管理層發言
Hello, and welcome to today's conference call to discuss Algoma Steel's fiscal third quarter 2024 financial results. My name is Paul, and I'm your operator for today's call. At this time, I would like to hand the call over to Mike Moraca, Treasurer and Investor Relations Officer for Algoma. Mr. Moraca, please go ahead.
Good morning, everyone, and welcome to Algoma Steel Group Inc. Third Quarter Fiscal 2024 Earnings Conference Call. Leading today's call are Michael Garcia, our Chief Executive Officer; and Rajat Marwah, 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 slide 2 of the accompanying earnings presentation, and to also refer to the risks and assumptions outlined in Algoma Steel's third 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 1 to March 31, and our financial statements have been prepared for the three and nine months ended December 31, 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 third quarter results. As is customary, I'll start by highlighting our top priority, the safety of our employees. At Algoma, we uphold an unwavering commitment to safety, which has resulted in a notable improvement in lost time injury performance year-to-date. While our site remains bustling with activity, it's crucial to underscore the significance of safety particularly as our EAF project progresses with an increase in contractor involvement. We remain steadfast in our pursuit of zero workplace injuries. Next, I'll cover key events and milestones during our fiscal third quarter and subsequent events, as well as giving an update on progress at 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.
There are a few important things I would like to emphasize on this call. Our long-term strategy remains unchanged and on track to successfully execute the transition to being one of North America's greenest producers of steel. Our results for the quarter were comfortably in line with our expectations. Our facilities are back online with a goal of reaching full production as quickly and safely as possible, following the coke-making utility structure collapse. And finally, the outlook for our end markets calls for an improvement in pricing relative to calendar year 2023. Now, let me give you some additional color on those key themes. Our results for the fiscal third quarter of 2024 were in line with our previously disclosed guidance on both shipments and adjusted EBITDA, and we achieved year-over-year improvements in nearly all of our key metrics. As a reminder, our fiscal third quarter included major seasonal maintenance, which was completed as planned ahead of the winter months.
Due to the lagging nature of our order book, realized pricing in the quarter did not yet reflect the run-up in markets around the end of the UAW strike. That stronger pricing is expected to begin benefiting our financial results in the fiscal fourth quarter, which unfortunately will be largely offset by impacts related to the outage caused by the incident at our coke-making plant that I will discuss in more detail shortly. Our fiscal third quarter is typically a busy one in terms of seasonal maintenance, and this year was no exception. In totality, the work was completed as planned. We also built seasonal inventories for our normal practice going into the end of the calendar year. During the quarter, we made additional progress on Phase II of our plate mill modernization project, including bringing the in-line shear online and ramping up its production through the end of the year. We expect higher production levels of plate going forward, which will allow us to capture market opportunities and to build inventory ahead of the planned outages for the implementation of the final pieces of the modernization project.
As a reminder, we have split the originally planned 40-day outage into two shorter duration outages with the first outage scheduled in April and the second outage planned for late calendar year 2024 to align with other planned maintenance activities providing some efficiencies on downtime. Next I'd like to update you on the progress during the quarter on our transformational electric arc furnace or EAF project. The EAF will ultimately increase our throughput capacity by roughly a third from CAD2.8 million tons per year of liquid steel making capacity by conventional means today to CAD3.7 million tons employing dual furnaces upon completion. The higher output will match our expanded downstream finishing capacity as we increase capacity at our plate mill. We will improve overall product mix and lower 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 CAD510 million. To-date, we have committed contracts totaling approximately CAD750 million with approximately 7% tied to time and material contracts, while the balance is fixed price in nature. We expect to contract the majority of the remaining project elements by the end of the current quarter. This will significantly derisk the EAF project budget as we progress towards our expected commissioning in late calendar year 2024. As a reminder, our start-up plan continues to include normal production from our existing steelmaking facility, while ramping up steel production from our EAFs in calendar year 2025, followed by a complete switch to EAF production. Before I hand it over to Rajat, let me give you an update on our operations currently. As we previously disclosed on January 20 and January 23, there was an incident at our coke-making plant that involved the collapse of a structure supporting utilities.
