Mineral Resources backs ArcelorMittal’s push for iron ore supply deal

By,Sibonelo RadebeTuesday, 01 Feb.2011

The Department of Mineral Resources (DMR) seems to have thrown its weight behind ArcelorMittal SA which seeks to reinstate the 2001 iron ore supply agreement with Kumba’s Sishen mine in the Northern Cape.
This is clearly spelt out in the affidavit of DMR’s director general Sandile Nogxina who was responding to Kumba in the legal battle for a 21.4% share of Sishen mining rights.
ArcelorMittal has threatened to close down its Saldanha steel manufacturing plant if a favourable iron ore supply arrangement was not found.
Nogxina said the Sishen mineral rights were of strategic importance and thus the decision as to who received the 21.4% portion of the Sishen rights should be alive to broader public interests which far outweighed Kumba’s own parochial interests.
ArcelorMittal held a 21.4% share of Sishen’s mining rights which came with a special iron ore supply agreement from 2001.

In this agreement, ArcelorMittal was entitled to receive 6.25 million tons a year of iron ore from Sishen at cost plus 3%.
Arcelor Mittal lost the 21.4% share of Sishen’s mining rights after it failed to convert them into new order mining rights in 2009.
Kumba, which holds 78.6% of the Sishen rights, is claiming the former ArcelorMittal portion for itself. A firm styled as a black economic empowerment (BEE) entity, Imperial Crown Trading (ICT), successfully applied for prospecting rights over the 21.4% share of Sishen.
After ArcelorMittal failed to convert its rights, Kumba moved to rescind the supply agreement.
An interim supply agreement was put in place after the intervention of government. An arbitration process was put in place and an interim measure which was set to run between March 1 and July 31, 2010, sees ArcelorMittal pay between $50 and $70 per ton. This applies to a maximum of 520000 tons per month.

Nogxina said there were sound reasons for the splitting of the mining rights to the Sishen iron oreed in 2001. These reasons remain valid, said Nogxina. “The mere fact that ArcelorMittal has through its negligence caused its old order rights to lapse, does not in any way affect this reasoning.”
Nogxina added that in November last year, cabinet announced that government would establish an interdepartmental task team which would look into the re-establishment of an arrangement to allow ArcelorMittal and other steel producers to source the 21.4% share of Sishen at cost plus 3%.
This arrangement would be modelled in a way that produces steel prices that are in line with the cheap iron ore supply agreement. Kumba refused to enter into such an arrangement, said Nogxina.
He added that the manner in which the output of the Sishen mine was handled had a direct impact on the local steel industry.
Nogxina said Kumba’s behavior around the Sishen matter and mainly the relentless pursuit of the Sishen rights that it did not own and the suspension of the supply agreement was motivated by parochial interest.
Kumba was driven simply by the quest for profits, said Nogxina.
“I understand that and I have no difficulty with it”.
Kumba’s financial strength benefits the national fiscus, the local community and its BEE shareholders. However the minister was required to pursue a broader range of interests than those affected by Kumba’s commercial success, said Nogxina.
Kumba is expected to respond to DMR’s claims in court proceedings. But the Anglo American subsidiary has maintained that the supply arrangement with ArcelorMittal “became inoperative in its entirety as of May 1, 2009”. (sourced:thenewage.co.za)