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Algoma Steel restructures to ensure its future.

Algoma Steel restructures to ensure its future

Algoma Steel Corporation, sitting on top of an $800-million debt, stared over a financial precipice in February.

Before being rescued by a government-arranged $60-million bank loan, the Sault Ste. Marie steelmaker was almost at a point where it could not pay its bills.

Bob Swenor, Algoma Steel's president and chief executive officer, admits the situation was serious.

"We were in days of not being able to continue in business," he said.

However, with the short-term financial crisis behind, the thoughts of the company, the city, governments and the union are focused on the future - and on restructuring.

"It's a struggle for viability both in the medium- and long-term," said Swenor.

He said the company has three goals: to get beyond the short-term difficulties, to improve the operation so that it "shows black on the bottom line at least," and to attract capital to invest.

"The battle is really just beginning," he added.

Swenor explained that not all of Algoma's operation has to be restructured, since it does have some good facilities.

For example, the company's Number Two tube mill is only two years old, he noted. "It's a world-class facility."

However, he explained that the tube mill's feed does not come from a world-class facility. The feed is expensive, and the solution is to provide less-expensive feed, he added.

Swenor said there is likely no long-term future for the structural steel and rail business in an integrated steel mill, and that those operations may be abandonned.

"They may have a life if we can adjust costs," he said. "There is no doubt their demise is coming some day."

With the changes coming to the mill, Swenor could not say how many jobs would be eliminated.

"It is difficult to put a figure on it," he said. "It could be a large number of jobs."

Swenor said the job loss depends on what operations survive the restructuring.

If only the strip mill and the tube mill survive, he said, "There might be 4,000 jobs."

However, he stressed that those changes would not occur overnight.

About 5,500 employees were working at the steel mill and at the company's Wawa iron ore mine as of late February. Another 2,000 workers were on layoff.

Swenor also noted that reducing the workforce is not a response specific to Algoma Steel, as all steel mills in Canada will employ fewer people a decade from now, as old equipment is shut down.

While not directly blaming last year's labor dispute for the company's troubles, Swenor said the work stoppage was like beating a boxer after he is down.

Following the dispute, Algoma Steel returned to a market that was "dismal," he said.

The short-term financial crisis at Algoma occurred because the company was paying for labor and materials after the dispute, while no cash was coming in, he explained.

To find solutions to Algoma Steel's problems, a task force consisting of representatives from government, the company, major lenders and the city has been established by the province.

"I think the task force will be working on a viable business plan," Swenor said, adding that he hopes the creditors will stay in for the long haul.

Algoma Steel has not made a profit in eight out of the past 10 years. In January parent company Dofasco of Hamilton announced that it was writing-off its $713-million investment in Algoma and that it would not supply further assistance.

Algoma Steel suffered a $108-million loss last year.

The financial problems were created by the recession, the overvaluing of the Canadian dollar, high interest rates and the company's debt from capital spending, Swenor said.

With structural, rail and tubular products, Algoma is not in the best end of the business, since those sectors are more cyclical than flat-rolled steel, which makes its way into cars and appliances, he explained.

As part of its rescue efforts, the company sought and received court protection from its creditors for six months.

In court the company produced a report stating that its closure would mean the loss of a total 23,000 jobs.


"There's no question in my mind that when all is said and done, and the dust settles from all of this, you will have a steel plant of some significance in Sault Ste Marie," said Mayor Joe Fratesi.

However, Fratesi admitted that there is some uncertainty concerning who will own the mill, what products it will make and how many people it will employ.

"The fact that the steel plant is likely to be smaller than it was five years ago is one that all of us have come to accept," Fratesi said. "For the same reason that mining in Sudbury was brought to a size that makes it profitable, Algoma Steel is going through the same process."

The fact that Algoma Steel makes a good product has never been in question, he said. However, parts of the operation are antiquated and may have to be abandonned along with the product lines they produce.

The mayor believes that the biggest factor contributing to the mill's problems are poor world markets.

Fratesi believes the municipality's most important role during this difficult period is "to try and have all of the parties who are going to be necessary to the solution to be there at the table with an open mind in a spirit of co-operation."

Fratesi is pleased that the province is taking a prominent role in the writing of Algoma Steel's future.

"The fact that the Premier took a lead role in this thing is probably a real big factor in making sure that a solution is found," the mayor observed.


Steve Boniferro, an international representative in Sault Ste. Marie for the United Steelworkers of America, believes Algoma Steel now has some breathing space and a good shot at a long-term future.

"I'm not a steel analyst, but all of the indications are that Algoma has a lot of good things going for it," Boniferro said.

However, he admitted that "the end result if you do nothing is everybody loses."

Boniferro also believes that Dofasco could be enticed to return if a profitable long-term plan is developed for Algoma.

"If something demonstrates that the plant can become profitable, they (Dofasco) are the big winner in that."

Boniferro says the steelworkers credit the NDP government for giving the union a role to play in the future of the mill.

In fact, Boniferro noted that the idea of a task force was proposed by Leo Gerard, District 6 director of the union.

"With the previous government, we wouldn't have had the opportunity to make those suggestions," Boniferro said. "We want to play a role in saving the company, and we're getting that opportunity."

The union representative also observed that the Algoma Steel crisis is the first big test of the NDP government.

The situation involves Northern Ontario, a major employer, a single-industry town and a big union, he noted.

Boniferro believes that if the effort fails, it will look like the government has a lack of commitment to the north and has had a falling out with labor.

However, if Algoma survives, the government will maintain its credibility in the north, strengthen its union support and demonstrate a new attitude of co-operation to banks and business, he commented. "There's got to be a cooperative effort."

Boniferro said the union realizes that if certain product lines are dropped, it will mean fewer people will be employed by Algoma.

"That doesn't necessarily mean layoffs," he added.

Reductions could be made by attrition, early retirement and other means, he explained. "Our hope is to save as many jobs as we can."

In addition, Boniferro said there may be opportunities to expand some of Algoma's existing product lines.

PHOTO : As part of its rescue efforts earlier this year, Algoma Steel Corp. sought and received court protection from its creditors for six months. In court the company produced a report stating that its closure would mean the loss of a total 23,000 jobs.
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Title Annotation:Focus On Sault Ste. Marie; Algoma Steel Corporation deals with financial crisis
Author:Bickford, Paul
Publication:Northern Ontario Business
Date:Apr 1, 1991
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Next Article:The Sault can handle the challenge: mayor.

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