IDC capture of Scaw heralds state steelmaker

[] – SOUTH Africa edged towards the creation of a much-vaunted state-owned steel manufacturer with the capture of Scaw Metals Group (Scaw) for R3.4bn from Anglo American.

This is the second divestment of a non-core asset by Anglo American this month – the sale of quarry and plant assets to steel-making mogul Lakshmi Mittal was the first – but the Scaw transaction is by far the most important for South Africa.

It gives substance to Government’s long-held interest in developing beneficiation in the country and supplying it with low-cost steel. Market leader, ArcelorMittal SA, has been criticised for selling steel at export parity rates.

The switch in ownership from private to state hands also positions Scaw to compete for infrastructural projects in South Africa which include the proposed R300bn outlay by Transnet, the transport and logistics utility.

IDC’s divisional executive of mining and manufacturing, Abel Malinga, said the acquisition was the start of turning Scaw into “a global player”, and promised to invest in the steelmaker and producer of wire rope and other heavy industrial goods.

“High steel input costs inhibit the development of a robust and sustainable downstream steel fabrication industry to the detriment of job creation,” Malinga said.

“It is critical to maintain and deepen the industrialisation of the economy by refocusing the beneficiation strategy to support fabrication and manufacturing,” Malinga said in a statement.

“Scaw’s activities are in the last phase of beneficiation, which is job intensive, and therefore this acquisition is in line with the IDC and government’s strategic objectives,’ he said.

In terms of the deal, Anglo is to sell its 74% stake in Scaw for R3.4bn in cash and on a debt-free basis to the IDC which is the lead member of an investment consortium that also includes Anglo’s empowerment partners in Scaw South Africa, Shanduka Resources, Izingwe Holdings, and the Southern Palace Group of Companies.

The empowerment companies will jointly own 21% of Scaw with the remaining 5% of the steelmaker held by staff through an employee share ownership programme.

Said Malinga: “This puts the IDC in a unique position to make the necessary investments to grow Scaw’s operations, supporting beneficiation, infrastructure development and South Africa’s economic growth.

“As a leading diversified South African fabricator, Scaw has the potential to be a key supplier to planned infrastructure and construction programmes. IDC aims to leverage existing strengths within the business, to grow the entity into a global player,’ Malinga said.

Scaw CEO, Christopher Davis, said that under the “strategic leadership of our new owners” the company was well positioned to capitalise on growth potential in Africa’s mining industry, as well as the expansion of rail and power in South Africa.