| Fri 16 Jul 2010, 13:21 | | ACL - ArcelorMittal South Africa Limited - Kumba halts Iron Ore supply to |
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ACL
ACL
ACL - ArcelorMittal South Africa Limited - Kumba halts Iron Ore supply to
Arcelormittal and further cautionary announcement
ArcelorMittal South Africa Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1989/002164/06)
Share code: ACL
ISIN: ZAE000134961
("ArcelorMittal" or "the Company")
KUMBA HALTS IRON ORE SUPPLY TO ARCELORMITTAL AND FURTHER CAUTIONARY ANNOUNCEMENT
ArcelorMittal and Sishen Iron Ore Company Limited (`SIOC`), a subsidiary of
Kumba Iron Ore Limited, have failed to conclude an interim price arrangement for
the supply of iron ore.
As a consequence, SIOC has informed the Company that it will cease supplying
iron ore to ArcelorMittal`s steel plants within two weeks unless ArcelorMittal
agrees to the terms and conditions which SIOC requires to govern the supply of
ore.
The interim arrangement would have governed the terms of iron ore supply until
the conclusion of an arbitration process that is currently underway and which is
aimed at resolving a dispute in terms of the agreement that the parties entered
into in 2001.
SIOC had demanded that ArcelorMittal pay to SIOC a price of US$50 per ton of
iron ore for the Saldanha plant, and US$80 per ton of iron ore for
ArcelorMittal`s inland facilities. The prices offered would escalate by 10%
every six months until 1 September 2011, following which ArcelorMittal would be
expected to pay SIOC the prevailing market price.
While a price of US$50 per ton of lump iron ore for the Saldanha plant was
agreed in principle, a suitable price agreement was not settled for
ArcelorMittal`s inland facilities. US$50 per ton would have allowed
ArcelorMittal to continue operating the Saldanha plant at around break-even
levels, but the pricing demand from SIOC for inland facilities would make
exports from these facilities largely unprofitable.
The SIOC offer of US$50 per ton and US$80 per ton of iron ore amounts to
increases of 69% and 171%, respectively, over the cost plus 3% amounts to which
Kumba is contractually entitled. These increases would significantly boost the
high operating margins of Kumba, while it will impact extremely negative on the
profitability of ArcelorMittal.
In the prevailing circumstances, it is not possible for ArcelorMittal to agree
to the prices being demanded by SIOC, whether on an interim basis or otherwise,
which would threaten the viability of ArcelorMittal`s business.
ArcelorMittal firmly believes that the parties` negotiations were advancing
positively, despite the continued public threats by Kumba to halt iron ore
supply, if ArcelorMittal did not capitulate to SIOC`s terms and demands.
During the period when the interim pricing negotiations were underway, steel
prices have reduced by approximately US$100 per ton, while iron ore prices have
decreased by about US$50 per ton. ArcelorMittal has, in turn, reduced local
steel prices in July 2010 by 15% placing significant pressures on already tight
operating margins.
While iron ore supplies will continue from SIOC`s Thabazimbi mine, scrap and
other suppliers, these will not be sufficient to provide the complete needs for
ArcelorMittal to meet current sales orders and future steel demand.
ArcelorMittal now has no alternative, but to immediately initiate plans:
for the immediate closure of the Saldanha plant;
for the curtailment of all exports; and
for a material reduction in domestic market production, resulting in market
allocations.
This will result in job losses and will seriously impact downstream industries.
It is anticipated that approximately 3 000 to 4 000 jobs, out of a total of over
10 000, will be affected.
Shareholders will be kept informed as additional information becomes available
and are advised to continue to exercise caution when dealing in the Company`s
Securities until a full announcement is made.
16 July 2010
Sponsor to ArcelorMittal
Deutsche Securities (SA) (Proprietary) Limited
Date: 16/07/2010 13:21:18 Produced by the JSE SENS Department.
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