Stelco Inc. reported net earnings of $42 million on sales revenues of $884 million in the second quarter, and net income of $6 million on sales revenue of $1,658 million for the six months ended June 30, 2004.

Second Quarter Results—Net earnings of $42 million ($0.41 per common share) compare with a net loss of $83 million ($0.83 per common share) in the second quarter of 2003. Sales revenue of $884 million compares with $700 million for the same period last year. The increase in sales is primarily attributed to increased selling prices including surcharges.

Production 1,327,000 semi-finished tons, up from the 1,261,000 tons produced during the same period in 2003. This increase was attributable primarily to reduced operating levels in the second quarter of 2003 caused by weak market conditions and planned steel inventory reduction. Cost per ton of $623 was up $18 (3%) compared with the same quarter 2003

On June 17, 2004, the Lake Erie blast furnace experienced a breakout of molten material. This resulted in a five-day blast furnace outage and lost semi-finished steel production of approximately 50,000 tons. The outage increased second quarter costs and will reduce Lake Erie sales in third quarter 2004. Stelco is insured against such incidents, subject to a $5 million deductible, and is in the process of submitting a claim.

First Half Results—Net earnings of $6 million ($0.05 per common share) compare with a net loss of $127 million ($1.29 per common share) for the same period in 2003. Despite improved earnings, net short-term debt remained virtually unchanged from the previous quarter and deteriorated by $29 million since the beginning of the year. Sales of $1,658 million were 19% higher than the $1,393 million achieved in the first six months of 2003.

Production of semi-finished steel for the six month period of 2,693,000 tons was 131,000 tons higher than the same period 2003 mainly due to reduced operating levels in the first six months of 2003 arising from weak market conditions and planned steel inventory reduction partly offset by the blast furnace outage at Stelco Lake Erie. Cost per ton for the six month period of $603 was up $3 compared with the same period 2003.

Comments—Courtney Pratt, Stelco President and CEO, said, "As might be expected in an era of unprecedented and unsustainable high steel prices, Stelco achieved positive earnings during the second quarter. Despite positive earnings driven by strong demand and lack of steel availability, net short-term debt was virtually unchanged in the quarter, and on a year-to-date basis increased by $29 million. Without strong cash generation and significantly lower costs, we cannot regain a competitive position in the North American steel sector on a sustained basis. Our fundamental issues can only be solved by a successful Court-supervised restructuring and a significant reduction of our overall cost structure as well as by making critical capital investments in our integrated steel operations, not by temporary high steel prices."

For the six months ended June 30, Stelco has earned $6 million but its net short-term debt position deteriorated by $29 million. The deterioration in the net short-term debt position has occurred even though Stelco has not funded interest and principal payments on the corporation's stayed debt obligations since the date of the CCAA filing on January 29, 2004. Additionally, Stelco has not been able to initiate needed capital investments because of inadequate funding. Stelco still faces a serious viability issue.

Pratt noted that completing a successful restructuring of its operations and costs, coupled with moving ahead with Stelco's four-point strategy for the new Stelco announced on July 29, 2004, is what is required to bring about sustained viability, solid long-term performance and growth.

Pratt added that the second quarter earnings did not reflect the full impact of the increases in such input costs as raw materials and energy as a significant portion of these costs remained in inventory at the end of the quarter. These higher costs will adversely affect future results as that inventory is sold.

At June 30, 2004 the corporation's consolidated net liquidity was $242 million compared with $243 million as at March 31, 2004. The net liquidity of the applicants involved in proceedings under the Companies' Creditors Arrangement Act (CCAA) at June 30, 2004 was $189 million, compared with $196 million as at March 31, 2004.

Labor Matters—The Stelco Lake Erie labor contract expired on July 31, 2004. The local union and the company have agreed to provide 90 days notice prior to the commencement of a strike or lockout. To date, no notice has been given.

Stelco has a 44.6% interest in the Wabush Mines, which is a major supplier of iron ore pellets to the Integrated Steel operations. On July 5, 2004, Local 6285 of the United Steelworkers of America (USWA) went on strike. Stelco's steel production should not be affected through the balance of 2004 due to secure supply from other mining properties and committed purchases from third parties. There will be incremental costs incurred both in the form of higher pellet prices from tonnage purchased to replace some of the Wabush tonnage and the requirements for the partners to continue to fund Wabush Mines to cover the fixed portion of its operating costs.

Collective agreements at Hibbing Mine and Tilden Mining Co. expired on July 31, 2004. Stelco has a 15% interest in each of these mines. Tentative contract settlements were reached on July 28, 2004, for both these mines. The tentative contracts are now subject to ratification.

The collective agreement at AltaSteel expired on July 31, 2004. A new agreement has not yet been reached. Discussions are ongoing and operations are continuing.

Stelco Inc. is a large, diversified steel producer involved in major segments of the steel industry through its integrated steel business, minimills, and manufactured products businesses.