[miningmx.com] — ARCELORMITTAL SA (Amsa) is demanding R25.974bn from Kumba if the steelmaker’s supply agreement for iron ore from Sishen mine is not resumed.
The amount is calculated as the difference between market prices for iron ore and the cost-plus-3% Amsa has to pay Kumba for supplying 6.25 million tonnes of iron ore per year from Sishen.
Amsa’s market value of R49.3bn in February 2010 fell by R14bn when it became known shortly thereafter that Kumba had cancelled the agreement and would no longer supply Amsa with iron ore at the agreed cost-plus-3% price.
The steel giant’s share price has fallen by R116.67 to around R80 after the problems with the supply agreement and its expired mineral rights in Sishen became known.
On Friday its share price closed at R79.
On Monday morning the North Gauteng High Court in Pretoria will deliver its decision in Amsa’s application to be permitted to join Kumba as co-applicant to have the Department of Mineral Resources’ awarding of the mineral rights in Sishen to Imperial Crown Trading 289 (ICT) declared null and void.
Amsa’s court papers in this application for the first time put forward a strong case for not having renewed its 21.4% mineral rights in Sishen, and as to why its supply agreement with Kumba was still valid.
But the court is not being asked to make a decision about the contract between Amsa and Kumba.
The validity of this contract will be determined in private arbitration between the two parties, probably only in a year’s time.
Some of the pleadings prepared for the private arbitration are now being used in the public court case.
One of the most important points Amsa makes in the court documents is that at its unbundling from the former Iscor Ltd, now known as Amsa, in 2001, Kumba had already been compensated for the difference between iron ore market prices and the cost-plus-3% price at which Kumba was to deliver to Amsa.
Both companies had to take responsibility for more than R6.8bn debt when Kumba was unbundled from Iscor. Kumba’s share of this debt was reduced by R2.1bn to compensate for the lower price at which it was to deliver iron ore to Iscor/Amsa for as long as Sishen existed.
Iron ore market prices were less than $15 per tonne in 2001, but today they are around $170 per tonne. Amsa also highlights a paragraph in the supply contract between the two, stating that both would do everything necessary to ensure that the agreement would remain in place after the new minerals legislation – which at that stage was under consideration – came into force.
The legislation, the Mineral and Petroleum Resources Development Act, only came into force in 2004 and exactly five years later, in April 2009, led to the lapsing of Amsa’s 21.4% mineral rights in Sishen.
In the arbitration case Amsa has asked for this paragraph in the agreement to be amended so that its loss of the Sishen mineral rights is expressly not affected by it.
– Sake24
