STELCO INC. QUARTER 3, 2007 REPORT TO THE SHAREHOLDERS

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1 STELCO INC. QUARTER 3, 2007 REPORT TO THE SHAREHOLDERS Management s Discussion and Analysis Management s Discussion and Analysis (continued) Business Description... 1 Changes in Accounting Policy Proposed Acquisition of Stelco by US Steel Corporation... 1 Critical Accounting Assumptions and Estimates Financial and Operating Results... 2 Risk Factors Financial and Operational Summary... 6 Outlook Reorganization and Adoption of Fresh Start Reporting... 6 Additional Information Summary of Quarterly Results... 7 Liquidity and Capital Resources... 7 Consolidated Financial Statements Off-Balance Sheet Arrangements Financial Instruments Notes to Consolidated Financial Statements Related Party Transactions Outstanding Share Data MANAGEMENT S DISCUSSION AND ANALYSIS This Management's Discussion and Analysis (this MD&A ) is in respect of the interim unaudited consolidated financial statements and accompanying notes (the Consolidated Financial Statements ) of Stelco Inc. ( Stelco or the Corporation ) for the quarter ended September 30, The purpose of this MD&A is to provide commentary on the Corporation s financial condition and future prospects and to assist security holders and others to understand the Corporation and the key factors underlying its financial results. This discussion of the Corporation s business may include forward-looking information that is subject to risks and uncertainties that may cause actual results to differ materially (See Forward-Looking Statements below.) This MD&A should be read in conjunction with the consolidated financial statements contained in this report, the annual audited consolidated financial statements and the accompanying notes and related management s discussion and analysis contained in the Corporation s 2006 Annual Report, and with the interim unaudited consolidated financial statements and accompanying notes and related management s discussion and analysis of the Corporation for the quarters ended March 31, 2007 and June 30, Additional information about Stelco is available in the Corporation s 2006 Annual Information Form, which can be accessed from SEDAR at This document has been reviewed by the Audit Committee of Stelco s Board of Directors and contains information current as of October 24, Events occurring after that date could render the information contained herein inaccurate or misleading in a material respect. Business Description Established in 1910, Stelco is one of Canada s largest steel producers. The Corporation operates two integrated steel plants in Ontario, Canada which produce a variety of steel products for customers in the automotive, steel service centre, appliance, energy, construction and pipe and tube industries within North America. Through its ownership interests in iron ore mining properties and related supply agreements, Stelco currently secures approximately 90% of its requirements for iron ore. Stelco operates its business through partnerships, subsidiaries and joint ventures. Proposed Acquisition of Stelco by US Steel Corporation On August 26, 2007, Stelco, US Steel Corporation ( US Steel ) and an indirect wholly-owned subsidiary of US Steel ( Subco ) entered into an arrangement agreement (the Arrangement Agreement ). The Arrangement Agreement provides that, upon the terms and subject to the conditions set forth in the Arrangement Agreement, Subco will acquire all of the outstanding common shares of Stelco ( Common Shares ) for $38.50 in cash per Common Share and Stelco will become an indirect wholly-owned subsidiary of US Steel under a plan of arrangement pursuant to the provisions of applicable corporate legislation (the Arrangement ). As part of the Arrangement, holders of warrants to purchase Common Shares ( Warrants ) will receive, for each Warrant held, a cash payment from Stelco equal to $27.50 (being the difference between $38.50 and the exercise price of the Warrants) and holders of options to purchase Common Shares ( Options ) will receive, for each Option held, a cash payment from Stelco equal to the difference between $38.50 and the exercise price of such Option. In connection with the completion of the Arrangement, all outstanding Warrants and Options will be cancelled.

2 Page 2 Stelco Inc. Quarter 3, 2007 Under the terms of the Arrangement, US Steel (or one of its affiliates) is to provide (i) one or more loans (the Debt Payoff Loans ) to Stelco in an aggregate amount equal to the aggregate of all amounts owing under certain third party debt of Stelco that US Steel specifies is required to be repaid (the Specified Debt ), (ii) a loan to Stelco equal to the aggregate consideration required to be paid to holders of Warrants, and (iii) a loan to Stelco equal to the aggregate consideration required to be paid to holders of Options. US Steel has informed Stelco that the Specified Debt will include all amounts required to redeem Stelco s outstanding floating rate notes and retire Stelco s secured term and asset based loans, as well as a term loan made by a subsidiary of Stelco. Immediately upon receipt of the Debt Payoff Loans, Stelco will repay in full all amounts owing under the Specified Debt. Consummation of the Arrangement is subject to customary conditions, including Stelco shareholder approval, court approval and receipt of certain regulatory approvals, including under the Investment Canada Act and the Competition Act. Subject to the satisfaction of such conditions, it is anticipated that the Arrangement will be completed on or about October 31, A special meeting of the shareholders of Stelco (the Meeting ) has been scheduled to be held on October 26, 2007 for the purpose of considering a special resolution approving the Arrangement. The resolution is required to be approved by at least two-thirds of the votes cast by shareholders represented in person or by proxy at the Meeting. Shareholders owning more than 76 percent of Stelco's outstanding Common Shares have entered into agreements with US Steel whereby they have irrevocably agreed to vote in favour of the Arrangement at the Meeting. Some of the Corporation s arrangements and agreements will be impacted by the pending transaction and will result in the following payments: ($ millions) Incentive stock option plan (1) $ 59 Pension plan contribution (2) 33 Early redemption and termination penalties (3) 29 Advisors fee (4) 21 Executive bonus (4) 2 Total $ 144 (1) Pursuant to the provisions of