Algoma Narrows EBITDA Loss to $13.9M, EAF Unit Two Starts Steel Production

What happened

Algoma reported an adjusted EBITDA loss of $13.9 million for the quarter ended September 30, 2026, far narrower than the $87.1 million loss in the same period a year earlier, and in line with prior guidance. The improvement reflects continued execution on cost reduction and product mix shift, with the restoration of full power from the Lake Superior turbine removing a temporary operational drag. Milestone progress on the EAF transition was marked by EAF Unit Two producing its first steel, signaling that the company is closer to completing its shift away from blast furnace operations. Despite the reduced loss, Algoma remains EBITDA-negative, indicating that tariffs and market conditions still pressure profitability, and the EAF ramp-up is in early stages. The market will likely view this as a positive step, but sustained positive EBITDA and evidence of tariff mitigation remain critical for the equity to re-rate meaningfully.

Implication

Investors should treat this quarter as a positive checkpoint that validates management's cost and mix actions, but not as a definitive turnaround signal. The key question is whether the improvement stems from structural changes or temporary factors like power restoration or potential tariff relief; management's discussion of tariff expense per ton will be crucial. If tariffs have remained at 50%, then the reduced loss suggests the plate-first strategy and EAF ramp are working, supporting a higher probability of the base case ($5 value). However, with EBITDA still negative and EAF Unit Two just starting, there is a risk that further ramp-up challenges or a demand slowdown could push losses back up. Position sizing should remain cautious, with a focus on the next two quarters to see if the company can reach breakeven EBITDA and demonstrate sustainable cost advantages.

Thesis delta

The thesis improves marginally: the Q2 FY2027 EBITDA loss of $13.9 million is a substantial improvement from the prior year's $87.1 million loss, suggesting that cost and mix actions are beginning to offset tariff pressures. The first steel from EAF Unit Two and full power restoration further de-risk the transition timeline. However, the company is still not EBITDA-positive, and the lack of detail on tariff expense and the early stage of EAF ramp-up mean the core investment case—sustained positive EBITDA under tariffs—remains unproven.