Algoma Steel Group Inc. · NASDAQ:ASTL
Algoma Steel — SPAC Merger (July 2021)
66 slides from Algoma Steel's SPAC merger presentation, Jul 8, 2021
Slide 1: Proposed Transition to Making Greener Steel
Investor Presentation Proposed Transition to Making Greener Steel July 2021
Slide 2: Disclaimer (1/2)
1 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 (“E
Slide 3: Disclaimer (2/2)
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
Slide 4: Transaction Summary
3 Transaction Summary All figures used throughout the presentation are presented in US$ terms unless otherwise noted. (1) TEV includes 37.5 million earnout shares. Based on CY2021P EBITDA of US$901 million. Refer to page 4 for additional details. • Algoma Steel Inc. (“Algoma”) is a leading Canadian
Slide 5: Pro Forma Ownership and Transaction Structure
4 (1) Cash in Trust and Pro Forma Ownership reflects 23.575m Public Shares issued during Legato’s IPO. Assumes no redemptions. (2) Reflects private placement of $100 million at $10.00/share (10 million shares) to be funded concurrently with closing. (3) Transaction structure inclusive of the 37.5 mi
Slide 6: Overview of the Green Steel Funding
Overview of the Green S t eel Fu nd i n g • Algoma has secured, subject to negotiation and execution of definitive documentation, a commitment from two Canadian government entities to provide financial support for the transformative EAF investment • The commitment is expected to provide for up to C$
Slide 7: EAF Transformation Expected to Be Fully Funded Pro Forma
6 EAF Transformation Expected to Be Fully Funded Pro Forma for the Merger and Government Financing The Government commitments are expected to provide Algoma with sufficient capital to complete the EAF transformation with flexibility to deploy anticipated cash flows to value enhancing opportunities,
Slide 8: Attractive Valuation Relative to North American Steel Peers
1.9x 4.2x 3.9x 3.8x 2.8x 2.5x 7.6x 6.5x 6.5x 5.0x 5.8x 7 Source : Company filings, Bloomberg . Note : Market data as of July 2 , 2021 . Estimates based on consensus estimates . Refer to page 4 for additional details on transaction structure . ( 1 ) Pro forma TEV includes 37 . 5 million earnout share
Slide 9: Significant Anticipated 2021 Cash Flows Would Reduce TEV
$1 , 7 06 ($616) $ 1 ,090 $0 TEV as of 3/31/21 Ex p ect e d C ash F l ow (2) (ex. EAF and NWC) 3/31/21 - 12/31/21 Expected TEV as of 12/31/21 1.9x TEV / CY2021P EBITDA 1.2x 8 Source: Company information. Refer to page 4 for additional details on transaction structure. (1) TEV includes 37.5 million e
Slide 10: Algoma's Transformation
9 Algoma’s Transformation Source: Company Information. Note: All figures shown in US$, projected figures converted from CAD to USD at a 1.26 FX rate and historical figures converted at average exchange rate over the period. (1) At FY18 – FY20 average HRC price of $685/ton. (2) Based on FY18 – FY20 a
Slide 11: Key Investment Highlights
Key Investment Highlights ALGOMA — STEEL INC. —
Slide 12: Key Investment Highlights
11 Key Investment Highlights Premier Canadian Steel Producer and One of the Leading Flat Steel Producers in North America 1 Robust Steel Market Fundamentals and Favorable Long - Term Outlook Transformational Opportunity: Enhancing Profitability Throughout the Cycle and Meaningfully Improving Environ
Slide 13: Premier Canadian Steel Producer
Historical Performance (FY end March 31) $216 $473 $44 $151 FY2 0 18 A FY2 0 19 A FY2 0 20 A FY2 0 21 A (Ending 3/31/21) CY20 2 1 P (Ending 12/31/21) 2,305 2,435 2,305 2,102 2,458 FY2018A FY2019A FY2020A FY2021A (Ending 3 / 3 1 /2 1 ) CY2021P (Ending 1 2 /3 1 / 2 1 ) Leading North American Flat - Ro
Slide 14: One of the Leading Flat Steel Producers in North America
15% 15% 14% 16% 9% 8% 13 …and One of the Leading Flat Steel Producers in North America Source: Company information, Capital IQ, Bloomberg, Wall Street Research. (1) Represents CY2017 – CY2019. (2) Cleveland - Cliffs EBITDA Margin % based on Steel and Manufacturing Segment and is pro forma for the ac
Slide 15: EAF and Other Improvements to Increase EBITDA Through-the-Cycle
