New em­ployee share own­er­ship scheme will en­sure black work­ers re­ceive 15% more ‘eco­nomic ben­e­fits’ than white their coun­ter­parts

CityPress - - Business - DEWALD VAN RENS­BURG dewald.vrens­burg@city­

Arcelor Mit­tal SA (Amsa) has an­nounced the first part of its peace of­fer­ing to gov­ern­ment as it lob­bies hard for tar­iff pro­tec­tion and other state sup­port. An em­ployee share own­er­ship scheme was an­nounced on Fri­day morn­ing, along­side fi­nan­cial re­sults for the first half of the year.

This fol­lows the com­pany’s an­nounce­ment that a ris­ing tide of cheap sub­sidised Chi­nese steel has forced it to con­sider shut­ting down the cen­tury’s-old Vereenig­ing steel­works.

While ne­go­ti­at­ing with gov­ern­ment for a bar­rage of de­fen­sive mea­sures against the Chi­nese steel im­ports, two long-stand­ing points of con­tention be­tween it and the state stand out.

One is the de­mand for a “de­vel­op­men­tal steel price” and the other is Amsa’s dis­mal em­pow­er­ment record – Amsa has zero black own­er­ship.

The pro­posed em­ployee share own­er­ship scheme will re­ceive 4.7% of the com­pany from a stash of trea­sury shares that were bought back from share­hold­ers in 2009 when the com­pany was still flush with cash.

About 9 000 em­ploy­ees will re­ceive units in a trust, Ik­a­geng, which will own the shares. Due to the com­pany’s rel­a­tively high level of white em­ploy­ment, the em­ployee share own­er­ship scheme will have a rule around en­sur­ing black em­ploy­ees re­ceive 15% more “eco­nomic ben­e­fits” than their white coun­ter­parts.

The em­ployee share own­er­ship scheme’s value will, how­ever, hinge on the com­pany’s very un­cer­tain fu­ture. It has a con­ven­tional lock-in pe­riod of five years be­fore em­ploy­ees can choose to take the shares or the cash value of the shares.

As things stand, de­riv­ing much “eco­nomic ben­e­fit” at all seems like a dis­tant prospect.

Amsa’s down­ward spi­ral has led to au­di­tors Deloitte & Touche adding a dreaded “em­pha­sis of mat­ter” to the fi­nan­cial re­sults re­leased on Fri­day.

The au­di­tors say that there would be “sig­nif­i­cant doubt” about Amsa’s “abil­ity to con­tinue as a go­ing con­cern in its cur­rent struc­ture” un­less man­age­ment’s short-term plans ac­tu­ally pan out. The plans re­ferred to in­clude the plea for pro­tec­tion from the state, as well as Amsa’s re­liance on its con­trol­ling share­holder, the in­ter­na­tional ArcelorMit­tal group, con­tin­u­ing to lend it money.

Amsa owes its owner R2.9 bil­lion, which is due in less than a year and paid it R126 mil­lion in in­ter­est in the first half of this year. The in­ten­tion is to re­place the debt with longer-term debt.

Over­all, it made a net loss af­ter tax of R111 mil­lion in the six months to June.

In an ironic de­vel­op­ment, Amsa’s hard­won cost-plus iron ore deal with Kumba Iron Ore has now turned into a li­a­bil­ity due to the crash in in­ter­na­tional iron prices.

Pre­vi­ously, the deal for 6.25 mil­lion tons of ore a year gave Amsa an ad­van­tage over the al­ter­na­tive: im­port­ing ore. But now, im­ported ore would be far cheaper.

Ac­cord­ing to Paul O’Fla­herty, the CEO of Amsa, the com­pany paid R1 bil­lion more for iron ore in the nine months to June than it would have had it sim­ply im­ported the prod­uct.

Talk­ing to Bloomberg af­ter the Amsa re­sults an­nounce­ment, O’Fla­herty said Amsa was look­ing at ways to get out of the deal.

The Kumba con­tract has some built-in pro­tec­tion against this kind of sce­nario: the price Amsa pays can not ex­ceed Kumba’s “ex­port price par­ity”, which means that the steel maker al­ways gets its ore at the low­est price any for­eign cus­tomer would pay for it.

This will al­low Amsa to claim a re­bate of R220 mil­lion from Kumba – a de­tail stuck in the notes of its fi­nan­cial state­ments re­leased on Fri­day.

Kumba’s CEO, Nor­man Mbaz­ima, told City Press this week that the com­pany’s cost per ton, from the ground right up to de­liv­ery to China, was $72 (R909).

The in­ter­na­tional price has now dropped be­low that.

Where the Amsa deal had orig­i­nally been a hard and ex­pen­sive com­pro­mise, it is now de­liv­er­ing a higher price than ex­ports for the min­ing com­pany.

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