Stelco loses $122 million in first quarter

NEWS RELEASE EXCERPTS

STELCO INC.

********************* Stelco reports results for first quarter 2006

HAMILTON, ON, May 11 - Stelco Inc.(TSX:STE) today reported a net loss of $122 million for the first quarter ended March 31, 2006, including the impacts of discontinued operations and reorganization costs.

This compares to net earnings of $49 million in the first quarter of 2005, and a net loss of $120 million in the fourth quarter of 2005.

The results reported today are related to Stelco prior to emerging from court protection at the end of the day on March 31, 2006, and prior to implementing the corporation's plan of arrangement and reorganization.

As such, the first quarter results are referred to as those of the "predecessor" in the consolidated financial statements.

Any reference to Stelco after implementation of the CCAA Plan is referred to as the "successor". The results reported today include a $43 million after-tax loss on discontinued operations which represents the businesses of the mini-mill and manufactured products segments, the sales of which were completed in the first quarter.

As well, reorganization costs on a pre-tax basis in each of the first quarters of 2006 and 2005 amounted to $21 million compared to $29 million in the fourth quarter of 2005.

The following information excludes discontinued operations. Net sales revenue in the first quarter of 2006 was $674 million compared to $728 million for the same period in 2005.

This seven percent decrease was mainly due to renewal of customer contracts at lower prices and lower spot market prices, a lower value-added mix as a result of the fourth quarter 2005 Lake Erie Steel's hot strip mill outage and the negative impact of the higher Canadian dollar. Cost of sales for the first quarter of 2006 was $695 million compared to $593 million for the same quarter of 2005.

This 17 percent increase was primarily due to higher spending for repairs and maintenance, purchased services and supplies; higher natural gas, coal, ore and zinc costs; the flow through of high cost inventories produced in the previous quarter; and the impact of the fourth quarter 2005 Lake Erie Steel's hot strip mill upgrade, which included the high cost of outside conversion of slabs to hot roll coils.

These costs were partly offset by lower purchased coke, scrap and electricity costs; a lower value-added mix of sales, and reduced labour costs at Hamilton Steel, resulting from the continued attrition of the workforce. Production in the first quarter of 2006 was 997,000 semi-finished net tons compared to 1,020,000 semi-finished net tons produced during the same period in 2005.

Shipments during the first quarter of 2006 totaled 974,000 net tons compared to 907,000 net tons shipped during the first quarter of 2005, representing a 7 percent increase. As of March 31, 2006, the net liquidity position of the "Predecessor" company was $250 million, consisting of $36 million of cash, cash equivalents and restricted cash, $396 million of available lines of credit, less $182 million of drawings on credit lines.

This compares to net liquidity of $304 million for the same period of 2005, and $254 million for year-end 2005.

The net liquidity position for the "successor" company, as of March 31, 2006 was $555 million, consisting of $36 million of cash, cash equivalents and restricted cash, $946 million of available lines of credit, less $427 million of drawings on lines of credit. The $305 million increase in net liquidity from the predecessor company to the successor company, is the result of the following events in connection with the implementation of the CCAA plan. - the replacements of the predecessor's credit facilities ($425 million) with new lines of credit ($975 million) thereby increasing liquidity by $550 million - a $232 million reduction in liquidity arising from a payment of $382 million to the Corporation's four main pension plans, partially offset by proceeds of $150 million from the issue of a long-term note payable to the Province of Ontario; and - a further $13 million reduction in liquidity due to the payments of fees related to the new credit facilities Net cash of $3 million was generated during the first quarter of 2006, compared to $76 million generated in the first quarter of 2005.

During the first quarter proceeds of $107 million received from the sale of non-core subsidiaries were offset primarily by capital expenditures of $49 million, operations usage of $40 million and debt repayments of $12 million. As previously announced, as of April 1, 2006, a new board of directors assumed office, and Rodney B. Mott was appointed president and chief executive officer of the newly refinanced Stelco Inc. The application of "fresh start accounting", on March 31, 2006, will impact future financial results.

All assets and liabilities of the corporation are being revalued to fair value at the time of mplementation of the plan of arrangement.

The successor statement of financial position is based on the corporation's preliminary assessment of fair values.

The corporation expects to finalize the fair value allocation by June 30, 2006.

As a result of these changes there will be impacts on future earnings including amortization changes as a result of revaluing fixed assets, cost of sales increases in the near term as a result of the revaluation of inventories from the lower of cost and net realizable value to fair value, and a decrease in pension and other post-employment benefits expense as previously unamortized actuarial losses and past service costs have been eliminated from the consolidated statement of financial position. Commenting on the future, Rodney Mott, Stelco's president and chief executive officer, said, "My focus is to return the newly refinanced Stelco to profitability. My initial emphasis will be on lowering our costs and improving our productivity to ensure Stelco's long-term viability and future success. Steps taken already include a focus on our primary business of making high-quality steel for our customers, and a move toward a more effective management structure." At their meeting yesterday, Stelco's board of directors appointed Steve Douglas to the board, replacing Peter Gordon who has resigned from the Stelco board in order to focus on other Brookfield initiatives.

Steve is executive vice president and chief financial officer of Falconbridge Limited.

He brings a strong background in both finance and the resource industry to the board.

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