NEWS LOCAL

Essar liquidity is concern

ByBrianKelly,SaultStar
Sunday,August30,20153:01:20EDTPM

EssarSteelAlgoma,SaultSte.Marie
ConfidenceEssarSteelAlgomaanditsunionleadershaveinthesteelmaker'sfinancialhealthisn'tsharedbyaformerholderofthe
company'sdebt.
BarryKupferberg,directorofresearchatTrilogyCapitalManagement,saidmultinationalparentcompanyEssarmaybegetting
squeezedbypressureonitsotheroperationsinoil,gasandironore.Thoseconstraints,hesaid,maytemperanyadditional
investmentsinthesteelmanufacturer.
Thequestionis,willtheylookatitagainandsay,'Allright,wehaveanother$300(million)in.Shouldwebeputtinganymore
moneyingoingforward?saidKupferberg.Thecapitalhastomakesenseeachtimeyouputitin.Justgiventheenvironmentis
worsetodaythenthequestionishowmuchnewcapital,ifany,wouldyoureinvesttoday?
EsssarGlobalFundLtd.,ultimateownerofthethesteelmaker,pumped$300millionintoAlgomainJuly2014.Theinfusioneased
debtonthesteelmaker'sbalancesheet.

Wehadthoughtthattheamountofcapitaltheyputinbeforewasasubstantialamountofcapitalandthatobviouslyhelpedthe
restructuringthelasttime,KupferbergtoldTheSaultStar.Theenvironmentintheoilandgasbusinesshasonlygottenworse.I
don'tknowtheliquidityofthem,butIcanonlyassumethatthisisnottheonlyproblemintheirempirethatthey'redealingwith.I
imaginetheirresourcesarestretched.Theirliquiditymaybelimited.
TrilogyCapitalManagementheldEssarSteelAlgomadebtforaboutayearendingin2014.Kupferbergdeclinedrevealtheamount
previouslyheldbytheGreenwich,Conn.basedfirm.
Anotherwarningsignheseeswiththesteelmakerisfirstlienbankdebtwithyieldsofabout11%.Thathighratewouldsuggestthat
themarketisimplyingasignificantamountofdistressinthecredit.
Thesteelindustry,notjustEssarSteelAlgoma,isalsocontendingwithseveralotherfactorsincludingsignificantincreasesin
exportsfromChinaandaluminum'spenetrationinautomobilemanufacturing.
TheFordF150,forexample,nowhasanaluminumbodythatmakesthe2015model700poundslighter.Aluminumdoesn'trust,
potentiallyextendingthetruck'slifespan.
Allofasuddenthealuminumindustryisgainingalotoftraction,saidKupferberg.
Inabriefemail,EssarSteelAlgoma'smanagerofcorporatecommunicationssaidthesteelmakeriswellpositionedtoweatherthis
cycleasthemarketrecovers.
Weremainontrackwithourcorporatecostreductionprogramandweareoperatingatarateof90%capacityutilization,said
BrendaStenta.Wehaveatourdisposalabasket(of)optionstomitigatetheimpactoflowsteelprices.
Essarreported$5.6millioninearningsbeforeinterest,taxes,depreciationandamortizationforthefirstquarterof2016endingJune
30.
StentarecentlytoldBloombergNewsthesteelmakerexpectssteelpricestoimproveinthelastthreemonthsof2015.
Unionleadersseenosignsoffinancialstresswiththesteelmaker.
Atthispointwehaven'tseenanythingtobeconcernedfortheirviability,saidLisaDale,presidentofUnitedSteelworkersLocal
2724.Atthispointthey'venotcometouswithanykindofconcernthatit'sgoingsouth.(They're)doingwhatevercostcutting
measuresthattheyneedtoinorderforittoremainviable.Hatsofftothemandwe'llcontinuetoworkwiththemtoseethatwe
continuetohavegoodprofitsgoingforward.
TheConservativegovernment,shesaid,isnotactingstronglyenoughonsteelfromAsiabeingdumpedinCanada.EssarSteel
AlgomasellsmostofitssteelsheetandplateproductsinNorthAmerica.
CanadaBorderServicesAgencyisinvestigatingifsteelplatefromIndiaandtheRussianFederationwasdumpedinCanadaor
benefitedfromcountervailablesubsidies.ArulingisexpectedSept.8.Dutiesmaybeimposed,possiblyretroactivetoJune10.
Wehavetomakeeffortsacrossalloftheplatforms,saidDale.Whatdowedoasaunion?Whatdowedoasacompany?What
dowedoasgovernment?WeneedtomakesurethatwekeepAlgomaSteelasaprofitableandviableplaceforSaultSte.Marie.
Herlocalrepresentsslightlymorethan500workers.
We'vealwaysbeentoldthisoperationhastostandonitsownandithas,saidMikeDaPrat,presidentofUnitedSteelworkers
Local2251.Herepresentsabout2,200members.
EssarSteelAlgomahadmorethan$1.2billionofdebtmaturebetweenSeptember2014andJuneofthisyear.
Remembertoothatnotonlydotheyhavetoservicethedebt,butatsomepointtheyactuallyhavetopayitback,saidKupferberg.
EssarGlobalpaid$1.85billionincashtopurchasethesteelmakerin2007.
b.kelly@sunmedia.ca
OnTwitter:@Saultreporter

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