the stock option contracts, all options will vest. A total of 1,925,250 options will be cancelled in exchange for a payment equal to the difference between $38.50 and the exercise price of the particular options. (2) Under the terms of an agreement between US Steel, Stelco and the Province of Ontario entered into concurrently with the Arrangement Agreement, US Steel has agreed that, upon the effective time of the Arrangement, US Steel will guarantee Stelco's annual pension funding obligations under a pension agreement entered into by Stelco and the Province of Ontario in 2006 and Stelco will make a voluntary contribution of approximately $32.5 million in the aggregate to Stelco s main pension plans. (3) The outstanding asset based loan facility and all long-term debt, with the exception of the Province Note, will be redeemed or retired. A number of these obligations will be subject to early redemption or termination penalties, primarily the Corporation s Floating Rate Notes and asset based loan facility. (4) As a result of a successful transaction, the Corporation s financial advisors and executive employees are eligible for advisors fees or bonuses. In the case of the financial advisors, the advisor fee is based on the value of the transaction, whereas the executive employee bonus is based on a varying percentage of annual base salary. In addition to these payments, unamortized financing fees related to the secured revolving loan facility and the asset based loan facility of $9 million will be expensed upon repayment of these obligations. The Arrangement Agreement may be terminated in certain circumstances as set out in the Arrangement Agreement. The Arrangement Agreement provides that, if the board of directors of Stelco changes its recommendation in favour of the Arrangement or in certain circumstances where an alternative acquisition transaction has been proposed, Stelco is required to pay a termination fee of $26 million to US Steel. Further information concerning this transaction is contained in the Corporation s Management Proxy Circular dated September 24, 2007, which can be viewed on the System for Electronic Document Analysis and Retrieval at and at Stelco s website Financial and Operating Results Overview Operational restructuring and strategic initiatives initiated in 2006 have continued to improve the cost structure at Stelco. In addition, decreases to commodity input prices have helped improve steel production costs in the third quarter of Costs decreased to $542 per ton in the third quarter of 2007, an improvement of $68 per ton over the second quarter of This significant reduction in costs is attributable to several key factors at the Corporation s Hamilton Steel and Lake Erie Steel operations, which are referred to in this MD&A as Hamilton Steel and Lake Erie Steel respectively. Significant cost improvements are being realized at Hamilton Steel as a result of the closure of the Hamilton 56 hot strip mill, as well as the closure of the #2 pickle line, the 5 stand cold mill and other related facilities announced in the second quarter of These facilities were antiquated with high cost operations and limited support from the marketplace. The closure of these facilities resulted in a reduction of the Hamilton Steel workforce by approximately 400 positions, largely through voluntary retirements. A

3 Stelco Inc. Quarter 3, 2007 Page 3 significant number of these retirements took place in the latter part of the second quarter of 2007 and the financial impact has benefited third quarter results as overall productivity during the third quarter of 2007 increased. Since March 31, 2006, the date the Corporation emerged from CCAA proceedings, Stelco s workforce has been reduced from 4,954 to 3,542 at September 30, 2007, largely from the Hamilton Steel workforce. While these facility closures have changed the product mix, the Corporation expects that the closures will continue to result in a positive impact on operating income. Reduced spending in the third quarter of 2007 on repairs, maintenance, purchased fuels and purchased conversion and services helped reduce costs, as did lower input prices for natural gas, scrap and coal. Management continues to review the Hamilton facilities with the expectation that the higher productivity rates are sustainable and that further cost reductions can be realized. The phase two upgrade of the Lake Erie Steel hot strip mill was substantially completed in the fourth quarter of 2006, allowing Stelco to shut down the 56 hot strip mill in Hamilton and shift orders to the modernized Lake Erie Steel hot strip mill during the second quarter of This change is improving Stelco s overall efficiency, product quality and is lowering operating costs. The Lake Erie Steel hot strip mill set a monthly production record of 290,000 tons during September Further optimization of the hot strip mill and steelmaking are under review in order to increase production. Reduced spending in the third quarter of 2007 on repairs, maintenance, purchased conversion and services helped reduce costs. Higher input prices on purchased coke, and reagents were largely offset by reduced input prices on natural gas, coal and scrap. Total revenue decreased from $717 million in the second quarter of 2007 to $634 million in the third quarter of 2007, due to decreased shipments, declining selling prices and a lower price product mix. All major customer groups continued to adjust their purchasing and inventory levels during the third quarter as a result of the uncertainty of demand and pricing. As well, steel prices remained under pressure during the third quarter due to the strengthening Canadian dollar as compared to the US dollar. A lower price product mix during the third quarter was primarily a result of increased slab sales to other steel producers as well as decreased sales of cold rolled and galvanized products. On June 6, 2007, the Corporation announced that it entered into an agreement providing for the sale of its 44.6% interest in the Wabush Mines joint venture to Consolidated Thompson Mines Limited. Dofasco Inc., one of the partners of the joint venture, had a right of first refusal over the proposed transaction, which it exercised on August 29, Completion of the transaction with Dofasco Inc. is subject to the execution of definitive agreements and the receipt of all required third party consents and regulatory approvals. It is expected that the completion of the transaction will occur in the fourth quarter of Net Sales and