Iscor Limited History

Company Perspectives:

Strategy: The company's strategic emphasis is to ensure that its steel operations meet or better internationally benchmarked standards to remain a quality low cost producer. This emphasis is underpinned by three strategic tiers--operational excellence, market optimisation and industry consolidation.

Key Dates:

1909:

Horace Wright and Sammy Marks are granted rights to build a blast furnace to produce pig iron, founding Union Steel Corporation (USCO), South Africa's first active steel company.

1916:

The first ferrous ore mining operation in South Africa is established.

1927:

"Pact" government creates South Africa Iron and Steel Corporation (Iscor), which becomes the dominant steel producer in the country; Iscor begins construction of the Pretoria steel mill.

1934:

The Pretoria mill begins steel production.

1943:

Iscor begins construction of a heavy plate steel mill in Vanderbijlpark.

1947:

The Vanderbijlpark site is expanded as an integrated steel mill, completed in 1953.

1971:

Construction of an integrated steelworks at Newcastle begins.

1989:

Iscor is privatized and listed on the Johannesburg stock exchange.

1994:

Conversion of the Pretoria mill to stainless steel production begins.

1995:

Iscor launches its re-engineering program.

1996:

A joint venture with IDC is formed to build Saldanha Steel Mill.

1997:

The Pretoria mill is shut down.

1999:

The Saldanha mill begins production.

2001:

Iscor splits operations, spinning off its mining interests as Kumba Resources.

2002:

Iscor acquires full control of Saldanha the steel mill.

Company History:

Iscor Limited has surprised the worldwide steel industry by shedding its valuable mining assets--spun off as publicly listed Kumba Resources in 2001--and restructuring itself as one of the world's lowest cost producers of flat steel and long steel products. Iscor also has shown itself as one of the few profitable steel concerns during the industry downturn at the beginning of the new century. Formerly state-owned, Iscor remains South Africa's leading steel company, with a 68 percent market share in the country. The company's operations are conducted through four primary steel production plants: Vanderbijlpark Works and Saldanha Steel, which produce flat steel products; and Vereeniging Works and Newcastle, which both produce long steel products. Iscor's flat steel operation, which accounts for 64 percent of the group's total sales and which includes the company's 60 percent stake in Collect-a-Can, is the sub-Saharan continent's largest, supplying slabs, plates, hot-rolled, cold-rolled, galvanized, and tinplate steel. With production levels of nearly three million tons at Vanderbijlpark and nearly 900,000 tons at Saldanha--scheduled to reach 1.2 million during 2003--Iscor is capable of producing nearly 85 percent of South Africa's flat steel demand. The company is also South Africa's leading long steel producer, supplying 43 percent of that market. Total production at the Vereeniging and Newcastle sites reached 1.75 million tons, more than 90 percent of which was rolled profile products. Iscor exports 55 percent of its flat steel, although exports accounted for 47 percent of the company's total steel production. The Far East represents Iscor's primary marketplace, although the United States is the company's single largest market. As part of the unbundling of Kumba Resources, Iscor retained a guaranteed supply contract with Kumba's huge Sishen Iron Ore Mine, providing Iscor with an annual supply of 6.25 million tons for cost plus three percent. The deal enables Iscor to maintain its claim as a vertically integrated steel specialist. Iscor is listed on the Johannesburg stock exchange and is led by CEO Louis van Niekerk and Chairman Warren Clewlow.

State-Owned Beginnings in the 1920s

South Africa boasted little if any industrial development at the dawn of the 20th century. Much of the country's economic development remained agriculture-based, a sector dominated by the Afrikaner population. The country's immense mineral wealth, however, began to transform the country by the end of the 19th century. Mining--especially for gold and diamonds--quickly became the country's leading industry. Yet this mineral wealth, as well as most of its rising industry and its commercial activity, was dominated by the country's British population.

