A. History and Overview Algoma, a corporation organized under the laws of the Province of British Columbia in March 2021, is the parent holding company of Algoma Steel Inc., our operating company (“Opco”). Opco was incorporated in 2016 for the purpose of purchasing substantially all of the operating assets and liabilities of Old SteelCo and its subsidiaries in connection with Old SteelCo’s restructuring under the CCAA (the “Restructuring Transaction”). The Purchase Transaction was completed on November 30, 2018. Prior to November 30, 2018, Opco had no operations, and was capitalized with one common share with a nominal value. On October 19, 2021, Algoma consummated a business combination with Legato, a special purpose acquisition company, and became a publicly traded company with its common shares and warrants trading on each of the TSX and Nasdaq. Our principal office is located at 105 West Street, Sault Ste. Marie, Ontario P6A 7B4, Canada and our telephone number is (705) 945-2351. Our website address is http://www.algoma.com. Information contained on, or accessible through, our website is not a part of this disclosure document and the inclusion of our website address in this document is an inactive textual reference. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. Algoma Steel USA Inc., located at 1209 Orange Street, Wilmington, Delaware, is the company’s agent for service of process in the United States. Algoma is a fully integrated steel producer of hot and cold rolled steel products including coiled sheet and plate. With a current liquid steel production capacity of an estimated 2.8 million tons per year, our size and diverse capabilities enable us to deliver responsive, customer-driven product solutions to direct applications in the automotive, construction, energy, defense, and manufacturing sectors. We manufacture a broad range of high-quality semi-finished and finished flat steel sheet and plate products. In 1995, approximately $450 million was invested at that time in the construction of our Direct Strip Production Complex (“DSPC”), our cornerstone asset and one of the world’s first hot strip mills coupling integrated continuous casting with hot rolling. In addition to the DSPC, our facilities include two blast furnaces, Blast Furnace No. 6 and Blast Furnace No. 7, of which Blast Furnace No. 7 is currently operating. We also operate a discrete 106 inch-wide hot strip mill and 166 inch wide plate rolling mill as a combination mill to provide us with the flexibility to adjust product mix between our many sheet and plate products to take advantage of changes in market demand and pricing, thus allowing us to optimize our margins. Our idled Blast Furnace No. 6 provides redundancy and incremental flexibility to our operating platform, allowing for the management of any future re-lines for Blast Furnace No. 7, and could quickly add cost effective capacity with limited additional capital outlays. We believe a restart of Blast Furnace No. 6 could be achieved within approximately six months, for an estimated C$60 million investment. Our coil sheet steel products include a wide variety of widths, gauges and grades, and are available in unprocessed form as well as with value-added temper processing for hot rolled coil (“HRC”), annealed and full hard cold-rolled coil (“CRC”), hot-rolled pickled and oiled products, floor plate and cut-to-length products. Primary end-users of our sheet products include service centers and automotive, manufacturing, construction, and tubular industries. Sheet steel products have represented approximately 88% of our total steel shipment volumes, on average, in our fiscal year ended March 31, 2022. 41 Table of Contents Our plate steel products consist of various carbon-manganese, high-strength and low-alloy grades, and are sold in the as-rolled condition as well as subsequent value-added heat-treated conditions. The primary end-user of our plate products is the fabrication industry, which uses our plate products in the manufacture or construction of railcars, buildings, bridges, off-highway equipment, storage tanks, ships, military applications, large diameter pipelines and power generation equipment. Plate steel products have represented approximately 12% of our total steel shipment volumes in the fiscal year ended March 31, 2022. We sell our finished products to a geographically diverse customer base across North America. For fiscal year ended March 31, 2022, our shipment volume by product category, geography and end markets were as follows: FY2022 Product Shipment Mix FY2022 Geographic Shipments FY2022 End Market Volume Product Volume Country Volume Segment FY22 FY21 FY20 Hot Roll 80% United States 60% Auto 38% 31% 28% Cold Roll 8% Canada 37% Manufacturing and Construction 32% 30% 28% Plate 12% Mexico 3% Tubular 7% 9% 9% Distribution 23% 30% 35% Total 100% 100% 100% Source: Company information. Automotive comprised of direct automotive customer sales and estimated service center sales to the automotive industry. Competitive Cost Position We believe we have a competitive cost position in hot rolled coil as a result of our cost-efficient DSPC asset, our geographic location on the Great Lakes, which provides economical access to key raw materials and steel-consuming markets, and our strong track record of implementing improvements in conversion costs. Moreover, in connection with the purchase of substantially all of the operating assets and some of the liabilities of Old Steelco and its affiliates, Algoma re-established ownership control of the port of Algoma as a means to receive critical inbound raw materials and facilitate outbound shipment of finished goods. Our on-site port facilities enable access to low-cost water transportation across the Great Lakes. 42 Table of Contents Additionally, Algoma has an advantage in power sourcing through an on-site low-cost co-generation (“Co-Gen”) power generation facility. The nominally rated 70MW Co-Gen facility in operation on site is fueled by blast furnace and coke oven gases from the steelworks for purposes of generating electricity and process steam. The Co-Gen facility provides on average approximately 49% of our power needs at favorable prices, reducing reliance on the Ontario power grid. Unique Production Process Supports Superior Cost Position Among North American Steel Producers As mentioned above, we are the only integrated steel producer in North America to operate a DSPC hot strip mill coupling integrated continuous casting with hot rolling directly into coil. The DSPC line is among the newest, continuous thin slab casters in North America. We believe that this process provides us with a cost advantage over the traditional integrated hot rolling manufacturing process. Current annualized production capacity of the DSPC complex is 2.3 million tons. Algoma is also the only discrete plate producer in Canada, with current capacity of 350,000-400,000 tons per year with the potential to increase capacity to 700,000 tons per year upon completion of our plate modernization program to debottleneck, and further automate