Arcelor Mittal SA Ltd v Metal and Thabazimbi Mine (LM231Mar17) [2017] ZACT 25; [2017] 1 CPLR 209 (CT) (22 June 2017)
- Citation
- [2017] ZACT 25
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- Norman Manoim, Enver Daniels, Imraan Valodia
- Case number
- LM231Mar17
More details
- Court
- Competition Tribunal
- Panel
- Norman Manoim, Enver Daniels, Imraan Valodia
- Case number
- LM231Mar17
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the proposed merger between ArcelorMittal South Africa Limited and Thabazimbi Mine does not result in a substantial lessening of competition in the market for hematite iron ore. The merged entity's market share post-merger remains minor, and significant competitors such as Assmang Limited and Kumba Resources continue to operate in the market. The vertical relationship, wherein Thabazimbi Mine supplies all its iron ore to AMSA, does not raise foreclosure concerns due to the mine's negligible market share. The transaction is primarily a cost management strategy for AMSA to address rehabilitation liabilities and does not alter the competitive landscape. No adverse public interest issues, including employment, arise from the merger, as all permanent employees will be transferred to AMSA. Accordingly, the Tribunal approved the merger unconditionally.
Court disposition
The merger is approved unconditionally.
Orders
- The large merger between ArcelorMittal South Africa Limited and Thabazimbi Mine is approved without conditions.
- All permanent employees of Thabazimbi Mine shall be transferred to ArcelorMittal South Africa Limited.
02
Material facts
Parties
ArcelorMittal South Africa Limited
Applicant Counsel: Anton RoetsThabazimbi Mine
Respondent Counsel: Graeme WickinsAmounts and remedies
- Number of Permanent Employees Transferred: 61
03
Procedural history
Posture
Merger Control / Approval of Large Merger
04
Questions and positions
Legal issues
- 01
Whether the proposed merger between ArcelorMittal South Africa Limited and Thabazimbi Mine is likely to substantially prevent or lessen competition in the relevant market.
- 02
Whether the transaction raises any public interest concerns, including employment.
- 03
Whether the merger involves significant horizontal or vertical competition effects.
Party arguments
- Applicant
- ArcelorMittal South Africa Limited argued that the acquisition of Thabazimbi Mine is primarily motivated by the need to manage losses incurred from the mine's closure and to address rehabilitation liabilities. The applicant submitted that the transaction would not alter competitive dynamics, as Thabazimbi Mine is not currently operational and its market share is negligible. Furthermore, all permanent employees would be transferred to AMSA, ensuring no adverse employment effects.
- Respondent
- Thabazimbi Mine, represented by Sishen Iron Ore Company, supported the transaction, noting that the mine's closure was necessitated by geological risks and technical complexities. The respondent agreed that the merger would not impact competition, given the mine's limited market share and the presence of larger competitors. The respondent also confirmed that the transaction would not negatively affect employment or other public interests.
05
Court’s reasoning
Legal principles
- 01
Competition Act, No. 89 of 1998
A merger will not be prohibited unless it is likely to substantially prevent or lessen competition in any relevant market.
- 02
Competition Act, No. 89 of 1998
The assessment of public interest factors, including employment, is required in merger proceedings.
- 03
Arcelor Mittal SA Ltd v Metal and Thabazimbi Mine (LM231Mar17) [2017] ZACT 25
Market share accretion is a key factor in determining the competitive impact of a merger.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the proposed merger between ArcelorMittal South Africa Limited and Thabazimbi Mine does not result in a substantial lessening of competition in the market for hematite iron ore. The merged entity's market share post-merger remains minor, and significant competitors such as Assmang Limited and Kumba Resources continue to operate in the market. The vertical relationship, wherein Thabazimbi Mine supplies all its iron ore to AMSA, does not raise foreclosure concerns due to the mine's negligible market share. The transaction is primarily a cost management strategy for AMSA to address rehabilitation liabilities and does not alter the competitive landscape. No adverse public interest issues, including employment, arise from the merger, as all permanent employees will be transferred to AMSA. Accordingly, the Tribunal approved the merger unconditionally.
