ArcelorMittal To Sell Major Stake In Kalagadi Manganese

arcelorMittal(R)

VENTURES AFRICA – ArcelorMittal had agreed to sell its 50 percet stake in junior miner, Kalagadi Manganese, to joint venture partner, Kalahari Resources for 3.9 billion rand ($437 million), it was announced on Thursday.

The world’s largest steelmaker has sold the stake to the chairperson of Kalagadi, Daphne Mashile-Nkosi, bringing to a close a longstanding dispute over its (ArcelorMittal’s) alleged failure to honour shareholder obligations.

ArcelorMittal held 50 percent of Kgalagadi for many years together with, Kalahari Resources (40 percent) and the Industrial Development Corporation (IDC) (10 percent).

Kalagadi has been involved in the exploration for manganese in the Kalahari Basin. The three farms on which the company holds new order mining rights are believed to be some 960 million tons of manganese ore. The recent exploration programme has identified 102 million tons of mineral resources.

The future certainly looks rosy for Kalagadi as the manganese market currently looks very attractive.

This is in view of the fact that in 2011, South Africa accounted for 29.7 percent of the global manganese ore exports, Australia came in second place with a total contribution of 29.5 percent and Gabon in third with a total contribution of 13.4 percent. This year’s figures are not yet out.

The three countries exported 16.1 million tons of the total 22.3 million tons of manganese ore that were exported in 2011. More than half of the 6.6 million tons of manganese exported by South Africa were destined for China, with India consuming about 12 percent of the total exports.

Some of the exports were shipped to Japan, Norway, South Korea, and Spain, which collectively received about 27 percent of South Africa’s exports. The country’s production increased by 57 percent in 2010 to 7.1 million tons, coinciding with the global economic recovery. The increased production was in response to global recovery in steel production.

A total of 5.9 million tons of manganese ore with a sales value of 10.6 billion rand ($1.2 billion) were exported in 2010.

Recently, the South Gauteng High Court (formerly Johannesburg Supreme Court) ordered ArcelorMittal International to meet its 241.3 million rand ($27 million) shareholders’ agreement with Kalagadi Manganese within ten days.

High Court Judge P Coppin also ordered ArcelorMittal to pay the costs of the legal proceedings and ruled that ArcelorMittal discharge its financial obligations in the future – prorata to its shareholding in Kgalagadi Manganese.

A three-member joint venture (JV), comprising ArcelorMittal, Kalahari Resources and the Industrial Development Corporation (IDC), had agreed on a funding strategy during 2009, in which each party’s equity funding obligations were outlined and plans to raise external debt funding in South Africa and on international markets were established.

The equity of the funding was set at 40 percent, or 4.2 billion rand ($471 million), and the debt element at 60 percent, or 6.5-billion rand ($728 million). Kalahari Resources injected over 1.3 billion rand ($146 million) into the JV, while the IDC has invested 100 million rand ($11 million). Kalagadi said ArcelorMittal’s equity funding obligation reached about 500 million rand ($56 million).

Kalahari Resources brought the matter to the High Court to ensure ArcelorMittal honoured its shareholder agreement obligations, after the group failed to settle the matter out of court.

ArcelorMittal’s application to have Kalahari Resources placed under business rescue was also struck from the roll with costs.

ArcelorMittal said in a statement that it was disappointed with the High Court ruling, as it did not resolve “the real” issues. The company claimed that certain material obligations under the Kalagadi Manganese shareholders agreement had been breached and that there remained “serious shortcomings” in terms of corporate governance in the mining firm.