the lifeblood of a developing nation - arcelormittal...production unit northern coast, egypt steel...

PROOF 8a – 16 MARCH 2009

ArcelorMittal South Africa Limited Annual Report 2008

ArcelorMittal South Africa Lim

ited Annual Report 2008The lifeblood of a developing nation


The lifeblood of a developing nation

ArcelorMittal’s stated goal is to provide the leadership that will transform the future of the steel industry and societies around us.

It is our conviction that business growth, sustainable communities and the creation of value for our shareholders go hand-in-hand.

1 Financial features1 Vision and mission statement2 Our global presence2 Strategic goals2 Business objectives3 ArcelorMittal brand values6 Review at a glance

10 Board of directors12 Chairman and Chief Executive’s report20 Operational review and locations36 Finance report40 Corporate governance49 Supplementary information55 Annual financial statements

http://www.arcelormittal.com/southafrica

ArcelorMittalSouthAfrica 1 AnnualReport2008

Financial features

Revenue increased by 36% to R39.9 billion

Operating profit increased by 58% to R12.2 billion

Headline earnings increased by 65% to R9.5 billion

Total dividend 707 cents per share

Mission statementWeaimtoachieveourvisionby:➧Producingsafe,sustainablesteel➧Pursuingoperationalexcellenceinallbusinessprocesses➧Producinginnovativesteelsolutionsforourcustomers➧Caringforourenvironmentandthecommunitiesinwhichweoperate➧Strivingtobecomeanemployerofchoice➧Livingthebrandvaluesofsustainability,qualityandleadership

Vision TobethepreferredsupplierofsteelsolutionsforthedevelopmentofSub-SaharanAfrica.

Financial summaryYearended

31December2008

Yearended31December

2007

Physical(‘000tonnes)Liquidsteelproduction 5774 6375Domesticsales 4375 4422Exportsales 714 1397Financial(Rm)Revenue 39914 29301EBITDA 13602 8802Profitfromoperations 12159 7703–Flatcarbonsteelproducts 7007 4827–Longcarbonsteelproducts 3672 2652–CokeandChemicals 1743 727–Corporateandother (263) (503)Headlineearnings 9484 5741Netcashflowbeforefinanceactivitiesandcapitalreduction 3698 2871Totalassets 37435 28205Shareinformation(cents)Headlineearningspershare 2128 1288Dividendspershare(paidin2008/2009) 707 429Financialratios(%)Returnonshareholders'equity(headline) 39 26Netcashtoequity 30 19

2 ArcelorMittalSouthAfrica AnnualReport2008

Strategic goalsThefollowingstrategicgoalshavebeendevelopedandapprovedbytheboard:

➧ Creatingindustryleadingvalueforourshareholders

–Positiveeconomicvalueadd(EVA)overthesteelpricecycle.

➧ Improvingoperatingcapabilities –Value-creatingthroughputincreases. –Substantialreductioninhotrolledcoil/billet

costsinrealterms.

➧ Buildingonourexistingperformanceculture

–Creatinganenvironmentthatgeneratestrueemployeeprideandattracts,developsandretainstop-performingpeople.

➧ Bearesponsiblecorporatecitizen

Code of conductThesearethebehaviouralcharacteristicsthatwillsupportourvalues:

➧ Integrity Allouractionswillbeguidedbygood

principlesandintentions,ensuringthatourneedsarealignedwithouractions.(Wewalkthetalk).

➧ Respect Wewillrecogniseandvaluethediversityofall

peopleandrespecttheirdignityinouractions.

➧ Fairness Wewilltreatpeopleinareasonable,equitable

andobjectivemannerandwillalwaysstrivetobefairandtotreateachandeverycaseonmerit.

➧ Accountability Wewillbeheldaccountableforallouractions

bothwithinthebusinessenvironmentandthecommunityinwhichweoperate.

➧ Trust Wetrustinourpeople’sabilitytoactin

thebestinterestofthecompanyandwillencouragetrustamongstcolleaguesandacrossorganisationallevels.

Our global presence➧ArcelorMittalistheworld’snumberonesteelcompany,withover316000employeesinmorethan

60countries.Ithasledtheconsolidationoftheworldsteelindustryandtodayranksastheonlytrulyglobalsteelmaker.

➧ArcelorMittalistheleaderinallmajorglobalmarkets,includingautomotive,construction,householdappliancesandpackaging.TheGroupleadsinR&Dandtechnology,holdssizeablecaptivesuppliesofrawmaterialsandoperatesextensivedistributionnetworks.

➧ItsindustrialpresenceinEurope,Asia,AfricaandAmericagivestheGroupexposuretoallthekeysteelmarkets,fromemergingtomature.ArcelorMittalwillbelookingtodeveloppositionsinthehigh-growthChineseandIndianmarkets.

➧ArcelorMittalkeyfinancialsfor2008showrevenuesofUSD124.9billionandcrudesteelproductionof103.3milliontonnes,representingapproximately10%ofworldsteeloutput.

Business objectivesfor ArcelorMittal South Africa

Returnonequity Competitiveness Cashgeneration Shareholdervaluerelease

Objectives

Atleastcostofcapital(currently16%)

Tobeoneofthelowestcostproducers

Positivecashflowbeforemajornewinvestmentsthroughoutcommoditycycle

Sharepricetoreflectatleastunderlyingnetequityvalue

Achievements 39%fortheyear OneofthelowestcostproducerswithanEBITDAmarginof34%

Cashflowpositive AveragesharepriceofR165.98washigherthantheaveragenetequityvalueofR62.80

Futureinitiatives ToexceedEVAbyimprovingearningsthrough:

•Costreductions

• Valueaddedproductsand

• Higherthroughput

Toretainourpositionasoneofthelowestcostproducersatallplantsthroughcostleadership

Tomaintainpositivefreecashflowthroughfocusingoncost,workingcapitalreductionandimprovementofmargins

Tomaximiseshareholder’svaluethroughcapitalproductivityandmargins,coupledwithstabilityinearningsoverthecycle,whichwilltranslateintoaddedwealthforourshareholders

ArcelorMittalSouthAfrica AnnualReport2008

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ArcelorMittal brand valuesOurgoalistoprovidetheleadershipthatwilltransformtomorrow’ssteelindustry.

Wehaveaclearvisionofthefuture,underpinnedbyaconsistent

setofvalues.

➧ Sustainability Weareguidingtheevolutionofsteeltosecurethebestfuture

fortheindustryandforgenerationstocome.Ourcommitmenttotheworldaroundusextendsbeyondthebottomline,toincludethepeopleinwhomweinvest,thecommunitieswesupportandtheworldinwhichweoperate.Thislong-term

approachiscentraltoourbusinessphilosophy.

➧ Quality Welookbeyondtodaytoenvisionthesteeloftomorrow. Becausequalityoutcomesdependonqualitypeople,weseek

toattractandnurturethebestpeopletodeliversuperior

solutionstoourcustomers.

➧ Leadership Wearevisionarythinkers,creatingopportunitieseveryday. Thisentrepreneurialspiritbroughtustotheforefrontofthe

steelindustry.Now,wearemovingbeyondwhattheworld

expectsofsteel.

Return on equity

0

8

16

24

32

40

2004 2005 2006 2007 2008

%

■ Return on equity

Sales breakdown in tonnes

0

20

40

60

80

100

2004 2005 2006 2007 2008

■ Local■ Export

%

Net asset value versus share price

0

2000

4000

6000

8000

10000

12000

14000

2004 2005 2006 2007 2008

■ Net asset value■ Share price (year-end)

cents


SaguntoNador

TirisZemmour

Saldanha

Vanderbijlpark;Vereeniging

Thabazimbi

Newcastle

JorfLasfar

ZaragozaSaint-Chély

Fos-sur-Mer

Rhineland

Lincolnshire

Sheffield

Bremen

Liège

Unterwellenborn

Eisenhüttenstadt

Tallinn

Sycow

Hochfeld;Ruhrort

Florange

Gueugnon

Avellino

Szengotthárd

Galati

Roman

Basse-Indre

Saint-Chamond&Châteauneuf

Montataire;Paris

Dunkerque

Desvres

LeCreusot

Avilés;Gijón

Madrid

Bilbao;Etxebarri

Bergara;Olaberría;Zumárraga

96

8

34

52

7

Africa7% liquid/crude steel production

Europe47% liquid/crude steel production

Monrovia, LiberiaIron Ore ResourceIn addition to supplementing iron ore availability, related investment includes port and road infrastructure, education and healthcare, enabling the sustainable development of the project and the community

Orissa and Jharkhand, IndiaIntegrated Steel PlantAlong with its investment in two Greenfield projects, ArcelorMittal seeks out social, economic and environmental ventures, leading to the simultaneous development of steel capabilities and local communities.

Jubail Industrial City, Saudi ArabiaIron Ore FacilityWith the ground breaking in 2008, work on the finishing line and hot mills should commence in 2010. Using raw materials from the Czech Republic and Egypt, total investment is estimated at around 775 million US$.

Faleme Region, SenegalIron Ore Resource

El Agareb, MauritaniaIron Ore Resource

Jijel, AlgeriaProduction Unit

Northern Coast, EgyptSteel Plant

Calabar Free Trade Zone, Cross River, NigeriaLongitudinal SubmergedArc Welded Pipe Mill

ZenicaAnnaba

Ouenza

Boukhadra

Piombino

GhentGenk

RiedimInnkreis

Gemlik Skopje

IstanbulHunedoara

Iasi

Ostrava

Kraków

Warsaw KryviyRih

DąbrowaGórnicza;Świętochłowice;Sosnowiec

Omarska

Saarland

Luxembourg

Asia10% liquid/crude steel production

Charleroi;Châtelet

Hamburg

Mouzon

Isbergues

ArcelorMittal world

Pretoria

Shandong

HunanValin

Beijing

Temirtau

Maputo,Mozambique

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Americas36% liquid/crude steel production

Hibbing;Virginia,Minnesota

Detroit,Michigan

Montreal;ContrecoeurEast&West

Coatesville;Steelton;Conshohocken,Pennsylvania

Port-Cartier

Hamilton

Lackawanna,NewYork

Weirton,WestVirginia

Georgetown,SouthCarolina

Warren,Ohio

Riverdale,Illinois

Hennepin,Illinois

NewCarlisle,Indiana

Columbus,Ohio

Cleveland,Ohio

Guanajuato

SicartsaCaracas

SanJosé

Vespasiano

LaTablada

Contagem

Montevideo

Itaúna

VillaConstitución

Piracicaba

BuenosAires

FeiradeSantana

Vitória

Andrade

JuizdeFora

SãoPaulo

SãoFranciscodoSul

Tubarão

Timóteo;JoãoMonlevade

PointLisas

Peña

LázaroCárdenas

EurekaCounty,Nevada

Jackson,Mississippi

PineBluff,Arkansas

BurnsHarbor;EastChicago;Gary;IndianaHarbor,Indiana

Number of employees according to geographic location 1 EU15 74 548 24%

2 Rest of EU 54 383 17%

3 Other European countries 49 831 16%

4 North America 41 073 13%

5 South America 22 217 7%

6 Asia 49 619 16%

7 Middle East 78 1%

8 Africa 19 717 6%

Total 311 466 100%

Number of employees according to segments1 Flat Carbon Americas 35 491 11%

2 Flat Carbon Europe 68 000 22%

3 Long Carbon Americas & Europe 56 462 18%

4 Asia, Africa and CIS (AACIS) 123 526 40%

5 Stainless Steel 11 570 4%

6 Steel Solutions and Services 13 086 4%

7 Others 3 331 1%

Total 311 466 100%

KeyStock Exchange

The New York Stock Exchange

Euronext Amsterdam

Euronext Paris

Luxembourg Stock Exchange

Euronext Brussels

Spanish Stock Exchange (Madrid)

Spanish Stock Exchange (Barcelona)

Spanish Stock Exchange (Bilbao)

Spanish Stock Exchange (Valencia)

JSE Limited

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Review at a glance

Yearended31December

2008Rm

2007Rm

2006Rm

2005Rm

2004Rm

GROUPINCOMESTATEMENTRevenue 39914 29301 25350 23984 23053

ProfitfromoperationsFlatCarbonSteelProducts 7007 4827 3644 4518 5310LongCarbonSteelProducts 3672 2652 2111 2109 1783CokeandChemicals 1743 727 184 301 462Businessassistanceagreement remuneration (731)Corporateandother (263) (503) 143 (34) (97)

Total 12159 7703 6082 6894 6727

Gains/(losses)onchangesinforeign exchangeratesandfinancialinstruments 637 (131) 301 246 (52)Netinterestincome/(financecosts) 80 325 193 (29) (139)Incomefrominvestments 3 4 7 5 5Incomefromequityaccounted investments(netoftax) 331 270 135 277 258Incometaxexpense (3865) (2455) (2022) (2327) (2245)Impairmentreversal 36Minorityinterest (6)Adjustmentstoattributableincomefor headlineearnings 103 25 34 25 36

Headlineearnings 9484 5741 4730 5091 4584

Headlineearningspershare(cents) 2128 1288 1061 1139 1020Dividendspershare(cents) 707 429 347 380 400

STATEMENTOFCASHFLOWCashflowsfromoperations 5511 4623 3463 2616 5228Proceedsonsaleofassets 2 8 9 6 14Capitalexpenditure (1832) (1852) (1446) (1608) (1254)Investments (16) (5)Other 17 108 174 43 11

Netcashflowbeforefinanceactivities andcapitalreduction 3698 2871 2200 1057 3994

Cash flow from operations and Capex

0

3000

6000

9000

12000

2004 2005 2006 2007 2008

■ Cash flow from operations■ Capex

Rm

Cap

ex

Operating income and operating margin

0

2 500

5 000

7 500

10 000

12 500

0

15

20

25

30

35

2004 2005 2006 2007 2008

■ Operating income■ Operating margin

Rm %

Ope

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com

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Ope

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argi

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Yearended31December

2008Rm

2007Rm

2006Rm

2005Rm

2004Rm

GROUPSTATEMENTOFFINANCIALPOSITIONASSETSNon-currentassetsProperty,plantandequipment 15917 15525 14973 14260 12701

Intangibleassets 71 58 58 74 114

Goodwill 11

Unlistedequityaccountedinvestments 1968 1109 953 912 596

Otherfinancialassets 203 195 134 61

CurrentassetsCashandcashequivalents 8429 4034 7750 5219 4064

Other 10847 7284 7307 5811 6098

Totalassets 37435 28205 31175 26337 23584

EQUITYANDLIABILITIESCapitalandreservesTotalshareholders’equity 27995 20583 23260 19451 15895

Minorityinterest 7

Non-currentliabilitiesBorrowingsandotherpayables 46 52 61 71 81

Non-currentprovisions 1888 1290 1327 1288 1201

Financeleaseobligations 314 328 502 596

Deferredincometaxliability 2526 2603 2485 2007 1708

CurrentliabilitiesBorrowingsandotherpayables 33 10 10 10 10

Financeleaseobligations 40 88 93 89

Other 4593 3251 3437 2825 4682

Totalequityandliabilities 37435 28205 31175 26337 23584

Revenue and total assets

0

5000

10000

15000

20000

25000

30000

35000

40000

2004 2005 2006 2007 2008

■ Total assets■ Revenue

Rm

Net cash

0

1 700

3 400

5 100

6 800

8 500

2004 2005 2006 2007 2008

Rm

■ Net cash


Review at a glance continued

Yearended31December

2008Rm

2007Rm

2006Rm

2005Rm

2004Rm

RATIOSProfitabilityandassetmanagementReturnonnetassets(%)–annualised 43.2 30.3 24.3 33.9 38.8 Returnonordinaryshareholders’equity (%)–annualised –Attributableearnings(%) 38.6 26.1 22.0 28.7 33.8 –Headlineearnings(%) 39.0 26.2 22.1 28.8 31.8 Returnoninvestedcapital (%)–annualised 56.1 40.0 33.6 43.4 47.2 Operatingmargin(%) 30.5 26.3 24.0 28.7 29.2Netassetturn(times)–annualised 1.2 1.2 0.9 1.0 1.1SolvencyandliquidityFinancingcostcover(times) 237.7 48.4Currentratio(times) 4.1 3.4 4.3 3.8 2.1Netcashtoequityratio(%) 29.8 19.3 33.0 22.9 25.0Cashrealisationrate(%) 49.7 68.3 58.7 40.5 87.6Numberofyearstorepaynetdebt(years)ProductivityAveragenumberofemployees(‘000) 9.3 9.1 9.8 10.9 12.0–Steel 8.4 8.2 9.1 10.1 11.4–GroupHQ 0.9 0.9 0.7 0.8 0.6Revenueperaverageemployee(R’000) –annualised 4 293 3 217 2 594 2 195 1 925 Cashvalueadded(Rm) 13 672 11 163 8 695 10 627 9 440 Prices(actualinvoiced)USD/tC&FHot-rolledcoilexportprice 966 659 531 560 541 Lowcarbonwirerodexportprice 909 592 508 490 445

Four-yearannual

compoundgrowthrate Yearended31December

% 2008 2007 2006 2005 2004

SHAREPERFORMANCENumberofsharesin issue(million) 446 446 446 446 446Weightedaveragein issue(million) 446 446 446 446 446Earningsperordinaryshare–Basicearningsbasis(cents) 17.8 2104.5 1282.3 1053.5 1136.5 1094.3–Headlineearningsbasis(cents) 20.2 2127.6 1287.9 1061.1 1139.0 1020.3Dividendperordinary share(cents) 15.3 707.0 429.0 347.0 380.0 400.0Dividendcover(times) 3.0 3.0 3.1 3.0 2.6Netequityperordinary share(cents) 15.2 6280 4618 5218 4360 3567


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annualcompound

growthrate Yearended31December

% 2008 2007 2006 2005 2004 2003 2002

INTERNATIONALCRUDESTEELPRODUCTION(milliontonnes)Worldwide 6.5 1330 1322 1240 1129 1035 945 886Asia 12.3 771 734 666 584 485 436 391Europe 4.4 229 210 235 218 193 208 204NorthernAmerica (1.5) 125 132 131 127 133 123 124FormerUSSR 1.6 114 124 120 113 107 106 100Other (6.1) 91 122 88 87 117 72 67

Four-yearannual

compoundgrowth

rate Yearended31December

% 2008 2007 2006 2005 2004

STEELLiquidsteelproduction (‘000tonnes)

FlatCarbonSteelProducts (4.2) 4084 4231 4863 5067 4855

LongCarbonSteelProducts (6.1) 1690 2144 2192 2194 2178

Total (4.8) 5774 6375 7055 7261 7033

Sales

Local(‘000tonnes)

FlatCarbonSteelProducts 1.0 2835 2887 2968 2402 2728

LongCarbonSteelProducts 7.6 1540 1535 1432 1083 1151

Total 3.1 4375 4422 4400 3485 3879

SAcustomers(%) Ave 70.2 86 76 71 56 62

Export(‘000tonnes)

FlatCarbonSteelProducts (22.5) 577 1033 1300 1881 1601

LongCarbonSteelProducts (34.5) 137 364 494 864 743

Total (25.7) 714 1397 1794 2745 2344

Export(%) Ave 29.8 14 24 29 44 38


Board of directorsKhotso Mokhele(53) Independent non-executive director and chairman ➧ BSc (Agric), MSc (Food Science), PhD (Microbiology)Independentnon-executivedirectorsinceFebruary1998andChairmanoftheBoardsince1January2007.ChairmanoftheTransformationCommitteeoftheBoardandMemberoftheSafety,HealthandEnvironmental(SHE)CommitteeaswellasoftheHumanResourcesandNominationsCommittee.Independentnon-executivedirectorofthefollowingcompanies:ImpalaPlatinumHoldings,AfricanOxygenandTigerBrands.Non-executivedirectorofZimplatsHoldingsandtrusteeoftheHansMerenskyFoundation.Vice-presidentforscientificplanningandreviewoftheInternationalCouncilforScience.

Johnson Njeke(50)Independent non-executive director➧ BCom, BCompt (Hons), CA(SA), HDip Tax LawAppointednon-executivedirectoron1January2002.ChairmanoftheAuditCommittee.DeputyChairmanofKagisoMedia.DirectorofnumerouscompaniesincludingNMRothschild(SA),CompassGroup(SA),KagisoTrustInvestments,FosterWheeler(SA),MetropolitanHoldingsandMTNGroup.

Thandi Orleyn(53) Independent non-executive director➧ BJuris; BProc LLB; Hon-PHDAppointednon-executivedirectoron1February2007.ChairmanoftheHumanResourcesandNominationsCommittee.DirectoroftheSouthAfricanReserveBank,ImpalaPlatinumHoldings,ToyotaSA,Reunert,FreeWorldCoatingsandCeramicIndustries.

Eric Diack(51)Independent non-executive director➧ BAcc, CA(SA), AMP (Harvard)Appointednon-executivedirectoron16March2007ChairmanoftheRiskCommittee.DirectorofAyavunaApplianceHoldings,DeplianInvestmentsandAyavunaApplianceInvestmentandnon-executivedirectorofAdcockIngramHoldings.PreviouslyChiefExecutiveDirectorofAngloAmericanFerrousMetals&Industriesdivision.

Chris Murray(64)Independent non-executive director➧BCom, CA(SA), MBLAppointednon-executivedirectoron11May2007.ChairmanoftheSafety,HealthandEnvironmentCommittee.PreviouslyChiefExecutiveDirectorofHaggieGroupofCompanies.SinceretirementfromHaggiein2004,hasactedforSteelandEngineeringIndustriesFederationofSouthAfrica(SEIFSA–anEmployers’association)inanumberofcapacities.

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Executive directorsNku Nyembezi-Heita (49)Chief Executive Officer ➧BSc (Hons)(Elec Eng), MSc (Elec Eng), MBAAppointedasChiefExecutiveOfficerandamemberoftheBoardon1March2008.Non-executivechairmanofthefollowingcompanies:Arivia.komandtheBondExchangeofSA.Non-executivedirectorofacsis,KalagadiManganeseandMacsteelInternationalHoldingsBV.PreviouslyChiefOfficer,mergersandacquisitions,atVodacomGroupandChiefExecutiveOfficer,AllianceCapital.

Luc Bonte(54)President ➧ MSc (Elec Eng), PhD (Applied Sciences), MBAAppointedon1March2008asPresidentresponsiblefortheoperationsandamemberoftheBoard.PreviouslyChiefExecutiveOfficerofArcelorMittalBelgiumandArcelorMittalGent.

Kobus Verster(42) Executive Director, Finance ➧ BCom (Hons), MBL, Executive Management Program (Darden Business School)AppointedExecutiveDirector,Financeon17February2006.PreviouslyGeneralManager,corporatetreasury,atMittalSteelNVinRotterdam.Non-executivedirectorofMacsteelInternationalHoldingsBV,Ferrosure(IsleofMan)InsuranceCompanyandotherArcelorMittalGroupcompanies.DirectoroftheNationalBusinessInitiative.

Resignations of directors Michel Wurth (53)MemberofArcelorMittalGroupManagementBoard.Resignedasnon-executivedirectoron30November2008.

Malay Mukherjee (61)MemberofArcelorMittalGroupManagementBoard.Resignedasnon-executivedirectoron13May2008.

Rick Reato (52)FormerChiefExecutiveOfficerArcelorMittalSouthAfrica.ResignedasChiefExecutiveOfficerandexecutivedirectoron29February2008.

Lumkile Mondi(46) Non-executive director ➧ BCom (Hons)(Economics), BCom (Advanced Corporate Finance and Value Creation), MA (Economics)Appointednon-executivedirectoron11May2007.Chiefeconomistandexecutivevice-presidentofprofessionalservicesattheIndustrialDevelopmentCorporation.

Arnaud Poupart-Lafarge (43)Non-executive director ➧ Graduate Engineer, MSc (Economics)Appointedalternatenon-executivedirectoron24July2008andnon-executivedirectoron30November2008.ExecutiveVice-presidentofArcelorMittalGroupandmemberoftheArcelorMittalGroupManagementBoardresponsibleforAfricaandCommonwealthofIndependentStates(CIS).

Christophe Cornier (56)Non-executive director ➧ MSc from Ecole Polytechnique and Ecole des MinesAppointednon-executivedirectoron14May2008.SeniorExecutiveVice-presidentandmemberoftheArcelorMittalGroupManagementBoardresponsibleforAsia,AfricaandIndia,steelgreenfieldprojects,equipmentmanufacturingandinvestmentsandallocations.HeisalsoArcelorMittal’sChiefTechnologyOfficer.Previouslyexecutivevice-presidentofFCSCommercialAutoandChiefExecutiveOfficerofSollacMediterranee.

Sudhir Maheshwari(45)Non-executive director ➧ BCom (Hons), CA CSAppointednon-executivedirectorinDecember2002.SeniorExecutiveVice-presidentofArcelorMittalGroupandmemberoftheArcelorMittalGroupManagementBoardresponsibleforbusinessdevelopmentandmergersandacquisitions.

Davinder Chugh(52)Non-executive director ➧ BSc, LLB, MBAAppointednon-executivedirectoron15September2006.AppointedSeniorExecutiveVice-presidentandmemberoftheGroupExecutiveCommitteeofArcelorMittalGroupinSeptember2006andmemberoftheGroupManagementBoard.PreviouslyChiefExecutiveOfficerofArcelorMittalSouthAfricafromSeptember2004toSeptember2006andExecutiveDirector,Commercial,sinceMay2002.

1. Khotso Mokhele, Nku Nyembezi-Heita 2. Johnson Njeke, Eric Diack, Chris Murray 3. Thandi Orleyn, Lumkile Mondi, Sudhir Maheshwari 4. Davinder Chugh, Luc Bonte, Arnaud Poupart-Lafarge 5. Kobus Verster, Christophe Cornier


KhotsoMokhele(Chairman)NkuNyembezi-Heita(ChiefExecutiveOfficer)


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Chairman and Chief Executive’s reportDear Shareholders, Despitetheeventsofthelastquarteroftheyear,2008wasafinancialyearthatArcelorMittalSouthAfricacanberightlyproudof.Benefitingfromastrongdemandforsteelandhighpricesglobally,wereporteda65%riseinheadlineearningstoR9.5billion,arecordforthecompany.

Clearly,theglobalanddomesticcontexthaschangeddramaticallysinceSeptemberlastyear.Rarelyhasthereeverbeenthislevelofuncertaintyaboutmarkets,demand,pricingandthefutureeconomiclandscape.ArcelorMittalhasdemonstratedagility,anabilitytotakefastdecisionsandboldness,whichIbelievewillbethekeydifferentiatorsbetweenthewinnersandlosersinmanagingthesevolatiletimes.

Whilewemustacceptthat2009willbeachallengingyear,ArcelorMittalSouthAfricaisastrongcompanywithahealthybalancesheetandnegligibledebt.This,togetherwiththestepswehavealreadyimplemented,ensuresthatwearewellpositionedtotacklethisnewenvironment.

OverviewDuringthefirstthreequartersof2008,globalsteelmarketsenjoyedanunparalleledperiodofbuoyancy.LedbyChina,robustdemandforsteelproductsresultedinasteepriseinpricesinallmarketsinwhichsteelistraded.Withasuddennessandsharpnessthattooktheindustrybysurprise,thingstookaturnfortheworseinthelastquarteroftheyear.Worldwide,steelconsumptionslumpedbyover20%inthefourthquarterof2008.Thiswasfollowedinshortorderbyasubstantialdropinpricesandfurthercompoundedbytheonsetofafreezeincreditmarkets.

Thebenefitsoftherecentconsolidationinthesteelindustrywereevidentintheswiftnessoftheresponsetotheeconomicdownturn.ArcelorMittalannouncedproductioncutsofupto35%globallyinNovember2008tosupportthede-stockingprocess,followedbyothermajorsteelcompanies.Thismeasureofdisciplineandtheextentofproductioncutsarerelativelynewphenomenaforthesteelindustryandhavebeenmadepossiblebythesizeandscaleofthelargerproducerswithinthesector,suchastheArcelorMittalGroup.

Therereallyisnocountry,industryorcompanythatisnotaffectedinsomewaybytheglobaleconomiccrisis–theonlydifferenceisthedegree.Nevertheless,therecontinuestobewidespreadoptimismthattheSouthAfricaneconomywillnotbeashardhitbytheglobaleconomiccrisisasotherpartsoftheworld.ThisisfoundedprincipallyonthefactthatexportsaccountforasmallerproportionofSouthAfricanGDPcomparedtosay,thecountriesofSoutheastAsia.However,theworseningcurrentaccountdeficitincreasesthecountry’svulnerabilityasdoesdepressedconsumerspending.

Howevertheoveralleconomicsituationeventuallyplaysout,thereisnoescapingthefactthatsomesectorsofoureconomyareexperiencingdevastatingdeclines.Theminingandmetalssectorisonesuchindustry.Domesticsteeldemandsufferedasignificantcontractioninthefourthquarter,whichisnotexpectedtoreverseforatleastthegreaterpartof2009.Theconsumermarkethadbegunagradualdeclinemuchearlierandcontinuedtodosothroughout2008.Thisisnotsurprisingconsideringthehighinterestratesprevalentthroughmuchoftheperiod.


Chairman and Chief Executive’s report continued

Onthepositiveside,thereisthegovernment’sinfrastructuredevelopmentprogramme.Althoughnonewspendingplanswereunveiled,thePresidentandsubsequentlytheMinisterofFinancereiteratedgovernment’scontinuedcommitmenttothepreviouslyannouncedprogrammewithatotalvalueofR790billionoverthenextfiveyears.Thishaspickedupspeedwitharangeofprojectscurrentlyonthego,suchastheestimatedR210billionbeingspentonEskom’stwonewpowerstations–MedupiandKusile.InfrastructurespendingwillactasabackstoptosteeldemandinSouthAfricaatatimewhenconsumerspendingisexpectedtoimproveonlytowardsthelatterpartof2009.

Consumerandbusinessconfidencelevelshavebeenthebiggestcasualtiesofthiscrisis.Amarkedimprovementinsentimentwillbeaprerequisiteforareturntonormalcyinfinancialmarketsandthewidereconomy.Inthisenvironment,ourmajorfocusistoconservecash,containcostsandretainourcustomersthroughconsistentqualityandservice.Thecompanyhastakenaproactiveapproachbytakingresponsibleandnecessaryinitiativestocushionusfromtheworstpossibleeffectsofthedownturn.

Whilethecrisisisforcingustoadoptmanagementstrategiesthatfocusonshort-termgoals,wearealsomindfulthatweneedtoprotectthecorevaluesofthecompany,namely:• Valuecreationforshareholders.• Reliableandqualitysteelsuppliestoour

customers.• Buildingacultureofperformancethrough

employeedevelopment.• Beingaresponsiblecorporatecitizen.

Group performanceArcelorMittalSouthAfricasetmanyfinancialrecordsduring2008.TurnoverreachedR40billion,headlineearningsroseby65%toarecordR9.5billionandattributableprofitswereupbythesamepercentagetoR21.28ashare.TheEBITDAmarginwasahealthy34%.Theseresultswereachieveddespitethesharpdeclineinearningsinthefourthquarter.

Thesubstantialincreaseinannualearningswasdrivenprincipallybyhigherglobalsteelprices.Year-on-year,flatandlongsteelproductsrosebyanaverageof61%and63%respectively.OthercontributingfactorsweregainsonforeignexchangeandfinancialtransactionsandasignificantimprovementinthefinancialperformanceofourCokeandChemicalsbusiness.However,pricesofallsteelproductsfellsharplyinthefourthquarter.

Liquidsteelproductionwasdown9%fortheyearandanunprecedented54%inthefourthquartercomparedwiththepreviousquarter.Thelatterisastarkillustrationofthemeltdownthatbefellthesteelindustry.

Totalsalesvolumeswere37%lowerduringthefourthquarterand13%downforthe2008financialyear.Nevertheless,revenuefortheyearwasup36%toalmostR40billion,reflectingthestrongperformanceinthefirstthreequarters.

Exportvolumesdeclinedby49%asweprioritisedmeetingstrongdomesticdemandamidashortageofsteelduringthefirsthalfoftheyear.ExportstoregionsoutsidetheAfricancontinentfellto6%oftotalsteelproductsalesfrom12%in2007,emphasisingourstrategytofocussalesonsub-SaharanAfrica.

Productioncostspertonnerosedramaticallylastyear.Hotrolledcoilcostswereupby59%year-on-yearandbilletsby65%.Thisreflectedsurgingrawmaterialpriceswithaveragecokingcoalpricesupby102%year-on-year,non-cokingcoalby86%,scrapby125%andironorepelletsby84%.Thoughspotpricesofthesecommoditiesstartedtoinchlowerbythefourthquarter,manyofourcontractpricesforrawmaterialswillonlystarteasingbymid-2009.

DividendTheboardretaineditsdividendpolicyofdistributingonethirdofheadlineearnings.Thus,afinaldividendof365cpersharewasdeclared,resultingina2008fullyeardividendof707centspershare.

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Managing the downturnAstheearlysignsofmarketturmoilbecameevident,weannouncedarangeofstrategiestocurtailcostsandpreservecash.Productionwascutbyanunprecedented54%inthefourthquarterof2008althoughsteeldemandhadnotactuallyfallenbythatmagnitude.Inventorybuild-upwassuchthatlargeproductioncutswerenecessarytoenablede-stockingtotakeplace.Wehavemaintainedproductioncutsforthefirstquarterof2009−albeitatamoremodestlevel−toenablethisde-stockingtocontinue.Inventorylevelsdoappeartobereducing;astheycontinuetodeclinefurther,wewillstarttoseeatechnicalrecoveryinproductdemand.

ArcelorMittalSouthAfricahasmovedswiftlytoalignproductionwithchangingdemandpatterns.Thislevelofflexibilityisparticularlyimportantinlightofexceptionallypoormarketvisibility,makingforwardplanningverychallenging.

Atightfocusoncostswillcontinuetobethemainthemein2009andthereforethecostsavingmeasuresintroducedinOctober2008willcontinuetobeimplementedandexpandedupon.Amongtheseareurgentstepstakentoreducelabourcostsbydrasticallycuttingovertimeworkandreducingourtemporaryandhiredlabourforce.Fixedcostsandgeneralexpenseshavealsobeensignificantlycut.Amaterialbenefitwillflowfromlowerrawmaterialpricesmidwaythrough2009.

Giventhelevelofuncertainty,wealsodeemeditprudenttoreviseourgrowthplanandconsequently,ourcapitalexpenditureprogramme.

Therearecertainareasofouroperation,though,thatwillnotbecompromisedbythespendingcutbacks.Thesafetyandhealthofouremployeesandcontractorsremainmanagement’stoppriorityandwewillcontinuetoinvestinprojectsthatmakeitsafertoworkatourfacilities.

Inaddition,whilefinancialconstraintsmaycausesomereschedulingandpostponements,noneofourenvironmentalprojectshasbeenterminated.Wearecommittedtomeetingallourlegalobligationsandenvironmentalresponsibilities.

Finally,ArcelorMittal’sbusinessreliesheavilyontheskillsandexpertiseofitsemployees.Forthisreason,wehaveprioritisedtheretentionofcriticalskillsandprotectionofpermanentjobs.Clearly,ouractionswillbedictatedbythedegreetowhichthedownturniseitherprolongedorindeedworsens.Similarly,wehavenotreducedourskillsdevelopmentprogrammesandcontinuetotrain

moreartisans,techniciansandengineersthanwerequireforourownpurposesinlinewithacommitmentwemadetogovernmentin2007.

Pricing and competitionInJanuary2006,ArcelorMittalSouthAfricachangeditspricingmodelfromimportparitypricingtoasystembasedonabasketofdomesticpricesfromarangeofinternationalmarkets.ThebasketpricingmodeltakesglobalsteelpricesintoaccountandreflectstheexpertiseembodiedinArcelorMittalSouthAfrica’svalue-addedproducts.Ontopofthat,wealteredcertaintermsoftrade,suchasthevolumediscountstructure,tobetteraccommodatesmallandmedium-sizedsteelmanufacturers.

ThismodelhasproducedasoundandrealisticbasisforsupportingthedevelopmentofthesteelmanufacturingindustryinSouthAfricaandunderpinsthecurrentgovernment-ledinfrastructureexpansionprogramme.

WehavesharedourpricinginformationwiththeDepartmentofTradeandIndustryonanongoingbasistoenablethegovernmenttomonitortheevolutionofsteelpricingovertime.Wewillcontinuetoengagewiththedepartmentoftradeandindustry(dti)onthisissue.

Broad-based black economic empowermentInDecember2008,theArcelorMittalGroupterminatednegotiationstointroduceBEEshareholdersintoArcelorMittalSouthAfrica.Amidthewideningfinancialcrisisandthereluctancebybankstoprovidecredit,concludingthistransactionbecameimpossible.Negotiationswillberesumedoncenormalcreditconditionsreturntoglobalfinancialmarkets.

Effortstotransformthecompanyandimproveitsbroad-basedempowermentstatusonalltheothersixelementsoftheB-BBEEscorecardcontinueassetoutindetailintheSustainabilityReport.

Steel market reviewTheimpactofthemeltdownintheworld’sfinancialsystemandtheglobaleconomyonthesteelsectorhasbeensevere.Demandforsteeldroppedquicklyandsharply,reversingfouryearsofsteadygrowth.WorldSteelAssociationfiguresshowthatsteeldemandinthefourthquarterslumpedby20.3%comparedwiththethirdquarter.Thecontractionindemandwaswidespreadacrossallregions,thoughitwasmorepronouncedintheadvancedeconomiesofEurope,NorthAmericaandJapanandsomewhatlesssoinemergingmarkets.Amongindustrial


sectors,thefallinsteeldemandwasparticularlysevereintheautomotive,shipbuildingandconstructionindustries.

Globalsteelconsumptionfell0.6%fortheyearasawholeincontrastwitha7.5%increasein2007and4.6%inthefirstthreequartersof2008.ExceptionallystrongglobaldemandduringthefirsteightmonthsoftheyearledtoasharphikeinbenchmarkhotrolledcoilpricestorecordhighsofoverUSD1200pertonneonaverageinJuly.Byyear-endthough,priceshaddroppedmorethan50%fromtheirmid-yearhighs.

Theindustryrespondedtotheslumpindemandwithsignificantproductioncuts.GlobalsteeloutputinSeptemberdeclinedby3.6%year-on-year,withproductioncutbacksgraduallyacceleratingto24%byDecember.Inmid-October,theArcelorMittalGroupannouncedproductioncutbacksofover30%acrossitsworldwideoperations,whichwerealsoimplementedinSouthAfrica.ByendDecember,thedeclineinglobaloutputhadreached33%.

SteeldemandinSouthAfricaremainedrobustinthefirsteightmonthsof2008notwithstandingtheadverseimpactofpoweroutagesinthefirstquarter.Alongwiththerestoftheworld,domesticdemanddroppedsignificantlyinthefourthquarter.

FiguresbytheSouthAfricanIronandSteelInstituteshowthatsteelconsumptioninSouthAfricadeclinedmoderatelyfrom5.9milliontonnesin2007toanestimated5.6milliontonneslastyear.Butfourthquartershipmentsplummetedby40%totheirlowestlevelsince2003.Thedropwasparticularlyevidentintheconsumermarketsegment,whichweestimateaccountsforaboutone-thirdofthetotalSouthAfricansteelmarket.ConsumerspendinginSouthAfricahadalreadybeenonthewanesince2007amidrisingconsumerpricesandthesubsequenttighteningofmonetarypolicy.Vehiclesaleshavebeentheworstaffected,butreducedspendingondomesticappliancesandresidentialbuildingactivityhasalsobeenevident.

Demandheldupwellintheinfrastructuresector,asthepublicsector’sR790billioninvestmentprogrammepickedupconsiderablemomentum.Thebuild-uptothe2010FIFAWorldCupSouthAfricahasspawnedamultitudeoffixedinvestmentprojects,includingnewstadiums,improvementstothecountry’stransportnetworkandanaccelerationofEskom’sdrivetoboostitsgeneratingcapacity.ThisisthemostambitiouspublicsectorspendingprogrammeinSouthAfricafor30yearsandwillprovidemuch-neededstimulussupporttoindustrialactivityinSouthAfricaforsometime.

Thesteepdeclineineconomicactivityexperiencedinthefourthquarterresultedina37%slumpinthevolumeofArcelorMittalSouthAfrica’ssales.Fortheyearasawhole,dispatchesat5.1milliontonneswere13%lowerthanin2007.Acriticalfactorinthesalesoutlookfor2009isthelevelofinventoriesintheSouthAfricanmarket.InventoriesrosesharplyduringthefourthquarterandstocklevelsattheendofDecemberwereestimatedatwellover1milliontonnes,equivalentto12weeksofshipments.Attheendof2007,stockswerelessthan500000tonnesorsevenweeksofshipments.De-stockingistakingplace,albeitataslowpace.Furtherreductionininventorieswillbeessentialbeforeatechnicalrecoveryindemandisestablished.

ImportsofprimarysteelproductsintoSouthAfricafellslightlyfrom567400tonnesin2007to566800tonnesin2008.Thelevelofimportsasapercentageoftotalvolumeshasheldsteadyatanaverageof10%overthepastthreeyears,asimporterslargelysupplysteelgradesnotproduceddomestically.

Capital expenditureAtotalR1.8billionwasspentoncapitalprojectslastyear,similartotheamountspentin2007.Themostsignificantamongthesewere:• TherelinesoftheCorexandMidrexplantsat

SaldhanhaWorks;• Themini-relineofBlastFurnaceN5atNewcastle

Works;• Theconstructionoftwonewdirectreduction

kilnsatVanderbijlparkWorks,whichisnearingcompletion.

Resourcesandfundswerealsodedicatedtoanumberofongoingprojectsthat,oncecompleted,willimproveoursafetyandenvironmentalperformance.


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Duetotheseverityoftheeconomicslowdownandtheglobalnatureofthecrisis,ArcelorMittalSouthAfricatookthedecisiontoplaceallgrowthprojectsonhold.Wedobelieveinthemeritsofourlong-termgrowthplan;however,thereislittlesenseinproceedingunderconditionsofsuchextremeuncertainty.Wearecontinuallyevaluatingourstrategybutwestillbelievethatinthelongterm,sub-SaharanAfricawilldemonstrateanincreaseddemandforsteelastheglobaleconomyimproves.

OperationsOurfocusgoinginto2008wastobuildupontheimprovedproductionplatformresultingfromtherebuildofBlastFurnaceDatVanderbijlparkWorksin2007.ThiswasfollowedbytherelinesoftheCorexandMidrexplantsatSaldanhaWorksandthemini-relineofBlastFurnaceN5atNewcastleWorksin2008.Theseproductionimprovementsaddressedmanyofthesupplyproblemsthathavebesetouroperationsoverthepastfewyears.

DespitesomeproductioncutbacksduetothepoweroutagesandsupplyrestrictionsintroducedbyEskom,wereachedourmaximumliquidsteelcapacitylevelsbymid-2008.Bythelatterpartofthethirdquarter,theeconomiccrisishadstartedtospreadtothesteelindustryandwewereforcedtoimplementproductioncutbacks.

TheelectricarcfurnacesinVanderbijlparkaswellastheDRIkilnswerestoppedinOctober.BlastFurnaceDwasstoppedinlateNovember2008.AtVereenigingWorks,themelt-shopwasstoppedfromthemiddleofNovember2008tillearlyJanuary,whilsttheDRIkilnatDunswartinBenoniwasmothballeduntilfurthernotice.BlastFurnaceN5inNewcastlewasshutformostofDecember.ThoughoperationsatSaldanhaWorkswerenotcompletelyhalted,thetempoofproductionwasreduceddrasticallyandfrequentshortstopsweretakenontheCorexandMidrexplantstomatchproductionlevelswithdemand.ThesmallrollingmillinMaputowasalsotemporarilycloseduntilmarketconditionsimprove.

Someofthesefacilitieshavebeenfiredupagainsincedemandpickedupinthefirsttwomonthsof2009.Butflexibilityremainsthewatchword.Operationalmanagementisspendingalotoftimetoensurethatouroperationscanquicklyrespondtochangesindemand.Similarly,wearelookingatvariousrawmaterialandfurnacepermutationstooptimisethecostofourproductionprocesses.

Health and safetyEnsuringthehigheststandardsofhealthandsafetyisourfirstpriority,overridinganyotherbusinessgoal.Despiteoperatinginahighpotentialhazardindustry,weareconvincedthatachievingafatalityandinjuryfreeworkplaceisachievable.Itisthisconvictionthatledtothelaunchofthegroup-wide“JourneytoZero”programmelatein2008,withastatedgoalofachievingzerofatalitiesandinjuriesamongouremployeesandcontractors.

Furnace relinesReliningafurnaceisnormallydoneonlyonceevery12to15years.Itentailsareplacementofcarbonblocksandrefractorymaterialinthefurnace,whiletheoutagesarealsousedtorepairorreplaceequipmentsuchasthefurnaceshell,gearboxandchargingequipmentaswellasthematerialhandlingsystem.Newtechnologiesareintroducedtoimprovetheperformanceofthefurnacesandreducefuturestoppages.

LastyearArcelorMittalSouthAfricacompletedtherelinesoftheMidrexandCorexplantsatSaldanhaWorksandthemini-relineofBlastFurnaceN5atNewcastleWorksatatotalcostofaboutR310million.Whereasittookonly45daystocompletethemini-relineatN5themorecomplexworkinvolvedattheCorexandMidrexplantsrequireda78-dayshutdown.

ThefurnacessufferedfromreducedoutputbeforetherelinesduetoseveralstavewaterleaksattheCorexandhotspotsatN5.Thesefailureswererepairedduringtherelines,whichmeansthatthefurnacesarenowcapableofoperatingattheirdesigncapacitylevels,andevenhigherattheCorex,duetodesignchangestothedustrecyclingsystem.

ThesuccessfulrelinescoupledwiththerebuildofBlastFurnaceDatVanderbijlparkWorksenabledthecompanytoreachourmaximumliquidsteelcapacitybymid-2008.


Tragically,afatalincidentatSaldanhaWorkson22September2008ledtothelossoflifeofanemployeeandacontractor,whodiedfromexposuretocarbonmonoxidegas.Aprojectteamestablishedthecausesoftheaccidentandsetupmechanismssothatalloperationscanlearnfromthisregrettableincident.Furthermore,wehaverevisitedallaspectsofemployeeandcontractoradherencetothecompany’sfatalitypreventionstandardscoveringprotocolsforworkingatheights,isolationprocedures,workinginconfinedspacesandrailway-relatedprocedures.

Ouroverallsafetyperformanceintermsoflosttimeinjurieswasrelativelygood.However,thepositivetrendestablishedoverthepreviousfouryearsturnedslightlynegative,whichwasdisappointing.Thelosttimeinjuryfrequencyrateperonemillionman-hoursworkedincreasedto2.4lastyearfrom2.1in2007.Managementhastakenstepstoaddressthisinourdeterminationtorestorethegradualdeclineoflost-timeinjuriestowardsourzerotarget.

Healthandsafetyperformancehasnowbeenfullyintegratedintotheperformanceappraisalsystemsofallmanagersandothersupervisorystaff,underscoringtheresponsibilityweplaceonthesafetyandhealthofouremployeesandcontractors.Shopfloorsafetyauditsarearegularfeatureofoursafetypracticesandinvolveauditsconductedbyalllevelsofmanagement,fromfirstlinetoseniorcorporatemanagers.

EnvironmentDemandforsteelisinextricablylinkedtoeconomicgrowth.Thereisnosubstituteforsteelinkeyareasofinfrastructureandconstruction.Steelproductionhoweverhassignificantenvironmentalimpacts.Thechallengeisnottofindwaysofreducingsteelusage,buttodeveloptechnologiesandmethodsthatwillmitigatetheimpactsteelmakinghasontheenvironment.Torespondtothischallenge,ArcelorMittalGrouphasdefinedpoliciesandprinciplestoguideourenvironmentalpracticesworldwide.

Overthepastyear,wehavemadegoodprogressonsomeofourmostimportantenvironmentalprojects,particularlythoserelatingtoissuesoflegalcompliance.TheseincludetheinstallationofdustextractionsystemsatVereenigingWorks’steelmakingplant,whichisontrackforcompletionin2010.Dueforcompletionlaterthisyear,thecokegasandwatercleaningprojectatVanderbijlparkWorkswillleadtoa40%reductioninsulphurdioxideemissions.Additionally,steadyprogresswasmadeinachievingazeroeffluentdischargestatusatNewcastleWorks.

SubstantialprogresshasbeenmadetocomplywithdirectivesissuedbytheGreenScorpionsrelatingtowastedisposalpracticesatVereenigingWorksin2007.TheVaalwastedisposalsitehasbeenclosedandthebulkofmagnetitestockpiledatthatsitehasbeenremoved.WeareinthefinalstagesoffinalisingtherehabilitationplaninconjunctionwiththeGautengDepartmentofAgriculture,EnvironmentandConservation.

Werecognisethatasalargesteelcompany,wehaveaconsiderableenvironmentalfootprint.Weareaimingbeyondregulatorycompliance,workingtowardsoperationalexcellencethroughsignificantinvestmentandcontinualmanagementimprovements.Currenteconomicconditionswillinevitablyleadtoarevisionofprojecttimetables,buttheendresultwillnotchange,namely:comprehensivecompliancewithenvironmentallaws.Theverynatureofourbusinessbringsmanychallengesandconstraints,buthavinganendproductthatis100%recyclableputsusinanidealpositiontomeetthesechallenges.

CSIWehaveidentifiedthedevelopmentofstrongandsustainablecommunitieswhereverweoperateasanimportantpillarofthecompany’soverallcorporateresponsibilityframework.Thisisanambitiousgoalbutonethatwebelieveisachievableintime.Bybeingmoresensitivetolocalneedsandpriorities,weseektoensurethatwefocusontangibleactivitiesthatdeliversocialandeconomicvalueinArcelorMittal’sfootprintareas.

TheArcelorMittalSouthAfricaFoundationhasidentifiedhealth,education,socialinclusionandinfrastructuredevelopmentastheprerequisitestobuildingsustainablecommunities.Ourcorporatesocialinvestmentbudgetisthusfocusedontheseareas.

In2008,ArcelorMittalSouthAfricasupported20socialprojectswithatotalmonetaryvalueofR21million.WorkingwiththeGautengDepartmentofEducation,ArcelorMittalembarkedonamajorinitiativein2006toimprovelocalmathematicsandscienceeducation.Approximately1900learnersandteachersattendedclassesfromhighlytrainedmathematicsandscienceteachersattheArcelorMittalScienceCentreinSebokenglastyear.The2008classwasthefirstgroupofGrade12learnerstowritethematricexaminations.Theschoolsthatparticipateinthisinitiativeachievedanaboveaveragepassrateintheexaminations,givingusthefirsttangibleindicationoftheeffectivenessofthisintervention.ThemodelhasnowbeenreplicatedintheWesternCape,withtheopeningoftheSaldanhaScienceCentreinDecember2008.



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InFebruary2009,weformallyannouncedaR250millionpartnershipwiththenationalDepartmentofEducationtobuild10schoolsinallnineprovincesofSouthAfricaoverthenextsevenyearsusingmodernsteelconstructiontechnologies.Thesodturningceremonyforthefirstoftheseschools,MetsiaBopheloPrimaryinMamelodi,Tshwane,washeldearlierthisyearandshouldbecompletedbytheendof2009.

ThefoundationalsoencouragestheinvolvementofArcelorMittalemployeesthroughthepromotionofvolunteeringopportunities.ThegrouptookpartinvolunteeringactivitiesonInternationalVolunteerDaylastDecember.

Moredetailsofourcorporatesocialresponsibilityprogrammecanbefoundinthe2008SustainabilityReport.

Corporate governanceArcelorMittalSouthAfrica’sbusinesspracticeisunderpinnedbystrictadherencetocorporategovernancestandardsasreflectedinthecompany’sCodeofBusinessConduct.Thecodeaimstoengenderacultureofadherenceandprovidesguidelinesontheprinciplesandpracticestowhichwearecommitted.Theboardofdirectorstakesultimateresponsibilityforthecompany’sadherencetosoundcorporategovernancestandardsandseestoitthatallbusinessjudgementsaremadewithreasonablecare,skillanddiligence.

Duringtheyear,thecompositionoftheboardwaschangedwiththeintroductionofnewexecutivemanagementtothecompany.ChiefExecutiveOfficerNonkululekoNyembezi-HeitaandPresidentLucBontejoinedtheboardinMarch2008,whileChristopheCornierandArnaudPoupart-Lafargewereappointednon-executivedirectorsinMayandJulyrespectively.WebadefarewelltoRickReato,MalayMukharjeeandMichelWurthwhosteppeddownduringthereportingperiod.

Theboardundertookavigorousexternalevaluationduringtheyearwhichassessedtheeffectivenessoftheboardandeachofitscommittees.Thereportrevealedthattheboardcompositioncontainedthecorrectmixofskillsandexperiencerequiredbythecompanyandmoreover,theboardandthecommitteeswerefoundtobefunctioningeffectively.Theboardwillcontinuetoconducttheevaluationexerciseonanannualbasis.

TheboardwelcomesthecomprehensivechangesbeingintroducedtotheSouthAfricangovernance

frameworkbythenewCompaniesActandtheKingIIIcodeandisintheprocessofreviewingthecompany’sinternalsystems,policiesandprocedurestoensurefullcompliancewiththeActandcodewhentheycomeintoforcein2010.

Theboardremainsfirmlycommittedtoensuringcompliancewithallrelevantlaws,regulationsandtothehigheststandardsofethicalconductbyconstantlystrivingtoimprovethecompany’sgovernancemodel.AccountabilityandresponsibilitytoallstakeholdersrankamongthemostcherishedprinciplesheldbytheArcelorMittalboardasaretransparency,qualityofdisclosureandclearcommunicationwithshareholders.

Appreciation IwouldliketoextendmydeepestappreciationtoallArcelorMittalSouthAfricaemployeesfortheirinvaluablecontributiontothesuccessoftheorganisationoverthepastyearandtotheconsiderablesacrificestheyhavehadtomakeoverthelastfewmonths.Inthisregard,Iespeciallywishtoacknowledgemembersoftheseniormanagementteamfortheirsupport,guidanceandunstintingsharingoftheirknowledgeandexperience.Wearegratefultoourboardmembersfortheirstrongsupportandongoingadviceandguidance.

ConclusionDespiteseverebusinesschallenges,ArcelorMittalSouthAfricaemergedfrom2008asastrongercompany,bothoperationallyandfinancially.Wehaveastrongbalancesheetandnegligibledebt.Investmentinouroperationshasensuredthatwecanswiftlyadjustourproductionlevelstovaryingdemandpatterns.Weremainhometosomeofthebesttechnicalskillsinthecountryandhavedevelopedatrainingpipelinethatwillensurewehaveanamplesupplyofskillsonwhichwecandrawforourfutureexpansion.

Wearecommittedtothehigheststandardsofcorporateresponsibilityingoodandbadtimes.Asaglobalgroup,ourstatedgoalistoprovidetheleadershipthatwilltransformthefutureofthesteelindustryandsocietiesaroundus.Tosucceed,wemustdemonstratetwoattributes,namely:sustainedfinancialperformancethroughtheeconomiccycleofsteelandawillingnesstoaddresstheenvironmental,socialandwidereconomicchallengesofourtimeinanopenandtransparentmanner.Itisourconvictionthatbusinessgrowth,sustainablecommunitiesandthecreationofvalueforourshareholdersgohand-in-hand.


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Operational review and locations

Flat steel products ArcelorMittal South Africa produces flat steel products at its Vanderbijlpark and Saldanha operations. Vanderbijlpark is the largest supplier of flat steel products in sub-Saharan Africa.

Long steel products The long steel products division produces a range of long steel products at the integrated steel works at Newcastle and the electric arc furnace-based facility at Vereeniging Works. These products include bar, billets, blooms, hot-finished and cold-draw seamless tubes, window and fencing profiles, rod and light, medium and heavy sections.

Coke and Chemicals Coke and Chemicals’ core business is the production of market coke for the ferro-alloy industry from coke batteries located in Pretoria, Newcastle and Vanderbijlpark. The business also processes and beneficiates metallurgical and steel by-products, including coal tar pitch.

DivisionVanderbijlpark Works

isthelargestinlandsteelmillinsub-SaharanAfrica,withtwoBlastFurnaces,threeelectricarcfurnacesandthreebasicoxygenfurnaces.Ithasacapacityof4.4milliontonnesofliquidsteelperannum,whichisconvertedintoarangeofsteelsheetingandplates.Thisoutputconstitutesaround82%ofthecompany’sflatsteelproduction.VanderbijlparkWorksemploys4723people.

Saldanha Works

hasacapacityof1.2milliontonnesofliquidsteelperannum,mostofwhichisdestinedfortheexportmarket.Italsoproduceshighqualityultrathinhotrolledcoil.ItistheonlysteelmillintheworldtohavesuccessfullycombinedtheCorexandMidrexprocessintoacontinuouschain.ThisreplacestheneedforcokeovensandBlastFurnaces,andcontributestomakingSaldanhaWorksaworldleaderinemissioncontrolandenvironmentalmanagement.Itemploys557people.

Vereeniging Works

whichemploysaround954people,isSouthAfrica’smajorsupplierofspecialitysteelproducts,seamlesstubeandforgeproducts.Atfullcapacityitdeliversaround0.4milliontonnesoffinalproductperannum,ofwhicharound18%wasexportedlastyear.

Newcastle Works

isratedamongtheworld’slowestbilletcash-costproducers,afteranintensivere-engineeringprogramme.WithoneBlastFurnace,threebasicoxygenfurnacesandfourrollingmills,thisoperationhasacapacityof1.8milliontonnesofliquidsteelannually.Productsincludelow,mediumandhighcarbonsteels,alloysteels,bar,structuralsectionsandrails.Over1950peopleworkatNewcastle.

The Coke and Chemicals

operationcomprisesthreecokebatteriesinNewcastle,VanderbijlparkandPretoria.Theyproducecommercialcokefortheferro-alloyindustry,supplyingmorethanhalfofSouthAfrica’srequirements.Inaddition,CokeandChemicalsproducesmetallurgicalby-products,includingcoaltarpitch.


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Revenue(Rm) 25513 19240

Netoperatingincome(Rm) 7007 4827

Employees 5280 5119

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14%

30%


ArcelorMittal South Africa produces flat steel products at its Vanderbijlpark and Saldanha operations. Vanderbijlpark is the largest supplier of flat steel products in sub-Saharan Africa. It has the capacity to produce 4.4 million tonnes of liquid steel each year, which is cast into slabs and hot rolled into heavy plate or coils. These are sold as hot rolled strip or, through further processing, into cold rolled and coated products such as tinplate and hot dip galvanised, electro-galvanised and pre-painted sheet. Vanderbijlpark Works meets more than three-quarters of South Africa’s flat steel requirements.

Saldanha, which produces thin and ultra thin gauge hot rolled coil for domestic and export markets, is the only steel mill in the world to have a continuous production chain that obviates the need for coke ovens and Blast Furnaces. Together with Vanderbijlpark Works, its 1.2 million tonnes of liquid steel per annum amount to a combined capacity of 5.6 million tonnes.

Flat steel products

Operational results for the year ended 31 December 2008 2007

Revenue(Rm) 25513 19240


Liquidsteelproduction(’000t) 4084 4231

Salesvolumes(’000t) 3412 3928

–Domestic 2835 2886

–Export 577 1042

Domesticsales(%) 83 73

Capitalexpenditure(Rm) 1035 1443

Hot-rolledcoil(HRC)exportprice–USD/t(c&f) 966 659

Numberofemployees 5280 5119

TotalHRCcashcostRandpertonne 4032 2538

TotalHRCcashcostUSDollarpertonne 491 360

Operating profile –Flat steel products

0

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3 200

4 800

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8 000

2004 2005 2006 2007 2008

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PIC TO COMEPIC TO COME

COPY TO COME2010 FiFa Soccer World Cup

Supporting africa’s showcase sporting event

The 2010 FiFa World Cup has become the focus of the infrastructure investment drive currently taking place in South africa. Ten stadiums in nine cities have been selected to host the event which kicks off in June 2010. Five new stadiums are being built, including Port Elizabeth’s Nelson Mandela stadium, pictured here, while five existing stadiums are being refurbished and upgraded. Both long and flat steel products are being utilised in the construction programme. The company’s products are being used, amongst other venues, in Johannesburg’s spectacular Soccer City stadium as well as the new Orlando stadium in Soweto, home to the Orlando Pirates football club and one of the training facilities for 2010.

