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R 201128Z NOV 07
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RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 04 PRETORIA 004002 
 
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TAGS: EPET ENRG EMIN EINV EIND ETRD ELAB KHIV SF
SUBJECT: South Africa: Minerals and Energy Newsletter "THE ASSAY" - 
Issue 10B, October 16-31, 2007 
 
 
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. 
 
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HOT NEWS 
-------- 
 
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Westinghouse Electric South Africa Launched 
------------------------------------------- 
 
¶3. (SBU) The Westinghouse Electric Company officially launched its 
South African operation under the name Westinghouse Electric South 
Africa on November 5.  This followed the approval by the Competition 
Commission of its acquisition of the South African company, IST 
Nuclear (ISTN), which is a leading provider of nuclear services and 
systems.  Regional Vice President South Africa said the acquisition 
brought together local experience and international expertise that 
should position Westinghouse to bid on the first tranche of Eskom's 
new nuclear build.  This is targeted to total 20,000 MW over the 
next two decades.  The ISTN purchase also meets the South African 
Government's objective of building a local nuclear-industry capacity 
around Eskom's multibillion dollar nuclear power program.  ISTN has 
been working with both South African and U.S. based investors in 
developing the smaller, new-generation Pebble Bed Modular Reactor 
(PBMR) being developed in South Africa. 
 
¶4. (SBU) Westinghouse plans to promote its AP1000 nuclear power 
plant, which is the company's third-generation plus pressurized 
water reactor system (PWR).  Bowser said Westinghouse's modular 
design of units of 1,100 MW would be advantageous for power 
distribution and would promote localization of suppliers.  ISTN 
supplied the helium test facility for the PBMR and is contracted to 
design key systems for the PBMR demonstration unit to be built at 
the Koeberg site by 2011.  Westinghouse is a group company of 
Toshiba Corporation, is the world's pioneering nuclear power company 
QToshiba Corporation, is the world's pioneering nuclear power company 
and is a leading supplier of nuclear plant products and technologies 
to utilities throughout the world.  Westinghouse supplied the 
world's first Pressurized Water Reactor (PWR) in 1957 in 
 
PRETORIA 00004002  002 OF 004 
 
 
Shippingport, Pennsylvania.  Today, Westinghouse (PWR) technology is 
the basis for approximately one-half of the world's operating 
nuclear plants, including 60% of those in the United States and 
South Africa's Koeberg plant.  Westinghouse holds a 15% share in the 
PBMR. 
 
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DIAMONDS 
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----------------------------- 
Diamond Cutting and Polishing 
----------------------------- 
 
¶5. (SBU) World Federation of Diamond Bourses President Ernest Blom 
said in his presentation at the recently held Southern African 
Institute of Mining and Metallurgy's "Diamonds - Source to Use 2007" 
colloquium, that South Africa's cutting and polishing industry is 
estimated to be the world's fifth largest by value, after India, 
China, Russia and Israel.  Blom noted that there were 157 
diamond-cutting factories in 2006, employing about 2,500 cutters and 
consuming $700 million worth of rough diamonds from both domestic 
production and imports.  An additional 1,000 cutters operated micro 
businesses in the informal sector.  Exports were valued at $700 
million with a further $100 million stockpiled or sold locally. 
Blom said a South African cutter (Basil Watermeyer) produced one of 
the most important text books on diamond cutting and another (Alex 
Leibowitz) was the original inventor of the automated diamond 
polishing and bruting machines that revolutionized the industry. 
 
¶6. (SBU) Conventional wisdom (and economics) has it that the South 
African cutting and polishing industry, with its relatively high 
wage structure, cannot compete with low-wage countries like India 
and China.  Cutting costs per carat in those countries are 10% to 
15% of those in South Africa.  This effectively limits locals to the 
larger and higher-quality stones.  The SAG has challenged this 
perception and maintains that with proper training, experience, 
opportunity, and use of state-of-the-art technology, the local 
industry could eventually compete for lower value and smaller 
stones.  However, for the present, the industry - as with most other 
sectors - is in the throes of a major skills shortage, with 
concomitant high wages.  (Comment:  Jewelry Council of South Africa 
CEO said the local cutting industry could at least double in size if 
gold and diamonds were leased at rates similar to those available to 
competitors, such as Italy and the U.S. where bank finance rates are 
3% to 5% compared to rates of 14% and more in South Africa. 
 
----------------------------------- 
Mixed Views on Diamond Fundamentals 
----------------------------------- 
 
¶7. (SBU) Views on the global diamond production outlook diverged at 
the above "Diamonds - Source to Use 2007" colloquium.  MSA 
Geoservices Director Frieder Reichhardt said significant 
opportunities exist for major alluvial, marine, and kimberlite 
diamond finds in West and Southern Africa, specifically in Guinea, 
Sierra Leone, Liberia, Angola, Namibia, the DRC, Zimbabwe and 
Botswana.  He said these countries are located on ancient "cratons", 
which contain unique geological structures that tend to indicate the 
presence of diamondiferous kimberlites.  According to Reichhardt, in 
Qpresence of diamondiferous kimberlites.  According to Reichhardt, in 
the 1960/70s, West Africa collectively accounted for some 200 to 250 
million carats, but output had since declined due to political 
turbulence.  This region, as well as southern Africa, had now 
achieved a level of stability and "juniors" (small mining companies) 
were starting to make their mark.  Reichhardt said he expected to 
see a number of new mines starting up in the next few years.  He 
highlighted Angola, where 15 major companies are active, as having 
tremendous diamond potential for both alluvial and kimberlite 
production and forecast that Angola's yearly production would exceed 
12 million carats by 2010, and as 
much as 15 million by 2015. 
 
