Algoma Steel Group Inc. (ASTL) on Q3 2022 Results - Earnings Call Transcript
Operator: Greetings. Welcome to the Algoma Steel Third Quarter 2022 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Michael Moraca, Treasurer and Investor Relations Officer. You may begin.
Michael Moraca: Good morning everyone and welcome to Algoma Steel Group Inc.'s third quarter fiscal 2022 earnings conference call. Leading today's call are Michael McQuade, our Chief Executive Officer; and Rajat Marwah, our Chief Financial Officer. As a reminder, this call is being recorded and will be made available for replay later today in the Investor section of Algoma Steel's corporate website at www.algoma.com. I would like to remind you the comments made on today's call may contain forward-looking statements within the meaning of applicable securities laws, which involve assumptions and inherent risks and uncertainties. Actual results may differ materially from statements made today. In addition, our financial statements are prepared in accordance with IFRS, which differs from U.S. GAAP and our discussion today includes references to certain non-IFRS financial measures. Last evening, we posted an earnings presentation to accompany today's prepared remarks. The slides for today's call can be found in the investor section of our corporate website. With that in mind, I would ask everyone on today's call to read the legal disclaimer on slide two of the accompanying earnings presentation, and to also refer to the risks and assumptions outlined in Algoma Steel's third quarter fiscal 2022 management's discussion and analysis. Please note that our financial statements are prepared using the U.S. dollar as our functional currency and the Canadian dollar as our presentation currency. Our fiscal year runs from April 1st to March 31st and our financial statements have been prepared for the three and nine months ended December 31st, 2021. Please note all amounts referred to on today's call are in Canadian dollars unless otherwise noted. Following our prepared remarks, we will conduct a question-and-answer session. I will now turn the call over to our Chief Executive Officer, Mike McQuade. Mike?
Michael McQuade: Thank you, Mike. Good morning. Welcome and thank you for joining Algoma's earnings call for our third fiscal quarter ended December 31st, 2021, our second quarterly earnings call since returning to public markets. I will start my comments, as always, by addressing what truly matters most to us, the safety of our employees. At Algoma Steel, we believe in safety without compromise and our continued focus has resulted in substantial improvement over the last decade in our lost-time injury frequency rate. I'm proud to say that calendar year 2021 was one of Algoma's safest years ever. Safety performance is our top priority at Algoma and I commend our entire team for their collective success and continued diligence as we relentlessly pursue our goal of achieving zero workplace injuries. Before getting into the specifics of our strong results for the quarter, I'd like to spend a few minutes discussing the remarkable transformation underway, how it positions Algoma in today's North American steel industry, and how it will shape our path forward. We are laser-focused on creating long-term value for our shareholders through a combination of prudent financial management, transformative capital investment, and safe and efficient operations of our facilities. Steel markets are cyclical and pricing can be highly volatile, as evidenced by what we have seen over the last several quarters. Prudent financial management means focusing on cash that we have, not cash that we expect to realize at some point in the future. Too much work has gone into putting us in the enviable balance sheet position we are in today. With the cash we have had on hand at the quarter end and the CAD420 million of financing commitments we obtained from the Canadian government, construction of our transformative EAF project is underway. Our primary focus is preserving our ability to bring the EAF facility into production on time and on budget, a facility which is designed to modernize and expand our steel-making capacity, while lowering our carbon intensity and enhancing long-term stakeholder value. Let me give you a quick reminder of why we are so excited about the EAF project. The project entails dual furnaces that are designed for combined annual raw steel production throughput of 3.7 million tonnes, matching our downstream finishing capacity, while lowering our carbon emissions by approximately 70% when fully operational. This level of CO2 reduction would represent 11% of the federal and 100% of the provincial 2030 targets for industrial emitters as set forth under the Paris Accord. We expect the two EAFs to come online in 2024 following a 30-month construction phase. This will be followed by a transition away from blast furnace steel production, as increased power supply becomes available from the grid with the support of the provincial government. The project will fundamentally transform who we are and how we operate, positioning the company as a next-generation steel maker, focused on sustainability and poised to be successful across all phases of the steel market cycle. Construction of the facility and bring it online over the next 30 months is expected to be achieved without disrupting production in our current facilities as we continue to safely operate in and benefit from today's favorable steel pricing environment. Later in the presentation, we will dive deeper into our capital allocation framework and how we see it evolving over time. But before that, I will pass it over to Rajat to go over the quarter's record financial results.
