In what is potentially a blow to the future growth aspirations of steel producer ArcelorMittal South Africa, an arbitration panel has ruled in favour of Kumba Iron Ore (KIO) in a long-running dispute over the steel producer's right to participate in KIO's South African growth projects.

ArcelorMittal currently accesses 6,25-million tons yearly on a cost-plus basis from KIO and sources its remaining requirement at market prices.

But Africa's largest steelmaker was of the view that it was permitted, in terms of a 2001 agreement that led to the unbundling of the then Iscor into separate iron-ore and steel entities, that it could extend the arrangement to new projects, if it could prove that the material would be beneficiated in South Africa.

At the time, the then Trade and Industry Minister, Alec Erwin, said that it was vital for the standalone steel entity to remain reverse-integrated into iron-ore, notwithstanding the unbundling. He asserted, too, that access to additional raw material at competitive rates would be key to sustaining the group's low-cost position. ArcelorMittal South Africa took this principle to suggest that it could participate in new projects and access additional material on a cost-plus basis.

However, KIO, which subsequently became a subsidiary of Anglo American, had a different interpretation, which led to the dispute.

Corporate negotiations, which were pursued for some time, failed to secure a remedy, which ultimately led to the arbitration process. The arbitration panel eventually assembled in mid-2009.

On Wednesday, the panel issued an award in favour of the Sishen Iron Ore Company, a KIO subsidiary, determining that ArcelorMittal South Africa was not entitled to participate in the R8,5-billion Sishen South project, currently under development in the Northern Cape.

The ruling, which is said to contain 19 points, could be appealed, but ArcelorMittal South Africa gave no immediate indication as to whether such a course of action would be pursued.

The steel company said would "examine its options".

The decision could have an impact on future investment decisions by ArcelorMittal South Africa inside the borders of South Africa. Ahead of the global economic crisis, the group was considering a new R3-billion long-steel investment in Newcastle, KwaZulu-Natal. The project was put on ice as recessionary conditions took hold and would now have to be remotivated to the board.

Speaking only hours ahead of the arbitration panel's ruling, CEO Nonkululeko Nyembezi-Heita confirmed that the JSE-listed steel group was one of two short-listed bidders for the debt-laden Zimbabwe Iron and Steel Company (Zisco). She added, almost pre-emptively, that, should its bid prove successful, it could result in a revision to its long-steel expansion plans in South Africa.

"We were looking to add capacity to our long-steel production facilities in South Africa. Zisco gives us to the opportunity to relook at those plans."

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