Steel producer ArcelorMittal South Africa has acquired its parent group’s 16,3% stake in coal-mining company Coal of Africa Limited (CoAL) for R404,5-million in cash.

“This transaction ensures secure supplies of a key input material for the steel-making process and is an important step in our strategy to pursue raw material backward integration,” ArcelorMittal South Africa CEO Nku Nyembezi-Heita said last week.

The producer said that the transaction would secure part of its future coal needs and would mitigate one of the company’s key variable input costs.

As part of the transaction, ArcelorMittal South Africa had an option to enter into an offtake agreement with CoAL for the supply of 2,5-million tons a year of metallurgical coal.

The producer had purchased 5,2-million tons of coal in 2008.

ArcelorMittal South Africa said that, owing to the quality of the coal it would procure from CoAL’s Vele colliery project, it would be able to increase the quantity of local coal in its overall coal mix to feed its furnaces, further enhancing the management of its input costs.

“We welcome ArcelorMittal South Africa as a major shareholder and first customer for our coking coal products,” added CoAL MD Simon Farrell.

ArcelorMittal South Africa is now CoAL’s second-largest shareholder, after Africa Management, which owns a 17,3% stake.

CoAL's share price rose sharply on the news, trading 10% higher at R6,99 in Johannesburg.

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