Rajat Marwah: Thanks Mike. Good morning and thank you for joining the call. Our fiscal third quarter results once again displayed the impressive cash generating potential of Algoma. I'll remind you again that all numbers are expressed in Canadian dollars unless otherwise noted. Our quarterly results were highlighted by net income of CAD123 million, adjusted EBITDA of CAD457 million, which reflected an adjusted EBITDA margin of 43% and cash generated from operating activities of CAD318 million that was achieved despite building traditional seasonal inventories of raw materials. We finished the quarter with CAD588 million of cash and full availability under our revolving credit facility. Furthermore, we transformed our balance sheet during the quarter by fully repaying all $358 million of outstanding senior secured long-term debt. As a result, the only remaining long-term debt on our balance sheet is in the form of government loans linked to our capital projects. Diving into the key drivers of our performance, we shipped 553,000 net tons in the quarter, down 6% sequentially, but up 1% as compared to the prior year quarter. As we previously announced, our shipments were lower than we had expected due to various issues outside of our operations, including increased holiday shutdown customers, logistical supply chain constraints, and COVID-related challenges. This resulted in an increase in steel inventory levels in the quarter that we are expected to ship in the first half of calendar 2022 and at their previously agreed upon prices. Net sales realization averaged CAD18,127 per ton, up 15% sequentially and up 161% versus the prior year period. The increase reflects the positive impact of our contract order book as higher lag prices flow through our revenue. This is altered in steel revenue of CAD1.01 billion in the quarter, up 8% sequentially and up 163% versus the same quarter of last year. On the cost side, Algoma's cost of goods sold averaged CAD946 per ton in the quarter, an increase of approximately 10% sequentially and 46% over the prior year quarter. This main driver of the increase includes commodity price increases for selected raw material prices, increased employee base profit sharing as a result of our historical performance, and higher SG&A cost related to our public listing. All-in-all, the third fiscal quarter marked our second consecutive record levels of adjusted EBITDA, historical milestone for Algoma. It was a testimony to the dedication and hard work of the entire Algoma team what we were able to accomplish in a year's time. Moving from near breakeven adjusted EBITDA levels just 12 months ago to generating over CAD1.34 billion in calendar 2021. As a result, we are pleased to announce that our Board of Directors have approved the determination of earnout adjusted EBITDA for the calendar year ended December 31st, 2021, which surpassed the required $900 million to trigger a full earnout event, resulting in the issuance of 37.5 million common shares to the eligible earnout right holders and management. We expect the non-management shares to be issued within approximately five business days. I'll now turn it back to Mike to provide further color on current market conditions and to dive deeper into our balanced and disciplined approach to capital allocation. Mike?
