KWAZULU NATAL - MINING AND PROCESSING FIRMS FACE GLOBAL

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SUBJECT: KWAZULU NATAL - MINING AND PROCESSING FIRMS FACE GLOBAL
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1. (U) Minerals and Energy Officer and Specialist visited mining
and associated manufacturing sites in KwaZulu Natal (KZN) during
the week of January 12-16. This cable is a collaboration
between Embassy Pretoria and Consulate Durban.


2. (SBU) SUMMARY: KwaZulu Natal (KZN) mining and manufacturing
industries face a challenging global market, while they address
skills, HIV/AIDS, and power issues. KZN is not generally
recognized as a mineral-rich province, but it has a number of
valuable deposits, some of which have not been thoroughly
explored or properly exploited. These include deposits of
anthracite coal and heavy mineral beach sands containing
titanium minerals. KZN's long coastline, good harbors, and
relative proximity to the country's mineral-rich heartland have
made it a main conduit for the import and export of mineral
products. Its road, rail, pipeline, and port infrastructure is
equal to the best in the country. Associated beneficiation and
manufacturing have developed widely in KZN. The Embassy
Minerals/Energy team found that the common trip themes were the
decline in demand for commodity-based products and the drastic
drop in commodity prices; the general shortage of skills in the
country and the steps being taken to remedy the problem;
responses to HIV-AIDS in the workplace; the impact of the power
shortage; progress toward meeting government employment equity
and the individual solutions applied; and health and safety and
environmental requirements. Responses to these issues varied
widely, with the more rural-based companies less sensitive to or
involved in issues of HIV/AIDS and carbon dioxide emissions.
All producers were cautiously optimistic about the future and no
layoffs were being planned. Septels will provide additional
reporting on Transnet Pipelines and other visits. End SUMMARY.

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Hulamin Aluminium
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3. (SBU) Hulamin Aluminium in Pietermaritzburg is the largest
fabricator of aluminum products in Southern Africa with an
output of 250,000-300,000 tons of finished products per year.
This represents 21 percent of the region's annual primary
aluminum capacity of some 1.4 million tons (including
Mozambique's Mozal smelter's 550,000 tons). By world standards,
Hulamin is a minor producer and accounts for less than 1 percent
of global output of some 30 million tons per year.
Nevertheless, Hulamin produces a variety of niche products, and
according to their Marketing Manager Lloyd Darby, the company
exports some 70 percent of its output, of which 30-40 percent
(21-28 percent of total production) goes to the United States.
He said Hulamin is the biggest supplier of rolled aluminum
products into the United States and because of the company's
good reputation for quality and delivery, particular products
enjoy as much as 20-25 percent of the U.S. market.


4. (SBU) China is South Africa's major market for aluminum.
China is also potentially South Africa's major competitor, but
to date China cannot effectively compete on quality. Darby
expressed interest in the company becoming DEFARS-compliant
(Defense Federal Acquisition Regulations) in order to tender for
or have its products acceptable to the U.S. Military and
aerospace industry. The major challenges facing Hulamin include
the more than 50 percent drop in the price of primary aluminum
and the similar decline in demand from overseas auto and
engineering sectors, although the domestic market for packaging
was holding up. Darby said Hulamin had not been affected by
Eskom's load shedding as only 25 percent of their power
requirements were from electricity, the rest being process heat
provided by LPG. He said that Hulamin estimated a 30 percent
HIV prevalence in the facility, comparable to the region, but we
waiting for the latest results. The company achieved about 90

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percent participation in voluntary testing and dispensed ARVs to
HIV positive employees.

