Following coal mine disaster, Mittal comes under investors' fire

Following coal mine disaster, Mittal comes under investors' fire

21st January 2008

A recent disaster at a Kazakhstan coal mine, (mis)managed by the world's biggest steel-maker, Arcelor-Mittal is now raising concerns not only among workers and communities, but also investors, about the company's practices.

But, whatever the promises made by the company to avoid such "incidents" in future, that will arguably be impossible, given the breakneck speed with which the operations have been acquired and are run.

As the Financial Times commented last Monday:

"Mr Mittal and his most senior lieutenants will have their work cut out in the next few years in making sure that their positive words about implementing these standards are translated into reality ."

Mittal turns attention to improving safety

By Peter Marsh, Financial Times

21st January 2008

As Lakshmi Mittal’s rise to global business prominence has gathered pace over the past decade, the Indian steel magnate has had a lot to smile about. But in recent days, he has been far from cheerful, in the wake of a serious accident in his company’s Kazakhstan operations that killed 30 people.

The blast in the Abaiskaya coal mine run by ArcelorMittal – of which Mr Mittal is chief executive and main shareholder – is the latest in a series of accidents in Kazakhstan that has led to 191 deaths since the company started operating in the country in 1996.

While nothing like as big a series of health and safety incidents has happened anywhere else in ArcelorMittal’s global operations, Georges Ugeux, chairman of Galileo Global Advisors, a New York investment group, believes the string of incidents illustrates a potential weakness to the company’s activities.

Last year, Mr Mittal’s previous company – Mittal Steel – bought Luxembourg-based Arcelor. Prior to this, its forte was to acquire outdated plants and other operations in countries in the former Soviet Union, plus other parts of the world where safety standards have been less than rigorous.

ArcelorMittal is today by far the world’s biggest steel company – with an output three times higher than its closest rival. It also runs a series of coal and iron ore mines scattered globally. It has steel plants in countries as diverse as Algeria, the US, Czech Republic, Brazil and Ukraine, and hopes within a few years to start up production in China and India.

For all the company’s international prominence, Mr Ugeux believes ArcelorMittal still has to demonstrate that it can impose the same level of operational excellence – including adherence to top-class health and safety codes – in the more far-flung parts of its global empire as is required in developed regions such as western Europe, the US and Japan.

“The Kazakhstan accident has raised questions in people’s minds as to operational procedures across the whole of the company,” Mr Ugeux says. Hermannn Reith, a steel analyst at BHF Bank in Frankfurt, says he recognises the difficulties of unifying standards across such a geographically diverse company.

Even so, the accidents in Kazakhstan – mostly involving blasts at the company’s coal mines in the country – would lead to “negative” perceptions about ArcelorMittal’s entire activities.

Few doubt Mr Mittal’s interest in improving ArcelorMittal’s health and safety record. He addressed union officials representing some of his company’s workers at a conference in Montreal last year and promised to investigate claims that employees in Macedonia were being told by local managers to keep health and safety worries to themselves in order to minimise short-term plant disruptions.

In the aftermath of the January 11 blast at Abaiskaya, he spent two days in the country, visiting families of the victims, and arrived back in his London operational headquarters in a sombre mood.

“Health and safety is [the company’s] number one priority,” he says. It is “desperately disappointing”, he says, to have to face up to another bad accident in a Kazakhstan mine, so soon after an explosion in 2006 at another mine run by ArcelorMittal in the country that killed 41 people.

An earlier big explosion in Kazakhstan – this time in Mr Mittal’s Shakhtinskaya coal mine – led to 23 deaths in 2004. ArcelorMittal has 50,000 employees in Kazakhstan. In spite of the deaths, ArcelorMittal believes its health and safety record in its Kazakhstan coal mines is improving, taking into account all accidents severe enough to prevent an employee coming to work the next day.

The number of “lost day” incidents in the mines last year, it says, was 171, down from more than 300 in 2003, and about one-seventh of the figure for 1997.

Mr Mittal can in fairness also point to the hazardous nature of operating coal mines in Kazakhstan – where methane is found throughout the tunnels and shafts, and is relatively difficult to extract through pumps as the local rock structure is fairly unporous.

Even so, he insists this must not be an excuse for low quality safety standards and the run of accidents and fatalities.

As for the health and safety record of the company as a whole, ArcelorMittal says the accident rate for all its operations – measured as the number of lost working days for every million hours worked – fell to 3.2 in 2007, from 4.2 the year before. Figures for previous years are not available, in part because of the problems of unifying health and safety data across a company that has grown so quickly in a short time.

Given that the breakneck speed at which the group has expanded might have contributed to the difficulties in ensuring that health and safety practices are uniformly high, Mr Mittal and his most senior lieutenants will have their work cut out in the next few years in making sure that their positive words about implementing these standards are translated into reality.Copyright The Financial Times Limited 2008