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UNCLAS SECTION 01 OF 05 DURBAN 000019 
 
SENSITIVE 
SIPDIS 
 
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: EPET ENRG EMIN EWWT EIND ETRD ELTN KHIV SF
SUBJECT: KWAZULU NATAL - MINING AND PROCESSING FIRMS FACE GLOBAL 
DOWNTURN 
 
REF: CAPE TOWN 52 
 
DURBAN 00000019  001.2 OF 005 
 
 
Sensitive but Unclassified.  Not for Internet Distribution. 
 
¶1. (U) Minerals and Energy Officer and Specialist visited mining 
and associated manufacturing sites in KwaZulu Natal (KZN) during 
the week of January 12-16.  This cable is a collaboration 
between Embassy Pretoria and Consulate Durban. 
 
¶2.  (SBU) SUMMARY:  KwaZulu Natal (KZN) mining and manufacturing 
industries face a challenging global market, while they address 
skills, HIV/AIDS, and power issues.  KZN is not generally 
recognized as a mineral-rich province, but it has a number of 
valuable deposits, some of which have not been thoroughly 
explored or properly exploited.  These include deposits of 
anthracite coal and heavy mineral beach sands containing 
titanium minerals.  KZN's long coastline, good harbors, and 
relative proximity to the country's mineral-rich heartland have 
made it a main conduit for the import and export of mineral 
products.  Its road, rail, pipeline, and port infrastructure is 
equal to the best in the country.  Associated beneficiation and 
manufacturing have developed widely in KZN.  The Embassy 
Minerals/Energy team found that the common trip themes were the 
decline in demand for commodity-based products and the drastic 
drop in commodity prices; the general shortage of skills in the 
country and the steps being taken to remedy the problem; 
responses to HIV-AIDS in the workplace; the impact of the power 
shortage; progress toward meeting government employment equity 
and the individual solutions applied; and health and safety and 
environmental requirements.  Responses to these issues varied 
widely, with the more rural-based companies less sensitive to or 
involved in issues of HIV/AIDS and carbon dioxide emissions. 
All producers were cautiously optimistic about the future and no 
layoffs were being planned.  Septels will provide additional 
reporting on Transnet Pipelines and other visits.  End SUMMARY. 
 
----------------- 
Hulamin Aluminium 
----------------- 
 
¶3. (SBU) Hulamin Aluminium in Pietermaritzburg is the largest 
fabricator of aluminum products in Southern Africa with an 
output of 250,000-300,000 tons of finished products per year. 
This represents 21 percent of the region's annual primary 
aluminum capacity of some 1.4 million tons (including 
Mozambique's Mozal smelter's 550,000 tons).  By world standards, 
Hulamin is a minor producer and accounts for less than 1 percent 
of global output of some 30 million tons per year. 
Nevertheless, Hulamin produces a variety of niche products, and 
according to their Marketing Manager Lloyd Darby, the company 
exports some 70 percent of its output, of which 30-40 percent 
(21-28 percent of total production) goes to the United States. 
He said Hulamin is the biggest supplier of rolled aluminum 
products into the United States and because of the company's 
good reputation for quality and delivery, particular products 
enjoy as much as 20-25 percent of the U.S. market. 
 
¶4. (SBU) China is South Africa's major market for aluminum. 
China is also potentially South Africa's major competitor, but 
to date China cannot effectively compete on quality.  Darby 
expressed interest in the company becoming DEFARS-compliant 
(Defense Federal Acquisition Regulations) in order to tender for 
or have its products acceptable to the U.S. Military and 
aerospace industry.  The major challenges facing Hulamin include 
the more than 50 percent drop in the price of primary aluminum 
and the similar decline in demand from overseas auto and 
engineering sectors, although the domestic market for packaging 
was holding up.  Darby said Hulamin had not been affected by 
Eskom's load shedding as only 25 percent of their power 
requirements were from electricity, the rest being process heat 
provided by LPG.  He said that Hulamin estimated a 30 percent 
HIV prevalence in the facility, comparable to the region, but we 
waiting for the latest results.  The company achieved about 90 
 
DURBAN 00000019  002.2 OF 005 
 
 
percent participation in voluntary testing and dispensed ARVs to 
HIV positive employees. 
 
