The government was considering "various options" to ensure that a portion of the Kumba iron ore mines' output at Sishen would be sold at a price which would allow downstream steel manufacturers to be internationally competitive.

Minister of trade and industry Rob Davies said he and his counterparts Ebrahim Patel at economic development and Susan Shabangu at mineral resources had requested a follow-up meeting with ArcelorMittal and Kumba on Tuesday to ensure that the agreement reached between the parties this week would ensure that "long-term developmental objectives" were reached.

The dispute arose after ArcelorMittal failed to convert its 21.4% mining right in Sishen, leading Kumba to cancel an annual 6.25 million-ton contract at cost plus 3%.

The government's position is that this right, bought by ArcelorMittal when state-owned Iscor was unbundled in 2001, came with public developmental obligations that should not fall away merely because ArcelorMittal lost the right.

"The principle we're putting out is this: a proportion of the iron-ore output of Sishen should be sold at a price that enables competitive steel production downstream," Davies said.

Whether it was ArcelorMittal or a new entrant that benefited from such an arrangement did not matter, as long as the benefit was passed on in the form of competitive steel products, he added.

Davies did not exclude the lapsed mineral right perhaps being given to the state-owned mining company, with the ore supplied at favourable rates to lure a new steel entrant to the market. However, the government was looking at a several options to ensure the public developmental obligations were reached, Davies said.

Kumba, which applied for the lapsed right, is fighting in court the awarding of a prospecting right over Sishen to the politically connected Imperial Crown Trading.

Kumba CEO Chris Griffith said it was "not a simple matter as to what would happen if another party got the mining right, and whether such a party would be entitled to ArcelorMittal's 6.25 million-ton supply agreement".

He said it would not translate into a 21.4% stake of Sishen Iron Ore Company or rights to the iron ore reserves. Despite the government's insistence that the contract signed at the unbundling of Iscor placed public developmental obligations on the parties, Griffith noted that "while we understand the intent at the time, this is not written into the contract. The contract deals with the terms and not with the intent."

The company was keen to work with the government, including on ways to incentivise a new steel plant, he said. Any agreement would have to be realistic and value-accretive to all parties. "We can't give iron ore away at cost plus 3%," Griffith said.

Kumba already did significant work to beneficiate ore before it was exported, "but if we can assist further regarding beneficiation, we want to assist".

The iron ore miner had held a number of talks with government over the years about how to enable the entry of new steel plants, Griffith said, but these investments faced numerous barriers to entry, apart from access to raw materials such as iron ore and coking coal.

Other factors were electricity supplies, using technology suitable for the raw material available, and the size of the SA market. Local capacity already exceeded local demand, which meant new investors would have to cater for the export market and stimulate new steel demand in SA.

SA's advantage lay in the high-quality iron ore that was being mined at low cost, and this was an advantage that should be carried through to the downstream steel manufacturing industry, Davies said.

The government would therefore continue to insist that ArcelorMittal moved towards a developmental pricing model, and "ideally we'd like to see a cost-plus model", he said.

The government believes that ArcelorMittal's prices are not competitive and leave downstream manufacturers at a disadvantage.