Algoma Steel Group Inc. · NASDAQ:ASTL
Algoma Steel — SPAC Merger (June 2021)
64 slides from Algoma Steel's SPAC merger presentation, Jun 21, 2021
Slide 1: Analyst Day - Proposed Transition to Making Greener Steel
Analyst Day - Investor Presentation Proposed Transition to Making Greener Steel June 2021 ALGOMA STEEL INC.
Slide 2: Disclaimer (1/2)
Disclaimer (1/2) Disclaimer Legato Merger Corp. (“Legato”) is holding presentations for certain of its stockholders, as well as other persons who might be interested in purchasing Legato’s securities, regarding its proposed merger with Algoma Steel (“Algoma” or the “Company”). EarlyBirdCapital (“EBC
Slide 3: Disclaimer (2/2)
Disclaimer (2/2) Market and Industry Data and Forecasts This document includes market share, ranking, industry data and forecasts that we obtained from industry publications and surveys, public filings and internal Company sources. Industry publications, surveys and forecasts generally state that th
Slide 4: Transaction Summary
Transaction Summary Michael McQuade Chief Executive Officer Rajat Marwah Chief Financial Officer John Naccarato VP Strategy & General Counsel David Sgro Chief Executive Officer Eric Rosenfeld Chief SPAC Officer Summary of Proposed Transaction • Algoma Steel Inc. (“Algoma”) is a leading Canadian flat
Slide 5: Algoma Is an Ideal Opportunity for Legato
Algoma Is an Ideal Opportunity for Legato Leading North American Steel Producer Transformational EAF Investment Achieves ESG Goals Numerous Near-and Medium-Term Catalysts Attractive Valuation Leading Canadian flat-rolled steel producer, producing ~2.4mm tpa of hot rolled coil and plate steel for Can
Slide 6: Proposed Transaction Overview
Proposed Transaction Overview Assumes full earnout is realized based on expectation for US$901 million of EBITDA Estimated Sources & Uses (US$mm) Sources: Shares Issued to Algoma Shareholders Estimated SPAC Cash in Trust(1) PIPE(2) Total Sources $1,125 $236 $100 $1,461 Uses: Upfront Equity Considera
Slide 7: Algoma Shareholder Contingent Consideration Aligns Incentives with Public Shareholders
Algoma Shareholder Contingent Consideration Aligns Incentives with Public Shareholders Based on current expectations, Algoma would achieve 100% of the earnout in CY2021 and existing shareholders receive 37.5mm shares incremental to the 75.0mm shares of upfront consideration Size (Shares) Structure R
Slide 8: Algoma Shareholder Earnout Structure Explained
Algoma Shareholder Earnout Structure Explained Shares Issued to Algoma at Various CY2021 EBITDA Realizations Base Case Assumption that 100% of Earnout will be Achieved based on $901mm of CY2021P EBITDA If EBITDA target not met, shares earned when share price reached $18.00/share(1) If EBITDA target
Slide 9: Attractive Valuation Relative to North American Steel Peers
Attractive Valuation Relative to North American Steel Peers TEV / EBITDA Algoma Steel (TEV / CY’2021P) (1) EAF Producers Blast Furnace Steel Producers Averages 2021E 2022E EAF 4.2x 7.3x Blast Furnace 3.0x 5.6x All Peers 3.5x 6.3x TEV / CY2021P Production(4) ($/t) $694 $1,099 $1,284 $1,100 $767 $1,04
Slide 10: Significant Anticipated 2021 Cash Flows Would Reduce Total Enterprise Value
Significant Anticipated 2021 Cash Flows Would Reduce Total Enterprise Value and Implied Valuation 1.9x TEV / CY2021P EBITDA 1.2x $694 TEV / CY2021P Production ($/t) $443 $1,706 $1,090 ($616) TEV as of 3/31/21(1) Expected Cash Flow(2) (ex. EAF and NWC) 3/31/21—12/31/21 Expected TEV as of 12/31/21 Sou
Slide 11: Algoma's Transformation
Algoma’s Transformation Algoma Today Investing over $200 million to update downstream operations: Ladle Metallurgy Furnace 2; DSPC Hot strip mill; Plate Mill Modernization Cost cutting measures • ~$44 million in annual cost savings reductions • Fixed cost reductions and process optimization New stra
Slide 12: Algoma Remains Committed to Sustainable Corporate Citizenship
Algoma Remains Committed to Sustainable Corporate Citizenship Environment • Algoma has a demonstrated commitment to environmental protection and is ISO 14401 certified • Published a Health, Safety and Environment Policy with a focus on continuous improvement 5 Key Areas of Commitment to the Environm
