Johannesburg — ARCELORMITTAL appears to be headed for another clash with Kumba Iron Ore, this time over cheap supplies for its steel mills from the Thabazimbi mine.

Thabazimbi's 2-million tons of ore a year are mined by Kumba for Mittal on a cost-plus-3% basis, but Kumba executives have warned the mine will come to the end of its life in 2016. There is a growth project, called Phoenix, which Kumba is studying.

It could be a 3,4-million-ton-a- year mine from 2016 and Kumba's executives are adamant that if Phoenix is developed, the ore will be sold at commercial prices. Mittal CEO Nonkululeko Nyembezi-Heita said Mittal paid for the initial feasibility study into the project, but opted in 2006 not to pursue it.

"We made it clear at the time that our rights to change that decision were reserved," Ms Nyembezi-Heita said in an interview yesterday.

"If and when we decide to change our minds about that, we are going to approach Kumba to say we are quite ready to talk about participation in Phoenix.

"It's part of the Thabazimbi mining area and there's not much debate about that," she said. "Given that all Thabazimbi output, according to the contract, is being mined solely for ArcelorMittal SA, it's difficult to see how they can sustain a position that we are totally excluded from Phoenix."

Kumba and Mittal have reached an interim pricing agreement as they go to arbitration over a disputed iron ore supply agreement.

The agreement came after they were called to a high-powered meeting with the Departments of Trade and Industry, Mineral Resources and Economic Development.

It was this meeting and the interim pricing agreement that took pressure off the companies and cleared the way for talks on a possible long-term pricing agreement instead of relying solely on arbitration, a lengthy and costly exercise.

"I must say, one of the benefits of a negotiated solution (is) we can holistically look at all these issues between us and Kumba and try find one final solution to address all of them. Phoenix will be put in the mix of the issues we'll table for discussion when the chance occurs," Ms Nyembezi-Heita said.

Mittal has scrapped a R525-a-ton surcharge on its domestic steel sales to build up funds towards paying Kumba the difference between the favourable price and a commercial price backdated to March if the arbitration goes against it. Mittal, however, has introduced a premium on its domestic steel sales starting on August 1 in a single-price mechanism.

This premium means that steel will cost 25 a ton less than the prevailing steel price and the surcharge combined.

The funds built up since the surcharge will be paid to Kumba. Mittal financial officer Kobus Verster declined to say how much this was. There was a shortfall of less than R100m that would come out of Mittal's R5,2bn cash pile, said Ms Nyembezi-Heita.