end, as well as update you on the progress of 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. Our results for the fiscal second quarter of 2024 were in line with our previously disclosed guidance for both shipments and adjusted EBITDA. These results reflect solid operational performance against a challenging backdrop in steel markets, where the recently resolved UAW strike at various U.S. automaking facilities impacted demand and pricing. During the quarter, we continued progress on Phase 2 of our plate mill modernization project, including commissioning and testing of the inline shear, We expect the shear to be online later this month and to ramp up plate production through the end of the year. This higher production level will allow us to capture market opportunities and to build inventory ahead of the planned outages for the implementation of the final phase of the modernization project. The project team has worked through the detailed implementation steps and identified opportunities to further de-risk this phase. Originally, we had planned on one outage spanning 40 days. However, we have identified advantages to splitting the outages into two shorter duration outages of up to 20 days, which we expect will mitigate the impact on our customer base while also reducing commissioning risk. The first outage will be in April of next year, and the second outage will be scheduled for later in the calendar year to align with our planned maintenance outages, providing further advantages. We still expect the same increase in production volume over the course of the year with much less impact on our customers. Turning to other strategic initiatives, we have made significant progress on securing key raw material inputs during the quarter. We signed a two-year extension to our existing iron ore purchase contract with U.S. Steel with an option for a third year at our sole discretion. By extending the existing contract, We now anticipate our iron ore volumes needed to make the transition to electric arc furnace steelmaking are fully covered, giving us certainty of supply and uninterrupted access. On the coking coal front, we have settled our calendar 2024 contract needs, and pricing for this raw material is expected to be down low double digits in calendar 2024. So given the certainty of labor due to the five-year union agreement signed last year, the contract for our iron ore needs for the next few years, and our coking coal contracts for calendar 2024, we have solidified our inputs and created better visibility into our cost structure for the next several quarters, positioning us to expand margins, especially as steel prices continue to improve from recent strike-impacted weakness. We are optimistic as forward prices have hovered around $1,000 per ton for hot-rolled coil in recent days, reflective of the pent-up demand and low inventory levels at certain customers. Next, I'd like to update you on our progress during the quarter on our transformational EAF project. This will ultimately increase our throughput capacity by roughly a third, from 2.8 million tons per year of liquid steel making capacity by conventional means today to 3.7 million tons employing dual EAF furnaces upon completion. The higher output will match our expanded downstream finishing capacity as we increase throughput at our plate mill. Importantly, this will improve overall product mix while simultaneously lowering our carbon emissions by approximately 70% when fully operational. When factoring in the makeup of our power supply when we switch to EAF operations, we expect to be one of the greenest producers of steel in North America. During the quarter, cumulative investment in the EAF project reached $456 million, or 54% of our expected total project cost, at the midpoint of our project budget. We have made meaningful progress since quarter end, securing uncontracted portions of expected project costs. And as of today, approximately 80% of the total project budget is under contract. We expect to contract the remainder of the project budget by the end of March 2024. Furthermore, it is important to point out that as of now, only 5% of the total contracted amount is subject to time and material adjustments. meaning the vast majority is under fixed price terms. This demonstrates significant de-risking of the EAF project over the past several months as we progress towards the start of commissioning in late calendar 2024. 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. I spoke earlier about our successful efforts to secure coal and iron ore inputs for our existing operations. And when you think about the inputs for EAF steelmaking, one of the most important is power. As we mentioned previously, we already have the required power to run the electric arc furnaces at our current run rate of 2.2 to 2.4 million tons of shipments without relying on the blast furnace. utilizing on-site power generation and the current grid. We can utilize hot metal from the blast furnace opportunistically, which would provide further upside to our current capacity. In this quarter, we received a system impact assessment for the second phase of our project, which means when the local 230kV line is installed, we can run either EAF unit without running our on-site power plant. Also, subsequent to the quarter end, the Ontario government's announcement and issuance of an order in Council to accelerate regional power infrastructure upgrades provides further assurance for our long-term power requirements for our EAF project. All in all, a significant amount of progress has been made, substantially de-risking the availability and cost of the power needed for our new EAFs. It's an exciting time in Sault Ste. Marie. as our existing facilities operate normally and work on the EAF accelerates. I'd like to once again thank all of our employees whose execution continues to deliver solid operational and financial results safely while simultaneously driving the EAF project forward. Now I will pass the call over to Rajat to go over our financial results for the quarter and give more details on the expected funding of our capital expenditures. Rajat.