Costs Quarter 3, 2007 compared to Quarter 2, 2007 Net earnings improved $79 million to $38 million for the third quarter of 2007 and EBITDA (1) improved by $14 million to $67 million for the third quarter of This improvement was largely driven by strategic and operational restructuring initiatives, as well as lower input costs. Total revenue decreased from $717 million in the second quarter of 2007 to $634 million in the third quarter of Average revenue per ton decreased from $658 in the second quarter of 2007 to $606 in the third quarter of All major customer groups, including automotive, construction and service centres, continued to adjust their purchasing and inventory levels during the third quarter as a result of the uncertainty of demand and pricing. The pipe and tube markets remained strong during the third quarter of 2007 and shipments of slabs to other steel producers increased during the third quarter of Average selling prices declined across all product lines during the third quarter 2007 as a result of weaker demand and a continued strengthening Canadian dollar as compared to the US dollar. Third quarter 2007 costs of $567 million were $97 million lower than the second quarter of 2007 partly due to decreased shipments in the third quarter of Shipments were 1,047,000 tons for the third quarter of 2007 compared to 1,089,000 tons for the second quarter of Average cost per ton decreased by $68 to $542 per ton for the third quarter of This was largely due to a shift in mix towards increased slab sales and reduced finished product sales. In addition, reduced spending on repairs, maintenance, purchase conversion and services, reduced labour and reduced natural gas usage all helped reduce costs. Reduced input prices on natural gas, coal and scrap more than offset price increases in purchased coke and reagents. Asset Impairment Charges During the second quarter of 2007, an impairment charge of $25 million was recorded due to the pending sale of the Corporation s ownership interest in Wabush mines. The impairment reflected the excess book value of net assets for sale at June 30, 2007 relative to anticipated proceeds. In addition, a number of facilities were closed within the Hamilton Steel complex during the second quarter of 2007, resulting in an impairment charge of $13 million. No facilities were closed in the third quarter and accordingly no additional impairment charges were required. Employee Future Benefits Workforce reduction costs of $5 million were recorded during the third quarter of 2007 due to salaried employee participation in a voluntary retirement program.

4 Page 4 Stelco Inc. Quarter 3, 2007 Comparatively, $9 million of costs were incurred during the second quarter of 2007, largely related to a voluntary retirement program that was offered to the Hamilton bargaining unit employees to assist in the transition of workers in connection with the closure of several facilities. Foreign Exchange Gains and Write-off of Financing Fees The Corporation s Floating Rate Notes and Secured Term Loan (see Liquidity and Capital Resources Financing Arrangements ) are denominated in US dollars. A $36 million foreign exchange gain was recorded in the third quarter of 2007 due to the revaluation of the notes and loan using the September 30, 2007 US dollar exchange rate of $ ($ as at June 30, 2007), as compared to a $30 million foreign exchange gain recorded in the second quarter of During the second quarter of 2007, the Corporation refinanced and replaced its Secured Revolving Term Loan. As a result, $7 million of unamortized financing fees with respect to the former Secured Revolving Term Loan were expensed. Income Tax Expense Future income tax assets are recognized to the extent that realization is considered more likely than not. The assessment as to the future realization of future income tax assets, including loss carry-forwards, is conducted on a company-by-company basis for the Stelco group of businesses. Realization of future income tax assets is dependent upon the availability of sufficient taxable income within the carry-forward periods. The assessment of realization is based upon the weight of evidence at the respective balance sheet date. The Corporation had certain future income tax assets which existed at March 31, 2006 but were not recognized on the Consolidated Statements of Financial Position at that date. A portion of these future income tax assets were recognized in the second and third quarters of 2007 and were applied to contributed surplus. Quarter 3, 2007 compared to Quarter 3, 2006 Net earnings improved by $63 million to $38 million for the third quarter of EBITDA (1) was $67 million in the third quarter of 2007 and $64 million in the third quarter of Included in third quarter 2006 costs was $11 million related to the fresh start revaluation of inventory. Excluding this item, EBITDA (1) for the third quarter of 2006 would have been $75 million, or $8 million higher than for the third quarter of Contributing to the lower EBITDA (1) in third quarter of 2007 were lower selling prices, partially offset by increased shipments, reduced employment costs, yield improvements and reduced spending. Net sales during the third quarter of 2007 decreased $26 million to $634 million from the third quarter of Shipments increased from 918,000 tons in the third quarter of 2006 to 1,047,000 tons in the third quarter of Notwithstanding this significant increase in tons shipped, revenue decreased due to decreased selling prices across virtually all product lines, as well as a shift in mix towards slab and hot rolled sales from finished product sales. Third quarter 2007 costs of $567 million were $18 million lower as compared to third quarter 2006 costs of $585 million, excluding the $11 million fresh start inventory revaluation. Average cost per ton, excluding the fresh start inventory revaluation, fell by $94 from the third quarter of 2006 due to a shift in mix towards slab and hot rolled sales from finished product sales, reduced employment costs particularly at Hamilton Steel, yield improvements from the hot strip mill at Lake Erie Steel, and various reduced spending initiatives such as repairs and maintenance and purchased conversion and services. Amortization Amortization expense for the third quarter of 2007 was $29 million as compared to $25 million for the third quarter of Included in amortization expense in the third quarter of 2006 was a $4 million reduction due to the finalization of fresh start reporting. Employee