Stelco Reports Improved Results for 1st Quarter
05/01/2007 - Stelco reported EBITDA of $13 million and a $35-million loss before income tax of for the first quarter ended March 31, 2007, a substantial improvement over the negative $82-million EBITDA and $145-million loss before income tax reported in the fourth quarter 2006.
Stelco Inc. reported EBITDA of $13 million and a $35-million loss before income tax of for the first quarter ended March 31, 2007. Results reflect a substantial improvement over the negative $82-million EBITDA and $145-million loss before income tax reported in the fourth quarter 2006.
During the first quarter, Lake Erie Steel achieved a record monthly production following its successful expansion. Shipments increased to 922,000 tons and semi-finished steel production increased to 1,100,000 tons. The company also achieved net sales revenue of $609 million—a 29% increase over sales revenue of $472 million reported for the previous quarter ended December 31, 2006.
The corporation also enhanced its capital structure when its asset-based revolving credit facility was amended on enhanced terms and maturity extended to 2012. Subsequent to the quarter-end, a commitment letter was entered into to replace the existing revolving term loan credit facility on more favorable terms.
Operations Results—Profitability at Lake Erie Steel and HLE Mining was offset by continued significant losses at Hamilton Steel. High production costs and limited marketplace support have forced the May 2007 closure of Hamilton Steel’s 56-inch hot strip mill, which has operated since 1937. The mill’s closure, which is expected to reduce employment levels by 350 people at Hamilton, represents a significant step toward transforming Hamilton Steel to become a profitable steel manufacturer. The expanded capacity at Lake Erie Steel, in combination with the reduction in fixed costs at Hamilton Steel, is expected to improve Stelco's overall efficiency, product quality, and operating costs.
Management Comments—"We have positioned Stelco to react quickly to the changing marketplace,” commented Rodney Mott, Stelco's President and CEO. “Our ramp up in production and shipments following our Lake Erie expansion and Hamilton blast furnace upgrade has been outstanding."
Financing—Stelco amended and extended its $600-million asset-based revolving credit facility on March 23, 2007. Amendments include extending the term of the facility from 2008 to 2012, increasing availability under the facility, and providing an overall reduction in financing costs. In addition, on April 9, 2007, the corporation entered into a commitment letter with GE Corporate Lending Canada for a proposed refinancing of Stelco's existing revolving term loan with a fully drawn U.S. dollar facility in an amount equivalent to $275 million Canadian, having a term of six years. The new facility would have significantly lower interest rate and fees compared to Stelco's existing revolving term loan. Completion of the refinancing is subject to a number of conditions that must be satisfied no later than May 11, 2007. These financing initiatives will provide a more favorable long-term debt structure, which is expected to reduce financing costs. Stelco will continue to pursue initiatives to enhance its capital structure.
Outlook—"With our continued strong production and shipping performance and the apparent strength of the market, we expect improved operating results for the second quarter,” said Mott. “High shipping levels are expected throughout the quarter and previously announced price increases will be realized.
"Our Lake Erie Steel operation is now positioned as one of the industry's most competitive, and will enable us to expand our market position. We will continue to pursue initiatives to make Hamilton Steel a profitable operation, and a further review of its facilities and cost structure is underway," concluded Mott.
