Flagship R10.7bn manganese project in disarray

[miningmx.com] – THE future of a R10.7bn manganese mine, sinter
plant and ferro-manganese smelter project has been thrown into disarray after
ArcelorMittal, a 50% shareholder in the business, threatened to escalate litigation
against Kalahari Resources, which owns 40% of the project.

The legal confrontation comes as a body blow to South Africa’s attempts to progress
beneficiation of its minerals industry. It also occurs at a time when the beneficiation
or industrialisation of the South Africa’s minerals sector has taken centre stage at
the ANC’s policy-making conference which kicked off in Midrand today (June 26).

The dispute revolves around Kalagadi Manganese, the vehicle in which Kalahari
Resources and ArcelorMittal are co-shareholders, and in which the Industrial
Development Corporation (IDC) has a 10% stake.

According to court papers, ArcelorMittal declined to contribute its share of equity in
the project on the basis that the mining right for the mine and sinter plant was
owned by Kalahari Resources and not in the investment vehicle, Kalagadi
Manganese. ArcelorMittal said it had already contributed $440m to the venture.

The ownership of the mining right was discovered by Standard Bank. It was running
the rule over the project ahead of providing debt funding. Of the R10.7bn in capital
required for the project, some 60% would be funded through debt. The IDC would
also provide debt support.

ArcelorMittal requested Kalahari Resources cede the mining right in a Section 11
application; mining legislation that allows for the transfer of ownership of a mining
right. This was complied with, but only during court proceedings brought by Kalahari
Resources, itself subsequent to arbitration hearings ArcelorMittal had convened with
Kalahari Resources. ArcelorMittal also initiated business rescue proceedings, which
was to restructure and capitalise Kalagadi Manganese if granted.

The South Gauteng Court ruled in favour of the action brought by Kalahari
Resources ordering ArcelorMittal to pay its share of R241.3m in capital development
to the project. However, ArcelorMittal sounded an ominous note in a statement:
“ArcelorMittal will review the judgement and consider all available options’.

“The mining right has been delivered to ArcelorMittal’s lawyers, but it hasn’t been
reviewed by the company,’ an ArcelorMittal spokesperson said last night. He
suggested the matter was not yet settled, saying: “There are corporate governance
issues in Kalagadi Manganese that remain unresolved. What other things don’t we
know?’.

Chief among the corporate governance issues is that Kalahari Resources didn’t
inform ArcelorMittal of the ownership of the mining right; nor has Kalahari
Resources provided it with access to the books and records of Kalagadi Manganese –
a claim that Daphne Mashile-Nkosi, chairman and CEO of both Kalahari Resources
and Kalagadi Manganese, refutes.

“On many occasions we asked ArcelorMittal “what is it you need?’,’ said Mashile-
Nkosi, who added that the mining right had long lodged with Kalagadi Manganese.
“When you have a letter from the DMR saying that “to all intents and purposes’ the
right is with Kalagadi Manganese, that should be enough,’ she said.

The importance of ArcelorMittal appealing the South Gauteng Court’s decision –
principally because it believes there has been insufficient reform in Kalagadi
Manganese’s corporate governance standards – is that it would also give other debt
providers, including the IDC, reason for pause. “The IDC will continue supporting the
project,’ said Mashile-Nkosi, adding that even though the equity partners were “no
longer in love’ did not mean they shouldn’t look after “their child’ (the project).

The dispute between Kalahari Resources and ArcelorMittal is evocative of the mining
right dispute between Sishen Iron Ore Company, Imperial Crown Trading and
ArcelorMittal South Africa (Amsa), a listed subsidiary of the Luxembourg-based
steelmaker.

Mashile-Nkosi suggested that ArcelorMittal’s “bad experience had flowed into this
project’. She added, however, that focus remained on delivering the project which
was already stockpiling manganese ore at a rate of 48,000 tonnes per month. “The
manganese ore mine will hit full production end of October; the sintering plant is
due for cold commissioning at the end of this month,’ she said. Nameplate capacity
of the mine and sinter plant is three million tonnes a year.

There are also plans to build a 320,000 tonne/year high carbon ferromanganese
smelter in Coega. If built, it would establish the project as a major victory for the
government’s beneficiation strategy as it would deliver a degree of industrialisation
and job creation to the Northern Cape and Eastern Cape provinces; two of South
Africa’s poorest regions.

Kalahari Resources is no stranger to the South Gauteng court. In 2010, it brought
an action in that court against several individuals. This included the late Sandile
Majali – whom it accused of ‘hijacking’ the company by registering themselves as
directors – and removing others, including Mashile-Nkosi. Majali committed suicide
later that year.