Company's Q3 2025: Contradictions Emerge on EAF Transition, CapEx Cuts, Cash Flow Strategy, and Tariff Concerns

Date of Call: October 30, 2025

Financials Results

• Revenue: $473 million, down 12.2% versus the prior year period

Guidance:

• Accelerating EAF transition and targeting earlier full EAF production to lower costs and improve flexibility.
• Final EAF project cost expected to be approximately $987 million (cumulative investment $910M as of Sept 30).
• Q4 plate production expected to increase sequentially; significant inventory drawdown beginning Q4 and accelerating through 2026.
• Expect to approach EBITDA breakeven ~3–6 months after full blast furnace shutdown and EAF ramp completion.
• Liquidity bolstered by $500M government support and expanded USD 375M ABL; CapEx to decline next year as BF/coke shutdown occurs.

Business Commentary:

• 50% U.S. Tariffs Impact:
• The 50% U.S. tariffs implemented in June 2025 have effectively closed the U.S. market to Algoma Steel, reducing shipments and increasing production costs.

• This disruption is due to the tariffs leading to unsustainable market conditions and a forced pivot of the company's go-to-market strategy.

• Operational Pivot and EAF Transformation:

• Algoma Steel is accelerating its transition to electric arc furnace steelmaking and refocusing production on as-rolled and heat-treated plate products, primarily for the Canadian market.

• This strategic shift aims to reduce cash burn, align with domestic demand, and mitigate exposure to volatile coil markets.

• Government Support and Liquidity:

• The company secured $500 million in federal and provincial loan facilities, along with an expanded USD 375 million ABL facility to extend liquidity runway.

• These measures are in response to the sustained tariff environment and support the company's strategic operational pivot.

• EAF Project Progress:

• As of September 30, 2025, cumulative investment for the EAF project reached $910 million, with $30 million spent in Q3.

• The project's forward progress is crucial for cost efficiency and market responsiveness amidst tariff challenges.

• Financial Performance and Impairment:

• Adjusted EBITDA for Q3 was a loss of $87.1 million, reflecting lower shipment volumes, reduced pricing, and elevated costs. A $503 million noncash impairment loss was recorded.
• The impairment is attributed to market capitalization falling below the carrying value of net assets and the impact of U.S. Section 232 tariffs on the company's operations.

Sentiment Analysis:

Overall Tone: Neutral

• Large near-term losses and a $503M noncash impairment (net loss $485.1M) and adjusted EBITDA loss of $87.1M indicate stress; management secured $500M government support and a USD 375M ABL and is accelerating the EAF pivot, expecting to approach EBITDA breakeven after the transition.

Q&A:

• Question from Ian Gillies (Stifel Nicolaus Canada Inc., Research Division): 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?
  Response: Accelerating EAF transition to reach ~1.0–1.2Mt in 2026 under sustained 50% tariff and expect to approach EBITDA breakeven ~3–6 months after full transition/blast furnace shutdown.

• Question from Ian Gillies (Stifel Nicolaus Canada Inc., Research Division): 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?
  Response: Plate mill ran at full capacity aside from planned maintenance and product-mix/heat-treat timing; sequential dip driven by maintenance and mix, with production expected to rise in Q4/Q1.

• Question from Ian Gillies (Stifel Nicolaus Canada Inc., Research Division): What capital infusions you'd expect to get in the next year or so as it pertains to insurance proceeds, government grants, and potential tax refunds?
  Response: Expect $30–50M more in insurance proceeds, ~$100–150M+ working-capital release from EAF transition, and roughly >$100M in tax refunds, mainly occurring through 2026.

• Question from James McGarragle (RBC Capital Markets, Research Division): Can you give us an updated CapEx number and an updated net working capital number for what we can expect into Q4?
  Response: Q4 should see inventory drawdown (part of the $100–150M working-capital release); CapEx to decline next year as blast furnace/coke maintenance (~$40M historically) winds down.

• Question from James McGarragle (RBC Capital Markets, Research Division): How are you thinking about scrap-plus cost targets given tariffs and initial lower EAF utilization?
  Response: Target scrap-plus ~US$220/ton for sheet long-term; initially ~US$220–250/ton at lower utilization, falling toward ~US$220 as volumes reach ~2–2.5Mt.

• Question from James McGarragle (RBC Capital Markets, Research Division): Do you think the Canadian market can support the 2.5 million tonnes needed to achieve that cost-plus target, or would tariffs need to change?
  Response: Management believes Canadian demand can grow via nation‑building/defense/infrastructure projects to support needed volumes; restored U.S. access would further improve prospects.

