JOHANNESBURG (miningweekly.com) – South African steel producer ArcelorMittal South Africa is intensifying its efforts to secure control of additional iron-ore and coking coal resources in Southern Africa, and was ready to partner with black economic empowerment (BEE) companies that have secured exploration rights for those categories of resources.

As with the larger group, the JSE-listed company is keen to increase its raw-material self-sufficiency, with vertical integration being viewed as a competitive advantage, particularly given an expectation that iron-ore prices will continue to strengthen.

Despite a precipitous decline in earnings, from a record profit of R9,5-billion in 2008 to a loss of R440-million for the year ended December 31, 2009, the company still had more than R4-billion of cash on hand, which it could use for investments and acquisitions, including into mining assets or companies. The group has also decided not to pay a dividend for the year.

The urgency to secure South African iron-ore capacity had also increased following an unfavourable outcome for the company in a long-running dispute with the Anglo American-controlled Kumba Iron Ore, as to whether it had the right to participate in the R8,5-million Sishen South project, in the Northern Cape. Further, the imminent closure of the Thabazimbi mine, in the Limpopo province, meant that an alternative supply source was needed to close a capacity shortfall.

ArcelorMittal was of the view that the terms of the 2001 Iscor unbundling entitled it to extend the cost-plus arrangement to new projects, despite the separation of the steel and mining companies. However, Kumba won a drawn-out arbitration battle in October last year and was currently proceeding with Sishen South as a solo venture. Its intention was to start production in the first half of 2012 and to ramp that up to nine-million tons a year during 2013.

ArcelorMittal had a separate agreement with Kumba, allowing it to source 6,25-million tons of iron-ore a year on the cost-plus basis, which remained intact. It would also continue to source 2,8-million tons a year from Kumba's Thabazimbi mine, whose ore formed a crucial blends element at the steelmakers Vanderbijlipark mill.

Operations at the mature Thabazimbi operation had already been extended to 2014 and work was under way to extend that life further to 2016.

But CEO Nonkululeko Nyembezi-Heita said on Wednesday that the group was redoubling its efforts to secure control of additional iron-ore. The decision was aligned to a group strategy of lowering costs through resource ownership rather than to any security of supply concerns, as there was sufficient domestic capacity available for purchase.

"We are not concerned about accessing iron-ore, we are concerned about having control over than iron-ore," she explained, adding that the same was true for coal, which underpinned its decision to invest in Coal of Africa.

The company requires 10-million tons of iron-ore yearly to meet its annual nameplate steelmaking capacity of 8-million tons. It is currently able to source more than 9-million of that need on favourable terms, paying market-related prices for the balance.

However, if it were to grow its capacity, the company would aim to do so in a way that it matched any steelmaking expansion, with an expansion of its upstream resources.

"We are now redoubling efforts to be self-sufficient in iron-ore and coal," Nyembezi-Heita explained, adding that the group's loss of participation rights in Sishen South meant that a new approach would have to be pursued.

She indicated that the company was ready to partner with BEE explorers in pursuing new iron-ore opportunities in South Africa. Similarly, it would be keen to participate in projects able to produce hard coking coal. At full capacity, the group would consume about 1,8-million of coal yearly.

Should the company prove successful in its bid for Zimbabwe steel producer Zisco, it would also gain access to mining operations. But Nyembezi-Heita stressed that the quality would not be appropriate for use by its South African operations.

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