production. Blast Furnace No.6, with current capacity of approximately 900,000 tons of liquid iron, provides Algoma flexibility to manage any future re-lines for Blast Furnace No.7, as well as respond to shortages in prime scrap availability once the EAF transformation is complete. We believe Blast Furnace No.6 can be re-started in approximately six months for an estimated C$60 million investment. Strong Government and Local Community Support We are the largest employer in Sault Ste. Marie, Ontario. As of March 31, 2022, the Company had 2,734 full-time employees, of which approximately 95% are represented by two locals of the united Steelworkers Unions (“USW”) under two collective bargaining agreements. As a result of the Company’s good relationship with its unionized workforce, there has not been a work disruption in approximately 30 years, and we have achieved contract terms that are competitive to those achieved by our peers. We believe the Company is critical to the local economy and has strong relationships with local, provincial and federal governments. Algoma’s economic activities represent approximately 40% of Sault Ste. Marie’s Gross Domestic Product (“GDP”), and approximately 70% of the city’s population is directly or indirectly economically dependent upon Algoma. Furthermore, completion of the plate modernization program at Algoma’s discrete plate manufacturing process may significantly reduce Canada’s reliance on plate imports and positively impact the country’s trade balance in plate products. 43 Table of Contents As a result of Algoma’s significant contribution to the Canadian steel making industry, we benefit from strong federal and provincial government support in various forms. For example, to support political policies of the government of Canada and Ontario, the company has received financial support in the form of competitive low-interest loans and some grants, which enabled us to undertake various capital expenditures to reinvest in Algoma. The Ontario government also enacted various regulations pertaining to pensions, including the 2018 Pension Regulations, to facilitate our acquisition of substantially all of the assets and liabilities of Old Steelco in November 2018, including the DB Pension Plans and the Wrap Plan that was maintained by Old Steelco. Among other things, the 2018 Pension Regulations capped our special pension contributions (comprising cash funding in addition to the current service funding) to the DB Pension Plans at C$31 million per year. As of March 1, 2021, the Company achieved a solvency funded status on its Hourly Plan and Salaried Plan greater than 85%, which substantially reduced the Company’s obligation with respect to special pension contributions to the DB Pension plan and also made the DB Pension plan eligible for traditional guarantees provided by the Pension Benefits Guarantee fund (“PBGF”) which provides protection, subject to specific maximums and specific exclusions, to Ontario members and beneficiaries of privately sponsored single-employer defined benefit pension plans in the event of plan sponsor insolvency. On July 5, 2021, we announced our potential to become the “greenest” flat-rolled steel producer in Canada with the Government of Canada’s commitment of up to $420 million in financial support for major greenhouse gas reduction projects such as our conversion to electric arc steelmaking. Strategic Initiatives to Further Strengthen Our Cost Position Cost Saving Initiatives. Algoma’s continuous improvement program produced C$24 million of net year-over-year benefit in fiscal year ended March 31, 2022, encompassing quality enhancements, cost reductions, efficiency upgrades, and including a one-time working capital reduction of C$3 million. Plate Mill Modernization. The Company has undertaken a two-phase plate mill modernization project (PMM Project) with final completion in November 2022, and plans to invest a total of approximately C$120 million, which will be partly funded by government loan facilities totaling approximately C$50 million. This strategic initiative will enhance the capacity and quality of the Company’s plate product line, which is a differentiated product capability and a key source of competitive advantage. The PMM Project will allow the Company to satisfy higher product quality requirements of its customers with respect to surface and flatness, increase high strength capability with availability of new grades, ensure reliability of plate production with direct ship capability and increase overall plate shipment capacity through debottlenecking and automation. The modernization process will be comprised of two phases: quality focus and productivity focus. The first phase focuses on quality, is expected to be completed by May/June 2022, and includes the installation and commissioning upgrades of a new primary slab de-scaler (to improve surface quality), automated surface inspection system (to detect and map surface quality), an in-line hot leveler (to improves flatness), and automation of the 166 inch plate mill (which expands the Company’s grade offering). The second phase focuses on productivity, and is expected to be completed by November/December 2022; and includes installation and commissioning upgrades of onboard descaling systems for the 2Hi and 4Hi roughing roll stands, mill alignment and work roll offset at the 4Hi, 4Hi DC drive, new cooling beds coupling the plate mill and shear line, dividing shear, plate piler and automated marking machine . 44 Table of Contents Well Positioned with Historical Issues Addressed We experienced an unplanned outage in April 2019 that disrupted production in our Blast Furnace No. 7. This outage had no impact on the integrity of the furnace, however the resulting lost production led to a shipping volume reduction in fiscal year 2020 of over 100,000 tons. During April 2019, the Company recorded a capacity utilization adjustment of C$32.7 million to cost of steel products sold. Planned maintenance, originally scheduled for later in the year, was accelerated and performed during this outage in April 2019. Rescheduling maintenance to align with the unplanned outage was part of the plan management implemented to make up for the lost production in the remaining quarters of fiscal year 2020. The outage, caused by a chemistry imbalance of certain materials, resulted from a poor and unforgiving construct of the blend of raw materials fed into the blast furnace. Operating parameters have been tightened and systems have been put in place to improve the overall monitoring of the Blast Furnace. We have modified operating practices following a deep-dive investigation with assistance from Hatch, our consulting engineering firm, undertook process control measures and personnel changes as well as adopted predictive modeling to ensure far greater control and less risk in our future operations. Quarterly Shipment Volume Our Competitive Strengths Strategically Located on the Great Lakes in Close Proximity to Customers and Suppliers We are strategically located on Lake Superior with close proximity to key steel consuming regions of the United States (the U.S. Mid-West, U.S. Northeast) and Canada (Southern Ontario), allowing us to serve our customers at competitive costs. Approximately 70% of our customers are located within a 500-mile radius of our facility. 