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TAGS: EPET ENRG EMIN EINV EIND ETRD ELAB KHIV SF
SUBJECT: South Africa: Minerals and Energy Newsletter "THE ASSAY" - 
Issue 12, October, 2008 
 
PRETORIA 00002556  001.2 OF 005 
 
 
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 
-------- 
 
------------------------------------------ 
Fire Closes Engen Refinery - Fuel Imported 
------------------------------------------ 
 
¶2. (SBU) Some Engen fuel refiner and retailer will import refined 
oil and oil products after a fire caused by a mechanical problem 
destroyed the main processing unit at its South African crude oil 
refinery in Durban, the country's second largest.  Engen said the 
135,000  barrels-per-day refinery would be shut for months of 
repairs caused by a fire on November 12.  A spokesman said the fire 
destroyed 50,000 liters of crude and the shutdown would force it to 
import refined oil and oil products for the period of closure. 
Engen is South Africa's biggest supplier of oil and related products 
with a market share of about 26%.  Engen is 80% owned by Malaysia's 
state firm Petronas and the rest is held by South African 
black-owned Worldwide African Investment Holdings empowerment group. 
 This is the second fire to affect the Engen refinery this year. 
The first fire was caused by lightning and destroyed a refined 
products storage tank.  The refinery General Manager Willem 
Oosthuizen said the company would sustain a daily financial loss of 
more than $600,000 each day it remains closed. 
 
---------------------------------- 
Fire Closes Anglo Platinum Smelter 
---------------------------------- 
 
¶3. (SBU) Anglo Platinum confirmed that a fire had occurred at its 
Polokwane platinum smelter, located in the northern Limpopo Province 
of South Africa, on November 5.  A furnace run-out occurred in the 
morning causing hot matte to come into contact with rain water.  The 
smelter will be shut down for about six weeks at an estimated loss 
to Anglo of 150,000-200,000 ounces of refined platinum.  A statement 
by Anglo says that their remaining smelting and refining capacity is 
fully committed and that losses associated with the shut down would 
not be recovered during 2008, but only during the first half of 
¶2009.  At current platinum prices of about $820 per ounce, loss of 
export earnings would amount to $123-164 million or less than 2% of 
total PGM revenues and 0.5% of total mineral revenues. 
 
-------------------------- 
U.S. Soda Ash Cartel Fined 
-------------------------- 
 
¶4. (SBU) The South African Competition Commission has claimed 
Q4. (SBU) The South African Competition Commission has claimed 
victory in a nine-year old dispute with the U.S. industry body the 
American Natural Soda Ash Corporation 
(Ansac), according to media reports.  Ansac represents four major 
U.S. producers of soda ash and was accused of organizing an export 
cartel in the South African market.  U.S. law allows such a body to 
operate in markets outside the U.S., but is prohibited from 
operating in the U.S. as this would contravene U.S. anti-trust laws. 
 Ansac has effectively admitted fixing prices on soda ash by 
eliminated price competition between its members in exports sales in 
contravention of the South African Competition Act.  Ansac has 
agreed to withdraw from the Southern African market and allow its 
members to operate individually in South Africa.  Its settlement 
with the commission brings to an end the longest-running case in the 
commission's history.  Ansac will pay a nominal $1 million fine, 
equal to 8% of its annual turnover in South Africa.  It also agreed 
 
PRETORIA 00002556  002 OF 005 
 
 
to pay the legal expenses of Botswana soda ash producer Botswana Ash 
(Botash), which brought the initial complaint.  Ansac's legal team 
opines that its withdrawal from the South African market is 
strategic and cannot be construed as an admission of anticompetitive 
behavior.  South African experts believe Ansac was let off lightly 
and that the judgment failed to distinguish between the actions of 
an illegal cartel and those of a legitimate joint venture. 
 