Obiter and limits
- The Tribunal emphasised that the merger is driven by AMSA's need to manage rehabilitation costs, rather than to gain market power.
- The closure of Thabazimbi Mine and its non-operational status means that the merger does not affect pre-existing market conditions.
- Should AMSA choose to reopen the mine in future, competition in the market will remain robust due to the presence of larger competitors.
Court disposition
The merger is approved unconditionally.
- The large merger between ArcelorMittal South Africa Limited and Thabazimbi Mine is approved without conditions.
- All permanent employees of Thabazimbi Mine shall be transferred to ArcelorMittal South Africa Limited.
Source and reliance status
Competition Tribunal
This page organises the available record for research. Confirm quotations, current status, and subsequent treatment against the official source before relying on the case.
Judgment reading view
Judgment text
The complete available source text.
Competition Tribunal
Judgment
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: LM231Mar17
In the matter between
ArcelorMittal South Africa Limited
Primary Acquiring Firm And
Thabazimbi Mine
Primary Target Firm
Panel
: Mr Norman Manoim (Presiding Member)
: Mr Enver Daniels (Tribunal Member)
: Prof. lmraan Valodia (Tribunal Member)
Heard on
: 31 May 2017
Order Issued on : 31 May 2017
Reasons Issued on : 22 June 2017
REASONS
FOR DECISION
Approval
[1] On 31 May 2017, the Competition Tribunal ("the Tribunal") unconditionally approved the large merger between ArcelorMittal South Africa Limited ("AMSA") and Thabazimbi Mine, herein referred to as the merging parties.
[2] The reasons are as follows.
Parties to the transaction
Primary Acquiring Firm
[3] AMSA is a public company incorporated in accordance with the laws of the Republic of South Africa ("RSA") and is listed on the Johannesburg Stock Exchange ("JSE"). AMSA is controlled by ArcelorMittal S.A ("ArcelorMittal"), which in turn is controlled by two individuals, Mr Lakshmi Mittal and Mrs Usha Mittal.
[4] AMSA engages in the business of manufacturing and supplying long and flat steel products in its operating facilities located in Newcastle and Vanderbijlpark. In addition to steel products, AMSA also produces coke and chemical products at its production facilities located in Newcastle, Pretoria and Vanderbijlpark.
[5] Of relevance to the proposed transaction is AMSA's interest in two iron ore producers: Coza Mining (Pty) Ltd ("Coza Mining") and Polokwane Iron Ore Company (Pty) Ltd ("PIOC"). Coza Mining is a producer of hematite iron ore whereas PIOC is producer of magnetite iron ore. Both mines, however, are not producing any iron ore as they are awaiting the Department of Mineral Resources' approval of mining rights and prospecting rights respectively.
Primary Target Firm
[6] Thabazimbi Mine is owned by Sishen Iron Ore Company (Pty) Ltd ("SIOC'') which in turn is controlled by Kumba Iron Ore Limited ("Kumba"). Thabazimbi Mine does not control any firm.
[7] Thabazimbi Mine isan iron ore mine and its mining operations are located near Thabazimbi in the Limpopo Province. The total output of the mine is supplied to AMSA's steelwork plants since the creation of Kumba Resources Limited in 2001.
Background to the proposed transaction
[8] Historically, Thabazimbi Mine has always supplied its iron ore to AMSA's various steel operation plants in and outside South Africa in terms of a long term supply agreement ("the supply agreement") concluded between AMSA and SIOC. The supply agreement further stipulates that AMSA is obligated to fund the majority of the rehabilitation costs in respect of the Thabazimbi Mine when necessary.
