SOUTH AFRICA: MINERALS AND ENERGY NEWSLETTER "THE ASSAY" --

UNCLAS SECTION 01 OF 04 JOHANNESBURG 000415 SIPDIS SIPDIS PASS USAID, USGS AND DOE E.O. 12958: N/A TAGS: EMIN EPET ENRG ECON SF SUBJECT: SOUTH AFRICA: MINERALS AND ENERGY NEWSLETTER "THE ASSAY" -- ISSUE 8-9, AUGUST-SEPTEMBER 2006L JOHANNESBU 00000415 001.2 OF 004 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. --- Key --- ¶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. -------------- HOT NEWS -------------- SA-US Exports Surge 25% on Firm Metal Prices -------------- ¶3. (U) South Africa's exports to the US surged more than 25% to $3.6 billion in the first half of 2006, compared with the same period last year. The figures are from trade data released in August by the US State Department. The strongest growth came from South Africa's single biggest export to the US by value, namely minerals and metals, which registered 33% growth to $2.6 billion or 72% of total exports. Of this, 34% were platinum group metals and 7% diamonds. South Africa's exports to the US represent about 9% of its total exports. -------------- COAL 
 -------------- Coal Ports Improve Productivity -------------- ¶4. (U) During September, the Richards Bay Coal Terminal (RBCT), owned by the major coal exporters and the world's second-biggest coal-export port, shipped 7.17 million tons of coal. This is 23% more than the 5.83 million tons shipped a year earlier. According to Kuseni Dlamini, CEO of the terminal, the surge was due to a combination of increased efficiency at the port and recovery of mine production after the heavy rains earlier this year. RBCT has the capacity to move 72 million tons of coal a year and shipped a record 69.2 million tons in 2005. In similar vein, Mozambique's Matola terminal, the second-biggest port for South African coal exports, loaded 94,084 tons of coal during the month compared with 40,160 tons a year earlier. The terminal also shipped 88,169 tons of magnetite (a type of iron ore) in the month compared with 45,245 tons the previous year. Grindrod, South Africa's biggest shipping group owns the terminal. -------------- GOLD -------------- South Africans Invest in Gold -------------- ¶5. (U) The general view is that unless you invest in your own mines, no one else will. Thus, Gold Fields and AngloGold decided to expand production from their Witwatersrand gold mines. The extreme depths at which mining takes place on the Witwatersrand gold field (approaching 4 kilometers in some JOHANNESBU 00000415 002.2 OF 004 mines) is a major reason why international mining companies are loath to invest in fixed gold assets in South Africa. The Witwatersrand formation was formed as a sedimentary basin with a perimeter of more than 1,000 kilometers. Some twelve known major river systems fed material containing gold and uranium into the basin and these subsequently became the focus of mining operations. While mining conditions are difficult, grades are relatively high ranging from four to more than thirteen grams per ton across the basin. ¶6. (U) Gold Fields, South Africa's second biggest gold producer owns two of the country's richest mines, Driefontein and Kloof. On September 7, the company announced that it would invest an estimated $650 million to deepen the mines - Driefontein to 4,121 meters and Kloof to 3,827 meters. The projects will access an additional 10.8 million ounces (345 tons) of gold below the current infrastructure at the two mines, and extend their lives to at least 2035. Additionally, Gold Fields acquired Barrick Gold's 50% stake in the South Deep gold mine for $1.525 billion and has made a bid for all the outstanding shares in Western Areas, owner of the other 50% of South Deep. South Deep has gold reserve of 29.2 million ounces (930 tons) and at least that amount of resources below the current mine infrastructure. This would give it a production life of more than 60 years. Not to be outdone, AngloGold Ashanti plans to spend $461 million to deepen two of its mines. Gold may have Medicinal Uses -------------- ¶7. (U) Newly mined gold adds about 2,600 tons annually to the estimated 150,000 tons mined since antiquity. The problem is that because gold is generally seen to be store of wealth, is seldom used up, and has a ready market. As a consequence, most mined gold is still available above ground in some form or other, be it as bullion, jewelry, investment coins and products, or scrap that gets recycled into the aforementioned forms. Additionally, producers and marketers have generally failed to capitalize on the gold "brand" - as good as gold or as pure as gold - by comparison with the marketers of diamonds and platinum. Neither has much effort gone into developing high-value and high-volume uses for gold, be they industrial or medicinal that could use up the huge quantities that overhang the market