14 Source: Company information. Note: FYE 31 March. All figures shown in US$ and converted from CAD to USD at a 1.26 FX rate. (1) CapEx shown net of government funding support via existing government loans. $35 $25 $44 $245 $150 ($ 3 8) $460 T h r ou g h - t h e - Cycle Adj. EBITDA (FY'18 - FY'20) C
Slide 16: Roadmap to Long-Term Upside
15 Source: Company information. Note: FYE 31 March. All figures shown in US$, projected figures converted from CAD to USD at a 1 .26 FX rate and historical figures converted at average exchange rate over the period. $900 - $1,700/ton HRC assumes scrap benchmark at 42% of HRC – current scrap pricing
Slide 17: EAF Transition Would Materially Improve Environmental Footprint
16 Source: Company information. Note: All years refer to calendar year unless otherwise specified. Expected environmental benefi ts from the EAF are based on projected estimates for Algoma, using published data sources for similar technologies. (1) Based on current production versus forecasted produ
Slide 18: Material Carbon Tax Savings
17 Source: Algoma Management, Canadian Output - Based Pricing System Regulations. (1) Emissions calculated based on historical emissions Intensities and planned steel production levels. (2) Carbon Pricing Mechanics are not established beyond 2022. Assumes carbon price increases from C$40/tonne to C$
Slide 19: Strategically Located on the Great Lakes
A l go m a 18 Strategically Located on the Great Lakes in Close Proximity to Customers and Suppliers Sou rce: Co m pan y Info r m at i o n . Located on Lake Superior with access to barge, rail and road transportation, including an on - sitedeep - water port, Algoma has several options that allow for
Slide 20: Strong Steel Market Fundamentals
19 Strong Steel Market Fundamentals Source: SteelBenchmarker, CME Group, Fastmarkets. Note: Market data as of July 2, 2021. All years refer to calendar year unless otherwise specified. Historical Hot Rolled Coil Prices (US$/ton) $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 2016 2
Slide 21: Strong Steel Market Fundamentals (cont'd)
20 Strong Steel Market Fundamentals (cont’d) Note: EBITDA and $/ton figures shown in US$, figures converted from CAD to USD at a 1.26 FX rate. (1) Represents percentage of a trailing 7 - year average HRC CRU (USA Midwest Domestic HR Coil) Index, lagged one month. (2) Represents percentage of a 7 tra
Slide 22: Operations Summary and Potential EAF Transformation
Operations Summary and Potential EAF Transformation
Slide 23: Flexible, Low-Cost Operations and Recent Initiatives
22 Sou rce: Co m pan y i n for m a t i on . Not e : C u rr en t A l go m a S te el p r o cess f l ow conf i g u r at i o n . (1) Represents percentage of a trailing 7 - year average HRC CRU (USA Midwest Domestic HR Coil) Index, lagged one month. (2) Represents percentage of a 7 trailing 7 - year ave
Slide 24: Proposed EAF Investment in Algoma
23 Source: Company information. Note: CapEx and cost savings shown in US$, projected figures converted from CAD to USD at a 1.26 FX rate. (1) Government financing is subject to negotiation and execution of definitive documentation. (2) Based on 2.6 million tons of shipments (100% full capacity), $68
Slide 25: Proposed EAF Investment in Algoma (cont'd)
24 Proposed EAF Investment in Algoma (cont’d) Key Anticipated Benefits for Algoma x Adds 900kt of incremental liquid steel capacity, or ~700kt of finished steel capacity x Improves operational flexibility and value - added product mix x Drives variable cost structure that is more correlated to marke
Slide 26: Well Developed Plan to Source Key Raw Materials
25 Source: Company Information, U.S. EIA. Algoma has a Well Developed Plan to Source Key Raw Materials Phase I (Interim) Phase II (Long - Term – Timing TBD) Electricity Operating the dual EAFs in an alternating mode supplemented by BF#7 Internal power generation covers power requirements and is appr
Slide 27: Financial Overview
Financial Overview ALGOMA — STEEL INC. —
Slide 28: FY2021A to CY2021P EBITDA Bridge
27 Note: All figures shown in US$, projected figures converted from CAD to USD at a 1.26 FX rate and FY2021A figures converted at average FX rate of 1.32. (1) Historical prices based on period average. Projections based on contract book and CRU projections / Future curve for HRC. (2) $16 million of
