NEWS RELEASE EXCERPT
******************** Dofasco posts $5.2 million third-quarter net income
HAMILTON, ON, Oct. 31 - Dofasco Inc. reported its results for the third quarter of 2005 today.
For the three months ended September 30, 2005, Dofasco's consolidated net income was $5.2 million or $0.07 per common share, compared to the record $115.0 million or $1.50 per share reported in the third quarter of 2004.
In the second quarter of 2005, Dofasco's net income was $59.2 million or $0.77 per share. The consolidated net income reflected good results at the company's Mining Operations and Gallatin Steel segments offset by a loss at Dofasco's Steel Operations business segment. Commenting on the quarter, Dofasco's President and CEO Don Pether said, "We are disappointed with the results achieved this quarter in Hamilton, which were adversely impacted by difficult business conditions that hit both revenues and costs.
On the revenue side, there was a significant decline in spot market pricing and the stronger Canadian dollar negatively impacted both spot market and contract pricing. On the cost side, the premium that we paid for slabs purchased late last year impacted costs in the third quarter by more than $40 million over that experienced in the same quarter of 2004.
This, along with the high cost of other inputs including iron ore, coal and energy, including the high cost of electricity in Ontario, also had a significant negative impact."
Dofasco's consolidated sales of $1,104.5 million in the third quarter of 2005 were slightly higher than the $1,089.0 million achieved in the same period in 2004.
Steel shipments, at 1,219,000 tons, were up from the 1,194,000 tons shipped in the third quarter of 2004. Dofasco's Steel Operations segment reported a pre-tax loss of $24.2 million for the quarter, compared to income before taxes of $114.9 million for the third quarter of 2004, which has been restated for the reclassification of Wabush Resources Inc. At the company's Hamilton operations, shipments were 1,025,000 tons in the third quarter, a slight increase from 1,004,000 tons shipped in the same quarter of 2004.
Average revenue per ton of steel shipped from Hamilton in the third quarter of 2005 was considerably lower than in the same period of 2004.
The $89 decrease in revenue per ton reflects the significant decline in spot market prices from the record levels of a year ago as well as the negative impact of the stronger Canadian dollar.
Average cost per ton increased by $46 over the levels experienced in 2004.
This increase was mainly due to significantly higher prices for purchased slabs, iron ore, coal, electricity and other forms of energy as well as to the impact of lower production levels on fixed operating costs, partially offset by lower scrap costs.
The lower-than-plan production levels in the quarter were a result of various short-term operating interruptions which have been resolved. Dofasco's 50 percent share of Gallatin Steel's income before taxes for the quarter was $13.0 million, compared to $69.1 million in the same quarter for 2004.
The decline was mainly a result of lower average revenue per ton and the impact of a weaker U.S. dollar on the translation of Gallatin's results.
Shipments for the quarter were 388,000 tons, slightly higher than the 382,000 tons shipped in the third quarter of 2004. During the quarter, on July 22, 2005, Dofasco completed the acquisition of substantially all of the remaining equity interest that it did not already own of Quebec Cartier Mining (QCM) for total consideration of $326.7 million including acquisition costs.
Dofasco now holds approximately 98.7 percent of the common shares. QCM's results for the 71-day period that followed the acquisition have been reflected in the consolidated results. Effective July 1, 2005, Dofasco has commenced disclosure of a Mining Operations segment in order to provide more useful information about the company's distinct steel and mining businesses.
To reflect this change, Dofasco's Wabush Resources subsidiary has been reclassified from Steel Operations and is now aggregated with QCM in the new segment. Dofasco's Mining Operations contributed $39.8 million to the company's net income before taxes in the third quarter of 2005 compared to a pre-tax loss of $6.1 million in the same period of 2004.
The 2005 pre-tax results are net of non-cash purchase price allocation adjustments of $54.2 million related to QCM.
The good results for the third quarter of 2005 reflect excellent market conditions for both iron ore producers in this segment.
In 2004 the results of this segment reflected only Wabush Resources.
Dofasco's iron ore shipments were 2,831,000 tonnes in the quarter compared to only 133,000 tonnes in the third quarter of 2004, which was impacted by a strike at Wabush from July 5 to October 10, 2004. Looking forward, Dofasco expects its fourth quarter results to be significantly better than the third quarter driven by its Mining Operations segment, which will include a full quarter impact from QCM.
Steel Operations results in the fourth quarter of 2005 are expected to improve slightly compared to the loss reported for the third quarter, reflecting an increase in gross income at the Hamilton operations.
Dofasco expects fourth quarter steel shipments to be similar to the third quarter for both Hamilton operations and at Gallatin Steel.
Don Pether commented, "Spot prices began to recover in September and we expect further recovery throughout the fourth quarter, which will have a beneficial impact at both Hamilton and Gallatin. However, we expect that this will be mitigated somewhat by scrap price increases and the stronger Canadian dollar.
"In addition, the premiums paid on purchased slabs will continue to work their way through inventory in the fourth quarter." Dofasco successfully completed the acquisition of certain mechanical tubing and automotive components assets of Copperweld Holding Company on October 3, 2005.
The acquisition was completed through a transaction with Atlas Tube Inc. immediately following the acquisition of Copperweld by Atlas.
Dofasco's purchase price of US$177.8 million is expected to be reduced by post-closing adjustments. ********************