August 2-9, 2004

Stelco restructuring plan includes cogeneration project

A reduced-emissions, energy- and cost-efficient cogeneration facility is a component of a four-point strategy developed by Stelco to significantly reduce its overall cost structure as part of the Hamilton, Ontario steelmaker's court-supervised restructuring. The restructuring strategy calls for Stelco to:

1. build on existing strengths that differentiate it from other steel producers;

2. focus on high quality products for value-added markets, including the automotive and other sectors;

3. simplify the number of product lines, processes and facilities; and

4. invest in new facilities that strengthen Stelco's competitive advantage.

The fourth point in the strategy will involve a major capital expenditure program which will, among other things, increase the value-added nature of the company's products, remove obsolete, inefficient facilities, lower production costs and benefit the environment in the communities of Hamilton, Haldimand and Norfolk.

One of the specific projects proposed is the construction of electricity cogeneration plants at the Hamilton and Lake Erie facilities, which would greatly enhance energy self-sufficiency, cut fuel and utility costs, reduce environmental emissions and contribute to earnings.

The two other main projects include: completing the Phase II expansion of the Lake Erie hot strip mill, which will increase hot roll capacity, improve production quality and enable Stelco to close the obsolete 56-inch mill in Hamilton; and installing a new pickle line in Hamilton, which will enhance the capacity for value-added products and enable the company to close two lower-efficiency, obsolete pickle lines in that facility. Both of these projects would add to Stelco's earnings primarily through cost reduction.

These critical capital expenditure programs are projected to take between 18 and 24 months to carry out and are estimated to cost between $360 million and $465 million. At present, however, Stelco is unable to raise the money needed to fund these projects. The company says will be able to obtain the money it needs to do this only if investors see that the restructured steelmaker has addressed its balance sheet issues, is cost-competitive, and is capable of being profitable in all steel cycles.

Stelco president and CEO Courtney Pratt said, "the best and only way we can solve our problems is by achieving the successful restructuring of our overall cost structure.

"Our four-point strategy will help Stelco become a more focused company with a more stable revenue stream and a competitive cost structure...The new Stelco will do what it does best and better than others, maximize the advantages of our integrated Hamilton and Lake Erie operations, ensure profitability in all steel cycles, and secure the best outcome of our restructuring for stakeholders," Pratt explained.

"We will make fewer products but we will make them more efficiently," he added.

The four-point strategy, which is being presented to various stakeholder groups, is the result of an extensive internal planning process incorporating the findings of an in-depth external review conducted by Hatch Consulting, a firm specializing in providing strategic advice to companies in the global steel, metals and mining industries.

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