Future Benefits Workforce reduction costs of $5 million were incurred during the third quarter of 2007, due to salaried employee participation in a voluntary retirement program. During the third quarter of 2006, workforce reduction costs totalling $6 million were incurred as a result of a voluntary retirement program offered to Hamilton Steel and Lake Erie Steel bargaining unit employees, as well as other termination costs. Foreign Exchange Gains (Losses) The Corporation s Floating Rate Notes and new Secured Term Loan (see Liquidity and Capital Resources Financing Arrangements ) are denominated in US dollars. A $36 million foreign exchange gain was recorded in the third quarter of 2007 due to the revaluation of the notes and loan using the September 30, 2007 US dollar exchange rate of $ (US dollar exchange rate was $ as at June 30, 2007) as compared to a $1 million foreign exchange loss recorded in the third quarter of 2006 related to the Corporation s Floating Rate Notes. Income Tax Expense Future income tax assets are recognized to the extent that realization is considered more likely than not. The assessment as to the future realization of future income tax assets, including loss carry-forwards, is conducted on a company-by-company basis for the Stelco group of businesses. Realization of future income tax assets is dependent upon the availability of sufficient taxable income

5 Stelco Inc. Quarter 3, 2007 Page 5 within the carry-forward periods. The assessment of realization is based upon the weight of evidence at the respective balance sheet date. The Corporation had certain future income tax assets which existed at March 31, 2006, but were not recognized on the Consolidated Statements of Financial Position at that date. A portion of these future income tax assets were recognized in the third quarters of 2007 and 2006 and were applied to contributed surplus. Other Financial Comparisons As a result of the Reorganization and the revaluation of Stelco s assets and liabilities under fresh start reporting, certain consolidated financial and other information regarding the Successor may not be comparable with consolidated financial and other information regarding the Predecessor. Accordingly, selected comparative information in this MD&A from Successor periods to Predecessor periods has been limited to sales and shipments. Nine months ended September 30, 2007 compared to nine months ended September 30, 2006 Net sales for the nine months ended September 30, 2007 decreased to $1.960 billion compared to $2.032 billion in the comparable period of While shipments increased by 195,000 tons, lower selling prices during 2007 along with a shift to a lower priced product mix towards slabs were primary reasons for the reduction to net sales.

6 Page 6 Stelco Inc. Quarter 3, 2007 Financial and Operational Summary Stelco Inc. Nine months Six months Three months Three months ended ended ended ended Sept. 30 June 30 Sept. 30 Sept. 30 Sept. 30 March 31 ($ in millions, except as indicated *) (unaudited) (Successor) (Successor) (Successor) (Successor) (Successor) (Predecessor) Net sales $ 634 $ 717 $ 660 $ 1,960 $ 1,358 $ 674 Costs ,827 1, EBITDA (1) (21) Amortization of property, plant, and equipment Amortization of intangible assets Operating earnings (loss) before the following: (49) Asset impairment charges (Note7) Employee future benefits workforce reduction costs (Note 11) Foreign exchange (gain) loss on long-term debt (Note 10) (36) (30) 1 (69) (12) Interest on long-term debt and revolving term loans Other interest net 5 Interest on long term debt subject to compromise 10 Write off of financing fees (Note 8) 7 7 Reorganization items (Note 17) 21 Income (loss) before income tax from continuing operations 50 (19) 13 (4) (42) (85) Income tax expense (recovery) (Note 12) Current Future (13) Net income (loss) from continuing operations 38 (41) (25) (42) (56) (79) Net income (loss) from discontinued operations (Note 2) (43) Net income (loss) $ 38 $ (41) $ (25) $ (42) $ (56) $ (122) Average revenue per ton *$ 606 *$ 658 *$ 719 *$ 641 *$ 719 *$ 692 Average cost per ton *$ 542 *$ 610 *$ 649 *$ 597 *$ 675 *$ 714 Semi-finished steel production (thousands of net tons) 1,095 1, ,279 2, Shipments (thousands of net tons) 1,047 1, ,058 1, (1) Non-GAAP Financial Measures The financial information contained in this MD&A is presented in accordance with Canadian GAAP. Reference is also made to EBITDA, which is a non-canadian GAAP measure. EBITDA refers to operating earnings (losses) before interest, income taxes, amortization and other non-operating income and expenses such as asset impairment charges, workforce reduction costs, foreign exchange gains and losses on long-term debt, write off of financing fees and in the case of the Predecessor, also before reorganization items. Information concerning EBITDA has been included in this MD&A because management considers it to be, and uses it as, a meaningful indicator for assessing the operating performance of the Corporation. EBITDA does not represent cash generated from operations as defined by Canadian GAAP and it is not necessarily indicative of cash available to fund cash needs. Non-Canadian GAAP earnings measures (such as EBITDA) do not have any standardized meaning and therefore the Corporation s use of EBITDA measures may not be comparable to measures used by other companies. A reconciliation to net income (loss), which is a Canadian GAAP measure, is presented above in the Financial and Operational Summary. All note references in this document are to the Consolidated Financial Statements. Reorganization and Adoption of Fresh Start Reporting Stelco and certain related entities filed for protection under the Companies Creditors Arrangement Act (the CCAA ) on January 29, The Corporation emerged from CCAA protection at the end of the day on March 31, 2006 upon the implementation of Stelco s third amended and restated plan of arrangement and reorganization (the CCAA Plan ). Also on March 31, 2006, a plan of arrangement involving Stelco was implemented under the Canada Business Corporations Act (the CBCA Plan ) pursuant to which Stelco s business was reorganized and specific assets and liabilities of Stelco were transferred into nine separate limited partnerships. Stelco s emergence from CCAA protection and the implementation of the CCAA Plan and the CBCA Plan is referred to in this MD&A as the Reorganization. Further information regarding the Reorganization is set out in Note 2 to the Consolidated Financial Statements.