--------------------- 
Richards Bay Minerals 
--------------------- 
 
¶5. (SBU) Richards Bay Minerals (RBM) mines some 33 million tons 
of heavy mineral beach sands (black sands) per year for its 
titanium minerals and is one of the biggest bulk-handling mining 
operations in the world.  Product output consists of 1 million 
tons of titanium slag (85 percent titanium dioxide or TiO2), 
250,000 tons of zircon, 100,000 tons of rutile (95 percent 
TiO2), and 550,000 tons of high purity pig iron.  RBM exports 95 
percent of its output, which yields a world market share of 
about 25 percent for titanium feedstocks (slag and rutile), 33 
percent for zircon, and 25 percent for high purity pig iron. 
Titanium is a strategic element for aerospace and is essential 
to modern-day living.  TiO2 is non-toxic and environmentally 
friendly and has replaced lead compounds previously used in 
pigments.  Its largest (95 percent) application is as a white 
pigment used to give brilliance and color to paints, paper and 
plastics.  TiO2 is also used in candies, toothpaste, sunscreens, 
and cosmetics. 
 
¶6. (SBU) RBM is a joint-venture (JV) between Rio Tinto and 
BHP-Billiton.  The JV has a mining concession on the east coast 
of South Africa that stretches for 17 kilometers north of the 
town of Richards Bay and has additional rights to resources 
north and south of this area.  Mining is carried out using four 
floating dredges and associated concentration plants, which feed 
four furnaces requiring some 400 megawatts of power.  Power cuts 
and rationing have been an "inconvenience", only because BHP-B 
has stabilized supply by shutting some production from its 
nearby aluminum plant and diverting power to RBM.  The dredged 
sand is fed to the plant to produce a black-sand concentrate and 
waste sand, which is pumped in turn to mined-out areas to 
rehabilitate the dunes.  Final saleable products are titanium 
slag, high purity pig iron, rutile, and zircon.  All products 
are shipped through the bulk-handling port at Richards Bay. 
Management was confident that specialized, high-quality products 
and long-term contracts would cushion RBM's exposure to the 
global downturn.  Management estimated HIV prevalence at 14-17 
percent, less than the regional average, reflecting a mature, 
stable work force.  The company targets 80 percent participation 
in voluntary testing and offers a robust health care program, 
including treating family members. 
 
-------------------------- 
Richards Bay Coal Terminal 
-------------------------- 
 
¶7. (SBU) Richards Bay Coal Terminal (RBCT) is the biggest single 
coal export terminal in the world with a rated annual throughput 
capacity of 82 million tons.  Capacity will increase to 91 
million tons when the Phase 5 expansion is completed in the 
third quarter of 2009.  Capacity beyond 72 million tons per year 
has been opened to new producers, many of which are Black 
Economic Empowerment (BEE) companies, via preferential ownership 
and export allocations.  The terminal makes a significant 
economic contribution to KwaZulu/Natal Province and South 
Africa, both as an employer and as an earner of foreign 
exchange.  In September 2006, the terminal loaded a record 
409,000 tons of coal in a 24-hour period at an annualized rate 
of 149 million tons per year.  However, actual export tonnages 
have averaged about 65 million tons annually.  South African 
coal producers own and operate RBCT in cooperation with 
state-owned Transnet Freight Rail and Transnet National Port 
Authority.  The state bodies are responsible for transporting 
coal from inland coalfields and for maintaining shipping 
integrity and safety, respectively. 
 
 
DURBAN 00000019  003.2 OF 005 
 
 
¶8. (SBU) RBCT employs some 500 people, of which 10-15 percent 
are estimated infected with HIV-AIDS, compared to a 30 percent 
average for the province.  Management states that 86 percent 
have been voluntarily tested and know their HIV-AIDS status. The 
labor force is stable, with a low turnover, and with an older 
demographic, which is probably the reason for the relatively low 
number of infections.  The last full strike was in about 1998. 
Skills are in short supply, particularly from the previously 
disadvantaged communities and the company says it is unable to 
attain its employment equity targets (quotas for black and women 
employment at all levels set by government).  Emigration to 
Australia, New Zealand, and Canada has taken its toll on the 
availability of skilled workers.  The terminal's priorities 
include the retention of skilled people, the integrity of aging 
equipment, and the company's relationship with service 
providers.  RBCT does not have a good relationship with Transnet 
Rail, but is attempting to improve this.  The problem appears to 
be one of lack of trust, communication, and cooperation between 
the mining companies and Transnet, contributing to an inability 
to export to RBCT's capacity. 
 
