Canada's Algoma Steel Slates IPO, Eyes EAF

“The proposed transaction will provide Algoma with investment capital and an enhanced capital structure to support further transformative investments,” Algoma CEO Michael McQuade said in a statement on Monday, May 24.

“We continue to evaluate our strategic options, including the potential for a substantial investment in electric arc steelmaking,” he added.

An EAF?

A switch to EAF steelmaking could reduce Algoma’s carbon footprint by approximately 70%, the company said.

“Algoma Steel is currently studying the prospect of conversion from integrated steel production to electric arc furnace steel production. It is a compelling option that we are studying alongside various other strategic opportunities,” a company spokeswoman told SMU.

Any such investment would be “substantive,” and so a final decision would be subject to additional due diligence as well as to board review and approval, she said.

Algoma makes hot-rolled coil, cold-rolled coil and plate for a range of end markets including automotive, construction, energy and defense, according to the company’s website.

The company has two blast furnaces: The No. 7 has daily capacity of 8,400 tons of iron per day. The No. 6 has daily capacity of 3,000 tons of iron per day but is idle, according to SMU’s blast furnace status table.

The Deal

Algoma is being acquired by New York-based Legato Merger Corp., a special purpose acquisition company (SPAC) created for taking the private steelmaker public.

The deal sports an approximately $1.7 billion enterprise value, or roughly 1.9 times Algoma’s aniticipated 2021 earnings before interest, taxes, depreciation and amortization. It is expected to provide Algoma with $306 million in capital.

The transaction is scheduled to close in the third quarter of 2021, pending standard regulatory approvals and closing conditions. It would result in Algoma shares being listed on the Nasdaq Stock Market in the U.S. and the Toronto Stock Exchange in Canada.

Algoma’s current management will remain in place.

“We are excited to partner with Algoma’s management team, which has an impressive track record of implementing cost savings and operational upgrades over the last few years,” Eric Rosenfeld, Legato’s Chief SPAC Officer, said in a statement.

Among those upgrades: Algoma struck an arc at its second ladle metallurgy furnace (LMF) in February, a move expected to increase capacity by approximately 100,000 tons per year.

The second LMF, officially No. 2 LMF, has annual capacity of 2.1 million tons and complements Algoma’s No.1 LMF.

Such investments, and consideration of EAF steelmaking, represent a sharp turnaround for a company that in 2015 filed for bankruptcy protection under Canada’s Companies Creditors Arrangement Act (CCAA), roughly the equivalent of Chapter 11 in the U.S. 

The Trend

An EAF at the Ontario steelmaker would also represent a turnaround – one that is happening globally as more and more integrated steelmakers weigh the costs of reliance on the carbon-intensive coking process.

Another North American steelmaker, U.S. Steel, has replaced the blast furnace at its Fairfield Works in Alabama with an EAF. It has acquired flat-rolled EAF steelmaker Big River Steel. And its mill in Košice, Slovakia, is said to be considering an EAF as Europe looks to decarbonize.

Other integrated steelmakers in Europe – Swedish steelmaker SSAB, for example – already have plans to replace their blast furnaces with EAFs.

The backdrop for such decisions: The steel industry accounts for 8% of total global CO2 emissions. And most developed countries have announced or begun implementing plans to significantly reduce carbon emissions. 

By Michael Cowden, Michael@SteelMarketUpdate.com