7 Stelco Inc. Quarter 3, 2007 Page 7 When used in this MD&A, the term Predecessor refers to Stelco and its related entities prior to the Reorganization and the term Successor refers to Stelco and its related entities following the Reorganization. In connection with the Reorganization, Stelco adopted fresh start reporting on March 31, 2006 and, accordingly, completed a comprehensive revaluation of its assets and liabilities. See Notes 2 and 5 to the Consolidated Financial Statements for further information. As a result of the Reorganization and the revaluation of Stelco s assets and liabilities under fresh start reporting, certain consolidated financial and other information regarding the Successor may not be comparable with consolidated financial and other information regarding the Predecessor. Summary of Quarterly Results The following table reflects the Corporation s quarterly financial performance over the last eight quarters. Although the Corporation does not typically experience significant seasonal fluctuations in revenues, the Corporation can experience significant fluctuations in revenues based on external events such as customer inventory levels, automotive demand and imports. Stelco Inc (in millions, except as indicated *) (unaudited) Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 (Successor) (Predecessor) Net Sales $ EBITDA (1) $ (82) (21) (31) Operating earnings (loss) $ (19) (113) 39 (10) (49) (58) Income (loss) before income tax from continuing operations $ 50 (19) (35) (145) 13 (55) (85) (103) Net income (loss) from continuing operations $ 38 (41) (39) (145) (25) (31) (79) (67) Net income (loss) $ 38 (41) (39) (145) (25) (31) (122) (120) Income (loss) from continuing operations per common share Basic *$ 1.40 (1.51) (1.44) (5.35) (0.93) (1.14) (0.77) (0.66) Fully diluted *$ 1.26 (1.51) (1.44) (5.35) (0.93) (1.14) (0.77) (0.66) Income (loss) per common share Basic *$ 1.40 (1.51) (1.44) (5.35) (0.93) (1.14) (1.19) (1.17) Fully diluted *$ 1.26 (1.51) (1.44) (5.35) (0.93) (1.14) (1.19) (1.17) Average revenue per ton *$ Average cost per ton *$ Semi-finished steel production (thousands of net tons) 1,095 1,084 1, , Shipments (thousands of net tons) 1,047 1, (1) EBITDA is a non-gaap financial measure. See Financial and Operational Summary Non GAAP Financial Measures. Liquidity and Capital Resources The liquidity and capital resources of the Corporation are dependent upon a number of factors including, without limitation, market and economic conditions and the impact of these conditions on the price of steel products, raw material costs, the ability to fund necessary capital projects, pension requirements and labour negotiations and disputes. The Corporation has a significant requirement for working capital related primarily to inventories due to the lead time of acquiring raw materials, the quantities of raw materials that are required to produce semi-finished steel and the amount of time required to process this semi-finished steel into a finished product. This working capital requirement is characteristic of many companies within the steel industry.

8 Page 8 Stelco Inc. Quarter 3, 2007 Cash Flow Summary Nine months Six months Three months Three months ended ended ended ended (in millions) (unaudited) Sept. 30, 2007 Sept. 30, 2006 Sept. 30, 2007 Sept. 30, 2006 March 31, 2006 Cash provided by (used for): (Successor) (Successor) (Successor) (Successor) (Predecessor) Continuing operations adjusted for items not affecting cash $ 8 $ 36 $ (30) $ 58 $ (41) Changes in operating elements of working capital 27 (10) (6) (23) (2) Operating activities (36) 35 (43) Investment activities (5) (8) (22) (49) 58 Financing activities (40) (23) 79 (9) (21) Net change in cash position $ (10) $ (5) $ 21 $ (23) $ (6) Due to the non-comparable nature of the financial results between the Successor and the Predecessor (see Reorganization and Adoption of Fresh Start Reporting in this MD&A), the nine month commentary pertains only to the results of the Successor. Cash provided by (used for) operating activities Cash flow provided by operating activities for the third quarter of 2007 was $35 million as compared to $26 million in the comparable period of For the nine months ended September 30, 2007, the operating activities required $36 million. Cash flow from operating activities, excluding working capital, was driven primarily by the net earnings (loss) incurred during these periods adjusted for items not affecting cash (see Consolidated Statements of Cash Flows for further information). Working capital provided $27 million in the third quarter of 2007 relating primarily to reduced accounts receivable partially offset by lower accounts payable and accrued liabilities and higher inventory. Reduced selling prices and a reduction in shipments contributed to lower receivables during the third quarter of 2007 from the second quarter of Accounts payable and accrued liabilities were lower due to timing of payroll and the semi-annual interest payments made during the quarter. Inventories increased primarily due to the higher prices of certain commodities, particularly coke. In comparison, cash used for the operating elements of working capital in the three months ended September 30, 2006 of $10 million was primarily the result of higher inventory after excluding fresh start adjustments and a decrease in accounts payable and accrued liabilities due to lower activity levels. Partly offsetting these cash usages was a reduction in accounts receivable largely reflecting decreased sales activity. Cash provided by (used for) investing activities Capital spending during the third quarter of 2007 amounted to $5 million. Capital spending for the nine months ending September 30, 2007 amounted to $22 million. Capital spending was focused primarily on various projects at the Corporation s mining interests, and additional spending at Lake Erie Steel. During the third quarter of 2006, $21 million was spent on capital projects, the