South Africa's government plans to investigate an interim resolution to what had become an increasingly antagonistic pricing dispute between the country's largest steel producer and largest iron ore supplier.

Critical issues arising from the dispute between ArcelorMittal South Africa Ltd. (ACL.JO) and Kumba Iron Ore Ltd. (KIO.JO) remain unresolved, the ministers of trade and industry, economic development and mineral resources said in a joint statement. The terms of supplying iron ore and steel products is in the national interest, they said.

The companies said earlier Thursday that they had agreed an interim price for the steelmaking ingredient from Kumba's Sishen mine while arbitration continues.

Kumba, a unit of Anglo American PLC (AAL.LN), in March canceled a long-running pact under which it supplied iron ore from its primary mine to ArcelorMittal at 3% above costs. The steel producer refused to pay market prices as demanded by Kumba, and the mining company last week said it would halt supplies. ArcelorMittal responded by saying it lay off workers, close its Saldanha steel plant and reduce exports.

The interim pact will see ArcelorMittal pay a fixed price of $50 a metric ton for ore supplied to Saldanha on the coast and $70/ton for ore delivered to its inland plants. The agreement will be backdated to March and last through July 2011.

Government ministers said they would meet with the two companies to ensure the settlement doesn't have a negative impact on steel prices.

Iron ore prices have been buoyed by rising crude steel production, driven in part by demand from China. Sishen produced 21.1 million tons of iron ore in the first six months of the year.

Labor union Solidarity welcomed the interim agreement between ArcelorMittal and Kumba, and urged the pair to concerted effort to reach a final deal.

"Although the possibility of layoffs has been averted for now, it is important that Kumba and ArcelorMittal now act in their employees' best interest," said Jaco Kleynhans, spokesman for the union.

The pricing agreement between the companies dates back to 2001 following the breakup of a former state company into a steel producer and miner. At that time it was agreed Sishen, which now supplies about two-thirds of ArcelorMittal's ore each year, would sell 6.25 million tons at cost-plus-3%.

Kumba this year argued the pact was broken when ArcelorMittal failed to renew its mining rights on a minority 21% stake in the mine by a government imposed deadline last year. ArcelorMittal has said it doesn't believe this was grounds to end the deal.

In a further twist, the government handed prospecting rights to little-known Imperial Crown Trading 289 at the producing mine based on the 21% stake it had taken from ArcelorMittal for not renewing its own rights. Kumba in May initiated a court review of the decision.

-By Robb M. Stewart, Dow Jones Newswires; +27 11 783 7848; robb.stewart@dowjones.com
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