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TAGS: EPET ENRG EMIN EINV EIND ETRD ELAB KHIV SF
SUBJECT: South Africa: Minerals and Energy Newsletter "THE ASSAY" - 
Issue 10A, October 1-15, 2007 
 
 
JOHANNESBU 00000000  001.2 OF 004 
 
 
This cable is not for Internet distribution. 
 
¶1. (U) 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. (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 
-------- 
 
------------------------------ 
U.S. Lifts Tariffs on SA Steel 
------------------------------ 
 
¶3. (SBU) The U.S. International Trade Commission (ITC), an 
independent agency that protects U.S. companies against harmful 
imports, has lifted tariffs on hot-rolled steel imports from South 
Africa.  These tariffs were initially imposed in 2001 as a Safeguard 
Measure to protect U.S. steel companies from low-cost imports.  At 
that time, the global price for hot-rolled steel was below $200 per 
ton and many of the older integrated steel plants could not compete. 
 The Safeguard Measures were introduced to give the U.S. steel 
industry a breathing space to re-equip and reorganize to become more 
globally competitive.  A year or so after the measures were imposed, 
coinciding with the onset of the commodity boom, the price of 
hot-rolled steel more than doubled.  Under the WTO rules, the U.S. 
must review countervailing tariffs every five years.  The tariffs on 
SA steel were revoked, along with those on steel from Argentina, 
Kazakhstan and Romania because it was unlikely to cause harm to the 
local industry. 
 
--------- 
COMPANIES 
--------- 
 
------------------------------------ 
Anglo American CEO Spills More Blood 
------------------------------------ 
 
¶4. (SBU) Following the departure of a number of senior executives at 
AngloGold Ashanti and Anglo Platinum in August/September, reportedly 
at the behest of Anglo American's new CEO Cynthia Carroll, last week 
 
JOHANNESBU 00000000  002.2 OF 004 
 
 
brought the announcement of a new round of shakeups of the Anglo 
Platinum board.  Anglo American owns a 75% share of Anglo Platinum. 
According to the announcement, Anglo Platinum's board will be cut to 
just two members, compared to eight at the end of 2006.  Of the 
eight executive directors at the end of 2006, two have resigned, one 
has retired and three others have effectively accepted demotions. 
Since December 2006, 12 non-executive directors have also left the 
company. 
 
¶5. (SBU) The initial purge of AngloGold and Anglo Platinum CEOs was 
apparently related to Carroll's demand that they take responsibility 
for mine safety, following a number of accidents and fatalities at 
their mines.  However, this latest move seems more related to 
efficiency concerns and the decision to get rid of "dead wood". 
(Comment.  Carroll is an American Citizen and was previously Senior 
Vice President of Alcan, the Canadian Aluminum giant that has 
recently been taken over by Rio Tinto.  Her efficiency management 
has resulted in the removal of a number of tiers of senior and 
middle management.   End Comment.) 
 
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ENERGY 
------ 
 
--------------------------------------- 
Eskom Put to the Test and Found Wanting 
--------------------------------------- 
 
¶6. (SBU) The inadequacy of South Africa's slim electricity reserve 
margin of less than 8% has been exposed by significant rolling 
black-outs around the country.  The combination of cold and wet 
weather, planned maintenance and unexpected outages at a number of 
power stations, and additional losses allegedly due to wet coal 
supplies has reduced state power company Eskom's installed capacity 
by up to 20% since October 9.  As a result, Eskom has imposed 
"load-shedding" (enforced rationing or rolling black-outs) in 
Pretoria, Johannesburg and other municipal areas to cope with the 
generation shortfall.  Pretoria neighborhoods, including the 
downtown office of the Department of Minerals and Energy, have been 
subjected to hours of unexpected blackouts.  Eskom has asked its 
industrial customers, such as gold mines and operators of aluminum, 
ferrochrome, and steel furnaces to share the power cuts.  It is 
expected that the power supply deficit will last as long as the 
inclement weather stays around.  Eskom's scheduled maintenance 
program should be completed by March next year. 
 
---------------------------------------- 
Energy Summit Reviews 1998 Energy Policy 
---------------------------------------- 
 
¶7. (SBU) The South African Department of Minerals and Energy (DME) 
organized a two-day Energy Summit (September 24-25) to engage with 
stake-holders to reassess SA's energy policy as set out in the 1998 
Energy White Paper.   DME Director General Sandile Nogxina said the 
energy situation had changed drastically since 1998, therefore 
requiring scrutiny of all areas of the policy to see whether the 
assumptions made in its compilation were still valid.  The price of 
international crude oil has jumped from about $10 per barrel in 1998 
to more than $85 per barrel today.  Additionally, the output 
capacities of South Africa's oil refineries and Eskom's generators 
have swung from large surpluses and exports to an inability to keep 
up with growing demand and the scurry to provide new supply capacity 
and options.  Exports have also been reduced to minimum contractual 
requirements. 
 
¶8. (SBU) Nogxina emphasized that in a developmental state like South 
Africa, the role of the State was critical in striking a balance 
between the interests of capital and national objectives, such as 
universal access to affordable energy - some 70% of SA households 
are linked to the electricity grid.  Nevertheless, the SAG welcomed 
private sector participation in energy supply (limited to 30% of new 
electricity build), as exhibited by the appointment of an AES-led 
consortium to build two gas-fired power plants with a total capacity 
of 1,000 megawatts in Durban and Coega.  However, Eskom would remain 
the single buyer of electricity, and as the guaranteed off-take 
provider would create the environment to attract other independent 
 
JOHANNESBU 00000000  003.2 OF 004 
 
 
power producers. 
 
