Algoma Steel Group Inc.

Please stand by. Greetings and welcome to the Algoma Steel Group Inc. Third Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. It is now my pleasure to introduce Michael Marocco, Vice President and corporate development and treasurer. Please go ahead, sir.

Good morning, everyone, and welcome to Algoma Steel Group Bank's third quarter 2025 earnings conference call. Leading today's call are Michael Garcia, our chief... ...being recorded and will be made available for replay later today in the investor section of Algoma Steel's corporate website at www.algoma.com. I'd like to remind everyone 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 investor 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 refer to the risks and assumptions outlined in Algoma's third quarter 2025 management's discussion analysis. Our financial statements are prepared using the U.S. dollar as our functional currency and the Canadian dollar as our presentation currency. All amounts referred to on today's call are in Canadian dollars unless otherwise noted. Following our prepared remarks, we will conduct a Q&A session. I will now turn the call over to Chief Executive Officer Michael Garcia.

Mike? Good morning, everyone, and thank you for joining us today. As we do each quarter, I'll begin with safety. Our commitment to workplace safety remains at the core of everything we do. I'm pleased to report that we maintained our strong safety performance this quarter. building on the improvements we achieved throughout 2024. With EAF Unit 1 ramping up and our accelerated transition to electric arc furnace steelmaking underway, we continue to prioritize the health and well-being of our workforce during this pivotal transformation. Before diving into the details, I want to highlight three important themes. First, the U.S. 50% tariffs have effectively closed that market to us. driving lower shipments and higher production costs as we've pivoted our entire go-to-market strategy. Second, we've secured the capital to strengthen our liquidity through $500 million in government support and an expanded US $375 million ABL facility, extending our liquidity runway so that we can develop opportunities to diversify the business. Third, we have embarked on an operational pivot accelerating our EAF transformation and focusing on products for the domestic market with the goal of significantly reducing our cash burn. The steel industry is experiencing significant disruption. The 50% US tariffs implemented in June have effectively made that market no longer viable for Canadian steel producers, completely undermining our historically successful cross-border business model. These trade disruptions are reverberating globally. forcing producers worldwide to seek alternative markets while macroeconomic uncertainty compounds the headwinds facing our industry. Our third quarter performance was in line with our previously disclosed guidance across both shipment volumes and adjusted EBITDA metrics. As expected, we experienced lower shipment volumes and realized pricing, as well as elevated cost pressures. resulting in year-over-year declines in both revenues and adjusted EBITDA. A bright spot continues to be our fully modernized plate mill. Plate shipments totaled approximately 97,000 tons, roughly in line with the 103,000 tons in the prior quarter, despite taking a planned two-week outage during the quarter. We expect Q4 plate production to increase sequentially as we capitalize on our position as Canada's only discrete plate producer. Turning to our electric arc furnace project, the foundation of our future. I'm pleased to report continued progress. Since achieving first arc and first steel production in early July, commissioning and ramp-up activities for Unit 1 have progressed in line with expectations. The furnace and associated melt shop assets have demonstrated stable and reliable performance. achieving quality metrics across a broad range of plate and hot-rolled coil product grades. The Q1 power system and other critical process components continue to perform as designed, supporting consistent metallurgical quality and process control. As of September 30, 2025, cumulative investment for the EAF project was $910 million, including $30 million during the third quarter. All material aspects of the project have been contracted and we continue to expect final aggregate cost of completion will be approximately $987 million. We have announced a number of decisive actions to strengthen our balance sheet and liquidity, including $500 million of federal and provincial loan facilities. Rather than covering each in detail, I'll ask Rajat to take you through the specific steps and their impact on our financial flexibility later in the call. This government support directly addresses the sustained tariff environment that has forced us to reimagine our operating strategy. We are accelerating retirement of our blast furnace and coke oven operations as we ramp up EAF production through 2025 and 2026. We're strategically refocusing production on as rolled and heat treated plate products, along with select coil products primarily for sale in the Canadian market. We are uniquely positioned as Canada's only discrete plate producer, and this strategy aligns our production with domestic demand while reducing exposure to volatile and oversupplied coil markets. Our focus aligns with infrastructure, construction, and renewable energy growth sectors, preserving Algoma's relevance by supporting national industrial priorities. We remain focused on extending our liquidity runway to develop new opportunities, including advancing our energy strategy and pursuing product diversification initiatives. Rather than competing as a commodity producer in a tariff-distorted global market, we are positioning Algoma as a premium Canadian supplier of essential steel products. This repositioning achieves three outcomes. We supply Canadian industries with high-quality plate products needed for infrastructure, manufacturing, and defense. We create operational stability that supports continued investment aligned with Canada's industrial needs. And we reinforce our role as a critical partner in Canada's industrial and defense capabilities. By concentrating on higher-value, specialized products, we can strengthen customer partnerships and optimize margins. Combined with government support, this strategy positions Algoma not just to withstand current conditions, but to emerge as a stronger, more focused company. In short, we are evolving from a cross-border commodity producer to a Canadian-focused steel supplier with lower cost, lower emissions, and greater resiliency. This transformation strengthens both Algoma and Canada's industrial future. Now I'd like to take a moment on a more personal note. As announced last evening, I will be retiring at the end of this year from Algoma Steel, concluding what has been an extraordinary journey with Algoma. I want to congratulate Rajat Marwa on his appointment as CEO, effective January 1st, 2026, and Michael Marocca on his promotion to Chief Financial Officer. Rajat has been a trusted partner throughout our transformation. His leadership in finance, strategy, and stakeholder engagement has been instrumental in securing the foundation we've built together. And I know Michael will bring the same discipline and strategic insight to the CFO role as he has demonstrated leading our integrated business planning and capital markets efforts. I'm proud of how far this company has come and confident that the management team under Rajat's leadership will continue to strengthen Algoma's position as a Canadian leader in sustainable steelmaking. I would like to pass it over to you, Rajat, to cover the financials and for closing remarks.

