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UNCLAS SECTION 01 OF 05 PRETORIA 002754 
 
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 6, June 2005 
 
REF: A) PRETORIA 3049, B) PRETORIA 2998 
 
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. 
 
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HOT ISSUES 
---------- 
 
New Minister of Minerals and Energy 
----------------------------------- 
¶3. (U) On June 22, President Thabo Mbeki appointed 
Lindiwe Hendricks, the former South African Deputy 
Minister of Trade and Industry (DTI), Minister of 
Minerals and Energy (DME) following the appointment of 
Phumzile Mlambo-Ngcuka as Deputy President.  These 
changes resulted from the dismissal of Jacob Zuma, the 
former Deputy President.  An attorney by training, Ms. 
Hendricks served as Deputy Minister of Trade and Industry 
to Minister Alec Erwin from 1999 until April 2004, and 
thereafter to Minister of Trade and Industry Mandisi 
Mpahlwa.  As Deputy Minister of DTI, she worked to 
improve export competitiveness, access to new markets, 
and to support the development of new technologies.  She 
also promoted mining-related activities such as 
beneficiation, small-scale mining, and women in mining. 
Her legal background may be valuable for implementing the 
mineral rights conversion process required by the new 
Petroleum and Mineral Resources Development Act. 
 
Minister's Advisory Board Launched 
---------------------------------- 
¶4. (U) On June 18, the new Minister of Minerals and 
Energy, Lindiwe Hendricks, officially launched the 
Minerals and Mining Development Board.  Established under 
Section 57 of the Mineral and Petroleum Resources 
Development Act the Board will advise the Minister on 
matters referred to it under the Act, such as sustainable 
development of the country's mineral resources, black 
economic empowerment, industry job losses, and dispute 
resolution surrounding the award of permits or licenses. 
The Board must promote human resource development in 
consultation with the Mining Qualifications Authority, 
and may report on any matter relating to the application 
or objectives of the Act.  Appointed by the Minister, the 
Board's members must reflect the gender and racial 
composition of the country as well as hail from labor, 
business, government, and civil society.  A total of 
sixteen members have been appointed.  The Chairperson is 
Sandile Nogxina, Director General of the Department of 
Minerals and Energy (DME).  Other Board members include: 
May Hermanus, Chief Inspector of Mines; Abe Mngomezulu, 
Deputy Director General, Mineral Policy and Investment 
Promotion; Con Fauconnier, President of the SA Chamber of 
Mines and CEO of Kumba Resources; Bridgette Radebe, 
Chairperson of the SA Mining Development Association and 
CEO of Mmakau Mining; Mzolisi Diliza, CEO of the SA 
Chamber of Mines; Jan Bredell, previous Director General 
of DME; and Nchaka Moloi, previous advisor to the 
Minister of Minerals and Energy. 
 
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MINING 
------ 
 
South African Non-Gold Mining Booms 
----------------------------------- 
¶5. (U) Non-gold mining production rose by 12.6% year-on- 
year (y/y) in April, but gold mining production fell by 
16.3% y/y, resulting in total mining production rising by 
7.1% y/y.  The plunge in gold mining was due to 
industrial action at three of the largest mines, as well 
as to seismic activity in the NW mining area.  In terms 
of individual minerals and ores, y/y growth in diamonds 
was 33.5%, chrome 20%, iron ore 17.6%, copper 12.4% 
manganese 6.5% and PGMs 5.4%.  The remaining metallic 
minerals showed an average 27% y/y growth.  For the non- 
metallics, steam coal y/y output grew 10.9%, building 
materials by 6.6%, and the bulk remainder such as clays, 
asbestos, and refractory minerals averaged 56% growth. 
Cement sales rose by 8.1% y/y to 1.016 million tons in 
May, after a 28% y/y rise to 971,600 tons in April. This 
brought the year-to-date increase to 11.1% y/y compared 
to 2004's 17.3% surge.  Sales in May were the first since 
November 2004 to exceed 1 million tons in one month. 
Analysts believe this level should be the norm for the 
rest of the year.  Except for gold, high dollar prices 
for exported commodities and the country's growing 
economy and high local housing prices make the outlook 
for South Africa's mineral economy buoyant as long as the 
rand does not strengthen vis--vis the dollar, to impact 
export revenues in rands. 
 
