ArcelorMittal seeks “holistic solution”

[] — ARCELORMITTAL’s R800m takeover of Imperial Crown Trading (ICT) depends on ICT being awarded a mining right for 21.4% of Kumba Iron Ore’s Sishen mine.

This was confirmed at a press conference held in Sandton on Tuesday by ArcelorMittal CEO Nonkululeko Nyembezi-Heita , who described the deal as an attempt to find a “holistic solution’ to the Kumba/ArcelorMittal/ICT situation.

This latest twist in the saga has been severely criticised in some South African business circles, while foreign commentators are already drawing conclusions over the outcome of the similar mining rights dispute at Lonmin.

Roger Bade, analyst for UK financial institution Libertas, said: “Presumably the Lonmin usurpers will now be looking to be taken over.

“This murkiness makes South Africa an even less attractive destination for investors.’

A prominent South African mining businessman – who spoke on condition of anonymity – questioned ArcelorMittal’s ethics in carrying out such a deal, given the highly dubious background of the awarding of the prospecting right to ICT.

Macquarie First South Securities analyst David Pleming commented, “given the cloud around ICT’s application I would have thought it would be more prudent for ArcelorMittal to wait for the outcome of the legal process before embarking on an acquisition of ICT particularly as ArcelorMittal is also bringing the ICT members into the business as their BEE partners.”

According to Nyembezi-Heita, “Clearly, ICT still has some legal challenges to overcome but we have not seen one thing so far that is a showstopper.

“All the charges levelled at ICT in the media so far have not been backed up by any credible evidence. Instead, a lot of circumstantial stuff has been bandied about.

“We do not believe that any law has been broken on the evidence shown to us.

“ArcelorMittal has to base its business decisions on facts, so we are doing some very detailed due diligences to get to the bottom of the matter and we will base our decision on that.

“This (deal) is an attempt by ArcelorMittal to restore the status quo in terms of Sishen and then go for a long-term solution over the Sishen issue.

“We have taken a decision to make sure we can enhance our chances to come out on top. If ICT loses the case then the deal does not go through,’ she said.

Nyembezi-Heita said ArcelorMittal had started negotiating with ICT after it was awarded the prospecting right by the Department of Mineral Resources.

She categorically rejected the suggestion that the deal now struck with ICT was the reason ArcelorMittal had not bothered to renew its old order mining right at Sishen, when it should have done so in terms of the Minerals and Petroleum Resources Development Act.

Nyembezi-Heita defended the price of R800m to be paid in cash to ICT, on the grounds that “the price would be several multiples of that figure if we waited until the mining right had been awarded to ICT’.

She also sought to separate the deal with ICT on Sishen from the black economic empowerment (BEE) deal announced on Tuesday. According to this, the members of ICT also constitute 50% of the Ayigobi consortium, which is to take a 21% stake in ArcelorMittal’s South African operations.

Nyembezi-Heita said: “The two transactions are structured so that there is no cross-conditionality. Absent the ICT transaction we continue to do all the things necessary for the BEE transaction. Nothing unwinds on the BEE side.’

The Ayigobi consortium is lead by Sandile Zungu, but the members in it linked to ICT include Mabelindile Archibald Luhlabo; Prudence Zerah Mtshali; Jagdish Parekh (through Pragat Investments); and the Gupta family (through Oakbay Investments).

Also involved through Mabengela Investments is Duduzane Zuma – the son of South African President Jacob Zuma – who has also been linked to ICT.

Still to be included in the Ayigobi consortium is a broad-based group comprising “women, youth and other’.

An interesting point on ArcelorMittal’s proposed employee share option scheme which will account for an additional 5% BEE stake in the company is that members will only be locked-in for five years before they can sell their shares.

That is much more favourable than the scheme announced last week by Gold Fields for its employees, who will be locked in for 15 years before they can sell.