Thankfully, there were no injuries. But the event did impact several utilities that service the coke batteries and other facilities throughout the steelworks. Coke making operations were suspended at the time of the incident and we were able to stabilize heat to all three batteries and resume partial coke production within 72 hours of the incident. When factoring in coke inventories on hand, the availability of third-party coke and our partial production capabilities, we are able to satisfy all of our steel-making raw material inputs, while at the same time pursuing a permanent repair plan for the plant. As we also disclosed previously at the time of the incident, we temporarily suspended blast furnace operations for safety reasons. The blast furnace experienced operational challenges upon initial restart due to unforeseen impacts related to the piping collapse. All necessary repairs to the blast furnace have been completed and the furnace is gradually being brought back online.
Usable hot metal is expected to be produced within the next seven days with the return to full production anticipated within the next two weeks. Most importantly, we will undertake these recovery efforts with the safety of our employees and our community at the forefront. While doing this we continue to advance the EAF project on schedule. I'd like to once again thank all of our employees for their hard work, dedication, and professionalism. Now I will pass the call over to Rajat to go over our financial results for the quarter. Rajat?
Thanks, Mike. Good morning and thank you all for joining the call. As a reminder, all numbers are expressed in Canadian dollars unless otherwise noted. We shipped 516,000 tons in the quarter, up 12.6% as compared to the prior year period. Our plate and strip operations ran well in the quarter even as we completed a normal seasonal maintenance including our annual steelmaking vessel inline. Net sales realization averaged CAD1,079 per ton, down 3.3% versus the prior year period. The decrease versus the prior year level primarily reflects somewhat softer market conditions in the quarter, in particular the residual lower prices resulting from the UAW strike and due to the lagging nature of our order book. Plate pricing continued to enjoy a significant premium relative to hot-rolled coil during the quarter, driven by resilient demand particularly from spending on infrastructure projects and durables goods.
Steel revenue in the quarter totaled CAD556.9 million, up 8.8% versus the same quarter of last year reflecting the increase in shipments that more than offset lower average realizations per ton of steel. On the cost side, although most cost per ton of steel products sold averaged CAD10.07 in the quarter, down 11.2% versus the prior year period. The decrease versus the prior year period is primarily attributable to favorable leverage on higher volumes. This resulted in adjusted EBITDA in the quarter of negative CAD1 million and adjusted EBITDA margin of negative 0.2%, an improvement from negative CAD35.9 million and negative 6.3% in the year-ago period. Cash used in operations totaled CAD47.4 million for the quarter compared to a use of CAD128.6 million in the prior year period. Our inventories at the quarter end were CAD886.6 million, up 7.8% during the quarter due to normal seasonal build patterns ahead of winter.
We would typically expect to release inventories in the first half of calendar 2024, heavily weighted towards the first calendar quarter. But the impact of the coke-making plant incident will result in higher levels of inventory for inputs like ore and coal, delaying some of that anticipated inventory release. Looking prospectively, we do expect the fourth fiscal quarter to experience directionally higher EBITDA versus the third fiscal quarter. Promised performance will obviously be impacted by the production outage related to the utility structure collapse. All told, we expect the incident to impact production and shipments for more than three weeks, totaling roughly 120,000 tons to 150,000 tons. It should be noted that Algoma carries standard insurance coverage that is intended to protect the company at times like this including business interruption insurance. We have begun the process of submitting claims under our policy for covered losses and insurance adjusters and advisors were on-site and similarly, we are working closely with them to secure our protection.
