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R 131013Z DEC 07
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RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 04 PRETORIA 004188 
 
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E.O.   12958: N/A 
TAGS: EPET ENRG EMIN EINV EIND ETRD ELAB KHIV SF
SUBJECT: South Africa: Minerals and Energy Newsletter "THE ASSAY" - 
Issue 11B, November 16-30, 2007 
 
 
This cable is not for Internet distribution. 
 
¶1. (SBU) 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. (SBU) 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 
-------- 
 
--------------------------------------- 
NECSA Moots Second Reactor at Pelindaba 
--------------------------------------- 
 
¶3. (SBU) The Nuclear Energy Corporation of South Africa (NECSA) has 
been identified by the SAG as the lead agency to develop the 
country's nuclear industry, including research and development into 
nuclear fuel and enrichment facilities.  As a first step in the 
process, NECSA CEO Rob Adam, says the company is considering 
building a second nuclear reactor at its Pelindaba site in the North 
West Province, just west of Pretoria.  This would be a companion to 
the existing Safari 1 reactor, which was built in the 1960's and is 
the country's oldest reactor.  Safari 1 is the world's third largest 
producer of nuclear medical isotopes, including molybdenum 99. 
NECSA is developing processes that will shift its reliance on highly 
enriched uranium (95% U235 or weapons grade) to commercializing the 
use of lesser-enriched uranium (about 5% U235 or the level required 
to run nuclear power stations) to produce medical isotopes.  The 
second reactor would be used to expand NECSA's commercial isotope 
production. 
 
--------------------------------------- 
NECSA Reactor Site Experiences Break-in 
--------------------------------------- 
 
¶4. (SBU) Concerns about the security systems at NECSA were raised 
last month when two groups of robbers attempted to break through the 
security fence surrounding the Pelindaba nuclear complex.  One group 
succeeded in getting into a security control room and snatched a 
computer, which they later abandoned.  The significance of the 
information contained in this computer is not known.  The motive for 
Qinformation contained in this computer is not known.  The motive for 
the break-in is under investigation as is the possible role of six 
 
PRETORIA 00004188  002 OF 004 
 
 
security officials who have been suspended.  Pelindaba is accorded 
national key-point security status, and is aiming to upgrade its 
human and technical systems to meet this classification. 
 
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DIAMONDS 
-------- 
 
----------------------------------------- 
Rockwell Diamond Sells for a Record Price 
----------------------------------------- 
 
¶5. (SBU) Rockwell Diamonds, listed on both the Toronto and 
Johannesburg stock exchanges, achieved a company record selling 
price of $145,000 a carat for a flawless and intensely pink 7.28 
carat diamond.  The total price for the diamond was $1,054 million. 
The diamond was recovered from Rockwell's Holpan operation, located 
north of Kimberley in the Northern Cape Province where it mines 
alluvial and gravel deposits.  Rockwell has four or five alluvial 
diamond operations and projects in South Africa and the average 
price obtained from all its operations was a very high $1,640 per 
carat.  The company says that pink diamonds are exceptionally rare 
and the only source known to produce such stones with some 
regularity is the Argyle Diamond Mine in Western Australia. 
Rockwell CEO John Bristow said the recovery of a pink diamond was 
particularly exciting as it indicated the potential for exceptional 
rarity, quality and value of diamonds recovered from their unique 
Northern Cape alluvial diamond deposits. 
 
¶6. (SBU) Diamond production from alluvial river deposits in South 
Africa has always been the "poor cousin" of primary kimberlite, 
marine terrace and off-shore marine deposits.  The past decade has 
seen increasing interest by smaller- scale operators in ancient 
alluvial river deposits.  Numerous new and rehabilitated operations 
have been started up by both local and foreign junior companies and 
the quality and size of stones recovered has been exceptional high. 
According to geological theory, diamonds eroded from kimberlite 
sources in the Kimberley area were washed down river systems and 
deposited in the sea over millions of years.  A combination of 
reworking by ocean currents and changes in sea level relative to the 
land resulted in the formation of beach terrace and marine deposits. 
 A better understanding of the depositional environment of these 
alluvial deposits, new exploration technology and large 
cost-efficient equipment has enabled their profitable exploitation 
in recent years. 
 
