Kumba, ArcelorMittal South Africa Reach Iron-Ore Pact

Anglo American’s Kumba Iron Ore unit reached an agreement to supply the raw material to ArcelorMittal South Africa Ltd. (ACL), the continent’s largest steelmaker, ending disputes between the companies.

The price of as much as 6.25 million metric tons of iron ore sold annually to AMSA by Kumba’s Sishen Iron Ore unit will reference costs of production plus a 20 percent margin and will be subject to a ceiling equal to Sishen’s so-called export parity price, the Pretoria-based company said in a statement today. The accord starts on Jan. 1 and replaces a one-year arrangement reached in December last year. It also includes any volumes from Kumba’s Thabazimbi mine.

“There is an agreed floor price for 1.6 million tons and and 2 million of iron ore for the first two years of the agreement,” the company said.

Kumba in March 2010 canceled a 2001 agreement to supply AMSA with 6.25 million tons of material annually from the Sishen mine in South Africa’s Northern Cape province, the continent’s biggest iron-ore operation. Kumba terminated the pact, in which the steelmaking ingredient was sold at cost plus 3 percentage points, after ArcelorMittal (MT) South Africa’s mining right over the operation expired the previous year.

Kumba’s Sishen Iron Ore Co. controls and operates the Sishen mine, while Exxaro Resources Ltd. (EXX) owns 20 percent of SIOC, as the unit is known.

The agreement is subject to conditions, including that SIOC retains the entire Sishen mining right.

Kumba climbed after the announcement, rising 2 percent to 437.72 rand by 4:47 p.m. in Johannesburg. ArcelorMittal South Africa declined 4.1 percent to 37.58 rand.

To contact the reporter on this story: Kevin Crowley in Johannesburg at kcrowley1@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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