[9] In July 2015, Thabazimbi Mine experienced a catastrophic slope failure which resulted in the sterilisation of its remaining ore reserves. The only possible future mining operations lay within lower grade ore which have not been previously excavated. Given the geological risks and technical complexities associated with mining such ore, SIOC viewed this option as non-viable and resolved to have the mine closed. All mining activities were then terminated in September 2016. Currently, Thabazimbi mine is in the process of being prepared for closure subject to the finalisation of a closure plan and its approval by the Department of Mineral Resources[1].
Proposed transaction and rationale
[10] In terms of the Sale of Assets Agreement, AMSA shall acquire all the assets of Thabazimbi Mine from SIOC. Post-merger, AMSA shall control Thabazimbi Mine.
[11] The merging parties confirmed that the proposed transaction is motivated by managing the loss incurred as a result of closing Thabazimbi mine. Further, AMSA faces certain rehabilitation liability in relation to the Thabazimbi Mine which it is obligated to manage. By doing so, it shall also investigate feasible options for the resumption of mining activity in future.
Relevant market and impact on competition
[12] The Commission considered the activities of the merging parties and found that the proposed transaction presents a horizontal overlap as the merging parties are active in the market for the production and supply of hematite iron ore ("relevant market"). The Commission also found the existence of a vertical relationship as Thabazimbi Mine supplies all its iron ore to AMSA.
[13] When assessing the horizontal overlap, the Commission found that post merger, the merged entity shall only possess a market share of less than 10% in the relevant market. In addition, the merged entity will continue to face competition from its larger counterparts such as Assmang Limited and Kumba Resources. Accordingly, the Commission concluded that the proposed transaction is unlikely to raise any competition concerns in this regard.
[14] When analysing the vertical relationship, the Commission found that while Thabazimbi Mine only supplies the total of its iron ore to AMSA by virtue of an exclusive supply agreement, Thabazimbi Mine is a very small player in the relevant market as its market share only accounts for less than 1%. The merged entity will continue to face competition from Assmang Limited and Kumba Resources which produce significant volumes of hematite iron ore. It follows that should the merged entity elect to implement a foreclosure strategy, other domestic producers of steel could obtain hematite iron ore from Assmang Limited or Kumba Resources. As such, the Commission concluded that the proposed transaction shall not raise any foreclosure concerns.
[15] In view of the minor post-merger market share of the merged entity, the Commission concluded that the proposed transaction is unlikely to substantially prevent or Jessen competition ("SLC") in the relevant market.
Tribunal analysis
[16] We agree with the Commission that the transaction does not lead to an SLC. However we would place more emphasis on the notion that the merger involves a cost management strategy to ameliorate the accruing rehabilitation costs payable by AMSA.[2] It would be in AMSA's best interest to purchase the mine from SIOC with the hopes of re-opening it, should doing so prove feasible in future.
[17] The market share accretion is minor in this case as Thabazimbi Mine is currently not operating. As such, the post-merger market share does not raise any competition concerns largely because the pre-merger market conditions will remain relatively similar post-merger.
Public interest
[18] The merging parties submitted that the proposed transaction does not raise any employment concerns as all 61 permanent employees currently employed at the Thabazimbi Mine shall be transferred to AMSA.
[19] Based on the above submission, the Commission is of the view that the proposed transaction is unlikely to have a negative effect on employment and does not raise any other public interest concerns.
Conclusion
[20] In light of the above, we conclude that the proposed transaction is unlikely to substantially prevent or lessen competition in any relevant market. In addition, no adverse public interest issues arise from the proposed transaction. Accordingly, we approve the proposed transaction unconditionally.
22 June 2017
Date
_____
Mr Norman Manoim
Mr Enver Daniels and Prof. lmraan Valodia concurring
Tribunal Researcher : Mr Ndumiso Ndlovu
For the merging parties : Mr Anton Roets of Nortons Inc. and Mr Graeme Wickins of Werksmans
For the Commission
: Zintle Siyo
[1] Once the closure plan has been approved, rehabilitation of the mine can commence.
[2] Page 7 of Transcript.
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