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2006-06-09 15:52:00
Consulate Johannesburg
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DE RUEHJO #0205/01 1601552
R 091552Z JUN 06




E.O. 12958: N/A
ISSUE 5, MAY 2006

JOHANNESBU 00000205 001.2 OF 005

This cable is not for Internet distribution.





E.O. 12958: N/A
ISSUE 5, MAY 2006

JOHANNESBU 00000205 001.2 OF 005

This cable is not for Internet distribution.

1. (U) Introduction: The purpose of this monthly newsletter,
initiated in January 2004, 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.


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.

New Mines Minister Appointed

3. (U) On May 22, President Thabo Mbeki announced the
appointment of Buyelwa Sonjica as the new Minister of Minerals
and Energy. The minor cabinet reshuffle was necessitated by the
death of Stella Sigcau, Minister of Public Works, and involved
four women ministers, indicative of the government's gender
equality policy. Both the incumbent minister and the deputy
minister of Minerals and Energy were moved to new portfolios.

The new minister is the third in eleven months and she succeeds
Lindiwe Hendricks and Phumzile Mlambo-Ngcuka who was promoted to
Deputy President last year. The new deputy minister for
minerals and energy was not announced. The mining industry has
held back on comments pending future meetings with the new
minister, but did venture that they had previously had very
positive and amicable dealings with Sonjica on matters relating
to water matters. The new minister was sworn in later in the

Koeberg's Damaged Unit 1 Operational

4. (U) Unit One at the Koeberg nuclear power station in the
Western Cape was successfully returned to service after being
out of commission for some five months. The generator was
damaged in December 2005, resulting in both the rotor and stator
requiring repair. The stator was repaired at Koeberg, while a
replacement rotor was obtained from the French utility EdF.
Unit 1 reached full power at the end of May. Over the same
period, Unit 2 was shut down as scheduled for refueling and
maintenance, and will remain out of service until August.
According to Eskom's Chief Executive, Thulani Gcabshe, a
shortfall of up to 400 MW may be experienced in the Western Cape
during this period (winter). Demand side management measures
such as the issuing of five million Compact Fluorescent Lights
(CFL's) to the Western Cape and the swapping out of two-plate
electric stoves for two-plate gas stoves has begun to mitigate
the potential for shortages. So far only minimal load shedding
has been necessary.

Sasol Opens World-first Gas-to-Liquids Plant in Qatar
-------------- --------------

5. (U) June 6, marked the official opening of Sasol's (South

JOHANNESBU 00000205 002.2 OF 005

Africa's synthetic fuels- and petrochemicals-from-coal producer)
world-first gas-to-liquids (GTL) plant in Doha, Qatar. His
Highness, Sheikh Hamad Bin Khalifa Al-Thani, Emir of the State
of Qatar, officially inaugurated the $950 million Oryx GTL plant
at Ras Laffan Industrial City. The ceremony was attended by
dignitaries and guests from Qatar and abroad. Oryx GTL is a
joint venture between state-owned Qatar Petroleum (51%) and
Sasol (49%). The facility is the pacesetter of the petroleum
industry's focus to create a global GTL industry that is geared
to unlock the world's vast natural gas resources for conversion
into ultra-low emission diesel and other environmentally benign
energy products.

6. (U) The plant will be scaled up in the next few months to
convert gas from the Gulf's North Field into 34,000 barrels per
day (bpd) of liquid hydrocarbons. It will produce mainly
environmentally-friendly, high-performance diesel, using proven
Sasol technology. Oryx is the first low-temperature
Fischer-Tropsch GTL facility outside South Africa that is
dedicated to the production of new-generation GTL diesel. In
partnership with Sasol-Chevron and Qatar Petroleum, the
intention is to triple the existing capacity of the plant to
some 100,000 bpd and finally to 130,000 bpd. This would bring
Middle Eastern production to within 30,000 bpd of Sasol's
Secunda plant, which produces 160,000 bpd of fuel from coal.