45 Table of Contents Additionally, our location on the Great Lakes provides access to multiple modes of transportation, supporting our ability to negotiate competitive rates for inbound raw materials and outbound steel products. The Company’s acquisition of the adjacent port facility as part of the Restructuring Transaction – the fourth largest port on the Great Lakes by volume, handling nearly 500 vessels a year and over 5 million tons of shipments – facilitated access to low cost transportation across the Great Lakes and secures our distribution network. Algoma has the option to pursue rail transportation from certain iron ore mines via well-established rail links, facilitating access to ore through the winter months when transport over the Great Lakes is less feasible. We sell steel products to a diverse base of over 200 customers across multiple sectors in North America with no single customer accounting for greater than 11% of revenues. Our top ten customers accounted for approximately 49% of total revenue in fiscal year 2022. Our geographic, sector and customer diversity makes us less exposed to demand shifts. We have built strong customer relationships, with the average tenure for Algoma’s top ten customers being between 20 and 25 years. Despite the U.S. tariffs imposed on Canadian steel producers on June 1, 2018, the Company was able to maintain its geographic mix with 63% of fiscal year 2022 revenue generated by our customers in the United States. Operations to Meet the Needs of a Diversified Blue-Chip Customer Base in Attractive End Markets Our hot strip and plate rolling mills provide the flexibility to adjust our product mix within our existing asset base to align with market pricing and customer demand, and maximize profitability. Plate products accounted for 12% of shipments, hot rolled sheet for 80% and Cold Rolled Sheet for 8% for fiscal year 2022. Additionally, flexible union labor contracts allow us to optimize manpower allocation across the entire facility to meet variations in demand. Our product width, gauge and strength flexibility allows us to serve a broad customer base across various end markets, including service centers, automotive, manufacturing, construction and tubular markets. Furthermore, our research and development investments support higher quality, lower cost products and drive a value proposition for customers. Product Attributes End Markets Width Range Gauge Range Hot Rolled Coil ✓ High strength formable hot rolled grades ✓ Broad width and strength capabilities • Automotive Hollow structural product and welded pipe manufacturers • Transportation Light manufacturing 106”Strip Mill 30”-96” DSPC 32”-63” 106”Strip Mill 0.070”-0.500” DSPC 0.060”-0.625” Cold Rolled Coil ✓ Commercial grades ✓ High strength formable cold roll grades ✓ Full hard grades (not annealed) • Automotive Welded pipe manufacturers • Transportation • Light manufacturing 36”-74” 0.015”-0.129” Plate ✓ High strength, low-alloy grades ✓ Abrasion resistant and heat treat grades ✓ Only producer in Canada • Fabrication industry- constructors or manufactures of railcars, buildings, bridges off-highway equipment, etc. 72”-154” 0.236”-4.500” Source: Company information. 46 Table of Contents Low Cost Position Underpinned by Advantageous Raw Material Contracts Algoma’s largest input cost in the steel-making process is iron ore, which we purchase under seprate supply contracts with Cliffs and U.S. Steel. Multi-sourcing iron ore further improves stability in our raw material procurement, and we believe that having a second competitive supply arrangement for this critical raw material will help mitigate our supply risks for iron ore. Taken together, Algoma’s agreements with Cliffs and U.S. Steel provide for the supply of iron ore pellets through the close of the 2024 shipping season. Flexible Cost Structure Positions Algoma to Generate Cash Flow Through-the-Cycle The combination of a flexible cost structure and the ongoing reduction in fixed costs positions Algoma to potentially generate positive cashflow through the steel economic cycle, including at HRC prices significantly lower than in the current pricing environment. Legacy Liabilities Sustainably De-Risked from CCAA Process On November 9, 2015, Algoma’s predecessor, Old Steelco, filed for creditor protection in Canada under the CCAA and in the United States under chapter 15 of title 11 of the United States Bankruptcy Code. On November 30, 2018, pursuant to the Restructuring Transaction approved by the court in the CCAA proceedings, Opco completed the purchase of substantially all of the operating assets and some of the liabilities of Old Steelco and its affiliates. As part of the CCAA restructuring, Algoma achieved transformational improvements in its capital structure, pension funding obligations and environmental liabilities. Algoma emerged as a more resilient company with a strong balance sheet and stable operating profits. As part of the Restructuring Transaction, Algoma assumed the following pension plans that had been registered under the Ontario Pension Benefits Act (the “Act”) and sponsored by Old Steelco: • Pension Plan for Hourly Employees, registered under the Act as number 1079904 (the “Hourly Plan”); and • Pension Plan for Salaried Employees, registered under the Act as number 1079896 (the “Salaried Plan” (together with the Hourly Plan, the “Pension Plans”); Algoma became the successor employer and sponsor of the Pension Plans on the transaction completion date as part of the Restructuring Transaction. The Restructuring Transaction was subject to a number of conditions, including enactment of special regulations under the Act with respect to the contributions of Algoma to the Pension Plans and applicable exemptions under the Act, and the replacement of the expired collective agreements with new collective agreements ratified by the membership and effective on the Restructuring Transaction completion date. 47 Table of Contents As a result of the 2018 Pension Regulations implemented in connection with the Restructuring Transaction, the aggregate going concern and solvency special payments to the DB Pension Plans were approximately C$31 million per annum until the solvency ratio of each of the DB Pension Plans achieved at least 85%. As of March 1, 2021, both DB Pension Plans obtained an 85% solvency ratio, which reduced the Company’s obligation with respect to special pension contributions to the DB Pension plan to near zero and also triggers the guarantees provided by the PBGF. If the Company is required to make annual special payments to the DB Pension Plans in the future, these payments would remain subject to a C$31 million annual cap. Since the DB Pension Plan achieved an 85% solvency ratio, the DB Pension Plans are eligible to participate in the PBGF. The Wrap Regulations implemented by the