ArcelorMittal South Africa Approaches Government for Funding to Preserve Steel Mills
ArcelorMittal South Africa is nearing a government funding deal to sustain its steel mills, essential for the economy. The initial support of around 500 million rand aims to cover worker salaries for the upcoming months. Additional financing discussions are ongoing through the Industrial Development Corporation, which plans to increase its stake in the company. The fate of the mills, which produce critical steel products, is tied to the government’s economic recovery strategy.
ArcelorMittal South Africa is close to securing funding from the government to keep its steel mills operational, which are vital for the country’s economy. The proposed initial support includes approximately 500 million rand ($28 million) focused on payroll for steelworkers over six to eight months. Furthermore, discussions are underway for additional bridge financing through the state-owned Industrial Development Corporation (IDC), which intends to increase its ownership stake in the company from the current 8.2%.
The IDC, in collaboration with the trade department, has approached ArcelorMittal South Africa Limited (AMSA) about potential offers for two mills scheduled for closure located in Vereeniging and Newcastle. Despite ongoing wind-down processes, AMSA is actively engaging with stakeholders regarding funding opportunities. The company emphasized that postponing its plans to scale down operations would not be feasible without a concrete agreement. Strategic alternatives have been pursued, yet none have materialized as formal offers thus far.
Keeping the steel mills operational is critical to government-led economic revitalization efforts and infrastructure development, particularly within the car manufacturing and mining sectors. An official announcement regarding a decision could occur as early as this week, coinciding with AMSA’s board meeting to evaluate the proposals.
To sustain operations for an additional 12 months and strengthen inventory for automotive manufacturers, ArcelorMittal is seeking around 3 billion rand. Although AMSA has refrained from commenting, the IDC acknowledged ongoing talks to facilitate a resolution to maintain mill operations. Earlier support from the IDC also provided AMSA with working capital to sustain its operations. Moreover, the IDC is investing in a 12 billion-rand automotive manufacturing facility, highlighting the importance of AMSA’s products to its manufacturing growth agenda.
AMSA faces competition from rival mini mills utilizing scrap metal, which benefit from discounted government programs, posing challenges as they undermine AMSA’s operations that rely on iron ore. Over the years, AMSA’s share price has drastically decreased, falling over 90% since late 2005. Despite reporting annual sales of approximately 40 billion rand, the company’s market value stands at about 1.6 billion rand. Recent market activity saw a significant stock surge, peaking at a 21% increase before settling at a 6.9% rise by late afternoon in Johannesburg.
The potential funding deal between the South African government and ArcelorMittal South Africa is crucial for the preservation of the country’s steel mills, which play an integral role in the economy. With the proposed support and ongoing negotiations for additional financing, there is hope to maintain production capabilities, especially significant for key industries like automotive manufacturing. However, competition from rival steel producers utilizing cheaper scrap metal poses a challenge for AMSA, which continues to endure a substantial decline in market valuation.
Original Source: www.mining.com