majority of which was related to the hot strip mill upgrade at Lake Erie Steel and to a lesser extent, projects at the Corporation s mining interests. Partially offsetting these cash requirements were $13 million of final proceeds received from the sale of non-core assets. Cash provided by (used for) financing activities During the third quarter of 2007, cash used for financing activities was $40 million principally arising from a reduction of debt. The Corporation reduced its revolving term loans by $34 million and its long-term debt by $6 million. For the nine months ended September 30, 2007, cash of $79 million was provided by financing activities. The Corporation issued long-term debt in the form of a new US dollar denominated secured term loan (US $270 million) for gross proceeds of $298 million Canadian. These proceeds were used to repay in full the indebtedness under the secured revolving term loan of $200 million and the balance was primarily used to reduce borrowing under the Corporation s asset based loans of $68 million. The Corporation reduced its long term debt by $13 million and incurred financing issue costs of $9 million. Cash provided by additional revolving term loans amounted to $71 million. Liquidity The Corporation s liquidity and capital resources position is summarized as follows:

9 Stelco Inc. Quarter 3, 2007 Page 9 (in millions) At September 30 At December 31 At September (Successor) (Successor) (Successor) Cash, cash equivalents and restricted cash $ 21 $ $ 13 Available lines of credit (1) 429 (2) 603 (3) 836 (3) Lines of credit drawn down (186) (383) (425) Net liquidity 264 $ 220 $ 424 (1) After letters of credit usage, and subject to the availability under their governing agreements. (2) Includes the amount available from the $600 ABL credit facility. (3) Includes the amount available from the $600 ABL credit facility and the former $375 secured revolving term loan. See Financing Arrangements below. The $174 million reduction in available lines of credit at September 30, 2007 as compared to December 31, 2006 was primarily due to the replacement of the $375 million secured revolving term loan with a fully drawn secured term loan, which has been included in long term debt. Partially offsetting this reduction was a further increase in underlying collateral with the ABL credit facility. Financing Arrangements As described above under Proposed Acquisition of Stelco by US Steel Corporation, it is anticipated that, in connection with the completion of the Arrangement, the floating rate notes will be redeemed and Stelco s secured term and asset based loans, as well as a term loan made by a subsidiary of Stelco, will be retired. Asset Based Loan Facility On March 23, 2007, the Corporation completed certain amendments to its existing $600 million asset based loan facility (as amended, the ABL Facility ). These amendments included extending the term of the facility from March 31, 2008 to March 31, 2012, increasing availability under the facility and potentially lowering overall financing costs. The ABL Facility bears interest that varies depending on the level of availability at the Canadian bankers acceptance rate % to 2.25%, prime rate + 0.0% to 0.5%, the US Base rate + 0.0% to 0.5% or LIBOR % to 2.25%, depending on the nature of the loan instrument incurred. The ABL Facility continues to be secured by a first priority security interest in the eligible inventory and accounts receivable of Stelco. The ABL Facility also continues to be additionally secured by a second priority security interest on all other property and assets of the Corporation, limited to a maximum amount of $300 million, which is subject to adjustment under certain circumstances, and a fourth priority security interest for the balance. The available amount of the ABL Facility is dependent upon the value of the underlying collateral, but will not exceed $600 million. At September 30, 2007, the available amount of the ABL Facility was $429 million and the amount drawn on the ABL Facility was $186 million. Secured Revolving Term Loan On March 31, 2006, as part of the CCAA Plan, the Corporation entered into a secured revolving term loan facility with a wholly owned subsidiary of Tricap Management Limited (a significant shareholder of the Corporation) in the amount of $375 million for a term of seven years. The facility was to revolve for three years, after which time the facility would cease to revolve and any amount outstanding would be repayable in full at the end of the seventh year. The secured revolving term loan carried an interest rate at bankers acceptance plus 6.75%. The secured revolving term loan was secured by a second priority interest on the working capital assets of Stelco, and a first priority security interest in the property, plant and equipment of Stelco except project financings. The secured revolving term loan was also secured by all the tangible and non-tangible assets of certain subsidiaries of Stelco and a pledge of and security interest in all of the outstanding shares and interests in the subsidiaries, partnerships and joint ventures of Stelco. On May 7, 2007, the Corporation completed a refinancing transaction with GE Corporate Lending Canada. The new facility refinanced and replaced Stelco s $375 million secured revolving term loan facility with a financing structure that has significantly lower interest rates and fees and a term of six years (see Secured Term Loan below). As a result of completing this refinancing prior to May 11, 2007, Stelco was not required to pay the $11 million annual fee otherwise payable under the refinanced facility. Secured Term Loan On May 7, 2007, the Corporation completed a US $270 million (Cdn. $298 million at closing prior to fees) funded term loan facility refinancing with GE Corporate Lending Canada. The new facility refinanced and replaced Stelco s $375 million secured revolving term loan facility. The secured term loan facility has a six year term and bears interest at a floating rate equal to a US Base rate + 1% or LIBOR + 3.5%, depending on the nature of the loan instrument incurred. This loan is secured by a first priority interest in the property, plant and equipment of Stelco, except for project financings, and a second priority interest on the working capital assets. The loan is also secured by all the tangible and non-tangible assets of certain subsidiaries of Stelco and a pledge of and security interest in all of the outstanding shares and interests in the subsidiaries, partnerships and joint ventures of Stelco. This loan includes conventional covenants, as well as a financial covenant based on achieving a minimum EBITDA threshold for Stelco s