province in 2019 to provide a funding framework for the Wrap Plan require the Company to make monthly contributions to the Wrap Plan equal to the lesser of C$416,667 and the amount of the prior month’s benefit payments until the Wrap Plan’s solvency ratio is 100%. This funding requirement supersedes the normal funding requirements under applicable law. The revised funding framework implemented in connection with the Company’s assumption of the pension plans provided significant funding relief in respect of historical pension obligations and established maximum annual contributions that provide enhanced certainty and reduced risk for the Company. Lower equity values have no impact on benefit payments. Our current Collective Bargaining agreements include annual indexation adjustments, which are tied to the Consumer Price Index and are capped at 3%. Our Collective Bargaining agreements expire on July 31, 2022. Future indexation adjustments would need to be bargained. In connection with the Restructuring Transaction, Algoma also entered into an agreement (the “Framework Agreement Concerning Environmental Issues”, or “LEAP”) with the Province of Ontario, as represented by the Minister of the Environment, Conservation and Parks (“MECP”) which addresses legacy environmental issues on Algoma’s main site in Sault Ste. Marie. The MECP provided a release in favor of the Company from any obligations under applicable environmental laws relating to legacy environmental issues at the Company’s Sault Ste. Marie site with respect to the historical soil, groundwater and sediment contamination at the Sault Ste. Marie facility. Steel making activities have occurred on Algoma’s site since 1901 and before the adoption of modern environmental best practices. Pursuant to the LEAP, Algoma agreed to fund C$3.8 million per year for 20 years to a financial assurance fund, established to fund expenses relating to approved legacy environmental remediation and other projects, and provided a C$10 million letter of credit to the MECP to provide financial assurance for these obligations. In exchange, Algoma was released from all legacy environmental issues with respect to the historical soil, groundwater and sediment contamination at Old Steelco’s closed iron ore mines, which we did not acquire in connection with the Restructuring Transaction. Algoma agreed, among other things, to pay C$10 million to the Ministry of Energy, Northern Development and Mines (the “ENDM”) in installments of C$250,000 semi-annually to be used to rehabilitate the closed iron ore mines and provide a C$3.5 million letter of credit to the ENDM to provide financial assurance for these obligations. 48 Table of Contents Experienced Management Team with Extensive Industry Experience We have an experienced management team with significant operating experience in the global steel industry. Our executives collectively have almost 200 years of steel industry experience. Under the leadership of our current management team, we have made significant capital expenditures and have achieved significant operating performance improvements by employing benchmarking and implementing industry best practices. In addition, our management team has successfully steered our business, even during the turbulent times of the U.S. steel tariffs and the COVID-19 pandemic that significantly disrupted the entire industry. Our management achieved higher capacity utilization rates as compared to our North American peers, significantly strengthened our raw material supply position and took measures to improve the stability of future profits. Furthermore, we maintain a strong relationship with our skilled unionized workforce, as evidenced by the near 30-year period since our last work disruption. We benefit from favorable collective bargaining agreements that allow us flexibility to adapt to changes in operational and production needs . Products Sheet Steel : Our flat/sheet steel products include a wide variety of widths, gauges, and grades, and are available unprocessed and with value-added processing such as temper rolling, cold rolled in both full-hard and annealed, hot-rolled pickled and oiled products, floor plate and cut-to-length products. The primary end-users of our flat/sheet products are the automotive industry, hollow structural product manufacturers and the light manufacturing and transportation industries. For the last five years, sheet steel products have represented approximately 85% of our total steel shipment volumes. Over the same period, value-added applications represented approximately 45% of total steel volume. Plate Steel : Our plate steel products consist of various carbon-manganese, high-strength, low-alloy grades that are produced in as-rolled, hot-rolled and heat-treated. The primary end-user market of our plate products is the fabrication industry, which uses our plate products in the construction or manufacture of railcars, buildings, bridges, off-highway equipment, storage tanks, ships, armored products for military applications, large diameter pipelines and wind energy generation equipment. For the last five years, plate steel products have represented approximately 15% of our total steel shipment volumes. Sales by Major Product Lines Total sales, accounted for by each of our major product lines for the periods indicated below, were as follows: Twelve Months Ended March 31, 2022 Twelve Months Ended March 31, 2021 Twelve Months Ended March 31, 2020 (in millions) Sheet & Strip C$ 3083.1 C$ 1,340.4 C$ 1,417.8 Plate 465.7 274.7 324.8 Freight 172.9 150.4 175.1 Non-steel sales 84.3 29.4 39.2 Total C$ 3806 C$ 1,794.9 C$ 1,956.9 49 Table of Contents Sales and Marketing The principal markets for our products are steel service centers, the automotive industry, manufacturing and construction. We market our sheet and plate products direct to end-users and also through distributors in Canada and the United States. We are focused on leveraging various competitive attributes of our process and product technologies to improve market and customer segmentation. We pursue the development of applications and markets for our high strength and light gauge products to respond to application design factors. We are also focused on increasing the Company’s product portfolio to include more value-added products. As part of our strategy to increase direct sales to end users of plate products, we have reduced the percentage of products sold through service centers. However, due to the nature of the market and the customers for such products, we continue to sell through service centers. The Company pursues a diversified market and customer strategy to manage earnings volatility in the North American steel market. It is critical that a North American steel producer provide products to customers in all sectors of the economy given the industry dynamics, strong competition and global overcapacity. Focusing on more than one commodity to one sector is key to ensuring earnings stability through the business cycle and achieving greater stability in economic downturns. The Company believes it has strong customer loyalty which helps it to manage through the volatility of the steel pricing cycle. The distribution of total steel shipments by principal markets for the periods indicated below, was as follows: Total North American Finished Steel Shipments by Major Markets April 1, 2021 to March 31, 2022 April 1, 2020 to March 31, 2021 April 1, 2019 to March 31, 2020 Tons (in thousands) % Tons (in thousands) % Tons (in thousands) % Steel service center 528,000 23 631,000 30 809,000 35 Automotive (direct and indirect) 873,000 38 652,000 31 647,000 28 Manufacturing & Construction 735,000 32 630,000 30 647,000 28 Tubular and other 161,000 7 189,000 9 208,000 9 Total 2,297,000 100 2,102,000 100 2,311,000 100 Competition There has been a substantial increase in global steel capacity, particularly in China, which has become the largest producer and consumer of steel in the world. 