ArcelorMittal South Africa (AMSA) CEO Nonkululeko Nyembezi-Heita says the outcome of the negotiations between it and Kumba Iron Ore over the future of the Thabazimbi mine, which is a tied supplier to AMSA’s Vanderbijlpark works, should be concluded during the second half of the year.

Both companies have agreed not to disclose the contents of what is an attempt at a “negotiated settlement”, rather than an arbitration process, until a conclusion has been reached.

But Nyembezi-Heita has confirmed that the focus is on extending the life of the mine and reducing its operating costs. She also reveals that no life-extension discussion could be entertained without reference to the so-called Phoenix project, over which AMSA and Kumba have been in ongoing dispute for a number of years.

The cost of material from Thabazimbi has been rising steadily, while volumes have been declining as the mine nears the end of its life in its current form.

A few years ago, AMSA was buying 2.5-million tons yearly from the operation, a figure that has since fallen to around 1-million tons. AMSA has replaced the material through purchases from Assmang’s Beeshoek mine, in the Northern Cape.

CFO Matthias Wellhausen says that, while iron-ore-related costs rose 27% during the six months to June 30, the cost of material from Thabazimbi increased by 54% during the period. He adds that a structural solution is required to support its internal drive to achieved earnings before interest, taxation, depreciation and amortisation of $110/t by 2016.

“We are at the tail-end of an engagement with Kumba to arrive at a solution that will comprehensively address the high cost of Thabazimbi, and we anticipate reaching conclusion on those discussions during the second half – in fact, if we are being wildly optimistic, even during the third quarter,” Nyembezi-Heita says.

AMSA’s participation in the life extension of the operation is the group’s priority, with both companies liable for 50% of any closure costs and AMSA responsible for all environmental remediation. Some R400-million has been earmarked to cover these expenses.

“The talks are to explore whether there is not a viable alternative to closure,” Nyembezi-Heita says, saying that if a decision had already been made to close the mine, no engagement would be necessary.

In parallel, AMSA is also moving ahead with a plan to develop a greenfield mine in the Northern Cape, which would be able to close the supply gap that would arise from the closure of Thabazimbi.

It is yet to disclose the location or its partners in the project, but both of these will come to light in the near future when the partners apply for a mining licence.

During the six-month period, AMSA invested R38-million to firm up the resource and the exploration phase was completed at the end of March 2013. “We anticipate submitting an application for the mining rights in the third quarter.”

Meanwhile, arbitration proceedings regarding the future of a supply agreement between AMSA and Kumba’s Sishen Iron Ore Company (SIOC) are being held back to allow for all legal actions surrounding the status of the new-order mineral rights to be finalised.

On September 3, the Constitutional Court of South Africa will hear an application by the Department of Mineral Resources and Imperial Crown Trading to set aside a Supreme Court of Appeal judgment confirming SIOC’s Sishen rights.

For the time being, the sale of iron-ore from the Sishen mine to AMSA is regulated in terms of an interim pricing agreement concluded in December 2012 and applies to the period from January 1 to December 1, 2013, or finalisation of the arbitration.