Slide 29: Historical and Projected Steel Shipments by Product
28 (1) Represents calendar year ending December 31, 2021. (2) Represents percentage of a trailing 7 - year average HRC CRU (USA Midwest Domestic HR Coil) Index, lagged one month. (3) Represents percentage of a 7 trailing 7 - year average AS Rolled CRU Index, lagged one month. Historical and Projecte
Slide 30: Overview of Select Cost Items
29 Note: All figures in US$ unless noted and converted at CAD to USD FX rate of 1.26. (1) For financial reporting purposes, profit sharing is included within CoGS. In the financial models presented in this presentat ion, it has been held separately for comparability purposes. (2) Algoma removes the
Slide 31: Historical and Projected Fixed Costs
30 Source: Company financials. Note: Historical figures converted from CAD to USD using the average foreign exchange rate for the relevant period. Exchange rates are 1.28 for FY2018, 1.31 for FY2019, 1.33 for FY2020 and 1.32 for FY2021. (1) Represents calendar year ending December 31, 2021. Historic
Slide 32: Strong Medium-Term Earnings Potential
31 Note: Figures are illustrative and shown in US$, converted from CAD to USD at a 1.26 FX rate. (1) Illustrative metal margin is calculated as Net Sales Realization minus raw material costs. (2) Fixed Costs include Labor, property taxes, certain Consumables & Repairs, SG&A. (3) Includes outside pro
Slide 33: Projected Capital Expenditure Summary
32 Note: FYE March 31. Historical figures converted at average exchange rate over the period. Projections converted from CAD to USD at a 1.26 FX rate. Projected Capital Expenditure Summary (US$ millions, except per ton figures) Projected Capital Expenditure Breakdown to Support Proposed EAF Transfor
Slide 34: Significant Tax Attributes
33 Source: Company information. Note: All figures converted from CAD to USD at a 1.26 FX rate as of March 31, 2021. (1) $362.3 million expire in 2038, $113.1 million expire in 2039 and $86.7 million expire in 2040. Significant Tax Attributes Tax Attributes as of March 31, 2021 (US$ millions) • As of
Slide 35: Supplemental Materials
Supplemental Materials ALGOMA — STEEL INC. —
Slide 36: Numerous Near- and Medium-Term Catalysts
Numerous Near - and Medium - Term Catalysts • Highly Attractive Steel Market: Steel prices at all - time highs, with HRC reaching +$1,500/ton. Market is supported by demand from infrastructure, automotive and construction end markets with expectation for continued strength • Expected to generate $90
Slide 37: Algoma Shareholder Contingent Consideration
36 (1) Subject to the Volume Weighted Average Price (“VWAP”) of common stock exceeding the share price target for 20 consecutive trading days during the period beginning with Closing and ending with the five - year anniversary of the Closing. (2) Shares issued for EBITDA performance are not “cliff”
Slide 38: Algoma Shareholder Earnout Structure Explained
37 Note: All figures shown in US$. (1) Subject to the Volume Weighted Average Price (“VWAP”) of common stock exceeding the share price target for 20 consecutive trading days during the period beginning with Closing and ending with the five - year anniversary of the Closing. Algoma Shareholder Earnou
Slide 39: Indicative Timetable and Structural Considerations
38 (1) Anticipated dates of the stockholder vote and the close of the transaction are estimates and subject to change. Legato / Algoma SPAC Indicative Timetable and Structural Considerations Key Dates (1) Event June 21 Analyst Day Presentation July 7 Date of Filing of Preliminary Proxy Statement/Pro
Slide 40: Commitment to Sustainable Corporate Citizenship
39 Source: Company information. Algoma Remains Committed to Sustainable Corporate Citizenship Environment Community Involvement • 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
Slide 41: Health and Safety Performance
40 Source: Company information. Note: Lost Time Injury Frequency is calculated as ((Number of lost time injuries in the reporting period x 200,000) / Total hours worked in the reporting period). Continued focus and improvement in Lost Time Injury Frequency Rate (LTIFR) Strong Employee Relations and