50 Table of Contents A significant slowdown in domestic Chinese growth and/or increases in capacity that exceed consumption rates in China could result in surplus steel being exported to world markets. In addition, an economic downturn that affects demand for our products or an increase in the strength of the U.S. dollar or Canadian dollar relative to other currencies could increase imports. It is, therefore, possible that more unfairly priced imports could enter the North American markets at a future date, which could result in domestic price erosion, which would adversely affect our ability to compete, or generate revenue and reduce profitability. We compete with numerous foreign and domestic steel producers, primarily from integrated producers, like ourselves, as well as EAF producers. We primarily compete with other steel producers based on the delivered price of finished steel products to customers. EAF producers typically require lower capital expenditures for construction and maintenance of facilities, and may have lower total employment costs. However, these competitive advantages may be reduced or eliminated when scrap prices are high. Although freight costs for steel can often make it uneconomic for distant steel producers to compete with us, to the extent that they have lower cost of sales resulting from lower labor, raw material or energy costs or from government subsidies, they may be able to successfully compete. Although we are continually striving to improve our operating costs, we may not be successful in achieving labor, raw material and energy cost improvements or gaining operating efficiencies that may be necessary to remain competitive on a global scale. Our competitive position is positively affected by lower incoming raw material transportation costs as well as lower marine outbound costs of finished products than those of other Canadian producers. Our position on the Great Lakes provides us with access to lower cost modes of transportation for our inbound raw materials and outbound steel products. Approximately 70% of our customers are located within a 500-mile radius of our facility in key steel consuming regions of the Midwest and Northeast United States and southern Ontario, allowing us to service our customers at competitive costs. In accordance with common industry practice, we may from time to time assume additional shipping costs when selling outside of our local geographic area in order to provide competitive pricing. Trade Our business has historically been affected by “dumping” – the selling of steel into Canadian or U.S. markets at prices below cost or below the price prevailing in a foreign company’s domestic market. Dumping may result in injury to steel producers in Canada or the U.S. in the form of suppressed prices, lost sales, lower profits and reductions in production, employment levels and the ability to raise capital. Some foreign steel producers are owned, controlled or subsidized by foreign governments. Decisions by these foreign producers to continue production at marginal facilities may be influenced to a greater degree by political and economic policy considerations than by prevailing market conditions and may further contribute to excess global capacity. Successful industry trade cases over the past several years have had an impact on import levels as well. The new United States-Mexico-Canada (USMCA) trade agreement went into effect in July 2020. The agreement has several provisions that we believe will benefit the steel industry, including requiring that higher levels of a vehicle’s content, including steel, be produced in North America for a vehicle to qualify for zero tariffs, and that 70% of the steel used in vehicles be melted and poured in North America. There are also provisions addressing currency manipulation and state-owned enterprises. 51 Table of Contents Although trade legislation to limit dumping has had some success, it may be inadequate to prevent future unfair import pricing practices which individually or collectively could materially adversely affect our business. If Canadian or U.S. trade laws are weakened, an increase in the market share of imports into the U.S. and Canada may occur, which would have a material adverse effect on our business and financial performance. There remains in place anti-dumping findings covering imports of (i) hot rolled sheet into Canada from Brazil, China and India and into the United States from Russia, China, India, Indonesia, Taiwan, Thailand, Ukraine, Australia, Japan, South Korea, Netherlands, Turkey and United Kingdom, among other countries, (ii) cold rolled sheet into Canada from China, South Korea and Vietnam and into the United States from Brazil, China, India, Japan, South Korea and United Kingdom, and (iii) hot rolled plate into Canada from China, Ukraine, Bulgaria, Czech Republic, Romania, South Korea, Italy, Brazil, Japan, Denmark, Indonesia, Taiwan and Germany and into the United States from China, Russia, Ukraine, India, Indonesia, South Korea, Austria, Belgium, Brazil, France, Germany, Italy, Japan, South Africa, Taiwan, and Turkey. New trade cases in other jurisdictions are being considered to cover such exports. This and the potential for such exports to continue to displace hot rolled sheet product exports from other countries in markets worldwide may result in large quantities of hot rolled sheet products being exported into Canada and United States. The Company will continue to monitor imports of competing steel products into its customer markets and take appropriate action, including filing complaints, where such actions are warranted. Information systems Our information technology landscape supports a high level of business automation across three distinct segments of business processes: management decision systems, manufacturing execution/scheduling systems and process control systems. Our management decision systems, including the full order-to-cash cycle, are running on the SAP (Windows/Oracle) platform. Our manufacturing execution/scheduling systems run on the IBM mainframe environment. Our process control systems run on Windows, Vax, and Honeywell environments. Our infrastructure includes a LAN/WAN data