Afripalm and India's SAIL sign steel mill pact

Wed Feb 23, 2011 4:24pm GM

* Feasibility study for 3-5 mln tonnes plant in SAfrica

* Mill expected to cost $2.95 billion

* Afripalm says SAIL to have big management role


JOHANNESBURG, Feb 23 (Reuters) - South Africa's Afripalm Resources signed a memorandum of understanding with Steel Authority of India (SAIL.BO: Quote) to build a steel mill in South Africa, Afripalm Chairman Lazarus Zim said on Wednesday.

The companies would conduct a feasibility study for a 21 billion rand ($2.95 billion) plant, expected to produce 3-5 million tonnes of steel a year, Zim said.

"There is a domestic market for steel and an export market. We believe South Africa has significant iron ore deposits and there is room for another steel mill," Zim told Reuters in an interview.

He said the feasibility study, expected to take six months, would start in the next few weeks.

Zim also said the Indian firm, also known as SAIL, would have a leading management role in the running of the plant, which is expected to take three to four years to build.

"We will sit down and decide who does what but (SAIL) will play a big role in management," Zim said.

Zim resigned last year from the board of Kumba Iron Ore (KIOJ.J: Quote), the world's 10th-largest iron ore supplier, to start a new steel firm.

The South African steel market is dominated by ArcelorMittal South Africa (ACLJ.J: Quote), a unit of the world's largest steel producer.

The government has accused ArcelorMittal of charging excessive prices to the detriment of the local steel industry and for failing to pass to consumers the benefits of an iron ore discount it used to receive from Kumba.

State-run SAIL said this week it plans to spend $12 billion to build four overseas plants in Indonesia, Oman, Mongolia and South Africa. [ID:nSGE71K04N]

($1=7.118 Rand)

(Reporting by Agnieszka Flak and Olivia Kumwenda; Editing by Jon Herskovitz and David Hulmes,sourced:Thomson Reuters)