VZCZCXRO2930
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #1595/01 2040744
ZNR UUUUU ZZH
R 220744Z JUL 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 5156
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEHBJ/AMEMBASSY BEIJING 0817
RUEHBY/AMEMBASSY CANBERRA 0689
RUEHLO/AMEMBASSY LONDON 1554
RUEHMO/AMEMBASSY MOSCOW 0820
RUEHFR/AMEMBASSY PARIS 1395
RUEHOT/AMEMBASSY OTTAWA 0658
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 05 PRETORIA 001595 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DEPT FOR AF/S, EEB/ESC AND CBA 
DOE FOR SPERL AND PERSON 
 
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 7, June 2008 
 
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. 
-------- 
HOT NEWS 
-------- 
 
----------------------------------- 
Godsell Confirmed as Eskom Chairman 
----------------------------------- 
 
¶2. (SBU) Former AngloGold Ashanti CEO Bobby Godsell was appointed 
Chairman of state-owned power utility Eskom at the company's annual 
general meeting on July 17.  Godsell is to replace Valli Moosa, who 
has faced criticism for South Africa's power crisis because he 
failed to lobby government to authorize expansion of electricity 
capacity when it was evident as early as 1998 that the country was 
heading for a power shortage.  Godsell currently serves as Chairman 
of Business Unity SA (BUSA) and is also a former President of the 
Chamber of Mines.  His appointment follows that of another prominent 
mining figure, former Kumba (iron ore company) CEO Ras Myburgh, and 
together it is hoped they will advise Eskom on coal procurement and 
provide the sorely-needed leadership and attention to detail in 
Eskom.  Speaking at a recent conference on electricity, Godsell 
called for a "Team SA" approach to dealing with the energy crisis, 
asserting that the crisis was a national problem needing a national 
response.  He also said that there was no point in having the 
cheapest electricity in the world if you did not have electricity. 
 
 
¶3. (SBU) Godsell first endeared himself to the trade union movement, 
particularly the National Union of Mineworkers (NUM), during the 
1999 gold crisis.  He and the Acting Secretary General of the 
umbrella Congress of SA Trade Unions (Cosatu) went to London to 
demand a stop to both Central bank gold sales and the proposed IMF 
sale of 10 million ounces (320 tons) of gold.  They also marched 
together in the streets of Johannesburg to protest these sales.  At 
the time, the gold price had fallen to $260 an ounce, average SA 
production cost was $246 an ounce, and the industry had shed more 
than 100,000 jobs in three years.  NUM welcomed Godsell's 
appointment, but the National Union of Metalworkers of South Africa 
(Numsa) complained that they had not being consulted ahead of the 
appointment.  Public disputes and divisions between Cosatu and Numsa 
have been reported in the past. 
 
 
------ 
ENERGY 
------ 
 
-------------------------------- 
Policy Release for Nuclear Power 
-------------------------------- 
 
¶4. (SBU) Minerals and Energy Department Chief Director of Nuclear 
Q4. (SBU) Minerals and Energy Department Chief Director of Nuclear 
Tseliso Maqubela said Minister Buyelwa Sonjica would shortly launch 
the new nuclear energy policy which was adopted by the cabinet last 
month.  Maqubela said the major change between the final policy (not 
yet released) and the draft released for public comment last July 
(available on the SA DME web-site at 
http://www.dme.gov.za/energy/documents.stm) was the removal of a 
proposal to set up an agency devoted to nuclear security.  He said 
this function would be performed by the National Nuclear Regulator 
(NNR), in line with international practice.  He said nothing else 
had changed except the wording to indicate that nuclear would not be 
the only energy developed.  Flexibility has been built into the 
 
PRETORIA 00001595  002 OF 005 
 
 
policy to accommodate the development of new technologies and 
changing market conditions.  Maqubela said the SAG would no longer 
set a fixed target of 25% of total power generation for nuclear by 
2025-2030 (from existing 6%) because clean coal technology or 
methods for carbon capture and storage are still being developed. 
 
¶5. (SBU) Eskom is currently assessing bids from Westinghouse and 
Areva for construction of the first 3,000 megawatt tranche of 
proposed new nuclear power plants, but the decision on the preferred 
supplier has been deferred to September from June.  Meanwhile, the 
SAG has enlisted the aid of a brand consultant, Freedthinkers, to 
give a make-over to the image of nuclear power in South Africa and 
attempt to correct misperceptions and apprehensions on the part of 
the public.  Opponents fear that the move may be an attempt to 
short-circuit public consultation as the SAG presses ahead with its 
program to build five or six conventional plants and potentially 
twenty-four pebble-bed modular reactors. 
 
--------------------------------- 
SAG Favors Recycling Nuclear Fuel 
--------------------------------- 
 
¶6. (SBU) South Africa depends on coal for some 79% of its total 
energy and 23% of its liquid fuels requirements.  Sasol's coal to 
liquid (CTL) process is a heavy emitter of greenhouse gases and has 
been tagged as the world's single biggest point source of CO2. 
South Africa's heavy reliance on coal has also made it one of the 
world's highest emitters of greenhouse gases.  The SAG approved a 
nuclear energy policy on June 18 that promotes atomic energy as a 
significant source for power generation, which would also ensure the 
reduction of unfriendly emissions.  The Department of Minerals and 
Energy has been tasked to flesh out the practical details of the 
policy and oversee its implementation. 
 
