Highveld Steel and Vanadium Corporation Limited
Highveld Steel and Vanadium Corporation Limited
One Pretoria Main Road
P.O. Box 111
Telephone: (+27) 1359-7011
Fax: +27 136903332
Web site: http://www.highveldsteel.co.za
Incorporated: 1957 as Minerals Engineering Co.
Sales: R 4.01 billion ($528.5 million) (2002)
Stock Exchanges: Johannesburg Frankfurt NASDAQ
Ticker Symbol: HSVLY (ADRs)
NAIC: 331221 Cold-Rolled Steel Shape Manufacturing; 331111 Iron and Steel Mills; 331222 Steel Wire Drawing
Highveld Steel and Vanadium Corporation Limited is one of South Africa's leading vertically integrated producers of steel and steel products, including rolled and flat steel products, and a limited number of finished products, such as steel cages and other enclosures. Highveld is also one of the world's largest producers of vanadium, a rare, soft, corrosion-resistant metal used to strengthen steel. The company produces vanadium products, including vanadium pentoxide and trioxide, both for the export market and for its own production of vanadium steel alloys. Through its Transalloys division, Highveld also produces manganese alloys, most of which is sold as exports. The bulk of the company's production occurs at its main Witbank-region site in Mpumalanga. The company also operates a secondary site at Gauteng. Highveld also produces its own ore for its steel and other production from a mine in Mapochs. Steel and vanadium products represented 70 percent of the group's sales of R 4 billion ($528 million) in 2002, with ferro-alloys contributing 23 percent to sales. The company has been shedding noncore businesses, including its Columbus stainless steel joint venture in 2002 and its Rheem packaging subsidiary in 2003. Listed on the Johannesburg stock exchange, Highveld is held at more than 80 percent by the Anglo American Industrial Corporation.
An Anglo Alternative to Iscor in the 1950s
In the late 1950s, South Africa's steel industry remained dominated by the South African Iron and Steel Industrial Corporation, otherwise known as Iscor. Created by the South African government in the late 1920s in part to reduce the country's reliance on imported steel, Iscor remained a government holding. With the rise to political power of the Afrikaner-controlled National Party, Iscor, previously operated by the country's English-speaking community, came under the influence of the Afrikaner community, including the secretive Broederbond. Indeed, Iscor played a role in the development of the Apartheid state, providing the steel for the country's arms production after the voluntary boycott of arms imports in the early 1960s. At the same time, Iscor became a central part of the National Party's effort to redress the balance of economic power in South Africa as well, in a largely unsuccessful attempt to place more wealth in the Afrikaner community.
By the end of the 1950s, Iscor had nonetheless been successful in meeting some 70 percent of South Africa's domestic steel needs. This dominant position made entry into the country's steel market difficult, mostly because of Iscor's decidedly Afrikaner influence. During that decade, however, a number of companies, especially foreign businesses, had entered the South African steel and steel products market, in part to gain access to the country's vast mineral wealth.
Among these companies was Minerals Engineering Co. of South Africa. A subsidiary of Minerals Engineering of Colorado, controlled by the Rockefeller family, the new company set up a plant in Witbank in 1957 to produce vanadium pentoxide. Minerals Engineering Co. targeted its production at the U.S. market. At the time, use of vanadium remained somewhat limited to highly specialized products, such as high-speed steel tools and heat-treated engineering components. The relatively small market, coupled with high production costs, led to Minerals Engineering's decision to sell off the subsidiary by 1959.
Minerals Engineering turned to Anglo American Industrial Corporation, a British-controlled company that had established itself as one of South Africa's dominant mining companies, particularly through its Orange Free State gold mines. While that operation had become profitable by the late 1950s, difficult conditions in the gold market at the time made further mining investments in the country unattractive. Instead, Anglo American sought to diversify its South African holdings, targeting an entry into steel production.
Anglo American agreed to take over a two-thirds stake in Minerals Engineering in 1959, renaming it Transvaal Vanadium Co. The British-controlled company then began investigating methods for increasing its new subsidiary's profitability. A primary target for this goal involved finding a method of recovering and exploiting the iron content discarded as waste during the standard vanadium production process of the period. At the same time, Anglo American sought a more efficient method for extracting the vanadium from its titaniferous magnetite ore, which, with a high titanium content, was difficult to process using traditional blast furnace-based smelting methods.
In 1960, Anglo American formed a new company, Highveld Development Co., for the purpose of exploring a new smelting technique using a four-stage electrical process pioneered in the late 1940s and early 1950s. Highveld built a pilot plant and began carrying out experiments in 1961 and 1962, the successful outcome of which led Anglo American to propose to build a full-scale plant at Witbank. For this, Anglo American turned to Iscor, proposing to form a joint venture, together with outside capital from a foreign steel maker, to build and operate the new plant.