7. (U) Sasol CE Pat Davies said that the Oryx plant would pave
the way for the development of a substantial environmentally
acceptable GTL capacity in Qatar and other gas-rich regions,
including Nigeria (a GTL plant will be in operation by 2009) and
Australia. In markets such as Europe, the US, Japan and
Australia, the statutory maximum permissible sulfur content in
diesel is as low as 10 ppm. Sasol's GTL diesel, developed
entirely in South Africa, has a sulfur content of less than 5
ppm. Sasol-Chevron is a London-based joint venture between
Sasol and the Chevron Corporation, and will start to market the
GTL diesel in Europe later this year. Davies said that Sasol's
GTL plants would put a new source of fuel onto the market and
would add value to the energy resources of the supplying
country, prior to exportation. In South Africa, Sasol provides
34% of the country's liquid-fuel, employs 170 000 people, adds
$6-billion a year to the GDP and $4.5 billion a year in
foreign-exchange savings.

Impala Platinum to give 51 Million Ounces of Platinum Resources
to Zimbabwe
-------------- --------------

8. (U) On May 31, Zimplats Holdings, Zimbabwe's major platinum
producer, reached an agreement with the Zimbabwean government to
give (relinquish) 51 million ounces or 36% of its platinum
resource base in exchange for what it described as empowerment
credits and cash. This represented a compromise solution
response to the GOZ proposed expropriation of 51% of all
foreign-owned mines. Implats, the world's second largest
platinum producer, owns 87% of Zimplats, which holds virtually
all of the Hartley Complex hosting about 85% of the total
platinum group resources in the Great Dyke. The Great Dyke is
the world's second biggest resource of platinum group metals
after South Africa's Bushveld Complex. Implats said that the
land to be given up did not fall within its long-term mine plan,
which is to expand production from Zimbabwe to 1 million
platinum ounces per year over a fifty year life of mine.

9. (U) According to the latest Impala Annual Report the
company's Zimbabwe resource contains 140.8 million ounces of
platinum and has reserves of 14.1 million ounces. These are
strategically important to Implats as they make up more than
half of the company's attributable reserves and resources of
platinum group metals. The market value of the released claims
- estimated to host 99 million ounces of precious metals - is
about $153 million and Zimplats expects to receive cash and
empowerment credits to the full value of the claims. The
company stated that the agreement would give the board the
confidence to go ahead with a $258 million expansion to its
operations in Zimbabwe. Ironically, while the deal was being
signed at the mine site by President Mugabe, Impala offices in
Harare were raided by government officials purportedly
investigating currency exchange irregularities.

Rhodium Hits Highest Level Since 1991

10. (U) South Africa produces more than 80% of the world's newly

JOHANNESBU 00000205 003.2 OF 005

mined rhodium, one of the minor platinum group metals but an
essential component in most auto-catalytic converters. The
metal accounts for about 8% of platinum group metals mined in
South Africa and, at present prices, contributes substantially
to mine earnings. During the second half of May, free market
prices hit a fifteen-year high of nearly $6,500 an ounce, but
have since fallen back to about $5,500 an ounce - compared with
silver at $12, palladium at $340, gold at $630 and platinum at
$1,230 per ounce. Demand currently outstrips supply by about
58,000 ounces per year, and supply is constrained as rhodium is
a by-product of platinum mining and production cannot easily be
expanded. Prices for sister minor platinum group metals are
also on the increase, with Ruthenium at about $180 an ounce from
$40 at the start of 2004. Iridium is at about $400 an ounce,
the highest since February 2002.

Russian Smoke and Mirrors with South African Manganese
-------------- --------------

11. (U) The Russian entrepreneur, Victor Vekselberg, through his
company Renova has acquired manganese mining concessions over
two sites in South Africa's Kalahari Manganese Field (KMF) in
the Northern Cape Province. South African manganese producers
believe that, together with these concessions and the
acquisition of rights and production in the Ukraine and Gabon,
Vekselberg may be attempting to corner the producer market in
manganese ore and alloys. Another scenario is that Renova may
be angling to consolidate and sell the SA concessions to local
interests at a significant markup. Renova told Mineweb (a
publishing organization) that it planned to produce about two
million tons of manganese ore per year and to process this into
500,000 tons of alloys at a new plant to be located on the site
of the Coega harbor, currently under construction in the Eastern
Cape Province. This "target" may be difficult to achieve as it
exceeds the current ore output by Assmang (a major SA producer),
is comparable to the alloy output by Samancor, and the Renova
concessions contain relatively low grade ore. Reports from
adjacent mines indicate that Renova and its partners are not
active on the sites.