¶7. (SBU) The SAG has also issued a policy statement that its goal is 
to have local engagement in all phases of the uranium fuel and power 
chain, from mining to reprocessing of spent fuels to the 
construction of nuclear reactors, power stations and components for 
local use and export.  The government is in favor of recycling the 
estimated 1,150 tons of highly radioactive spent fuel at Pelindaba 
and Koeberg, the bulk of it at Koeberg.  Minerals and Energy 
Department's Nuclear Safety Director Schalk de Waal told a 
Parliamentary Committee on Energy that the nuclear policy favored 
recycling because it was sustainable, provided energy security, 
could reprocess up to 95% of the spent fuel to produce new fuel for 
the reactors, and reduce the amount of disposable high-level waste. 
De Waal acknowledged there were international concerns, mainly from 
the United States, over reprocessing of used fuel.  He said that 
although the recovered plutonium would not be weapons-grade it still 
offered the potential for making a nuclear bomb and that the United 
States was against reprocessing in terms of non-proliferation.  He 
said that in view of the world energy crisis, the US could change 
its position. 
 
---- 
GOLD 
---- 
 
----------------------------------- 
Q----------------------------------- 
Global Gold Production Losing Steam 
----------------------------------- 
 
¶8. (SBU) Global gold production has declined by some 5% since 2001, 
along with that from South Africa, Australia, Canada and the United 
States.  Countries showing significant growth in output include 
China, Indonesia, Peru and Tanzania.  South Africa was the leading 
gold producer for more than 100 years, but lost its crown to China 
last year.  The country's output has declined steadily since the 
1970's when production reached a peak of 1,000 tons (32 million 
ounces) and represented more than 75% of new global production. 
Output has gone from 480 tons in 1996 to 252 tons in 2007, and could 
be down to about 210 tons this year.   South Africa's decline can be 
attributed to labor-intensive mining at ever increasing depths with 
associated problems and costs.  South Africa is not alone in this 
dilemma.  The gloss also appears to be coming off Australian gold 
mining.  Australian production rose rapidly in the early 1980s with 
 
PRETORIA 00001595  003 OF 005 
 
 
the then rising gold price and new processing technology that 
enabled the treatment of oxide ores.  Production remained strong 
into mid-2007 when several new factors kicked in.  These included: 
decreasing grades; increasing operating and equipment costs; loss of 
skills to other mining sectors; less exploration due to hassles over 
indigenous land claims; and the cost of maintaining fly-in-fly-out 
workforces.  Australia has now slipped from third rank to about 
sixth in global production, and its ability to stop the decline 
appears limited. 
 
--------------------- 
PLATINUM GROUP METALS 
--------------------- 
 
------------------------------ 
South Africa's Platinum Future 
------------------------------ 
 
¶9. (SBU) Platinum-group metals (PGMs, which include platinum, 
palladium, rhodium, iridium, ruthenium, and osmium) are South 
Africa's most important mineral resource.  One ounce each of 
platinum and rhodium is worth about $2,000 and $10,000, 
respectively.  PGMs accounted for $9 to $10-billion in exports, 
equivalent to 15% of total merchandise exports in 2007, followed by 
gold at $5-billion and coal at $3.5-billion.  The industry employed 
some 170,000 people in 2007, and paid out $3 billion in wages. 
About 62,000 people were also employed in associated industries and 
an estimated total of 2 million people were sustained by the 
industry.  Chemicals company Johnson Matthey reported South Africa's 
production in 2007 as 5.04 million ounces, down from 5.3 million 
ounces in 2006.  South Africa holds 85% of the world's platinum 
reserves, most of it in North West province in the huge geological 
feature known as the Bushveld (Igneous) Complex. 
 
¶10. (SBU) South Africa's gold output is declining and so are its 
reserves of diamonds, leaving platinum as the country's most 
formidable resource of precious metals and minerals.  South Africa's 
PGM reserves should last well beyond 70 years at current levels of 
production and demand, and it is government's and industry's 
responsibility to ensure that they are used strategically to promote 
industrial projects.  The bulk of PGMs are used worldwide in the 
production of auto-catalytic converters to reduce noxious exhaust 
emissions from vehicles.  The South African catalytic converter 
industry produces 16 million units every year, almost all of which 
are exported, and this represents about 15% of the global market, 
valued at $3 billion.  The current high spot prices of platinum and 
rhodium are promoting the search for less costly substitutes, more 
efficient metal loadings, and more use of less expensive palladium 
($450 per ounce).  The unique chemical characteristics of the PGMs 
as durable and efficient catalysts make this unlikely in the near 
future. 
 
