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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 14, December, 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 
-------- 
 
-------------------------------------- 
SAG Passes Contentious Mine Safety Law 
-------------------------------------- 
 
¶2. (SBU) South Africa's parliament has passed a new mine safety law, 
which enforces stricter penalties and holds mine chief executives 
criminally liable for deaths in their mines.  The Chamber of Mines 
(COM) has criticized the law as "too punitive" because it makes a 
provision for increasing fines from $20,000 to $100,000 and includes 
a criminal liability clause, whereby chief executives and managers 
can be prosecuted should they be found guilty of causing serious 
injury or deaths.  The law is premised on the principle that the 
responsibility for health and safety lies with the employers (owners 
of mines).  South Africa has the world's deepest mines and its 
underground safety record does not match those of its peers in 
Australia and North America.  The National Union of Mineworkers 
(NUM) statistics show that mine deaths in South Africa, the world's 
largest precious metals producer, fell by 23% in 2008 (from 20070 to 
the lowest since records began in 1904.  NUM said that the decline 
to 170 deaths was significant, but was still not a cause for 
celebration.  The government has still to issue the official death 
toll. 
 
¶3. (SBU) Inspectors started suspending operations at mines that 
recorded a fatal accident after the death toll rose to 221 in 2007, 
the first increase since 2002.  A nationwide safety audit was 
ordered by President Mbeki in October 2007 after more than 3,000 
workers were temporarily trapped underground at Harmony Gold's 
Elandsrand mine.  Workers also started holding a day of mourning 
after mine deaths.  Mine unions welcomed the new legislation, but 
argued for higher penalties.  The new law, which must still be 
signed into legislation, makes a provision for mine accident 
investigations to be held within 10 days and a report to be 
completed within 30 days after the accident.  Mine safety inspectors 
are also empowered to enter any mine at any time, question persons 
and examine documents, and shut down mines if there is 
non-compliance with safety instructions. 
 
------ 
Q------ 
ENERGY 
------ 
 
------------------------------- 
A Coal Roadmap for South Africa 
------------------------------- 
 
¶4. (SBU) South Africa has a coal-based energy economy where coal 
provides some 89% of the country's electricity and more than 70% of 
its total energy needs.  Coal also provides some 22% of the 
country's liquid fuel consumption.  Export coal was South Africa's 
third-largest mineral export in 2007, and contributed some $3 
billion to foreign exchange earnings.  The country has the largest 
identified coal reserves on the African continent, estimated at 
about 28 billion tons with a life of some 60 years at current and 
 
PRETORIA 00000159  002 OF 007 
 
 
projected production rates.  Coal resources in the ground (in situ) 
have been estimated at well over 100 billion tons, but reserves are 
dynamic and depend on technology, revenue-cost margins, and 
socio-environmental issues.  The problem facing both industry and 
the government is the accuracy and reliability of the estimates of 
quantity and quality of coal contained in some 19 distinct coal 
basins spread from north to south across the eastern half of the 
country.  Numerous exercises have been conducted over the past 60 
years, but none have proven to have long-term validity.  The 
proposed roadmap is an initiative of the Fossil Fuel Foundation of 
SA and has received support from Anglo American, Eskom, Sasol, the 
Chamber of Mines and the Department of Minerals and Energy.  Its 
purpose is to map the way forward for the production, use, and 
policy determination for South Africa's coal. 
 
¶5. (SBU) The first Coal Roadmap meeting to solicit industry support 
and funding was held a year ago and a second report-back meeting was 
held in December, chaired by Anglo American's head of energy Roger 
Wicks.  Wicks said that January 2008's energy crisis could have been 
avoided had the coal roadmap been started five years ago.  The 
roadmap will research various components of the industry, local and 
international factors that will affect coal in the future, and will 
identify best options to follow for future development.  It is 
intended to bring together large and smaller producers and users of 
coal, equipment suppliers, associations, and relevant government 
departments. 
 
