Mr. Michael Garcia reports

ALGOMA STEEL GROUP REPORTS FISCAL SECOND QUARTER 2024 FINANCIAL RESULTS

Algoma Steel Group Inc. today released its results for its fiscal second quarter ended Sept. 30, 2023.

Business highlights and fiscal 2024 to fiscal 2023 second quarter comparisons

• Consolidated revenue of $732.6-million, compared with $599.2-million in the prior-year quarter.
• Consolidated income from operations of $36.8-million, compared with $5.6-million in the prior-year quarter.
• Net income of $31.1-million, compared with $87.2-million in the prior-year quarter.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $81-million and adjusted EBITDA margin of 11.1 per cent, compared with $82.7-million and 13.8 per cent in the prior-year quarter.
• Cash flows generated from operations of $57.2-million, compared with cash flows used in operations of $66.1-million in the prior-year quarter.
• Shipments of 548,998 tons, compared with 435,202 tons in the prior-year quarter.
• Paid quarterly dividend of five U.S. cents per share.

Michael Garcia, the company's chief executive officer, commented: "We delivered results in the fiscal second quarter that were in line with our previously disclosed outlook. Our results were impacted by significant declines in steel prices leading up to the now resolved labour stoppages at auto manufacturers in the United States. While we do expect the impact strikes had on the price environment, along with lower anticipated production due to our usual planned maintenance ahead of winter to have a material downward impact on Q3 F2024 results, index prices have risen and forward curves have rebounded sharply on recent price increase announcements and news of tentative agreements between the UAW and automakers. With the strikes behind us, we expect further recovery in steel demand and pricing."

Mr. Garcia continued: "During the last quarter, we initiated the commissioning phase of our inline heavy gauge shear, a critical component of our Plate Mill modernization project. This marks a significant step toward achieving increased production by the end of the current calendar year. We also made significant progress in our transformative electric arc furnace, or EAF project, including achieving two important milestones in securing the necessary power supply for our EAFs. First, Ontario's independent electricity system operator provided further positive indication on connecting our EAFs to the grid. This means we will have access to the power required to operate the EAFs at our current run rate annual business plan range of 2.2 [million] to 2.4 million shippable tons without relying on hot metal. Additionally, the Ontario government issued an order in counsel to accelerate regional power infrastructure upgrades, which provides further comfort that the necessary infrastructure will be in place to meet the long-term power requirements of our EAF project, allowing for increased future EAF production capacity."

Mr. Garcia then shared financial insights on the EAF project: "As of Sept. 30, 2023, we have invested a total of $455.7-million in the development of the EAF project, which represents approximately 54 per cent of the anticipated project cost. Importantly, we have already secured contracts for approximately 80 per cent of the forecasted total project expenses, with approximately 95 per cent of these contracts being fixed price agreements. We anticipate finalizing contracts for the remaining forecast project expenses by end of the fiscal year."

He elaborated on the funding strategy, saying: "We expect that funding for the project's completion will be sourced from a combination of our existing cash reserves, available funds under our federal strategic innovation fund (SIF) loan, utilization of excess working capital and anticipated cash flows from our operations. Our strong balance sheet provides stability throughout market cycles as we progress toward the commissioning of the EAFs in late 2024."

Second quarter fiscal 2024 financial results

Second quarter revenue totalled $732.6-million, compared with $599.2-million in the prior-year quarter. As compared with the prior-year quarter, steel revenue was $665.8-million, compared with $551.5-million, and revenue per ton of steel sold was $1,334, compared with $1,377.

Income from operations was $36.8-million, compared with $5.6-million in the prior-year quarter. The year-over-year increase was primarily due to improved steel shipment volumes and the absence of impacts in the year-ago quarter of pension and postemployment benefit expenses associated with ratifying collective bargaining agreements, which more than offset lower realized steel pricing.

Net income in the second quarter was $31.1-million, compared with net income of $87.2-million in the prior-year quarter.

Adjusted EBITDA in the second quarter was $81.0-million, compared with $82.7-million for the prior-year quarter. This resulted in an adjusted EBITDA margin of 11.1 per cent. Average realized price of steel net of freight and non-steel revenue was $1,213 per ton, compared with $1,267 per ton in the prior-year quarter. Cost per ton of steel products sold was $1,089, compared with $1,199 in the prior-year quarter. Shipments for the second quarter increased by 26.1 per cent to 548,998 tons, compared with 435,202 tons in the prior-year quarter.

Electric arc furnace

The company has made substantial progress on the construction of two new state-of-the-art electric arc furnaces (EAF) to replace its existing blast furnace and basic oxygen steelmaking operations. The project timing and budget remain consistent with the outlook provided in the fiscal fourth quarter 2023 earnings release. As of Sept. 30, 2023, the cumulative investment was approximately $455.7-million of the total projected cost of $825-million to $875-million. Of the total project expenditure to date, only $33-million is tied to time and material contracts, while the balance is fixed price in nature. Furthermore, expected chip shortages that have previously impacted the project timeline have eased, and a late calendar 2024 commissioning remains on track. Following the transformation to EAF steelmaking, Algoma's facility is expected to reach an annual raw steel production capacity of approximately 3.7 million tons, matching its downstream finishing capacity and to generate an approximate 70-per-cent reduction in the company's annual carbon emissions.

Quarterly dividend

The board has declared a regular quarterly dividend in the amount of five U.S. cents on each common share outstanding, payable on Dec. 29, 2023, to holders of record of common shares of the corporation as of the close of business on Nov. 30, 2023. This dividend is designated as an eligible dividend for Canadian income tax purposes.

Conference call and webcast details

A webcast and conference call will be held on Friday, Nov. 3, 2023, at 10 a.m. ET to review the company's fiscal second quarter results, discuss recent events and conduct a question-and-answer session.

The live webcast and archived replay of the conference call can be accessed on the investors section of the company's website. For those unable to access the webcast, the conference call will be accessible domestically or internationally by dialling 877-425-9470 or 201-389-0878, respectively. Upon dialing in, please request to join the Algoma Steel second quarter conference call. To access the replay of the call, dial 844-512-2921 (domestic) or 412-317-6671 (international) with pass code 13741963.

Consolidated financial statements and management's discussion and analysis

The company's unaudited interim consolidated financial statements for the three and six months ended Sept. 30, 2023, and management's discussion and analysis thereon are available under the company's profile on the U.S. Securities and Exchange Commission's (SEC) EDGAR website and under the company's profile on SEDAR+.

About Algoma Steel Group Inc.

Based in Sault Ste. Marie, Ont., Canada, Algoma Steel is a fully integrated producer of hot- and cold-rolled steel products, including sheet and plate. Driven by a purpose to build better lives and a greener future, Algoma Steel is positioned to deliver responsive, customer-driven product solutions to applications in the automotive, construction, energy, defence and manufacturing sectors. Algoma Steel is a key supplier of steel products to customers in North America and is the only producer of discrete plate products in Canada. Its state-of-the-art direct strip production complex is one of the lowest-cost producers of hot-rolled sheet steel in North America.

Algoma Steel is on a transformation journey, modernizing its plate mill and adopting electric arc technology that builds on the strong principles of recycling and environmental stewardship to significantly lower carbon emissions. Today, Algoma Steel is investing in its people and processes, working safely as a team to become one of North America's leading producers of green steel.

As a founding industry in its community, Algoma Steel is drawing on the best of its rich steelmaking tradition to deliver greater value, offering North America the comfort of a secure steel supply and a sustainable future as your partner in steel.

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