Minister moves to save Saldanha Steel plant

Minister of Trade and Industry Rob Davies was meeting ArcelorMittal and Kumba today to try to ward off a threat to close Saldanha Steel with thousands of jobs at stake.

His spokesperson, Sidwell Moloantoa Medupe, confirmed that Davies had requested the meeting after Kumba's announcement on Friday that it would stop supplying iron ore to ArcelorMittal SA steel plants unless it agreed to new terms and conditions.

ArcelorMittal said it would have to shut Saldanha Steel with the immediate loss of 4 000 jobs.

Kumba, a unit of Anglo American, said on Friday that it would make the steelmaker pay for ore in advance from next month after ArcelorMittal rejected proposed new pricing systems.

ArcelorMittal said: "(We have) no alternative but to immediately initiate plans for the immediate closure of the Saldanha plant, for the curtailment of all exports, and for a material reduction in domestic market production."

ArcelorMittal said the Kumba proposals would severely harm its profitability and it could not agree to them on an interim basis or otherwise.

Saldanha produces 1.2-million tons of steel a year.

In February, Kumba, the world's 10th largest iron ore producer, terminated the long-term deal under which it sold ore to ArcelorMittal at a discount and said it would charge market rates from March.

The Department of Trade and Industry has offered to mediate between the two.

"The DTI will be assessing all options available to ensure that in the event of a failure of the parties to reach a responsible settlement, the economy does not suffer negative consequences," said Medupe.

The provincial government also said it was watching the matter closely.

Tammy Evans, the spokeswoman for Economic Development and Tourism MEC Alan Winde, said it would assist where it could.

"We hope that the two parties can resolve this commercial dispute swiftly," she said.

Meanwhile, the provincial cabinet has approved the drawing up of a feasibility study for an industrial development zone (IDZ) in Saldanha Bay.

The provincial government believes that with its deep-water port, iron ore terminal and mega-smelters, Saldanha Bay is an area of major international significance in terms of industrial potential.

Winde said that between 1999 and 2008, Wesgro (the investment and trade promotion agency for the Western Cape) had been approached by several proponents of large-scale projects.

These included aluminium smelters, titanium processing plants, large-scale chemical plants and steel processing.

"But the lack of co-ordination and planning by the municipality and provincial government has mitigated against any of these opportunities being able to be developed," said Winde.

A pre-feasibility study towards the end of 2008 covered IDZ profiling and development zone location, Saldanha's economic profile, the local market profile, an industrial market analysis and a physical environment assessment.

A draft of the study was completed in September, and the report and the task team agreed on five potential clusters:

Oil and gas servicing;

Minerals processing;

Renewable energy production and manufacture;

Steel processing; and

Ship repair.

Winde said key issues included the need for an overall environmental management framework to determine the critical limits to development, the requirements of additional bulk water and the need to upgrade power distribution lines.

The report identified 3 000 hectares that could form the IDZ.

The feasibility study is expected to be completed by next March.

Source .iol.co.za

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A review of spoilt brat Arcelor's rights is in order

It seems that the lighter ArcelorMittal South Africa's legal case becomes, the louder are its threats. Its latest - to close its Saldanha Steel plant and stop all steel exports - smacks of the sort of churlish behaviour one would expect of a spoilt child. And spoilt child is pretty much the status that ArcelorMittal SA has enjoyed for most of its stay in South Africa.

The extent of the current mess may be a reflection of the desperate situation the government found itself in with Iscor in the mid-1990s and in particular with Iscor's plant in Saldanha Bay. Despite the injection of oodles of funds by the Industrial Development Corporation (IDC) and Iscor, Saldanha just kept leaking money.

The decision to split Iscor into two parts - comprising steel manufacturing and iron ore mining - was crucial to the steel group's prospects. The decision that Iscor would access cheap iron ore from the Sishen iron ore mine was also critical to Iscor's initial prospects and specifically to the Saldanha mill.

Legend has it that the government was also keen to prise control of the group out of Afrikaner hands, which may have seemed reasonable at the time given Iscor's profit record. And so we all ended up with an international group, ArcelorMittal SA, getting cheap access to the country's dominant steel group and to a seemingly unending supply of cheap iron ore. The new owner charges maximum prices in its determination to ensure an efficient operation. The benefits of these efficiencies are passed directly to its shareholders.

Right now what is most puzzling is ArcelorMittal SA's explanation that it did not renew the iron ore rights because it believed that was Kumba's responsibility. Given the importance of the rights this seems an inappropriately relaxed stance by the steel maker.