Michael McQuade: Thanks Rajat. Looking at the state of the North American steel market today, we are clearly seeing pricing levels off from the highs of just a few months ago. However, prices still remain historically higher than any point prior to 2021 and approximately double mid-cycle pricing. We expect pricing to find a near-term equilibrium and we remain optimistic about where that level should shake out. This is supported by the fundamentals we see in the market and in our order book. We have a diverse customer base that provides selling opportunities across Canada and the U.S. traditionally servicing as many as 150 customers in a calendar year. We strategically target a higher percentage of contract sales and currently sell approximately 65% of our steel on contract. These volume commitments provide stability to our order book and operations and the lagging price mechanics helped us move some of the volatility experienced when prices shift up or down quickly. We sell a wide range of offerings that include play products, which currently enjoy a price premium of over $685 per ton as compared to hot-rolled coil. We've always maintained that investments in our plate mill should service well, given we are Canada's only producer and heat treater of discrete plate products. Our modernization project remains on track and we recently completed the assembly of our new hot leveler and commissioned our automated 3D surface inspection unit, which is designed to further enhance our capabilities. We look forward to completing this project during the balance of calendar 2022. We have a number of reasons to be optimistic that the near and intermediate term pricing will settle at attractive levels. These potential positive factors include underlying strong demand from the automotive sector and other steel intensive industries and supply factors relating to imports. We are well-positioned to benefit from these favorable market conditions operationally, even as we execute the development and construction of the EAF project, providing a real one-two punch of long-term value creation to our shareholders. Now, let me talk a little bit more about our capital allocation policy. Our primary focus is on delivering long-term shareholder value by utilizing prudent financial discipline and operational excellence to ensure our ability to execute our EAF project, ushering in the next phase in our company's history. In the meantime, the steps we have taken to strengthen the balance sheet and to position our operations to benefit from strong market pricing have also afforded us the opportunity to initiate a $0.05 per share regular quarterly dividend. Finally, we have initiated a normal course issuer bid program that gives us the flexibility to be opportunistic and allow for the purchase of our shares in the open market from time-to-time. It's exciting to have reached a point in our history, where we can produce attractive results from existing operations, develop and build transformative new assets, initiated dividends, and considering repurchasing our shares from time-to-time, quite a change from where we were just a few short quarters ago. We will continuously reevaluate our capital allocation policy with the Board as we expect it to be a significant generator of free cash over the longer term. That being said, I will reiterate that our focus is to live within our means, not spend money we do not yet have. So, in conclusion, our fiscal third quarter included achieving a number of major milestones in our 120-year history, including our return to public markets, the retirement of our senior secured debt, the decision to proceed with our transformative EAF development project, achievement of historically strong financial results, and a continued legacy of safety for our employees. We now enter a phase centered on new project development and construction with the dual EAF facilities, a generational investment designed to forever change how steel is manufactured in Sault Ste. Marie, and that Algoma as well-capitalized and positioned to execute. Our team is focused both operationally and financially on this critical investment to make our business greener, more competitive, and more resilient. We expect this transformation will create a compelling value proposition for all of our stakeholders. Thank you very much for your continued interest in Algoma Steel. We very much look forward to what the future holds. At this point, we would be happy to take your questions. Operator, please give the instructions for the Q&A session.
Operator: At this time, we'll be conducting a question-and-answer session. Our first question is from David Gagliano with BMO Capital Markets. Please proceed with your question.
David Gagliano: Hi, good morning. Thanks for taking my questions. I'll start with the -- what is probably the obvious question. We've noticed there's no near-term outlook commentary in this earnings release presentation and in the MD&A, and in your prepared remarks this quarter. So, I was wondering if you could just provide a some thoughts around the current quarter given that we're kind of halfway there, given the lags in pricing, given the challenges on volumes and the buyer strike that we're hearing about from the distributors, can you give us a sense as to what your thinking is regarding volumes, and lagged pricing if available? Thanks.
Michael McQuade: Good morning, David. So, I want to start we are reverting to industry practices with guidance that will come later in the quarter. What we are trying to do is strive to minimize the uncertainty that the volatility of the sector brings to guidance estimates. As you point out, pricing with our lagging contracts is reasonably well understood and modeled. It's really the volume that remains a variable. And with more than half the quarter left to go and the near-term supply chain issues that are being experienced, we felt that it was imperative that our guidance be provided in a manner that it can instill confidence in what we say.
David Gagliano: Okay, so typically, seasonally this is a fairly meaningful rebound from a volume perspective. Considering these headwinds in the near-term, is it reasonable to assume that there will still be a recovery in volumes, albeit muted versus a typical recovery on a quarter-over-quarter basis?
Michael McQuade: I think that's fair. We had provided guidance around the new year that there was production that didn't make its way into the marketplace in our fiscal Q3 and it is available in subsequent quarters. Our fourth fiscal quarter, in the winter period, is typically a time when we don't take major outages. So, again, our production is reasonably high. So, we've got a couple of very positive supply side factors. It's really the demand side that's really evolving day-to-day with things like the blockades at the bridges connecting Windsor and Detroit.