-------------------------------- 
Transnet National Ports Authority 
--------------------------------- 
 
¶9. (SBU) Richards Bay harbor is owned and operated by 
state-owned Transnet National Ports Authority (NPA) and owes its 
existence to the establishment of the RBCT (Reftel).  It is one 
of the biggest bulk seaboard handling ports in the world and 
encompasses an area bigger than the combined areas of South 
Africa's other five major harbors.  The NPA owns and administers 
the land on which RBCT is located and provides services such as 
the tracking of shipping in and outside the harbor, dredging 
shipping channels and quay-sides, and providing harbor pilots to 
guide ships in and out of the harbor.  RBCT is the NPA's major 
client, but it also leases land to other clients. 
 
¶10. (SBU) Apart from coal, the harbor exports substantial 
quantities of primary aluminum, titanium, zircon and pig iron, 
ferroalloys, chrome and manganese ores, steel, wood chips, 
granite blocks, and other dry bulk products.  The harbor also 
handles bulk liquid fuels, chemicals and fertilizers, pitch, and 
bunker fuels.  The NPA at Richards Bay employs some 200 people 
and has a shortage of experienced shipping pilots.  Project 
expansions are being held up by the lack of artisans, engineers 
and project engineers.  Port management claims to be one of the 
first to transport pilots to the incoming ships by helicopter 
rather than by tugboat. 
 
----------------------- 
Assmang Ferro-Manganese 
----------------------- 
 
¶11. (SBU) The Assmang plant at Cato Ridge has a rated annual 
capacity of 254,000 tons of ferro-manganese.  At full 
production, it needs about 100 megawatts of power and the early 
2008 power cuts had an impact on operations.  The plant has been 
able to reschedule peak power demand and to rationalize power 
rationing within the group.  Under present low demand, power 
supply is no longer an issue.  The severe downturn in the steel 
industry has forced Assmang to close three of its six furnaces 
cutting output by 40-50 percent at the plant and reducing 
production at its two mines in the Northern Cape Province.  The 
U.S. is an important customer through U.S. Steel and orders for 
2009 are expected to drop by more than 20 percent.  Assmang is 
jointly owned by BEE company African Rainbow Minerals (ARM) and 
Assore.  Assmang mines manganese and iron ore in the Northern 
Cape Province, which contains some 80 percent of the world's 
known reserves of manganese, and operates a chrome mine and a 
ferro-chrome plant in Mpumalanga Province. 
 
¶12. (SBU) The company is facing several other challenges.  It is 
 
DURBAN 00000019  004.2 OF 005 
 
 
still recovering from a February 2008 explosion that destroyed 
the number 6 furnace andkilling six people.  Assmang is being 
accused of liability for a number of workers reportedly 
suffering from manganism or manganese poisoning.  Manganism is a 
toxic condition resulting from chronic exposure to manganese. 
The company has set up a trust fund to provide for the families 
of the men killed in the explosion and is refuting manganism 
liability pending expert medical examination of the claimants, 
which to date their lawyers have refused to allow.  Cato ridge 
is located in a rural area and lags in addressing HIV and other 
social issues.  Plant management said that only 50 percent of 
the workforce turned up at the last voluntary testing program. 
Since then, the company has embarked on a promotional campaign 
and hopes that 2009 will see a 75 percent turnout.  The company 
has a number of social investment initiatives in education, the 
environment, and health.  A common problem is the lack of skills 
in the area and the financial ability to retain experienced 
people.  Some in-house training is provided, but generally 
health and educational services are only available in the major 
centers. 
 
------------------------- 
Island View Coal Terminal 
------------------------- 
 
¶13. (SBU) The privately run Island View coal terminal can be 
considered a "coal boutique", according to General Manager Bruce 
Deghaye, in that it handles its valuable  anthracite coal with 
"kid gloves."  The terminal handles nearly 1 million tons of 
anthracite each year, which is shipped to overseas markets. 
Deghaye maintains that his most critical clients are housewives 
in Turkey and Ireland who demand a certain size of lump coal 
with minimum dust and mineral matter.  Anthracite is a high-rank 
coal (high carbon content and low volatiles), but is friable and 
easily degrades when handled.  The terminal therefore employs a 
"soft loading" technique to minimize coal degradation during 
stockpiling and reclaiming.  Anthracite sells at three to four 
times the price of steam coal and, according to Deghaye, demand 
is inelastic and has not been affected by the current economic 
crisis. 
 
