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RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 05 PRETORIA 002005 
 
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 9, August 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. 
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HOT NEWS 
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Venezuela - SA Cooperation (for Real?) 
-------------------------------------- 
 
¶2. (SBU) President Chavez was in South Africa on September 2 and 3 
for a first-ever state visit by a Venezuelan president.  During the 
visit he signed a number of agreements and memoranda of 
understanding for energy cooperation in areas of: mining, trade and 
upstream oil and gas, exploration and exploitation of offshore 
oilfields and the production of heavy oil in Venezuela.  As part of 
the agreement, South Africa would also gain access to Venezuela's 
oil reserves.  Venezuela has large oil reserves and developing 
commercial relations in this sector could provide alternative 
sources of supply for South Africa.  South Africa's State-owned oil 
company PetroSA reportedly said that it had acquired an 
oil-producing asset in Venezuela and has qualified as an operator 
for offshore gas exploration in Venezuela.  PetroSA has invited its 
Venezuelan counterpart Petrsleos de Venezuela S.A. (PDVSA) to 
participate as an investor in South Africa's proposed crude oil 
refinery at Coega. 
 
¶3. (SBU) Speaking at a joint press briefing with President Thabo 
Mbeki in Pretoria, President Chavez urged PetroSA to immediately go 
to Venezuela to start working to exploit the resources in the 
Orinoco Heavy Oil Belt that he said has the largest oil reserves in 
the world.  He said it "will be a wonderful day when the first 
Venezuelan tanker delivers oil to South Africa".  Cost and price 
structures have not yet been developed, but Mbeki said the purpose 
of the agreement was to cut out intermediaries and have a direct 
state-to-state relationship.  South African Minerals and Energy 
Minister and Venezuelan Energy and Petroleum Minister signed the 
agreements.  South Africa's Minister visited Venezuela in July and 
this paved the way for closer cooperation between the two countries. 
 Venezuela is also keen to explore South Africa's gas-to-liquids 
technology.  Editorials question whether potential reliance on 
Venezuela's high-sulfur heavy oil would improve South Africa's 
energy security. 
 
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ENERGY 
------ 
 
--------------------------------------- 
Pebble Bed Moves Closer to Construction 
--------------------------------------- 
 
¶4. (SBU) South Africa's Pebble-Bed Modular (nuclear) Reactor (PBMR) 
Q4. (SBU) South Africa's Pebble-Bed Modular (nuclear) Reactor (PBMR) 
project has moved a step closer to construction of a 
commercial-scale power station at Koeberg near Cape Town.  The PBMR 
company has signed a contract for engineering, procurement, project 
and construction management (EPCM) services with the South 
African-Canadian joint venture company Murray & Roberts SNC-Lavalin 
Nuclear (Pty) Ltd. (MRSLN).  The project entails the construction of 
the demonstration reactor at Koeberg and a fuel plant at Pelindaba 
near Pretoria.  Construction is due to begin in 2010 and the plant 
is scheduled for completion by 2014.  This is some 10 years later 
than originally planned due to technical, environmental and funding 
hold-ups.  Licensing and the environmental impact assessment still 
need to be successfully completed.  The demonstration plant will 
 
PRETORIA 00002005  002 OF 005 
 
 
supply about 165 megawatts to South Africa's national grid once in 
service.  High-temperature, gas-cooled reactors, like the PBMR, are 
also a source of process heat that can be used to generate bulk 
hydrogen for numerous applications. 
 
------------------------------------- 
Eskom Plans to Reprocess Nuclear Fuel 
------------------------------------- 
 
¶5. (SBU) South Africa plans to expand its nuclear industry and 
diversify its energy mix as it battles crippling power shortages. 
The Department of Minerals and Energy's Nuclear Chief Director 
Tseliso Maqubela has said that state-owned electricity producer 
Eskom is seeking commercial contracts with foreign companies for the 
reprocessing of spent nuclear fuel.  In the medium to long-term the 
country would look to establishing a reprocessing facility in South 
Africa if it were economically viable, he said. But in the 
short-term it made sense to contract out to experienced reprocessors 
such as France's Areva and U.S.-based Westinghouse Electric, which 
is majority owned by Toshiba of Japan. 
 
¶6. (SBU) Contracts would be managed by Eskom and radioactive waste 
would be shipped overseas for reprocessing and returned for re-use 
in local reactors.  South Africa hosts Africa's largest uranium 
reserves, and the recently approved nuclear policy permits the SAG 
to regulate uranium exports to secure supplies for Eskom.  Eskom 
plans to build and commercialize up to 24-30 165 MW PBMR units once 
the demonstration plant has been successful commissioned and tested 
between 2014 and 2017.  Westinghouse Electric, Eskom, and South 
Africa's Industrial Development Corporation are investing millions 
of dollars to prove the PBMR technology. 
 