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Richards Bay Minerals
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5. (SBU) Richards Bay Minerals (RBM) mines some 33 million tons
of heavy mineral beach sands (black sands) per year for its
titanium minerals and is one of the biggest bulk-handling mining
operations in the world. Product output consists of 1 million
tons of titanium slag (85 percent titanium dioxide or TiO2),
250,000 tons of zircon, 100,000 tons of rutile (95 percent
TiO2),and 550,000 tons of high purity pig iron. RBM exports 95
percent of its output, which yields a world market share of
about 25 percent for titanium feedstocks (slag and rutile),33
percent for zircon, and 25 percent for high purity pig iron.
Titanium is a strategic element for aerospace and is essential
to modern-day living. TiO2 is non-toxic and environmentally
friendly and has replaced lead compounds previously used in
pigments. Its largest (95 percent) application is as a white
pigment used to give brilliance and color to paints, paper and
plastics. TiO2 is also used in candies, toothpaste, sunscreens,
and cosmetics.


6. (SBU) RBM is a joint-venture (JV) between Rio Tinto and
BHP-Billiton. The JV has a mining concession on the east coast
of South Africa that stretches for 17 kilometers north of the
town of Richards Bay and has additional rights to resources
north and south of this area. Mining is carried out using four
floating dredges and associated concentration plants, which feed
four furnaces requiring some 400 megawatts of power. Power cuts
and rationing have been an "inconvenience", only because BHP-B
has stabilized supply by shutting some production from its
nearby aluminum plant and diverting power to RBM. The dredged
sand is fed to the plant to produce a black-sand concentrate and
waste sand, which is pumped in turn to mined-out areas to
rehabilitate the dunes. Final saleable products are titanium
slag, high purity pig iron, rutile, and zircon. All products
are shipped through the bulk-handling port at Richards Bay.
Management was confident that specialized, high-quality products
and long-term contracts would cushion RBM's exposure to the
global downturn. Management estimated HIV prevalence at 14-17
percent, less than the regional average, reflecting a mature,
stable work force. The company targets 80 percent participation
in voluntary testing and offers a robust health care program,
including treating family members.

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Richards Bay Coal Terminal
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7. (SBU) Richards Bay Coal Terminal (RBCT) is the biggest single
coal export terminal in the world with a rated annual throughput
capacity of 82 million tons. Capacity will increase to 91
million tons when the Phase 5 expansion is completed in the
third quarter of 2009. Capacity beyond 72 million tons per year
has been opened to new producers, many of which are Black
Economic Empowerment (BEE) companies, via preferential ownership
and export allocations. The terminal makes a significant
economic contribution to KwaZulu/Natal Province and South
Africa, both as an employer and as an earner of foreign
exchange. In September 2006, the terminal loaded a record
409,000 tons of coal in a 24-hour period at an annualized rate
of 149 million tons per year. However, actual export tonnages
have averaged about 65 million tons annually. South African
coal producers own and operate RBCT in cooperation with
state-owned Transnet Freight Rail and Transnet National Port
Authority. The state bodies are responsible for transporting
coal from inland coalfields and for maintaining shipping
integrity and safety, respectively.


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8. (SBU) RBCT employs some 500 people, of which 10-15 percent
are estimated infected with HIV-AIDS, compared to a 30 percent
average for the province. Management states that 86 percent
have been voluntarily tested and know their HIV-AIDS status. The
labor force is stable, with a low turnover, and with an older
demographic, which is probably the reason for the relatively low
number of infections. The last full strike was in about 1998.
Skills are in short supply, particularly from the previously
disadvantaged communities and the company says it is unable to
attain its employment equity targets (quotas for black and women
employment at all levels set by government). Emigration to
Australia, New Zealand, and Canada has taken its toll on the
availability of skilled workers. The terminal's priorities
include the retention of skilled people, the integrity of aging
equipment, and the company's relationship with service
providers. RBCT does not have a good relationship with Transnet
Rail, but is attempting to improve this. The problem appears to
be one of lack of trust, communication, and cooperation between
the mining companies and Transnet, contributing to an inability
to export to RBCT's capacity.

