ArcelorMittal South Africa has posted a headline loss of R65 million for the third quarter of 2009 which represents a substantial improvement on the R607 million loss of the previous quarter. However, the depressed market conditions that continued to prevail are especially evident when compared to the record headline profit of R3 772 million achieved during the third quarter last year. The improvement from the previous quarter was driven by a 19% rise in sales volumes, a moderate improvement in steel prices and lower raw material input costs as expensive coal contracts started to run out by the middle of the third quarter. Profit from our Coke and Chemicals business also showed a significant improvement from the previous quarter as demand for market coke from the ferro- alloy industry started to recover. The stronger Rand continued to have a negative impact on our financial performance. Cash costs per ton of hot rolled coil for the quarter decreased by 8.7% compared to the previous quarter and by 10.9% compared to the corresponding period last year. The cash costs of billets decreased by 12.3% and 17.8% respectively. The reduced costs were mostly the result of lower coal prices and higher production volumes. The cash flow for the quarter was a positive R684 million and increased the company`s cash balance to R3 697 million. Market review International market International demand for steel in almost all regions improved during the third quarter of 2009 but the price of steel products - although showing modest gains over the past few months - remained subdued as steel producers started to bring production capacity back on stream. It is also apparent that inventory de- stocking is essentially completed. ArcelorMittal South Africa`s exports increased by 17% from the second quarter to 402 000 tonnes in the third quarter. Domestic market Output growth in the South African economy remained weak in the third quarter of 2009. Real gross domestic product contracted at a rate of 6.4% in the first quarter of 2009 and by 3% in the second quarter. Early indications are that economic growth in the third quarter will still be negative, though at a reduced rate. The uncertain economic outlook, tight credit conditions and the negative impact of the strong Rand on the ability of export orientated industries to compete internationally, continue to depress domestic sales. Notwithstanding the relatively low inventory levels in the domestic market and the slow pace at which buyers are replenishing their inventories in light of the uncertain economic outlook, quarter three sales increased by 20% to 847 000 tonnes compared to the previous quarter. Sales though are still 33% below the levels achieved a year ago. Operational review Liquid steel production for the third quarter of 2009 totalled 1 365 000 tonnes, an increase of 12% compared to the previous quarter, but still 26% below the corresponding period last year. Production levels in the first six months of 2009 were at about 60% of total capacity and increased to over 70% in quarter three. We have prepared Blast Furnace C at Vanderbijlpark Works for a restart and will resume production as soon as market conditions justify an increase in volumes. Both Newcastle Works and Saldanha Works are currently running at full production. Contingent liabilities The case brought before the Competition Tribunal (the "Tribunal") by gold miners Harmony Gold Mining Company Limited and DRDGold Limited, which was appealed to and subsequently remitted back by the Competition Appeal Court to the Tribunal, has been settled. A formal notice of withdrawal was submitted to the Tribunal. Another case brought by Barnes Fencing Industries Limited relating to alleged price and payment discrimination on the sale of low carbon wire rod products continues in accordance with Tribunal procedures. A date for the hearing has not been set. The Competition Commission investigated ArcelorMittal South Africa, together with four other primary steel producers in South Africa in respect of alleged market collusion and price fixing relating to certain long steel products. The Competition Commission has referred the matter to the Tribunal for adjudication and recommended a financial penalty of 10% of the company`s 2008 turnover. ArcelorMittal South Africa is in the process of preparing its response to the Competition Commission`s complaint referral. Safety, health and environment Notwithstanding actions taken to improve safety performance, the third quarter saw a deterioration in the lost time injury frequency rate from 1.8 injuries per 1 million man-hours worked reported in the second quarter to 3.3 injuries per 1 million man-hours worked. A fatal incident occurred at Vanderbijlpark Works which is regrettable given our quest to achieve zero fatalities and injuries. This strengthens management`s commitment to improve safety performance. Environmental matters feature prominently in the company`s priority list, though the severe impact of the global economic crisis has necessitated the postponement of capital spending on some environmental projects. Nevertheless, we are nearing completion on two crucial projects that will significantly mitigate the company`s environmental impact: - The installation of a dust extraction system at the steelmaking facilities of Vereeniging Works is progressing well and is scheduled for completion by the end of this year. - The Coke Oven Gas and Water Cleaning project at Vanderbijlpark Works should be operational during the fourth quarter of 2009. The project will achieve an approximate 40% reduction in SO2 emissions at the plant. Capital projects As a result of the adverse economic climate a number of projects that were suspended in the first half of the year have been re-activated. After more than 30 years of continuous operation, the Tinning Line at Vanderbijlpark Works is undergoing structural repairs and is scheduled for completion in the fourth quarter. Resignation of directors Dr LGJJ Bonte will resign as President and as Executive Director of the company with effect from 30 November 2009. Dr KDK Mokhele has informed the board of directors of ArcelorMittal South Africa ("the Board") that he will resign as Independent Non-executive Director and Chairman of the Board with effect from 4 December 2009. Outlook for fourth quarter Results in the fourth quarter of 2009 are expected to improve further, driven by higher sales and lower costs, with lower coal prices making the largest contribution. The Rand`s performance is a critical variable in our outlook for the quarter. Domestic demand is set to recover further during the fourth quarter on the back of a stronger international economy and a slight easing of credit requirements by the banking sector. However, the seasonal slowdown in domestic activities during the December holiday season will have an influence on the sales volumes. The recovery in the global economy should continue to boost demand for steel globally. Steel price improvements will depend on the discipline steel producers exercise in aligning production with demand.