------------------------------------ 
Independent Power Plant Negotiations 
------------------------------------ 
 
¶6. (SBU) The delayed Department of Minerals and Energy 
(DME)-spearheaded independent power producer (IPP) project is still 
steaming ahead, and a new commercial operation date has been set for 
mid-2011, according to DME Chief Director of Electricity Ompi 
Aphane.  Negotiations with a consortium led by Suez Energy of France 
for the construction of two open cycle gas-turbine plants are 
proceeding and should be completed by the end of March 2009, with 
construction to start soon after. Aphane said the economic landscape 
had changed since the start of the project, but he believed that the 
peaking power plants still presented an investment opportunity for 
IPPs.  The project would add 1,000 MW to South Africa's electricity 
grid, which came under severe pressure early in 2008.  However, with 
various project delays and industrial cutbacks, electricity demand 
is likely to be lower than originally projected for 2009 due to the 
current economic climate.  The project entails a 750 MW power 
station near Durban and a 330 MW plant at the Coega industrial 
development site near Port Elizabeth.  DME began negotiating with 
Suez Energy after AES of the U.S. walked away from an earlier 
agreement. 
 
------------------------------------------ 
New Coal Terminal at Richards Bay Unlikely 
QNew Coal Terminal at Richards Bay Unlikely 
------------------------------------------ 
 
¶7. (SBU) A consortium is said to be planning a new 10 
million-ton-per-year export terminal to be built adjacent to South 
Africa's privately owned Richards Bay Coal Terminal (RBCT) in 
Kwa-Zulu Natal.  The new terminal would also be privately owned and 
is intended to provide access to junior miners who were not granted 
export allocations under the Phase 5 RBCT expansion.  The expansion 
is expected to be completed in July and will raise export capacity 
from the current 76 million tons to 91 million tons per year.  A row 
has been brewing since the middle of 2008 when it became apparent 
that Transnet Freight Rail (TFR) would not be able to deliver coal 
at anywhere near the expanded capacity and that smaller producers 
could lose their export allocations.  RBCT is owned by BHP-Billiton, 
Anglo Coal, Xstrata, Exxaro, and Total Coal. 
 
¶8. (SBU) Coal industry sources are skeptical about these reports and 
view the construction of a new terminal as unlikely.  An 
authoritative source believes the move is an attempt to put pressure 
 
PRETORIA 00000159  003 OF 007 
 
 
on the RBCT owners to allocate more export quotas to BEE junior coal 
miners.  This has been a contentious issue for years and the SAG 
only approved the Phase 5 expansion when terminal owners agreed to a 
BEE quota, starting at one million tons per year and increasing 
annually to the current four million tons.  Subscriptions for the 
Phase 5 expansion are heavily weighted in favor of BEE companies. 
(Comment.  The issue of additional terminal capacity to 91 million 
tons is a moot one because neither the mines nor, in particular, TFR 
appear capable of supplying coal at a rate sufficient to meet even 
RBCT's present capacity of 76 million tons per year.  There is also 
some doubt as to whether the country's dwindling coal reserves could 
support this quantity of exports, given that state power utility 
Eskom will need some 50-60 million extra tons of coal for its new 
and rehabilitated coal-fired stations.  South Africa exported only 
62 million tons of coal in 2008, down from 66 million tons in 2007. 
End Comment.) 
 
------ 
MINING 
------ 
 
--------------------------------------------- --------- 
Gold Fields - "If we can't mine safely, we won't mine" 
--------------------------------------------- --------- 
 
¶9. (SBU) The South African mining sector has been severely 
criticized over recent years for its safety record.  The country's 
mines are the deepest in the world, which brings with it issues of 
seismicity (induced earthquakes), rock (pressure) bursts, falling 
ground, heat, and technical challenges.  Nevertheless, the industry 
is constantly compared to its peers in Australia and North America, 
where mining conditions are less onerous, and found wanting.  The 
pressure to improve overall mine safety has been driven by 
government, labor unions, and society, but also by an enlightened 
mine management intent on educating workers and enforcing safety 
regulations.  This concerted drive for mine safety is particularly 
noticeable in the gold mines, but also in platinum mines. 
 
¶10. (SBU) The top three gold miners, AngloGold Ashanti, Gold Fields, 
and Harmony Gold, are under new leadership as are top platinum 
miners Anglo American, Anglo Platinum, Impala Platinum, and Lonmin, 
and some have made great strides in implementing safety procedures. 
AngloGold's CEO Mark Cutifani recorded a fatality-free quarter in 
June for the first time.  Gold Fields' CEO Nick Holland has achieved 
a 50% improvement in its fatality rate -- Holland coined the phrase: 
"If we can't mine safely, we won't mine".  Anglo American's new CEO 
Cynthia Carroll has made mine safety a top priority, arguing that 
safety and profitability go hand-in-hand.  The new CEOs are having a 
positive impact, giving credence to the concept that safety starts 
at the top.  Mine fatalities have fallen 50% over the past decade 
and the sector has made giant strides from the 855 deaths recorded 
in 1986.  The question is, can the gains made this year be sustained 
Qand improved upon? 
 
