After government-led mediation, Kumba Iron Ore (KIO) and ArcelorMittal South Africa announced on Thursday that they had reached an interim iron-ore supply agreement.

Last week, KIO announced that it wanted payment in advance from ArcelorMittal for higher interim iron-ore prices, prompting the steelmaker to start planning the closure of its Saldanha steel works.

Now the parties had agreed to an interim pricing agreement, in terms of which ArcelorMittal would pay KIO’s Sishen Iron Ore Company (SIOC) $50/t for iron-ore to be delivered to the Saldanha works plant.

The steel producer would also pay SIOC $70/t for iron-ore to be delivered to its inland steel plants.

The interim pricing agreement would be retrospective to March 1, 2010, and would be in effect up to July 31, 2011.

Further, ArcelorMittal would also pay SIOC the freight costs to transport the iron-ore to the Saldanha plant and would be responsible for arranging transport for iron-ore deliveries, at its cost, to the inland steel plants.

The steelmaker would be entitled to a maximum of 520 000 t/m of iron-ore from the Sishen mine, with deliveries to the Saldanha plant to be limited to a maximum of 125 000 t/m of iron-ore.

Any iron-ore in addition to the maximum monthly amount would be purchased by the steel producer at the, then prevailing, spot calculated price.

ArcelorMittal CEO Nonkululeko Nyembezi-Heita said in a statement that this agreement would allow the steelmaker to continue operations at the Saldanha plant, without having to retrench any workers.

“As a result of the conclusion of an interim agreement, we are pleased that we will be in a position to continue the Saldanha plant operations with the current employee complement that is in place. Our current export order programme will continue, but the viability thereof will depend largely on steel prices and exchange rate variations, which will be monitored on a continuous basis,” she stated.

The group had previously estimated that between 3 000 and 4 000 jobs would be lost, if it had to close the Saldanha plant.

On Monday, Trade and Industry Minister Dr Rob Davies, Mineral Resources Minister Susan Shabangu and Economic Development Minister Ebrahim Patel met with Nyembezi-Heita and KIO CEO Chris Griffith to help resolve what was emerging as a potentially damaging conflict between the two JSE-listed companies.

ArcelorMittal's share price rose by 4,6% on the news to R82,74 a share. The share price of KIO, which also released its half-year results on Thursday, increased slightly by 0,47% to R364,21 a share.

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