VZCZCXRO9593
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #2732/01 3531257
ZNR UUUUU ZZH
R 181257Z DEC 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 6769
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEHBJ/AMEMBASSY BEIJING 0898
RUEHBY/AMEMBASSY CANBERRA 0779
RUEHPE/AMEMBASSY LIMA 0211
RUEHLO/AMEMBASSY LONDON 1658
RUEHMO/AMEMBASSY MOSCOW 0909
RUEHNE/AMEMBASSY NEW DELHI 0514
RUEHFR/AMEMBASSY PARIS 1490
RUEHOT/AMEMBASSY OTTAWA 0740
RUEHSG/AMEMBASSY SANTIAGO 0216
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 03 PRETORIA 002732 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DEPT FOR AF/S, EEB/ESC AND CBA 
DOE FOR SPERL AND PERSON 
DOC FOR ITA/DIEMOND 
 
E.O.   12958: N/A 
TAGS: EMIN EPET ENRG EINV ETRD ELTN SENV SF
SUBJECT: SISHEN IRON REFUSES A PAUSE - EXPANSION ON TRACK 
 
REF:  A) Pretoria 2586 
B) Pretoria 2250 
C) Pretoria 386 
 
¶1.  (SBU) SUMMARY: South Africa's Kumba Iron Ore Mine at Sishen in 
the Northern Cape Province is gigantic by any scale, boasting a 12.5 
kilometer-long open pit.  Sishen produces 30 million tons per year, 
transported by dedicated rail to the Atlantic port at Saldanha 
(Reftel C).  Most of the tonnage is exported to China and Europe, 
with most of the expansion of 13 million tons per year targeted 
solely for China.  Dwindling Chinese demand is a worry, but Sishen 
majority-owner Anglo American believes that its niche, high-grade 
product can retain its market.  Sishen's expansion investment in new 
processing equipment has already been made, so capacity will 
gradually ramp up to 53 million tons per year by 2013, including 
development of the separate Sishen South Mine.  Kumba is small 
compared to the three iron-producing "big boys": Vale in Brazil and 
Rio Tinto and BHP Billiton in Australia.  These three have announced 
significant cuts because of the steel industry slow-down, but Kumba 
counters that it can differentiate itself based on product grade, 
hardness, quality, and specificity.  South Africa's Northern Cape 
Province remarkably also possesses 80 percent of the world's 
reserves of manganese, also an input to steel-making, and also 
vulnerable to global commodity gloom (septel). 
End Summary. 
 
¶2.  (U) Minerals/Energy Officer and Specialist visited Kumba Iron 
Ore Mine at Sishen in South Africa's mineral-rich Northern Cape 
Province at the southern part of the Kalahari region on December 2. 
General Manager Andrew Loots and his team articulated the mine's 
commitment to excellence, transformation, safety, and expansion. 
 
¶3.  (SBU) Anglo American is the 63.4 percent majority-owner of Kumba 
Iron Ore, with partners South African Industrial Development 
Corporation (13.1 percent) and Black Economic Empowerment (BEE) 
share-holders (23.5 percent).  The latter hold the required 26 
percent ownership in the operating subsidiary Sishen Iron Ore 
Company.  The BEE partners consist of Exxaro Resources and community 
and employee shares.  Apart from the Sishen Mine, Kumba owns a much 
smaller iron ore mine, Thabazimbi, in the Waterberg in Limpopo 
province. 
 
--------------------- 
No Delay in Expansion 
--------------------- 
 
 
¶4.  (SBU) Loots asserted that Sishen's expansion program is on 
track, despite announced cuts from the three giants in the global 
iron industry: Vale in Brazil and Rio Tinto and BHP Billiton in 
Australia.  Chief Executive Chris Griffith recently told the press: 
"We'll be the last producers to cut back," adding that Sishen mines 
a niche type of iron ore that is "vital" for efficient operation of 
steel furnaces.  "We haven't been asked by any of our customers to 
cut back," he said.  Loots told Embassy Officers Sishen's ore is 
particularly notable for its high grade and hardness.  There are two 
separate components of Sishen's expansion program.  The 
Qseparate components of Sishen's expansion program.  The 
13-million-ton-per-year Sishen Expansion Program (SEP) investment in 
a more efficient beneficiation of the existing run of the mine is 
already ramping up.  Current production of 30 million tons per year 
will increase to almost 40 million tons by 2010.  In addition, Kumba 
is persevering with its separate expansion of Sishen South Mine by 
10 million tons per year to bring total production to 53 million 
tons per year by 2013.  Finally, Sishen has potential to expand all 
the way to 70 million tons.  Loots admitted that the market would be 
depressed for 6-18 months while Chinese stockpiles draw down and/or 
the steel industry picks back up.  (Note: Anglo American 
subsequently announced a decline in its capital expenditure program 
for 2009.  Kumba Iron Ore said it would cut its 2009 capital 
expenditure by 20 percent.  Management said production would 
continue to increase, but analysts believe this could delay 
 
PRETORIA 00002732  002 OF 003 
 
 
production expansion at Sishen.  End Note.) 
 