David Gagliano: Okay, understood. And then just -- I'll get off this issue real quick, but one other piece to this, the amount -- can you give us a sense of the amount of volume that was kind of -- well not kind of, was deferred into this current quarter versus last quarter and when was that volume just from a timeline perspective, priced?
Rajat Marwah: Yes, David, this is Rajat. So, the volume we built of roughly around 40,000 tons in the last quarter, which will flow through in the first six months and it was priced in the previous quarter, which was December quarter. So, that's how the pricing will move into -- for those 40,000 that will be shipped.
David Gagliano: Okay, and -- okay, perfect, that’s helpful. And then just switching gears on the buyback. Obviously, you went the NCIB route, which caps the total amount of potential buybacks I think it does kind of 5%. Is there thought being given to additional repurchases as we move through the year by different routes?
Michael McQuade: So, you're absolutely right, the normal course issuer bid, the sizes is prescribed by legislation. What it does do is provide us the flexibility to use cash over the next year and that's after we've earned it and after we've protected the completion of the electric arc for buying our own stock. That investment decision and along with any others will be weighed against other available opportunities that will ultimately increase shareholder value. I'd direct you to slide number eight of our presentation. And while I'm proud of what our team has accomplished in the last three years, there's still more opportunities to put more building blocks, if you like in place, that will result in long-term sustainable value for shareholders. Investing to take further advantage of our strengths, investing in the opportunities that would be accretive to the value proposition, investing to shore up any identified weaknesses or investing to mitigate threats to our business. So, all of those investment decisions, including additional opportunities to do things with the shares will be evaluated through the lens of what creates the greatest long-term value for our shareholders.
David Gagliano: Okay. And as we've seen some other public companies with this "good problem to have" go through this process, there has been some companies that have provided ranges of sort of distribution after capital requirements, sort of a range of free cash flow targeted to be distributed to shareholders over time. If Algoma were to provide that kind of information, what would a reasonable range be for that kind of approach from our -- expectation be for Algoma?
Michael McQuade: David it's a great question and I just think it's premature at this point in time. Again, our principles are to spend cash that we have. Appreciate that you're looking for some guidance with respect to what that might -- distribution might be of that future cash. And it's really, as I say, premature given that we'll evaluate the opportunities to look through building on our strengths and dancing some opportunities, as I said. And answer the previous question, so premature to provide any kind of split in terms of cash allocation for any of those buckets until we see them. But the guiding principle will be to create long-term value for our shareholders, whichever path provides the greatest return.
David Gagliano: Okay, helpful. I clearly understand the constraints at this stage and don't shoot the messenger in terms of me asking the questions. Part of the job. In terms of the CapEx, can you give us a sense for 2022 calendar year or for the next 12 months CapEx and then also has there been any changes to the capital spending needs for the EAF project overall and/or for the plate modernization project?
Rajat Marwah: Yes, so, the CapEx other than EAF, including a plate modernization will be in the -- let's say CAD100 million, CAD120 million range. And that's pretty much in line with what we have been saying in our roadshow presentations. Our maintenance CapEx will continue to be in the CAD60 odd million range and then and then comes the plate modernization CapEx that we are spending next year. So, that will be overall. From EAF CapEx perspective and even plate mill, there is no substantial change from what we have declared in the past.
David Gagliano: Okay, last piece for me. Just to clarify the CAD100 million to CAD120 million, is that -- was that -- is that a fiscal year 2022 CapEx? Is that what that is?
Rajat Marwah: No, it will be for next year, which concludes the plate mill modernization. So, we are taking the plate mill modernization for next year. So, it will be for next fiscal let's say.
David Gagliano: Next fiscal, sorry. Got it, understood. All right. Thank you.
Operator: Our next question is from David Ocampo with Cormark Securities. Please proceed with your question.
David Ocampo: Good morning, everyone.
Michael McQuade: Good morning.
David Ocampo: I just wanted to follow-up on David's question about potential shareholder returns, but maybe approach it a different way. Is there a minimum cash balance that you guys would like to keep on your balance sheet and then we can do the modeling and figure out what the potential returns could look like?
