ArcelorMittal, Kumba Agree New Iron Ore Price Model

By Devon Maylie

JOHANNESBURG--ArcelorMittal South Africa Ltd. (ACL.JO) said Tuesday it agreed to a new iron-ore pricing agreement with Kumba Iron Ore Ltd. (KIO.JO), South Africa's largest iron-ore producer.

Under the new agreement, which will start from January 2014, Kumba will supply 6.25 million tons a year of iron ore to ArcelorMittal at a price based on the cost of production plus a margin of 20%, ArcelorMittal said in a statement. The companies estimate the cost of iron ore per ton under this agreement will average between $60 a metric ton and $65/ton for 2014 and 2015.

Under the agreement, the costs of producing iron ore at the Thabazimbi mine will now be incurred by Kumba instead of ArcelorMittal. Those costs have increased, ArcelorMittal said, without giving a figure.

Kumba used to supply iron ore, a key raw material in steel making, to ArcelorMittal at cost of production plus 3%. That agreement ended after ArcelorMittal lost a stake in Kumba's key sishen iron ore mine after it failed to apply through the government for a renewal under a new system.

The companies have been in dispute over the iron ore pricing agreement since 2010 and the new agreement ends a long period of uncertainty.

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