ANC-linked company gets Sishen rights

A company with deep links to the governing ANC has emerged as the key factor in the row between steel giant Arcelor Mittal, and mining house Kumba Iron Ore.

Prudence “Gugu” Mtshali—formerly a personal assistant to ANC treasurer General Matthews Phosa—is a director of Imperial Crown Trading 289, the shelf company that has somehow managed to snaffle prospecting rights over a residual share of the rights to the rich Sishen iron mine, getting in ahead of both Kumba, and severely complicating the current corporate dispute between it and Arcellor Mittal.

Mtshali has a string of other party-linked business interests, including links through Vuna Coal to Andrew Hendricks, the husband of former Minerals and Energy Minister Lindiwe Hendricks. Until around September or October last year, she worked full time at the ANC’s Luthuli House headquarters. She has previously been named by Independent Newspapers as the lover of Deputy President Kgalema Motlanthe.

The other director is Archibald Luhlabo, a senior figure in the National Union of Mineworkers investment arm, the Mineworkers’ Investment Company.

Mtshali was not immediately available for comment.

Phosa said that Mtshali no longer worker for the ANC, having left in September 2009.

“She is no longer associated with the ANC,” he said.

“We have no information on this [issue], it is a private matter. As such we have no further comment.”

An investment analyst—who asked not be named because of the political sensitivity of the matter—told the M&G that the rights were likely to be
“extremely lucrative”.

It emerged a fortnight ago that Kumba had cancelled a longstanding agreement to supply Arcelor Mittal with iron ore at cost plus 3%, dramatically below the ruling price, and a the major contributor to the steel company’s profitability.

In the wake of this news, it emerged that Arcelor Mittal had allowed its rights on the mine to lapse.

Arcelor Mittal is contesting the cancellation on the grounds that the minerals rights are unconnected to its contract to receive ore at at a favourable price.

‘Not going to be short of money ever again’
If that argument wins out, the analyst said Imperial Crown would be able to sell ore from the mine at the ruling-market price, while Kumba remained bound to sell to Arcelor Mittal for much less.

“If it is the ANC, or party officials, they are not going to be short of money ever again”, the analyst said.

Kumba Iron Ore, owned by Anglo American, announced on Wednesday that the DMR had awarded prospecting rights on a 21% residual share of rights to the Sishen Mine, to a third party that the company refused to name at the time.

Kumba owns the other 79% share of the mining rights, while it mines the whole of the property as an “undivided right”.

The DMR’s decision and the choice to grant a prospecting right on a property that is already being mined has baffled industry observers.

A prospecting right is a precursor to a mining right, awarded to a company to ascertain the mineral reserves on a property. Once a company has been awarded prospecting rights it has the exclusive right to apply for a mining right.

Kumba had applied for the mining rights to the residual share in May 2009.

Jeremy Michaels, spokesperson for the DMR, released a statement on Thursday evening saying the department “has awarded a prospecting right for the 21,4% stake in Sishen Mine to Imperial Crown Trading. The previous holder of the right had failed to apply for conversion of the right from an order right to a new order mining right, as required by the Minerals and Petroleum Resources Development Act (MPRDA). Therefore in terms of the MPRDA, the right had reverted to the state.”

Corporate dispute’
The rights sit at the heart of the corporate dispute between ArcelorMittal and Kumba that could have significant impacts on the steel price and the economy.

The 21% share of the mining rights had formerly belonged to the steel giant.

ArcelorMittal however failed to convert its share of the rights to new order mining rights by April 31 2009 and this residual portion reverted back to the state, opening the way for applications by other companies.

ArcelorMittal’s possession of the rights was key to a contract the company had with Kumba, through its subsidiary the Sishen Iron Ore Company (SIOC).

Under an agreement reached through the unbundling of state-owned Iscor in 2001, which led to the creation of both ArcelorMittal and Kumba Iron Ore, ArcelorMittal would receive cheap iron ore from Sishen at cost price, plus 3%.

At the time, ArcelorMittal paid R2,5-billion for the 21% share of the rights.

But when ArcelorMittal failed to convert its share last year, Kumba saw this as an opportunity to unilaterally amend the contract.

On 26 February SIOC informed ArcelorMittal that it would no longer be supplying the steel maker with ore at cost plus 3% and instead would sell its product at market rates.

Iron ore is the key ingredient in the steel that ArcelorMittal produces.

The price that ArcelorMittal was receiving from SIOC, is significantly cheaper than that of ore obtained on the open market. Huge growth in countries like China has seen demand for ore skyrocket in recent years.

On the unbundling of Iscor, the government facilitated the preferential pricing deal in the hope that ArcelorMittal would pass on the benefits of cheap ore to the local steel market, with “developmental” steel prices.

Over the years however ArcelorMittal has failed to do so. It has been accused of anti-competitive behaviour and had run-ins with government, particularly the department of trade and industry, over high local steel prices.

On the timing of the rights applications by the parties involved, the DMR said that the prospecting rights were issued to Imperial Crown Trading, on Tuesday this week.

It also noted that the company had applied for the prospecting rights first.

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