26 ArcelorMittal South Africa annual Report 2008

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Markets DomesticTotal dispatches of flat steel products in 2008 were 2% lower than 2007. Fourth quarter sales slumped by 45% (compared with the third quarter) and more than offset a year-on-year increase of 9% for the first three quarters of the year. Sales were also affected by a slowdown in production in the first half of the year as a result of electricity outages. in expectation of further price rises many arcelorMittal South africa customers also built up stock in the second and third quarters. However high inventory levels remained in the fourth quarter as the lagged effect of interest rate increases and high inflation on consumers’ disposable incomes, as well as a decline in business emanating from the global financial crisis, depressed sales. Only the construction sector managed to maintain a relatively high rate of steel consumption.

as a result of steel shortages, especially in the first half of 2008, we serviced our demand from the domestic market first – 83% of total flat steel product sales in 2008 were sold locally, compared to 74% the previous year.

InternationalExports of flat products in 2008 declined by 43% in comparison to the previous year and the share of exports to total sales dropped from 26% in 2007 to 17% in 2008. Exports outside the african region accounted for only 7% of total flat steel product sales, compared to 11% in the previous year, emphasising our strategy to focus on markets in africa. in 2008 our net realised export prices for flat products were on average 61% higher than 2007, while prices decreased by 8% during quarter four compared to quarter three.

Operational resultsThe operating profit for flat steel products increased by 45% during the year from R4 827 million in 2007 to R7 007 million in 2008. This is particularly pleasing given the decline in production and sales volumes.

Liquid steel production declined by 147 000 tonnes during 2008 as a result of the production cutbacks in the fourth quarter while the Corex and Midrex relines at Saldanha Works also limited output during the first half of the year.

The cash cost per tonne of hot rolled coil produced increased by 59% year-on-year amid surging prices of major input materials, led by coal, scrap and alloys.

Vanderbijlpark WorksThe year started with a continuation of the cold hearth conditions experienced on Blast Furnace D from December 2007. The furnace was fully recovered on 7 January 2008 and a new monthly liquid iron production record was achieved in april 2008.

Liquid steel production in Vanderbijlpark was also affected by the electricity supply shortages experienced in late January 2008. The electric arc furnaces were stopped for a week in January and operations were continued on only two furnaces for the bulk of the year. Operation on all three furnaces was possible only for relatively short periods of time when electricity demand in other operations of the company was low.

Notwithstanding the power shortages many of the production problems that beset the plant previously have been addressed. illustrating the improved quality performance, internal rejections at Vanderbijlpark Works reached a new low in 2008.

Operational review continued

The electric arc furnaces and DR kilns were stopped in October due to the drastic drop in demand for steel. Personnel were redeployed to other areas to reduce the dependency on hired labour. Blast Furnace D was stopped in November 2008 and was restarted only during February 2009.

Saldanha WorksProduction at Saldanha was adversely affected by the electricity shortages, particularly in January, as well as the failure of vacuum pumps in the VPSa section of the Midrex plant throughout the year. New pumps were ordered but will be available only in 2009.

However, Saldanha Works also set a number of production firsts, including a record low fuel rate in the Corex plant, three months of continuous operation without a breakout on the thin slab caster, the highest casting tempo on the thin slab caster to date as well as several new thin gauge production records. Good progress was also made with the production of ultra thin – below 1.09 mm – gauge HRC.

Safety, health and environmentThe safety performance at the flat steel division, as measured by the lost time injury frequency rate (LTiFR), was a mixed one. Vanderbijlpark improved its LTiFR from 2.53 in 2007 to 2.44 in 2008 and Saldanha Works from 2.3 to 2.1. During the year Vanderbijlpark Works achieved three million lost time injury free hours and Saldanha Works two

million. The Corex and Midrex relines started in February and were completed in april with no lost time injuries. Tragically, a fatal incident at Saldanha Works on 22 September 2008 led to the loss of life of an employee and a contractor, who died from exposure to carbon monoxide gas.

a special task force was established by arcelorMittal South africa in May 2008 to address the many environmental issues experienced in Vanderbijlpark and to prepare for a November 2008 inspection audit by the Green Scorpions. This made a significant contribution towards achieving greater environmental awareness throughout the Works. Simultaneously the company started interactions with local Vanderbijlpark communities as well as NGOs about our environmental legacy.

investment in environmental projects continued at Vanderbijlpark Works. The ceramic welding programme at the coke oven batteries was completed in September 2008 and has already contributed to an improved emission performance. The commissioning of the Coke Gas and Water Cleaning project will lead to a reduction of 40% in SO2 emissions at Vanderbijlpark.

The Green Scorpions audit took place from 3 – 7 November 2008 and a final report is still awaited.

ArcelorMittal South Africa annual Report 2008

25

Vanderbijlpark Works

Markets (%) of total sales 2008 2007

Geographical sales distributionSouth africa 83 74africa 10 15asia 7 10Europe 0 1Local market segmentationBuilding and construction 37 36Pipe and tube (welded) 24 25Packaging 14 13automotive 13 14Mining, energy, water, chemicals and gas 5 5Furniture and appliances 3 3Machinery and equipment 2 2agriculture 1 1Transportation 1 1

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CapitalexpenditureTwonewDRIkilnsatVanderbijlparkWorks,withacombinedcapacityof350000tonnesayear,aresettobecommissionedinthefirsthalfof2009atanestimatedcostofR600million.InresponsetotheglobaleconomicslumpanumberofmajorexpansionprojectshavebeenputonholdpendingrevisionofArcelorMittalSouthAfrica’sgrowthstrategy.Theoriginalexpansionprogrammeforflatsteelproductsincludedanewgalvanisingline,anewcolour-coatinglineaswellasaco-generationpowerplantatVanderbijlparkWorks.However,thecompanyremainscommittedtogrowingitsbusinessinthemediumtolongtermandwillcontinuetomonitorallindicatorstoevaluatethetimingofitscapitalexpenditureplan.Environmentalprojects,andthosethatwillimprovethesafetyofouroperations,willcontinuetobefundedasfaraspossible.

Spendingontwomajorprojectscontinuedduringtheyear.TheCokeGasandWaterCleaningplantatVanderbijlparkWorkshasexperiencedcommissioningdelays,butwillbeoperationalduringthefirstquarterof2009,whiletheCorexandMidrexrelinesatSaldanhaWorksweresuccessfullycompletedinApril2008.

TheyearaheadDomesticflatsteeldemandisexpectedtoremainunderpressureformostof2009.Adeclineininflation,furtherpossibleinterestratecutsand

government’scommitmenttocontinuewithitsinfrastructureprogramme,shouldboostconsumerandinvestmentspendingtowardsthelatterpartof2009.Internationally,steelproductionandconsumptionin2009areexpectedtobewellbelow2008levels.Furthermore,economicactivityoutsideChinaisexpectedtobesluggish,especiallyinNorthAmericaandWesternEurope.Areturntostabilityisonlyexpectedinthesecondhalfof2009whenproductioncutsshouldbringthemarketclosertoequilibrium.

ThecommissioningofthetwonewDRIkilnsatVanderbijlparkWorkswillmaketheoperationlessdependentonscrapasfeedstockfortheElectricityArcFurnacesandwillhaveapositiveimpactontheplant’scoststructure.Thekilnswillalsoboostliquidsteelmanufacturingcapacityby220000tonnesayear.

WhileinternationalcommoditypriceshavedeclinedsharplysinceSeptember2008,theimpactonthecostofproductionwillbedelayeduntilthemiddleof2009whennewrawmaterialcontractpriceswillcomeintoeffect.Inordertocushionthecompanyfromtheworsteffectsoftheglobalfinancialcrisisawiderangeofmeasureswereintroduced,focusingonareductioninfixedcostsandcashmanagement.

Capital expenditure for the year ended 31 December (Rm) 2008 2007

Value-adding 287 490

Replacements 672 907

Environmental 76 46

Total 1035 1443


27


Long steel productsThe long steel products division produces a range of products at the integrated steel works at Newcastle and the electric arc furnace at Vereeniging Works. These products include bar, billets, blooms, hot-finished and cold-drawn seamless tubes, window and fencing profiles, light, medium and heavy sections and rod. The biggest market is the building and construction industry which accounted for almost 50% of sales in 2008. Other significant markets are the mining, automotive, agricultural, engineering, manufacturing and petrochemical industries.

The division’s combined annual production capacity is 2.2 million tonnes of liquid steel, with Newcastle Works accounting for the bulk of this at 1.8 million tonnes. It supplies around 50% of the local market’s demand for long steel products and is also a strong competitor in various export markets, thanks to its ability to provide high-quality products at competitive prices.




Liquidsteelproduction(’000t) 1690 2144


–Domestic 1540 1535

–Exports 137 364

Domesticsales(%) 92 81


Averagelowcarbonwirerodexportprice–USD/t(c&f) 909 592


TotalbilletcashcostRandpertonne 3822 2310

TotalbilletcashcostUSDollarpertonne 466 327

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Operating profit – Long steel products

Gautrain rapid-rail link

South Africa’s flagship transport project

The Gautrain rapid-rail link spans 80 km of railway line linking Johannesburg, Sandton, Tshwane and the OR Tambo International Airport. The project, scheduled to cost R25.2 billion, is a private public partnership between the Gauteng provincial government and the Bombela Concession Company. When construction commenced in 2006 it was estimated that the project would require about 50 000 tonnes of steel particularly in the 15 km of the route that will be underground. The bulk of the steel is long steel products, such as these reinforcing bars used at the Rosebank section of the Gautrain tunnel. ArcelorMittal South Africa’s steel is supplied to Murray & Roberts, a 25% member of the Bombela consortium.

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32 ArcelorMittalSouthAfrica Annual Report 2008

Newcastle Works

Operational review continued

Markets DomesticSales of long steel products in 2008 improved by 7% in the first three quarters as spending on infrastructure projects continued. At the same time merchants accelerated speculative purchases to take advantage of surging global steel prices. But long product sales slumped in the fourth quarter which led to zero growth in sales for the year as a whole. ArcelorMittal South Africa is committed to meeting domestic sales first and 92% of total long product sales in 2008 were sold domestically compared with 81% in 2007.

While the South African government remains committed to its infrastructure programme, private sector spending has slumped making it unlikely that last year’s expected 11.5% overall rise in gross fixed capital formation will be repeated in 2009.

InternationalExport sales of long steel products in 2008 were 62% lower than the previous year as a result of the steel shortages during the first half of the year following the mini-reline of Blast Furnace N5 at Newcastle Works and the slump in

demand in the fourth quarter. Shipments outside the African region accounted for only 5% of total long steel product sales, compared with 9% in 2007. This reflected the consistent strong demand from the South African construction sector and the company’s commitment to give priority to the domestic market. The average net realised export prices for long steel products, rose 28.5% in 2008 and reached a record level in the third quarter. OperationalresultsThe net operating income of the long steel products division increased by 38% to R3 672 million in 2008 from R2 652 million in 2007, reflecting the rise in steel prices.

Liquid steel production declined by 454 000 tonnes during the year as a result of the production cutbacks in the fourth quarter to match lower demand levels. The mini-reline of Blast Furnace N5 at Newcastle Works also disrupted output in the second quarter.

The cash cost per tonne of billet produced increased by 65% year-on-year following the substantial hike in raw material prices. Scrap prices

in particular rose steeply contributing to the sharp escalation in the production cost of billets at Vereeniging Works which is a scrap-based plant.

NewcastleWorksThe mini-reline of the N5 Blast Furnace in Newcastle started in May 2008 and was completed in 45 days, ahead of schedule. The ramp-up of the furnace was also faster than planned. Several monthly throughput records were also achieved on the Billet and Bar Mills.

The sales slump from mid-September 2008 onwards forced a cut back in production at Newcastle Works from October onwards and on 4 December 2008 the Blast Furnace was shut down. It was blown in again at the end of December.

VereenigingWorksVereeniging Works had an excellent operational and financial year and achieved record throughput levels on almost all its facilities, before the slump in demand reduced output levels in the fourth quarter.

MaputoWorksThe small rolling mill ArcelorMittal South Africa bought in Maputo, Mozambique, in 2006, started production in May 2008, but the slump in demand forced us to stop production towards the end of 2008.

Safety,healthandenvironmentThe lost time injury frequency rate (LTIFR) for Newcastle Works at 1.73 is the best among our operations, but a slight deterioration from the 1.25 recorded in 2007. At Vereeniging Works the rate improved from 2.5 to 2.25 during the year. Newcastle Works achieved two million disabling injury free hours during the year and Vereeniging Works achieved one million hours.

Environmental investments in the long products division this year are headed by the effluent treatment projects at Newcastle Works for 2009. This project will comprise a new evaporator crystalliser and an upgrade of the Reverse Osmosis (RO) plant.

At Vereeniging Works significant improvements were reported in the control of fluoride levels in the effluent discharged from the Works, while dust emission levels at the Dunswart DRI plant in Benoni, were drastically reduced before the operation was mothballed in October 2008.

31 ArcelorMittalSouthAfrica Annual Report 2008

Markets (% of total sales) 2008 2007

Geographicalsalesdistribution

South Africa 92 81

Africa 3 10

Asia 3 6

Europe 1 2

Americas 1 1

Localmarketsegmentation

Building and construction 48 46

Machinery and equipment 20 21

Mining, energy, water, chemicals and gas 17 18

Automotive 8 8

Agriculture 5 5

Furniture and appliances 2 2

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CapitalexpenditureTheeconomicdownturnhasalsoimpactedonthegrowthstrategyandinvestmentprogrammeatlongsteelproducts.AtNewcastleWorkstheplannedBlastFurnaceN6–ArcelorMittalSouthAfrica’slargestexpansionproject–aswellasthenewbilletcasterandbar/sectionmillwereputonholduntilareturntosustainablegrowthlevelsinthesteelindustry.Eventhenallprojectswillbere-evaluatedastotheirfeasibilityunderprevailingmarketconditions.ThedustextractionsystemfortheElectricArcFurnaceatVereenigingWorksisprogressingwellandontrackforcompletioninearly2010.

TheyearaheadThemarketoutlookforlongsteelproductsissimilartothatoftheflatproductsdivision,withdemand

andpricesexpectedtoremaindepressedformostoftheyear.However,theoperationwillbelessaffectedbythesharpfallindemandforconsumerproducts,suchasvehiclesandotherdurablegoods.

Withdemandlevelslow,bothNewcastleandVereenigingWorkswillnotberunningatfullcapacity.Butweareonstandbytoincreaseproductionvolumeswhendemandimproved.

Althoughcommoditypricesshowedasignificantdropsincethefourthquarterof2008,thebulkofthebenefitwillonlystarttoflowthroughfromthesecondquarterof2009whenthenewcontractpriceswillcomeintoeffect.Similartoflatproducts,measurestocurbtheimpactoftheglobalfinancialcrisiswerealsointroducedatthelongproductsdivisiontoreducecostsandoptimiseworkingcapital.

Capital expenditure for the year ended 31 December (Rm) 2008 2007

Value-adding 48 111

Replacements 352 159

Environmental 141 76

Total 541 346



The core business of ArcelorMittal South Africa’s Coke and Chemicals’ operation is the production of commercial coke for the ferro-alloy industry from coke batteries located in Pretoria, Newcastle and Vanderbijlpark. We also process and beneficiate metallurgical and steel by-products, including coal tar.

Coke and Chemicals






–Coke 814 992

–Tar 140 143

–Other 1213 1115


Operating profit – Coke and Chemicals

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OperationalresultsAsharpriseininternationalcokepricesisthemainreasonfortherecordfinancialperformanceofthedivisionin2008.RevenueincreasedfromR2065millionin2007toR3593millionin2008,whilenetoperatingprofitsurgedfromR727millionin2007toR1743millionin2008.

MarketconditionsThedivisionboosteditslevelofmarketcokeproductionamidalowerinternaldemandforcokeduringthemini-relineofBlastFurnaceN5inNewcastle,thethroatarmourrepairofBlastFurnaceCinVanderbijlparkandtherelinesoftheCorexandMidrexplantsatSaldanhaWorks.ThisenabledCokeandChemicalstosellalargepartofitsoutputathighermarketlevels.

ButsinceOctober2008themarketforcommercialcokehasbeenhardhitbythedownscalingandclosureofanumberofferro-alloysmelters.CutbacksincokeproductionhavebeenimplementedfromNovemberonwards.ProductionhasstoppedinNewcastleandVanderbijlparkandisnowonlycontinuing,atsignificantlyreducedlevels,atthePretoriacokebattery.

CapitalexpenditureIn2008ArcelorMittalCokeandChemicalsspentR23milliononmaintenance,safetyandenvironmentalprojects.Investmentsin2009arelikelytobebelowlastyear’slevel.

Safety,healthandenvironmentThesafetyperformanceatCokeandChemicals,asmeasuredbythelosttimeinjuryfrequencyrate(LTIFR),deterioratedfrom1.6to5.4between2007and2008followingaspateofinjuriesexperiencedinthefirstquarterof2008.Variousinterventionswerelaunchedtoimproveitssafetyperformance.ThedivisionisISO14001andOHSAS18001certified.

TheyearaheadThedivision’sfinancialperformancethisyearisforecasttobesubstantiallybelowthatof2008,duetothesharpfallindemandfromthedomesticferro-alloyindustryandalowerinternationalcokeprice.


PretoriaWorks


Finance reportThisreportshouldbereadinconjunctionwiththefinancialstatementspresentedonpage56to197ofthisannualreport.

Basis of preparationThegroupfinancialresultshavebeenpreparedonthehistoricalcostbasis,exceptfortherevaluationoffinancialinstruments.ThegrouphasadoptedallofthenewandrevisedstandardsandinterpretationsissuedbytheInternationalAccountingStandardsBoard(IASB)andtheInternationalFinancialReportingInterpretationsCommittee(IFRIC)oftheIASBthatarerelevanttoitsoperationsandeffectivefrom1January2008.

Theprincipalaccountingpoliciesandmethodsofcalculationareconsistentwiththoseappliedin2007exceptfortheearlyadoptionofnewandrevisedstandardsandinterpretationsassetoutinouraccountingpolicies.Thenewstandardsdidnothaveasignificantimpactonourfinancialresults.

Headline earningsHeadlineearningsfor2008increasedby65%toR9484millionfromR5741millioninthepreviousyear.Thissubstantialincreasewasdrivenbyhigherglobalsteelprices,asignificantlyimprovedincomecontributionfromourCokeandChemicalsbusiness,aswellashighergainsonforeignexchangetransactionsandfinancialinstruments.Lowersalesvolumesandescalatingcostspartiallyoffsetthesegains.

Revenueincreasedby36%toR39914millionduetohigherglobalsteelprices,whileaverage

netexportpriceswere45%higheryear-on-yearinUSdollartermsand70%inRandterms.Salesvolumesweredown13%comparedto2007asdomesticandexportvolumesdeclinedby1%and49%respectively.

IncludedinprofitfromoperationsisanimpairmentchargeofR121million.ThisrepresentsthewritedownoftheplantandequipmentattheMaputoWorksofR93millionandR28millionattheDunswartDirectReductionfacilityinBenoniafterproductionwastemporarilystoppedatbothplants.Adecisiononwhethertoreopenthefacilitieswilldependonfuturemarketconditions.

GainsonforeignexchangeandfinancialinstrumentsofR637millionrepresentsaprofitontherevaluationofourUSDollarcashbalanceandreceivablesaftertheRandweakenedby38%duringtheyearfromR6.81toR9.39/USD.

Interestincomedecreasedby28%afterthecapitalreductionofR6352millioninthelatterpartof2007ledtoaloweraveragecashbalancelastyear.

FinancecostsincreasedfromR117milliontoR238millionduemainlytotheincreaseintheprovisionforenvironmentalrehabilitation.TheaveragediscountrateusedattheendofDecember2008was10.75%comparedtoanaveragerateof11.25%attheendof2007.Thedecreaseof50basispointsledtoaR8millionfinancechargefor2008.In2007a195basispointriseinthediscountrateresultedinfinancecostcreditsofR79million.

Headline earnings per share, dividends per share and HRC export prices

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1 650

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2004 2005 2006 2007 2008

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EquityearningsofR331millionincreasedby23%fromR270millionin2007,amidimprovedprofitsfromMacsteelInternationalHolding,ourmarketingandshippingjointventure.

Incometaxexpenseincreasedby57%,mirroringthe58%improvementinouroperatingprofit.Theeffectivetaxratein2008wasslightlylowerat29.2%comparedwiththe30%ratefor2007asgovernmentreducedthecorporatetaxratefrom29%to28%duringtheyear.

Thefollowingquarterlyheadlineearningstableillustratesourrecentearningstrendsandtheimpactofpriceandexchangeratemovementsonheadlineearnings:

HRCsalespriceCFR

USD/t

Headlineearnings

USDm

Headlineearnings

Rm

Exchangerate

R/USD

2007March 605 211 1530 7.24June 687 229 1624 7.10September 676 148 1055 7.11December 669 226 1532 6.77Average 659 203 1435 7.06

HRCsalespriceCFR

USD/t

Headlineearnings

USDm

Headlineearnings

Rm

Exchangerate

R/USD

2008March 729 265 2003 7.55June 936 330 2573 7.79September 1317 485 3772 7.78December 881 114 1136 9.93Average 966 287 2371 8.26

Profit from operationsProfitfromoperationsincreasedby58%toR12159million,withprofitfromflatcarbonsteelproductsrisingby45%andlongcarbonsteelproductsby38%.TheCokeandChemicalsdivisionboosteditsoperatingprofitby140%,whilethegroup’soveralloperatingmarginimprovedfrom26%in2007to30%to2008.

Bothflatandlongcarbonsteelbusinessesbenefitedfromhigherinternationalsteelprices.Averageflatcarbonsteelproductpricesroseby61%andaveragelongcarbonsteelproductpricesby63%year-on-year.Operatingresultswerepartiallyoffsetby13%lowersalesvolumesandanincreaseinrawmaterialcosts.

Thefollowingtableprovidesacomparableviewofourearningsfor2008:

Yearended31December

2008Rm

%change

2007Rm

Revenue 39914 36 29301

Profitfromoperations 12159 58 7703Gains/(losses)onchangesinforeignexchangerates andfinancialinstruments 637 586 (131)Interestincome 318 (28) 442Financecosts (238) 103 (117)Incomefrominvestments 3 (25) 4Incomefromequityaccountedinvestments(netoftax) 331 23 270Impairmentreversal 36Incometaxexpense (3865) 57 (2455)

Profitattributabletoownersofthecompany 9381 64 5716Earningspershare(cents) 2105 64 1282Profitfortheyear 9381 64 5716Adjusted for:Lossondisposalorscrappingofassets 39 26 31Bookvalueofassetsheld-for-salewrittenoff 4Impairmentcharge 121Impairmentreversal (36)Taxeffect (21) 110 (10)

Headlineearnings 9484 65 5741

Headlineearningspershare(cents) 2128 1288


Finance report continued

ThestrongperformanceoftheCokeandChemicalsbusinesswasmainlyduetoincreasesof125%intheinternationalpriceofmarketcokein2008.

Cost performanceCashcostspertonneofhotrolledcoilandbilletsrosesharplyby59%and65%respectivelycomparedto2007.Thiswasmainlyduetothesurgeininputmaterialcosts:cokingcoalpricesincreasedby102%andPCIcoalby181%,whilescrappriceswereonaverage125%higher.Thecostsofironorepelletsandironoreroseby84%and32%respectively.

Employeecostsincreasedby18%asmorehiredlabourandmoreovertimewasusedduringtherelinesatSaldanhaWorksandthemini-relineatNewcastleWorks.Otheroperatingexpenseswereupby16%followinghigherpriceschargedforservicessuchassub-contractorsandcivilworks.

Sincetheonsetofthecrisisinthesteelindustryweactedimmediatelytocurtailcostsfurther.Anumberofstrategieswereimplementedincluding:• Alargeportionofhiredlabourandtemporary

staffcontractswerenotrenewedorcancelled.

• Employeeswereredeployed.• Overtimepaymentsweresharplyreduced.• Labourcostcutsof10%targeted.• Thereductionofsalesandgeneraladministration

costsbyupto50%.Cash flowWereportedastrongnetcashflowofR3577millionin2008.(In2007cashflowwasanegativeR3564millionfollowingtheR6352millioncapitalreduction.)ThecashflowbreakdownshowsthatR14330millioninprofitsfromoperationswaspartiallyoffsetbyaR3391millionincreaseinworkingcapital,capitalexpenditureofR1832million,incometaxpaymentsofR3087millionandR2398millionindividendspayments.

HigherinputmaterialcostsandariseininventorylevelsliftedourinventoriesbyR4067million.Adeclineintradereceivablesandahigherleveloftradepayablesoffsettheincreaseinworkingcapital,duetohigherinventories,byR860millionatyear-end.

Cashflowsaredetailedbelow:

Yearended31December

2008Rm

2007Rm

Cashprofitfromoperations 14330 9044Workingcapital (3391) (605)Cashgeneratedfromoperations 10939 8439Interestincome 318 442Financecosts (59) (73)Investmentincomeanddividendfromequity-accountedinvestments 17 108Realisedforeignexchangemovement (202) (28)Incometaxpaid (3087) (2209)Dividendpaid (2398) (1948)Capitalreduction (6352)Capitalexpenditure (1832) (1852)Proceedsfromdisposalofproperty,plantandequipment 2 8Investmentinassociate (16)Repaymentofborrowingsandfinanceleaseobligations (121) (83)

Increase/(decrease)incash 3577 (3564)

Theearningsdetailsperoperatingsegmentareprovidedbelow:

Yearended31December

2008 2007

RmMargin

% RmMargin

%

Flatcarbonsteelproducts 7007 27 4827 25Longcarbonsteelproducts 3672 28 2652 29CokeandChemicals 1743 49 727 35Corporateandother (263) (503)

Profitfromoperations 12159 30 7703 26


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DividendTheboarddecidedtomaintainadividendpaymentofone-thirdofheadlineearningsfor2008,takingintoaccountthecompany’scurrentcashpositionaswellasfuturecapitalexpenditureandworkingcapitalrequirementsandthebleakoutlookforthedomesticandglobalsteelmarket.

Afinaldividendof365centspersharepayabletoshareholdersregisteredatcloseofbusinesson13March2009wasdeclaredbytheboard.This,togetherwiththeinterimdividendof342centspershare,paidon1September2008,liftedthetotaldividendfortheyearto707centspershare.Thefinaldividend,togetherwiththe10%SecondaryTaxonCompanieswillberecordedinthe2009financialresults.

Share performanceThecompany’saveragesharepricefor2008wasR165.98withahighofR265.00inJuneandalowofR58.65duringNovember.In2007theaveragewasR125.25withahighofR153.00inDecemberandalowofR91.53inJanuary.

Liquidityinoursharesremainshighwith163%oftheavailablesharesbeingtradedduringthe12months.DailyaveragesharetradinginourstocklastyearwasvaluedatR217millioncomparedtoR122millionin2007.

Ouraveragedividendyieldof4.6%overthepastfiveyearscompareswiththemarketaverageof2.7%,whileouraverageprice/earningsratioof8.8timesremainswellbelowthemarketaverageof14.8times.

Management of exchange rate and base metal exposuresWeareexposedtobotheconomicandtransactionrisksarisingfromthevolatilityinexchangerates,particularlytheRand/USDollarrate,aswellasthepricingofcommoditiesinUSDollars.During2008theRandweakenedby38%againsttheUSDollar.

ThefollowingtableshowsthequarterlyRand/USDollarexchangerates:

2008 2007Average Closing Average Closing

March 7.55 8.10 7.24 7.28June 7.79 7.83 7.10 7.07September 7.78 8.27 7.11 6.88December 9.93 9.39 6.77 6.81Year 8.26 9.39 7.06 6.81

InRandterms,changesintheexchangeratehaveasignificantinfluenceonourearningsasapproximately19%ofourproductswereexportedeachyearoverthelasttwoyears.Furthermoreourdomesticsteelpricesarealsoinfluencedbymovementsintheexchangerate.Ourdomesticpricingmodelisderivedfromabasketofdomesticpricesinbothdevelopinganddevelopedcountries.

Wemanageourexchangerateexposurebymatchingforeigncurrencyrevenueswithexpendituresandenteringintoeconomicexchangeratehedges.

Ourriskstounforeseenchangesinbasemetalpriceshavebeenmanagedbyanactivehedgingpolicythatiscoordinatedwithourparentcompany.Sincemid-2008wehavenottakenanyfurtherhedgedpositionsfollowingthecollapseincommodityprices.Amidfearsofadeeperandwiderglobalrecession,expectationsoffurtherbasemetalpricedeclinesmitigateagainstfurtherhedges.Wewillmonitormarketmovementsin2009todetermineifandwhenhedgingactivitiesshouldresume.

Financial risk managementTheworseningofthefinancialcrisisinthefourthquarteroftheyearunderreviewforcedusintoreviewingthemanagementofanumberofkeyfinancialrisks:creditrisk,bankrelationships,counterpartyexposureandliquidityrisk.

Ourcreditdefaultriskismitigatedthroughsufficientcollateral,anextensivecreditinsurancepolicyandcontinualassessmentofcustomerriskprofileswithinspecifiedcreditlimits.

Ourriskofbankingexposurehasbeenaddressedbydiversifyingourbusinessbetweenanumberofbanksbasedonperformanceandcompetitiveness.

Themanagementofcounterpartyriskdependsonthecounterparty’screditratingwhichdeterminestheexposurewecantake.Exposureagainstboard-approvedcounterpartylimitsismonitoredonacontinualbasis.

Finally,weforecasttheexpectedliquidityreserveonthebasisoflikelycashflows.Bytheendof2008wehadastrongbalancesheetandvirtuallynodebt.OurcashpositionofR8429millionattheendof2008ismorethandoubletheR4034millionweheldattheendof2007.Itwillbeutilisedfordividendsandtaxpaymentsaswellasinvestmentincrucialcapitalprojectsthatcannotbepostponed.


Corporate governanceBoard of directors TheArcelorMittalSouthAfricaboardhasbeenconstitutedinaccordancewiththeKingCodeofCorporatePracticesandConduct(KingII)asaunifiedboardstructure.Itconsistsof13directorsofwhich10arenon-executiveandthreeexecutive,beingtheCEO,PresidentandCFO.Ofthe10non-executivedirectors,fiveareindependentincludingtheChairman.

Corporate governance is an integral part of ArcelorMittal South Africa’s business practice and is fully endorsed by its board of directors. Principles contained in the King Code of Corporate Practices and Conduct (King II) have been adopted in the company’s corporate governance structures and have been materially complied with in the year under review. ArcelorMittal South Africa is fully committed to entrenching and upholding the King II corporate governance standards.

EK DiackDCG MurrayMJN Njeke

Ms ND Orleyn

DK ChughCPD Cornier

S MaheshwariLP Mondi

AMHO Poupart-Lafarge

CEO: NMC Nyembezi-HeitaPresident: LGJJ Bonte

CFO: HJ Verster

CHAIRMANDr KDK Mokhele

Independent Non-Executive Director

INDEPENDENT NON-EXECUTIVE DIRECTORS

NON-EXECUTIVE DIRECTORS EXECUTIVE


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Duringtheyearunderreviewthefollowingchangestotheboardtookplace:• MsNMCNyembezi-Heitawasappointedas

ChiefExecutiveOfficerandamemberoftheboardwitheffectfrom1March2008;

• MrLGJJBontewasappointedasPresidentandamemberoftheboardwitheffectfrom1March2008;

• MrCPDCornierwasappointednon-executivedirectorfrom14May2008;

• MrAMHOPoupart-Lafargewasappointedalternatenon-executivedirectoron24July2008andnon-executivedirectoron30November2008;

• Twonon-executivedirectorsresigned:MrMALWurthandMrMMukherjeeresignedon30November2008and13May2008respectively;

• MrEMReatoresignedasChiefExecutiveOfficeron29February2008.

Theboardmeetsfivetimesayear,ormorefrequentlyifcircumstancesrequire,toconsiderissuesofstrategicdirection,approvemajorcapitalexpenditureprojects,reviewoperatingperformanceandconsiderothermattersthathaveamaterialeffectonthecompany.Theboard’smainresponsibilitiesaresetoutintheboardcharterandinadditiontheboarddeterminestheoverallpoliciesandprocessestoensuretheintegrityofthecompany’sriskmanagementandinternalcontrols,theappointmentofexecutivedirectorsaswellasstakeholdercommunication.Throughtheboard’sdelegationofauthorityframework,theboardhasdelegatedtheauthoritytothechiefexecutiveandotherexecutivedirectorstomanagetheday-to-dayoperationsofthecompanywhilstoverallaccountabilityismaintainedbytheboard.

Theattendanceregistershowstheattendanceofboardmemberstodate:

18/1/2008 31/1/2008 8/2/2008 7/5/2008 24/7/2008 30/10/2008 12/12/2008

KDKMokhele

LGJJBonte Apology Telecon

DKChugh Telecon Telecon Telecon Apology Telecon Telecon Telecon

CPDCornier Apology

EKDiack Apology

SMaheshwari Apology Apology Apology Apology Apology Apology Apology

LPMondi Telecon Apology

MMukherjee Telecon Telecon Apology Apology

DCGMurray Apology

MJNNjeke

NMCNyembezi-Heita

NDOrleyn Apology Apology Apology

AMHOPoupart-Lafarge Telecon Telecon

EMReato

HJVerster*

MALWurth Telecon Apology Apology Apology Apology Apology

*In compliance with JSE requirements, the register confirms that the CFO, HJ Verster, attended every board meeting.

IncompliancewiththeKingCodeandtheJSEListingsRequirements,theboardhasestablishedcertainboardcommitteestoassisttheboardanditsdirectorsindischargingtheirdutiesandresponsibilities.TheAuditandHumanResourcesandNominationsCommitteesareprescribedby

statute/regulation,whereastheRiskCommitteeandSafety,HealthandEnvironmentCommitteehavebeenestablishedinlinewithbestpractice.TheTransformationCommitteewasconstitutedintheboard’sdiscretiontoaddresscompany-specificissues.


Corporate governance continued

Allboardcommitteeshaveformallydeterminedtermsofreference,writtenscopeofauthorityandagreeduponreportingprocedures.Ateveryboardmeeting,thechairmenoftherespectivecommitteesformallyreportbacktotheboardontheworkdonebythecommitteeduringthequarterandrecommendationstotheboard.Thecommitteesarechairedbyindependentnon-executivedirectorsandtheworkundertakenbyeachcommitteeisreportedinthecompany’sannualreporttoshareholders.

Theboardhelditsannualstrategicsessionon27August2008.

AuditCommitteeTheAuditCommitteeisfullycompliantwiththeCorporateLawsAmendmentAct,2006.Itconsistsofthreeindependentnon-executivedirectors:MJNNjeke(Chairman),EKDiackandDCGMurray.

ThecommitteemeetsfourtimesayearandconductsitsworkaccordingtoanannualworkplanwhichisregularlymonitoredandupdatedbytheCompanySecretarytoensurethatthecommitteemeetsitslegalandregulatoryobligations.Thecommitteereviewsthefollowingmatters:• thequarterlyandhalf-yearlyfinancialreports;

• theannualfinancialstatementsandaccountingpoliciesforthecompanyandallsubsidiaries;

• theeffectivenessoftheinternalauditfunction;• managementinformationandothersystemsof

internalcontrol;• theauditor’sfindingsandrecommendation;• satisfiesitselfontheindependenceof

theexternalauditorandmeetswiththeexternalauditorsatleastonceayearwithoutmanagementbeingpresent;

• considersandmakesrecommendationstotheboardonallaspectsrelatingtotheappointment,retention,resignation/dismissalsofexternalauditorsandensuresthattheprocesscomplieswithallrelevantlegislation;

• nominationoftheexternalauditfirmandtheauditpartner;

• reviewsanystatementsonethicalstandardsforthecompanyandhowtheyarepromotedandenforced;

• satisfiesitselfthattheCFOisappropriatelyqualifiedandexperienced;and

• reviewssignificantcasesofunethicalactivitybyemployeesorbythecompanyitself.

Thecommitteealsoconsiderstheuseoftheexternalauditorsfornon-auditservices,whereappropriate,andapprovesallfeestobepaidtotheexternalauditors.

TheattendanceregisteroftheAuditCommitteemeetingsissetoutbelow:

07/02/2008 10/03/2008 07/05/2008 24/07/2008 30/10/2008

MJNNjeke

EKDiack Apology Apology

DCGMurray

HumanResourcesandNominationsCommitteeTheHumanResourcesandNominationsCommitteecomprisesthreeindependentnon-executivedirectors:NDOrleyn(Chairman),KDKMokheleandDCGMurray;onenon-executivedirector:DKChugh;andoneexpertco-optedmember:BFontana,vice-presidentHRfortheArcelorMittalGroup.MrMurraywasappointedtothecommitteeon7May2008.

Thecommittee,inconsultationwithmanagement,ensuresthatthecompany’semployeesarefairlyrewardedfortheir

contributiontothecompany’sperformance.Thecompany’sremunerationphilosophyalsofallsunderthedelegationofthiscommitteetoensurethatsalariesandrelatedbenefitsarecompetitive.Specifically,thecommitteeonbehalfoftheboardapprovestheemploymentcontractsandremunerationpackagesoftopmanagementandrecommendsdirectors’feestotheboardforapproval.Thecommitteealsoapprovesanyshort-termincentiveschemesandbonuses,includingtheofferofoptionsintermsoftheIscorManagementShareOptionScheme.


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Thecommitteealsooverseesthedirectorappointmentprocess,whichisopenandtransparent.Newdirectorsarerecommendedbythecommitteetotheboard.

Feestructuresforremuneratingboardmembersarerecommendedtotheboardandreviewedannually.Thecommitteetakescognisanceofmarketnorms,practicesandbenchmarksaswellasadditionalresponsibilitiesplacedonboardmembersbynewlegislation,regulationsandcorporategovernanceguidelines.Theboardrecommendsthe

feestructureforthenextyeartothecompany’sshareholdersattheAGMforapproval.TheCompanySecretaryadministerstheannuallyapprovedremunerationschedule.

Thecommitteeisalsotaskedwithadvisingtheboardregardingthesize,compositionandeffectivenessoftheboardandboardappointedcommittees,aswellasadvisingtheboardregardingtheappointmentofproposedcandidatestoserveontheboard.

TheHumanResourcesCommitteemeetings’attendanceregisterissetoutbelow:

18/01/2008 31/01/2008 19/03/2008 19/06/2008 07/11/2008

NDOrleyn

DKChugh Telecon Telecon Telecon Telecon Telecon

BFontana Telecon Telecon Telecon Telecon Telecon

KDKMokhele Apology

DCGMurray

RiskCommitteeTheRiskCommitteewasestablishedin2006followingarecommendationfromtheAuditCommitteethatfurthercapacitywasrequiredtoensureasystematicassessmentoftheprocessesandoutcomesofthecompany’skeyrisks.

TheRiskCommitteecomprisestwoindependentnon-executivedirectors,EKDiack(Chairman)andMJNNjeke;onenon-executivedirector,LPMondi;andthreeexecutivedirectors,NMCNyembezi-Heita;HJVersterandLGJJBonte.

TheRiskCommitteereceivesandreviewsreportsontheriskmanagementprocessinthecompany

andassessesthecompany’sexposuretothefollowingrisks:• operational,non-operationalandstrategicrisks

(top10risks);• humanresourceandtechnologyrisks;• businesscontinuityanddisasterrecoveryrisks;• creditandmarketrisks;and• compliancerisks.

Thiscommitteemeetstwiceannually,ormorefrequentlyifcircumstancesrequire,andreceivesquarterlyriskassessmentreportsfrommanagement.Unscheduled“redflag”reportsarereceivedfromthecommitteetohighlightunusualandsignificantriskswhentheneedarises.

TheRiskCommitteemeetings’attendanceregisterissetoutbelow:

20/02/2008 06/05/2008 15/07/2008 29/10/2008

EKDiack Apology

LGJJBonte Telecon

LPMondi Apology

MJNNjeke Apology Apology

NMCNyembezi-Heita

EMReato

HJVerster



Safety,HealthandEnvironmentalCommitteeTheSafety,HealthandEnvironmental(SHE)Committeehasbeenmandatedtoassisttheboardinensuringsoundmanagementofsafety,healthandenvironmentalmatters.Thecommitteecomprisestwoindependentnon-executivedirectors,DCGMurray(Chairman)andKDKMohkele;twoexecutivedirectors,NMCNyembezi-HeitaandLGJJBonte;andonetradeunionrepresentative,UASA’sPBezuidenhout.ThetradeunionrepresentationrotatesonanannualbasisamongstthethreerecognisedunionsatArcelorMittalSouthAfrica.

Thecommitteemeetstwiceayear,orwhenrequired,androtatesitsvisitsbetweenallplantsites.Themaindutiesofthecommitteeareto:• ensurethatthemanagementofsafety,health

andtheenvironmentinthecompanyisaligned

withtheoverallbusinessstrategyofthecompany;

• considerandapprovecorporatesafety,healthandenvironmentalstrategiesandpolicies;

• legalcomplianceandthefulfilmentofthecompany’scommitmentsandobligationsinsafety,healthandtheenvironment;

• monitorcompliancewithsuchstrategiesandpolicies;

• considerandapprovemajorsafety,healthandenvironmentalprojects;

• ensurethatitsmembersareinformedaboutallsignificantimpactsonthecompanyinthesafety,healthandenvironmentalfieldandhowthesearemanaged(processandactivities);

• monitorthecompany’ssafety,healthandenvironmentalperformance,progressandcontinualimprovement;and

• dealwithanyothermattersformallydelegatedbytheboardtothecommitteefromtimetotime.

TheSafety,HealthandEnvironmentalCommitteemeetings’attendanceregisterissetoutbelow:

01/04/2008 04/06/2008 01/10/2008

DCGMurray

LGJJBonte Apology

KDKMokhele

NMCNyembezi-Heita Apology

PBezuidenhout–UASAtradeunion

TransformationCommitteeFollowingtheDepartmentofTradeandIndustry’sreleaseinFebruary2007oftherevisedCodesofGoodBusinessPracticeonBroad-basedBlackEconomicEmpowerment(B-BBEE),aTransformationCommitteewasestablishedtodrivestrategyandtheachievementofB-BBEEtargetswithinthecompany.

TheTransformationCommitteeconsistsoftwoindependentnon-executivedirectors,KDKMokhele(Chairman),NDOrleyn;twonon-executivedirectors,DKChughandLPMondi;twoexecutivedirectors,NMCNyembezi-HeitaandHJVerster;andoneexpertco-optedmember,thegeneralmanager,

HR,atArcelorMittalSouthAfrica.Thegeneralmanager,HR,wassubsequentlyreplacedbyMsMarionGreen-Thompson,manager,transformation,atArcelorMittalSouthAfrica.

ThecommitteeistaskedwithoverseeingmanagementactionsandeffortstocomplywithB-BBEElegislation,ensuringthatthekeyelementsofthebalancedscorecard(ownership,managementcontrol,skillsdevelopment,employmentequity,preferentialprocurement,enterprisedevelopmentandsocio-economicdevelopment)areaddressed,approvingstrategiesandplanstoachieveB-BBEEcompliancestatusandtoconsiderandrecommendmajorB-BBEEprojects.


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Thiscommitteeisscheduledtomeetatleasttwiceayear.Itisimportanttonotethatmanytransformationissuesarediscussedbythefullboard.

TheTransformationCommitteemeetings’attendanceregisterissetoutbelow:

01/02/2008 19/03/2008

KDKMokhele

DKChugh Telecon Telecon

MLotter(ActinggeneralmanagerHR)

LPMondi

NMCNyembezi-Heita

NDOrleyn

EMReato

HJVerster

AdditionalcommitteesExecutive Committee

ThiscommitteeischairedbytheChiefExecutive

Officerandcomprisestheexecutivedirectors

ofthecompanyandmembersofthesenior

managementteam.Itmeetsformallyona

monthlybasis.TheExecutiveCommitteeandits

membersareindividuallymandated,empowered

andheldaccountableforimplementingthe

strategiesandkeypoliciesdeterminedbythe

board;managingandmonitoringthebusiness

andaffairsoftheorganisationinaccordancewith

approvedbusinessplansandbudgets;prioritising

theallocationofcapitalandotherresources;

ensuringcompliancewithlawsandadherenceto

goodgovernanceprinciples;andestablishingbest

managementandoperatingpractices.

Capital Review Committee

TheChiefExecutiveOfficerchairsthiscommittee,

whichalsoconsistsoftheCFO,thePresidentand

otherseniormanagers.Thecommitteemeets

formallyonamonthlybasisandisresponsible

forreviewingallrequestsforcapitalexpenditure

involvingamountsexceedingUSD5millionand

formonitoringtheeffectivefunctioningof

thecapitalexpendituremanagementprocess,

includingthepost-implementationreview

system.

Policies and proceduresBoardeffectivenessandevaluationInMarch2008,theboardembarkedonan

appraisalexerciseconductedbyexternal

consultantstoevaluatetheeffectivenessof

theboardandboardcommittees.Theprocess

comprisedoralinterviewswithmembersofthe

boardandchairmenoftheboardcommitteesas

wellasthecompletionofindividualquestionnaires

byeachmemberoftheboard.TheChairmanand

theHumanResourcesandNominationsCommittee

reviewedtheoutcomeoftheexerciseand

communicatedthefindings.

Onthewhole,theboardwasfoundto

operateeffectivelyandtheChairmanmade

recommendationstotheboardtoaddresscertain

areaswhichrequiredimprovement.

ProfessionaladviceandCompanySecretaryThedirectorsareentitled,atthecompany’s

expense,toseekindependentprofessionaladvice

abouttheaffairsofthecompanyregardingthe

executionoftheirduties.Theyalsohaveaccess

totheadviceandservicesoftheCompany

Secretary,whoplaysanactiveroleinthe

corporategovernanceofthecompanyandisthe

centralsourceofinformationtotheboard.



TheCompanySecretaryandChairmanoftheboardensurethattheaffairsoftheboardaremanagedeffectively.TheCompanySecretaryalsoensuresthatthecompanyanditssubsidiariesarefullycompliantwithstatutory,regulatoryandbestpracticerequirements.WithinthecompanytheCompanySecretaryoverseesmattersofbusinessethicsandgoodcorporategovernance.AppointmentandremovaloftheCompanySecretaryaredealtwithbytheboard.

Price-sensitiveinformationTheboardacknowledgesitsresponsibilityforensuringtheequaltreatmentofallshareholders.Tothisend,adisclosureofinformationpolicyisinplaceandsetsoutthenecessaryguidelinesthathavetobeadheredtoatalltimesintheexternalcommunicationofthecompany’saffairs.

InsidertradingInlinewithbestpractice,noemployeeordirectormaydeal,directlyorindirectly,inArcelorMittalSouthAfricasharesonthebasisofunpublishedprice-sensitiveinformationregardingthebusinessoraffairsofthecompany.Furthermore,nodirectororanyemployeewhoparticipatesinthemanagementsharescheme,maytradeinArcelorMittalSouthAfricasharesduringtheembargoperiodsdeterminedbytheboard.Theseincludetheperiodsbetweentheendofthequarterly,interimandannualreportingperiodsrespectively,andtheannouncementoffinancialandoperatingresultsforsuchperiods.

InaccordancewiththeListingsRequirementsoftheJSE,procedureshavebeenputinplacetoensurethatnodirectorofthecompanytradesinthecompany’sshareswithouttherequisiteapproval.

RemunerationpolicyArcelorMittalSouthAfricafollowsadifferentiatedremunerationapproach,basedonbestpracticesintheindustry.Annualbenchmarkingwithinthegroupandsimilarcompaniesbeyondtheworldofsteel,aswellasindividualperformances,arefactoredintofinalremunerationreviews.AccountabilityforthedesignandimplementationoftherewardstrategyandpracticesisvestedwithintheHumanResourcesandNominations

Committee,asub-committeeoftheboard.Theremunerationapproachisbasedonguaranteedandvariablepayandisalsolinkedtotheemployee’sindividualcompetencyandperformance.Thissystemisnegotiatedandagreedwithrecognisedtradeunionsandiscontainedwithinthecompany’sCollectiveAgreement.

AstockoptionplanisavailableforseniormanagersandformspartofArcelorMittal’srewardandretentionstrategyensuringthattheorganisationretainstheservicesofkeyresources.TheneedtoexpandandexchangefunctionalexpertisewithintheArcelorMittalgroup,isrecognised.Internationalmobilityisakeydrivertoensureattractionandretentionofkeyskillswithinthegroup.

Non-executivedirectorsNon-executivedirectorsreceiveanannualfeeandinadditionarepaidafeeforattendingandcontributingtoboardmeetings.TheChairmanreceivesafixedannualfeethatisinclusiveofallboardandboardcommitteeattendances.ArcelorMittalSouthAfricareimbursesnon-executivedirectorsforalltravellingandaccommodationexpensesinrespectofboardandboardcommitteemeetingsinaccordancewithcompanypolicy.

ExecutivedirectorsExecutivedirectorsarepaidabasesalaryaswellasavariableperformance-linkedbonusandalsoparticipateinthecompany’ssharescheme.TheseareestablishedintermsofArcelorMittalSouthAfrica’sremunerationprinciples,whichaimtorewarddirectorsappropriatelyinlinewiththemarketaswellaswithregardtotheirperformance.TheHumanResourcesandNominationsCommitteeundertakesanannualreviewofeachexecutivedirector’spay,includingthatoftheChiefExecutiveOfficer.Italsoapprovesthebonusstructureincludingperformanceparameterseachyear.

Annual financial statementsTheboardacknowledgesitsresponsibilityforensuringthepreparationoftheannualfinancialstatementsinaccordancewithInternational


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FinancialReportingStandards(IFRS)andtheresponsibilityoftheexternalauditorstoreportonthesefinancialstatements.Theboardisresponsibleforensuringthemaintenanceofadequateaccountingrecordsandeffectivesystemsofinternalcontrol.Duringtheyearunderreviewnothinghascometotheboard’sattentiontoindicatethatanybreakdowninthefunctioningoftheinternalcontrolsandsystemshasoccurredwhichcouldhaveamaterialimpactonthebusiness.

Theannualfinancialstatementsarepreparedfromtheaccountingrecordsonthebasisoftheconsistentuseofappropriateaccountingpoliciessupportedbyreasonableandprudentjudgementsandestimatesthatfairlypresentthestateofaffairsofthecompany.

Thefinancialstatementshavebeenpreparedona“goingconcern”basisandthereisnoreasontobelievethatthecompanywillnotcontinueasagoingconcerninthenextfinancialyear.ArcelorMittalSouthAfricaplacesstrongemphasisonachievingthehighestlevelsoffinancialmanagement,accountingandreportingtostakeholders.OuraccountingpoliciesandpracticesalsoconformtoIFRS.

Legal complianceAlegalcomplianceprogrammedesignedtoincreaseawarenessof,andimproveadherenceto,applicablelegislationandregulationisinplace.Thisprogrammeinvolvesthedelegationofresponsibilityforcompliancetodesignatedmanagersequippedtodealwiththeareaoflegalcompliance.AcomplianceframeworkdocumenthasbeenpreparedbylegalcounselandpresentedtotheExecutiveCommittee.Itisexpectedtoberolledoutinthefirsthalfofthisyearandisaimedatfurtherentrenchingasoundcomplianceculture.Aregularreviewoflegislationandtheirimpactisalsoconducted.Legalcompliancefallsundertheauspicesofthecompany’slegalcounselwhoreportsregularlytotheChiefExecutiveOfficerandtheExecutiveCommittee.

Sustainable developmentSustainabledevelopmentisacornerstoneofhowwedobusinessascapturedinourvisionof

producingsafe,sustainablesteel.Thisretainsourfocusonourkeygoalofimprovingthecompany’sfinancialviabilitywhilstensuringsocialequityandprotectingtheenvironmentinwhichweoperate.Beingasolidcorporatecitizeniscriticaltoourapproachtobusiness.

OurpoliciesandinitiativesaimedatachievingoursustainabledevelopmentobjectivesarecoveredextensivelyintheSustainabilityReportaccompanyingthisreport.Theseinclude:• socialresponsibility,includingeducationand

communitydevelopment;• safety,healthandenvironmentalmanagement,

policiesandpractices;• employeeissuessuchasemploymentequity,

thepotentialimpactofHIV/Aidsonouractivitiesandthedevelopmentofhumancapital;

• initiativestosupportBroad-basedBlackEconomicEmpowerment;and

• theidentificationandmanagementofrisk.

OursustainabilityreportisinaccordancewiththeGlobalReportingInitiativeguidelines.WealsosupportthestrategiesadoptedbytheWorldSteelAssociation(formerlytheInternationalIronandSteelInstitute)ofwhichweareanactivemember.

Internal assuranceTheinternalassurancedepartmentisintegraltoensuringeffectivecorporategovernanceprocesses.Itsmainareasoffocusincludeallaspectsconcerninginternalcontrols,riskmanagement,controlself-assessment,compliance,andreliabilityofthefinancialrecordsandthesafeguardingofassets.Theinternalassuranceteamassiststheboardinensuringasoundsystemofriskmanagement,internalcontrolandgovernance.

TheinternalassurancedepartmentisfullymandatedbyandaccountabletotheAuditCommittee,whichapprovestheinternalauditworkplanfortheyearandmonitorsthedepartment’sperformance.Aninternalauditcharterdefinesthepurposes,authorityandresponsibilityoftheinternalauditfunction.



Risk managementArcelorMittalSouthAfrica’senterpriseriskmanagementpolicy(ERM),comprisingthestandardoperatingprocedures,policystatementandcharter,wasrevisedtoalignthepolicywithworldbestpractices,KingIIIproposalsandthedraftISO31000standard.TherevisedpolicyisalsoinlinewiththecodeofpracticeaslaidoutbytheRiskManagementFederationofSouthAfricaandtheArcelorMittalgroupriskmanagementpolicy.

ERMisanintegratedapproachtoriskmanagement,whosekeyobjectivesareto:• Effectivelyidentify,assess,monitorand

reportalltherisksandopportunitieswhichtheorganisationisexposedto;

• Implementinterventionprotocolstoadequatelymitigatetheseexposures;and

• Ensurethattheriskmanagementprocessisadequatelycontrolledandassessedonacontinualbasis.

Theriskmanagementprocessatthecompanyisoverseenbytheboard’sRiskCommittee.AchiefriskofficerpreparesaconsolidatedriskmanagementreportthatispresentedtotheExecutiveCommittee,theRiskManagementCommittee,theAuditCommitteeandfinallytotheboardofdirectors.

Thecompanyhasdocumentedbusinesscontinuityplansinplacewhichwillallowittocontinueitscriticalbusinessprocessesintheeventofadisastrousincidentimpactingonitsactivities.

AlistofArcelorMittalSouthAfrica’skeysystemicandbusinessrisksisonpage7oftheSustainabilityReport.

InsuranceThecompany’sinsurancedepartmentundertakesregularlosspreventionauditsofallthecompany’splantsandoperationsusingrecognisedinternationalproceduresandstandards.Thecompanyparticipatesinlocalandinternationalinsuranceprogrammesthatprovide,atcompetitivecosts,insurancecoverforlossesaboveagreeddeductibles.

CodeofbusinessconductArcelorMittalSouthAfricaiscommittedtothehigheststandardsofethicalandprofessionalconductwhichapplytoalldirectors,employeesandcontractors.Thecompany’scorevaluesofhonesty,integrityanddignityarefirmlyentrenchedinthecompany’scodeofbusinessconduct.Thecodecoversarangeofbehaviours,including:• compliancewithlawsandregulations;• preventionofconflictsofinterest;• fairdealing;• respectfortheenvironment;• protectionofconfidentialinformation;and• respectfortheworkplaceenvironment.

Thecompanyhasananonymousfraudhotlinewhichencouragesemployees,customers,suppliersandotherinterestedpartiestoreportincidentsofunethicalandcorruptbehaviour.AllreportedincidentsareinvestigatedbyauditorsErnst&Youngandoutcomesoftheinvestigationsarecommunicatedtoemployees.

Theanti-fraudriskprofiletrainingwasrolledoutduring2008,identifyingareaswheretheriskoffraudishighest,raisingawarenessofthehotlineamongmanagersandhighlightingtheconsequencesofbeingfoundoutaftercommittingfraud.


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Supplementary informationDefinitions

Cash and cash equivalentsCashandcashequivalentsincludecashonhand,depositsheldatcallwithbanks,andothershort-termhighlyliquidinvestmentswithoriginalmaturitiesofthreemonthsorless,whicharesubjecttoaninsignificantriskofchangesinvalue.

Current ratioCurrentassetsdividedbycurrentliabilities.Currentliabilitiesincludeshort-termborrowingsandinterest-freeliabilitiesotherthandeferredtaxation.

Dividend coverHeadlineearningsperordinarysharedividedbydividendsperordinaryshare.

Dividend yieldDividendsperordinarysharedividedbytheyear-endsharepriceattheJSELimited.

Earnings per ordinary share➧ Attributableearningsbasis Basicearningsattributabletoordinary

shareholdersdividedbytheweightedaveragenumberofordinarysharesinissueduringtheyear.

➧ Headlineearningsbasis Earningsattributabletoordinaryshareholders

adjustedforprofitsandlossesonitemsofacapitalnaturerecognisingthetaxationandminorityimpactsontheseadjustmentsdividedbytheweightedaveragenumberofordinarysharesinissueduringtheyear.

➧ Dilutedearningsbasis Earningsattributabletoordinaryshareholders

dividedbytheweightedaveragenumberofordinarysharesinissueduringtheyearincreasedbythenumberofadditionalordinarysharesthatwouldhavebeenoutstandingassumingtheconversionofalldilutivepotentialordinaryshares.

Financial cost coverNetoperatingprofitdividedbynetfinancingcosts.

Financial gearing (debt:equity ratio)Interest-bearingdebtlesscashandcashequivalentsasapercentageoftotalshareholders’equity.

Headline earnings yieldHeadlineearningsperordinarysharedividedbytheyear-endsharepriceattheJSELimited.


Invested capitalNetequity,interest-bearingdebt,non-currentprovisionsanddeferredtaxationlesscashandcashequivalents.

Net assetsSumofnon-currentassetsandcurrentassetslessallcurrentinterest-freeliabilities.

Net asset turnRevenuedividedbyclosingnetassets.

Net equity per ordinary shareOrdinaryshareholders’equitydividedbythenumberofordinarysharesinissueattheyear-end.

Number of years to repay interest-bearing debtInterest-bearingdebtdividedbycashflowfromoperatingactivitiesbeforedividendspaid.

Operating marginNetoperatingprofitasapercentageofrevenue.

Price-earnings ratioTheclosingsharepriceontheJSELimiteddividedbyearningsperordinaryshare.

Return on ordinary shareholders’ equity

➧ Attributableearnings Basicattributableearningstoordinary

shareholdersasapercentageofaverageordinaryshareholders’equity.

➧ Headlineearnings Headlineearningsattributabletoordinary

shareholdersasapercentageofaverageordinaryshareholders’equity.

Return on invested capitalNetoperatingprofitplusincomefromnon-equityaccountedinvestmentsplusincomefrominvestmentsinassociatesandincorporatedjointventuresasapercentageoftheaverageinvestedcapital.

Return on net assetsNetoperatingprofitplusincomefromnon-equityaccountedinvestmentsplusincomefrominvestmentsinassociatesandincorporatedjointventuresasapercentageoftheaveragenetassets.

Revenue per employeeRevenuedividedbytheaveragenumberofemployeesduringtheyear.