We expect to have more details on this front in coming months. From a working capital perspective, we had mentioned on our previous call that we expect to release a total of CAD150 million by the end of fiscal 2025, with approximately CAD100 million of working capital drawdown in the fourth fiscal quarter of 2024. On account of the coke-making utility structure collapse and the related operational outages, we expect to release 70% less than originally expected amount in the fourth fiscal quarter. This timing issue will result in us releasing the balance over the subsequent quarters and we still expect to release approximately CAD150 million over this period. I would like to provide a reiteration of our funding plans for the year projects. As previously noted, our outlook for total cost of the project remains in the range of CAD825 million to CAD875 million. Towards the end of the quarter, we had spent CAD510 million or 60% of expected total, leaving CAD340 million of investment demand.
We are well positioned today and we look at our expected sources for those expenditures over the course of 2024. We have structured our balance sheet such that the only long-term debt we carry is in the form of government loans linked to our capital projects, allowing us to maintain a very low leverage profile, with ample liquidity of nearly CAD400 million at quarter end to manage through market fluctuations and complete our capital initiatives. We have cash on hand of nearly CAD95 million, another CAD76 million of available capacity on our Federal CEF loan, and approximately CAD150 million of cash to be generated from working down excess working capital in the months ahead. Combined, this roughly matches the expected capital requirements to complete the project, highlighting our ability to advance this transformative project as planned. I'd now like to turn the call back to our CEO, Michael Garcia for closing comments. Mike?
Thank you, Rajat. Looking at the state of the North American steel market, hot-rolled coil index prices moved dramatically higher in October, as the settlement and the UAW strike became apparent and steel consumers rushed to replenish their inventory needs. Over the calendar fourth quarter, pricing moved from the mid-$600 range to touch nearly $1,100 per net ton by the end of the year. Pricing so far in 2024 has come in with index prices dropping by approximately $50 and futures falling into the mid-$800 per ton US average for the balance of 2024, while off from year-end highs, these prices still represent a meaningful improvement from levels seen during much of 2023. As Rajat mentioned, we are also supported by the fact that plate pricing continues to demonstrate a significant premium as overall demand for plate products remains high and this in turn continues to benefit our average price realizations, especially as we ramp up operations in our plate mill.
2024 will be an important year in the story of Algoma as we continue to execute work towards the commissioning of our transformative EAF project. This will usher in the next phase of our company that defines the future of Algoma, provides the foundation for long-term value creation for our stakeholders, and solidifies our leadership position at the forefront of green steel production in North America. 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 the Q&A session.
分析師問答
Thank you. We will now be conducting a question-and-answer session. Our first question is from David Ocampo with Cormark Securities. Please proceed with your question.
Thanks for taking my questions. My first one is just on a bigger picture question. I guess, when you look to 2025, you guys have always discussed being a hybrid operator and either tilting towards being a pure-play EAF or incorporating a little bit of your blast furnace there. When you think about the issues that just happened with the coke facility and even the blast furnace, does that change your perspective on what you guys ultimately decide for 2025, or is it just going to come down to cost? I'm curious on your thoughts there.
Hi, David. This is Mike. Yes, I think that right now our plan still remains to operate in 2025 in a hybrid mode. That's been the plan for some time as well as we think it makes the right financial sense as well and obviously, financially we'll continue to keep a very close eye on that. Given the incident in the past two weeks, we'll have to understand the state of the assets and make sure we're comfortable with the asset integrity of both blast furnace, which we pay a lot of attention to and it features very prominently on our asset integrity and asset reliability plan, but as well as the coke ovens. But assuming nothing significantly changes in either one of those perspectives or analysis, we feel comfortable with our current plan.
Got it. And it may be early days, and maybe this one's for Rajat, but how should we be thinking about the cost structure when you guys are hybrid operators? Is it a cost-plus type model or just curious what the added costs will be with the dual manufacturing process?
Hi, David. The best way to look at it is that we will be operating an additional facility, which is the electric arc facility. And as we indicated in the past, it probably will carry 100 to 140 people more from a mining perspective, which becomes your fixed cost then the rest most of it becomes variable in the form of using metal in the electric arc furnace or using metal through the blast furnace. So, as far as the added fixed cost is concerned, it's that and the maintenance costs will not be much as it is a new asset. So we don't expect it to be substantially higher as we go through it. It definitely will be higher as we are transitioning and as we start shutting down the facilities and start reducing the fixed costs on those facilities, the costs will start coming down.
