Algoma Steel Group Inc.

Greetings and welcome to the Algoma Steel Group Incorporated fourth 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. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Laura Devoney, Vice President of Human Resources and Corporate Affairs. Please go ahead.

Good morning, everyone, and welcome to Algoma Steel Group Inc.' 's fourth quarter 2025 earnings conference call. My name is Laura Davoni, Vice President of Human Resources and Corporate Affairs, and I will be moderating today's call. Leading the prepared remarks are Rajat Marwa, our Chief Executive Officer, and Mike Marocca, 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 inherit 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 U.S. 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 Steel's fourth quarter 2025 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. As a reminder, the company changed its fiscal year end from March 31st to December 31st, resulting in a nine-month fiscal reporting period ending December 31st, 2024. For ease of comparison, we will focus our comments today on the three and 12-month periods ending December 31st, 2025 and 2024. Please also note that 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. Rajat.

Thank you, Laura, and good morning, everyone. Thank you for joining us to discuss our fourth quarter and full year 2025 performance. Before I get into our results, I want to acknowledge that this is Mike's and my first earnings call as CFO and CEO respectively, roles we formally assumed on January 1st. I also want to recognize Michael Garcia, who led this company through one of its most consequential transformations and who left Algoma in a fundamentally strong position. Employee safety remains a top priority and a core value. The scale of activity on our site today with the end of blast furnace operations and our EF running around the clock demands an unwavering focus on safe execution. And I'm proud of the discipline our teams have demonstrated throughout this transition. Every milestone we achieved in our transformation must be earned with the same commitment to sending every employee home safely every day. Before I get into the details of the quarter, I want to highlight three key themes. The 50% U.S. Section 232 tariff has permanently altered the landscape for Canadian steel producers. With the American market effectively close to us, we have responded accordingly, exiting our primary blast furnace and coke oven operations, pivoting our entire commercial strategy towards the Canadian market, restructuring our cost base, and accelerating our transformation that positions Algoma for the realities of this new trade environment. Second, we have the financial foundation to execute. The Canadian $500 million in government-backed liquidity support combined with our ABL facility provides the runway we need to advance our transformation, reduce cash burn, and pursue new opportunities to diversify the business. Third, our operational pivot is not a plan. It is underway. Our blast furnace and coke oven operations have been wound down. Our first EF unit is running on a full 24-hour schedule, and our second unit remains on schedule. Our strategic focus is now squarely on delivering high-value products for the Canadian market. Let me expand on each of these. The extreme tariff environment on steel imports and derivative products from Canada remains the defining challenge for our industry. The unprecedented 50% tariff implemented in June fundamentally broke the cost broader business model that Canadian producers, including Algoma, had built over decades. The consequences extended well beyond the U.S. border, creating an oversupply of coil in Canada and driving domestic transactional price as much as 40% below comparable U.S. levels across many categories. For the full year, besides the impact of lower pricing, we absorbed $225 million in direct tariff costs. These are not cyclical headwinds. They represent an unprecedented structural shift that required a structural response. Our fourth quarter financial results reflect that reality. Lower shipments, elevated costs, and continued pressure on realized pricing as the Canadian market absorbed excess supply. Shipments to the US were approximately 30% lower than the average US sales over the previous three quarters as we begun our exit from the US market. Against that backdrop, our plate mill stands out as a genuine competitive advantage. As Canada's only producer of discrete plate, we are not subject to the same oversupply dynamics that are compressing coil pricing. Demand for plate products across infrastructure, construction, and defense remains healthy, and we expect plate production to increase sequentially as our EF ramps through 2026. This is exactly the market position we are leaning into. Next, let me talk about our EF, the heart of our transformation and the foundation of Algoma's future. Ramp-up activities are progressing in line with expectations. The furnace and melt shop assets are performing as designed, with stable metallurgical quality and process control demonstrated across a broad range of plate and hot-tool coil grades. The Q1 power system and other critical process components are operating reliably on a full 24-hour-per-day schedule. a significant milestone from where we were just one quarter ago. As of December 31, 2025, cumulative investment in the project stood at $920 million, and we continue to expect a final aggregate cost of approximately $987 million. Alongside this operational progress, we have taken a deliberate step to strengthen our strategic and financial position. Mike will walk you through the details of our liquidity actions later in the call, but I do want to highlight one development that speaks directly to where this company is headed. In January 2026, we announced a binding MOU with Hanwha Ocean Company Limited, a long-term strategic arrangement with an aggregate potential value of $250 million U.S., including a $200 million contribution towards the potential development of a structural steel beam mill and up to $50 million in anticipated product purchases connected to the Canadian Petrol Submarine Program. This is a meaningful signal of Algoma's emerging role as a critical partner in Canada's defense and industrial supply chain. Taken together, these actions reflect a deliberate strategic repositioning. We are moving away from our historical model as a cross-border commodity producer and towards something more focused, more resilient, and more aligned with Canada's long-term industrial priorities. By concentrating on as-rolled and heat-treated plate products along with selected coil products for the domestic market, we are optimizing for margin quality rather than volume, deepening customer partnerships, and reducing our exposure to tariff-distorted global markets. This repositioning achieves three things. We supply Canadian industry with the high-quality plate products needed for infrastructure, manufacturing, and defense. We create operational stability that supports continued investment in our transformation. And we reinforce Algoma's role as a critical supplier in Canada's industrial future. In short, we are evolving from a cross-border commodity producer to a Canadian-focused steel supplier, with lower cost, lower emissions, and greater long-term resilience. The work is not finished, but the direction is clear, and the foundation is in place. Thank you, and I'll now turn the call over to Mike for a deeper dive into our financials. Mike?