Weighted average number of shares in issueThenumberofsharesinissueatthebeginningoftheyear,increasedbysharesissuedduringtheyear,weightedonatimebasisfortheperiodwhichtheyhaveparticipatedintheincomeofthegroup.Inthecaseofsharesissuedpursuanttoasharecapitalisationawardinlieuofdividends,theparticipationofsuchsharesisdeemedtobefromthedateofissue.

Weighted average price paid per share tradedThetotalvalueofsharestradedeachyeardividedbythetotalvolumeofsharestradedfortheyearontheJSELimited.

Supplementary information continued


51

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JSE Limited

StatisticsYearended31December

2008 2007 2006 2005 2004

Numberofordinaryshares traded(m) 348 251 248 294 298Numberoftransactions(‘000) 308 136 90 87 50Valueofordinaryshares traded(Rm) 54435 31887 18069 15953 11518Volumeofsharestraded(%) 78 56 56 66 67Year-endmarketprice/ headlineearningsratio (times)–annualised 4.2 10.6 9.3 5.4 6.4Headlineearningsyieldat year-end(%)–annualised 24.1 9.4 10.8 18.6 15.6Dividendyieldatyear-end (%)–annualised 8.0 3.1 3.5 6.2 6.1Marketpriceperordinary share(cents) –year-end 8845 13650 9825 6125 6550 –highest 26500 15300 9900 6930 6850 –lowest 5865 9153 5640 4160 2650 –weightedaveragepricepersharetrade 15642 12704 7286 5426 3865Year-endmarketprice/net equityperordinaryshare (times) 1.41 2.96 1.88 1.40 1.84Marketcapitalisationat year-end(Rm) 39427 60845 43795 27302 29197ArcelorMittalSouthAfricasharepriceindex (base:2003=0) 307 474 341 213 227JSEActuariesindex– Industrial(base2003=0) 246 299 259 188 143



SelectedgroupfinancialdatatranslatedintoUSDollarsandEurosfortheyearended31December2008

2008USD

million

2007USD

million

2008Euro

million

2007Euro

million

Incomestatement

Revenue 4832 4150 3307 3033

Operatingexpenses (3360) (3059) (2300) (2236)

Profitfromoperations 1472 1091 1007 797

Gains/(losses)onchangesinforeignexchangeratesand financialinstrumentsdesignatedasheld-for-trading atfairvaluethroughprofitorloss 77 (19) 53 (14)

Interestreceived 38 63 26 46

Financecosts (29) (17) (20) (12)

Incomefrominvestments 1

Impairmentreversal 4 3

Incomeaftertaxfromequity-accountedinvestments 40 38 27 28

Profitbeforetax 1602 1157 1096 845

Incometaxexpense (468) (348) (320) (254)

Profitfortheyear 1134 809 776 591

Attributableearningspershare(cents) 255 182 174 133

Headlineearnings 1148 813 786 594

Headlineearningspershare(cents) 258 182 176 133


53

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SelectedgroupfinancialdatatranslatedintoUSDollarsandEuroscontinuedfortheyearended31December2008

2008USD

million

2007USD

million

2008Euro

million

2007Euro

million

StatementoffinancialpositionAssetsNon-currentassets 1934 2480 1390 1684Property,plantandequipment 1694 2279 1218 1548Intangibleassets 8 9 5 6Unlistedequity-accountedinvestments 210 163 151 111Otherfinancialassets 22 29 16 19

Currentassets 2053 1662 1474 1129Inventories 920 703 661 478Tradeandotherreceivables 216 337 155 229Taxation 16 11Otherfinancialassets 19 14 13 9Cashandcashequivalents 898 592 645 402

Totalassets 3987 4142 2864 2813EquityandliabilitiesShareholders’equity 2982 3023 2142 2052Statedcapital 4 5 3 4Non-distributablereserves 160 111 115 75Retainedincome 2818 2907 2024 1973

Non-currentliabilities 508 627 365 427Borrowingsandotherpayables 5 8 4 5Financeleaseobligations 33 48 24 33Non-currentprovisions 201 189 144 129Deferredincometaxliability 269 382 193 260

Currentliabilities 497 492 357 334Tradeandotherpayables 360 422 258 286Borrowingsandotherpayables 4 1 3 1Otherfinancialliability 17 10 12 7Financeleaseobligations 4 13 3 9Taxation 83 60Currentprovisions 29 46 21 31

Totalequityandliabilities 3987 4142 2864 2813



SelectedgroupfinancialdatatranslatedintoUSDollarsandEuroscontinuedfortheyearended31December2008

2008USD

million

2007USD

million

2008Euro

million

2007Euro

million

Condensedstatementofcashflow

Cashinflowsfromoperatingactivities 667 655 457 479

Cashoutflowsfrominvestingactivities (219) (248) (150) (181)

Netcashflowbeforefinanceactivitiesandcapitalreduction 448 407 307 298

Cashoutflowsfromfinancingactivities (15) (911) (10) (666)

Increaseincashandcashequivalents 433 (504) 297 (368)

Effectofforeignexchangeratechanges (129) 273 (54) 76

Cashandcashequivalentsatbeginningofyear 592 823 402 694

Cashandcashequivalentsatendofyear 898 592 645 402

Thegroupstatementsonthesepageshavebeen expressedinUSDandEuroforinformationpurposes. TheaverageR/USDandR/Euroratefortheyearhas beenusedtotranslatetheincomeandcashflow statements,whilethebalancesheethasbeentranslated attheclosingrateasatthelastdayofthereporting period.

R=USDatyear-end 9.39 6.81

R=USDaveragefortheyear 8.26 7.06

R=Euroatyear-end 13.07 10.03

R=Euroaveragefortheyear 12.07 9.66


55

Contents56 Directors'responsibilityand

approvalofthegroupandcompanyannualfinancialstatements

56 Certificatebycompanysecretary

57 Reportoftheindependentauditors

58 Directors'report

61 Directors'remunerationreport

64 Groupandcompanyincomestatements

65 Groupandcompanystatementsofcomprehensiveincome

66 Groupandcompanystatementsoffinancialposition

67 Groupandcompanystatementsofcashflows

68 Groupandcompanystatementsofchangesinequity

70 Notestothegroupandcompanyannualfinancialstatements

Annexures

193 1.Unlistedequity-accountedinvestments

196 2.Investmentsinsubsidiaries

Annual financial

statements


Directors’ responsibility and approval of the group and company annual financial statements

Certificate by Company Secretary

TothemembersofArcelorMittalSouthAfricaLimited

ThedirectorsarerequiredbytheSouthAfricanCompaniesActtomaintainadequateaccountingrecordsandareresponsibleforthecontentandintegrityofthegroupandcompanyannualfinancialstatementsandrelatedfinancialinformationincludedinthisreport.Itistheirresponsibilitytoensurethattheannualfinancialstatementsfairlypresentthestateofaffairsofthegroupandcompanyasattheendofthefinancialyearandtheresultsofitsoperationsandcashflowforthefinancialyear,inconformitywithInternationalFinancialReportingStandards,JSEListingsRequirementsandapplicablelegislation.Thegroup’sexternalauditorsareengagedtoexpressanindependentopiniononthegroupandcompanyannualfinancialstatements.

Inorderforthedirectorstodischargetheirresponsibilities,managementhasdevelopedandcontinuestomaintainasystemofinternalcontrolaimedatreducingtheriskoferrororlossinacost-effectivemanner.Thedirectors,primarilythroughtheauditcommittee,whichconsistsofindependentnon-executivedirectors,meetperiodicallywiththeexternalandinternalauditors,aswellasexecutivemanagementtoevaluatemattersconcerningaccountingpolicies,internalcontrol,auditingandfinancialreporting.Thegroup’sinternalauditorsindependentlyevaluatetheinternalcontrols.Theexternalauditorsareresponsibleforreportingonthefinancialstatements.Theexternalandinternalauditorshaveunrestrictedaccesstoallrecords,propertyandpersonnelaswellastotheauditcommittee.Thedirectorsarenotawareofanymaterialbreakdowninthefunctioningofthesecontrolsandsystemsduringtheperiodunderreview.

Thedirectorsareoftheopinion,basedontheinformationandexplanationsgivenbymanagementandtheinternalauditorsthatthesystemofinternalcontrolprovidesreasonableassurancethatthefinancialrecordsmaybereliedonforthepreparationofthegroupandcompanyannualfinancialstatements.However,anysystemofinternalfinancialcontrolcanprovideonlyreasonable,andnotabsoluteassuranceagainstmaterialmisstatementorloss.

Thedirectorshavereviewedthegroupandcompany’sfinancialbudgetsfortheyearto31December2009.Inlightofthecurrentfinancialpositionandexistingborrowingfacilities,theyconsideritappropriatethattheannualfinancialstatementsbepreparedonthegoing-concernbasis.

Theexternalauditorshaveauditedtheannualfinancialstatementsofthegroupandcompanyandtheirunmodifiedreportappearsonpage57.

Thedirectorsofthecompanyacceptresponsibilityfortheannualfinancialstatementswhichwereapprovedbytheboardofdirectorson13March2009andaresignedonitsbehalfby:

NNyembezi-Heita HJVersterChiefExecutiveOfficer ExecutiveDirectorFinance13March2009 13March2009

InmycapacityastheCompanySecretary,Iherebyconfirm,intermsoftheSouthAfricanCompaniesAct,1973asamended,thatfortheyearended31December2008,ArcelorMittalSouthAfricaLimitedhaslodgedwiththeRegistrarofCompaniesallsuchreturnsasarerequiredofapubliccompanyintermsofthisAct,andthatallsuchreturnsare,tothebestofmyknowledgeandbelief,true,correctanduptodate.

MsCSingh13March2009


57

Report of the independent auditors

TotheshareholdersofArcelorMittalSouthAfricaLimited

WehaveauditedtheannualfinancialstatementsandgroupannualfinancialstatementsofArcelorMittalSouthAfricaLimited,whichcomprisethedirectors’reportandthestatementoffinancialpositionandtheconsolidatedstatementoffinancialpositionasat31December2008andtheincomestatementandtheconsolidatedincomestatement,thestatementofcomprehensiveincomeandtheconsolidatedstatementofcomprehensiveincome,thestatementofcashflowsandtheconsolidatedstatementofcashflows,thestatementofchangesinequityandconsolidatedstatementofchangesinequityfortheyearthenended,asummaryofsignificantaccountingpoliciesandotherexplanatorynotes,assetoutonpages58to197.

Directors’responsibilityforthefinancialstatementsThecompany’sdirectorsareresponsibleforthepreparationandfairpresentationofthesefinancialstatementsinaccordancewithInternationalFinancialReportingStandards,andinthemannerrequiredbytheCompaniesActofSouthAfrica.Thisresponsibilityincludes:designing,implementingandmaintaininginternalcontrolrelevanttothepreparationandfairpresentationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror;selectingandapplyingappropriateaccountingpolicies;andmakingaccountingestimatesthatarereasonableinthecircumstances.

Auditors’responsibilityOurresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudit.WeconductedourauditinaccordancewithInternationalStandardsonAuditing.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreefrommaterialmisstatement.

Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.Theproceduresselecteddependontheauditor’sjudgement,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheentity’spreparationandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriatenessofaccountingprinciplesusedandthereasonablenessofaccountingestimatesmadebythedirectors,aswellasevaluatingtheoverallfinancialstatementpresentation.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

OpinionInouropinion,thefinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionofthegroupandofthecompanyasat31December2008,andoftheirfinancialperformanceandtheircashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandards,andinthemannerrequiredbytheCompaniesActofSouthAfrica.

Deloitte&ToucheRegisteredAuditorsPerRMDuffyPartner13March2009

Deloitte&ToucheBuildings1and2,DeloittePlace Docex10JohannesburgTheWoodlandsOfficePark,WoodlandsDrive PrivateBagX6,GalloManor2052WoodmeadSandton SouthAfrica

NationalExecutive:GGGelink,ChiefExecutive;AESwiegers,ChiefOperatingOfficer;GMPinnock,Audit;DLKennedy,Tax&LegalandFinancialAdvisory;LGeeringh,Consulting;LBam,CorporateFinance;CRBeukman,Finance;TJBrown,ClientsandMarkets;NTMtoba,ChairmanoftheBoard.Afulllistofpartnersanddirectorsisavailableonrequest.


Directors’ reportfortheyearended31December2008

Thedirectorshavepleasureinpresentingtheirreportfortheyearended31December2008.

NatureofbusinessArcelorMittalSouthAfricaLimited,incorporatedinSouthAfrica,istheleadingsteelproducerontheAfricancontinent,

producinglongandflatproductsandbeneficiatingitsby-products.

FinancialresultsandactivitiesEarnings

2008 2007

Basicearnings(Rm) 9381 5716

Headlineearnings(Rm) 9484 5741

Basicearningspershare(cents) 2105 1282

Headlineearningspershare(cents) 2128 1288

Netassetvalue(Rm) 27995 20583

Netassetvaluepershare(cents) 6280 4618

Detailedreportsontheactivitiesandperformanceofthegroupandthevariousdivisionsofthegrouparecontainedinthe

reportonpages20to35.

Accountingpolicies,restatementsandreclassificationsThegrouphasadoptedallofthenewrevisedandamendedstandardsandinterpretationsissuedbytheInternational

AccountingStandardsBoard(IASB)andtheInternationalFinancialReportingInterpretationsCommittee(IFRIC)ofthe

IASBthatarerelevanttoitsoperationsandeffectiveforaccountingperiodsbeginningonorafter1January2008.

Certainstandardsandinterpretationshavebeenearlyadoptedandaredescribedinnote2tothefinancialstatements.

DividendsAfinaldividendof196centspershareforthefinancialyearended31December2007wasdeclaredon8February2008

andpaidtoshareholderson17March2008.

Theboarddeclaredaninterimdividendof342centspershareon24July2008whichwaspaidtoshareholderson

1September2008.

Thetotaldividendfortheyearamountedto538centspershare(2007:437centspershare).

Theboardhasdeclaredafinaldividendof365centspershareforthefinancialyearended31December2008,payableto

shareholdersregisteredatclose-of-businesson13March2009.Dividendswillbepaidonorabout16March2009.The

SecondaryTaxonCompanies(STC)onthefinaldividenddeclaredamountstoR163million.


59

InsuranceInaccordancewiththeEnterprise-WideRiskManagementPolicyadoptedbythegroup,allinsurableexposureswerecovered.

Insurancecoverwasobtainedinboththelocalandoffshoremarketsthroughthegroupcaptiveinsurers.Thelargestexposure

tothegroupisthepotentialmaterialdamageandbusinessinterruptionlossesfromdamagetothegroupassets.Theinsurance

premiumfortheyearamountedtoR150million,ofwhichR101millionwasforcoveronassetsvaluedatR91992million.

Property,plantandequipmentTherewasnochangeinthenatureoftheproperty,plantandequipmentofthegrouporinthepolicyregardingtheiruse

duringtheyearunderreview.CapitalexpenditureamountedtoR1832million(December2007:R1852million).The

estimatedR1420millionofcapitalexpenditureenvisagedtobespentduringthe2009financialyearwillbefundedfrom

internalsources.

ArcelorMittalSouthAfricaDistribution(Proprietary)Limitedacquiredproperty,plantandequipmentfromTridentSteel

(Proprietary)LimitedforanamountofR63million.ThetransactionwasunconditionallyapprovedbytheCompetition

Commissionon12December2008.

ShareholdersresolutionsAtthetwentiethannualgeneralmeetingofshareholders,heldon7May2008,aspecialresolutionwaspassedauthorising

thedirectorstorepurchasecompanysharesintermsoftheauthoritygrantedinthearticlesofassociationofthecompany.

ThesubsidiariesofArcelorMittalSouthAfricaLimitedhavepassednootherordinaryorspecialresolutionsofmaterialinterest

orofasubstantivenature.

StatedcapitalAuthorisedTheauthorisedcapitalof1200000000ordinarysharesremainedunchangedduringtheyear.

IssuedThetotalnumberofordinarysharesinissueremainedunchangedduringtheyearat445752132shares.

ShareholdersTheissuedsharesofthecompanyarewidelyheldbythepublic.Ananalysisofshareholdersandshareholdingsappearson

page198.MittalSteelHoldingsAG,ascontrollingshareholder,hasashareholdingof52.02%.

Investmentsinjointventures,associatesandsubsidiariesThefinancialinformationinrespectofinterestsinjointlycontrolledentities,associatesandsubsidiariesofthecompanyis

disclosedinnotes20and21andAnnexure1and2tothefinancialstatements.

BorrowingpowersTheborrowingpowersofthecompanyarelimitedtototalequityasdetailedinnote32.6.


Directors’ report continuedfortheyearended31December2008

DirectorateandshareholdingsThenamesofthedirectorsinofficeandservingonthevariouscommitteesoftheboardatthedateofthisreportaresetout

onpage200.

Thefollowingchangestookplacetotheboardduringtheyear:

Resignations•EMReato Resignedwitheffect29February2008asChiefExecutiveOfficer

•MMukherjee Resignedwitheffect13May2008asnon-executivedirector

•MALWurth Resignedwitheffect30November2008asnon-executivedirector

Appointments• NNyembezi-Heita Appointed1March2008asChiefExecutiveOfficer

• DrLGJJBonte Appointed1March2008asPresident

• CPDCornier Appointed14May2008asnon-executivedirector

• AMHOPoupart-Lafarge Appointed24July2008asalternatenon-executivedirectorandon

30November2008asnon-executivedirector

Bothexecutiveandnon-executivedirectorsaresubjecttoretirementbyrotation.

Thefollowingnon-executivedirectorswillretirebyrotationandbeingeligibleforre-election,haveofferedthemselvesforre-election:

• CPDCornier

• SMaheshwari

• DrKDKMokhele

• AMHOPoupart-Lafarge

Thefollowingexecutivedirectorwillretirebyrotationandbeingeligibleforre-election,hasofferedhimselfforre-election:

• HJVerster

Thedetailsofthedirectandindirectinterestsofdirectorsinthesharesofthecompanyaresetoutinthedirectors’

remunerationreport.

AuditorsDeloitte&TouchecontinuedinofficeasauditorsofArcelorMittalSouthAfricaLimitedanditssubsidiaries.Attheannual

generalmeetingof12May2009shareholderswillberequestedtoappointDeloitte&ToucheasauditorsofArcelorMittal

SouthAfricaLimitedforthe2009financialyearanditwillbenotedthatMrRMDuffywillbetheindividualregisteredauditor

thatwillundertaketheaudit.

SecretaryTheCompanySecretaryisMsCSingh.Herbusinessandpostaladdressesappearonpage200.

SubsequenteventsThedirectorsarenotawareofanymatterorcircumstancearisingsincetheendofthefinancialyear,nototherwisedealtwith

inthisreportorinthegroupandcompanyfinancialstatementsthatwouldsignificantlyaffecttheoperationsortheresultsof

thegroupandcompany.


61

GovernancestructuresAccountabilityforthedesignandimplementationofcompensationandbenefitspoliciesandpracticesinaccordancewith

goodcorporategovernanceisvestedinthehumanresourcesandnominationscommittee.Thisisasub-committeeofthe

ArcelorMittalSouthAfricaLimitedboardandassiststheboardindischargingtheirdutiesandresponsibilities.Itstermsof

reference,asapprovedbytheboardofdirectorson27May2004,mandatethecommitteeto,amongothers,performthe

followingduties:

• determineandagreewiththeboardthepolicyframeworkforremunerationofdirectors,seniormanagementandallother

employeecategories;

• determinethetargetsandrulesforanyperformance-relatedpayschemesaswellaslong-termincentives;

• approvegeneralsalaryandwageadjustments;

• withinpolicydeterminetheremunerationpackagesofexecutiveandnon-executivedirectors;

• determinethepolicyandscoperegardingpensionarrangementsandserviceagreementsfortheexecutivedirectors;

• ensurecompliancewiththecompany’ssuccessionplanningfortopmanagement;

• recommendallexecutiveappointmentstotheboard;

• ensuremarketcompetitivenessofremunerationfornon-executivedirectors;and

• ensurethattheboardanditssub-committeeshavethecapacitytodischargetheirresponsibilitiesinthemosteffectiveand

knowledgeableway.

Thecommitteeiscomposedoffivemembers;fourofwhomarenon-executivedirectors.Threeareindependent;

MsNDOrleyn,theChairperson,DrKDKMokheleandMrDCGMurrayandonerepresentstheholdingcompany;MrDKChugh.

MrBFontana,theExecutiveVicePresident,HumanResourcesofArcelorMittalgroupisthefourthmemberappointedin2005

inordertostrengthenthecommittee’sknowledgebaseonglobalhumanresourcemanagementpractices.

TheChiefExecutiveOfficerandGeneralManager,HumanResourcesofArcelorMittalSouthAfricaattendmeetingsexofficio,

butdonotformpartofcommitteemanagementanddecision-making.

Remunerationofdirectors• Theremunerationstrategyandpracticeforexecutivedirectorsdoesnotdiffertothatofotherseniormanagersofthe

company.Itconsistsoftwocomponents:afixedcomponentofguaranteedpayandavariablecomponentcomprising

anannualperformancebonuswhichisalignedwiththeArcelorMittalgroupperformanceincentivescheme.Long-term

incentivesconsistofparticipationintheshareoptionscheme.

Fixedsalariesarereviewedandalignedwithmarketbenchmarksannually;basedonthescopeoftheindividual’s

responsibilitiesaswellasperformance.Performancebonusesarepaidbasedonbusinessperformancemoderatedby

strategicbehaviourrequirementssuchasachievementofsafetyandemploymentequitytargets.

Benefitsincludesubsidisedmembershipofthecompany’saccreditedmedicalaidschemesaswellasretirementandrisk

benefits,likelifecoveranddeath-in-servicebenefits.Thescopeandnatureofthesebenefitsarethesameasforanyother

managerialemployee.

Executivedirectorshavestandardemploymentserviceagreementswithnoticeperiodsrangingfrom30to60days.

• Onlyindependentnon-executivedirectorsreceivedirectors’feesbasedonthescopeandextentoftheirresponsibilities.

Theseemolumentsarereviewedannuallytomaintainalignmentwithmarketbenchmarks.Thefeesareapprovedby

shareholdersattheannualgeneralmeeting.

Intermsofthecompany’sarticlesofassociationone-thirdofthedirectorsretireattheannualgeneralmeetingheldeach

year.Retiringdirectorsshallbeeligibleforre-election.

Directors’ remuneration reportfortheyearended31December2008


Directors’remunerationforArcelorMittalSouthAfricaanditssubsidiaries

NotesFees

R

Basicsalary

R

Bonuses/performance-

relatedpayments

R

Allow-ances

(note7)R

Otherbenefits(note8)

R

Retirementcontributions

R

Lossofoffice

(note9)R

TotalR

Fortheyearended31December2008ExecutivedirectorsLGJJBonte 1 2468890 231542 1324057 4024489NNyembezi-Heita 2 2529951 2000000 140941 18300 259709 4948901EMReato 3 391407 28116 14040 34641 2086526 2554730LLvanNiekerk 4 1312500 1312500HJVerster 2055094 838330 33167 32094 171022 3129707Sub-total 7445342 3069872 1526281 64434 465372 3399026 15970327

Non-executivedirectorsEKDiack 292000 292000KDKMokhele 710000 710000LPMondi 5 262000 262000DCGMurray 322000 4328 326328MJNNjeke 6 322000 322000NDOrleyn 282000 282000Sub-total 2190000 4328 2194328Total 2190000 7445342 3069872 1530609 64434 465372 3399026 18164655

Fortheyearended31December2007ExecutivedirectorsEMReato 2245410 816046 96712 64609 199300 3422077

HJVerster 1759869 587553 8604 146549 2502575

JJAMashaba 10 1191298 599670 99000 6222 107461 220036 2223687

LLvanNiekerk 4 1312500 1312500

Sub-total 5196577 2003269 195712 79435 453310 1532536 9460839

Non-executivedirectorsEKDiack 11 232710 232710

KDKMokhele 12 798536 1474 800010

LPMondi 5 184495 184495

DCGMurray 13 154495 1463 155958

MJNNjeke 6 384246 384246

NDOrleyn 14 276446 1397 277843

Sub-total 2030928 4334 2035262

Total 2030928 5196577 2003269 200046 79435 453310 1532536 11496101

Notes1.2.3.4.

5.

6.

Appointed as President on 1 March 2008.Appointed as Chief Executive Officer on 1 March 2008.Resigned on 29 February 2008.Resigned on 12 December 2004. Payment made on 31 March 2007 and 30 March 2008 for restraint of trade. Appointed as non-executive director on 11 May 2007. Fees paid to Industrial Development Corporation in Mr Mondi’s capacity as Chief Economist and Divisional Executive of Professional Services of that company.Fees paid to Kagiso Media in Mr Njeke’s capacity as deputy chairman of that company.

7.

8.9.

10.11.12.13.14.

Includes travel, entertainment, telephone, computer and relocation allowances, as well as reimbursive travel expenditure for non-executive directors. Includes deferred compensation and medical aid.Includes remaining restraint of trade payments and the payment of remaining leave benefit.Resigned on 30 September 2007.Appointed as non-executive director on 16 March 2007.Appointed as non-executive chairman on 1 January 2007.Appointed as non-executive director on 11 May 2007.Appointed as non-executive director on 1 February 2007.

Directors’ remuneration report continuedfortheyearended31December2008


63

Directors’shareoptionsOptionsissuedtoandsharespurchasedbythedirectors,whichformpartofthe41.1million(December2007:41.2million)sharesallocatedtotheManagementsharetrust,totalled202551asat31December2008(December2007:419695),asfollows:

Balanceasat1January2008 Issues Sold/forfeited

Balanceasat

31December2008

Name

Sub-scription

priceR Number Dateofissue

Periodgranted

(years)

Sub-scription

priceR

Numberof

options/shares

Dateofissue

Periodgranted

(years) Notes

Numberduring

theyear

Grossgainsonoptions/

shares Notes Number

Fortheyearended 31December2008DKChugh 50.26 42876 2005/09/28 6 20000 3184594 1 22876

53.38 48522 2005/12/12 10 4852291398 20000 3184594 71398

NNyembezi-Heita 186.50 31660 2008/03/25 10 2 31660EMReato 53.38 40326 2005/12/12 10 40326 3

54.19 10842 2006/03/01 10 10842 383.88 62608 2006/11/08 10 62608 376.51 28313 2006/11/20 10 28313 3

133.50 46360 2007/11/20 10 46360 3188449 188449

HJVerster 16.15 32486 2002/05/07 6 32486 5150655 414.32 7869 2003/03/18 6 7869 1252330 583.88 59523 2006/11/08 10 5952382.02 5950 2006/12/12 10 5950

133.50 34020 2007/11/20 10 34020139848 40355 6402985 99493

Total 419695 31660 248804 9587579 202551

Balanceasat1January2007 Issues Sold/forfeited

Balanceasat

31December2007

Name

Sub-scription

priceR Number Dateofissue

Periodgranted

(years)

Sub-scription

priceR

Numberof

options/shares

Dateofissue

Periodgranted

(years) Notes

Numberduring

theyear

Grossgainsonoptions/

shares Notes Number

Fortheyearended 31December2007DKChugh 56.50 38046 2005/09/28 6 50.26 4830 2007/08/01 6 6 42876

60.00 42980 2005/12/12 10 53.38 5542 2007/08/01 10 6 48522

81026 10372 91398

JJAMashaba 37.25 78050 2004/07/23 6 33.14 7823 2007/08/01 6 6 15000 1259850 963050 5905263 10

7823 11

78050 7823 85873 7165113

HJVerster 18.15 26760 2002/05/07 6 16.15 5726 2007/08/01 6 6 3248616.10 7000 2003/03/18 6 14.32 869 2007/08/01 6 6 786994.29 52470 2006/11/08 10 83.88 7053 2007/08/01 10 6 5952392.20 5250 2006/12/12 10 82.02 700 2007/08/01 10 6 5950

133.50 34020 2007/11/20 10 7 34020

91480 48368 139848

EMReato 60.00 35720 2005/12/12 10 53.38 4606 2007/08/01 10 6 4032660.91 9600 2006/03/01 10 54.19 1242 2007/08/01 10 6 1084294.29 55190 2006/11/08 10 83.88 7418 2007/08/01 10 6 6260886.00 24990 2006/11/20 10 76.51 3323 2007/08/01 10 6 28313

133.50 46360 2007/11/20 10 8 46360

125500 62949 188449

Total 376056 129512 85873 7165113 419695

Thedirectorshavenobeneficialnornon-beneficialinterestintheordinarysharecapitalofthecompany.Notes

1.

2.3.4.5.

Sold on 14 March 2008. 19 426 shares at R209.49 and 574 shares at R209.48.Offer accepted in March 2008.Resigned as Chief Executive Director on 29 February 2008.Sold on 19 March 2008 at R174.70.Sold on 19 March 2008. 2 163 shares at R174.70 and 5 706 shares at R173.00.

6.

7.8.9.

10.11.

Additional share options as a result of the capital reduction announced on 1 August 2007. Offer accepted in November 2007.Offer accepted in November 2007.Sold on 26 March 2007 at R121.24.Sold on 20 September 2007 at R126.80.Resigned on 30 September 2007.


Group and company income statementsfortheyearended31December2008

Group Company

Notes2008

Rm2007

Rm2008

Rm2007

Rm

Revenue 7 39914 29301 35990 25722

Rawmaterialsandconsumablesused (18556) (12141) (17699) (11186)

Employeecosts (2598) (2210) (2591) (2210)

Energy (1474) (1364) (1075) (1032)

Movementininventoriesoffinishedgoodsand work-in-progress 1844 (21) 1942 (82)

Impairmentcharge 8 (121) (28)

Depreciation (1310) (1088) (849) (743)

Amortisationofintangibleassets (12) (11) (9) (9)

Otheroperatingexpenses (5528) (4763) (4584) (4010)

Profitfromoperations 9 12159 7703 11097 6450

Gains/(losses)onchangesinforeignexchangerates andfinancialinstrumentsdesignatedasheldfor tradingatfairvaluethroughprofitorloss 10 637 (131) 633 (151)

Interestreceived 11 318 442 296 426

Financecosts 12 (238) (117) (201) (89)

Incomefrominvestments 13 3 4 341 285

Impairmentreversal/(charge) 14 36 (45) 2799

Incomeaftertaxfromequityaccounted investments 20 331 270

Profitbeforetaxation 13246 8171 12121 9720

Incometaxexpense 15 (3865) (2455) (3562) (2029)


Attributableto:

Ownersofthecompany 9381 5716

Attributableearningspershare(cents)

–basic 16 2105 1282

–diluted 16 2097 1279


65

Group and company statements of comprehensive incomefortheyearended31December2008

Group Company

2008Rm

2007Rm

2008Rm

2007Rm


Othercomprehensiveincome

Exchangedifferencesontranslationofforeign operations 591 (63)

Lossesandgainsonavailable-for-saleinvestment takentoequity (71) 62

Movementingainsandlossesdeferredtoequityon cashflowhedges (91) (111) (78) (111)

Incometaxonamountstakendirectlytoequity 25 27 21 27

Totalcomprehensiveincomefortheyear 9835 5631 8502 7607

Attributableto:

Ownersofthecompany 9835 5631


Group and company statements of financial position asat31December2008

Group Company

Notes2008

Rm2007

Rm2008

Rm2007

Rm

ASSETS

Non-currentassets

Property,plantandequipment 18 15917 15525 9781 9161

Intangibleassets 19 71 58 48 32

Unlistedequityaccountedinvestments 20 1968 1109 84 48

Investmentsinsubsidiaries 21 4825 5715

Otherfinancialassets 22 203 195 203 124

Totalnon-currentassets 18159 16887 14941 15080

Currentassets

Inventories 23 8642 4790 8076 4196

Tradeandotherreceivables 24 2031 2292 1765 2007

Taxation 108 164

Otherfinancialassets 22 174 94 172 94

Cashandcashequivalents 8429 4034 8121 3660

Totalcurrentassets 19276 11318 18134 10121

Totalassets 37435 28205 33075 25201

EquITyANDLIABILITIES

Capitalandreserves

Statedcapital 25 37 37 37 37

Non-distributablereserves 1503 757 (200) (108)

Retainedincome 26455 19789 26141 19980

Totalshareholders'equity 27995 20583 25978 19909

Non-currentliabilities

Borrowingsandotherpayables 26 46 52 5 1

Financeleaseobligations 27 314 328 168 174

Non-currentprovisions 28 1888 1290 1879 1282

Deferredincometaxliability 29 2526 2603 993 1007

Totalnon-currentliabilities 4774 4273 3045 2464

Currentliabilities

Tradeandotherpayables 30 3384 2873 2893 2386

Borrowingsandotherpayables 26 33 10 23

Otherfinancialliabilities 22 157 67 143 67

Financeleaseobligations 27 40 88 31 79

Taxation 780 690

Currentprovisions 28 272 311 272 296

Totalcurrentliabilities 4666 3349 4052 2828

Totalequityandliabilities 37435 28205 33075 25201


67

Group Company

Notes2008

Rm2007

Rm2008

Rm2007

Rm

Cashgeneratedfromoperations 31 10939 8439 9257 7088

Interestincome 318 442 296 426

Financecost (59) (73) (22) (41)

Dividendspaid 31 (2398) (1948) (2398) (1948)

Incometaxpaid 31 (3087) (2209) (2740) (2125)

Realisedforeignexchangemovements (202) (28) (211) (33)

Cashflowsfromoperatingactivities 5511 4623 4182 3367

Investmenttomaintainoperations 31 (1413) (1198) (1204) (987)

Investmenttoexpandoperations 31 (419) (654) (334) (512)

Proceedsfromdisposalofproperty,plantand equipment 2 8 2 8

Investmentinassociate (16) (16)

Dividendfromequityaccountedinvestments 14 104

Incomefrominvestments–dividends 338 281

Incomefrominvestments–interest 3 4 3 4

Cashflowsfrominvestingactivities (1813) (1752) (1195) (1222)

Interest-bearingborrowingsrepaid (11) (10) (1)

Financeleaseobligationrepaid (25) (15) (16) (6)

Decreaseinloanstosubsidiaries 809 681

IncreaseincontributionstotheManagementshare trustandother (85) (58) (94) (51)

Capitalreduction (6352) (6352)

Cashflowsfromfinancingactivities (121) (6435) 698 (5728)

Increase/(decrease)incashandcashequivalents 3577 (3564) 3685 (3583)

Effectofforeignexchangeratechangesoncash andcashequivalents 818 (152) 776 (124)

Cashandcashequivalentsatbeginningofyear 4034 7750 3660 7367

Cashandcashequivalentsatendofyear 8429 4034 8121 3660

Group and company statements of cash flowsfortheyearended31December2008


Group and company statements of changes in equity fortheyearended31December2008

Non-distributablereserves

Statedcapital

Rm

Capitalredemp-

tionreserve

Rm

Manage-mentsharetrust

Rm

Share-based

paymentreserve

Rm

Attribu-table

reservesofequity

accountedinvest-ments

Rm

Available-for-salefinancial

assetsRm

Trans-lationofforeign

operationsRm

Cashflow

hedgeaccounting

reserveRm

Retainedincome

Rm

Totalequity

Rm

Group

Balanceat 1January2007 6389 23 (106) 27 654 56 30 16187 23260

Totalcomprehensive incomeforyear 62 (63) (84) 5716 5631

Managementshare trust:nettreasury

sharepurchases(netofincometax) (43) (43)

Share-basedpayment expense 35 35

Dividend (1948) (1948)


Transferofequity accountedearnings 166 (166)

Balanceat 31December2007 37 23 (149) 62 820 62 (7) (54) 19789 20583

Totalcomprehensive incomeforyear (71) 591 (66) 9381 9835

Managementshare trust:nettreasury

sharepurchases(netofincometax) (58) (58)

Share-basedpayment expense 33 33

Dividend (2398) (2398)

Transferofequity accountedearnings 317 (317)

Balanceat 31December2008 37 23 (207) 95 1137 (9) 584 (120) 26455 27995

2008 2007

Dividendpershare(cents)

–interim 342 233

–final(declaredafter statementof financial positiondate) 365 196

Total 707 429


69

Non-distributablereserves

Statedcapital

Rm

Capitalredemp-

tionreserve

Rm

Manage-mentsharetrust

Rm

Share-based

paymentreserve

Rm

Cashflow

hedgeaccounting

reserveRm

Retainedincome

Rm

Totalequity

Rm

Company

Balanceat1January2007 6389 23 27 30 14237 20706

Totalcomprehensiveincomeforyear (84) 7691 7607

Managementsharetrust:nettreasuryshare purchases(netofincometax) (139) (139)

Share-basedpaymentexpense 35 35

Dividend (1948) (1948)


Balanceat31December2007 37 23 (139) 62 (54) 19980 19909

Totalcomprehensiveincomeforyear (57) 8559 8502

Managementsharetrust:nettreasuryshare purchases(netofincometax) (68) (68)

Share-basedpaymentexpense 33 33

Dividend (2398) (2398)

Balanceat31December2008 37 23 (207) 95 (111) 26141 25978

Inthecontextofthestatementofchangesinequity,thefollowingequityreservesareofrelevance:

1. Statedcapital Inthecomparativeperiod,thecompanyundertooktoreduceitsstatedcapitalintermsofsection90oftheSouthAfrican

CompaniesAct,1973.ThecumulativeamountreturnedtoshareholdersamountedtoR6352million.2. Capitalredemptionreserve Thecapitalredemptionreservefundwascreatedintermsofsection98(1)oftheSouthAfricanCompaniesAct,1973,following

theredemptionofodd-lotsharesduringtheyearended30June2000,outofprofitsthatwouldotherwisebeavailablefordistributiontoordinaryshareholders.

3. Managementsharetrustreserve TheManagementsharetrustreserverepresentsthenetoutflowfromthepurchaseoftreasurysharesinordertomeetobligations

intermsoftheequity-settledshareoptionplanhousedintheManagementsharetrust.ThetrustisconsolidatedasacontrolledspecialpurposeentityintermsofSIC-12,Consolidation – Special Purpose Entities.

4. Share-basedpaymentreserve Theshare-basedpaymentreserverepresentstheaccumulatedchargeforshareoptionsintermsofIFRS2.Theshareoptionplanis

equity-settled.

5. Available-for-salefinancialasset TheequityreserverepresentstheunrealisedfairvaluegainsandlossesaboveandbelowtheinitialR9millioncostofthegroup’s

investmentinHwangeCollieryCompanyLimited.

6. Translationofforeignoperationsreserve Thetranslationofforeignoperationsreservecomprisesallforeignexchangedifferencesarisingfromthetranslationofthefinancial

statementsofforeignoperations.

7. Cashflowhedgeaccountingreserve Thecashflowhedgeaccountingreservecomprisestheportionofthecumulativenetchangeinthefairvalueofderivatives

designatedineffectivecashflowhedgingrelationshipswherethehedgeditemhasnotyetaffectedthestatementoffinancialperformance.


Notes to the group and company annual financial statementsfortheyearended31December2008

1. GENERALINFORMATION ArcelorMittalSouthAfricaLimited(thecompany)anditssubsidiaries(togetherthegroup)manufactureandselllongand

flatcarbonsteelproductsandbeneficiatedby-products.Thegroup’soperationsareprimarilyconcentratedinSouthAfricawithasalesfocusdomesticallyandinternationally,withspecificemphasisonsub-SaharanAfrica.

ThecompanyisalimitedliabilitycompanyincorporatedanddomiciledinSouthAfrica.Theaddressoftheregisteredofficeisdetailedonpage200.

Thecompany’sfunctionalcurrencyistheSouthAfricanRand(ZAR).

ThecompanyislistedontheJSELimitedinJohannesburg,SouthAfrica,andisasubsidiaryofMittalSteelHoldingsAGincorporatedinSwitzerland,whichispartoftheArcelorMittalgroup.

2. ADOPTIONOFNEwANDREVISEDSTANDARDS 2.1 Standards,interpretationsandamendmentseffectivein2008 NonewstandardsoramendmentstheretoasissuedbytheInternationalAccountingStandardsBoardhavean

effectivedateapplicabletothecurrentreportingperiod.

ThreeinterpretationsissuedbytheInternationalFinancialReportingInterpretationsCommitteeareeffectiveforthecurrentperiod:

• IFRIC11,IFRS2–Group and Treasury Share Transactions,providesguidanceonwhethershare-basedtransactionsinvolvingtreasurysharesorinvolvinggroupentities(forexample,optionsoveraparent’sshares)shouldbeaccountedforasequity-settledorcash-settledshare-basedpaymenttransactionsinthestand-aloneaccountsoftheparentandgroupcompanies.Thisinterpretationwasearlyadoptedinapreviousreportingperiodanddidnothaveanyimpactonthegroup’sandcompany’sfinancialstatements.

• IFRIC12,Service Concession Arrangements(effectiveforannualperiodsbeginningonorafter1January2008).Thisinterpretationwasearlyadoptedinapreviousreportingperiodanddidnothaveanyimpactonthegroup’sandcompany’sfinancialstatementsasitisnotrelevanttotheoperationsofbothreportingentities.

• IFRIC14,IAS19–The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction,providesguidanceonassessingthelimitinIAS19ontheamountofthesurplusthatcanberecognisedasanasset.Italsoexplainshowthepensionassetorliabilitymaybeaffectedbyastatutoryorcontractualminimumfundingrequirement.Thisinterpretationwasearlyadoptedinthepreviousreportingperiodanddidnothaveanyimpactonthegroup’sandcompany’sfinancialstatements.

2.2 Earlyadoptionofstandardsandinterpretations Thegroupandcompanyhaveelectedtoadoptthefollowingstandardsandinterpretationsinadvanceoftheir

effectivedates: • IAS1(Revised),Presentation of Financial Statements(effectiveforannualperiodsbeginningonorafter

1January2009); • IAS16(Amendment),Property, Plant and EquipmentandconsequentialamendmenttoIAS7,Statement of

Cash Flows(effectiveforannualperiodsbeginningonorafter1January2009); • IAS19(Amendment),Employee Benefits(effectiveforannualperiodsbeginningonorafter1January2009); • IAS20(Amendment),Accounting for Government Grants and Disclosure of Government Assistance(effective

forannualperiodsbeginningonorafter1January2009); • IAS23(Amendment),Borrowing Costs(effectiveforannualperiodsbeginningonorafter1January2009); • IAS27(Revised),Consolidated and Separate Financial Statements,andIFRS3(Revised),Business Combinations

(effectiveforannualperiodsbeginningonorafter1July2009); • IAS27(Amendment),Consolidated and Separate Financial Statements(effectiveforannualperiodsbeginning

onorafter1January2009);


71

2. ADOPTIONOFNEwANDREVISEDSTANDARDScontinued 2.2 Earlyadoptionofstandardsandinterpretationscontinued • IAS28(Amendment),Investments in Associates(andconsequentialamendmentstoIAS32,Financial

Instruments:Presentation,andIFRS7,Financial Instruments: Disclosures)(effectiveforannualperiodsbeginningonorafter1January2009);

• IAS29(Amendment),Financial Reporting in Hyperinflationary Economies(effectiveforannualperiodsbeginningonorafter1January2009);

• IAS31(Amendment),Interests in Joint VenturesandconsequentialamendmentstoIAS32Financial Instruments: PresentationandIFRS7,Financial Instruments:DisclosuresandIFRS7(effectiveforannualperiodsbeginningonorafter1January2009);

• IAS32(Amendment),Financial Instruments: Presentation,andIAS1(Amendment),Presentation of Financial Statements-Puttable Financial InstrumentsandObligations Arising on Liquidation(effectiveforannualperiodsbeginningonorafter1January2009);

• IAS36(Amendment),Impairment of Assets(effectiveforannualperiodsbeginningonorafter1January2009);

• IAS38(Amendment),Intangible Assets(effectiveforannualperiodsbeginningonorafter1January2009); • IAS39(Amendment),Financial Instruments: Recognition and MeasurementandIFRS7,Financial Instrument

Disclosures (effectiveforannualperiodsbeginningonorafter1July2009); • IAS39(Amendment),Financial Instruments: Recognition and Measurement(effectiveforannualperiods

beginningonorafter1January2009); • IAS39(Amendment),Financial Instruments: Recognition and Measurement(effectiveforannualperiods

beginningonorafter1July2009); • IAS40(Amendment),Investment PropertyandconsequentialamendmentstoIAS16,Property, Plant and

Equipment(effectiveforannualperiodsbeginningonorafter1January2009); • IFRS1(Amendment),First Time Adoption of IFRS,andIAS27,Consolidated and Separate Financial Statements

(effectiveforannualperiodsbeginningonorafter1January2009); • IFRS2(Amendment),Share-based Payment(effectiveforannualperiodsbeginningonorafter1January2009); • IFRS5(Amendment),Non-current Assets Held-for-SaleandDiscontinued Operationsandconsequential

amendmenttoIFRS1,First-time Adoption of IFRS(effectiveforannualperiodsbeginningonorafter1July2009);

• IFRS8,Operating Segments(effectiveforannualperiodsbeginningonorafter1January2009); • IFRIC15,Agreements for Construction of Real Estates(effectiveforannualperiodsbeginningonorafter

1January2009);and • IFRIC16,Hedges of a Net Investment in a Foreign Operation(effectiveforannualperiodsbeginningonorafter

1October2008).

2.2.1 IFRS8,OperatingSegments TheadoptionofIFRS8,Operating Segmentsinadvanceofitseffectivedate(effectiveforannualperiods

beginningonorafter1January2009),witheffectfrom1January2008broughtaboutthatsegmentinformationispresentedonlyatagrouplevelwhereitismostmeaningful.

Thegroup’sreportablesegmentsunderIFRS8areasfollows: • FlatCarbonSteelProductsconsistingoftheVanderbijlparkandSaldanhaWorks; • LongCarbonSteelProductsconsistingoftheNewcastle,VereenigingandMaputoWorks; • CokeandChemicalsundertakingtheprocessingandmarketingofby-productsandtheproductionand

marketingofcommercial-gradecokingcoal;and • CorporateandOtherhousingsalesandmarketingfunctions,procurementandlogisticsactivities,shared

services,centresofexcellence,thedecommissionedPretoriaWorkssite,available-for-saleinvestments,andtheresultsoftheconsolidatedsubsidiariesandspecialpurposeentities.


Notes to the group and company annual financial statements continuedfortheyearended31December2008

2. ADOPTIONOFNEwANDREVISEDSTANDARDScontinued 2.2 Earlyadoptionofstandardsandinterpretationscontinued 2.2.1 IFRS8,OperatingSegmentscontinued Flat-andLongCarbonSteelProductsandCokeandChemicalsrepresentthegroup’soperatingsegmentsin

whichproductioncapacityisconcentrated.

Informationregardingthesesegmentsisreportedinnote6.WiththeinclusionofMaputoWorksintheLongSteelCarbonProductssegment,disclosuresfortheyearended31December2007havebeenaffectedasfollows:

• Operatingprofit/(loss)beforedepreciation,amortisationandimpairmentssegmentprofit/(loss)fromoperations;profit/(loss)beforetaxdecreasedbyR9millionfortheLongSteelCarbonProductssegment,withacorrespondingincreaseintheCorporateandOthersegment;

• SegmentassetsincreasedbyR103millionfortheLongSteelCarbonProductssegment,withacorrespondingdecreaseintheCorporateandOthersegment;

• CapitalexpenditureincreasedbyR97millionfortheLongSteelCarbonProductssegment,withacorrespondingdecreaseintheCorporateandOthersegment;

• SegmentliabilitiesbyR6millionfortheLongSteelCarbonProductssegment,withacorrespondingdecreaseintheCorporateandOthersegment;and

• Cashinflow/(outflow)fromoperationsdecreasedbyR5millionfortheLongSteelCarbonProductssegment,withacorrespondingincreaseintheCorporateandOthersegment.

AsaresultoftheseparationoftheCorporateandOthersegmentandtheeliminationsandadjustments,disclosuresfortheyearended31December2007havebeenamendedaccordingly.

Theaccountingpoliciesofthereportablesegmentsarethesameasthegroup’saccountingpoliciesdescribedinnote3.9.

Segmentprofitfromoperationsrepresentstheprofitor(loss)earnedormadebyeachsegmentwithouttheallocationofafter-taxprofitsofequityaccountedinvestments,netinterestincome,incomefrominvestmentsandincometaxexpenses.

Allassetsandliabilitiesareallocatedtotheoperatingsegments,otherthanforthefollowingitemsthatareexclusivelyhousedintheCorporateandOthersegment,reflectingthemannerinwhichresourceallocationismeasured:

Assetsnotallocatedtooperatingsegments: • Resultsofconsolidatedsubsidiariesandspecialpurposeentities,otherthanforSaldanhaWorkswhichis

asubsidiaryhousedwithintheFlatCarbonSteelProductssegment; • Investmentsinequityaccountedentities; • Available-for-saleinvestments; • Cashandcashequivalents;and • Incometax,capitalgainstaxandvalueaddedtaxrelatedassets,asapplicable.

Liabilitiesnotallocatedtooperatingsegmentsarelimitedtoincometax,capitalgainstaxandvalueaddedtaxrelatedliabilities,asapplicable.

2.2.2 IAS1(Revised),PresentationofFinancialStatements ThegroupandcompanyhaveadoptedIAS1(Revised),Presentation of Financial Statements in advance of

its effective date(effectiveforannualperiodsbeginningonorafter1January2009),witheffectfrom1January2008.Similarly,theamendmentmadetoIAS1aspartoftheIASB’sannualimprovementsprojectpublishedinMay2008(effectivefrom1January2009),wasalsoearlyadopted.


73

2. ADOPTIONOFNEwANDREVISEDSTANDARDScontinued 2.2 Earlyadoptionofstandardsandinterpretationscontinued 2.2.2 IAS1(Revised),PresentationofFinancialStatementscontinued Therevisedstandardprohibitsthepresentationofitemsofincomeandexpenses(thatis,non-owner

changesinequity)inthestatementofchangesinequity,requiringnon-ownerchangesinequitytobepresentedseparatelyfromownerchangesinequity.Consequently,thegroupandcompanyhaveselectedtoshowallnon-ownerchangesinequityinanincomestatementandstatementofcomprehensiveincome.

Furthermore,intermsoftherevisions,titlechangeshavebeenadoptedforthefollowingstatements: • Balancesheettostatementoffinancialposition;and • Cashflowstatementtostatementofcashflows.

Theadoptionshavehadnoimpactonthegroup’sandcompany’sresults.

2.2.3 IAS19(Amendment),EmployeeBenefits ThegroupandcompanyhaveadoptedIAS19(Amendment),Employee Benefitsinadvanceofitseffective

date(effectiveforannualperiodsbeginningonorafter1January2009)witheffectfrom1January2008.

TheamendmentsarepartoftheIASB’sannualimprovementsprojectpublishedinMay2008andentails: • Distinctionbetweenshort-termandlong-termemployeebenefitshasbeenclarifiedasbeingbasedon

whetherbenefitsareduetobesettledwithinorafter12monthsofemployeeservicebeingrendered.Thesettlementexpectationdoesnotinfluencetheclassification.

• Theamendmentclarifiesthataplanamendmentthatresultsinachangeintheextenttowhichbenefitpromisesareaffectedbyfuturesalaryincreasesisacurtailment,whileanamendmentthatchangesbenefitsattributabletopastservicegivesrisetoanegativepastservicecostifitresultsinareductioninthepresentvalueofthedefinedbenefitobligation.

• Thedefinitionofreturnonplanassetshasbeenamendedtostatethatplanadministrationcostsaredeductedinthecalculationofreturnonplanassetsonlytotheextentthatsuchcostshavebeenexcludedfrommeasurementofthedefinedbenefitobligation.

• IAS37,Provisions, Contingent Liabilities and Contingent Assets,requirescontingentliabilitiestobedisclosed,notrecognised.IAS19hasbeenamendedtobeconsistent.

Theimplicationoftheseamendmentsonthegroup’sandcompany’saccountingpoliciesandresultsare: • Fortheretirementbenefitplansoperatedbythegroupandcompany,(i)noeventshaveoccurredthat

meetthedefinitionofcurtailment,or(ii)noamendmentmaderesultinginnegativepastservicecosthavingbeenrecognisedundertheperiodunderrevieworitscomparativeperiod.

• Administrationcostsareincludedinfullinmeasuringthedefinedbenefitobligation. • Thetwodefinedbenefitplansoperatebythegroupandcompanyarewhollyfunded.Thepaymentofthe

fundedbenefitsdependsnotonlyontheplans’financialpositionandinvestmentperformance,butalsoonthegroup’sandcompany’sabilitytomakegoodanyfundingshortfallinthetwoplans.Therefore,thegroupandcompanyeffectivelyunderwritetheplansinvestmentandactuarialrisk.Historicallynocontingentliabilityhasbeendisclosedastheplans’areadequatelyfunded.Despitethecontinuedadequacyofthefundingfortheperiodunderreview,giventhenatureoftheitem,thecommitmentofthegroupandcompanytofundanyshortfallthushasbeendisclosedasacontingentliability,alongwithanestimateofthelikelihoodoftheliabilitybeingrecognised.Enhanceddisclosurehasbeenmadeinnote34.

2.2.4 Revisionsandamendmentswithnoimpactonthegroup’sandcompany’saccountingpoliciesandfinancialresults

TheadoptionofIAS16(Amendment),IAS20(Amendment),IAS23(Amendment),IAS27(Revised),IAS27(Amendment),IAS28(Amendment),IAS29(Amendment),IAS31(Amendment),IAS32(Amendment),IAS36(Amendment),IAS38(Amendment),IAS39(Amendments),IAS40(Amendment),IFRS1(Amendments),IFRS5(Amendment),IFRIC15andIFRIC16havehadnoimpactonthegroup’sandcompany’saccountingpoliciesorfinancialresults.



2. ADOPTIONOFNEwANDREVISEDSTANDARDScontinued 2.3 AuthoritativeguidanceandcircularsissuedbytheSouthAfricanInstituteofCharteredAccountants IncompliancewiththeJSEListingsRequirementsthefollowingauthoritativeguidanceissuedbytheSouthAfrican

InstituteofCharteredAccountants(SAICA)in2008,wasconsidered: • CC08/07,Headline Earnings(issuedFebruary2008).SincethecircularwasfirstissuedinNovember2007,a

minoreditorialclarificationwasneededtoensureconsistenttreatmentofheadlineearningswithrespecttotheexclusionofbothgainsandlossesonthedisposalofasubsidiary.Theclarificationhadnoimpactonthegroup’sfinancialstatements.

• AccountingPracticesBoard(APB),theofficialfinancialreportingstandards-setterinSouthAfrica,whenapprovingtheIASB’sReclassification of Financial Assets-AmendmentstoIAS39-Financial Instruments:Recognition and MeasurementandIFRS7-Financial Instruments: Disclosures inOctober2008,expressedtheviewthatitishighlyunlikelythatthereweresuch“rarecircumstances”inSouthAfricaasenvisagedbytheIASB’samendment.Theamendmentallowsafinancialassettobevoluntarilyreclassifiedfromheld-for-trading(measuredatfairvaluethroughprofitorloss)toanotherfinancialassetcategoryin“rarecircumstances”.TheAPBdidhowevernotethattheremaywellbe“rarecircumstances”affectingSouthAfricancompaniesthathaveoperationsorfinancialassetsinothercountriesthathavesuch“rarecircumstances”.ThegroupandcompanymadenovoluntaryreclassificationsascontemplatedbytheIASBorAPB.

3. SIGNIFICANTACCOuNTINGPOLICIES Theprincipalaccountingpoliciesappliedinthepreparationofthegroup’sandcompany’sfinancialstatementsaresetout

below.Thesepolicieshavebeenconsistentlyappliedtothecomparativeyearspresented.

3.1 Statementofcompliance ThegroupandcompanyfinancialstatementsarepreparedincompliancewithInternationalFinancialReporting

Standards(IFRS)andinterpretationsissuedrespectivelybytheInternationalAccountingStandardsBoard(IASB)andtheInternationalFinancialReportingInterpretationsCommittee(IFRIC)oftheIASBthatarerelevanttoitsoperationsandeffectiveforannualreportingperiodsbeginningonorafter1January2008,andthosestandardsearlyadoptedasdescribedinnote2.2.

3.2 Basisofpreparation Thegroup’sandcompany’sfinancialstatementshavebeenpreparedunderthehistoricalcostconvention,as

modifiedbytherevaluationof: • Derivativefinancialinstrumentsthataredesignatedaseffectivehedginginstrumentsincashflowhedge

relationships; • Derivativefinancialinstrumentsthataredesignatedasheld-for-tradingatfairvaluethroughprofitorloss

(FVTPL); • Embeddedderivativefinancialinstrumentsbifurcatedfromtheirhostcontracts;and • Investmentsinequityinstrumentsclassifiedasavailable-for-sale.

Thepreparationoffinancialstatements,inconformitywithIFRS,requirestheuseofcertaincriticalaccountingestimates.Italsorequiresmanagementtoexerciseitsjudgementintheprocessofapplyingthegroup’sandcompany’saccountingpolicies.Theareasinvolvingahigherdegreeofjudgementorcomplexity,orareaswhereassumptionsandestimatesaresignificanttothefinancialstatementsaredisclosedinnote4and5respectively.

3.3 Investmentsinsubsidiaries,jointventuresandassociatesbythecompany Thecompanyaccountsforallinvestmentsinsubsidiaries,jointlycontrolledentitiesandassociatesatcost,andnot

atfairvalueintermsofIAS39,Financial Instruments, Recognition and Measurement.

Dividendsreceivedfromsubsidiaries,jointlycontrolledentitiesandassociatesarerecognisedinprofitorlosswhenthecompanyhastherighttoreceivethedividend.Dividendincomeisrecognisedifevidenceisavailablethat:

• Thecarryingamountoftheinvestmentinthecompany’sseparatefinancialstatementsexceedsthecarryingamountinthegroup’sfinancialstatementsoftheinvestee’snetassets;or


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3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.3 Investmentsinsubsidiaries,jointventuresandassociatesbythecompanycontinued • Thedividendexceedsthetotalcomprehensiveincomeofthesubsidiary,jointlycontrolledentityorassociatein

theperiodinwhichthedividendisdeclared,animpairmentassessmentisperformedonthecarryingamountoftheinvestment.

Theaccountingforsubsidiaries,jointlycontrolledentitiesandassociatesbythegroupisdetailedintheaccountingpoliciescontainedinnotes3.4to3.8.

3.4 Basisofconsolidation–subsidiaries Thegroupfinancialstatementsincorporatefinancialstatementsofthecompanyanditssubsidiaries.

Subsidiariesareallentities(includingspecialpurposeentities)overwhichthegrouphasthepowertogovernthefinancialandoperatingpoliciessoastoobtainbenefitsfromtheentities’activities.Generally,controlisaccompaniedwithashareholdingofmorethanonehalfofthevotingrights.Theexistenceandeffectofpotentialvotingrightsthatarecurrentlyexercisableorconvertibleareconsideredwhenassessingwhetherthegroupcontrolsanotherentity.

Subsidiariesarefullyconsolidatedfromthedateonwhichcontrolistransferredtothegroup.Theyarede-consolidatedfromthedatethatcontrolceases.

Inter-companytransactions,balancesandunrealisedgainsontransactionsbetweengroupcompaniesareeliminated.Unrealisedlossesarealsoeliminatedbutconsideredanimpairmentindicatoroftheassettransferred.Accountingpoliciesofsubsidiarieshavebeenchangedwherenecessarytoensureconsistencywiththepoliciesadoptedbythegroup.

3.5 Businesscombinations–investmentsinsubsidiaries Theacquisitionmethodofaccountingisusedtoaccountforbusinesscombinationsbythegroup.Theconsideration

transferredfortheacquisitionofasubsidiaryisthefairvaluesoftheassetstransferred,theliabilitiesincurredandtheequityinterestsissuedbythegroup.

Theconsiderationtransferredincludesthefairvalueofanyassetorliabilityresultingfromacontingentconsiderationarrangement.Acquisition-relatedcostsareexpensedasincurred.

