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Stelco Restructuring Plans
Continue to Evolve

April 8, 2004 — Stelco Inc. provided an update on its restructuring under the Companies Creditors Arrangement Act (CCAA), including a report from the Monitor (Ernst & Young Inc.). The third report of the Monitor provides information on Stelco’s restructuring under CCAA, as well as the following additional topics:

Status of DIP Facility—Applicants now have access, if required, to a DIP facility subject to satisfaction of conditions precedent of the financing as provided in the transaction documents establishing the DIP facility. The DIP facility is in the amount of $75 million.

In addition to the DIP facility, Stelco continues to have access to the Existing Financing Agreement (defined below), which authorizes Stelco to borrow, repay and reborrow up to an amount of $350 million. In aggregate, Stelco now has access to total combined credit facilities of $425 million, subject to satisfaction of conditions precedent for advances under both of the facilities.

Based on Stelco's current cash flow projections, Stelco forecasts that it will not need to draw on the DIP facility through the period ending June 30, 2004.

Cash Flow Projections—The Report also outlined cash flow projections for the current Forecast Period from March 27, 2004 to June 30, 2004. Stelco is forecasting that it will have net disbursements over receipts of $16.3 million during this period.

The total facility utilization under the Existing Financing Agreement is forecast to peak at $302.0 million, although this figure could vary substantially depending on the timing of working capital fluctuations during the Forecast Period.

Financial Performance and Operational Update—The Monitor reports that Stelco's integrated steel operations continue to operate at full capacity and that customers and suppliers have continued to support and maintain business relations with Stelco. The Monitor provides further details on the number of tons of steel produced and shipped by certain Stelco companies.

Consolidated financial statements for the fourth quarter and fiscal year ended December 31, 2003 as well as for the first quarter ended March 31, 2004 are being prepared and are expected to be released in mid-May of this year. The delay in issuance of statements is attributable to the process of finalizing adjustments related to the CCAA filing. Stelco had announced previously that its preliminary consolidated net loss for 2003 was $192 million before asset wrote-offs, revaluations and other adjustments, which are expected to be substantial.

Stelco's total facility utilization pursuant to its existing amended and restated financing agreement with CIT Business Credit Canada Inc. and others dated November 20, 2003 was $293.4 million on the date the Initial Order was granted. As of March 26, 2004, the facility utilization pursuant to the Existing Financing Agreement was $276.3 million.

Each of the other Applicants maintain their own bank accounts, however, each is reliant on advances from Stelco to satisfy funding requirements which cannot be satisfied from cash on hand. In turn, any excess cash held by the other Applicants is paid to Stelco to reduce inter-company advances owed to Stelco. The cash flows during the period February 14, 2004 to March 26, 2004 are summarized as follows:

• Stelpipe Ltd. had net receipts in excess of disbursements of $3.1 million.
• Stelwire Ltd. had net disbursements over receipts of $1.8 million.
• Welland Pipe Ltd. had net disbursements in excess of receipts of $159 thousand.
• CHT Steel Co. Inc. had disbursements in excess of receipts of $131 thousand.

Request to Supplement Representation Order for Retired Salaried Employees—Stelco and the other Stelco companies covered by the CCAA proceedings (the Applicants) have advised the Monitor that they intend to bring a motion returnable on April 13, 2004. This motion will seek a court order supplementing the representation order dated February 13, 2004 relating to retired salaried employees. The requested amendments will have the effect that such order will include individuals who are not beneficiaries under any of the Applicants' registered pension plans for salaried employees but who are eligible to participate in the Applicants' post-retirement benefit plans for former salaried employees and who, as of the date of the Initial Order, were not employees of the Applicants or who cease to be employees thereafter.

The Monitor is of the view that it is appropriate to supplement the retirees' representation order to include the individuals described above and recommends that the Applicants' request be granted.

Representation Order for Active Salaried Employees—The court granted a representation order for active salaried non-union employees of the Applicants on March 19, 2004. Pursuant to this order, among other things, members of the steering committee of The Stelco and Subsidiaries Employees Association were appointed as the active salaried employees representatives and Pallett Valo, LLP was appointed as solicitors for the those representatives in the CCAA proceedings.

Discussions Between Applicants and Stakeholders—The Applicants and their advisors have initiated a dialogue with Stelco's major stakeholders and their representatives to begin the development of a framework which will allow the Applicants to commence the restructuring process. These discussions have led to the court granting representation orders relating to certain of the Applicants' active salaried non-union employees and retired salaried employees.

The Applicants are also in active discussions with the legal advisors for certain of the holders of its senior unsecured debentures. The Applicants, with the assistance of the Monitor and Stonecrest Capital Inc. (the CRO), have assembled a presentation and information book to be presented to stakeholders.