And last one for me Rajat. You gave some capital plans at least as it relates to the year I was hoping you could clarify the total CapEx for this year broken down by maintenance, the plate modernization, and then layering on the EAF on top of that?
So then when you say this year, you're talking of 2025 fiscal?
I guess 2024 calendar.
In the 2024 calendar year, we anticipate spending around CAD250 million on capital expenditures, which refers to gross CapEx, not net. For maintenance, we expect to allocate approximately CAD100 million to CAD120 million. Additionally, there will be some CapEx for the plate mill in the first quarter and some later to complete the replacement projects. The CapEx will also cover costs associated with the recovery of the coke batteries, which will be included in our overall analysis alongside insurance costs.
Thank you. Our next question is from Katja Jancic with BMO Capital Markets. Please proceed with your question.
Hi. Thank you for taking my questions. First just to confirm, you expect EBITDA to be higher sequentially in Q4?
That's correct.
And that's mostly going to be driven by pricing? Or is there any cost puts and takes there?
It’s mostly going to be pricing. Cost will be pretty similar and from a variable cost perspective fixed cost depending on the volume definitely will be higher, but it's mostly coming from pricing.
And this currently assumes three weeks of lost production right?
Yeah, roughly 120,000 to 150,000 tons of production and shipment.
And maybe just on the blast furnace, close to needing a full reline, is there a risk that that complicates the restart?
Hi Katja. This is Mike. No, not really. I think the blast furnace disruption, it was more related to the utility service incident at coke making, we've restarted it and are slowly bringing it back to good. I don't think the time since the last reline is really a factor in the incident that happened, or the state that we'll get it back to once we're making good metal. Does that help?
Yes. Thank you. I'll hop back into the queue.
Thank you. Our next question is from Ian Gillies with Stifel. Please proceed with your question.
Good morning, everyone.
Good morning, Ian.
Just to reconfirm on the working capital numbers you provided, do you suggest that for fiscal year 2024 it will be CAD40 million to CAD50 million release. And then in fiscal year 2025, we're looking at another CAD100 million release?
Yes.
And the follow-on from that question is, does that contemplate the incurrence of or investing in additional working capital ahead of the EAF ramp? Because I presume you're going to have to start buying some scrap ahead of startup and commissioning at year end?
Yes, it does. And just for context, we will be buying scrap, but not much by end of this year, as we are ramping up, it probably will be more in the following year as we buy. And at that point in time, our iron ore and coal inventory will go down substantially, as well. So yes, it does consider whatever we will buy, for the ramp-up and we'd still be reducing that CAD100 million or CAD150 million in total by next year.
And Rajat, given some of I guess the timing differences now, with spending day in relation to the EAF and the use of the credit facility. Is there anything within the government loans you have right now that prevents the incurrence of additional debt or anything like that could limit your availability?
No, there are good buckets or baskets, which are available that we can, if we have to tap the credit market we can.
Okay. And then I suppose, as we start looking into the remainder of this year and as we think about timing of the capital cost for the EAF, is that an update you'll provide with your typical guidance that you provide in the early part of April or will that be provided at a later date you think?
We're not sure what you mean by the capital costs in.
Well, sorry, just to be clear, you had suggested that you think you'll have every all the projects secured and the capital cost secured by the end of this calendar quarter, and you typically provide guidance in and around EBITDA for a quarter, call it early the following months or early April. I was just wondering if, within that release, you think you could provide an update on the EAF and costs, et cetera?
Yes, sure. We will. You know as we and we typically do, we will provide a hub where we are on the capital cost side. Our expectation is the majority of our cost should be fixed by that time, and we'll definitely provide an update by that time.
Okay. Thanks very much. I'll turn it back over.
Thanks, Ian.
Thank you. Our next question is from Ahmad Shaath with Beacon Securities. Please proceed with your question.