Michael McQuade: So, David, the way I looked at it, as we approached or evaluated the December 31st, we looked at our cash balance on hand, we then looked at the requirement to complete the electric arc, factoring in the government financing that is available to us. Also took in two additional factors, a cushion that would really address the volatility that we see in the steel market. And then also looking at the volatility that occurs -- or the seasonal volatility associated with our working capital, and worked from there. So, as we go through each and every month and each and every quarter, we'll continue to evaluate what's left to spend to facilitate the electric arc implementation, see where we are in that seasonal working capital position and make sure that there is cash on hand as well that allows us to really protect ourselves through the volatility of the steel sector.
David Ocampo: No, that makes a lot of sense. And then you talked, you touched a little bit about plate prices being around CAD600 higher than sheet, with that in mind, should we think about your plate products following a similar pattern as your overall business for 65% is contracted, 35% is -- like, should we see you guys participate in the appreciation of plate prices here?
Rajat Marwah: Yes, so our contract order book for plate is a little bit different. It will be roughly 50-50 from contract versus spot perspective. So, we should see that flowing through and from monthly to quarterly, you can take high level the same split and it should flow into the books accordingly.
David Ocampo: Raj, the contracted portion of that, it doesn't follow that kind of a similar breakdown, quarterly lag, monthly lag, and then a fixed annual rate?
Rajat Marwah: Yes. And normally, those plates are not fixed price. So, it will be monthly and quarterly. So, no fixed pricing.
David Ocampo: Perfect. And then I guess with everything we're hearing with labor shortages and availability for parts, how comfortable are you guys still about 30-month construction timeline for your EAF mills? And I guess can you remind us if there's any leeway there in terms of cost overruns on the CAD700 million number?
David Ocampo: So, two parts to that question and answer is that the 30-month construction phase does have a critical path with some buffer built into it on the front end. So, we still remain confident in delivering that that project by really this second calendar quarter of 2024. And there was a significant cost buffer put into it as well. The remaining pieces that have yet to be contracted, the buffer now represents more than about 25% of the overall cost. So, we think there is sufficient lead-time buffer as well as financial buffer to bring that project in on-time and on budget at this point.
David Ocampo: Okay, perfect. That's it for me.
Michael McQuade: Thank you, David.
Operator: Our next question is from Anoop Prihar with VIII Capital. Please proceed with your question.
Anoop Prihar: Good morning. Just a couple of questions for me. First of all, given the volatility we've seen on the HRC side, I wonder if you could might give us a bit of your interpretation as to what's driving volatility and how you see that playing out over the next couple of quarters?
Michael McQuade: Morning Anoop, thanks for that question. Certainly the volatility is not new to the steel sector, it's actually self-perpetuating in many cases. Prices have had unprecedented highs or hot-rolled coil was three times or plus or minus the midpoint of the cycle. Certainly hit a peak and even today remain above the previous highs that were likely in the August of 2008, kind of, timeframe. A significant amount of the customer base and supply chain in North America are those that carry inventory and the index pricing that exists in the marketplace actually drives the pricing mechanism and the demand mechanisms. So, during periods where prices are anticipated to fall, those inventory pullback on the orders and that just perpetuates a reduced demand. So, the supply/demand gets out of balance until there's a call an equilibrium that is struck. Where that is, is really anybody's guess. I think what's more important is that we still believe that there is very, very strong fundamentals -- demand/supply fundamentals within the North American market that will support a strong steel sector for a period of time now.
Anoop Prihar: With the spread between plate and HRC being what it is right now, I guess approaching CAD700, are you seeing customers substituting outer plate in HRC? And to what extent is that even viable?
Michael McQuade: No, I think they're very -- two very distinct markets and very different applications. So, I don't see customers substituting in and out.
Anoop Prihar: Okay, all right. And in the MD&A, I noticed when you were talking about the plate mill modernization, it looks like the first phase has slipped a little bit. I mean, I think we're talking about March initially, in now we're, sort of, pushing back to May, June. Can you tell us a little bit about what's going on there in terms of that slippage?