Thanks, Rajat. Good morning, and thank you all for joining the call. Before I get into the details, I want to remind listeners that our functional currency is the U.S. dollar, and we present our results in Canadian dollars. The Canadian dollar strengthened approximately 5% over the course of 2025, moving from roughly Canadian $1.44 per US dollar at year-end 2024 to approximately $1.37 at December 31, 2025. I'd encourage you to keep that currency backdrop in mind as we go through the numbers. Our fourth quarter results included adjusted EBITDA that was a loss of $95.2 million, which reflects an adjusted EBITDA margin of minus 20.9%. and cash use and operating activities of $3 million. We finished the quarter with a strong balance sheet, including $77 million of cash, availability of $195 million under our revolving credit facility, and $417 million available under the large enterprise tariff loan facility. Now let me dive into key drivers of our performance. We shipped 378,000 net tons in the quarter, down 31% versus the prior year quarter. The decrease in shipments was largely attributable to the impact of U.S. tariffs, which, as Rajat said, effectively closed that market to our products. Net sales realizations averaged 10.77 per ton compared to 9.76 per ton in the prior year period. The increase versus prior year level reflects improvements in value-add product mix as a proportion of sales, partially offset by weaker market conditions. Plate pricing continued to enjoy a significant premium relative to hot roll call during the quarter, driven by resilient demand. This resulted in steel revenue of $408 million in the quarter, down 23.9% versus the prior year period, as the lower shipment volumes more than offset higher realized prices. On the cost side, Algoma's cost per ton of steel products sold averaged $1,332 per ton in the quarter, compared to $1,032 per ton in the prior year period, which is primarily due to tariff costs and worse fixed cost absorption due to lower steel production volumes. Important to note that during the quarter, accelerated depreciation of blast furnace and basic oxygen steel making assets and stranded inventory related to accelerated closing of the blast furnace was captured in cost of steel revenue. Cash used in operations totaled $3 million in the quarter compared to a use of $77 million in the prior year period. The significant improvement was driven in large part by a meaningful release of working capital. Inventories at fiscal year end were $569 million compared to $790 million at the end of the third quarter, a reduction of approximately $221 million in the quarter. That reduction reflects the deliberate wind-down of blast furnace raw material inventories as we exited that steelmaking route, as well as continued shipments of finished goods. We also saw a decrease in accounts receivable consistent with lower revenue levels. Taken together, working capital was a significant source of cash in the quarter, largely offsetting the operating losses. And we expect to see further working capital benefits in 2026 as work and process inventories are normalized and we recover significant income taxes receivable. Now let me run through the full year comparisons. We shipped 1.7 million net tons for the full year 2025 compared to 2 million net tons in calendar 2024. Net sales realizations averaged $10.80 per ton compared to $11.07 per ton in the prior year, reflective of softer marketing conditions on average across the year, partially offset by improvements in value-added product mix as a portion of steel sales. This resulted in steel revenue of $1.9 billion compared to $2.2 billion in the prior year. On the cost side, Algoma's cost of steel products sold averaged $12.16 per ton for the year compared to $10.54 in the prior year. primarily due to tariff costs and worse fixed cost absorption due to lower steel production volumes. Adjusted EBITDA for the full year was a loss of $261.4 million, representing an adjusted EBITDA margin of minus 12.5%, compared to an adjusted EBITDA gain of $22.4 million and an adjusted EBITDA margin of 0.9% in calendar 2024. The decrease was primarily attributable to lower shipments. Cash flow used in operating activities for 2025 was $66 million compared to cash generated of $82 million in calendar 2024. The decrease year-over-year was primarily due to factors previously discussed. As mentioned earlier, inventories at fiscal year-end were $569 million. That compares to $879 million in 2024, a reduction of $310 million over the year. Before I turn it back to Rajat, let me make a few comments on our calendar first quarter 2026 results so far. Due to persistently weak market demand, we expect shipments this quarter to be sequentially lower than the fourth quarter. We expect to see better pricing and cost performance, which should result in adjusted EBITDA that is directionally better as compared to calendar fourth quarter 2025. I also want to briefly note that we are aware of the pending litigation with U.S. Steel in Ontario and arbitration in the USA regarding an iron ore supply agreement. As that matter is now in litigation, we are not in a position to comment further on it today. I'd like to now turn the call back over to our CEO, Rajat Marwa, for closing comments. Rajat?

