Kumba arbitration could take two years

Brendan Ryan | Thu, 22 Jul 2010 15:16

[miningmx.com] -- ARBITRATION between Kumba Iron Ore (Kumba) and ArcelorMittal over the disputed “cost plus 3%” iron ore supply contract could take between one and two years to complete, according to Kumba CEO Chris Griffith.

The two sides have agreed on an interim pricing policy which will last until the end of July 2011 while arbitration proceedings are carried out.

“It’s a long process and it can be made longer if one of the sides is not in a hurry to get a decision.

“You should remember that it took three years to get a decision on the dispute between Kumba and ArcelorMittal over Sishen South which went to arbitration,” Griffith said when interviewed after the presentation of Kumba’s interim results in Johannesburg.

The arbitration decision regarding Sishen South went in favour of Kumba, and ruled that ArcelorMittal had no right to participate in that mine.

That decision - which was announced in October 2009 - is believed to have led, in turn, to the current confrontation between the two groups over the existing supply contract for the Sishen mine.

Griffith commented that last week’s intervention by the Department of Trade and Industry (DTI) had helped in breaking the stand-off situation into which the two groups had fallen.

He said: “We had reached a stand-off. We would have gotten to a solution eventually, but the DTI intervention shortened the process.”

The first meeting chaired by the DTI took place on Monday. A second meeting was scheduled for Thursday afternoon, but the settlement was announced early on Thursday morning.

In terms of the interim pricing settlement, Kumba has dropped the price to be paid for iron ore sold to ArcelorMittal’s inland plants to $70/tonne free-on-rail (FOR) from the original demand of $80/t.

Kumba also dropped an escalation clause on that price through which it would rise by 10% on a compounded basis until September 1, 2011 after which Mittal would pay the prevailing market price.

The price demanded for ore delivered to ArcelorMittal’s Saldanha plant remained unchanged at $50/t.

Asked whether Kumba had not given in too much in the negotiations, Griffith replied: “These are tough decisions. We have an agreement that has taken five months of intensive negotiations to reach. I believe ArcelorMittal can live with this deal, and anything above cost plus 3% is good for Kumba.”

Griffith said Kumba had not made court papers from its legal action against the Department of Mineral Resources (DMR) available to third parties, because it was not Kumba’s policy to litigate through the media.

That legal action is over the DMR’s highly controversial decision to grant a prospecting licence to Imperial Crown Trading (ICT) over a portion of ground forming part of the operating Sishen iron ore mine.

Kumba has been severely criticised for refusing to provide this documentation, which for unexplained reasons has not been available from the Gauteng North Court as it should have.

Only now – some six weeks after the review action was filed – have those documents finally become available to the broader public.

Griffith said the Minerals and Petroleum Resources Development Act provided an internal review process, which Kumba had been using until it had to go to court to ensure it retained the right to take legal action should the internal review process fail.

Griffith said the DMR process was still open. However, he confirmed that Kumba had received no response from the DMR in terms of that internal review process.

He denied the suggestion that Kumba’s refusal to make the documents public resulted from controlling shareholder Anglo American’s desire to minimise public confrontation with the South African government.