Michael McQuade: It was a supply chain issue for some of the parts. It's also a more conducive environment from an environmental climate standpoint, I should say, here in Sault Ste. Marie, and back last fall. I wanted to make sure that we could execute -- make sure that everything was here on time. And given the market and the pricing, it made sense for us to move it by four to six weeks.
Anoop Prihar: Okay. And just last question, given your comments on increasing input costs, is it reasonable to assume that our unit costs for Q4 will be higher on a sequential basis?
Rajat Marwah: So, that -- it will not, it should start trending down and as I alluded to last time, as well, that we do see a lag on the iron ore pricing flowing through the cost, it's normally as six months lag. So, we -- with the price of iron ore dropping to below -- index dropping to below CAD100 and now coming back to CAD150, we should see that fluctuation flowing through our cost in the fourth quarter and then getting into the second calendar quarter, which is first fiscal of next year. So, we should see our cost stabilizing, trending in the right direction. There definitely is inflationary pressure on other elements of cost, whether it's alloys, whether it's gas, power, how that plays out, is to be seen, but from major raw material cost perspective, that is what we will see. The only other point I'll make, which I said last time, that coal, year-over-year, will be higher. It's around CAD100 per ton higher year-over-year, and that will flow through cost this year from April onwards when we start getting new coal supplies into Sault Ste. Marie.
Anoop Prihar: Okay. So, just so I understand some puts and takes for Q4 on a sequential basis, our costs should be coming down and moving in the right direction. Is that a fair statement?
Rajat Marwah: Yes.
Anoop Prihar: Okay, great. Thank you.
Operator: Our next question is from Kirk Ludtke with Imperial Capital. Please proceed with your question.
Kirk Ludtke: Hello, everyone. Can you hear me?
Michael McQuade: We can Kirk. Good morning.
Kirk Ludtke: Great. Well, congratulations on the quarter. Thanks for the call. Just a couple follow-ups. On the guidance, you mentioned that input costs will be coming down sequentially, that's super helpful. Thank you. And you also mentioned that pricing for the March quarter is already well known. I'm -- I just want to confirm everything else being equal, realized pricing should be up sequentially, correct?
Rajat Marwah: So, I think you should look at from the construct of pricing perspective. So, we do have the monthly -- the quarterly lagging contracts, which definitely will be up when you look at quarter-over-quarter because they are flowing from last quarter. When you go into the monthly contracts, they depend on last month's settlement. So, as price starts falling in January and into February, they will be impacting the pricing on the monthly contracts. And as far as spot is concerned, which is roughly 35% to 40% of our business, the lead-times have gone down, I mean, they are four weeks or lower mostly on the HRC front. So, that's how it will get constructed. Plate on the other hand is -- it's different, it will move in the opposite direction where the contracts will be lower than the spot and spot will be filling up at higher pricing. So, that's how it will move. So, once you do it, it will end up with the number. We are not giving any guidance as such, but that's how it will move.
Kirk Ludtke: Okay. A lot of moving pieces there. Okay, I'll try to back into something. I appreciate the color. And I just -- with respect to the EAF, that's helpful that you've got those buffers built in, is there a milestone that we should -- or the next milestone that we should have on our calendars that we should be thinking about happening at by a certain point in time in order to remain on track?
Michael McQuade: Tough question to answer. If you look at the Gantt chart, there are literally hundreds upon hundreds of line items. What we are doing is we are putting out press releases and the like when the mill major milestones are achieved. You've seen the letting of the contracts for equipment to Danieli. You've seen the transformer contracting let to PTI, GE for the upgrade of our LSP. The next thing I would anticipate would be contracts associated with the buildings, we continue to prepare the site, drive piles . So, there's no one major. If you're looking for the next one, it would be around picking our partner for the erection of the buildings.
Kirk Ludtke: Okay, when do you expect to announce that?
Michael McQuade: That will be within a week or two would be my best guess. Our guys -- procurement guys are working on it and contracts. But that would be a reasonable expectation.
Kirk Ludtke: That seems like a pretty low risk milestone.
Michael McQuade: It is with the point being though is that it's a rather significant component of the cost. And again would make the available contingency that much stronger, if you like, for the remaining parts of the construction.