network, desk/mobile phone services, approximately 100 servers, approximately 1400 PCs and two main datacenters (SAP at the Sault Ste. Marie, ON and Mainframe at Markham, ON). Daily incremental and full back-ups to disk and tape, including offsite replication and storage, are created for disaster recovery purposes. Enterprise risk management The Company employs an enterprise risk management (“ERM”) process to coordinate risk management among departments to manage the organization’s full range of risks as a whole. ERM offers a framework for effectively managing uncertainty, responding to risk and harnessing opportunities as they arise. A comprehensive ERM framework consolidates and improves risk reporting to identify key risks that may affect the Company, quantify and manage them better, and implement the proper controls to eliminate or reduce the threat. Algoma employs an enterprise risk management (ERM) program that proactively identifies and manages strategic risks to the organization. ERM follows a very distinct and ongoing process, where it actively identifies and reassesses the various strategic and major risks to ensure financial security for our business. The framework leverages systemization of the risk registers for prioritization and tracking; and applying effective mitigation strategies to manage risks. The ERM program extends its reach to evaluate strategic decisions and plans for the organization, as well as developing a risk culture to ensure longevity and sustainability of Algoma’s competitiveness. 52 Table of Contents B. Growth Strategies Our key strategic goals are to apply a forward-looking value-focused lens on growth, increasing our participation in key sustainable markets, generating a competitive return on capital, and meeting our financial and other obligations for all stakeholders. We are committed to improving our quality, cost competitiveness and customer service; and developing a diverse organization to support our long term success, while maintaining safety excellence and environmental stewardship as key performance objectives. Continuous Margin Stability Enhancement and Cost Improvement . We are striving to continue reducing our costs and improving our operating performance. Cost improvements include maintenance effectiveness, operations reliability, operational cost reductions, workforce effectiveness, power efficiency improvements, process yield improvements, improvements in product quality and optimization of gas usage. Additionally, we are constantly striving to improve the stability of our revenue by increasing the share of contracted revenue above 65% while maintaining the ability to participate in increasing prices through flexible pricing mechanisms. The majority of our contracts are volume commitments with pricing tied to HRC and HRP CRU indexes on a one- and three-month lag basis. This results in exceptionally high correlation with the HRC and HRC CRU indexes on a one month lagging basis. Furthermore, the time lag allows Algoma’s management to plan effectively and design solutions to navigate uncertain times. We expect that our transformation to EAF steelmaking will assist in reducing our costs and improving our operating performance. Fully commissioned, the EAF mill is expected to improve Adjusted EBITDA with a lower conversion cost. We believe that the EAF steelmaking facility has the potential to increase our liquid steel capacity by 900,000 tons per year, which will provide us with the ability to pursue a higher value-add product mix with a more flexible operating footprint. Capitalize on Low Cost Growth Opportunities . Our goal is to continue enhancing our productivity and profitability through prudent capital investment projects, including our ladle metallurgy furnace No. 2 (“LMF2”) debottlenecking our process flow and the added capacity from the plate mill modernization Maintaining a Prudent Financial Policy . We are committed to creating a strong financial profile for Algoma. Our management is focused on generating disciplined growth while maintaining a strong credit profile, eliminating net long term debt while enhancing liquidity. We will continue to seek to de-lever the balance sheet while maintaining adequate liquidity throughout the seasonality in our business cycle. Algoma utilizes hedging for both revenue and raw materials to further enhance earnings stability. Focus on Safety and Environmental Compliance . Management is focused on sustainable and safe operations by engaging in projects to improve safety, including machinery and crane guarding upgrades and coke battery door and jamb cleaners. Since fiscal year 2015, we have reduced our lost time injury frequency (measured over 200,000 hours (“LTIFR”) from an occurrence of 0.72 to approximately 0.08 in fiscal year 2022. Health and safety remains paramount and to further the Company’s efforts to improve, we are implementing an ISO 45001 Safety Management System. 53 Table of Contents We are committed to being good environmental stewards and encourage open communication and reporting to our communities with regard to our environmental performance. Through our participation in the Canadian Steel Producers Association, we have committed to pursue the aspirational goal of carbon neutrality by 2050. We continue to evaluate strategies to both meet this goal and maintain our competitiveness, including through the modernization of our existing facilities and/or the adoption of other technologies such as less carbon-intensive iron making or EAF steel-making. We estimate that the transition to EAF steelmaking would result in a reduction of 3.0 million tonnes of CO2 emissions per year, representing a 70% reduction to current emissions levels with a goal of eliminating all coal use in our steelmaking operations over time, which we believe will allow us to become one of the greenest producers in North America and reduce the potential impact of the Canadian carbon tax regime on our business. All of our facilities are registered to the world-wide ISO 14001 Environmental Management System Standard. We are supporting open dialogue on environmental issues with the community by establishing community outreach and ensuring frequent reporting on our environmental performance. For example, Algoma has established a Community Liaison Committee as a forum for exchanging relevant environmental information with the public, conducting meetings on monthly basis and publishing meeting notes on our website. The Company instituted an environmental community liaison committee (“CLC”) to solicit representation from community organizations, agencies or public bodies, with the objectives to keep the local community informed about the operations of the facility in relation to the requirements of the environmental approvals in effect, and to keep the Company informed of any community concerns about the operations of the facility. The CLC also serves as a forum for dissemination, review and exchange of information related to the environmental impact of the facility. In order to ensure the objectives of the CLC are met, the Company provides information to the members as necessary on an ongoing basis. Sources and Availability of Raw Materials Steel production requires the use of large volumes of bulk raw materials and energy, in particular iron ore and coal, as well as energy, alloys, scrap, oxygen, natural gas, electricity and other inputs, the prices of which can be subject to significant fluctuation. The prices of iron ore and coal can vary greatly from period to period and our results have historically been impacted by movements in coal and iron ore prices. Iron ore and coal prices have been volatile in recent years. Iron ore Our largest input cost in the steel-making process is iron ore, which we purchase under our supply contracts with Cliffs and U.S. Steel. Our iron ore needs of 3.5 million tons are satisfied by our contracts with Cliffs and U.S. Steel. The Cliffs iron ore purchase contract was first negotiated in 2002 and has been amended and extended on a number of occasions. Our current contract, dated May 31, 2013 provides for the supply of iron ore through 2024. 