And given the talk of closing Saldanha, perhaps it is time to review the divestiture suggestions mentioned by the competition authorities a few years back.

Source busrep.co.za

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ArcelorMittal to close Saldanha steel plant

Within hours of Anglo American-controlled Kumba Iron Ore (KIO) dropping the bombshell that it wanted payment in advance for higher interim iron-ore prices, South Africa's largest steelmaker ArcelorMittal (AMSA) announced that it was taking immediate steps to close its Saldanha export steel works and to cut domestic steel production drastically, which puts 3 000 to 4 000 jobs at risk, and which leaves the South African government "gravely concerned".

After five months of barren negotiations between JSE-listed KIO and AMSA – which chose not to take up a government mediation offer – the saga took a new turn at the weekend when KIO insisted that AMSA, from August 1, pays KIO subsidiary, Sishen Iron Ore Company (SIOC), in advance for iron-ore supplies, and settles outstanding debts brought about by the higher interim iron-ore prices that KIO has been unilaterally imposing.

South Africa's Department of Trade and Industry called on both parties – "as a matter of urgency" – to resolve the dispute in a manner that did not lead to negative economic circumstances for the country and said it continued to be available to mediate.

A meeting between Trade and Industry Minister Dr Rob Davies, KIO and AMSA is reported by Bloomberg News to be on the cards.

But AMSA said that, although supplies of 2,5-million tons of iron-ore a year would continue from SIOC's Thabazimbi iron-ore mine at the cost-plus-3% price, and that scrap metal feedstock would also continue to be supplied, those inputs would be insufficient to meet current sales orders and future steel demand.

As a consequence, AMSA CEO Nonkululeko Nvembezi-Heita said that AMSA had initiated plans for:

• the immediate closure of AMSA's Saldanha export steel plant at the coast;
• the curtailment of all exports; and
• a drastic reduction in steel production for South Arica's domestic market, resulting in market allocations.

A spokesperson told Engineering News Online that AMSA, which employs 10 000 people, had already begun communicating the looming job losses with labour unions.

Nyembezi-Heita said: "I'm profoundly disturbed with Kumba's decision as it will have a wider impact on the economy of South Africa. It will result in definite job losses in our business and the downstream industries. At this stage, I am expecting that about 3 000 to 4 000 jobs will be affected."

SIOC had earlier requested AMSA to pay into an escrow account the difference between the disputed "cost-plus-3%" portion of the price and the market price, but AMSA did not take up the offer.

AMSA did, however, impose a R600/t steel surcharge to cover the higher price from May 1.

KIO made a second July 15-deadline discounted-price offer to AMSA, which the steelmaker again did not take up.

Now KIO, headed by CEO Chris Griffith, said that its SIOC would only load trains destined for AMSA's plants on condition that payment - based on its second discounted-price proposal - was made on a "pay-and-take" basis. The discounted price SIOC offered was $50/t for AMSA's Saldanha coastal steel plant and $80/t for its inland Vanderbijl and Newcastle steel plants.

That would apply from August 1, from which date AMSA would have to prepay at least 48 hours in advance.

By that date, AMSA would also have to have paid up the accumulated amounts due for the iron-ore delivered between March 1 and July 15 at a higher interim price.

AMSA said that, while the $50/t would have been sufficient to keep the Saldanha plant at a financial break-even point, the $80/t would result in the possible closure of its inland steel works.

The $50/t amounted to a 69% increase over the cost-plus-3% iron-ore price and the $80/t price an increase of 171%.

Nyembezi-Heita added that steel prices had declined by $100/t since AMSA's interim pricing negotiations had begun with KIO in March.

South Africa's Department of Trade and Industry said in a media release that it was "gravely concerned" about the KIO announcement and that the dispute between KIO and AMSA should not result in iron-ore previously processed locally being exported in unbeneficiated form.

The department also did not want to see any disruption of local steel production nor did it want the dispute to result in the domestic steel price rising above internationally uncompetitive levels.

During the negotiation period, SIOC has continued to deliver iron-ore to AMSA, but the steelmaker has not paid the invoiced price reflecting the higher interim price, but has instead continued only to remit the cost-plus-3% price.

SIOC delivered 337 402 t of iron-ore to AMSA's Saldanha plant and 1 115 180 t of iron-ore to AMSA's inland plants from March 1 to June 30.

"There is considerable commercial risk to SIOC and its shareholders if it continues to supply iron-ore to AMSA without an agreement on the terms of supply," KIO said in a Stock Exchange News Service announcement.