South Africa's industrial development was jump-started by the success of its mining industry, and demand for steel and steel products increased dramatically. With virtually no steel industry of its own, the country relied entirely on imported steel. The first efforts to introduce steel production in the country remained rudimentary. One of the early attempts dated back to the 1880s, with the creation of the South African Coal and Iron Company in 1882. Yet the first successful, if limited, production of pig iron occurred only in 1901, in the town of Pietermaritzburg.

The first true South African steel company appeared in 1909, when Horace Wright and Sammy Marks were granted a license to construct a furnace in Vereeniging, in the Transvaal region. Wright and Marks founded the Union Steel Corporation (USCO) and began construction of a blast furnace in 1911. By 1913, the partners had completed construction of a ten-ton open hearth furnace and launched production. The company initially relied on scrap materials from the country's railroads and mines as feedstock.

The first efforts to develop South Africa's own steel feedstock supply began in 1916, with the launch of the country's first ferrous ore mine in Pretoria West. That mine fed a newly constructed blast furnace, which produced some 4,000 tons of pig iron between 1918 and 1921. Meanwhile, USCO constructed a second blast furnace, producing some 700 tons.

Newcastle became the next site of the South African steel industry's development, with the construction of a large-scale blast furnace starting in 1919. A new company was formed to operate the furnace, called Newcastle Iron and Steel Works. That operation was to become one of the cornerstones of the later Iscor.

Throughout this early period, the country's nascent steel industry remained controlled by the wealthy British class. Despite their economic clout, however, the British were quickly losing their political clout. The Afrikaner population had begun organizing before World War I, forming the National Party in 1914. Soon after, the National Party spawned the secretive Afrikaans Broederbond, which grew into one of the most important political movements in the country, dedicated to promoting Afrikaner nationalistic interests.

The formation of the so-called "Pact" government between the National Party and the Labour Party in the 1920s propelled the Afrikaner community into true political power for the first time. Under the Pact government, new policies were enacted encouraging South Africa's industrial development. As part of that effort, the government commissioned a study from Germany's Gutehoffnungshütte to determine the feasibility of establishing a full-fledged steel industry in South Africa. The positive outcome of the review led to calls for a rapid expansion of the country's steel operations.

In 1927, the Pact government enacted new legislation, which led to the creation of state-owned South African Iron and Steel Industrial Corporation Limited, or, as it was known in Afrikaans, Suid Afrikaanse Yster en Staal Industriele Korporasie. The new company, which adopted Iscor as the shortened form of its name, quickly took control of the country's nascent steel industry, including USCO's Vereeniging site and, later, the Newcastle Iron and Steel Works as well. Despite the influence of the National Party in its creation, Iscor at the outset was controlled by English-speakers and moderate Afrikaners not affiliated with the National Party. Nonetheless, as part of the legislation creating the company, Iscor was initially required to retain a whites-only workforce.

The 1929 elections, in which the National Party accused the Labour Party of promoting a mixed-race state, gave the Afrikaner community political control of the country--and led, following World War II, to the creation of the Apartheid regime. Iscor then became part of the government's effort to control much of the country's developing industries--and thereby reduce the disparity in wealth between the British and Afrikaner communities.

Iscor began building its own steelworks in Pretoria, and by 1934 had started production, becoming the chief supplier of rails for South Africa's rapidly expanding railroad network. At the same time, Iscor started its own mining operation in Thabazimbi in order to supply its own iron ore. The operation quickly proved an expensive endeavor, particularly against the group's larger and more efficient foreign competitors. To cut costs, the government relaxed the group's employment requirements, allowing Iscor to take on an unskilled black workforce paid at much lower rates.

Iscor quickly ramped up production and by 1935 was already providing for more than 17 percent of South Africa's steel needs. The company was later to benefit from a heightening degree of government protection, restricting imported steel while favoring Iscor's own later moves into the export markets.