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Transnet National Ports Authority
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9. (SBU) Richards Bay harbor is owned and operated by
state-owned Transnet National Ports Authority (NPA) and owes its
existence to the establishment of the RBCT (Reftel). It is one
of the biggest bulk seaboard handling ports in the world and
encompasses an area bigger than the combined areas of South
Africa's other five major harbors. The NPA owns and administers
the land on which RBCT is located and provides services such as
the tracking of shipping in and outside the harbor, dredging
shipping channels and quay-sides, and providing harbor pilots to
guide ships in and out of the harbor. RBCT is the NPA's major
client, but it also leases land to other clients.


10. (SBU) Apart from coal, the harbor exports substantial
quantities of primary aluminum, titanium, zircon and pig iron,
ferroalloys, chrome and manganese ores, steel, wood chips,
granite blocks, and other dry bulk products. The harbor also
handles bulk liquid fuels, chemicals and fertilizers, pitch, and
bunker fuels. The NPA at Richards Bay employs some 200 people
and has a shortage of experienced shipping pilots. Project
expansions are being held up by the lack of artisans, engineers
and project engineers. Port management claims to be one of the
first to transport pilots to the incoming ships by helicopter
rather than by tugboat.

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Assmang Ferro-Manganese
--------------


11. (SBU) The Assmang plant at Cato Ridge has a rated annual
capacity of 254,000 tons of ferro-manganese. At full
production, it needs about 100 megawatts of power and the early
2008 power cuts had an impact on operations. The plant has been
able to reschedule peak power demand and to rationalize power
rationing within the group. Under present low demand, power
supply is no longer an issue. The severe downturn in the steel
industry has forced Assmang to close three of its six furnaces
cutting output by 40-50 percent at the plant and reducing
production at its two mines in the Northern Cape Province. The
U.S. is an important customer through U.S. Steel and orders for
2009 are expected to drop by more than 20 percent. Assmang is
jointly owned by BEE company African Rainbow Minerals (ARM) and
Assore. Assmang mines manganese and iron ore in the Northern
Cape Province, which contains some 80 percent of the world's
known reserves of manganese, and operates a chrome mine and a
ferro-chrome plant in Mpumalanga Province.


12. (SBU) The company is facing several other challenges. It is

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still recovering from a February 2008 explosion that destroyed
the number 6 furnace andkilling six people. Assmang is being
accused of liability for a number of workers reportedly
suffering from manganism or manganese poisoning. Manganism is a
toxic condition resulting from chronic exposure to manganese.
The company has set up a trust fund to provide for the families
of the men killed in the explosion and is refuting manganism
liability pending expert medical examination of the claimants,
which to date their lawyers have refused to allow. Cato ridge
is located in a rural area and lags in addressing HIV and other
social issues. Plant management said that only 50 percent of
the workforce turned up at the last voluntary testing program.
Since then, the company has embarked on a promotional campaign
and hopes that 2009 will see a 75 percent turnout. The company
has a number of social investment initiatives in education, the
environment, and health. A common problem is the lack of skills
in the area and the financial ability to retain experienced
people. Some in-house training is provided, but generally
health and educational services are only available in the major
centers.

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Island View Coal Terminal
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13. (SBU) The privately run Island View coal terminal can be
considered a "coal boutique", according to General Manager Bruce
Deghaye, in that it handles its valuable anthracite coal with
"kid gloves." The terminal handles nearly 1 million tons of
anthracite each year, which is shipped to overseas markets.
Deghaye maintains that his most critical clients are housewives
in Turkey and Ireland who demand a certain size of lump coal
with minimum dust and mineral matter. Anthracite is a high-rank
coal (high carbon content and low volatiles),but is friable and
easily degrades when handled. The terminal therefore employs a
"soft loading" technique to minimize coal degradation during
stockpiling and reclaiming. Anthracite sells at three to four
times the price of steam coal and, according to Deghaye, demand
is inelastic and has not been affected by the current economic
crisis.