Kirk Ludtke: Got it. Okay, great. I appreciate it. And then lastly, with respect to the earnout shares, I think I heard you say that 37.5 million shares will be issued in the next five days.
Rajat Marwah: Yes, it will be the portion of the non-management shares, which will be less than that 35.9 million roughly. Those shares will be issued in the next five days.
Kirk Ludtke: Fantastic. Great. And then lastly, is -- will the buyback program be in placed by then?
Rajat Marwah: Yes, it takes -- to get all the processes done with TSX, NASDAQ is not as complicated, but for TSX and stuff, it takes couple of weeks. So, we should have it done once the earnout shares are issued.
Kirk Ludtke: Okay, so it'll be in place so that you can -- whatever happens, you can respond.
Rajat Marwah: Correct.
Kirk Ludtke: Great. I appreciate. Thank you guys.
Michael McQuade: Thank you.
Rajat Marwah: Thank you.
Operator: Our next question is from David Gagliano with BMO Capital Markets. Please proceed with your question.
David Gagliano: Hi, sorry. Just a quick follow-up. You gave us the CapEx earlier on everything other than the EAF for fiscal year 2023. I think you said was CAD100 million to CAD120 million. I believe that's right. What's the expected CapEx for the EAF project in fiscal year 2023?
Rajat Marwah: It's -- I can give you a range -- a little bigger range as we are going through the process right now of getting into contracts on structural and other areas. So, on a -- let's say, on net cash outflow basis, assuming that we will get some portion of the government money in, it should be anywhere from let's say CAD160 million to CAD220 million in Canadian dollars. So, it's a bigger range that I'm giving you. But there are a lot of things that's on the go, so difficult to pinpoint, but it will be in that range.
David Gagliano: What does that CAD160 million to CAD220 million assume for the government funding portion?
Rajat Marwah: Well, this is net of it. So, this assumes that I've taken the government funding in. So the CapEx -- overall CapEx will be in the -- spending will be in the CAD300 million to CAD400 million range. And we'll get some government funding and the balance will be the cash going out of the company.
David Gagliano: Okay, and just on the government funding, and I apologize if this has already been addressed? Can you remind me again, are there any restrictions -- when you start to tap into that government funding, are there caps or any kind of restrictions regarding the capital returns to shareholders? And if so, what are they?
Michael McQuade: There are. It relates to the portion from the infrastructure bank and during -- and there are two distinct phases. During the construction phase, and this is the government looking to ensure our ability to complete the project. Capital allocations, there's a one-third claw-back on the availability. We would ultimately draw, but it becomes funds that are secured and on completion would require repayments at that point. So, consider during the construction phase one-third of distributions to effectively reduce the availability of the government financing.
David Gagliano: Okay, that's helpful. Thanks. And on this government funding, I guess, implies CAD140 million, CAD180 million or something that's been tapped into I think, based on the rough range that you gave, obviously, we don't know. But rough range -- within that mix CAD140 million, CAD180 million, is -- what's the breakdown? Is that -- like can you break down? I know, there's two buckets and is this going to come from one of the two or both the buckets or we don't know yet?
Rajat Marwah: It's a combination of both the buckets. So, that's how it is right now. And based on how the spending goes. And the other thing is on the capital allocation, if there are changes in the capital allocation as we go along, there will be changes in the money that we will be drawing from the government. So, specifically the CAD220 million as Mike mentioned on the CIB, the infrastructure bank. So, the CAD220 million are subject to claw-back or restriction. So, that is -- that will fluctuate as capital allocation plans are developed over the years.
David Gagliano: Okay, that's helpful. Thank you.
Operator: We have reached the end of the question-and-answer session and I will now turn the call over to Mike McQuade for closing remarks.
Michael McQuade: Well, listen, thanks again, for your participation in our third quarter fiscal 2022 earnings conference call and for your continued interest in Algoma Steel. We look forward to updating you on our results and progress when we report our fourth quarter results later this year. Please stay safe and we'll talk to you soon. Thank you.
Rajat Marwah: Thank you, guys.
Operator: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
