VZCZCXRO6770
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #0309/01 0501324
ZNR UUUUU ZZH
R 191324Z FEB 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 7399
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEHBJ/AMEMBASSY BEIJING 0943
RUEHBY/AMEMBASSY CANBERRA 0804
RUEHLO/AMEMBASSY LONDON 1698
RUEHMO/AMEMBASSY MOSCOW 0952
RUEHNE/AMEMBASSY NEW DELHI 0543
RUEHOT/AMEMBASSY OTTAWA 0762
RUEHFR/AMEMBASSY PARIS 1536
RUEHSG/AMEMBASSY SANTIAGO 0229
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 04 PRETORIA 000309 
 
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: EPET ENRG EMIN EINV EIND ETRD ELAB KHIV SF
SUBJECT: South Africa: Minerals and Energy Newsletter "THE ASSAY" - 
Issue 1, January, 2009 
 
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 
-------- 
 
----------------------------------------- 
Harmony Sensitive to Power Price Increase 
----------------------------------------- 
 
¶2. (SBU) Harmony Gold Mining Company, Africa's third-largest 
producer of gold, said an increase of more than 30% in power tariffs 
in South Africa would cause the company to reconsider its deep 
mining operations.  The company has budgeted for a rise of 20% this 
year by the state-owned power utility Eskom, said Harmony's CEO 
Graham Briggs in an interview in Johannesburg. 
 
------ 
ENERGY 
------ 
 
------------------------------------------- 
General Electric Does Deals in South Africa 
------------------------------------------- 
 
¶3. (SBU) Power generation technology supplier GE Energy announced a 
$50 million deal to upgrade old steam turbines at synthetic fuels 
producer Sasol.  The announcement follows a 15-year service 
agreement signed in November by the two companies that provides for 
installation and maintenance of gas turbines at Sasol's Secunda 
plant, aiming to increase power efficiency and produce power from 
otherwise flared methane (also targeting Kyoto-related Clean 
Development Mechanism credits).  GE Transportation announced that it 
had also been awarded a contract by Anglo Platinum to provide 26 
emergency diesel generators for its mining operations, providing up 
to 15.4 MW back up capacity at individual mines.  Middle East and 
Africa CEO Nabil Habayeb, who was speaking at the "GE Day" in 
Johannesburg, was bullish on business in South Africa and Africa, 
and said he was comfortable with the alignment of the business to 
Africa's key growth sectors, particularly infrastructure, including 
energy, water, and transport.  GE remained sanguine about Africa's 
growth potential and touted not a single order cancellation across 
the continent as a consequence of the economic slowdown. 
 
----------- 
MINE SAFETY 
----------- 
 
----------------------------------- 
President's Safety Audit Shows Gaps 
----------------------------------- 
 
¶4. (SBU) South Africa's Minister of Minerals and Energy Buyelwa 
Sonjica released the long-awaited national Mine Safety Audit on 
February 2, ordered by past President Thabo Mbeki to investigate 
QFebruary 2, ordered by past President Thabo Mbeki to investigate 
compliance with safety regulations in mines across all sectors. 
Buyelwa said the audits indicated a number of gaps in the safety 
standards in the mining industry.  She called on stakeholders to 
take the findings and recommendations very seriously.  The average 
compliance across all sectors was identified as 66%, with gold mines 
 
PRETORIA 00000309  002 OF 004 
 
 
earning highest compliance. Critical issues were mine design, shaft 
installation and maintenance, communication systems, backup power, 
secondary outlets, safety risk management, health risk management, 
and training.  The ministry said stakeholders would have two weeks 
to analyze the report and make plans to implement the 
recommendations.   Mbeki ordered the safety audit in 2007, after 
3,200 workers were trapped underground at Harmony Gold's Elandsrand 
mine. 
 
¶5. (SBU) Chamber of Mines Senior Executive Dr Frans Barker in a 
media interview said safety had played a role in the relatively poor 
production performance of the gold mines through voluntary and 
forced closures following serious accidents.  Leaders of industry 
decided safety was a priority and a number of companies had made 
significant improvements in safety standards, training, and 
monitoring.  Gold Fields lost revenue of more than $300 million over 
the past 18 months (equivalent to more than 250,000 ounces of gold) 
as a result of safety stoppages and measures to improve its safety 
record, mainly in South Africa.  Implementation of safe measures 
contributed to the relatively positive score gold mines received in 
the President's report.  Mining CEO's have committed to eliminating 
fatal accidents by 2013 and a number of shafts have been shut to 
allow for safety audits and maintenance.  Barker said the depth at 
which gold is mined in South Africa was also a factor contributing 
to accidents and the industry was looking at more cooperative 
research in health and safety.  Barker said the industry had already 
started to implement some of the recommendations in the report.  He 
said one of the most important recommendations was the need to 
instill a culture of safety throughout the industry and to make 
greater use of full-time occupational health and safety 
representatives. 
 