The Applicants, the Monitor and the CRO met with the representatives of the Applicants' active salaried employees and retired salaried employees, along with their legal counsel on April 5, 2004 to present the Stakeholder Presentation and respond to questions. The Applicants, the Monitor and the CRO also met with representatives of the lenders under the Existing Financing Agreement with their legal counsel and financial advisor on April 6, 2004 to present the Stakeholder Presentation and to respond to questions.

Once arrangements for a non-disclosure agreement are finalized with legal counsel of Stelco's senior unsecured debenture holders, the Applicants have advised the Monitor that they will present the Stakeholder Presentation to this group as well.

The Applicants' executive management met with representatives of a local of the Canadian Auto Workers (CAW) on March 29, 2004. The CAW represents the hourly workers of Stelpipe Ltd. The purpose of the meeting was to provide an update to the CAW on the CCAA process and to discuss Stelco's plans for its Stelpipe subsidiary. The Monitor understands that the Applicants offered to set up a meeting to review the Stakeholder Presentation with the CAW. The CAW will consider whether it wishes to see the Stakeholder Presentation given that its representation is limited to the hourly workers at one of the Applicants' active operations.

During the week ending April 2, 2004, two separate meetings were held between Stelco's executive management and representatives of certain locals of the USWA. The purpose of these meetings was to provide information to the USWA on the CCAA process and to attempt to establish a process to enable the Applicants to share information with respect to the Applicants financial position and business plan with the USWA and commence restructuring discussions. The Monitor understands that Stelco and the USWA have had some discussions regarding a protocol to enable representatives of the USWA to receive access to confidential information and to set parameters which would enable the USWA to discuss and disclose to their members some of the information which is not of a highly confidential nature. Currently, no resolution has been reached on this protocol. As a result the Stakeholder Presentation has not yet been provided to representatives of the USWA, their legal counsel and their financial advisor and restructuring discussions have not commenced.

Update on Other Stelco Companies—The Report also provided an update on Stelco Plate Co. Ltd. (Plateco), which operated a plate mill in Stelco's Hamilton facility prior to being idled in April 2003. As of January 29, 2004, Plateco owed its secured lenders approximately $26.7 million. Plateco is in default of its loan facilities with those lenders (the CIBC Bank Syndicate).

Stelco has advised that it would not continue to make payments under its tolling agreement with the plate company and that it would not restart operation of the Plate Mill. Stelco and the CIBC Bank Syndicate are exploring a means by which Stelco will continue to maintain Plateco's assets while a buyer is sought for the machinery and equipment.

As reported in the Monitor's previous report, Stelco has determined not to reopen operations of CHT, a wholly-owned subsidiary located in Richmond Hill, Ont. Those operations were idled in November 2003. With the concurrence of the Monitor, Stelco has determined that an orderly liquidation of the equipment and real estate will maximize recovery on CHT's assets as well as minimize ongoing holding costs. Proposals have been sought and are being submitted by three liquidation firms for the sale of production equipment and furniture. As well, a real estate agent is being selected to list the real estate property and to solicit public offers for the purchase of CHT's real property.

Update Regarding Other Restructuring Activities—Stelco has engaged Hatch Consulting, an international consulting group, to assist it in preparing a long-term strategic plan for its business and operations. Stelco's review of possible cost-reduction measures in its current operations continues. A number of teams have been established across the company to identify cost-reduction opportunities. The majority of such measures will be implemented as part of an overall restructuring plan.

Certain locals of the USWA brought a motion seeking to rescind the Initial Order and dismiss the application of the Applicants for access to the protection of the CCAA on the basis that Stelco was not a debtor company as defined in section 2 of the CCAA because it was not insolvent. The court dismissed the motion pursuant to written reasons released on March 22, 2004. The USWA served a Notice of Leave to Appeal of the decision. The Applicants and the USWA have agreed to expedite the motion for leave to appeal and have agreed on a schedule subject to the approval of the Court of Appeal.

In the matter of construction liens under the Construction Liens Act, and on consent of Stelco and the Monitor, the Court lifted the stay of proceedings to enable a number of lien claimants to register and so preserve those lien claims. Under the Court Orders, the lien claimants are not to take any further steps against Stelco to enforce their lien claims during the stay period without leave of the Court.

Stelco will seek an Order allowing it to postpone the time within which to hold its annual general meeting of shareholders to three months from the date of the termination of the stay period. It was to have been held before June 30, 2004 but Stelco, with the concurrence of the Monitor, believes that an extension is reasonable in the circumstances and will allow management to continue to focus on the restructuring process.

Finally, Stelco has previously said that it may consider a sale of Stelpipe Ltd. at an appropriate time. No sale decision has been taken at this time and any sale would be based on a court approved sale process.

Stelco Inc., Canada's largest and most diversified steel producer, is involved in all major segments of the steel industry through its integrated steel business, mini-mills, and manufactured products businesses. Stelco has a presence in six Canadian provinces and two states of the United States. Consolidated net sales in 2002 were $2.8 billion.

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