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FERRO-ALLOYS 
------------ 
 
--------------------------------------- 
ArcelorMittal SA to Build Fe-Mn Complex 
--------------------------------------- 
 
¶7. (SBU) The world's (and South Africa's) biggest steel producer 
ArcelorMittal has confirmed its intention to participate in building 
a ferro-manganese complex.   The project is to comprise the 
development of a manganese mine, beneficiation plant and sinter 
(pressure and heat used to bond metal particles) complex near 
Hotazel in the Northern Cape Province, and a smelter complex in the 
Coega Industrial Development Zone (IDZ) in the Eastern Cape 
Province.  This follows ArcelorMittal's decision to take a 50% share 
of exploration firm Kalagadi Manganese.  The $432.5m deal will 
result in the establishment of the joint venture between Kalahari 
Resources (40%), South African state-owned Industrial Development 
Corporation (10%) and ArcelorMittal (50%).  Manganese is vital to 
the production of quality steel 
 
¶8. (SBU) The proposed manganese mine and sinter plant would produce 
2.4-million tons of sinter product per year from three million tons 
of ore.  This would feed into a new 320,000 ton per year 
ferro-manganese alloy smelter to be located at Coega, which is 
planned to come on-line in 2010.  Drilling to date has confirmed the 
presence of high-grade manganese ore, sufficient to support a 
life-of-mine of more than 20 years.  The project is located on the 
Qlife-of-mine of more than 20 years.  The project is located on the 
Kalagadi Manganese Basin, which contains about 80% of the world's 
known manganese resources.  This greenfield project will facilitate: 
ownership in manganese ore and ferro-alloys by previously 
disadvantaged communities, create employment opportunities in an 
area of high unemployment, and bolster export earnings for South 
Africa.  ArcelorMittal has indicated its intention to secure its 
supplies of raw materials for steel production, such as coal, 
manganese and iron ore. 
 
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ENVIRONMENT 
----------- 
 
------------------------------------ 
Plans for Carbon Capture and Storage 
 
PRETORIA 00002005  003 OF 005 
 
 
------------------------------------ 
 
¶9. (SBU) Carbon capture and storage (CCS) is one of the recognized 
mitigation measures to lower green-house gas (GHG) emissions.  The 
potential for CCS in South Africa requires an investigation into 
locating and characterizing suitable long-term geological storage 
sites for carbon.  Large storage reservoirs are generally associated 
with sedimentary basins in which oil and gas occur.  South Africa 
lacks these large natural reservoirs, but small sedimentary basins 
hosting gas and oil accumulations occur off South Africa's south and 
west coasts and may have some potential for large-scale CO2 storage. 
 The onshore central basin of the Karroo Group also has substantial 
sedimentary formations that may offer CO2 storage opportunities. 
 
¶10. (SBU) The newly established SA National Energy Research 
Institute (SANERI) together with a number of industry and government 
organizations have appointed the Council for Geoscience (CGS) and 
the Petroleum Agency of SA (PASA) to compile a CO2 Geological 
Storage Atlas of all potential CO2 storage sites in and around South 
Africa.  The Atlas is due to be completed by December 2009 and will 
report on the methods and storage potential of all onshore and 
offshore basins.  It will rank basins in terms of risk and 
geological settings, present storage options, provide maps showing 
the distribution of basins and geological and seismic profiles to 
support the findings.   It will include an estimated storage 
capacity for each basin, the location of the main emission sources, 
and CO2 transportation issues.  The Atlas will be carried out in 
five phases: 
-- storage site identification; 
-- investigation of potential sites; 
-- drilling sites to recover core for testing; 
-- modeling sites for CO2 injection and retention; 
-- conducting small-scale testing; and 
-- developing an integrated strategy for CCS. 
 
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PLATINUM 
-------- 
 
----------------------------- 
New Low-cost Platinum Smelter 
----------------------------- 
 
¶11. (SBU) Existing platinum group metal (PGM) smelting/refining 
technology is relatively old and restrictive with regard to the ore 
it can treat.  Each complex requires a minimum throughput of about 
one million ounces of PGMs per year to be cost-effective and is out 
of the reach of many junior producers now coming on stream.  Mintek, 
the state-owned research organization, and Australian company 
Braemore have jointly developed the ConRoast process for the 
treatment of PGMs that will also give platinum juniors access to 
affordable smelting capacity.  The process removes sulfur by 
roasting followed by smelting in a direct current (DC) arc furnace. 
The environmental benefits are considerable in that nearly all the 
sulfur is removed as a continuous stream of SO2, which can be fed to 
a sulfuric acid plant or to a CCS process.  The technology allows 
great flexibility of ore types treated. 
 