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IRON ORE 
-------- 
 
Anglo American Wins Some, Loses Some 
------------------------------------ 
¶6. (U) London-based Anglo American, the second largest 
diversified resource company in the world after BHP- 
Billiton of Australia, is striving to become a leading 
iron ore exporter.  After much political wrangling with 
South Africa's Industrial Development Corporation (a 
South African investment parastatal), Anglo finally 
managed to buy 67% of Kumba Resources in 2003.  However, 
the government conditioned the sale on limiting Anglo 
American's ownership to 49% to create an opportunity for 
an 18% equity ownership for BEE firms.  Anglo American is 
talking with prospective BEE partners interested in 
purchasing the 18% now.  Kumba's Sishen iron ore mine, 
located in the Northern Cape, is one of ten major iron 
ore deposits in the world.  The mine produces 29 million 
tons of high-grade ore per year and exports 21 million 
tons through the Saldanha Bay port via the dedicated Orex 
rail line operated by Spoornet, the South African 
Government-owned parastatal. 
 
¶7. (U) Interestingly, Anglo American's purchase of Kumba 
may result in the loss of an important international 
asset.  Prior to Anglo American's takeover of Kumba, 
Kumba had entered into a 49/51 agreement with Hancock 
Prospecting (Australia) to develop the $1.5 billion Hope 
Downs iron ore project in Western Australia.  The 
promising project would have added 50% to Kumba's global 
iron ore production.  However, Kumba's agreement with 
Hancock stipulated that, should Kumba experience a change 
of ownership control, Hancock could buy back Kumba's 49% 
share in Hope Downs.  Anglo's purchase of a 67% share of 
Kumba triggered this option, and now Hancock appears 
determined to exercise it.  Anglo American went to 
arbitration to try to stop Hancock, but lost.  Hancock's 
must pay $113 million to Kumba by July 1, 2005 and $85 
million by July 1, 2006 to complete the repurchase.  Only 
if Hancock fails to meet these deadlines will Anglo 
American's position as a world player in the iron ore 
market be assured.  With BHP-Billiton, CVRD of Brazil, 
and Rio Tinto lurking behind the scenes, no one is 
betting that this will happen. 
-------- 
DIAMONDS 
-------- 
 
De Beers Steps Out: Fifth Avenue Style 
-------------------------------------- 
¶8. (U) The first De Beers LV (De Beers' joint venture 
with Louis Vuitton Moet Hennessy) luxury goods store 
opened on Fifth Avenue on June 22 to both applause and 
boos from a motley crowd.  The opening was De Beers' (the 
world's largest producer of rough diamonds) first step to 
doing business directly in the United States in more than 
50 years, having faced antitrust cases since 1945.  To 
pave the way to doing direct business in the United 
States, De Beers pleaded guilty in federal court last 
year to price-fixing and paid the maximum fine of $10 
million.  Media reports said that the 30 hecklers accused 
De Beers and the Government of Botswana of complicity in 
the "cultural genocide" of the San people.  This is 
because the government had recently evicted a San 
community from living and hunting in a section of a 
national game park, a potential diamond mining area.  De 
Beers and the Government of Botswana participate equally 
in Debswana, a 50/50 joint venture to mine Botwana's 
diamond resources. 
 
De Beers Exports Scanning Technology 
------------------------------------ 
¶9. (U) The September 2004 issue of The ASSAY reported on 
the De Beers' fast x-ray scanner, called the Lodox 
Statscan. The scanner, developed for diamond detection 
and analysis, found an important niche in the medical 
field as a fast, affordable, and safe digital x-ray 
machine.  Currently, ten systems are operational in the 
United States and three in South Africa.  Subsequent to 
the report in the September issue, trauma centers in 
Sudan ordered four Statscan machines - two were delivered 
and staff training is underway - and one by Dubai.  A 
hospital in the United Arab Emirates purchased one 
machine.  Lodox's Marketing Executive Rodney Sandwith 
said that he expected sales to triple next year and to 
double every year thereafter.  He believed there were 
excellent prospects in North Africa and in some of the 
larger African countries, such as Nigeria.  Sandwith 
added that the opportunities in southern Africa were more 
limited as many of the countries were less inclined or 
able to purchase state-of-the-art equipment. 
 
