South Africa: Minerals and Energy Newsletter `THE

UNCLAS SECTION 01 OF 04 PRETORIA 000849

SIPDIS

DEPT PLEASE PASS USAID
DEPT 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 1, January 2005

REF: A) 2004 PRETORIA 3049, B) 2004 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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NEWS
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Aquarius Platinum Lists on JSE
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On December 8, after nearly two years in the offing,
Aquarius Platinum Ltd. (Australia) became the first foreign
company to list on the main board of the JSE Securities
Exchange in South Africa, following the relaxation of
exchange control regulations last year. The move means that
Aquarius may now raise capital in South Africa. The listing
will enable the Savannah Resources consortium, which has a
29.5% stake in subsidiary Aquarius Platinum (South Africa),
to convert its holding into JSE-traded shares in the parent
company. Savannah originally paid around $135 million for
its stake in Aquarius. Aquarius Platinum wholly owns the
Kroondal and Marikana platinum mines in South Africa, has a
50% interest in the Mimosa platinum mine in Zimbabwe, and is
developing the $122 million Everest South platinum mine in
South Africa. Individual South Africans may now buy shares
in Aquarius on the JSE without the $120,000 foreign exchange
control restriction they would otherwise face. More foreign
listings are expected during 2005, mainly from Australian
and Canadian mining companies.

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FERRO-CHROME
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Environmental Resistance to Tata Steel
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Tata Iron and Steel Company (TISCO) plans to construct a
$100 million, 240,000 t/y ferro-chrome smelter at Richards
Bay. However, local environmental groups oppose the
project, arguing that it will place undue stress on the
environment and the area's limited infrastructure. Mondi,
Anglo American's paper products subsidiary, also opposes the
smelter on the grounds that the pollution is likely to
contaminate its paper products, some of which are used for
food packaging. Anglo has offered TISCO an alternative site
in the area (owned by Anglo) but to date nothing has been
decided. TISCO believes that construction would create 1800
jobs and that smelter operations would employ 120 permanent
workers.

Cheap electricity and the port had originally attracted
TISCO to Richards Bay. Cognizant of the potential
difficulties at Richards Bay, however, TISCO has let it be
known that it has identified alternative locations in
Australia and Canada. If given the go ahead for Richards
Bay, TISCO would begin first phase steel production in 2005
and reach full production in 2009. Tata is Asia's first and
India's second largest integrated private sector steel
company. In 2004, it produced more than 4 million tons of
steel.

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ENVIRONMENTAL IMPACT ASSESSMENTS
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Court Rules Against Government EIA Process
--------------
On January 26, the Western Cape High Court ruled that the
Department of Environmental Affairs and Tourism (DEAT) must
alter Environmental Impact Assessment (EIA) procedures to
allow stakeholders to review a final assessment if it
contains new information. This was the result of a case
filed by Earthlife Africa, an environmental group opposed to
the construction of an additional nuclear reactor at
Koeberg. Judge Ben Griesel stated that the court's ruling
had no bearing on the merits of nuclear energy or the
proposed Pebble Bed Modular Reactor (PBMR). DEAT has told
the press that it will appeal the judgment on principle,
since the ruling has wide ranging consequences for all
future EIA's. The PBMR, Ltd. Communications Manager said
that the new EIA requirement could delay PBMR's project by 3-
12 months, but should not affect the project construction
schedule as design and development work continues.

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RENEWABLE ENERGY
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High Hopes for New Solar Panel
--------------
South African scientists at the Rand Afrikaans University
(now part of the University of Johannesburg) have developed
an innovative solar panel that promises to be cheaper than
current silicon-based panels. Researchers hope that this
will make solar energy more affordable, particularly for
people in rural areas. The university team, under the
leadership of Physics Professor Vivian Alberts, has
developed an industrial method for producing copper-indium-
gallium-diselenide (CIGS) solar panels. A pilot production
facility, already in operation, can reportedly produce a 50-
watt panel for less than $100.

Alberts believes that large-scale production could bring
production costs of CIGS panels to less than U.S. 10 cents
per kWh. University planning for a full-scale commercial
production plant has been in process for the past 18 months,
and is at an advanced stage. If successful, CIGS solar
panels may help the South African Department of Minerals and
Energy meet its target of 10,000 gigawatt hours of annual
electricity production from renewable sources by 2012 (i.e.,
about 5% of current electricity consumption).

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GOLD
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Finance Minister Backs IMF Gold Revaluation
--------------
On January 17, South African Finance Minister Trevor Manuel
said that he supported a British proposal to revalue
International Monetary Fund (IMF) gold reserves as part of a
plan to reduce developing country debt. Under a 1971
agreement, most of the IMF's gold is currently valued at
between $40 and $50 an ounce, about a tenth of the current
market price. Proponents of the plan want the IMF to sell
gold to developing countries at its historical price, and
then repurchase it at current prices. They believe this
could raise about $30 billion for debt relief. Speaking on
the margins of a consultative meeting of Tony Blair's
Commission for Africa in Cape Town, Manuel said that, should
revaluation take place, South Africa would want to make sure
that most of the benefits accrued to African countries.

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COAL
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South African Coal Exports Down 5%
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South Africa's total coal exports decreased 5%, from 71.5 mt
in 2003 to 67.9 mt, in 2004, despite the fact that coal
prices were at historical highs. Richards Bay Coal Terminal
(RBCT) reported a decrease of 3.5%, from 68.31 mt in 2003 to
65.94 mt in 2004 - below its 69.0 mt target. Coal exports
at the Port of Durban also decreased by 42% in 2004, to 1.05
million tons, due mainly to increased rail tariffs and
higher freight rates. Coal exports out of the Matola Coal
Terminal in Maputo (Mozambique) decreased by 30% in 2004, to
937,000 tons. Companies pointed to rail bottlenecks and
power outages as the primary culprits.