10 Page 10 Stelco Inc. Quarter 3, 2007 Lake Erie Steel business. Subject to certain conditions, the new term loan is prepayable, in part or in whole, at any time without penalty. Floating Rate Notes As part of the consideration in settlement of the affected claims of the Predecessor, affected creditors received floating rate notes ( FRN s ) equal to the US dollar equivalent of $275 million Canadian dollars ($235 million US dollars). The FRN s mature on March 31, Interest on the FRN s is payable semi-annually. At Stelco s option, the FRN s will bear an interest rate of LIBOR plus 5.50% if paid in cash and LIBOR plus 8.50% if paid in new FRN s or if interest payments are deferred and accrued in accordance with the terms of the FRN s. Interest on the FRN s has been calculated under the cash payment option consistent with the semiannual payments made in 2006 and For periods after March 31, 2008, the interest rate will be calculated in the same manner as noted above, with the exception that under certain conditions, the interest rate will be subject to a reduction of 0.50%. For periods after March 31, 2011, interest is payable in cash only. The FRN s are callable at 110% of face value until March 31, 2008; then callable at 105% of face value until March 31, 2009; then at 102.5% of face value until March 31, 2010; and at par thereafter, in each case payable in cash. The FRN s are secured by a security interest in the assets of Stelco, subordinated and postponed to the security granted to the ABL Facility and the secured term loan in all respects including rights to payment and enforcement until both the ABL Facility and secured term loan are repaid in full. For further details see Note 10 to the Consolidated Financial Statements. Province Note In accordance with the Pension Agreement (see Note 2 to the Consolidated Financial Statements), the Province of Ontario provided Stelco with $150 million on March 31, 2006 in exchange for a note payable (the Province Note ) and warrants to purchase 851,100 common shares of Stelco. The Province Note is unsecured and is repayable on December 31, 2015, in cash or, at Stelco s option, by delivering an equivalent value in Stelco common shares. The Province Note is also subject to a 75% discount if the solvency deficiencies in Stelco s four main pension plans are eliminated on or before the maturity date. At this time, there is no assurance that the Corporation will receive the 75% discount. The Province Note bears an interest rate of 1% per annum, payable semiannually in cash or, at Stelco s option, by delivering Stelco common shares. For further details see Note 10 to the Consolidated Financial Statements. Liquidity Risks In addition to those risks discussed below under Risk Factors, some of the provisions contained in the Corporation s financing arrangements provide for the escalation of lending rates in certain circumstances which, if triggered, could impact the liquidity of the Corporation depending upon the amount outstanding under the particular facility. These agreements also contain provisions (along with the Corporation s long-term debt agreements) which restrict the Corporation s ability to issue additional debt. Capital Resources The cash position, cash flow from operations and available credit facilities are expected to enable the Corporation to satisfy its anticipated operating and capital cash requirements. Off-Balance Sheet Arrangements Other than operating leases, the Corporation does not engage in off-balance sheet accounting to structure any of its financial arrangements and had no off-balance sheet arrangements at September 30, Financial Instruments As part of the implementation of the requirements under CICA Handbook Section 3855, a full evaluation of the Corporation s financial derivatives was undertaken (see discussion under Changes in Accounting Policy ). The Corporation did not utilize any third party financial instruments to mitigate interest rate or foreign exchange risk in the nine months ended September 30, 2007 and therefore no such financial instruments were outstanding at September 30, Related Party Transactions On March 31, 2006, as part of the CCAA Plan, the Corporation entered into a secured revolving term loan facility with a wholly owned subsidiary of Tricap Management Ltd. (a shareholder of the Corporation) in the amount of $375 million for a term of seven years. The Corporation refinanced and replaced this facility on May 7, 2007 (see Financing Arrangements ). Included in financial expense for the nine months ended September 30, 2007 is $8 million relating to borrowings under the secured revolving term loan facility ($6 million in the first quarter of 2007 and $2 million in the second quarter of 2007). The interest on these borrowings was calculated in accordance with the applicable lending agreement, yielding approximately 11% as at May 7, 2007, the date of the refinancing of this facility with GE Corporate Lending Canada (see Financing Arrangements ). In connection with the secured revolving term loan facility the Corporation had accrued an annual fee of $11 million in the first quarter of 2007, the payment of which was waived on May 7, 2007 upon refinancing the facility. There were no related party transactions during the third quarter.

