Transcript Project DELTA - ArcelorMittal South Africa

Agreement between Iscor and IDC

Structure of Kumba unbundling

Integration of Saldanha

Rights issue in Iscor post unbundling
26 September 2001
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Agenda

Introduction

Ownership of iron ore

Integration of Saldanha

Final IDC Holdings

Iscor rights issue

Rationale for the rights issue

Debt allocation

Other issues

Timetable and conditions precedent

Conclusion
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Introduction
 Iscor’s 1 March 2001 unbundling proposal: a further step in 5 yr programme
of releasing value for all shareholders
 IDC required as part of unbundling:
 ownership of iron ore for Iscor
 full recapitalisation of Saldanha
 integration of Saldanha into Iscor
 Agreement now reached between Iscor and IDC
Agreement meets requirements of all stakeholders
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Ownership of iron ore
 Iscor retains ownership of 6.25 Mtpa of Sishen iron ore from 1 July 2001 (current
production – 27 Mtpa)
 Total iron ore requirements then received at cost plus 3%
 Additional R400 mill p.a. EBITDA for Iscor
 Creates a more robust steel operation
 Reduced debt allocation ensures no destruction of value in Kumba
 Kumba free to:
-
further expand Sishen (27 Mtpa to 33 Mtpa) and
-
develop Welgevonden (10 Mtpa)
 Iscor retains right to participate in Kumba’s local iron ore expansions only i.r.o. any
further domestic requirements
- Iscor remains vertically integrated steel producer
- Kumba value remains intact with significant expansion potential
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Integration of Saldanha
 Saldanha debt R5.8 bn at hedged values (30 June 2001) to be fully
refinanced by Iscor and IDC
 Iscor to acquire IDC 50% stake in fully refinanced Saldanha
 IDC to contribute 50% of Saldanha operating funding requirements to June
2002 - R250m cash to Iscor post unbundling
 IDC receives 10 million Kumba shares and 20 million post-unbundled Iscor
shares as consideration
 If Saldanha funding requirements > R500m can request 50% of excess from
IDC in consideration for post unbundled Iscor shares at market price
Iscor positioned for integration of SA steel industry
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Final IDC holdings
 Current IDC holding – 31.5 million shares – 11.5%
 Holding post Saldanha integration and unbundling
 Kumba – 14.7%
 SteelCo – 17.6% (pre rights issue)
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Iscor rights issue
 Vertically integrated Iscor requires recapitalisation to limit debt
 IDC will underwrite R1.67 billion Iscor rights issue post-unbundling
 Timing: after interim results announcement in February 2002
 Price at 25% discount to market
IDC to underwrite Iscor recapitalisation
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Rationale for the rights issue

Unbundling would not be possible without iron ore ownership for Iscor

Leaving debt of R4.3bn in Kumba with reduced R400m EBITDA destroys value in “hard”
currency Kumba, with no financial flexibility to develop projects

Debt thus left in “softer” currency Iscor

R3.6bn debt in Iscor not acceptable to lending banks

Hence Iscor debt has to be refinanced
Options available to Iscor are:

No unbundling - maximum value release foregone

Kumba overgeared - destroying certain value in the “hard’ currency

Steelco overgeared - not acceptable to lending banks
Preferred option is rights issue in Steelco
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Debt allocation
Iscor
Kumba
1 183
2 541
95
136
Ticor proceeds
(363)
-
Saldanha Steel recapitalisation
2 900
-
Saldanha funding from IDC
(250)
-
(1 670)
-
1 895
2 677
Net debt at 30/6/2001
Off-balance sheet debt
Rights issue
Effective debt allocation
Kumba will hold AST shares: value approximately R400 million.
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Other issues
 Iscor Board supports IDC’s wish to vote & dispose of Iscor and Kumba
shares without restriction
 Proposals to shareholders to be voted as one indivisible transaction
 Strategic equity partner desirable, but not conditional
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Timetable and conditions precedent
 Documentation posted to Iscor shareholders
23 Oct
 Iscor shareholders’ meeting
15 Nov
 Unbundling date
19 Nov
 Approvals required
 Iscor shareholders
 Lending banks (i.r.o. debt allocation)
 Competition Commission (only i.r.o. Saldanha integration)
 JSE/SRP
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Conclusion
PROPOSAL MEETS ALL STAKEHOLDER REQUIREMENTS
ISCOR
 becomes focused integrated steel producer
 recapitalised to limit debt
 positioned for rationalisation of SA steel industry
 favourable procurement creates more robust operation
KUMBA
 becomes focused metals/minerals producer
 value remains intact
 positioned for strong growth
 significantly stronger balance sheet compared to March proposal
Major value release for shareholders
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