UNCLAS SECTION 01 OF 04 PRETORIA 001099

SIPDIS

STATE PLEASE PASS USAID
STATE PLEASE PASS USGS

E.O. 12958: N/A
TAGS: EPET ENRG EINV EIND ETRD ECON SF
SUBJECT: SOUTH AFRICA: MINERALS AND ENERGY NEWSLETTER "THE
ASSAY" - ISSUE 2, FEBRUARY 2005

REF: A) PRETORIA 3049, B) PRETORIA 2998

THIS CABLE IS NOT FOR INTERNET DISTRIBUTION.


1. (U) Introduction: In January 2004, the Economic Section
of Embassy/Pretoria produced the first issue of a new monthly
newsletter called "The Assay". The purpose of this monthly
newsletter is to highlight minerals and energy developments
in South Africa. This includes trade and investment as well
as supply. South Africa hosts world-class deposits of gold,
diamonds, platinum group metals, chromium, zinc, titanium,
vanadium, iron, manganese, antimony, vermiculite, zircon,
alumino-silicates, fluorspar and phosphate rock, and is a
major exporter of steam coal. South Africa is also a leading
producer and exporter of ferroalloys of chromium, vanadium,
and manganese. The information contained in the newsletters
is based on public sources and does not reflect the views of
the United States Government. End introduction.

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Key
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2. (U) Key to some of the terminology and abbreviations used
is given to facilitate understanding.

BEE (Black Economic Empowerment) - the scheme whereby the
South African Government promotes black participation in
business.

- t = tons,
- t/d = tons per day,
- c/l = cents per liter,
- t/m = tons per month,
- t/y = tons per year,
- oz = troy ounces (31.1 grams),
- cmg = centimeter grams,
- mcf = million cubic feet,
- tcf = trillion cubic feet,
- R = SA currency (rand),
- MW = megawatts,
- kt = thousand tons,
- bbl/d = barrels per day,
- MW = megawatts,
- PGM = platinum group metals.

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MINING INDABA 2005
--------------
Indaba 2005 - 10th Anniversary of "Investing in African
Mining" Conference
-------------- --------------


3. (U) The Mining Indaba (the Zulu word for conference), held
annually in Cape Town, is the premier investment conference

for the mining industry on the African continent. The
conference has matured as both a venue to gather more
information about mineral production and active projects, as
well as a place to negotiate business. This issue of The
Assay is devoted to relating information provided in company
presentations at this year's Indaba.

Energem: Where No Company Dares to Go
--------------


4. (U) Brian Menell, Executive Chairman of Energem Resources,
a mid-tier diversified resources company, said that his
company "welcomes the African challenge." Currently, Energem
has projects in 14 African countries, including the Central
African Republic, Congo Brazzaville, Namibia, Angola, Sierra
Leone, Madagascar, Nigeria, Kenya, Zambia, and Gabon. When
DiamondWorks changed its name to Energem in May 2004, the
company was based in Namibia, where it had established a
marine diamond mining operation with Samicor Mining Services
Ltd., the mining arm of Israeli diamond dealer Lev Leviev.
Energem is listed on the Toronto Stock Exchange and has grown
from diamond mining and exploration into a diversified
natural resources company focusing on diamond and mineral
exploration, upstream and midstream oil and gas production,
industrial chemicals, logistics, and commodity trading (it
owns 60% of the Swiss company Republic House AG).


5. (U) More recently, the company acquired a controlling
interest in FirstAfrica Oil, which has a 51% share of the
Gulf of Guinea Petroleum Company that has an oil play off
Gabon in the East Oravinyari oilfield. In addition, Energem
has a 40% share in the Koidu mine in Sierra Leone and
interests in the Yetwine and Luo diamond projects in Angola.
Energem has assets in the mid-stream petroleum distribution
sector through its 100% ownership of Otterbea International
that supplies refined fuel products to Zambia. It also has
contracts for the supply of refined petroleum to Malawi and
Kenya (a 55% share of Sceptre International which owns the
Kisumu Ethanol fuel additive plant), and is planning a deep-
water berth and storage facility for Nigeria. Energem is in
a joint venture that manages oil allocations granted to the
government of Sao Tome, and is investigating supply
opportunities in Angola and China (joint venture with
PetroChina International). Energem is currently carrying
out mineral exploration in a number of African countries.