Identifiableassetsacquiredandliabilitiesandcontingentliabilitiesassumedinabusinesscombinationaremeasuredinitiallyattheirfairvaluesattheacquisitiondate.Onanacquisition-by-acquisitionbasis,thegrouprecognisesanynon-controllinginterestintheacquireeeitheratfairvalueoratthenon-controllinginterest’sproportionateshareoftheacquiree’snetassets.

Theexcessoftheconsiderationtransferredforthepurchaseofanynon-controllinginterestintheacquireeandtheacquisition-datefairvalueofanypreviousequityinterestintheacquireeoverthefairvalueofthegroup’sshareoftheidentifiablenetassetsacquiredisrecordedasgoodwill.Ifthisislessthanthefairvalueofthenetassetsofthesubsidiaryacquired,asinthecaseofabargainpurchase,thedifferenceisrecogniseddirectlyintheincomestatement.

Inter-companytransactions,balancesandunrealisedgainsontransactionsbetweengroupcompaniesareeliminated.Unrealisedlossesarealsoeliminated.Accountingpoliciesonsubsidiarieshavebeenchangedwherenecessarytoensureconsistencywiththepoliciesadoptedbythegroup.

Thegrouptreatstransactionswithnon-controllinginterestsinthesamewayastransactionswithequityownersofthegroup.Forpurchasesfromnon-controllinginterests,thedifferencebetweenanyconsiderationpaidandtherelevantshareacquiredofthecarryingvalueofnetassetsofthesubsidiary,isrecordedinequity.Gainsorlossesondisposalstonon-controllinginterestsarealsorecordedinequity.



3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.6 Interestsinjointventures Ajointventureisacontractualarrangementwherebythegroupandotherpartiesundertakeaneconomicactivity

thatissubjecttojointcontrol,whichiswhenthestrategicfinancialandoperatingpolicydecisionsrelatingtotheactivitiesrequiretheunanimousconsentofthepartiessharingcontrol.

Jointventurearrangementsthatinvolvetheestablishmentofaseparateentityinwhicheachventurerhasaninterestarereferredtoasjointlycontrolledentities.

Theassetsandliabilitiesofjointlycontrolledentitiesareincorporatedinthegroup‘sfinancialstatementsusingtheequitymethodofaccounting,exceptwhentheinvestmentisclassifiedasheldforsale,inwhichcaseitisaccountedforinaccordancewithIFRS5,Non-current Assets Held for Sale and Discontinued Operations.

Thegroup’sshareofitsjointlycontrolentities’post-acquisitionprofitsorlossesisrecognisedintheincome

statementanditsshareofpost-acquisitionmovementsinreservesisrecognisedinreserves.Thepost-acquisitionprofitorlossesrecognisedinretainedearningsaresubsequentlytransferredtoanequityaccountingreserve,distinctfromretainedearnings.Thecumulativepost-acquisitionmovementsareadjustedagainstthecarryingamountoftheinvestment.

Lossesofajointlycontrolledentityinexcessofthegroup’sinterestinthatentity(whichincludesanylong-termintereststhat,insubstance,formpartofthegroup’snetinvestmentinthejointlycontrolledentity)arerecognisedonlytotheextentthatthegrouphasincurredlegalorconstructiveobligationsormadepaymentsonbehalfofthejointlycontrolledentity.

Anyexcessofthecostofacquisitionoverthegroup’sshareofthenetfairvalueoftheidentifiableassets,liabilitiesandcontingentliabilitiesofthejointlycontrolledentityrecognisedatthedateofacquisitionisrecognisedasgoodwill.Thegoodwillisincludedwithinthecarryingamountoftheinvestmentandisassessedforimpairmentaspartofthatinvestment.Anyexcessofthegroup’sshareofthenetfairvalueoftheidentifiableassets,liabilitiesandcontingentliabilitiesoverthecostofacquisition,afterreassessment,isrecognisedimmediatelyinprofitorloss.

Whereagroupentitytransactswithajointlycontrolledentityofthegroup,profitsandlossesareeliminatedtotheextentofthegroup’sinterestintherelevantjointlycontrolledentity.

3.7 Investmentsinassociates Anassociateisanentityoverwhichthegrouphassignificantinfluenceandthatisneitherasubsidiarynoran

interestinajointventure.Significantinfluenceisthepowertoparticipateinthefinancialandoperatingpolicydecisionsoftheinvesteebutisnotcontrolorjointcontroloverthosepolicies.

Theresultsandassetsandliabilitiesofassociatesareincorporatedinthefinancialstatementsusingtheequitymethodofaccounting,exceptwhentheinvestmentisclassifiedasheldforsale,inwhichcaseitisaccountedforinaccordancewithIFRS5,Non-current Assets Held for Sale and Discontinued Operations.Undertheequitymethod,investmentsinassociatesarecarriedintheconsolidatedstatementoffinancialpositionatcostasadjustedforpost-acquisitionchangesinthegroup’sshareofthenetassetsoftheassociate,lessanyimpairmentinthevalueofindividualinvestments.

Thegroup’sshareofitsassociates’post-acquisitionprofitsorlossesisrecognisedintheincomestatementanditsshareofpost-acquisitionmovementsinreservesisrecognisedinreserves.Thepost-acquisitionprofitorlossesrecognisedinretainedearningsaresubsequentlytransferredtoanequityaccountingreserve,distinctfromretainedearnings.Thecumulativepost-acquisitionmovementsareadjustedagainstthecarryingamountoftheinvestment.


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3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.7 Investmentsinassociatescontinued Lossesofanassociateinexcessofthegroup’sinterestinthatassociate(whichincludesanylong-terminterests

that,insubstance,formpartofthegroup’snetinvestmentintheassociate)arerecognisedonlytotheextentthatthegrouphasincurredlegalorconstructiveobligationsormadepaymentsonbehalfoftheassociate.

Anyexcessofthecostofacquisitionoverthegroup’sshareofthenetfairvalueoftheidentifiableassets,liabilitiesandcontingentliabilitiesoftheassociaterecognisedatthedateofacquisitionisrecognisedasgoodwill.Thegoodwillisincludedwithinthecarryingamountoftheinvestmentandisassessedforimpairmentaspartofthatinvestment.Anyexcessofthegroup’sshareofthenetfairvalueoftheidentifiableassets,liabilitiesandcontingentliabilitiesoverthecostofacquisition,afterreassessment,isrecognisedimmediatelyinprofitorloss.

Whereagroupentitytransactswithanassociateofthegroup,profitsorlossesareeliminatedtotheextentofthegroup’sinterestintherelevantassociate.

3.8 Goodwillandnetfairvalueoftheidentifiableassets,liabilitiesandcontingentliabilitiesovercostofanacquiredinterest

Goodwill Goodwillarisingontheacquisitionofasubsidiary,ajointlycontrolledentityoranassociate,representstheexcess

ofthecostofacquisitionoverthegroup’sinterestinthenetfairvalueoftheidentifiableassets,liabilitiesandcontingentliabilitiesoftheinvesteerecognisedatthedateofacquisition.Goodwillisinitiallyrecognisedasanassetatcostandissubsequentlymeasuredatcostlessanyaccumulatedimpairmentlosses.

Aninvestmentinajointlycontrolledentityoranassociateistreatedasasingleassetforthepurposesofimpairmenttesting.Anyimpairmentlossisnotallocatedtospecificassetsincludedwithintheinvestment,forexample,goodwill.Reversalsofimpairmentarerecordedasanadjustmenttotheinvestmentbalancetotheextentthattherecoverableamountoftheassociateincreases.

Forthepurposeofimpairmenttestingofthegroup’scashgeneratingunits,goodwillisallocatedtoeachoftheunitsexpectedtobenefitfromthesynergiesofthecombination.Cash-generatingunitstowhichgoodwillhasbeenallocatedaretestedforimpairmentannually,ormorefrequentlywhenthereisanindicationthattheunitmaybeimpaired.Iftherecoverableamountofthecash-generatingunitislessthanthecarryingamountoftheunit,theimpairmentlossisallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheunitandthenpro ratatotheotherassetsoftheunitonthebasisofthecarryingamountofeachassetintheunit.Animpairmentlossrecognisedforgoodwillisnotreversedinasubsequentperiod.

Ondisposalofasubsidiary,ajointlycontrolledentityoranassociate,theattributableamountofgoodwillisincludedinthedeterminationoftheprofitorlossondisposal.

Thegroup’spolicyforgoodwillarisingontheacquisitionofajointlycontrolledentityandanassociateisdescribedinnote3.6and3.7respectively.

Net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of an acquired interest Wheresuchaninterestexceedsthecostofthebusinesscombination,theidentificationandmeasurementofthe

acquiredidentifiableassets,liabilitiesandcontingentliabilities,andthemeasurementofthecostofthecombinationisreassessed;withanyexcessremainingafterthereassessmentbeingrecognisedimmediatelyinprofitorloss.

3.9 Segmentreporting Operatingsegmentsarereportedinamannerconsistentwiththeinternalreportingprovidedtothechiefoperating

decision-maker.Thechiefoperatingdecision-maker,whoisresponsibleforallocatingresourcesandassessingperformanceoftheoperatingsegments,hasbeenidentifiedastheExecutiveCommitteeofArcelorMittalSouthAfrica.



3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.10 Foreigncurrencytranslation Functional and presentation currency Itemsincludedinthefinancialstatementsofeachofthegroup’sentitiesaremeasuredusingthecurrencyof

theprimaryeconomicenvironmentinwhichtheentityoperates(thefunctionalcurrency).Thegroup’sfinancialstatementsarepresentedinZAR,whichisthecompany’sfunctionalandpresentationcurrency.

Transactions and balances Foreigncurrencytransactionsaretranslatedintothefunctionalcurrencyusingtheexchangeratesprevailingatthe

datesofthetransactions.Foreignexchangegainsandlossesresultingfromthesettlementofsuchtransactionsandfromthetranslationatyear-endexchangeratesofmonetaryassetsandliabilitiesdenominatedinforeigncurrencies,arerecognisedasgainsorlossesintheincomestatementexceptwhendeferredinequityasqualifyingcashflowhedges.

Asreferredtoinnote3.17inthecontextofavailable-for-salefinancialassets,changesinthefairvalueofsuchmonetarysecuritiesdenominatedinforeigncurrencyareanalysedbetweentranslationdifferencesresultingfromchangesintheamortisedcostofthesecurity,andotherchangesinthecarryingamountofthesecurity.Translationdifferencesrelatedtochangesinamortisedcostarerecognisedinprofitorloss,andotherchangesincarryingamountsarerecognisedinequity.

Group companies Theresultsandfinancialpositionofallthegroupentities(noneofwhichhasthecurrencyofahyperinflationary

economy)thathaveafunctionalcurrencydifferentfromthepresentationcurrencyaretranslatedintothepresentationcurrencyasfollows:

• Assetsandliabilitiesforeachreportingdatepresentedaretranslatedattheclosingrateatthedateofthestatementoffinancialposition;

• Incomeandexpensesforeachreportingdatearetranslatedataverageexchangerates;forthereportingperiod;and

• Allresultingexchangedifferencesarerecognisedasaseparatecomponentofequity.

Onconsolidation,exchangedifferencesarisingfromthetranslationofthenetinvestmentinforeignoperationsaredisclosedintheincomestatementofcomprehensiveincomeandaretakentoshareholders’equity.

Whenaforeignoperationispartiallydisposedoforsold,exchangedifferencesthatwererecordedinequityarerecognisedintheincomestatementaspartofthegainorlossonsale.

Goodwillandfairvalueadjustmentsarisingontheacquisitionofaforeignentityaretreatedasassetsandliabilitiesoftheforeignentityandtranslatedattheclosingrate.

Thegroupusedthefollowingexchangeratesforfinancialreportingpurposes:

Rateat31December

2008 2007

ZARtooneUSD 9.389 6.8133

Averageannualratefortheyearended31December

2008 2007

ZARtooneUSD 8.262 7.0555


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3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.11 Property,plantandequipment Thenetcarryingamount,beingthecapitalisedinitialandsubsequentcosts(iegrosscarryingamount)less

subsequentaccumulateddepreciationandimpairmentlossesagainstproperty,plantandequipmentismeasuredandrecognisedonahistoricalcostbasis.

Subsequentcostsareincludedinthecarryingamountofanitemofproperty,plantandequipmentorrecognisedasaseparateasset,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtothegroupandcompanyandthecostoftheitemcanbemeasuredreliably.Thecarryingamountofthereplacedpartisderecognised.

Initialandsubsequentlyrecognisedcostsarecomponentisedinordertosubstantiallyreflecttheusefullivesofthesignificantassetcomponents.

Allassetsareregardedasdepreciableassets,otherthanforfreeholdlandwhichisreflectedathistoricalcostlessaccumulatedimpairmentlosses.

Thegrosscarryingamountofpurchasedandself-constructedassetsincludeallinitialandsubsequentcostsnecessarytoplacetheassetsinaconditionnecessarytomeettheirintendeduse.Ofspecificnotearethefollowingcostelements:

• Afair,pro-ratedportionofdirectlyallocablefixedoverheadcostischargedtoself-constructedassets;and • Thepresentvalueofassetretirementcosts(oninitialrecognitionandsubsequentchangesthereto)wherethese

costsarereliablydeterminableandmeasurable,asdetailedinnote3.28.

Directlyattributablecostsarerecognisedinthegrosscarryingamountofanitemofproperty,plantandequipmentduringacommissioningperiodrelatingtothephysicalpreparationforuse,inwhichitisnotpossibletooperateatnormallevelsbecauseoftheneedtorun-inmachinery,testequipment,ortoensuretheproperoperationoftheequipment.Capitalisationofthesecostsceasesoncetheassetiscapableofbeingoperatedatnormallevels.

Forproperty,plantandequipmentunderconstruction,paymentsinadvanceofcertifiedstage-of-completioncertificates,areclassifiedasprepaymentsandarenotcapitalisedtothecarryingamountoftheasset.

Fordepreciableassets,depreciationcommencesoncetheaforementionedintendedusableconditionhasbeenreached.Temporaryinterruptionsintheassets’intendedusedoesnotresultinthecessationofdepreciation.

Theassets’residualvaluerepresentsthebestestimateofthecurrentrecoverableamountoftheassetattheendoftheirusefullives.Residualvaluesandusefullivesarereviewed,andadjustedifappropriate,ateachstatementoffinancialpositiondate.Formostofthegroup’sandcompany’sproperty,plantandequipment,otherthanland,theresidualvaluesarenil.

Usefullivesanddepreciationratesofproperty,plantandequipmentarereassessedonanannualbasis.

Depreciationischargedsoastowriteoffthecostofassets,otherthanlandandassetsunderconstruction,overtheirestimatedusefullives,usingthestraight-linemethod.

Inordertoachievecomparabilitywithotherinternationalsteelcompanies,thefollowingmaximumusefullivesareappliedasguidelines:

• Buildingsandinfrastructure 50years • Plant,machineryandrelatedequipment(includingmillrollsandplantspecificreconditionablespares)25years • Mobileequipment,integratedprocesscomputersandgeneralreconditionablespares 15years • Non-integratedcomputerhardware 5years

Theaboveguidelinesarere-assessedonanannualbasis,andrevisedasappropriate.



3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.11 Property,plantandequipmentcontinued Anasset’scarryingamountiswrittendownimmediatelytoitsrecoverableamountiftheasset’scarryingamountis

greaterthanitsestimatedrecoverableamount.

Thegainorlossarisingonthedisposalorretirementofanitemofproperty,plantandequipmentisdeterminedasthedifferencebetweenthesalesproceedsandthecarryingamountoftheassetandisrecognisedinprofitorloss.

Landandbuildingswithavailablesparecapacitythatareappliedtoearnincidentalrentalrevenuearenotclassifiedasinvestmentproperties.

Maintenanceandrepairswhichneithermateriallyaddtothevalueofassetsnorappreciablyprolongtheirusefullivesarechargedtoprofitorlossfortheperiod.

Theordinaryactivitiesofthegroupandcompanydonotcomprisetheleasing(rentingout)andsubsequentlysellingofsuchassets.Anyrentalofproperty,plantandequipmentisincidentalinnature.Consequently,incidentalrentalincomeisoffsetagainstotheroperationexpenseandisincludedinthelineitem“otheroperatingexpenses”intheincomestatement.Onthesaleofsuchassets,theassetswouldbeclassifiedasheldforsale.Theproceedsonthedisposaloftheassetsaredisclosedas“cashflowsfrominvestingactivities”inthestatementofcashflows.

3.12 Start-upactivities Start-upactivitiesaredefinedbroadlyasnon-recurringactivitiesrelatedtoopeninganewfacility,introducinga

newproduct,conductingbusinessinanewcountry,initiatinganewprocessinanexistingfacility,orcommencingsomenewoperation.Thecostsincludepre-openingcosts,pre-operatingcostsandorganisingcosts.

Costsassociatedwithsuchactivitiesareexpensedasincurred.

3.13 Accountingforfinanceleasesaslessee Financeleasearrangementsconsistofthosetransactionsthatare: • leasesinbotheconomicsubstanceandlegalform;and • thosethatariseoutofcommercialarrangementsthatineconomicsubstancerepresentleases,thoughnotin

legalform. Thegroupandcompanyleasecertainproperty,plantandequipment.Leasesofproperty,plantandequipment

wherethegroupandcompanyhavesubstantiallyalltherisksandrewardsofownership,areclassifiedasfinanceleases.Financeleasesarecapitalisedatthelowerofthefairvalueoftheleasedproperty,plantandequipmentandthepresentvalueoftheminimumleasepaymentsofthelease.

Eachleasepaymentisallocatedbetweentheliabilityandfinancechargessoastoachieveaconstantrateonthecapitalbalanceoutstanding,usingtheeffectiveinterestratemethod.Thecorrespondingrentalobligations,netoffinancecharges,areshownasfinanceleaseobligations.Theinterestelementofthefinancecostischargedtotheincomestatementovertheleaseperiodsoastoproduceaconstantperiodicrateofinterestontheremainingbalanceoftheliabilityforeachperiod.Theproperty,plantandequipmentacquiredunderfinanceleasesisdepreciatedovertheshorteroftheusefullifeoftheassetandtheleaseterm.

Financeleaseobligationswithsettlementtenuresgreaterthan12monthsafterthestatementoffinancialpositiondate,areclassifiedasnon-currentfinanceleaseobligations,whilethosetobesettledwithin12monthsofthestatementoffinancialpositiondateareclassifiedascurrentfinanceleaseobligations.

3.14 Non-currentassetsanddisposalgroupsheldforsale Non-currentassetsanddisposalgroupsareclassifiedasheldforsaleiftheircarryingamountwillberecoveredprincipally

throughasaletransactionratherthanthroughcontinuinguse.Thisconditionisregardedasmetonlywhenthesaleishighlyprobableandthenon-currentassetordisposalgroupisavailableforimmediatesaleinitspresentcondition.


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3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.14 Non-currentassetsanddisposalgroupsheldforsalecontinued Managementmustbecommittedtothesale,whichshouldbeexpectedtoqualifyforrecognitionasacompleted

salewithinoneyearfromthedateofclassification.

Non-currentassetsanddisposalgroupsclassifiedasheldforsalearemeasuredattheloweroftheirpreviouscarryingamountandtheirfairvaluelesscoststosell.

Whentherequirementsforclassificationasheldforsalearenolongermet,thenon-currentassetordisposalgroupisreclassifiedoutoftheheldforsalecategory.Suchnon-currentassetsordisposalgroupsarecarriedatthelowerof(i)theircarryingamountbeforebeingclassifiedasheldforsale,adjustedforanyamortisationorrevaluationsthatwouldhavebeenrecognisedhaditnotbeenclassifiedasheldforsale;and(ii)theirrecoverableamountatthedateofthesubsequentdecisionnottosell.

Allofasubsidiary’sjointlycontrolledentity’soranassociate’sassetsandliabilitiesareclassifiedasheldforsaleifapartialdisposalsaleplanresultsinlossofcontrol.

3.15 Intangibleassets Internally-generated intangible assets – research and development Researchexpenditureisrecognisedasanexpenseasincurred.Costsincurredondevelopmentprojects(relatingto

thedesignandtestingofneworimprovedproducts)arerecognisedasintangibleassetswhenthefollowingcriteriaarefulfilled:

• itistechnicallyfeasibletocompletetheintangibleassetsothatitwillbeavailableforuseorsale; • managementintendstocompletetheintangibleassetanduseorsellit; • thereisanabilitytouseorselltheintangibleasset; • itcanbedemonstratedhowtheintangibleassetwillgenerateprobablefutureeconomicbenefits; • adequatetechnical,financialandotherresourcestocompletethedevelopmentandtouseorselltheintangible

assetareavailable;and • theexpenditureattributabletotheintangibleassetduringitsdevelopmentcanbereliablymeasured.

Otherdevelopmentexpendituresthatdonotmeetthesecriteriaarerecognisedasanexpenseasincurred.Developmentcostspreviouslyrecognisedasanexpensearenotrecognisedasanassetinasubsequentperiod.Capitaliseddevelopmentcostsincludesthecostofmaterial,directlabourandanappropriateportionofoverheadsandarerecordedasintangibleassetsandamortisedfromthepointatwhichtheassetisreadyforuseonastraight-linebasisoveritsusefullife.Capitaliseddevelopmentexpenditureisshownatcostlessaccumulatedamortisationandaccumulatedimpairmentlosses.

Developmentassetsaretestedforimpairmentannually,inaccordancewithIAS36,Impairment of Assets.

Purchased intangible assets other than goodwill (i) “Right-of-use” operating licences Thecostofacquisitionofoperatinglicences,otherthanthoseobtainedfromthegovernmentauthorities,are

capitalisedattheirhistoricalcostasintangibleassets,andamortisedovertheright-of-useperiod.Thisperiodisreviewedatleastannually.

Environmentalimpactcertificationsandgeneraloperatinglicencesgrantedbytheauthoritiestooperateafacilityarenotregardedasseparableintangibleassets.Thiscost-of-complianceisrecognisedasanintegralcomponentofthespecificproperty,plantandequipmentitemstowhichitrelates.

(ii) Patents, trademarks and licences Acquiredpatents,trademarksandlicencesareshownathistoricalcost.Patents,trademarksandlicenceshave

afiniteusefullifeandarecarriedatcostlessaccumulatedamortisation.Amortisationiscalculatedusingthestraight-linemethodtoallocatethecostoftrademarksandlicencesovertheirestimatedusefullives,typicallybetweenthreetofiveyears.



3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.15 Intangibleassetscontinued (iii) Non-integrated computer software Acquiredcomputersoftwarelicencesarecapitalisedonthebasisofthecostsincurredtoacquireandbringto

usethespecificsoftware.Thesecostsareamortisedovertheirestimatedusefullives.

Costsassociatedwithdevelopingormaintainingofcomputersoftwareprogrammesarerecognisedasanexpenseasincurred.Coststhataredirectlyassociatedwiththedevelopmentofidentifiableanduniquesoftwareproductscontrolledbythegroupandcompany,andthatwillprobablygenerateeconomicbenefitsexceedingcostsbeyondoneyear,arerecognisedasintangibleassets.Costsincludethedirectemployeecostsincurredasaresultofdevelopingsoftwareandanappropriateportionofrelevantoverheads.

Computersoftwaredevelopmentcostsrecognisedasassetsareamortisedovertheirestimatedusefullives,typicallynotexceedingsevenyears.

(iv) Mineral rights Mineralrightsarestatedathistoricalcostlessaccumulatedamortisationandimpairmentlosses. Forintangibleassetsunderdevelopment,paymentsinadvanceofcertifiedstage-of-completioncertificates,are

classifiedasprepaymentsandarenotcapitalisedtothecarryingamountoftheasset. 3.16 Impairmentoftangibleandintangibleassetsexcludinggoodwill Ateachstatementoffinancialpositiondate,thegroupandcompanyreviewthecarryingamountsoftangibleand

intangibleassetstodeterminewhetherthereisanyindicationthatthoseassetshavesufferedanimpairmentloss.Ifanysuchindicationexists,therecoverableamountoftheassetisestimatedinordertodeterminetheextentoftheimpairmentloss(ifany).Inordertoensurecompletenessoftheimpairmentassessmentofindividualassets,alltangibleassetsandintangibleassetsareallocatedtothecash-generatingunittowhichtheybelong.Animpairmentassessmentisthenundertakenontheindividualcash-generatingunits.

Recoverableamountisdefinedasthehigheroffairvaluelesscoststosellandvalue-in-use.Inassessingvalue-in-use,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.

Cash-generatingunitsaredefinedasthebusinessunitsofVanderbijlparkWorks,NewcastleWorks,SaldanhaWorks,VereenigingWorksandCokeandChemicals.Recoverableamountinthecontextofthesecashgeneratingunitsisdefinedastheenterprisevaluecomputedusingadiscountedcashflowmethodologybasedonthelatestbudgetsandforecasts.Iftherecoverableamountofanasset(orcash-generatingunit)isestimatedtobelessthanitscarryingamount,thecarryingamountoftheasset(cash-generatingunit)isreducedtoitsrecoverableamount.Animpairmentlossisrecognisedimmediatelyinprofitorloss,unlesstherelevantassetiscarriedatarevaluedamount,inwhichcasetheimpairmentlossistreatedasarevaluationdecrease.

Whereanimpairmentlosssubsequentlyreverses,thecarryingamountoftheasset(cash-generatingunit)isincreasedtotherevisedestimateofitsrecoverableamount,butsothattheincreasedcarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognisedfortheasset(cash-generatingunit)inprioryears.Areversalofanimpairmentlossisrecognisedimmediatelyinprofitorloss,unlesstherelevantassetiscarriedatarevaluedamount,inwhichcasethereversalistreatedasarevaluationincrease.

3.17 Financialassets Financialassetsarerecognisedandderecognisedonthetradedatewherethepurchaseorsaleoftheassetisunder

acontractwhosetermsrequiredeliverywithinthetimeframeestablishedbythemarketconcerned.Theseassetsareinitiallymeasuredatfairvalue,netoftransactioncostsexceptforthosefinancialassetsclassifiedasatfairvaluethroughprofitorloss(FVTPL),whichareinitiallymeasuredatfairvalue.


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3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.17 Financialassetscontinued Financialassetsareclassifiedintothefollowingspecifiedcategories: • financialassetsasat“fairvaluethroughprofitorloss”(FVTPL); • “held-to-maturity”investments; • “available-for-sale”(AFS)financialassets;and • “loansandreceivables”.

Theclassificationdependsonthenatureandpurposeofthefinancialassetsandisdeterminedatthetimeofinitialrecognition.

Effective interest method for financial assets Theeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofafinancialassetandofallocating

interestincomeovertherelevantperiod.Theeffectiveinterestrateistheratethatexactlydiscountsestimatedfuturecashreceiptsthroughtheexpectedlifeofthefinancialasset,orwhereappropriate,ashorterperiod.

IncomeisrecognisedonaneffectiveinterestbasisfordebtinstrumentsotherthanthosedesignatedasatFVTPL.

Financial assets at FVTPL FinancialassetsareclassifiedasatFVTPLwherethefinancialassetiseither: • held-for-trading;or • designatedasatFVTPL.

Afinancialassetisclassifiedasheld-for-tradingif: • ithasbeenacquiredprincipallyforthepurposeofsellinginthenearfuture; • itisapartofanidentifiedportfoliooffinancialinstrumentsthatthegroupandcompanymanagetogetherand

hasarecentactualpatternofshort-termprofit-taking;or • itisaderivativethatisnotdesignatedandeffectiveasahedginginstrument.

Whenaderivativethatwaspreviouslydesignatedasaneffectivehedginginstrumentnolongerqualifiesassuch,orwhenaderivativebecomesadesignatedandeffectivehedginginstrumentwithinahedgerelationship,suchcircumstancesarenotconsideredtobereclassificationintooroutofFVTPLintermsofthegeneralprohibitiononreclassificationsintoandoutofthiscategory.

Afinancialassetotherthanafinancialassetheld-for-trading,maybedesignatedasatFVTPLuponinitialrecognitionif:

• suchdesignationeliminatesorsignificantlyreducesameasurementorrecognitioninconsistencythatwouldotherwisearise;

• thefinancialassetformspartofagroupoffinancialassetsorfinancialliabilitiesorboth,whichismanaged,anditsperformanceevaluated,onafairvaluebasis,inaccordancewiththegroup’sandcompany’sdocumentedriskmanagementorinvestmentstrategy,andinformationaboutthegroupingisprovidedinternallyonthatbasis;

• itformspartofacontractcontainingoneormoreembeddedderivatives,andIAS39,Financial Instruments: Recognition and Measurementpermitstheentirecombinedcontract(assetorliability)tobedesignatedasatFVTPL;or

• itisabifurcatedembeddedderivativeseparatelymeasuredatFVTPLwherethehostcontractisnotfairvaluedasdetailedinnote3.19.

Financialassetsclassifiedasheld-for-tradingareclassifiedascurrentornon-currentdependingonthematurity

profileoftheinstrument.

FinancialassetsatFVTPLarestatedatfairvalue,withanyresultantgainorlossrecognisedinprofitorloss.Thenetgainorlossrecognisedinprofitorlossincorporatesanydividendorinterestearnedonthefinancialasset.Fairvalueisdeterminedinthemannerdescribedinnote32.3.



3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.17 Financialassetscontinued Held-to-maturity investments Securitiesandsimilarinstrumentswithfixedordeterminablepaymentsandfixedmaturitydatesthatthegroupand

companyhavethepositiveintentandabilitytoholdtomaturityareclassifiedasheld-to-maturityinvestments.

Held-to-maturityinvestmentsarerecordedatamortisedcostusingtheeffectiveinterestmethodlessimpairment,withrevenuerecognisedonaneffectiveyieldbasis.

AFS financial assets Listedsharesandsimilarsecuritiesheldbythegroupandcompanythataretradedinanactivemarketareclassified

asbeingAFSandarestatedatfairvalue.Fairvalueisdeterminedinthemannerdescribedinnote33.3.

GainsandlossesarisingfromchangesinfairvaluearerecogniseddirectlyinequityintheAFSinvestmentsreserve,withtheexceptionofimpairmentlosses,interestcalculatedusingtheeffectiveinterestmethodandforeignexchangegainsandlossesonmonetaryassets,whicharerecogniseddirectlyinprofitorloss.Wheretheinvestmentisdisposedoforisdeterminedtobeimpaired,thecumulativegainorlosspreviouslyrecognisedintheAFSinvestmentsreserveisincludedinprofitorlossfortheperiod.

DividendsonAFSequityinstrumentsarerecognisedinprofitorlosswhenthegroup’sandcompany’srighttoreceivepaymentisestablished.

ThefairvalueofAFSmonetaryassetsdenominatedinaforeigncurrencyisdeterminedinthatforeigncurrencyandtranslatedatthespotrateatthestatementoffinancialpositiondate.Thechangeinfairvalueattributabletotranslationdifferencesthatresultfromachangeinamortisedcostoftheassetisrecognisedinprofitorloss,andotherchangesarerecognisedinequity.

ThemovementintheAFSinvestmentreserveisdetailedinthestatementofcomprehensiveincomeandstatementofchangesinequity.

Loans and receivables Tradereceivables,loans,andotherreceivablesthathavefixedordeterminablepaymentsthatarenotquotedinan

activemarketareclassifiedas“loansandreceivables”.Loansandreceivablesaremeasuredatamortisedcostusingtheeffectiveinterestmethodlessanyimpairment.Interestincomeisrecognisedbyapplyingtheeffectiveinterestrate,exceptforshort-termreceivableswheretherecognitionofinterestwouldbeimmaterial.

Financial guarantee contracts held IAS39,Financial Instruments: Recognition and Measurement,doesnotprescribetheaccountingfortheholderofa

financialguaranteecontract.Thegroupandcompanyhaveconcludedthatitisreasonabletoadoptanaccountingpolicythatissymmetricaltothatappliedforfinancialguaranteecontractsissued.

Suchcontractsareinitiallyrecognisedatfairvalue,andsubsequentlyrecognisedatthehigherofamortisationoftheinitialfairvalue,andtheamountthatcanberecordedasacontingentassetunderIAS37,Provisions, Contingent Liabilities and Contingent Assets.

Reclassifications Asnotedabove,movementsintoandoutoftheFVTPLcategoryoccurwhereaderivativecommencesorceases

toqualifyasahedginginstrumentincashflowornetinvestmenthedge.

Voluntarilyreclassificationmaybemadeofafinancialassetinthefollowinginstancesifthefinancialassetisnolongerheldforthepurposeofsellingorrepurchasinginthenearterm.

• Financial assets(otherthanthosethatwouldhavemetthedefinitionofloansandreceivables):Afinancialassetmaybereclassifiedfromheld-for-tradingtoanotherfinancialassetcategoryonlyinextremelyrarecircumstances.


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3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.17 Financialassetscontinued Reclassifications continued • Loans and receivables:Assetsthatwereclassifiedasheld-for-tradingorasAFSthatwouldhavemetthe

definitionofloansandreceivablesoninitialrecognitioncanbereclassifiedtotheloansandreceivablescategoryifthegroupandcompanyhaveboththeintentionandabilitytoholdthefinancialassetfortheforeseeablefutureoruntilmaturity.

• Restrictions on reclassification:DerivativesandfinancialassetsthatweredesignatedatFVTPLuponinitialrecognitioncannotbereclassified.Financialinstrumentsmaynotbereclassifiedtoeitherheld-for-tradingorbedesignatedtobecarriedatFVTPLafterinitialrecognitionorreclassification.

• Measurement:Allreclassifiedfinancialassetsaremeasuredattheirfairvalueonthedateofreclassification.Thefairvalueofthosefinancialassetsbecomesthestartingfairvalueoramortisedcostfortheinstrument’snewfinancialinstrumentcategoryonthedateofreclassification.Gainsorlossesthatwerealreadyrecognisedinprofitorlossinrespectofheld-for-tradingfinancialassetsarenotbereversed.

• Subsequent increases in recoverability of cash receipts:Whereafinancialassetisreclassifiedasaloanandreceivableasenvisagedaboveandthegroupandcompanysubsequentlyincreasestheirestimatesoffuturecashreceiptsasaresultofincreasedrecoverabilityofthosecashreceipts,theeffectofthatincreaseisrecognisedasanadjustmenttotheeffectiveinterestratefromthedateofthechangeinestimateratherthanasanadjustmenttothecarryingamountoftheassetatthedateofthechangeinestimate.

Impairment of financial assets Financialassets,otherthanthoseatFVTPL,areassessedforindicatorsofimpairmentateachstatementoffinancial

positiondate.

Financialassetsareimpairedwherethereisobjectiveevidencethat,asaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionofthefinancialasset,theestimatedfuturecashflowsoftheinvestmenthavebeenimpacted.Forfinancialassetscarriedatamortisedcost,theamountoftheimpairmentisthedifferencebetweentheasset’scarryingamountandthepresentvalueoftheestimatedfuturecashflows,discountedattheoriginaleffectiveinterestrate,wheretheimpactofdiscountingissignificant.

Thecarryingamountofallfinancialassetsisreduceddirectlybyanyimpairmentlosswiththeexceptionoftradeandotherreceivableswherethecarryingamountisreducedthroughtheuseofanallowancefordoubtfuldebtsaccount.

Whenatradereceivableisuncollectible,itiswrittenoffagainstthisallowanceaccount.Subsequentrecoveriesofamountspreviouslywrittenoffarecreditedagainsttheallowanceaccount.Changesinthecarryingamountoftheallowanceaccountarerecognisedinprofitorloss.

Otherallowancesagainsttradereceivablesrelatetocomplaintsandsettlementdiscount.

Increasesordecreasesintradeandotherreceivableallowancesthataffectprofitorloss,arereflectedintheincomestatementlineitem“otheroperatingexpenses”.

WiththeexceptionofAFSequityinstruments,ifinasubsequentperiod,theamountoftheimpairmentlossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentwasrecognised,thepreviouslyrecognisedimpairmentlossisreversedthroughprofitorlosstotheextentthatthecarryingamountoftheinvestmentatthedatetheimpairmentisreversed,doesnotexceedwhattheamortisedcostwouldhavebeenhadtheimpairmentnotbeenrecognised.

ForAFSequityinvestments,anyincreaseinfairvaluesubsequenttoanimpairmentlossisrecogniseddirectlyinequity.



3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.18 Financialliabilitiesandequityinstrumentsissuedbythegroupandcompany Classification as debt or equity Debtandequityinstrumentsareclassifiedaseitherfinancialliabilitiesorasequityinaccordancewiththesubstance

ofthecontractualarrangement. Equity instruments Anequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsofanentityafterdeducting

allofitsliabilities.Equityinstrumentsarerecordedattheproceedsreceived,netofdirectissuecosts.Theseinstrumentsinclude:

• Puttableinstrumentsthataresubordinatetoallotherclassesofinstrumentsandthatentitletheholdertoapro ratashareofthecompany’snetassetsintheeventoftheissuingcompany’sliquidation.

• Instruments,orcomponentsofinstruments,thataresubordinatetoallotherclassesofinstrumentsandthatimposeonthecompanyanobligationtodelivertoanotherpartyapro ratashareofthenetassetsofthecompanyonlyonliquidation.

Compound instruments Thecomponentpartsofcompoundinstrumentsareclassifiedseparatelyasfinancialliabilitiesandequityin

accordancewiththesubstanceofthecontractualarrangement.Atthedateofissue,thefairvalueoftheliabilitycomponentisestimatedusingtheprevailingmarketinterestrateforasimilarnon-convertibleinstrument.Thisamountisrecordedasaliabilityonanamortisedcostbasisuntilextinguisheduponconversionorattheinstrument’smaturitydate.Theequitycomponentisdeterminedbydeductingtheamountoftheliabilitycomponentfromthefairvalueofthecompoundinstrumentasawhole.Thisisrecognisedandincludedinequity,netofincometaxeffects,andisnotsubsequentlyre-measured.

Financial guarantee contract liabilities Financialguaranteecontractliabilitiesaremeasuredinitiallyattheirfairvaluesandaresubsequentlymeasuredatthe

higherof: • theamountoftheobligationunderthecontract,asdeterminedinaccordancewithIAS37,Provisions,

Contingent Liabilities and Contingent Assets;and • theamountinitiallyrecognisedless,whereappropriate,cumulativeamortisationrecognisedinaccordancewith

therevenuerecognitionpoliciessetoutinnote3.29.

Financialguaranteecontractsincludefinancialstand-bylettersofcreditbutexcludecommerciallettersofcredit.Thelatteraredocumentsissuedbyafinancialinstitutiononbehalfofitsclientauthorisingathirdpartytodrawamountsontheinstitutionuptoastipulatedamountandwithspecifiedtermsandconditions.

IAS39,Financial Instruments: Recognition and Measurement,doesnotcontainexemptionsforfinancialguaranteecontractsissuedbetweenparents,subsidiariesorotherentitiesundercommoncontrol.Therefore,thosecontractsissuedbythecompanyinfavourofitssubsidiariesarereflectedonlyintheentity-ownaccountsofcompany.

Financial liabilities FinancialliabilitiesareclassifiedaseitherfinancialliabilitiesatFVTPLorotherfinancialliabilities. (i) Financial liabilities at FVTPL FinancialliabilitiesareclassifiedasatFVTPLwherethefinancialliabilityiseitherheld-for-tradingoritis

designatedasatFVTPL. Afinancialliabilityisclassifiedasheld-for-tradingif: – ithasbeenincurredprincipallyforthepurposeofrepurchasinginthenearfuture; – itisapartofanidentifiedportfoliooffinancialinstrumentsthatthecompanyandgroupmanagestogether

andhasarecentactualpatternofshort-termprofit-taking;or – itisaderivativethatisnotdesignatedandeffectiveasahedginginstrument.


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3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.18 Financialliabilitiesandequityinstrumentsissuedbythegroupandcompanycontinued Financial liabilities continued Afinancialliabilityotherthanafinancialliabilityheld-for-tradingmaybedesignatedasatFVTPLuponinitial

recognitionif: – suchdesignationeliminatesorsignificantlyreducesameasurementorrecognitioninconsistencythatwould

otherwisearise; – thefinancialliabilityformspartofagroupoffinancialassetsorfinancialliabilitiesorboth,whichismanagedand

itsperformanceisevaluatedonafairvaluebasis,inaccordancewiththecompany’sandgroup’sdocumentedriskmanagementorinvestmentstrategy,andinformationaboutthegroupingisprovidedinternallyonthatbasis;

– itformspartofacontractcontainingoneormoreembeddedderivatives,andIAS39,Financial Instruments: Recognition and Measurement,permitstheentirecombinedcontract(assetorliability)tobedesignatedasatFVTPL;or

– itisabifurcatedembeddedderivativeseparatelymeasuredatFVTPLwherethehostcontractisnotfairvaluedasdetailedinnote3.19.

FinancialliabilitiesatFVTPLarestatedatfairvalue,withanyresultantgainorlossrecognisedinprofitorloss.Thenetgainorlossrecognisedinprofitorlossincorporatesanyinterestpaidonthefinancialliability.Fairvalueisdeterminedinthemannerdescribedinnote32.3.

(ii) Other financial liabilities Otherfinancialliabilities,includingborrowingsandfinanceleaseobligationsareinitiallymeasuredatfairvalue,

netoftransactioncosts.

Otherfinancialliabilitiesaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod,withinterestexpenserecognisedonaneffectiveyieldbasis.

Effective interest method for financial liabilities Theeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofafinancialliabilityandofallocating

interestexpenseovertherelevantperiod.Theeffectiveinterestrateistheratethatexactlydiscountsestimatedfuturecashpaymentsthroughtheexpectedlifeofthefinancialliability,orwhereappropriate,ashorterperiod.

3.19 Derivativefinancialinstruments Thegroupandcompanyenterintoavarietyofderivativefinancialinstrumentstomanageexposuretocommodity

pricerisk,foreignexchangeraterisk,andfreightraterisk,including: • cash-settledover-the-counterbasemetalforwardpurchaseandoptioncontracts; • cash-settledover-the-counterforeignexchangeforwardandoptioncontracts;and • embeddedderivativefeaturesinhighlyselectivehostprocurementcontracts.

Furtherdetailsofderivativefinancialinstrumentsaredisclosedinnote22tothefinancialstatements.

Derivativesareinitiallyrecognisedatfairvalueatthedateaderivativecontractisenteredintoandaresubsequentlyre-measuredtotheirfairvalueateachstatementoffinancialpositiondate.Theresultinggainorlossisrecognisedinprofitorlossimmediatelyunlessthederivativeisdesignatedandeffectiveasahedginginstrument,inwhicheventthetimingoftherecognitioninprofitorlossdependsonthenatureofthehedgerelationship.

Thegroupandcompanydesignatecertainderivativesaseitherhedgesofthefairvalueofrecognisedassetsorliabilitiesorfirmcommitments(fairvaluehedges),orhedgesofhighlyprobableforecasttransactionsorhedgesofforeigncurrencyriskoffirmcommitments(cashflowhedges).

Thefairvalueofhedgingderivativesisclassifiedasanon-currentassetoranon-currentliabilityiftheremainingmaturityofthehedgerelationshipismorethan12monthsandasacurrentassetoracurrentliabilityiftheremainingmaturityofthehedgerelationshipislessthan12months.



3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.19 Derivativefinancialinstrumentscontinued Derivativesnotdesignatedintoaneffectivehedgerelationshipareclassifiedasheld-for-tradingatFVTPLas

detailedinnote3.17and3.18.

Bifurcated embedded derivatives Derivativesembeddedinotherfinancialinstrumentsorotherhostcontractsaretreatedasseparatederivatives

whentheirrisksandcharacteristicsarenotcloselyrelatedtothoseofthehostcontractsandthehostcontractsarenotmeasuredatfairvaluewithchangesinfairvaluerecognisedinprofitorloss.BifurcatedembeddedderivativesareclassifiedasfinancialassetsorliabilitiesatFVTPLasdetailedinnote3.17and3.18.

Hedge accounting Thegroupandcompanydesignatecertainstand-alonehedginginstrumentstransactedtoeconomicallymitigate

commoditypriceriskandforeigncurrencyriskaseithercashflowhedgesorfairvaluehedges.

Generallyhedgesof: • TheUSDcommoditypriceriskofhighlyprobableforecastbasemetalpurchasetransactions;and • Theforeignexchangeriskofhighlyprobableforecastexportsteelsaletransactions,areaccountedforascash

flowhedges.

Theforward,asopposedtothespotrate,isdesignatedasthehedgedrisk.

Attheinceptionofthehedgerelationshiptherelationshipbetweenthehedginginstrumentandhedgeditemisdocumented,alongwithitsriskmanagementobjectivesanditsstrategyforundertakingvarioushedgetransactions.Furthermore,attheinceptionofthehedgeandonanongoingbasis,itisdocumentedwhetherthehedginginstrumentthatisusedinahedgingrelationshipishighlyeffectiveinoffsettingchangesincashflowsorfairvaluesofthehedgeditem.

Whenoptionsaredesignatedashedginginstruments,theoptioninitsentiretywouldbedesignatedasahedgeinstrumentofaone-sidedriskarisingfromaforecasttransaction,resultinginhedgeineffectiveness.

Hedgerelationshipsaredesignatedbythecentraltreasuryfunctionbetweenexternallytransactedhedginginstrumentsandtheinternalbusinessunitorsubsidiaryexposedtothehedgedrisk.Thehedgessodesignatedqualifyforhedgeaccountingintheentity-ownaccountsofthecompanyandsubsidiarycompanies(asapplicable),andthegroupaccounts.

Notes22and32containdetailsofthefairvaluesofthederivativeinstrumentsusedforhedgingpurposes.

Movementsinthecashflowhedgingreserveinequityaredetailedinthestatementofcomprehensiveincomeandthestatementofchangesinequity.

Cash flow hedges Theeffectiveportionofchangesinthefairvalueofderivativesthataredesignatedandqualifyascashflowhedges

aredeferredinequity.Thegainorlossrelatingtotheineffectiveportionisrecognisedimmediatelyinprofitorloss.

Amountsdeferredinequityarerecycledinprofitorlossintheperiodswhenthehedgeditemisrecognisedinprofitorloss.Whentheforecasttransactionthatishedgedresultsintherecognitionofanon-financialassetoranon-financialliability,thegainsandlossesremaininequityandarenotincludedintheinitialmeasurementofthecostoftheassetorliability.Thedeferredgainsandlossesareonlyrecycledtotheincomestatementwhentheforecasttransaction,throughitsrecognitionasapurchaseorsale,isultimatelyrecognisedinprofitorloss.Therecycledgainsandlossesarerecognisedasacomponentofrevenueandcostofsales,asappropriate.

Forcashflowhedgerelationshipdesignationpurposes,theunderlyinghedgeitemismodelledusingthehypotheticalderivativemethodonaone-to-one(onehedginginstrumenttoonehedgeditem)basis.


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3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.19 Derivativefinancialinstrumentscontinued Cashflowhedgeeffectivenessisassessedusingthehypotheticalderivativemethod,asfollows: • USDbasemetalhedgingrelationships:regressionanalysisusingtheparameters: – Coefficientofdetermination:R2>0.8 – Slope:0.8-1.25 – Statisticalsignificance:F-test>0.95 • Foreignexchangehedgingrelationshipcontracts:dollaroff-setmethodinthe0.8to1.25range.

Ineffectivenessismeasuredastheabsoluteamountbywhichthechangeinthefairvalueofthehedginginstrumentexceededthechangeinthefairvalueofthehedgeditem,modelledasahypotheticalderivative.

Hedgeaccountingisdiscontinuedwhenthehedgingrelationshipisrevoked,thehedginginstrumentexpiresorissold,terminated,orexercised,ornolongerqualifiesforhedgeaccounting.Anycumulativegainorlossdeferredinequityatthattimeremainsinequityandisrecognisedwhentheforecasttransactionisultimatelyrecognisedinprofitorloss.Whenaforecasttransactionisnolongerexpectedtooccur,thecumulativegainorlossthatwasdeferredinequityisrecognisedimmediatelyinprofitorloss.

Inflationishedgedintheinstancewherechangesininflationareacontractually-specifiedportionofcashflowsofarecognisedfinancialinstrument.

Fair value hedges Changesinthefairvalueofderivativesthataredesignatedandqualifyasfairvaluehedgesarerecordedinprofit

orlossimmediately,togetherwithanychangesinthefairvalueofthehedgeditemthatisattributabletothehedgedrisk.

Hedgeaccountingisdiscontinuedwhenthehedgingrelationshipisrevoked,thehedginginstrumentexpiresorissold,terminated,orexercised,ornolongerqualifiesforhedgeaccounting.Theadjustmenttothecarryingamountofthehedgeditemarisingfromthehedgedriskisamortisedtoprofitorlossfromthatdate.

Theeffectivenessoffairvaluehedgingrelationshipsareassessedusingthedollaroff-setmethodinthe0.8to1.25range.

Forfairvaluehedging,thehedgeditemmaybeasingleassetorliabilityoraportfolioofsimilarassetsorliabilities.

Ifsimilarassetsorsimilarliabilitiesareaggregatedandhedgedasaportfolio,theindividualassetsorindividualliabilitiesmustsharetheriskexposureforwhichtheyaredesignatedasbeinghedged.Thechangeinfairvalueattributabletothehedgedriskforeachindividualiteminahedgedportfoliomustbeexpectedtorespondinagenerallyproportionatemannertotheoverallchangeinfairvalueoftheaggregateportfolioattributabletothehedgedrisk.Thegroup’sandcompany’sinterpretationof“approximatelyproportional”isthatfairvaluechangesintheamountsofindividualitemscomposingtheportfoliomustbewithina90%to110%ofthefairvaluechangesinaverageportfolio.

3.20 Inventories Inventoriesarestatedatthelowerofcostandnetrealisablevalue.Costisdeterminedusingthefirst-in,first-

out(FIFO)method.Rawmaterialinventoriesaremeasuredusingthestandardcostmeasurementformula,whichapproximatesactualcost.Consumablestoresinventoryaremeasuredusingamovingaveragecostformula.

Rawmaterialsandconsumablestoreinventoryarecarriedatcostinclusiveoffreight,shippingandhandlingcosts.

Thecostoffinishedgoodsandwork-in-progresscomprisesrawmaterials,directlabour,otherdirectcostsandrelatedproductionoverheadsbasedonnormaloperatingcapacityincurredinbringingtheinventoriestotheirpresentlocationandcondition.Itexcludesborrowingcosts.



3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.20 Inventoriescontinued Forfinishedgoodsinventorydestinedforoverseasexportsale,thedistributionandhandlingcoststotheport

ofsale,arecapitalisedasinventorialcost.Distributionandhandlingcostsincurredaftertherisksandrewardsofownershiphavepassed,arenot.

Costsofinventoriesexcludethetransferfromequityofanygains/lossesonqualifyingcashflowhedgesforthepurchaseofbasemetals.

Forfinishedsteelinventory,netrealisablevalue(NRV)istheestimatedsellingpriceintheordinarycourseofbusiness,lessapplicablevariablesellingexpenses.NRVcalculationsarerolledbackfromfinishedgoodinventoriestofurtherencompasswork-in-progressandrawmaterialinventories.Sparepartsandconsumablestoreitemsareassessedforobsolescence.

3.21 Tradeandotherreceivables Tradeandotherreceivablesarerecognisedinitiallyatfairvalueandsubsequentlymeasuredatamortisedcostusing

theeffectiveinterestratemethod,lessprovisionforimpairment.

Aprovisionforimpairmentfortradeandotherreceivablesisestablishedwhenthereisobjectiveevidencethatthegroupandcompanywillnotbeabletocollectallamountsdueaccordingtotheoriginaltermsofthereceivables.

Significantfinancialdifficultiesofthedebtor,probabilitythatthedebtorwillenterbankruptcyorfinancialreorganisationanddefaultordelinquencyinpaymentsareconsideredindicatorsthatthetradereceivableisimpaired.Theamountoftheprovisionisthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows,discountedattheoriginaleffectiveinterestrate,wheresignificant.

Theimpairmentoftradeandotherreceivablesisdescribedinnote3.17.

3.22 Cashandcashequivalents Cashandcashequivalentsincludescashonhand,depositsheldoncallwithbanksandothershort-termhighlyliquid

investmentswithoriginalmaturitiesofthreemonthsorless,whicharesubjecttoaninsignificantriskofchangesinvalue.

3.23 Statedcapital Equityinstrumentsissuedbythecompanyandgroupareclassifiedaccordingtothesubstanceofthecontractual

arrangementsenteredintoandthedefinitionsofanequityinstrument.Anequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsofthecompanyandgroupafterdeductingallliabilities.

Ordinarysharesareclassifiedasequity.

Incrementalcostsdirectlyattributabletotheissueofnewsharesoroptionsareshowninequityasadeduction,netoftaxeffects,fromtheproceeds.

Whereanygroupcompany(includingtheManagementsharetrust)purchasesthecompany’sequitysharecapital(treasuryshares),theconsiderationpaid,includinganydirectlyattributableincrementalcosts(netofincometaxes),isrecognisedinanequityreserveattributabletothecompany’sequityholdersuntilthesharesarecancelledorreissued.Wheresuchsharesaresubsequentlyreissued,anyconsiderationreceived(netofanydirectlyattributableincrementaltransactioncostsandtherelatedincometaxeffects)isincludedinequityattributabletothecompany’sequityholders.


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3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.23 Statedcapitalcontinued Whenathirdpartyfinancialinstitutionisusedtobuybacksharesofthecompanyinthemarket,whetherthatparty

isactingasprincipaloragent,hasanimpactontheaccountingtreatmentofsuchapurchase: • Ifactingasagent,onlywhensharesareacquiredbythethirdpartywilltheacquiringgroupcompanyrecognise (i)afinancialliabilitytopaythethirdparty,and(ii)adebittoequityforthesharestobedelivered,being

treasuryshares. • Ifactingasprincipal,theacquiringgroupcompanywillrecogniseoncontractingwiththethirdparty(i)thegross

obligationbeingthepresentvalueofthemaximumamountthegroupcompanycouldberequiredtopaythethirdparty,and(ii)adebittoequity.Changesinthepresentvalue(duetotheunwindingofthediscountrateorchangesintheshareprice(unlesscapped))willberecognisedinprofitorloss.Aspurchasesaremaderesultinginpaymentstothethirdparty,theliabilitywillbereduced.Attheendoftheprogrammeanyremainingliabilitywillbederecognised,withacredittoequity,assumingthefullobligationinitiallyrecognisedisnotutilised.

Capitaldistributionstoshareholdersthroughcapitalreductionprogrammesarecreditedagainststatedcapital.Incometaxconsequencesofsuchandsimilartransactionsarechargedtoprofitorlossandnotstatedcapital.

3.24 Tradeandotherpayables Tradeandotherpayablesareinitiallymeasuredatfairvalue,andaresubsequentlymeasuredatamortisedcost,using

theeffectiveinterestratemethod.

3.25 Borrowings Borrowingsarerecognisedinitiallyatfairvalue,netoftransactioncostsincurred.Borrowingsaresubsequently

statedatamortisedcost;anydifferencebetweentheproceeds(netoftransactioncosts)andtheredemptionvalueisrecognisedintheincomestatementovertheperiodoftheborrowingsusingtheeffectiveinterestratemethod.

Borrowingsareclassifiedascurrentliabilitiesunlessthegroupandcompanyhaveanunconditionalrighttodefersettlementoftheliabilityforatleast12monthsafterthestatementoffinancialpositiondate.

3.26 Deferredincometax Deferredincometaxisprovidedinfull,usingtheliabilitymethod,ontemporarydifferencesarisingbetweenthetax

basesofassetsandliabilitiesandtheircarryingamountsinthegroupfinancialstatements.However,thedeferredincometaxisnotaccountedforifitarisesfrominitialrecognitionofanassetorliabilityinatransactionotherthanabusinesscombinationthatatthetimeofthetransactionaffectsneitheraccountingnortaxableprofitorloss.

Deferredincometaxisdeterminedusingtaxratesthathavebeenenactedorsubstantiallyenactedbythestatementoffinancialpositiondateandareexpectedtoapplywhentherelateddeferredincometaxassetisrealisedorthedeferredincometaxliabilityissettled.

Deferredincometaxassetsarerecognisedtotheextentthatitisprobablethatfuturetaxableprofitwillbeavailableagainstwhichthetemporarydifferencescanbeutilised.

Deferredincometaxisprovidedontemporarydifferencesarisingoninvestmentsinsubsidiariesexceptwherethetimingofthereversalofthetemporarydifferenceiscontrolledbythegroupanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.

Deferredtaxesonmovementsinexchangedifferencesontranslationofforeignoperationstransferredtoequity,arecorrespondinglytransferredtoequitytotheextentthatsuchtransactionsrepresenttemporarydifferences.

Deferredtaxesonmovementsingainsandlossesdeferredinequityoncashflowhedgesarecorrespondinglytransferredtoequity,withoutaffectingthetaxchargeintheincomestatement.



3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.27 Employeebenefits Short-term employee benefits Servicesrenderedbyemployeesduringanaccountingperiod,arerecognisedastheundiscountedamountofshort-

termemployeebenefitsexpectedtobepaidinexchangeforthatserviceasaliability,afterdeductinganyamountalreadypaid;andasanexpense,unlessincludedinthecostofinventoryorproperty,plantandequipment.Thereforethecostofallshort-termemployeebenefits,suchassalaries,bonuses,housingallowances,medicalandothercontributionsisrecognisedduringtheperiodinwhichtheemployeerenderstherelatedservice.

Bonus plans Thegroupandcompanyrecognisealiabilityandanexpenseforbonuses,basedonaformulathattakesinto

considerationcost,profit,cashgeneration,employmentequityandsafetytargets.

Short-term compensated absences Theexpectedcostofshort-termemployeebenefitsintheformofcompensatedabsencesarerecognised(i)inthe

caseofaccumulatingcompensatedabsences,whentheemployeesrenderservicethatincreasestheirentitlementtofuturecompensatedabsences;and(ii)inthecaseofnon-accumulatingcompensatedabsences,whentheabsencesoccur.Theleavepaybenefitsofthegroupandcompanyareaccumulativeinnatureandentailautomaticencashmentofthebenefitsoncetheentitlementsreachanaccumulationlimit,asmorefullydescribedinnote28.

Short term and long term distinction Short-termemployeebenefitsareemployeebenefitswhichareduetobesettledwithin12monthsaftertheend

oftheperiodinwhichtheemployeesrendertherelatedservice.Theremainingemployeebenefitsareclassifiedaslongterm.

Retirement benefits Contributionstodefinedcontributionplansarerecognisedasanexpensewhenemployeeshaverenderedservice

entitlingthemtothecontributions.

Fordefinedbenefitplans: • Thecostofprovidingbenefitsisdeterminedusingtheprojectedunitcreditmethod,withactuarialvaluations

beingcarriedoutateachstatementoffinancialpositiondate; • Actuarialgainsandlossesthatexceed10percentofthegreaterofthepresentvalueofthegroup’sand

company’sdefinedbenefitobligationandthefairvalueofplanassetsasattheendoftheprioryearareamortisedovertheexpectedaverageremainingworkinglivesoftheparticipatingemployees;

• Pastservicecostisrecognisedimmediatelytotheextentthatthebenefitsarealreadyvested,andotherwiseisamortisedonastraight-linebasisovertheaverageperioduntilthebenefitsbecomevested;

• Aplanamendmentthatresultsinachangeintheextenttowhichbenefitpromisesareaffectedbyfuturesalaryincreasesisacurtailment,whileanamendmentthatchangesbenefitsattributabletopastservicegivesrisetoanegativepastservicecostifitresultsinareductioninthepresentvalueofthedefinedbenefitobligation;

• Administrationcostsareincludedinfullinmeasuringthedefinedbenefitobligation;and • Thegroup’sandcompany’sobligationtomakegoodfundingshortfallsintheplansisdisclosedinnote34.

