Algoma Steel ladles out big profit, Stelco makes $42 million

Algoma Steel and its troubled competitor Stelco Inc. both reported second-quarter results within five minutes of each other this afternoon.

Algoma Steel reported a healthy profit of $78 million, compared to $22 million the previous quarter and $3.8 million in the same period last year.

Second-quarter sales included $20.8 million worth of coke.

Stelco, meanwhile, reported a $42 million profit that nonetheless left its short-term debt virtually unchanged from the previous quarter.

The following are excerpts from news releases issued by the companies at 12:40 p.m. and 12:44 p.m.

**************************** Algoma Steel Inc. reports continued earnings improvement in the second quarter and ratification of new collective agreements

SAULT STE. MARIE, ON, Aug. 3 - Algoma Steel Inc. today reported its results for the second quarter ended June 30, 2004.

Second-quarter highlights:

- EBITDA of $144.2 million more than doubled Q1 results

- Net income of $78.0 million or $1.93 per fully diluted share - Cash balance increased by $103.1 million versus Q1 to $178.8 million

- Payment of accrued Note interest ($19 million). - Further unit cost increases.

Algoma Steel Inc. reported net income of $78.0 million for the three months ended June 30, 2004 (fully diluted income per common share of $1.93).

This compares to net income in the second quarter of 2003 of $3.8 million and net income in the first quarter of 2004 of $22.1 million.

The improvement was due mainly to higher selling prices for all products as steel markets continued to be very strong. Average steel revenue per ton (excludes coke and other non-steel revenue) increased to $729 in the second quarter compared to $556 in the first quarter and $472 in the second quarter of 2003.

Non-steel sales increased substantially in the quarter to $29.3 million which included $20.8 million of coke sales.

The average cost of steel products per ton increased to $471 in the second quarter compared to $427 in the first quarter and $433 in the second quarter of 2003.

This increase versus the same period last year was mainly attributable to an accrual for profit sharing and higher costs for natural gas and certain raw materials. The improvements in earnings and cash flow resulted in a further strengthening of the balance sheet.

The cash balance increased by $103.1 million to $178.8 million at June 30 despite the payment of accrued interest of $19 million for the 11% and 1% Notes.

The Company has no bank borrowings and unused availability under the Revolving Credit Facility increased to $172 million.

New collective agreements with Algoma's two USWA Locals, effective to July 31, 2007, have been ratified. Denis Turcotte, President and Chief Executive Officer, said, "The continued strengthening in North American sheet and plate pricing has resulted in strong margins. The focus of the management team and workforce on improving our commercial and operating performance within this environment allowed us to achieve better than expected second quarter results.

"This has improved our financial position with our cash balance exceeding our interest bearing debt at the end of the quarter. We believe the new collective agreements with the two USWA Locals, representing approximately 2,900 employees, are fair and balanced and reward our employees for their contributions to our success.

"These improvements in our risk profile, along with increased financial flexibility, position Algoma well for the future."

****************************** Stelco reports results for second quarter 2004

HAMILTON, ON, Aug. 3 - Stelco Inc. today reported net earnings of $42 million ($0.41 per common share) in the second quarter ended June 30, 2004 compared with a net loss of $83 million ($0.83 per common share) in the second quarter of 2003.

Six month net earnings were $6 million ($0.05 per common share) compared with a net loss of $127 million ($1.29 per common share) for the same period in 2003.

Despite improved earnings, net short-term debt remained virtually unchanged from the previous quarter and deteriorated by $29 million since the beginning of the year. Sales revenue in the second quarter was $884 million compared with $700 million for the same period last year.

The increase in sales is primarily attributed to increased selling prices including surcharges.

Year-to-date 2004 sales amounted to $1,658 million, 19% higher than the $1,393 million achieved in the first six months of 2003.

Courtney Pratt, Stelco President and Chief Executive Officer, said, "As might be expected in an era of unprecedented and unsustainable high steel prices, Stelco achieved positive earnings during the second quarter.

"Despite positive earnings driven by strong demand and lack of steel availability, net short-term debt was virtually unchanged in the quarter, and on a year-to-date basis increased by $29 million.

"Without strong cash generation and significantly lower costs, we cannot regain a competitive position in the North American steel sector on a sustained basis.

"Our fundamental issues can only be solved by a successful Court-supervised restructuring and a significant reduction of our overall cost structure as well as by making critical capital investments in our integrated steel operations, not by temporary high steel prices." As a result of increases in steel prices to record levels, Stelco was able to earn $42 million in the second quarter of 2004.

During the quarter, however, Stelco's net short-term debt position was virtually unchanged as most of the cash flow generated from improved margins was consumed by increased working capital levels, primarily accounts receivable and inventory, brought about by rising steel prices and raw material costs and increased activity.

Pratt noted that completing a successful restructuring of its operations and costs, coupled with moving ahead with Stelco's four-point strategy for the new Stelco announced on July 29, 2004, is what is required to bring about sustained viability, solid long-term performance and growth.

Pratt added that the second quarter earnings did not reflect the full impact of the increases in such input costs as raw materials and energy as a significant portion of these costs remained in inventory at the end of the quarter.

These higher costs will adversely affect future results as that inventory is sold. At June 30, 2004 the Corporation's consolidated net liquidity was $242 million compared with $243 million as at March 31, 2004.

The net liquidity of the applicants involved in proceedings under the Companies' Creditors Arrangement Act ("CCAA") at June 30, 2004 was $189 million, compared with $196 million as at March 31, 2004.

Production in the second quarter of 2004 was 1,327,000 semi-finished tons, up from the 1,261,000 tons produced during the same period in 2003.

This increase was attributable primarily to reduced operating levels in the second quarter of 2003 caused by weak market conditions and planned steel inventory reduction.

Consistent with the four-point strategy, the Corporation today also announced that the Board approved a sale process for Stelwire Ltd. and Stelpipe Ltd., wholly owned subsidiaries that produce steel wire and wire products as well as tubular steel products respectively.

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