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Danieli pays $5M penalty to Algoma Steel for plate mill delays

Tech problems caused the upgrade to be delayed by many months
Algoma Steel's elecric arc furnace construction (SooToday)

Danieli Group, the Buttrio, Italy-based supplier/contractor working on huge technical makeovers at Algoma Steel, has paid a $5-million settlement related to problems with its Sault plate mill upgrade.

Danieli's payment is disclosed in documents filed by the Sault steelmaker this week with Canadian and U.S. securities regulators.

"On March 17, 2023, the company reached a settlement agreement with Danieli, where Danieli has provided Algoma a credit note in the total aggregate amount of $5 million," Algoma said in a filing submitted Thursday.

"This settlement was in relation to delays in the completion of Phase 1 of the plate mill modernization project and recovery of excess expenses incurred by Algoma during such period.

" Algoma Steel's plate mill is the only Canadian facility making discrete plate steel – a product used to make Royal Canadian Navy warships (HMCS Toronto and HMCS Halifax) as well as bridges (Champlain Bridge, Bluewater Bridge), buildings (Pearson International Airport, Rogers Centre, GFL Memorial Gardens) and wind turbines across Ontario.

The plate mill upgrade is being done by Danieli Group, which designed and delivered Algoma's flagship direct strip production complex in the mid-1990s.

The plate mill upgrade will allow Algoma to expand its product portfolio to include wider plate products, to better control shape and surface quality and to improve logistics – making it possible to offer enhanced ship-on-time performance.

Danieli’s involvement includes an overhaul of the complete plant automation system – from the reheat process to finished goods – it and the installation of a new primary de-scaler, a new hot-leveller and a new cooling bed.

A new dividing shear, piling system, 'top-to-bottom" automated inspection system and plate marking machine will upgrade the finishing area.

As SooToday first reported last summer, the $120-million plate mill upgrade was plagued with technical problems and fell many months behind schedule. The delay was one cause cited for an 11.9 per cent drop first-quarter shipments.

This past week, Algoma reported its plate mill woes are now behind it and the plate and strip facility is operating at normal production levels. Algoma is now proceeding with a second phase of upgrades there, including installation of a heavy gauge inline shear and upgrades to hot-mill drives.

"Algoma is pleased to report that the shear installation is currently progressing ahead of schedule, and the company expects to be able to further increase plate production in the third calendar quarter of 2023," the company said in a news release.

"This higher production is expected to allow Algoma to respond to market opportunities and to build inventory ahead of the planned Phase 2 hot mill outage currently scheduled in April of 2024."

Danieli is also the sole technology supplier for Algoma's ongoing transition to electric arc furnace (EAF) steelmaking, the most expensive construction project in local history.

On Wednesday, Algoma announced the EAF project is going to cost as much as $175 million more than its original $700-million budget. Firing up the new furnaces is also expected to take longer than expected.

"As we enter the next phase of the project, inflationary pressures on construction costs and materials are currently estimated to increase spending on the project beyond our original budget estimates by approximately $125 million to $175 million, with the impact coming across the balance of the project," Michael Garcia, Algoma's chief executive officer, said.