A R19 billion transformation bid for ArcelorMittal South Africa (Amsa) by local firm Networth Investments has been rejected, despite promises to revolutionise the country’s struggling steel industry with green technology and more profitable stainless steel production.
Networth CEO Harold Vermaak told Business Report last week that they had put in an offer to buy out ArcelorMittal Group’s 60% shareholding in Amsa, and around 2% of Amsa’s shares held by other foreign investors, in a leveraged buyout.
Broadly, the strategy was to convert Amsa over time so that it ceases to produce low-value-priced products, and rather produces higher value products such as stainless steel.
In a telephone interview, Vermaak cited Columbus Stainless as an example of the fact that steel production could be profitable and competitively produced in South Africa.
An ArcelorMittal spokesperson said “the correspondence (it had received from Networth Investments) does not reflect a firm or a bona fide offer. There is, therefore, no offer to be considered.”
Vermaak said he planned to fund the proposed capital expenditure with vendor finance agreements with a steel company in Italy for long products, and with a company in Germany for the operation of Amsa’s shut-down Saldanha Steel plant.
An offtake agreement would be reached with a Swiss steel-trading company that has an annual turnover of €7.1 billion (R135 billion), said Vermaak.
He said Amsa, which recently reported more losses, had a market capitalisation of about R1.89bn on the JSE when they put the offer before Amsa last week.
Amsa’s net borrowings were about R3.79bn, which included borrowings from the State-owned Industrial Development Corporation (IDC).
Vermaak said the acquisition price would be the small component of the proposed transaction, and Networth had offtake agreements in place to fund the estimated capital investment of R19bn between 2025 to 2027, to restore the steelmaker to profitability and competitiveness.
The acquisition of the shareholding would be financed by the IDC ceding to Networth its Amsa exposure, with the debt being used to acquire the 70% stake and the balance to be written off.
Vermaak said he had so far held encouraging discussions with the relevant government stakeholders about the proposed offer.
He said the proposed capital investment would entail replacing blast furnaces at Vanderbijlpark with two new electric furnaces. At Newcastle, the plan was to commission a new electric furnace and a billet caster to enable the diversification of product mix to one million tons per year of stainless steel production.
“We aim to make 900 000 tons per year of export competitive carbon steels to meet climate friendly obligations,” he said.
“Saldanha Steel and another plant” would be modernised, reconfigured and restarted for high-value-add and high-margin special steels.
The investment included digitisation and automation with AI for all the plants. Baseload electricity would be procured from Eskom’s Koeberg nuclear plant, while Vanderbijlpark and Newcastle would be provided power from an owned hydrogen 120MW gas power plant to be set up in Saldanha Bay, as well as a community of renewable energy sources around each plant location.
This would be financed off balance sheet per standing understanding with the Original Equipment Manufacturer (OEM) and benchmarked against similar offerings in India, said Vermaak.
He said the consolidation, restructuring and transformation of South Africa’s underperforming or inoperative steel assets could potentially grow the economy by 1.5% per year from 2028, create sustainable jobs and among other things increase the exports of low-cost high-value green steel exports to China.
“The most important feature will be the human capital. Amsa has excellent engineers and we do not intend to change the management team, which we feel is excellent and we are confident that we will work well together,” he said.
Meanwhile, Amsa warned earlier this month that its hopes for a better third quarter financial performance had been dashed by a downturn in global steel markets, falling local demand, rising energy and logistics costs, and increased duties in export markets as countries sought to protect their own manufacturing sectors.
This had resulted in an overall loss of R466 million for the three months to end-September, from a R52m profit previously. It also expected a headline loss for the third quarter of over R1bn, and it said it would require further support from the government.
“Despite the recent optimism in South Africa, the domestic steel industry has been facing a particularly difficult period,” Amsa said earlier this month, as it reported a 15% decline in local sales to 439 000 tons.
In July the company deferred the closure of its long steel business, including its Newcastle and Vereeniging plants, and it said that it would wait for promised improvements in rail and port performance.
The group said despite cost cutting, it remained unsustainable, and while the government had been “supportive and there is no lack of commitment”, this was not urgent enough.
BUSINESS REPORT