This past week, Algoma Steel
laid to rest concerns that the cost of building its game-changing electric arc
furnaces might be snowballing out of control
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."