Hey, guys. Just maybe a first follow-up. I guess what reference point do you suggest we use in terms of shipments for Q4 relative to the 120k to 150k that you guys mentioned, just because there's a lot of variability year to date on the shipment volume?
Yes, so, typically we are at around 550k as an average for each quarter. So, you can start from there.
Perfect. That's very helpful. In terms of pricing, I guess you guys said that you expect directionally some stronger prices for throughout calendar '24 compared to calendar '23. Is that the driver behind that is just the current futures curve or what assumptions are you driving this comment?
It's the future curves that are influencing the pricing. Additionally, the spending on infrastructure and other areas of consumption is contributing to our expectations for this year, as demand has remained stable. We don't anticipate significant changes aside from some shifts in sentiment. We're also considering the cost factors that have kept loans and average pricing higher. All of these elements have been taken into account, and the futures indicate the direction of pricing.
Okay. That's very helpful. Thanks, Rajat. And last one, I'm not sure if you guys touched on it, but are you guys planning maybe as we get closer to the commissioning of EAF, just update us on the potential savings and OpEx structure? It's been a while since I think the last update we had is from the data from the roadshow when you went public. Just wondering, if there is a chance we get an update around those numbers this year?
Yes, Ahmad, this is Mike. We'll continue to provide updates as we get closer to the commissioning of the EAFs at the end of this year, including information on what our end state will be and details about the short hybrid period from that perspective.
Thank you. Our next question is from Lucas Pipes with B. Riley Securities. Please proceed with your question.
Thank you very much, operator. Good morning everyone. Apologies if I missed this, but I wondered if you could maybe provide some color in terms of dollars and cents in regards to the coke incident and wondered what the OpEx impact this year might be? And then also from a CapEx side, what will be any additional costs from the incident in the longer term, any kind of long-term cost to consider? Thank you very much.
Sure. I'll start, Lucas. So we've completed the preparation of the repair plan using both outside engineering and internal resources. So we expect the total repair costs to be in the $20 million to $30 million range and should be complete sometime in the April time period in terms of costs. Beyond that, our aim is to do a complete recovery back to full production of the coke batteries. Thankfully during the incident none of the three batteries suffered any thermal integrity degradation, we were able to protect the thermal integrity of all of the three batteries. So once the repair is executed, our goal is to get back to pre-incident coke production levels.
Got it. Are there any longer-term costs that might be associated with this?
I think it's too early to draw conclusions, but currently, the batteries and walls appear to be in good condition, so we don't anticipate significant degradation, which is crucial for long-term cost management. Regarding the corridor, we have evaluated the piping costs to be between $20 million and $30 million. Overall, we believe there won't be additional costs, but we'll have a clearer picture once we begin operating the furnace at full capacity again. During this transition, we expect to run at 30% to 40% of our production levels while using external coke this quarter. By the next quarter, we aim to reach our full production capacity.
Very helpful. Thank you. And I'll turn to a kind of high-level topic, on M&A. I saw a very active process in the US with US Steel. And kind of I'm wondering, how you look at the M&A landscape at this time? Is there something that you think strategically could possibly benefit Algoma? Or how do you expect the landscape to kind of evolve, maybe more within Canada? Would appreciate your thoughts. Thank you.
Hi Lucas. While I'm sure it will evolve, it's our policy not to speculate or comment on how we may be thinking around specific M&A opportunities. But I appreciate the question.
Anything that would come strategically maybe be uniquely beneficial to Algoma? Or is it really just focused on the EAF from your side?
Yeah. I mean, obviously, our short-term strategic path is clear. We believe that EAF brings a tremendous strategic value to Algoma. We're laser-focused on executing that we're on-time, on-budget. And we very much look forward to commissioning at the end of this year, beginning commissioning.
Thank you. There are no further questions at this time. I'd like to hand the floor back over to Mike Moraca, for any closing comments.
Well, thank you very much again for your participation in our third quarter fiscal 2024 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 fiscal fourth quarter results. It's scheduled for June. Thank you.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.