Algoma Steel secures power for EAF conversion

Algoma Steel Group Inc., an Ontario-based producer of hot- and cold-rolled steel sheet and plate products, has reported its financials for its fiscal fourth quarter and full year ended March 31, which include consolidated revenue of CA$677.4 million ($512.8 million) for the quarter compared with CA$941.8 million ($712.9 million) in the prior-year quarter and a net loss of CA$20.4 million ($15.4 million) for the recently completed quarter compared with net income of CA$242.9 million ($183.9 million) in the prior-year quarter.

The year-over-year decrease largely resulted from the decrease in the selling price of steel, higher costs from replacing internally produced coke with purchased coke and an increase in the purchase price of key inputs, such as metallurgical coke and coal.

RELATED: Algoma agreement opens door for EAF installation

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled CA$47.9 million ($36.3 million) in the fourth quarter of 2023, while that figure was CA$334.4 million ($253.1 million) in the comparable quarter of 2022.

Algoma shipped 571,647 tons during the recently completed quarter compared with 547,217 tons in the prior-year quarter and paid a quarterly dividend of 5 cents per share.

The average realized price of steel net of freight and nonsteel revenue was CA$1,066 ($837) per ton for the quarter compared with CA$1,608 ($1,217) per ton in the prior-year quarter, Algoma reports. The cost per ton of steel products sold was $934 ($707) compared with $947 ($717) in the prior-year quarter.

The company reported consolidated revenue of CA$2,778.5 million ($2,103.3 million) for its 2023 fiscal year compared to CA$3,806 million ($2,881.1 million) in 2022 and net income of CA$298.5 million ($226 million) for 2023 compared with $857.7 million ($649.3 million) the prior year. Adjusted EBITDA totaled CA$452.3 million ($342.4 million) for 2023 compared with CA$1,503.2 million ($1,137.9 million) for 2022. Income from operations for fiscal year 2023 was CA$290.5 million ($220 million) compared with CA$1,411 million ($1,068.1 million) the prior year.

Again, Algoma cites the decrease in the selling price of steel, higher costs from replacing internally produced coke with purchased coke and an increase in the purchase price of key inputs, for the year-over-year decrease in income. In addition, new collective bargaining agreements signed last summer resulted in increased pension and post-employment benefit expenses.

Algoma shipped just more than 2 million tons in 2023 compared with 2.3 million tons in 2022.

“Our results for the fiscal fourth quarter of 2023 were in line with our previously disclosed outlook,” says CEO Michael Garcia. “Following a period of dynamic commodity prices and operational improvements, the quarter saw plate and strip operations return to normal production levels. We expect to continue this momentum into fiscal 2024, with expected strong first-quarter shipments and operating cash flow.”

EAF project

Garcia adds that Algoma continues to focus on construction of its electric arc furnace (EAF) project, which the company’s board of directors authorized in November and involves constructing two EAFs to replace its existing blast furnace and basic oxygen steelmaking operations.

The company has secured the power supply necessary for the project, Garcia says. “We received conditional approval from the Independent Electricity System Operator to connect our electric arc furnaces to the current Ontario electricity grid, and we completed the installation and commissioning of the two natural gas-fired turbines at our Lake Superior Power project upgrade. Together the IESO-approved connection and Algoma’s power upgrade are expected to provide sufficient power to run both electric arc furnaces in an alternating mode.”

He adds that inflationary pressures on construction costs and materials are expected to increase spending on the project beyond the original budget estimates by approximately $125 million to $175 million. “In addition, global supply chain disruptions affecting certain microprocessing chips are estimated to extend the targeted commencement of start-up activities to calendar year-end 2024,” he says.

Following the transformation to EAF steelmaking, Algoma estimates its facility will have an annual raw steel production capacity of approximately 3.7 million tons, matching its downstream finishing capacity, which is expected to reduce the company’s annual carbon emissions by approximately 70 percent.

“In fiscal 2024, we are continuing our commitment to focused execution at our existing facilities while simultaneously advancing construction of our transformative EAF project. Importantly, we continue to expect to fund the project with a combination of cash on hand, strong operating cash flows from continuing operations at normal production levels through completion of the EAF commissioning process and available borrowings from the company’s undrawn and recently upsized and extended ABL credit facility,” Garcia says.

Algoma also announced that Mike Panzeri has been appointed senior vice president of production. He recently joined Algoma to assume responsibility for Algoma’s operations team, having previously served as chief operating officer of JSW Steel USA Ohio Inc. He is based in Sault Ste. Marie, Ontario, and reports directly to Garcia.

Plate mill modernization

Algoma’s plate and strip facility continues to operate at normal production levels following the Phase-1 upgrades focused on quality improvements, according to the company. The Phase-2 upgrades, which focus on productivity and capacity increases, include installing a heavy-gauge inline shear and upgrades to hot mill drives. 

Algoma says the shear installation is progressing ahead of schedule and it expects to be able to further increase plate production in the third calendar quarter of 2023. This higher production is expected to allow Algoma to respond to market opportunities and to build inventory ahead of the planned Phase-2 hot mill outage currently scheduled in April of 2024.

ABL credit facility

May 25, the company announced that it has upsized its senior secured asset-based revolving credit facility (ABL credit facility) from $250 million to $300 million and extended the term of the ABL credit facility to May 2028. With the closing of this transaction, Algoma says it has approximately $260 million of unused availability on the ABL credit facility, with existing usage primarily related to letters of credit. The ABL credit facility can be used to fund working capital needs, general corporate purposes and strategic growth initiatives, including the EAF project.

Outlook

Based on the company’s current information regarding its operations and end markets, it currently expects adjusted EBITDA in the first quarter of its 2024 fiscal year to range from CA$170 million to CA$180 million ($128.7 million to $136.3 million) and steel shipments to total 550,000 to 560,000 tons.