Kumba, Arcelor set for Monday pow-wow

[miningmx.com] — ON Monday, an emergency meeting will be held to prevent the iron-ore dispute between Kumba Iron Ore and ArcelorMittal SA (Amsa) resulting in the demise of steel production in South Africa.

On Friday the battle lines were drawn between Kumba and Amsa when Kumba put its foot down and announced that Amsa would in future have to pay market-related prices for its ore, or Kumba would stop deliveries.

Amsa retorted that this step implied that agreement might never be reached, causing Saldanha Steel to close its doors and put thousands out of work.

On Friday afternoon, trade & industry minister, Rob Davies, intervened and asked the companies’ chief executives to meet him on Monday in an effort to reach an agreement. The dispute could not be allowed to reach point where domestic production of steel became disrupted, he declared.

Earlier that day, Kumba announced that from August 1 it would not deliver iron ore to Amsa if Amsa did not pay in advance. Amsa should also settle its account with Kumba – which has escalated since the dispute arose in March.

Kumba is now demanding $50/tonne for iron ore delivered to the Saldanha plant, and $80/tonne for ore delivered to its inland plants at Vanderbijlpark and Newcastle.

The higher prices were instituted after Amsa forfeited its mineral rights in Sishen at the end of February and Kumba suspended the supply agreement that enabled Amsa to buy 6.25 million tonnes of iron ore a year from Sishen at cost-plus-3%.

The higher prices have been in place since March but amid the controversy Amsa has not paid the market price. Kumba is now also demanding that Amsa pay the difference that has accumulated since March.

Stalemate

The two companies’ CEOs, Chris Griffith at Kumba and Nonkululeko Nyembezi-Heita at Amsa, as well as the financial directors of both, Vincent Uren at Kumba and Kobus Verster at Amsa, have had several meetings in recent weeks in an effort to reach an interim agreement on supplying iron ore to Amsa.

Kumba says it has made several proposals, but Amsa’s representatives have failed to react to any.

Kumba and its shareholders are consequently running a considerable commercial risk if the company continues delivering iron ore to Amsa without an agreement, Kumba declared on Friday. Amsa responded by warning that the new prices would mean the end of Saldanha Steel.

Kumba and its shareholders are consequently running a considerable commercial risk if the company continues delivering iron ore to Amsa without an agreement

Kumba says it is prepared to deliver cheaper iron ore to Saldanha as maintenance work at this plant has been neglected in recent years and its cost of production is higher. But this would apply only up to September 2011.

Amsa’s Nyembezi-Heita said that Kumba’s announcement “completely undermined’ any chance of a settlement.

She claimed that 4,000 jobs would be lost if Amsa had to pay the iron ore price proposed by Kumba.

Kumba said in reply that its analysis shows that Saldanha Steel can be profitably run if it pays the proposed market-related price.

On Friday the news caused Amsa’s share price to fall another 3% to a new low of R71.33, before closing at R72/share.

The share has shed 30% of its value since the dispute arose in February.

Kumba’s share price was 1% up at R339.10.