SA beneficiation industry gets boost

IDC buys Scaw Metals Group

IDC buys big local steel manufacturer.
Scaw Metals Group

Beneficiation of mineral resources in South Africa has been given a huge boost with a consortium led by the Industrial Development Corporation (IDC) having bought the Scaw Metals Group (Scaw) for R3.4-million from Anglo American.

This paves the way for South Africa to establish its own state-owned manufacturer of low-cost steel instead of having to rely on foreign-owned manufacturers charging export parity rates.

This will enable Scaw, a producer of wire rope and other heavy industrial goods, to compete for infrastructural projects in South Africa, which include the proposed R300-billion capex programme by Transnet as well as automotive projects including bus bodies, trailers and truck bodies.

Scaw’s activities are in the last phase of beneficiation, which is job-intensive, and therefore this acquisition is in line with the strategic objectives of the IDC and government.

IDC's divisional executive of mining and manufacturing, Abel Malinga, said the acquisition was the start of turning Scaw into "a global player".

“High steel input costs inhibit the development of a robust and sustainable downstream steel fabrication industry to the detriment of job creation. It is critical to maintain and deepen the industrialisation of the economy by refocusing the beneficiation strategy to support fabrication and manufacturing," Malinga said in a statement.

In terms of the deal, Anglo is to sell its 74% stake in Scaw for R3.4bn in cash and on a debt-free basis to the IDC, which is the lead member of an investment consortium that also includes Anglo's empowerment partners in Scaw South Africa: Shanduka Resources, Izingwe Holdings, and the Southern Palace Group of Companies.

The empowerment companies will jointly own 21% of Scaw, with the remaining 5% of the steelmaker held by staff through an employee share ownership programme.

The sale is the second divestment of a non-core asset by Anglo American this month, following the sale of quarry and plant assets to steel-making manufacturer, Lakshmi Mittal.

Said Malinga: “This puts the IDC in a unique position to make the necessary investments to grow Scaw’s operations, supporting beneficiation, infrastructure development and South Africa’s economic growth.

"As a leading diversified South African fabricator, Scaw has the potential to be a key supplier to planned infrastructure and construction programmes. IDC aims to leverage existing strengths within the business, to grow the entity into a global player,” Malinga said.

He added that it was not the IDC’s preference to have a controlling interest in any of the companies or projects in which it invests.

The black economic empowerment (BEE) partners refrained from raising their interests by 9% to 30%, as envisaged when the deal was announced in April, owing to concerns over high levels of corporate debt – a burden that arose following Anglo’s initial 2007 BEE deal.

Malinga said the IDC would support Scaw’s management and its 8 000-strong workforce to improve the company’s ability to manufacture quality products at competitive prices for the domestic, African and export markets.

Scaw CEO Christopher Davis said the company was well positioned to capitalise on growth potential in Africa's mining industry, as well as the expansion of rail and power in South Africa.

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