¶12. (SBU) Australian mining company Braemore is planning to build a 
10-megawatt co-generation ConRoast smelter in Rustenburg, with the 
ability to produce 500,000 ounces of PGMs per year.  The company 
Qability to produce 500,000 ounces of PGMs per year.  The company 
also plans a 35-megawatt smelter for the high nickel-containing 
platreef concentrates from the Bushveld's northern limb.  The 
ConRoast strengths include: the ability to handle the high-chromium 
UG2 reef and other chrome-rich reefs containing platinum, it is a 
smaller lower-cost plant with fewer process steps, and it does not 
impose limits on the quantities of base metals or sulfur contained 
in the concentrate.  Braemore has proved the process at differing 
scales at Mintek and has achieved a 99% recovery of PGMs from UG2 
ore.  The technology appears capable of reducing capital and 
operation costs by 25% and 40%, respectively.  Braemore plans to 
commission the UG2 smelter during the first quarter of 2010 and the 
Platreef smelter in the last quarter of the same year. 
 
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ALUMINUM 
 
PRETORIA 00002005  004 OF 005 
 
 
-------- 
 
-------------------------------------- 
Coega Smelter in 2012 or 2018 (Maybe?) 
-------------------------------------- 
 
¶13. (SBU) Power rationing and supply security considerations would 
prevent the construction or expansion of aluminum smelters until 
2018, said BHP-Billiton's South African CEO Marius Kloppers on 
August 18.  BHP-B operates and owns the Hillside and Bayside 
smelters in Richards Bay and 47% of the Mozal smelter in Maputo, 
Mozambique, plants which have been forced to cut production and 
expansions because of power restrictions.  Kloppers' statement is 
relevant because BHP-B is currently bidding to take over mining 
company Rio Tinto, which is negotiating a new $3.25 billion, 720,000 
ton per year, 1,350 megawatt smelter at Coega in the Eastern Cape 
Province with the SAG and Eskom.  The uncertainty arose when 
state-owned Eskom's CEO stated in July that Eskom could not make any 
new connections until 2014, when it is expected that some new 
base-load power units will become operational.  He said Eskom's 
reserve margin would drop to 2% in 2010 and then turn negative 
between 2011 and 2013 unless power savings of 5% to 10% were made 
nationally. 
 
¶14. (SBU) Negotiations about the construction of an aluminium plant 
at the Coega deep-water port and Industrial Development Zone (IDZ) 
in the Eastern Cape Province between the SAG and French aluminium 
company Pechiney began in 2001.  Pechiney was bought out in 2003 by 
Canadian aluminium producer ALCAN, which in turn was taken over by 
Rio Tinto in 2007 to form the world's biggest aluminum producer Rio 
Tinto Alcan.  Later in the year BHP-B made a hostile take-over bid 
for Rio Tinto, and this is still on-going.  Each merger further 
delayed the go-ahead for the project.  The energy crisis in January, 
when Eskom declared "force majeure" on power supply to mines, caused 
Rio Tinto to re-think the power-hungry project, and on August 18 it 
put the project on hold until 2012.  In a joint statement by Eskom 
and Rio Tinto on August 19, they said the aluminum smelter would 
still go ahead in 2012.  (Comment.  If construction in fact begins 
in 2012, the aluminum plant would be completed and ready to go in 
about 2018.  End Comment.) 
 
---- 
GOLD 
---- 
 
------------------------------------------ 
Gold Firms Battle Costs and Falling Output 
------------------------------------------ 
 
¶15. (SBU) New chief executives of Africa's three top gold producers 
are seeking ways to cut costs and expand output.  AngloGold Ashanti, 
Gold Fields, and Harmony Gold (respectively, the world's third, 
fourth, and fifth-biggest producers) have benefited from a strong 
gold price that has tended to shield them from decreasing output and 
costs that are escalating at 25% to 35% annually.  Gold hit an 
all-time high of $1,030.80 in March, but the global economic 
slowdown and strengthening dollar have seen prices tumble to around 
the $800 level.  Given the current upward inflation spiral and faced 
with challenges of government interference, power shortages, deep 
hot mines, loss of skills, labor strikes, very hard rock, and 
Qhot mines, loss of skills, labor strikes, very hard rock, and 
falling productivity, it seems the only way out for South Africa's 
gold mining industry is a sustained increase of the gold price 
(analysts pose a minimum of $1,200 per ounce) and/or a weakening of 
the Rand currency. 
 
¶16. (SBU) Gold analyst Nick Goodwin says that South African gold 
company margins are shrinking, shares of the big-three producers 
have underperformed their peers in North America and Australia, and 
they have failed to fully participate in the gold price rally due to 
a stronger rand, high costs, power shortages, and safety shutdowns. 
AngloGold is favored by investors compared to its African rivals due 
to a wider production base outside South Africa, which contributes 
about 40% of its output, as well as the group's relatively lower 
costs.  Gold Fields has some 80% of its total output from South 
Africa, and virtually all Harmony's production (96%) is South Africa 
based.  To mitigate the South African "effect", all three companies 
 
PRETORIA 00002005  005 OF 005 
 
 
are looking to increase their overseas footprints.  AngloGold has 
acquired mines in Brazil and Argentina, Harmony has the 
joint-venture Hidden Valley project in Papua New Guinea, and Gold 
Fields bought a $550 million Peru mine. 
BOST