Steel producer ArcelorMittal South Africa (AMSA) announced on Thursday that it intended acquiring Highveld Steel subsidiary HSM, which is 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 explained that the second part of the transaction would be triggered in the event that an offtaker could 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 would invest to ensure the plant was 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 be 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.

In addition, AMSA secured an option to purchase the HSM business.

AMSA said in a statement that the acquisition would ensure that the momentum created under the CMA was sustained and that South Africa retained a regionally strategic steel-manufacturing capability.

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

Verster anticipated that the transaction would be completed either by year-end, or during the first quarter of 2020, but insisted that the effective date of the transaction would be no later than December 1, 2020.

He did not anticipate that South Africa’s competition legislation would pose any risk to the acquisition, owing to the fact that the mill was 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,” he added.

MARKET-COKE PPP?

AMSA announced separately that it would be pursuing a potential public-private partership (PPP) investment opportunity in the area of market coke, used internally by AMSA to produce steel and by several domestic ferroalloy smelters.

Verster said AMSA was aiming to attract public and private co-investors to partner with in increasing market-coke output to levels that was sufficient to meet domestic demand.

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

Verster said the PPP would 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.

“We have coal available in the country and we are producing mainly for ourselves, but with access to the broader market. So from an investment perspective it should be fairly attractive given that there is market and you can partner with someone like ourselves who brings the know-how and the execution to the relationship.”