------ 
MINING 
------ 
 
----------------- 
Mining Job Losses 
----------------- 
 
 
¶6. (SBU) The mining industry has shed more than 10,000 jobs since 
the end of December, according to the National Union of Mineworkers. 
 The unions list of layoffs include 1,417 at DRDGold's marginal East 
Rand Proprietary Mines (ERPM); 1,800 at the Everest platinum mine in 
Mpumalanga; 1,500 at Gold Field's mines; and 1,550 at Lonmin 
Platinum in Limpopo.  The Anglo American Group has indicated its 
intention to cut its workforce by 10,000 and Rio Tinto plans to 
layoff some 14,000 workers from its global operations, but only a 
small number will likely come from its South Africa operations. 
Many miners are still cautiously optimistic about a commodity upturn 
later in 2009 and are reluctant to loose skilled and experienced 
workers.  The Department of Minerals and Energy mining task team has 
urged mining companies to refrain from dismissing contract workers 
with only a 24-hour notice period.  Since its inception in December, 
the task team has urged mining companies to view retrenchments as a 
Qthe task team has urged mining companies to view retrenchments as a 
last resort and to only take such actions in full compliance with 
the country's labor law and mining companies' social and labor 
commitments under licensing. 
 
------------------------------- 
China Looks to African Minerals 
------------------------------- 
 
¶7. (SBU) Chinese investment continues to flow into Africa, 
especially in the minerals and metals sectors.  Chinese businessmen 
are taking a long-term view and pursuing strategic expansion in 
Africa even though China's investments on the continent have slowed 
due to the global downturn.  The Beijing government and Chinese 
companies have pledged tens of billions of dollars to Africa in 
loans and investments, mostly to secure raw materials for its still 
fast-growing economy (albeit at a slower rate).  Its long-term 
 
PRETORIA 00000309  003 OF 004 
 
 
strategic interest appears intact, despite the sharp decline in 
Africa's mineral shipments to China.  China-Africa trade has grown 
by an average of 30% a year this decade, increasing to nearly $107 
billion in 2008.  Former U.S. Ambassador to Ethiopia and Burkina 
Faso David Shinn said China is in Africa for the long term. 
 
¶8. (SBU) Chinese and Indian firms have expressed interest in taking 
over Zambia's top cobalt producer Luanshya Copper Mines since it 
halted operations in December, according to Zambian state media. 
South Africa's Standard Bank is itself 20% owned by the Industrial 
and Commercial Bank of China (ICBC).  Standard Bank's head of mining 
and metals Thys Terblanche, said they were advising Chinese mining 
clients on buying opportunities in Africa and elsewhere.  He said 
Chinese companies believe 2009 is likely to present buying 
opportunities.  Apart from mining, Chinese state companies are also 
pushing ahead with strategic investments in energy and 
infrastructure.  The former Chinese Ambassador to the DRC and 
Central African Republic (CAR) told a China-Africa trade forum that 
some Western countries were reducing investment in Africa because of 
the financial crisis, which presented Chinese businesses with 
opportunities to expand their investment and market share in Africa. 
 Trade with Angola, China's biggest source of African crude oil, 
reached $25.3 billion in 2007 and Beijing has offered Luanda $5 
billion in oil-backed loans. (Note:  At the recent Mining Indaba, 
state-owned Chinese company Chinalco struck a $20 billion deal to 
purchase a share of mining giant Rio Tinto.  End Note.). 
 