Iscor refused, driven in part by political motivations, as its Afrikaner leadership resented the incursion of English-dominated Anglo American on its operational territory, but also because Iscor itself had begun planning a large-scale expansion for the 1960s. Yet the discovery of new and more widely available methods for exploiting vanadium-based steel introduced an upswing in the market in 1964, and Anglo American decided to risk its own capital on the costly development of the Witbank plant. The move was described by CEO Harry Oppenheimer, an opponent to both the apartheid regime and the South African government's policies of nationalization of the country's industries, "a major single act of faith by private enterprise in the future of South Africa."
With no previous experience in steelmaking, Anglo American acquired outside expertise. In 1964, it bought South African steel producer Scaw Metals. Anglo American also formed a joint venture with Sweden's Avesta Jernverks AB, Transalloys Proprietary Ltd., for the production of chromo-ferro alloys. Anglo American continued investing elsewhere in South Africa, buying stakes in a number of companies that were shortly to come under the control of the soon-to-be nationalized British Steel Corporation (BSC). In the meantime, the mining concern lined up financing for the project, some of which was raised in exchange for future equity in the Witbank company.
Construction began on the Witbank site, designed as a vanadium-based integrated iron and steel production facility in 1965. At the time the Highveld company was renamed Highveld Steel and Vanadium Corporation Limited. The following year, Anglo American acquired full control of Transvaal Vanadium, placing it under Highveld, where it became structured as the company's Vantra division. As construction proceeded, Anglo American began selling its future production, and by the time of the plant's completion in December 1968, Highveld held contracts for nearly all of its vanadium production through to the end of 1971.
By April 1969, the Witbank site was fully operational. In that year, also, Highveld went public on the Johannesburg stock exchange, in part to enable the project's financial backers to cash out on their investment. Nonetheless, Anglo American maintained control of the company, with more than 70 percent of Highveld's stock. Later, that stake was boosted past 80 percent.
In response to the launch of Highveld, Iscor began acquiring controlling stakes in engineering companies and other South African businesses that had previously been Iscor's exclusive steel customers. Among Iscor's targets were the South African subsidiaries of the new British Steel Corporation, created in 1967. BSC's holdings included full control of South Africa's second largest steel distributor, Baldwins, as well as major stakes in Stewarts & Lloyds, the country's leading maker of pipes and tubes, and Dorman Long, its largest structural engineering specialist.
Yet because Anglo American already held significant stakes in many of these companies, the three sides were forced into negotiations. A compromise was reached in 1970, with the creation of International Pipe & Steel Investments South Africa (Ipsa), which regrouped BSC's South African holdings. For Iscor, the compromise marked its success in controlling the English-speaking and foreign influences on the national steel market. For Highveld, it marked the start of a truce between itself and Iscor.
Toward Consolidation in the New Century
Highveld booked strong growth through the 1970s and 1980s. In 1976, the company acquired a 65 percent stake in Transalloys from its parent company. By 1985, Anglo American had transferred full control of the manganese alloys producer to Highveld. In that year, also, the company commissioned its second iron production facility.
The company continued to develop toward the end of the decade, particularly with the acquisition of Rand Carbide Ltd., also based in Witbank. Completed in 1978, the transaction gave Highveld access to Rand Carbide's 60 years of expertise in the production of ferrosilicon and other carbonaceous products.
Highveld's Vision: To be a highly profitable metals company and by so doing to provide long term benefits to stakeholders and the communities within which we operate.
Highveld sought new diversification in the mid-1980s, particularly through its purchase of Rheem South Africa Ltd. in 1985. That purchase enabled the company to extend its steel production into finished products, including steel drums, pails, and related products. Later, in 1993, Highveld extended its Rheem subsidiary's operations with the construction of a plant dedicated to the production of aluminum cans.
By then, Highveld had already added another new product category, that of stainless steel. In 1991, the company formed a partnership with Samancor Ltd. to buy Middelburg Steel & Alloys Ltd. That company was then transformed into Columbus Stainless. In 1993, Highveld and Samancor sold a combined one-third share of Columbus to the South African government's Industrial Development Corporation. Highveld's own share of that company stood at 64 percent. Construction then began on a new stainless steel production plant, which was inaugurated in 1996.
With the completion of the new Columbus plant, South Africa became the world's number six producer of stainless steel. Columbus also quickly became an important source of revenues for Highveld, accounting for some one-third of the company's sales by 2001. Yet the collapse of the global market for stainless steel, linked with the Asian economic crisis in the second half of the decade, sent Columbus into a downward spiral. By the late 1990s, Columbus's losses had begun to drag Highveld into the red as well. The company and its partners began looking to offload the stainless steel business, and in 2001 agreed to sell Columbus to Spain's Acerinox in exchange for a stake in that company.
