Algoma Steel Group Inc. is expecting an insurance settlement in the $100-million range from January's piping collapse, which halted steel production for three weeks.
"On the cash flow front, we expect to receive an advance on insurance payout directed to the utility corridor and blast furnace outage a year ago, with the balance of payout expected by year end," Rajat Marwah, the steelmaker's chief financial officer, said in a recent presentation to investors.
"We are working on some advance over the [current month] and thereafter, we expect everything to get settled during this calendar year," Marwah said.
In a report filed this month to the U.S. Securities and Exchange Commission, the company said an independent investigation uncovered "an unforeseen escalating overload condition" that caused a failure of a structural support member in the utility corridor.
In turn, this resulted in the subsequent cascading collapse of other support structures.
"The collapse disrupted the flow of coke oven gas from the batteries to the rest of the steelworks, as well as a portion of the natural gas and oxygen flow to specific facilities, most critically the blast furnace," the company reported.
"The unforeseen structural collapse did not result in any injuries, but for safety reasons, various areas near the collapse were evacuated and blast furnace
operations were suspended at the time of the incident.
"Due to the unexpected shutdown and delayed restart, the blast furnace experienced operational challenges culminating in a chilled hearth, which suspended production for a period of three weeks, during which roughly 150,000 tons of hot metal production was lost. All necessary repairs to the blast furnace have been
completed."
"Minimal production of coke resumed at all three coke oven batteries on January 23, 2024 to maintain asset integrity. When combined with inventories on hand and the availability of third party coke supplies, the company satisfied its coke requirements for normal steelmaking operations while the repairs to the utility corridor were completed.
"Reconstruction of the utility corridor and commissioning of the suction main have been completed, delivery and distribution of
byproduct gas to the steelworks has been restored, and coke production levels have stabilized at roughly 90 per cent of pre-outage volumes.
"Efforts continue to restore full operational functionality to the coke oven batteries, most notably re-conditioning ovens to restore production to greater than 90 per cent of pre-outage volumes.
"The company has standard insurance coverage that is intended to address events such as these, including business interruption and property damage
insurance.
"The company has engaged its insurers, and is in the process of submitting claims under its insurance policies for covered losses.
"Management’s current estimate for the expected combined impact of lower revenues and higher costs for the duration of the outage is in the range of C$120.0 million to C$130.0 million, which was concentrated heavily in the fourth quarter of fiscal 2024.
"This impact was driven primarily by lost shipment volume restricted by lower blast furnace production. In addition, higher production costs experienced post-chill were driven by greater reliance on purchased furnace coke and natural gas, in the absence of normal volumes of internally produced coke and byproduct gasses,
along with greater utilization of purchased slabs.
"These higher costs were mitigated in part by lower labour cost enabled by a temporary partial layoff of unionized workers. Also included in this figure is higher carbon tax expense resulting from the incident."
Algoma Steel expects the first steel production from its new electric arc furnace technology will occur in April.