South Africa is nearing a deal to provide funding to ArcelorMittal South Africa’s local unit and keep the steel mills open, which are crucial for the nation’s economy, people with knowledge of the matter said.
The government plans initial support of about 500 million rand specifically to pay steelworkers over a period of six to eight months, said the people, who asked not to be identified because the information is private.
It is also discussing additional bridge financing through the state-owned Industrial Development Corp. (IDC), which will then raise its stake in the company from its current level of 8.2%, the people said.
The government, working through the state’s trade department and the IDC, also wants ArcelorMittal South Africa, known as AMSA, to consider offers for the two mills it plans to close, situated in the towns of Vereeniging and Newcastle, according to the people.
Securing a deal to keep the mills open, which provide so-called long products including steel grades that can’t currently be made by local rivals, is crucial to the government’s plans to revive the economy through a massive infrastructure push.
The car-making and mining industries are also the nation’s biggest foreign-exchange earners.
A decision may be announced as early as this week, according to the people, with one saying that the board of AMSA is meeting to consider the proposals.
The company, backed by Indian billionaire Lakshmi Mittal, is seeking about 3 billion rand to keep its mills open for another 12 months and build up inventory for carmakers such as Volkswagen and Isuzu, the people said.
AMSA declined to comment. The IDC said it’s in talks with AMSA to help it find a solution to keep the mills open. It declined to comment on potential bids for the plants.
Earlier this year, the IDC provided AMSA with working capital to keep the operations open.
That’s at least the second time that the development-finance institution — the steelmaker’s biggest shareholder after its parent company — has helped the company.
The IDC is also investing in a 12 billion-rand car-manufacturing plant with Beijing Automotive International Corp. and other downstream auto manufacturing, making products produced by AMSA, such as spring steel, a flexible grade of the metal used in vehicles, essential to its broader mandate of driving manufacturing growth.
“Securing long steel supply, particularly outside of the commodity products, is a key strategic focus for the IDC,” it said.
AMSA South African rivals — so-called mini mills that use scrap metal at discounted prices under a government program to make steel — have also received funding from the IDC, undercutting AMSA, which uses iron ore.
AMSA’s share price has fallen more than 90% since the end of 2005, valuing the company at just under 1.5 billion rand even though its annual sales are about 40 billion rand.
The stock has climbed 30% over the last two days in Johannesburg.
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