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RR RUEHBZ RUEHDU RUEHMR RUEHRN
DE RUEHJO #0415/01 2931504
ZNR UUUUU ZZH
R 201504Z OCT 06
FM AMCONSUL JOHANNESBURG
TO RUEHC/SECSTATE WASHDC 5392
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
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RUEHJO/AMCONSUL JOHANNESBURG 2058

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##