Noront Resources

Essar Steel Algoma

Cliffs Mining will continue to supply iron ore to Essar Steel Algoma only if Essar Global does not buy the Sault Ste. Marie steelmaker.

Ontario Steel Investment, a consortium of steel industry specialists including the shareholders of Essar Global, wants to purchase the mill. United Steelworkers Local 2251 considers OSI's bid the best to date.

Union president Mike Da Prat expresses “deep concern” over Cliffs deciding “who is and who is not an acceptable bidder.”

“Why should the members of 2251 be put in a disadvantageous position by someone saying they don't want a certain bidder?” Da Prat told The Sault Star. “We're stakeholders and we intend to do what's best for our members to the greatest extent possible. Quite frankly, I don't see why there's any room in the process for someone to say that someone is unacceptable.”

The demand from Cliffs comes as steel prices are beginning to stabilize after a soft stretch and Algoma faces “strained” liquidity as 14 months of creditor protection ends Jan. 31.

Cliffs “is prepared to be supportive of the efforts to stabilize Algoma and have it continue as a going concern,” the company said in documents filed with Ontario Superior Court of Justice.

The Cleveland-based company “had great difficulties with the way it was treated by Algoma when Algoma was under the control of Essar Global Fund Limited,” the court documents read.

Cliffs stopped its pellet sale agreement with the steel plant in the fall of 2015 because the business relationship between the two companies had “deteriorated.”

The company is the primary supplier of iron ore to the stelemaker. Cliffs operates mines and pellet plants in Michigan and Minnesota. Algoma buys about four million tons of iron ore pellets annually to make steel.

The contract dispute between Essar Steel Algoma and Cliffs Natural Resources was resolved in April. The agreement between the two companies was reinstated as part of the settlement.

Cliffs notes “considerable uncertainty” surrounds Algoma's future. The mining and natural resources company assumes the risk of supplying iron ore to Essar Steel Algoma knowing the supply “will materially assist the advancement of the restructuring process and enhance the marketability of Algoma's business.”

“But it is prepared on a business basis to so agree so long as Essar Global is not involved,” the court document says. “Essar Global faces many hurdles in its continuing efforts to become a potential purchaser. One of those many hurdles will remain iron ore supply.”

Patricia Perscio, director of global communications for Cliffs Natural Resources, declined comment when contacted by The Sault Star.

“It's our policy to not discuss legal matters nor disclose details of our commercial agreements,” said Persico in an email.

Da Prat said grudges can't be held in business.

“If everybody was to decide that anybody they've had a bad experience with is unacceptable, then who the hell would be eligible?” he said. “I can tell you that Local 2251 has had problematic relationships with a bunch of people, so what are we supposed to do?”

Court-appointed monitor Ernst and Young, in its 22nd report dated Tuesday, warns the quicker Essar Steel Algoma can complete its restructuring efforts, the better.

“The monitor further understands from management that the applicant's operations continue to face headwinds resulting from uncertainties in the restructuring process, such as higher employee turnover as compared to the period prior to the (Companies' Creditors Arrangement Act) proceedings, the ability to make capital expenditures on a timely basis and challenges in dealing with concerned customers and vendors,” said senior vice-president Brian Denega in his report. “The monitor is of the view that a viable and consensual going concern solution will broadly benefit all stakeholders and continued delay exposes Algoma's business to greater uncertainties and risk of failure. In light of the foregoing constraints and concerns, the monitor strongly encourages all stakeholders to engage in expedited and meaningful discussions to effect a successful restructuring as soon as possible.”

U.S. Midwest Domestic Hot-Rolled Coil Steel is a benchmark for steel prices. The index showed “significant” price recovery for steel in the first six months of 2016 before falling in the latter half of the year, dipping below $500 US a net ton in October.

“However, the market has shown signs of stabilizing in the recent weeks,” Denega's report says. The price index climbed to $586 US a net ton the week of Dec. 12.

Essar Steel Algoma has about $11 million cash on hand as of Dec. 9.

“Algoma's liquidity continues to be strained, and relies on the amended (Debtor-in-Possession) facilities to cover the ongoing operating shortfalls and seasonal working capital requirements,” says the latest court monitor report. “The amended DIP facilities will mature on Jan. 31, 2017. Algoma has received no assurances from the lenders that the amended DIP facilities will be extended or replaced.”

When Ontario Superior Court of Justice approved an extension to a debtor-in-possession financing facility in late September, Essar Steel Algoma received an additional $35 million US in liquidity.

btkelly@postmedia.com

On Twitter: @Saultreporter