New Life for Kimberley: The Diamond Capital 
------------------------------------------- 
¶10. (U) Kimberley, the diamond city where it all began in 
1871, continues to hold her own 134 years later. 
Kimberley mines recorded its highest level of production 
(2,050,627 carats) in 91 years, increasing output by 95% 
(nearly a million carats) year-on-year from 2003 to 2004. 
The bulk (90%) of this outstanding performance came from 
the Combined Treatment Plant built to process the waste 
(obviously diamondiferous) dumps that dot the area, a 
legacy of the early days.  In South Africa, Kimberley 
production was second only to De Beers' Venetia diamond- 
mine in the Limpopo province, which produced 52% of the 
record 13.7 million carats produced by the seven De Beers 
Consolidated Mines' (DBCM) South African operations.  The 
target for 2004 is 14 million carats.  "It is our 
intention to be mining in Kimberley for as long as I'm 
around," said Jonathan Oppenheimer, the 35 year-old 
Managing Director of DBCM and heir to the De Beers 
fortune.  These results have breathed new life into both 
DBCM and the City of Kimberley, where De Beers is 
investing $8 million over three years to redevelop the 
Big Hole (see picture on title page) into a world-class 
tourism facility by 2008. 
 
-------------- 
INFRASTRUCTURE 
-------------- 
 
Focus on Spoornet - Spending Plans 
---------------------------------- 
¶11. (U) For decades Spoornet, the South African Government- 
owned rail parastatal, has underperformed operationally and 
financially.  This has severely impacted bulk mineral 
exports and export growth, which have fled to privately- 
owned road transport.  In an attempt to revitalize Spoornet, 
Transnet (the parastatal transport holding company) CEO 
Maria Ramos appointed Siyabonga Gama as the new CEO of 
Spoornet (the fourth in the past six years).  Gama's task is 
to implement a turn-around plan aimed at making Spoornet a 
more efficient service provider and more financially viable. 
Gama said that he is confident that Spoornet's 5-year 
infrastructure spending program will stabilize the company 
and reverse the current flow of business to road transport. 
The spending program is part of Minister for Public 
Enterprises Alec Erwin's $7.8 billion capital expenditure 
plan for Transnet.  Spoornet's cut is $2.5 billion, of which 
Gama plans to spend $600 million on infrastructure and $1 
billion each on new locomotives and on upgrading older 
locomotives and wagons.  Gama wants to double annual revenue 
to $5.6 billion by 2010 by growing Spoornet's market in the 
following areas: 
  -- coal by 15% to 86 mt per year; 
  -- general freight by 82% to 160 mt per year; 
  -- iron-ore by 28% to 41 mt per year; 
 
----------- 
OIL AND GAS 
----------- 
 
ChevronTexaco and SASOL Team up in Nigeria 
------------------------------------------ 
¶12. (U) The long-delayed multibillion-dollar gas-to- 
liquids (GTL) project in Nigeria looks set to move ahead. 
On April 8, ChevronTexaco (Nigeria), a subsidiary of 
ChevronTexaco Corp, awarded a $1.7 billion engineering, 
design and procurement contract for the Escravos gas-to- 
liquids (EGTL) project to Team JKS, a consortium composed 
of JGC Corporation of Japan, KBR and Snamprogretti. 
Chevron Nigeria owns 75% of the project, with Nigerian 
National Petroleum Corporation holding 25%.  SASOL, South 
Africa's oil-from-coal producer, will supply its 
proprietary technology to the project for a licensing fee 
and provide 50% of the risk-based finance.  The plant 
will produce 34,000 barrels a day of liquid fuels 
including diesel, naphtha, and a small amount of 
liquefied petroleum gas. 
 