-------------------------------- 
Global Crisis Hits African Mines 
-------------------------------- 
 
¶11. (SBU) The global financial crisis and falling commodity prices 
have dealt a major blow to mining-based African economies.  The 
commodity boom has turned to bust and some prices and company stocks 
have declined by as much as 80% since July -- from over $2,000 to 
$816 per ounce for platinum, from $8,000 to about $3,100 per ton for 
copper, and from $55,000 to less than $10,000 per ton for nickel. 
This has made it increasingly difficult to raise capital for new 
projects and mining companies are scaling back operations and 
expansions.  The result has been retrenchments and the 
implementation of emergency measures (extended periods of leave) to 
prevent further loss of jobs.  Zambia and the Democratic Republic of 
Congo are some of the hardest hit in the region, while Tanzania and 
Mali, which focus mainly on gold mining, have been less affected. 
There has also been a slowdown in mineral exports from the region, 
 
PRETORIA 00000159  004 OF 007 
 
 
which is placing strain on government revenues and the ability of 
many African governments to meet poverty-alleviation targets. 
 
¶12. (SBU) Africa holds an estimated 30% of the world's mineral 
resources including 40% of gold, 60% of cobalt, 90% of platinum, 72% 
of chromium, 80% of manganese, and approximately 65% of diamonds. 
Diamond prices have fallen by 30% since October causing mining giant 
De Beers to implement an extended leave period for workers.  This is 
likely to affect the world's biggest diamond producer Botswana, 
where diamonds account for more than one third of GDP and 70-80% of 
export earnings.  In South Africa, the financial crisis has added to 
the woes of the electricity crisis and sources say some 24,000 
workers are facing redundancy.  The reduction in growth in China has 
significantly affected demand for both base metals and the platinum 
group metals.  The two positives are that gold has retained its 
value and coal continues to be in demand. 
 
----------------------------------- 
Task Team Tries to Save Mining Jobs 
----------------------------------- 
 
¶13. (SBU) An agreement by a mining industry task team set up to save 
jobs could help to save nearly 15,000 jobs that are at immediate 
risk in the sector, according to union representatives.  The task 
team consists of representatives of the Department of Minerals and 
Energy (DME), trade unions, and the Chamber of Mines and has agreed 
to a non-binding six measures to minimize job cuts by reducing 
mining costs, alleviating funding problems, removing impediments to 
production such as power cuts, ensuring compliance with labor laws, 
dealing with retrenchments, and looking at alternatives to 
retrenchments and steps to mitigate the effects of retrenchments. 
Retrenchments could grow to as many as 24,000 as a second wave of 
restructuring notices have been issued. 
 
¶14. (SBU) Solidarity union leader Dirk Hermann said the agreement 
would help to reduce retrenchments by 40-60% and its most positive 
aspect was the focus on alternatives to job cuts.  The alternatives 
that were agreed to include internal company transfers and 
redeployment, temporary lay-offs, a shorter working week, reducing 
bonuses for all including chief executives, and setting up 
mine-specific task teams.  The trade unions had demanded a 
moratorium on retrenchments on December 1.  The Chamber of Mines 
rejected this demand and the industry task team was formed instead. 
DME Director General Sandile Nogxina said the SAG had so far given 
no consideration to what interventions might be possible if the 
retrenchment situation worsened. 
 
------------------------------ 
Zambian Mines Close Production 
------------------------------ 
 
¶15. (SBU) The Zambian government (GRZ) has asked foreign mining 
firms to use profits made during the copper boom to keep working 
during the downturn.  This follows an earlier announcement that 
Luanshya Copper Mine (LCM) had suspended operations.  LCM suspended 
QLuanshya Copper Mine (LCM) had suspended operations.  LCM suspended 
their $354 million Mulyashi copper project, which had been due to 
start producing 60,000 tons of copper in 2010.  LCM then shut its 
Chambishi Metals unit, the country's largest cobalt producer, 
followed by the Baluba copper mine.  LCM cited operational 
difficulties arising from the global credit crunch as reasons for 
the decision.  Bank of Zambia Governor Caleb Fundanga expressed 
optimism that copper prices would soon rebound but said the 
developments at LCM were a threat to the country's copper industry 
and economy.  He said that although copper demand and prices were on 
a downward trend it was too early for companies to leave in a rush. 
 