Thanks, Mike. Let me close with this. 2025 was the most challenging year in recent memory for Canadian steel producers. The 50% U.S. Section 232 tariff dismantled a cross-border business model that had defined this industry for decades, flooded the Canadian market with excess supply, and forced every producer to fundamentally adjust how they operate. We were not immune to those pressures, and our financial results this year reflect that reality. But what I am most proud of is how this organization responded. We did not wait for conditions to improve. We were compelled to make difficult decisions, accelerating the wind-down of our blast furnace and coke oven operations ahead of our original timeline, pivoting our commercial strategy towards the Canadian market, and securing the financial resources to execute our transformation without compromising our future. Those were not easy calls, and they require conviction, speed, and coordination across every part of this business. None of this came without real human cost. The accelerated transition required us to wind down a blast furnace and co-common operations earlier than planned, and that had meant issuing layoff notices to approximately 1,000 of our colleagues, effective later this month. I want to be direct about this. Those are not just numbers. They are people who helped build this company. We have worked with our unions and government resources to put mitigation programs in place, and I'm committed to the view that this is not the end of the story for Algoma's We are actively exploring product diversification initiatives to expand our footprint and support Canadian industrial policy, and we applaud the Canadian and Ontario governments for the measures they have taken to supporting the Canadian steel industry. The result is a fundamentally different Algoma. Our EF is running around the clock, performing as designed, and producing Volta, our sustainable low-carbon steel brand, at scale. This is the sustainable steel this company has invested years and nearly a billion dollars to bring to life. We are Canada's only producer of discrete plate with a modernized plate mill, a purpose-built low-carbon steelmaking platform, and Canadian $500 million in government-backed liquidity to support our next phase of growth. Defense and shipbuilding demand for our plate product is real and growing. We are already shipping Davie shipbuilders for the Polar Max program, and the Hanwha Ocean MOU opens a further compelling path into Canada's defense and industrial supply chain. We entered 2026 not defined by the headwinds we face, but by the ground we gained while facing them. The foundation for long-term value creation is in place, and I'm extremely confident in the direction of this company. To our employees, what you accomplished in 2025 was extraordinary. You navigated a period of profound uncertainty and changed with professionalism, dedication, and resilience, and you did so while keeping safety at the forefront every single day. I look forward to building on what we have started together. 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 question and answer session.

We will now be conducting our 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 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions.

Thank you. Our first question is from Katya Jancic with BMO Capital Markets.

Hi. Thank you for taking my questions. Maybe starting on the shipment side, you mentioned first quarter shipment sequentially are going to be lower, but can you remind us how you're thinking about full-year shipments and then also how this is going to be split between plate and sheet?

Hey, Katya. Good morning. It's Mike. Yeah, I think that Look, over the course of the year, we expect to have total shipments between 1 and 1.2 million tons. There will be a little bit of a ramp as we are building up our capacity at DAF, and we'll see slightly lower shipments in the first quarter, but ramping up to run rate here in that million to 1.2 million tons as the year progresses. So slightly lower in Q1, but growing over the course of the year.

And then on the mix?

