South Africa: Minerals and Energy Newsletter "THE ASSAY" -

UNCLAS SECTION 01 OF 04 PRETORIA 004188 SIPDIS SIPDIS SENSITIVE STATE PLEASE PASS USAID STATE PLEASE PASS USGS DEPT FOR AF/S, EEB/ESC AND CBA DOE FOR SPERL AND PERSON E.O. 12958: N/A TAGS: EPET ENRG EMIN EINV EIND ETRD ELAB KHIV SF SUBJECT: South Africa: Minerals and Energy Newsletter "THE ASSAY" - Issue 11B, November 16-30, 2007 This cable is not for Internet distribution. ¶1. (SBU) Introduction: The purpose of this 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. (SBU) 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 -------------- -------------- NECSA Moots Second Reactor at Pelindaba -------------- ¶3. (SBU) The Nuclear Energy Corporation of South Africa (NECSA) has been identified by the SAG as the lead agency to develop the country's nuclear industry, including research and development into nuclear fuel and enrichment facilities. As a first step in the process, NECSA CEO Rob Adam, says the company is considering building a second nuclear reactor at its Pelindaba site in the North West Province, just west of Pretoria. This would be a companion to the existing Safari 1 reactor, which was built in the 1960's and is the country's oldest reactor. Safari 1 is the world's third largest producer of nuclear medical isotopes, including molybdenum 99. NECSA is developing processes that will shift its reliance on highly enriched uranium (95% U235 or weapons grade) to commercializing the use of lesser-enriched uranium (about 5% U235 or the level required to run nuclear power stations) to produce medical isotopes. The second reactor would be used to expand NECSA's commercial isotope production. -------------- NECSA Reactor Site Experiences Break-in -------------- ¶4. (SBU) Concerns about the security systems at NECSA were raised last month when two groups of robbers attempted to break through the security fence surrounding the Pelindaba nuclear complex. One group succeeded in getting into a security control room and snatched a computer, which they later abandoned. The significance of the information contained in this computer is not known. The motive for Qinformation contained in this computer is not known. The motive for the break-in is under investigation as is the possible role of six PRETORIA 00004188 002 OF 004 security officials who have been suspended. Pelindaba is accorded national key-point security status, and is aiming to upgrade its human and technical systems to meet this classification. -------------- DIAMONDS -------------- -------------- Rockwell Diamond Sells for a Record Price -------------- ¶5. (SBU) Rockwell Diamonds, listed on both the Toronto and Johannesburg stock exchanges, achieved a company record selling price of $145,000 a carat for a flawless and intensely pink 7.28 carat diamond. The total price for the diamond was $1,054 million. The diamond was recovered from Rockwell's Holpan operation, located north of Kimberley in the Northern Cape Province where it mines alluvial and gravel deposits. Rockwell has four or five alluvial diamond operations and projects in South Africa and the average price obtained from all its operations was a very high $1,640 per carat. The company says that pink diamonds are exceptionally rare and the only source known to produce such stones with some regularity is the Argyle Diamond Mine in Western Australia. Rockwell CEO John Bristow said the recovery of a pink diamond was particularly exciting as it indicated the potential for exceptional rarity, quality and value of diamonds recovered from their unique Northern Cape alluvial diamond deposits. ¶6. (SBU) Diamond production from alluvial river deposits in South Africa has always been the "poor cousin" of primary kimberlite, marine terrace and off-shore marine deposits. The past decade has seen increasing interest by smaller- scale operators in ancient alluvial river deposits. Numerous new and rehabilitated operations have been started up by both local and foreign junior companies and the quality and size of stones recovered has been exceptional high. According to geological theory, diamonds eroded from kimberlite sources in the Kimberley area were washed down river systems and deposited in the sea over millions of years. A combination of reworking by ocean currents and changes in sea level relative to the land resulted in the formation of beach terrace and marine deposits. A better understanding of the depositional environment of these alluvial deposits, new exploration technology and large cost-efficient equipment has enabled their profitable exploitation in recent years. -------------- MINE SAFETY STRIKE -------------- -------------- Mineworkers Stage a One-Day Safety Strike -------------- ¶7. (SBU) The incident in which 3,200 miners were trapped underground, but ultimately rescued unharmed, at Harmony's Elandsrand mine last month, focused the spotlight on increased fatalities in South African mines. The annual death toll had reached 201 by the end of November 2007 compared to 199 for 2006. In response, some 240,000 members of South Africa's biggest union, the National Union of Mineworkers (NUM),staged a one-day strike on December 4 to protest what they claim are deteriorating safety conditions in mines. Qconditions in mines. ¶8. (SBU) In 2003, mining industry stakeholders committed to improving safety in South African mines to the safety level of overseas operations. The mutually-agreed-upon target was to decrease the number of mine fatalities by 20% per year. This reduction has not been achieved and the NUM blames poor safety procedures by management and accuses them of putting profits before safety. The Department of Minerals and Energy, under pressure from the SAG and NUM, have instituted an investigation procedure that immediately closes mines at which fatalities occur. Industry representatives argue that such closures exacerbate, rather than improve, safety conditions as deep mines require continuous attention at new working faces to maintain safe roof conditions. PRETORIA 00004188 003 OF 004 ¶9. (SBU) The strike, compounded by mine closures, has caused mining companies substantial output losses. At Anglo Platinum the one-day strike had an almost 100% stay-away and the company reported an expected loss of about 9,000 ounces of production. AngloGold Ashanti, South Africa's top gold producer, reported that there was no production from any of its South African operations on December ¶4. All mines were significantly affected by the strike but