Onlyobligationsrecognisedinthestatementoffinancialpositionrepresentsthepresentvalueofthedefinedbenefitobligationasadjustedforunrecognisedactuarialgainsandlossesandunrecognisedpastservicecost,andasreducedbythefairvalueofplanassets.Anyassetresultingfromthiscalculationislimitedtounrecognisedactuariallossesandpastservicecost,plusthepresentvalueofavailablerefundsandreductionsinfuturecontributionstotheplan.

Unconditionalrightstoarefundarerecognisedasanassetandmeasuredastheamountofthesurplusatthestatementoffinancialpositiondate.Thisamountisthefairvalueoftheplanassetslessthepresentvalueofthedefinedbenefitobligation,lessanyassociatedcosts,suchastaxes.


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3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.27 Employeebenefitscontinued Retirement benefits continued Intheabsenceofaminimumfundingrequirement,theeconomicbenefitsavailableasareductioninfuture

contributionsarethepresentvalueofthefutureservicecost(excludingcostsbornebyemployees)over(i)theshorteroftheexpectedlifeoftheplan;and(ii)theexpectedlifeoftheentitydeterminedusingassumptionsconsistentwiththoseusedtodeterminethedefinedbenefitobligation(includingthediscountrate);andbasedonconditionsthatexistatthestatementoffinancialpositiondate.

Medical benefits Nocontributionsaremadetothemedicalaidofretiredemployees,exceptforaclosedgroupofearlyretirees

inrespectofwhomcontributionsaremade.Thepresentvalueofthepost-retirementmedicalaidobligation(asdetailedinnote28)forsuchearlyretirementsisactuariallydeterminedannuallyontheprojectedunitcreditmethodandanydeficitorsurplusisimmediatelyrecognisedinprofitorloss.

Termination benefits Terminationbenefitsarepayablewheneveranemployee’semploymentisterminatedbeforethenormalretirement

dateorwheneveranemployeeacceptsvoluntaryredundancyinexchangeforthesebenefits.

Thegroupandcompanyrecogniseterminationbenefitswhenitisdemonstrablycommittedtoeither: • Terminatetheemploymentofcurrentemployeesaccordingtoadetailedformalplanwithoutpossibility

ofwithdrawal;or • Provideterminationbenefitsasaresultofanacceptedoffermadetoencouragevoluntaryredundancyin

exchangeforthesebenefits.

Share-based compensation benefits Refertotheshare-basedpayments,note3.32.

3.28 Provisions,contingentliabilitiesandcontingentassets Provisions Provisionsforassetretirementobligations,environmentalremediationobligations,onerouscontracts,restructuring

costs,legalclaimsandsimilarobligationsarerecognisedwhen: • Apresentlegalorconstructiveobligationexistsasaresultofpastevents; • Itisprobablethatanoutflowofresourceswillberequiredtosettletheobligation;and • Theamounthasbeenreliablyestimated.

Thenature,backgroundandtreatmentofassetretirementobligationsandenvironmentalremediationprovisionsisdetailedinnote28.

Onerouscontractprovisionscompriseprimarilyofoperatingleaseterminationpenalties.

Restructuringprovisionscompriseemployeeterminationpaymentsandotherdirectlyrelatedexpenditurenotassociatedwithongoingactivities.

Provisionsarenotrecognisedforfutureoperatinglossesorforcapitalexpenditureofanenvironmentalnaturerelatingtoanoperationalfacility.

Provisionsaremeasuredatthepresentvalueoftheexpendituresexpectedtoberequiredtosettletheobligationusingapre-taxratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheobligation.

Theincreaseintheprovisionduetopassageoftimeisrecognisedasaccretionexpenseswithinfinancecharges.Changesinthediscountratearerecognisedasfinancecharges,exceptforassetretirementobligationswhicharecapitalisedtoproperty,plantandequipment.



3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.28 Provisions,contingentliabilitiesandcontingentassetscontinued Contingent liabilities (i) Legal claims Legalclaimsareassessedusingacumulativeprobabilitymethodologyinorderto: • Determineifapresentobligationexists(recognition);and • Measuretheobligation.

Managementappliesitsjudgementtothefactpatternsandadviceitreceivesfromitsattorneys,advocatesandotheradvisers.Lossestimatesandindividualprobabilitiesofoccurringareattachedtotheidentifiedpossibleoutcomes.Acumulativeprobabilityofoccurringisdetermined,beingthecumulativesumofindividualprobabilities,wherethelossestimatesofeachpossibleoutcomearesortedindescendingorder.

Apresentobligation,classifiedasaprovision,isrecognisedasprobableandismeasuredastheestimatedlossofthatoutcomethatismorethan50%likelywhenmeasuredusingacumulativeprobabilitymethodology.

Forclaimsthatareregardedasreasonablypossible,beingbetween20%and50%whenmeasuredusingacumulativeprobabilitymethodology,thefactsandcircumstancesofthepossiblelossandanestimateoftheamount,ifdeterminable,aredisclosed.

Remoteclaims,being<20%usingacumulativeprobabilitymethodologyarenotdisclosedorprovidedfor. (ii) Financial guarantees Financialguaranteecontractliabilitiesareaccountedforasdetailedinnote3.18.Forthoseguarantees

notrecognised,thefinancialpositionofthebeneficiaryentityisassessedusingthecumulativeprobabilitymethodologydescribedaboveinordertoassesshowtheguaranteeshouldbetreated.

Contingent assets Contingentassetsarenotrecognised,butaredisclosedwhereaninflowofeconomicbenefitsisprobable.

3.29 Revenuerecognition Sale of goods Revenuecomprisesthefairvalueoftheconsiderationreceivedorreceivableforthesaleofgoodsintheordinary

courseofthegroup’sandcompany’sactivities.Revenueisshownnetofvalueaddedtax,returns,rebates,discountsand,inthecaseofthegroupaccounts,aftereliminatingsaleswithinthegroup.

Allamountsinvoicedtoacustomerinasaletransactionrelatedtodistributionandhandlingcostsareclassifiedasrevenue,withthecostsrelatedtheretoshownasdistributionandhandlingcostswithinsales,generalandadministrativeexpenses.

Thegroupandcompanyrecogniserevenuewhentheamountofrevenuecanbereliablymeasured,itisprobablethatfutureeconomicbenefitswillflowtotheentityandspecificcriteriahavebeenmetforeachofthegroup’sandcompany’sactivitiesasdescribedbelow.

Theamountofrevenueisnotconsideredtobereliablymeasurableuntilallcontingenciesrelatingtothesalehavebeenresolved.Thegroupandcompanybasesuchestimatesonhistoricalresults,takingintoconsiderationthetypeofcustomer,thetypeoftransactionandthespecificsofeacharrangement.

Salesofgoodsarerecognisedbasedontherelevantdeliverytermsatwhichpointtherisksofobsolescenceandlosshavebeentransferredtothecustomerandeitherthecustomerhasacceptedtheproductsinaccordancewiththesalescontract,orthegroupandcompanyhaveobjectiveevidencethatallcriteriaforacceptancehavebeensatisfied.


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3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.29 Revenuerecognitioncontinued Interest income Interestincomeisrecognisedonatime-proportionbasisusingtheeffectiveinterestmethod.Whenareceivableis

impaired,thegroupandcompanyreducethecarryingamounttoitsrecoverableamount,beingtheestimatedfuturecashflowdiscountedattheoriginaleffectiveinterestrateoftheinstrument,andcontinueunwindingthediscountasinterestincome.Interestincomeonimpairedloansisrecognisedusingtheoriginaleffectiveinterestrate.

Dividend income Dividendincomeisrecognisedwhentherighttoreceivepaymentisestablished.

3.30 Operatingleases Operatingleasepaymentsarerecognisedasanexpenseonastraight-linebasisovertheleaseterm,exceptwhere

anothersystematicbasisismorerepresentativeofthetimepatterninwhicheconomicbenefitsfromtheleasedassetareconsumed.Contingentrentalsarisingunderoperatingleasesarerecognisedasanexpenseintheperiodinwhichtheyareincurredandarenotstraight-lined.

Intheeventthatleaseincentivesarereceivedtoenterintooperatingleases,suchincentivesarerecognisedasa

liability.Theaggregatebenefitofincentivesisrecognisedasareductionoftherentalexpenseonastraight-linebasis,exceptwhereanothersystematicbasisismorerepresentativeofthetimepatterninwhicheconomicbenefitsfromtheleasedassetareconsumed.

3.31 Borrowingcosts Incurredborrowingcostscalculatedinaccordancewiththeeffectiveinterestratemethodanddirectlyattributable

totheacquisition,constructionorproductionofqualifyingassets,forthoseassetsthatnecessarilytakeasubstantialperiodoftimetogetreadyfortheirintendeduseorsale,areaddedtothecostofthoseassets,untilsuchtimeastheassetsaresubstantiallyreadyfortheirintendeduseorsale.

Investmentincomeearnedonthetemporaryinvestmentofspecificborrowingspendingtheirexpenditureonqualifyingassetsisdeductedfromtheborrowingcostseligibleforcapitalisation.

Allotherborrowingcostsarerecognisedinprofitorlossintheperiodinwhichtheyareincurred.

3.32 Share-basedpayments Equity-settled share-based payments Equity-settledshare-basedpaymentstoemployeesandothersprovidingsimilarservicesaremeasuredatthefair

valueoftheequityinstrumentsatthegrantdate.

Fairvaluedeterminationofequity-settledshare-basedtransactionsismeasuredusingtheBinomialMatrixpricingmodel.Thekeyassumptionsforstaffturnoverperannum,theearly-exercisemultiple,risk-freerate,sharepricevolatilityanddividendyieldarebasedonmanagement’sbestestimatesatthedateofvaluation.ThereasonabilityofthepricingestimateissimultaneouslyassessedagainsttheBlack-Scholes-Mertonpricingmodel.

Thefairvaluedeterminedatthegrantdateoftheequity-settledshare-basedpaymentsisexpensedonastraight-linebasisoverthevestingperiod,basedonthegroup’sandcompany’sestimateofequityinstrumentsthatwilleventuallyvest.Ateachstatementoffinancialpositiondate,thegroupandcompanyrevisetheirestimateofthenumberofequityinstrumentsexpectedtovest.Theimpactoftherevisionoftheoriginalestimates,ifany,isrecognisedinprofitorlossovertheremainingvestingperiod,withacorrespondingadjustmenttotheequity-settledemployeebenefitsreserve.

Thepolicydescribedaboveisappliedtoallequity-settledshare-basedpaymentsthatweregrantedafter7November2002andvestedafter1January2005.



3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.32 Share-basedpaymentscontinued Cash-settled share-based payments Forcash-settledshare-basedpayments,aliabilityequaltotheportionofgoodsorservicesreceivedisrecognised

asthecurrentfairvalueateachstatementoffinancialpositiondate.

Share-based payment arrangements involving equity instruments of the parent granted to employees of the subsidiary Sucharrangementsaremanifestthrough(i)share-basedpaymentrightissuesbyaparentorsubsidiarytoan

employeeofthatentity,followedbythetransferoftheemployeetoanothergroupcompany;and(ii)employeeshare-purchaseplansinvolvingequityinstrumentsoftheparentcompanyofferedtoemployeesofasubsidiarycompany.

Equity-settledshare-basedpaymentsinvolvingequityinstrumentsoftheparentgrantedtoemployeesofthesubsidiaryareaccountedforinthegroupfinancialstatementsoftheparent.Thesubsidiarymeasuretheservicesreceivedfromitsemployeesinaccordancewiththeaccountingpolicyapplicabletoequity-settledshare-basedpaymenttransactions,withacorrespondingincreaserecognisedinequityasacontributionfromtheparent.

Whereaparentmaygrantshare-basedpaymentrightstotheemployeesofitssubsidiaries,conditionaluponthecompletionofcontinuingservicewiththegroupforaspecifiedperiod,andsuchemployeestransferemploymenttoanothersubsidiaryduringthespecifiedvestingperiodwithouttheemployee’srightstoequityinstrumentsoftheparentundertheoriginalshare-basedpaymentarrangementbeingaffected,theneachsubsidiarymeasurestheservicesreceivedfromtheemployeebyreferencetothefairvalueoftheequityinstrumentsatthedatethoserightswereoriginallygrantedbytheparentandtheproportionofthevestingperiodservedbytheemployeewitheachsubsidiary.Iftherightsdonotvestbecauseofanemployee’sfailuretomeettheservicecondition,noamountisrecognisedonacumulativebasisfortheservicesreceivedfromthatemployeeinthefinancialstatementsofanysubsidiary.

Vesting conditions Vestingconditionsareserviceconditionsandperformanceconditionsonly.Otherfeaturesofashare-based

paymentarenotvestingconditions.Featuresofashare-basedpaymentthatarenotvestingconditionsareincludedinthegrantdatefairvalueoftheshare-basedpayment.Thefairvaluealsoincludesmarket-relatedvestingconditions.

Cancellations Allcancellations,whetherbythegroup,company,orbyotherparties,suchasemployeeparticipants,receive

thesameaccountingtreatment.Acancellationofequityinstrumentsisaccountedforasanaccelerationofthevestingperiod.Anyamountunrecognisedthatwouldotherwisehavebeenchargedisrecognisedimmediately.Anypaymentsmadewiththecancellationareaccountedforastherepurchaseofanequityinterest.Anypaymentinexcessofthefairvalueoftheequityinstrumentsgrantedisrecognisedasanexpenseinprofitorloss.

3.33 Governmentorparastatalgrants Grantsfromthegovernmentarerecognisedattheirfairvaluewherethereisreasonableassurancethatthegrant

willbereceivedandthegroupandcompanywillcomplywithallrequiredconditions.

Governmentgrantsrelatingtocostsaredeferredandrecognisedintheincomestatementovertheperiodnecessarytomatchthemwiththecoststhattheyareintendedtocompensate.

Governmentgrantsrelatingtoproperty,plantandequipmentareincludedinnon-currentliabilitiesasdeferredgovernmentgrantsandarecreditedtotheincomestatementonastraight-linebasisovertheexpectedlivesoftherelatedassets.


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3. SIGNIFICANTACCOuNTINGPOLICIEScontinued 3.33 Governmentorparastatalgrantscontinued Thebenefitofabelow-marketrategovernmentloanismeasuredasthedifferencebetweenthecarryingamount

inaccordancewithIAS39,Financial Instruments: Recognition and Measurementandtheproceedsreceived.Thebenefitisrecognisedintheincomestatement.

Governmentgrantsthattaketheformofbenefitsthatareavailableindeterminingtaxableincomeorare

determinedorlimitedonthebasisofincometaxliability(suchasspecialinfrastructuralprojectallowances,incometaxholidays,investmenttaxcredits,accelerateddepreciationallowancesandreducedincometaxrates)arerecognisedasareductionintaxchargeandthecorrespondingliability.

3.34 Taxation Incometaxexpenserepresentsthesumofthetaxcurrentlypayable(beingSouthAfricannormaltax),deferredtax,

andSecondaryTaxonCompanies(beingaSouthAfricantaxondividends).

Normal tax Thetaxcurrentlypayableisbasedontaxableprofitfortheyear.Taxableprofitdiffersfromprofitasreportedinthe

incomestatementbecauseitexcludesitemsofincomeorexpensethataretaxableordeductibleinotheryearsanditfurtherexcludesitemsthatarenevertaxableordeductible.Theliabilityforcurrenttaxiscalculatedusingtaxratesthathavebeenenactedorsubstantivelyenactedbythestatementoffinancialpositiondate.

Deferred income tax Refertonote3.26.

Secondary Tax on Companies (STC) – South Africa STCistreatedaspartoftheincometaxexpenseintheincomestatementfortheperiod.Itisrecognisedasan

expenseinthesameperiodastherelateddividendisaccruedasaliability.Asthelevelofdividendsmayvarybetweenreportingperiods,theresultingtaxchargeintheincomestatementmaybedisproportionatetopre-taxearnings.

Withholding tax on dividends Dividendsreceivedsubjecttowithholdingtaxareshowninclusiveofanywithholdingtax,astoshowonlythenett

amountoftheincomereceivedwhichissubjecttowithholdingtaxfailstoreflectthefullamounttaxableinthehandsofthereceivingentity.Thewithholdingtaxamountisincludedinthetaxchangeforthereportingperiod.

3.35 Dividenddistribution Dividenddistributiontothecompany’sshareholdersisrecognisedasaliabilityinthefinancialstatementsinthe

periodinwhichthedividendsareapprovedbythecompany’sboardofdirectors.

3.36 Offset Wherealegallyenforceablerightofoffsetexistsforrecognisedfinancialassetsandfinancialliabilities,andthereis

anintentiontosettletheliabilityandrealisetheassetsimultaneously,ortosettleonanetbasis,allrelatedfinancialeffectsareoffset.

3.37 Comparativefigures Whennecessary,comparativefigureshavebeenadjustedtoconformtochangesinpresentationinthecurrentperiod.



4. CRITICALJuDGEMENTS Intheprocessofapplyingthegroup’sandcompany’saccountingpolicies,managementhasmadethefollowingjudgements

thathavethemostsignificanteffectontheamountsrecognisedinthefinancialstatements(apartfromthoseinvolvingestimation,whicharedealtwithinnote5).

4.1 Impairmentindicatorassessmentforthecarryingamountofproperty,plantandequipment IAS36,Impairment of Assets,statesthatanentityshallassessateachreportingdatewhetherthereisany

indicationthatanasset(orcash-generatingunit)maybeimpaired.Ifanysuchindicationexists,theentityisrequiredtoestimatetherecoverableamountoftheasset(orcash-generatingunit).Asaminimum,internalandexternalsourcesofinformation,asdetailedinthestandard,needtobeconsidered.Theassessmentrequiressignificantjudgementtobeapplied.

FollowingtheriskshocktoworldfinancialmarketsinSeptember2008andthewash-overintotherealeconomy,actualandforecastlocalandinternationalsteelconsumptionreduced.Asanimpairmentindicator,therecoverableamountofthecarryingamountoftheproperty,plantandequipmentandintangibleassetsofthecash-generatingunitswereassessed.Themajorcash-generatingunitsarethefivemajorbusinessunitsidentifiedinnote3.16.

Duetothehighlevelsofuncertaintyregardingthedepthandlengthofthedownturn,estimationoffuturecashflowsandgrowthratesisparticularlyjudgemental.Ofthemajorcash-generatingunits,theSaldanhaWorks,withitshighnetcarryingamountofproperty,plantandequipment,anditsexportmarketfocus,isespeciallysensitivetochangesinassumptions.Theinputsusedintheassessmentandtheassociatedsensitivitiesaredetailedinnote5.1.

Inadditiontotheassessmentofthemajorcash-generatingunits,theassessmentofsecondarycash-generatingunitsandothermajorplantfacilitiesresultedinanimpairmentchargeofR93millionandR28millionbeingrecognisedagainstthecarryingamountofproperty,plantandequipmentoftheMaputoWorksandtheDunswartDirectReductionfacilityrespectively.Theimpairmentisdescribedinnote8.

4.2 CarryingamountoftheinvestmentinHwangeCollieryCompanyLimited(HCCL) Thegroup’savailable-for-saleequityinvestmentinHCCLpertainstoanentitywhichoperatesandislistedin

Zimbabwe,ahyperinflationaryeconomywithforeigncurrencyrestrictions.On14November2008alltradingactivitiesontheZimbabweStockExchange(ZSE)ceased.OnthatdatethecarryingamountoftheinvestmentwasR76millionwithfairvaluegainsdeferredtotheavailable-for-saleinvestmentreserveofR67million.

Thefungibleconduitshareschemearrangementutilisedbythegroup’sbrokers,whichenablestherealisationofsuchinvestmentsatfairvalueviatheuseofadual-listedfungibleconduitsharearrangement,wasfurthermoresuspended.

FollowingtherequirementsofIAS39,Financial Instruments: Recognition and Measurement,thelossoftradingonanactivemarketisnotofitselfanimpairmentindicator.However,withthecessationoftrading,theequityinvestmentinHCCLiseffectivelyakintothatofanunlistedshare.ThegroupdeemeditappropriatetoapplyamarketabilitydiscountthatwouldreducethefairvaluegainsdeferredtoequitytoRnil.

Furthermore,inresponsetothesuspensionofthefungibleconduitsharearrangement,thegroupreviseditsliquidityriskassessmentindeterminingthefairvalueoftheinvestment.Asaconsequence,thefairvalueatthereportingdateisassessedasbeingRnilwiththereductioninfairvaluebelowcostbeingdeferredtoequity.OncethefungibleconduitsharearrangementisreinstatedordemonstrableevidenceexiststhattheReserveBankofZimbabwewillpermittheorderlyrepatriationofproceedsfromanypossiblefuturesaleoftheinvestment,theliquidityriskdiscountedwillberevised.Theaccountingimplicationsaremorefullydescribedinnote22.

Asensitivityanalysisapplicabletothe2007carryingamountoftheinvestmentandindicativeguidanceapplicabletothe14November2008valueisdetailedinnote32.15.


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4. CRITICALJuDGEMENTScontinued 4.3 Carryingamountofthegroup’sandcompany’sinvestmentinjointlycontrolledentity,Microsteel

(Proprietary)Limited(Microsteel) Followingthecessationofsteel-makingactivitiesatMicrosteelin2000,thecarryingamountofthegroup’sand

company’sinvestmenthadbeenfullyimpairedtoRnil.

Basedonrevisedestimatesofthefairvaluelesscost-to-sellofMicrosteel’sproperty,plantandequipment,Microsteelhasbeenabletofullyreverseanimpairmentallowanceagainstthecarryingamountofitsproperty,plantandequipment.Asaconsequence,thecarryingamountofthegroup’sandcompany’sinvestmenthasincreasedtoR36millionat31December2008(December2007:Rnil)asdescribedmorefullyinnote20andinnote14.

Thegroupandcompanyhaverecognisedforthereportingperiodended31December2008,basedonbestestimates,afundingcommitmentobligationtoMicrosteelofR3million,whichisdisclosedinthe“otheroperatingexpenses”lineitemincomestatementandasa“sundry”payableinnote30.

4.4 Consolidationofsubsidiariesandspecialpurposeentities Inassessingallitsmajorprocurement,salesandinvestmentrelationships,managementhasapplieditsjudgementin

theassessmentofwhetherthecommercialandeconomicrelationshipsaretantamounttode factocontrol.Basedonfactpatterns,materialityandqualitativerelevanceconsiderations,andmanagement’sbestjudgement,ifsuchcontrolexists,therelationship(ofcontrol)isrecognisedintermsofIAS27,Consolidated and Separate Financial Statements,andSIC-12,Consolidation – Special Purpose Entities.

Certainnon-coreservicesandcorporatesocialdevelopmentactivitiesofthegroupandcompanyaremanagedviatwoassociationsnotforgain,namely,theVescoGroupandVescoCommunityEnterprises.Whilethecompanyhasde factocontroloverbothentities,duetothemateriality,theseentitiesarenotconsolidatedwithinthegroupaccounts.

ExpensesincurredforservicesrenderedandCSI-relatedcontributionspayabletobothentitiesamountedto:

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

Servicerendered 56 49 55 49

CSI-relatedcontributions 15 7 15 7

Total 71 56 70 56

Loansandotherreceivables 2 3 2 3

Payables 21 22 21 22

Theseamountsareincludedinthe“otheroperatingexpenses”lineitemintheincomestatement.

FurtherdetailsofCSI-relatedcontributionstotheVescoGroupandVescoCommunityEnterprisesarecontainedintheArcelorMittalSouthAfricaLimitedSustainabilityReport,2008.

Nonewcontrolrelationshipshaverequiredrecognitionforthereportingperiodended31December2008.



4. CRITICALJuDGEMENTScontinued 4.5 Classificationofacquisitionsaseitherbusinesscombinationsorassetpurchases,andthedeterminationof

thepointofinitialrecognitionofthetransaction Whereitisunclearwhetheranacquisitionconstitutesabusinesscombinationtobeaccountedforintermsof

IFRS3,Business Combinations,oranassetpurchasetobeaccountedforintermsofIAS16,Property, Plant and Equipment,managementappliesitsjudgementasfollowsindeterminingiftheacquiredassetsconstituteabusiness:

• identificationoftheelementsincludedintheacquiredsetofactivitiesandassets; • comparisonoftheassetsettoacompletesetofelementsnecessarytoconductbusiness,andidentificationof

anymissingelements;and • forthemissingelements,anassessmentismadeofthelevelofinvestment/degreeofdifficultyneededto

obtaintheseelements,withconclusionsdrawnrelativeheretoastowhethertheelementsacquiredconstituteabusiness.

Fortheyearended31December2008,ArcelorMittalSouthAfricaDistribution(Proprietary)Limitedpurchasedtheproperty,plantandequipmentofTridentSteel(Proprietary)Limited’sSaldanhafacilityforR63million.Inadditionthepurchasemakesprovisionforthere-employmentofthefacility’semployees.Thepurchasewasclassifiedasanassetpurchaseasopposedtoabusinesscombination.

Followingthemeetingoftheconditionprecedent,intheformoftheunconditionalapprovaloftheacquisitionbytheCompetitionTribunalon12December2008,thepartiesaredemonstrablyandirrevocablycommittedtothepurchase.Consequently,at31December2008,theproperty,plantandequipmentwererecognisedalongwithaliabilityforthepurchaseprice.Thepurchasepriceisexpectedtobepaidinthefirstquarterof2009oncetheformalitiesofregisteringthepropertyinthenameofthecompanyarecompleted.

4.6 Derivativeandembeddedderivativeinstruments ThegroupandcompanyfollowtheguidanceofIAS39,Financial Instruments: Recognition and Measurement,in

identifyingderivativecontractsandcontractscontainingembeddedderivatives.Otherthanforover-the-counterstand-alonederivativecontracts,mostofthegroup’sandcompany’scontractsencompassnon-financialitems.Consequently,thedeterminationastowhetheracontractisaderivativeorhostsanembeddedderivativerequiressignificantjudgement.

Inassessingifanembeddedderivativerequiresseparateidentificationandmeasurementfromthehostcontract,managementassessestheavailablefactpatternswithregardstotheimpacttheembeddedderivativeinstrumenthasontheunderlyingvalueofthehostcontract.Judgementwasappliedastowhetherthecashflowcorrelationbetweenthehostcontractandhybridinstrumentcontainingtheembeddedfeaturecouldberegardedascloselyrelated.Wherethecorrelationrelationshipwasjudgedtobeweak,theembeddedderivativeinstrumentisseparatelyrecognisedandmeasured(iebifurcated).

Insynthesisingthevalueofabifurcatedembeddedderivative,judgementisappliedashowbesttomodelthederivative,forexample,asaforward,anoptionetc.

Fortheperiodunderreview,otherthanforover-the-counterstand-alonederivatives,nonewcontractswereidentifiedthatmetthederivationofaderivative,norwereanynewembeddedderivativesidentifiedrequiringbifurcation.

Theestimationsensitivitiesaffectingthevaluationofthebifurcatedembeddedderivativearereferredtoinnote5.3andnote32.12.


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4. CRITICALJuDGEMENTScontinued 4.7 Assetretirementandenvironmentalremediationobligations Upondecommissioningofafacilityorbusinessoperation,thegroupandcompanyhavealegalobligationwith

regardstotheretirementofthefacilityandtherelatedenvironmentalremediation.Theplantremovalandhousekeepingcoststhatarenotofalegalnaturearenotprovidedforunlessadefinitiveconstructiveobligationexiststhatcanbesubjecttoobjectivemeasurementandrecognitioncriteria.ManagementapplieditsjudgementandtheadvicereceivedfromitsexternalenvironmentalexpertsinrecognisingsuchobligationsasliabilitiesintermsofIAS37,Provisions, Contingent Liabilities and Contingent Assets.

Inparticularjudgementisrequiredindistinguishingbetweenassetretirementobligations(AROs)andenvironmentalremediationobligations(EROs).Sensitivitiesinthisregardaredescribedinnote5.4.

4.8 Contingentliabilitiesanduncertaintaxationpositions Managementappliesitsjudgementtothefactpatternsandadviceitreceivesfromitsattorneys,advocatesand

otheradvisersinassessingifalossoutcomeisprobable,reasonablypossible,orremote.SuchjudgementsareusedtodetermineiftheobligationisrecognisedasaliabilityordisclosedasacontingentliabilityintermsofIAS37,Provisions, Contingent Liabilities and Contingent AssetsandIAS12,Income Taxes,whenspecificallydealingwithuncertainincometaxpositions.

Followingthe2008settlementofthetaxationdisputerelatingtotheBusinessAssistanceAgreement,noothertaxuncertaintiesexistwhichqualifyfordisclosureascontingentliabilities.

4.9 Determinationofthefunctionalcurrenciesofforeignoperations IAS21,The Effects of Changes in Foreign Exchange Rates,requiresthefunctionalcurrencyofeachindividualforeign

operationofthegrouptobethecurrencyusedintheprimaryeconomicenvironmentinwhichtheforeignoperationoperates,whichitusesprimarilytogenerateandexpendcash.Toaidthedecision,thestandarddetailsprimary,secondaryandotherindicatorstobeconsidered.

Inthemajorityofsituations,theaboveindicatorsaremixedandthefunctionalcurrencyisnotobvious.Consequentlymanagementappliesitsjudgementtodeterminethefunctionalcurrencythatmostfaithfullyrepresentstheeconomiceffectsoftheunderlyingtransactions,eventsandconditions.Priorityisgiventoprimaryindicators.

SubsidiariesandjointlycontrolledentitieswithafunctionalcurrencyotherthantheZARarenotedinAnnexure1andAnnexure2.

4.10 Distinguishingbetweenfinanceandoperatingleasesincommercialarrangementscontainingleases Oncealeaseisidentifiedasbeingembeddedwithinacommercialarrangement,theindicatorsinIAS17,Leases,

andIFRIC4,Determining whether an Arrangement contains a Lease,areassessedastowhethertheleaseiseitherafinanceoranoperatinglease.Whentheassessmentyieldsmixedresults,managementappliesitsjudgementinmakingtheclassificationbyfurtherconsidering,inter alia:

• Locationoftheasset; • Availabilityofanalternativeasset; • Costofinstallationofanalternativeasset; • Interruptiontocustomerserviceasaresultofanassetreplacement; • Futureuseofareplacedasset;and • Assetreplacementpatterns.

Nonewsignificantembeddedleasearrangementwasidentifiedduringtheyearended31December2008.



4. CRITICALJuDGEMENTScontinued 4.11 Significantinfluenceversusjointcontrol IAS31,Interests in Joint Ventures,stressesthattheaccountingtreatmentadoptedforsuchinvestments

shouldreflectthesubstanceandeconomicrealityofthearrangement,ratherthanthelegalform.Therefore,anarrangementshouldbeassessednotbyitslegalconstitution,butbytheagreementsbetweenthepartiesinvolvedastothemechanismofcontrol.

Theclassificationofaninvesteeasbeingeitheranassociateorajointlycontrolledentityrequiresanassessmentofwhethertheinvestmentinterestrepresentseithersignificantinfluenceorunanimousconsentoverthestrategicfinancialandoperatingdecisionsoftheinvestee.

Astheresultsoftheassessmentareoftenmixed,theassessmentrequiressignificantjudgementtobeapplied.

4.12 Incometaxes Thegroupandcompanyaresubjecttoincometaxesinnumerousjurisdictions.Significantjudgementisrequiredin

determiningtheworldwideprovisionforincometaxes.Determinationofincometaxesinvolvesinterpretationoftaxlaw,assessmentofinterpretationsandguidelinesissuedbytaxauthorities,interactionswiththetaxauthorities,andadvicereceivedfromexternaltaxexperts.

5. KEySOuRCESOFESTIMATIONuNCERTAINTyANDASSOCIATEDSENSITIVITIES Thefollowingarethekeyassumptionsconcerningthefuture,andotherkeysourcesofestimationuncertaintyatthe

statementoffinancialpositiondate,thathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountofassetsandliabilities.

5.1 Recoverableamountdeterminationforcash-generatingunits Asdescribedinnote4.1,managementreassessedtherecoverabilityofthecarryingamountofthegroup’sand

company’sproperty,plantandequipmentwhichiscarriedatR15917millionandR9781millionrespectivelyat31December2008.

Value-in-userecoverableamountswerecomputedusingadiscountedcashflowanalysisvaryinginlengthfromfiveto20years.Terminalvaluegrowthratesvariedbetween2%and5%,withaverageddiscountratesvariedbetweenanaverageof14.9%and17.4%,and11.9%and16.8%forthefive-yearand20-yearmodellinglimits,respectively.

Thevalue-in-useamountswerefurthersubjectedtosensitivityanalysesappliedtothefollowinginputs:freecashflowgeneration,discountrates,exchangeratesandterminalvaluegrowthrates.

Fromthesensitivityanalysis,SaldanhaWorkswasparticularlyvulnerable,whenusingthefive-yeardiscountedcashflowmodel,tofreecashflowreductionsandstrongerUSD/ZARexchangerates.Inreactiontothisresult,break-evenanalysistestingwasperformedusingthe20-yearmodel,simulatingnumerousscenariosincludingceasingoperationsforayear,andotherextremeoutcomessuchassimulatingtheeventsofthe1998economiccrisis(theAsianContagion),protractedrecessionaryconditionsandafuturerepeatofacommodity“boomandbust”cyclewhichculminatedintheeventsof2008.

Followinganassessmentoftheresultsofthesensitivityanalyses,managementisconfidentthatthecarryingamountoftheassetsofallthemajorcash-generatingunitswillberecoveredinfull.

5.2 usefullivesandresidualvaluesofproperty,plantandequipmentandintangibleassets Theestimatesofremainingusefullivesastranslatedintodepreciationratesaredetailedintheproperty,plantand

equipment(note3.11),andtheintangibleassets(note3.15)accountingpolicies.


103

5. KEySOuRCESOFESTIMATIONuNCERTAINTyANDASSOCIATEDSENSITIVITIEScontinued 5.2 usefullivesandresidualvaluesofproperty,plantandequipmentandintangibleassetscontinued Theseratesandtheresidualvaluesoftheassetsarereviewedannuallytakingcognisanceof: • Forecastcommercialandeconomicrealities; • BenchmarkingwithinthegreaterArcelorMittalGroup;and • Guidancereceivedfromexpertinternationalvaluers.

5.3 Valuationoffinancialinstruments Thecarryingamountofover-the-counterstand-alonederivativefinancialinstrumentsisbasedontheirfairvalue

atthestatementoffinancialpositiondate.Thevaluesofthesederivativeinstrumentsfluctuateonadailybasisandtheactualamountsrealisedmaydiffermateriallyfromthevalueatwhichtheyarereflectedatthereportingdate.Correspondingly,thematurityprofileforsuchderivatives,aspresentedinnote32.16,maybeaffectedbysuchfluctuations.

Thesignificantapplicationofestimateswasmadeinthevaluationofthebifurcatedembeddedderivativeinstrumentsandinthedeterminationofthedisclosedvaluationofunlistedequityaccountedinvestments.Theseassumptionsforbothsetsofvaluationsaredetailedinnote32.3.

Relevantsensitivitiesforthefinancialassetsandfinancialliabilitiesaredescribedinthefollowingnotes: • Stand-alonebasemetalderivatives:note32.10. • Embeddedderivative:note32.12. • AFSfinancialasset:note32.15. • Foreigncurrencyexposures:note32.11. • Interestrateexposures:note32.14.

5.4 Assetretirementobligationsandtheirrelatedassets,andenvironmentalremediationobligationestimates EstimatingthefuturecashflowsassociatedwithobligationsrecognisedintermsofIAS37,Provisions, Contingent

Liabilities and Contingent Assets,andtherelatedassetcomponentsrecognisedintermsofIAS16,Property, Plant and Equipment,iscomplex.

Existinglawsandguidelinesarenotalwaysclearastotherequiredend-statesituation.Theprovisionsarealsoaffectedbychangingtechnologiesandpolitical,environmental,safety,businessandlegalconsiderations.

Managementassesseslong-termoperationalplans,technologicalandlegislativedevelopments,guidelinesissuedbytheauthorities,advicefromexternalenvironmentalexperts,andcomputationsprovidedbyquantitysurveyorsinordertoderiveanestimatedfuturecashflowprofiletoserveasabasisforthecomputationoftheobligationsandrelatedassets.

Forthemajorityofoperationalsites,withlong-termoperatinghorizons,itisnotpossibletoreliablymeasuretheassociatedcostsofassetretirementandenvironmentalremediation.Thisisseparatelydisclosedasacontingentliability.



5. KEySOuRCESOFESTIMATIONuNCERTAINTyANDASSOCIATEDSENSITIVITIEScontinued 5.4 Assetretirementobligationsandtheirrelatedassets,andenvironmentalremediationobligationestimatescontinued Thesensitivityofthecarryingamountoftheobligationsat31December2008inresponsetochangesinkeyinputsis:

Assetretirementobligations

Rm

Environmentalremediationobligations

Rm

Carryingamountat31December2008(note28) 240 1338

%changeinallcashflows

+10% +24 +134

-10% -24 -134

%changeincashflowsinfirstfiveyears

+10% +21 +101

-10% -21 -101

Basispointchangeindiscountrate

+100basispoints -8 -56

-100basispoints +9 +59

Basispointchangeindiscountrateinfirstfiveyears

+100basispoints -5 -29

-100basispoints +6 +30

5.5 Commercialarrangementscontainingfinancialleases Anumberofcommercialsupplyarrangementshavebeendeterminedbymanagementtocontainembeddedfinance

leasesasdescribedinnote27.ForthepurposeofapplyingtherequirementsofIAS17,Leases,paymentsandotherconsiderationsrequiredbythearrangementareseparatedattheinceptionofthearrangementintothosefortheleaseandthoseforotherelementsonthebasisoftheirrelativefairvalues.Theminimumleasepaymentsincludeonlypaymentsforthelease(ietherighttousetheasset)andexcludepaymentsforotherelementsinthearrangement(egforgoodsandservicessupplied).

Separatingthepaymentsfortheleasefrompaymentsforotherelementsinthearrangementrequiresmanagementtouseestimationtechniques.Thetechniquesusedinclude:

(a) estimatingtheleasepaymentsbyreferencetoaleaseagreementforacomparableassetthatcontainsnootherelements;or

(b) whereimpracticabletoseparatethepaymentsreliably,managementrecognisedtheleasedassetandthefinanceleaseobligationmeasuredasthesumoftheleasepaymentsoverthetenureofthearrangement,reducedbyanimputedfinancechargebasedonmanagement’sbestestimateoftheapplicableincrementalborrowingrateatinception(orreassessment)ofthearrangement.

Theleasedassetsaredepreciatedoverthelesseroftheirusefullivesorthetenureofthearrangement.Theformerisbaseduponmanagement’sbestestimatetakingcognisanceoftheavailableinformation.Asforallproperty,plantandequipment,usefullivesareassessedannually.

Thefairvalueofthefinanceleaseobligationifitweretoberefinancedatcurrentrates,keepingthecashinstalmentsconstantisdescribedinnote32.3.

5.6 Definedbenefitpensionplans Thepresentvalueofthedefinedbenefitpensionobligationsdependsonanumberoffactorsthataredetermined

onanactuarialbasisusinganumberofassumptions.Theassumptionsusedindeterminingthenetcost(income)forpensionsinclude,inter alia,thediscountrate,thereturnonplanassetsandtheinflationrate.Anychangesintheseassumptionswillimpactthecarryingamountofpensionobligations.


105

5. KEySOuRCESOFESTIMATIONuNCERTAINTyANDASSOCIATEDSENSITIVITIEScontinued 5.6 Definedbenefitpensionplanscontinued Thegroupandcompanydeterminetheappropriatediscountrateattheendofeachyearinconsultationwith

thefundadministratorsandindependentactuaries.Thisistheinterestratethatshouldbeusedtodeterminethepresentvalueofestimatedfuturecashoutflowsexpectedtoberequiredtosettlethepensionobligations.Indeterminingtheappropriatediscountrate,considerationisgiventotheinterestratesofhigh-qualitycorporatebondsthataredenominatedinthecurrencyinwhichthebenefitswillbepaid,andthathavetermstomaturityapproximatingthetermsoftherelatedpensionliability.

Otherkeyassumptionsforpensionobligationsarebasedinpartoncurrentmarketconditions.Additionalinformationrelatingtotheactuarialvaluationisdetailedinnote34.1.2.

Plans’rulesprohibitthedistributionofthedefinedbenefitsurplusintheformofrefundsfromtheplanordeductionsinfuturecontributionstotheplan.Onpartialandfullliquidationoftheplans,anyavailablesurplusisapportionedtothesolebenefitofthemembers.Thegroupandcompanyisthusunabletorecogniseadefinedbenefitsurplus,however,itiscommittedtofundadeficit.

Thesensitivityofthedefinedbenefitplans,definedbenefitobligations,planassetsandexperienceadjustmentsin

responsetochangesintheprincipalassumptionsisasfollowsat31December2008:

IscorRetirementFund

Presentvalueofdefined

benefitobligation

Rm

(Fairvalueofplanassets)

Rm

(Surplus)/deficit

Rm

Experienceadjustments

onplanliabilities–

gains/(losses)Rm


onplanassets–

gains/(losses)Rm

Valuationat31December2008 405 (476) (71) 61 (50)1

Discountrate decreasedby 100basispoints 412 (476) (64) (1) (50)

Discountrate increasedby 100basispoints 399 (476) (77) 12 (50)

Previousyears’ expectedreturn onplanassets decreasedby1% 405 (521) (116) 6 (95)

Previousyears’ returnonplan assetsexpected increasedby1% 405 (531) (126) 6 (105)

Salaryinflation decreasedby1% 404 (476) (72) 7 (50)

Salaryinflation increasedby1% 406 (476) (70) 5 (50)1Non-cumulative, only for the reporting period ended 31 December 2008.



5. KEySOuRCESOFESTIMATIONuNCERTAINTyANDASSOCIATEDSENSITIVITIEScontinued 5.6 Definedbenefitpensionplanscontinued

MittalSteelSouthAfricaPensionFund

Presentvalueofdefined

benefitobligation

Rm

(Fairvalueofplanassets)

Rm

(Surplus)/deficit

Rm


onplanliabilities–

gains/(losses)Rm


onplanassets–

losses/(gains)Rm

Valuationat31December2008 6562 (7276) (714) 1211 (1004)1

Discountrate decreasedby 100basispoints 6566 (7276) (710) 117 (1004)

Discountrate increasedby 100basispoints 6559 (7276) (717) 124 (1004)

Previousyears’ expectedreturn onplanassets decreasedby1% 6562 (8201) (1639) 121 (1929)

Previousyears’ expectedreturn onplanassets increasedby1% 6562 (8360) (1798) 121 (2088)

Salaryinflation decreasedby1% 6559 (7276) (717) 124 (1004)

Salaryinflation increasedby1% 6566 (7276) (710) 117 (1004)1 Non-cumulative, only for the reporting period ended 31 December 2008.

Asnoneofthesensitivitiesresultsinafundingdeficit,andduetotheassetrecognitionrestriction,thesensitivitieshavenoimpactonthefinancialresultsofthegroupandcompany.

5.7 Valuationofshare-basedpayments ThecriticalestimatesasusedintheBinomialMatrixvaluationmodelsforequity-settledshareoptionplansare

detailedinnote36.2.

Fortheoutstanding,unvestedequity-settledshareoptionsat31December2008,theestimatedchargetobeexpensedinthefutureuptothedateofthevestingoftheoptionsisR35million.

Fortheunvestedcash-settledshareparticipationrightsdescribedinnote36.1,R28millionhasbeenrecognisedasliability(note26)withR38millionstilltovestovertheremainingperiodtomaturity,basedonthevaluationat31December2008.


107

6. SEGMENTALREPORT Segmentinformationispresentedonlyatagrouplevelwhereitismostmeaningful.Operatingsegmentsareidentified

onthebasisofinternalreportsaboutcomponentsofthegroupthatareregularlyreviewedbythechiefoperatingdecision-makerinordertoallocateresourcestothesegmentandtoassessitsperformance.

Thegroup’sreportablesegmentsare: • FlatCarbonSteelProductsconsistingoftheVanderbijlparkandSaldanhaWorks; • LongCarbonSteelProductsconsistingoftheNewcastle,VereenigingandMaputoWorks; • CokeandChemicalsundertakingtheprocessingandmarketingofby-productsandtheproductionandmarketingof

commercial-gradecokingcoal;and • CorporateandOther,consistsofsalesandmarketingfunctions,procurementandlogisticsactivities,sharedservices,

centresofexcellence,thedecommissionedPretoriaWorkssite,available-for-saleinvestments,andtheresultsoftheconsolidatedsubsidiariesandspecialpurposeentities.

Flat,LongCarbonSteelProductsandCokeandChemicalsrepresentthegroup’soperatingsegmentsinwhichproductioncapacityisconcentrated.

Theaccountingpoliciesofthereportablesegmentsarethesameasthegroup’saccountingpoliciesdescribedinnote3.9.

Segmentprofitfromoperationsrepresentstheprofitearnedbyeachsegmentwithouttheallocationofafter-taxprofitsofequity-accountedinvestments,netinterestincome,incomefrominvestmentsandincometaxexpenses.

Allassetsandliabilitiesareallocatedtotheoperatingsegments,otherthanthefollowingitemsthatareexclusivelyhousedintheCorporateandOthersegment,reflectingthemannerinwhichresourceallocationismeasured:

Assetsnotallocatedtooperatingsegments: • resultsofconsolidatedsubsidiariesandspecialpurposeentities,otherthanforSaldanhaWorkswhichisasubsidiary

housedwithintheFlatCarbonSteelProductssegment; • investmentsinequity-accountedentities; • available-for-saleinvestments; • cashandcashequivalents;and • incometax,capitalgainstaxandvalue-addedtax-relatedassets,asapplicable.

Liabilitiesnotallocatedtooperatingsegmentsareincometax,capitalgainstaxandvalue-addedtax-relatedliabilities,asapplicable.



FlatCarbonSteelProducts

LongCarbonSteelProducts CokeandChemicals CorporateandOther

Adjustmentsandeliminations

Totalreconcilingtotheconsolidatedamounts

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

6. SEGMENTALREPORTcontinued

Revenue

–externalcustomers 24447 18613 11936 8666 3496 2022 35 39914 29301

–inter-segmentcustomers 1066 627 1014 572 67 43 (2147) (1242)

Totalrevenue 25513 19240 12950 9238 3563 2065 (2112) (1242) 39914 29301

Distributedas:

–Local 20635 14582 10861 7111 3427 1996 8 34931 23689

–Export

Africa 2428 1947 240 722 69 26 15 2752 2695

Europe 76 207 245 175 2 323 382

Asia 1303 1848 384 540 9 1696 2388

Other 5 29 206 118 1 212 147

Results

Operatingprofit/(loss)beforedepreciation, amortisationandimpairments 8112 5265 3993 2838 1781 765 (278) (55) (6) (11) 13602 8802

Depreciationandamortisation (1105) (438) (200) (186) (38) (38) (23) (17) 44 (420) (1322) (1099)

Impairmentcharge (121) (121)

Segmentprofit/(loss)fromoperations 7007 4827 3672 2652 1743 727 (301) (72) 38 (431) 12159 7703

(Loss)/gainsonchangesinforeignexchangerate andfinancialinstrumentsdesignatedasheld-for- tradingatfairvaluethroughprofitorloss (112) (15) (57) 15 (1) 806 (130) 637 (131)


Financecosts (238) (117) (238) (117)

Incomefrominvestments 3 4 3 4

Impairment(charge)/reversal (45) 81 36

Incomeaftertaxfromequity-accounted investments 331 270 331 270

Profit/(loss)beforetax 6895 4812 3615 2667 1743 726 874 397 119 (431) 13246 8171

Incometaxexpense (3865) (2455)

Profitaftertax 9381 5716

Segmentassets 20198 18244 5097 4007 1130 1043 10244 5052 (1202) (1250) 35467 27096

Investmentsinequity-accountedentities 1972 1117 (4) (8) 1968 1109

Capitalexpenditure 1035 1443 541 346 23 59 233 4 1832 1852

Segmentliabilities (7935) (6665) (3162) (2123) (796) (219) 2194 1107 259 278 (9440) (7622)

Cashinflow/(outflow)fromoperations 5616 5195 3021 2783 1751 588 561 (134) (10) 7 10939 8439

Numberofemployeesatyear-end 5280 5119 3008 2868 273 265 915 865 9476 9117


109


LongCarbonSteelProducts CokeandChemicals CorporateandOther

Adjustmentsandeliminations

Totalreconcilingtotheconsolidatedamounts

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm


Revenue

–externalcustomers 24447 18613 11936 8666 3496 2022 35 39914 29301

–inter-segmentcustomers 1066 627 1014 572 67 43 (2147) (1242)

Totalrevenue 25513 19240 12950 9238 3563 2065 (2112) (1242) 39914 29301

Distributedas:

–Local 20635 14582 10861 7111 3427 1996 8 34931 23689

–Export

Africa 2428 1947 240 722 69 26 15 2752 2695

Europe 76 207 245 175 2 323 382

Asia 1303 1848 384 540 9 1696 2388

Other 5 29 206 118 1 212 147

Results

Operatingprofit/(loss)beforedepreciation, amortisationandimpairments 8112 5265 3993 2838 1781 765 (278) (55) (6) (11) 13602 8802

Depreciationandamortisation (1105) (438) (200) (186) (38) (38) (23) (17) 44 (420) (1322) (1099)

Impairmentcharge (121) (121)

Segmentprofit/(loss)fromoperations 7007 4827 3672 2652 1743 727 (301) (72) 38 (431) 12159 7703

(Loss)/gainsonchangesinforeignexchangerate andfinancialinstrumentsdesignatedasheld-for- tradingatfairvaluethroughprofitorloss (112) (15) (57) 15 (1) 806 (130) 637 (131)


Financecosts (238) (117) (238) (117)

Incomefrominvestments 3 4 3 4

Impairment(charge)/reversal (45) 81 36

Incomeaftertaxfromequity-accounted investments 331 270 331 270

Profit/(loss)beforetax 6895 4812 3615 2667 1743 726 874 397 119 (431) 13246 8171

Incometaxexpense (3865) (2455)

Profitaftertax 9381 5716

Segmentassets 20198 18244 5097 4007 1130 1043 10244 5052 (1202) (1250) 35467 27096

Investmentsinequity-accountedentities 1972 1117 (4) (8) 1968 1109

Capitalexpenditure 1035 1443 541 346 23 59 233 4 1832 1852

Segmentliabilities (7935) (6665) (3162) (2123) (796) (219) 2194 1107 259 278 (9440) (7622)

Cashinflow/(outflow)fromoperations 5616 5195 3021 2783 1751 588 561 (134) (10) 7 10939 8439

Numberofemployeesatyear-end 5280 5119 3008 2868 273 265 915 865 9476 9117




6.1 Revenuefrommajorproductsandservices

Thegroup’srevenuefromitsmajorproductswas:

2008Rm

2007Rm


–Plate 1859 1194

–Hotrolledcoil 12740 9528

–Coldrolledcoil 2296 1658

–Galvanisedsheet 4477 3398

–Coatedsheet 1095 821

–Tinplate 1777 1684

–Other 203 330

LongCarbonSteelProducts

–Billetsandblooms 241 152

–Barsandrebars 2502 1822

–Wirerod 3088 2444

–Sections 3990 2629

–Rails 61 97

–Seamlesstubularproducts 1045 781

–Forged 994 720

–Other 15 21

CokeandChemicals

–Coke 2930 1589

–Tar 444 357

–Other 122 76

–Consolidation 35

Totalconsolidatedrevenue 39914 29301

6.2 Geographicalinformation

ThegroupoperatesprincipallyinSouthAfrica.Exportsalesareprimarilysoldintosub-SaharanAfricaandAsia.Thesegmentalallocationofthegeographicalrevenueisdescribedinnote6above.

Thegroup’soperationsarebasedinSouthAfricaotherthanfora35000tonnesperannumbarmillinMozambique.

6.3 Informationaboutmajorcustomers

Segmentationofthegroup’stopthreecustomers,asmeasuredontotalrevenue,is:

2008Rm

2007Rm

FlatCarbonSteelProducts 8479 5843

LongCarbonSteelProducts 4912 2956

Totalrevenueattributabletotopthreecustomers 13391 8799

Expressedasa%oftotalconsolidatedrevenue 34% 30%

Ofthesetopthreecustomers,onecustomercontributesmorethan 10%tototalrevenue

6603 4097

Expressedasa%oftotalconsolidatedrevenue 17% 14%

Furtherdetailsrelatingtocreditriskconcentrationsaredescribedinnote32.17.


111

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

7. REVENuE

Saleofgoods 39914 292981 35990 25721

Gainsonderivativeinstrumentsindesignated cashflowhedgeaccountingrelationships 3 1

Total 39914 29301 35990 257221 Amount has been reduced by R32 million to exclude unearned profit adjustments made in 2007 relating to sales to jointly controlled entities on inventory still on hand at 31 December 2007.

8. IMPAIRMENTCHARGE

Impairmentchargeagainstproperty,plant andequipment (121) (28)

Total (121) (28)

ImpairmentchargesofR93millionand R28millionhavebeenrecognisedagainstthe carryingamountoftheMaputoWorksandthe DunswartDirectReductionfacilityrespectively.

TheMaputoWorksishousedwithinthesubsidiary, ArcelorMittalMaputoSA.

9. PROFITFROMOPERATIONS

Profitfromoperationshasbeenarrivedat aftercharging:

Amortisationofintangibleassets 12 11 9 9

Depreciation 1310 1088 849 743

–Buildingsandinfrastructure 40 52 34 35

–Machinery,plantandequipment 1155 977 708 659

–Sitepreparation,miningdevelopment andexploration 4 5 4 5

–Assetretirementobligationassets 41 20 41 20

–Leasedassetsunderfinanceleases 70 34 62 24

Consultancyfees 24 18 22 15

Employeecosts 2598 2210 2591 2210

–Salariesandwages 2356 1971 2349 1971

–Terminationbenefits 2 3 2 3

–Pensionandmedicalcosts 207 201 207 201

–Share-basedpaymentexpense 33 35 33 35

Lossondisposalorscrappingofproperty, plantandequipment 39 31 38 31

Operatingleaserentals 137 146 134 143

–Property 4 3

–Equipmentandvehicles 133 146 131 143

Railageandtransport 1159 706 1076 706



Group Company

2008Rm

2007Rm

2008Rm

2007Rm

9. PROFITFROMOPERATIONScontinued

Repairsandmaintenance 2084 1847 1606 1515

Researchanddevelopmentcosts 63 58 63 58

Reconditionablesparesusage 12 13 9 11

Write-downofinventorytonetrealisablevalue: 215 26 182 27

–Finishedgoods 133 26 109 27

–Work-in-progress 35 35

–Rawmaterials 47 38

Auditors’remuneration 12 11 10 10

–Auditfees 11 10 9 9

–Otherservicesandexpenses 1 1 1 1

Managementfees 135 (41) (153)

Directors’remuneration 18 11

Fairvaluelosses/(gains)transferredfromequityon effectivederivativeinstrumentsdesignatedas cashflowhedges(note32),includedin1

–Rawmaterialsandconsumablesused 138 (5) 138 (6)

–Ineffectivenessarisingfromeffective cashflowhedges 02 02 02 02

Fairvaluelossestransferredfromequityon ineffectivederivativeinvestmentsdesignated ascashflowhedges,includedin

–Rawmaterialsandconsumablesused 33 23

Impairmentlossesonfinancialassets

–Allowancefordoubtfuldebtsrecognisedon tradeandotherreceivables(note24) 12 02 12 02

–Otherallowances(reversed)/recognisedon tradeandotherreceivables(note24) (22) 47 (37) 49

(Gains)/lossesonderivativefinancialinstruments designatedatfairvaluethroughprofitandloss, notheld-for-trading

–(Gains)/lossesonchangesinthefairvalue ofembeddedderivativeinstruments (148) 33 (148) 33

1 Excludes adjustments relating to hedge ineffectiveness that is disclosed separately. 2 Rounding to zero due to the use of numeric reporting scale format of one million.3 As detailed in note 32.10 (note (i) and note (ii) of reserve movement for 2007 and 2008 respectively).


113

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

10. GAINSANDLOSSESONCHANGESIN FOREIGNExCHANGERATESANDFINANCIAL INSTRuMENTSDESIGNATEDASHELD-FOR- TRADINGATFAIRVALuETHROuGHPROFIT ANDLOSS

Gains/(losses)onchangesinforeign exchangerates

Gainsonchangesinforeignexchangerates 901 38 882 20

Lossesonchangesinforeignexchangerates (256) (188) (244) (180)

Total,arisingon: 645 (150) 638 (160)

–Tradeandotherreceivables 52 (43) 18 (34)

–Tradeandotherpayables (148) (128) (1)

–Cashandcashequivalents 741 (107) 748 (125)

ofwhich:

–Realisedincash (46) (148) (59) (160)

–Unrealised 691 (2) 697

Fairvalue(losses)/gainstransferredfromequityon ineffectivederivativeinstrumentsde-designated ascashflowhedges1 (10) 3 (10) 2

Gainsonchangesinthefairvalueofderivative instrumentsdesignatedasheld-for-tradingat fairvaluethroughprofitorloss 2 16 5 7

Total 637 (131) 633 (151)

1 As detailed in note 32.10 (note (i) and note (ii) of reserve movement for 2007 and 2008 respectively.)

11. INTERESTRECEIVED

Bankdepositandotherinterestincomeexcluding interestincomefromsubsidiariesandequity- accountedinvestments(note13) 318 442 296 426

Total 318 442 296 426

12. FINANCECOSTS

Interestexpenseonbankoverdraftsandloans (13) (20) (3) (16)

Interestexpenseonfinanceleaseobligations1 (46) (53) (19) (25)

Discountingrateadjustmentofthenon-current provisions2 (8) 79 (8) 79

Unwindingofthediscountingeffectinthepresent valuedcarryingamountofthenon-current provisions (171) (123) (171) (127)

Total (238) (117) (201) (89)

1 Interest expense arising from the application of IAS 17, Leases, and IFRIC 4, Determining whether an Arrangement contains a Lease.2The credit adjusted discount rate was decreased from an average rate of 11.25% to 10.75% (2007: 10.5% to 11.25%) in line with

changes in the South African zero swap rates.

Noborrowingcostsqualifiedforcapitalisationduringthecurrentorcomparativeyear.



Group Company

2008Rm

2007Rm

2008Rm

2007Rm

13. INCOMEFROMINVESTMENTSDividendsreceived 338 281Interestreceived 3 4 3 4

Total 3 4 341 285

14. IMPAIRMENTREVERSAL/(CHARGE)Impairmentreversalagainstinvestmentinjointly controlledentity 36 36Impairment(charge)/reversalagainstinvestment insubsidiary (81) 2799Total 36 (45) 2799

ImpairmentreversalagainstinvestmentinjointlycontrolledentityFollowinganimpairmentreversalagainstproperty,plantandequipmentbythejointlycontrolledentity,Microsteel(Proprietary)Limited,acorrespondingreversalofR36millionagainsttheimpairmentagainsttheinvestmenthasbeenmadebythecompany.

Impairment(charge)/reversalagainstinvestmentinsubsidiaryIncontextoftheimpairmentagainstproperty,plantandequipmentofMaputoWorksasdescribedinnote8,animpairmentchargeofR81millionwasrecognisedagainstafixedloantoArcelorMittalMaputoSA,beingthefundingadvancedfortheinitialequipmentpurchase.Theamountisreversedforconsolidationpurposes.

Fortheyearended31December2007,duetosubstantialretainedlosses,animpairmentagainstthecompany’sinvestmentinthethenjointlycontrolledentity,SaldanhaSteel(Proprietary)Limited,wasraisedinthe2001financialyear,amountingtoR2336million.TheimpairmentincreasedtoR4051millionin2002whenSaldanhaSteel(Proprietary)Limitedbecameasubsidiary.

Benefitingfromarecapitalisation,amorestableoperatingperformance,andanimprovedglobalsteelmarket,itwaspossibletoreducetheimpairmenttoR3810millionin2003,andR2799millionby2004.

