VZCZCXRO9646
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #2733/01 3531350
ZNR UUUUU ZZH
R 181350Z DEC 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 6772
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEHBJ/AMEMBASSY BEIJING 0901
RUEHBY/AMEMBASSY CANBERRA 0782
RUEHPE/AMEMBASSY LIMA 0214
RUEHLO/AMEMBASSY LONDON 1661
RUEHMO/AMEMBASSY MOSCOW 0912
RUEHNE/AMEMBASSY NEW DELHI 0517
RUEHFR/AMEMBASSY PARIS 1493
RUEHOT/AMEMBASSY OTTAWA 0743
RUEHSG/AMEMBASSY SANTIAGO 0219
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 03 PRETORIA 002733 
 
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: HOTAZEL MANGANESE - BIG RESERVES BUT GLOOMY OUTLOOK 
 
REF:  A) Pretoria 2586 
B) Pretoria 2250 
C) Pretoria 386 
 
¶1.  (SBU) SUMMARY: South Africa's Northern Cape Province possesses 
significant iron ore (septel) and a remarkable 80 percent of the 
world's manganese reserves.  Like iron ore, manganese is a necessary 
input to steel-making, but it is used in small quantities, making it 
vulnerable to the current global commodity and steel gloom. 
BHP-Billiton's Hotazel underground and open pit mines represent a 
significant portion of South Africa's manganese production and 
reserves.  The company recently announced a 10-20 percent production 
cut because of the global steel slow-down.  End Summary. 
 
---------- 
Black Rock 
---------- 
 
¶2.  (SBU) Minerals/Energy Officer and Specialist visited the Wessels 
underground and Mamatwan open-pit manganese mines at Hotazel in 
South Africa's mineral-rich Northern Cape Province in the southern 
part of the Kalahari region on December 4.  The name Hotazel does in 
fact derive from an early European settler taking note of the 
extreme summer heat.  BHP-Billiton operates both mines, as well as 
some associated smelters, on behalf of the Samancor joint venture 
with partner Anglo American (40 percent).  South Africa holds some 
80 percent of the world's economic-grade manganese resources (over 
four billion tons of ore) and is the second-biggest producer and 
exporter of ferro-manganese metal and manganese ore.  China is the 
number one producer of manganese ore (for domestic consumption) and 
Australia is the number one exporter. 
 
¶3.  (SBU) Early settlers immediately took note of the numerous black 
rock outcrops in the region which proved to have mineral value.  The 
Wessels and Mamatwan mines lie at opposite ends of a remarkable 45 
by 15 kilometer manganese ore body, the largest in the world.  The 
body deepens from surface outcrops at Mamatwan, justifying open-pit 
mining, to a depth of 350 meters at Wessels, where underground 
mining is used.  Manganese is a desulfurizing and deoxidizing agent 
in steel-making, but contributes only 1.5 percent of the ingredients 
in steel.  Manganese is also used for dry cell batteries, 
fertilizer, water purification, and gasoline additives, but - again 
- only in relatively small quantities.  Hotazel mine production is 
conveyed by state rail company Transnet to the port of Port 
Elizabeth via trains consisting of up to 104 63-ton wagons. 
 
------------------- 
Wessels Underground 
------------------- 
 
¶4.  (SBU) Wessels Mine Managers Louis Alberts and Wally Klaussen and 
contractor Murray and Roberts Senior Executive Caswell Makama took 
Embassy Officers underground to see a new development area at the 
mine.  Wessels has current manganese ore production of 1 million 
tons per year, with a goal to increase production to 1.5 million 
tons over the next few years.  Mine production is based on standard 
"board and pillar" development, using drilling and blasting.  The 
mine carries out basic beneficiation of crushing, screening, and 
Qmine carries out basic beneficiation of crushing, screening, and 
washing.  Wessels' quality control assures blending of six specific 
product types sought by their customers.  The mine's biggest 
challenge is keeping the product lines separate in mining, 
processing, and transport.  Wessels' silicified manganese is known 
for its hardness, which is advantageous in the blast furnace. 
Wessels has an arrangement with local BEE partner Ntsimbintle to 
mine adjacent areas using Wessels' underground access. 
 
--------------------- 
Mamatwan Open-cut Pit 
--------------------- 
 
¶5.  (SBU) Mamatwan General Manager Koos Janse van Vuuren and his 
 
PRETORIA 00002733  002 OF 003 
 
 
team showed off this mine's "well managed" open pit to Embassy 
Officers, including witnessing a prodigious blast that made the 
seasoned Minerals Officer and Specialist flinch (100 tons of 
explosives removed 300,000 tons of rock).  Mamatwan's capacity is 
2.8 million tons of manganese ore per year.  The pit manager 
described in detail the level of management that goes into planning, 
drilling, blasting, and wall engineering to assure efficient 
exploitation of the resource.  He said the Mamatwan pit was small 
compared to the neighboring gigantic Sishen pit (septel), but 
claimed that Sishen's pit reflected hurried exploitation, rather 
than careful planning and execution.  Manganese beneficiation 
consists of primary, secondary, and tertiary crushing with 
associated screening plants.  There is a dense medium separator and 
a sinter plant with a capacity of 0.9 million tons per year of 
sinter.  The sinter agglomerates fine ore into a more valuable, hard 
product suitable for blast furnaces. 
 