KIO notified AMSA in February that it was no longer entitled to receive 6,25-million tons a year of Sishen iron-ore at the cost-plus-3% arrangement because of AMSA failing to convert its old-order mining rights to new-order mining rights.

KIO attempted to acquire AMSA's former rights, but these were awarded instead to Imperial Crown Trading, which KIO is contesting in the North Gauteng High Court.

The cost-plus-3% agreement has been in place since 2001 based on AMSA's now-forfeited ownership of an undivided 21,4% interest mineral rights at the Sishen mine, which KIO contends became inoperative from May 1, 2009 – a matter which has been referred to arbitration.

However, AMSA has yet to file its answering papers to SIOC's statement of claim.

An AMSA spokesperson told Engineering News Online that the filing of its answering papers was now imminent and that the company's arbitrator had been appointed.

Pending the outcome of the arbitration, SIOC has invoiced AMSA at the higher interim price price and AMSA has charged South African steel consumers R600/t more for steel.

Meanwhile, South Africa's Competition Commission is giving "priority attention" to dealing with AMSA's unilateral imposition of the R600-plus surcharge on every ton of steel sold domestically.

A preliminary investigation is under way into the possibility that the surcharge may constitute an abuse of dominance.

Edited by: Creamer Media Reporter
Source engineeringnews.co.za

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ArcelorMittal to close Saldanha steel plant

Within hours of Anglo American-controlled Kumba Iron Ore (KIO) dropping the bombshell that it wanted payment in advance for higher interim iron-ore prices, South Africa's largest steelmaker ArcelorMittal (AMSA) announced that it was taking immediate steps to close its Saldanha export steel works and to cut domestic steel production drastically, which puts 3 000 to 4 000 jobs at risk, and which leaves the South African government "gravely concerned".

After five months of barren negotiations between JSE-listed KIO and AMSA – which chose not to take up a government mediation offer – the saga took a new turn at the weekend when KIO insisted that AMSA, from August 1, pays KIO subsidiary, Sishen Iron Ore Company (SIOC), in advance for iron-ore supplies, and settles outstanding debts brought about by the higher interim iron-ore prices that KIO has been unilaterally imposing.

South Africa's Department of Trade and Industry called on both parties – "as a matter of urgency" – to resolve the dispute in a manner that did not lead to negative economic circumstances for the country and said it continued to be available to mediate.

A meeting between Trade and Industry Minister Dr Rob Davies, KIO and AMSA is reported by Bloomberg News to be on the cards.

But AMSA said that, although supplies of 2,5-million tons of iron-ore a year would continue from SIOC's Thabazimbi iron-ore mine at the cost-plus-3% price, and that scrap metal feedstock would also continue to be supplied, those inputs would be insufficient to meet current sales orders and future steel demand.

As a consequence, AMSA CEO Nonkululeko Nvembezi-Heita said that AMSA had initiated plans for:

• the immediate closure of AMSA's Saldanha export steel plant at the coast;
• the curtailment of all exports; and
• a drastic reduction in steel production for South Arica's domestic market, resulting in market allocations.

A spokesperson told Engineering News Online that AMSA, which employs 10 000 people, had already begun communicating the looming job losses with labour unions.

Nyembezi-Heita said: "I'm profoundly disturbed with Kumba's decision as it will have a wider impact on the economy of South Africa. It will result in definite job losses in our business and the downstream industries. At this stage, I am expecting that about 3 000 to 4 000 jobs will be affected."

SIOC had earlier requested AMSA to pay into an escrow account the difference between the disputed "cost-plus-3%" portion of the price and the market price, but AMSA did not take up the offer.

AMSA did, however, impose a R600/t steel surcharge to cover the higher price from May 1.

KIO made a second July 15-deadline discounted-price offer to AMSA, which the steelmaker again did not take up.

Now KIO, headed by CEO Chris Griffith, said that its SIOC would only load trains destined for AMSA's plants on condition that payment - based on its second discounted-price proposal - was made on a "pay-and-take" basis. The discounted price SIOC offered was $50/t for AMSA's Saldanha coastal steel plant and $80/t for its inland Vanderbijl and Newcastle steel plants.

That would apply from August 1, from which date AMSA would have to prepay at least 48 hours in advance.

By that date, AMSA would also have to have paid up the accumulated amounts due for the iron-ore delivered between March 1 and July 15 at a higher interim price.