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MINE SAFETY STRIKE 
------------------ 
 
----------------------------------------- 
Mineworkers Stage a One-Day Safety Strike 
----------------------------------------- 
 
¶7. (SBU) The incident in which 3,200 miners were trapped 
underground, but ultimately rescued unharmed, at Harmony's 
Elandsrand mine last month, focused the spotlight on increased 
fatalities in South African mines.  The annual death toll had 
reached 201 by the end of November 2007 compared to 199 for 2006. 
In response, some 240,000 members of South Africa's biggest union, 
the National Union of Mineworkers (NUM), staged a one-day strike on 
December 4 to protest what they claim are deteriorating safety 
conditions in mines. 
Qconditions in mines. 
 
¶8. (SBU) In 2003, mining industry stakeholders committed to 
improving safety in South African mines to the safety level of 
overseas operations.  The mutually-agreed-upon target was to 
decrease the number of mine fatalities by 20% per year. This 
reduction has not been achieved and the NUM blames poor safety 
procedures by management and accuses them of putting profits before 
safety.  The Department of Minerals and Energy, under pressure from 
the SAG and NUM, have instituted an investigation procedure that 
immediately closes mines at which fatalities occur.  Industry 
representatives argue that such closures exacerbate, rather than 
improve, safety conditions as deep mines require continuous 
attention at new working faces to maintain safe roof conditions. 
 
PRETORIA 00004188  003 OF 004 
 
 
 
¶9. (SBU) The strike, compounded by mine closures, has caused mining 
companies substantial output losses.  At Anglo Platinum the one-day 
strike had an almost 100% stay-away and the company reported an 
expected loss of about 9,000 ounces of production.   AngloGold 
Ashanti, South Africa's top gold producer, reported that there was 
no production from any of its South African operations on December 
¶4.  All mines were significantly affected by the strike but all 
operations were back to normal operation the following day. 
 
¶10. (SBU) AngloGold Ashanti later said that aggressive tactics such 
as strikes and mine closures would focus attention and hopefully get 
stakeholders to work together, but it would not solve the problems. 
They believe that the causes of accidents include skills shortages, 
the rapid growth of the mining industry due to the commodities boom 
and the impact of HIV/AIDS.  Finally, the company noted that it 
would take time to move people through the training ranks "no matter 
how much money is thrown at the problem".  (Comment.  The 
approximately 200 mine-related fatalities per year should be put in 
the context of more than 15,000 fatal accidents on the roads and 
10,000 murders committed each year.  The relatively recent concern 
about mine accidents by both government and labor also coincides 
with next week's ANC-party Congress where labor will be pushing for 
stronger representation in the next ANC-lead government.  End 
Comment.). 
 
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MINING 
------ 
 
------------------------------------ 
Big Steel Producers Back into Mining 
------------------------------------ 
 
¶11. (SBU) Spurred on by rising prices and the need to secure raw 
inputs, backward integration into mining is again heating up and 
some of the world's large steel producers have entered the race for 
mining projects to feed their steel plants.  Tata Steel, one of 
India's largest companies and the world's sixth largest steel 
producer, has signed a joint venture agreement with Australia's 
Riversdale Mining  to develop a hard coking and thermal coal project 
on Riversdale's Benga and Tete prospects in Mozambique.  Tata is to 
pay $90 million to acquire a 35% interest in the project and a 40% 
share of the coking coal for its global steel plants.  The resource 
estimate for Benga is 1.23 billion tons of coal of which 720 million 
tons is potentially mineable by open-pit methods. 
 
¶12. (SBU) In other backward integration deals, ArcelorMittal, the 
world's largest steel producer, has announced joint venture deals 
for coking-coal in Mozambique and manganese in South Africa.  Both 
will be inputs for the company's global steel plants.  In 
Mozambique, Arcelor will buy a 35% share in Black Gold Mining's coal 
licenses for $2.5 million. These licenses cover some 49,360 hectares 
of the Moatize-Minjova sub-basin in the Tete Province, which sits on 
huge coal deposits located close to those being developed by 
Brazil's Companhia Vale do Rio Doce (CVRD). 
 
