We need to create an Algoma that is sustainable and profitable for the long-term and able to withstand the cyclical nature of the global steel market. To do this, things have to change. All involved parties – secured creditors, employees, retirees & the local community – need to come together.
The community of Sault Ste. Marie, Algoma’s employees and the steel industry are well aware of Algoma’s three prior restructurings, including one under employee ownership. None of these restructurings have resulted in a sustainable business. “Kicking the can” has been ineffective in the past and is not a viable solution now.
If Algoma is to survive long-term, structural changes and additional investments are needed now. Algoma must become a more efficient manufacturer with a more flexible cost structure.
Now is our one and only chance to set up Algoma for long-term success.
- The steel market has changed dramatically over the past 10 years
- Massive expansion of steelmaking capacity in countries like China and Brazil (with low labour costs and lax environmental standards) have made Algoma uncompetitive
- In North America, there has been a significant increase in production by mini-mills that have lower costs due to more flexible cost structures, more modern steelmaking facilities and locations closer to their customers
- Algoma’s cost structure is significantly higher than its North American competitors because:
- Over the past 10 years, Algoma has under-invested in its facilities and equipment, resulting in product mix offerings that now directly compete with mini-mills and imports that have lower cost structures
- Following consolidation in the industry, Algoma remains one of the last single-plant companies in North America and is competing with larger, multi-plant companies
- Algoma’s current defined benefit pension plan situation is unsustainable
- Algoma’s ongoing labour costs are significantly higher than those of its competitors
- Algoma needs a significant infusion of new money
- Algoma has no cash on hand. It is relying on the DIP loan that will soon mature
- Substantial capital is required for Algoma to emerge from CCAA protection
- Substantial additional investment is needed to fund and upgrade its operations
- As we have seen over the past 18 months, the price of steel is highly volatile (HRC has ranged from US$354 to US$653 per ton). However, it cannot be assumed that the current high price of steel will continue over the long-term. Algoma requires sufficient funding to enable it to survive through any low price periods
There is a solution. Algoma’s secured creditors are prepared to reduce the company’s debt by C$1.5 billion. Our plan also provides for the injection of over C$500 million of new capital. That capital will only be invested if Algoma has a competitive cost structure.
Working together, this plan provides the only realistic future for Algoma.