Kumba Iron Ore and ArcelorMittal SA have agreed to amend the pricing mechanism of the long-term 6.25 Mtpa iron ore supply agreement that the two companies entered into on 5 November 2013.
The two companies have agreed to amend the pricing mechanism terms of their current agreement, where Kumba supplies iron ore to ArcelMittal SA, from a cost-based price to a price based on an export parity price (EPP).
The EPP will be calculated on the basis of an international index and, at certain index price levels, ArcelorMittal will receive a discounted price, as follows:
- if the index price is between $60/t and $70/t, ArcelorMittal will receive a 5% discount to the EPP;
- between $70/t and $80/t, a 6.25% discount would apply; and
- at an index price above $80/t, a 7.5% discount would apply.
If the index price is below $60, ArcelorMittal will pay the EPP. These terms remain subject to a final definitive agreement being signed between Kumba and ArcelorMittal.
“The current market environment presents significant challenges for the mining and steel industries. This pricing amendment is commercially acceptable and sustainable for both parties,” says Norman Mbazima, CEO of Kumba Iron Ore.
“It will iron out the current distortions, whereby domestic prices can exceed those for export, thereby best serving the interests of the industry and country as a whole. Kumba remains committed to supporting a viable and stable domestic steel making industry in South Africa.”
Outside of this announcement, there is a pending announcement regarding Kumba’s engagement with the Department of Mineral Resources regarding the proposed conditions in relation to the consent to the amendment of the mining right to include the residual 21.4% undivided share of the mining right for its Sishen mine.