54 Table of Contents In 2020, the Company secured a long term iron ore purchase contract with U.S. Steel for the supply of the Company’s remaining tonnage requirement. The U.S. Steel contract, dated May 13, 2020, provides for the supply of iron ore through 2024. The Company believes that having a second competitive supply arrangement for this critical raw material will help mitigate the Company’s supply risks for iron ore. Taken together, the Company’s agreements with Cliffs and U.S. Steel provide for supply of iron ore pellets through the close of the 2024 shipping season. Scrap Metal and Iron Units On October 27, 2021, Algoma announced that it had entered into a joint venture with Triple M Metal LP, one of North America’s largest privately owned ferrous and non-ferrous metal recycling companies, establishing a jointly owned company known as ATM Metals Inc. The new entity sources prime scrap metal and other iron units to meet Algoma’s business needs, including in connection with its transformation to electric arc steelmaking. Coal The Company’s procurement team has worked with the operations team to develop a desired coal mix with reduced total volatile matter to produce more coke, which is stronger, creating less degradation and less gas. Coal is sourced from mines in Central Appalachia. Annual contracts have been set up with four suppliers which are incumbents for the past several years. Coke Our internal coke batteries produce the majority of our coke requirements for the Blast Furnace No. 7. Additional coke is purchased as required under contract or from the spot market. Other raw materials We purchase limestone, alloys and other raw materials for our manufacturing operation at what we believe to be competitive prices. We generate half of our scrap requirements internally and the balance is purchased from third parties, primarily from regional sources where we have a pricing advantage over other markets due to our proximity to the suppliers. Energy We purchase all of our natural gas from independent suppliers at market pricing. From time to time, we may use forward contracts over three- to twelve-month periods, mainly for peak winter months (January through March) to manage exposure to natural gas price changes. Currently, we do not have any fixed price natural gas commodity contracts in place. We do have fixed price contracts in place in relation to natural gas transportation. The Company sources approximately 50% of its electricity needs internally and under a supply agreement with the operator of a low-cost cogeneration facility. We also obtain electricity from the Independent Electricity System Operator in Ontario and obtain electricity rebates under the Northern Industrial Electricity Rate program. Oxygen is supplied by Praxair Canada Inc. through a supply agreement that extends to mid-2026. 55 Table of Contents Government Regulation The Company’s environmental policy is to conduct our business in a manner that ensures the Company and its personnel act reasonably and responsibly with respect to the protection of the environment. Where appropriate, we have introduced environmental accountability to all employees. Activities that may have an impact on the natural environment have been identified and managed through the implementation of our ISO14001 compliant environmental management system. Our Environment Department regularly reviews and audits our operating practices to monitor compliance with our environmental policies and legal requirements. The Company is required to comply with a stringent and evolving body of federal, provincial and local environmental laws concerned with, among other things, emissions into the air, carbon and greenhouse gas emissions, discharges to surface and ground water, the investigation and remediation of contaminated property, noise and odor control, waste management, recycling and disposal. Significant expenditures could be required for compliance with current or future laws or regulations relating to environmental compliance and remediation. In the United States and Canada, certain environmental laws and regulations impose joint and several liabilities on certain classes of persons for the costs of investigation and remediation of contaminated properties. Liability may attach regardless of fault or the legality of the original management or disposal of the substance or waste. Some of our current and former facilities have been in operation for many years and, over such time, have used substances and disposed of wastes that may require investigation and remediation. The Company could be liable for the costs of such investigations and remediation. Costs for any remediation of contamination, on or off site, whether known or not yet discovered, or to address other issues relating to waste disposal, mine closure, emissions into the air or water, or the storage of materials, could be substantial and could have an adverse effect on our operating results. In 2021, the Company became subject to the Canadian federal OBPS Program for GHG emissions, which requires payment by December 15, 2022 for any emissions above the OBPS Program benchmarks for emissions relating to the 2021 calendar year, which payment is approximately C$5.75 million. Algoma has been successful in off-setting this cost through the purchase of surplus credits. In 2022, there was a transition from the federal OBPS Program to the Ontario Emissions Performance Program (“EPS Program”) for GHG emitters in Ontario. Compliance obligations for CY2022 are estimated at approximately C$8 million. Federal and provincial regulatory development is currently underway for the 2023-2030 compliance periods. See “Risk Factors – Increased regulation associated with climate change and greenhouse gas emissions could impose significant additional costs on our operations .” The Company is required to implement plans and measures to reduce the amount of sulphur dioxide emitted from the combustion of coke oven gas by-product in accordance with the Notice issued under subsection 56(1) of CEPA. Algoma will be taking an alternative approach to reduce SO2 through its transition to electric arc steelmaking, which will see the elimination of cokemaking from Algoma’s operations. Therefore, Algoma will be providing a pollution prevention plan that reflects this alternative approach to reduce SO2 which has been deemed an acceptable approach to comply with CEPA. Similarly, in order to align with new provincial legislation related to SO2, Algoma has applied for a Site-Specific Standard that includes an action plan to reduce SO2 that reflects the progressive facility shutdown. See “Risk Factors – Environmental compliance and site remediation obligations could result in substantially increased costs and could materially adversely affect our competitive position .” 