Amsa runs away from shotgun wedding

[] — IT’S an ancient principle: listen to both sides of a story before doing anything, especially if you need to form an opinion.

The latest chapter in the Kumba-ICT saga, which has been submitted by the to-date tight-lipped ArcelorMittal South Africa (Amsa), re-emphasises the principle.

All public information has so far indicated that Amsa allowed its 21.4% mineral rights in Sishen to lapse through sheer carelessness, and it was therefore responsible for what is probably the biggest legal dispute in the history of the country’s mining industry.

These rights were suspiciously awarded by the department of mineral resources to Imperial Crown Trading 289 (ICT) and Kumba, the owner of the mine, is vigorously attempting to get them back in a very expensive court case.

But two weeks ago Amsa unexpectedly applied for permission to support Kumba in court. Amsa’s court documents also indicated that Kumba’s action had been less noble than everyone had so far presumed.

Another important question consequently arises: what made Amsa decide to attack ICT, its black empowerment partner with the highest imaginable political connections extending to the presidential family, in court – and to prevent ICT from getting the mineral rights in Sishen Amsa had lost?

Was the controversial deal between Amsa and ICT – in terms of which ICT, together with President Jacob Zuma’s very important friends and his son, became Amsa’s empowerment partner – perhaps forced on it from outside? Perhaps by Amsa’s parent company in London?

And did the allegation of fraud and corruption in this sensational court case make Amsa chief executive Nonkululeko Nyembezi-Heita realise, after the empowerment deal had been signed, that she or whoever had forced her into the deal had stirred up a hornet’s nest?

Sishen ore ranks among the most sought-after iron ore in the world. No steel producers can afford to feed their plants solely with Sishen ore, but all would wish to have it in their mix because of its particular properties.

Until the row broke out Amsa had been receiving almost all of its ore from Sishen, at a negligible price.

Until recently the group paid cost-plus-3%. The 3% was simply to cover costs other than mining costs, such as administrative and logistical expenses.

When Kumba was unbundled out of Iscor, former trade and industry minister Alec Erwin and Khaya Ngqula, the former chief executive of the Industrial Development Corporation, did their best to ensure that Kumba could never extricate itself from this arrangement.

They therefore insisted that, apart from the supply contract, Amsa should also have a 21.4% stake in Sishen’s mining rights. The contract between Kumba and Iscor/Amsa determined that Kumba, as Iscor/Amsa’s mining contractor, exercised the rights and mined the ore for the steel producer.

This was typically how political will could be foisted on a commercial contract.

But it was entirely unnecessary, because contracts in which a part or the whole of the production of a mine is sold forward, without the buyer owning any of the mineral rights in the mine, are commonplace in South Africa – and are standard clauses in mining contracts in this country. If Erwin and Ngqula had had only elementary knowledge of the mining industry, they would have known this.

Amsa was listed in 1989, but for almost 15 years was a rather lacklustre share. It was only by 2004/05 that the old Iscor began to really hold its head above water.
But, as soon as the profit threshold had been reached, money began to stream in.

After 2004 its dividend distribution rose dramatically, but the public was blind to the benefits of Amsa’s preferential access to Sishen’s sought-after ore. Indeed, Amsa followed a so-called import-parity policy which inflated steel prices dramatically, so much so that two gold mining companies, Harmony and DRD, lodged a complaint against Amsa with the Competition Tribunal. Amsa managed to stretch out the intervention by the tribunal, but its public image suffered serious damage.

There was therefore little sympathy for the steel giant when in February last year Kumba informed Amsa that it was no longer entitled to the Sishen ore because its mineral rights to Sishen had never been converted into new order rights, as required by the country’s new legislation.

Since mid-2010 Amsa has been paying $70 per tonne for Sishen iron ore delivered to its inland steel plants in Vanderbijlpark and Newcastle, and $50/tonne for ore delivered to its export facility in Saldanha.

Amsa’s share price was hammered, and it fell more than 30% in less than a month, seriously upsetting Amsa shareholders.

Shortly afterwards, Amsa announced out of the blue that it was buying ICT for R800m in cash, if ICT converted its Sishen mineral rights, which at that stage comprised only a prospecting right, into a full mining right.

But this was only a smokescreen because, together with ICT, Duduzane Zuma, the president’s son, Sandile Zungu, one of Zuma’s most loyal political allies, and the Gupta family, were all involved in an empowerment deal with Amsa, the value of which could ultimately run to R7bn should ICT succeed in converting its mineral rights.

It was therefore extremely odd for Amsa to join Kumba in the court application and request an interdict to set aside the awarding to ICT of the 21.4% mineral rights in Sishen. The logical conclusion would be that Amsa no longer wants ICT and its fellows as partners.

– Sake24