New Platinum Major
--------------


6. (U) Newly incorporated Southern African Resources (SAR) is
looking to become a major platinum producer in the not too
distant future, according to Executive Director Roy
Pitchford. Pitchford told the Mining Conference that
Southern African Resources owned the rights to the lucrative
Leeuwkop property in South Africa's bushveld complex,
adjacent to Lonmin's Eastern and Western platinum mines.
Leeuwkop had an estimated resource base of over 100 million
oz of PGM's, but this figure needed to be proven up. The
company is actively seeking investors to fund feasibility
studies and a drilling campaign. Southern African Resources
listed on the Alternative Investment Market on the London
Stock Exchange in 2002, and Pitchford said that the company
was also looking to list in the United States.


7. (U) Pitchford and his experienced management team had
already raised $3.3 million, and planned to invest $250
million in the construction of a mine capable of producing
300,000 oz a year. That would make Southern African
Resources the 5th largest platinum producer in the world,
behind AngloPlats, Implats, Lonplats, and Northam. Pitchford
said that by mid-2005, he expected the pre-feasibility study
would be completed and Southern African Resources could start
its drilling program as part of what will become a bankable
feasibility study. He said that Southern African Resources
had also obtained permits to explore in Botswana, Zimbabwe
and Mozambique.

Waterberg - The Future of Coal in South Africa
-------------- -

8. (U) Dr. Con Fauconnier, Chief Executive of Kumba Resources
(now 67% owned by Anglo American), told the Indaba that the
Waterburg Coalfield was the future of coal in South Africa,
even though Kumba's Grootegeluk Mine was the only mine
exploiting the field.


9. (U) The Waterberg lies about 300 km northwest of
Johannesburg and extends into Botswana, where local
authorities are investigating the commercial viability of a
potential coal mine. Earlier studies by the Department of
Minerals and Energy (DME) showed the Waterberg basin to
contain 32% of the country's 55 billion tons of in-situ coal
reserves. However, these calculations were imprecise because
they lacked definitive information about the economic
viability of the field. Latest and more precise DME
estimates of Waterberg reserves, incorporating data from the
Grootegeluk Mine, indicate that proven reserves in the
Waterburg may only be 3% of the country's total, while
resources may exceed 50% of the country's total, but proven
reserves. The newly accepted precision required in
calculating reserves has, therefore, moved the major portion
of in situ coal into the resources category. After more
exploratory work is done, more Waterberg coal should again be
classified as reserves.


10. (U) The Grootegeluk mine produces coal from a 115-meter
thick deposit that contains 11 coal zones comprising 3
billion tons of mineable coal. Commissioned in 1980, the
mine was originally established to supply coking coal to
Iscor Steel. Today, Grootegeluk boasts the largest coal
beneficiation plant in the world, and supplies steam coal for
electricity, metallurgical coal to ferroalloy plants,
blending and coking coals to the steel industry, and may
potentially supply coal to synfuel and petrochemical
producers someday. In addition, Anglo American is
investigating the field's methane potential. Fauconnier, who
was recently re-elected as President of the South African
Chamber of Mines, said that he believed the potential of the
Waterberg would attract as much as $9 billion in investment
in mining, beneficiation, power generation, and the
production of high value coal products. He believed that
coal production could rise to well over 40 m t/y From the
current 17 mt/y, and employ up to 11 000 workers (from the
current 4,000).

First Quantum Reviving African Copper
--------------

11. (U) Philip Pascall, CEO of First Quantum Minerals, Ltd.,
a Toronto-listed mining and metals company, told the Indaba
that his company was engaged in mineral exploration,
development, mining, smelting and refining of copper and
cobalt in Africa. In particular, the company was active in
the world class Zambian-Democratic Republic of the Congo
(DRC) copper-cobalt belt that traversed the boundary between
the two countries. Pascal said that he expected First
Quantum to increase its copper production from Zambia and the
DRC to 250,000 t/y by 2006. Total Zambian production is
currently about 400,000 t/y. In the mid-1960's the Zambian
copperbelt produced 825,000 t/y of copper.