all operations were back to normal operation the following day. ¶10. (SBU) AngloGold Ashanti later said that aggressive tactics such as strikes and mine closures would focus attention and hopefully get stakeholders to work together, but it would not solve the problems. They believe that the causes of accidents include skills shortages, the rapid growth of the mining industry due to the commodities boom and the impact of HIV/AIDS. Finally, the company noted that it would take time to move people through the training ranks "no matter how much money is thrown at the problem". (Comment. The approximately 200 mine-related fatalities per year should be put in the context of more than 15,000 fatal accidents on the roads and 10,000 murders committed each year. The relatively recent concern about mine accidents by both government and labor also coincides with next week's ANC-party Congress where labor will be pushing for stronger representation in the next ANC-lead government. End Comment.). -------------- MINING -------------- -------------- Big Steel Producers Back into Mining -------------- ¶11. (SBU) Spurred on by rising prices and the need to secure raw inputs, backward integration into mining is again heating up and some of the world's large steel producers have entered the race for mining projects to feed their steel plants. Tata Steel, one of India's largest companies and the world's sixth largest steel producer, has signed a joint venture agreement with Australia's Riversdale Mining to develop a hard coking and thermal coal project on Riversdale's Benga and Tete prospects in Mozambique. Tata is to pay $90 million to acquire a 35% interest in the project and a 40% share of the coking coal for its global steel plants. The resource estimate for Benga is 1.23 billion tons of coal of which 720 million tons is potentially mineable by open-pit methods. ¶12. (SBU) In other backward integration deals, ArcelorMittal, the world's largest steel producer, has announced joint venture deals for coking-coal in Mozambique and manganese in South Africa. Both will be inputs for the company's global steel plants. In Mozambique, Arcelor will buy a 35% share in Black Gold Mining's coal licenses for $2.5 million. These licenses cover some 49,360 hectares of the Moatize-Minjova sub-basin in the Tete Province, which sits on huge coal deposits located close to those being developed by Brazil's Companhia Vale do Rio Doce (CVRD). ¶13. (SBU) Arcelor has also signed a memorandum of cooperation with the Mozambican government to develop both the local mining and Qthe Mozambican government to develop both the local mining and steel. In South Africa, Arcelor has signed a $600 million partnership with South Africa's Kalagadi Manganese. The 50:50 joint venture will see the development of a manganese mine, a beneficiation plant and a sinter complex in the Northern Cape Province and a ferromanganese smelter in the Eastern Cape. Ninety per cent of manganese is consumed in producing manganese ferroalloys and iron and steel. South Africa has an estimated 80% of the world's known manganese resources. -------------- ELECTRICITY -------------- -------------- U.S. Company in Eastern Cape Power Project -------------- PRETORIA 00004188 004 OF 004 ¶14. (SBU) Eskom, the state-owned power utility, has warned that South Africa needs to adapt to rolling power disruptions and power-shedding over the next five years until power generation and distribution shortages and issues are overcome. In an attempt to facilitate new supply, the SAG invited independent power producers (IPPs) to build 30% of new generation capacity. Independent power plant developer Ipsa was awarded a contract to build a 500 megawatt coal-fired plant in Indwe in the Eastern Cape using coal from one of the country's oldest coal fields. ¶15. (SBU) Ipsa, a London-listed company, has already developed an 18 megawatt combined heat and power plant in Newcastle in KwaZulu-Natal and is working on a 1,600 megawatt combined cycle gas turbine power plant at Coega in the Eastern Cape. The company plans to fast-track the first 250 megawatts to bring new capacity on line for the Eastern and Western Cape provinces as swiftly as possible. To achieve this, IPSA sold 50% of its Elitheni Clean Coal (ECC) subsidiary that is developing the project to Exodus Africa for $5-million. Exodus Africa is a US-based company focused on developing and operating energy assets in Africa. A number of its senior managers were formerly with Enron, the US energy company that collapsed. Project coal resources are estimated at 40 million tons, based on drilling results covering only 7% of the lease area. -------------- INFRASTRUCTURE -------------- -------------- - U.S. Company Preferred Bidder for Diesel Locos -------------- - ¶16. (SBU) South Africa's rail transport system has been losing out to road transport for many years. Poor management and operational systems have led to escalating costs, declining efficiency, and weakening competitiveness except perhaps on the two dedicated coal and iron ore lines. Another major problem has been the lack of modern rolling stock and locomotives. The latter problem has been addressed by state-owned transport company Transnet's ordering of 404 diesel and electric locomotives - to be increased to 500 shortly. Electromotive Diesel (EMD) of the US has been designated as the preferred bidder to supply Transnet with 212 diesel locomotives for use mainly for the general freight business (GFB). Commercial discussions between Transnet and EMD should be concluded before year end, according to Transnet CEO Maria Ramos. ¶17. (SBU) Ramos said the acquisition of the locomotives would form a significant part of the $5.1-billion, five-year recapitalization of Transnet Freight Rail (formerly Spoornet),which is the largest consumer of the group's $12-billion investment budget for rail, ports, and pipelines. The final cost estimate for the locos is still to be negotiated. Also being negotiated is EMD's localization commitment to develop a local presence in South Africa. EMD appears keen to build physical capacity in the region to take advantage of the opportunities available in South Africa and the region. Ramos agreed that the real growth impetus for Transnet would come once the Qagreed that the real growth impetus for Transnet would come once the new diesel locomotives were fully deployed and the 110 electric locomotives for the coal line and the 32 locomotives for the iron-ore line were fully operational. BOST