ThesurplusbetweenthenetassetvalueofSaldanhaSteel(Proprietary)LimitedandtheimpairednetcarryingamountofArcelorMittalSouthAfrica’sinvestment,exceededtheremainingimpairmentofR2799million.Consequently,thetotalimpairmentagainsttheinvestmentwasreversedin2007.

Forthegroup,theincreaseintheequityaccountedcarryingamountofMicrosteel(Proprietary)Limitedisreflectedinnote20.

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

15. INCOMETAxExPENSEIncometaxrecognisedinprofitorlossTaxexpensecomprises:Currenttaxexpense 3661 1871 3311 1813Adjustmentsrecognisedinthecurrentyearin relationtothecurrenttaxofprioryears 5 (36) (3) (40)

3666 1835 3308 1773

Deferredtaxexpenserelatingtotheorigination andreversaloftemporarydifferences 24 137 26 (191)Deferredtaxincomerecognisedinthecurrentyear inrelationtothedeferredtaxofprioryears 7 1 11 1Effectofchangesincorporatetaxrate (89) (35)

(58) 138 2 (190)

SecondaryTaxonCompanies 244 482 239 446Withholdingtaxonforeignincome 13 13

Totaltaxexpense 3865 2455 3562 2029


115

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

15. INCOMETAxExPENSEcontinued

Thetotalchargefortheyearcanbereconciled totheaccountingprofitasfollows:

Profitbeforetax 13246 8171 12121 9720

Incometaxexpensecalculatedat28%and29%1 3709 2370 3394 2819

Effectofrevenuethatisnon-taxable/exempt fromtaxation (2) (3) (97) (113)

Effectofexpensesthatarenotdeductiblein determiningtaxableprofit 6 47 8 44

Effectofassessedlossde-recognisedandloss notcapitalised 6

Effectofchangeincorporatetaxrate1 (89) (35)

Effectoftaxconcessions2 (39) (39)

Effectofimpairmentcharge/(reversal) 24 13 (812)

Effectofequityprofitdisclosednetoftaxand effectofdifferenttaxratesofsubsidiaries operatinginotherjurisdictions (77) (90)

Effectofrevenueimputedfromcontrolledforeign companies 21 7 21 7

Effectofdeferredtaxassetraisedon environmentalobligations (277)3 (277)3

Taxrebateonforeigndividends (2) (7) (2) (7)

Adjustmentsrecognisedinthecurrentyearin relationtothecurrenttaxanddeferredtaxof prioryears. 12 (35) 8 (39)

SecondaryTaxonCompanies 244 482 239 446

Withholdingtaxonforeignincome 13 13

3865 2455 3562 2029

Taxationasapercentageofprofitbeforetaxation 29.2% 30.0% 29.4% 20.9%1The tax rate used for the 2008 and 2007 reconciliations above is the corporate tax rate of 28% and 29% respectively payable by

corporate entities in South Africa on taxable profits. A 1% corporate tax rate reduction from 29% to 28%, effective for years of assessment ending during the 12-month period ending on 31 March 2009, was enacted during the year.

2Strategic Industrial Project (SIP) allowance granted in terms of section 12(G) of the South African Income Tax Act for construction of coke oven batteries at Newcastle Works.

3Recognised as a consequence of the amendments to relevant tax legislation, inter alia, as promulgated in the Revenue Law Amendments Act of 2007.

Incometaxrecognisedinequity

Currentanddeferredtaxexpense

Normaltaxon:

–gainsandlossesrealisedbutnotyetreleased totheincomestatementoncashflowhedges (6) (12) (5) (12)

–lossesonsharepurchasesviathemanagement sharetrust (26) (15) (26) (15)

Deferredtaxonunrealisedlossesoncashflow hedges (19) (15) (16) (15)

Totalcurrentanddeferredtaxrecognisedinequity (51) (42) (47) (42)



Group

2008Rm

2007Rm

16. EARNINGSPERSHARE

Basicearningspersharearecalculatedbydividing profitattributabletotheownersofthe companybytheweightedaveragenumberof ordinarysharesinissueduringtheyear.

Theweightedaveragenumberofsharesis calculatedtakingintoaccountthesharesissued asdisclosedinthedirectors’reportandnote25.

Profitattributabletoownersofthecompany(Rm) 9381 5716

Weightedaveragenumberofordinarysharesin issue(thousands) 445752 445752

Basicearningspershare(cents) 2105 1282

Dilutedearningspershareiscalculatedbydividing theprofitattributabletotheownersofthe companybytheweightedaveragenumberof ordinarysharesinissueduringtheyearincreased bythenumberofadditionalordinaryshares thatwouldhavebeenoutstandingassuming theconversionofalloutstandingshareoptions representingdilutivepotentialordinaryshares.

Profitattributabletoownersofthecompany(Rm) 9381 5716

Weightedaveragenumberfordilutedshares (thousands) 447433 447052

Dilutedearningspershare(cents) 2097 1279

Thecalculationforheadlineearningspershareisbasedonthebasicearningspersharecalculation,reconciledasfollows:

2008Gross

Rm

2008Netoftax

Rm

2007Gross

Rm

2007Netoftax

Rm

Profitattributabletoownersofthecompany 9381 5716

PlusIAS16lossondisposalorscrappingof property,plantandequipment 39 28 31 22

PlusIFRS5write-downtorecoverableamounton thereclassificationofassetspreviouslyclassified asheldforsale 4 3

Plusimpairmentofassets 121 111

Lessimpairmentofequity-accountedinvestments reversal (36) (36)

Headlineearnings(Rm) 9484 5741


117

Group

2008Rm

2007Rm

16. EARNINGSPERSHAREcontinued

Headlineearningspershare(cents)

–Basic 2128 1288

–Diluted 2120 1284

Theweightedaveragenumberofsharesusedinthe computationofdilutedearningspersharewere determinedasfollows(thousands):

-Sharesinissue 445752 445752

Adjustmentsfordilutiveimpactofthe Managementsharetrust:

–Sharesunderoption 1681 1284

–Sharesunderloanpurchaseanddeferredpurchase 16

Dilutedsharesinissue(thousands) 447433 447052

17. DIVIDENDPERSHARE

Thedividenddistributionfor2008consistsof:

• On8February2008afinaldividendof196centspershare(R874million)forthe2007financialyearwaspaidtoshareholderson17March2008.

• On24July2008aninterimdividendof342centspershare(R1524million)forthe2008financialyearwaspaidtoshareholderson1September2008.

Thedividenddistributionfor2007consistsof:

• On19February2007afinaldividendof204centspershare(R909million)forthe2006financialyearwaspaidtoshareholderson26March2007.

• On30July2007aninterimdividendof233centspershare(R1039million)forthe2007financialyearwaspaidtoshareholderson3September2007.



18. PROPERTy,PLANTANDEquIPMENT

Landandbuildings

Rm

Buildingsandinfrastructure

Rm

Machinery,plantandequipment

Rm

Sitepreparation

Rm

Assetretirementobligation

componentassetat

presentvalueRm

Leasedassets1

Rm

Extensionsunder

constructionRm

TotalRm

GROuP

Fortheyearended31December2008

Grosscarryingamount

Atbeginningofyear 59 1782 22500 98 154 2177 1140 27910

Additions 10 863 136 797 1806

Disposals (2) (368) (1) (371)

Othermovements 36 611 6 77 27 (617) 140

Atendofyear 59 1826 23606 103 231 2340 1320 29485

Accumulateddepreciationandimpairmentlosses

Atbeginningofyear 2 1071 9783 59 129 1341 12385

Depreciationcharges 40 1155 4 41 70 1310

Impairmentcharge 121 121

Accumulateddepreciationondisposals (1) (316) (1) (318)

Othermovements 70 70

Atendofyear 2 1110 10743 62 170 1481 13568

Netcarryingamountatendofyear 57 716 12863 41 61 859 1320 15917

GROuP


Grosscarryingamount


Additions 25 984 8 302 906 2225

Disposals (1) (3) (398) (5) (407)

Othermovements 18 867 5 (898) (8)

Reclassifiedfromassetsheldforsale 2 2

Atendofyear 59 1782 22500 98 154 2177 1140 27910





Othermovements 28 499 527

Atendofyear 2 1071 9783 59 129 1341 12385

Netcarryingamountatendofyear 57 711 12717 39 25 836 1140 155251Including the assets of the two captive mines for an amount of R575 million (December 2007: R623 million).


119

18. PROPERTy,PLANTANDEquIPMENT

Landandbuildings

Rm


Rm


Rm

Sitepreparation

Rm


componentassetat

presentvalueRm

Leasedassets1

Rm

Extensionsunder

constructionRm

TotalRm

GROuP


Grosscarryingamount


Additions 10 863 136 797 1806

Disposals (2) (368) (1) (371)

Othermovements 36 611 6 77 27 (617) 140

Atendofyear 59 1826 23606 103 231 2340 1320 29485




Impairmentcharge 121 121



Atendofyear 2 1110 10743 62 170 1481 13568


GROuP


Grosscarryingamount


Additions 25 984 8 302 906 2225

Disposals (1) (3) (398) (5) (407)



Atendofyear 59 1782 22500 98 154 2177 1140 27910






Atendofyear 2 1071 9783 59 129 1341 12385




18. PROPERTy,PLANTANDEquIPMENTcontinued

Landandbuildings

Rm


Rm


Rm

Sitepreparation

Rm


componentassetat

presentvalueRm

Leasedassets1

Rm

Extensionsunder

constructionRm

TotalRm

COMPANy


Grosscarryingamount


Additions 10 662 136 705 1513

Disposals (2) (224) (1) (227)

Othermovements 28 358 6 77 27 (393) 103

Atendofyear 53 1450 13997 103 231 2145 1201 19180


Atbeginningofyear 926 6264 59 129 1252 8630



Impairment 28 28


Atendofyear 959 6824 62 170 1384 9399


COMPANy


Grosscarryingamount


Additions 6 818 8 302 717 1851

Disposals (1) (3) (396) (5) (405)



Atendofyear 53 1414 13201 98 154 1982 889 17791






Atendofyear 926 6264 59 129 1252 8630



121


Landandbuildings

Rm


Rm


Rm

Sitepreparation

Rm


componentassetat

presentvalueRm

Leasedassets1

Rm

Extensionsunder

constructionRm

TotalRm

COMPANy


Grosscarryingamount


Additions 10 662 136 705 1513

Disposals (2) (224) (1) (227)

Othermovements 28 358 6 77 27 (393) 103

Atendofyear 53 1450 13997 103 231 2145 1201 19180





Impairment 28 28


Atendofyear 959 6824 62 170 1384 9399


COMPANy


Grosscarryingamount


Additions 6 818 8 302 717 1851

Disposals (1) (3) (396) (5) (405)



Atendofyear 53 1414 13201 98 154 1982 889 17791






Atendofyear 926 6264 59 129 1252 8630





Allproperty,plantandequipmentiscarriedathistoricalcostotherthanfortheassetretirementobligationassetsthatarecarriedatpresentvalue.

LandregisterandassetpledgesAregisteroflandisavailableforinspectionattheregisteredofficeofthecompany.

Thegroupandcompanyhavenotpledgedproperty,plantandequipmenttosecurebankingfacilitiesgranted.

ImpairmentTheimpairmentassessmentisdescribedinnote4.1and5.1.

19. INTANGIBLEASSETS

Patentsandtrademarks

Rm

Non-integratedsoftware

RmTotal

Rm

GROuP


Grosscarryingamount

Atbeginningofyear 41 224 265

Additions 25 25

Disposals (3) (3)

Atendofyear 41 246 287

Amortisation


Amortisationcharge 2 10 12

Accumulatedamortisationchargeondisposals (3) (3)


Netcarryingamountatendofyear 22 49 71

GROuP


Grosscarryingamount


Additions 3 3

Othermovements 8 8

Disposals (1) (1)


Amortisation


Amortisationcharge 2 9 11



Netcarryingamountatendofyear 24 34 58


123

19. INTANGIBLEASSETScontinued

Patentsandtrademarks

Rm

Non-integratedsoftware

RmTotal

Rm

COMPANy


Grosscarryingamount

Atbeginningofyear 222 222

Additions 25 25

Disposals (3) (3)

Atendofyear 244 244

Amortisation


Amortisationcharge 9 9


Atendofyear 196 196

Netcarryingamountatendofyear 48 48

COMPANy


Grosscarryingamount


Additions 3 3

Othermovements 6 6

Disposals (1) (1)

Atendofyear 222 222

Amortisation


Amortisationcharge 9 9


Atendofyear 190 190

Netcarryingamountatendofyear 32 32



Group Company

2008Rm

2007Rm

2008Rm

2007Rm

20. uNLISTEDEquITy-ACCOuNTEDINVESTMENTS

Theinvestmentrepresentsinterestinunlisted incorporatedjoint-controlledentitiesandan associate

Atbeginningofyear 1109 953 48 32

Netafter-taxshareofresultsaspertheincome statement 331 270

Dividendsreceived (14) (104)

Currencytranslationdifferences 502 (18)

Unrealisedprofitonsales 4 (8)

Acquisitionofinterestinassociate 16 16

Impairmentreversal 36 36

Atendofyear(Annexure1) 1968 1109 84 48

Aggregatepost-acquisitionreserves 1137 820

Unlistedequity-accountedinvestmentsat 31December2008includesnogoodwill (December2007:nil).

Thegrouphasnounrecognisedlossesforany individualequity-accountedinvestment.

21. INVESTMENTSINSuBSIDIARIES

Indebtedness

–bysubsidiaries 4663 5553

–tosubsidiaries (94) (94)

Netindebtedness 4569 5459

Indebtedness 4569 5459

Sharesatcost(Annexure2) 256 256

Total 4825 5715

Aggregateattributableafter-taxprofits 731 1241

Themajorityofthecarryingvalueofthecompany’sinvestmentinsubsidiariesconsistsofitsinvestmentinSaldanhaSteel(Proprietary)Limited,beingthecostofsharesandindebtedness,attheinitialandsubsequentacquisitiondates.

In2007theremaininginvestmentimpairmentofR2799millionintheentity-ownaccountsofArcelorMittalSouthAfricaLimitedwasreversedinfull(note14).


125

Group Company

Non-current Current Non-current Current

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

22. OTHERFINANCIALASSETS/(LIABILITIES)

Derivativesdesignated ashedging instrumentscarried atfairvalue

Basemetalforward purchasecontracts

•Unmatured (129) (53) (117) (53)

•Maturednotsettled (28) (14) (26) (14)

Financialassets/ (liabilities)carriedat fairvaluethrough profitorloss(FVTPL)

Embeddedderivatives atFVTPL 203 124 163 94 203 124 163 94

Held-for-trading derivativesthatare notdesignatedin hedgeaccounting relationships

•Basemetalforward purchasecontracts unmatured 9 9

•Foreigncurrencyforward purchasecontracts unmatured 01 2 01 01 01

Available-for-sale(AFS) investmentscarried atfairvalue

Equityinstruments2 71

Total 203 195 17 27 203 124 29 27

Includedinthefinancial statementsas:

Otherfinancialassets 203 195 174 94 203 124 172 94

Otherfinancialliabilities (157) (67) (143) (67)

Total 203 195 17 27 203 124 29 271Rounding to zero due to the use of numeric reporting scale format of one million.2 The group holds 10% of the ordinary share capital of Hwange Colliery Company Limited, a coal, coke and by-products producer in Zimbabwe.

On 14 November 2008 all trading activities on the Zimbabwe Stock Exchange ceased. On that date the carrying amount of the investment was R76 million with fair value gains deferred to the available-for-sale equity reserve of R68 million. The fungible conduit share scheme arrangement utilised by the group’s brokers, which enables the realisation of such investments at fair value via the use of a dual-listed fungible conduit share arrangement, was furthermore suspended. The group deemed it appropriate to apply a marketability discount that would reduce the fair value gains deferred to equity, to Rnil. In response to the suspension of the fungible conduit share arrangement, the group revised its liquidity risk assessment in determining the fair value of the investment. As a consequence, the fair value at the reporting date is assessed as being nil, with the reduction in fair value below cost being deferred to equity as described in note 32.3.



Group Company

2008Rm

2007Rm

2008Rm

2007Rm

23. INVENTORIES

Finishedproducts 1207 1146 1140 1012

Work-in-progress 3140 1487 3003 1467

Rawmaterials 3710 1741 3431 1366

Plantsparesandconsumablestores 585 416 502 351

Total 8642 4790 8076 4196

Includedintheaboveare:finishedproductsofR258million(December2007:R111million),work-in-progressofR128million(December2007:R37million)andrawmaterialsofR348million(December2007:R0million)carriedatnetrealisablevalue.

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

24. TRADEANDOTHERRECEIVABLES

Tradereceivables

–Localsectors

Manufacturing 491 685 407 552

Merchants 681 692 681 692

Structuralmetal 323 343 323 343

Foodandbeverage 150 130 150 130

Other 124 269 124 267

–Exports 244 179 145 105

Totalgrosstradereceivables 2013 2298 1830 2089

Lessallowances

Allowancefordoubtfuldebts

–Localsectors

Manufacturing (5) (2) (5) (2)

Structuralmetal (1) (1)

Other (1) (1) (1) (1)

–Exports (2) (2)

Totalallowancesfordoubtfuldebts (9) (3) (9) (3)

Otherallowances

–Localsectors

Manufacturing (134) (148) (134) (148)

Merchants (46) (40) (46) (40)

Structuralmetal (33) (28) (33) (28)

Foodandbeverage (5) (3) (5) (3)

Other (1) (32) (1) (32)

–Exports (15) (5) (5)

Totalotherallowances (234) (256) (219) (256)


127

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

24. TRADEANDOTHERRECEIVABLEScontinued

Nettradereceivables

–Localsectors


Merchants 635 652 635 652



Other 122 236 122 234

–Exports 227 174 143 100

Totalnettradereceivables 1770 2039 1602 1830

Otherreceivables 257 179 179 122

–Less:allowancefordoubtfuldebts (21) (18) (21) (18)

236 161 158 104

VATrecoverable 25 92 5 73

Netotherreceivables 261 253 163 177

Total 2031 2292 1765 2007

Thesectoralsplitoftheaveragecreditperiodonsalesofgoodsis:

2008 2007 2008 2007

Averagecreditperiodindaysfor tradereceivables

–Localsectors1


Merchants 33 32 33 32



Other 30 30 30 30

–Exports2 9 9 9 91Local sectors credit period measured from date of statement.2Exports credit period measured from bill-of-lading date.

Nointerestischargedontradereceivablesforthefirst30daysfromdateofstatement.Thereafter,interestischargedatprime+3%perannumontheoutstandingbalance.



Group Company

2008Rm

2007Rm

2008Rm

2007Rm


Includedinthegroup’sandcompany’stradereceivablebalancearedebtorswithacarryingamountofR220million(December2007:R84million),whicharepastdueatthereportingdatewhichhavenotbeenprovidedagainstastherehasnotbeenasignificantchangeincreditqualityandtheamountsarestillconsideredrecoverable.

Thesectoralsplitis:

Tradereceivablespastdue

–Localsectors




Foodandbeverage 1 1

Other 42 9 42 9

–Exports 6 6

Total 220 84 220 84

ThegroupandcompanyholdfinancialguaranteesandsimilarcreditenhancementswithafacevalueofR203million(December2007:R74million)overtheremainderofthesebalances.Asdetailedinnote32.7,thecarryingamountofthesefinancialassetsheldisRnil(December2007:Rnil).

Theageingofthepastdueamountsis:

Tradereceivables

–Upto3months

–Localsectors




Foodandbeverage 1 1

Other 41 9 41 9

–Exports 3 3

Total 212 68 212 68

–3to6months

–Localsectors


Merchants 1 1

Total 1 3 1 3


129

Group Company

2008Rm

2007Rm

2008Rm

2007Rm


–Beyond6months

–Localsectors


Merchants 2 2


Other 1 1

–Export 3 3

Total 7 13 7 13

Total 220 84 220 84

Otherreceivablesrelateprimarilytoby-productsales,siterentaldue,prepaymentsandstaffeducationandbursaryloans.

Indeterminingtherecoverabilityoftradeandotherreceivables,thegroupandcompanyconsideranychangeinthecreditqualityofthetradereceivablefromthedatecreditwasinitiallygranteduptothereportingdate.Managementbelievesthatthereisnofurthercreditprovisionrequiredinexcessoftheallowancefordoubtfuldebts.

Thefollowingallowancesexist:• Allowancefordoubtfuldebts,whichisbasedonthespecificriskprofile,ageingofagivenreceivableandhistorical

experience.Otherthanforamountswhicharepastdue,thoughrecoverable,astherehasnotbeenasignificantchangeincreditquality,theamountprovidedforis25%ofreceivablesthatareregardedasmarginalanddoubtful,and100%foramounts>120days,lesstheparticipationpercentageoftheinsurer.Theimpairmentrecognisedrepresentsthedifferencebetweenthecarryingamountofthespecifictradereceivableandthepresentvalueoftheexpectedliquidationproceeds,wheretimevalueisregardedassignificant.

• Otherallowances,whichrelatetosettlementdiscounts,price,quality,dispatchandrelatedclaimsarebasedontheexactamountsaswithheldfrompaymentbycustomers,forwhichcreditnotesstillhavetobeissued.



Group Company

2008Rm

2007Rm

2008Rm

2007Rm


Themovementinthetradeandotherreceivablesallowancebalanceis:

Movementintradereceivableallowances

Allowancefordoubtfuldebt

Balanceatbeginningofyear (3) (3) (3) (3)

Amountswrittenoffduringyear 1 1

(Increase)/decreaseinallowancerecognised inprofitorloss (7) (7)

Balanceatendofyear (9) (3) (9) (3)

Otherallowances


Decrease/(increase)inallowancerecognised inprofitorloss 22 (47) 37 (49)


Movementinotherreceivableallowances


Amountswrittenoffduringyear 2 5 2 5

Increase/(decrease)inallowancerecognised inprofitorloss (5) 4 (5)


Thegroupandcompanydidnottransferanyreceivablestorelatedorunrelatedentitiesduringthecurrentorcomparativeyears.Nofactoringorsecuritisationarrangementsweretransacted.

Thecurrencydenominationoftradeandotherreceivablesforthegroupandcompanyisdescribedfullyinnote32.11.

Creditriskconcentrationsaredescribedinnote32.17.


131

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

25. STATEDCAPITAL

Authorised

1200000000ordinarysharesatnoparvalue (December2007:1200000000ordinary sharesatnoparvalue)

2357584"C"redeemablepreferencesharesat R10each(December2007:2357584)

Issued

445752132ordinarysharesatnoparvalue (December2007:445752132ordinaryshares atnoparvalue) 37 37 37 37

Total 37 37 37 37

Aspecialresolutionwaspassedattheannualgeneralmeeting(AGM)ofthecompanyon7May2008authorisingthedirectorstoundertakeageneralpurchaseofupto10%ofthecompany’sownsharesinissue.Theauthorityappliesforaperiodofnomorethan15monthsaftertheAGM.Theacquisitionpricemaynotbemorethan10%abovetheweightedaveragemarketvalueofthesharesoverthefivebusinessdaysimmediatelyprecedingthedateonwhichtheacquisitioniseffected.

AnysharespurchasedwouldbehousedinVicvaInvestmentsandTradingNine(Proprietary)Limited,awhollyownedsubsidiaryofthecompany.

Fortheyearended31December2008noshareshadbeenpurchasedintermsofthespecialresolution.

Thecapitalriskmanagementpolicyisdescribedinnote32.18.

Thegroupandcompanyhaveashare-basedpaymentplanintermsofwhichshareoptionsaregrantedtoqualifyingemployees.Theplanishousedinthemanagementsharetrust,aspecialpurposeentity,fundedbyArcelorMittalSouthAfricaLimited.

Asanequity-settledplan,thesharesnecessarytomeetthetrust’sobligationsundertheplanarepurchasedintheopenmarket.SuchsharepurchasesareclassifiedastreasurysharesintermsofIAS32andarerecognisedinthemanagementsharetrustreserveinthestatementofchangesinequity.

Theunissuedordinarysharesarenotunderthecontrolofthedirectors.



Group Company

2008Rm

2007Rm

2008Rm

2007Rm

26. BORROwINGSANDOTHERPAyABLES

Borrowingsunsecured–atamortisedcostLoanfromPretoriaPortlandCement 51 61

OtherpayablesCash-settledshare-basedpayments1 28 1 28 1

79 62 28 1

Includedinthefinancialstatementsas:Non-currentborrowingsandotherpayables 46 52 5 1

Currentborrowingsandotherpayables 33 10 23

Total 79 62 28 11Representing share participation rights. Refer note 36.1

for the relevant terms and conditions.

TheZAR-denominatedloanisunsecuredandbearsinterestatafixedrateof16.00%andisrepayableannuallywiththefinalpaymentduein2013.

Therewerenoloanbreachesordefaultsduringthecurrentorcomparativeperiod.

Thefairvalueoftheborrowingsandthusexposuretorefinancingriskisdetailedinnote32.3.

27. FINANCELEASEOBLIGATIONS

Secured–atamortisedcostforthefollowing arrangements: 354 416 199 253

Rawmaterials 98 138 98 138

Gases 95 21 95 106

Electricityandtransportutilities 147 149

Steelprocessingandfoundryservices 14 108 6 9

Includedinthefinancialstatementsas:Non-currentfinanceleaseobligations 314 328 168 174

Currentfinanceleaseobligations 40 88 31 79

Total 354 416 199 253

ThefinanceleasesareembeddedwithinsupplyarrangementswithsuppliersandhavebeenassessedintermsofIFRIC4,Determining whether an arrangement contains a lease.

Theleaseliabilitiesareeffectivelysecuredastherightstotheleasedassetsasembeddedinthesupplyagreementswouldgenerallyreverttothelessorsupplierintheeventofdefault.

Functionalcategory Termexpirydate Fixedeffectiveinterestrate

Rawmaterials 2013–2014 0%

Gases 2016 13.37%–23.75%

Electricityandtransportutilities 2018–2022 15.35%–17.32%

Steelprocessingandfoundryservices 2012 7.17%–8.90%

Therewerenoloanbreachesordefaultsduringthecurrentorcomparativeperiod.

Thefairvalueoftheborrowingsandthusexposuretorefinancingriskshouldsupplycontractsbere-tenderedisdetailedinnote32.3.


133

27. FINANCELEASEOBLIGATIONScontinued

Financeleaseobligationbyfunction

Minimumleasepayments

Notlaterthan

1yearRm

Laterthan1year

andnotlaterthan

5yearsRm

Laterthan5years

RmTotal

Rm

Lessfuture

financecharges

Rm

Presentvalueof

minimumlease

paymentsRm

GROuPFortheyearended 31December2008Rawmaterials 19 74 5 98 98Gases 29 97 50 176 81 95Electricityandtransport utilities 28 113 203 344 197 147Steelprocessingand foundryservices 7 9 16 2 14

Total 83 293 258 634 280 354

GROuPFortheyearended 31December2007Rawmaterials 50 75 13 138 138

Gases 9 16 25 4 21

Electricityandtransport utilities 28 113 231 372 223 149

Steelprocessingand foundryservices 38 97 73 208 100 108

Total 125 301 317 743 327 416

COMPANyFortheyearended 31December2008Rawmaterials 19 74 5 98 98Gases 28 97 51 176 81 95Steelprocessingand foundryservices 2 5 7 1 6

Total 49 176 56 281 82 199

COMPANyFortheyearended 31December2007Rawmaterials 50 75 13 138 138

Gases 37 96 73 206 100 106

Steelprocessingand foundryservices 4 7 11 2 9

Total 91 178 86 355 102 253



28. PROVISIONS


Rm

Environ-mental

remediationRm

Onerouscontracts

Rm

Leavepay

benefitsRm

Post-retirement

medical-aid

benefitsRm

OtherRm

TotalRm

GROuP

Fortheyearended 31December2008


Chargetoincomestatement 22 561 68 93 2 746

Additions/(releases) 425 47 93 2 567

Discountratechange 16 (8) 8

Unwindingofthediscount effect 22 120 29 171

Utilisedduringyear (17) (56) (43) (67) (1) (80) (264)

Capitalisationtoasset 77 77

Atendofyear 240 1338 278 294 10 2160


Non-currentprovisions 217 1201 234 227 9 1888

Currentprovisions 23 137 44 67 1 272

Total 240 1338 278 294 10 2160

GROuP



Transfer 3 (3)

Chargetoincomestatement 16 48 (1) 77 1 17 158

Additions/(releases) 11 19 (11) 77 1 17 114

Discountratechange (58) (21) (79)




Atendofyear 158 833 253 268 9 80 1601



Currentprovisions 33 68 37 92 1 80 311

Total 158 833 253 268 9 80 1601


135

28. PROVISIONScontinued


Rm

Environ-mental

remediationRm

Onerouscontracts

Rm

Leavepay

benefitsRm

Post-retirement

medical-aid

benefitsRm

OtherRm

TotalRm

COMPANy



Chargetoincomestatement 22 560 68 93 2 745

Additions/(releases) 424 47 93 2 566

Discountratechange 16 (8) 8




Atendofyear 240 1330 278 294 9 2151



Currentprovisions 23 137 44 67 1 272

Total 240 1330 278 294 9 2151

COMPANy



Transfer 3 (3)

Chargetoincomestatement 16 49 (1) 77 1 2 144

Additions/(releases) 11 16 (11) 77 1 2 96

Discountratechange




Atendofyear 158 826 253 268 8 65 1578



Currentprovisions 33 68 37 92 1 65 296

Total 158 826 253 268 8 65 1578




Maturityprofile

Thepresentvaluematurityprofileoftheprovisionsforthegroupissetoutinthetablebelow:

Lessthan1year

Morethan1year

lessthan5years 5years+

Assetretirementobligation 23 182 35

Environmentalremediation 137 889 312

Onerouscontracts 44 146 88

Leavepaybenefits 67 227

Post-retirementmedical-aidbenefits 1 5 4

Total 272 1449 439

Thepresentvaluematurityprofileoftheprovisionsforthecompanyissetoutinthetablebelow:

Lessthan1year

Morethan1year

lessthan5years 5years+

Assetretirementobligation 23 182 35

Environmentalremediation 137 887 306

Onerouscontracts 44 146 88

Leavepaybenefits 67 227

Post-retirementmedical-aidbenefits 1 4 4

Total 272 1446 433

Assetretirementobligation(ARO)andenvironmentalremediationobligationprovisionsEnvironmentalobligationsconsistofassetretirementobligationsandenvironmentalremediationobligations.

Environmentalremediationobligationsrepresentthepresentvalueofthecostofremedialactiontoclean-upandsecureasite.Theseactionsareprimarilyattributabletohistorical,thatis,legacywastedisposalactivities.Withsubsequentchangesinnationalenvironmentallegislation,theunithasalegalobligationtoremediatethesefacilities.

Assetretirementobligations(ARO),whicharisefromlegalrequirements,representmanagement’sbestestimateofthepresentvalueofcoststhatwillberequiredtoretireplantandequipment.Themajorityoftheobligationrelatestoancillaryplantandequipmentthatwillberetiredaspartoftheclean-upandclosureofthosefacilitiestoberemediatedviatheenvironmentalremediationobligation.ThenetcarryingamountoftheAROassetcomponentincludedwithinnote18,amountstoR61million(December2007:R25million)forboththegroupandcompany.

Thetermoftheobligationassessmentvariesaccordingtothesite.Themaximumtermis20years.


137


Thefuturecashoutflowsarediscountedataweightedaveragecredit-adjusteddiscountrateasindicatedinthetablebelow:

Businessunit2008

%2007

%

VanderbijlparkWorks 10.67 11.38

VereenigingWorks 10.75 11.21

NewcastleWorks 10.75 11.79

SaldanhaWorks 10.75 10.98

PretoriaWorks 10.75 10.91

CokeandChemicals 10.52

Theaverageescalationfactorappliedtothecurrentcashflowestimatesis6.8%(December2007:averagerateof5.11%).

Theincreaserelativetothecomparativeperiodispartlyreflectedinthescopeamendmentstotakecognisanceof,amongotherfeatures,newinvestigationoutcomesandrevisedpriorities,andisduetoincreasesincivil,mechanicalandtransportcostescalationfactors.

OnerouscontractprovisionTheprovisionrepresentsanonerousoperatingleasecontractembeddedinalong-term,take-or-paygassupplycontract.Theunavoidabilityofthecostaroseuponthe1997de-commissioningofsteel-makingfacilitiesatPretoriaWorks.Theprovisionrepresentsthepresentvalueofthefutureleasepaymentsthatthegroupandcompanyarepresentlyobligatedtomakeunderthenon-cancellableonerousoperatinglease.NetcashoutflowfortheyearamountedtoR43million(December2007:R58million).Theunexpiredtermofthecontractis11years.Thelong-termaverageescalationfactorappliedtothecurrentcashflowestimatesis6.64%(December2007:5.11%).Thefuturecashoutflowsarediscountedatanaveragecredit-adjusteddiscountrateof10.7%(December2007:10.91%).

LeavepaybenefitsIntermsofthegroupandcompanypolicy,employeesareentitledtoaccumulatevestedleavebenefitsnottakenwithinaleavecycle.Theobligationisreviewedannually.

Thedistinctionappliedbythegroupandcompanytodistinguishbetweencurrentandnon-currentleavepaybenefitentitlementshashistoricallybeenbasednotonthetimingofthesettlementexpectationbutratheronwhenthebenefitsareduetobesettled,thatis,takenasleaveorsettledincash.Allstatutoryleavebenefits(21daysina12-monthleavecycle)andanymandatoryleaveencashmenttobemadewithin12monthsofthereportingdateareclassifiedasacurrentleavepaybenefitobligation.Theremainingentitlementsareclassifiedasanon-currentleavepaybenefitobligation.

From1September2008,theleavepaybenefitpolicyofthegroupandcompanywasmodifiedsothatallleavepaybenefitsaccumulatedinexcessof50dayswillbemandatorilyencashedandsettledonasemesterlybasisinJuneandDecembereachyear.Theamountisdisclosedasacurrentobligation.

Aspartofthetransitionprocess,allaccumulatedleaveabove50dayson1September2008wasring-fenced.Totheextentthatsuchleavepaybenefitsremainoutstandingat30April2010,theamountwillbeautomaticallyencashed.Thecarryingamountofsuchbenefitsat31December2008amountstoR227million,whichisdisclosedasanon-currentobligation.

Theprovisionisnotdiscounted.

Post-retirementmedical-aidbenefitsThegroupandcompanyrecognisealiabilityrelatingtofuturemedicalaidforcertainearlyretirees.Theobligationrepresentsapresentvalueamount,whichisactuariallyvaluedonanannualbasis.Anysurplusordeficitarisingfromthevaluationisrecognisedintheincomestatement.

Other:Taxationdispute–BusinessAssistanceAgreementTheAlternativeDisputeResolution(ADR)processwiththeSouthAfricanRevenueServiceswasfinalisedduringMarch2008,withsettlementbeingreachedonthedisputepertainingtothetaxdeductibilityofpaymentsmadeintermsoftheBusinessAssistanceAgreement.ThesettlementamountwasR100million.ForthefinancialyearendedDecember2007,aprovisionalobligationofR80millionwasrecognisedintermsofthesettlementoffermadeduringtheADRhearing.AfurtherR20millionwasrecognisedasanexpenseinthefirsthalfof2008.



29. DEFERREDTAxATION

Deferredtax(assets)/liabilitiesarisefromthefollowing:

Temporarydifferences

Cashflowhedges

Rm

Property,plant,

equipmentandintangible

assetsRm

EmployeecostRm

Available-for-sale

assetsRm

ProvisionsRm

Doubtfuldebts

Rm

Financeleaseobligations

RmOther

Rm

Unusedtaxlossesand

creditsRm

TotalRm

GROuP



Atbeginningofyear (15) 3197 (81) (353) (5) (122) (16) (2) 2603

Ratechangechargedtoincome (109) 3 12 4 1 (89)

Chargedtoincome 141 (7) (134) (2) 19 12 2 31

Chargedtoequity (19) (19)

Atendofyear (34) 3229 (85) (475 (7) (99) (3) 2526

GROuP



Atbeginningofyear (2) 3192 (76) 1 (45) (7) (172) (14) (392) 2485

Chargedtoincome 8 5 (5) (1) (308) 2 50 (3) 390 138

Chargedtoequity (21) 1 (20)

Atendofyear (15) 3197 (81) (353) (5) (122) (16) (2) 2603

COMPANy



Atbeginningofyear (15) 1542 (81) (350) (5) (75) (9) 1007

Ratechangechargedtoincome (53) 3 12 3 (35)

Chargedtoincome 149 (7) (131) (2) 17 11 37


Atendofyear (31) 1638 (85) (469) (7) (55) 2 993

COMPANy



Atbeginningofyear (2) 1470 (76) 1 (43) (5) (122) (5) 1218

Chargedtoincome 8 72 (5) (1) (307) 47 (4) (190)


Atendofyear (15) 1542 (81) (350) (5) (75) (9) 1007


139

29. DEFERREDTAxATION

Deferredtax(assets)/liabilitiesarisefromthefollowing:


Cashflowhedges

Rm

Property,plant,

equipmentandintangible

assetsRm

EmployeecostRm

Available-for-sale

assetsRm

ProvisionsRm

Doubtfuldebts

Rm

Financeleaseobligations

RmOther

Rm

Unusedtaxlossesand

creditsRm

TotalRm

GROuP



Atbeginningofyear (15) 3197 (81) (353) (5) (122) (16) (2) 2603

Ratechangechargedtoincome (109) 3 12 4 1 (89)

Chargedtoincome 141 (7) (134) (2) 19 12 2 31


Atendofyear (34) 3229 (85) (475 (7) (99) (3) 2526

GROuP



Atbeginningofyear (2) 3192 (76) 1 (45) (7) (172) (14) (392) 2485

Chargedtoincome 8 5 (5) (1) (308) 2 50 (3) 390 138

Chargedtoequity (21) 1 (20)

Atendofyear (15) 3197 (81) (353) (5) (122) (16) (2) 2603

COMPANy



Atbeginningofyear (15) 1542 (81) (350) (5) (75) (9) 1007

Ratechangechargedtoincome (53) 3 12 3 (35)

Chargedtoincome 149 (7) (131) (2) 17 11 37


Atendofyear (31) 1638 (85) (469) (7) (55) 2 993

COMPANy



Atbeginningofyear (2) 1470 (76) 1 (43) (5) (122) (5) 1218

Chargedtoincome 8 72 (5) (1) (307) 47 (4) (190)


Atendofyear (15) 1542 (81) (350) (5) (75) (9) 1007



Group Company

2008Rm

2007Rm

2008Rm

2007Rm

30. TRADEANDOTHERPAyABLES

Tradepayables

–Rawmaterials 1456 760 1399 698

–Energy 74 89 66 83

–Railandtransport 46 235 29 192

–Other 1084 1345 982 1119

Totaltradepayables 2660 2424 2476 2092

Otherpayables

–Sundry 17 124 17 29

–Accruals 707 320 400 265

Totalotherpayables 724 444 417 294

Total 3384 2873 2893 2386

Thefunctionalsplitoftheaveragecreditperiodontradeandotherpayablesis:

2008 2007 2008 2007

Averagecreditperiodindaysfortradepayables

–Rawmaterials 28 32 28 34

–Energy 24 30 28 32

–Railandtransport 13 14 11 14

–Other,includingrelatedparties 52 54 58 58

Averagecreditperiodindaysforotherpayables

–Sundry 22 32 22 32

Thegroupandcompanyhavefinancialriskmanagementpoliciesinplacetoensurethatallpayablesarepaidwithinthe creditterms.

Forthegroupandcompany,theinterestexpenseincurredforlatepaymentontradeandotherpayablesisRnil (December2007:Rnil).


141

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

31. NOTESTOTHESTATEMENTOFCASHFLOwS31.1 Cashgeneratedfromoperations

Profitfromoperations 12159 7703 11097 6450Adjustedfornon-cashmovements–Depreciationandamortisation 1322 1099 858 752-Unrealisedprofitonsalestojoint

ventures (4) 8–Embeddedderivativesunrealised (141) 33 (141) 33–Shareoptionandparticipationcosts 60 35 60 35–Impairmentcharge 121 28–Movementsinprovisions 547 96 538 90–Allowancefornetrealisablevalue 215 26 182 27–Reconditionablesparesusage 12 13 9 11–Lossondisposalorscrappingof

property,plantandequipment 39 31 38 31Workingcapitalmovements–(Increase)/decreaseininventories (4067) (41) (4062) 160–Decrease/(increase)intradeandother

receivables 253 (118) 232 (84)–Increase/(decrease)intradeandother

payables 607 (288) 602 (259)–Utilisationofprovisions (184) (158) (184) (158)

10939 8439 9257 7088

31.2 DividendspaidChargedtoequity (2398) (1948) (2398) (1948)

(2398) (1948) (2398) (1948)

31.3 NormaltaxationNormaltaxationrecoverableat beginningofyear 108 179 164 234Amountschargedtotheincome statement (3909) (2316) (3547) (2219)Amountsrecognisedinequity 32 21 31 21Transferfromprovisions (80) 15 (65)Othermovements (5) 3Withholdingtax (13) (13)Normaltaxationpayable/(recoverable) atendofyear 780 (108) 690 (164)

(3087) (2209) (2740) (2125)

31.4 InvestmenttomaintainoperationsReplacementofproperty,plantand equipment (1114) (1003) (926) (810)Intangibleassets (25) (11) (25) (9)Environmental (217) (126) (215) (121)Reconditionablespares (57) (58) (38) (47)

(1413) (1198) (1204) (987)

31.5 InvestmenttoexpandoperationsProperty,plantandequipmentfor expansionandnewtechnology (419) (654) (334) (512)

(419) (654) (334) (512)

Totalcapitalexpenditure (1832) (1852) (1538) (1499)



Group Company

2008Rm

2007Rm

2008Rm

2007Rm

32. FINANCIALINSTRuMENTS

32.1 Significantaccountingpolicies

Detailsofthesignificantaccounting policiesandmethodsadopted,including thecriteriaforrecognition,thebasis ofmeasurementandthebasisonwhich incomeandexpensesarerecognisedin respectofeachclassoffinancialasset, financialliabilityandequityinstrument aredisclosedinnote3,tothefinancial statements.

32.2 Categoriesoffinancialinstruments

Financialassets

Fairvaluethroughprofitorloss(FVTPL)

•Held-for-trading 11 01 9 01

•DesignatedatFVTPL

–Bifurcatedembeddedderivatives 366 218 366 218

Loansandreceivables

• Cashandcashequivalents 8429 4034 8121 3660

• Tradeandotherreceivables 2031 2292 1765 2007

• Available-for-salefinancialassets 71

Financialguaranteecontractsheld 02 02 02 02

Total 10837 6615 10261 5885

Financialliabilities

DesignatedasatFVTPL

•Held-for-trading 01 01

Derivativeinstrumentsindesignated hedgeaccountingrelationships

•Unmatured 129 53 117 53

•Maturedyetunsettled 28 14 26 14

Loanscarriedatamortisedcost

•Borrowingsandotherpayables 79 62 28 1

•Financeleaseobligations 354 416 199 253

•Tradeandotherpayables 3384 2873 2893 2386

Financialguaranteecontractsissued 02 02 02 02

Total 3974 3418 3263 2707

Netfinancialassets 6863 3197 6998 31781 Rounding to zero due to the use of numeric reporting scale format of one million.2 Financial guarantees with a fair value of zero are described in note 32.7.

Thegroupandcompanydonothave:

•financialassetsdesignatedasheld-to-maturity;and/or

•financialliabilitiesdesignatedatFVTPL(otherthanforderivativeinstrumentsheld-for-tradingatFVTPL).


143

32. FINANCIALINSTRuMENTScontinued

32.3 FairvalueoffinancialinstrumentsThefairvaluesoffinancialassetsandfinancialliabilitiesaredeterminedas:

• thefairvalueoffinancialassetswithstandardtermsandconditionsandtradedonactiveliquidmarketsisdeterminedwithreferencetoquotedmarketprices;

• thefairvalueofthosefinancialassetsforwhichactiveandliquidmarketsdonot,ordonolonger,existarevaluedusinggenerallyacceptedvaluationtechniques,suchasthoserecommendedwithintheInternational Private Equity and Venture Capital Valuation Guidelines;

• thefairvalueofstand-aloneover-the-counterderivativeinstrumentsiscalculatedusingquotedprices;

• thefairvalueofembeddedderivativesiscalculatedusingavaluationtechniqueforwhichoneormoresignificantinputsarenotbasedonobservablemarketdata;and

• thefairvaluefinancialguaranteecontractsissuedorheldiscalculatedusingthecumulativeprobabilitymethodology,asdescribedinnote3.28.

Thefollowingfinancialassetsandfinancialliabilitiesaremeasuredatfairvalueintermsofthegroup’sandcompany’saccountingpolices:

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

FinancialassetsmeasuredatfairvalueFairvaluethroughprofitorloss(FVTPL)

• Held-for-trading 11 01 9 01

• DesignatedatFVTPL

–Bifurcatedembeddedderivatives 366 218 366 218

Derivative instruments in designated hedge accounting relationships

Available-for-salefinancialassets 71

Financialguaranteecontractsheld 02 02 02 02

Total 377 289 375 218

Financialliabilitiesmeasuredat fairvalueDesignatedasatFVTPL

• Held-for-trading 01 01

Derivative instruments in designated hedge accounting relationships

• Unmatured 129 53 117 53

• Maturedyetunsettled 28 14 26 14

Financialguaranteecontractsissued 02 02 02 02

Total 157 67 143 67

Netfinancialassetsmeasuredat fairvalue 220 222 232 1511 Rounding to zero due to the use of numeric reporting scale format of one million.2 Financial guarantees with a fair value of zero are described in note 32.7.




32.3 Fairvalueoffinancialinstrumentscontinued

Bifurcatedembeddedderivatives,available-for-sale(AFS)financialassetsandfinancialguaranteecontractsheldandissued,aremeasuredusingavaluationtechniqueforwhichoneormoresignificantinputsarenotbasedonobservablemarketdata.

Fortheembeddedderivative,thekeyvaluationinputs,thesensitivityanalysispertainingtothoseinputs,thecarryingamountsandchangesthereincomparedtothecomparativeperiodaredetailedinnote32.12.Similarlyfinancialguaranteecontractsareanalysedinnote32.7.

Developmentsrelatingtotheavailable-for-saleequityinvestment,beingthegroup’sinvestmentinHCCL,aredescribedinnote4.2andnote22.Thefairvaluemeasurementoftheinvestmentwasreclassifiedfrombeingbasedonquotedpricesonactivemarketsforthesameinstrumenttobeingbasedonavaluationtechniqueforwhichoneormoresignificantinputsarenotbasedonobservablemarketdata.Thereclassificationandaccountingimpactthereofare:

Group

AFSfinancialasset

Rm

AFSequityinvestmentmeasuredatfairvaluebasedon quotedpricesonactivemarketsforthesameinstrument

Balanceat1January2007

Initialrecognitionatcost 9

Totalgainsand(losses)inothercomprehensive income(AFSinvestmentreserve) 62

Balanceat31December2007 71

ReclassifiedasanAFSfinancialassetmeasuredusing avaluationtechniqueforwhichoneormoresignificant inputsarenotbasedonobservablemarketdata (71)

Balanceat31December2008

AFSequityinvestmentmeasuredatfairvalueusinga valuationtechniqueforwhichoneormoresignificant inputsarenotbasedonobservablemarketdata


ReclassifiedfromanAFSequityinvestmentmeasuredat fairvaluebasedonquotedpricesonactivemarketsfor thesameinstrument,consistingof:

–cost 9

–gainsrecognisedinAFSinvestmentreserve 62

Subsequentchangeinfairvaluewithtotallossesrecognised inothercomprehensiveincome(AFSinvestmentreserve) (71)


Totallossesincludedinprofitandlossfortheyear

ChangeinAFSinvestmentreserveincludedinother comprehensiveincome (71)

CarryingamountoftheAFSinvestmentreserve (deferredfairvalueloss) (9)


145


32.3 Fairvalueoffinancialinstrumentscontinued

Exceptasdetailedinthefollowingtable,thecarryingamountsofthosefinancialassetsandfinancialliabilitiesrecordedatamortisedcostinthefinancialstatementsapproximatetheirfairvalues.

Carryingvalue2008

Rm

Fairvalue2008

Rm

Carryingvalue2007

Rm

Fairvalue2007

Rm

GROuPNon-currentliabilitiesNon-currentborrowings 41 39 51 47

Non-currentfinanceleaseobligations 314 342 329 390

CurrentliabilitiesCurrentborrowings 10 16 10 17

Currentfinanceleaseobligations 40 44 88 63

TotalliabilitiesTotalborrowings 51 55 61 64

Totalfinanceleaseobligations 354 386 417 453

COMPANyNon-currentliabilitiesNon-currentfinanceleaseobligations 168 155 174 195

CurrentliabilitiesCurrentfinanceleaseobligations 31 33 79 53

TotalliabilitiesTotalfinanceleaseobligations 199 188 253 248

Thegenerallyhigherfairvaluerelativetocarryingamountofinterest-bearingborrowingsandfinanceleaseobligationsreflectthelowerreportingdatecredit-adjustedinterestratesrelativetothecontractedandimputedrates.Thefairvaluerepresentsthecapitalamountwhichcouldbeborrowedifthearrangementswererefundedatthereportingdate.

Thegroup’sfinancialstatementsincludeunlistedequity-accountedinvestmentsinanassociateandjointlycontrolledentities(note20andAnnexure1).Thefairvalueestimatesforasingleinvestmentaredeterminedusingacombinationofvaluationmethods,namely:(i)discountedcashflowanalysis,(ii)earningsmultiples;and/or(iii)aterminationliquidationbasis.Certainlimitedassumptionsarenotsupportablebyobservablemarketpricesorrates.

Thegroupandcompanyhavesignificantinvestmentsinthefollowingequity-accountedinvestments:

•MacsteelInternationalHoldingsBV;•Collect-a-Can(Proprietary)Limited;•ConsolidatedWireIndustriesLimited;•EnsimbiniTerminal(Proprietary)Limited;•ToyotaTsushoSAProcessing(Proprietary)Limited;•Microsteel(Proprietary)Limited;and•PietersburgIronCompany(Proprietary)Limited.

Indeterminingthefairvalueofthesesignificantinvestmentsforimpairmentassessmentanddisclosurepurposes,greateremphasiswasplacedonanetassetvalue,liquidationandsimpleearningsmultiplevaluationtechniquesforthereportingperiodended31December2008.Useofdiscountedcashflowtechniqueswerede-emphasisedduetothedifficultyinforecastingforwardearningsinthecurrenteconomicclimate.

Ingeneral,anearningsmultipleof5wasappliedtotheinvestments(December2007:earningsmultipleofbetween7to9times),whileaverageliquidationrealisationratesrangedfrom90%to100%dependingonthenatureofthebusiness(December2007:70%to100%).Thehigherrealisationratesfor2008reflectarealisationadjustmentlargelyrelatingtocertainpropertyvaluationratesthathistoricallyhavebeenbasedonverylowhistoricalcosts.Theadjustmentisbasedonobservablemarketratesforsimilarassets.




32.4 Financialriskmanagementoverviewandobjectives

Thegroup’sandcompany’sfinancialriskmanagementprogrammefocusesontheunpredictabilityoffinancialmarketsandseekstominimisepotentialadverseeffectsonfinancialperformance.

Financialriskisasubsetofthegroup’senterprise-wideriskmanagementpolicy(EWRM).Thelatterpolicyisapprovedbytheboardofdirectorsandreviewedbi-annually.

Thefinancialrisks1towhichthegroupandcompanyareexposedconsistof:•bankrelationshipandfinancialcounterpartyrisk;•financialmarketrisk,consistingof: –commoditypricerisks; –exchangeratefluctuations;and –liquidityrisk,being: cashflowvolatility;and fairvalueandcashflowinterestraterisk;•capitalmanagementandgearingrisk;and•customercreditrisk.1 Margin risk is driven by operational risk factors, which are addressed in the Sustainability Report. Corporate governance risk

is addressed in the Finance sub-section of the annual report.

Otherthanforcustomercreditrisk,theremainingfinancialrisksareaddressedinthecorporatetreasurypolicy.ThispolicyisalignedtothegreaterArcelorMittalgrouppolicyexceptforthefollowingaspectsrelatingtoSouthAfricanexchangecontrolregulationsasregulatedbytheSouthAfricanReserveBank(SARB):•repatriationofexportproceedswithina180-dayperiod;•limitationsontheamount(hedgepercentage)andforwardperiodforderivativesusedtoeconomicallyhedge

theUSDpricevolatilityriskoffuturebasemetalpurchases;•foreignfundingandrepaymentapprovalsbytheSARB;and•offshorepaymentsofsurpluscashpositions.

Thetreasurypolicyaddressesmarket,liquidity,capitalmanagementandgearingriskthroughthedirectionofthefollowingactivities:•bankrelationshipsandfinancialcounterpartyexposuremanagement;•financingfacilities;•financialguaranteesandlettersofcredit;•marketriskmanagement,through: –commodityriskmanagement; –currencyriskmanagement;and –interestratemanagement•cashmanagement,throughliquiditymanagement.

Thetreasurypolicyisenactedbythetreasurydepartment(Treasury).Treasuryidentifies,evaluatesandmitigatesfinancialrisksincloseco-operationwiththegroup’sandcompany’soperatingunits.Board-approvedwrittenpoliciescoverthespecificactivitiesnotedaboveandaddressrisklimits,theuseofderivativeandnon-derivativefinancialinstrumentstohedgecertainexposures,andtheapprovalframeworkgoverningtransactionlevels.

Hedgeperformanceismeasuredagainstthreebenchmarklevels:•performanceagainstbudgetedlevels;•performanceagainstmarketlevels;and•performanceagainsttheunhedgedexposurepositions.

Well-definedmarkettriggerlevelsareusedtoensurethemaintenanceofanappropriatelycomposedhedgepositioninresponsetomarketmovements.

Treasuryfulfilsasharedservicefunctionforsubsidiarycompaniesinthegroup.Forassociateandjointlycontrolledentities,atreasuryoverviewroleisperformedthroughrepresentationonthosecompanies’boardsofdirectorsandauditcommittees.


147


32.4 Financialriskmanagementoverviewandobjectivescontinued

Thecorporatecreditriskmanagementpolicy(creditpolicy)managesthecustomercreditriskexposureofthegroupandcompany.Theobjectivesofthecreditpolicyareto:•increasesalesthroughinvestinginthecustomerbase;•avoidextensionsthatcouldleadtofinancialdistressanddefaultbycustomers;•maintainproductivecustomerrelationshipswithintheframeworkofprudentriskmanagement;•optimisingcashcollectionperiods;and•diversifyingcreditexposureoverabroadclientbase.

Thecreditpolicyisenactedbythecreditmanagementdepartment(CreditManagement)andisbasedontheSouthAfricanKingIIReportonCorporateGovernanceandinternationalbestpractice.CreditManagementensuresthatcreditextensionandmanagementisconductedwithintheapprovedframeworks,andadequatelyassessesandreportsallcreditexposures,whichincludesthemaintenanceofappropriatecollateral,financialguaranteesandcreditinsurance.

Thegroup’sprudentcreditriskmanagementapproachcontributessignificantlytominimiseexposuretocreditdefaults.Creditdefaultriskismitigatedthroughsufficientcollateral,anextensivecreditinsurancepolicy,continualassessmentofcustomers’riskprofilesandmanagementofexposurepercustomerwithinapprovedcreditlimits.Thisapproachwillcontinuetobefollowedtoensureminimalexposureduringthecreditcrisis.Despiteanincreaseinpast-dueaccountsatyear-end,themajorityofthesehavebeenrecoveredduringJanuary2009.

32.5 Bankrelationshipandfinancialcounterpartyexposuremanagement

(a) Bank relationship management Thegroupandcompanystrivetohaveabalancedpoolofbanksthatcanprovidethedesiredfundingand

servicesatacompetitiveprice,whilelimitingandmanagingtheconcentrationofcounterpartyrisk.

Duetotheimportanceofhavingaccesstolong-termfinancingforgrowthpurposes,thegroupandcompanyselectcounterpartiesbasedontheirabilityandwillingnesstosupportboththegroupandthecompany.Bankingbusinessisdividedbetweenthebanksinabalancedwaybasedonperformanceandcompetitiveness.

Riskistakenoncounterpartiesinaccordancewithcounterpartylimits.Limitspercounterpartyaredetermineddependingonthecounterparty’screditrating.Withthefinancialriskshocksinlate2008,thismatteriscarefullymonitoredbyseniormanagement.

(b) Financial counterparty exposure management Theboardofdirectorsapprovecounterpartylimits.

Actualexposureagainsttheselimitsismonitoredonacontinualbasis.Positionsareplacedonlywithcounterpartieswithahigh-qualityrating.Theweightedaverageriskexposuretoanyonebankisbasedonitssettlementlimitplusapredefinedpercentagedependingonthetypeofbusinessbeingtransacted.Thatpercentagerepresentsthepremiumofreinstatingthearrangementwithanotherbank.

Thegroup’sexposurepercategoryaccordingtoFitch’sinternationalbankratingscaleagainstcounterpartylimitsis:

Depositandcallaccounts

Foreigncurrencyderivatives1

Basemetalderivatives1

LimitRm

BalanceRm

LimitRm

BalanceRm

Limit2Rm

BalanceRm

Fortheyearended 31December2008F1andabove 4800 4505 5100 17 246F2 6900 39243 0 0 31Total 11700 8429 5100 17 277Fortheyearended 31December2007F1andabove 6800 307 12000 105 370F2 7600 31693 10500 7F3 1000 558 2100 7Total 15400 4034 24600 119 3701 Notional absolute amount of contracts, as opposed to fair value.2 Base metal trading is managed in collaboration with the greater ArcelorMittal Group. 3Includes call account balances for which no limit exists. The deposit account limits were not exceeded.




32.5 Bankrelationshipandfinancialcounterpartyexposuremanagementcontinued

(b)Financialcounterpartyexposuremanagementcontinued

Fitchinternationalrating Description

F1 Highestcreditquality.Indicatesthestrongestcapacityfortimelypaymentoffinancialcommitments.

F2 Goodcreditquality.Asatisfactorycapacityfortimelypaymentoffinancialcommitments,butthemarginofsafetyisnotasgreatasinthecaseofthehigherratings.

F3 Faircreditquality.Thecapacityfortimelypaymentoffinancialcommitmentsisadequate.

Limitswereadjustedduringtheyeartoalignwithexpectedbusinessneeds.

Nocreditlimitswereexceededduringthereportingperiodandmanagementdoesnotexpectanylossesfromnon-performancebythebankingcounterparties.

32.6 Financingfacilities

Prudentliquidityriskmanagementincludesmaintainingsufficientcashandmarketablesecurities,theavailabilityoffundingfromanadequateamountofcreditfacilities,andtheabilitytoclose-outmarketpositions.

Managementmonitorsrollingforecastsofthegroup’s1liquidityreserveonthebasisofexpectedcashflow.

Theborrowingcapacityofthegroupis:

2008Rm

2007Rm

Borrowingcapacityisdeterminedbythedirectorsintermsofthe ArticlesofAssociation,namely100%ofthegroup’sequity 27995 20583

Lesstotalborrowingsandfinanceleaseobligations (405)2 (478)

Unutilisedborrowingcapacity 27590 201051Financing facilities are presented only on a group basis as this is the most meaningful level of aggregation for related

decision-making.2Borrowings exclude the cash-settled share-based payment payable.

