[miningmx.com] – KUMBA Iron Ore and ArcelorMittal SA (AMSA) have buried the hatchet on more than three years of bitter dispute unveiling today a new iron ore pricing mechanism, effective from 2014.
Nonkululeko Nyembezi-Heita, CEO of AMSA, described the agreement as “a holistic solution” and that it was necessary to “have moved on”. “There’s a bit of history here; just a bit,” she said at a signing ceremony in Johannesburg.
In terms of the agreement, AMSA will pay Kumba cost plus 20% for 6.25 million tonnes of iron ore which is subject to ceiling and floor prices to protect against market vagaries. The deal also lasts for as long as Sishen is a producer of iron ore, estimated to be about 18 years.
This compares to a previous agreement of cost plus 3% before the sides, facing the prospect of arbitration, agreed an interim average price of about $65/t in 2012, a deal that was subsequently renewed this year.
The new deal, however, effectively sees the sides bundling iron ore production from both Kumba’s Sishen and Thabazimbi, a critical development as Thabazimbi’s cost was about double that of Sishen.
Although the interim pricing mechanism set down an average price of $65/t, the overall price was closer to $85/t including Thabazimbi. The new price is therefore estimated to be about $65/t. Nyembezi-Heita said her company was about $20/t better off by dint of the agreement today.
The agreement also sees the cost of Thabazimbi, which are currently carried by AMSA as an condition of its exclusive rights to supply, transferred to Kumba. Kumba’s risks are somewhat protected by the price lock-in agreed.
The agreement also covers a potential dispute surrounding Phoenix, a project Kumba is studying but over which AMSA wanted to re-assert some marketing rights.
Notwithstanding the sweetness of the deal for AMSA, Nyembezi-Heita declined to say whether her company would pass on the benefits to customers.
Yet she and Norman Mbazima, CEO of Kumba, said the agreement ticked the boxes for the South African government’s beneficiation strategy in which it wants to impose developmental pricing on steel feed ingredients and steel products.
The pricing agreement also raises the prospect that the life of Thabazimbi, thought to be almost exhausted, could be extended provided Kumba can make a success of low-grade technologies.
“We have now embarked on studies to look at viability of a Thabazimbi extension. The results are encouraging,” said Mbazima who added that up to 1,300 jobs could be saved. “It will continue to produce at reasonable price for along time indeed,” he said.
The agreement remains subject to the outcome of an appeal brought by Imperial Crown Trading in the Constitutional Court.
The appeal is against a High Court and Supreme Court ruling that Kumba’s subsidiary, Sishen Iron Ore Company (SIOC), had 100% ownership of the mining rights to the Sishen property.
Interestingly, AMSA and Kumba said the terms of the agreement would remain intact irrespective of changes to legislation. The South African government is proposing amendments to the Minerals & Petroleum Resources Development Act (MPRDA) which could allow it to declare certain minerals strategic and perhaps exert pricing restrictions.
Mbazima said he understood the government’s position. “We think we understand what government is looking for. Government would like to have more beneficiation in country that would result in downstream industries being encouraged with more employment,” he said.