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GOLD 
---- 
 
-------------------------------------- 
SA Still World's Leading Gold Producer 
-------------------------------------- 
 
¶9. (SBU) South Africa's gold production has been in decline for 
years and it is now producing less gold than it did in 1922.  South 
African gold production was 275 tons in 2006, 296 tons in 2005, 428 
tons in 2000, and 1,000 tons in 1970, which represented two-thirds 
of the world production of 1,500 million ounces in that year. 
However, the country maintains a slim lead over competitors as these 
have also seen a decrease in gold output.  For instance, U.S. gold 
output declined from 262 tons to 260 tons in 2006, Australian 
production fell from 263 tons to 251 tons, Peru production declined 
from 207 tons to 203 tons, Russian output dropped 4 tons to 152 
tons, and Canada's output fell from 118 tons to 104 tons.  In total, 
gold output from these Countries fell by 57 tons or about 1.75 
million ounces.  Much of this is due to problems that beset the 
industry in the past and resulted in low prices and low levels of 
new investment in future production.  However, with the price of 
gold at a 28-year high, new investment is flowing in for exploration 
and mine expansions. 
 
--------------------------- 
Deep Gold Mining Fatalities 
--------------------------- 
 
¶10. (SBU) Thirty-one legal and illegal miners were fatally injured 
in accidents, fires and rock falls in South African gold mines 
during the past month.  A further 3,200 miners (including 200 women) 
were trapped underground at a depth of 2,200 meters for up to 48 
hours when a pressurized air pipe in a shaft at a Harmony mine broke 
loose and fell down the shaft and damaged the shaft infrastructure 
and severed electricity and communication cables.  Ambient rock 
temperatures at that depth reach 40 degrees C and without proper 
ventilation and cooling, work is impossible.  Fortunately, no 
injuries were reported in this incident and all miners were safely 
brought to surface.  Included in the thirty-one fatalities were 23 
illegal miners who were caught in a fire in abandoned portions of 
the Harmony's St Helena Mine in the Free State Province.  The 
illegal's gain access to old working places via co-worker compliance 
or through other shaft systems.  They spend weeks at a time 
underground  perilously chipping away at gold ore in shaft and 
boundary pillars left unmined to stabilize the mine and shafts. 
 
-------------------------------------- 
Deep Mining Can Still Be Fatality Free 
-------------------------------------- 
 
¶11. (SBU) Despite the above accidents, Africa's leading gold 
producer AngloGold Ashanti maintains that it is possible to mine at 
depths exceeding 3,000 and even 4,500 meters without incurring 
fatalities.  Years were spent on a Deep Mine design research project 
carried out by industry and the State-owned research organization, 
CSIR-Miningtek, to verify the technical feasibility of mining down 
to 5,000 meters.  The project findings were put on hold because of 
the low price of gold at the time.  However, the current 28-year 
record high gold price could cause these plans to be dusted off and 
implemented. 
 
¶12. (SBU) South African gold mines employ more than 200,000 miners, 
account for at least the same number of jobs in other supporting and 
service industries and each employee supports another four or five 
dependents.  Annually, the mines pay out billions of dollars in 
taxes, wages, salaries and procurement of supplies, equipment, 
research and services, and earn some $5 billion in foreign exchange. 
 Therefore, the answer is not to close the mines, a sentiment 
endorsed by the unions.  Instead, companies like AngloGold Ashanti 
are aiming to work with labor and government to effect a cultural 
change that would lead workers to understand the reasons for safety 
and the need to implement safety regulations. 
 
JOHANNESBU 00000000  004.2 OF 004 
 
 
 
-------------- 
FERROUS METALS 
-------------- 
 
----------------------------------- 
Nickel Mine to Quadruple Production 
----------------------------------- 
 
¶13. (SBU) South Africa has only one small nickel mine, the Nkomati 
Nickel Mine, which is located in Mpumalanga Province.  Other nickel 
production is a by-product of platinum mining.  Nickel is an 
essential ingredient in the production of stainless steel and is 
currently at record high prices.  The joint owners of Nkomati are 
African Rainbow Minerals (ARM), a black-owned South African company, 
and the Russian miner Norilsk, which is the world's leading producer 
of palladium, a platinum group metal.  The owners have approved a 
$460 million expansion plan to quadruple the yearly production of 
the mine to 20,500 tons of nickel and extend the mine life by 18 
years, to 2027. 
 
¶14. (SBU) ARM and Norilsk plan to start construction early next year 
and production could start in the third quarter of 2009.  Full 
production is expected in the first quarter of 2011.  In addition to 
nickel, the mine would annually produce 9,000 tons of copper, and 
110,000 ounces of platinum group metals (PGMs).  The Nkomati 
resource is estimated at 904,000 tons of nickel with capacity to 
produce 625,000 tons ore per month from underground and open-pit 
mining.  The existing 100,000 ton per month concentrator is to be 
upgraded to take 250,000 tons per month and a new 375,000 ton 
concentrator will be built, which will provide a total smelting 
capacity of 625,000 tons per month.  The expansion secures 254 jobs 
and will create an additional 330 new operational jobs and employ 
2,000 contractors during the construction phase. 
BOST