Thanks, Mike. Good morning, everyone. First, I want to express my deep appreciation for Mike's leadership. His vision and discipline have guided Algoma through one of the most significant transformations in our history. The foundation he built strategically, operationally, and culturally positions us for long-term success. Talking about the results for the third quarter, adjusted EBITDA was a loss of 87.1 million. For the quarter, tariffs expense totaled 90 million, and we estimate Canadian sales prices were approximately 40% lower on account of tariffs, resulting in lower revenue of approximately 32 million. Cash used in operating activities was 117.3 million, We finished the quarter with $337 million of liquidity. We shipped 419,000 net tons in the quarter, a decline of 12.7% versus the prior year quarter. Lower steel shipment was the result of weakening market conditions, particularly due to Section 232 tariffs, which impacted the company's export sales and resulted in oversupply of the Canadian market and reduced transactional pricing. Net sales realization averaged $11.29 per ton compared to $10.36 per ton in the prior year period. The increase versus the prior year level reflects improvements in value-added product mix as a proportion of sales, which more than offset weaker market conditions. Plate prices continues to enjoy a premium relative to hot-roll coils during the quarter. This resulted in serial revenue of $473 million in the quarter, down 12.2% versus the prior year period. On the cost side, Algoma's cost per ton of steel products sold averaged $12.82 in the quarter, up 24.2% versus the prior year period. Starting March 12, the company was subject to 25% tariff on outbound steel shipments to the United States, which increased to 50% in June. For the third quarter, tariffs cost were $90 million, or $214 per ton, which was included in cost of sales. Excluding the impact of tariff cost of sales was only 3.6% higher versus the prior year period, despite a 20% lower shipping volume and a higher mix of plate sales for the period. We will continue to focus and drive down the cost of sales as we make our strategic pivot to focus primarily on plate and selected coal products. Net loss in the third quarter was $485.1 million, compared to a net loss of $106.6 million in the prior year quarter. The increase in net loss was driven primarily by the $503 million non-cash impairment loss. As of September 30, 2025, the company identified two impairment indicators, its market capitalization falling below the carrying value of its net assets, and the impact of U.S. Section 232 tariffs. Accordingly, an impairment test was performed to assess whether the recoverable amount of the cash generating unit exceeded its carrying value, which resulted in the non-cash impairment loss. Cash used in operations totaled $117 million for the quarter, compared to cash generated by operations of $26 million in the prior year period. Inventories ended the quarter at $790 million, up approximately $54 million from the second quarter. reflecting a physical build in raw materials and finished goods, partially offset by a 14.8 million non-cash write-down of inventories to net realizable value. Looking ahead, we expect a significant inventory drawdown beginning in the fourth quarter and accelerating through 2026 as we exit the blast furnace and coke oven operations and transition to a far more efficient EAF-based supply chain. As Mike mentioned, we have announced a number of decisive actions to strengthen our balance sheet and liquidity. We increased our ABL credit facility from US $300 million to US $375 million with Export Development Canada joining as a new lender. More significantly, late last month, we announced binding term sheets securing $500 million in liquidity support from the governments of Canada and Ontario. We want to thank the government for their efforts in supporting Canadian industry, and we feel this package reflects their confidence in Algoma's strategic importance to Canada's industrial base. The financing includes $400 million from the federal large enterprise tariff loan facility and $100 million from the province of Ontario, consisting of a $100 million third lien secured tranche and a $400 million unsecured tranche with $6.77 million share purchase warrant, at 11.08 per share. The facility carries a seven-year term at CORA plus 200 basis point, stepping up after year three by 200 basis points annually. A combination of our strategic operational pivot, liquidity support, working capital efficiency improvements, and continued effort on driving down cost is expected to extend our liquidity runway well into the future as we look to capture opportunities and diversify the business. In closing, as we look ahead, our direction is clear. Complete the EAF ramp-up, pursue diversification opportunities, and continue building on the strength of our exceptional team. The past several months have brought unprecedented trade disruption. But through it all, our people have maintained exemplary safety performance and advanced the commissioning of EAF Unit 1. We have taken decisive action to secure our future. The $500 million in government liquidity facilities, together with our expanded US $375 million ABL facility, provide the resources and flexibility to complete this transformation with confidence. These arrangements reflect a shared commitment between Algoma and our government partners to preserve critical domestic steel capacity and industry resilience. By pivoting to become a domestically-focused, high-value steel producer anchored in plate and speciality products, we are creating a stronger, more resilient enterprise aligned with Canada's long-term economic and defense priorities. Our accelerated EF transition is central to that vision, positioning Algoma as one of North America's lowest-cost and most sustainable producers. While near-term trade uncertainty will remain, we are building a company that is leaner, more focused, and more competitive. When markets normalize, we expect to emerge stronger with improved margins and advanced cost structure and deeper alignment with national priorities. To our employees, thank you for your dedication and adaptability. To our government and financial partners, thank you for your confidence. And to our shareholders and customers, thank you for your continued support as we execute this pivotal transformation. The work we are doing today is preserving and modernizing a strategic national asset and laying the foundation for enduring value creation. We remain focused, disciplined, and confident in the path ahead. 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 Q&A.