AMSA said that, while the $50/t would have been sufficient to keep the Saldanha plant at a financial break-even point, the $80/t would result in the possible closure of its inland steel works.

The $50/t amounted to a 69% increase over the cost-plus-3% iron-ore price and the $80/t price an increase of 171%.

Nyembezi-Heita added that steel prices had declined by $100/t since AMSA's interim pricing negotiations had begun with KIO in March.

South Africa's Department of Trade and Industry said in a media release that it was "gravely concerned" about the KIO announcement and that the dispute between KIO and AMSA should not result in iron-ore previously processed locally being exported in unbeneficiated form.

The department also did not want to see any disruption of local steel production nor did it want the dispute to result in the domestic steel price rising above internationally uncompetitive levels.

During the negotiation period, SIOC has continued to deliver iron-ore to AMSA, but the steelmaker has not paid the invoiced price reflecting the higher interim price, but has instead continued only to remit the cost-plus-3% price.

SIOC delivered 337 402 t of iron-ore to AMSA's Saldanha plant and 1 115 180 t of iron-ore to AMSA's inland plants from March 1 to June 30.

"There is considerable commercial risk to SIOC and its shareholders if it continues to supply iron-ore to AMSA without an agreement on the terms of supply," KIO said in a Stock Exchange News Service announcement.

KIO notified AMSA in February that it was no longer entitled to receive 6,25-million tons a year of Sishen iron-ore at the cost-plus-3% arrangement because of AMSA failing to convert its old-order mining rights to new-order mining rights.

KIO attempted to acquire AMSA's former rights, but these were awarded instead to Imperial Crown Trading, which KIO is contesting in the North Gauteng High Court.

The cost-plus-3% agreement has been in place since 2001 based on AMSA's now-forfeited ownership of an undivided 21,4% interest mineral rights at the Sishen mine, which KIO contends became inoperative from May 1, 2009 – a matter which has been referred to arbitration.

However, AMSA has yet to file its answering papers to SIOC's statement of claim.

An AMSA spokesperson told Engineering News Online that the filing of its answering papers was now imminent and that the company's arbitrator had been appointed.

Pending the outcome of the arbitration, SIOC has invoiced AMSA at the higher interim price price and AMSA has charged South African steel consumers R600/t more for steel.

Meanwhile, South Africa's Competition Commission is giving "priority attention" to dealing with AMSA's unilateral imposition of the R600-plus surcharge on every ton of steel sold domestically.

A preliminary investigation is under way into the possibility that the surcharge may constitute an abuse of dominance.

Edited by: Creamer Media Reporter
Source engineeringnews.co.za

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ArcelorMittal SA seeks quick end to row with kumba

The South African unit of ArcelorMittal, the world's largest steel maker, on Tuesday said it was cooperating with Kumba Iron Ore to expedite a prolonged dispute over iron-ore supply amicably.

ArcelorMittal South Africa also said steel prices were set to rise on recovery of global demand, restocking and a boom in South Africa's economy, particularly in the construction industry.

"We are co-operating (with Kumba) to take the matter to arbitration," Nonkululeko Nyembezi-Heita, CEO of ArcelorMittal South Africa, said at a meeting for shareholders.

She later declined to provide further details to Reuters.

Kumba, a unit of global miner Anglo American, terminated the preferential pricing deal with the steelmaker, claiming that the company had failed to renew its mining rights in Sishen mine as per South African mining laws.

Kumba supplies ArcelorMittal from the Sishen mine.

"We remain firmly optimistic that the supply agreement (with Kumba) is valid and we are taking necessary steps to protect our rights," Johnson Njeke, the unit's chairman said at the same meeting.

Nyembezi-Heita later told Reuters that the refusal by Zimbabwe President Robert Mugabe to allow ArcelorMittal to take over the country's Zisco Steel, was a lost opportunity to show foreign investors Harare was changing its policies.

"What Zisco would have offered us was a presence in a part of the world where we could service landlocked neighbouring states, plus participating in the rebuild of Zimbabwe as a country, obviously now we have lost that," she said.

"But we haven't lost the strategy and ambition for our Sub-Saharan footprint," Nyembezi-Heita said.

Nyembezi-Heita said ArcelorMittal South Africa planned to grow its market within Sub-Saharan Africa in countries like Zambia, Namibia, Botswana and also Ghana.

Nyembezi-Heita said the global economic climate had improved and that she saw this supporting prices.

"We are seeing prices being traded up and up. There is also restocking and a rebound in steel demand," Nyembezi-Heita said.