Slide 42: Algoma Today vs. Following the Proposed EAF Investment
41 Source: Company information. (1) Excludes BF#6 which is currently idled. Comparison of Algoma Today vs. Algoma Following the Proposed EAF Investment Anticipated Benefits of an EAF x +900k tons of incremental liquid steel capacity x ~70% fewer total CO2 emissions (annual reduction of 3 million ton
Slide 43: High-Quality Products and Blue Chip Customer Base
42 Source: Company information. (1) Represents percentage of a trailing 7 - year average HRC CRU (USA Midwest Domestic HR Coil) Index, lagged one month. (2) Represents percentage of a 7 trailing 7 - year average AS Rolled CRU Index, lagged one month. High - Quality Products and Diversified Blue Chip
Slide 44: Diversified Customer Base in Attractive End Markets
Top 10 Cu sto m e rs 46% O th e r 54% 43 Source: Company information. (1) Automotive comprised of direct automotive customer sales and estimated service center sales to the automotive industry. High - Quality Products and Diversified Blue Chip Customer Base in Attractive End Markets FY2020 Product S
Slide 45: Highly Experienced Management Team
44 Source: Company information. Highly Experienced Management Team with Extensive Industry Experience Name Title Joined Algoma Years of Experience Bio Michael M c Q uade Chief Executive Officer 2019 37 • Previously served as VP, Finance and CFO of Stelco from 2007 to 2016, retiring as President in 2
Slide 46: Tariffs and U.S. Imports; Favorable Long-Term Outlook
Tariffs Have Reduced Overall U.S. Imports, while Imports from Canada have Remained Relatively Consistent ( M illi o n t ons) 5 .2 5 .1 5 .7 5 .6 5 .1 4 .8 27 .8 27 .8 32 .3 28 .1 22 .4 17 .2 33 .0 32 .9 38 .0 33 .7 27 .5 22 .0 0 .0 10 .0 20 .0 30 .0 40 .0 2015 2016 2017 US Imports (Canada) 2020 2018
Slide 47: Robust Go-To-Market Strategy for Incremental EAF Production
46 Source: Fitch Solutions, BMI, EIA, Fastmarkets, Company Information, (1) Based on forecasted Canadian light vehicle production from 2020 to 2029. North American light vehicle production over the same period forecasted to grow at 2.7% CAGR. (2) Canadian construction value - add from 2020 to 2030.
Slide 48: Operations Improved Significantly over Last 5 Years
47 Source: Company information. Note: All figures shown in US$, unless noted. Projected figures converted from CAD to USD at a 1.26 FX rate and historical figures converted at average exchange rate over the period. (1) Based on current capital structure. Excludes non - cash interest expense: unwindi
Slide 49: DSPC Line Cost Advantage
48 Source: Company information. DSPC Line Offers Estimated ~C$30 - $40/NT Structural Conversion Cost Advantage Over BOF Peers Recent Enhancements Key Highlights DSPC Complex • Algoma is the only integrated steel producer to operate a DSPC line, which converts liquid steel directly into coil – Algoma
Slide 50: Canada's Only Plate Mill
49 Source: Company information. Note: Figures in USD are converted at an exchange rate of 1.26 CAD/USD. (1) Inclusive of capital already spent on the project to date. Canada’s Only Plate Mill with Potential to Ship 700,000 NT per year Key Highlights Phase I - Quality Focus Phase II - Productivity Fo
Slide 51: Algoma's Manufacturing Capabilities
Source: Company information. Algoma’s Manufacturing Capabilities Technical specifications Age Com p eti t i ve a d v a nt a g e Highlights C oke M ak ing Facilities • Comprises 3 batteries: – #7 battery (60 ovens) – #8 battery (60 ovens) – #9 battery (57 ovens) • #7 battery: ~62 years • #8 battery:
Slide 52: Preliminary EAF Timeline and Capital Requirements
51 Source: Company information. Preliminary EAF Timeline and Capital Requirements Jan - 2024 Apr - 2024 2025 2026 Long - Term Construction Period Blast Furnace 7 (BF7) Coke Ovens 7,8,9 (CO7,8,9) Oxygen Steelmaking (BOF) Commission Ramp B F7/ B OF/CO7, 8,9 EAF 1 | EAF 2 Full Grid Power Independent Mo
Slide 53: Expected Fixed Cost Reductions and Productivity
52 Source: Company information. Note: Figures converted from CAD to USD at a 1.26 FX rate. Expected Fixed Cost Reductions Expected Productivity Improvement (Tons shipped per Employee) ~900 ~2,000 CY2 0 2 1 P Phase II EAF (Timing TBD) Fixed Costs of Manufacturing (US$mm) $213 $144 $123 $73 $337 $217
