Stelco Unveil Restructuring Plan

Stelco Inc. today unveiled a four-point strategy for the new Stelco that can be realized if the Company successfully completes its current Court-supervised restructuring which must achieve a significant reduction in its overall cost structure:

• 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
• Simplify the number of product lines, processes and facilities
• Invest in new facilities that strengthen Stelco's competitive advantage

Courtney Pratt, Stelco President and Chief Executive Officer, said, "Our 4-point strategy will help Stelco become a more focused company with a more stable revenue stream and a competitive cost structure. We will no longer run a business in which the bottom line simply moves in concert with volatile steel prices. The new Stelco will benefit from a more efficient product flow. We will make fewer products but we will make them more efficiently. And we will generate the earnings and cash flow that can make us a viable and competitive steel producer."

The 4-point strategy, which is being presented to various stakeholder groups this week, is the result of an extensive internal planning process incorporating the findings of an in-depth external review conducted by Hatch Consulting, a leading provider of strategic advice to companies in the global steel, metals and mining industries.

Pratt noted, "The strategy is the result of a thorough review incorporating the objective findings of a respected advisor with considerable experience in steel strategy and restructurings. 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."

The four-point strategy for the new Stelco includes:

1. Build on the Company's existing strengths that differentiate it from other producers

The new Stelco will be centred on its strengths in the marketplace that are unique and that differentiate it from other producers. These strengths include its people, assets, markets and customers. The core of the new Company will be its integrated Hamilton and Lake Erie steel operations with their unique capabilities in the flat roll and bar businesses.

Competition in the Canadian sheet market for value added applications is limited to a small number of mostly high quality producers. Stelco is one of them. The Company will maximize its unique sheet production capabilities in areas that differentiate it from other producers. These capabilities include automotive quality hot roll, and up to 72" wide sheets, including exposed cold roll and zinc coated body sheet for exposed applications.

The new Stelco will also exploit its position as Canada's and one of North America's largest producers of high quality automotive bar products. In addition, the Company will be one of a limited number of producers able to provide high quality vacuumed degassed slabs for semi-finished applications, which will provide an opportunity for future strategic partnerships with other North American high quality steel producers.

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

The new Stelco will have a much narrower focus, producing high quality products for value-added markets including the automotive, construction and other manufacturing sectors.

The automotive sector is considered the most demanding market segment. It is also one in which Stelco is a particularly significant supplier with two million tons of annual shipments destined for this sector. The automotive sector accounts for 43% of the Company's total revenues, 38% of its revenue from flat roll products and 90% of revenue from the bar business. As well, the Company has differentiated products in galvanize and cold roll capabilities. In all of the areas, the Company specializes in the production of 'safety critical' and structural applications such as axles, wheel rims and frames. Equally important, the Company has developed long-term and synergistic relationships with leading automotive manufacturers and suppliers. The Company also enjoys an excellent geographic position, which is particularly important to customers in a 'just in time' manufacturing environment.

At the same time, the new Stelco will lever its advantages in other value-added markets, with key high quality production lines focused on customer service, product development and growth in the appliance, construction, prepaint and other value added manufacturing sectors.

3. Simplify the number of product lines, processes and facilities

The new Stelco will be organized in a way that fully supports its high quality and value-added product strategy. The Company currently operates too many product lines, too many complicated production processes and too many obsolete facilities. There will be fewer of each going forward, resulting in a focused and single-stream product flow through a modernized and competitive asset base. The number of product lines will be significantly reduced from 2003 levels and eight obsolete facilities or non-core businesses will be closed or sold. These facilities include two that were closed in 2003 - the Plate Mill and Welland Pipe - in addition to the Rod Mill closure announced in 2004. The others under consideration are the No. 2 and No. 3 pickle lines and the 56" strip mill (located at the Hamilton plant), Stelwire/Stelfil and Stelpipe.

The new Stelco will be built around the Integrated Steel Business and its Hamilton and Lake Erie locations. While not all of the current facilities will remain open, the 4-point strategy will keep the majority of them intact - more than might have been anticipated at the beginning of the restructuring process.

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

The 4-point strategy the new Stelco requires and envisions investment in a significant capital expenditure program. This investment will upgrade the Company's capabilities, increase the value-added nature of the customer offering, improve service to customers, remove obsolete facilities, lower production costs and benefit the environment in the communities of Hamilton, Haldimand and Norfolk. The three most critical capital investment projects include:

• Completing the Phase II expansion of the Lake Erie hot strip mill: This will increase hot roll capacity, improve production quality and enable the Company to close the obsolete 56" mill in Hamilton. It will also add to the Company's earnings primarily through cost reduction.
• Installing a new pickle line in Hamilton: This will enhance the capacity for value-added products, enable the Company to close two lower efficiency and obsolete pickle lines in that facility and reduce the amount of outsourcing. This will add to the Company's earnings primarily through cost reduction.
• Investing in electricity co-generation plants at the Hamilton and Lake Erie facilities: This will greatly enhance energy self-sufficiency, cut fuel and utility costs, reduce environmental emissions and contribute to earnings.

These critical capital expenditure programs will take between 18 and 24 months to implement and are estimated to cost between $360 million and $465 million.

Stelco can only raise the money it needs by addressing its problems.

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