Kumba Iron Ore, the JSE-listed iron ore miner and the fourth largest producer in the world, had agreed to a new interim pricing agreement with South Africa’s biggest steel maker, Arcelor Mittal, it was announced this week.
But analysts said the agreement was not going to favour Mittal, saying the family business was able though to take the blow as they have ripped off South African consumers for years.
The new agreement would ensure the supply of iron ore to the steelmaker until the end of 2013 and the agreement would see Kumba subsidiary Sishen Iron Ore, in the Northern Cape, sell a maximum of 4.8-million tons of iron-ore, with a lump: fines ratio of 60:40, at a weighted average price of $65/t, after the extended agreement expired on December 31 2012.
The interim pricing arrangement, which was extended in August for a second time, ensures the sale of a maximum of 1.5-million tons of iron-ore to Mittal at the same price.
Mittal and Kumba have been talking for months. They have been discussing whether a nine year agreement enabling Mittal to buy iron ore at highly preferential price levels from Kumba should continue.
Mittal believes the agreement to buy at these prices was forged with government blessing in 2001 and is binding while Kumba argues it no longer holds.
An analyst said the agreement was ultimately bad for the Mittal family who are the major shareholder in Mittal.
“But we think the family can take the blow having ripped off South African customers for years,” one analyst said.
The agreement was mediated with the support of former department of trade and industry (DTI) director-general, Dr Zavareh Rustomjee, at the request of DTI Minister, Rob Davies.
The agreement would start in January and extend until December 31. 2013. Or until the parties conclude their long-running legal dispute.
Mining Weekly reported that the other terms and conditions on which iron-ore was sold remained materially the same as set out in August’s extended interim pricing agreement.
Davies reportedly said that, while the agreement ensured short-term security of supply and production, the agreement did not ensure the discounted iron-ore price was passed on as a developmental steel price to the manufacturing sector.