-------------------------------------- 
South Africa Gold Drops to Third Place 
-------------------------------------- 
 
¶9. (SBU) London-based precious metals consultancy GFMS said South 
Africa dropped to third place as a world gold producer in 2008, 
after its biggest drop in output since the Anglo-Boer War in 1901. 
The country dominated gold production for more than a century, but 
has seen output decline as mines became deeper and more costly to 
operate.  Mines had to shut down for a week in January 2008 because 
of electricity blackouts, followed by power rationing of 5-10%. 
South Africa is now number three behind China and the United States, 
Gold Fields Mineral Services (GFMS) said in its 2008 Gold Survey. 
China became number one in 2007 when its production rose to 276 tons 
against South Africa's 272 tons.  South Africa's gold production 
fell by 14% in 2008, to about 234 tons.  South Africa produced 1,000 
tons of gold at its peak in 1970, but has been on a terminal decline 
since.  Global gold production in 2008 fell to its lowest level 
since 1995 due to technical issues, skill shortages, power 
constraints, and a weakening global economy that made project 
financing difficult. 
 
------------------------------------ 
Zambia Abolishes Windfall Mining Tax 
------------------------------------ 
 
¶10. (SBU) At the height of the copper/cobalt boom, the GRZ imposed a 
Q10. (SBU) At the height of the copper/cobalt boom, the GRZ imposed a 
number of new fiscal demands on mining companies.  A number of 
mining projects have since been put on hold because of weakening 
commodity prices, spurring the GRZ to subsequently lessen the impact 
of the new taxes.  Zambia is Africa's top copper producer and 
depends on copper and cobalt for more than 63% of government 
revenues and foreign exchange earnings.  Copper production in 2008 
rose 3.7% to 569 891 tons and cobalt production rose 19.5% to 5,275 
tons. 
 
¶11. (SBU) Following consultation with the mining sector, Zambia's 
Finance Minister Situmbeko Musokotwane announced the government 
would abolish the windfall tax to cushion the copper mining industry 
from weak prices.   Musokotwane said he proposed to retain the 15% 
variable tax, which would still capture any windfall gains that may 
arise in the sector, but he would cut the import duty on heavy fuel 
oils from 30% to 15% and remove the customs duty on copper powder, 
copper flakes, and copper blisters.  He said these measures would 
reduce the operating costs of mining companies as well as encourage 
 
PRETORIA 00000309  004 OF 004 
 
 
the utilization of local smelting capacity.  The move is seen as 
part of efforts to save jobs.  Zambia's Luanshya Copper Mines (LCM) 
laid off almost all of its 1,740 miners after halting operations in 
November.  Foreign mining firms operating in Zambia include Canada's 
First Quantum Minerals, Australia's Equinox Minerals, Swiss firm 
Glencore International, and London-listed Vedanta Resources. 
 
--------------------------------------------- ------ 
ZIMBABWE - Gold Wins but Platinum and Diamonds Lose 
--------------------------------------------- ------ 
 
¶12. (SBU) Zimbabwe's Reserve Bank announced it would allow gold 
producers to sell their own bullion after gold output slumped by 
more than 50% in 2008.  Gold now contributes less than one-third of 
Zimbabwe's export earnings since the collapse of commercial 
agriculture.  Reserve Bank Governor Gideon Gono announced in his 
monetary policy statement that gold production fell from 6,798 
kilograms in 2007 to a low of 3,072 kilograms in 2008, mainly due to 
non-payment by the Reserve Bank for gold purchases, rising 
production costs, frequent power cuts, and equipment shortages. 
Gono said the Reserve Bank would allow miners to retain 92.5% of 
their gold earnings in line with other exporters, in order to 
reverse the decline in gold production.  The remainder would be sold 
to the Reserve Bank at a market-determined exchange rate.  However, 
he revoked the concession allowing platinum and diamond miners to 
keep offshore foreign currency accounts, ordering that accounts be 
held in local banks, and he announced increased Reserve Bank control 
over the marketing of platinum and diamonds. 
 
¶13. (SBU) Miners have struggled to contend with a severe economic 
crisis that includes the highest inflation rate in the world -- 
officially reckoned to have been in the millions over seven months 
ago -- and foreign currency shortages, which have forced most mines 
to cease operations.  In addition, the Reserve Bank, which has been 
the sole marketer of gold, owes the gold miners millions of dollars. 
 Gono said funds owed to miners for previous deliveries would be 
converted into special foreign currency bonds, payable after 12 
months.  He also urged the government to amend empowerment laws that 
were of concern to foreign investors.  Zimbabwe passed an 
empowerment law in 2008 seeking to transfer majority control of all 
foreign firms to local blacks, but has yet to implement this law. 
 
La Lime