¶8. (SBU) De Beers' Patrick Bartlett did not share this optimistic 
view.  He did not dispute that there were hundreds of kimberlites 
known and still to be found in the region - estimated at 700 to 
1,000 in Angola alone.  However, Bartlett noted that no major 
 
PRETORIA 00004002  003 OF 004 
 
 
economic finds (that significantly affect global supplies) had been 
made in sub-Saharan Africa since the early 1970's and that 
production from major mines worldwide had reached a peak or were in 
decline.  (Comment: This may be true of many producers, but 
world-class mines such as South Africa's Venetia and Botswana's 
Orapa and Jwaneng mines are still increasing production and will 
only go underground in the later 2020's.  End Comment.).  Bartlett 
also doubted that many new discoveries would be of the quality of 
Botswana's and South Africa's mines.  Canada was the one exception, 
but while their kimberlites were of high quality, they were small in 
area and had relatively short production lives.  Bartlett explained 
that most kimberlites are cone-shaped and decrease in area with 
depth.  He forecast that the major diamond producers would all lose 
critical production percentages as mines went deeper and moved 
underground.  The one exception might be the Cullinan mine outside 
Pretoria.  It has a more cylindrical shape and could be mined to 
greater depth. 
 
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NUCLEAR 
------- 
 
--------------------------------------------- 
Anti-Nuclear Group Challenges Nuclear Program 
--------------------------------------------- 
 
¶9. (SBU) The SAG has stated that electricity capacity has to more 
than double over the next two decades, from the current 37 gigawatts 
to some 80 gigawatts.  Twenty gigawatts of the new capacity would be 
generated by nuclear plants, (conventional PWR's and the new 
generation Pebble Bed Modular Reactor or PBMR, which is currently 
under development in South Africa).  Previously, construction of a 
PBMR demonstration plant at Koeberg was delayed when Earthlife 
Africa, an anti-nuclear group, was successful in overturning the 
environmental impact assessment (EIA) on procedural grounds.  PBMR 
did not dispute the need for a new EIA, given design changes to the 
original plant.  Now that plans for the PBMR are advancing and the 
SAG has issued a Draft Nuclear Policy document for public comment, 
Earthlife is again attempting to delay or entirely stop the 
government's nuclear plans in favor of renewable energies, without 
coming up with alternative bulk energy sources needed for the 
countries energy-intensive economy. 
 
¶10. (SBU) Earthlife Africa has called for the Draft Nuclear Policy 
to be withdrawn.  Their objection to the policy is that it is "a 
hasty and ill-informed document replete with sweeping unsupported 
statements as to the appropriateness of nuclear power".  Earthlife 
claims that the policy did not follow the Department of Minerals and 
Energy's (DME) own procedures as determined by the White Paper (WP) 
on Energy Policy of 1998.  The WP implied that the decision on new 
nuclear capacity would depend on the environmental and economic 
merits of alternative energy sources (relative to nuclear) and the 
political and public acceptance of nuclear power.  (Comment. The 
majority of South Africans support the government's nuclear 
initiative and, for the foreseeable future, renewable energy sources 
will not be able to provide the country's bulk power requirements. 
Qwill not be able to provide the country's bulk power requirements. 
End Comment.).  DME Chief Director has said the comments may result 
in the draft policy being revised to change the emphasis but would 
not change policy.  State power utility Eskom is moving forward on 
nuclear expansion plans and is putting in motion EIA's at five 
coastal sites.  If all approvals are obtained, Eskom could start 
construction of nuclear facilities by 2010, targeting first unit 
operation in 2016 or 2017. 
 
------------ 
LIQUID FUELS 
------------ 
 
-------------------------------------------- 
Economic Growth Calls for a New Oil Refinery 
-------------------------------------------- 
 
¶11. (SBU) State Oil Company PetroSA plans to invest $6 billion in a 
refinery at the new deep-water port of Coega in the Eastern Cape. 
When completed, the refinery would be able to produce 200,000 
barrels of fuel per day, making it the largest refinery in South 
 
PRETORIA 00004002  004 OF 004 
 
 
Africa.  However, the project is only viable if investors with deep 
pockets can be found.   South Africa's crude oil refineries are 
situated on the coast in the Western Cape and KwaZulu/Natal 
provinces, the exception being the inland Natref refinery at 
Sasolburg in Gauteng Province.  Sasol's coal-to-liquid (CTL) and 
PetroSA's gas-to-liquid (GTL) refineries are located at Sasolburg 
and Mossel Bay in the Western Cape, respectively.   South Africa's 
refinery capacity is about 515,000 barrels per day and all crude is 
imported.  Output from the two synthetic Sasol and PetroSA plants is 
205,000 barrels per day, giving a total refined capacity of 720,000 
barrels per day.  This capacity was surplus to the country's 
consumption four years ago and fuel was exported to neighboring 
states. 
 
 
¶12. (SBU) The past three years of 5% growth have seen this surplus 
evaporate and the country now imports some 10% of its fuel in the 
form of refined products.  All refineries are old, expensive to run 
with low margins, and have had serious environmental problems of 
late.  They need major upgrades or should be replaced by larger and 
more efficient units.  Further, most refinery capacity is located at 
the coast and fuel is transported inland by road, rail and pipeline. 
 Road transport (mainly private) has grown to the extent that it now 
impacts normal traffic and is damaging road surfaces.  Rail traffic 
(state-owned) has declined because it is expensive and inefficiently 
run.  The single pipeline from Durban to Johannesburg has exhausted 
its capacity.  Approval has been given for a new pipeline from 
Durban.  If the go-ahead is given for the 200,000 barrel per day 
refinery, serious consideration will have to be given to how product 
is to reach the major consuming areas, particularly as Coega is in a 
relatively remote part of the country.  This could have a major 
impact on its cost structure. 
 
BOST