Edited by: Reuters

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Steel prices increase Saldanha Steel will benefit, but not the consumer.

JSE-listed steel producer ArcelorMittal South Africa (AMSA) confirmed to Engineering News Online on Monday that the price of flat and long steel for delivery from June 1, 2010, would increase by between 2% and 17%, depending on product type – news of the increase was met with anger by steel consumers.

The June increases would be over and above the R600/t surcharge instituted from May 1, 2010, as part of a bid by AMSA to mitigate against the impact of a possible surge in iron-ore costs, precipitated by the cancellation of a favourable supply agreement with Kumba Iron Ore's (KIO's) Sishen Iron Ore Company (SIOC).

SIOC cancelled a long standing cost-plus 3% deal in February, citing AMSA's failure to convert a 21,4% undivided share of the mineral rights at the Sishen iron-ore mine, in Northern Cape province, as is required by South African mining legislation, as the reason for the decision.

The matter is currently the subject of a corporate dispute, which should go before an arbitration panel later this year, but which, in AMSA's view, could take up to 18 months to resolve.

In the interim, AMSA is being invoiced on commercial terms, but is only paying at the cost-plus 3% level. It is placing the proceeds of the surcharge into an escrow account, marked as a contingent liability in its accounts, pending the outcome of the arbitration process.

AMSA has confirmed that the difference between the cost-plus 3% invoice and the commercial invoice received in March was a whopping $100/t on the 350 000 t received from SIOC in March.

Should AMS prevail in its dispute with KIO, it has promised to reimburse consumers. But it is unclear how far down the supply chain such a reimbursement could feasibly reach, owing to the fact that many end consumers buy their steel from traders, or merchants.

The Department of Trade and Industry (DTI), which referred AMSA to the Competition Commission when the surcharge was announced, claiming that it amounted to abuse of dominance, has also questioned how the proposed reimbursement could feasibly be implemented.

The June increases, which were communicated to customers over the weekend, were also the first "base" price rises on domestic carbon steel this year, with prices having been rolled over since December 2009.

In fact, the steel group cut prices in November, having increased prices between July and October, when international selling prices began recovering from their precipitous recession-linked declines of late 2008 and early 2009. Prior to July, the price of some steel products sold domestically fell by as much as 60% from the record levels achieved during the first half of 2008.

In the flat-steel segment, plate prices were set to increase fastest from June, at around 17%, while galvanised steel would increase by a more modest 4%. Prices in the more competitive long-steel environment would rise by between 2% and 4%, depending on product type.

AMSA insisted on Monday that it was continuing to set domestic selling prices on the same basket formula that it had been using since moving away from import-parity pricing earlier in the decade.

Prices are set after analysing domestic prices in four markets (the US, Germany, Brazil and China) and adjusting these to its expectations for the South African currency for the forthcoming month - the weaker the currency outlook, the higher the steel price. The South African currency was one of the best performing in the world during 2009, and showed continued resilience during the first quarter of 2010.

DOWNSTREAM ANGER

Downstream steel users were equally outraged by the surcharge and by the prospect of the base price increasing in June.

Africa Cellular Towers (ACTOWERS) GM for the powerlines division Nick van der Meschttold Engineering News Online that the increases would place untenable pressure on the company's manufacturing unit.

He said that it had reached a point where it was cheaper to import finished product from India and China than to source the steel, which comprised some 70% of the cost of the final product, locally. The company designs, manufactures and installs towers for the cellular industry, as well as for the power transmission and distribution market.

He said it was also unclear whether it would be able to pass on the surcharge to its customers, owing to the uncertainty as to whether the surcharge could be reflected in the cost price adjustment (CPA) index complied by the Steel and Engineering Federation of South Africa. "If it's not in the CPA index, then we are going to lose money automatically," Van der Mescht said.

A steel trader canvassed by Engineering News Online said that there was also uncertainty as to whether the surcharge would be maintained at R600/t, or whether it too was subject to adjustment, along with the spot iron-ore price.

Another steel consumer told Engineering News Online that there could be no justification for the surcharge, owing to the fact that it was an attempt by AMSA to recover the costs brought about by its own "corporate neglect" in failing to convert its Sishen mineral rights.

Speaking on condition of anonymity, the consumer argued that promised of the surcharge reimbursement was "entirely unsatisfactory", as the proceeds would, in most cases, flow to the merchants rather than to the end-consumer.

