Steel Mills

Algoma Pushes to Complete Restructuring

Written by Sandy Williams

Operational problems this past fall impacted Algoma Steel earnings and the mill’s winter build-up of raw materials, according to the latest report from CCAA bankruptcy monitor Brian Denega. 

Delays on a stove rebuild project along with an unplanned shutdown of the blast furnace at the end of November affected Algoma’s production and shipments. The rebuild was not completed until mid-December, and a problem with the cooling system allowed water to get into the furnace in November resulting in the shutdown.

The operational problems caused an increase in stockpiles of excess raw materials, preventing receipt of additional raw materials for winter operations. Delivery of iron ore is now scheduled between January and March, weather permitting, and should provide an adequate inventory to continue ordinary operations into spring, said CFO Rajat Marwah.

The snafu resulted in legal proceedings by U.S. Steel for failure to take delivery of 172,000 net tons of iron pellets. Algoma was ordered to put $12 million in escrow with the court monitor for payment to U.S. Steel when the pellets are delivered.

During the last reporting period, net cash flow of $16 million was $3 million less than forecast. Cash on hand as of Dec. 15, 2017, was $34 million with a DIP facility balance of $158 million.

Algoma is anxious to finish recapitalization, but has been stalled by collective bargaining negotiations. So far no agreement with USW Locals 2251 and 2724 has been reached and talks are currently suspended. An agreement with the union is crucial to a successful turnaround of the company, said Denega in his report. “Reaching an agreement on collective bargaining arrangements represents the most significant outstanding condition to a successful restructuring of the applicants,” said Denega in the Dec. 20 report.

A Jan. 25 hearing is scheduled to ask the Ontario Superior Court to reopen collective bargaining. “Algoma cannot restructure without negotiating new collective agreements with the unions, including necessary amendments with respect to pension funding,” said Denega.

The processes of ratifying an agreement with workers and getting approval of regulations regarding the pension funding is expected to take eight to 12 weeks.  The current Companies’ Creditors Arrangement Act will expire on March 31, incentivizing Algoma to complete its emergence from two years of CCAA protection by that time.

“The applicants [Algoma] can no longer afford to delay pursuing the recapitalization transaction, which continues to represent Algoma’s best and only viable prospect to continue as a going concern enterprise for the benefit of all of Algoma’s stakeholders,” the company’s Dec. 19 motion states.

Algoma says the timing is right for emergence: steel prices are up and steel investment interest exists. The company would like to complete the recapitalization before the provincial election on June 7 to avoid any uncertainty regarding the transaction. In addition, the outcome of NAFTA renegotiation and its possible termination could result in a negative impact on the business.

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