¶13. (U) A SASOL spokesperson said the project would 
provide a major boost to the development of diesel from 
gas, which was "set to revolutionize the performance of 
diesel technology and improve air quality by reducing 
vehicle emissions".  The project would significantly 
reduce gas flaring from oil recovery operations. 
Moreover, gas-to-liquid diesel is low in aromatics and 
almost sulfur-free.  ChevronTexaco-SASOL's first 
commercial gas-to-liquids plant in Qatar should come on 
line early next year.  The group was also considering 
opportunities to build gas-to-liquids plants in Iran and 
Australia, among other countries. 
 
SASOL Signs MOU for Plant in Pennsylvania 
----------------------------------------- 
¶14. (U) On April 18, WMPI (Waste Management and 
Processors Inc.) announced the signing of a Memorandum of 
Understanding (MOU) with SASOL for the construction of a 
coal gasification-based liquid fuels production facility 
near Gilberton, Pennsylvania.  Under the MOU, WMPI and 
SASOL will, subject to a number of conditions, commence 
negotiations for the use of SASOL's Fischer-Tropsch 
technology.  The Gilberton Integrated Fuels Plant will be 
a demonstration facility that will reclaim and process 
1.4 million tons per year of waste anthracite coal to 
produce 5,034 barrels per day of ultra-clean 
transportation liquid fuel and 41 MW of electricity for 
sale.  Successful start-up and operation of this facility 
may lead to larger-scale commercial plants with 10-12 
times the capacity.  The United States Department of 
Energy (DOE) and the National Energy Technology 
Laboratory (NETL) under the Clean Coal Power Initiate 
(CCPI) will sponsor the waste-coal-to-clean-liquids 
project.  The WMPI Project team includes: 
 -- Shell Global Solutions - supplier of gasification 
 technology; 
 -- Uhde GmbH - Germany-based global engineering, 
 procurement and construction (EPC) contractor for 
 Shell's Coal Gasification Process (SCGP) technology; 
 -- SASOL - Fischer-Tropsch Liquefaction technology 
 provider; 
 -- Nexant, Inc. - owner's engineer; 
 -- ChevronTexaco Products Company - work-up technology 
 provider. 
 
SASOL to Explore in Mozambican Waters 
------------------------------------- 
¶15. (U) On June 1, SASOL announced that it had signed an 
agreement to explore for gas in an 11,000 square kilometers 
area off the Mozambican coast.  The area is directly 
offshore of the Pande gasfield that supplies SASOL's 
chemical, fuels, and gas operations in South Africa.  The 
exploration and production concession contract was signed in 
Maputo by SASOL Petroleum International and the Mozambican 
Ministry of Mineral Resources.  The investment vehicle is 
SASOL Petroleum Sofala Limitada, a wholly owned SASOL 
subsidiary, in which SASOL holds an 85% interest, and 
Empresa Nacional de Hydrocarbonetas, the Mozambican 
parastatal holds 15%.  The agreement is subject to final 
approval by the Mozambican Cabinet. 
 
South Africa's Integrated Oil and Gas Company 
--------------------------------------------- 
¶16. (U) On May 12, the Competition Commission conditionally 
approved the merger between SASOL, South Africa's synthetic 
fuels and chemical company, and Malaysian national petroleum 
corporation Petronas (majority owner of Engen), subject to 
further investigation by the Competition Tribunal.  The new 
entity, Uhambo Oil, would be owned 37.5% each by SASOL and 
Petronas, and 25% by their black economic empowerment 
partners: Tshwarisano LFB Investment and Afric Energy 
Resources.  If approved by the Competition Tribunal, Uhambo 
Oil would control 55% of the country's refining capacity and 
40% of the inland retail market.  The merger was opposed by 
the other oil companies which have no inland refining 
capacity and fear that Uhambo might cease supplying them in 
Gauteng and other important markets.  However, the 
Competition Commission made its approval conditional on 
Uhambo continuing to supply petroleum products to these 
companies until completion of the new $500 million petroleum 
pipeline from Durban to Johannesburg in 2010.  The 
Competition Tribunal hearings are set for October 3 to 20. 
FRAZER