---------------------------- 
Majority for Export to China 
---------------------------- 
 
¶5.  (SBU) All of Sishen's production is shipped by a 
861-kilometer-dedicated-rail-line to the Atlantic port at Saldanha, 
operated by state transport company Transnet.  Loots said that Kumba 
worked very closely with Transnet to assure efficient operation and 
maintenance.  Transnet is on track for provision of extra wagons to 
supply the expansion underway.  Transnet operates a special port at 
Saldanha for the export of iron ore, visited by Minerals/Energy 
Officer and Specialist in February 2008 (Reftel C).  Of Sishen's 
current production of 30 million tons per year, 24 million tons are 
exported and 6 million tons are dedicated to ArcelorMittal Steel at 
Saldanha.  Loots said Sishen's product is priced on a spot basis, 
after the majors establish pricing on an annual basis. 
ArcelorMittal enjoys a concessionary cost-plus-3-percent pricing 
agreement.  Loots was loathe to reveal Sishen's export pricing, but 
he asserted that Kumba could negotiate a niche premium to general 
spot pricing.  He noted that general spot prices earlier in 2008 
peaked at $170 per ton and have declined to as low as $65 per ton, 
comparable to pricing in 2006-07 at the start of the now-defunct 
commodity boom. 
 
----------------------------- 
Giant Pit and Complex Geology 
----------------------------- 
 
¶6.  (SBU) Loots said Sishen's open pit represented the largest 
single pit in the world.  Sishen's high grade (over 60 percent) 
hematite iron ore exists in a sizable, complex deposit, subjected to 
historical lava flows and faulting.  These reserves of over 900 
million tons (providing a 30-year plus remaining life for the mine) 
form the bulk of South Africa's iron ore reserves, which rank ninth 
in the world.  The current mine was developed in the 1970s and the 
open pit has been extended to 12.5 by 1.5 kilometers and 300 meters 
deep.  The scale of the pit and the managerial acumen required to 
manage the mining and subsequent processing to assure quality 
control for seven separate products to suit customer requirements 
are impressive.  Sishen employs sophisticated modeling and 
monitoring processes to track conventional pit mining processes of 
drilling, blasting, mining, truck and shovel hauling, and processing 
of the product.  Embassy Officers observed substantial employment of 
Caterpillar equipment on the site.  A special "pantograph" 
electricity-assisted system for pulling the haulers out of the pit 
is used more sparingly now to conserve power, thereby increasing 
diesel consumption. 
 
--------------------------- 
Beneficiation and Expansion 
--------------------------- 
 
¶7.  (SBU) The beneficiation and processing of the iron ore on site 
provides for an average increase in grade from 60-63 percent to 
65-66 percent.  The beneficiated output is then blended into six 
distinct "lumpy" or fine products.  Sishen's beneficiation entails 
Qdistinct "lumpy" or fine products.  Sishen's beneficiation entails 
primary, secondary, tertiary, and quaternary crushing; wet and dry 
screening; heavy medium separation, including cyclones and drums 
using atomized ferro silicon; and blending. 
 
¶8.  (SBU) The purpose of the Sishen Expansion Program is to produce 
up to 13 million additional tons per year from the existing mine by 
treating ore heretofore not economically beneficiated.  This special 
process flow-line comprises crushing and sizing, "jigging" 
beneficiation, slimes and coarse tailings disposal sections, and 
final product stockpiling.  The world's jigging expert proudly 
showed Embassy Officers his "baby", an eight section jig, whose 
performance was still being adjusted as production was slowly 
ramping up.  The jig consists of vibrating screens subjected to 
 
PRETORIA 00002732  003 OF 003 
 
 
vertical air-driven water pulsation and cross water flow to stratify 
mineral particles by their density.  Valuable product and waste are 
separated using vibrating feeders and gates calibrated to remove the 
product at the required grade.  Product is then de-watered on 
additional vibrating screens.  Sishen will boast the largest and 
newest jigging plant in the world. 
 
¶9.  (SBU) Sishen has 8,567 employees, of whom 3,602 are contractors. 
 The company houses 34,300 employees and family members in the 
nearby bedroom city of Kathu, which has many trees, or a few other 
smaller townships closer to the mine and its historic tailings 
dumps.  The company continues to improve its safety performance and 
has achieved over 90 percent participation in HIV Voluntary 
Counseling and Testing (5-8 percent of those tested are HIV 
positive.)  (Comment: The 10 percent that opted out of testing may 
include those who suspect that they are infected but do not want to 
find out.  Consequently, the overall infection rate may be in excess 
of 5-8 percent.  End Comment.) 
 
¶10.  (SBU) Management said it was working closely with a few 
universities and the Department of Minerals and Energy on the 
highest standard of land rehabilitation.  Like most mines and 
industry, Sishen is struggling to maintain production in the face of 
ten percent electricity savings.  Sishen has implemented water 
conservation and purification schemes, but must actively pump 
sizeable quantities of water out of the pit.  This water is treated 
to use in the plant and to supply Kathu and neighboring rural 
townships. 
 
¶11.  (SBU)  Mine management and employees face challenges residing 
in this relatively remote location, but many expressed the desire 
not to live anywhere else but in the Kalahari with its clean, big 
skies and little to no security worries.  In this region, the 
Kalahari is semi-arid, slightly mountainous country with scrub 
Acacia thorn trees, rather than desert.  Embassy Officers had the 
opportunity to visit Witsand Nature Reserve with bleached white sand 
dunes, thorn trees, Springbok, Gemsbok, and ample birds.  There is a 
special allure to the Kalahari. 
 
¶12.  (SBU) COMMENT: The mineral wealth in this corner of the 
southern Kalahari is remarkable.  Sishen and its smaller neighbors 
face not insignificant logistical challenges (distance and the 
limitations of state-owned Transnet) and an uncertain Chinese and 
global steel market.  Sishen management is adamant in its story that 
it is special and its niche customers will stick to its unique 
products, but it is difficult to believe their expansion will not be 
affected by the global downturn.  End Comment. 
 
BOST