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UNCLAS SECTION 01 OF 04 PRETORIA 001510 
 
SIPDIS 
 
STATE PLEASE PASS USAID 
STATE 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 3, March 2005 
 
REF: A) PRETORIA 3049, B) 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. 
 
--- 
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. 
 
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HOT ISSUES 
---------- 
 
Mineworker Layoffs - Unions Call Strikes 
---------------------------------------- 
 
¶3. (U) "As many as 20,000 people could lose their jobs in the 
next two months -- this is an employment state of emergency," 
said Solidarity trade union General Secretary, Flip Buys. 
The union is negotiating with a number of companies to 
prevent laying off some 18,300 workers in the mining, 
chemicals, and metal industries, which the companies blame on 
a strong rand.  Solidarity has appointed a commission of 
inquiry to look into ways of lessening the impact on 
thousands of workers.  Most of the layoffs will hit the 
mining industry.  Estimated layoffs by company are as 
follows: Harmony 4,900; DRDGold 6,500; De Beers 1,270; and 
Kumba 400.  Since employment in the mining industry peaked in 
the 1980's at about 750,000 -- 530,000 employed by the gold 
mines -- worker numbers have fallen precipitously.  Today, 
the mining industry employs about 450,000 workers, 190,000 by 
the gold mines.  Since the 1980s, gold production has fallen 
from over 800 tons per year to the current 370 tons. 
 
¶4. (U) The National Union of Mineworkers (NUM) called on 
100,000 of its members to strike against Gold Fields, 
DRDGold, and Harmony.  The loss of jobs is the primary issue, 
but other issues include accusations of racism, poor working 
conditions, pay differentials, and increased housing 
allowances for workers who opt to stay in private lodgings 
instead of single-sex hostels at the mine site.  Last week, a 
district court ruled that the strike against Gold Fields was 
illegal and ordered workers to return to work.  However, some 
21,000 Harmony mineworkers in the Free State remained on 
strike, only returning to work on April 6 after reaching a 
preliminary compromise with Harmony.  Industry insiders 
believe that the strike actions represent the "first shots 
across the bow" for forthcoming industry wage negotiations 
that begin in June.  Additionally, the NUM have accused 
DRDGold of poor management of and unsafe working conditions 
in their mines, and have asked the Minister of Minerals and 
Energy to revoke the company's mining licenses. 
 
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MINERALS 
-------- 
 
South African Mineral Production - 2004 
    --------------------------------------- 
 
¶5. (U) Mining production rose by 12.4% year-on-year (y/y) in 
January after an 8.2% y/y increase in December.  This brought 
the increase since October to 15.4%.  In the three months to 
end January, production rose by 7.1% (annualized 31.6%) on 
the prior three-month period.  This was due to an 8.3% rise 
in non-gold production due to increases in coal and platinum 
group metal (PGM) production - in December, the production 
value of both PGMs ($500 million) and coal ($440 million), 
exceeded that of gold ($400 million).  Gold mining production 
rose by 1.2% over the same period.  In 2004, mineral sales 
rose by 6.8% to R125.5 billion, or by 25.2% in U.S. dollar 
terms to $19.5 billion, and reflect very strong demand in the 
international commodity markets.  The table below shows the 
impact of fluctuating currency values, with 2002 being a 
record for rand earnings and 2004 for dollar earnings. 
Record rand sales occurred in 2002 due to an extremely weak 
rand. 
 
Value of Mineral Sales 
 
Year   Rand      US$      Exchange Rate 
      (billion) (billion)   Rand:US$1 
2000    98.4      14.2        6.94 
2001   118.9      13.8        8.60 
2002   137.6      13.1       10.52 
2003   117.9      15.6        7.56 
2004   125.5      19.5        6.45 
 
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IRON ORE 
-------- 
 
Rail Expansion for Iron Ore Export 
---------------------------------- 
 
¶6. (U) On March 7, Kumba Resources and Transnet (the state- 
owned transportation and logistics conglomerate) announced a 
$1.3 billion investment plan to boost South Africa's iron ore 
exports.  Kumba Resources is to invest $500 million in the 
Sishen (iron ore mine) Expansion Project to increase 
production from 28 mt/y to 38 mt/y by 2009.  Construction is 
scheduled to begin mid-2005 and first production in 2007.  In 
the meantime, Transnet has agreed to invest $800 million to 
expand capacity on the Sishen-Saldanha rail link and to 
upgrade port facilities at Saldanha Bay.  Kumba and Transnet 
also recently agreed on a new contract for the transportation 
and handling of iron ore.  The contract incorporates a rand- 
based tariff in place of a pricing mechanism linked to the 
$U.S. price of iron ore. 
 