¶6.  (SBU) The Hotazel mines sell about 80 percent of production as 
ore, mostly for export, and use the balance as feedstock in Samancor 
smelters in South Africa.  Samancor aims to offer a specific mix of 
high-grade ore and smelter products to meet customer needs. 
Samancor Manganese owns the Advalloy smelter at Meyerton in Gauteng, 
which processes a portion of the Hotazel output to produce 82,000 
tons of medium-carbon ferromanganese in various fractions per year. 
Also in Meyerton, Samancor's Metalloys produces 370,000 tons of 
high-carbon ferromanganese and 120,000 tons of silicomanganese in 
various fractions per year.  Samancor is the co-owner of the 
Manganese Metal Company smelter at Nelspruit in Mpumalanga, which 
produces 27,000 tons of electrolytic manganese metal per year. 
 
---------------------------------- 
Global Gloom Catches up to Hotazel 
---------------------------------- 
 
¶7.  (SBU) At around the same time as the Embassy visit, BHP-Billiton 
announced that -- due to weak market conditions -- it was 
temporarily reducing manganese production at Hotazel in the Northern 
Cape.  (Note: On the day of the visit, management recognized the 
challenge of the depressed steel market in China and elsewhere, but 
they were stoic and did not mention the BHP-Billiton announcement. 
They optimistically posited that the market would rebound in six 
months.  End Note.)  The announced cuts in output will be balanced 
between GEMCO in Australia and Hotazel and will reduce total ore 
production by 21 percent (1.5 million tons) in 2009.  BHP-Billiton's 
current total annual manganese ore output capacity is 7.0 million 
tons.  The company expects to reduce alloy production at its 
ferro-manganese plants at TEMCO (Australia) and Metalloys (South 
Africa) by 170,000 tons from a current output capacity of 725,000 
tons.  Furnace re-builds will be brought forward at both facilities, 
and certain furnaces will not be re-started until market conditions 
Qand certain furnaces will not be re-started until market conditions 
improve. 
 
¶8.  (SBU) This turn of events contrasts markedly with that 
prevailing in the earlier part of the year when record output was 
achieved from these same mines.  BHP-Billiton increased its 
manganese production in the quarter ended September 30 to 1,830,000 
tons of manganese-metal-equivalent, which was a 27 percent increase 
over the same quarter in 2007, despite using 10 percent less power. 
Manganese alloy production was also up 10 percent at 203,000 tons in 
the same quarter in 2008, compared to the same quarter in 2007. 
This was described as the "payback" on BHP Manganese President Peter 
Beaven's investment of $100 million to expand the Hotazel mines and 
to import large diesel generator sets to boost power supply. 
BHP-Billiton is also expanding its cogeneration manganese alloy 
facility south of Johannesburg.  Beaven said he expected volatility 
and uncertainty to continue in the short term, but was confident 
that the ongoing industrialization and urbanization of China would 
continue to drive longer-term demand for manganese. 
 
¶9.  (SBU) Competing producers in the same Kalahari region are a 
worry in the currently depressed manganese market.  Assmong, 50 
 
PRETORIA 00002733  003 OF 003 
 
 
percent held by African Rainbow Minerals and Assore, is the other 
significant manganese producer (also for iron ore as Khumani, near 
Sishen) and smelter in the area.  Renova of Russia controls the 
joint venture company United Manganese of Kalahari which is 
developing a nearby manganese mine, smelter, and associated 
infrastructure.  Russia's largest steel maker, Evraz, is the 
majority share-holder of one of South Africa's largest steel makers, 
Highveld Steel & Vanadium.  Both Highveld and ArcelorMittal SA have 
announced steel production cuts, comparable to global slow-downs.  A 
number of ferro- and manganese alloy smelters in South Africa, 
including Samancor,  have also announced significant cuts. 
 
¶10.  (SBU) COMMENT: The mineral wealth in this corner of the 
southern Kalahari is remarkable.  No one could offer a geological 
explanation for the mineral endowment, particularly why 80 percent 
of the world's economic-grade manganese is located close to the 
surface there.  The challenge of manganese is that it is a critical 
-- but small -- ingredient in steel-making.  There is no way that 
South Africa's upstream mining or downstream beneficiation could 
escape the Chinese and global steel slow-down.  The length of the 
downturn will determine whether the manganese mines have to resort 
to significant retrenchment of employment.  Russian investment in 
the same region may contribute to additional manganese over-supply 
to the market.  End Comment. 
 
BOST