• Question from Ian Gillies (Stifel Nicolaus Canada Inc., Research Division): Are you seeing any positive implications yet from some of the trade barriers instituted by the Canadian government?
  Response: Some positive effects: increased government and customer interest in Algoma's capabilities; management wants stronger protective measures and more policy support to further strengthen the Canadian market.

• Question from Ian Gillies (Stifel Nicolaus Canada Inc., Research Division): Do you have any sense of incremental plate demand from announced or potential projects?
  Response: Canadian plate market ~600–700kt; Algoma captures ~50%; multiple projects could push market north of 1Mt but no precise incremental estimate provided.

• Question from Ian Gillies (Stifel Nicolaus Canada Inc., Research Division): How do you intend to start using the credit facilities given trade‑offs like dilution, warrants and interest?
  Response: Will draw the secured facility first (no warrants), preserve ABL for working capital, then use unsecured tranche (with warrants) as needed and manage draws to minimize dilution.

Contradiction Point 1

Production and Transition to EAF

It directly impacts expectations regarding the company's production strategy and transition timeline, potentially influencing operational efficiency and financial forecasts.

Under a sustained 50% tariff environment, could you outline your 2026 production profile and whether EBITDA breakeven is achievable? - Ian Gillies (Stifel Nicolaus Canada Inc., Research Division)

2025Q3: We are accelerating the transition to full EAF production, a year earlier than initially planned, to better align with the current market conditions. - Michael Garcia(CEO and Director)

What are the key milestones or next steps in scaling to full EAF production? - David Ocampo (Cormark Securities)

2025Q2: The ramp-up plan includes phasing out blast furnace assets over time as EAF production increases. - Michael Dennis Garcia (CEO & Director)

Contradiction Point 2

Capital Expenditure (CapEx) Reduction

It involves changes in financial forecasts, specifically regarding capital expenditure reduction, which are critical for understanding the company's investment strategy.

Could you update us on your approach to scrap and cost targets considering the tariff impacts and initial furnace capacity constraints? - James McGarragle (RBC Capital Markets, Research Division)

2025Q3: CapEx will decrease as blast furnace and coke oven operations are retired. - Rajat Marwah(Chief Financial Officer)

How should we think about CapEx in the second half of this year and into next year if the current environment persists? - Ian Gillies (Stifel)

2025Q2: Remaining EAF CapEx will be spent by year-end. - Rajat Marwah (Chief Financial Officer)

Contradiction Point 3

EAF Production Transition and Timing

It involves a significant shift in the company's strategic plan, impacting production timelines and potential revenue streams.

If the 50% tariff environment persists, what do you expect the production profile to be in 2026 and whether EBITDA breakeven is achievable in that scenario? - Ian Gillies(Stifel Nicolaus Canada Inc., Research Division)

2025Q3: We are accelerating the transition to full EAF production, a year earlier than initially planned, to better align with the current market conditions. - Michael Garcia(CEO and Director)

What has happened with the EAF since the last update, and what are the critical path issues? - Ian Gillies(Stifel)

2025Q1: Construction of the EAF complex began in April 2022. Weather, particularly snow and temperatures, has affected the commissioning of critical systems. We've slipped from Q1 to Q2 for the EAF's first production. - Michael Moraca(Vice President, Corporate Development and Treasurer)

Contradiction Point 4

Working Capital and Cash Flow Management

It highlights changes in the company's cash flow strategy and working capital management, which are critical for maintaining liquidity and operational flexibility.

How do you plan to use credit facilities as cash burn increases, considering factors like dilution and interest costs? - Ian Gillies(Stifel Nicolaus Canada Inc., Research Division)

2025Q3: We plan to use our secured line first, followed by the unsecured line that comes with warrants. The focus is on optimizing cash use based on our strategic plan for 2026. - Rajat Marwah(Chief Financial Officer)

What will be the working capital for this year? - Ian Gillies(Stifel)

2025Q1: We'll see a working capital reduction, particularly on the inventory side. We'll build some raw material inventory by year-end. - Rajat Marwah(CFO)

Contradiction Point 5

Tariffs and Market Conditions

It highlights differing perspectives on the impact of tariffs and market conditions, which directly affect the company's financial outlook and strategic decisions.

Are you seeing positive effects from Canada's trade barriers yet or should they be increased? - Ian Gillies (Stifel Nicolaus Canada Inc., Research Division)

2025Q3: Despite efforts being underway, we believe there's more the government could do. - Michael Garcia(CEO and Director)

Could you outline the production profile for 2026 and whether EBITDA breakeven is achievable under a 50% tariff environment? - Ian Gillies (Stifel Nicolaus Canada Inc., Research Division)

2025Q3: We've shared our concerns with the government about strengthening trade barriers. - Michael Garcia(CEO and Director)