After years of dispute, AngloAmerican owned iron ore company, Kumba Iron Ore and steel heavyweight ArcelorMittal South Africa have officially put their differences aside and struck a deal that will see the end to their legal battles.
The agreement will signal the end to all existing disputes between the two companies. The mining company and the steel giant have been at loggerheads since a preferential iron ore supply deal went sour in 2010.
"It just looked like the right time to sit down and resolve issues now," said ArcelorMittal chief executive Nku Nyembezi-Heita. "If we had done it much earlier there would have been too many permutations."
The agreement, announced on Tuesday afternoon, is intended to secure the long-term sustainable supply of iron ore to ArcelorMittal for the remaining life of the Sishen mine at "favourable" prices and see a possible life extension for Kumba’s Thabazimbi mine.
The deal will see Kumba taking over the costs of the flailing Thabazimbi mine as of January 1 2014, which up to now have been borne by ArcelorMittal. The mine has long been seen as in the final stages of its life cycle, with an estimated two to four years remaining.
Norman Mbazima, chief executive of Kumba Iron Ore, said that the move could mean a new lease on life for Thabazimbi. The company planned to execute various beneficiation processes at Thabazimbi that could extend the lifespan of the mine.
"Thabazimbi had a very short life left and costs were escalating significantly. We will now be able to evaluate the extension of life through low grid beneficiation processes," said Mbazima. "If [our interventions] are successful, and we are confident they will be … Thabazimbi will continue to produce for a very long time."
The extension of life for the mine will secure 1 300 jobs there, including 850 permanent positions, said Mbazima. Small and medium-sized suppliers in the area and the community around the mine also stood to benefit.
The agreement will regulate the sale of up to 6 ¼ tonnes per annum of iron ore by Kumba’s Sishen Iron Ore Mining Company to ArcelorMittall, and will last the duration of the lifespan of Sishen mine, which Mbazima said was approximately 18 years.
The two companies have also agreed on a price for a "pre-determined" quantity of iron ore for the first two years of the agreement.
ArcelorMittal will now be paying cost plus 20% for iron ore produced by either mine, whereas it previously had separate payment terms for the marginal Thabazimbi mine, whose costs have skyrocketed in the past few years, and the Sishen mine.
"It’s a massive big change from before," said Nyembezi-Heita. "There will be a single price [charged] from Kumba to ArcelorMittal that meets pre-set specifications."