Despite tough economic conditions ArcelorMittal South Africa will embark on a share buy-back of around 10% of the issued share capital.
The company recently reported a headline loss of R237 million for the first quarter of 2009, down from a R1.06 billion profit for the fourth quarter last year, as a result of a sharp decline in demand and prices of steel and the persistence of high contract prices for raw material inputs, particularly coking coal.
ArcelorMittal South Africa today announced that it has acquired ArcelorMittal Group`s 16.3% stake in Coal of Africa Limited (“CoAL”) for R404.5 million in cash. The price is based on the previous 15-day volume weighted average share price of CoAL on the Johannesburg Stock Exchange (“JSE”).
The transaction will secure part of ArcelorMittal South Africa`s future coal needs, mitigating one of the company`s key variable input costs. As part of the transaction, ArcelorMittal South Africa has secured an option to enter into an off-take agreement with CoAL for the supply of 2.5 million tonnes of metallurgical (coking) coal annually, with an option to raise this further in future.
ArcelorMittal South Africa last year purchased 5.2 million tonnes of coal. This makes coal one of the largest input raw materials for the company.
In addition to securing future coal supplies, ArcelorMittal South Africa believes that the quality of the coal it will procure from CoAL`s Vele Colliery Project will enable the company to increase the quantity of local coal in its overall coal mix to feed its furnaces, further enhancing management of input costs.
Commenting on the transaction Nku Nyembezi-Heita, ArcelorMittal South Africa CEO said: “This transaction ensures secure supplies of a key input material for the steelmaking process and is an important step in our strategy to pursue raw material backward integration.”
CoAL is focused on the acquisition, exploration and development of thermal and metallurgical coal projects in South Africa. Listed on the Australian Stock Exchange (“ASX”), London`s Alternative Investment Market (“AIM”) and the JSE, the company currently has three coal projects in various stages of development
namely:
* Mooiplaats Thermal Coal Project;
* Vele Coking Coal Project (74% ownership); and
* Makhado Coking Coal Project
CoAL also owns NiMag, an alloy processing company, and Holfontein, a small coal project which is non core to the operations of the company.
The 16.3% stake makes ArcelorMittal South Africa CoAL`s second largest shareholder after the 17.3% owned by Africa Management Limited, a black economic empowerment company associated with the Mvelaphanda Group.
CoAL Managing Director Simon Farrell commented: “We welcome ArcelorMittal South Africa as major shareholders and first customer for our coking coal products.”
The recent announcement by ArcelorMittal of its intention to increase the price of tinplate by approximately 70% from April 2009 will pose a severe threat to the future of the South African canning industry.
ArcelorMittal also makes reference to the fact that this increase is based on a formula comprised of a basket of prices from a number of international markets to which the current Rand-Dollar exchange rate is applied. Irrespective of any formula which has been used to determine these price increases, the impact will see double digit increases across all canned foods.
This has resulted in our can suppliers increasing the price of cans by between 45 and 55% and will in turn translate into significant increases over the entire range of canned foods.
“An increase of this magnitude will have dramatic implications for our industry”, said Rudi Richards, Chairman of the South African Fruit and Vegetable Canners Association. “This will lead to significant increases in the retail prices of canned foods and this will be especially tough for consumers in the lower income bracket”.
“This increase comes at a time when there is considerable focus and debate in respect of the targeted single digit inflation rate required in South Africa, as well the urgent need to reduce basic food prices.
“We would like to express our grave concern regarding the magnitude of these increases during a period of global economic slowdown and financial crisis”.
“In the short term we express our concern regarding the immediate impact on consumers – especially those dependant on basic, convenient and nutritional canned foods – and in the longer term we express our concern that this could make our products uncompetitive, which would essentially lead to lower demand both domestically and overseas and which in turn would result in reduced raw material intake and loss of jobs.
The export market, where approximately 85% of the canned fruit products are destined, will also be very adversely affected as it will be impossible to recoup this level of increase in these volatile global markets – given the fierce competition, the strength of retailers and the current economic crisis.
“It goes without saying that this increase will have a profound impact on the future of the canning industry and may severely limit its potential to support those many farmers, suppliers, labour and communities dependant on the industry”, said Richards. “We call on all parties in conjunction with Government to find ways of reducing this negative impact on canned food prices, employment and economic growth”.
ArcelorMittal South Africa and the Department of Education are proud to announce a partnership to build ten new schools throughout the country using new steel technology. The sod turning at the new primary school for the pupils and community of Mamelodi (in Tshwane) today is the first step in this programme.
Mamelodi Primary is scheduled for completion by the end of the year. The remaining nine schools, one school scheduled for each province and two in the Eastern Cape, will be built over the next seven years depending on guidelines provided by the department of education and economic circumstances. The total value of the schools programme is estimated at R250 million with Mamelodi primary projected to cost R39 million. The schools will be built using steel supplied by ArcelorMittal South Africa.
For ArcelorMittal the Mamelodi project is another crucial pillar in its strategy of investing heavily in skills development, training and education. This strategy includes promoting maths and science skills at high schools; an extensive bursary programme for artisans, engineers and other technical skills; and, upgrading the skills of its own employees.
This investment not only ensures that the company has a pool of skilled resources for its own operations, but also contributes towards addressing the skills shortage in the country in general. Under government’s Jipsa programme ArcelorMittal is one of the companies that has committed itself to producing more artisans than it needs for its own businesses.
The company’s CEO, Nonkululeko Nyembezi-Heita explains:
“Our core business relies heavily the availability of skilled people in the scientific, engineering and technological sectors as well as artisans. The key pillar of our skills policy – and that of JIPSA – is to align tertiary education and other institutional training with the actual skills required by both the public and private sectors.”
The company’s multi-million rand investment strategy to date has been a successful one and ArcelorMittal South Africa has been recognised as a corporate leader in the field of skills development and training.
The company is particularly proud of its R28 million investment in Science Centres in Sebokeng and Saldanha, adjacent to its Vanderbijlpark and Saldanha operations respectively. The Science Centre in Sebokeng, opened in 2006, has uplifted the level of science, mathematics and English education for over 2000 pupils at 43 schools in Sebokeng. The centre offers pupils access to classrooms, science laboratories, state-of-the-art computer centres and interactive science exhibitions and offers curriculum-linked science and mathematics instruction. It contributed towards a higher-than-average pass rate among matriculants in the area last year. Fifteen successful matriculants have received ArcelorMittal bursaries, including five bursars studying engineering at universities. The Saldanha centre was only opened in December 2008.
Says Nyembezi-Heita: “ArcelorMittal is focused on developing a strong mathematics, science and technology culture amongst schools. The company’s array of education initiatives is geared towards improving education within targeted communities, promoting scientific literacy and enhancing performance at secondary school level in order to benefit the wider economy.
“This investment in primary education in a way completes the circle and we now have a fully integrated education and skills strategy in place upon which we can structure future investments.”
In a first for South Africa, Mamelodi Primary School will be built using insulated panels technology, which relies heavily on steel as a building material. It can withstand extreme weather conditions, is fire resistant and ten times faster to erect than using conventional building technologies.