A South African State development bank is considering taking a majority stake in the local unit of ArcelorMittal South Africa (AMSA) as it tries to halt the planned closure of two steel mills crucial to the nation’s manufacturing sector.

The Industrial Development Corporation (IDC), which already holds 8.2% of AMSA, is willing to inject more capital into the struggling company in exchange for boosting its holding, according to people familiar with the matter who asked not to be identified because the plans are at an early stage and not yet public.

The IDC’s plan would include a later sale to strategic investors, according to the people.

AMSA said it hasn’t yet received a bona-fide offer from any potential bidder that requires communication with shareholders. The IDC declined to comment on the matter.

The lender and the country’s trade and industry department have engaged in talks with AMSA since the company said in January it would go ahead with previously shelved plans to close mills in the towns of Newcastle and Vereeniging, costing about 3,500 jobs.

Those plants, which produce so-called long products, also supply grades of steel crucial to the country’s automotive, mining equipment and construction sectors that local rivals can’t currently make.

AMSA has said that the mills are unviable because of a flood of cheap imports, surging electricity costs, erratic rail services and government regulations that discount the scrap metal that smaller local rivals use to make steel. AMSA mills iron-ore rather than scrap.

In response, the government has initiated a review of import tariffs on steel products and on March 19 said it approved R417-million from the state-run Unemployment Insurance Fund to “sustain” 2 982 of the mills’ 3 500 employees over the next 12 months.

The IDC, which paid AMSA more than R1.38-billion in support in June and February, may offer a little more money to temporarily keep the mills open, Toby Chance, a lawmaker who sits on a parliamentary committee that oversees trade matters, said in an interview.

An interim announcement may be made to keep the mills running temporarily while further talks take place, the people said.

The lender carried out a similar plan when it bought Scaw Metals from Anglo American for R3.4-billion more than a decade ago to secure the local steel supplier’s future. Following that, the IDC unbundled and restructured the business, selling its parts to strategic partners.

AMSA has engaged Investec to sell “certain noncore and non-strategic land assets,” but not the Newcastle plant, the lender said in response to questions.

AMSA’s announcement of its plan to close the steel plants has prompted a number of offers for the mills and the company, but none so far have been deemed credible enough to announce to shareholders, the producer said March 19.

Networth Investments approached AMSA’s parent, Luxembourg-based ArcelorMittal, in November and the local unit in February about buying either a controlling stake or all of the South African company, Networth CEO Harold Vermaak said.

It’s now planning a formal offer with the IDC’s support at about the company’s current share price, he said.

Shares of AMSA, which has a market value of about R1.5-billion and annual sales of almost R40-billion, have plunged 98% in Johannesburg over the past two decades.

Vermaak said his company, which has previously made bids for AMSA or its plants, could make the operations profitable by cutting input costs and boosting exports. He didn’t give precise details.

“What was received was correspondence that did not constitute an offer,” AMSA said. “This correspondence amounted to a vague plan indicating Networth’s claimed intentions, which was overly simplistic, based on unrealistic assumptions and with no credible financing.”