¶7. (U) Assmang [the joint-venture between African Rainbow 
Minerals (ARM) and Ore and Metal Company (ASSORE)] and 
Spoornet (the rail operating arm of Transnet) announced that 
Assmang's iron ore export allocation would also increase 
substantially by 2009/10.  Assmang currently exports about 6 
mt/y via the Orex rail line to Saldanha Bay.  The company is 
conducting a feasibility study on establishing a new $170 
million mine (called BKM) just south of Kumba's Sishen mine 
that will substantially replace production from Assmang's 
aging Beeshoek mine near Postmasburg.  BKM is scheduled to 
export about 10 mt/y by 2010, rising to 15 mt/y by 2015. 
Transnet plans to increase the capacity of the Orex line from 
the current 29mt/y to about 41mt/y by 2010.  It is also 
conducting a feasibility study on a further expansion to meet 
export needs. 
 
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STEEL 
----- 
 
ISCOR R.I.P. 
------------ 
 
¶8. (U) Ispat Iscor officially changed its name to Mittal 
Steel South Africa in March.  Davinder Chugh, Mittal's CE, 
said the group's two name changes over the past seven months 
-- first from Iscor to Ispat Iscor and then to Mittal Steel 
SA -- had cost the group about $70,000, a negligible amount 
compared to the benefits of associating the enterprise with 
the second largest steel company in the world.  Mittal sold 
70 million tons of steel last year.  Recently, Mittal 
obtained approval from U.S. regulators to acquire 
International Steel Group (ISG).  If shareholders approve the 
deal on April 12, Mittal Steel will become the world's leader 
in steel production and shipments, outstripping European 
giant Arcelor.  The group will also boast the largest market 
capitalization of any steel company in the world, at $18.5 
billion. 
 
Local Steel Prices 
------------------ 
 
¶9. (U) On February 8, the South African Government revoked 
antidumping duties on steel imports from Russia and Ukraine - 
- currently 81.7% and 94.8%, respectively.  The move was in 
line with government policy to promote greater competition 
for local production and reduce domestic steel prices.  The 
International Trade Administration Commission (ITAC) 
dismissed Mittal Steel's warning that "uncompetitive steel 
trading" would result if the government revoked the duties. 
While ITAC admitted in preliminary findings that the expiry 
of the antidumping duties would likely lead to a resumption 
of dumping from Russia and Ukraine, it ultimately concluded 
that such dumping would not materially injure domestic steel 
makers.   The measure is the latest SAG effort to pressure 
Mittal into lowering domestic steel prices to give South 
African manufacturers a competitive edge.  The government is 
also investigating removing its general 5% tariff on steel 
imports. 
 
----------- 
OIL AND GAS 
----------- 
 
Deep Water Exploration 
---------------------- 
 
¶10. (U) To date, oil and gas exploration on land and in 
coastal waters has only yielded a few pockets of natural gas 
and oil, insufficient to support a significant oil and gas 
industry in South Africa.  Chief Executive of South Africa's 
Petroleum Agency of South Africa (PASA), Jack Holliday, 
reports that exploration is now moving to deeper waters 
(circa 2000 meters), where seismic data points to more 
favorable geological structures.  All offshore exploration to 
date has been at water depths ranging from 100 to 800 meters. 
The proposed two deep-water wells are critical to 
understanding what might be housed in the exploration area, 
which lies about 100 miles off the west coast of South 
Africa. 
 
¶11. (U) Two ventures have completed the first stage of data 
collection and are preparing to each drill a hole at depths 
of 1600 meters.  One is a partnership between Forest Oil 
(U.S.), and state-owned PetroSA (South African).  They plan 
to drill one hole this year, but it depends on the 
availability of equipment.  The other is a partnership 
between BHP-Billiton (AUS) and Occidental.  They hope to make 
a decision soon to take advantage of a drill rig available in 
September.  PASA told us that the partnership between Pioneer 
Oil (U.S.) and PetroSA (South African) also wanted to explore 
for natural gas off the south coast.  PetroSA urgently needs 
a new source of natural gas as feedstock for its gas-to- 
liquids plant at Mossel Bay.  Current reserves will be 
depleted within five years. 
 