Publicly Listed in the 1980s

Demand for Iscor's steel grew strongly into the late 1930s, prompting the company to begin construction on a new heavy plate mill in Vanderbijlpark, in 1943. By 1947, the Vanderbijlpark site had begun a major expansion to develop into an integrated steelworks and flat products mill. The first phase of that project was completed in 1953. The new production capacity brought in turn growing demand for raw materials, and in 1953, Iscor started a new mining operation, in Sishen. That mine, an open pit ore mine, was to become one of the world's largest. At the same time, the growing production from the company's coal-fired furnaces required the company to find a new fuel source, and in 1955, Iscor acquired the Durban Navigation Collieries in order to provide its own coking coal. By then, Iscor was supplying more than 70 percent of South Africa's steel needs.

By the 1960s, Iscor had become dominated by Afrikaners--many of whom were members of the Broederbond--closely associated with Afrikaner nationalist sentiment and the apartheid government. Iscor also had become an integral part of the Afrikaner community's efforts to achieve economic parity. It was also to play a critical part in maintaining the apartheid regime; the voluntary arms ban imposed against South Africa in the early 1960s had forced the government to stimulate its own arms industry. Control of the iron and steel industry became paramount to that effort.

Through the 1960s, Iscor stepped up its production capacity, completing a major expansion to the Vanderbijlpark site between 1964 and 1968. A third expansion to the site began during the 1970s, completed in 1977. By then, Iscor had launched construction of a third integrated steelworks and long product mill, taking over the site of the earlier Newcastle works. Construction of the Newcastle plant began in 1971, and production started up in 1976. That same year saw completion of the Sishen railroad, linking the company's open pit mine to the coast. Iscor then began exporting iron ore for the first time, with initial exports topping 1.6 million tons.

Faced with increasing competition, particularly with the entry of British mining giant Anglo-American into the South African steel market, Iscor restructured at the beginning of the 1970s. The enactment of the Companies Act of 1973 led Iscor to adopt a more corporate organization that allowed it to be run in the manner of a private company. Nonetheless, Iscor remained a state-owned firm until the late 1980s, enjoying its dominant position--with up to 85 percent of the domestic steel market under its control--and protectionist trade policies. Because of this situation, Iscor's workforce grew to nearly 60,000, and the company faced little incentive to achieve operating efficiencies.

That changed with the end of apartheid and the South African government's announcement that it intended to privatize the vast array of government-held companies. Iscor was tapped as the first to undergo privatization because it already had 20 years of experience under a private-like organization. The government began a massive campaign promoting the public offering of Iscor, slated for 1989. When the company was listed on the Johannesburg exchange that year, more than 200,000 South Africans acquired stock in the company. The huge--and later unwieldy--mass of shareholders was meant to prevent any individual shareholder from gaining control of the company. By the end of the 1990s, however, the lack of growth in Iscor's stock was to lead to a vast streamlining of its shareholder base.

Streamlined for the New Century

The end of trade restrictions against South Africa buoyed the newly public company in the early 1990s, as Iscor's export markets reopened, spurring the company's growth. Mining exports became a primary growth engine during the decade to follow, especially with the rapid expansion of the Sishen open pit mine, where production reached 23 million tons per year--only seven million of which were destined for the domestic market. Instead, the fast-building Far East countries became a particularly strong market for the company, and by the end of the decade claimed more than one-third of the company's export sales. The United States became a major market for the company during the decade. The company also entered China, opening a $10 million iron ore storage site in Qianwan in 1994.

Yet the coming end of protectionist trade policies forced the company to take steps to improve its efficiency. This effort took on steam with the appointment of mining industry veteran Hans Smith as CEO in 1993. The company started its first job cuts in 1994, slashing nearly 2,000, primarily administrative, jobs. It also moved to increase its production efficiency, shutting down one of its two Johannesburg-area mills. In 1995, Iscor brought in management consultants to launch what it described as its "re-engineering" process, which resulted in the slashing of more than 30,000 jobs. The company went through its portfolio and identified six strategic markets: steel, coal, iron ore, titanium, zinc, and copper.

A part of that effort involved the conversion of the company's oldest Pretoria mill from its traditional carbon steel production to stainless steel production. The conversion cost the company R 180 million, and gave the company a production capacity of 600,000 tons per year. Yet Iscor's timing was off--soon after the conversion's completion, the bottom dropped out of the worldwide stainless steel market and the Pretoria mill quickly slipped into losses. Iscor quickly discovered the impossibility of turning a profit, other than at the top of the stainless steel price cycle. By 1997, the company was forced to retreat from the effort, shutting down the site.