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MINING 
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----------------------------------------- 
Falling Commodity Prices Knock SA Revenue 
----------------------------------------- 
 
¶5. (SBU) South Africa is facing falling commodity prices and 
decreasing global demand for its minerals and processed downstream 
products.  South African gold output fell 17.7% in volume terms, 
while overall mineral production was down 3.5%, in September 
compared to the same month in the previous year, according to 
Statistics South Africa.  Global steelmaker ArcelorMittal has 
announced a 30% production cutback at its local steel plants, in 
line with cutbacks at its facilities worldwide.  However, Anglo 
American's Kumba Iron Ore claims that it will not curb its 
high-quality ore production, unlike other global producers like 
Brazil's Vale which announced cutbacks of 10-20% in response to 
lower Chinese demand.  Kumba has said it intends to continue with 
its 13 million tons per year expansion plans according to schedule. 
Ferro-chrome producers are facing significant cutbacks and the 
world's biggest producers, Xstrata-Merafe and Samancor have already 
announced cutbacks of 30% and 50%, respectively.  An analyst has 
calculated that ferro-chrome and iron ore reductions alone could 
reduce South Africa's export revenues by $6 billion per annum, 
equivalent to losing more than one month's exports. He notes that 
the affect on South Africa's current account will be somewhat 
mitigated by reduced cost of oil imports and reduced demand for 
other imports.  Power demand should also decrease. 
 
---------------------------------- 
Mine Job Losses at Lonmin Platinum 
---------------------------------- 
 
¶6. (SBU) The world's third-largest platinum mining firm Lonmin plans 
to close some of its South African platinum mines and halt two key 
projects because of a 64% fall in the platinum price since March. 
This would result in as many as 21,000 layoffs of people employed by 
or dependent on income from platinum mining.  Standard Bank 
economist Johan Botha said each worker in the mining industry has an 
average of eight dependents and each job in mining provides at least 
12 jobs upstream in supplier industries such as power, water, and 
mining equipment.  He also said further jobs would be lost in the 
downstream markets that used platinum group metals (PGMs) produced 
by Lonmin.  Econometrix Treasury Management economist George Glynos 
said the cuts would reduce employment in rural areas near the 
company's mines and this would have a disastrous socio-economic 
impact in some regions.  The closures compound the unemployment 
situation in the wake of recent cuts by major producers of steel, 
Qsituation in the wake of recent cuts by major producers of steel, 
iron ore, and ferrochrome.  The platinum industry generated $10.5 
billion revenue in 2007 and employed 186,410 workers. 
 
------------------------------- 
Disruptions Cut Platinum Output 
------------------------------- 
 
 
¶7. (SBU) South Africa's platinum export earnings will be constrained 
by a decline in output this year to a five-year low of 4.78 million 
ounces.  This is due to power cuts, safety issues, mine flooding, 
smelter problems, skills shortages, labor stoppages and other 
factors, according to UK refiner and catalytic converter maker 
Johnson Matthey (JM).  JM forecast that: the world platinum market 
would be 240,000 ounces short this year, mainly due to falling South 
African output; that global supply would fall 4.2% to 6.28 million 
ounces; and that demand would dip 2.3% to 6.52 million ounces.  JM 
also forecast Russian platinum production to decline by 855,000 
 
PRETORIA 00002556  003 OF 005 
 
 
ounces this year and North American and Zimbabwean output to rise. 
Demand for platinum used in automotive catalytic converters was 
forecast to grow by 85,000 ounces to 4.23 million ounces this year, 
driven by increasing use of platinum in diesel vehicles in Europe 
and growing vehicle output in China and other developing nations. 
North American demand for platinum was expected to fall by 305,000 
ounces as vehicle production is being curtailed in that region.  The 
net purchase of new metal by jewelry manufacturers was forecast to 
fall by 340,000 ounces to 1.12 million ounces. 
 
------------------------------------ 
DRC Copper Plant Construction Halted 
------------------------------------ 
 
¶8. (SBU) Copper-miner Anvil Mining has suspended construction at its 
Kinsevere Stage II solvent extraction/electro-winning (SX/EW) plant 
in the DRC until the company arranges additional funding and the 
global financial and commodity markets stabilize.  Copper and cobalt 
prices have plummeted some 50% and 66%, respectively, since 
September and the company faces a "difficult" financial position, 
said an Anvil official.  He said there is limited availability of 
debt finance for mining companies in the current environment. 
Nevertheless, the company was in discussion with a number of 
possible lenders and expected that debt finance could be available 
in the first half of 2009.  In the meantime, Anvil plans to curtail 
all but essential capital spending.  Anvil posted a net loss for the 
third quarter of $17.3 million, compared to a profit of $39.1 
million for the same quarter in the previous year. Concentrate sales 
for the quarter declined 44% year-on-year to $42.3 million, due to 
operational difficulties. 
 