Van der Mescht added that ACTOWERS did not believe "for one second" that it would recoup the cost of the surcharge, adding that the immediate cash flow effect on its manufacturing unit was devastating. He said that its facility had the capacity to convert 3 000 t/m of steel, but that it was currently operating well below that level.

AMSA said last week that it was in the "process of evaluating various alternative options to determine the most appropriate mechanism to implement such a refund in consultation with its customers for the benefit of the steel industry in South Africa".

Source http://www.engineeringnews.co.za

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Good news for Saldanha Steel and the West Coast

LONDON – World steel demand is growing faster and earlier than expected, driven primarily by China's runaway growth, and is now expected to hit pre-crisis levels this year, the World Steel Association said on Tuesday.

The body expects apparent steel use to rise by 10,7% to R1,241-billion tons this year, while demand is expected to hit a historical high at 1,306-billion tons in 2011.

"The world steel industry now seems firmly set on a path to recovery," Daniel Novegil, chairman of the association's economics committee said in a statement. The forecasts show improved figures compared with estimates published in late 2009.

"The recovery is not only earlier but also stronger than expected. It was driven in large part by government stimulus packages and recent inventory re-stocking," he added.

China's apparent steel use in 2010 is expected to increase by 6,7% to 579-million tons. In 2009, it was estimated to have risen to 542,4-million tons.

The forecasts are from Worldsteel's short range outlook, which its board approved in Vienna over the weekend.

While the growth picture for this year and next was looking robust, Novegil noted a much slower pace of recovery in key developed economies.

"The emerging economies, who in total maintained positive growth through the crisis will continue to show strong growth, driving world steel demand in the future," he said.

"However the current recovery in major developed economies is slower and the projected steel demand for them in 2011 is well below 2007 levels," he added.

The association has also published March global crude steel production figures, which showed a hefty jump of 30,6% year-on-year, bringing the production to 120-million tons.

In the first quarter of this year, crude steel output rose to 342,3-million tons, rising 29% compared with the same period last year.

Source http://www.engineeringnews.co.za

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ArcelorMittal's Saldanha Bay ,R600/t Sishen surcharge evokes angry SA govt response

The decision of JSE-listed steelmaker ArcelorMittal South Africa (AMSA) to impose a R600/t Sishen surcharge on the steel that it sells has evoked an angry response from the South African government, which described the surcharge as "unjustifiable".

As a consequence, South Africa's Department of Trade and Industry (DTI) said that it would be referring the matter to the Competition Commission to investigate AMSA for "abuse of dominance and excessive pricing".

Simultaneously with AMSA CEO Nonkululeko Nyembezi-Heita announcing at a media conference that May 1 would be the date of AMSA's effective 10% steel price surcharge, the DTI charged that the steelmaker was signalling "that the South African economy is expected to bear the cost of its commercial error, which in turn will hamper our industrialisation efforts".

The DTI said that AMSA had committed a "grave commercial error in failing to convert its old-order mining rights to new-order mining rights by the cutoff date prescribed in the Mineral and Petroleum Resources Development Act".

The date prescribed in the Act was April 30, 2009, and on May 4, 2009, two companies applied for AMSA's 21,4% undivided share in the Sishen mine, with a prospecting right covering that entitlement having been subsequently granted to little-known black empowerment company Imperial Crown Trading 289 - a matter which is itself the subject of appeal by Kumba Iron Ore's (KIO's) 74%-held Sishen Iron Ore Company (SIOC), which mines the resource and which applied for a mining right over AMSA's lapsed right.

But Nyembezi-Heita contended AMSA's profit margin was currently 18% compared with that of KIO's profit margin of 55% and that commercial rates for iron-ore would reduce its margin to 14%.

AMSA's action followed the signal by SIOC that it was no longer obliged to supply 6,25-million tons of iron-ore at a special price of cost plus 3%, owing to AMSA's right to a portion of the Sishen mine lapsing through its failure to convert the mineral rights to new-order rights.

Nyembezi-Heita said that "by any stretch of the imagination", SIOC's step was an "extraordinary event" and, in order to take account of the "massive differential" between the commercial price and the cost plus 3% price, AMSA would introduce a "Sishen surcharge" of R600/t of steel that it sold in South Africa from May 1, which was roughly $80/t at Tuesday's exchange rate.

Nyembezi-Heita added that it was not AMSA's intention to benefit "in any way, form or fashion" from the additional surcharge and that it had told its South African customers that, in the event of arbitration victory against KIO, the accumulated surcharge plus interest would be refunded to customers in full.