--------------------------------------- 
Katanga Halts Kolwezi Cobalt Production 
--------------------------------------- 
 
¶16. (SBU) Bermuda-based Katanga Mining has temporarily suspended 
mining operations at the Tilwezembe open pit and processing at the 
 
PRETORIA 00000159  005 OF 007 
 
 
Kolwezi concentrator in the Democratic Republic of Congo (DRC) due 
to the depressed cobalt price. The company said it would sell down 
its cobalt concentrate inventory during the last quarter of 2008, 
and focus on its operations at the Kamoto underground mine, the T-17 
open pit, and the Kamoto concentrator.  Copper concentrate is to be 
accumulated at its Luilu metallurgical plant for processing at a 
later date. 
 
------------------------------------ 
Glencore to Take Over Katanga Mining 
------------------------------------ 
 
 
¶17. (SBU) The Swiss-based metal mining and commodities trading 
company Glencore looks set to take control of Katanga Mining, which 
owns one of the potentially largest copper/cobalt operations in the 
Democratic Republic of Congo (DRC).  Based on the eventual 
structuring of an emergency funding package for Katanga of about 
$515 million, Glencore could end up owning between 22.1% if other 
investors come to the table and 83.7% if it provides the funds 
alone.  Glencore already holds an 8.5% stake in Katanga, earned by 
providing financial assistance to Nikanor when the company 
experienced capital overruns in 2007.  In a Christmas Eve statement 
Katanga announced that it was in serious financial difficulty and 
that in the absence of immediate financing alternatives, it would be 
unable to continue to operate as a going concern. 
 
¶18. (SBU) Katanga holds a 75% stake in two joint ventures with the 
state-owned mining company Gecamines.  Katanga owned the Kamoto 
Copper Company (KCC) and acquired the DRC Copper and Cobalt Project 
(DCP) when it took over Nikanor in a $3.3 billion deal in early 
¶2008.  The merged operation was supposed to create the DRC's largest 
copper/cobalt operation producing 400,000 tons per year of refined 
copper and 40,000 tons per year of cobalt by 2011.  Katanga has 
since revised its production plan to 150,000 tons of copper by 2012. 
 
 
--------------------------------- 
CAMEC Halts DRC Cobalt Operations 
--------------------------------- 
 
¶19. (SBU) Emerging diversified miner Camec has announced a 
temporarily halt to its copper and cobalt mining operations in the 
Democratic Republic of the Congo (DRC).  The decision is in response 
to the sudden and steep decline in the demand for cobalt and copper, 
particularly from China.  The Company intends to monitor the 
situation on a weekly basis and will recommence mining operations 
when commodity demand improves.  This decision affects the Mukondo / 
Kakanda / Luita facilities in the DRC.  During this next period 
sales will be supplied from stock.  The company also announced the 
reduction of ongoing exploration across the group. 
 
------------------------------------------- 
Zimplats' Platinum Expansion in the Balance 
------------------------------------------- 
 
¶20. (SBU) Impala Platinum's Zimplats' Ngezi development project in 
Zimbabwe has set out to raise funds for the completion the project 
that would raise production to 160,000 ounces of platinum. 
Qthat would raise production to 160,000 ounces of platinum. 
Spokesperson Bob Tait emphasized that it was only the expansion that 
was under threat and that Zimplats' current production of 95,000 
ounces of platinum per year would continue uninterrupted.  He said 
that times were tough for capital raisings, but the project was 
robust and would transform Zimplats to one of the lowest cost 
producers in the platinum industry.  The completed expansion would 
enable it to operate profitably even at current metal prices and it 
was critical that the project be completed.  The Ngezi operation is 
located on the Hartley Geological Complex on the Zimbabwean Great 
Dyke southwest of Harare.  The $340 million expansion project is at 
an advanced stage with construction of two concentrators set for 
completion in the first quarter of 2009 and also includes the 
development of two new underground mines. 
 