14. (SBU) The terminal is owned and operated by Bulk
Connections, which is a subsidiary company of the Bidvest Group,
a huge South African conglomerate. Harbor access is tightly
controlled by the Port of Durban security establishment and
requires pre-authorization for entry. Anthracite is Bulk
Connections' major product, but it also handles exports of some
200,000 tons per year of steam coal (a costly alternative to the
use of Richards Bay),manganese ore from the Northern Cape,
copper concentrates trucked or railed down from Zambia and the
DRC, and coking coal from China. The terminal has been in
operation for over 100 years and much of its equipment is old or
second-hand and has been modified to suit the
operational-specific requirements of the company.

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Transnet Pipelines
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15. (SBU) South Africa's demand for liquid fuels has grown by
4-5 percent per year for the past 3-4 years, up from 3 percent
per year during the 2000-2003 period. The inland market
currently consumes about 13 billion liters of fuel per year, of
which about 60 percent is provided by Sasol's two inland
refineries. The rest is sourced from two coastal refineries and
imported refined fuels, which are transported via pipeline,
road, and rail. State-owned Transnet Pipelines is in the
process of constructing a new 545-kilometer, 24-inch,
multi-product pipeline from the terminal at Durban to a new
terminal outside Johannesburg at a cost of $1.5 billion for
Phase 1. This will provide for medium and long-term supply
security to the industrial heartland of the country.

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16. (SBU) CEO Charl Moller said there was confusion as to who
would build and operate the pipeline needed to service
state-owned PetroSA's proposed new 400,000 liter per day
state-of-the-art refinery planned for Coega in the Eastern Cape.
He also expressed concern about the four existing
internationally-owned refineries, which were old and needed a
$10-12 billion investment to upgrade them to meet new EU fuel
standards and compete with Coega.

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ArcelorMittal Steel
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17. (SBU) ArcelorMittal is the global giant in steel-making and
produces 6.4 million tons of liquid steel annually at its four
South African steelworks. Its South African operation is the
largest steel producer on the African continent (50 percent of
total supply) and is amongst the world's lowest cash-cost
producers. The Embassy team visited the Newcastle works, which
produces long and flat steel products extensively for use in the
construction industry. General Manager Jaco Stapleberg
assembled an impressive management team to explain the workings
at Newcastle and to answer questions. The team was also given
an extensive tour of the steel casting plant and the opportunity
to see a coke oven discharged. The impact of the global
economic crisis is evident as output estimates for 2009 are down
by 20 percent due to some 50 percent fall in steel demand.
Plans on the table to nearly double Newcastle's output from the
current 1.7 million tons to more than 3 million tons of steel
per year by 2012 are likely to be delayed pending an upturn in
the market.


18. (SBU) The Newcastle works employ some 2,000 people. The
last HIV-AIDS voluntary campaign was carried out in 2000 and
indicated that 18 percent of the workforce were infected.
Results for the 2008 campaign should be out early this year.
The company provides only vitamins to infected employees, while
local clinics are expected to supply the anti-retrovirals.
Arcelor is not yet compliant with the requirements of the Black
Economic Empowerment charter, but management said they intend to
achieve this status. Company management has spent $80 million
on environmental issues and claims it is helping to train the
Green Scorpions, South Africa's environmental enforcement
agency. The company says it is moving towards implementing EU
emission standards, but has not begun to consider its carbon
dioxide footprint. Arcelor hires much of its needed skills from
overseas, is attempting to entice expatriates to return home (to
date they have had 200-300 expressions of interest according to
management),and provides study opportunities to school
graduates. Artisans are available at a price. The company has
brought in more than 100 Zimbabweans to fill technical vacancies
and is impressed with the caliber of these artisans.


19. (SBU) Comment: KZN mining and minerals processing firms are
generally cutting back production by 20-50 percent as they face
the substantial global downturn, with market uncertainty and
exports drying up. Many interlocutors were cautiously
optimistic about Asia, but gloomy about the U.S.' ability to
turn around its economy. They are holding off on laying off
permanent workers - recognizing the perils of laying off
hard-to-find skilled workers, but they can only hold out for so
long.
DERDERIAN