12. (U) South Africa hosts more than 80% of the world's known
reserves of manganese ore and is the biggest producer of
manganese alloys. Ukrainian reserves of ore are estimated at
520,000 tons, or about 10% of global reserves, Gabon trails with
160,000 tons, followed by China, Brazil and Australia. South
Africa and Gabon are the leading producers followed by the
Ukraine. According to industry sources, Samancor is negotiating
with the Renova group to buy their concessions (a market defense
strategy). Samancor is the world's leading producer of
manganese alloys and is 60% owned by BHP-Billiton (BHP-B) and
40% by Anglo American. Industry speculation of a deal between
Vekselberg and BHP-B grew when Renova recently announcement that
it had acquired a major exploration and mining license for
manganese in Gabon - a potential market-cornering strategy.
Manganese is a strategic metal used almost exclusively for
purifying and hardening steel.

Anglo American and Shell Form Clean Coal Energy Alliance
-------------- --------------

13. (U) On May 25, Anglo American and Shell Gas & Power
International (one of Shell's downstream businesses) announced
the formation of an Alliance in the field of coal conversion to
clean energy. The aim of the two companies is to maximize the
benefits from the emerging field of clean coal energy by
selectively taking equity positions in coal conversion projects.
These projects would combine the extensive coal reserves and
mining experience of Anglo American with Shell's leading-edge
conversion technologies. The objective is to extract, gasify
and then convert coal into chemicals, hydrogen, power, liquid
hydrocarbons and other uses. Tony Trahar, Chief Executive of
Anglo American, said that the ability of Anglo and Shell to form
a clean coal energy alliance had the potential to develop
multiple projects, which would give the Alliance a global
sustainable competitive advantage.

14. (U) Anglo is currently investigating the potential for
incorporating its Australian Monash Energy Project into the
Alliance. This project is exploring technologies that produce
liquid fuels from non-conventional sources, such as brown coal.
The technologies chosen by Monash enable separation of a

JOHANNESBU 00000205 004.2 OF 005

concentrated stream of CO2 that can be transported to injection
wells in deep underground geological formations for safe and
secure storage. Burning the synthesis gas generated by the
gasification of coal emits significantly lower quantities of
greenhouse gases and pollutants than traditional coal burning
and is considered to be the cleanest way of harnessing the
energy potential of coal, which is the world's dominant fuel
source. The project initially envisages a coal mine, drying and
gasification plant, carbon dioxide capture and storage and a
gas-to-liquids (GTL) plant with associated power generation.
(Comment: this process differs from Sasol's in that it gasifies
a lower rank (brown) coal and also separates out a CO2 stream
for secure storage. End Comment.)

Energy Spending Could put a Brake on Growth

15. (U) In recent testimony to Parliament, Eskom officials
admitted that, in the light of greater than expected economic
growth, the proposed spending on new generation capacity would
be inadequate to meet expanded energy demand projections. This
could be a drag on the economy and also meant that its
electrification program might fail to meet targets. Brian
Dames, a managing director at Eskom, said that the $13 billion
capital expenditure plans were based on the expectation of a 4%
economic growth rate. This rate was calculated to increase
electricity demand by 2.3%. The South African government is now
aiming for 6% economic growth which would mean an electricity
demand growth rate of 4.4%. At the World Economic Forum (WEF)
in Cape Town, Steve Lennon, Eskom's Managing Director for
Resources and Strategy, said that South Africa's target of
universal electrification by 2012 could only be met if Eskom
spent an additional $1.4 billion on the program. From 1994 to
2004, more than 3 million homes have been electrified.