Slide 13: Strong Employee Relations and Company-wide Dedication to Health and Safety
Strong Employee Relations and Company-wide Dedication to Health and Safety Continued focus and improvement in Lost Time Injury Frequency Rate (LTIFR) Health and Safety Performance Ongoing commitment to superior Health and Safety performance has led to sustained improvement of safety metrics over tim
Slide 14: Key Investment Highlights
Key Investment Highlights ALGOMA — STEEL INC. —
Slide 15: Key Investment Highlights
Key Investment Highlights Premier Canadian Steel Producer and One of the Leading Flat Steel Producers in North America Robust Steel Market Fundamentals and Favorable Long-Term Outlook Transformational Opportunity: Enhancing Profitability Throughout the Cycle and Meaningfully Improving Environmental
Slide 16: Premier Canadian Steel Producer
1 Premier Canadian Steel Producer… Leading North American Flat-Rolled Producer Located in the Great Lakes Region in Sault Ste. Marie, Ontario Raw steel capacity of 2.8mm tons (with incremental 0.9mm tons from idled blast furnace capacity) per year Broad range of high-quality finished sheet and plate
Slide 17: One of the Leading Flat Steel Producers in North America
…and One of the Leading Flat Steel Producers 1 in North America Highly Competitive Capacity Utilization N.A. EAF Producers N.A. Blast Furnace Producers Through-the-Cycle Capacity Utilization (%)(1) 91% 92% 92% 94% 85% 67% . . . Drives Low Cash Cost Position… 2021 Cash Cost Curve – Hot Rolled Coil (B
Slide 18: The Proposed EAF Mill Would Transform Algoma's Operations
The Proposed EAF Mill Would Transform Algoma’s 2 Operations… Blast Furnace Mill (Algoma Today) EAF Mill (Algoma 2024) Raw Materials Materials Preparation Ironmaking Steelmaking Iron Ore Limestone Coal Blast Furnace Coke Ovens Scrap Metal HBI/Pig Iron Optional Scrap Metal Electricity – Ontario power
Slide 19: Combining with Other High-Return Strategic Initiatives
… Combining with Other High-Return Strategic Initiatives to 2 Meaningfully Enhance Algoma’s Profitability… EAF and Other Improvements Anticipated to Meaningfully Increase EBITDA Generation Through-the-Cycle (US$mm) Description Annualized Benefit CapEx(1) Schedule Cost Saving Initiatives Ongoing cost
Slide 20: Benefit Improving Algoma's Performance Throughout the Steel Price Cycle
… with the Benefit Improving Algoma’s 2 Performance Throughout the Steel Price Cycle (US$ millions, unless otherwise noted) Historical Through-the-Cycle Adj. EBITDA(1) TEV (As of 3/31/21) / EBITDA ($1,706)(2) Expected TEV (as of 12/31/21) / EBITDA ($1,090)(3) Potential Long-term EBITDA Generation 6.
Slide 21: EAF Transition Would Materially Improve Algoma's Environmental Footprint
EAF Transition Would Materially Improve Algoma’s 2 Environmental Footprint Environmental Strategy EAF production would unlock significant environmental benefits – EAF steelmaking generates substantially less CO2 and other air pollutants compared to Blast Furnace producers 3.0mm metric tonnes anticip
Slide 22: Strategically Located on the Great Lakes
Strategically Located on the Great Lakes in 3 Close Proximity to Customers and Suppliers Attractive Access to Key Suppliers and Customers Across The Great Lakes Located close to key steel consuming regions of the U.S. -Midwest and Northeast and Canada - Southern Ontario ~70% of customers located wit
Slide 23: High-Quality Products and Diversified Blue Chip Customer Base
High-Quality Products and Diversified Blue Chip Customer Base in Attractive End Markets Product width and strength flexibility allows Algoma to serve a broad customer base across various end markets Operational flexibility to adjust product mix to align with market pricing and customer demand, and m
Slide 24: High-Quality Products and Diversified Blue Chip Customer Base in Attractive End Markets
High-Quality Products and Diversified Blue Chip Customer Base in Attractive End Markets FY2020 Product Shipment Mix Cold Rolled Sheet 6% Plate 14% Hot Rolled Sheet 80% Plate expected to increase to be 20%+ of Algoma’s product mix with implementation of Plate Mill Modernization (volume component by F
