Amsa to secure own iron ore mine

[] — ArcelorMittalSA (Amsa) would seek to roll over the interim pricing agreement for iron ore from Kumba Iron Ore, the company said today in its first quarter production figures announcement.

Intriguingly, however, Amsa served notice that, longer term, it would seek other sources of iron ore revealing it wanted to establish its own iron ore prospect with minimum output of two to three million tonnes/year.

Shares in Amsa fell 2.35% to R80.17/share by mid-afternoon notwithstanding expectations that the R36.6bn group’s second quarter figures would be improved even though input costs were expected to rise.

Hosting a conference call to media and analysts, Nonkululeko Nyembezi-Heita, CEO of Amsa, said it was involved in “early stage exploration” on a prospects in the northern Cape, “in the general area of Sishen”, with a view to producing first iron ore in a “three year time horizon”. The mine would be supported by nearby infrastructure.

“These numbers (on production) are a bare minimum,” said Nyembezi-Heita. “In six months time we can update the market on the parameters (of the project).

Development of the iron ore prospect, details of which remain sketchy, also turned on regulatory permits.

Nyembezi-Heita declined to comment further on how iron ore would be priced from Kumba Iron Ore in terms of the rollover contract. “We’re in discussions with Kumba,” she said. “It’s not possible to speculate on the level of the pricing.”

Amsa currently pays $50/tonne for iron ore bound for its Saldanha Bay steel plant and $70/t for inland mills, up to $40/t more than it paid in terms of a previous cost plus 3% supply agreement that Kumba cancelled last year. The interim pricing agreement runs from March 1 2010 to the end of July this year.

Iron ore prices are expected to hold up well notwithstanding the monsoon season which affects Chinese steelmaker imports, according to a Reuters report today. However, the wire agency quoted an unnamed trader as saying: “I think prices are holding up well. We don’t see it dropping so much and it could stabilise in the mid-$180/t levels”.


A transaction to buy Imperial Crown Trading (ICT), the politically-aligned private company that owns the right to mine 21.4% of Kumba Iron Ore’s Sishen Iron Ore Company lease in the northern Cape, was pressing ahead, Nyembezi-Heita said.

The R800m deal had been delayed as ICT was tackling questions about the transaction posed by its shareholders,” said Nyembezi-Heita. “A number of allegations needed to be tackled,” she said. “The due diligence is now the primary source the delay (to completing the deal),” she said.

“The satisfaction of conditions precedent remains outstanding and the parties are in the process of extending the fulfilment period,” Amsa said in an earlier statement to the JSE Stock Exchange News Service.

Conclusion of arbitration regarding the right to mine the 21.4% of SIOC that Kumba Iron Ore does not currently owned, and which is claimed by ICT, will not be quick. Amsa said today a court date had been set for May 2012. Nyembezi-Heita said there were no plans to find an informal resolution with Kumba in the interim.