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Johannesburg - ArcelorMittal SA (Amsa) has announced the first part of its peace offering to Government as it lobbies hard for tariff protection and other state support.
An employee share ownership scheme was announced on Friday morning, alongside financial results for the first half of the year.
This follows the company’s announcement that a rising tide of cheap subsidised Chinese steel has forced it to consider shutting down the century’s-old Vereeniging steelworks.
While negotiating with government for a barrage of defensive measures against the Chinese steel imports, two long-standing points of contention between it and the state stand out.
One is the demand for a “developmental steel price” and the other is Amsa’s dismal empowerment record – Amsa has zero black ownership.
The proposed employee share ownership scheme will receive 4.7% of the company from a stash of treasury shares that were bought back from shareholders in 2009 when the company was still flush with cash.
About 9 000 employees will receive units in a trust, Ikageng, which will own the shares. Due to the company’s relatively high level of white employment, the employee share ownership scheme will have a rule around ensuring black employees receive 15% more “economic benefits” than their white counterparts.
The employee share ownership scheme’s value will, however, hinge on the company’s very uncertain future. It has a conventional lock-in period of five years before employees can choose to take the shares or the cash value of the shares.
As things stand, deriving much “economic benefit” at all seems like a distant prospect.
Amsa’s downward spiral has led to auditors Deloitte and Touche adding a dreaded “emphasis of matter” to the financial results released on Friday.
The auditors say that there would be “significant doubt” about Amsa’s “ability to continue as a going concern in its current structure” unless management’s short-term plans actually pan out.
The plans referred to include the plea for protection from the state, as well as Amsa’s reliance on its controlling shareholder, the international ArcelorMittal group, continuing to lend it money.
Amsa owes its owner R2.9 billion, which is due in less than a year and paid it R126 million in interest in the first half of this year. The intention is to replace the debt with longer-term debt.
Overall, it made a net loss after tax of R111 million in the six months to June.
In an ironic development, Amsa’s hard-won cost-plus iron ore deal with Kumba Iron Ore has now turned into a liability due to the crash in international iron prices.
Previously, the deal for 6.25 million tons of ore a year gave Amsa an advantage over the alternative: importing ore. But now, imported ore would be far cheaper.
According to Paul O’Flaherty, the CEO of Amsa, the company paid R1 billion more for iron ore in the nine months to June than it would have had it simply imported the product.
Talking to Bloomberg after the Amsa results announcement, O’Flaherty said Amsa was looking at ways to get out of the deal.
The Kumba contract has some built-in protection against this kind of scenario: the price Amsa pays can not exceed Kumba’s “export price parity”, which means that the steel maker always gets its ore at the lowest price any foreign customer would pay for it.
This will allow Amsa to claim a rebate of R220 million from Kumba – a detail stuck in the notes of its financial statements released on Friday.
Kumba’s CEO, Norman Mbazima, told City Press this week that the company’s cost per ton, from the ground right up to delivery to China, was $72 (R909).
The international price has now dropped below that.
Where the Amsa deal had originally been a hard and expensive compromise, it is now delivering a higher price than exports for the mining company.
