| Thu 10 Jul 2003, 11:24 | | Iscor to roll out profit as Highveld issues a warn |
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Iscor to roll out profit as Highveld issues a warning
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Painful restructuring pays off handsomely
Trade and Industry Editor
WHILE Highveld Steel has put out a profit warning and cut output in a tough period for the global steel industry, SA's other listed steel maker, Iscor, is expected to announce a profit in excess of R2bn for the year to June.
Analysts say the long and painful restructuring of Iscor has resulted in a debt-free business, which is still able to generate cash in the steel down-cycle.
"Instead of battening down the hatches, Iscor is planning some significant investments," said an analyst.
"For instance, it is planing to almost double production of the Saldanha Steel plant from 1,2-million tons a year to over 2-million tons. Also on the agenda are the continuing discussions for the purchase of the Duferco steel processing plant, which lies next to Saldanha."
Durferco SA is a 50:50 joint venture between Duferco of Switzerland and the Industrial Development Corporation, whose CE Khaya Ngqula is chairman of Iscor.
Discussions have run for months, with Iscor unwilling to offer as much as the sellers are seeking.
The planned expansion of Saldanha is dependent on the arrival of natural gas at Saldanha, as is expected with in the next few years, with promising gas exploration continuing off the west coast of southern Africa.
Another area of investment for Iscor will be in the doubling of its coking coal production, to facilitate the planned increase in production. There will also be a focus on increasing iron ore supplies to SA's largest steel firm.
Iscor currently owns the right to 6,25m tons a year of iron ore from the Sishen mine in Northen Cape, which is owned by Kumba Resources.
The deal to secure iron ore supplies has been done with Kumba which was the mining arm of the former Iscor group, until it was unbundled in November 2001 into separately listed Iscor steel and Kumba.
"Iscor is expected to seek a further 6million tons of iron ore a year from Welgevonden, which lies south of Sishen and which was at one time known as Sishen South," said the analyst.
"There was an option that if more iron ore was needed, Iscor would participate in the development of Welgevonden that time has now come.
"Iscor will be one of the investors in developing the new reserves, and in turn will receive the extra 6-million tons of iron ore a year that it requires again at an attractive price."
There has been speculation that, if the competition authorities can be persuaded of the merits of the deal, Iscor would bid for Highveld.
"With Iscor sitting on piles of cash and Highveld in trouble, this bid might be made sooner rather than later," said the analyst.
"The government has said it supports the consolidation of the SA steel industry, but it's a tough challenge."
One of the secrets of Iscor's current financial success is a business assistance agreement with its biggest shareholder Lakshmi Mittal's LNM group.
This has helped to secure major cost savings in production and procurement, and will bring crucial new technology to SA once LNM's stake in Iscor has exceeded 50% as is expected early next year.
Iscor was approached for comment yesterday, but CE Louis van Niekerk said he was unable to discuss the company's prospects as it was in a closed period.
Jul 10 2003 07:46:58:000AM John Fraser Business Day 1st Edition
