ArcelorMittal in Saldanha Bay could face price increase for iron ore
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ArcelorMittal in Saldanha Bay could face price increase for iron ore

Details of an “interim pricing arrangement” between iron-ore belligerents ArcelorMittal South Africa (AMSA) and Kumba Iron Ore (KIO) are expected to be concluded in the near term, with detailed discussions on the finer details reaching maturity. Further, an update on the progress regarding the channel through which the two companies would seek to resolve their dispute could also be communicated within days or weeks.

But neither company was willing to elaborate further on Friday on the surprise move by the Department of Mineral Resources (DMR) to grant a prospecting licence in relation to AMSA’s “lapsed” 21,4% undivided share of the Sishen mine, which is operated by Sishen Iron Ore Company (SIOC), which is 74% held by KIO.

KIO has indicated that that it is pursuing its objection to the granting of the right to the little-known Imperial Crown Trading 289 on the basis of the appeal process prescribed in the Mineral And Petroleum Resources Development Act (MRPDA).

It is particularly perplexed by the granting of a prospecting right on a property that has housed an operating mine since 1954, and on the basis of a right that was effectively for an undivided share of the mine.

Both Imperial Crown and SIOC apparently applied for the rights on May 4, 2009, after AMSA failed to convert its rights by the April 30, 2009, deadline, outlined in the Act. But it emerged on Thursday that, despite its application for prospecting and not mining rights, the Imperial Crown application had been favoured by the DMR.

It has since emerged that the company has material links to the African National Congress, South Africa’s current governing party.

But the a DMR spokesperson told Engineering News Online that the application for, and the issuance of, the prospecting right were done strictly in accordance with the law, and that a statement explaining the decision would probably be issued early next week.

AMSA, meanwhile, would not comment further on the matter, saying only that it was considering all its legal options, having insisted previously that its rights and an associated supply agreement remained intact.

The supply agreement, which was concluded as part of the 2001 unbundling of the then Iscor, was meant to be a 25-year, but “evergreen” deal guaranteeing AMSA access to 6,25-million tons a year of Sishen ore on a cost plus 3% pricing formula.

However, SIOC notified AMSA on February 5, 2010, that the contract was no longer valid, owing to the steel group’s failure to convert its Sishen rights in line with the prescripts of the MRPDA.


Material continues to flow from the mine to AMSA’s South African mills, with discussion continuing on what price would be charged as from March 1, 2010, onwards – the date on which SIOC “cancelled” the discounted price agreement.

KIO told Engineering News Online that it had not yet invoiced AMSA for March deliveries.

It is widely understood that SIOC is proposing that the interim supply be priced on “commercial terms”, with a possible clawback agreement should AMSA prevail during any dispute-resolution process.

In other words, AMSA will be asked to begin paying the yet-to-be-agreed price, which would be materially more than current estimates of between $26/t and $35/t. But SIOC might only redeem what was owing to it in relation to the cost plus 3% arrangement, with the balance going into a separate account.

SIOC would be entitled to the difference should its argument be accepted during arbitration. However, it is not yet certain that the matter will in fact go to arbitration, with both companies still weighing the legal options.

In other words, both parties are treating the award of the prospecting rights to Imperial Crown as separate to their commercial dispute, which resulted in a halt in the trading of AMSA stock, between the afternoon of February 26, 2010, and the afternoon of March 3, 2010, when it was first disclosed.

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