Algoma Steel Group Inc Q2 2022 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: David Gagliano - BMO Capital Markets - Analyst : Thanks for taking my questions. Before I ask my questions I just want to congratulate the Algoma team as well on being back in the public equity market. Great to see Algoma back, strong balance sheet and solid strategic outlook here. Congrats again. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 12, 2021 / 3:00PM, ASTL.OQ - Q2 2022 Algoma Steel Group Inc Earnings Call

Question: David Gagliano - BMO Capital Markets - Analyst : Great. So, just on capital allocation first of all, given that the -- obviously free cash flow, CAD350 million I think in one quarter, probably a higher number this current quarter. We have got the [DSPC] proceeds. It looks like Algoma will end calendar year 2021 with over CAD700 million of cash on the balance sheet and no debt once these bonds are redeemed. And then we haven't even talked about 2022, which is probably going to be another strong free cash flow yield. So, I thought it was interesting to see within the EAF go-ahead press release a couple days ago that the plan is still to fund the EAF in part with the previously announced government financing agreements. Just given the strength of the balance sheet now, the upcoming cash generation -- number one, do you still plan to draw on the entire government funding package or would you instead just drawn the forgivable portion, for example? And then number two, what are the restrictions, if any, related to shareholder returns, for example, if you draw on either the SIF forgivable loan or the CIB loan?

Question: David Gagliano - BMO Capital Markets - Analyst : Okay, that's helpful, thanks. Just switching gears, just to the contract versus the spot mix here. I think it's about 10% of the volumes that's actually tied to annual contracts, I believe, that reset at the end of the calendar year. Just assuming you are mostly done with those negotiations now, what's

Question: David Gagliano - BMO Capital Markets - Analyst : Okay, so just to clarify, how much of that two-thirds is actually tied to full-year annual contracts that reset at the end of this year?

Question: David Gagliano - BMO Capital Markets - Analyst : Okay, and your point was that if we just look at year-over-year price changes in the spot market, that actually is a reasonable proxy for the magnitude of the increase for that 10% of the business?

Question: David Gagliano - BMO Capital Markets - Analyst : Okay, great. And just quickly on the cost side, coal producers in the US have been flagging some pretty meaningful cost increases, up $100 a ton in US dollars. Is that a reasonable expectation for your 2022 coal costs? And if you can remind us, what is your annual coal consumption?

Question: David Gagliano - BMO Capital Markets - Analyst : Okay, that's helpful, thanks. And then just one last question from me for now. Just an annoying question, but the share count -- with the earnout rights, what is the fully diluted share count once those are finished? And also actually the same question for the warrants.

Question: David Gagliano - BMO Capital Markets - Analyst : Okay, thanks very much. That's it from me. Congrats again on the return to the equity market. Thanks again.

Question: Alex Jackson - RBC Capital Markets - Analyst : I know you've talked to it a little bit already, but just in terms of the operating costs, what was driving those higher costs in terms of which commodities? And how would that compare to what we might see in a more normalized environment for an operating cost run rate going forward? Thank you.

Question: Alex Jackson - RBC Capital Markets - Analyst : Got it, thank you. And then another one I just had on your volumes, you guys guided for a little bit higher volumes in Q4. I know sometimes Q4 can be a little bit seasonally weaker. So, I was curious what impacted Q3 shipments and what the run rate looks like going into the start of 2022.

Question: Alex Jackson - RBC Capital Markets - Analyst : Yes, sorry, calendar Q3, yes.

Question: Alex Jackson - RBC Capital Markets - Analyst : Got it, thank you. And then the last one I had, just curious on lead times for your spot sales. What are those looking like right now in terms of weeks?