Anglo American to Concentrate on non-Gold Mining
-------------- ---

16. (U) Further to an earlier announcement by Anglo American
that it intended to concentrate on its core mining activities
and sell off "non-core" assets, the company confirmed that it
would also sell its remaining 42% stake in gold producer
AngloGold Ashanti. The company would then concentrate its
attention on its core mining interests, including platinum, base
metals, iron ore, diamonds (through De Beers), coal, and
industrial minerals. At Anglo's 2006 Annual General Meeting
Tony Trahar (CEO) said that the reasoning behind the proposed
disposal of AngloGold Ashanti was that gold contributed less
than 3% to the company's total revenues and that gold assets
tended to be followed by a distinct investor group compared with
those that followed diversified mining companies. As a result,
the value of the AngloGold Ashanti had not been fully reflected
in Anglo's overall market capitalization.

Gold Theft at SA Mines

17. (U) South Africa's gold mining sector estimates that up to
5% or more of the total output from mines might have been stolen
last year. Chamber of Mines executive director Frans Barker
said that the theft of gold at mines was "quite a big issue".
He singled out mines in the Free State Province as especially
affected. Although between 1% and 2% of total gold output had
been reported stolen in 2005, there was evidence that the figure
was double that. According to information from an ongoing study
commissioned by the Chamber of Mines - the first study of its
kind since 1998 - industry losses amounted to around $310
million or 12% of total gold output for the year. Older mines
with more entry points were seen as more vulnerable to theft.

De Beers Wins 25 Years for Botswana Diamond Mining
-------------- --------------

18. (U) On May 23, after almost seventeen months, the world's
biggest diamond producer, De Beers, and the Government of
Botswana finally signed a suit of agreements to strengthen their
partnership and renew De Beers' Jwaneng Diamond Mine lease for a
further 25 years. Jwaneng is one of the richest diamond mines
in the world. Permanent Secretary in the Ministry of Minerals,
Energy and Water Resources, Dr. Akolang Tombale signed on behalf

JOHANNESBU 00000205 005.2 OF 005

of the GOB. The Jwaneng mine lease, which had expired in 2004,
had to be renegotiated and renewed. At the conclusion of
negotiations last year, the Orapa and Letlhakane mine leases
were revoked and lumped with that of Jwaneng. The new lease has
given De Beers 25 years of uninterrupted mining and control of
Botswana's entire diamond production. However, Tombale said
that the broad nature of the lease meant that some details were
still to be finalized.

19. (U) A mining consultant, Todd Majaye, said the Jwaneng lease
agreement was linked to other issues such as the relocation of
some of the De Beers London-based Diamond Trading Company (DTC)
functions to Botswana. DTC is the marketing arm of the De Beers
Group and is responsible for: aggregating and sorting rough
diamonds from its global operations; diamond purchases; and
evaluating, marketing and selling diamonds to their sight
holders (a selected group of clients with the financial ability
to market/promote diamonds). The most pressing issue, according
to Majaye, was that of diamond beneficiation or adding value to
rough diamonds before export. Under the new agreement only 10%
of Botswana's diamond production of 32 million carats - valued
at about $2.7 billion - will be cut and polished in the country.
Majaye said that this was not sufficient and that the GOB
should have more pronounced beneficiation plans.

One-Day Strike Hits Mines Hard

20. (U) The mining industry was the most affected by the May 18
nationwide strike against poverty and unemployment that was
called by the Congress of South African Trade Unions (Cosatu).
Analysts said that although the effect of the strike on the
overall economy was likely to be minimal it was would portray
South Africa in a negative light to potential international
investors. According to Absa Bank economist Monale Ratsoma, one
of the inhibiting factors to foreign direct investment - needed
to finance the current account deficit resulting from strong
economic growth - was the country's restrictive labor laws, and
the strength and political influence of the trade unions.
Ratsoma estimated that the monetary loss caused by the strike
was about $300 million. The Chamber of Mines spokeswoman said
that some mines suffered up to 100% absenteeism due to the
strike and that about half of all mineworkers took part in the
protest action.