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New developments in Essar Steel Algoma situation

Essar Steel Algoma's largest union local wants the court to clarify the status of the court-ordered sale and investment solicitation process for the Sault steelmaker.
2014-04-07 Essar Steel Algoma 007
Essar Steel Algoma has reached agreement with Cliffs Mining Co. to supply its Sault steel operations with iron ore pellets until the end of 2020. File photo by Kenneth Armstrong/SooToday

Steelworkers Local 2251 is applying to Ontario's Superior Court for permission to talk to Ontario Steel Investments Ltd. about that company's bid to acquire Essar Steel Algoma. 

Also known as Ontario Steelworks, Ontario Steel Investments is a subsidiary of Essar Global, with the same shareholders as Essar Global.

Local 2251 has previously said it likes the Ontario Steelworks bid because its union rights under the collective agreement will be protected and its pension plan would be preserved.

The local also hopes that Ontario Steelworks will be able to resolve uncertainties about the Port of Algoma and the co-generation plant, seeing that both the purchaser and owner of those facilities are part of the same parent firm

Essar Algoma's largest union local, representing more than 2,200 hourly workers, wants the court to clarify:

  • the status of the court-ordered sale and investment solicitation process for Essar Steel Algoma
  • whether Local 2251 is allowed to engage in discussions or meetings with Ontario Steel
  • if such meetings are allowed, whether they should be supervised by the court-appointed monitor, seeing that the monitor has launched oppression proceedings against Essar Global and related companies
  • any other conditions that should be imposed in talks between the Steelworkers and Ontario Steel

Until now, the court-appointed monitor overseeing Essar Algoma's insolvency proceedings has said it's inappropriate for Local 2251 to have transactional discussions with Ontario Steel.

Local 2251 has opposed another bid for Essar Algoma from term lenders who provided the debtor-in-possession financing that has kept the Sault steelmaker afloat since it sought protection from its creditors on November 9, 2015.

KPS Capital Partners LP was originally part of that bid but withdrew after Local 2251 indicated it wanted to deal instead with Essar Global subsidiary Ontario Steelworks.

The term lenders are nonetheless interested in completing the acquisition on their own, an idea that Local 2251 opposes.

The deadline for concluding either a sale or restructuring proposal is January 31, 2017.

In another important development, Essar Steel Algoma has concluded negotiations with Cliffs Mining Co., resulting in an agreement to supply Algoma with iron ore pellets until the end of 2020.

The agreement with Cliffs provides the Sault steelmaker with a stable source of its most important raw material, preventing costly and potentially disastrous shutdowns.

Essar Algoma's future was thrown into uncertainty in October 2015 when Cliffs advised it was terminating a 13-year-old agreement to supply iron ore pellets to the Sault.

After mediation, a new agreement was struck on May 1 of this year, expiring on December 31.

Iron ore pellets account for about one half of Essar Algoma's total raw material costs.