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Harmony, DRDGOLD score steel victory

Publication: miningmx
Journalist: Allan Seccombe

HARMONY Gold and DRDGOLD have scored a victory against high steel prices in a marathon case heard by South Africa’s Competition Tribunal, but the penalties and remedies to be imposed against the Mittal Steel SA monopoly have yet to be decided.

The Tribunal found in a 91-page draft judgment in the complaint brought by the two gold miners against the JSE-listed Mittal SA for the prohibited practice of excessive pricing that the country's largest steel producer was guilty.

“By withholding output, an option only available to a super-dominant firm, it (Mittal SA) has assured its ability to charge its pre-selected target price, a price unconstrained by any competitive considerations in its relevant market, and thus has contravened the Act’s proscription of excessive pricing,” the Tribunal said.

Mittal, the world’s largest steel producer, which bought South Africa’s Iscor, said it was disappointed by the decision and that it would have its lawyers look over the full judgment.

“We currently are unable to comment further on the ruling until we have seen the reasons for the judgement. We believe, however, that we have a strong legal case and will be considering our legal options,” said Mittal SA CEO Rick Reato.

Until the Tribunal decides what remedies to impose, it is difficult to suggest what relief South African steel users will experience.

The Tribunal warned that if its remedies to stop Mittal SA from charging excessive prices failed, it could order the company to divest from a number of steel plants.

Harmony, which has spent millions of rands in legal fees to argue the matter before the Competition Commission and then the Tribunal over four years, said it was money well spent, said CEO Bernard Swanepoel.

“What this means is that we’ll not only be able to buy steel at lower prices, but they’ll be prices set by market forces,” said Swanepoel, adding the company’s board would decide in due course whether they would seek damages in the civil courts.

“We think today’s decision will change the way some industries in South Africa will do business,” he said.

Mittal SA was not spared any blushes in the draft judgment after what David Lewis, who presided over the hearing, called a “trial of fairly mammoth proportions.”

There had been “some rather bizarre testimony” from a Mittal SA expert economist Mike Walker who had tried to persuade the Tribunal that Mittal SA was in a dire commercial situation.

“This judgment is rendered all the more peculiar because it is contradicted by Mittal SA’s current performance and its own bullish, public assessments of its future prospects,” Lewis said.

Mittal SA reported full year headline earnings of R4.65bn for the year to end-December 2006. The company said in February when it released it results that no provision had been raised nor had a contingent liability quantified in regards to this complaint.

The Tribunal did not decide on what was an excessive price level or what a more realistic price would be, Lewis said, explaining the Tribunal’s role was to determine whether there had been excessive pricing in terms of the Act, and not to act as a price regulator.

However, claims by Mittal SA to have moved away in January 2006 from import parity pricing for its domestic sales to considering a basket of goods in a number of countries as per a mid-December 2005 announcement by Mittal SA came in for severe criticism.

Charles Dednam, who appeared for Mittal SA, was accused of misleading the Tribunal on this matter.

“The hollowness of this claim was thoroughly exposed under cross-examination - indeed it appears that it had not been part of the announcement of 15 December 2005,” Lewis said.

“On further examination and questioning from the Tribunal Mr. Dednam acknowledged that the claimed shift in the pricing basis had had no discernible impact on the actual price charged,” he said. “Indeed, it is disappointing that a witness who we generally found to be helpful and, on some important points, candid…was prepared to blatantly mislead the Tribunal on this point.”

Mittal SA had included the information in an “offer” to South Africa’s Department of Trade and Industry, which has expressed unhappiness about high steel prices in the domestic market.

“That it appears to form part of Mittal SA’s ‘offer’ to the Department of Trade and Industry suggests that it is willing to mislead the public as well,” Lewis said.

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