Everything you wanted to know about the Sishen row

Who cares how much Arcelor Mittal pays for iron ore after they didn’t renew their mining rights? What about the company Imperial Crown Trading 289 and why does it matter that they were awarded Arcelor Mittal’s mining rights and have connections to African National Congress leadership? Are you tired of hearing about Kumba, which sounds more like a song than a mining company?

Here is a breakdown of a story that has dominated headlines for the last 18 months and why it matters.

Let’s start at the beginning

  • Global steel producer Arcelor Mittal did not renew its 21,4% mining rights stake in South Africa’s Sishen mine, as required by law, when its mining rights expired on April 30 2009.
  • This is important because it allowed Kumba Iron Ore Company to find a legal loophole to wrangle its way out of a nine-year agreement to supply Arcelor Mittal with iron ore, at preferential prices: cost plus 3%.

The story gets complicated now — but juicy — as Kumba and a politically connected company fight over who gets Arcelor Mittal’s mining rights.

  • Four days after Arcelor Mittal failed to renew its rights, two other companies filed applications with the Department of Mineral Resources for the minority rights. Sishen Iron Ore Company (a subsidiary of Kumba), and Imperial Crown Trading (ICT) both sent in applications. It was May 4 2009 when Kumba and ICT did this … or maybe it wasn’t?

So who got the rights?

  • Generally, mining law allows rights to be administered on a first-come-first-serve basis. So the fact that it seemed as if both companies had applied for the mineral rights on the same day in May 2009 is important.
  • In November 2009, ICT was awarded the rights by the Department of Mineral Resources because they had better BEE policies than Kumba’s Sishen Iron Ore Company. Factors such as empowerment policies are taken into account if both applications are made at the same time.
  • Just by the way, Imperial Crown Trading has connections to the ANC. At the time ICT applied for the mining rights, Kgalema Mothlante was president. His long-term romantic partner, Prudence “Gugu” Mtshali, is a director and shareholder of ICT.

The question is, did both applications actually arrive on May 4, and who should have the rights?

  • Kumba filed criminal charges against ICT in May 2010 to object to how the little-known company got its mining rights. It has emerged that the ICT application was stamped by the department of mineral resources as received on May the 4 2009, but the signature on the application form was clearly marked May 5. The survey plans attached to the application were dated May 8 and 9.
  • Sishen Iron Ore Company (Kumba) argued that ICT therefore did not lodge a complete application on May 4 2009.
  • But in other court action, ICT and the department of mineral resources say Kumba also didn’t play by the book when submitting their application.
  • They complain that Sishen actually handed in its mining rights application on the day Arcelor Mittal’s rights were set to expire, April 30 2009. Sishen’s court papers reveal it made arrangements with officials in Kimberley and Pretoria to stamp the application as received on May 1, a public holiday. Sishen’s application fee was receipted on May 4.
  • ICT and the minerals department were not happy with the premature lodging of the Sishen’s application on April 30, when Mittal’s rights had not yet expired and the “arrangement” to predate the application as having been received the next day, which was not a working day.

But questions around ICT and its links to government remained.

  • In March 2010, ICT handed over half of itself to a new investor, represented on its board by Jagdish Parekh, who is said to control the stake on behalf of JIC Mining Services. JIC it turns out is controlled by the billionaire Indian Gupta brothers and the president’s son Duduzane Zuma.
  • And in May 2010, the Mail and Guardian reported that Kumba chairperson Lazarus Zim had a conflict of interest, since he was connected to the main shareholder in ICT: Parekh and the Guptas. Zim later resigned in December 2010.
  • Despite questions over ICT’s links to government and competitors — the bottom line is they still were awarded Arcelor Mittal’s lapsed stake in the Sishen mine.
  • So, in August 2010, Arcelor Mittal offered to buy out ICT and its mining rights and incorporate some shareholders into a new BEE structure, Ayigobi Consortium. Duduzane Zuma and the Guptas were cut into the BEE deal.
  • Arcelor Mittal wanted ICT so it could get its mining rights back in order to regain preferential prices of iron ore. But Kumba argued that the acquisition of ICT wouldn’t end the dispute with Arcelor Mittal over iron ore prices.
  • Some Arcelor Mittal shareholders, including the state owned pension fund, opposed Arcelor Mittal’s acquisition of ICT and its empowerment company, and raised questions about ethics and transparency. The deal has still not been approved.
  • In the midst of the dispute over the cost of iron ore, the South African government realised that Arcelor Mittal’s high steel prices (thanks to Kumba’s higher iron ore prices) were not good news for the South African economy. The steelmaker threatened to close down a steel production factory and cut thousands of jobs.
  • One possible solution, suggested by a government task team in August 2010, was to introduce competition such as another steel mill to break Arcelor’s monopoly.
  • So the Gupta brothers and Duduzane — who have links to ICT — decided to get in on the action again by becoming possible competitors to Arcelor Mittal.
  • The Gupta’s and Duduzane Zuma have interests in mining company African Horizons that signed an agreement in February 2011 with the Steel Authority of India (Sail) to investigate building a R21-billion steel mill. Sail, an Indian parastatal, is among that country’s top steel producers. With the Arcelor Mittal-ICT takeover deal still deadlocked, Horizons’ entry on to the scene is seen as a possible attempt by Zuma and the Guptas to blindside Arcelor Mittal and get in on the lucrative South African steel production act another way.

Backstabbing and making up

  • So while Arcelor Mittal is trying to buy out ICT and at the same time the Gupta’s and Zuma — who are linked to ICT — are looking at competing with Arcelor Mittal, Arcelor Mittal shocks the world by applying to join Kumba in court action against ICT.
  • Arcelor Mittal joined Sishen Iron Ore/Kumba to oppose ICT’s acquisition of the 21,4% mining rights at the end of May 2011.
  • In fact it came to light, via papers appended to Arcelor Mittal’s May 2011 application, that Arcelor Mittal initially sought to oppose the allocation of the mining rights to ICT as early as mid-2010, at the same time that it was attempting to finalise its buy-out of ICT.
  • Some analysts believe the court action of Kumba and Arcelor Mittal against ICT could send the entire ICT deal up in smoke, leaving Zuma’s son and the Guptas seize evidence to see if ICT obtained their rights fraudulently.
  • In what could be seen as a retaliatory gesture, the Department of Mineral Resources indicated this week that it wuold lay criminal charges with the Hawks against Kumba. Although it is not yet clear what the charges relate to, it is expected that the department will highlight what it believes to be fraudulent aspects of Kumba’s mineral right application lodged back in May 2009.
  • In a separate court case, Arcelor Mittal are now arguing that when Kumba converted its 78.6% stake in Sishen mine to a new order right back in 2009, which meant that AM’s 21.4% stake in the mine should have also been converted with it.

This arbitration will be heard in 2012, but the outcome of the case in the North Gauteng High court this week will no doubt have a bearing on the arbitration process.

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