Slide 25: Highly Experienced Management Team with Extensive Industry Experience
Highly Experienced Management Team with Extensive Industry Experience Name Title Joined Algoma Years of Experience Bio Michael McQuade Rajat Marwah John Naccarato Robert Dionisi Shawn Galey Mark Nogalo Robert Wesley Chief Executive Officer Chief Financial Officer Vice President, Strategy and General
Slide 26: Strong Steel Market Fundamentals
Strong Steel Market Fundamentals… North American HRC and Plate prices are at all-time highs driven by increased demand for construction, automotive and other end markets Historical Hot Rolled Coil Prices (US$/ton) $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Historical Hot Rolled
Slide 27: Current High Prices Benefit Future Contracted Volumes
Strong Steel Market Fundamentals… Current High Prices Benefit Future Contracted Volumes CY2021P Spot 35% Contract 65% Contracting / Price Mechanics Contracts are volume commitments with CRU index prices on a one- and three-month lag basis with some fixed price contracts – Lag pricing is based on bac
Slide 28: Favorable Long-Term Outlook
… and Favorable Long-Term Outlook Attractive Trends in Key End Markets Automotive Automotive markets are recovering from impact of COVID-19 Automotive production in North America expected to increase by 24% in 2021 ~35% of Algoma’s sales into this market Construction Significant proposed North Ameri
Slide 29: Robust Go-To-Market Strategy to Support Incremental EAF Production
Robust Go-To-Market Strategy to Support Incremental EAF Production Algoma Strategy / Advantages Displacement of imports in the plate and sheet markets Drive sales into tubular and automotive end markets via robust commercial relationships Enhance value proposition for customers Expand plate mill cap
Slide 30: Operations Summary
Operations Summary ALGOMA — STEEL INC. —
Slide 31: Algoma's Flexible, Low-Cost Operations
Algoma’s Flexible, Low-Cost Operations Facilitates Optimization Across High Value Products Algoma produces a wide variety of products to serve diverse end-markets Algoma is the only plate producer in Canada with current capacity of 350-400kt and potential capacity of 700kt per year once debottleneck
Slide 32: DSPC Line Offers Structural Conversion Cost Advantage
DSPC Line Offers ~C$30-$40/NT Structural Conversion Cost Advantage Over BOF Peers Key Highlights Algoma is the only integrated steel producer to operate a DSPC line, which converts liquid steel directly into coil –Algoma believes the DSPC would facilitate a seamless transition to the proposed EAFs I
Slide 33: Canada's Only Plate Mill with Potential to Ship 700,000 NT per year
Canada’s Only Plate Mill with Potential to Ship 700,000 NT per year Algoma’s plate mill modernization project enhances the capacity and quality of one of Algoma’s key products and sources of competitive advantage Key Highlights Overall ~$90 million (C$120 million) is committed for modernizing the Al
Slide 34: Algoma's Manufacturing Capabilities
Algoma’s Manufacturing Capabilities Coke Making Facilities Iron Making Facilities Steelmaking Facilities Direct Strip Production Complex (DSPC) Slab Caster Plate and Strip Mills Technical specifications Age Competitive advantage Highlights Comprises – 3 batteries: – #7 battery (60 ovens) #8 battery
Slide 35: Potential Transformational EAF Investment
Potential Transformational EAF Investment
Slide 36: Proposed EAF Investment in Algoma
Proposed EAF Investment in Algoma Summary of Investment Total Budgeted Capital Cost Expected Capacity Expected Costs / Ton Expected CO2 Emission Reduction Productivity Improvement ~$500 million of total CapEx to construct and install Dual EAF mills, comprising: – ~$425 million of EAF installation –
Slide 37: Proposed EAF Investment in Algoma (cont'd)
Proposed EAF Investment in Algoma (cont’d) Key Anticipated Benefits for Algoma Adds 900kt of incremental liquid steel capacity, or ~700kt of finished steel capacity Improves operational flexibility and value-added product mix Drives variable cost structure that is more correlated to market pricing d
Slide 38: Preliminary EAF Timeline and Capital Requirements
