Tide turns on ArcelorMittal deal

[miningmx.com] — THE Public Investment Corporation (PIC) has expressed reservations about the proposed R9.1bn empowerment deal between ArcelorMittal SA and the Ayigobi consortium, a group of black investors which numbers the controversial Imperial Crown Trading among its shareholders.

This is the third institutional shareholder to suggest it may vote down the transaction, after Sanlam on Friday said there was minimal black empowerment in the proposal and RMB Asset Management last month said it would oppose the deal.

Despite mounting opposition to the transaction, ArcelorMittal SA spokesperson Julian Gwillim said the financial effects of the proposed deal were being compiled for inspection by the JSE. A date was also being set for shareholders to vote on the deal.

Sandile Zungu, who holds the lead interest in Ayigobi, told Fin24.com on Monday that the deal was certainly going ahead and that the administration details were being handled by ArcelorMittal SA. “Those people that think the deal may not go ahead are possibly those that lost out and wish otherwise,” said Zungu.

As head of the Ayigobi consortium, Zungu said all was going well and that the deal should be presented to ArcelorMittal shareholders for a vote. He said there was no basis for assertions that the deal may be abandoned by ArcelorMittal.

Under the terms of the deal, ArcelorMittal, a unit of the world’s largest steelmaker, will sell a R9.1bn ($1.3bn) stake to Ayigobi Consortium, a group of black investors, which includes Imperial Crown Trading. ICT was set up in order to secure disputed mining rights at Sishen, South Africa’s largest iron ore deposit.

ArcelorMittal had failed to convert its 21.4% mineral mining rights at Sishen, rights which provided for the supply of iron ore at cost plus 3% and which are a margin generator for ArcelorMittal. The rights were to be converted to new order mineral rights by April 2009. Kumba Iron Ore, then cancelled the deal to supply at discount and awarded them to ICT.

It is the manner in which this award was made that does not sit easy with PIC. ArcelorMittal, in order to claw back these rights, then agreed to acquire ICT for R800m.

PIC voiced a number of concerns, among them is why did the CEO of ArcelorMittal not protect a significant part of its business strategy, and why is the company now supporting a BEE deal that is not broad-based?

The PIC also wants to know why there is controversy surrounding the award of the prospecting rights to ICT.

The PIC and the Government Employees Pension Fund (GEPF) were key in the drafting of the Codes for Responsible Investing in South Africa, which obliges investors to influence and encourage sound governance principles by the companies in which it invests.

“PIC has therefore decided not to support the deal until these and other perceived irregularities are resolved.

“We are awaiting the formal notice to shareholders from the company,” it added.