ArcelorMittal joins Kumba in fight against ICT

[] — ArcelorMittal South Africa has decided to join Kumba Iron Ore in its legal case against Imperial Crown Trading, which was granted a prospecting right over an area already mined by Kumba.

ArcelorMittal’s move adds a new twist to the steelmaker’s own wrangle with Kumba, a unit of Anglo American, over a preferential iron ore supply which Kumba suspended last year.

Kumba said last year it would supply the steelmaker at market prices after ArcelorMittal failed to convert its mining right over a 21.4% stake in Kumba’s Sishen mine as required by law.

Mining companies were required to convert their mining rights into an updated format by a set date or lose them after a new mining act took effect in 2004. The new legislation sought to avoid discrimination in the system and to better distribute assets among historically disadvantaged groups.

After ICT was awarded a prospecting right over that same stake, ArcelorMittal, a unit of the world’s top steelmaker, said it would pay R800m to buy the little-known company in a move to again be able to source iron ore at a discount.

The proposed deal, conditional on ICT keeping the prospecting right, was opposed by several minority shareholders who questioned its transparency and cited ethical issues. Privately-owned ICT has limited mining experience.

As part of the acquisition, ArcelorMittal has said it would transfer about a quarter of its shares to black investors, including ICT and an investment group led by the son of President Jacob Zuma.

Analysts say the steelmaker may have decided that Kumba’s case had more arguments in its favour and that supporting its case may increase its own bargaining power in the pricing dispute with the iron ore producer.

“Maybe their legal experts have been whispering to each other … that they would be all losers if Arcelor had to buy ICT because it would need to pay out R800m and set a bad precedent for the sector. Maybe they think that somewhere they may be able to reach an agreement if the court decides in their favour,” said Sasha Naryshkine, an analyst at Vestact.

The decision on whether ArcelorMittal can join Kumba in its case against ICT will be heard on June 2. The arbitration case between ArcelorMittal and Kumba is set for May next year.

ArcelorMittal said it never failed to convert its mining right as required by law, arguing that its right was converted when Kumba’s subsidiary, which holds the rights over the remaining 78.6% in the Sishen mine, converted its right.

“The conversion sought (by Kumba) was not restricted to a 78.6% undivided share of the mineral rights … but related to the entirety of such rights,” the company said in affidavit filed with the court.

ArcelorMittal argues that the mining act did not allow for the conversion of a fraction of a mining right. “Arcelor has nothing to lose. If ICT loses the right, they may be able to convince Kumba. If ICT wins, they can still buy it. ICT would never walk away from such a tempting deal,” said another Johannesburg-based analyst, who declined to be named.

Until the resolution of arbitration, Kumba and ArcelorMittal have agreed on an interim iron ore supply deal.