Thank you.

We will now be conducting a question and answer session. If you would 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 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. And our first question we'll hear from Ian Gillies with Steeples.

Morning, everyone. Hey, Ian. Morning, Ian. In the event we remain in this tariff environment, i.e. 50%, could you maybe just outline where you think the production profile ends up in 2026? and whether you think you can be at EBITDA breakeven in that scenario, and I think that would be helpful.

Sure. This is Mike. I'll start and then hand it over to Rajat. Obviously, our original intention was to get to full production on the EAFs at the end of 2026, initial part of 2027. because of what's happened to our business model with the 50% tariffs and the market dynamics, we've seen clearly that the right choice in front of us now is to execute a transition to full EAF production basically a year early. That's going to give us the best ability to deal with the current environment. So we are accelerating and pushing on that transition as we speak, and we need to execute it in the coming months and ramp up EAF as quick as possible, because that'll put us at the lowest cost, most flexible cost position, and it matches the available business we have right now. So as far as the specifics to your question of of the ramp up and where we would reach EBITDA positive or EBITDA neutral. I'll let Raj address that.

Thanks, Mike. So as Mike mentioned, now we are looking at accelerating it. Our market in the U.S. is practically closed to us, closed. And what remains is in Canada, we have our plate mill. Being the only plate producer in Canada, we are taking advantage of that and trying to ship as much plate as we can in Canada. The market on the plate side itself is weaker with all the projects being announced that definitely will help the market to get stronger. So from the way we look at it for next year, we will not be selling our 50% portion into the US and we'll be maintaining our share in Canada for plate and end coil. that from numbers perspective could be as close as 1.2 million tons for the year if situation remains the way it is without taking any upside on investments coming into Canada on the plate side, defense side, infrastructure side. So that's where we see it going. And from a beta perspective, once the transition is fully complete, which probably will take three to six months after the shutdown of the blast furnace with all the cost moving into the P&L, we see that we start getting pretty close to a better break-even in those volumes. We will be making money on the plate side. Coil is still stretched with 50% tariff, and the market in Canada is broken from that perspective because Coil is being sold at 40% lower than the CRU, which is not making money for anybody. So that's how we see it at a very high level.

That's helpful. And just one quick one on the plate before I follow on to one other separate question. The plate production was down a little bit sequentially from Q2 to Q3. Is that just a function of reorienting demand and you expect that to maybe start rising, whether it be in Q4 or Q1 next year?