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DIAMONDS
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Namibia Wants De Beers to Sell Local
--------------
Diamdel, a wholly-owned diamond-marketing subsidiary of De
Beers, plans to set up trading operations in Windhoek,
Namibia as soon as it finalizes an agreement with the
Government of Namibia on rough stone supply to Namibian
cutters. The Government of Namibia wants to promote the
development of a local jewelry industry, including cutting
and polishing. Diamdel currently supplies some 500 (mainly
small) clients, located in the world's leading diamond
centers with rough stones purchased from De Beers' Diamond
Trading Co (DTC). This volume represents a fixed proportion
of DTC's total sales, the lion's share of which is sold to
De Beers' `suppliers of choice' (most of whom are former
`sightholders.')

De Beers Raises Rough Diamond Prices by 3%
--------------
London-based Diamond Trading Company (DTC),the marketing
arm for De Beers, raised the price of diamonds by an average
of 3%, as of January 1. This announcement followed three
price hikes last year -- two at 5% each and one at 3%.
Reasons stated for the price increase included tight
supplies and the weak U.S. dollar. The first sale, of ten
sales for the year, was held from January 10-14 for the
DTC's 84 sight-holder clients. The Government of Botswana
stands to gain $70 million in 2005 as it supplies DTC with
70% of its rough diamonds. Botswana's diamond exports in
2003 were 31 million carats, worth a record $2.4 billion.
The country relies on the gems for up to 80% of its export
income, 50% of its government income, and 35% to 40% of its
gross domestic product. De Beers is the world's largest
diamond producer and marketer of uncut diamonds. The
unlisted company is 45% owned by resources company Anglo
American, 40% by the Oppenheimer family, and 15% by the
Government of Botswana. The company mines about half its
diamonds in Botswana.

New Lesotho Diamond Mine Sparkles
--------------
During the past two weeks, the newly reopened Letseng
diamond mine in the Maluti Mountains of Lesotho has
unearthed four large diamonds - weighing 366 carats in total
- that are likely to earn the mine at least $6 million.
Letseng's claim to world fame is that, at 3,000 meters above
sea level, it is the highest operating diamond mine in the
world. However, at 2.5 carats per 100 tons, it also has one
of the lowest grades. This is compensated for by the fact
that it also produces some of the largest and highest
quality stones in the world. Abandoned by De Beers in 1982,
the Letseng mine was reopened by a joint venture between
South African companies JCI and Matodzi (a BEE company) just
over a year ago. The Lesotho Government owns 24%.

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OIL
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South Africa to Send Oil Technicians to the Sudan
-------------- --------------
PetroSA, the South African National Oil Company, is to send
technicians to the Sudan to determine whether commercially
exploitable quantities of oil occur in an exclusive
concession, leased under an agreement signed with the
Sudanese state oil company, Sudapet. During the last week
of December, South African President Thabo Mbeki paid a
visit to Khartoum where he met his counterpart, Sudanese
President Omar al-Beshir. The two agreed to encourage
cooperation in oil exploration. PetroSA also concluded a
capacity-building agreement for the development of technical
Sudanese staff. On January 4, PetroSA announced that South
Africa would send technical personnel to the Sudan to run
seismic tests on its allocated oil exploration block, and
that Sudan would send personnel to PetroSA for technical
training.

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FOREIGN BUSINESS
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China Increases Involvement in South African Mineral
Industry
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China recently acquired a controlling interest in the
Steelpoort chromite mine in Limpopo Province, which annually
ships 400,000 tons of chrome ore to China for the production
of stainless steel. In another transaction, the Chinese
industrial consortium, CITIC-ACRE, was awarded the major
contract, worth $50 million, for the construction of Ispat
Iscor's (South Africa's major steel producer) new $75
million coke oven battery expansion project and associated
gas plant, at its Newcastle works in northern Kwazulu-Natal.
Areas to watch: China is investigating acquiring SASOL oil-
from-coal technology.

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HEALTH and SAFETY
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Fire at SASOL's NATREF Refinery
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On January 23, a gas fire broke out in one of the storage
tanks at the NATREF refinery in Sasolburg during shutdown
clean-up operations. Seventeen people were exposed to the
fumes, but all were discharged from a local hospital after
treatment. This is the third SASOL accident in the past
three months. The union, Solidarity, has raised concerns
about SASOL safety procedures, particularly when outside
contractors are brought in for maintenance and repair jobs.
SASOL has appointed U.S. company Du Pont to audit plant
safety and procedures.

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INFRASTRUCTURE
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Kumba and Transnet Sign HOA
--------------
On January 26, Transnet, the state-owned transport company,
and mining company Kumba Resources jointly announced that
they had signed what amounts to a `quid pro quo' Heads of
Agreement (HOA). The agreement provides for a capacity
expansion of the OREX iron ore rail line from the Northern
Cape through the Sishen-Saldanha export channel, and for the
conversion of the existing U.S. dollar-based contract to a
rand-based one. The respective boards plan to approve the
definitive agreement during the first quarter of this year.
The Sishen-Saldanha export channel currently transports
about 23 million tons of iron ore a year. Kumba would like
to increase the capacity to 29 million tons now and to 41
million tons by 2008. According to the HOA, Transnet agrees
to increase the line's capacity by at least 10 million tons
to meet Kumba's expansion schedule.
FRAZER