Algoma Steel Inc. announced that its Board of Directors has received and rejected a demand from Paulson & Co. Inc. that Algoma undertake a capital reorganization.

Paulson's demand was contained in a letter to the Board stating that, if the Algoma Board is unwilling to implement the proposal, Paulson would requisition a special meeting of Algoma shareholders with the purpose of electing a new slate of directors that would carry out its proposal.

Paulson holds or controls approximately 19% of Algoma's outstanding shares. Its proposal is that Algoma refinance its outstanding 11% Notes with a new $200 million debt issue and use the proceeds from that issue, together with existing cash on hand, to distribute approximately $420 million of cash to shareholders.

Algoma's Board has already distributed a special dividend and made a normal course issuer bid in 2005. The Board will continue to consider future distributions of cash to shareholders, provided the cash distributions are, in the Board's view, consistent with the company's other needs. The Board noted, however, that the steel industry is entering a period of uncertainty with respect to the cost of raw materials and the pricing of steel products. The Board believes it is appropriate in this environment to maintain a significant level of liquidity, which would be compromised under Paulson's proposal.

During 2005, the Algoma Board has conducted an extensive strategic review and considered a number of alternatives for the company. Alternatives that were reviewed included making acquisitions, distributing cash to shareholders and the sale of the company. This review culminated in the announcement of the special dividend and the normal course issuer bid in August, which together amount to a distribution of over $300 million of cash to shareholders, the maximum amount permitted under the restrictive covenants attached to Algoma's
outstanding 11% Notes which the company intends to redeem in January of 2006. Algoma notes that the Board has been open to discussing strategic alternatives with Algoma shareholders throughout this strategic process, and will continue to be open to such discussions in the future.

"Paulson's proposal involves drastically reducing Algoma's cash position as the company goes into an uncertain time in the steel industry's cycle. Such a step is not in the best interests of the company or its shareholders," said Ben Duster, Chairman of Algoma's Board. "Our Board has been consistently proactive in its efforts to maximize shareholder value. Initially, we sought the sale of the company. When an acceptable transaction could not be achieved, we distributed to shareholders the maximum amount of cash permitted under our debt covenants by way of the special dividend and the normal course issuer bid. We will make further shareholder distributions when it is prudent to do so in the context of the company's cash needs."

Algoma Steel is an integrated steel producer based in Sault Ste. Marie, Ont. Revenues are derived primarily from the manufacture and sale of rolled steel products including hot and cold rolled sheet and plate.