More promising for the company was the launch of a 50-50 joint venture with the South African government's Industrial Development Corporation (IDC), which was also one of the company's largest shareholders with 11 percent of Iscor. The joint venture called for the construction of a new steel production plant at Saldanha. Work on the facility got underway in 1996, and production at the site began in 1999--in time to expose the company to a slump in the worldwide steel industry.

Smith faced a shareholder revolt, led by IDC and another major shareholder, Anglovaal Mining (Avmin), which had acquired a 15 percent stake in Iscor. Smith managed to hold firm to his position; by 2001, however, he was forced to give in to pressure to break up the company into its mining and steel components. The "unbundling" of Iscor was completed that year as the company spun off its various mining holdings into a new company, Kumba Resources, which was then listed on the Johannesburg exchange. Iscor nonetheless held on to a guaranteed supply of iron ore from the Sishen mine, at a highly advantageous price of cost plus 3 percent. Also as part of the unbundling, Iscor acquired IDC's 50 percent stake in Saldanha, a purchase completed in 2002. Soon after the unbundling, Hans Smith retired from the company; Louis van Niekerk was named to the CEO spot in his place. Iscor also found itself with a new major shareholder, in the form of LNM, parent company of Ispat, the world's number two steel producer.

The new Iscor now became a highly focused steel operation, with plants in Vanderbijlpark and Saldanha, focused on flat steel products, and Newcastle and Vereeniging, focused on long steel products. The company's long re-engineering process had meanwhile transformed it into one of the world's lowest-cost steel producers, enabling it to compete strongly--and profitably--on the depressed worldwide steel market. At the same time, the new Iscor had shed its past association with Afrikaner nationalism and, with a management reflecting the diversity of post-apartheid South Africa, the company prepared to claim a prominent position in the world steel market.

Principal Subsidiaries: Collect-A-Can (Pty) Ltd. (60%); Consolidated Wire Industries (50%); Dunswart Iron and Steel Works Ltd.; Dunswart Properties (Pty) Ltd.; Iscor Balaton Buildings Systems (Pty) Ltd.; Iscor Berlin (Pty) Ltd.; Iscor Investments BV; Macsteel International (50%); Newcastle and Vereeniging; Saldanha Steel (Pty) Ltd.; Steelforge (Pty) Ltd.; Suprachem (Pty) Ltd.; Vanderbijlpark; Vantin (Pty) Ltd.; Vicva Investments Nine (Pty) Ltd.; Yskor Landgoed; Yskor Landgoed (Pty) Ltd.; Yskor Newcastle Grondbesit Ltd.

Principal Competitors: Cargill, Inc.; Nippon Steel Corporation; Arcelor; Kobe Steel Ltd.; Pohang Iron and Steel Company; United States Steel Corporation; Bhuwalka Steel Industries Ltd.; Scaw Metals; Highveld Steel and Vanadium Corporation.

Further Reading:

• "Iscor Plans to Stay Local," Africa News Service, February 8, 2002.
• "Iscor Shareholders Keep the Faith As Steel Giant Falters," Business Times, February 9, 1997.
• "Iscor's Shares Surge Since Unbundling," Africa News Service, February 6, 2002.
• McNulty, Andrew, "Now Iscor Wants to Turn Its Share into a Restructure Story," Financial Mail, March 9, 2001.
• Schuettler, Darren, "Battle Lines Drawn at Iscor," Mail & Guardian, June 11, 2001.
• Witherall, Raoul, "Improvement at Iscor Steel," Steel Times International, April 2002.

Source: International Directory of Company Histories, Vol. 57. St. James Press, 2004.

Read more company histories

• Irkut Corporation
• Irish Life & Permanent Plc
• Ipsos SA
• Isetan Company Limited
• ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES CO., LTD.
• Isle of Capri Casinos, Inc.