¶14. (SBU) The terminal is owned and operated by Bulk 
Connections, which is a subsidiary company of the Bidvest Group, 
a huge South African conglomerate.  Harbor access is tightly 
controlled by the Port of Durban security establishment and 
requires pre-authorization for entry.  Anthracite is Bulk 
Connections' major product, but it also handles exports of some 
200,000 tons per year of steam coal (a costly alternative to the 
use of Richards Bay), manganese ore from the Northern Cape, 
copper concentrates trucked or railed down from Zambia and the 
DRC, and coking coal from China.  The terminal has been in 
operation for over 100 years and much of its equipment is old or 
second-hand and has been modified to suit the 
operational-specific requirements of the company. 
 
------------------ 
Transnet Pipelines 
------------------ 
 
¶15. (SBU) South Africa's demand for liquid fuels has grown by 
4-5 percent per year for the past 3-4 years, up from 3 percent 
per year during the 2000-2003 period.  The inland market 
currently consumes about 13 billion liters of fuel per year, of 
which about 60 percent is provided by Sasol's two inland 
refineries.  The rest is sourced from two coastal refineries and 
imported refined fuels, which are transported via pipeline, 
road, and rail.  State-owned Transnet Pipelines is in the 
process of constructing a new 545-kilometer, 24-inch, 
multi-product pipeline from the terminal at Durban to a new 
terminal outside Johannesburg at a cost of $1.5 billion for 
Phase 1.  This will provide for medium and long-term supply 
security to the industrial heartland of the country. 
 
DURBAN 00000019  005.2 OF 005 
 
 
 
¶16. (SBU) CEO Charl Moller said there was confusion as to who 
would build and operate the pipeline needed to service 
state-owned PetroSA's proposed new 400,000 liter per day 
state-of-the-art refinery planned for Coega in the Eastern Cape. 
 He also expressed concern about the four existing 
internationally-owned refineries, which were old and needed a 
$10-12 billion investment to upgrade them to meet new EU fuel 
standards and compete with Coega. 
 
------------------- 
ArcelorMittal Steel 
------------------- 
 
¶17. (SBU) ArcelorMittal is the global giant in steel-making and 
produces 6.4 million tons of liquid steel annually at its four 
South African steelworks.  Its South African operation is the 
largest steel producer on the African continent (50 percent of 
total supply) and is amongst the world's lowest cash-cost 
producers.  The Embassy team visited the Newcastle works, which 
produces long and flat steel products extensively for use in the 
construction industry.  General Manager Jaco Stapleberg 
assembled an impressive management team to explain the workings 
at Newcastle and to answer questions.  The team was also given 
an extensive tour of the steel casting plant and the opportunity 
to see a coke oven discharged.  The impact of the global 
economic crisis is evident as output estimates for 2009 are down 
by 20 percent due to some 50 percent fall in steel demand. 
Plans on the table to nearly double Newcastle's output from the 
current 1.7 million tons to more than 3 million tons of steel 
per year by 2012 are likely to be delayed pending an upturn in 
the market. 
 
¶18. (SBU) The Newcastle works employ some 2,000 people.  The 
last HIV-AIDS voluntary campaign was carried out in 2000 and 
indicated that 18 percent of the workforce were infected. 
Results for the 2008 campaign should be out early this year. 
The company provides only vitamins to infected employees, while 
local clinics are expected to supply the anti-retrovirals. 
Arcelor is not yet compliant with the requirements of the Black 
Economic Empowerment charter, but management said they intend to 
achieve this status.  Company management has spent $80 million 
on environmental issues and claims it is helping to train the 
Green Scorpions, South Africa's environmental enforcement 
agency.  The company says it is moving towards implementing EU 
emission standards, but has not begun to consider its carbon 
dioxide footprint.  Arcelor hires much of its needed skills from 
overseas, is attempting to entice expatriates to return home (to 
date they have had 200-300 expressions of interest according to 
management), and provides study opportunities to school 
graduates.  Artisans are available at a price.  The company has 
brought in more than 100 Zimbabweans to fill technical vacancies 
and is impressed with the caliber of these artisans. 
 
¶19. (SBU) Comment:  KZN mining and minerals processing firms are 
generally cutting back production by 20-50 percent as they face 
the substantial global downturn, with market uncertainty and 
exports drying up.  Many interlocutors were cautiously 
optimistic about Asia, but gloomy about the U.S.' ability to 
turn around its economy.  They are holding off on laying off 
permanent workers - recognizing the perils of laying off 
hard-to-find skilled workers, but they can only hold out for so 
long. 
DERDERIAN