and generally keep prices comparatively low. ¶8. (U) In an attempt to remedy this situation, Project AuTek was set up as a joint venture between Mintek, the state-owned mineral processing research parastatal, and the country's largest mining houses, AngloGold Ashanti, Gold Fields and Harmony. The aim was to research and develop medicinal and industrial uses for gold. South Africa is struggling with one of the world's highest incidences of HIV/AIDS and related diseases and scientists are looking to develop gold-based drugs to combat these illnesses as well as malaria and cancer. ¶9. (U) Judy Caddy, who heads the medical research group at Mintek, said that 2006 had been an exciting year because they had identified a series of gold-based drugs that are useful in the fight against cancer. The group tested these drugs on other illnesses with promising results in treating both malaria and HIV. The gold-based drugs were found to have therapeutic value for HIV and demonstrated the ability to inhibit HIV replication in test tube experiments. The drugs still need to be tested on animals and humans. Gold Mine heads for Guinness Book of Records -------------- ¶10. (U) According to AngloGold Ashanti's senior project manager, by July 2008, the TauTona (the Great Lion) gold mine will celebrate the unveiling of a new Guinness Book of Records plaque at a depth of 3,778 meters below surface. The plaque will bear the words, "The deepest man-made hole in the world". Currently, the deepest mine is the Savuka gold mine with a depth of 3, 777.4 meters, which is also an Anglo mine. TauTona development will continue down to 3,902 meters where virgin rock temperatures are 59 0C. This will extend mine life to at least the year 2019 and facilitate the mining of an additional 72 tons (2.3 million ounces) of gold. Anglo has notified Guinness to be on standby to remove the plaque at neighboring Savuka and to bring it across to TauTona when the record depth is achieved. ¶11. (U) In 46 years of production, TauTona has yielded some 1,100 tons (34 million ounces) of gold from the Witwatersrand basin. The mine currently employs 5,500 people of which 1,100 are contract personnel. Those working in the new deep-level area will have to travel 4 km to their working places, thus reducing production time to about six hours in an eight-hour shift. (Note: If Gold Field's succeeds in expanding its JOHANNESBU 00000415 003.2 OF 004 Driefontein mine, it will replace TauTona as the deepest mine in the world. End note.) East Rand's First New Gold Mine in 28 Years -------------- ¶12. (U) In August, Aflease Gold's CEO Neil Froneman announced the decision to open the first new gold mine on South Africa's East Rand in 28 years. This area was a prolific gold producer in the early days of mining on the Witwatersrand. The mine will be known as Modder East, after its deeper namesake that was closed decades ago. The Aflease board approved the full implementation of a $120 million mine and gold plant that would pour first gold in 2009 and yield 110,000 ounces per year. The new gold operation will create 1,300 new jobs. Average cash cost is estimated at $217 per ounce, due to the relatively shallow depth of the reef, and has an internal rate of return estimated at 31%. Modder East will mine two reefs, namely the Black Reef and the Kimberley reef that lie at depths of 300 to 530 meters, respectively. -------------- PLATINUM -------------- The Importance of Platinum to South Africa -------------- ¶13. (U) During an interview with the media at the end of August, Roger Baxter, Chief Economist for the Chamber of Mines (COM) presented facts about the importance of platinum-group metals (PGM) to the South African economy. The combined value of PGM production in 2005 (at a 6/1 Rand/Dollar exchange rate) was above $6.3 billion, versus coal at just less than $6 billion, gold at $4.5 billion, diamonds at $1.6 billion and iron ore at $1.2 billion. Total PGM value was made up of platinum $4.7 billion, rhodium $1.1 billion, palladium $0.5 billion, ruthenium $57 million, and iridium $27 million. About $5.8 billion was exported, and the rest was sold locally into the catalytic converter market and then ultimately exported in the form of catalytic converters. Converter sales were valued at about $1.7 billion, which accounts for about 15% of the global market. PGM sales represent 2% of South Africa's GDP, 11% of total merchandise exports and the mining industry employs 156,000 people who earn $1.8 billion annually and account for 35% of the total employment in the mining sector. Including multipliers, estimates show that the PGM's contribute about 5% to the country's GDP. ¶14. (U) Platinum's history is extensive. In the eighteenth century King Louis XV declared that platinum was the only metal fit for a king. The Spanish conquistadors picked up