Slide 54: Scrap and Metallics Supply
53 Scrap and Metallics Supply Source: Bureau of International Recycling, Fastmarkets. North American Scrap Market • Deep market for scrap in North America with total of 116.2mm tons generated in 2020 • Canada exported total of 4.4mm tons of scrap in 2019, 3.5mm exported from Ontario alone (80% to th
Slide 55: Historical Financial Summary
54 Note: FYE March 31. US$mm figures converted from CAD to USD at the average historical FX rate of each respective financial period (FY2018: 1.28; FY2019: 1.31; FY2020: 1.33; FY2021: 1.32). Historical Financial Summary Commentary • FY2018: ▪ Average net sales realization (“NSR”) on steel sales (exc
Slide 56: Historical and Projected Raw Material Cost Spread
$620 $673 $661 $554 $532 55 Source: Company financials. Note: Historical figures converted from CAD to USD using the average foreign exchange rate for the relevant period. Exchange rates are 1.28 for FY2018, 1.31 for FY2019, and 1.33 for FY2020. Long - term realized prices and raw materials costs es
Slide 57: Iron Ore Supply Agreements
3.9 3.9 3.9 3.9 3.9 3.9 3.9 2018 2019 2020 2021 2022 2023 2024 C l if fs US Steel 56 Source: Company information Iron Ore Supply Agreements • 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 contra
Slide 58: Working Capital
57 Source: Company financials. Note: Historical figures converted from CAD to USD using the period end foreign exchange rate for the relevant period. Exchange rates are 1.31, 1.29, 1.36 and 1.33 for Q1 – Q4 of FY2019, respectively; 1.31, 1.32, 1.30 and 1.41 for Q1 – Q4 of FY2020, respectively; and 1
Slide 59: Balance Sheet as of March 31, 2021
58 Note: Figures converted at a rate of CAD 1.26 / USD $1. Balance Sheet as of March 31, 2021 Assets CAD USD Current Cash $21.2 $16.9 Restricted cash 3.9 3.1 Taxes receivable -- -- Accounts receivable, net 274.6 218.5 Inventories, net 415.3 330.5 Prepaid expenses and deposits 74.6 59.4 Margin paymen
Slide 60: Pension Plan Funding
Structured Pension Plan Is Contractually Funded as of March 1, 2021 59 Source: Company information. Estimated Solvency Funded Position by Plan (US$ millions) March 31, 2020 March 1, 2 0 21 Hourly Salaried Hourly Salaried Assets $627 $243 $973 $381 Liabilities $880 $351 $1,102 $446 Net Funded Positio
Slide 61: Environmental Releases
60 Source: Company information. Environmental Releases Main Site ASI, Holdings, New Port Sub LP and New Port Sub GP (the “Newco Group”) entered into a 21 - year agreement with the Ministry of the Environment, Conservation and Parks (“MECP”) to address legacy environmental contamination at the Sault
Slide 62: Summary Projections: Operating Statement
61 Summary Projections (Forward Pricing as of 6/17/21) Operating Statement BF / BOF T r a nsition Year BF / EAF EAF Only Period CY FY FY FY FY FY Year 2021P 2022P 2023P 2024P 2025P 2026P Timing Period Ending 12/31/2021 3/31/2022 3/31/2023 3/31/2024 3/31/2025 3/31/2026 TBD Forward Pricing Through - C
Slide 63: Summary Projections: Cash Flows and Capital Structure
62 Summary Projections (cont’d) (Forward Pricing as of 6/17/21) Cash Flows and Capital Structure (All figures in US$ mm) BF / BOF T r a nsition Year BF / EAF EAF Only Period CY FY FY FY FY FY Year 2021P 2022P 2023P 2024P 2025P 2026P Timing Period Ending 12/31/2021 3/31/2022 3/31/2023 3/31/2024 3/31/
Slide 64: Historical EBITDA Reconciliation
63 Historical EBITDA Reconciliation Source: Company information. Note: US$mm figures c onverted from CAD to USD at the average historical FX rate of each respective financial period (FY2018: 1.28; FY2019: 1.31; F Y2020: 1.33; FY2021: 1.32). 12 - month period ending March 31 of the respective year T
Slide 65: Glossary of Terms
64 Term Definition Basic Oxygen Furnace (BOF) Vessel used to convert liquid hot metal from a blast furnace into steel Blast Furnace (BF) Metallurgical furnace combining fuel, ores and flux to smelt iron ore to produce pig iron, which is fed downstream into a BOF Cogeneration Also known as combined h
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