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ARCELORMITTAL SOUTH AFRICA LIMITED - Trading statement and operating update

Release Date: 22/07/2016 13:07
Code(s): ACL     PDF:  
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Trading statement and operating update

ArcelorMittal South Africa Limited
(Incorporated in the Republic of South Africa)
(Registration Number 1989/002164/06)
Share code: ACL ISIN: ZAE 000134961
(“ArcelorMittal South Africa “, “the Company” or “Group”)

TRADING STATEMENT AND OPERATING UPDATE

    -   All 10 applications on import duties gazetted
    -   Designation of steel approved on certain sectors
    -   Significant improvement in net cash position
    -   Continued focus on sustainability


Operating update - key initiatives

ArcelorMittal South Africa has made good progress with the key initiatives it has previously
highlighted and which are aimed at protecting the Company’s future:

-   All 10 applications for import duties on the Company’s steel products have been gazetted.
    This relates to the import duties - from 0% to the bound rate of 10% - on imported primary
    steel that is locally produced. The last two applications, being Hot Rolled Coil (HRC) and
    Other Bars and Rods, were gazetted on 10 June and 24 June 2016 respectively. Post the
    10% import duties, Vanderbijlpark and Newcastle are running at improved capacity levels;

-   Five safeguard duty applications have been submitted to the International Trade
    Administration Commission of South Africa (ITAC) for approval. The HRC application
    investigation has been gazetted and is pending approval. The Cold Rolled Coil (CRC),
    Colour, Galvanised and Rebar, and Wire Rod applications are with ITAC for approval to
    initiate an investigation. The safeguard applications are progressing;

-   As previously reported, the pricing mechanism for local flat steel, which is being
    discussed with the Department of Trade and Industry (dti) and the Economic
    Development Department (EDD), has not been finalised. Further engagement has taken
    into account the input obtained from the industry. It is expected that this will be finalised
    shortly;

-   With regard to the proposal for the designation of local primary steel for state
    procurement and use in government infrastructure projects, the dti advised that in
    instances where there was a provision deeming all steel as local (including imported
    steel), the provision has been removed. The National Treasury has issued instruction
    notes prescribing minimum local content thresholds on a number of products, including
    solar water heater components, rail rolling stock, electric cables, conveyance pipes, steel
    power pylons, photovoltaic systems and components, and working vessels. This is a
    positive development that will no doubt contribute to the sustainability of the South African
    steel industry and economic growth in South Africa. ArcelorMittal South Africa awaits the
    outcome of the further designation measures requested for construction, renewables,
    power generation and rail equipment;

-   Negotiations regarding the terms of the draft settlement agreement with the Competition
    Commission are close to being finalised and are still subject to the approval of the
    ArcelorMittal South Africa Board and the Competition Tribunal;

-   The broad-based black economic empowerment (B-BBEE) transaction is progressing well
    and the full terms of the deal are expected to be announced by the fourth quarter of 2016;

-   The company has initiated a number of strategic initiatives across the operations aimed at
    improving efficiencies and optimising costs. The time management system introduced at
    all ArcelorMittal South Africa operations, together with the strategic initiative at
    Vanderbijlpark Works, is expected to yield material savings over the next 18 months.
    Other initiatives are being investigated on an ongoing basis in order to improve and
    ensure the sustainability of our operations;

-   The increase in international prices have provided temporary reprieve for Saldanha and it
    has allowed the operation to run at improved capacity levels, compared to the second half
    of 2015. Saldanha will prepare for a mini corex reline at the end of July and this will
    extend the life of the Saldanha Works by approximately four years. Before a major reline
    is justified at Saldanha, a low cost energy solution must be implemented. Management
    continues to investigate a low cost energy solution for Saldanha, including a gas to power
    solution.



Trading statement

In terms of paragraph 3.4(b) (i) of the Listings Requirements of the Johannesburg Stock
Exchange, listed companies are required to publish a trading statement as soon as they
become reasonably certain that their financial results for the period to be reported on next will
differ by more than 20% from the financial results of the previous corresponding period or
from a profit forecast previously provided to the market in relation to such a period.

Shareholders are advised that the Company is still feeling the effects of tough trading
conditions compounded by the oversupply in the steel industry and, consequently, the loss
per share for the six months ended 30 June 2016 is expected to be higher compared to the
six months ended 30 June 2015. This is largely due to the slowdown in the Chinese
economy, which resulted in the material oversupply of steel in the world and the flooding of
steel into the international market. These factors have led to prices being negatively affected,
despite the implementation of duties having a positive effect on volumes.

The loss per share is expected to increase from 28 cents to a loss range of between 42 and
46 cents per share (a 50% to 64% change). The headline loss per share is also expected to
increase from 27 cents to a headline loss per share range of between 43 and 47 cents a
share (a 59% to 74% change).
However, there has been a significant improvement when compared to the second half of
2015. A loss per share of 2 125 cents and a headline loss of 1 311 cents per share was
reported and the improvement since the second half of 2015 was primarily due to the
increase in average net realised prices and the decrease in costs.

The local steel industry continues to be threatened by imports entering the market, primarily
from China, despite the positive progress made on duties to date. The Company would like to
re-emphasise that the safeguard duties, a fair pricing mechanism and the rest of the
initiatives committed to by the South African government regarding the use of local steel for
government infrastructure projects, are necessary to ensure the Company and the steel
industry as a whole will remain viable.

Based on the current initiatives, and with the expectation that the safeguard duties will be in
place by the end of the third quarter in 2016 - or shortly thereafter - the Board remains of the
view that there is a reasonable prospect of the Company returning to profitability in the
medium term.

The financial information on which this trading statement is based has not been reviewed or
reported on by the Company’s external auditors.



Vanderbijlpark

22 July 2016



Sponsor to ArcelorMittal South Africa Limited
J.P. Morgan Equities South Africa Pty Ltd

For further information please contact:
Themba Sepotokele
Manager: Corporate Communications and Branding
Tel: (016) 889 2425

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