¶13. (SBU) Arcelor has also signed a memorandum of cooperation with 
the Mozambican government to develop both the local mining and 
Qthe Mozambican government to develop both the local mining and 
steel.  In South Africa, Arcelor has signed a $600 million 
partnership with South Africa's Kalagadi Manganese.  The 50:50 joint 
venture will see the development of a manganese mine, a 
beneficiation plant and a sinter complex in the Northern Cape 
Province and a ferromanganese smelter in the Eastern Cape.  Ninety 
per cent of manganese is consumed in producing manganese ferroalloys 
and iron and steel.  South Africa has an estimated 80% of the 
world's known manganese resources. 
 
----------- 
ELECTRICITY 
----------- 
 
------------------------------------------ 
U.S. Company in Eastern Cape Power Project 
------------------------------------------ 
 
 
PRETORIA 00004188  004 OF 004 
 
 
¶14. (SBU) Eskom, the state-owned power utility, has warned that 
South Africa needs to adapt to rolling power disruptions and 
power-shedding over the next five years until power generation and 
distribution shortages and issues are overcome.  In an attempt to 
facilitate new supply, the SAG invited independent power producers 
(IPPs) to build 30% of new generation capacity.  Independent power 
plant developer Ipsa was awarded a contract to build a 500 megawatt 
coal-fired plant in Indwe in the Eastern Cape using coal from one of 
the country's oldest coal fields. 
 
¶15. (SBU) Ipsa, a London-listed company, has already developed an 18 
megawatt combined heat and power plant in Newcastle in KwaZulu-Natal 
and is working on a 1,600 megawatt combined cycle gas turbine power 
plant at Coega in the Eastern Cape.  The company plans to fast-track 
the first 250 megawatts to bring new capacity on line for the 
Eastern and Western Cape provinces as swiftly as possible.  To 
achieve this, IPSA sold 50% of its Elitheni Clean Coal (ECC) 
subsidiary that is developing the project to Exodus Africa for 
$5-million.  Exodus Africa is a US-based company focused on 
developing and operating energy assets in Africa.  A number of its 
senior managers were formerly with Enron, the US energy company that 
collapsed.   Project coal resources are estimated at 40 million 
tons, based on drilling results covering only 7% of the lease area. 
 
-------------- 
INFRASTRUCTURE 
-------------- 
 
--------------------------------------------- - 
U.S. Company Preferred Bidder for Diesel Locos 
--------------------------------------------- - 
 
¶16. (SBU) South Africa's rail transport system has been losing out 
to road transport for many years.  Poor management and operational 
systems have led to escalating costs, declining efficiency, and 
weakening competitiveness except perhaps on the two dedicated coal 
and iron ore lines.  Another major problem has been the lack of 
modern rolling stock and locomotives.  The latter problem has been 
addressed by state-owned transport company Transnet's ordering of 
404 diesel and electric locomotives - to be increased to 500 
shortly.  Electromotive Diesel (EMD) of the US has been designated 
as the preferred bidder to supply Transnet with 212 diesel 
locomotives for use mainly for the general freight business (GFB). 
Commercial discussions between Transnet and EMD should be concluded 
before year end, according to Transnet CEO Maria Ramos. 
 
¶17. (SBU) Ramos said the acquisition of the locomotives would form a 
significant part of the $5.1-billion, five-year recapitalization of 
Transnet Freight Rail (formerly Spoornet), which is the largest 
consumer of the group's $12-billion investment budget for rail, 
ports, and pipelines.  The final cost estimate for the locos is 
still to be negotiated.  Also being negotiated is EMD's localization 
commitment to develop a local presence in South Africa.  EMD appears 
keen to build physical capacity in the region to take advantage of 
the opportunities available in South Africa and the region.  Ramos 
agreed that the real growth impetus for Transnet would come once the 
Qagreed that the real growth impetus for Transnet would come once the 
new diesel locomotives were fully deployed and the 110 electric 
locomotives for the coal line and the 32 locomotives for the 
iron-ore line were fully operational. 
 
BOST