Toaddresspotentialunforeseenfundingrequirementsthegrouphasaccesstothefollowingfacilities:

FacilityRm

DrawnRm

AvailableRm

Term

31December2008

Stand-byfacilities

–Uncommittedshort-termfacility 1398 (51) 1347Demandfacilities

–Facilityavailablewith24hours’notice 1000 1000Demandfacilities

Total 2398 (51) 2347

31December2007

Stand-byfacilities

–Uncommittedshort-termfacility 2484 (61) 2423Demandfacilities


149


32.7 Financialguaranteecontracts

Group Company

2008 2007 20081 20071

Financialguaranteecontractsissued–Numbers 1 2 12 6–Facevalue(Rm) 1 32 69 82–Carryingamount 0 0 0 0Financialguaranteecontractsheld–Carryingamount 0 0 0 01 As required by IAS 39, the company amounts include instruments guaranteeing subsidiary companies.

FinancialguaranteecontractsissuedBusinessisconductedasfaraspossibleonanopen-accountbasis,andthustheissuanceofguaranteesisdoneonalimited,highlyselectivebasis.Insistencebystateinstitutionsforsuchfacilitiesmakessuchissuanceslargelyunavoidable.Anadditionalmotivationforissuanceiswhenitresultsinaconcomitantreductioninthecostofapurchasedsupply.

Thefollowingarenotregardedasfinancialguaranteecontractsandareexcludedfromtheanalysis:

•contractswherethegrouporcompanyhastheabilitytocontrolthetriggeringoftheguaranteeevent (lettersofcomfort);and

•commerciallettersofcredit.

ThecarryingamountofallfinancialguaranteecontractsissuedisRnil(December2007:Rnil)astheriskofdefaultishighlyremote.Thereisnocollateralagainsttheseguarantees.

Thefacevalueofallcontractsisdisclosedascontingentliabilitiesinnote35.

FinancialguaranteecontractsheldThecarryingamountofallfinancialguaranteecontractsheldisRnil(December2007:Rnil)as(i)theriskofdefaultishighlyremote;and(ii)forthoserareinstanceswheredefaultoccursandtheguaranteeisinvoked,theamountsareinsignificant.

Thetotalfacevalueoffinancialguaranteecontractsheldbythegroupandcompanyisdisclosedinnote22.

32.8 FinancialmarketriskThegroup’sandcompany’sactivitiesexposethereportingentitiesprimarilytothefinancialrisksofchangesincommodityprices,foreigncurrencyexchangerates,interestratesandpotentialliquidityconstraints.

Duetotheholdingofanavailable-for-saleequityinvestment,thegroupisalsoexposedtoequitypricerisk.

Thegroupandcompanymayenterintoavarietyofderivativefinancialinstrumentstomanageexposuretofinancialrisk,asfollows:

•Over-the-counter,LME-referenced,cash-settledforwardbasemetalpurchasecontracts,andoptionstoeconomicallyhedgetheUSDcommoditypriceriskarisingfromthepurchaseofbasemetalsbeing,aluminium,zinc,tinandnickelusedintheproductionofsteel.

•Over-the-counter,cash-settledforeignexchangeforwardcontractsandoptionstoeconomicallyhedgetheexchangerateriskarisingon(i)theexportoffinishedsteelfromSouthAfricatovariousexportmarkets;and(ii)ad hocpurchaseofrawmaterialandcapitalequipmentthatcannotbenaturallyhedgedusingoff-shoreheldforeigncurrencyproceeds.

•Embeddedderivativefeaturesinprocurementcontractsusedtoeconomicallyhedgethepriceriskofcertainsuppliesthatcannotbehedgedusingstand-aloneover-the-counterderivativeinstruments.

•Over-the-counter,cash-settledswapcontracts,forwardrateagreements(FRAs)andoptionstoeconomicallyhedgetheinterestrateriskarisingfromsurpluscashorfundingpositionsdenominatedinZARandUSD.

• Over-the-counter,cash-settledforwardfreightagreementsusedtoeconomicallyhedgethefreightrateriskoftheoutwardleasingoffreightcapacitybythesteeltradingjointlycontrolledentity,MacsteelInternationalHoldingsBV(MIHBV).

FinancialmarketriskexposuresaremeasuredusingtheValueatRisk(VaR)methodology,supplementedbysensitivityanalyses.




32.9 ValueatRiskanalysis

ValueatRisk(VaR)calculatesthemaximumpre-taxlossexpected(orworst-casescenario)onaninvestmentorderivativepositionheld,overagiventimeperiodandgivenaspecifieddegreeofconfidence.

TheVaRmethodologyisastatisticallydefined,probability-basedapproachthattakesintoaccount,inter alia,marketvolatilitiesrelativetoapositionheld.AVaRstatistichasthreecomponents:atimeperiod,aconfidencelevelandalossamount.Riskscanbemeasuredconsistentlyacrossallmarketsandproducts,andriskmeasurescanbeaggregatedtoarriveatasinglerisknumber.

Thegrouputilisesavariance-covariance,ordelta-normal,modelwhichassumesthatreturnsarenormallydistributed.Itrequiresthedeterminationofonlytwofactors–anexpected(oraverage)returnandastandarddeviation,fromwhichanormaldistributioncurvecanbeplotted.Themodelassumesthatreturnsarewellbehavedaccordingtothesymmetricalnormalcurveandthathistoricalpatternswillrepeatintothefuture.

Theone-month97%VaRstatisticusedbythegroupreflectsthe97%probabilitythatthemonthlylosswillnotexceedthereportedVaR.

Intheinterestofsimplicity,noadjustmentismadetocorrectskewnessagainsttheassumptionofnormaldistributionasVaRanalysisisusedonlyasanindicativemeasureofrisk.Itiscombinedwithotherformsoftechnicalandfundamentalanalysesandperformancebenchmarks,whicharecollectivelyusedtodetermineriskstrategiesandtriggerlevels.

Intheanalysisbelow,anegativeamountrepresentsalosswhileapositiveisagain.Thehistorictimeperiodsusedtoderivethemeanandstandardderivationvaluesare:

• Foreigndenominatedcashandcashequivalents,andforeignexchangederivativesfrom1January2006to31December2008(2007:1January2005to31December2007).

• Basemetalderivativesfrom1January2006to31December2008(2007:1November2005to31December2007).

Foreigncurrencyexposureinherentintradeandotherreceivables,tradeandotherpayables,andbifurcatedembeddedderivativesarenotmanagedusingVaRanalysis.Similarly,theanalysisisnotusedtomeasuresuchexposureinthebasemetalprocurementportfolio,duetotheinherentlimitationsofVaRanalysis.

TheVaRanalysisispresentedsolelyfromagroupperspectiveasthisrepresentsthemostmeaningfullevelofexposureanalysis.

Variance–co-variance

VaR(97%,one-month)byrisktype:investmentoropenpositionheldAverage Minimum Maximum Year-end

(high) (low)

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

Foreign denominated cashand cash equivalents onhand1

–USD (641) (49) (78) 285 (1204) (382) 02 02

Total (641) (49) (78) 285 (1204) (382) 02 02

1 MZN excluded for 2008 as amounts do not significantly contribute to the VaR analysis.2 Re-valued at the closing rate for the reporting period, therefore no variance arises.


151


32.9 ValueatRiskanalysiscontinued

Variance–co-variance

VaR(97%,one-month)byrisktype:investmentoropenpositionheldAverage Minimum Maximum Year-end1

(high) (low)

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

Derivatives

unmatured basemetal forward purchase contracts

–Aluminium (17) 2 4 9 (39) (5) (53) (1)

–Zinc 21 35 65 177 (22) (107) (21) (50)

–Nickel3 (1) (1) 28 9 (30) (10) (25) (2)

–Tin (14) (3) 2 1 (30) (7) (21) 02

Basemetal derivatives total (11) 33 99 196 (121) (129) (120) (53)

unmatured foreign currency contracts

–BuyUSD (1) 5 (7) 02

–BuyEUR (3) (14) 1 3 (7) (32) 2 02

–SellEUR (1) 02 (3) 02

–SellUSD 02 2 (3) 02

Foreign currency derivatives total (3) (16) 1 10 (7) (45) 2 02

Total derivatives (14) 17 100 206 (128) (174) (118) (53)1 Carrying amount of derivatives at the reporting date.2 Rounding to zero due to the use of numeric reporting scale format of one million.3 The VaR for nickel combines the forward purchase and sales contract exposures.

Detailsofthesensitivityanalysisforforeigncurrencyriskandinterestrateriskarediscussedlaterinthisnote.




32.10 Commoditypriceriskmanagementusingbasemetalderivatives

EconomichedgingusingderivativecontractsThegroupandcompanyareexposedtobasemetalpricevolatility.BasemetalsaretradedinUSDandtheexchangerateriskisoffsetagainstUSDexportproceeds.

Basemetalsarehedgedusingover-the-countercash-settledforwardpurchasecontractsandoptions.Thederivativesaretransactedwithreputable,creditworthy,largeretail,merchantandinvestmentbanks.

TheriskmanagementobjectiveistoreducethevariabilityintheUSDcashflowsexpectedtobepaidontheforecastpurchaseofthebasemetal.ThestrategyistousetheUSDcashflowreceivedorpaidfromsettlementofaLondonMetalExchange(LME)-referencedderivativethatiseconomicallyhedgingtheforecasttransaction,tooffsetthevariabilityintheUSDcashflowsontheforecastpurchaseofthebasemetal.

Theeconomichedginglimitsare:

Period Minimumhedginglevel Maximumhedginglevel

Upto12months None 75%

Theeconomichedgedpositionforthebasemetalsis:

Group Company

2008 2007 2008 2007

At31December2008

Aluminium

–Percentofexposurehedged 25% 15% 25% 15%

–Periodhedgedto: Dec2009 Sep2008 Dec2009 Sep2008

–Averagehedgedpriceofforward purchasecontract(USD/tonne) 3135 2505 3135 2505

Zinc


–Periodhedgedto: Jun2009 Oct2008 Jun2009 Oct2008


Nickel

–Percentofnetexposurehedged 30% 13% 30% 13%

–Periodhedgedto: Dec2009 Sep2008 Dec2009 Sep2008


–Averagehedgedpriceofforwardsales contract(USD/tonne) 22688 22688

Tin


–Periodhedgedto: Mar2009 Mar2008 Mar2009 Mar2008



153


32.10 Commoditypriceriskmanagementusingbasemetalderivativescontinued

Cashflowhedgingrelationshipsaredesignedonaone-to-oneandnotaportfoliobasisduetodifferencesinthepricingtermsofthevariousmetalspurchasedbythespecificoperatingunitswithinthegroupandcompany.

Certainoftheinstrumentsarenotdesignatedascashflowhedgesif:

• thevolumesinvolvedaretoolowtomeritdesignation;• nosuitableunderlyingriskcouldbefoundtoprospectivelyformaneffectivehedgerelationship;• thecashflowhedgerelationshipceasedtobeeffectivebasedonretrospectivetesting;• voluntaryde-designationofthecashflowhedgerelationshipoccurred;or• theunderlyingforecasttransactionwasnolongerexpectedtooccur.

Theseinstrumentsareclassifiedasheld-for-tradinginstrumentsasFVTPL.

At31December2008thetonnageofbasemetalshedgedbyunmaturedderivativeinstrumentsdecreasedby63%and66%forthegroupandcompanyrespectivelyrelativetothecomparativeperiod.Despitetheeconomicallyhedgedtonnagehavingreduced,thepercentageofexposurehedgedishigherthanforthecomparativeperiodforallbasemetalsotherthanzinc.Thepositionreflectstheconfluenceofhedgedpositionstakeninearly2008,andthelate-2008impactofsubstantialreductionsintheexpectedforwardpurchaserequirementofbasemetalsinresponsetotheweakersteeldemandsituationexpectedinto2009.

Sincemid-2008managementhasdecidednottotakeanyfurtherhedgedpositionsfollowingthecommoditypricecollapseparticularlyinthesecondhalfof2008.Withfearsofadeeperandwiderglobalrecession,theexpectationoffurtherdownsidepricingpressureonbasemetalsactsasadeterrenttothetransactingoffurthereconomichedges.Marketstrendswillcontinuetobemonitoredinto2009inordertodeterminethemostopportunetimetorecommencehedgingactivities.





Averageprice Tonnes ContractvalueFairvalue

(Favourable)Fairvalue

(Unfavourable)Profitorloss

gains/(losses)Otherequity-hedgingreservegains/(losses)1

unmaturedinstrumentst:tonnes

2008uSD/t

2007USD/t

2008 2007 2008uSDm

2007USDm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

GROuP

(i) Derivative instruments in designated cash flow hedge accounting relationships

Forwardpurchasecontracts

Aluminium 3135 2505 3644 2880 11 7 (53) (1) (53) (1)

Zinc 1997 2841 2769 15370 6 44 (21) (50) (21) (50)

Nickel 25905 29900 249 72 6 2 (34) (2) (6) (28) (2)

Tin 21912 16732 189 84 4 1 (21) 02 (21) 02

(ii) Held-for-trading at FVTPL

Forwardsalescontracts

Nickel 22688 (86) (2) 9 9

Nettotal 6765 18406 25 54 9 (129) (53) 3 (123) (53)

COMPANy



Aluminium 3135 2505 2841 2250 9 6 (41) (1) (41) (1)

Zinc 1997 2841 2769 15370 6 44 (21) (50) (21) (50)

Nickel 25905 29900 249 72 6 2 (34) (2) (6) (28) (2)

Tin 21912 16732 189 84 4 1 (21) 02 (21) 02



Nickel 22688 (86) (2) 9 9

Nettotal 5962 17776 23 53 9 (117) (53) 3 (111) (53)1 Excludes matured instruments not yet settled, and realised gains and losses on matured instruments not yet released from

the hedging reserve. Refer to the “Base metal cash flow hedge accounting reserve” section below for a complete analysis of the cash flow hedging reserve.

2 Rounding to zero due to the use of numeric reporting scale format of one million.


155



Averageprice Tonnes ContractvalueFairvalue



gains/(losses)Otherequity-hedgingreservegains/(losses)1

unmaturedinstrumentst:tonnes

2008uSD/t

2007USD/t

2008 2007 2008uSDm

2007USDm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

GROuP



Aluminium 3135 2505 3644 2880 11 7 (53) (1) (53) (1)

Zinc 1997 2841 2769 15370 6 44 (21) (50) (21) (50)

Nickel 25905 29900 249 72 6 2 (34) (2) (6) (28) (2)

Tin 21912 16732 189 84 4 1 (21) 02 (21) 02



Nickel 22688 (86) (2) 9 9

Nettotal 6765 18406 25 54 9 (129) (53) 3 (123) (53)

COMPANy



Aluminium 3135 2505 2841 2250 9 6 (41) (1) (41) (1)

Zinc 1997 2841 2769 15370 6 44 (21) (50) (21) (50)

Nickel 25905 29900 249 72 6 2 (34) (2) (6) (28) (2)

Tin 21912 16732 189 84 4 1 (21) 02 (21) 02



Nickel 22688 (86) (2) 9 9

Nettotal 5962 17776 23 53 9 (117) (53) 3 (111) (53)1 Excludes matured instruments not yet settled, and realised gains and losses on matured instruments not yet released from

the hedging reserve. Refer to the “Base metal cash flow hedge accounting reserve” section below for a complete analysis of the cash flow hedging reserve.






Cumulativeineffectivenessofbasemetalcashflowhedgesmeasuredasapercentageoftherelevantcashflowhedgingreserveis:

Group Company

2008 2007 2008 2007

At31December

Basemetalshedgeineffectiveness percentage

0.28% 0.02% 0.28% 0.02%

BasemetalsensitivityforderivativecontractsThefollowingtabledetailsthegroup’sandcompany’ssensitivitytoa10%increase/(decrease)intheUSDforwardmarketpriceagainstthehedgedpositionsoftherelevantbasemetals.The10%stringencyisthesensitivityrateusedwhenreportingbasemetalriskinternallytokeymanagementpersonnel,andrepresentsmanagement’sassessmentofthepossiblechangeinbasemetalpricesthatcanbefurthereasilyextrapolatedinresponsetotherecenthighlevelsofpricevolatility.Thesensitivityanalysisincludesonlyoutstanding,unmaturedbasemetalderivativeinstruments(bothheld-for-tradingatFVTPLandthosedesignatedinhedgeaccountingrelationships),andadjuststheirmark-to-marketpriceatthereportingdatefora10%changeinbasemetalprices.

Apositive/(negative)numberindicatesanincrease/(decrease)inprofit or loss and otherequitywheretherespectivebasemetalpricechangesagainsttherelevantbasemetalforwardposition.

Group Company

ProfitorlossOtherequity–cashflowhedgingreserve Profitorloss

Otherequity–cashflowhedgingreserve

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

Purchase contracts

Aluminium+10% 5 5 4 5

Aluminium-10% (5) (5) (4) (5)

Zinc+10% 3 24 3 24

Zinc-10% (3) (24) (3) (24)

Nickel+10% 1 2 1 1 2 1

Nickel-10% (1) (2) (1) (1) (2) (1)

Tin+10% 2 1 2 1

Tin-10% (2) (1) (2) (1)

Salescontract

Nickel+10% (1) (1)

Nickel-10% 1 1

Total+10% 12 31 11 31

Total-10% (12) (31) (11) (31)

Thegroup’sandcompany’ssensitivitytobasemetalpricesatthereportingdateislessastheun-hedgedtonnageislowerthanin2007.

AsisevidentfromtheVaRmaximumlossexposureofR121million,thecarryingamountat31December2008ofbasemetalderivativesofR120millionisconvergingonthestatisticalmaximumlossexposurelevels.Whileabsolutemaximumlosslevelsarecomparabletotheprioryear,theriskismuchmorestronglyconcentratedinthepricedownsideriskgiventhatsignificantlylowertonnageswerehedgedagainstthecomparativeperiod.


157



Base metal cash flow hedge accounting reserve

Detailedanalysisofthecashflowhedgeaccountingreserveforbasemetalsisasfollows:

Group Company

Cashflowhedge

accountingreserve

Rm

Cashflowhedge

accountingreserve

Rm

Balanceat1January2007 30 30Gains/(losses)recognisedinothercomprehensiveincomeand cashflowhedgingreserveEffectivebasemetalforwardcontracts (103) (103)(Gains)/lossestransferredtoprofitorloss:(i)Effectivebasemetalforwardcontracts (2) (3)Effectivebasemetalzerocostcollaroptions (3) (3)De-designatedineffectivecashflowhedginginstruments(asdetailedinnote(i)) (3) (2)Ineffectivenessmeasurementofeffectivecontracts 01 01

Relatedincometax 27 27

Balanceat31December2007 (54) (54)Gains/(losses)recognisedinothercomprehensiveincomeand cashflowhedgingreserveEffectivebasemetalforwardcontracts (242) (228)(Gains)/lossestransferredtoprofitorloss:(ii)Effectivebasemetalforwardcontracts 138 138EffectivebasemetalzerocostcollaroptionsDe-designatedineffectivecashflowhedginginstruments(asdetailedinnote(ii)) 13 12Ineffectivenessmeasurementofeffectiveinstruments 01 01

Relatedincometax 25 21

Balanceat31December2008 (120) (111)

2007(i)Gains/(losses)transferredfromcashflowhedgingreserveinto

profitorlossduringtheperiodareincludedinthefollowingline itemsintheincomestatement

–Profitfromoperations(note9)–Rawmaterialsandconsumablesused(effectiveinstruments) 5 6–Ineffectivenessmeasurementofeffectiveinstruments 01 01

–Gainsandlossesonchangesinfinancialinstrumentsdesignatedas held-for-tradingatfairvaluethroughprofitorloss(note10),as De-designatedineffectivecashflowhedginginstruments 3 2

Total 8 8

2008(ii)Gains/(losses)transferredfromcashflowhedgingreserveinto

profitorlossduringtheperiodareincludedinthefollowingline itemsintheincomestatement:

–Profitfromoperations(note9),asrawmaterialsandconsumablesused •Effectiveinstruments (138) (138) •Ineffectiveinstruments (3) (2)–Ineffectivenessmeasurementofeffectiveinstruments 01 01

–Gainsandlossesonchangesinfinancialinstrumentsdesignatedas held-for-tradingatfairvaluethroughprofitandloss(note10),as

De-designatedineffectivecashflowhedginginstruments (10) (10)Total (151) (150)1 Rounding to zero due to the use of numeric reporting scale format of one million.




32.11 Foreigncurrencyriskmanagement

ThecarryingamountinZAR,astranslatedattheclosingexchangerate,oftheforeigncurrencydenominatedmonetaryassetsandmonetaryliabilitiesatthereportingdateis:

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

Monetaryassets

(i)uSD


•Held-for-trading 9 02 9 02

Loansandreceivables

•Cashandcashequivalents 2946 2439 2670 2134

•Tradeandotherreceivables

–Relatedparties 254 158 160 84

–Unrelatedparties 4 23 4 23

(ii)MZN

Loansandreceivables

•Cashandcashequivalents 21

(iii)ZwD

Available-for-salefinancialassets1 71

(iv)EuR


•Held-for-trading 2

Loansandreceivables

•Tradeandotherreceivables

–Relatedparties 2 2

–Unrelatedparties 1 11 The available-for-sale equity investment in HCCL, which is carried at Rnil (December 2007: R71 million) is not regarded

as a pure foreign denominated financial asset despite its Zimbabwe Stock Exchange listing. The existence of the – albeit at reporting date suspended - fungible share arrangement, as described in note 4.2 and note 22, makes for the objective delineation between exchange rate and other changes in fair value particularly difficult. In order to preserve the purity of the foreign currency exposure sensitivity analysis, which due to the nil carrying amounts is of relevance only to the comparative period, the HCCL investment is excluded from the analysis in the sections which follow.



159


32.11 Foreigncurrencyriskmanagementcontinued

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

Monetaryliabilities

(i)uSD

Derivativeinstrumentsindesignated hedgeaccountingrelationships

•Unmatured 129 53 117 53

• Maturedyetunsettled 28 14 26 14

Carriedatamortisedcost

•Tradeandotherpayables


– Unrelatedparties 22 67 22 67

(ii)EuR


•Held-for-trading 01 01





(iii)JPy




(iv)GBP



–Relatedparties 01 01


(v)SEK


• Tradeandotherpayables

–Unrelatedparties 01 01 01

(vi)AuD



–Unrelatedparties 01 01






Foreign currency sensitivity

Thefollowingtabledetailsthegroup’sandcompany’ssensitivitytoa10%weakeningintheZARagainsttherespectiveforeigncurrencies.Astherisksarelinearinnature,strengtheningoftheZARwouldresultinanequalbutoppositeamounttothatdetailedinthesensitivitybelow.

The10%stringencyisthesensitivityrateusedwhenreportingforeigncurrencyriskinternallytokeymanagementpersonnelandrepresentsmanagement’sassessmentofthepossiblechangeinforeignexchangeratesthatcanbefurthereasilyextrapolatedinresponsetothehighlevelsofratevolatilityexperiencedbytheZAR.Thesensitivityanalysisincludesonlyoutstandingforeigncurrencydenominatedmonetaryitemsasdetailedinthetableaboveandadjuststheirtranslationatthereportingdatefora10%changeinforeigncurrencyrates.

Apositivenumberindicatesanincreaseinprofit or loss and other equitywheretheZARweakensagainsttherelevantcurrency.

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

uSD

Profitorloss 242 255 196 217

Othercomprehensiveincome (hedgingreserve) (16) (7) (16) (7)

EuR

Profitorloss (6) (6) (5) (5)

MZN

Profitorloss 2

Total1

Profitorloss 238 249 191 212

Othercomprehensiveincome (hedgingreserve) (16) (7) (16) (7)

1JPY, GBP, SEK and AUD are not material and not reported due to the use of numeric reporting scale format of one million.

ProfitandlossexposureismainlyattributabletotheexposureonUSDcashbalancesatyear-end.Theequityexposureismainlyasaresultofthechangesinthefairvalueofderivativeinstrumentsdesignatedascashflowhedges.

Thegroup’sandcompany’ssensitivitytoforeigncurrencyismarginallylowercomparedto2007duetoslightlylowerUSD-denominatedcashholdingat31December2008.AlowerexporttodomesticsalesratesresultedinlowerUSDcashreserves.


161



Economic hedging using derivative contracts

ThegroupandcompanyutilisetheZARasfunctionalcurrency.ExportsteelsalesareUSD-denominatedasarecertainUSD-denominatedinputmaterialandcapitalequipmentpurchases.

ForeigncurrencymanagementmusttakecognisanceoftheSouthAfricanReserveBank(SARB)exchangecontrolregulationsthatprohibitslocalcompaniesfromaccumulatingforeignexchangeproceedsbeyond180daysfromreceipt.

Withintheserestrictions,thegroupandcompanyaccumulatethemaximumallowedUSD-denominatedforeigncurrencyproceeds.TheseproceedsareusedtonaturallyhedgeUSD-denominatedpurchases.Suchfundsalsoserveasahedgeoflong-termZARdepreciation.

Itisthepolicytoenterintoforwardforeignexchangecontractsandoptionstomitigatespecificforeigncurrencytransactionalexposures,namely,significant:•exposuresexceedingthe180-dayexchangecontrolregulationperiod;and• non-USDexposures,againsttheZAR.

Exchangerateexposuresaremanagedwithinapprovedpolicyparametersutilisingforwardforeignexchangecontractsandoptions.Derivativesaretransactedwithreputable,creditworthy,largeretail,merchantorinvestmentbanks.

Economicforeigncurrencyhedgingisundertakentomanagethetransactionalexchangerateexposureof:• theexportoffinishedsteelfromSouthAfricatovariousexportmarkets;and• ad hocpurchaseofrawmaterialandcapitalequipmentthatcannotbenaturallyhedgedusingoff-shore

foreigncurrencyproceeds.

Onlytheformertransactiontypeisdesignatedwithincashflowhedgingrelationships,thelatterisclassifiedasheld-for-tradingasFVTPL.Thedifferenceinaccountingtreatmentreflectsthegreaternumberofderivativestransactedtoaddresstheexchangeraterisksonsteelexportation.Thecashflowhedgingrelationshipsaredesignatedonaportfoliobasiswherethetermsofthevariouscontractsareidenticalforthespecificoperatingunitswithinthegroupandcompany.

Itisthepolicytohedgeexportsaleexposuresuptoamaximumof70%oftherollingsix-monthexposure,wheretheeconomicexposureisdefinedasthatbeyondtheSARB180-dayrule.Thehedgecoveragelimitsare:• 80%ofthe1-2monthexposure;• 70%ofthe3-4monthexposure;and• 60%ofthe4-6monthexposure.

Exposurefrom6-12monthscanbefullyhedgedifapprovedbytheExecutiveCommittee.Exposuresfrom12-24monthsduetoseverecurrencyunder-valuation;andexposuresbeyond24monthsduetoextrememarketconditions,requireboardapprovalandthenecessarySARBconsent.

Thereexistsnominimumhedginglevelforforeigncurrencyexposures.

Foreigncurrencyexposuresrelatingtorawmaterialandcapitalprocurementthatcannotbenaturallyhedgedareselectivelyhedgedonacase-by-casebasis.





Theforeigndenominatedcontractvalueofunmaturedforeignexchangederivativesat31December2008decreasedsignificantlyby95%and97%forthegroupandcompanyrespectively,relativetothecomparativeperiod,primarilyduetothesystematicweaknessoftheZARthroughout2008,andparticularlyinthelastquarteroftheyear,andtheconsequentialbeneficialimpactonexportrevenuesandforeignreceivables,includingcashandcashequivalents.

Thefollowingtabledetailstheoutstandingunmaturedforwardforeigncurrencycontractsatthereportingdate:

unmaturedinstruments

Averageprice ContractvalueFairvalue



Gains/(losses)Otherequity-hedgingreserve

gains/(losses)1

FC:foreigncurrency2008FC/R

2007FC/R

2008FCm

2007FCm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

GroupForwardcontracts(i)Held-for-tradingatFVTPLCapitalprocurement

BuyuSD0-3months 6.90 7 02 02

SelluSD0-3months 6.92 3 02 02

BuyEuR0-3months 13.55 9.95 02 6 02 02 02

7-11months 11.42 10.40 1 3 2 02 02

12-24months 11.42 1 02 02

SellEuR0-3months 10.10 1 02 02

7-11months 10.29 02 02 02

Total 1 21 2 02 02 02 02

CompanyForwardcontracts(i)Held-for-tradingatFVTPLCapitalprocurementBuyuSD0-3months 6.90 7 02 02


BuyEuR0-3months 13.55 9.95 02 6 02 02 02

7-11months 10.13 1 02 02

12-24monthsSellEuR0-3months 10.10 1 02 02

7-11months 10.29 02 02 02

Total 02 18 02 02 02 02

1 Excludes matured instruments not yet settled, and realised gains and losses on matured instruments not yet released from the hedging reserve. Refer to the “Foreign currency cash flow hedge accounting reserve” section below for a complete analysis of the cash flow hedging reserve.



163



Theforeigndenominatedcontractvalueofunmaturedforeignexchangederivativesat31December2008decreasedsignificantlyby95%and97%forthegroupandcompanyrespectively,relativetothecomparativeperiod,primarilyduetothesystematicweaknessoftheZARthroughout2008,andparticularlyinthelastquarteroftheyear,andtheconsequentialbeneficialimpactonexportrevenuesandforeignreceivables,includingcashandcashequivalents.

Thefollowingtabledetailstheoutstandingunmaturedforwardforeigncurrencycontractsatthereportingdate:

unmaturedinstruments

Averageprice ContractvalueFairvalue



Gains/(losses)Otherequity-hedgingreserve

gains/(losses)1

FC:foreigncurrency2008FC/R

2007FC/R

2008FCm

2007FCm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

2008Rm

2007Rm

GroupForwardcontracts(i)Held-for-tradingatFVTPLCapitalprocurement

BuyuSD0-3months 6.90 7 02 02


BuyEuR0-3months 13.55 9.95 02 6 02 02 02

7-11months 11.42 10.40 1 3 2 02 02

12-24months 11.42 1 02 02

SellEuR0-3months 10.10 1 02 02

7-11months 10.29 02 02 02

Total 1 21 2 02 02 02 02

CompanyForwardcontracts(i)Held-for-tradingatFVTPLCapitalprocurementBuyuSD0-3months 6.90 7 02 02


BuyEuR0-3months 13.55 9.95 02 6 02 02 02

7-11months 10.13 1 02 02

12-24monthsSellEuR0-3months 10.10 1 02 02

7-11months 10.29 02 02 02

Total 02 18 02 02 02 02

1 Excludes matured instruments not yet settled, and realised gains and losses on matured instruments not yet released from the hedging reserve. Refer to the “Foreign currency cash flow hedge accounting reserve” section below for a complete analysis of the cash flow hedging reserve.






Foreign currency sensitivity for derivative contracts

Thefollowingtabledetailsthegroup’sandcompany’ssensitivitytoa10%weakeningintheZARexchangerateagainsttherelevantforeigncurrencies.The10%stringencyisthesensitivityrateusedwhenreportingforeigncurrencyriskinternallytokeymanagementpersonnel,andrepresentsmanagement’sassessmentofthepossiblechangeinforeignexchangeratesthatcanbefurthereasilyextrapolatedinresponsetothehighlevelsofratevolatilityexperiencedbytheZAR.Thesensitivityanalysisincludesonlyoutstanding,unmaturedforeigncurrencydenominatedmonetaryitemsandadjuststheirtranslationatthereportingdatefora10%changeinforeigncurrencyrates.

Apositivenumberindicatesanincreaseinprofit or loss and other equitywheretheZARweakensagainsttherelevantcurrency.DuetothelinearityoftherelationshipsastrengtheningintheZARratewouldresultinanequalbutoppositeamountchargedtoprofit or loss and other equity.

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

uSD

Profitorloss

–Buy 4 4

–Sell (2) (2)

Othercomprehensiveincome (hedgingreserve)

EuR

Profitorloss

–Buy 2 10 1 8

–Sell (1) (1)


Total

Profitorloss

–Buy 2 14 1 12

–Sell (3) (3)



165



Foreign currency cash flow hedge accounting reserve

Detailedanalysisofthecashflowhedgeaccountingreserveforforeigncurrencyderivativesis:

Group Company

Cashflowhedge

accountingreserve

Rm

Cashflowhedge

accountingreserve

Rm

Balanceat1January2007

Gains/(losses)recognisedinothercomprehensiveincomeand cashflowhedgingreserve

Effectiveforeigncurrencyforwardexchangecontracts 3 1

(Gains)/lossestransferredtoprofitorloss(i)

Effectiveforeigncurrencyforwardexchangecontracts (3) (1)

Ineffectivenessmeasurementofeffectiveinstruments 01 01

Relatedincometax

Balanceat31December2007 01 01

2007

(i)Gains/(losses)transferredfromcashflowhedgingreserveintoprofit orlossduringtheperiodareincludedinthefollowinglineitemsin thestatementoffinancialperformance:

–Revenue(note7)

•Effectiveinstruments 3 1

•Ineffectivenessmeasurementofeffectiveinstruments 01 01

Total 3 11Rounding to zero due to the use of numeric reporting scale format of one million.




32.12 Commodityriskmanagedbyembeddedderivatives

Thegroupandcompanyenterintocontractualarrangementstomanagepricerisksexposuresfromthosecommoditiesandmaterialsthatcannotbehedgedusingstand-alonederivativeinstruments.

Embeddedderivativeinstruments

Numberofinstruments

Activehedging

indicesExpirydate(s)

FairvalueRm

Recognisedfairvalue

gains/(loss)Rm

Groupandcompany


Energy–pricingcap

1

SAPPI,SteelIndustryIndex,USPPI,

HeavyFuelOilIndex Ref.Note(i)1 366 148

Total 366 148


Energy–pricingcap

1

SAPPI,SteelIndustryIndex,USPPI,

HeavyFuelOilIndex Ref.Note(i)1 218 19

Rawmaterial–pricingforward 1 SAPPI Ref.Note(ii) (29)

Refractoryservices –pricingforward 1

Exchangerate2 Ref.Note(iii) (23)

Total 218 (33)1No expiry date defined in the contract.2USD: ZAR.

(i) Energy – pricing cap Thecappedpricingcomponentoftheembeddedderivativewasmodelledonanintrinsic-valuebasis.The

valueofthederivativeisthedifferencebetweentheexpectedmarket-basedcashflowsandexpectedcontract-basedcashflows.

Asmarketpricesareafactorofindustrysegmentandpurchasedgasvolume,managementhasuseditsbestestimatetodeterminemarket-basedpricesapplicabletocustomersinthesameindustryasthecompany,withsimilarpurchasedgasvolumes.


167


32.12 Commodityriskmanagedbyembeddedderivativescontinued

(ii) Raw material - pricing forward Theforwardcontractwithintheembeddedderivativewassolvedforafairvalueofzeroatinception.

Management’sestimatedincreasesinSAPPIatinceptionwereappliedtotheestimatedvolumesforthedurationofthecontractatinception.Thechangeinthefairvalueoftheforwardcontractwasdeterminedbyapplyingmanagement’srevisedincreaseestimationsatsubsequentvaluationdatestothevolumeestimations,andcalculatingthedifferencebetweentheinitialestimatedcashflowsandtherevisedestimates.

Attheendof2007,theoriginalcontract’sterms,basedonanescalationrateof85%ofSAPPI,wereabandoned.IFRIC9,Reassessment of Embedded Derivatives,requiresanentitytorevisititsbifurcationassessmentifthereisachangeinthetermsofthecontractthatsignificantlymodifiedthecashflowsthatwouldotherwiseberequiredunderthe(original)contract.

Thepricingtermsofthecontracthavechangedsignificantlyand,consequently,theassociatedcashflows. Thecashflowsarenowmarket-relatedand,therefore,thecarryingvalueofthebifurcatedindexing

featurewasunwoundtothestatementoffinancialperformance.

(iii) Refractory services – pricing forward Theforwardcontractpricewithintheembeddedderivativewassolvedforafairvalueofzeroatinception.

Foreigncurrencyforwardratesatinceptionwereestimatedfromobservableinterestratedifferentials.These,togetherwithmanagement’sexpectationofincreasesintherelevantpricecomponents(denominatedinforeigncurrency)wereappliedtomanagement’sestimatedvolumesforthedurationofthecontractatinception.Thechangeinthefairvalueoftheforwardcontractwasdeterminedbyapplyingtherevisedestimatedforeigncurrencyforwardrates(calculatedfromobservableinterestratedifferentials),aswellasmanagement’srevisedcomponentincreaseexpectationsatsubsequentvaluationdatestothevolumeestimations,andcalculatingthedifferencebetweentheinitialestimatedcashflowsandtherevisedestimates.

Aspartofthecontinualaccountingimprovementsprogramme,itwasclarifiedduring2007thattheUSD,EURandZARaregenerallyregardedascurrenciesthatarecommonlyusedincontractstopurchaseorsellnon-financialitemsinSouthAfrica.Consequently,asthecontactisdenominatedinUSDitwasdeemedappropriatetounwindthecarryingvalueofthebifurcatedforeigncurrencyfeaturetothestatementoffinancialperformance.

EmbeddedderivativesensitivityThegroup’sandcompany’ssensitivitytoanincreaseanddecreaseinthevaluationofembeddedderivativeshasbeenmodelledbyvaryingthosevariablesthathavethegreatestimpactonthefairvaluecarryingamountofthebifurcatedinstruments.

Thesensitivitiesusedarethoseappliedwhenreportingvaluationriskinternallytokeymanagementpersonnelandrepresentsmanagement’sassessmentofthepossiblechangeinthevaluationvariables.Apositivenumberindicatesanincreaseinprofit or lossrelativetothevalueatyear-end.




32.12 Commodityriskmanagedbyembeddedderivativescontinued

Ifvariableshadbeen10%higher/(lower)andallothervariableswereheldconstant,theprofitfortheyearendedwouldincrease/(decrease)asdetailedinthetablebelow.

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

Energy

Marketpriceforgas

+10% 88 54 88 54

-10% (88) (54) (88) (54)

Cappedoilpriceinflation

+10% (4) (3) (4) (3)

-10% 4 3 4 3

Steelindustryindex

+10% (1) (1) (1) (1)

-10% 1 1 1 1

Gaspriceinflation

+10% 4 9 4 9

-10% (4) (9) (4) (9)

Volumeoff-take(GJ)change

+10% 36 22 36 22

-10% (36) (22) (36) (22)

Bulk-userpricediscounttoordinary industrialgasprice

+10% (72) (47) (72) (47)

-10% 72 47 72 47


169


32.13 Freightraterisks

Therisksassociatedwithfreightratesemanatefromthesteeltradingjointlycontrolledentity,MacsteelInternationalHoldingsBV(MIHBV).Thisriskismitigatedviatheuseofforwardfreightagreements;theimpactiscontainedintheincomestatementlineitem“incomeaftertaxfromequityaccountedinvestments”.

32.14 Interestrateriskmanagement

Sources of interest rate risk are:• interestexpenses,ascompaniesinthegroupenterarrangementstofundtheconstructionofassetseither

intheformofbona fida borrowingarrangementsorthroughsupplyarrangementscontainingfinancialleasestructuresatfixedinterestrates;and

• interestincome,duetothegroup’sandcompany’snetcashpositionandtheinvestmentthereofatvariableinterestrates.

Interest expensesThegrouphasoneunsecuredloanfromPretoriaPortlandCementthatbearsinterestatafixedrateof16%perannumasdescribedinnote26.Noearlysettlementprovisionexistsforthisloan.Theremainingborrowingsarefinanceleaseobligationssecuredbytheleasedassetsatfixedratesofinterest,asdescribedinnote27.

Althoughthefinanceleaseobligationsaresignificant,theinherentinterestrateriskisnotseparatelyhedgedasthetotalcostofsupply(whichincludestheembeddedleasecharge)ismanagedaspartofthecontinuouscostsavinginitiativeaimedatreducingthetotalcostofownership.

Theratesapplicabletotheaboveborrowingsandfinanceleaseobligationsarefixed,andassuchdonothaveanimpactonprofitorloss.

Interest incomeGiventhenetcashposition,theboundariesofriskexposurecanbehighlightedasfollows:• floatingratesresultinginfullexposuretohigherratesbutparticipationinlowerrates;against• fixedratesresultinginnoexposuretolowerrates,butnoadvantagefromhigherrates.

Theinterestpolicyfollowedrelatingtothenetcashpositionaimstobalancethetwoextremesoffixedandfloatingratesandtheexpectationoffutureratemovements.

Theratesapplicabletothenetcashpositionarefloatinginnature,andhencehaveanimpactonprofitorloss.

Interest rate sensitivityThesensitivityanalysisaddressesonlythefloatinginterestrateexposureemanatingfromthenetcashposition.Thecashanddepositholdingsarebasedonaveragebalancelevelsforthereportingperiods.Theinterestrateexposurehasbeencalculatedwiththestipulatedchangetakingplaceatthebeginningofthefinancialyearandheldconstantthroughoutthereportingperiod.

A10%increaseordecreaseisusedwhenreportinginterestrateriskinternallytokeymanagementpersonnel,andrepresentsmanagement’sassessmentofthepossiblechangeininterestratesthatcanbefurthereasilyextrapolatedinresponsetothelikelyhighratevolatilityintheyearahead.




32.14 Interestrateriskmanagementcontinued

Ifinterestrateshadincreased/(decreased)by10%andallothervariableswereheldconstant,theprofitfortheyearendedonmajorcashandcashequivalentholdingswouldincrease/(decrease)asdetailedinthetablebelowduetotheuseofthevariableinterestratesapplicabletothecashanddepositholdingbalances.Thefixedinterestrateontheborrowingswouldnotaffectthefinancialperformance.Anygainorlosswouldbeunrealandconsequentlythenotionalimpactisnotpresented.

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

ZARcashanddepositholdings

+10% 39 28 39 28

-10% (39) (28) (39) (28)

uSDcashanddepositholdings

+10% 6 14 5 13

-10% (6) (14) (5) (13)

Total

+10% 45 42 44 41

-10% (45) (42) (44) (41)

Basedontheanalysisabove,thegroup’sandcompany’ssensitivitytointerestrateshasmarginallyincreasedduetohigheraverageZARcashholdingsandinterestratescomparedwiththecomparativereportingperiod.

32.15 Otherpricerisks

Thegroupisexposedtoequitypricerisksarisingfromanavailable-for-saleequityinvestment.Theequityinvestmentisheldforstrategicratherthantradingpurposes.Thegroupdoesnotactivelytradethisinvestment.

Equity price sensitivityThesensitivityanalysishasbeendeterminedbasedontheexposuretoequitypricerisksatthereportingdate.AlthoughHCCLisalistedcompany,itsvaluationisdependentontheavailabilityofaconduitfungiblesharearrangement,whichwassuspendedinlate-2008.Thecriticaljudgementsrelatingtothisinvestmentisdescribedinnote4.2,andtheaccountingimpactexplainedinnote32.3.At31December2008,thecarryingamountoftheinvestmentwasRnil(December2007:R71million),withaR9millionlossdeferredtotheAFSinvestmentreserve(December2007:R62milliondeferredgain).

WithaRnilcarryingamountat31December2008,asensitivityanalysishasnotbeenperformed.However,thevalueoftheinvestmentonthelastdaythattheZSEtraded,14November2008,wasR76million,whichcloselyapproximatesthecarryingamountat31December2007.Therefore,oncetradingresumesandliquidityimpedimentsareremoved,shouldmarketvaluesreverttopre-suspensionlevels,the2007sensitivityanalysismaybeappliedasasurrogateindicatorofvaluationsensitivity.


171


32.15 Otherpriceriskscontinued

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

Available-for-saleinvestmentreserve

Marketvalueofforeignlistedequity shares

+10% 7

-10% (7)

Marketvalueofforeignlistedfungible conduitshare

+10% (7)

-10% 7

MarketvalueofSouthAfricanlisted fungibleconduitshare

+10% 7

-10% (7)

Subsequentremovalofanypartoftheliquiditydiscountappliedtothe31December2008valuationwouldnotaffectprofitorlossastheresultinggainswouldberecognisedinothercomprehensiveincome,withintheAFSinvestmentreserve.

32.16 Liquidityriskmanagement

Ultimateresponsibilityforliquidityriskmanagementrestswiththeboardofdirectors,whichhasbuiltanappropriateliquidityriskmanagementframeworkforthemanagementofthegroup’sandcompany’sshort,mediumandlong-termfundingandliquiditymanagementrequirements.

Theobjectivesoftheliquiditymanagementpolicyareasfollows:•maintenanceofadequatereserves,bankingfacilitiesandreserveborrowingfacilitiesbycontinually

monitoringforecastandactualcashflowsandmatchingthematurityprofilesoffinancialassetsandliabilities.Includedinnote32.6isalistingofadditionalundrawnfacilitiestofurtherreduceliquidityrisk;

•optimisetheaccountanddomesticcashpoolstructures;•minimisebankcharges(paymentsandcollectionfees,spreadsetc);•optimisetheavailabilityanduseofshort-termliquiditypositionsacrossthegroupwithoutcompromisingthe

day-to-daycashneeds;•optimisethenetinterestresult;and•minimisethenumberofbankaccounts,toreduceriskofmisuseandcosts.




32.16 Liquidityriskmanagementcontinued

Liquidityandinterestrisktables

(i) Contractual maturity for its non-derivative financial liabilities Thefollowingtablesdetailthegroup’sandcompany’sremainingcontractualmaturityfornon-derivative

financialliabilities.

Thetableshavebeendrawnupbasedontheundiscountedcashflowsoffinancialliabilitiesbasedontheearliestdateonwhichthegroupandcompanycanberequiredtopay.Thetableincludesbothinterestandprincipalcashflows.

The“discount”columnrepresentsthepossiblefuturecashflowsattributabletotheinstrumentincludedinthematurityanalysis,whicharenotincludedinthecarryingamountofthefinancialliabilityonthefaceofthestatementoffinancialposition.

Annualeffective

interestrate1

0–6months

Rm

7–12months

Rm

1–5years

Rm>5years

RmDiscount

Rm

Carryingamount

Rm

GROuPFortheyearended 31December2008Non-interestbearing• Tradeandotherpayables 0.0% 3384 3384Financeleaseliability 13.8% 41 42 293 258 (280) 354Borrowingsandotherpayables 16.5%2 46 63 (30)2 79

Total 3425 88 356 258 (310) 3817

Fortheyearended 31December2007Non-interestbearing• Tradeandotherpayables 0.0% 2873 2873Financeleaseliability 13.9% 62 63 301 317 (327) 416Borrowingsandotherpayables 15.9%2 20 68 12 (38)2 62

Total 2935 83 369 329 (365) 3351

COMPANyFortheyearended 31December2008Non-interestbearing• Tradeandotherpayables 0.0% 2893 2893Financeleaseliability 9.7% 24 25 176 56 (82) 199Borrowingsandotherpayables 28.6%2 29 9 (10)2 28

Total 2917 54 185 56 (92) 3120

Fortheyearended 31December2007Non-interestbearing• Tradeandotherpayables 0.0% 2386 2386Financeleaseliability 7.5% 45 46 178 86 (102) 253Borrowingsandotherpayables 411.7%2 5 (4)2 1

Total 2431 46 183 86 (106) 26401 Calculated over the remaining tenure of the non-derivative financial liability.2 Share participation rights, being the difference between total fair value and the cash-settled liability recognised at the

reporting date. Effective interest rate is a function of the share price performance of ArcelorMittal South Africa.


173



(ii) Expected maturity for its non-derivative financial assets Thefollowingtabledetailsthegroup’sandcompany’sexpectedmaturityfornon-derivativefinancialassets.

Thetablesbelowhavebeendrawnupbasedontheundiscountedcontractualmaturitiesofthefinancialassetsincludinginterestthatwillbeearnedonthoseassets.

The“discount”columnrepresentsthepossiblefuturecashflowsattributabletotheinstrumentincludedinthematurityanalysis,whicharenotincludedinthecarryingamountofthefinancialassetonthefaceofthestatementoffinancialposition.

Annualeffective

interestrate1

0–6months

Rm

7–12months

Rm

1–5years

Rm>5years

RmDiscount

Rm

Carryingamount

Rm

GROuPFortheyearended 31December2008Fixedinterestratereceivables• Tradeandotherreceivables2 0.3% 2037 (6) 2031Fixedandvariableinterest ratecashholdings• Cashandcashequivalents3 3.48% 8575 147 (293) 8429

Total 10612 147 (299) 10460

Fortheyearended 31December2007Non-interestbearing• Available-for-sale

financialassets0.0% 71 71

Fixedinterestratereceivables• Tradeandotherreceivables2 0.0% 2293 (1) 2292Fixedandvariableinterest ratecashholdings• Cashandcashequivalents3 7.1% 4177 142 (285) 4034

Total 6470 142 71 (286) 6397

COMPANyFortheyearended 31December2008Fixedinterestratereceivables• Tradeandotherreceivables2 0.3% 1771 (6) 1765Fixedandvariableinterest ratecashholdings• Cashandcashequivalents3 3.18% 8250 129 (258) 8121

Total 10021 129 (264) 9886

Fortheyearended 31December2007Fixedinterestratereceivables• Tradeandotherreceivables2 0.1% 2008 (1) 2007Fixedandvariableinterest ratecashholdings• Cashandcashequivalents3 7.2% 3791 131 (262) 3660

Total 5799 131 (263) 56671 Calculated over the remaining tenure of the non-derivative financial assets.2 Fixed rate interest applicable on overdue accounts.3 Fixed and variable rates applicable to call and short-term deposit holdings. Maturity profile reflects the synthesised

availability of the cash and cash equivalents on hand at the end of the reporting period, and the expected annual investment income to be earned thereon.





(iii) Derivative financial instruments Thefollowingtabledetailstheliquidityanalysisforderivativefinancialinstruments.

Thetablehasbeendrawnupbasedontheundiscountednetcashinflows/(outflows)onthederivativeinstrumentsthatsettleonanetcash-settledbasis.Noderivativefinancialinstrumentsaresettledonagrossbasis.Whentheamountpayableorreceivableisnotfixed,theamountdisclosedhasbeendeterminedbyreferencetotheprojectedinterestrateandforeigncurrencyforwardcurvesexistingatthereportingdate.

The“discount”columnrepresentsthepossiblefuturecashflowsattributabletotheinstrumentincludedinthematurityanalysiswhicharenotincludedinthecarryingamountofthefinancialassetsandliabilitiesonthereportingdate.

Financialassets/(liabilities)

0–6months

Rm

7–12months

Rm

1–5years

Rm>5years

RmDiscount

Rm

Carryingamount

Rm

GROuP


Netcash-settledderivatives(unmatured)

Basemetalforwards1 (88) (32) 02 (120)

Foreigncurrencyforwards 02 2 02 2

Embeddedderivatives 86 86 240 (46) 366

Total (2) 56 240 (46) 248


Netcashsettledderivatives(unmatured)

Basemetalforwards (35) (18) 02 (53)

Foreigncurrencyforwards 02 02 02 02 01,2


Total 14 33 161 (43) 165

COMPANy


Netcashsettledderivatives(unmatured)

Basemetalforwards1 (81) (27) 02 (108)

Foreigncurrencyforwards 02 02 02


Total 5 59 240 (46) 258


Netcash-settledderivatives(unmatured)

Basemetalforwards (35) (18) 02 (53)

Foreigncurrencyforwards 02 02 02 01,2


Total 14 33 161 (43) 1651 Cumulative amount for purchase and sales contracts.2 Rounding to zero due to the use of numeric reporting scale format of one million.


175


32.17 Customercreditriskmanagement

Customercreditriskisassessedonagroup-widebasisandreferstotheriskthatacustomerwilldefaultonitscontractualobligationsresultinginfinanciallosstothegroup.

Thegrouphasadoptedapolicyofonlydealingwithcreditworthycustomersandobtainingsufficientcollateral,whereappropriate,andcomprehensivecreditinsurance,asameansofmitigatingtheriskoffinanciallossfromdefaults.

Customersareindependentlyrated.Independentratingagency,ExperianSouthAfrica(Proprietary)LimitedtradingasKreditinformisusedfordomesticcustomers.Ifthereisnoindependentrating,CreditManagementassessesthecreditqualityofthespecificcustomer,takingintoaccountitsfinancialposition,pastexperienceandotherfactors.Individualrisklimitsaresetbasedoninternalorexternalratingsinaccordancewithlimitssetbytheboardofdirectors.Creditlimitsareregularlymonitored.

CreditinsuranceisplacedwiththeCofaceGroupwithamaximumliabilityofR1800millionwitha10%excess.CreditinsuranceclaimsamountedtoRnilmillion(2007:Rnilmillion).

Thegroupisexposedtothreemaincustomers,whichaccountforapproximatelyathirdofitstradeandotherreceivablesbalance.Thesetopthreecustomersoperateinthedomesticmarket.Thetablebelowdetailsthecumulativecreditlimitandbalance(bothinclusiveofvalueaddedtax)ofthetopthreecustomersatthestatementoffinancialpositiondateforthegroupandcompany:

Customer Rating

Creditlimit

2008Rm

Balance2008

Rm

Creditlimit

2007Rm

Balance2007

Rm

Topthreecustomersbysalesvalue 2:A 2575 564 1766 672

1:B

%ofnettradereceivables

–Group 32% 33%

–Company 35% 37%

Creditriskexposureonanindustryandgeographicalbasisforthegroupandcompanyisasfollows:

Group Company

2008%

2008%

ByindustryManufacturing 26 24Merchants 43 42Structuralmetal 16 18Foodandbeverage 8 9Other 7 7

100 100

BygeographicalareaSouthAfrica 87 91Asia 5 4Other 8 5

100 100

Exceptasdetailedinnote35,thecarryingamountoffinancialassetsrecordedinthefinancialstatements,grossedupforanyallowancesforlosses,representsthegroup’smaximumexposuretocreditriskwithouttakingaccountofthevalueofanycollateralobtained.

Forthegroupandcompanyrespectively,thetotalfacevalueoffinancialguaranteesandsimilarcollateralheldisR1449million(December2007:R1394million).Ofthisamount,R67million(December2007:R58million)representsbankguarantees.




32.18 Capitalriskmanagement

Thegroup’sandcompany’sobjectiveswhenmanagingcapitalare:•tosafeguardtheabilitytocontinueasagoingconcern,soastobeabletocontinuetoprovidereturnsfor

shareholdersandbenefitsforotherstakeholders;and•toprovideanadequatereturntoshareholdersbypricingproductsandservicescommensuratelywiththe

levelofrisk.

Theamountofcapitalissetinproportiontorisk.Thecapitalstructureismanagedandadjustedinlightofchangesineconomicconditionswithinthedomesticandglobalsteelindustryandtheriskcharacteristicsoftheunderlyingassets.

Thegroup’sandcompany’soverallstrategyremainedunchangedfor2008.

Consistentwithothersintheindustry,thegroupandcompanymonitorcapitalonadebt-to-totalshareholders’equitybasis.

Netdebtistotalinterest-bearingborrowingsincludingfinanceleaseobligationslesscashandcashequivalents.Totalshareholders’equityisasreportedonthefaceofthestatementoffinancialposition.

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

Cashandcashequivalents 8429 4034 8121 3660

Less:totalinterestbearingborrowings andfinanceleaseobligations

(405) (478) (199) (253)

Netcashandcashequivalents 8024 3556 7922 3407

Totalshareholders’equity 27995 20583 25978 19909

Gearingratio 0% 0% 0% 0%


177

33. RELATED-PARTyTRANSACTIONS

Duringtheyearthecompanyanditssubsidiaries,intheordinarycourseofbusiness,enteredintovarioussalesandpurchasetransactionswithitsjointlycontrolledentities,itsassociatesandotherentitieswithinthegreaterArcelorMittalGroup.Thesetransactionsoccurredundertermsthatarenolessfavourabletothecompanythanthosearrangedwiththirdparties.

CompanieswithinthegreaterArcelorMittalGroupThroughutilisingthegroup’scentralisedpurchasingpowerduring2008,thecompanypurchasedproductsandservicestothevalueofR5038million(December2007:R222million)fromothercompaniesinthegroup.

Theoutstandingbalancesatyear-endare:•includedintradeandotherreceivables(note24)R15million(December2007:R8million);and•includedintradeandotherpayables(note30)R1026million(December2007:R24million).

JointlycontrolledentitiesandassociatesDetailsofinvestmentsinjointlycontrolledentitiesandtheassociatearedisclosedinAnnexure1whileincome,aftereliminatingunrealisedprofits,isdisclosedinnote20.InterestincomefromjointlycontrolledentitiesofR3million(December2007:R4million)isincludedinincomefrominvestments(note13).

ThegrouppurchasedgoodsandservicestothevalueofR44million(December2007:R57million)from,andsoldgoodstothevalueofR5604million(December2007:R5877million)tojointlycontrolledentitiesanditsassociate.

Theoutstandingbalancesatyear-endare:•includedintradeandotherreceivables(note24)R264million(December2007:R190million);•includedintradeandotherpayables(note30)Rnil(December2007:Rnil);and•includedinthecarryingvalueofjointlycontrolledentities(note20)arelong-termloansofR9million(December

2007:R10million).

SubsidiariesDetailsofincomefrominvestmentsandindebtednessinsubsidiariesaredisclosedinnotes13and21respectively,andAnnexure2.

DirectorsExecutivedirectorsaredefinedaskeyseniormanagement.Detailsrelatingtodirectors’remunerationandshareholdings(includingshareoptions)inthecompanyaredisclosedinthedirectors’remunerationreport.

SenioremployeesDetailsrelatingtooptionandsharetransactionsaredisclosedinnote36.

ShareholdersTheprincipalshareholdersofthecompanyaredetailedinthe“analysisofshareholders”scheduleonpage198.

Corporateservicefee/managementfeeArcelorMittalSouthAfricapaidacorporateservicefeeofR135million(December2007:Rnilmillion)toArcelorMittalGroupforcorporateservicesrendered.

ArcelorMittalSouthAfricareceivedamanagementfeeofR176million(December2007:R153million)fromSaldanhaSteel(Proprietary)LimitedforArcelorMittalSouthAfricaemployeesthatworkatSaldanhaWorks.

34. POST-EMPLOyMENTBENEFITS

34.1 PensionsIndependentfundsprovidepensionandotherbenefitsforallpermanentemployeesandtheirdependants.Attheendofthefinancialyearthefollowingfundswereinexistence:

•MittalSteelSouthAfricaSelectorPensionFund(RegNo.12/8/35421)andMittalSteelSouthAfricaSelectorProvidentFund(RegNo.12/8/35423),bothoperatingasdefinedcontributionfunds.

•IscorEmployees’ProvidentFund(RegNo.12/8/27484),operatingasadefinedcontributionfund.•MittalSteelSouthAfricaPensionFund(RegNo.12/8/363),operatingasadefinedbenefitfund.Thisfundis

closedtonewentrants.•IscorRetirementFund(RegNo.12/8/5751),operatingasadefinedbenefitfund.Thisfundisclosedtonew

entrants.

Theassetsoftheseplansareheldseparatelyfromthoseofthegroupandcompany,infundsunderthecontroloftrustees.

AllfundsaregovernedbytheSouthAfricanPensionFundsActof1956.



34. POST-EMPLOyMENTBENEFITScontinued

34.1 Pensionscontinued

34.1.1 Definedcontributionplans

Membershipofeachfundat31December2008andemployercontributionstoeachfundforthe2008calendaryearrecognisedintheincomestatementwere:

Workingmembers Employercontributions

2008 2007 2008Rm

2007Rm

MittalSteelSouthAfricaSelector PensionandProvidentFunds

4487 4518 92 79

IscorEmployees’ProvidentFund 4029 4029 39 32

8516 8547 131 111

Contributionratesforactivemembersare7%and10%bythememberandArcelorMittalSouthAfricaLimitedrespectively.

Theonlyobligationofthegroupandcompanywithrespecttothedefinedcontributionplansistomakethespecifiedcontributions.

Nootherpost-retirementbenefitsareprovidedtotheseemployees.

34.1.2 Definedbenefitplans

MittalSteelSouthAfricaPensionFund

ThegroupandcompanyoperatetheMittalSteelSouthAfricaPensionFundwhichisawhollyfundeddefinedbenefitplanforqualifyingemployees.ThefundisadministeredbyCorisCapital(Proprietary)Limited.

At31December2008,thefundhad47(December2007:53)activemembersand8795(December2007:9083)pensionermembers.Thefundisclosedtotheadmittanceofnewmembers.