Preliminary EAF Timeline and Capital Requirements The rollout of the EAF strategy would occur in phases that are determined by availability of electricity: – Phase I (Interim / Alternating Hybrid Mode): from the start of production to grid upgrade completion, the EAF would operate one furnace at a t
Slide 39: Expected Fixed Cost Reductions
Expected Fixed Cost Reductions Expected Productivity Improvement (Tons shipped per Employee) Fixed Costs of Manufacturing (US$mm) Expected fixed costs of manufacturing / ton CY2021P Phase II EAF (Timing TBD) CY2021P Phase II EAF (Timing TBD) Manufacturing & Service Labor Other Source: Company inform
Slide 40: Well Developed Plan to Source Key Raw Materials
Algoma has a Well Developed Plan to Source Key Raw Materials Phase I (Interim) Phase II (Long-Term – Timing TBD) Electricity Scrap HBI / DRI / Pig Iron Operating the dual EAFs in an alternating mode supplemented by BF#7 Internal power generation covers power requirements and is approved by relevant
Slide 41: Scrap and Metallics Supply
Scrap and Metallics Supply North American Scrap Market DRI / HBI Alternative Metallics Supply Pig Iron Deep market for scrap in North America with total of 116.2mm tons generated in 2020 Canada exported total of 4.4mm tons of scrap in 2019, 3.5mm exported from Ontario alone (80% to the US and 20% ou
Slide 42: Financial Overview
Financial Overview ALGOMA — STEEL INC. —
Slide 43: Historical Financial Summary
Historical Financial Summary (US$ in millions, except per ton data) FY2018A FY2019A FY2020A FY2021A Steel Revenue Fixed Variable Total Steel COGS Gross Profit SG&A Port Fees Tariffs, Net and Other Exceptional Items Profit Sharing EBITDA Tariffs, Net Capacity Utilization Adjusted EBITDA D&A Financing
Slide 44: FY2021A to CY2021P EBITDA Bridge
Strong Steel Market and Strategic and Cost-Cutting Initiatives Expected to Strengthen Algoma’s Performance FY2021A to CY2021P EBITDA Bridge (US$ millions) K tons Shipped HRC Price(1) EBITDA / ton 2,102 $679 $71 2,458 $1,224 $367 $710 ($75) $901 ~$25 $62 $151 $28 FY2021A EBITDA (ending 3/31/21) Incre
Slide 45: Historical and Projected Steel Shipments by Product
Historical and Projected Steel Shipments by Product EAF Commissioning in FY2024 Run-rate BF / EAF (EAF Phase I) EAF Only (Phase II) Shipments (kt) 3,135 3,033 2,850 2,568 2,637 694 2,435 2,458 2,502 694 2,305 2,305 612 358 2,102 322 351 526 595 304 317 309 2,001 2,077 1,988 2,136 2,151 2,041 2,043 2
Slide 46: Historical and Projected Raw Material Cost Spread
Historical and Projected Raw Material Cost Spread Realized Price Metal Spread ($/st) $618 $772 $568 $581 $962 $1,014 $997 $920 $931 $933 $931 $673 $661 $620 $554 $532 $517 Average: $482 $454 $442 $325 $275 $245 EAF US$ / ton FY2018A FY2019A FY2020A FY2021A CY2021P FY2022P FY2023P FY2024P FY2025P FY2
Slide 47: Overview of Select Cost Items
Overview of Select Cost Items Raw Material Inputs Key BF / BOF Inputs Iron Ore Met Coal Scrap Others ~1.6 tons of ore per ton of steel shipments Long-term supply contracts with US Steel and Cliffs (through 2024; price tied to iron ore and steel indexes with inflation factor) ~0.4 tons of coal per to
Slide 48: Iron Ore Supply Agreements Overview
Iron Ore Supply Agreements Overview 3.9m net tons of iron ore pellets are required to produce 2.5mm net tons of hot metal The Company currently has locked in long-term iron ore supply contracts with Cleveland-Cliffs and US Steel through to 2024 Beyond 2024 through to the start up on the EAF, Algoma
Slide 49: Historical and Projected Fixed Costs
Historical and Projected Fixed Costs Benefits of recent cost cutting initiatives are beginning to be realized DSPC, cost cutting initiatives and proposed EAF transformation are driving lower costs on an absolute basis Incremental volumes from the proposed EAF and de-bottlenecking from LMF and plate
Slide 50: Strong Medium-Term Earnings Potential
Strong Medium-Term Earnings Potential (based on CY2022P for Illustrative Purposes) (US$ millions, unless otherwise noted)$ Assumed HRC Price (US$/ton) CY2022P Sales Volume (mm ton) Metal Margin ($/ton)(1) Illustrative Spread over Raw Materials ($ mm) (-) Fixed Costs and SG&A ($ mm)(2) (-) Energy and
Slide 51: Projected Capital Expenditure Summary
