UPDATE: South Africa Rejects Kumba's Sishen Mine Application

Kumba Iron Ore Ltd. (KIO.JO) said Thursday it will challenge the a decision by the Department of Minerals to reject its application for mining rights to a portion of the Sishen mine, the latest twist in the lengthy fight over a stake in South Africa's main iron ore mine that shows no signs of abating.

The mine is the main source of iron ore to ArcelorMittal South Africa Ltd. (ACL.JO), Africa's largest steelmaker.

The Department of Minerals told Kumba Tuesday it had refused the application made in May 2009 for a mining right over a 21.4% stake in Sishen. Kumba, South Africa's largest producer of the steel-making ingredient, said it reapplied Wednesday and will appeal the decision.

The minority right used to rest with ArcelorMittal South Africa but was ceded to the government after the company failed to renew the rights by a government deadline in 2009.

Kumba, which is majority owned by Anglo American PLC (AAL.LN), is currently mining iron ore from the other part of Sishen.

"[It's] a disappointing outcome for Kumba/Anglo American and shows Department of Minerals 'Anti' big Anglo and clearly 'Pro' BEE Imperial Crown Trading," analysts at Ambrian said, noting as a result of concerns that this would be the outcome it hasn't factored in output from the 21.4% stake into its forecasts for Kumba.

Kumba last year launched a challenge to the government's earlier decision to award prospecting rights on the 21.4% stake in Sishen to Imperial Crown Trading, taking its dispute to the High Court in Pretoria. The Department of Minerals is due to submit an affidavit later Thursday to the court in response to this case.

ArcelorMittal South Africa offered to buy ICT last year for 800 million rand ($113 million). ICT's largest shareholder is Jagdish Parekh through Pragat Investments. The deal is conditional on ICT holding onto the prospecting rights of the Sishen stake granted last year by the Department of Minerals.

But for now, the 21.4% Sishen mining right remains in the hands of the government.

Kumba is in the process of appealing the Department's decision to accept ICT's mine right application.

Kumba said the Department refused its application on several grounds, all of which the miner says are unfounded, including compliance with environmental requests, premature submission of the application and concerns about mineral concentration.

If its internal appeal to the Department of Mineral's minister doesn't work, Kumba said it could continue on to the High Court.

As if 1422 GMT Kumba was trading at 468.75 rand, up 2.4%.

-By Devon Maylie, Dow Jones Newswires; [phone]; [e-mail]