ArcelorMittal, South Africa to ink deal on steel mills
The government of South Africa is working on a deal to provide financial support to ArcelorMittal South Africa (AMSA) to help keep its steel mills operational. The planned support includes an initial $28 million aimed at covering steelworker wages over a period of six to eight months.
Additionally, the government has approved nearly R417 million to sustain the jobs of 2,982 employees for the next 12 months. The funding is intended to prevent the closure of AMSA’s steel plants in Vereeniging and Newcastle, which play a key role in the nation’s industrial sector.
To further stabilize the company, the state-owned Industrial Development Corporation (IDC) is exploring options for bridge financing, which would lead to an increase in its current 8.2% stake in AMSA. The government has also encouraged AMSA to consider offers for the two plants it plans to shut down. Maintaining these operations is seen as vital for South Africa’s economic recovery strategy, particularly in supporting the automotive and mining industries, which are major contributors to the country’s foreign exchange earnings.
AMSA is seeking approximately R3 billion to sustain its operations for another year and ensure the continued supply of steel products to manufacturers, including Volkswagen and Isuzu. While the company has received some proposals for strategic alternatives, none have developed into firm offers.
Long-term solution
The government remains committed to working with AMSA to find a long-term solution that secures the future of the steel sector and supports the broader economic recovery. A final decision on the funding plan could be made within the coming week. Earlier this year, the IDC provided AMSA with working capital to keep the operations open. That’s at least the second time the development-finance institution — the steelmaker’s biggest shareholder after its parent company — has helped the company.
The IDC is also investing in a 12 billion-rand car-manufacturing plant with Beijing Automotive International Corp. and other downstream auto manufacturing, making products produced by AMSA, such as spring steel, a flexible grade of the metal used in vehicles, essential to its broader mandate of driving manufacturing growth.
“Securing long steel supply, particularly outside of the commodity products, is a key strategic focus for the IDC,” it said.
AMSA South African rivals so-called mini mills that use scrap metal obtained at discounted prices under a government program to make steel have also received funding from the IDC, undercutting AMSA, which uses iron ore.
AMSA’s share price has fallen more than 90% since the end of 2005, valuing the company at about 1.6 billion rand even though its annual sales are about 40 billion rand. The stock surged as much as 21%, the most since October, before paring gains to close 7.7% higher in Johannesburg.