In the meantime, Highveld also had begun exiting its Rheem subsidiary, converting the aluminum can plant to steel production in 1999, then shutting the facility altogether in 2001. By 2003, Highveld had found a buyer for Rheem as well, selling it to Coleus Packaging Ltd. for R 33 million in January of that year.
Steel prices, and Highveld's fortunes, began to rebound in the early 2000s. The creation of new trade barriers by the Bush administration, designed to protect the U.S. steel industry from foreign competition, had by then cut short the company's market there. Instead, Highveld formed a European trade subsidiary, Hochvanadium Holding AG in Austria in 1998. The company also reached a joint venture agreement with Japan's Nippon Denko in 2001, which involved moving the Japanese company's ferro-vanadium production to South Africa, giving Highveld increased access to that market.
The breakup of Iscor into separate steel and mining components in 2001 had sparked speculation of a coming consolidation of South Africa's steel industry. Highveld, held at more than 82 percent by Anglo American, appeared a likely target for a takeover offer by Iscor, which had evolved into one of the world's lowest-cost steel producers at the approach of the new century. In turn, Anglo American signaled its interest in eventually buying out Highveld's minority shareholders.
Toward the end of 2003, Iscor affirmed its desire for expansion, giving Highveld, and another South African-based steel company, Duferco, an ultimatum to reach an agreement on a takeover deal within a year—or lose out altogether. A takeover by Iscor, however, was likely to meet with tight scrutiny from the country's mergers and monopolies authority.
- Minerals Engineering Co. of South Africa is formed to produce vanadium pentoxide for the exports market.
- Anglo American acquires two-thirds stake of Minerals Engineering Co., which is renamed as Transvaal Vanadium Company.
- Highveld Development Co. is formed to build a pilot smelting facility using new electronic smelting techniques.
- Construction of Witbank integrated iron and steel facility begins.
- The company changes its name to Highveld Steel & Vanadium Corporation.
- Anglo American acquires full control of Transvaal Vanadium and transfers it to Highveld.
- The Witbank project is completed.
- Witbank enters full production and Highveld goes public.
- The formation of Ipsa leads to a truce between Iscor and Highveld.
- The company acquires 65 percent of Transalloys from Anglo American.
- The company acquires Rand Carbide and extends into ferrosilicon production.
- The company completes the acquisition of Transalloys; a second iron plant is commissioned; Rheem South Africa is acquired.
- The company initiates the creation of the Columbus Joint Venture and acquisition of Middelburg Steel & Alloys in a move to enter the stainless steel market.
- Rheem expands with a new aluminum can production plant.
- The new Columbus stainless steel plant begins production.
- Hochvanadium Holding AG is created in Austria.
- A joint venture is formed with Japan's Nippon Denko.
- The company sells Columbus in exchange for a stake in Spain's Acerinox.
- The company sells the Rheem packaging division to Coleus Packaging.
Meanwhile, Highveld had begun to benefit from the rising global steel and vanadium markets, despite the relative strength of the rand. At the same time, Highveld's stake in Acerinox—which had restored the Columbus facility to profitability—had also become an important part of the company's assets base, accounting for some half of its value. With revenues rising past R 4 billion ($585 million), Highveld appeared in a strong position to resist Iscor's takeover ambitions, at least for the near future.
Lacerta Investment Holdings (Proprietary) Limited; Meehr Properties (Proprietary) Limited; Hochvanadium Holding AG (Austria); South Africa Japan Vanadium (Proprietary) Limited (50%).
Delta Steel Mill Co.; Laiwu Steel Corporation; Tangshan City Iron and Steel Grp Co.; Changcheng Special Steel Company Ltd.; Qingdao Iron and Steel General Corporation; Qiqihar Beiman Special Steel Corporation Ltd.; A H Al Zamil Group of Companies; Cathay Pacific Steel Corporation; Arcelor; Xilin Iron and Steel Co.
Cross, Tim, "Afrikaner Nationalism, Anglo-American and Iscor: The Formation of the Highveld Steel & Vanadium Corporation, 1960–70," Business History, July 1994, p. 81.
Fraser, John, "Move on Highveld or No Deal, Iscor Warns Anglo," Business Day, August 21, 2003, p. 1.
Lourens, Carli, "Highveld Plans to Raise Export Volumes by As Much As 20%," Business Day, February 12, 2003, p. 15.
Marrs, Dave, "Stainless Steel Exposure Adds Lustre to Highveld," Business Day, August 6, 2003, p. 10.
"Trevor Jones EC, Highveld Steel," Africa News, August 29, 2001.
—M. L. Cohen