Amsa sets out fresh Kumba iron ore dispute

[] – ARCELORMITTAL (Amsa) CEO Nonkululeko
Nyembezi-Heita set down the group’s contention in a fresh dispute with Kumba Iron
Ore (Kumba) regarding the steelmaker’s alleged rights to participate in the 11.3
million tonne (Mt) Phoenix project, a property adjoining the Limpopo province
Thabazimbi mine from which Amsa sources iron ore.

Amsa withdrew from the Phoenix project in 2006, but has now declared a dispute
with Kumba after the latter wouldn’t hear Amsa’s claim it should participate again.
“The project is squarely in the Thabazimbi area and the supply rules are clear,’
Nyembezi-Heita said.

Kumba maintains that the Phoenix project is ring-fenced from the remainder of
Thabazimbi’s resources from a technical and commercial perspective. It declares on
its website that the mining rights are also the property of Sishen Iron Ore Company.
Asked why Amsa had withdrawn from the project initially, Nyembezi-Heita
responded: “We have not withdrawn from it because we participate in the
Thabazimbi mine’.

Meanwhile, the possible rollover of an interim iron ore supply agreement between
Amsa and Kumba was expected on August 1. The current agreement expires on July
31, said Nyembezi-Heita who added that she was hopeful the two sides would
conclude arbitration into a long-term iron ore supply agreement by the middle of

Amsa requires about 10Mtpy of iron ore supply to make steel, of which some
6.5Mtpy is supplied from Kumba. From about the last quarter of its 2009 financial
year, the proportion of iron ore in Amsa’s raw material costs has nearly tripled,
according to company data. The cost of iron ore increased from about $60/t in 2008
to $184/t three years later. Iron ore is currently trading at around $134/t.


Amsa said it had accelerated capital expenditure in the first half of its financial year
in order to find replacement iron ore supply, spending some R207m compared to
R158m in the previous six-month period.

The bulk of Amsa’s R207m capital or “investment’ spend was on an as-yet-unnamed
iron ore prospect in the Northern Cape, for which Amsa said it hoped to have a
mining permit shortly. “The [mining right] application was approved by the
Kimberley office [of the Minerals Resources Department] and now it’s with Pretoria
[office],” said Nyembezi-Heita.

Production from this mine could be as early as 2015. It would go some way to
replacing declining production from Thabazimbi, which has historically produced
2.5Mtpy, but is now due for closure in 2016 after a life-extension from the
original 2014 closure date.

Said Nyembezi-Heita: “There will be a 2.5 million tonne/year hole in iron ore supply
hence the frenetic activity in exploration’.

Nyembezi-Heita has said in the past that if the Northern Cape project proved viable
it could produce 1Mtpy to 2Mtpy. This could be “. pushed to 3Mtpy if it was used as
a hub to exploit other smaller deposits in the region which are not viable on their
own’. Development of the mine would also depend on the ability of Transnet Freight
Rail to transport the ore to Amsa’s steelworks.

Nyembezi-Heita added that Amsa was also considering the feasibility of iron ore from
the Zandrivierspoort (ZRP) prospect in the Limpopo province. The steelmaker spent
about 10% of a R207m outlay in the six months ended June on ZRP, which is owned
in a 50:50 joint venture with Kumba.

Nyembezi-Heita was responding to questions at Amsa’s interim results in which it
posted a R106m profit, down from the R668m profit in the corresponding period of
the previous financial year, but better than the R720m loss in the preceding six
month period ended December.

Shares in Amsa were relatively unmoved on the JSE having shed nearly 30% since
the beginning of the year. Amsa passed the interim dividend having elected a
dividend policy on board discretion amid volatile earnings profile over the last two