The mix will be roughly 50-50, I would say, on the plate and sheet based on what we see today.

Okay. And maybe just shifting gears to your cost side, can you talk about how much of your energy costs are exposed to the current spot market?

Yeah, sure. I think that's We are generating power from our own natural gas fired power plant. So there is commodity price exposure to the natural gas price. And we do consume power directly from the grid, which is subject to Ontario's spot rate pricing. So it is a nice mix to have because we do have the ability to generate our own power. So if the Ontario pricing does swing up to a higher price, we are generating our own as a safeguard. Further to that, as you know, we have the Northern Electricity Advantage Program, which is specific to Northern Ontario-based producers and does give us a $20 per megawatt Canadian dollar advantage on our power pricing.

And just on the natural gas, are you hedged at all or you're fully on spot for your own power supply?

We generally would have fixed price for the most volatile months of the year, which is traditionally the winter months. where we have fixed pricing, and then the other months where there's less volatility, we would take it on spot.

Okay, thank you.

Our next question is from Ian Gillies with Stifel. Good morning, everyone. Good morning, Ian.

Can you provide an update on what you're seeing as it pertains to plate pricing in Canada? Obviously, over the last number of months, there's been some new government initiatives to try and keep imports out of the country. And I'm just curious on how that's progressing and whether you're seeing that flow through into your price book.

Sure. So the price on the plate side is holding up. It's much better than the sheet pricing. On the sheet side, we are seeing a 40% lower pricing from the index. On the plate side, it's less than that. It's ranging anywhere between 15% to 20%. The pricing is definitely better. The measures that the government is taking definitely is helping. It's, let's say, slow coming in right now, but we see a lot of inbounds coming from our customers and some new customers for steel. and that's encouraging.

As it pertains to the HRC side and pricing being 40% lower, can you just help reconcile that pricing discount versus what we might be seeing in the fast markets Canadian price quote that's now out that's saying Canadian steel prices are around $800 a ton right now?

Yeah, I don't know how those pricing are are calculated by fast market, but the pricing in the market is roughly 40% lower. And it makes a lot of sense as well when you see how, what the tariffs are and the oversupply that's happening in Canada. Over time, what we have seen that pricing started strengthening a little bit in Canada where it was, you know, better. But overall, it's hovering around 40% discount to the index.

Okay. As it pertains to the beam mill, can you maybe outline how or critical milestones that you think may be achieved or may be announced over the next, call it, 12 to 18 months? Because it feels like bidding's moving along reasonably quickly, but formal contracts won't be announced until 28, so just curious there.

Yeah, so... So from our perspective, we are working on the beam mill project. It's a big project, so we are doing engineering, cost estimates, and timelines. We are also working on the market side. There's not much that I can share right now, but what I can say is that the beam market is one where the supply is less than the demand in Canada, and we are very well suited to support that market with our EAF. Now, from Hanwha perspective, that is one of the components of, let's say, the whole project. Their application has been in, and I think the government is really moving pretty fast to decide which one will get it. I think the government will do the right job in finding the right partner for Canada. But from our perspective, we are moving fast on our assessment of this project. Once we have more details around it, we'll definitely come out and disclose on the key milestones.

And last one for me, as you think about how the business progresses through the remainder of this year, where do you think CAPEC ends up for the full year? And is there really much left on the EAF at this point?

Yeah, I think that we've said we're at $920-ish or so. We don't expect any change in the total project budget, so we'll incur those capital costs over the first half of this year as we ramp up the second EIF. As for sustaining CapEx, I think we're seeing a step change lower as we've taken the blast furnace and coke making facilities out of the mix. So you should expect to see significantly lower sustaining CapEx in line with what we had mentioned in the past of being close to around $80 million a year. Okay.

And one last one, actually. On the scrap side, can you just provide an update on how that's gone so far as it pertains to the EAF and how your JV is working as well on the sourcing side?

It's going pretty well. The scrap availability and supply and the use is going pretty well. The JV is working fine, and we are ramping up – pretty fast from that perspective. So we are pretty happy with the way the things are moving on the scrap side and also the availability.

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

Thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. Thank you. There are no further questions at this time.

I'd like to hand the floor back over to Laura Devoney for any closing comments.

Thank you again for your participation in our fourth quarter 2025 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 first quarter results in the spring.

This concludes today's conference. We thank you again for your participation. You may disconnect your lines at this time.