12. (U) First Quantum operates both the Bwana Mkubwa (Zambia)
and the Lonshi (DRC) mines. Pascall said that the company
wanted to bring the Kansanshi (Zambia) and Lufua (DRC)
projects on line during 2005 and 2006, respectively. He said
that Kansanshi was First Quantum's flagship, and that it
should be producing 145,000 t/y of copper by 2008. Pascal
believed that the world would require 200 mt of copper over
the next decade (current production is about 14 mt/y), and
that Zambia and the DRC would have to supply a significant
portion of this additional production. He commented that the
cross-border relationship between the Zambia and the DRC was
good, enabling most of First Quantum's DRC production to be
transported to Zambia for processing.

Diamonds
--------------


13. (U) Gary Ralfe, CEO for the De Beers Group, laid out his
company's plans (at the Indaba) to spend $110 million on
worldwide exploration in 2005. Ralfe also said that De Beers
would cooperate with the governments of South Africa,
Botswana, and Namibia to foster the development of local
jewelry industries, though he announced no commitments.
Maurice Templesman, Chairman of Lazare Kaplan International,
did take the plunge, however, when he announced plans to
assist a women's group to start a local jewelry manufacturing
enterprise in South Africa. A number of African governments
see diamond polishing, cutting, and jewelry manufacturing as
vital for job-creation and as a driver of economic
development.


14. (U) SouthernEra Diamonds and Energem Resources
(Canadian), Namakwa Diamonds (Australian), and ministers from
Angola, Sierra Leone, the DRC, Mozambique, Madagascar, and
Tanzania, also gave presentations that included diamond
exploration and mining. At this point, Botswana, South
Africa, Namibia, the DRC, and Tanzania are significant
producers in the SADC region, but Zimbabwe and Lesotho are
also producing. In West Africa, only Sierra Leone and
Liberia are significant producers. The craton theory of the
origin of diamonds has created some exploration interest in
Madagascar, Cote D'Ivoire, the Central African Republic
(CAR), Gabon, and Zambia.

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OTHER DEVELOPMENTS
--------------
Assmang to Produce More Iron and Manganese
--------------


15. (U) Plans by Assmang, the joint venture between African
Rainbow Minerals (ARM) (54%) and Assore (46%), are underway
to substantially increase the production and export of iron
ore and manganese ore from their mines in the Northern Cape
Province, and to secure greater rail capacity for export and
local sales. Increased demand from China for these ores
(used in steel-making) has provided the opportunity for
Assmang to expand brown- and green-field production. Some
$700,000 was invested in the company over the past nine
years, some of which was to complete a feasibility study
(decision by yearend) for the proposed new iron-ore mine, to
be located next to Kumba Resources' giant Sishen mine, and
the Orex rail line.


16. (U) In tandem with Kumba, Assmang is negotiating with
Spoornet to expand rail capacity on the Orex line, which runs
from Sishen to the port of Saldanha and for the upgrade in
capacity and efficiency of the Port Elizabeth rail line that
carries their manganese ore. According to Frans Bruwer,
Spoornet Operations Manager at Saldanha Bay, Assmang plans to
increase exports from the current 5 mt/y to 15 mt/y.

South African Company Buys Coal Terminals
--------------


17. (U) The South African shipping company Grindrod (GND) has
acquired control of the Namibian-listed African Portland
Industrial Holdings Limited (API), the owner of Matola Coal
Terminal in Mozambique and the Walvis Bay Coal Terminal in
Namibia. The purchase of 72% of API gives the group access
to bulk terminals on the eastern and western seaboard of
Africa. Grindrod Director Laurence Stuart-Hill said the deal
amounted to $5 million.


18. (U) The Matola terminal in Maputo, with the capacity to
handle about 1.5 mt/y of coal, has the potential to grow as
it lies in close proximity to South Africa's main coalfields
and to the chrome, vanadium, and iron ore deposits of the
east and north limbs of the Bushveld Complex. Stuart-Hill
told the press that Grindrod aimed to expand its presence in
the Port of Maputo to service a wider customer base and
provide synergies for its shipping lines, particularly in the
bulk sector.

FRAZER