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Steel News March 04, 2024 12:00:33 PM

How Algoma Steel De-Risked its Electric Arc Furnace Project

Paul Ploumis
ScrapMonster Author
Since then, the company has been repeatedly asked about the risk of further cost escalations.
How Algoma Steel De-Risked its Electric Arc Furnace Project

SEATTLE (Scrap Monster): Ever since the projected cost of Algoma Steel's electric arc furnace (EAF) jumped dramatically eight months ago, the investment community has pressed for assurances the price tag won't escalate further.

On the first day of the summer of 2023, the steelmaker disclosed that the game-changing construction project – already the most expensive in the city's history at its original price tag of $700 million – was expected to balloon an additional $125 million to $175 million.

Michael Garcia, Algoma's chief executive officer, attributed the price hike then to "general market pressures impacting the cost of materials, along with higher costs for skilled labour and currency fluctuations."

 Garcia said the first prices Algoma locked in were for Danieli & C. Officine Meccaniche's furnaces and Walters Group Inc.'s contract for building construction.

"At that point, it was too early in the project life to award some of the other significant packages that needed detailed engineering to be completed before those bid packages could go out and get priced by the market."

After that, bids for things like installing equipment and piping, and the fume treatment plant, started coming in higher than expected.

 "We went through the iteration with the contractors to make sure they had all the details they needed. We started thinking of how to take costs out."

"Management remains fully committed to addressing these challenges proactively to mitigate their impacts and to ensure the successful execution of the project," Garcia said.

All that was in late June of last year.

Since then, the company has been repeatedly asked about the risk of further cost escalations.

This past week, Algoma Steel signalled it has now significantly de-risked the project, holding to its eight-month-old projection of somewhere between $825 million and $875 million.

In notes prepared for a presentation to the BMO 33rd Global Metals, Mining & Critical Minerals conference in Hollywood, Florida, Garcia declared his company had "significantly de-risked critical EAF enablers including construction, electricity and metallics."

EAF steelmaking involves melting scrap metal and other metallic inputs using an electric arc. 

By installing two EAFs, Algoma Steel will no longer need its No. 7 blast furnace and coke ovens, improving product mix, reducing fixed costs, increasing production capacity and improving its environmental footprint.

The huge project is expected to eventually decrease Algoma’s carbon emissions by approximately 70 per cent.

De-risking construction

About 86 per cent of the budgeted EAF project cost had been contracted as of Dec. 31, 2023.

"The company continues to expect that the completion of the EAF project will be funded with cash-on-hand, cash generated through operations, federal strategic innovation fund and available borrowings under the company's existing undrawn and recently upsized and extended asset-based revolving credit facility," said a statement submitted to regulators.

 Courtesy: www.sootoday.com

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