--------------------------- 
Reliable Water for Platinum 
--------------------------- 
 
¶11. (SBU) More than twenty mining developments are taking place on 
the Eastern Limb of the Bushveld Complex in South Africa, the 
world's greatest depository of platinum group metals (PGMs).  These 
cover a strike length of more than 120 kilometers in Mpumulanga and 
Qcover a strike length of more than 120 kilometers in Mpumulanga and 
Limpopo provinces in the northeast of the country.  The area lacked 
a reliable supply of water and was underdeveloped until the mining 
companies entered the area in the late 1990s.  The upsurge in mining 
and commercial activity required that dams be built to remedy the 
situation.  The SAG responded by initiating the Olifants River Water 
Project, which will supply water to mines, farmers and industry over 
a wide area, and include damming and raising dam walls on a number 
of water sources.  The project cost is estimated at $1 billion and 
also involves the construction of pipelines and pump stations. 
 
¶12. (SBU) The Department of Water Affairs and Forestry (DWAF) 
Minister recently signed a MOA with 23 mining houses for the 
development of phase 2 of the Olifants River project, which will be 
funded by private and State sources.  This will facilitate further 
investment of $5.5 billion in the region by mines and their support 
industries will create about 90,000 jobs and generate $300 million 
 
PRETORIA 00001595  004 OF 005 
 
 
in wages each year.  Mining companies have committed to off-take 
agreements for all future water requirements on a take-or-pay basis, 
where mines pay costs based on allocated capacity, regardless of 
water used.  (Comment: The same financial arrangement is being 
proposed for the transport of bulk mineral commodities such as coal 
and iron ore.  End Comment.) 
 
-------------- 
AFRICAN MINING 
-------------- 
 
----------------------------------------- 
Zambia Output 750,000 Tons Copper by 2009 
----------------------------------------- 
 
¶13. (SBU) Zambia's Minister of Mines Kalombo Mwansa has forecast 
that the country's copper output should increase to 600,000 tons 
this year, from 520,000 tons in 2007.  This corresponds with the 
industry production target of 750,000 tons by 2009, with increases 
from expansions at First Quantum's Kansanshi mine and KCM's Konkola 
mine, and new production from Equinox's Lumwana mine.  The Minister 
also estimated that smelter capacity would increase to about 300,000 
tons during the next three years, from expansions at Mopani's 
Mufulira and Konkola's Nkana and Nchanga smelters, and new capacity 
from the smelter being built by Chinese investors at Chambishi Mine. 
 Mwansa also expects production to come on stream from South 
African-based Teal Mining's Mwambashi mine, and from the smaller 
Kashime mine that is located off the Copperbelt in central Zambia. 
Some mining experts believe that Zambia is increasing its smelter 
capacity to meet a growing demand from producers in the DRC, given 
that the DRC government would be willing to moderate its demands for 
local beneficiation. 
 
------------------------------- 
Anglo "Shaken Down" in Zimbabwe 
------------------------------- 
 
¶14. (SBU) Zimbabwe hosts the second biggest known platinum (and 
chromite) deposit in the world, behind South Africa's Bushveld 
Complex.   It is known as the Great Dyke that runs in a north-south 
direction for about 550 kilometers.   For reasons such as its remote 
location, difficult geology, and political uncertainty associated 
with the Mugabe regime, only Impala Platinum (and its joint venture 
partner in the small Mimosa Mine) is successfully mining platinum in 
the country.  Anglo Platinum recently announced its decision to 
invest $400 million to develop its Unki platinum project, which is 
also on the Dyke and has been idling along for years.  This has 
cause a great uproar in international circles, particularly in the 
United States and Britain, which are seeking to impose sanctions on 
the Zimbabwean government in the wake of human rights violations. 
The U.S and Britain have accused Anglo of propping up the regime and 
undermining current and future international sanctions.  Anglo 
American responded by saying that their choice was to either invest 
in developing Unki or lose it to the government, which would have no 
difficulty in finding Chinese or Russian developers. 
 
¶15. (SBU) Media reports and discussions with senior management 
confirm that the Zimbabwe government forced Anglo Platinum to enter 
into a deal to give up some 31% of Unki's lease area in exchange for 
Qinto a deal to give up some 31% of Unki's lease area in exchange for 
indigenization (empowerment) credits.  In a similar situation two 
years ago, Impala Platinum was forced to cede 36% of their Zimplats 
Mine concession to the government for indigenization credits.  There 
is uncertainty about who may have been awarded these claims, but it 
appears they have been passed on to either Chinese interests or to 
Mugabe cronies, including UK-listed mining junior Central African 
Mining and Exploration (Camec).  Camec recent lent $120 million to 
the GOZ in mid-April to fund President Robert Mugabe's election 
campaign.  The loan was conditional on Camec getting the Unki 
claims, which they did in April (for $120 million).  Anglo 
Platinum's underground development intercepted the orebody in 
September 2007, and initiated the build-up of an ore stockpile. 
Unki plans to mine 120,000 tons of ore per month and produce a PGM 
concentrate that would be transported to the Anglo Platinum refinery 
in South Africa.  Camec has said that it plans to bring a mine into 
production within 18 months and produce between 120,000 and 150,000 
ounces of platinum per year at a capital cost of about $200 million. 
 
PRETORIA 00001595  005 OF 005 
 
 
 
 
BOST