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Algoma Steel posts profitable and history-making third quarter

Construction of $700-million electric arc furnace complex creating work for many suppliers
Howard Avery Construction driving the pilings for the electric arc furnace shop (Supplied)

Algoma Steel's latest fiscal quarter has turned out to be another winner.

The Sault Ste. Marie steelmaker turned a $123-million profit for the third quarter of 2022, the period ending Dec. 31. The company's fiscal year runs from April 1 to March 31.

During the same period last year, Algoma took a $73.5-million loss.

The company generated $588 million in cash and was also pleased to announce it had retired US$358 million in long-term debt. 

Algoma shipped 552,544 tons during the quarter, lower than expected due to customers' holiday shutdown, supply chain issues and pandemic challenges, which bumped up steel inventory levels.

The company recorded a $214.6 million-profit during the first quarter and posted $288.2-million in the second. 

Besides posting strong financial results, company CEO Mike McQuade remarked to analysts in a Feb. 11 web call that the third quarter was an impressive one in the history of the 120-year-old company with the return of Algoma to the public markets, the retirement of the debt, and a construction decision made to build two electric arc furnaces, calling it a "generational investment" in how Algoma will make steel.

In December, Danieli & C. Officine Meccaniche S.p.A of Italy was awarded the contract to design and deliver the equipment for the $700-million development.

McQuade said the company is sufficiently cashed up to deliver on those capital projects that will make Algoma a greener, more competitive and resilient steelmaker. 

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On North American steel market conditions, McQuade said steel prices have dipped from historical highs of a few months ago, but it's still higher than at any point prior to 2021. 

Algoma plate is selling at the premium price of more than US$1,685 per ton.

Though the steel market has been cyclical and pricing has remained volatile over the last several quarters, McQuade expects pricing to settle at attractive levels.

He's optimistic for the year ahead based on their order book, robust demand from the auto companies, and other positive supply-and-demand fundamentals in the market that he expects will sustain the steel sector for some time to come.

Looking ahead into the fourth quarter, McQuade said there remain positive supply side factors at play but in the demand side is "evolving day-to-day," mentioning uncontrollable situations like the Windsor-Detroit bridge blockade.

In recent years, Algoma has made a number of multi-million capital investments to modernize the plant, particularly to its plate mill, on the path of becoming a next-generation producer.

The big mega-project now underway is construction of the electric arc furnace complex with pilings being driven as part of the site preparation for the $700-million project.

"The project will fundamentally transform who we are and how we operate," McQuade said.

The furnaces come online in mid-2024 after 30 months of construction, McQuade said, as the company will begin the transition away from blast furnace-based steel production as more power supply comes available from the Ontario grid. He expects no disruptions to production as they transition to this new technology.

The federal Infrastructure Bank and the Net Zero Accelerator programs have committed $420 million for the dual furnace facility that will boost Algoma's annual steel production at 3.7 million tons and cut its carbon emissions by 70 per cent.

One analyst asked McQuade about ongoing labour and parts shortage and how comfortable he is on staying within the 30-month construction period and if there might be any potential cost overruns on the furnace project.

McQuade expressed confidence in delivering on time and on budget, as financial and timeline buffers have been factored into the schedule and budget to bring the furnace complex to completion.

By way of project milestones, Algoma has been rolling out a steady stream of news in the last few weeks surrounding contracts being awarded to industrial suppliers near and far.

Howard Avery Construction is installing the pilings the furnaces' main complex and auxiliary buildings. Winnipeg's PTI Transformres will be supplying two 200 MVA (Mega Volt Ampere) transformers, one for each furnace. George Stones and Son is handling the foundation work with the local Lafarge plant and ManSteel Rebar supplying the concrete and rebar. GE Power is upgrading Algoma's natural gas combined power plant to support the furnaces.

The next step is picking a building erector, expected to be announced in the next week or two.

McQuade emphasized Algoma will continue to follow a prudent financial management plan that's put them in the "enviable financial position" they enjoy today.

"Our focus is to live within our means, not spend money we do not yet have."