-------------- 
PETROCHEMICALS 
-------------- 
 
SASOL: More than Pipes Under Pressure 
------------------------------------- 
 
¶12. (U) In the aftermath of a series of fatal accidents at 
different petrochemical plants, SASOL is drawing increasing 
political criticism on the home front.  Since July, SASOL has 
incurred seven accidents at different chemical plants in 
which 16 workers died and over two hundred were injured.  The 
spate of accidents calls into question the company's 
maintenance and safety procedures, including its growing use 
of outside contractors.  Unions have accused SASOL management 
of failing to take appropriate safety precautions, of failing 
to maintain aging plant and equipment, of cutting corners by 
outsourcing maintenance that should be performed by permanent 
and well-trained employees, and of not adhering to the 
government's BEE program.  SASOL has been slow to respond to 
these attacks, but has contracted industry giant DuPont to 
audit its corporate wide safety management system, 
maintenance procedures, and training programs. 
 
¶13. (U) The public criticism surrounding safety issues is 
additional to ANC-led government criticism of SASOL for 
lacking patriotism and commitment to BEE.  Last year, 
President Mbeki publicly accused SASOL of disloyalty to the 
country because, in its application for a secondary listing 
on the NYSE, the company included possible costs or loss of 
operating licenses associated with the government's 
implementation of BEE.  At the beginning of this year, 
Director General of Minerals and Energy Sandile Nogxina 
publicly criticized the company for not meeting BEE targets 
and for not appointing a black to SASOL's Board (which it 
subsequently has done) or as a replacement for retiring CE 
Pieter Cox.  In March, the CEO of the Public Investors 
Commission, Brian Molefe, publicly criticized SASOL for not 
having transformed its Board and senior management.  Holding 
about 14%, the Public Investment Commission is SASOL's 
largest single shareholder.  Moreover, the Competition 
Tribunal recently entered the fray with a judgment against 
SASOL for unlawful price discrimination.  The aftermath of 
all this negative publicity has left SASOL management reeling 
in a public relations nightmare that is causing many South 
Africans to question SASOL's corporate ethics, safety 
management procedures, and reputation for corporate and 
social responsibility. 
 
¶14. (U) Chief Executive Pieter Cox has argued that SASOL does 
back the government's economic and BEE policies, and points 
to a number of empowerment deals in the making by its mining, 
fertilizer, explosives, chemical, synfuels, and natural gas 
businesses.   SASOL, with a capitalization value of $16.5 
billion, is the fourth largest company, accounting for 5% of 
the capitalization of the JSE Securities Exchange. 
 
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NUCLEAR 
------- 
 
South Africa-China Cooperation 
------------------------------ 
 
¶15. (U) On March 6, pebble-bed nuclear technology developer 
PBMR Ltd and its Beijing-based counterpart, Chinergy, signed 
a memorandum of understanding allowing for the sharing of 
technical information on the development and construction of 
reactor demonstration projects.  Jaco Kriek, CEO of PBMR Ltd, 
said that the parallel development of the two plants would 
improve mutual understanding of pebble bed nuclear 
technology.  Frank Wu, CEO of Chinergy, noted that although 
both technologies used the same pebble fuel concept as the 
source of heat, Chinergy would utilize an indirect-cycle 
steam turbine to convert heat into power while PBMR would 
utilize a direct-cycle helium gas turbine system.  Both South 
Africa and China acquired pebble bed technology from Germany. 
PBMR is a component of South Africa's Integrated Energy Plan, 
and has recently received high-level political approval and 
increased budget support. 
 
-------- 
IN BRIEF 
-------- 
 
Mintek CEO to Push Mineral Beneficiation 
---------------------------------------- 
 
¶17. (U) Dr. Paul Jourdan, the current CEO of Mintek (the 
state-owned mineral processing research organization), will 
leave Mintek to become Special Advisor on Beneficiation to 
the Minister of Minerals and Energy when his contract expires 
in August.  Jourdan will be responsible for the design and 
implementation of the government's ambitious policy of adding 
value and jobs to the mining industry through further 
processing/manufacturing of minerals before export. 
 
FRAZER