There’s some concern that government is delaying the inevitable, after more support was extended to ArcelorMittal South Africa (AMSA) to facilitate a six-month pause of the shutdown of its longs business, including the integrated Newcastle mill in KwaZulu-Natal.

The move has been enabled by a R1.68-billion Industrial Development Corporation (IDC) loan, extended just as AMSA was about to bore a hole in the bottom of the Newcastle blast furnace and empty it of its residual material, diluted of its iron-ore content to allow it to flow out easily.

The Newcastle reprieve also sustains AMSA’s other longs operations in Vereeniging, where inputs for the automotive and mining sectors are produced, as well as eMalahleni, where AMSA manufactures rail structural steel at the otherwise shuttered old Highveld Steel mill.

The loan is substantially larger than the R380-million one granted by the IDC in February to sustain operations until the end of March and has been coupled to a Temporary Employee Relief Scheme grant to assist with employee costs.

It is in line with AMSA’s stated commitment of January to shareholders (including the IDC) that the longs business will no longer be a drain on the group’s cashflow and profitability. In addition, AMSA says it is payable out of the profits of the longs business, which has rarely reported positive earnings over the past ten years.

In other words, the IDC (and by extension the State) is taking on significant risk. And it is considering taking on even more, as the IDC conducts a due diligence exercise to assess whether it should take on a larger equity position than its current 8.2% stake.

The IDC’s history with the company is a long and complicated one, and should the current process result in it taking a majority stake in AMSA, it will represent something of a ‘back to the future’ step.

During the democratic era, which followed Iscor’s privatisation in 1989, the development finance institution was heavily embroiled in the company during the troubled construction of Saldanha Steel, which was eventually placed into care and maintenance.

It was intricately involved in securing Iscor’s strategic equity partner in the form of then LNM, now the ArcelorMittal Group, as well as its unbundling to form what is currently AMSA and Kumba Iron Ore. Empowered coal miner Exxaro also emerged from a further unbundling of Kumba.

In the process, the IDC and its shareholder (government) expended significant real and sweat equity; an investment that many downstream steel fabricators resent, given persistently high prices and ongoing grumbling about service levels.

To be sure, governments everywhere are extremely reluctant to let go of their “strategic” steelmaking assets, which are so intricately associated with industrial and military prowess. And given the current geopolitical turmoil, South Africa’s reluctance has been amplified.

Only time will tell, however, whether such hanging on truly represents the best value for scarce development finance.