But should AMSA lose the arbitration, the money raised through the surcharge would become available "partly" to fund the amount that would be payable to KIO at that stage.

She said that the R600/t surcharge did not go all the way to mitigating the cost differential between the KIO commercial charge and the cost plus 3%.

"If we had to calculate very crudely what the full impact would have been on just the domestic sales that we foresee for the remainder of 2010, a surcharge of closer to $150/t would have to have been charged," Nyembezi-Heita said.

KIO was, she said, still charging at the cost plus 3% and had not yet imposed commercial pricing, although KIO's SIOC had given notice of its entitlement to do so and a dispute resolution procedure under the agreement had been initiated.

The Sishen surcharge would be based on the additional iron-ore cost, based upon the international spot price for iron-ore that SIOC asserted it was entitled to charge, which AMSA disputed.

Although AMSA would continue to export steel in the short term, this would not be profitable when taking into account iron-ore input costs as claimed by SIOC, as well as current steel prices.

Management would continue to review the profitability of operations and, if necessary, adjust the commercial policy and production levels, which might necessitate plant closures. Meanwhile, all 11 000 jobs would be preserved and steps would be taken to introduce a broad-based black economic-empowerment programme.

While fuller comment on possible plant closure would be given in three months time, it was already certain that the Saldanha Steel plant would face the biggest threat of closure from export weakness.

AMSA said that it was considering its rights on the written contention of the Department of Mineral Resources on March 17 that it had forfeited its 21,4% undivided share of the old-order right from May 1, 2009.

Further, AMSA was engaging SIOC over what it alleged was overcharging in the past few years.

However, an unsympathetic DTI said that AMSA had consistently argued that there should be no link made between its costs of production and its pricing of steel in the South African market, in the context of a long period of concessional access to iron-ore on a cost plus basis.

"AMSA claims to price its steel according to a ‘basket' of international steel prices comprising four countries: the US, Germany, China and Russia. Producers in all of these countries are subject to commercial costs of iron-ore," the DTI noted, adding that the iron-ore surcharge amounted to double counting.

"Further, since at least January 2009, AMSA has been pricing steel above its own international ‘basket' price," the department said.

Government said that it had taken note of the Competition Tribunal's 2007 findings in the country's first-ever excessive pricing case - which was lodged against the steel producer by gold-miners Harmony and DRDGold - that, absent alternative remedies, "divestiture may constitute the only appropriate remedy".

Source http://www.engineeringnews.co.za

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ArcelorMittal in Saldanha Bay could face price increase for iron ore

Details of an "interim pricing arrangement" between iron-ore belligerents ArcelorMittal South Africa (AMSA) and Kumba Iron Ore (KIO) are expected to be concluded in the near term, with detailed discussions on the finer details reaching maturity. Further, an update on the progress regarding the channel through which the two companies would seek to resolve their dispute could also be communicated within days or weeks.

But neither company was willing to elaborate further on Friday on the surprise move by the Department of Mineral Resources (DMR) to grant a prospecting licence in relation to AMSA's "lapsed" 21,4% undivided share of the Sishen mine, which is operated by Sishen Iron Ore Company (SIOC), which is 74% held by KIO.

KIO has indicated that that it is pursuing its objection to the granting of the right to the little-known Imperial Crown Trading 289 on the basis of the appeal process prescribed in the Mineral And Petroleum Resources Development Act (MRPDA).

It is particularly perplexed by the granting of a prospecting right on a property that has housed an operating mine since 1954, and on the basis of a right that was effectively for an undivided share of the mine.

Both Imperial Crown and SIOC apparently applied for the rights on May 4, 2009, after AMSA failed to convert its rights by the April 30, 2009, deadline, outlined in the Act. But it emerged on Thursday that, despite its application for prospecting and not mining rights, the Imperial Crown application had been favoured by the DMR.

It has since emerged that the company has material links to the African National Congress, South Africa's current governing party.

But the a DMR spokesperson told Engineering News Online that the application for, and the issuance of, the prospecting right were done strictly in accordance with the law, and that a statement explaining the decision would probably be issued early next week.

AMSA, meanwhile, would not comment further on the matter, saying only that it was considering all its legal options, having insisted previously that its rights and an associated supply agreement remained intact.

The supply agreement, which was concluded as part of the 2001 unbundling of the then Iscor, was meant to be a 25-year, but "evergreen" deal guaranteeing AMSA access to 6,25-million tons a year of Sishen ore on a cost plus 3% pricing formula.

