Kumba and ArcelorMittal Reach Iron Ore Deal

July 22 (Bloomberg) — Kumba Iron Ore Ltd., a unit of Anglo American Plc, said it reached an interim agreement for deliveries of the steelmaking ingredient to ArcelorMittal South Africa Ltd. while arbitration over a supply dispute continues.

Kumba, based in Pretoria, on March 1 canceled a nine-year- old supply pact under which ArcelorMittal South Africa, a unit of the world’s largest steelmaker, bought iron ore at 3 percent above the cost of production. The South African steelmaker has since refused to pay the “market prices” it’s being charged, according to Kumba. The dispute in now in arbitration.

Concerned about the impact of the dispute on South Africa’s economy, Trade and Industry Minister Rob Davies held mediation talks with the companies earlier this week.

The duration of the agreement will be retrospective, dating back to March 1 and running until the end of July next year, the companies said in a joint statement today.

The interim deal will allow ArcelorMittal South Africa to keep its Saldanha steel plant operating and continue exporting steel, it said. The steelmaker said on July 16 that it planned to shut Saldanha and halt shipments as talks over the interim supply agreement stalled.
Under the terms of today’s accord, ArcelorMittal South Africa will pay $50 a metric ton for ore supplied to Saldanha on the coast and $70 a ton for ore delivered to Newcastle in KwaZulu-Natal and Vanderbijlpark near Johannesburg. There will be no escalation in prices during the period, it said.

‘A Good Deal’
Getting ore at these prices is “certainly a good deal” for ArcelorMittal South Africa, said Paul Theron, managing director of Vestact fund managers, by phone from Johannesburg.

Shares in the steelmaker rose for a third day, climbing 2.28 rand, or 2.9 percent, to 81.38 rand at 9:27 a.m. in Johannesburg. Kumba advanced 1.02 rand, or 0.3 percent, to 363.52 rand.

ArcelorMittal South Africa, which employs 10,000 workers, said last week that as many as 4,000 temporary and permanent jobs could be lost as a result of closing Saldanha.

Saldanha is situated in one of the nation’s poorest areas, on barren land 109 kilometers (68 miles) north of Cape Town. It was opened in 1998 by formerly state-owned Iscor Ltd. and the Industrial Development Corp., the state development agency.

“From a national perspective, it was important that an interim supply deal was reached,” Vestact’s Theron said.

Earlier, Kumba said net income jumped 91 percent to 6.49 billion rand ($860 million) from a year earlier, boosted by higher prices and exports. Kumba is the first of Anglo American’s units to report results for the period.

The price of iron ore for immediate delivery jumped in April after Vale SA, the biggest supplier of the steelmaking material, and BHP Billiton Ltd., the biggest miner, ended a 40- year system of annual pricing in favor of short-term contracts with Asian clients. Contracts in the second quarter were more than 90 percent higher than in the first, Kumba said on July 9.

–Editors: Alastair Reed, Tony Barrett. (SFGATE.COM)