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Essar Steel Algoma is facing a potential shutdown of its mill in Sault Ste. Marie, Ont., if it does not have enough iron ore to keep operating through the winter.Kenneth Armstrong

Essar Steel Algoma Inc. and Cliffs Natural Resources Inc. have taken their 18-month battle over shipments of iron ore to two courts, which will decide whether a Canadian court can order Cliffs to renew shipments of iron ore that it cut off in October.

The steel company, which says the decision by Cleveland-based Cliffs to halt shipments of iron ore triggered its filing for protection under the Companies' Creditors Arrangement Act, wants the Ontario Superior Court to declare the mining company a critical supplier, which would force Cliffs to continue shipping.

Cliffs halted shipments to Essar Algoma in October amid a dispute about prices, blaming the steel maker for taking actions that forced the halt in shipments.

Cliffs has filed a motion with the U.S. Bankruptcy Court in Delaware, saying the issue should be decided by a federal court in Ohio where the dispute was first taken and where it is already being adjudicated.

At issue, Essar Algoma said, is whether it will have enough iron ore to keep operating through the winter, thus avoiding a potential shutdown of its mill in Sault Ste. Marie, Ont., and the loss of contracts to other steel makers.

Since the Cliffs contract was terminated in October, Essar Algoma has obtained two-thirds of the iron ore it needs to get through the winter when the shipping lanes are frozen. But it said in court filings that "failure to re-establish Cliffs' supply of iron ore pellets may prove disastrous for Algoma and the many people who depend on it."

Negotiations are under way with other suppliers – and Cliffs also – but the Ontario Superior Court will need to intervene and declare Cliffs a critical supplier if those talks don't lead to a new supply contract, Essar Algoma said.

For its part, Cliffs has responded in filings in Delaware that Essar Algoma is seeking to gain a windfall by persuading the Ontario Superior Court to force Cliffs to supply the ore on the terms the steel maker wants. Essar Algoma has been granted protection from creditors by the Delaware court under Chapter 15 of the U.S. Bankruptcy Code.

"Having refused Cliffs' reasonable offers for a negotiated resolution, Algoma is attempting to use the CCAA proceeding to obtain greater rights than it has under state contract law or U.S. bankruptcy law," Cliffs said. "There is no precedent for this relief under the CCAA. There are no prior cases in which a court applying the CCAA deemed a party not currently in a supplier relationship with the debtor a 'critical supplier' and compelled that party to supply the debtor."

Cliffs said it is prepared to continue supplying Essar Algoma.

"What Cliffs is unwilling to do is supply on terms that are onerous and provide little benefit to Cliffs based on Algoma's failure to live up to its obligations."

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