Government Intervenes in KIO & ArcelorMittal SA Supply Battle

South Africa’s iron-ore miner Kumba Iron Ore (KIO) has confirmed that it is considering a “conditional” value-sharing arrangement for the 6,25-million tons of iron-ore that it mines for ArcelorMittal South Africa (AMSA) and has previously supplied to the steel producer under a cost-plus 3% arrangement that flowed from the 2001 unbundling of Iscor.  The miner met with the Trade and Industry Minister Dr Rob Davies, Economic Development Minister Ebrahim Patel and Mineral Resources Minister Susan Shabangu on Monday 26 July 2010, where the value-sharing concept may have been discussed.   The three Ministers were due to meet with the the leadership from AMSA on Tuesday 27 July 2010.  It was reported that a value-sharing proposal was premised on KIO winning its arbitration with AMSA and on the miner also securing rights to the 21,4% of the Sishen mine allegedly “lost” by AMSA, owing to its failure to convert those right under the prescripts of South Africa’s minerals legislation.  KIO has requested a review of a decision by the Department of Mineral Resources (DMR) to grant prospecting rights over the property to a little-known black economic-empowerment (BEE) company, called Imperial Crown Trading. Further, it had kept its legal options open by lodging an application against the DMR’s decision with the High Court.  The Department of Mineral Resources said that South African Mines Minister Susan Shabangu will make a decision on disputed prospecting rights at Sishen, Africa’s largest iron ore mine, “within the next week”. It is understood that the issue of the minerals rights was being treated as “sensitive” in the engagements between government and KIO, owing to the legal challenge. This was reportedly making it difficult for the participants to openly debate the matter.  Instead, government was continuing to pursue a so-called developmental outcome, which would be premised on a deal that ensured viable and cost-competitive steel production, as well as competitive steel pricing.  Government has indicated that it will use “all the tools” available to it to ensure that these outcomes were realised, and has even hinted to the imposition of export taxes on iron-ore, or the deployment of South Africa’s minerals rights legislation to ensure that “developmental” pricing was sustained.  The fact that the intervention involved all three Ministers was seen as significant, owing to the fact that it signalled that government had finally reached internal alignment around its developmental goals.  Initially, the DMR, which held most of the power to influence the outcome, had been focused almost exclusively on extracting maximum BEE value from Sishen. In the process, close observers had said that it neglected other policy imperatives surrounding the highly strategic iron-ore rights.  It is further understood that a government task team could be established to take forward the technical aspects flowing from the discussions held between the Ministers and the leadership of KIO and AMSA.  Government continued to stress that the recent interim pricing agreement has failed to address a number of outstanding issues arising from the dispute between the two companies and that they would seek a more “permanent” solution that embraced “developmental” objectives.  Government was likely to continue to stress in its meetings with AMSA that any solution cannot lead to a repeat of the previous dispensation, whereby iron-ore pricing benefits were accrued, but never passed onto South African steel consumers.  Mining Weekly