South African iron-ore miner Kumba Iron Ore (KIO) has not terminated its iron-ore supply agreement with ArcelorMittal South Africa, but has simply tendered to supply the material on commercial terms, owing to the fact that the steel group failed to convert its Sishen mineral rights, CFO Vincent Uren told Engineering News Online on Monday.

He refused to be drawn on the potential price differential between the supply agreement instituted following the unbundling of Iscor into separate mining and steel companies in 2001. However, analysts told Reuters that that it could add about $250-million a year to ArcelorMittal South Africa's cost structure.

Uren stressed that its pricing arrangements constituted "confidential information".

KIO was of the view that, when "Mittal lost the real rights in the minerals, its entitlement to demand the supply of iron-ore at a cost plus 3% price also fell away".

Sishen Iron Ore Company (SIOC), which is 74% owned by KIO, converted its mineral rights in 2008.

Therefore, SIOC wrote to the JSE-listed steel group on February 5, 2010, and again on February 25, 2010, stipulating its new supply terms as from March 1, 2010.

"A response was received on 26 February 2010 wherein Mittal indicated that it had chosen not to convert its mineral rights," Uren explained.

But separately, the steel group gave notice that it would mount a defence against the course of action chosen by KIO, while requesting the JSE to halt from trading in its shares until Wednesday, March 3, 2010.

"Mittal did not commit a breach of its mineral rights. Mittal failed to convert its old-order rights in the minerals. By operation of the Mineral and Petroleum Resources Development Act, these rights thus fell away," Uren explained in response to emailed questions posed by Engineering News Online.

However, Uren confirmed that the supply of ore from the Thabazimbi mine was regulated by way of a separate agreement and that the "current notification to Mittal does not affect the supply of ore from the Thabazimbi mine".

The Thabazimbi ore, which is tightly aligned to ArcelorMittal South Africa's steelmaking processes, would continue to be supplied on a "cost plus 3%" basis.

Meanwhile, ArcelorMittal South Africa spokesperson Marion Green-Thompson told Engineering News Online that the group was in possession of "normal inventory levels" of two months, but that these did not represent a stockpile.

"The company has approximately two months of inventories at the plant and we have additional supplies that have been paid for, still to be despatched from Thabazimbi," Green-Thompson explained, adding that this would add a further 800 000 t to its iron-ore position.

She also confirmed that steel prices would be left unchanged during March.