I think that's a big part of it, Ian. Another part of it was we did have more maintenance days in the outage, I mean in the quarter. So taking the maintenance, the difference in the amount of maintenance days in the two quarters, they were roughly the same. But practically speaking, we're running our plate mill at full production other than the days we need to take for maintenance and the actual mix of the different type of plate products, how much heat treat is in there. will affect it, the total volume numbers.

Understood. Next question. I'm just curious what, I guess, capital infusions you'd expect to get in the next year or so as it pertains to insurance proceeds, where I believe there's still a bit left to come. government grants. And then I'm just curious if there's anything that could potentially come in on the tax side as well, just given losses incurred.

Sure. I'll ask Mike Morata to take that question.

Yeah. Hey, Ian. Look, on the insurance side, we do expect to, you know, somewhere between 30 and 50 million more to come as we adjudicate through the claim. And then there is some other related cash flow items that you've hit on. We will have a significant working capital release over the next 12 months as we move to the EAF supply chain. It will be quite significant. I think we'll see something north of $100, $150, some in that range on the working capital side. And then, as you alluded to, we will see some tax refunds as we really start to collect on the taxes that we paid in 2022 and have had, obviously, some net operating losses through the last little bit. So those are the big movers on the cash flow front.

Yeah, and we see most of it coming next year, some of it in the first half, some in the second half, depending upon timing. But there will be a big amount of inflow that will happen both – on all three fronts, but big coming from working capital release as well as taxes coming in. And from working capital perspective, we did mention earlier that there will be a $100 million release happening this next year as we transition to EAF. We expect that to happen and more than that because we'll be running at lower levels. So we should see, as Mike mentioned, $150-odd million of reduction from from the working capital and over $100 million or so coming from taxes.

Perfect. That's helpful. I'll turn it back over for now. Thanks.

And our next question, we'll hear from James McGargle with RBC Capital Markets.

Hey, thanks for having me on. And Mike, I wish you all the best going forward. And then Rajat and Mike, congrats on the new roles I just wanted to follow up on some of the commentary you made on cash flow. So those numbers were into 2026, I believe. But then can you just give us an updated CapEx number and an updated net working capital number for what we can expect in the Q4?

Sure. So on the working capital side, we normally build working capital in the last quarter. And it's primarily on the inventory side. So we will not see any build happening on the inventory side in the last quarter. We'll probably see some release coming on the inventories. And there will be, you know, other movements happening between receivables and others. But the big part of our change normally quarter over quarter in the last quarter, calendar quarter, is inventories. So the release that we are saying of $100 million, $150 million will include some release coming in the last quarter. And on the CapEx side, we will see the CapEx coming down as we go into next year as the blast furnace and coke batteries shut down. We normally spend around $40-odd million in those facilities, so that in the maintenance CapEx will come down. and will get further optimized during next year and year after.

Thanks for the caller. Then I just wanted to follow up on one of the initial comments, the initial questions that were asked. You'd given previously some targets, cost scrap plus targets on the cost side with regards to the new furnace that you're bringing on. So can you kind of give us an updated view on how you're thinking about that scrap plus cost targets given the impact from tariffs and that you might not be running that furnace full capacity initially. So just how we can expect that to evolve into 2026 and then how you're thinking about those targets longer term.

So on the cost side, what we said is that it's scrap plus 220. roughly U.S., for sheet products. And that will be slightly higher. It will be in the range of 220 to 250 for the initial period as we will be running the EF at lower capacity than one EF at full capacity. So we'll see that slightly higher. And then it won't be double, but it will be slightly higher. And then we see that coming down to around 220-odd once we are running at least 2, 2.5 million tons. So that's how we see the change on the cost side. You know, plate from conversion perspective will be very similar, just that the variable cost will be higher. You have alloys, and there is a little bit more processing that comes through.

And then I guess in the current environment, do you think the Canadian market can support that, you know, 2.5 million tons that you think is necessary in order to achieve that cost plus target? Or do you think something would have to change in terms of tariffs for the Canadian market to be able to support that 2.5 million tons?