However, SIOC notified AMSA on February 5, 2010, that the contract was no longer valid, owing to the steel group's failure to convert its Sishen rights in line with the prescripts of the MRPDA.

PRICE NOT, SUPPLY THE, ISSUE

Material continues to flow from the mine to AMSA's South African mills, with discussion continuing on what price would be charged as from March 1, 2010, onwards - the date on which SIOC "cancelled" the discounted price agreement.

KIO told Engineering News Online that it had not yet invoiced AMSA for March deliveries.

It is widely understood that SIOC is proposing that the interim supply be priced on "commercial terms", with a possible clawback agreement should AMSA prevail during any dispute-resolution process.

In other words, AMSA will be asked to begin paying the yet-to-be-agreed price, which would be materially more than current estimates of between $26/t and $35/t. But SIOC might only redeem what was owing to it in relation to the cost plus 3% arrangement, with the balance going into a separate account.

SIOC would be entitled to the difference should its argument be accepted during arbitration. However, it is not yet certain that the matter will in fact go to arbitration, with both companies still weighing the legal options.

In other words, both parties are treating the award of the prospecting rights to Imperial Crown as separate to their commercial dispute, which resulted in a halt in the trading of AMSA stock, between the afternoon of February 26, 2010, and the afternoon of March 3, 2010, when it was first disclosed.

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Source www.engineeringnews.co.za

Tormin Project , West Coast, South Africa

In December 2008, MRC was granted mining rights for the Tormin heavy minerals project, on the West Coast of South Africa. Final processing plant design and engineering are now taking place.

“The company has commenced procedures to appoint an engi- neering group to update the existing feasibility study. Based on a positive outcome to this phase of the work, the company will let a tender for a turnkey project to produce zircon and rutile concentrate,” says Caruso in his statement to shareholders.

“On the current schedule, the plant should be operational by the end of calendar 2010,” Caruso adds.

Weak metal prices will hit South African mining

JOHANNESBURG (Reuters) - South Africa's Minerals and Energy Minister, Buyelwa Sonjica said on Tuesday the global financial crisis that had led to a decline in metal prices would negatively impact the country's mining sector.

"It (Financial crisis) is affecting all economies and South Africa is no exception," she said.

"I see it impacting on the producers. Of course also on the exports. I would think that it will impact on the negative. I'm very concerned because then it would have other negative consequences on employment."

Mining companies in South Africa have in recent weeks said they are taking a fresh look at their prospects and projects due to the credit squeeze that has led to fears of a global economic slowdown and resulted in weak metal prices.

Lonmin Plc, the world's No. 3 platinum producer, has advised trade unions of possible lay offs due to the big drop in demand for the metal from car makers, unions said on Monday.

Platinum has lost more than half its value in the last quarter on slow auto sales data and the outlook for demand from carmakers, who consume more than half of the annual platinum output to make catalysts to clean exhaust fumes.

Some other big players have said they too would review their projects owing to the credit crisis.

South Africa AngloGold Ashanti, the world's No. 3 gold producer, has said it plans to review capital expenditures of $400 million for next year by stopping some projects.

Sonjica, who spoke to reporters after the South African Chamber of Mines annual general meeting, said the country's drive to embrace blacks into the mainstream economy after years of exclusion under apartheid had also been adversely affected by the credit crunch, falling metal and stock prices.

Under the government-driven Black Economic Empowerment (BEE), miners are required to sell 15 percent of their assets to black investors by 2009 and 26 percent by 2014.

BLACK-OWNED

Black-owned companies seeking to buy the assets have relied on fast-fizzling credit, and some have become takeover targets.

"BEE performance has unfortunately been impacted severely by the financial meltdown," Sonjica said.

Sonjica added that the mining industry would meet early next year to review the progress of BEE in the sector.

South Africa's Impala Platinum Ltd (Implats) has make a friendly takeover bid of mostly shartes and cash to buy black-owned Mvelaphanda Resources (Mvela) and Mvela's unit Northam Platinum, in a bid to boost its output.

The deal highlights a trend where black-owned firms that do not have finances to develop projects are being seen as takeover targets by established producers.

Sipho Nkosi said, the Chamber of Mines President, said South African mining companies lost some 12 billion rand this year because of power shortages.

He said the mining sector wanted the government to introduce protocols to handle the nation's electricity crisis, among other issues to ensure that power customers are ranked in terms of their contribution to the economy.

The mining sector has long complained that it has had to bear the brunt of the power cuts, compared to other sectors of the economy. Mining firms are receiving some 90 percent of their normal power requirements.

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