Projected Capital Expenditure Summary (US$ millions, except per ton figures) Projected Capital Expenditure Breakdown to Support Proposed EAF Transformation $ CapEx / ton $23 $37 $26 $94 $146 $39 $20 $13 $13 $15 $19 $11 $375 $223 $296 $148 $102 $85 $4 $4 $49 $59 $57 $54 $57 $32 $31 $40 $45 $4 $3 $39
Slide 52: Working Capital
Working Capital (US$ in millions) Fiscal Year End Net Working Capital Accounts Payable Accounts Receivable Inventory $500 $517 $470 $436 $465 $435 $426 $405 $428 $435 $380 $396 $376 $374 $288 $374 $418 $330 $361 $345 $311 $368 $412 $360 $240 $258 $243 $218 $173 $177 $182 $168 $177 $162 $130 $129 ($9
Slide 53: Balance Sheet as of March 31, 2021
Balance Sheet as of March 31, 2021 Assets Current Cash Restricted cash Taxes receivable Accounts receivable, net Inventories, net Prepaid expenses and deposits Margin payments Other assets Total current assets Non-current Property, plant and equipment, net Intangible assets, net Parent company promi
Slide 54: Significant Tax Attributes
Significant Tax Attributes Tax Attributes as of March 31, 2021 (US$ millions) $447 25% Canada Tax Rate $112 Non-Capital Losses Available Tax Savings Potential As of March 31, 2021, Algoma has non-capital tax losses available of $447 million, which can potentially be used to reduce cash taxes paid Lo
Slide 55: Structured Pension Plan Is Contractually Funded
Structured Pension Plan Is Contractually Funded as of March 1, 2021 As of March 1st, 2021, Algoma’s funded status on its hourly and salaried plans is now expected to be greater than 85%, which would reduce Algoma’s pension funding obligations to near zero (required preparation of formal valuation to
Slide 56: Environmental Releases
Environmental Releases Main Site ASI, Holdings, New Port Sub LP and New Port Sub GP (the “Newco Group”) entered into a 21-year agreement with the Ministry of the Environment, Conservation and Parks (“MECP”) to address legacy environmental contamination at the Sault Ste Marie site (the “Site”) ASI to
Slide 57: Capital Structure Overview
Capital Structure Overview (US$ millions) Pro Forma Capital Structure(1) ABL Revolver ($250.0) Secured Term Loan(2) Algoma Docks Term Loan Facility Government Loans Total Debt Less: Cash(3) Net Debt CY2021P EBITDA Transaction Current xCY2021P Adjustment xCY2021P (3/31/21A) EBITDA (+ / -) Pro Forma E
Slide 58: Summary Projections – Forward Pricing
Summary Projections – Forward Pricing Operating Statement Period Year Period Ending HRC Price(1) Plate Price Average Realized Sales Price Shipments Plate Sheet Total Tons Shipped Revenues (ex. Freight) Raw Material Costs Energy, Fuel & Utilities Consumables and Other Variable Total Variable Costs Ma
Slide 59: Summary Projections – Forward Pricing (cont'd)
Summary Projections – Forward Pricing (cont’d) Cash Flows and Capital Structure (All figures in US$ mm) Period Year Period Ending Cash Flows EBITDA Cash Interest Carbon Tax Cash Income Tax CapEx (non- EAF) EAF CapEx Change in Working Capital Pension & OPEB Other Cash Flow Before Debt Repayment Debt
Slide 60: Supplemental Materials
Supplemental Materials ALGOMA — STEEL INC. —
Slide 61: Algoma is a Dramatically Improved Operation over the Last Years
Algoma is a Dramatically Improved Operation over the Last 5 Years Operational Improvements Capital Structure Supply of Raw Materials Pension & OPEB Liabilities Environmental Liabilities Algoma Then (circa 2015) Algoma Steel (Present) Volume constraints at LMF, DSPC and Plate Mill with limited grade
Slide 62: Historical EBITDA Reconciliation
Historical EBITDA Reconciliation C$ millions, unless noted Net Income / (Loss) Amortization of PP&E & Intangibles Finance Costs Interest on Pensions and OPEB Income Taxes Reorganization Costs Foreign Exchange Loss / (Gain) Finance Income Inventory Write-downs Carbon Tax Exceptional Items EBITDA Tari
Slide 63: Glossary
Glossary Term Basic Oxygen Furnace (BOF) Blast Furnace (BF) Cogeneration Coke Cold Rolled Sheet Continuous casting CRU Index Electric Arc Furnace (EAF) Hard coking coal (HCC) Hot Briquetted Iron (HBI) Hot Metal Definition Vessel used to convert liquid hot metal from a blast furnace into steel Metall
Slide 64: Algoma Steel Inc.
ALGOMA STEEL INC.