platinum for the first time in Colombia but today South Africa dominates in this metal. In 2005, it produced 77% of the world's platinum, 31% of the palladium (here Russia is the dominant supplier, much of it believed to come from large stockpiles), 83% of the rhodium and more than 80% each of ruthenium and iridium. ¶15. (U) The current high price of platinum together with increasingly stringent emission regulations has altered the demand side for the metal. Whereas in 2002, the demand profile was auto catalysts 31%, jewelry 43%, and industrial uses 26%, in 2005 it was 45%, 30% and 25%, respectively. PGM production cannot be valued on platinum alone, but has to take into consideration the market values of the other metals. Thus on a product-weighted basket basis using palladium, platinum and rhodium, the basket was valued at about R150 000/kg ($23,400/kg)at the beginning of 2006, whereas during the first six months of this year it had risen by over 40% to some R223 000/kg ($32,800/kg). -------------- URANIUM -------------- Uranium Enrichment Mooted for South Africa -------------- ¶16. (U) South Africa has very large low-grade resources of uranium ore. Uranium minerals occur with gold in the Witwatersrand formation (Wits) and in the rocks of the Karroo formation, which cover more than one-half of the country. During the 1950's and 1960's South Africa was one of the top three producers of uranium, which was recovered as a by-product of gold mining on the Witwatersrand. Most of these plants closed when the price declined to uneconomic levels and there are only one or two operating today. This left the high-grade mines in Australia and Canada as the major suppliers of raw uranium product. However, with the resurgence of interest in nuclear power generation a number of new and old mines with uranium potential are being evaluated. JOHANNESBU 00000415 004.2 OF 004 ¶17. (U) The South Africa government is pursuing a number of initiatives in nuclear power generation, including the expansion of the nuclear plant at Koeberg (two 920 MW units) and the development the Pebble Bed Modular Reactor (PBMR),which should reach demonstration stage by about 2013. Minerals and Energy Minister Buyelwa Sonjica has mooted a nuclear build program that would add at least 5,000 MW to the country's electricity capacity. These initiatives would require increasing quantities of enriched uranium feed, currently imported, but which the SAG plans to produce locally. Sonjica has stated that the government is to launch an investigation into the viability of uranium enrichment - SA enriched uranium in the 1970s and 1980s for the Koeberg station and for weapons development - and that any enrichment program would be pursued within South Africa's international obligations. -------------- ELECTRICITY -------------- Eskom Blamed for Blackouts but no Sabotage -------------- ¶18. (U) The National Energy Regulator of South Africa (Nersa) has placed the blame for the power outages that occurred in the Western Cape between November 2005 and February 2006 firmly at the door of state-owned power utility Eskom. A major contributing factor was the freak accident, when an 8-cm casing bolt found its way into the generating set and severely damaged the Koeberg nuclear plant's Unit 1 rotor at the same time that Unit 2 was due for refueling. This resulted in the partial shutdown of the plant until mid-year. The Cape Town Regional Chamber of Commerce and Industry, which represents the interests of about 4,500 businesses in the city, claimed that its members incurred losses estimated at $800 million. ¶19. (U) In its report, Nersa found Eskom guilty of breaching its license conditions, of negligence and of having inadequate maintenance policies in place. On the issue of whether the Koeberg accident was one of human error or the result of sabotage, the final conclusion was that the incident was the result of human negligence. No evidence was found of any action by any organized group or individual to sabotage the installation and no Koeberg employee was the subject of suspicion. -------------- LEGISLATION -------------- Zimbabwe Delays Investor Protection Law -------------- ¶20. (U) The issue of a bilateral investment protection agreement between Pretoria and Harare hit the headlines about two years ago when South African-owned farms in Zimbabwe were taken during Mugabe's land-grab under the guise of land reform. The two governments undertook to negotiate an investment agreement but by mid-August it was still not in place. The South African Foreign Affairs Minister said at the time that although details had been negotiated the agreement was not signed by the GOZ, keeping South African mining investment in Zimbabwe on an insecure footing. The SAG has noted the GOZ's stated intention to nationalizing all foreign-owned mines. COFFMAN##