Contributionratesforactivemembersare7%and10%bythememberandArcelorMittalSouthAfricarespectivelyofthemember’spensionableearnings.

Thenormalretirementageformembersis63years.Amember’spensionentitlementiscalculatedasapercentagescaleoffinalaveragesalaryforeachyearofpensionableservice.Thepercentagescalerangesfrom1.7%to2.5%,andtheaveragefinalsalaryisthepensionablesalaryoverthe24monthswhichpreceedsthemember’sretirement.

Nootherpost-retirementbenefitsareprovidedtotheseemployees,otherthanforthatdetailedinnote34.2.

Thelaststatutoryactuarialvaluationwasperformedasat31December2007.Theactuarieswereoftheopinionthatthefundwasadequatelyfunded.

FordisclosurepurposesinordertocomplywithIAS19,Employee Benefitsvaluationshavebeenperformedbyindependentactuaries,usingtheprojectedunitcreditmethod.Rollforwardofprojectionsofpriorcompletedactuarialvaluationswereused,takingaccountofactualsubsequentexperience.

Theprincipalassumptionsusedforthepurposesoftheactuarialvaluationswere:

2008 2007

Discountrate 9.0% 8.2%

Expectedreturnonplanassets 9.7% 9.2%

Expectedrateofsalaryincrease 6.9%+meritincreases

6.4%+meritincreases

Generalinflationrate 5.9% 5.4%


179



34.1.2 Definedbenefitplanscontinued

Amountsrecognisedinprofitorlossinrespectofthisdefinedbenefitplanare:

2008Rm

2007Rm

Currentservicecost 2 2

Interestcostonobligations 533 485

Expectedreturnonplanassets (727) (683)

Netactuarial(gains)/lossesrecognisedintheyear1

Adjustmentsforrestrictionsonthedefinedbenefitplanasset1 193 197

Sub-total 1 1

Lessmembercontributionspaidduringyear 02 01

Totalincludedin“Employeecosts–pensionandmedicalcosts” 1 11 Fund rules prohibit the realisation of the defined benefit surplus in the form of refunds from the plan or

reductions in future contributions to the plan. On partial and full liquidation of the fund any available surplus is apportioned to the sole benefit of the members.


Theamountincludedinthestatementoffinancialpositionarisingfromthegroup’sandcompany’sobligationinrespectofthisdefinedbenefitplanis:

2008Rm

2007Rm

Presentvalueoftheobligationat31December 6562 6870

Fairvalueofplanassetsat31December (7276) (8274)

Surplus (714) (1404)

Cumulativeunrecognisedactuarial(losses)/gains (747) 136

UnrecogniseddefinedbenefitassetoninitialadoptionofIAS191 963 963

Sub-total (498) (305)

Restrictionsondefinedbenefitplanassetrecognised1 498 305

Net(asset)/liabilityarisingfromdefinedbenefitplan1 Fund rules prohibit the realisation of the defined benefit surplus in the form of refunds from the plan or

reductions in future contributions to the plan. On partial and full liquidation of the fund any available surplus is apportioned to the sole benefit of the members.

Movementsinthepresentvalueofthedefinedbenefitobligationinthecurrentperiodwere:

2008Rm

2007Rm

Presentvalueofobligationat1January 6870 6739

Interestcost 533 485

Currentservicecost 2 2

Benefitspaid (722) (684)

Actuarial(gains)/lossesonobligation (121) 328

Presentvalueofobligationat31December 6562 6870






Movementsinthepresentvalueoftheplanassetsinthecurrentperiodwere:

2008Rm

2007Rm

Fairvalueofplanassetsat1January 8274 8299Expectedreturn 727 683Contributions 1 1Benefitspaid (722) (684)Actuariallossesonplanassets (1004) (25)

Fairvalueofplanassetsat31December 7276 8274

Themajorcategoriesofplanassets,andtheexpectedrateofreturnatthestatementoffinancialpositiondateforeachcategory,are:

Expectedreturn Fairvalueofplanassets

2008%

2007%

2008Rm

2007Rm

Cash 7.1 6.6 439 494Equities 10.9 10.4 2437 2771Fixedinterest-bearingstock 8.7 8.2 3365 3826Foreigninvestments 10.9 10.4 1035 1178Otherassets 10.4 5

9.7 9.2 7276 8274

Theoverallexpectedrateofreturnisaweightedaverageoftheexpectedreturnsofthevariouscategoriesofplanassetsheld.Thedirectors’assessmentoftheexpectedreturnsisbasedonhistoricalreturntrendsandanalysts’predictionsofthemarketfortheassetinthenext12months.

TheactualnegativereturnonplanassetswasR277million(December2007:positivereturnofR658million).

TheplanassetsincludeordinarysharesofArcelorMittalSouthAfricaLimitedwithafairvalueofRnilmillion(December2007:fairvalueofR2million).

2008Rm

2007Rm

2006Rm

2005Rm

2004Rm

Presentvalue ofdefined benefit obligation 6562 6870 6739 6355 6003Fairvalueof planassets (7276) (8274) (8299) (7318) (6610)Surplus (714) (1404) (1560) (963) (607)Experience adjustments onplan liabilities– gains/(losses) 121 (328) (590)Experience adjustmentson planassets– (losses)/gains (1004) (25) 1079


181




InaccordancewiththetransitionalprovisionsfortheamendmentstoIAS19,Employee Benefits,inDecember2004,theexperienceadjustmentsabovearedeterminedprospectivelyfrom1January2006beingthedateofadoptionofthestandard.Thedisclosuresprecedingthetransitiondateareprovidedfortrendanalysispurposesonly.

ThegroupandcompanyexpecttomakeacontributionofR1million(2008:R1million)tothedefinedbenefitplanduringthenextfinancialyear.

Thefairvalueoftheplan’sassetsexceededthepresentvalueofthedefinedbenefitobligationsby10.9%(December2007:20.4%).Thepaymentofthefundedbenefitsbytheplandoesnotdependonlyonthefinancialpositionandinvestmentperformance,butalsoonthegroupandcompany’sabilitytomakegoodanyfundingshortfall.

Thegroupandcompanythereforeunderwritetheplan’sinvestmentandactuarialrisk.Despitethefallinthefundingsurplusforthereportingperiodended31December2008,duetothedetrimentalriskshockstofinancialmarkets,particularlyinthelastquarterof2008,thefundingcontinuestobeadequate.

Thelikelihoodthatthegroupandcompanywillberequiredtofundashortfallinthe2009reportingperiodisremote.

IscorRetirementFundThegroupandcompanyoperatetheIscorRetirementFundwhichisawhollyfundeddefinedbenefitplanforqualifyingemployees.ThefundisadministeredbyBambananiBenefitAdministrators(Proprietary)Limited.

At31December2008,thefundhad1431(December2007:1682)pensionermembersand39910(December2007:41065)contingentpensionermembers.Contingentpensionersareformeremployeeswholefttheservicebeforenormalretirementageandareentitledtoreceiveapensionifclaimed.Thefundisclosedtotheadmittanceofnewmembers.

Thenormalretirementageformembersis63years.Amember’spensionentitlementiscalculatedas43%ofnotionalpastservicecontributions,plus43%oftheemployer’sandmember’scontributions.

Thelastfullstatutoryactuarialvaluationwasperformedasat31December2007.Theactuarieswereoftheopinionthatthefundwasadequatelyfunded.

FordisclosurepurposesinordertocomplywithIAS19,Employee Benefits,valuationshavebeenperformedbyindependentactuaries,usingtheprojectedunitcreditmethod.Rollforwardofprojectionsofpriorcompletedactuarialvaluationswereused,takingaccountofactualsubsequentexperience.

Theprincipalassumptionsusedforthepurposesoftheactuarialvaluationswere:

2008%

2007%

Discountrate 9.0 8.2

Expectedreturnonplanassets 9.7 8.9

Generalinflationrate 5.9 5.4






Amountsrecognisedinprofitorlossinrespectofthisdefinedbenefitplanare:

2008Rm

2007Rm

Currentservicecost

Interestcostonobligations 32 29

Expectedreturnonplanassets (44) (41)

Netactuarial(gains)/lossesrecognisedintheyear1

Adjustmentsforrestrictionsonthedefinedbenefitplanasset1 12 12

Sub-total

Lessmembercontributionspaidduringtheperiod

Totalincludedin“employeecosts–pensionandmedicalcosts”1 Fund rules prohibit the revaluation of the defined benefit surplus in the form of refunds from the plan or

deductions in future contributions to the plan. On partial and full liquidation of the fund, any available surplus is apportioned to the sole benefit of the members.

Theamountincludedinthestatementoffinancialpositionarisingfromthegroup’sandcompany’sobligationinrespectofthisdefinedbenefitplanis:

2008Rm

2007Rm

Presentvalueoftheobligationat31December 405 410

Fairvalueofplanassetsat31December (476) (513)

Surplus (71) (103)

Cumulativeunrecognisedactuariallosses (52) (8)

UnrecogniseddefinedbenefitplanassetoninitialadoptionofIAS191 90 90

Sub-total (33) (21)

Restrictionsondefinedbenefitplanassetrecognised1 33 21

Net(asset)/liabilityarisingfromdefinedbenefitplan1 Fund rules prohibit the revaluation of the defined benefit surplus in the form of refunds from the plan or

deductions in future contributions to the plan. On partial and full liquidation of the fund, any available surplus is apportioned to the sole benefit of the members.


183




Movementsinthepresentvalueofthedefinedbenefitobligationinthecurrentperiodwere:

2008Rm

2007Rm

Presentvalueofobligationat1January 410 406

Interestcost 32 29

Currentservicecost


Actuariallosses/(gains)onobligation (6) 32

Presentvalueofobligationat31December 405 410

Movementsinthepresentvalueoftheplanassetsinthecurrentperiodwere:

2008Rm

2007Rm

Fairvalueofplanassetsat1January 513 519

Expectedreturn 44 41

Contributions


Actuarial(losses)/gainsonplanassets (50) 10

Fairvalueofplanassetsat31December 476 513

Themajorcategoriesofplanassets,andtheexpectedrateofreturnatthestatementoffinancialpositiondateforeachcategory,are:

Expectedreturn Fairvalueofplanassets

2008%

2007%

2008Rm

2007Rm

Cash 7.1 8.8 64 69

Equities 11.2 9.4 166 179

Fixedinterest-bearingstock 8.7 8.2 182 196

Foreigninvestments 11.2 9.4 60 65

Otherassets 11.2 9.4 4 4

9.7 8.9 476 513






Theoverallexpectedrateofreturnisaweightedaverageoftheexpectedreturnsofthevariouscategoriesofplanassetsheld.Thedirectors’assessmentoftheexpectedreturnsisbasedonhistoricalreturntrendsandanalysts’predictionsofthemarketfortheassetinthenexttwelvemonths.

ThenegativereturnonplanassetswasR5million(December2007:positivereturnofR55million).

TheplanassetsincludeordinarysharesofArcelorMittalSouthAfricaLimitedwithafairvalueofRnilmillion(December2007:fairvalueofRnil).

2008Rm

2007Rm

2006Rm

2005Rm

Presentvalueofdefined benefitobligation 405 410 406 361

Fairvalueofplanassets (476) (513) (519) (451)

Surplus (71) (103) (113) (90)

Experienceadjustmentson planliabilities–gains/(losses) 6 (32) (54)

Experienceadjustmentson planassets–(losses)/gains (50) 10 68

InaccordancewiththetransitionalprovisionsfortheamendmentstoIAS19,Employee Benefits,inDecember2004,theexperienceadjustmentsabovearedeterminedprospectivelyfrom1January2006beingthedateofadoptionofthestandard.Thedisclosuresprecedingthetransitiondateareprovidedfortrendanalysispurposesonly.

Thegroupandcompanyexpecttomakenocontribution(2008:Rnil)tothedefinedbenefitplanduringthenextfinancialyear.

Thefairvalueoftheplan’sassetsexceededthepresentvalueofthedefinedbenefitobligationsby17.5%(December2007:25.1%).Thepaymentofthefundedbenefitsbytheplandoesnotdependonlyonthefinancialpositionandinvestmentperformance,butalsoonthegroup’sandcompany’sabilitytomakegoodanyfundingshortfall.

Thegroupandcompanythereforeunderwritetheplan’sinvestmentandactuarialrisk.Despitethefallinthefundingsurplusforthereportingperiodended31December2008,duetothedetrimentalriskshockstofinancialmarkets,particularlyinthelastquarterof2008,thefundingcontinuestobeadequate.

Thelikelihoodthatthegroupandcompanywillberequiredtofundashortfallinthe2009reportingperiodisremote.

34.2 Medicalbenefits

34.2.1 Thegroupandcompanycontributetomedicalaidschemesforthebenefitofthoseretiredemployeesandtheirdependants,wherethosequalifyingretireesacceptedearlyretirementin1994.At31December2008therewere59qualifyingretirees(December2007:67).

Onthebasisofcurrentpractice,whichisreviewedannually,theactuariallydeterminedpresentvalueofpost-retirementmedicalaidobligationshasbeenprovidedinnote28.Thisobligationisunfunded.Thegroupandcompanyhavenofurtherpost-retirementmedicalaidobligationsforcurrentorretiredemployees.

Detailsofthemovementduringtheperiodinthenetliabilityaredetailedinnote28.

34.2.2 Thegroupandcompanyalsocontributetomedicalaidschemesforthebenefitofpermanentemployeesandtheirdependants.ThecontributionschargedagainstincomeamountedtoR88million(2007:R76million).


185

35. CONTINGENTLIABILITIES

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

Contingentliabilitiesatstatementoffinancial positiondate,nototherwiserecognisedin thesefinancialstatements,arisingfrom:

–Facevalueoffinancialguaranteecontracts issuedinthenormalcourseofbusinessfrom whichitisanticipatedthatnomaterialliabilities willarise 1 32 69 82

–Amountsinlegaltrustaccounts 12 12 12 12

–Litigationandclaims 692 1015 692 951

“Litigationandclaims”consistof:

Taxationdispute–BusinessAssistanceAgreementDuringthefirstquarterof2008,theAlternativeDisputeResolution(ADR)processwiththeSouthAfricanRevenueServiceswasfinalisedwithsettlementbeingreachedonthedisputepertainingtothetaxdeductibilityofpaymentsmadeintermsoftheBusinessAssistanceAgreement.FullandfinalsettlementwasreachedforanamountofR100million.ForthefinancialyearendedDecember2006,aprovisionalobligationofR80millionwasrecognisedintermsofthesettlementoffermadeduringtheADRhearing.AfurtherR20millionwasrecognisedasanexpensein2008,bringingthetotalobligationsettledtoR100million.

Inthecomparativeperiod,R323millionandR259millionwasdisclosedasacontingentliabilityforthegroupandcompanyrespectively.

AllegedcontraventionofCompetitionActHarmonyGoldMiningCompanyandDRDGoldLimitedlodgedacomplaintwiththecompetitionauthoritiesallegingthatthecompanycontravenedtheCompetitionActinthatitabuseditsdominantpositioninsofarasitspricingpoliciesareconcerned.TheCompetitionTribunaldeterminedon27March2007thatthecompanydidcontravenesection8(a)oftheCompetitionActbychargingexcessivepricingforitssteelproductstocustomers.

TheTribunalhandeddownitsdecisionregardingtheremedieson6September2007.Insummarythedecisionconcludedthat:•theimpositionofresaleconditionsonsteelmerchantsandthosedomesticcustomersthatreceivearebateoffthe

domesticprice,thusreducingthesupplyofmaterialofflatsteelproductstothedomesticmarket,wasanabuseofdominanceintermsofsection8(a);

•ArcelorMittalSouthAfricamaynot(i)impose,or(ii)reachagreementwithcustomersonconditionsfortheuseorresaleofflatsteelproducts;

•ArcelorMittalSouthAfricaisorderedtowaiveinwritinganyconditionsinanyagreementregardingconditionsontheuseorresaleofflatsteelproducts;

•ArcelorMittalSouthAfricaisorderedtomakeknowninthepublicdomainthefulldetailsofitspricelistsforflatsteelproducts;

•ArcelorMittalSouthAfricaisorderedtopayanadministrativepenaltyofR692millionwithin20daysoftheremediesdecision;and

•ArcelorMittalSouthAfricaisorderedtopaythecostsofthecomplainants.



35. CONTINGENTLIABILITIEScontinued

ArcelorMittalSouthAfricafiledanoticeofappealtotheCompetitionAppealCourtagainsttheremediesdecision.TheCommissionerattheCompetitionCommissionrespondedon11September2007thattheCommissionwouldnotinstituteproceedingsfortherecoveryoftheadministrativepenaltypendingtheoutcomeoftheappeal.

TheCompetitionAppealCourton8November2007grantedanordersuspendingtheordersmadebytheTribunal.

AnappealshearingattheCompetitionAppealCourttookplaceon23and24October2008,theoutcomeofwhichisexpectedinthefirstquarterof2009.

ApplyingtheapplicableaccountingpoliciesandthemeasurementandrecognitioncriteriaofIAS37,Provisions, Contingent Liabilities and Contingent Assets,noprovisionhasbeenraised.Thisisconsistentwiththeaccountingtreatmentinthecomparativeperiod.

InanothercasebroughtbeforetheCompetitionTribunal,BarnesFencingIndustries(Proprietary)Limited(BarnesFencing)filedacomplaintthatthecompany’spricingpracticesinvolvinglowcarbonwirerodproductsamountedtopricediscrimination.Itisallegedthatthecompanychargedthecomplainantssubstantiallymorefortheproductandthatotherrespondentsalsobenefitedfrommorefavourablepaymentterms.

BarnesFencingappliedforordersforthecompanytoterminatethesepracticesandappliedfortheimpositionofanadministrativepenaltyof10%tobeleviedonthe2006localrevenueoflowcarbonwirerodproducts.

ThecompanysuccessfullyopposedthefirstreferralmadebyBarnesFencingandasaresult,theCompetitionTribunalagreedtoamendthefoundingdocumentsaccordingly.Thecompanysubsequentlyfileditsansweringaffidaviton26April2007.

BarnesFencinghassinceappliedforinterventionintheprocessbyincludingadditionalcomplaintsagainstthecompanyconcerningallegedcontraventionofsection5andsection8intermsoftheCompetitionAct.

TheinterventionapplicationhearingwasheardinFebruary2008.TheCompetitionTribunalgrantedleavetointervenebyincludingadditionalcomplaints,namely:prohibitedvirtualpracticesandabuseofdominance.However,therequestfora10%administrativepenaltywasdisallowed.

Nodateshavebeensetforthepre-orthemainhearing.

Basedonthecurrentstatusofthelitigation,noprovisionhasbeenraisedandnocontingentliabilityquantified.

Contingentassetretirementobligation

Asdescribedinnote28,IAS37,Provisions, Contingent Liabilities and Contingent Assets,requiresthatthepresentvalueofthefuturecostofretiringanoperatingsiteanditsconstituentproperty,plantandequipment,shouldbeincludedinthecarryingamountofthesite’sfixedassets.Thesecostsaredepreciatedovertheusefullifeofthespecificassetsconstitutedonanoperatingsite.

Otherthanforcertainclearlydeterminableinstances,futurecoststoretireoperationalandtheirunderlyingassetscannotbereliablyestimated.Thestrategicplansunderpinningthefutureoperationofsitesaregenerallyevergreeninnature.


187

36. SHARE-BASEDPAyMENTS

36.1 Cash-settledshareparticipationrights

In2007thegroupandcompanygrantedshareparticipationrightsto30keyemployeesforretentionpurposes.

Duringthecurrentyearaliteralinterpretationrelatingtotherights(previouslytermed“shareappreciationrights”)wasclarified.Followinglegalclarification,therightsentailacashpaymentpricedofftheaveragedailyclosingpriceofanArcelorMittalSouthAfricaLimitedshareoverthe60-daytradingperiodimmediatelyprecedingtheexpirydate.

TheincreaseinthecarryingamountoftheshareparticipationrightsfromR1milliontoR28millionbetween31December2007and31December2008islargelyattributabletothelegalclarificationoftherightsattachingtotheinstruments.

Detailsofthetwograntsandtheirvaluationat31December2008areasfollows:

Grant1

Numberofrights 310605

Numberofparticipants 17

Exercisedate 31August2009

Totalfairvalueofrightsat31December2008(Rm) 29

Timeapportionedfairvaluerecognisedasaliabilityat 31December2008(note26)(Rm) 23


Totalfairvaluechargedtoearningsfortheyearended31December2008(Rm) 22

Grant2

Numberofrights 101728

Numberofparticipants 13

Exercisedate 31March2010

Totalfairvalueofrightsat31December2008(Rm) 9



Totalfairvaluechargedtoearningsfortheyearended31December2008(Rm) 51Rounding to zero due to the use of numeric reporting scale format of one million.



36. SHARE-BASEDPAyMENTScontinued

36.2 Equity-settledshareoptionplan

Thecompanyandgroupoperatethemanagementsharetrust,consistingofanoption,apurchase,adeferredpurchase,andapaid-upshareplanforthebenefitofthegroup’sandcompany’sseniormanagement,includingexecutivedirectors.

Thetransactionadministrationwithparticipantsisoutsourcedtoserviceprovider,CompensationTechnologies(Proprietary)Limited.

Plantypes

“Legacy Option Plan”(25 October 1989 to 30 April 2002) Optionswereofferedatthemarketpriceontheoptiongrantdateandwerereleasedinfiveequalannualtranchescommencingonthesecondanniversaryoftheofferdateandexpiringafternineyears.Thisplanwasclosedasfrom30April2002andwillrunoutonceallrightshavebeenexercisedortheexerciseperiodexpires.

“Legacy Deferred Purchase Plan” Shareswereofferedatthemarketpriceonthegrantdateand,iftakenupintermsoftheplan,werereleasedunlessdecidedotherwisebythedirectors,infiveequalannualtranchescommencingonthesecondanniversaryoftheofferdateandexpiringafternineyears.Thisplanwasclosedasfrom7May2002andwillcontinueuptotheexpirydate,onwhichdatetheparticipantsshouldpayfortheshares.

“Legacy Loan Purchase Plan” TofacilitateIscorLimited’sunbundling,participantswereofferedaonce-offchoicetotransferalloffersaccepteduptoNovember2001totheLoanPlan.Theoriginalvestingrules,dependingonthedateoftheoriginaloffer,continuedtoapplyasdidtheexpirydateonwhichtheloanshouldbesettled.

“30:30:40 Option Plan” (effective 7 May 2002 to 11 December 2005) Shareoptionswereofferedatmarketprices,onthegrantdateandwerereleasedinthreeannualtranchesof30%,30%and40%respectively,commencingonthefirstanniversaryoftheofferdateandexpiringaftersixyears.Thisplanwasclosedasfrom11December2005andwillrunoutonceallrightshavebeenexercisedortheexerciseperiodexpires.

“33.3/10: 33.3/10: 33.4/10 ArcelorMittal Group – Type Option Scheme” (effective from 12 December 2005 to present) Shareoptionsareofferedatmarketpricesonthegrantdateandarereleasedinthreeannualtranchesof33.3%,33.3%and33.4%respectively,commencingonthefirstanniversaryoftheofferdateandexpiringafter10years.Thisisanopenplan.

Theoptionplansareequity-settledaseachshareoptionconvertsintooneordinaryshareofArcelorMittalSouthAfricaLimitedonexercise.Theoptionscarryneitherrightstodividendsnorvotingrights.Optionsmaybeexercisedatanytimefromthedateofvestingtothedateoftheirexpiry.

Thenumberofoptionsgrantediscalculatedinaccordancewiththeemployee’srole-gradingwithinthegroupandcompanyasapprovedbytheRemunerationCommitteeofArcelorMittalSouthAfricaandasincorporatedwithinthetrustdeedofthemanagementsharetrust.Uponresignationtheshareoptionslapseimmediately.Upondeath,theoptionslapsewithinsixmonths.

Fortheoptionsgrantedduring2008,thekeyinputsutilisedtodeterminethegrantdatevaluationwere:•discountrate:11.07%(2007:9.54%);•annualvolatilityrate:42.08%(2007:31.5%);•earlyexercisemultiple:2.5timesstrikeprice(2007:2.0timesstrikeprice);•continuousdividendyield:4.62%(2007:3.37%);and•expectedattritionrate:8.9%(2007:6.8%).

Theaveragefairvalueperoptiongrantedforthereportingperiodended31December2008amountedtoR77.67(2007:R45.59).


189


36.2 Equity-settledshareoptionplancontinued

Million

Existing share distribution and shares available for future distribution

NumberofsharesavailableforutilisationintermsoftheArcelorMittalSouthAfrica managementsharetrustasat1January2008 41.2

Add:Sharereleases,forfeituresandresignations 0.7

Less:Shareoffers (0.8)

Numberofsharesavailableforfutureutilisation,asat31December2008 41.1

OptionsLoanpurchaseandpaidup/

deferredpurchaseplan

2008Million

2007Million

2008Million

2007Million

Outstandingatbeginningofyear 3.4 3.1 01 0.1

Issued 0.8 1.2

Exercised (0.6) (0.7) (0)1 (0.1)

Lapsed/cancelled (0.1) (0.2) 01

Outstandingatendofyear 3.5 3.4 01

Theaverageremainingcontractuallife indaysattheendoftheyearis:

Averagedaysuntilfullyvested 1057 563

Averagedaysuntilexpiry 2977 1928 558

Theaveragepricesapplicableper transactiontypeare:

Issued(R/unit) 92.61 121.12

Exercisedstrikeprice(R/unit) 55.65 57.33 7.93 9.51

Lapsed/cancelled(R/unit) 105.38 58.13 8.05

Outstanding(R/unit) 92.40 57.72 7.771Rounding to zero due to the use of numeric reporting scale format of one million.







2008 2007 2008 2007

Detailsofoutstandingoptionsduringtheyearare:

1. ArcelorMittal Group-type option plan

Latestexpirydate 2018 2017

Exercisepricerange(R) 53.38–250.00 53.38-138.25

Numberofoutstandinginstruments 3300759 2799102

Totalproceedsifoutstandinginstruments wereimmediatelyexercised(Rm) 381 129

Totalintrinsicvalueofout-of-the-money optionsat31December(Rm) (48)

2. 30:30:40 option plan


Exercisepricerange(R) 29.62–57.99 14.32-57.99



3. Legacy option plan


Exercisepricerange(R) 9.71-10.10 9.71-13.79



Detailsofoutstandingloanpurchase andpaidup/deferredpurchaseplans areasfollows:

Latestexpirydate 2010

Exercisepricerange(R) 2.78-9.71

Numberofoutstandinginstruments 17360

Totalproceedsofsharesissued(Rm) 2

Closingprice R88.45 R136.50 R136.501 Excludes out-of-the-money options.2 Rounding to zero due to the use of numeric reporting scale format of one million.


191





Exercisepricerange

R Outstanding

Exercisepricerange

R Outstanding

Termsoftheoptionsandshares outstandingatyear-endare:

Foryearended31December2008

Expirydate

2009 53.38 50250

2010 29.62–83.88 69520

2011 9.71–133.50 241072

2015 53.38 540436

2016 54.19–83.88 1066518

2017 97.72–140.00 810741

2018 73.75–250.00 770224

Total 3548761

Foryearended31December2007

Expirydate

2007 9.71 1230

2008 16.15 176359 2.78-3.99 14040

2009 14.32–18.42 15659

2010 25.62–57.99 75100 4.32-9.71 2020

2011 9.71–57.02 330688

2015 53.38 710792

2016 54.19–83.88 1233198

2017 97.72–138.25 855112

Total 3396908 17290



37. COMMITMENTS

Group Company

2008Rm

2007Rm

2008Rm

2007Rm

Capitalcommitments

Capitalexpenditurecontractedforproperty, plantandequipment 930 1232 866 1075

Capitalexpenditureauthorisedbutnotcontracted forproperty,plantandequipment 1227 1397 1154 1296

Operatingleasecommitments

Equipmentandvehicles

Thefutureminimumpaymentsundernon-cancellable stand-aloneandembeddedoperatingleasesare:

–Lessthanoneyear 79 46 76 44

–Morethanoneyearandlessthanfiveyears 77 116 72 107

Total 156 162 148 151

38. RENTALAGREEMENT

Adepotandoff-loadingfacilityownedbythegroupandcompany(includedundernote18)isleasedtoathirdpartyintermsofa14-yearrentalagreementending30June2013.Intermsoftherentalagreement,thelesseedoesnothavetheoptiontopurchasethefacilityatanystageduringorafterthecompletionofthecontract.

2008Rm

2007Rm

Thetotalrentalsreceivedfortheyearended31December2008amountedto R23million(2007:R25million).Thefuturegrossoperatingrentalstobereceived inaccordancewiththeagreementare:

Grossoperatingrentals

Notlaterthanoneyear 21 23

Laterthanoneyearbutnotlaterthanfiveyears 62 77

Laterthanfiveyears 8

Total 83 108


193

Percentageholding

Groupcarryingamount

Companycarryingamount

Functionalcurrency

Numberofshares

held2008

%2007

%2008

Rm2007

Rm2008

Rm2007

Rm

Year-endotherthan

31Dec

JOINTLyCONTROLLEDENTITIES

unlistedshares

•Collect-a-Can (Proprietary)Limited ZAR 2400000 60 60 17 15 2 2

•ConsolidatedWireIndustries (Proprietary)Limited ZAR 1999999 50 50 90 60 14 14

•EnsimbiniTerminals (Proprietary)Limited ZAR 1000 50 50 12 16 10 10 30June

•MacsteelInternational HoldingsBV USD 35001 50 50 1802 1003

•Microsteel (Proprietary)Limited ZAR 2000 50 50 36 36 30June

•PietersburgIronCompany (Proprietary)Limited ZAR 4000 50 50 (1) 3 6 6

Associate

unlistedshares

•ToyotaTsushoSouthAfrica Processing (Proprietary)Limited ZAR 20 20 20 12 12 16 16 31March

Totalinvestment 1968 1109 84 48

Directors’valuationof unlistedsharesinjointly controlledentitiesand anassociate 2001 1184

Wheretheaboveentities’financialyear-endsarenotco-terminouswiththatofthegroupandcompany,financialinformationhasbeenobtainedfrommanagementaccounts.

Annexure 1: Unlisted equity-accounted investments


Annexure 1: Unlisted equity-accounted investments continued

Theincomestatement,statementoffinancialpositionandcash-flowitemsinrespectofthejointlycontrolledentitiesare:

2008Rm

2007Rm

STATEMENTOFFINANCIALPOSITIONS

Non-currentassets 1001 620

Currentassets 7230 5538

Totalassets 8231 6158

Shareholders’equity 3771 2208


Borrowings 205 221

Other 7

Currentliabilities

Borrowings 1428 871

Other 2827 2851

Totalequityandliabilities 8231 6158

INCOMESTATEMENT

Revenue 44261 26769

Operatingexpenses (43790) (26341)

Netoperatingprofit 471 428

Netfinancingcosts 105 (28)

Gainsandlossesonchangesinforeignexchangeandfinancialinstruments (102) 32

Otherincome 217 (13)

Incomefrominvestments 154 3

Incomefromequity-accountedinvestments 238 217

Profitbeforetaxation 929 639

Taxation

–Normal (115) (93)

Netprofitattributabletoordinaryshareholders1 814 546

STATEMENTOFCASHFLOwS

Netcashflowsfromoperatingactivities 410 62

Netcashflowsfrominvestingactivities (46) (124)

Netcashflowsfromfinancingactivities 266 332

Foreigncurrencytranslations 199 (13)

Netincreaseincashandcashequivalents 829 2571 Indicative, amounts were translated at the average ZAR/USD exchange rate for the year and not at monthly exchange rate as per note 20.

The amounts will thus not agree with amounts in note 20.


195

Theincomestatement,statementoffinancialpositionandcash-flowitemsinrespectoftheassociateare:

2008Rm

2007Rm

STATEMENTOFFINANCIALPOSITIONS

Non-currentassets 119 120

Currentassets 184 153

Totalassets 303 273

Shareholders’equity 53 58


Borrowings 92 92

Other 123

Currentliabilities

Borrowings 55

Other 103

Totalequityandliabilities 303 273

INCOMESTATEMENT

Revenue 483 135

Operatingexpenses (461) (135)

Netoperatingprofit 22

Netfinancingcosts (26) (15)

Lossbeforetaxation (4) (15)

Taxation

–Normal

Netlossattributabletoordinaryshareholders (4) (15)

STATEMENTOFCASHFLOwS

Netcashflowsfromoperatingactivities (43) 19

Netcashflowsfrominvestingactivities (8) (126)

Netcashflowsfromfinancingactivities 50 106

Netdecreaseincashandcashequivalents (1) (1)


Annexure 2: Investments in subsidiaries

Countryof

incorporation1

Functionalcurrency

Issuedcapital

(unlistedordinary

shares) Interestofcompany

Shares Indebtedness

2008R

2007R

2008Rm

2007Rm

PROPERTy

YskorLandgoed(Proprietary)Limited RSA ZAR 4000 4000 4000 (94) (94)

MANuFACTuRING

IscorBuildingSystems(Proprietary)Limited RSA ZAR 100 100 100

SaldanhaSteel(Proprietary)Limited RSA ZAR 2000 1009 1009 4082 50542

SERVICE

Ferrosure(SouthAfrica)InsuranceCoLimited RSA ZAR 1000 3000000 3000000

Ferrosure(IsleofMan)InsuranceCoLimited3 IOM USD 70 12011246 12011246

MSSAInvestmentsBV NEH USD 134669 241105200 241105200 5

PybusFifty-Seven(Proprietary)Limited RSA ZAR 1 1000 1000 402 378

VicvaInvestmentsandTradingNine(Proprietary)Limited RSA ZAR 1 1000 1000

DombotemaMiningInvestments(Proprietary)Limited RSA ZAR 1 100 100

ArcelorMittalSouthAfricaDistribution(Proprietary)Limited4 RSA ZAR 1 100 100

ArcelorMittalAfricanInvestments5 Mauritius USD 100 716 716 179 116

ArcelorMittalPipesandTubes(Proprietary)Limited RSA ZAR 1 1 1

Totalinvestmentsinsubsidiaries(note21) 256124472 256124472 4569 5459

1 RSA – Republic of South Africa, IOM - Isle of Man and NEH - The Netherlands.2 This amount includes the shareholders’ loan of R8 billion (December 2007: R8 billion) and intercompany advances of

R4 billion (December 2007: R3 billion).3 Issued capital is non-voting redeemable preference shares.4 The name of the company was changed from Mabwetema Mining Investments (Proprietary) Limited as from 5 June 2008.5 The company was registered on 25 January 2007.


197

Countryof

incorporation1

Functionalcurrency

Issuedcapital

(unlistedordinary

shares) Interestofcompany

Shares Indebtedness

2008R

2007R

2008Rm

2007Rm

PROPERTy

YskorLandgoed(Proprietary)Limited RSA ZAR 4000 4000 4000 (94) (94)

MANuFACTuRING

IscorBuildingSystems(Proprietary)Limited RSA ZAR 100 100 100

SaldanhaSteel(Proprietary)Limited RSA ZAR 2000 1009 1009 4082 50542

SERVICE

Ferrosure(SouthAfrica)InsuranceCoLimited RSA ZAR 1000 3000000 3000000

Ferrosure(IsleofMan)InsuranceCoLimited3 IOM USD 70 12011246 12011246

MSSAInvestmentsBV NEH USD 134669 241105200 241105200 5

PybusFifty-Seven(Proprietary)Limited RSA ZAR 1 1000 1000 402 378

VicvaInvestmentsandTradingNine(Proprietary)Limited RSA ZAR 1 1000 1000

DombotemaMiningInvestments(Proprietary)Limited RSA ZAR 1 100 100

ArcelorMittalSouthAfricaDistribution(Proprietary)Limited4 RSA ZAR 1 100 100

ArcelorMittalAfricanInvestments5 Mauritius USD 100 716 716 179 116

ArcelorMittalPipesandTubes(Proprietary)Limited RSA ZAR 1 1 1

Totalinvestmentsinsubsidiaries(note21) 256124472 256124472 4569 5459

1 RSA – Republic of South Africa, IOM - Isle of Man and NEH - The Netherlands.2 This amount includes the shareholders’ loan of R8 billion (December 2007: R8 billion) and intercompany advances of

R4 billion (December 2007: R3 billion).3 Issued capital is non-voting redeemable preference shares.4 The name of the company was changed from Mabwetema Mining Investments (Proprietary) Limited as from 5 June 2008.5 The company was registered on 25 January 2007.


Analysis of shareholders

RangeofshareholdersNumberof

shareholders % Holdings %

1 – 100shares 6672 22.10 337784 0.08

101 – 1000shares 21057 69.74 4699279 1.05

1001 – 50000shares 2174 7.20 15170852 3.40

50001 – 100000shares 117 0.39 8451535 1.90

100001 – 10000000shares 170 0.56 95153983 21.35

10000001andmoreshares 4 0.01 321938699 72.22

30194 100 445752132 100

Typeofshareholders %shareholding

Corporateholdings 61

Pensionfunds 14

Unittrusts 9

Insurancecompanies 5

Othermanagementfunds 4

Otherfunds 5

Unclassifiedandbelowthreshold 2

100

Geographicalholdingsbyowner %shareholding

Switzerland 52.02

SouthAfrica 35.1

USA 6.1

Othercountries 4.5

Belowthreshold 2.28

100

Shareholdingsofmorethan5% Holdings %

MittalSteelHoldingsAG 231876454 52.02

PublicInvestmentCorporation 39874583 8.95

IndustrialDevelopmentCorporationofSouthAfrica 39167364 8.79

Publicandnon-publicshareholders

MittalSteelHoldingsAG 231876454 52.02

PublicInvestmentCorporation 39874583 8.95

IndustrialDevelopmentCorporationofSouthAfrica 39167364 8.79

310918401Non-publicshareholders 310918401

Publicshareholders 134833731

445752132


199

Information relating to the directors

DrKDKMokhele (53)Academicqualifications: BSc(Agric),MS(FoodScience),PhD(Microbiology)Occupation: Independentnon-executivedirectorExperience: Non-executivedirectorsinceFebruary1998.ChairmanofArcelorMittal

SouthAfricasince1January2007andChairmanoftheTransformationCommittee.

Othercurrentdirectorships: Non-executivedirectorof:ImpalaPlatinumHoldings,AfricanOxygen,ZimplatsHoldings,TigerBrandsTrustee:HansMerenskyFoundation

CPDCornier (56)Academicqualifications: MSc(ÉcolePolytechniqueandÉcoledesMines)Occupation: Non-executivedirectorExperience: Appointednon-executivedirectoron14May2008.Memberofthe

ArcelorMittalGroupmanagementboardresponsibleforAsia,AfricaandIndia,steelgreenfieldprojects,equipmentmanufacturingandinvestmentsandallocations.HeisalsoArcelorMittal’sChiefTechnologyOfficer.Previouslyexecutivevice-presidentofFCSCommercialAutoandchiefexecutiveofficerofSollacMediterranee.

Othercurrentdirectorships: OtherArcelorMittalGroupcompanies

SMaheshwari (45)Academicqualifications: BCom(Hons);CACSOccupation: Non-executivedirectorExperience: Appointednon-executivedirectorinDecember2002.Executivevice-president

ofArcelorMittalGroup,memberoftheArcelorMittalGroupmanagementboard,responsibleforbusinessdevelopmentandmergersandacquisitions.


AMHOPoupart-Lafarge (43)Academicqualifications: GraduateEngineer,MSc(Economics)Occupation: Non-executivedirectorExperience: Appointedalternatenon-executivedirectoron24July2008and

non-executivedirectoron30November2008.Executivevice-presidentofArcelorMittalGroupandmemberoftheArcelorMittalGroupmanagementboardresponsibleforAfricaandCIS.


HJVerster (42)Academicqualifications: BCom(Hons),MBL,ExecutiveManagementProgramme(DardenBusinessSchool)Occupation: ExecutiveDirector,FinanceExperience: AppointedExecutiveDirector,Finance,on17February2006.Previously

generalmanager,corporatetreasuryatMittalSteelNV.Othercurrentdirectorships: Non-executivedirectorofMacsteelInternationalHoldingsBV,

Ferrosure(IsleofMan)InsuranceCompany,otherArcelorMittalGroupcompaniesanddirectoroftheNationalBusinessInitiative.


DIRECTORSChairmanDrKDKMokhele#†■

ExecutivedirectorsNMCNyembezi-Heita(ChiefExecutiveOfficer)HJVerster(ExecutiveDirector,Finance)LGJJBonte(President)‡

Non-executivedirectorsDKChugh◆#■

CPDCornierEKDiack*•

SMaheshwari◆LPMondi•■DCGMurray*#†MJNNjeke*•

NDOrleyn#■

AMHOPoupart-Lafarge

COMPANySECRETARyCSingh

AuDITORSDeloitte&Touche

REGISTEREDOFFICEVanderbijlparkSteelRoomN3-5,MainBuildingDelfosBoulevardVanderbjlpark

POSTALADDRESSPOBox2Vanderbijlpark,1900Tel:016889-9111

Directorate and administration

COMPANyREGISTRATIONArcelorMittalSouthAfricaLimitedRegNo1989/002164/06

INTERNETADDRESShttp://www.arcelormittal.com/southafrica

TRANSFERSECRETARIESComputershareInvestorServices2004(Pty)Limited70MarshallStreet,JohannesburgPOBox61051Marshalltown,2107Tel:0113705000Fax:0116887721

uNITEDSTATESADRDEPOSITARyTheBankofNewYorkADRDepartment101BarclayStreet,22ndFloor,NewYork,NY10286UnitedStatesofAmerica

Tel:0912128155133Fax:0912128153050

Internet:www.bankofny.com

*Member of Audit Committee•Member of Risk Committee#Member of Human Resources & Remuneration Committee†Member of Safety, Health and Environment Committee

(SHE)■Member of Transformation Committee‡Citizen of BelgiumCitizen of France◆Citizen of India


201

Shareholders’ diary

Yearend 31December

FinancialresultsforDecember2008 11February2009

AnnualGeneralMeeting 12May2009

Firstquarterresults2009 29April2009

Interimresultsfor2009 29July2009

Thirdquarterlyresults2009 28September2009


Notice to shareholders

Twenty-firstannualgeneralmeetingNoticeisherebygiventhatthetwenty-firstannualgeneralmeetingofmembersofArcelorMittalSouthAfricaLimitedwillbeheldatTheHilton,138RivoniaRoad,Sandton,Johannesburg,onTuesday,12May2009at11:00,toconductthefollowingbusiness:

Ordinarybusiness1. Toreceiveandconsidertheannualfinancialstatementsforthecompanyandthegroupfortheyearended31December2008,

includingthedirectors’reportandthereportoftheauditorsthereon.

2. Toelectdirectorsintheplaceofthosewhointermsofarticles15.2and16.1ofthecompany’sarticlesofassociationretirebyrotationand,beingeligible,offerthemselvesforre-election:

• DrKDKMokhele • CPDCornier • SMaheshwari • AMHOPoupart-Lafarge • HJVerster

Refertopage199ofthisreportforabbreviatedcurriculumvitaeoftheabove.

3. Toapprovethenon-executivedirectors’feesfortheyearended31December2008(refertopage62).

4. Toapprovethefollowingannualfeesasthemaximumnon-executivedirectors’feespayablefortheperiod1May2009untilthenextannualgeneralmeeting.

Annualretainer

Attendancefeeper

meeting

Chairman R700000 –

Director R132000 R10000

AuditCommitteechairman R22000

AuditCommitteemember R10000

Committeechairman R20000

Committeemembers R10000

ShareTrustchairman R20000

ShareTrustmember R10000

5. ToappointMessrsDeloitte&Toucheasthecompany’sexternalauditorsandMrRyanMichaelDuffyastheauditpartner.

6.Resolvedthat5%(fivepercent)oftheauthorisedbutunissuedsharecapitalofthecompanybeplacedunderthecontrolofthedirectorsofthecompanyuntilthenextannualgeneralmeeting,withtheauthoritytoallotandissueallorpartthereof,forthepurposeofimplementingagroupbonusschemeandashareincentivescheme,onsuchtermsandconditionsastheymaydeemfit,subjecttotheprovisionsofsections221and222oftheCompaniesAct61of1973,asamended,theArticlesofAssociationoftheCompanyandtheJSELimitedListingsRequirements.

Specialbusiness7. SpecialResolution:“Resolvedthatintermsoftheauthoritygrantedinthearticlesofassociationofthecompanyand/

oranysubsidiaryofthecompany,thecompanyand/oritssubsidiariesbeandareherebyauthorised,bywayofageneralapproval,toacquirethecompany’sownordinaryshares(shares),uponsuchtermsandconditionsandinsuchamountsasthedirectorsofthecompany(and,inthecaseofanacquisitionbyasubsidiary(ies),thedirectorsofthesubsidiary(ies)),mayfromtimetotimedecidebutsubjecttotheprovisionsoftheCompaniesAct61of1973,asamended(theAct)and


203

theJSELimited(JSE)ListingsRequirementsandanyotherstockexchangeuponwhichthesharesofthecompanymaybequotedorlisted,subjecttothefollowingconditions:

(a) thatthisauthorityshallbevaliduntilthenextannualgeneralmeetingofthecompany,orfor15monthsfromthedateofpassingofthisresolution,whicheverperiodisshorter;

(b) thatanyrepurchasesofsharesintermsofthisauthoritybeeffectedthroughtheorderbookoperatedbytheJSEtradingsystemanddonewithoutanypriorunderstandingorarrangementbetweenthecompanyandthecounter-party,suchrepurchasesbeingeffectedbyonlyoneappointedagentofthecompanyatanypointintime,andeffectedonlyifaftertherepurchasethecompanystillcomplieswiththeminimumspreadrequirementsstipulatedintheJSEListingsRequirements;

(c) thattheacquisitionsinanyonefinancialyearshallbelimitedto10%(tenpercent)oftheissuedsharecapitalofthecompanyatthedateofthisannualgeneralmeeting,providedthatanysubsidiary(ies)mayacquiresharestoamaximumof10%(tenpercent)oftheissuedsharecapitalofthecompanyatthedateofthisannualgeneralmeeting,providedthatanysubsidiary(ies)mayacquiresharestoamaximumof10%(tenpercent)oftheaggregateofthesharesinthecompany;

(d) thatanyacquisitionofsharesintermsofthisauthority,maynotbemadeatapricegreaterthan10%(tenpercent)abovetheweightedaveragemarketvalueofthesharesoverthe5(five)businessdaysimmediatelyprecedingthedateonwhichtheacquisitioniseffected;

(e) therepurchaseofsharesmaynotbeeffectedduringaprohibitedperiod,asdefinedintheJSEListingsRequirementsunlessarepurchaseprogrammeisinplace,wheredatesandquantitiesofsharestobetradedduringtheprohibitedperiodarefixedandfulldetailsoftheprogrammehavebeendisclosedinanannouncementoverSENSpriortothecommencementoftheprohibitedperiod;and

(f) thatanannouncementcontainingfulldetailsofsuchacquisitionsofshareswillbepublishedassoonasthecompanyand/oritssubsidiary(ies)has/haveacquiredsharesconstituting,onacumulativebasis,3%(threepercent)ofthenumberofsharesinissueatthedateoftheannualgeneralmeetingatwhichthisspecialresolutionisconsideredand,ifapproved,passed,andforeach3%(threepercent)inaggregateoftheinitialnumberacquiredthereafter.

ReasonforandeffectofthespecialresolutionThereasonfor,andtheeffectofthisspecialresolutionistograntthedirectorsageneralauthorityintermsoftheActand,subjecttotheJSEListingsRequirementsandanyotherstockexchangeuponwhichthesharesofthecompanymaybequotedorlisted,toapprovetheacquisitionbythecompanyoroneofitssubsidiaries,ofthecompany’sownsharesonthetermssetoutabove.

Thedirectorsofthecompanyhavenospecificintentiontoacquireanyofthecompany’sshares,apositionwhichwill,asandwhenrequiredbythedirectors,bere-examinedhavingregardtoprevailingcircumstancesand,afterconsideringtheeffectsofamaximumrepurchase,thedirectorsareoftheopinionthat:

(a) thegroupandthecompanywillbeabletopayitsdebtsastheybecomedueintheordinarycourseofbusinessforaperiodof12(twelve)monthsafterthedateofnoticeoftheannualgeneralmeeting;

(b) theassetsofthegroupandthecompany,willbeinexcessoftheliabilitiesofthegroupandcompanytheforaperiodof12(twelve)monthsafterthedateofnoticeoftheannualgeneralmeeting.Forthispurpose,theassetsandliabilitieswillberecognisedandmeasuredinaccordancewiththeaccountingpoliciesusedinthelatestauditedannualfinancialstatements;

(c) theissuedsharecapitalandreservesofthegroupandthecompanywillbeadequateforordinarybusinesspurposesforaperiodof12(twelve)monthsafterthedateofnoticeoftheannualgeneralmeeting;and

(d) theworkingcapitalofthegroupandthecompanywillbeadequateforordinarybusinesspurposesforaperiodof12(twelve)monthsafterthedateofnoticeoftheannualgeneralmeeting.

ThecompanywillensurethatitssponsorprovidesthenecessarylettertotheJSEontheadequacyoftheworkingcapitalintermsoftheJSEListingsRequirements,priortothecommencementofanypurchaseofthecompany’ssharesontheopenmarket.


Notice to shareholders continued

Thedirectors,whosenamesaregivenonpages10and11oftheannualreport,collectivelyandindividuallyacceptfullresponsibilityfortheaccuracyoftheinformationgiveninthatreportandcertifythattothebestoftheirknowledgeandbelieftherearenofactsthathavebeenomittedthatwouldmakeanystatementfalseormisleading,andthatallreasonableenquiriestoascertainsuchfactshavebeenmadeandthattheannualreportcontainsallinformationrequiredbylawandtheJSEListingsRequirements.

Thecompanyisnotawareofanylegalorarbitrationproceedings,includinganyproceedingsthatarependingorthreatenedthatmayhaveorhavehadintherecentpast,ieatleasttheprevious12months,amaterialeffectonthefinancialpositionofthegroup.

Shareholders’attentionisdrawntothefollowinginformationthatisrequiredtobedisclosedandwhichiscontainedinthepagesoftheannualreportreferredto:• independentnon-executiveandexecutivedirectors:pages10and11• majorshareholders:page198• directors’interestsinsecurities:pages62and63• sharecapitalofthecompany:page131

Anymemberentitledtoattendandvoteattheannualgeneralmeetingisentitledtoappointaproxytoattend,speakandvoteinhisstead.Thepersonsoappointedneednotbeamemberofthecompany.Proxyformsshouldbeforwardedtoreachthecompany’stransfersecretariesbynolaterthan11:00onFriday,8May2009.Thecompletionofaproxyformwillnotprecludeamemberfromattendingtheannualgeneralmeeting.

Pleaserefertothenotestotheproxyformonpage206foradditionalguidanceoncompletionoftheproxyformandattendanceattheannualgeneralmeeting.

Beneficialshareholderswhosesharesarenotregisteredintheirownnamebutinthenameofanother,forexampleanominee,mustnotcompleteaformofproxyorattendtheannualgeneralmeetingunlessaformofproxyisissuedtothembytheregisteredshareholder.ThiswillincludeshareholderswhoseshareshavebeendematerialisedinthenameofanomineeofaCSDP,abrokerorComputershareNominees(Proprietary)Limited.BeneficialshareholderswhoarenotregisteredshareholdersshouldcontacttheregisteredshareholderortheArcelorMittalSouthAfricaShareCareLine(0800006960or+27113707850ifyouarecallingfromoutsideSouthAfrica)forassistanceinissuinginstructionsonvotingtheirsharesorobtainingaformofproxytoattendtheannualgeneralmeeting.

ShareholdersholdingdematerialisedsharesinthecompanythroughaCSDPorbroker,otherthanwithan“ownname”registration,musttimeouslyadvisetheirCSDPorbrokeroftheirintentiontoattendandvoteattheannualgeneralmeetinginorderfortheirCSDPorbrokertoprovidethemwiththenecessaryauthorisationtodoso,orshouldtheynotwishtoattendtheannualgeneralmeetinginpersonbutwishtoberepresentedthereat,theymusttimeouslyprovidetheirCSDPorbrokerwiththeirvotinginstructioninorderfortheCSDPorbrokertovoteinaccordancewiththeirinstructionattheannualgeneralmeeting.

Theformofproxymustbelodgedat,postedorfaxedtothetransfersecretaries,ComputershareInvestorServices(Proprietary)Limited,at70MarshallStreet,Johannesburg(POBox61051,Marshalltown,2107)orfaxedto+27116887721tobereceivednolaterthan48hoursbeforethetimefixedfortheannualgeneralmeeting(excludingSaturdays,SundaysorSouthAfricanpublicholidays).

Byorderoftheboard

CSinghCompanySecretary

13March2009


205

Form of proxy

ArcelorMittalSouthAfricaLimited(IncorporatedintheRepublicofSouthAfrica)(Registrationnumber1989/002164/06)JSECode:ACLISIN:ZAE000103453(“ArcelorMittalSouthAfricaLimited”or“thecompany”)

Formofproxyforuseatthetwenty-firstannualgeneralmeetingofthecompany,tobeheldonTuesday,12May2009at11:00inTheHilton,138RivoniaRoad,Sandton,Johannesburg.

Only registered shareholders who are registered in the register of members of the company under their own name may complete a form of proxy or attend the annual general meeting. This includes registered shareholders who have not dematerialised their shares, ie who still hold their ArcelorMittal South Africa share certificate/s, or shareholders who have dematerialised their shares in their own name.

Deliverto or Mailto or FaxtoComputershareInvestorServices(Pty)Ltd70MarshallStreetJohannesburg

ComputershareInvestorServices(Pty)LtdPOBox61051Marshalltown,2107

+27(0)116887721

I/We

(nameinblockletters)

of(address):

beingtheholder/sof sharesinthecompanydoherebyappoint(seenote1)(numberofshares)

1 or,failinghim/her,

2 or,failinghim/her,

thechairmanoftheannualgeneralmeeting,asmy/ourproxytoactforme/usatthetwenty-firstannualgeneralmeetingofthecompanywhichwillbeheldinTheHilton,138RivoniaRoad,Sandton,Johannesburgon12May2009at11:00andatanyadjournmentthereof,andtovoteforme/usonmy/ourbehalfortoabstainfromvotingasindicatedbelow:

For Against AbstainOrdinarybusiness1 Adoptionof2008financialstatements

2 a)Re-electionofKDKMokhele

b)Re-electionofCPDCornier

c)Re-electionSMaheshwari

d)Re-electionofAMHOPoupart-Lafarge

e)Re-electionofHJVerster

3 Approvalofnon-executivedirectors’fees

4 Approvalofnon-executivedirectors’futurefees

5 Reappointmentofauditfirmandauditpartner

6 Authoritytoissueunissuedshares

Specialbusiness7 Authoritytorepurchaseshares Signedat this dayof 2009

(Signature) Assisted by me (where applicable)

Pleaseseenotesonreverse


Notes

1. Onlyregisteredshareholderswhoareregisteredintheregisterofmembersofthecompanyundertheirownnamemaycompleteaformofproxyorattendtheannualgeneralmeeting.Thisincludesregisteredshareholderswhohavenotdematerialisedtheirshares,iewhostillholdtheirArcelorMittalSouthAfricasharecertificate/s,orshareholderswhohavedematerialisedtheirsharesintheirownname.

2. Beneficialshareholderswhosesharesarenotregisteredintheirownnamebutinthenameofanother,forexample,anominee,mustnotcompleteaformofproxyorattendtheannualgeneralmeetingunlessaformofproxyisissuedtothembytheregisteredshareholder.ThisincludesshareholderswhoseshareshavebeendematerialisedinthenameofanomineeofaCSDP,abrokerorComputershareNominees(Pty)Limited.BeneficialshareholderswhoarenotregisteredshareholdersshouldcontacttheregisteredshareholderortheArcelorMittalSouthAfricaShareCareLine(0800006960or+27113707850)ifyouarecallingfromoutsideSouthAfrica)forassistanceinissuinginstructionsonvotingyoursharesorobtainingaformofproxytoattendtheannualgeneralmeeting.

3. ShareholdersholdingdematerialisedsharesinthecompanythroughaCSDPorbroker,otherthanwithan“ownname”registration,musttimeouslyadvisetheirCSDPorbrokeroftheirintentiontoattendandvoteattheannualgeneralmeetinginorderfortheirCSDPorbrokertoprovidethemwiththenecessaryauthorisationtodoso,orshouldtheynotwishtoattendtheannualgeneralmeetinginpersonbutwishtoberepresentedthereat,theymusttimeouslyprovidetheirCSDPorbrokerwiththeirvotinginstructioninorderfortheCSDPorbrokertovoteinaccordancewiththeirinstructionattheannualgeneralmeeting.

4. AnArcelorMittalSouthAfricashareholdermayinsertthenameofaproxyorthenamesoftwoalternativeproxiesofhis/herchoiceinthespaceprovided,withorwithoutdeleting“thechairmanoftheannualgeneralmeeting”.Thepersonwhosenamestandsfirstontheformofproxyandwhoispresentattheannualgeneralmeetingwillbeentitledtoactasproxytotheexclusionofthosewhosenamesfollow.

5. AnArcelorMittalSouthAfricashareholder’sinstructionstotheproxymustbeindicatedbytheinsertionintheappropriateboxprovidedoftherelevantnumberofordinarysharesinrespectofwhichhe/shewishestoexercisehis/hervotes.Failuretocomplywiththeabovewillbedeemedtoauthorisethechairmanoftheannualgeneralmeeting,ifheistheauthorisedproxy,tovoteinfavouroftheordinaryresolutionsattheannualgeneralmeeting,oranyotherproxytovoteortoabstainfromvotingattheannualgeneralmeetingastheproxydeemsfit,inrespectofalltheArcelorMittalSouthAfricashareholder’svotesexercisablethereat.

6. Thisformofproxymustbelodgedat,postedorfaxedtothetransfersecretaries,ComputershareInvestorServices(Pty)Limited,at70MarshallStreet,Johannesburg(POBox61051,Marshalltown,2107)orfaxedto+27116887721tobereceivednolaterthan48hoursbeforethetimefixedfortheannualgeneralmeeting(excludingSaturdays,SundaysorSouthAfricanpublicholidays).

7. Thecompletionandlodgingofthisformofproxywillnotprecludetheordinaryshareholderfromattendingtheannualgeneralmeetingandspeakingandvotinginpersonthereattotheexclusionofanyproxyappointedintermshereof,shouldsuchshareholderwishtodoso.

8. Thechairmanoftheannualgeneralmeetingmayrejectoracceptanyformofproxywhichiscompletedand/orreceivedotherwisethaninaccordancewiththesenotes.

9. Documentaryevidenceestablishingtheauthorityofapersonsigningthisformofproxyinarepresentativecapacitymustbeattachedtothisformofproxyunlesspreviouslyrecordedbythecompany’stransfersecretariesorwaivedbythechairmanoftheannualgeneralmeeting.

10. Anyalterationorcorrectionmadetothisformofproxymustbeinitialedbythesignatory/ies.

11. Acompanyoranyotherbodycorporatewishingtovoteonashowofhandsshouldensurethattheresolutionrequiredbysection188oftheSouthAfricanCompaniesAct,1973(Act61of1973),asamended(theAct),toauthorisearepresentativetovote,ispassedbyitsdirectorsorothergoverningbody.Resolutionsauthorisingrepresentativesintermsofsection188oftheActmustbereceivedbythecompany’stransfersecretariesnolaterthan48hourspriortothetimefixedfortheannualgeneralmeeting(excludingSaturdays,SundaysorSouthAfricanpublicholidays).


BASTION GRAPHICS


http://www.arcelormittal.com/southafricaArcelorMittal South AfricaRoom N3-5Main BuildingDelfos BoulevardVanderbijlpark 1911South Africa

ArcelorMittal South Africa Lim

ited Annual Report 2008

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