The Industrial Development Corporation (IDC) has initiated a process to find a strategic equity partner for its struggling steel subsidiary, Scaw Metals, which reported a loss of over R1-billion for 2016.

Speaking at the IDC’s recent financial results presentation, IDC CEO Geoffrey Qhena reported that several interested parties had already expressed interest in the company, or parts thereof, following its call for expressions of interest, published in October last year, outlining the IDC’s intention to sell.

Economic Development Minister Ebrahim Patel, who also delivered an address during the results presentation, indicated that he had directed the group to ensure that it found ways of placing Scaw, as well as phosphates miner and fertiliser producer Foskor, which incurred a R568-million loss during the year, on a commercially sustainable footing.

Mining group Anglo American, which declared Scaw noncore in 2009, sold its 74% interest to the IDC for R3.4-billion in 2012. The other shareholders are Southern Palace, Izingwe and Pembani.

Since then, the group has been buffeted by hostile market conditions, which have also rocked the entire domestic steel sector, with companies such as ArcelorMittal South Africa (AMSA) reporting losses since 2010 and others, such as Highveld Steel & Vanadium, having even shut. It has also undergone far-reaching restructuring, which has improved prospects for when the cycle recovers.

Qhena said turning around both Scaw and Foskor was important to sustaining key industrial capacity in South Africa, as well as to stimulating growth.

An improved financial performance would also ensure that the two companies were no longer a drain on the IDC’s financial position. The State-owned group’s profits fell to R223-million in 2016, from R1.65-billion, largely as a result of losses from its major subsidiaries.

Qhena said it was premature to offer a firm timeframe for the conclusion of a deal involving Scaw, saying only that there should be greater clarity prior to the start of the group’s next financial year, which begins on April 1, 2017.

Scaw CEO Markus Hannemann told Engineering News that the IDC had always intended to sell and to find a partner that could bring either technical expertise and/or improved market access for the company.

Those expressing interest, Hannemann added, could also view Scaw as an ideal “springboard” for pursuing market prospects in the rest of Africa.

Meanwhile, Qhena stressed that there was no link between efforts it was making with AMSA to restart the mothballed heavy structural mill at Highveld and the proposed Scaw transaction.

Under that separate agreement, which is yet to be consummated, AMSA’s Newcastle mill would supply blooms and slabs for conversion into structural steel products currently not being produced locally.

Qhena said Highveld developments were at an advanced stage and should enable South Africa to displace some steel imports with product that could, again, be produced locally.

The focus at Foskor, meanwhile, would be on modernising its phosphoric acid plant in Richards Bay, which had been underperforming. During 2016, the IDC approved funding of nearly R4-billion to support the upgrade.