---------------------------------- 
Six Ferro-Alloy Furnaces Shut Down 
---------------------------------- 
 
¶9. (SBU) The world's largest ferrochrome producer Xstrata-Merafe 
Resources joint venture halted six of its ferrochrome furnaces in 
South Africa, in reaction to slowing global demand that has also 
forced a 30% cut in steel production.  The six furnaces represent 
500,000 tons or 29% of its annual ferrochrome production. 
Ferrochrome is used mainly in the production of stainless steel. 
Xstrata said these measures were temporary and it expected to 
redeploy personnel within its operations.  Xstrata also announced 
that the closures of the highest-cost furnaces would result in 
energy savings of 300-400 MW of power, thereby contributing to 
easing the power crisis. This represents about 10% of Eskom's 
savings reduction target, or close to 1% of total production 
capacity. 
 
--------------------------------------- 
Titanium Designated a Strategic Mineral 
--------------------------------------- 
 
¶10. (SBU) South Africa is the second biggest producer of titanium, 
after Australia, and hosts the second largest reserves of titanium 
minerals, after China.  South African titanium concentrates are 
produced at two operations mining extensive beach sands located 
along the east coast in Kwazulu/Natal and along the west coast north 
of Saldanha Bay.  A new mine, Xolobeni, located on the southern 
Qof Saldanha Bay.  A new mine, Xolobeni, located on the southern 
coast of the Eastern Cape, is currently under negotiation.  The SAG 
has designated titanium strategic to economic development because of 
its unique industrial properties around which it intends to develop 
an industry - from ore to pigment, metal, and manufactured products. 
 The Department of Science and Technology's (DST) Advanced Metals 
Initiative group organized a conference November 18-20 to promote 
R&D, innovation, technology, and skills in titanium and other "new" 
metals such as zirconium, hafnium, and tantalum. 
 
¶11. (SBU) Some 94% of titanium minerals are converted to pigment 
because of its opacity, inertness and non-toxicity, which gives 
"whiteness" to paint, plastics, and paper and confidence in use in 
foods and pharmaceuticals (tooth-pastes, sun-screens, and 
cosmetics).  Approximately 5% is converted to metal, which has a 
high strength-to-weight ratio, exhibits corrosion-resistance, has 
high-temperature heat strength, and is consumed primarily in the 
commercial and military aerospace industries and for artificial 
 
PRETORIA 00002556  004.2 OF 005 
 
 
prostheses.  Chamber of Mines Economist Roger Baxter pointed out in 
the opening address that South Africa should be cautious when 
embarking on an added-value initiative.  He said that manufacturing 
differed from mining in that it depended on policies, skills, and 
technology, rather than natural mineral endowment, to provide a 
competitive advantage in the global market.  Moreover, South Africa 
has a major shortage of skills throughout the economy. 
 
----------------------------------- 
SA Gold Miner Closes Zimbabwe Mines 
----------------------------------- 
 
¶12. (SBU) Zimbabwe's biggest gold miner Metallon Gold, owned by 
South African mining entrepreneur Mzi Khumalo, has been forced to 
close its five gold mines because the Reserve Bank of Zimbabwe has 
not paid for the $20 million worth of gold delivered to it, as 
required by law.  The Bank owes the gold sector a total of some $30 
million dating back to 2007, and this has crippled the industry's 
ability to continue operations.  In an economic climate where 
interest rates are 9,500 percent and the official inflation rate is 
230-million percent, borrowing money is not a viable option and 
foreign investment has all but dried up.  Metallon produced about 
55% of Zimbabwe's gold output in 2007 and its closure will result in 
the loss of 3,500 jobs in a country where unemployment is already 
more than 80%.  Zimbabwe's annual gold production has plummeted from 
27 tons in 1999 to the current annualized 3.2 tons as a result of 
power cuts, lack of foreign exchange, and the exodus of skilled 
expatriates.  Zimbabwe was Africa's third biggest gold producer 
after South Africa and Ghana until 2000.  It has since been 
surpassed by Tanzania and Mali, which enjoy political and 
investor-friendly environments. 
 