PRETORIA 00000159  006 OF 007 
 
 
 
----------------------------------------- 
Zimbabwe's Bindura Nickel Suspends Mining 
----------------------------------------- 
 
¶21. (SBU) Bindura Nickel Corporation (BNC) has placed its Trojan and 
Shangani mines in Zimbabwe on care and maintenance with immediate 
effect. The smelter and refinery operations will also be placed on 
care and maintenance once stocks have been depleted.  BNC said it 
would maintain critical infrastructure and skills so as to allow 
production to re-start under more favorable conditions. The company 
is also investigating the potential for the resumption of smelting 
and refining using third-party feedstock under existing and 
additional toll contracts. 
 
------------------------------- 
Petra Diamonds Cuts Exploration 
------------------------------- 
 
¶22. (SBU) Petra Diamonds, which is 44% owned by the Saudi 
Arabia-based Saad Investment Company, said it would cut its 
exploration budget by at least 80%, citing the global economic 
downturn as the main reason for the decision.  Petra Diamonds, which 
bought the famous Cullinan Mine from De Beers, announced that its 
exploration spend on early stage prospecting in Angola and Botswana 
and advanced exploration in Sierra Leone would be reduced to $5 
million per year from a budgeted $25 million per year.  Petra's CEO 
Johann Dippenaar announced that the group had successfully 
transformed to a strong diamond producer with substantial production 
and revenue contributions from the Cullinan and Koffiefontein mines 
and the Kimberley tailings dumps, properties it purchased from De 
Beers.  Its smaller Star and Helam fissure mines would be put on 
care and maintenance. 
 
------------------------------------------- 
International Ferro Metals Halts Production 
------------------------------------------- 
 
¶23. (SBU) London-listed International Ferro Metals (IFL) has 
temporarily halted ferrochromium production at its South African 
operations in response to falling demand.  Ferro-chromium sales will 
continue to be supplied from the company's inventory, which stood at 
38,000 tons at the end of October, but sales to China are to be 
suspended until prices and conditions improve. IFL's two furnaces 
have a capacity of 267,000 tons of ferro-chromium per annum. 
 
-------------------------------- 
Not all Doom and Gloom in Mining 
-------------------------------- 
 
¶24. (SBU) Harmony Gold raised $100 million by selling 10.5 million 
shares on the open market and reaffirmed its capital expenditure 
plans.  Harmony plans to use the cash to reduce its debt levels to 
zero by June 2009.  The company also reported that it had repaid a 
substantial tranche of a loan from Nedbank.  The third-ranked South 
African gold company confirmed that it would continue to develop its 
pipeline of projects as planned, despite turbulent economic 
conditions and outlook.  The company has eleven underground mines 
and one opencast operation in South Africa and is currently building 
Qand one opencast operation in South Africa and is currently building 
and expanding mines in South Africa and Papua New Guinea. 
 
--------------------------------------------- 
Anglo Coal and Iron Ore Projects Still Flying 
--------------------------------------------- 
 
¶25. (SBU) Anglo American's plans to cut capital expenditure by more 
than 50% across the Group for 2009 has largely left its coal and 
iron ore (through its 64% holding in Kumba Iron Ore) projects 
untouched.  The cuts would mainly impact expansion plans for its PGM 
and base metals projects.  The company said it will ensure that 
state power utility Eskom's steam coal requirements were fulfilled, 
but that it had curtailed plans to grow its coking and metallurgical 
 
PRETORIA 00000159  007 OF 007 
 
 
coal production due to the expected cut in steel and ferro-alloy 
output in 2009.  About $400m in capital expenditure has been 
allocated to steam coal projects in 2009. 
 
¶26. (SBU) Anglo American Chief Executive Cynthia Carroll said the 
company was planning a fourfold increase in iron ore production by 
¶2016.  Speaking at the launch of Kumba's Sishen Expansion Project 
(SEP) in November, which features the largest jig beneficiation 
plant in the world, she said that Anglo would be producing around 
150 million tons of ore a year by 2016 and would have a 13% share of 
the seaborne trade.  Referring to the current global economic 
turbulence, Carroll emphasized that Anglo was well-placed to weather 
the storm and had both a healthy balance sheet and some of the most 
highly rated mining assets in the world, the majority being 
large-scale, long-life, low-cost operations.  Kumba spokesperson 
Tebello Chabana confirmed that Sishen mine would continue its 
ramp-up of the new jig plant and that the Sishen South mine 
expansion project was still on track to start production in the 
first half of 2012.  He said Kumba's total iron ore production was 
tied up in long-term contracts, but there was now a greater emphasis 
on quality/niche products rather than volume of output as was the 
case earlier in the year when demand was greater. 
 
LA LIME