Algoma Steel CEO points to employees' hard work behind new merger

The head of Algoma Steel in Sault Ste. Marie, Ont. credits the hard work of the company's employees for bringing the steel maker through a refining process like no other.

Following insolvency proceedings six years ago, the company says it's ready to go public once again as it prepares to merge with a New York-based acquisition firm.

Algoma CEO Michael McQuade says the $1.1 billion deal will provide the steel maker with investment capital and an enhanced capital structure.

The century-old company is being acquired by U.S.-based Legato Merger Corp. The move will see Algoma's common shares traded on the Nasdaq Stock Market — and they intend to apply to list on the Toronto Stock Exchange.

McQuade says employees' efforts are behind the many enhancements that have made the company more attractive and competitive and able to clinch the deal.

"We have invested heavily in our producing units since we emerged from creditor protection last summer, and completed a significant upgrade on the process control system for direct-strip production complex," he said.

"This past February, we completed the commissioning of a second ladle [metallurgy] furnace that refines the steel. We're continuing with the investment in our plate operations. And we have the only Canadian plate producer and heat treating facility in Canada."

Algoma is now getting "capital market confirmation" that the company is "making a lot of the right moves," he added. 

Legato Merger Corporation is made up of a group of investors looking to buy companies in the renewable energy, infrastructure and industrial sectors, and Algoma fits the bill, McQuade noted.

"This particular one was quite a good fit on a number of fronts, [as it's] very much focused on the environmental, social and governance aspect of investment, coupled with the fact that their executive team has ... expertise in the Canadian business climate."

In exchange for a portion of the company that will be sold to them, Legato "brings some $300 million U.S. onto our balance sheet that will facilitate improving our capital structure and the cornerstone for further investment at Algoma Steel."

Tackling emissions problems

A Canadian steel analyst is also calling the merger positive news, and doesn't think Sault Ste. Marie residents should be worried about any job losses.

Peter Warrian, who is with the Munk School of Global Affairs & Public Policy in Toronto and has written extensively about the steel industry, says prices have doubled in the past six months, so steel is worth investing in.

"[The] steel industry as a whole is going to need capital to start producing what people call 'green steel'," he said.

"It's going to take money to get rid of some of the emission problems that are there."

With Legato's backing, Algoma now has the resources and capital it will need to make environmental changes in the near future.

McQuade also says the future is bright for the steel industry, with demand skyrocketing.

"Most North American steel producers, including Algoma Steel, are in fact sold out well into the third quarter, and I also believe that there are some very strong fundamentals that will support strong steel demand and pricing on a go-forward basis," he said.

"Those would include things like significant infrastructure projects announced by governments both in Canada and the U.S."

The company is also looking at converting one of its coal-fired blast furnaces to an electric arc system to reduce carbon emissions by as much as 3 million tonnes a year. McQuade calls it a "potential strategic option."

"It's used widely in North America. Approximately 70 per cent of steel is made using electric arc technology, and it does dominate around the globe," he said.

"It is far more scalable to the market ups and downs. But more importantly, it's a more sustainable business model that again would allow Algoma Steel to continue to make steel for generations to come, in my opinion."

Warrian notes the future does look promising for the steel maker, despite its past issues.

"At the actual production stage, Algoma is quite efficient. They've got past debt problems. They've got transportation problems, because they're relatively isolated from the auto market in southern Ontario," he said.

"But they do have efficiency and technical advantages play in their favour."

The company currently has a production capacity of about 2.8 million tonnes of steel a year, which makes it the second largest steel company in Canada, and employs roughly 2,700 people. Algoma's current management team will stay with the new company.