The Stel Salaried Pensioners Organization wishes to thank The Hamilton Spectator for permission to post the following article by Reporter Tara Perkins published in the June 24, 2005 edition

Stelco announces end of stakeholder mediation talks; no agreement in sight

By TARA PERKINS

TORONTO (CP) - Stelco Inc.'s mediation talks, which sought to get support from key stakeholders for a plan to restructure the insolvent steelmaker, are dead in the water, after mediator George Adams abandoned the month-long process.

Adams sent a letter to Stelco and its stakeholders Friday saying that he could not achieve the framework for a plan that would pull Stelco out of nearly 17 months of bankruptcy protection.

The former Ontario judge said he is ending his involvement in the process, and urged the parties to consider how they might bridge their outstanding differences, Stelco said in a release late Friday.

Adams said the mediation discussions constituted an important exchange of perspective, data and possible solutions but gave no details on what differences remained to block a successful restructuring.

A source told The Canadian Press the talks are dead in the water but would not provide specifics on why they broke off. However, some observers speculated that major differences remained over a restructuring plan proposed by Stelco's bondholders and one by Tricap Management Ltd., a fund backed by the Brascan conglomerate and the steelworkers union.

Stelco chief executive Courtney Pratt urged all parties to work together and in the same direction so that we can find a positive outcome.

The Hamilton-based steelmaker said it will continue dialogue with other parties and examine proposals that could form the basis of a restructuring plan.

Stelco, Canada's largest steelmaker based on the size of its workforce, is scheduled to appear in bankruptcy court Monday.

Numerous takeover and refinancing proposals have been tossed out by the company in recent months, including ones from Russian steel giant OAO Severstal, Germany's Deutche Bank and the Tricap fund.

Stelco added it will work to resolve the pension solvency deficiency issue and to pursue a fair and reasonable collective agreement with USWA Local 8782 at Stelco's Lake Erie facility.

About 1,000 workers at Stelco's key Lake Erie plant have been without a contract since last summer.

In mid-May, Ontario Superior Court Justice James Farley - who has been presiding over Stelco's court protection - appointed Adams to mediate talks between the company and stakeholder groups, including the United Steelworkers union, bondholders, salaried employees, and trade creditors.

The basis of discussions was a preliminary restructuring plan from Stelco.

Key elements included raising $150 million in new equity, issuing $250 million in eight-year bonds, and selling subsidiaries for about $175 million.

The company would have paid its secured creditors in full, while placing about $175 million into its $1.3-billion solvency pension deficit.

However, some employee groups wanted the company to consider a refinancing proposal from Tricap which would have placed $500 million into Stelco's pension deficit.

The company's bondholders also submitted their own refinancing proposal.

Stelco's unionized workers have fought the company's court protection since it filed in January 2004, saying it could run out of cash by last November.

Soaring steel prices, fuelled by demand from China, made the legally-insolvent company profitable shortly after it filed. That strengthened the claims of workers and creditors, who refused to bow to concessions.

On Friday, Pratt said the outcome we seek can't be based on the assumption that steel prices will remain at historically high levels. We've said for months that the prices of the past year were unlikely to continue.

Since that time, there has been a significant softening of market conditions and a marked decline in steel prices. That's why we've stressed the urgency of securing agreement on a restructuring plan, a plan that will enable Stelco to be viable through all stages of the market cycle.

Prior to Friday's announcement, Stelco shares (TSX:STE.A) closed unchanged at $1.13, off a one-year high of $4.48.