James, this is Mike. I think critical, part of the future of Algoma Steel is to be the foundation steel company for the future of the Canadian nation-building agenda, if you will. We have the lowest cost, most flexible liquid steel base in the industry in Canada, or we will soon be there once the transition to EAF is complete and we've ramped up in the next year. But I would say that that market has not changed is not yet fully developed as we sit here in November, almost November of 2025. So the market continues and will continue to develop. The nation-building agenda that the new government has laid out is pretty clear in terms of everything that wants to be pursued around defense projects, infrastructure projects, shipbuilding, energy, manufacturing, reshoring. And this is all without you know, kind of a return to a somewhat normal trade relationship with the U.S. This is all kind of future development and evolution of the Canadian market. So my answer is, you know, if all that comes to fruition and even just a portion of it comes to fruition, Algoma Steel will be far and away the most advantageous and the best position to take advantage of it. So I think the market's going to be there for us. Uh, if in the meantime, or as part of that, there's a return to, um, uh, an improved trade relationship to the U S which gives us more access to the historical U S market that will, you know, that will put wind in the sails of everything that, that we've talked about. It'll open up, uh, the ability to get, uh, uh, to take advantage of, of U S business. It'll lift the margin across all of our business on both sides of the border. Um, We still believe and are committed to being a strategic part of Canada's nation-building agenda. So I don't think it would immediately mean, certainly not for Algoma Steel, it wouldn't mean a return of business as usual where we're just a commodity steel supplier looking for the best business, whether it's in the US or Canada. We would be mindful of the strategic risk of just going back to the old business model I know it's a little bit long-winded answer to your question, but yes, we believe in the future of the Canadian market built on the nation-building agenda that the government of Canada has laid out and our unique position as Algoma Steel to take advantage of that.

I appreciate the call, Aaron. I'll turn the line over. Thank you.

And next we'll hear from Ian Gillies with Steeple.

Just in the Canadian market, are you seeing any positive implications yet from some of the trade barriers that have been instituted by the Canadian government? Or do they need to, I guess, do the walls need to be taken up a bit higher?

Yeah, I think, you know, we've shared our frank views around with the government. around opportunities we see for them to put those walls higher and put more teeth into moves that would strengthen the health of the Canadian market. Obviously, the government has a lot to think through when they hear feedback from the steel industry in terms of, you know, are there any other consequences to doing something like that which they may not, you know, see as positive. But certainly from a steel perspective, we think that there's more that they could do, and we've been very vocal about that with them. I will say what we are seeing is a tremendous amount of interest in understanding Algoma Steel's capabilities, both current and potential future capabilities. You know, from every sector of the country, every sector of the of the economy, we've gotten phone calls, visits, inquiries in terms of, what do you make? How can you make something for my steel uses? And if you can't make it today, what type of investment or how soon could you make it? And that's all very positive. Some of it is for business that's actually being made right now. Some of it is for future future business that may be still a few years away. But the visibility, the intention, and the interest in Algoma Steel and what role we can and will play in the future of Canada's nation building is definitely there. And we've already seen that for the last several months.

I suspect this question is unanswerable, but do you have any sense of what you think the incremental plate demand could be or broader steel demand could be from these initiatives, maybe even just on projects announced or potential projects?

You're right. It's hard to give you a big number. I know that a lot of these For instance, the shipbuilding, we've had visits from major shipbuilders who are looking at just the defense shipbuilding agenda over the next several years. And we can make all the ship needed in 10 Canadian warships. We could make the amount of plate needed for those 10 ships in two days. So it's not going to be one major program which which moves the needle, it's going to be a lot of, of, of demand throughout the entire economy and all types of, of projects. Certainly the, you know, defense spending and icebreakers and pipelines will get a lot of visibility, but we need, we need multiple projects. Uh, uh, the, the, the plate market in Canada is, is roughly six to 700,000 tons right now. We were, we're easily capturing 50% of that. Um, And so it's a relatively small market, and it doesn't take hundreds of projects to start building that market up north of a million tons. It takes more than a handful, but it doesn't take hundreds. So we feel pretty bullish about the future prospects in plate, but it's hard to give you a specific number.

And then last one for me, and this is probably for Rajat. Could you maybe provide a view on how you intend to start using the credit facilities as you start moving into a bit more cash burn? Given the implications, some can be picked, some have dilution, some carry interest. It's just, I think that would be useful.

Sure. So, you know, the way the facilities have been put together, we have a secured facility line which doesn't have any warrants attached to it. So the intention will be to draw that line first and then go into the unsecured line where warrants are there. So that helps us to manage that. Most of it is spec for two years. And we will pick it which makes sense. And then it goes. it goes to cash payments. And from use perspective, we have the ABL, which we want to keep as much as possible from working capital and other perspective and start using the other line. So we will be looking at it as we draw on what's the most and the best optimum use of cash is and which cash, and based on a plan for next year, and keep drawing. So we'll be quite mindful of how we are drawing it from that perspective.

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

There are no further questions at this time. I would like to turn the floor back to Michael Marocca for closing remarks.

Thank you again for your participation in our third quarter 2025 earnings conference call and your continued interest in Algoma Steel. We look forward to updating you on our results and progress when we report our fourth quarter and full year results early next year. Thank you.

And that does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.