The agreement, which was endorsed by Amsa CEO Nonkululeko Nyembezi-Heita and Kumba CEO Norman Mbazima in Johannesburg on Monday, would come into effect on January 1.
Nyembezi-Heita said the pact was “a piece of work that has panned out over a number of months”. The companies had been involved in extended arbitration over the cancellation of a 2001 supply agreement, she said.
“It [the agreement] will regulate the sale and purchase of 6.25 million tons of iron ore from either… Sishen or Thabazimbi mines, at the election of Kumba,” said Nyembezi-Heita.
The price of the iron ore sold would be determined by production costs at the Sishen mine in the Northern Cape, plus a margin of 20 percent, subject to a ceiling price equal to the Sishen export parity price at the mine gate.
The agreement would fully kick-in in year three, with the first two years seeing an agreed to floor price for 1.6 million tons and two million tons of iron ore respectively.
The agreement would last for the life-span of the Sishen mine. Mbazima said 18 years was a good approximate figure for the life-span.
The agreement was subject to a number of conditions, including Kumba maintaining 100 percent of the Sishen mining rights and amendments to legislation not having a material effect on supply.
At the Thabazimbi mine, where Amsa bore the costs, Kumba would now take on the operational and financial risks, adding the mine to the sources it had available to supply Amsa.
Mbazima said the agreement offered the chance to extend the life-span of the Thabazimbi mine, with Kumba to apply new technologies to improve production.
Early applications of the technology were promising, offering increased job security to the mine’s 1300 employees, including 850 permanent staff.
He said: “We are delighted to have reached agreement on a long term holistic solution that meets the requirements of both companies and is consistent with government’s objectives with regard to beneficiation.”
Nyembezi-Heita said the agreement would help stabilise the steel industry in South Africa.