11 Stelco Inc. Quarter 3, 2007 Page 11 Outstanding Share Data Common Shares and Warrants As described above under Proposed Acquisition of Stelco by US Steel Corporation, at the date of closing all outstanding common shares will be purchased for $38.50 per share and all warrants outstanding will be cancelled in exchange for a payment of $27.50 per warrant. Common Shares (in millions, except share numbers) At September 30, 2007 At December 31, 2006 (Successor) (Successor) Common Shares 27,174,451 27,123,908 Total Capital Stock $ 151 $ 149 Warrants As a result of the exercise of 50,034 warrants in the third quarter of 2007 (50,543 warrants for the nine months ended September 30, 2007), there were 27,174,451 common shares outstanding at September 30, At September 30, 2007, there were 2,213,899 warrants outstanding. Incentive Stock Option Plan As described above under Proposed Acquisition of Stelco by US Steel Corporation, all stock options will vest and will be cancelled in exchange for a payment equal to the difference between $38.50 and the exercise price of the particular options. During the three months ended September 30, 2007, no options were granted, exercised or forfeited. At September 30, 2007, there were 1,925,250 stock options outstanding. See Note 16 to the Consolidated Financial Statements for additional information. Changes in Accounting Policy Financial Instruments Effective January 1, 2007, the Corporation adopted the new recommendations of the Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530, Comprehensive Income, Section 3251, Equity, Section 3855, Financial Instruments Recognition and Measurement, Section 3861, Financial Instruments Disclosure and Presentation, and Section 3865, Hedges. The adoption of these standards has been applied effective January 1, 2007, without restatement of prior period amounts. These standards provide guidance on the recognition, measurement and classification of financial assets and financial liabilities. These standards also provide guidance for reporting items in other comprehensive income, which will be included on the Consolidated Statements of Financial Position as a separate component of shareholders equity. The adoption of these standards did not have any significant impact on the financial reporting in the first, second or third quarters of 2007 (see Note 4 to the Consolidated Financial Statements for additional information). Inventories In June 2007, the CICA released Handbook Section 3031, Inventories, which replaces the existing Section 3030, Inventories. This standard is effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2008, with earlier application encouraged. The standard provides more guidance on the measurement and disclosure requirements for inventories. The Corporation is evaluating the impact of the new standard. Critical Accounting Assumptions and Estimates In preparing the Consolidated Financial Statements, management is required to make certain assumptions and estimates. Choosing one assumption or estimate from a range of possibilities can materially impact the amounts reported on the Statements of Income (Loss) or the Statements of Financial Position. Management reviews accounting assumptions and estimates regularly in light of past experience and current conditions or changes in Canadian GAAP, and utilizes outside consultants as necessary to arrive at appropriate assumptions and estimates to be used in the preparation of the Consolidated Financial Statements. The Audit Committee of the Board of Directors reviews these significant assumptions and estimates.

12 Page 12 Stelco Inc. Quarter 3, 2007 Management considers assumptions and estimates relating to the following matters to be the most critical: going concern; valuation of accounts receivable; carrying value of long-lived assets (property, plant and equipment); employee future benefits; income taxes; inventory valuation; environmental matters; and basis of valuation. The Corporation s Consolidated Financial Statements are prepared in accordance with Canadian GAAP. Other than the changes to the pension and other post employment benefits as discussed in Note 10, the Corporation has not made any significant changes to the critical accounting assumptions and estimates as described in the MD&A contained in the 2006 Annual Report. Risk Factors Stelco s business and future performance is subject to a number of risk factors as noted under Risk Factors in management s discussion and analysis included in Stelco s 2006 Annual Report, including demand and pricing for steel, cost competitiveness, liquidity, supply and pricing of energy and raw material costs, steel industry consolidation, unplanned repairs or equipment outages, concentration of credit risk, environmental compliance, trade regulations, employees, pension plans, technology, currency fluctuations and labour matters. The Corporation has not identified any significant changes to the risk factors noted above. Outlook Major customer groups including automotive, construction and service centres continue to adjust their purchasing and inventory levels as a result of uncertainty over future demand and market pricing. It is expected that this will continue over the near term. Shipments to the pipe and tube markets and shipments of slabs to other steel producers are strong and expected to stay that way for the near future. Market pricing remains under pressure, due in large part to the relatively high Canadian dollar as compared to the US dollar, as well as continuing slow automotive production and current economic uncertainty. The Corporation continues to focus on strategic and cost reduction initiatives, which combined with productivity improvements, is expected to allow Stelco to continue to improve its future operating results. On August 26, 2007, the Corporation entered into an Arrangement Agreement with US Steel providing for the acquisition of the Corporation. The Corporation believes that the completion of the transaction with US Steel will result in Stelco becoming part of a large financially strong steel enterprise which is better positioned than Stelco alone to succeed in the increasingly competitive steel industry. The Arrangement Agreement with US Steel represents the result of the Corporation s efforts to position Stelco to be an integral part of a stronger, globally competitive steel company. It is anticipated that the Arrangement will be completed on or about October 31, 2007, subject to shareholder approval, court approval, and receipt of certain regulatory approvals. Further information concerning this transaction is contained in the Corporation s Management Proxy Circular dated September 24, 2007, which can be viewed on the System for Electronic Document Analysis and Retrieval at and at Stelco s website

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