Lakshmi Mittal's South African operations could get a lifeline

Arcelor Mittal South Africa, the embattled subsidiary of Indian steel magnate Lakshmi Mittal's global steel empire, may get a lifeline from its empowerment partner Likamva Resources which is willing to increase its stake in Africa's biggest steel producer.

Arcelor Mittal South Africa (AMSA), born out of Mittal's buyout of state steel manufacturer Iscor more than a decade ago after the steel magnate first rescued it from total collapse, last made a profit seven years ago. After a peak in the middle of 2008, AMSA's share price has seen a 98 per cent drop.

Even though AMSA produces about 70 per cent of South Africa's steel, the current recession in the country as well as cheaper Chinese imports have seen it take a battering.

Last year, there was urgent government intervention after Mittal's threatened closure of one of its plants put the lives of the entire town of Vanderbijlpark, south of Johannesburg, in jeopardy through unemployment.

Now AMSA's Black economic empowerment partner Likamva Resources (LR) says it is willing to increase its 17 per cent stake in Africa's biggest steel producer despite its loss-making record, the weekly Sunday Times reported.

Noluthando Gosa, a partner at LR, told the weekly that if resources and funds permitted it, the company would inject the capital needed to help AMSA. But any changes in this increased shareholding would have to be sanctioned by the company's London-based parent.

Amid speculation about a possible sell-off, AMSA remained optimistic about its prospects in the face of these challenges.

"Several initiatives are under review by AMSA's executive team to improve the company's performance," an AMSA spokesman said.

Analysts appeared to concur that it would not be viable to sell AMSA.

Wade Napier at Avior Capital Markets gave two reasons for this – the hard work Mittal had done in securing an operating licence in South Africa; and the fact that any sale was likely to involve a significant discount demand.

Makwe Masilela at BP Bernstein suggested that AMSA might just need to sell off parts of its business and secure the support of the government. Such support has already come in the form of safeguard duties on imports, due to be implemented in the second half of this year, which AMSA is banking on to help grow its earnings.