56 Table of Contents On October 18, 2019, there was a rupture of a steam drain line which was located below an electrical room in our cokemaking BP, which resulted in a loss of power to the BP. In accordance with our emergency procedures, the coke oven gas bleeders were lit to flare the coke oven gas. Additionally, the loss of power caused the cokemaking south raw liquor tank and the tar running tanks to overflow. Raw liquor was conveyed to the MWFP via a sewer located in the BP. This resulted in effluent exceedances at the MWFP for phenol, ammonia and total cyanide and a toxicity failure for rainbow trout. The incident remains under investigation by MECP. The Company is subject to an order from the MECP, which requires vapor collection and air pollution control devices to be installed on four sources by December 31, 2021 for the purpose of reducing benzene emissions from the site. These projects are currently in the final stages of commissioning and start-up. The MECP has advised that compliance with the order is under investigation. We are also subject to Canadian labor and employment laws, privacy and data security laws, health and safety, and environmental laws concerned with, among other things, greenhouse gas emissions, emissions and discharges of other hazardous substances, private sewer and water treatment facilities, electricity generation and distribution, mine closure and rehabilitation, and the generation, handling, storage, transportation, presence and disposal or, or exposure to hazardous substances and other laws. We are also subject to Canadian and U.S. trade laws. We monitor changes in these laws, regulations, treaties and agreements, and believe that we are in material compliance with applicable laws. 57 Table of Contents C. Organizational Structure The following chart reflects our organizational structure (including the jurisdiction of formation or incorporation of the various wholly owned entities). D. Property, Plants and Equipment Our production facility is located on the St. Mary’s River adjacent to other industrial facilities in Sault Ste. Marie, Ontario. It is on 686 hectares of land, much of which is available for expansion. Transportation services are provided by road, rail and water. Our facilities include raw material and commercial docks and we operate the only deep-water dock on the upper St. Mary’s River, at Leigh’s Bay. Facilities We are an integrated steelmaker in that we produce coke from coal, convert iron ore to iron, iron to liquid steel and produce finished and semi-finished steel products. Our production facilities, all of which are located in Sault Ste. Marie, include the following: • three coke batteries; • two blast furnaces (one currently idle); • basic oxygen steelmaking shop consisting of two vessels and secondary steel refining facilities; • DSPC with twin strand thin slab caster coupled with roughing and finishing hot mill; • twin strand conventional slab caster; 58 Table of Contents • combination hot rolling mill capable of switching between plate and sheet products; • plate heat treat facilities and plate finishing facilities; and • downstream finishing operations consisting of pickling, cold rolling, annealing and tempering, sheet slitting, and cut to length facilities. The following table sets forth the “nameplate” annual production capacity in tons and actual production for certain of our facilities for the periods indicated: Actual Production Annual Production Process Line Capacity (NT) Fiscal 2022 Fiscal 2021 Fiscal 2020 Coke Batteries No. 7, No. 8 and No. 9 900,000 713,539 830,882 765,199 Blast Furnace No. 7 2,800,000 2,172,776 2,010,295 2,450,734 Blast Furnace No. 6 900,000 — — — Basic Oxygen Furnace (BOF) 3,700,000 2,312,164 2,508,871 2,727,207 Direct Strip Production Complex 2,300,000 1,869,240 1,796,450 1,890,436 Slab Caster 2,000,000 572,893 625,476 742,150 106” Strip Mill 460,000 284,124 309,656 337,445 166” Plate Mill 400,000 337,699 369,627 432,865 Heat Treat 320,000 187,501 131,246 174,775 100” Pickler 800,000 630,470 566,041 667,306 80” Cold Reduction Mill 350,000 216,680 155,430 147,923 80” Temper/Skinpass Mill 800,000 528,000 602,381 692,032 Batch Annealing 250,000 163,924 140,846 146,007 EAF Steelmaking Transformation On November 10, 2021, Algoma’s Board of Directors authorized Algoma to construct two new state-of-the EAFs to replace its existing blast furnace steelmaking operations. EAF steelmaking is a modern method of producing steel; with primary inputs of scrap steel and electricity, steel is formed by using an electrical current to melt scrap steel and/or other metallic inputs. Our EAF steelmaking facility is to be built adjacent to the current steel shop and will utilize existing downstream equipment and facilities, thereby reducing capital expenditure requirements of the build. The EAF is expected to improve product mix, reduce fixed costs, provide for material carbon tax savings, increase production capacity and decrease our environmental footprint, with a majority of the benefits realized by 2024. Algoma has engaged key stakeholders, including relevant government and regulatory agencies, to start the process of obtaining the required permits to build, commission and operate the EAF. EAF construction activities are progressing and include the installation of foundation piling, relocation of utilities and services, commencement of building foundations, and the relocation of rail tracks. Algoma is progressing its applications for environmental permits through the Province’s Ministry of Environment Conservation & Parks. 59 Table of Contents As of March 31, 2022, expenditures equal $98.7 million. The total capital cost for the conversion to EAF steelmaking is estimated to be C$700 million, consisting of: • C$547 million of EAF installation (C$339 million for building and labor and C$208 million for EAF equipment); • C$68 million for internal cogeneration upgrade and electrical infrastructure; and • C$85 million for contingencies. See Item 5. - “ Operating and Financial Review and Prospects” - “Management’s Discussion and Analysis” - “Strategic Capital Projects” – “Electric Arc Furnace (“EAF”) ” Plate Mill Modernization See Item 5. - “ Operating and Financial Review and Prospects” - “Management’s Discussion and Analysis” - “Strategic Capital Projects” – “Plate Mill Modernization ”