ArcelorMittal South Africa (Amsa) stood by the decision to wind down the Saldanha Works, saying it was unavoidable as rocketing input costs threatened the viability of the business. Photo: African News Agency (ANA) Archives
ArcelorMittal South Africa (Amsa) stood by the decision to wind down the Saldanha Works, saying it was unavoidable as rocketing input costs threatened the viability of the business. Photo: African News Agency (ANA) Archives

Amsa stands by decision to mothball its Saldanha Works

By Dineo Faku Time of article published Jun 10, 2020

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JOHANNESBURG – ArcelorMittal South Africa (Amsa) stood by the decision to wind down the Saldanha Works, saying it was unavoidable as rocketing input costs threatened the viability of the business.

Chief executive Kobus Verster said in the 2019 annual report released yesterday that the plant had almost always been a centre of excellence and its ceasing of operations was by no means a reflection on the performance of management and employees.

All who have worked at the plant in its relatively short history should take pride in having been part of a steel plant, which was well run and which consistently delivered. 

"However, the reality is that Saldanha Works had lost its cost advantage which resulted in it no longer being competitive in international export markets,” Verster said.

Saldanha Works was established by Amsa in partnership with the Industrial Development Corporation more than two decades ago. 

“The board was extremely loath to authorise Saldanha Works’ mothballing, but was mindful of the fact that the company was near the limits of its funding and that the financial drain which Saldanha Works represented threatened the entire ArcelorMittal South Africa operation,” the company said in the annual report. 

Amsa said that Saldanha Works would have contributed earnings before interest, taxes, depreciation, and amortisation loss of between R1.2 billion and R1.6bn in 2020.

“Despite management’s strenuous efforts to seek relief from excessive input costs, no meaningful amelioration was achieved. The decision to put Saldanha Works on care and maintenance could no longer be avoided,” the company said.

Around 1 200 positions were set to be lost as a result of the decision to wind down operations last November.

Amsa said iron ore costs at Saldanha Works had more than tripled between 2010 and 2019. 

“This almost unprecedented rise derived from Saldanha Works’ reliance on a single iron ore supplier, and from the technology within the plant,” said the company. It also said that coal costs at the plant had escalated by a staggering 177 percent since 2009.

This was because until recently coal was cost-effective and was sourced mainly from the Grootegeluk Colliery owned by Exxaro Resources near Lephalale in Limpopo. 

Amsa had an off-take agreement with Grootegeluk of some 460 000 tons a year. However, with the phased commissioning of Eskom’s Medupi coal-fired power station, this allocation was reduced to 360 000 tons a year and then to 340 000 tons a year.

“Exxaro’s reduction in our 'quota' forced the company to source supplies from alternative suppliers, particularly in the Emalahleni region of Mpumalanga. These deposits are on a considerably smaller scale than that of Grootegeluk and are more costly to mine. 

"In the case of Saldanha Works, railage costs were so punitive it was more affordable for the company to ship Mpumalanga coal to Richards Bay by rail and then to transport it by sea to Saldanha Works,” said the company.

In terms of electricity, the plant’s electricity cost had jumped by 218 percent in the past decade.

BUSINESS REPORT

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