¶13. (SBU) On a more positive note, South African government-owned 
Industrial Development Corporation (IDC) Mining Strategic Business 
Unit (SBU) Head Abel Malinga said the IDC along with some private 
mining companies is considering investing in mining projects in 
Zimbabwe.  Malinga estimates Zimbabwe's coking coal reserves to be 
50 billion tons, comparable in size to the trans-South 
Africa/Botswana-border steam coal reserves of the Waterberg 
coalfield.  In addition, Zimbabwe has known, under-developed 
reserves of gold, platinum, iron ore, chrome, tin, lithium, copper, 
zinc and nickel.  However, their exploitation will depend on a 
positive outcome to the power-sharing talks between Robert Mugabe 
and his Zanu-PF party and Morgan Tsvangirai and his Movement for 
Democratic Change (MDC).  The MDC won the country's March 2008 
primary elections and withdrew from the subsequent run-off election 
under protest.  An IDC policy requirement is that investments must 
be covered for political risk, but not even the SAG-backed Export 
Credit Insurance Corporation is able to offer this cover, Malinga 
said. 
 
------ 
ENERGY 
------ 
 
------------------------------ 
Possible Nuclear Program Delay 
------------------------------ 
 
 
¶14. (SBU) The decision to select a successful bidder and proceed 
Q14. (SBU) The decision to select a successful bidder and proceed 
with South Africa's nuclear build program seems certain to again be 
postponed, after being postponed twice already this year.  The 
problem revolves around raising money to pay for the system under 
the current turbulent economic climate, made worse by the 
downgrading of the investment standing of state-owned power producer 
Eskom.  Moody's Investors Service recently downgraded Eskom to a 
Baa2, its second-lowest investment grade.  Department of Minerals 
and Energy (DME) Acting DDG of Hydrocarbons and Energy Planning 
Tseliso Maqubela, speaking at the conference on Energy in Southern 
Africa, said the DME would publish its revised Nuclear Energy Policy 
soon.  He said that nuclear energy required substantial up-front 
investment and decisions made in this regard were difficult, even in 
the best of economic climates.  Another speaker, French nuclear 
company Areva Plant Business Development Manager Dr. Yves Guenon 
said there would be tangible benefits for South Africa and its 
 
PRETORIA 00002556  005 OF 005 
 
 
intention to create a manufacturing industry around nuclear if Eskom 
makes a firm commitment to build the new nuclear reactor this year. 
Areva and Toshiba's Westinghouse of the US have both submitted bids 
to build Eskom's Nuclear-1 power plant, which would be a new 
generation pressurized water reactor (PWR) with a capacity of 
between 3,200 and 3,500 MW. 
 
-------------------------------------------- 
Eskom Accused of Meddling in Economic Policy 
-------------------------------------------- 
 
¶15. (SBU) Chamber of Mines (COM) President and Xstrata CEO Sipho 
Nkosi has accused state-owned power company Eskom of meddling in 
national economic policy.  He said its actions caused the mining 
industry to lose an estimated $1.6 billion of production, wiped 
$11-12 billion from the value of mining equities in just one week in 
January, and severely compromised mine safety.  He also accused 
Eskom of making decisions that impacted national economic policy 
that was the prerogative of the SAG.  The COM has demanded that a 
protocol be developed to handle power supply emergencies and prevent 
Eskom from unilaterally taking policy decisions in the future. 
Nkosi also accused Eskom of treating miners as a "soft target" in 
its drive to reduce power supplies.  In response, Eskom spokesman 
Fani Zulu said the utility hoped for a "ground-breaking result" in 
the development of the proposed protocol and justified the 
nationwide power cuts in January due to the necessity to prevent a 
total system collapse. 
 
¶16. (SBU) Nkosi wants a protocol drafted and signed into legislation 
immediately to ensure Eskom does not usurp state policy powers.  The 
proposed protocol would rank customers according to their 
contribution to the economy, with the major contributors only having 
power cuts as a last resort.  He said the mining sector was of major 
importance in regard to foreign currency earnings and employment, 
but was being forced to bear the brunt of the electricity crisis. 
Nkosi was also critical of new provisions in the Mine Health and 
Safety Amendment Bill awaiting the approval of the National Council 
of Provinces, which legal experts had concluded were 
unconstitutional.  These provisions related to a new section that 
made it obligatory for an inspector of mines to close down a mine 
site following a death, serious injury or illness.  Another 
provision made it a criminal offence for an employer, chief 
executive officer or employee to fail to comply with the proposed 
act. 
 
BOST