compotltion trlbunal
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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM231Mar17
In the matter between
ArcelorMittal South Africa Limited Primary Acquiring Firm
And
Thabazimbi Mine
Panel
Heard on
Order Issued on
Reasons Issued on
Approval
Primary Target Firm
: Mr Norman Manoim (Presiding Member)
: Mr Enver Daniels (Tribunal Member)
: Prof. lmraan Valodia (Tribunal Member)
: 31 May 2017
: 31 May 2017
: 22 June 2017
REASONS FOR DECISION
[1] On 31 May 2017, the Competition Tribunal ("the Tribunal") unconditionally
approved the large merger between ArcelorMittal South Africa Limited
("AMSA") and Thabazimbi Mine, herein referred to as the merging parties.
[2] The reasons are as follows.
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Parties to the transaction
Primary Acquiring Firm
[3] AMSA is a public company incorporated in accordance with the laws of the
Republic of South Africa ("RSA") and is listed on the Johannesburg Stock
Exchange ("JSE"). AMSA is controlled by ArcelorMittal S.A ("ArcelorMittal"),
which in turn is controlled by two individuals, Mr Lakshmi Mittal and Mrs Usha
Mittal.
[4] AMSA engages in the business of manufacturing and supplying long and flat
steel products in its operating facilities located in Newcastle and Vanderbijlpark.
In addition to steel products, AMSA also produces coke and chemical products
at its production facilities located in Newcastle, Pretoria and Vanderbijlpark.
[5] Of relevance to the proposed transaction is AMSA's interest in two iron ore
producers: Caza Mining (Pty) Ltd ("Caza Mining") and Polokwane Iron Ore
Company (Pty) Ltd ("PIOC"). Goza Mining is a producer of hematite iron ore
whereas PIOC is producer of magnetite iron ore. Both mines, however, are not
producing any iron ore as they are awaiting the Department of Mineral
Resources' approval of mining rights and prospecting rights respectively.
Primary Target Firm
[6] Thabazimbi Mine is owned by Sishen Iron Ore Company (Pty) Ltd ("SIOC")
which in turn is controlled by Kumba Iron Ore Limited ("Kumba"). Thabazimbi
Mine does not control any firm.
[7] Thabazimbi Mine is an iron ore mine and its mining operations are located near
Thabazimbi in the Limpopo Province. The total output of the mine is supplied
to AMSA's steelwork plants since the creation of Kumba Resources Limited in
2001.
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Background to the proposed transaction
[8] Historically, Thabazimbi Mine has always supplied its iron ore to AMSA's
various steel operation plants in and outside South Africa in terms of a long
term supply agreement ("the supply agreement") concluded between AMSA
and SIOC. The supply agreement further stipulates that AMSA is obligated to
fund the majority of the rehabilitation costs in respect of the Thabazimbi Mine
when necessary.
[9J In July 2015, Thabazimbi Mine experienced a catastrophic slope failure which
resulted in the sterilisation of its remaining ore reserves. The only possible
future mining operations lay within lower grade ore which have not been
previously excavated. Given the geological risks and technical complexities
associated with mining such ore, SIOC viewed this option as non-viable and
resolved to have the mine closed. All mining activities were then terminated in
September 2016. Currently, Thabazimbi mine is in the process of being
prepared for closure subject to the finalisation of a closure plan and its approval
by the Department of Mineral Resources.1
Proposed transaction and rationale
[1 O] In terms of the Sale of Assets Agreement, AMSA shall acquire all the assets of
Thabazimbi Mine from SIOC. Post-merger, AMSA shall control Thabazimbi
Mine.
[11] The merging parties confirmed that the proposed transaction is motivated by
managing the loss incurred as a result of closing Thabazimbi mine. Further,
AMSA faces certain rehabilitation liability in relation to the Thabazimbi Mine
which it is obligated to manage. By doing so, it shall also investigate feasible
options for the resumption of mining activity in future.
1 Once the closure plan has been approved, rehabilitation of the mine can commence.
3
Relevant market and impact on competition
[12] The Commission considered the activities of the merging parties and found that
the proposed transaction presents a horizontal overlap as the merging parties
are active in the market for the production and supply of hematite iron ore
("relevant market"). The Commission also found the existence of a vertical
relationship as Thabazimbi Mine supplies all its iron ore to AMSA.
[13] When assessing the horizontal overlap, the Commission found that post
merger, the merged entity shall only possess a market share of less than 10%
in the relevant market. In addition, the merged entity will continue to face
competition from its larger counterparts such as Assmang Limited and Kumba
Resources. Accordingly, the Commission concluded that the proposed
transaction is unlikely to raise any competition concerns in this regard.
[14] When analysing the vertical relationship, the Commission found that while
Thabazimbi Mine only supplies the total of its iron ore to AMSA by virtue of an
exclusive supply agreement, Thabazimbi Mine is a very small player in the
relevant market as its market share only accounts for less than 1 %. The merged
entity will continue to face competition from Assmang Limited and Kumba
Resources which produce significant volumes of hematite iron ore. It follows
that should the merged entity elect to implement a foreclosure strategy, other
domestic producers of steel could obtain hematite iron ore from Assmang
Limited or Kumba Resources. As such, the Commission concluded that the
proposed transaction shall not raise any foreclosure concerns.
[15] In view of the minor post-merger market share of the merged entity, the
Commission concluded that the proposed transaction is unlikely to substantially
prevent or Jessen competition ("SLC") in the relevant market.
Tribunal analysis
[16] We agree with the Commission that the transaction does not lead to an SLC.
However we would place more emphasis on the notion that the merger involves
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a cost management strategy to ameliorate the accruing rehabilitation costs
payable by AMSA.2 It would be in AMSA's best interest to purchase the mine
from SIOC with the hopes of re-opening it, should doing so prove feasible in
future.
[17] The market share accretion is minor in this case as Thabazimbi Mine is
currently not operating. As such, the post-merger market share does not raise
any competition concerns largely because the pre-merger market conditions
will remain relatively similar post-merger.
Public interest
[18] The merging parties submitted that the proposed transaction does not raise any
employment concerns as all 61 permanent employees currently employed at
the Thabazimbi Mine shall be transferred to AMSA.
[19] Based on the above submission, the Commission is of the view that the
proposed transaction is unlikely to have a negative effect on employment and
does not raise any other public interest concerns.
Conclusion
[20] In light of the above, we conclude that the proposed transaction is unlikely to
substantially pre~nt or lessen competition in any relevant market. In addition,
no adverse public interest issues arise from the proposed transaction.
Accordingly, we approve the proposed transaction unconditionally.
2 Page 7 of Transcript.
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M
22 June 2017
Date
nver Daniels and Prof. lmraan Valodia concurring
Tribunal Researcher
For the merging parties
For the Commission
: Mr Ndumiso Ndlovu
: Mr Anton Roets of Nortons Inc. and Mr Graeme
Wickins of Werksmans
: Zintle Siyo
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