Steel producer ArcelorMittal South Africa (AMSA) announced recently that it intends acquiring Highveld Steel subsidiary HSM, Africa’s only producer of heavy structural steel.

The proposed transaction, which is subject to several conditions, will involve an upfront cash payment of R150-million and a possible further adjustment payment of R150-million, conditional upon the conclusion of a commercial arrangement for the long-term supply of sizable mainline rail volumes.

CEO Kobus Verster explains that the second part of the transaction will be triggered in the event that an offtaker can be secured for the type of steel required in the building of mainline railways infrastructure in South Africa and the Southern African region.

Should such an offtaker be secured, AMSA will invest to ensure the plant is capable of producing such structural steel products.

“To upgrade the plant to enable it to produce a certain length of mainline rail will require some investment, but also knowledge transfer [from within the larger ArcelorMittal group] . . . We will not enter into a capital investment programme, however, without having demand certainty, which will require an offtake commitment.”

The eMalahleni mill was restarted in April 2017 after Highveld, which entered business rescue in 2015 and continues to operate under the direction of business rescue practitioners, concluded a contract manufacturing agreement (CMA) with AMSA.

Under the CMA, AMSA has been supplying blooms and slabs to HSM for processing into heavy structural steel, sold into the construction, infrastructure, mining and general engineering sectors.

AMSA also secured an option to buy the HSM business.

AMSA says the acquisition will ensure that the momentum created under the CMA is sustained and that South Africa retains a regionally strategic steel manufacturing capability.

The mill is the only African operation able to manufacture railway lines.

Verster expects the transaction to be completed either by year-end, or during the first quarter of 2020, but insists that the effective date of the transaction will be no later than December 1, 2020.

He does not anticipate that South Africa’s competition legislation will pose any risk to the acquisition, owing to the fact that the mill is the only one of its kind in the country, with its only competition arising from abroad.

“The localisation of mainline rails will support jobs, strengthen industrial capability and enable export opportunities, while allowing for the transfer of specialised intellectual property and skills associated with rail production.”

AMSA has announced separately that it will also pursue a potential public–private partnership (PPP) investment opportunity in the area of market coke, used by AMSA to produce steel and by several domestic ferroalloy smelters.

AMSA is aiming to attract public and private coinvestors to partner with in increasing market-coke output to levels that are sufficient to meet domestic demand.

South Africa imports about 500 000 t/y of market coke, mostly from China.

Verster says the PPP will be a “three-way type of opportunity”, with AMSA offering the assets and infrastructure and the financing arising from both a third-party private investor and a public-sector financier.